VII AUDIT OF LIABILITIES

SUMMARY OF PROBLEMS

PROBLEM NO. 1 Recognition and classification of liabilities

PROBLEM NO. 2 Classification of liabilities

PROBLEM NO. 3 Classification of liabilities

PROBLEM NO. 4 Audit of liability for premiums and warranties

PROBLEM NO. 5 Audit of provisions and contingencies

PROBLEM NO. 6 Audit of bonds payable (including preparation of adjusting journal entries)

PROBLEM NO. 7 Audit of bonds payable

PROBLEM NO. 8 Convertible bonds payable

PROBLEM NO. 9 Audit of leases

PROBLEM NO. 10 Audit of leases

PROBLEM NO. 11 Audit of income taxes

PROBLEM NO. 12 Audit of income taxes

PROBLEM NO. 13 Audit of long term liabilities

PROBLEM NO. 14 Audit of employee benefits

PROBLEM NO. 15 - Theory

usting journal entries)
PROBLEM NO. 1 - Comprehensive Entity

Requirement No. 1
NP - Arising from purchase of goods 304,000 Trade and other payables
NP - Arising from 5 year-bank loans, P400,000 due on
500,000 Borrowings
June 30, 2013; P100,000 due on Dec. 31, 2013
NP - Arising from advances by officers, due June 30,
50,000 Trade and other payables
2013
Employees income tax withheld 20,000 Trade and other payables
Trade and other
Advances received from customers on purchase orders 64,000 payables or Separate
item
Containers deposit 50,000 Trade and other payables
Accounts payable arising from purchase of goods -
200,000 Trade and other payables
gross (P170,000+P30,000)
AR with credit balance 40,000 Trade and other payables
Cash dividends payable 80,000 Trade and other payables
First mortgage serial bonds - current portion (P50,000 x 2) 100,000 Borrowings - separate item
Overdraft with Allied Bank 90,000 Borrowings
Estimated liability for damages 160,000 Provisions
Estimated liability on meeting guarantee for service
120,000 Provisions
requirements on merchandise sold
Estimated liability for premiums 75,000 Provisions
Trade and other
Deferred revenue 87,000 payables or Separate
item
Accrued interest on bonds payable 360,000 Trade and other payables
Current liabilities 2,300,000

Requirement No. 2
Convertible bonds, due January 31, 2014 1,000,000 Separate item
First mortgage serial bonds - noncurrent portion (P2M - P.1M 1,900,000 Separate item
Noncurrent liabilities 2,900,000

Items not included:

Reserve for general contingencies - Equity
AP with debit balances - Trade and other receivables
Accounts receivable gross - Trade and other receivables
Share dividends payable - Equity
Dividends in arrears on preference shares - Disclose only
Cash in bank balance with PNB - Cash and cash equivalents
Share warrants outstanding - Equity (share premium)
Share options outstanding - Equity (share premium)
Unused letters of credit - Contingent liability
Notes receivable discounted - Contingent liability

Treatment of additional information:

Note refinancing - disclose
Lawsuit filed by former employee - ignore
PROBLEM NO. 2 - Okey Corporation

Requirement No. 1
Accounts payable 650,000 Trade and other payables
Notes payable trade 190,000 Trade and other payables
Notes payable bank (payable on demand) 300,000 Borrowings
Wages and salaries payable 15,000 Trade and other payables
Interest payable 143,000 Trade and other payables
Mortgage notes payable 10% (with breach of
600,000 Borrowings
covenant)
Mortgage notes payable 12% (current portion) 40,000 Borrowings - separate item
Bonds payable (due, 6/30/13) 2,000,000 Borrowings
Current liabilities 3,938,000

Requirement No. 2
Notes payable bank (refinanced) 500,000 Separate item
Mortgage notes payable 12% (noncurrent portion) 1,460,000 Separate item
Noncurrent liabilities 1,960,000
PROBLEM NO. 3 - Dallas Corporation

