REVIEW QUESTIONS

Liabilities and Current Liabilities

Answer the following questions:

1. What are liabilities?

2. What are the characteristics of liabilities?
3. How are liabilities valued on the balance sheet?
4. What are the two classifications of liabilities?
5. What are current liabilities?
6. What are examples of current liabilities?
7. What are estimated liabilities? Give examples of estimated liabilities.
8. What are provisions?
9. What amounts are included as provision for restructuring?
10. What are the accounting treatments for contingent liabilities and contingent assets?

Classroom Exercises on Current Liabilities

Journalize the following:

1. ABS Corporation offered P50 cash rebates on a particular model of hand-held hair dryers. To receive the rebate,
customers must mail in a rebate certificate enclosed in the package plus the cash register receipt. Previous
experience indicates that 30% of the coupons will be redeemed. One million hair dryers were sold in 2011 and
total payments to customers were P225,000.

2. GMA Corporation began including one coupon in each package of candy that it sells and offering a toy in
exchange for P10 and five coupons. The toys cost GMA Corp. P18 each. GMA Corp. bought 15,000 toys. It is
estimated that 60% of the coupons will be redeemed. For year 2011, GMA Corp. sold 110,000 packages of
candy with a selling price of P20 per package. Only 30,000 coupons were redeemed during 2011.

3. ETC Company, a supplier of in-home health care products introduced a new therapeutic chair carrying a two –
year warranty against defects. Estimates based on industry experience indicate warranty costs of 3% of sales
during the first 12 months following the date of sale and 4% the next 12 months. During December 2011, its first
month of operations, ETC Co. sold P2 million of the chairs. Assume that the company incurs P61,000 for repairs
during 2012.

4. HBO Boutique sold 1,000 gift certificates to customers during 2011 for P500 each. Certificates having a sales
value of P400,000 were redeemed during the year. It is estimated that 8% of the certificates issued will not be
redeemed by reason of expiration.

5. AXN Chemical Company sells combustible chemicals in expensive reusable containers. Customers are charged
a deposit for each container delivered and receive a refund when the container is returned. Deposits collected on
containers delivered in 2011 were P300,000. Deposits are forfeited if containers are not returned within one year.
Ninety percent of the containers were returned within the allotted time. Deposits charged are twice the actual cost
of containers. The inventory of containers remains on the company books until deposits are forfeited.

6. RPN Company motivates its sales manager by giving him bonus. The following information are available for year
2011:

Income before bonus and tax P1,100,000

Bonus rate 10%
Income tax rate 32%

a. Bonus is 10% of income before bonus and tax.

b. Bonus is 10% of income after bonus but before tax.
c. Bonus is 10% of income before bonus but after tax.
d. Bonus is 10% of income after bonus and tax.
7. MAXX Publications collects magazine subscriptions from customers at the time subscriptions are sold.
Subscription revenue is recognized over the term of the subscription. MAXX Publications collected P20 million in
subscription sales during their first year of operations. At the end of the year, only ¼ of the subscription was
earned.

8. An employee filed a P2M lawsuit against FOX Company for damages suffered when one of FOX’s plants
exploded a year ago. FOX’s legal counsel expects the company will lose the lawsuit and estimate the loss to be
between P500,000 and P1,000,000.

Homework on Current Liabilities

1. In an effort to increase sales, Ana Company inaugurated a sales promotional campaign on June 30, 2011. Ana
Co. placed a coupon redeemable for a premium in each package of cereal sold. Each premium cost Ana Co.
P20. To receive a premium, a customer must present five coupons. Ana Co. estimates that only 60% of the
coupons issued will be redeemed. For the six months ended December 31, 2008, the following information are
available:
Packages of cereal sold – 160,000
Premiums purchased – 12,000
Coupons redeemed – 40,000

What is the estimated liability for premiums claims outstanding on December 31, 2011?

2. On January 2, 2011, Ben Company began marketing a new soft drink. To help promote the soft drink,
management is offering a special gift, a T-shirt, to each customer who returns 10 bottle caps. Ben Co. estimates
that out of the 250,000 bottles sold in 2008, only 80% will be redeemed. On December 31, 2011, the following
information are collected:
Units Amount
T-shirts purchased 18,000 P1,800,000
T-shirts distributed 15,000

What is the premium liability on December 31, 2011?

3. Cora Company manufactures a special product. To promote the sale of the product, a premium is offered to
customers who send in three wrappers and remittance of P25. The distribution cost per premium is P5. Data for
the premiums are:
2010 2011
Sales P4,000,000 P5,000,000
Premium purchase at P80 each 400,000 416,000
Number of premiums distributed 4,000 5,500
Number of premiums to be distributed in next period 200 500

What is the premium expense in 2011?

4. Dan Company sells washing machines that carry a three-year warranty against manufacturer’s defects. Based on
company experience, warranty costs are estimated at P300 per machine. During 2011, Dan Co. sold 2,400
washing machines and paid warranty costs of P170,000.

What amount of warranty expense should Dan Co. report in its income statement for the year ended
December 31, 2011?

5. On April 1, 2011, Eva Company began offering a new product for sale under a one-year warranty. Of the 5,000
units in inventory at April 1, 2011, 3,000 units had been sold by June 30, 2011. Based on its experience with
similar products, Eva estimated that the average warranty cost per unit sold would be P80. Actual warranty costs
incurred from April 1 through June 30, 2011 were P70,000.

At June 30, 2011, what amount should Eva Co. report as estimated warranty liability?

6. In 2010, Fred Company began selling new line of products that carry a two-year warranty against defects. Based
upon past experience with other products, the estimated warranty costs related to peso sales are as follows: first
 year of warranty – 2%; second year of warranty – 5%. Sales and actual warranty expenditures for 2007 and 2008
are presented below:
2010 2011
Sales P5,000,000 P7,000,000
Actual warranty costs 100,000 300,000

What is the estimated liability on December 31, 2011?

7. Gem Department Store sells gift certificates redeemable only when merchandise is purchased. These gift
certificates have an expiration date of two years after issuance date. Upon redemption or expiration, Gem
recognizes the unearned revenue as realized. Information for 2011 are as follows:
Unearned revenue, 1/1/2011 P650,000
Gift certificates sold 2,250,000
Gift certificates redeemed 1,950,000
Expired gift certificates 100,000
Cost of goods sold 60%

On December 31, 2011, what amount should Gem report as unearned revenue?

