Problem 1 TRUEor FALSE

1 1 6 1
2 0 7 1
3 1 8 0
4 0 9 1
5 1 10 0

Problem 2 CLASSROOM DISCUSSION

1 A 4 C
2 C 5 C
3 C 6 D

7 Requirement (a):
Morning Co.
Statement of Financial Position
As of December 31, 20x1
ASSETS Notes
Current Assets
Cash and cash equivalents 6 ₱ 1,060,000
Trade and other receivables 7 1,770,000
Inventories 1,200,000
Held for trading securities 800,000
Total current assets ₱ 4,830,000
Noncurrent Assets
Investment in FVOCI securities ₱ 300,000
Investment property 900,000
Property, plant and equipment 8 4,900,000
Total noncurrent assets ₱ 6,100,000

TOTAL ASSETS ₱ 10,930,000

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables 9 ₱ 1,140,000
Income tax payable 500,000
Provisions 430,000
Total current liabilities ₱ 2,070,000
Noncurrent Liabilities
Loans payable - net 10 ₱ 2,260,000
Deferred tax liability 300,000
Total noncurrent liabilities ₱ 2,560,000
TOTAL LIABILTIES ₱ 4,630,000
Equity
 Ordinary share capital ₱ 4,000,000
Share premium 600,000
Retained earnings 1,640,000
Other components of equity 11 60,000
Total Equity ₱ 6,300,000
TOTAL LIABILTIES and EQUITY ₱ 10,930,000 ₱ -

7 Requirement (b):

Note 6: Cash and cash equivalents

This line item consists of the following:
Cash on hand ₱ 60,000
Cash in bank 1,000,000
Total Cash and cash equivalents ₱ 1,060,000
Note 7:Trade and other receivables
This line item consists of the following:
Accounts receivable ₱ 2,000,000
Allowance for doubtful accounts (300,000)
Advances to employees 40,000
Advances to suppliers 30,000
Total Trade and other receivables 1,770,000
Note 8: Property, plant and equipment
This line item consists of the following:
Land ₱ 2,200,000
Building 3,400,000
Accumulated depreciation - Bldg. (700,000)
Total Property, plant and equipment ₱ 4,900,000
Note 9: Trade and other payables
This line item consists of the following:
Accounts payable ₱ 720,000
Accrued liabilities 80,000
Interest payable 340,000
Total Trade and other payables ₱ 1,140,000
Note 10: Loans payable - net
This line item consists of the following:
Loans payable ₱ 3,000,000
Discount on loan payable (740,000)
Total Loans payable - net ₱ 2,260,000
Note 11: Other components of equity
This line item consists of the following:
Revaluation surplus ₱ 90,000
Translation loss on foreign operation (30,000)
 Other components of equity ₱ 60,000

Problem 3 EXERCISE

Requirement (a): Evening Co.

Statement of Financial Position
As of December 31, 20x1
ASSETS Notes
Current Assets
Cash and cash equivalents 6 ₱ 1,100,000
Trade and other receivables 7 1,770,000
Inventories 200,000
Total current assets ₱ 3,070,000

Noncurrent Assets
Biological assets ₱ 1,200,000
Investment property 900,000
Property, plant and equipment 8 4,400,000
Intangible assets 9 560,000
Other noncurrent assets 10 800,000
Total noncurrent assets ₱ 7,860,000
TOTAL ASSETS ₱ 10,930,000

LIABILITIES AND EQUITY

Current Liabilities

Trade and other payables 11 ₱ 920,000

Loans payable - net 12 1,760,000
Provisions 430,000
Total current liabilities ₱ 3,110,000
Noncurrent Liabilities
Defined benefit liability - net 13 ₱ 1,700,000
Total noncurrent liabilities ₱ 1,700,000

TOTAL LIABILTIES ₱ 4,810,000

Equity
Ordinary share capital ₱ 4,000,000
Share premium 14 970,000
Retained earnings 15 1,220,000
Other coponents of equity 30,000
Treasury shares (100,000)
Total Equity ₱ 6,120,000

TOTAL LIABILTIES and EQUITY ₱ 10,930,000 ₱ -

Requirement (b):
Note 6: Cash and cash equivalents

This line item consists of the following:

