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CHAPTER 10

FINANCIAL STATEMENTS OF SMALL AND MEDIUM-SIZED ENTITIES


PROBLEMS
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Brook Corporation
Brooks Corporation
Statement of Income and Retained Earnings
For the Year Ended December 31, 2012
Sales
Cost of goods sold
Gross profit
Operating expenses
Profit from operations
Interest expense
Profit from continuing operations before income tax
Income tax expense
Profit from continuing operations
Discontinued operations, net of income tax of P12,000
Profit
Retained earnings, January 1, 2012
Correction of prior period error, net of income tax of P4,800
Cumulative effect of change in accounting policy, net of income tax of P7,200
Dividends declared in 2012
Retained earnings, December 31, 2012

P 400,000
(280,000)
P 120,000
(84,000)
P 36,000
4,000
P32,000
9,600
P22,400
28,000
P50,400
1,600,000
11,200
(16,800)
(12,000)
P1,632,800

10-2. SME Company


SME Company
Statement of Financial Position
December 31, 2012
Assets
Non-current Assets
Property, plant and equipment, net of accumulated depreciation of
P1,450,000
Investment property, at fair value
Total Non-current Assets
Current Assets
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful receivables of P200,000
Inventory
Total Current Assets
Total Assets

P2,874,000
2,500,000
P5,374,000
P 230,000
1,700,000
1,180,000
P3,110,000
P8,484,000

Liabilities
Non-current Liabilities
Long-term debt
Environmental provision
Total Non-current Liabilities
Current Liabilities
Trade payables and accrued expenses
Dividends payable
Current portion of long-term debt
Interest accrued on long-term debt
Income tax payable

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P1,800,000
281,000
P2,081,000
P 253,000
100,000
500,000
230,000
130,000

Chapter 8 Errors and their Corrections

10-3

Warranty provision
Total Current Liabilities
Total Liabilities

400,000
P1,613,000
P3,694,000

Shareholders Equity
Share Capital
Retained Earnings (2,390,000 + 1,000,000 100,000)
Total Shareholders Equity
Total Liabilities and Shareholders Equity

P1,500,000
3,290,000
P4,790,000
P8,484,000

Company Y
Sales
Cost of goods sold (2011 as previously reported 435,000)
Gross profit
Other income Change in fair value of investment in associate (2011
as previously stated P0)
Selling expenses
Administrative expenses
Profit before income tax
Income tax expense (2011 as previously reported P60,000)
Profit
Retained earnings, January 1
-as previously stated
-effect of correction of prior period cost of goods sold
-effect of change in accounting policy for investment in associate
Retained earnings, December 31

*Revised annual depreciation effective 2012


Cost
Accumulated depreciation, 1/1/12 60,000/4 x 2
Carrying value 1/1/12
Remaining revised life
(7-2)
Revised depreciation
Recorded depreciation for 2012
Effect on cost of goods sold
Cost of goods sold, before change in estimate
Revised cost of goods sold for 2012

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P60,000
30,000
P 30,000
5 years
6,000
P15,000
P( 9,000)
735,000
P724,000

2012
P1,040,000
(724,000)*
P 316,000

Restated
2011
P735,000
(500,000)
P235,000

50,000
(80,000)
(50,000)
P236,000
(70,800)
P 165,200

20,000
(50,000)
(50,000)
P155,000
(46,500)
P108,500

340,000
(45,500)
14,000
P473,700

P200,000
P308,500

Chapter 8 Errors and their Corrections

MULTIPLE CHOICE
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10
MC11
MC12
MC13

E
C
A
C
A
C
B
B
C
A
C
A
A

(4,600,000 4,500,000) + (4,800,000 5,200,000) = - 300,000 net decrease in FV


5,000,000/20 years = 250,000 depreciation
Cost: 101,000 Recoverable amounts: 2010: 102,000 4,000 = 98,000 (impaired); 2011:
110,000 -4,000 = 106,000 (not impaired) and 2012: 90,000 4,000 = 86,000 (impaired)
The investment is measured at cost because there is no published price quotation; and is
required to be tested for impairment. The investment is impaired at Dec. 31, 2010
(P98,000 being lower than P101,000) and 2012 (86,000 is lower than 101,000).

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