8. Hope Department Store sells gift certificates redeemable for store merchandise that expire one year after their
issuance. Hope has the following information pertaining to its gift certificate sales and redemptions:
Unredeemed at January 1, 2011 P750,000
2011 sales 2,500,000
2011 redemptions of prior year sales 250,000
2011 redemptions of current year sales 1,750,000
Hope’s experience indicates that 10% of gift certificates sold will not be redeemed.

In its December 31, 2011 statement of financial position, what amount should Hope report as unearned
revenue?

9. Jay Company sells office equipment service contracts agreeing to service equipment for a two-year period. Cash
receipts from contracts are credited to unearned service contract revenue and service contract costs are charged
to service contract expense as incurred. Revenue from service contracts is recognized as earned over the lives
of the contract. Additional information for the year ended December 31, 2011 are as follows:
Unearned service contract revenue at January 1, 2011 P600,000
Cash receipts from service contracts sold 980,000
Service contract revenue recognized 860,000
Service contracts expense 520,000

What amount should Jay Company report as unearned service contract revenue at December 31, 2011?

10. Kay Company sells major household appliance service contracts for cash. The service contracts are for a one-
year, two-year or three-year period. Cash receipts from contracts are credited to unearned service contract
revenue. This account had a balance of P720,000 at December 31, 2011 before year-end adjustment. Service
contract costs are charged as incurred to the service contract expense account which had a balance of P180,000
at December 31, 2011. Outstanding service contracts at December 31, 2008 expire as follows:
During 2012 P150,000
During 2013 225,000
During 2014 100,000

What amount should be reported as unearned service contract revenue in Kay’s December 31, 2011
statement of financial position?

11. Lyn Company sells subscriptions to a specialized directory that is published semi-annually and shipped to
subscribers on April 15 and October 15. Subscriptions received after the March 31 and September 30 cut-off
dates are held for the next publication. Cash from subscribers is received evenly during the year and is credited
to deferred revenue from subscriptions. Data relating to 2011 are as follows:
Deferred revenue from subscriptions balance on January 1, 2011 P1,500,000
Cash receipts from subscribers 7,200,000
 What amount should Lyn report as deferred revenue from subscription in its December 31, 2011
statement of financial position?

12. Mon Video Company sells 1 and 2 year subscriptions for its video of the month business. Subscriptions are
collected in advance and credited to sales. An analysis of the recorded sales activity revealed the following:
2010 2011
Sales P420,000 P500,000
Less: Cancellations 20,000 30,000
Net sales P400,000 P470,000
Subscription expirations
2010 P120,000
2011 155,000 P130,000
2012 125,000 200,000
2013 140,000
P400,000 P470,000

What amount should Mon Video Company report as unearned subscription revenue in its December 31,
2011 statement of financial position?

13. On December 31, 2011, Ned Company was a defendant in a pending lawsuit. The suit arose from the alleged
defect of a product that Ned sold in 2010. In the opinion of Ned’s attorney, it is probable that Ned will have to pay
P500,000 and it is reasonably possible that Ned will have to pay P600,000 as a result of this lawsuit.

What amount of accrued liability should Ned report on its December 31, 2011 statement of financial
position?

14. During 2011, Olga Company became involved in a tax dispute with the BIR. At December 31, 2011, Olga
Company’s tax advisor believed that an unfavorable outcome was probable and a reasonable estimate of
additional tax was P500,000 but could be as much as P650,000. After the 2011 financial statements were issued,
Olga received and accepted a BIR settlement offer of P550,000.

What amount of accrued liability would Olga Co. report in its December 31, 2011 statement of financial
position?

15. Pio Company sells its products with reusable expensive containers. The customer is charged a deposit for each
container delivered and receives a refund for each container returned within two years after the year of delivery.
Information for 2011 is as follows:

Containers held by customers at January 1, 2011 from deliveries in

2009 P75,000
2010 215,000
2011 390,000

Containers returned in 2008 from deliveries in

2009 P45,000
2010 125,000
2011 143,000

Required: Prepare all indicated entries in 2011 in connection with the containers. Compute the liability
for containers on December 31, 2011.

16. Quayle Company has an incentive compensation plan under which a branch manager receives a bonus of 10% .
Branch income for 2011 is P1,650,000 before bonus and tax. The tax rate is 35%.

Compute the bonus received by the branch manager under the following cases:
a. Bonus is 10% of branch income before bonus and tax.
b. Bonus is 10% of branch income after bonus but before tax.
c. Bonus is 10% of branch income before bonus but after tax.
d. Bonus is 10% of branch income after bonus and after tax.
 REVIEW QUESTIONS
Non-Current Liabilities
Answer the following questions:

1. What are non-current liabilities?

2. What are examples of non-current liabilities?
3. What is a bond?
4. What is the difference between a bond indenture and a bond certificate?
5. What are the different types of bonds? Briefly describe each.
6. What is the amortization method prescribed in PAS No. 39?
7. What are bond issue costs? How is this amortized?
8. How are notes payable initially measured? After initial recognition, how shall notes payable be measured
9. How is a long term zero interest note payable valued on the balance sheet?
10. What is the effect of amortizing discount on note payable on interest expense?

Classroom Exercises on Notes Payable

Journalize the following:

1. On January 1, 2011, Acacia Inc., a product labeling and graphics firm, borrowed P700,000 cash from ABC Bank
and issued a three - year 12% promissory note. Interest is payable semi-annually every June 30 and December
31.

2. On January 1, 2011, Apitong Company acquired an equipment for P600,000 payable in two annual equal
installments every December 31 of each year. Apitong Company signed an interest bearing note for P600,000.
Interest of 12% is payable annually on the unpaid balance.

3. On January 1, 2011, Narra Company purchased a package-labeling machine from DEF Company by issuing a
12% P700,000 three-year note that requires interest to be paid annually. Prevailing market rate is 14%.

4. On January 1, 2011, Ipil Company acquired a machinery with cash price of P750,000 for P1,000,000. Ipil Co.
paid P200,000 and signed a non –interest bearing promissory note for the balance which is payable in 4 equal
installments every December 31 of each year.

5. On January 1, 2011, Molawin Company acquired a building for P5M. Molawin Company paid P500,000 down
and signed a non – interest bearing note for the balance which is payable in 3 equal annual installments every
December 31 of each year. Assume prevailing interest rate is 12%.

6. On January 1, 2011, Banuyo Company acquired a tract of land for P5,250,000. Banuyo Co. paid P1,250,000
down and signed a non-interest bearing note for the balance which is due on January 1, 2014. The prevailing
interest rate for this type of note was 12%.