Cash on hand ₱ 120,000

Cash in bank 980,000
Total Cash and cash equivalents ₱ 1,100,000

Note 7:Trade and other receivables

This line item consists of the following:

Accounts receivable ₱ 2,000,000

Allowance for doubtful accounts (300,000)
Advances to employees 40,000
Advances to suppliers 30,000
Total Trade and other receivables 1,770,000

Note 8: Property, plant and equipment

This line item consists of the following:

Land ₱ 1,200,000
Building 4,800,000
Accumulated depreciation - Bldg. (1,600,000)
Total Property, plant and equipment ₱ 4,400,000

Note 9: Intangible assets

This line item consists of the following:

Patent ₱ 440,000
Accumulated amortization - Patent (80,000)
Web site costs 250,000
Accumulated amortization -Web site (50,000)
Total intangible assets ₱ 560,000

Note 10: Other noncurrent assets

This line item consists of the following:

Advances to officers ₱ 130,000

Advances to affilliates 670,000
Total Other noncurrent assets ₱ 800,000

Note 11: Trade and other payables

This line item consists of the following:

Accounts payable ₱ 720,000

Utility payables 80,000
Deposit liability for returnable containers 120,000
Total Trade and other payables ₱ 920,000

Note 12: Loans payable - net

This line item consists of the following:

 Loans payable ₱ 2,500,000
Discount on loan payable (740,000)
Loans payable - net ₱ 1,760,000

Note 13: Defined benefit liability - net

This line item consists of the following:

Present value of defined benefit obligation ₱ 2,700,000

Fair value of plan assets (1,000,000)
Defined benefit liability - net ₱ 1,700,000

Note 14: Share premium

This line item consists of the following:

Share premium ₱ 600,000

Share premium - Share warrants outstanding ₱ 300,000
Share premium - Treasury shares 70,000
Defined benefit liability - net ₱ 970,000

Note 15: Retained earnings

This line item consists of the following:

Loans payable ₱ 1,030,000

Discount on loan payable 190,000
Total share premium ₱ 1,220,000

Problem 5 MULTIPLE CHOICE - THEORY

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

Problem 4 CLASSROOM ACTIVITY

Problem 6 MULTIPLE CHOICE - COMPUTATIONAL

Problem 1 TRUEor FALSE
1 0
2 0
3 1
4 0
5 0

Problem 2 CLASSROOM DISCUSSION

1 C 4 D
2 D 5 D
3 D 6 B
7 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
Items that will not be reclassified subsequently:
Investment in equity instruments 200,000
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges 30,000
Other comprehensive income for the year -net of tax ₱ 230,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ₱ 8,420,000

7 Requirement (b):
Note 12: Cost of Goods Sold
This line item consists of the following:
Beginning inventory ₱ 1,700,000
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
This line item consists of the following:
Salaries of sales personnel ₱ 670,000
Advertising expense 320,000
Rent expense (280,000 x ½) 140,000
Commission expense 1,100,000
Distribution Costs ₱ 2,230,000
Note 14: Administrative Expenses
This line item consists of the following:
Research and development expense ₱ 180,000
Directors' remuneration 2,000,000
Salaries of administrative personnel 520,000
Rent expense 140,000
Depreciation expense 160,000
Insurance expense 50,000
Administrative Expenses ₱ 3,050,000

Problem 5 MULTIPLE CHOICE - THEORY

1 D 6 C
2 D 7 S
3 A 8 D
4 B 9 B
5 C 10 B

Problem 6 MULTIPLE CHOICE - COMPUTATIONAL

P25,000 gross of tax – 10,000 tax effect = P 15,000 net of tax
D reclassification adjustment
1
Reclassification adjustment of cumulative unrealized gains (losses) on
FVOCI securities is prohibited. The cumulative unrealized gains (losses)
A on FVOCI securities are transferred directly in equity when the FVOCI
securities are derecognized.
2

3 A
Actuarial gain or loss on defined 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)
Profit for the year 154,000
Total comprehensive income ₱ 173,000

4 C (P146,000 less 15,0000 plus 9,000 = P140,000)

5 A (P250,000 plus 140,000 less 80,000 = P310,000)

6 A
Cost of sales ₱ 240,000
 Finished goods December 31, 20x1 360,000
Finished goods January1, 20x1 (400,000)
Cost of goods manaufactured ₱ 200,000

