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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
PRACTICAL ACCOUNTING PROBLEMS I

Prac. 1 Handouts

SUGGESTED SOLUTIONS
1.

Cash (4M 300K 1M)

Accounts receivable (5M + 600K + 300K) 500K
Inventory (4.5M + (3M/120%))
Prepaid expenses
Noncurrent classified as held for sale
Total current assets

2,700,000
5,400,000
6,400,000
500,000
3,000,000
18,500,000 A

The post dated check should be classified as accounts receivable and the sinking fund is
a long-term investment. The credit balance in Accounts receivable should be presented
as a current liability and not deducted from AR. Accounts receivable should be reduced
by 3M, because the goods were unsold as of year-end, but since it was excluded from the
inventories, the cost must be added back by dividing the selling price by the selling price
percentage which is 100% +25%.
The noncurrent asset classified as held for sale is covered under IFRS 5 which states that
for an asset to be considered as such, it must be expected to be sold within 1 year from
date of classification as held for sale, therefore, this will then be realized (as cash) within
12 months from the BS date.
Deferred tax assets and liabilities are always noncurrent items (no exceptions) according
to IAS 1 and IAS 12
2.

Cash
Accounts receivable (1.15M + 250K)
Current assets

550,000
1,40,0000
1,950,000 A

Beg. RE
Net income (3.6M 2.6M) (1M x 30%)
End. RE

630,000
700,000
1,330,000 C

3.

Key officers Salaries

Loans to officers
Total amount to be disclosed as RP transactions

1,250,000
1,750,000
3,000,000 D

4.

Total liabilities
Share capital
RE (8M 6.5M 500K)
Total (Assets)

2,000,000
5,000,000
1,000,000
8,000,000 A

5.

Noncurrent notes payable

6,000,000 B

The 4M note payable was refinance after the balance sheet date (this is considered as a
non-adjusting event after the balance sheet date). The 6M note payable even though
maturing on October 1, 2010 will not be classified as current because the company has
the discretion to refinance this note payable on a long-term basis.
6.

Merchandise inventory Beginning

Retained earnings

300,000
300,000 D

Merchandise inventory is an example of a counter-balancing error therefore the effect of

the 2010 ending inventory in the January 1, 2012 retained earnings can be ignored
because it was already offset by the reversing effect in the income statement that
occurred at the end of 2011.
7.

Adjustment for liability under the court case

Adjustment for provision of doubtful accounts (4,000,000 x 80%)
Total adjusting events

2,000,000
1,500,000
3,500,000 A

The contingent liability was only a disclosure on December 31, 2012 but before the
issuance of the financial statements, a decision by the court rendered the liability to
become a present obligation that is probable and measurable hence warranting an
adjustment. The receivable on balance sheet should now be adjusted to its NRV on
balance sheet date because the declaration of the customers bankruptcy even if it is after
the balance sheet date would still mean that the customer did not have the ability to pay
the receivable as of balance sheet date. Take note that both events occurred before the
authorization of the 2012 financial statements.

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8.

Accumulated depreciation 1/1/12 (5.28M / 8 years) x 3

2009 Depreciation expense ((5.28M 1.98M) 480T) / 3
Accumulated depreciation 12/31/09

1,980,000
940,000
2,920,000 A

9.

Cost
Less: Accumulated depreciation
Carrying amount 12/31/11
Less: 2012 Depreciation (2,160,000 600,000) / 3
Carrying amount 12/31/12

6,000,000
3,840,000
2,160,000
520,000 B
1,640,000

10

Income from continuing operations

Income from discontinued operations
Net income
Unrealized gain on available for sale securities
Unrealized gain on futures contract designated as a cash flow hedge
Fully recognized actuarial gain
Foreign translation adjustment loss
Revaluation surplus
Comprehensive income

5,000,000
600,000
5,600,000
900,000
400,000
300,000
( 100,000)
2,500,000
9,000,000

Comprehensive income Changes in equity arising from transactions or other

occurrences with non-owners. It excludes investments from and dividends to owners. It
is comprised of two elements: net income and other comprehensive income. Other
comprehensive income includes Unrealized gains and losses on available for sale
securities, unrealized gains and losses on derivatives designated as a cash flow hedge,
revaluation surplus on noncurrent assets, foreign currency translation gains and losses
and actuarial gains and losses of the Full Recognition Approach is used (the other
approach is as a memorandum record account and fully recognized in profit or loss).

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