Homework on Notes Payable

Journalize the following:

1. Cameron Inc. constructed for Harmon Distributors a warehouse that was completed and ready for occupancy on
January 2, 2011. Harmon paid for the warehouse by issuing a P900,000 four year note that required 7% interest
to be paid on December 31 of each year. The warehouse was custom-built for Harmon, so its cash price was not
known. By comparison with similar transactions, it was determined that an appropriate interest rate was 10%.

2. American Company acquired a packaging machine from Barton Corporation. Barton completed the construction
of the machine on January 1, 2011. In payment for the P4 million machine, American Company issued a four
year interest bearing note to be paid in four equal payments at the end of each year. Interest is 10% of the unpaid
balance to be paid at the end of each year. Assume prevailing interest rate is 10%.
3. At the beginning of 2011, VHF Industries acquired a machine with a cash price of P6,074,700 by issuing a 4 year
note, non-interest bearing note in the face amount of P8 million. The note is payable in four annual installments
of P2 million at the end of each year.

4. On January 1, 2011, Ellen Company purchased land for P200,000 by issuing a 5-year non interest bearing
promissory note payable in 5 equal annual payments on every December 31 of each year. The prevailing market
rate for a note of this kind is 11%.

5. On January 1, 2011, Greene Company purchased equipment for P250,000. The company paid P50,000 and
signed a non-interest bearing note for the balance which is due after 3 years. Prevailing interest rate is 11%.

Classroom Exercises on Bonds Payable

1. Issuance of Bonds on Interest Payment Date – Discount

On December 31, 2011, ABS Company issues a two- year 8%

P 2,000,000 face value bonds at a price that will yield a 10% effective interest rate. Interest is payable semi-
annually on June 30 and December 31.

Required: Prepare all pertinent entries.

2. Issuance of Bonds on Interest Payment Date – Premium

On December 31, 2011, CBN Company issues a three - year 12% P2,000,000 face value bonds at a price that
will yield a 10% effective interest rate. The interest is payable annually every December 31.

Required: Prepare all pertinent entries.

3. Issuance of Bonds Between Interest Payment Dates – Discount

On February 1, 2011, GMA Company sells a two-year 8% P2,000,000 face value bonds at a price that will yield a
10% effective interest rate. The bonds are dated December 31, 2010. Interest is payable semi-annually on June
30 and December 31.

Prepare: Prepare all pertinent entries.

4. Issuance of Bonds Between Interest Payment Dates – Premium

On March 1, 2011, RPN Company sells a three-year 12% P2,000,000 face value bonds at a price that will yield a
10% effective interest rate. The bonds are dated December 31, 2010. Interest is payable annually every
December 31.

Prepare all pertinent entries.

5. Bond Retirement on Maturity Date

Assume that P2,000,000 face value bonds are sold on January 1, 2008 with 12% interest payable every July 1
and December 31. It will mature on December 31, 2011.

Prepare entry to record the bond retirement together with the payment of last semi-annual interest.

6. Bond Retirement Prior to Maturity Date

Assume that P10,000,000 face value bonds are sold on April 1, 2011 and mature on April 1, 2016 with 12%
interest payable semi-annually on April 1 and October 1. The bonds yield 10%. All the bonds are retired on
August 1, 2013 at 98.

Prepare all necessary journal entries.

7. Partial Bond Retirement Prior to Maturity Date

 IBC Company is building a new gymnasium at a cost of P4,000,000. It received a down payment of P1,000,000
from local businesses to support the project and need to borrow P3,000,000 to complete the project. It therefore
decided to issue P3,000,000 of 10.5 % 10-year bonds. These bonds were issued on January 1, 2011 and pay
interest annually every January 1. The bonds yield 12%. On July 1, 2013, half of the bonds were retired at
P1,600,000 plus accrued interest.

Prepare all necessary journal entries.

8. Convertible Bonds

HBO Corporation issued P2,000,000 of 8% bonds on October 1, 2011 due on October 1, 2016 at 105. The
interest is to be paid twice a year on April 1 and October 1. When the bonds were issued, the prevailing market
rate is 10% without the conversion privilege. HBO Corporation closes its books annually on December 31.

Each P1,000 bond is convertible into 8 shares of P100 par value common stock. On January 1, 2013, 1,000
bonds are converted into ordinary shares. At this time, the share has a market value of P150 per share and the
bonds are quoted at 102.

Prepare journal entries on October 1, 2011 and January 1, 2013.

9. Bonds With Warrants

On January 1, 2011, NBN Corporation issued 3,000 10-year bonds of 12% P1,000 face value each with warrants
to acquire ordinary shares at P50 per share. The interest on the bonds is payable annually every December 31.

Each bond contains one warrant which can be used to acquire 5 shares of P40 par value ordinary shares. It is
estimated that without warrants the bonds would sell at P98. The bond price with warrants is 105. All warrants
are exercised on December 31, 2011.

Prepare entries in connection with bond issuance and exercise of warrants.

10. Bond Refunding

The records of ABC Corporation on January 1, 2011 show the following accounts:
Premium on bonds payable P150,000
Bond issue cost 90,000
Accrued interest 540,000
Bonds payable due January 2015 interest at 12% payable 9,000,000
semi-annually on January 1 and July 1

On January 1, 2011, the following took place: Cash of P11,700,000 was made available from the sale of
P12,000,000 of 10-year 10% bonds. Cash from the new issue was used for the retirement of the 12% bonds at a
call price of 102.

Prepare the pertinent entries

11. Amortization of Bond Issue Costs Using Effective Interest Method

On January 1, 2011, CNN Company issued a 3-year bond with face value of P1,000,000 and a 9% stated rate.
The bonds mature on January 1, 2014 and interest is payable annually on December 31. The bonds are issued
with an effective yield of 10%. The company also paid bond issue costs. Because of the bond issue costs, the
adjusted effective rate is 11%.

Required:
a. Compute for the bond issue cost.
b. Prepare the amortization table using effective interest method.
c. Prepare all pertinent entries.

Homework on Bonds Payable

1. The records of Amy Company show the following information on December 31, 2011:
Bonds Payable P2,000,000
Discount on bonds payable 100,000
Ordinary Share Capital – 100,000 shares authorized ; 40,000 shares issued, P100 4,000,000
par
Accumulated Profits 1,000,000

The bonds are convertible into 7 ordinary shares for every P1,000 bond. On December 31, 2011, the entire bond
issue was converted and on this date, the market value of the share is P120 and the bonds P102.

Required: Prepare the journal entry for the conversion of the bonds on December 31, 2011.