7 A
Sales ₱ 575,000
Interest revenue 25,000
Cost of sales (240,000)
Sales commissions (50,000)
Freight out (15,000)
Administrative expenses (70,000)
Loss on sale of equipment (10,000)
Loss on early retirement of lont-term debt (20,000)
Uncollectible accounts (15,000)
Income before tax ₱ 180,000
Income tax expense (54,000)
Income after tax from continuing operation ₱ 126,000

8 A
Advertising ₱ 150,000
Freight-out 80,000
Rent for office space (220,000 x 1/2) 110000
Sales salaries and commissions 140000
Total selling expenses ₱ 480,000

9 A
Accounting and legal fees ₱ 25,000
Officers' salaries 150,000
Insurance 85000
Total selling expenses ₱ 260,000

Problem 4 CLASSROOM ACTIVITIES

ACTIVITY #1 Requirement (a):

Best Friends Co.

Adjusting/Correcting Entries
For the Year Ended December 31, 20x1

Debit
a Inventory - end ₱ 386,000
Income Summary
(P370,000 plus [(370K/7.4M) times 320K]

b Loss on inventory writedown 116,000

Inventory - end
(P386,000 less 270,0000)

c Bad debts expense 50,000

Allowance for bad debts

Allowance for bad debts - beginning ₱ 280,000

Recoveries 28,000
 Write-offs (120,000)
Allowance for bad debts before adjustments ₱ 188,000
Required allowance (5% times P4,760,000) 238,000
Bad debts expense ₱ 50,000

d Loss on reclasification 200,000

Held for trading securities
(P1,000,000 less 800,000)

d1 Held for trading securities 180,000

Unrealized gain
(P980,000 less 800,000)

e Income tax expense 1,572,000

Income tax payable

ACTIVITY #1 Requirement (b):

Best Friends Co.

Statement of Profit or Loss and Other Comprehensive Income
For the Year Ended December 31, 20x1

Notes

Sales ₱ 22,800,000
Cost of goods sold 12 (9,664,000)
Gross profit ₱ 13,136,000
Distribution costs 13 (1,470,000)
Administrative expenses (6,400,000)
Gain on impairment recovery of property, plant and equipment 720,000
Loss on inventory write-down (116,000)
Bad debts expense (50,000)
Reclassification of financial asset (200,000)
Unrealized gains on financial assets 180,000
Finance costs (560,000)
Profit before tax ₱ 5,240,000
Income tax expense (1,572,000)
Profit for the year ₱ 3,668,000
Other comprehensive income
Items that will not be reclassified subsequently:
Revaluation increased during the period ₱ 130,000
Items that may be reclassified 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

Supporting coputations

Note 12: Cost of Goods Sold

This line item consists of the following:

Beginning inventory ₱ 3,000,000

Purchases 7,400,000
 Purchase returns (670,000)
Freight in 320,000
Total goods available for sale ₱ 10,050,000
Ending inventory (386,000)
Cost of goods sold ₱ 9,664,000

Note 13: Distribution Costs

This line item consists of the following:

Salaries of sales personnel ₱ 670,000

Advertising expense 320,000
Sales commissions 480,000
Distribution Costs ₱ 1,470,000

ACTIVITY #2 Requirement (a):

Buddies Co.
Adjusting/Correcting Entries
For the Year Ended December 31, 20x1
Debit
a Investment in bonds ₱ 150,000
Gain on derecognition of financial asset
(P950,000 less 800,000)
b Unrealized loss 300,000
Biological Assets
[P2,800,000 less (2,640,000-140,000)]
c Investment in associate 46,000
Dividend income 90,000
Share in the profit of associate
Share in revaluation increase
Share in profit - [P1,000,000 times 30% times 4/12] and Share
in revaluation increase - [P120,000 times 30%]

d Retirement benefit expense 588,000

Reameasurements to the net defined benefit liability (asset) 252,000
Defined benefit cost
Retirement benefit expense - (P336,000 plus 252,000)
e Income tax expense 1,104,600
Income tax payable
ACTIVITY #2 Requirement (b):

Buddies Co.
Statement of Profit or Loss and Other Comprehensive Income
For the Year Ended December 31, 20x1