Requirement No. 1
Notes payable - current (maturing up to 3/31/13) 2,400,000
Accrued interest - notes payable 340,000
Estimated warranty payable (P252,000 + P630,000 - P537,000) 345,000
Accounts payable 560,000
Cash dividends payable (5 million shares x P0.30) 1,500,000
Accrued interest - bonds payable (P5,000,000 x .12 x 6/12) 300,000
Total current liabilities 5,445,000

Requirement No. 2
Bonds payable:
Face value 5,000,000
Unamortized bond discount (P200,000 x 4.5/10) (90,000) 4,910,000
Notes payable - non current 2,700,000
Total non current liabilities 7,610,000
PROBLEM NO. 4 - Nuggets Music Emporium

Requirement No. 1
Warranty expense (P5,400,000 x .02) 108,000

Requirement No. 2
Estimated liability from warranties, 1/1/12 136,000
Add warranty expense for 2012 108,000
Total 244,000
Less actual expenditures for 2012 164,000
Estimated liability from warranties, 12/31/12 80,000

Requirement No. 3
Premium expense [(1,800,000 x .6)/200 x P14] 75,600

Requirement No. 4
Inventory of premium, 1/1/12 39,950
Add premium purchases (6,500 x P34) 221,000
Total premiums available 260,950
Less premiums issued (1,200,000/200 x P34) 204,000
Inventory of premiums, 12/31/12 56,950

Requirement No. 5
Estimated premium claims outstanding, 1/1/12 44,800
Add premium expense for 2012 75,600
Total 120,400
Less premiums issued (1,200,000/200 x P14) 84,000
Estimated premium claims outstanding, 12/31/12 36,400
PROBLEM NO. 5 - Magic Corporation
Requirement No. 1
No defects - 85% -
Minor defects (P1,500,000 x .13) 195,000
Major defects (P7,500,000 x .02) 150,000
Increase in provision in 2012 345,000
Unused amounts reversed in 2012 (P180,000 - P75,000) (105,000)
Warranty expense in 2012 240,000

Requirement No. 2
Balance, 1/1/12 (P405,000+270,000) 675,000
Amounts used in 2012 (300,000)
Increase in provision in 2012 345,000
Unused amounts reversed in 2012 (105,000)
Balance, 12/31/12 615,000

Alternative computation:
New provision 345,000
Balance of provision from 2010 payable in 2012 270,000
Balance, 12/31/12 615,000

Current portion of Provision for warranties

Balance of provision from 2011 payable in 2013 270,000
2012 provision:
Minor defects 195,000
Major defects (P150,000 x .2) 30,000
495,000

Requirement No. 3
Provision for warranties, 12/31/12 615,000
Less current provision for warranties 495,000
Noncurrrent provision for warranties 120,000

Notes:
1. The expected overhaul is not a provision, as the entity has no present
obligation to conduct the overhaul. Rather, it is evidence that the
conveyer belts useful life has been shortened.
2 . The unpaid amount of P500,000 owing as a result of the peanut allergy case
should be included as part of trade and other payables as there is no uncertainty
regarding timing or amount of settlement and hence it is not a provision.
3. The entity's guarantee of the loan made by Choko Bank to UN Ltd
would be disclosed as a contingent liability rather than recorded as a provision
because UN Ltd was in a strong financial position at 31 December 2011
and therefore whilst the entity has a present obligation under the guarantee,
it is not probable that an outflow of economic benefits will be required to settle
the obligation.
PROBLEM NO. 6 - Bulls Company

Requirement No. 1.a

Total bonds issued 1,600,000
Face value of bonds retired {P216,000/[1.05 + (.12 x 3/12)]} 200,000
Adjusted balance of bonds payable, 12/31/12 1,400,000

Requirement No. 1.b

Unamortized bond premium, 12/31/12 (P80,000 x 14/16 x 20/25) 56,000

Requirement No. 1.c

Nominal interest
Remaining bonds (P1,400,000 x .12) 168,000
Bonds retired (P200,000 x .12 x 9/12) 18,000
Total 186,000
Less premium amortization
Bonds retired (P80,000/25 x 2/16 x 9/12) 300
Remaining bonds (P80,000/25 x 14/16) 2,800 3,100
Bond interest expense 182,900