2. On February 1, 2011, Maxine Inc. issued a P2,500,000 of 12% bonds at 104 which are due on January 31, 2016. In
addition, each P1,000 bond was issued 15 detachable warrants each of which entitled the bondholder to purchase for
P50 one ordinary share of Maxine Inc. with a par value P25. On February 1, 2011, the fair market value of the
ordinary share was P40 per share, the fair market value of the warrant was P4 and the fair market value of the bond
ex-warrant was 101.

What amount should the corporation record on February 1, 2011 as carrying value of the bonds?

3. During 2011, Donna Company incurred the following costs in connection with the issuance of bonds:
Printing and engraving P50,000
Legal expenses 275,000
Fees paid to independent accountants for registration information 35,000
Commissions paid to underwriters 300,000

What amount should be recorded as bond issue cost to be amortized over the term of the bonds?

4. On January 1, 2011, Edith Co. sold 12% bonds with a face value of P500,000. The bonds mature in 5 year and
interest is paid semi-annually on June 30 and December 31. The bonds were sold for P538,500 to yield 10%.

Using the effective interest method, how much is interest expense for year 2011?

5. On July 1, 2011, Rodiel Company issued 200 of its 10% P1,000 bonds at a price that will yield a 12% effective interest
plus accrued interest. The bonds are dated April 1, 2011 and mature on April 1, 2019. Interest is payable semi-
annually on April 1 and October 1.

What amount did Cora receive from the bond issuance?

6. On January 1, 2011, Helen Company issued its 10% bonds in the face amount of P4,000,000 which mature on
January 1, 2017. The bonds were issued for P4,540,000 to yield 8%. Helen uses the effective interest method of
amortizing bond premium. Interest is payable annually on December 31.

At December 31, 2011, what is the adjusted unamortized bond premium of Helen Co.?

7. On July 1, 2009, Nimpha Inc. issued 9% bonds in the face amount of P1,000,000 which mature on July 1, 2018. The
bonds were issued for P939,000 to yield 10%. Nimpha uses the effective interest method of amortizing bond
discount. Interest is payable annually on June 30.

At June 30, 2011, what is Nimpha’s adjusted unamortized bond discount?

8. On January 1, 2011, Mavic Co. sold P500,000 of its 10% bonds for P442,648 to yield 12%. Interest is payable semi-
annually on January 1 and July 1.

What amount should Mavic Company report as interest expense for the six months ended June 30, 2011?

9. Gina Industries Inc. issued P2,000,000 of 8% debentures on May 1, 2010 and received cash totaling P1,774,526. The
bonds pay interest semi-annually on May 1 and November 1. The maturity date on these bonds is November 1, 2018.
The firm uses the effective interest method. The bonds were sold to yield an effective interest rate of 10%.
 Calculate the total amount of discount or premium amortization during the first year (5/1/10 through 4/30/11)
these bonds were outstanding.

10. On June 1, 2010, Neil Bottling Company sold P500,000 in long-term bonds for P438,800. The bonds will mature in 10
years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of
each year. The bonds are to be accounted for under the effective interest method.

Calculate the carrying amount of the bonds at December 31, 2011.

REVIEW QUESTIONS
Accounting Changes
1. What is the objective of PAS No. 8?
2. What are accounting policies? Give examples.
3. What is a change in accounting estimate? Give examples.
4. What are prior period errors?
5. What is the meaning of retrospective application?
6. What is the meaning of prospective application?
7. How are changes in accounting policies applied?
8. How are changes in accounting estimates applied?
9. How are changes in reporting entity applied?
10. How are material prior period errors corrected in the financial statements?

Classroom Exercises on Accounting Changes

1. Pink Panther Company purchased a machine on January 1, 2008 for P3,000,000. At the date of acquisition, the
machine had a life of six years with no salvage value. The machine is being depreciated on a straight line basis. On
January 1, 2011, Pink Panther Company determined that the machine had a useful life of eight years from the date of
acquisition with no salvage value. What should be the depreciation for the year 2011?

2. During 2011, Mr. Bean Company decided to change from FIFO method of inventory valuation to the weighted average
method. Inventory balances under each method were as follows:
FIFO Weighted Average
January 1 P710,000 P770,000
December 31 790,000 830,000

Ignoring income tax, in its year 2011 statement of retained earnings, what amount should Mr. Bean Co. report as the
effect of the accounting change?

3. On January 2, 2010 Mr. Simpson Company acquired Bart Inc.’s ordinary shares to be held as “available for sale,” as
follows:

Date Interest Acquisition cost BV acquired Excess of cost

Jan. 1, 2010 15% 2,500,000 2,000,000 500,000
Jan. 1, 2011 30% 5,000,000 4,000,000 1,000,000

The excess of cost is attributable to investee’s undervalued depreciable assets with remaining life of 5 years.

Bart reported the following net income and dividends:

Net income Cash dividends

2010 2,000,000 700,000
2011 3,000,000 1,200,000

Prepare necessary journal entries in 2010 and 2011.

Homework on Accounting Changes

 1. On January 1, 2008, Carrot Company purchased a machine for P2,640,000 and depreciated it by the straight line
method using an estimated life of 8 years with no salvage value. On January 1, 2011, Carrot Company
determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value
of P240,000. An accounting change was made in 2011 to reflect these additional data.

How much is accumulated depreciation for this machine on December 31, 2011?

2. During 2011, Dish Company determined that machinery previously depreciated over a seven-year life had a total
estimated useful life of only five years. An accounting change was made in 2011 to reflect the change in
estimate. If the change had been made in 2010, accumulated depreciation would have been P800,000 at
December 31, 2010 instead of P600,000. As a result of this change, the 2011 depreciation expense was P50,000
greater. The income tax rate was 35%.

What amount of adjustment should be made on retained earnings to effect the change in estimated
useful life of the machinery?

3. On January 1, 2009, Egg Company purchased for P2,400,000 a machine with a useful life of ten years and no
salvage value. The machine was depreciated by the double declining balance method and the carrying amount of
the machine was P1,536,000 on December 31, 2010. Egg Co. changed to the straight line method on January 1,
2011. Egg Co. can justify the change.

What should be the depreciation expense on this machine for the year ended December 31, 2011?

4. On January 1, 2011, Bread Company changed its inventory cost flow method to FIFO from LIFO for both financial
statement and income tax reporting purposes to comply with the new standard. The change resulted in a
P600,000 increase in the beginning inventory at January 1, 2011.

Prepare a journal entry to effect this change.