Revenue from service fees

Contract costs
Employee benefits
Advertising expense
Gain on derecognition of financial asset measured at cost
Unrealized losses on biological assets
Share in profit of associate
Retirement benefits expense
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently:
Share in revaluation increase of associate
Remeasurements to net defined benefit liability (asset)
Items that may be reclassified subsequently to profit or loss:
Other comprehensive income for the year, net of tax

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

TB drs less TB crs
₱ 600,000

(420,000)
₱ 180,000
(54,000)
₱ 126,000

Credit

₱ 386,000

116,000

50,000
 200,000

180,000

1,572,000
 Credit

₱ 150,000

300,000

100,000
36,000

840,000

1,104,600

₱ 12,000,000
(4,000,000)
 (3,000,000)
(680,000)
150,000
(300,000)
100,000
(588,000)
₱ 3,682,000
(1,104,600)
₱ 2,577,400

₱ 36,000
(252,000)

₱ (216,000)

₱ 2,361,400
Problem 1 TRUE or FALSE
1 0 6 1
2 1 7 0
3 1 8 1
4 1 9 1
5 0 10 1

Problem 2 CLASSROOM DISCUSSION

1 B 6 D
2 D 7 C
3 B 8 A
4 A 9 D
5 D 10 B

11 C

Historical Cost ₱ 3,000,000

Accuulated depreciation 2,000,000
Carrying amount ₱ 1,000,000

Fair value ₱ 800,000

Cost to sell 50,000
Recoverable amount - December 31, 20x1 lower ₱ 750,000

Carrying amount ₱ 1,000,000

Recoverable amount - December 31, 20x1 750,000
Impairment loss ₱ 250,000

12 Impairment loss ₱ 250,000

Accumulated depreciation 2,000,000
Machinery - Held for Sale 750,000
Machinery ₱ 3,000,000

13 B

Carrying amount - December 20x1 ₱ 750,000

Fair value ₱ 700,000
Cost to sell 50,000
Recoverable amount - December 31, 20x2 650,000
Impairment loss ₱ 100,000

14 Impairment loss ₱ 100,000

Machinery - Held for Sale ₱ 100,000

Gain is recognized only up to the cumulative losses recognized (i.e.,

B 250K + 100K = 350K).
15
 Carrying amount - December 20x1 ₱ 750,000
Recoverable amount - December 31, 20x2 650,000

Carrying amount - December 20x2 lower ₱ 650,000

Gain on impairment recovery 350,000
New Carrying amount - December 20x3 ₱ 1,000,000

16 Machinery - Held for Sale ₱ 350,000

Gain on impairment recovery ₱ 350,000

17 A

Fair value ₱ 1,000,000

Cost to sell 50,000
Recoverable amount - December 31, 20x4 ₱ 950,000

Carrying amount before reclassification - December 20x1 ₱ 1,000,000

Divide by estimated life 5
Annual depreciation ₱ 200,000
Multiply by remaining life 2
Net Carrying amount - December 31, 20x4 ₱ 400,000

18 Machinery ₱ 400,000
Loss on reclassification 600,000
Machinery - Held for Sale ₱ 1,000,000

19 D

Carrying amount ₱ 1,000,000

Recoverable amount (P600,000 less P50,000) 550,000
Impairment loss ₱ 450,000
Gain - January 1 to March 31 (200,000)
Loss - April 1 to December 31 120,000
Total loss ₱ 370,000
Multiply by (100% less Tax rate) 70%
Results of discontinued operations ₱ 259,000

Problem 4 MULTIPLE CHOICE THEORY

1 D 6 C
2 D 7 B
3 C 8 C
4 A 9 B
5 C 10 B
lower
Problem 1 TRUE or FALSE
1 1 6 1
2 0 7 0
3 0 8 1
4 1 9 1
5 1 10 0

Problem 2 CLASSROOM DISCUSSION

1 D 9 D
2 D 10 A
3 A 11 A
4 B 12 B
5 D 13 D
6 B 14 C
7 C 15 D
8 B
16
Bell Industries
Statement of Cash Flows
For the Year Ended December 31, 20x2