Classroom Exercises on Non-Current Asset Held for Sale

and Discontinued Operations

1. On March 31, 2009, Bailey Company has a building with a cost of P5,000,000 and accumulated depreciation of
P3,900,000. The company commits to a plan to sell the building by January 7, 2010. On March 31, 2009, the building
has an estimated selling price of P1,000,000, and it is estimated that selling costs associated with the disposal of the
building will be P150,000. On December 31, 2009, the estimated selling price of the building has increased to
P1,500,000, with estimated selling costs remaining at P150,000.

Required:
Make the journal entries necessary to record
a. the initial classification of the building as held for sale on March 31, 2009, and
b. any adjustment necessary on December 31, 2009.

2. On April 1, 2009, Graphitic Company has machinery with a cost of P2,500,000 and accumulated depreciation of
P1,900,000. On April 1, Graphitic decided to sell the machine within one year. As of April 1, 2009, the machine had an
estimated selling price of P250,000 and remaining useful life of 2 years. It is estimated that selling costs associated
with the disposal of the machine will be P25,000. On December 31, 2009, the estimated selling price of the machine
had increased to P375,000, with estimated selling costs increasing to P40,000.

a. Make the entry to record the initial classification of the machine as held for sale on April 1, 2009.
b. Determine the carrying value of the machinery – held for sale on December 31, 2009.

3. An entity is planning to dispose of a collection of assets. The entity designates these assets as a disposal group. The
carrying amount of these assets immediately before classification as held for sale was P20 million. Upon being
classified as held for sale, the assets were revalued to P18 million. The entity feels that it would cost P1 million to sell
the disposal group. What would be the carrying amount of the disposal group in the entity's statement of financial
position after its classification as held for sale?

4. Determine if the following activities are discontinued operations. All companies have their financial year end at
December 31. Explain your answers.
 a. Springtime Company has three product groups which are reported as separate segments: baby’s clothes, baby
dolls and office equipment. In June 2007, management decided to dispose of one of its subsidiaries, Jolli,
included in the baby doll segment. In mid September, management announced its plan to dispose of Jolli. Jolli is
selling baby dolls all over Asia and is profitable.

b. Summer Company has four segments: soft drinks, ice cream, real estate and insurance. Management has
decided to discontinue producing ice cream containing nuts. Instead, it will add ice cream containing fruits to its
assortment.

c. The processed meat division, one of the segments of Fall Corporation has been operating at a loss since 2005.
In 2008, the board of directors has been discussing during several of its meetings whether to dispose of this
segment. The board cannot agree whether to continue the segment’s activities. In its October 2008 board
meeting, the board members finally agree to dispose of at least some of the facilities within the processed meat
division in the remaining quarter of the year. In 2009, some other facilities within the segment would probably be
disposed of.

d. In September 2008, the management of Winter Company decided to close one of its three facilities in the United
States as it is much cheaper to produce its products in the Philippines. The facilities are included in the cosmetics
segment together with the facilities in the United States, Spain and the Philippines. Management has already
formalized the plan and informed its employees of its decision.

e. Four Seasons Inc. has four different business segments. One of the segments is producing desiccated coconut
candies. The factories where these are produced are located in fields where the coconut trees are grown.
These are situated in Southern Luzon. In November 2008, management decided to dispose of this segment and
worked out a detailed plan for the disposal. Management announced its plan to the press after its January 2009
board meeting.

5. Feather Corporation has four segments: telecommunications, biomedical research, IT consulting and cars. The car
segment is deemed inconsistent with the long term direction of the company, which is to concentrate on products and
services for the “new economy”.

On September 30, 2009, the board of directors voted in favor of a disposal plan which would either try to sell off the
car segment as a whole or, if not successful by the end of 2009, dispose of the assets in the segment in a piecemeal
fashion. An announcement of the plan was made the same day. A month later the company enters into a legally
binding sales agreement with one of the major car producers in the world. The parties expect the sale to be
completed in February 2010.

The following information for the car segment is available for the financial year 2009.

Carrying amount at Recoverable amount at Carrying amount at

September 30 September 30 December 31
Assets P9,000,000 P8,000,000 P8,000,000
Liabilities 4,000,000 4,000,000 4,000,000
Equity 5,000,000 4,000,000 4,000,000

Revenue 6,000,000
Operating expenses 2,500,000
Financial expenses 500,000

The sales agreement obliges management of Feather Corporation to terminate the employment of certain employees
in the car segment. The expected termination cost is P800,000. The necessary adjustment to the amounts above
has not yet been made.

Required:

As you are aware, information relating to a discontinued operation should be presented separately from continuing
operations. You should now prepare the income statement for the car segment (the discontinued operation) for year
2009. Assume a corporate tax of 30%.

Also comment on what other information must be given regarding the discontinued operation.
 Homework on NCA-Held-for-Sale and Discontinued Operations

1. On May 1, 2009 Ruby Corporation approved a plan to dispose of a business segment. It is expected that the sale
will occur on March 31, 2010. On December 31, 2009, the carrying amount of the net assets of the segment was
P3,000,000 and the net recoverable amount was P2,700,000. During 2009, the company paid employee
severance and relocation costs of P150,000 as a direct result of the discontinued operation. The revenues and
expenses of the discontinued segment during 2009 were:
Revenues Expenses
January 1 to April 30 P2,250,000 P3,000,000
May 1 to December 31 1,050,000 1,350,000

How much will be reported as loss from ordinary activities of the discontinued segment for the year 2009?

2. On October 1, 2009 Jasper Corporation approved a formal plan to sell a business segment. The sale will occur
on March 31, 2010. The segment had operating income of P2,000,000 from January 1 to September 30 and
P375,000 for the quarter ended December 31, 2009. On December 31, 2009, the carrying amount of segment
was P3,000,000 and the recoverable amount was P3,750,000. The income tax rate is 30%.

How much will be reported as income from ordinary activities of the discontinued segment, net of tax for the year
2009?

3. On January 1, 2009, Emerald Company entered into an agreement to sell the assets and product line of a
business segment. The sale was consummated on December 31, 2009 and resulted in a gain on disposition of
P1,125,000. The segment’s operations resulted in income before tax of P375,000 in 2009 and P562,500 in 2008.
The income tax rate is 30%.

In the comparative income statements for 2009 and 2008, how much should Emerald Company report as income
from ordinary activities of the discontinued segment for the period ending 2009 and 2008?