Cash flows from operating activities

Net income ₱ 50,000
Adjustments
Depreciation expense ₱ 25,000
Increase in accounts receivable (8,000)
Decrease in merchandise inventory 13,000
Decrease in accounts payable (10,000) 20,000
Net cash provided by operating activities ₱ 70,000
Cash flows from investing activities
Net cash provided by investing activities -
Cash flows from financing activities
Payment of cash dividends ₱ (40,000)
Net cash provided by financing activities (40,000)
Net increase (decrease) in cash ₱ 30,000
Cash at beginning of year 10,000
Cash at end of year ₱ 40,000

Schedule 1

Retained earnings at end of year ₱ 30,000

Divdends paid 40,000
Total ₱ 70,000
Retained earnings at beginning of year 20,000
Net income ₱ 50,000
 17 Sage Corporation
Statement of Cash Flows
For the Year Ended December 31, 20x2

Cash flows from operating activities

Net income ₱ 45,000
Adjustments
Depreciation expense ₱ 75,000
Gain on sale of equipment (750)
Gain on sale of investment in bonds ₱ (2,250)
Increase in accounts receivable (3,750)
Increase in merchandise inventory (24,000)
Decrease in prepaid insurance 375
Decrease in accounts payable (82,875)
Decrease in salaries payable (7,500)
Decrease in notes payable (112,500) (158,250)
Net cash used in operating activities ₱ (113,250)
Cash flows from investing activities
Sale of investment in bonds ₱ 90,000
Sale of equipment 4,500
Purchase of equipment (310,125)
Net cash provided by investing activities (215,625)
Cash flows from financing activities
Proceeds from bond issue ₱ 375,000
Payment of cash dividends (22,500)
Net cash provided by financing activities 352,500
Net increase (decrease) in cash ₱ 23,625
Cash at beginning of year 63,750
Cash at end of year ₱ 87,375

18 Top Ten Clothiers Inc.

Statement of Cash Flows
For the Year Ended December 31, 20x2

Cash flows from operating activities

Cash receipts from customers ₱ 940,000
Cash payments for:
Inventory ₱ 750,000
Operating expenses 342,000 1,092,000
Net cash used in operating activities ₱ (152,000)
Cash flows from investing activities
Sale of long-term investment ₱ 105,000
Net cash provided by investing activities 105,000
Cash flows from financing activities
Payment of bonds payable ₱ (60,000)
Payment of cash dividends (90,000)
Net cash provided by financing activities (150,000)
Net increase (decrease) in cash ₱ (197,000)
Cash at beginning of year 240,000
Cash at end of year ₱ 43,000

Computations:

Sales ₱ 1,120,000
Accounts Receivable - beginning 210,000
Accounts Receivable - end (390,000)
Cash receipts from customers ₱ 940,000

Purchases ₱ 660,000
Accounts Payable - beginning 240,000
Accounts Payable - end (150,000)
Cash payments for inventory ₱ 750,000

Operating expenses ₱ 360,000

Operating Expenses Payable - beginning 30,000
Operating Expenses Payable - end (48,000)
Cash payments for inventory ₱ 342,000

Retained earnings at beginning of year ₱ 300,000

Net loss (5,000)
Retained earnings at end of year (205,000)
Dividends Paid ₱ 90,000
Schedule 1
Problem 1 TRUE or FALSE
1 0 6 0
2 0 7 0
3 1 8 0
4 0 9 1
5 1 10 0
11 1

Problem 2 CLASSROOM DISCUSSION

1 C 8 C
2 B 9 A
3 D 10 EA
4 C 11 D
5 D 12 C
6 B 13 C
7 C

Problem 4 MULTIPLE CHOICE THEORY

1 C 6 C
2 A 7 D
3 B 8 B
4 D 9 D
5 D 10 A

Problem 6 IDENTIFICATION
1 ADJUSTING
2 ADJUSTING
3 NON-ADJUSTING
4 ADJUSTING
5 ADJUSTING
6 NON-ADJUSTING
7 NON-ADJUSTING
8 ADJUSTING
9 NON-ADJUSTING
10 NON-ADJUSTING

Problem 7 CLASSROOM DISCUSSION

 1 D
PAS 8 requires an entity to account for a change in accounting policy in
accordance with the transitional provision of the related standard. In the absence of
a transitional provision, the entity shall account for the change in accounting policy
by retrospective application. If retrospective application is impracticable, PAS 8
allows a change in accounting policy to be accounted for by prospective
application.

2 C
Before a liability is recognized, all of the following conditions must first be met
The item meets the definition of a liability (i.e., present obligation arising
a from past events);
b Probable outflow of resources embodying economic benefits; and
c The outflow can be measured reliably.

If not all the conditions are met, no liability is recognized. However, the entity may
disclose a contingent liability if the outflow is deemed reasonably possible.

In the problem above, the fact that a lawsuit is filed cannot be presumed that the
outflow is probable.

3 B

4 D
Only a disclosure shall be made because there is no present obligation as of the
end of the reporting period, i.e., the fire happened subsequent to year-end.

5 C
Changes in fair values, market prices and exchange rates after the end of the
reporting period are non-adjusting events.

Problem 9 MULTIPLE CHOICE THEORY

1 B 6 A
2 A 7 B
3 A 8 D
4 B 9 C
5 A 10 D

Problem 10 TRUE or FALSE

1 1 6 1
2 1 7 1
3 1 8 0
4 1 9 1
5 1 10 0

Problem 11 CLASSROOM DISCUSSION

1 C
 2 D
3 B
4 C
5 C

Problem 13 MULTIPLE CHOICE THEORY

1 A 6 D
2 B 7 D
3 C 8 D
4 D 9 B
5 B 10 D

Problem 14 TRUE or FALSE

1 1 6 1
2 1 7 1
3 0 8 0
4 1 9 0
5 0 10 0

Problem 15 CLASSROOM DISCUSSION

1 D
2 D
3 B
4 C
5 D
6 B
7 B

Problem 17 MULTIPLE CHOICE THEORY

1 D 6 C
2 C 7 B
3 D 8 D
4 C 9 B
5 C 10 A
Problem 2 CLASSROOM DISCUSSION

14 Carrying amount - Jan 1, 20x5 (P600,000 x 6/10) ₱ 360,000

a Amortization expense (CA divided by RL) 120,000
b Carrying amount - Dec. 31, 20x5 ₱ 240,000

15 Increase in beginning inventory ₱ 140,000

Tax (30% x P140,000) 42,000
a Cumulative effect of accounting change ₱ 98,000

b Inventory - beginning ₱ 140,000

Retained earnings - beginning ₱ 98,000
Deferred tax liability 42,000

16 20x1 20x2
Understatement of ending inventory ₱ 10,000 ₱ (10,000)
Overstatement of ending inventory (4,000)
Depreciation understatement (4,000) (6,000)
Failure to accrue salaries at year end- 20x1 (8,000) 8,000
Failure to accrue salaries at year end- 20x2 (12,000)
Effect on profit or loss - (Over) Understatement ₱ (2,000) ₱ (24,000)

Effect on December 31, 20x2 Retained Earnings ₱ (26,000)

17 20x1 20x2
Understatement of ending inventory ₱ 4,000 ₱ (4,000)
Overstatement of ending inventory (3,600)
Depreciation understatement (800)
Insurance expense 20x1 - over 2,400
Insurance expense 20x2 - under (1,200)
Gain on sale of fully depreciated achinery 6,400
Effect on profit or loss - (Over) Understatement ₱ 5,600 ₱ (2,400)

Effect on December 31, 20x2 Retained Earnings ₱ 3,200

Problem 3 EXERCISES
1 Carrying amount 100%
Double declining rate = 2 divided by life 25%
Net Carrying amount 75%

Carrying amount - Jan. 1, 20x4 (P600,000 x 75% x 75% x 75%) ₱ 253,125

Residual value 150,000
Depreciable value ₱ 103,125
Remaining life 5
a Depreciable expense - 20x4 ₱ 20,625

b Carrying amount - Dec. 31, 20x4 ₱ 232,500

c Historical cost (Carrying amount - Jan. 1, 20x1) ₱ 600,000

Carrying amount - Dec. 31, 20x4 232,500
Accumulated depreciation - Dec. 31, 20x4 ₱ 367,500
2 Carrying amount - Jan. 1, 20x4 (P46,000 - 2,000) x 7/10) +2,000 ₱ 32,800
Residual value 500
Depreciable value ₱ 32,300
Remaining life 2
Depreciation expense 20x4 ₱ 16,150