4. Onyx Company had net income of P2,295,000 for the year ended December 31, 2009 after giving effect to the
following events which occurred during the year. The decision was made January 2 to discontinue the plastics
manufacturing segment. The plastics manufacturing segment was sold June 30. Operating loss from January 1
to June 30 for the plastics manufacturing segment amounted to P150,000 before tax benefit. Plastics
manufacturing equipment with a book value of P1,500,000 was sold for P1,837,500. The tax rate was 30%.

For the year ended December 31, 2009, how much was Onyx Company’s after tax income from continuing
operations?

5. Silver Company considers a restructuring plan to commit a disposal of its garment machine and its financial
implication. The carrying amount of the machine is P188,700. The machine’s value in use before the
reclassification is P180,000. ESL expects the fair value of the machine is P184,000 while its cost to sell is
P24,000. Determine impairment loss.

6. Diamond Manufacturing Group has a disposal group held for sale with the following details:
Goodwill P 306,000
Property, plant and equipment 840,000
Intangible assets 480,000
Investment property 254,700
Carrying amount of disposal group P1,880,700

The investment property is measured by using the fair value model, and its fair value is P225,000 at the date of
the disposal group being reclassified as held for sale under PFRS 5. Other assets have already been re-
measured in accordance with the applicable accounting standards before the reclassification as held for sale. The
fair value less costs to sell of the disposal group is P1,500,000.

Determine impairment loss and evaluate the financial implication of the reclassification of the disposal group as
held for sale.
 7. On January 1, 2009, Gold Company acquired a motor vehicle with an estimated useful life of 10 years at
P1,200,000 (with no residual value and depreciated on a straight-line basis). After the receipt of the vehicle 5 days
later, ATA decided to sell it. The planned disposal fulfilled the criteria under PFRS 5, and the fair value less
estimated costs to sell is also around P1,200,000.

At year-end of 2009, ATA decided to withdraw the sale and use the vehicle for its own use.

Calculate the income statement effect of the changes to a plan of sale assuming that at year-end the estimated
recoverable amount is (a) P1,125,000 or (b) P900,000.

REVIEW QUESTIONS
Cash Basis and Accrual Basis
1. When are revenues recognized under the accrual basis?
2. When are expenses recognized under the accrual basis?
3. What are the three expense recognition criteria under accrual basis?
4. When are revenues recognized under the pure cash basis?
5. When are expenses recognized under the pure cash basis?
6. How are property assets treated under the pure cash basis?
7. What is the modified cash basis?
8. What is the extent of modifications that may be done under the modified cash basis?
9. How are accrual basis financial statements prepared from cash basis records?
10. What are the procedures when converting from cash basis to accrual basis?

CLASSROOM EXERCISES
CUSTOMER LOYALTY PROGRAMMES

Awards supplied by the entity

1. A grocery retailer operates a customer loyalty programme. It grants programme members loyalty points when
they spend a specified amount on groceries. Programme members can redeem the points for further groceries.
The points have no expiry date. In one period, the entity grants 100 points. Management expects 80 of these
points to be redeemed. Management estimates the fair value of each loyalty point to be P1 per unit and defers
revenue of P100.

At the end of the first year, 40 of the points have been redeemed in exchange for groceries. In the second year,
management revises its expectations. It now expects 90 points to be redeemed altogether. During the second
year, 41 points are redeemed. In the third year, a further nine points are redeemed and management continues
to expect that only 90 points will ever be redeemed.

Compute the revenue earned for year 1, year 2 and year 3.

Awards supplied by a third party.

2. A retailer of electric goods participates in a customer loyalty programme operated by an airline. It grants
programme members one air travel point with each P1 they spend on electrical goods. Programme members can
redeem the points for air travel with the airline, subject to availability. The retailer pays the airline P0.009 for each
point.

In one period, the retailer sells electrical goods for consideration totaling P1 million. It grants 1 million points. The
retailer estimates that the fair value of a point is P0.01.

1. How much is the allocation of consideration to travel points?

2. When is revenue from loyalty awards recognized?
3. If the retailer has collected the consideration allocated to the points on its own account, how
much is the revenue allocated to them?
 4. If the retailer has collected the consideration on behalf of the airline, how much is the revenue
allocated to them?

REVIEW QUESTIONS
Single Entry Bookkeeping System or Incomplete Records
1. What is the double entry bookkeeping system?
2. What is the single entry bookkeeping system?
3. What are the characteristics of a single entry system?
4. What are the usual books maintained under the single entry system? Briefly describe each.
5. What documents may be used in determining the cash balance?
6. What documents may be used in determining the receivables balance?
7. What documents may be used in determining the payables balance?
8. How is owner’s equity determined under the single entry system?
9. How is net income computed under the single entry system?
10. How is the income statement prepared under the single entry system?

REVIEW QUESTIONS
Statement of Cash Flow

1. What is the statement of cash flows?

2. What is the objective of a statement of cash flows?
3. How might a statement of cash flows be used?
4. What is the meaning of ‘cash equivalent’?
5. What are the examples of cash equivalents?
6. What are the required classifications of cash flows under PAS 7?
7. What the two methods of reporting cash flows from operating activities?
8. Explain the differences between the direct method and indirect method of reporting cash flows from operating activities.
9. Explain the treatment of non-cash investing and financing transactions.
10. Explain the treatment of the following in a statement of cash flows:
 Dividend received
 Dividend paid
 Interest received
 Interest paid
 Income taxes

Classroom Exercises on Statement of Cash Flows

1. At December 31, 2011, Actfin Company had the following balances in the accounts it maintains at
Security Bank:

Checking account No. 401 P1,200,000

Checking account No. 402 (150,000)
Money market account 750,000
BSP treasury bill, 90 days due March 1, 2012 450,000
Time deposit 120 days due January 31, 2012 600,000

In its December 31, 2011 statement of financial position, what amount should Actfin report as cash
equivalents?

2. The following information is available from the accounting records of Acmod Corporation for the year
ended December 31, 2011:

Cash received from customers P7,500,000

Rent received 150,000
Interest received 75,000
 Cash paid to suppliers and employees 4,500,000
Taxes paid 300,000
Interest paid on long term debt 600,000
Cash dividends paid 750,000

How much is the net cash provided by operating activities for 2011?

3. The income statement of Actwo Company for 2011 contains the following:
Revenue from sales P5,000,000
Cost of goods sold 3,000,000
Selling expenses 250,000
Depreciation and amortization 200,000
Salaries 300,000
Finance cost 50,000
Income tax expense 400,000
Net income 800,000

▪ All sales were for cash except a P50,000 sale resulting in the acceptance for one-year 12% note receivable and a
P100,000 sale resulting in the acceptance of a tract of land valued at P100,000.
▪ Accrued salaries at December 31, 2010 and 2011 were P50,000 and P40,000 respectively.
▪ Finance cost includes P5,000 of amortization of bond discount.
▪ Income tax expense includes P50,000 of deferred tax liability.