Depreciation expense ₱ 16,150

Accumulated depreciation ₱ 16,150

3 Historical cost ₱ 124,000

Accumulated depreciation (P112,000 x [8+7+6]/36 65,333
Carrying amount - Jan. 1, 20x4 ₱ 58,667
Residual value 12,000
Depreciable value ₱ 46,667
Remaining life 5
Depreciation expense 20x4 ₱ 9,333

Depreciation expense ₱ 9,333

Accumulated depreciation ₱ 9,333

4 Historical cost ₱ 100,000

Accumulated depreciation (P100,000 x [10+9+8]/55 49,091
Carrying amount - Jan. 1, 20x4 ₱ 50,909
Residual value -
Depreciable value ₱ 50,909
Remaining life 7
Depreciation expense 20x4 ₱ 7,273

Adjusted net income

20x1 ₱ 350,000
20x2 450,000
20x3 300,000
20x4 (P670,000 - 7,273) 662,727

5
a Bad debts expense ₱ 3,260
Allowance for bad debts ₱ 3,260

b Provisions for bad debts

20x1 ₱ 2,610
20x2 3,690
20x3 4,410
20x4 3,260
Total ₱ 13,970
Writeoffs - actual bad debts
20x1 ₱ 1,200
20x2 2,850
20x3 3,222
 20x4 3,720 10,992
Allowance for bad debts - Dec. 31, 20x4 ₱ 2,978

The change is an error (not a change in accounting policy or estimate) because it is a

change from an unacceptable principle to an acceptable principle. The change shall
be accounted for by retrospective restatement.
6 a

b Retained earnings - beginning ₱ 22,000

Allowance for bad debts ₱ 22,000

The beginning balance of retained earnings (Jan. 1, 20x2) shall be increased by

₱40,000 (400,000 – 360,000).
7 a

b Inventory ₱ 40,000
Retained earnings - beginning ₱ 40,000

8 20x1 20x2
a Asset recorded inappropriately charged to expense ₱ 170,000
Unrecorded depreciation (P170,000 - 20,000)/5 (30,000) (30,000)
Effect on profit or loss - (Over) Understatement ₱ 140,000 ₱ (30,000)

b Effect on December 31, 20x2 Retained Earnings ₱ 110,000

ci Books are still opened

Machinery ₱ 170,000
Depreciation expense 30,000
Accumulated depreciation ₱ 60,000
Retained earnings - beginning 140,000

cii Books are are already closed

Machinery ₱ 170,000
Accumulated depreciation ₱ 60,000
Retained earnings - beginning 110,000

9 a No entry required. Counterbalancing error

b Sales 4,000
Retained earnings 4,000

c Insurance expense (P5,760/2) 2,880

Retained earnings (P5,760/24 x 8) 1,920
Prepaid nsurance 4,800

d Interest income 240

Retained earnings 240

e Depreciation expense 3,920

Retained earnings 3,920
 Accumulated depreciation 7,840

10 20x0 20x1
Unadjusted profit (loss) ₱ 40,000 ₱ (15,000)
Accrued expenses
20x0 (2,900) 2,900
20x1 (3,000)
20x2
Prepaid expenses
20x0 2,000 (2,000)
20x1 2,800
20x2
Accrued revenue
20x0 2,750 (2,750)
20x1 2,500
20x2
Unearned revenue
20x0 (4,250) 4,250
20x1 (4,500)
20x2
Adjusted profit (loss) ₱ 37,600 ₱ (14,800)
 20x2
₱ 35,000

3,000
(3,400)

(2,800)
1,500

(2,500)
2,700

4,500
(4,100)
₱ 33,900
Problem 5 MULTIPLE CHOICE COMPUTATIONAL

1 Carrying amount - Dec. 31, 20x6 (P100,000 - 10,000) x 6/10) +10,000 ₱ 64,000
Residual value 4,000
Depreciable value ₱ 60,000
Depreciation expense 20x7 15,000
₱ 45,000
Residual value 4,000
Carrying amount - Dec. 31, 20x7 b ₱ 49,000

2 Carrying amount - Jan 2, 20x9 (P264,000 x 5/8 ₱ 165,000

Residual value 24,000
Depreciable value ₱ 141,000
Divide by remaining life 3
Depreciation expense 20x9 ₱ 47,000
Accumulated Depreciation - SLM (P264,000 x 3/8) 99,000
Accumulated Depreciation - Dec 31, 20x9 d ₱ 146,000

The change is a change in accounting estimate that is accounted for prospectively.