How much is the cash provided by operating activities during 2011?

4. Actpri Corporation reported net income of P1,500,000 for 2011. Changes occurred in several balance sheet accounts during
2011 as follows:

Investment in ACT Company shares carried on the equity basis P55,000 increase
Accumulated depreciation, caused by major repair to project equipment 21,000 decrease
Premium on bonds payable 14,000 decrease
Deferred tax liability 18,000 increase

In the 2011 cash flow statement, how much is the reported net cash provided by operating activities?

5. During 2011, Audpra Company has the following activities related to its financing operations:

Payment for the early retirement of long-term bonds payable (carrying amount is P3,700,000
P3,800,000)
Payment in 2011 of cash dividend declared in 2010 to preference shareholders 300,000
Carrying amount of convertible preference shares converted into ordinary shares 600,000
Proceeds from sale of treasury shares (carrying amount at cost, P430,000) 500,000

In the 2011 cash flow statement, how much is the net cash used in financing activities?

6. The following information pertains to Actdev Company for the year ended December 31, 2011:

Ending Balances Beginning

Balances
Accounts receivable P10,000 P12,000
Allowance for bad debts 2,900 2,500
Sales for the year 50,000
Net income for the year 5,000
Bad debt expense for the year 1,000
Write-off of uncollectible amounts for the year 600
Cash expenses for the year 44,000

How much is the net cash flows from operating activities?

 7. Advacost Company entered into the following transactions during the year:

Purchase of trading securities P500,000

Sale of trading securities 220,000
Purchase of available-for-sale securities 900,000
Sale of available-for-sale securities 470,000

Advacost had no investment securities at the beginning of the year. The cost of the trading securities sold was
P300,000; the cost of the available-for-sale securities sold was P150,000. The market value of the remaining
securities on December 31 was as follows: trading securities, P310,000; available-for-sale securities, P460,000.
The net income for the year was P1,000,000. Assume that net income does not include any noncash items except
for those related to investment securities.

Compute (1) cash flow from operating activities

(2) cash flow from investing activities.

Homework on Statement of Cash Flows

Blest Corporation provides the following data:

Blest Corporation
Income Statement
For the year ended December 31, 2011

Revenue
Sales P1,600,000
Interest 10,000
Gain on sale of plant 8,000
Total P1,618,000
Expenses
Cost of goods sold P 960,000
Wages and salaries expense 240,000
Depreciation – plant and equipment 50,000
Finance Cost 8,000
Other expenses 152,000 1,410,000
Income before tax P208,000
Income tax expense 60,000
Income after tax P 148,000

Blest Corporation
Comparative Statements of Financial Position as at:

December 31, December 31, Increase

2007 2008 (Decrease)
Cash and cash equivalents P 120,000 P 109,100 P( 10,900)
Accounts receivable 140,000 158,000 18,000
Interest receivable 300 200 (100)
Inventory 130,000 140,000 10,000
Prepaid expenses 16,000 19,000 3,000
Plant and equipment 300,000 330,000 30,000
Investments 24,000 28,000 4,000
Intangibles - 30,000 30,000
P730,300 P814,300

Accounts payable P 84,000 P 90,000 6,000

Wages and salaries payable 8,000 10,000 2,000
 Accrued interest - 400 400
Other expenses payable 6,000 3,600 (2,400)
Income tax payable 38,000 48,000 10,000
Long-term borrowings 120,000 140,000 20,000
Share capital 400,000 400,000 -
Accumulated Profit 74,300 122,300 48,000
P730,300 P814,300

Additional information extracted from the company’s records:

1. Plant that had a written-down of P20,000 was sold for P28,000.

2. New equipment purchased for cash amounted to P100,000.
3. Investments of P4,000 and intangibles of P30,000 were acquired for cash.
4. A borrowing of P20,000 was made during the year and received in cash.
5. Dividends paid in cash were P100,000.

Required:

Prepare a cash flow statement for the year ended December 31, 2011 using the:
a. direct method
b. indirect method

REVIEW QUESTIONS
Interim Reporting

Answer the following questions:

1. What is “interim financial reporting”?

2. Explain the two views in presenting financial statements. Which view is generally acceptable?
3. What are the components of an Interim report?
4. Explain the presentation of interim financial statements.
5. Explain the treatment of contingencies in interim reporting.
6. Explain the treatment of uneven cost in interim reporting.
7. Explain the treatment of a change in accounting policy in interim reporting.
8. Explain the treatment of year-end bonuses in interim reporting.
9. Give examples of disclosures required in a condensed interim financial report.
10. Explain the treatment of inventory in interim reporting.

CLASSROOM EXERCISES ON INTERIM REPORTING

1. Psalm Company is in the process of developing its first quarter interim report. It has
developed the following condensed trial balance of March 31, 2011:

Cash P1,000,000
Accounts receivable 2,000,000
Inventory 1,500,000
Prepaid insurance 400,000
Note receivable 5,000,000
Land 1,500,000
Building and Equipment 18,000,000
Accounts payable P8,500,000
Share capital 5,000,000
Share premium 4,000,000
Retained earnings 9,500,000
Sales 25,000,000
Purchases 17,000,000
Selling expenses 3,200,000
Administrative expenses 2,400,000
 P52,000,000 P52,000,000

Additional information:
1. Uncollectible accounts typically average 1% of net sales.
2. On January 1, 2011, building and equipment have an average life of 10 years. One-third of the account balance
consists of assets related to selling activities. The company uses the straight line method.
3. The note receivable is dated January 1, 2011, matures on January 1, 2013, and carries a 12% interest rate.
Interest will be collected annually starting January 1, 2012.
4. On January 1, 2011, the company had purchased a one-year insurance policy debiting the payment to prepaid
insurance.
5. The gross profit method is used to determine the interim inventory. Historical gross profit has averaged 40% of
net sales.
6. Assume the income tax rate is 35% and the income tax will be paid on or before April 15, 2012.

Require:
Prepare an income statement for the first quarter ending March 31, 2011 and a statement of financial position on
March 31, 2011 for Psalm Company.