Therefore, no cumulative effect shall be computed.
3 d

No deferred tax liability arises because the change did not give rise to any difference
in the tax base and the carrying amount of the asset.
4 d

5 Increase in beginning inventory ₱ 700,000

Net of tax rate 70%
c Adjustment to RE beginning ₱ 490,000

6 FIFO balance - Dec 31, 20x6 ₱ 83,000

Weighted average balance 78,000
a Decrease in inventory ₱ 5,000

7 FIFO balance - Jan 1, 20x1 ₱ 71,000

Weighted average balance 77,000
Difference ₱ (6,000)
Net of tax rate 70%
c Adjustment to RE beginning ₱ 4,200

The best answer is “retrospective application” because the transaction is a change in

accounting policy.
8 b

9 Unadjusted profit ₱ 74,100

Unrealized loss on decline in fair value of investments in FVOCI 5,400
Adjustment to profits of prior years for errors in depreciation (net
of ₱3,750 tax effect)
7,500
d Adjusted profit ₱ 87,000
10 Amortization expense (P100,000 / 5 years) ₱ 20,000
b Retained earnings - amortization for 20x3 and 20x4 ₱ 40,000
Problem 8 EXERCISES

1 Unadjusted profit ₱ 1,000,000

a Impairent loss on loan receivable (100,000)
c Additional inventory write-down (P120,000 - 100,0000) (20,000)
Adjusted profit ₱ 880,000

2 Unadjusted profit ₱ 2,000,000

c Impairent loss on loan receivable (500,000)
Adjusted profit ₱ 1,500,000

NonCurrent
3 Current Assets Assets Liabilities

Unadjusted balances ₱ 3,000,000 ₱ 7,000,000 ₱ 4,000,000

a (300,000) 300,000
b 500,000
e 160,000
Adjusted balances 2,700,000 7,460,000 4,500,000

Problem 16 EXERCISES
Reportable segments %Revenue %Profit %Asset
1 A 38% 25% 40%
C 12%
D 22%
F 32% 47% 16%

2 Segments Revenue Test Profit Test Asset Test

A ₱ 1,000,000 ₱ 200,000 ₱ 4,000,000
B 500,000 120,000 1,000,000
C
D 500,000 1,700,000
E
F 900,000 400,000 1,000,000

10% of Total Revenues ₱ 340,000

10% of Total Profit ₱ 86,000
10% of Total Identifiable Assets ₱ 930,000

Reportable segments A, B, D, F

10% or More
3 Segments Revenue Test Revenue %Revenue
A ₱ 1,400,000 ₱ 1,400,000 29.72%
B 1,000,000 1,000,000 21.23%
C 1,050,000 1,050,000 22.29%
D 760,000 760,000 16.14%
 E 300,000 6.37%
F 200,000 4.25%
Totals ₱ 4,710,000

10% of Total Revenues ₱ 471,000

10% or More
Segments Asset Test Assets %Assets
A ₱ 5,000,000 ₱ 5,000,000 45.45%
B 1,300,000 1,300,000 11.82%
C 900,000 8.18%
D 1,800,000 1,800,000 16.36%
E 800,000 7.27%
F 1,200,000 1,200,000 10.91%
Totals ₱ 11,000,000

10% of Total Revenues ₱ 1,100,000

Segments Profit Loss 10% or More

A ₱ - ₱ 300,000 ₱ 300,000
B 180,000 180,000
C 220,000 220,000
D 270,000 270,000
E 20,000
F 30,000
Totals ₱ 490,000 ₱ 530,000

10% of Absolute Values - Higher ₱ 53,000

a Reportable segments A, B, C, D, F

Reportable Segments External Revenue

A ₱ 1,200,000
B 900,000
C 800,000
D 600,000
F 200,000
Totals ₱ 3,700,000
Divide by 4,000,000

b YES 92.50%

c Total external revenues x 10% ₱ 400,000

 Equity Profit

₱ 6,000,000 ₱ 2,000,000

(500,000) (500,000)
160,000 160,000
5,660,000 1,660,000
%Revenue
56.60%
33.96%
41.51%
50.94%
3.77%
5.66%