2. Trisha Company prepares quarterly and year to date interim reports. The interim income statement for the quarter
ended March 31, 2011 is as follows:

Sales P7,500,000
Cost of sales (4,500,000)
Gross income 3,000,000
Dividend income 300,000
Total income 3,300,000
Selling expenses (900,000)
General expenses (500,000)
Depreciation (400,000)
Interest expense (100,000)
Income tax (400,000)
Net income P1,000,000

On June 30, 2011, the company accountant completed a worksheet in preparing the year to date income statement. The
worksheet showed the following income statement accounts:
Sales 20,000,000
Interest revenue 250,000
Dividend revenue 500,000
Cost of sales 11,500,000
Selling expenses 2,500,000
General expenses 1,100,000
Depreciation 700,000
Interest expense 300,000
Income tax expense 1,300,000

Required:
1. Prepare a year to date income statement for the first 6 months of 2011.
2. Prepare an interim income statement for the second quarter of 2011.

Classroom Exercises on Presentation of Financial Statements

1. Indicate the proper classification or presentation of the following items. Use the following classifications.

A Current assets D. Noncurrent liabilities

.
B. Noncurrent assets E. Equity
C Current liabilities F. Notes to financial statements
.
 1. Deficit
2. Available for sale securities
3. Revaluation surplus
4. Cash dividends payable
5. Investment in associates
6. Provisions for warranty
7. Sinking fund
8. Leasehold improvement
9. Long-term refundable deposit
10. Land held for future plant site
11. Retained earnings appropriated
12. Correction of error made last year when computing amortization resulting to understatement of
income previous year.
13. Stock dividends payable
14. Treasury stock
15. Franchise
16. Fully depreciated machinery still in use.
17. Advances to affiliated companies
18. Accrued interest on notes payable
19. Share capital
20. Accrued commission income

2. The following is Precious Company’s July 31, 2011 trial balance:

Cash overdraft P150,000

Accounts receivable, net P525,000
Inventory 870,000
Prepaid expenses 180,000
Land held for sale 1,500,000
Property, plant and equipment, net 1,425,000
Accounts payable and accrued expenses 480,000
Share capital 375,000
Share premium 2,250,000
Retained earnings ________ 1,245,000
Total P4,500,000 P4,500,000

Checks amounting to P450,000 were written to suppliers and recorded on July 30, 2011, resulting in a cash overdraft of P150,000.
The checks were mailed on August 10, 2011. Land held for resale was sold for cash on August 10, 2011.

Precious issued its financial statements on August 31, 2011. In its July 31, 2011 statement of financial position, what amount
should Precious Co. report as current assets?

3. Emerald Company provides the following on December 31, 2011:

Trade payable P300,000

Cash dividends payable 150,000
Dividends in arrears 75,000
Accrued expenses 15,000
Unearned interest income 7,500
Mortgage payable 225,000
Customers’ deposit 30,000
Appropriation reserve 37,500
Income tax withheld 22,500
Income tax payable 45,000

What amount should be reported as total current liabilities?

4. When preparing a draft of its December 31, 2011 balance sheet, Jasper Corporation reported net assets totaling P13,125,000.
Included in the asset section of the statement of financial position were the following:
 Treasury shares of Jasper at cost, which approximates market
value on December P375,000
Idle machinery 150,000
Cash surrender value of life insurance on corporate executives 225,000
Allowance for decline in value of inventory 75,000

At what amount should Jasper’s net assets be reported in the December 31, 2011 statement of financial position?

5. Onyx Company’s trial balance of income statement accounts for the year ended December 31, 2011 was as follows:

Net sales P12,000,000

Cost of sales P7,200,000
Marketing and distribution expenses 1,762,500
General and administrative expenses 1,125,000
Finance cost 187,500
Adjustment due to prior period error 300,000
Gain on sale of equipment 750,000
Total P10,575,000 P12,750,000

How much was the income before tax from continuing operations?

6. Ruby Corporation’s trial balance of income statement accounts for the year ended December 31, 2011 included the following:

Sales P4,500,000
Cost of goods sold P1,800,000
General expenses 450,000
Loss on sale of land 270,000
Commission expense 300,000
Interest income 150,000
Freight out 90,000
Loss on earthquake 300,000
Doubtful accounts 90,000 ________
P3,300,000 P4,650,000

In Ruby’s income statement for 2011, what is the income from continuing operations?

7. The expenses other than finance cost of Pearl Company for 2011 is 40% of cost of sales but only 20% of sales. Finance cost is 5%
of sales. The amount of purchases is 120% of cost of sales. Ending inventory is twice as much as the beginning. The income after
tax of 35% for the current year is P487,500.

What is the amount of sales for 2011?

Homework on Presentation of Financial Statements

The summarized general trial balance of Worthy Company, a manufacturing company, for the year ended 30 June 2011 is
detailed below:
Dr Cr
Accumulated depreciation – land and buildings 36 000
Accumulated depreciation – plant and equipment 564 000
Administration expenses 252 000
Allowance for doubtful debts 14 000
Bank loans 66 000
Cash on deposit, at call 150 000
Cash on hand 4 000
Cost of goods sold 2 987 000
Current tax payable 25 000
Deferred tax 135 000
Distribution expenses 86 000
 Dividends 150 000
Dividends reinvested 30 000
Employee benefit provisions 93 000
Finished goods 714 000
Goodwill 870 000
Income tax expense 85 000
Interest 6 000
Interest 44 000
Investments revaluation reserve, 30 June 2010 35 000
Land and buildings 257 000
Land revaluation reserve, 30 June 2010 15 000
Listed investments (available for sale) 225 000
Other borrowing expenses 4 000
Other debtors 93 000
Other loans 570 000
Patents 45 000
Plant and equipment 1 260 000
Raw materials 188 000
Retained earnings, 30 June 2010 326 000
Revaluation increment on available-for-sale investments 10 000
Revaluation increment on land 50 000
Sales and marketing expenses 820 000
Sales of goods P4 469 000
Share capital, 30 June 2010 1 541 000
Share issue 120 000
Short-term borrowings 50 000
Tax on investment revaluation increment P3 000
Tax on land revaluation increment 15 000
Trade creditors 510 000
Trade debtors 450 000
Warranty provision 37 000

Additional information
▪ P30 000 of bank loans is repayable within one year.
▪ P110 000 of other loans is repayable within one year.
▪ Employee benefit provisions include P62 000 payable within one year.
▪ The warranty provision is in respect of a nine-month warranty given on certain goods sold.

Required

Prepare the statement of financial position, statement of comprehensive income and statement of changes in
equity of Worthy Company for the year ended 30 June 2011 in accordance with the requirements of PAS 1, using
statement captions that a listed company is likely to use.