Requirement No. 1.d

Carrying amount of bonds retired
Face value 200,000
Unamortized bond premium
(P80,000 x 2/16 x 20.25/25) 8,100 208,100
Redemption price (P200,000 x 1.05) 210,000
Gain (Loss) on bond redemption (1,900)

Requirement No. 2

AJE 1 - To correct recording of bond retirement (see requirement 1.d)

Bonds payable 200,000
Premium on bonds payable 8,100
Interest expense (P200,000 x .12 x 3/12) 6,000
Loss on bond retirement 1,900
Treasury bonds 216,000

AJE 2 - To correct non-recording of premium amortization

Premium on bonds payable 15,900
Retained earnings (P80,000 x 4/25) 12,800
Interest expense (see requirement 1.c) 3,100

AJE 3 - To correct entry made on 1/1/12 on Interest expense

Retained earnings 96,000
Interest expense 96,000

AJE 4 - To correct non-accrual of interest expense at 12/31/12

Interest expense (P1.4M x .12 x 6/12) 84,000
Interest payable 84,000
PROBLEM NO. 7 - Thunder Corporation
Requirement No. 1
PV of principal (P2,000,000 x 0.6499) 1,299,800
PV of interest [(P2,000,000 x .11) x 3.8897] 855,734
Issue price 2,155,534

Requirement No. 2
Carrying amount, 1/1/11 (see no. 1) 2,155,534
Less premium amortization for 2011:
Nominal interest (P2,000,000 x .11) 220,000
Effective interest (P2,155,534 x .09) 193,998 26,002
Carrying amount, 12/31/11 2,129,532

Alternative computation:
PV of principal (P2,000,000 x 0.7084) 1,416,800
PV of interest [(P2,000,000 x .11) x 3.2397] 712,734
Carrying amount, 12/31/11 2,129,534

Requirement No. 3
Retirement price 1,980,000
Carrying amount, 12/31/12:
Carrying amount, 12/31/11 (see no. 1) 2,129,532
Less premium amortization for 2012:
Nominal interest (P2,000,000 x .11) 220,000
Effective interest (P2,129,532 x .09) 191,658 28,342 2,101,190
Gain early retirement of bonds 121,190

Alternative computation:
PV of principal (P2,000,000 x 0.7722) 1,544,400
PV of interest [(P2,000,000 x .11) x 2.5313] 556,886
Carrying amount, 12/31/10 2,101,286
Retirement price 1,980,000
Gain early retirement of bonds 121,286

Requirement No. 4
Total proceeds 5,000,000
Less liability component:
Present value of the principal (P5,000,000 x 0.4970) 2,485,000
Present value of the interest [(P5,000,000 x .05 x 8.3838) 2,095,950 4,580,950
Equity component 419,050

Requirement No. 5
PV of principal (P1,500,000 x 0.5584) 837,600
PV of interest [(P1,500,000 x .05) x 7.3601] 552,008
Carrying amount, 7/1/12 1,389,608
Par value of shares issued (15,000 shares x P1) 15,000
Net increase in share premium 1,374,608
PROBLEM NO. 8 - Calauag Corporation
Requirement No. 1
Issue price 4,000,000
Less liability component:
PV of principal (P4,000,000 x 0.3427) 0.3427 1,370,800
PV of interest [(P4,000,000 x .05) x 11.9504] 11.9504 2,390,080
3,760,880
Equity component 239,120

Requirement No. 2
PV of principal (P4,000,000 x 0.5854) 0.5854 2,341,600
PV of interest [(P4,000,000 x .05) x 7.5376] 7.5376 1,507,520
Carrying amount, 12/31/11 3,849,120

Requirement No. 3
Carrying amount of bonds retired (P3,849,120 x 1/2) 1,924,560
PV of principal (P2,000,000 x 0.6756) 0.6756 1,351,200
PV of interest [(P2,000,000 x .05) x 8.1109] 8.1109 811,090
Retirement price - liability (Fair value of bonds retired, 1/1/12) 2,162,290 *bonds w/ out conversion right
Loss on retirement of bonds - profir or loss (237,730)
* This is the amount that you could h
Requirement No. 4
Retirement price (P4,400,000 x 1/2) 2,200,000
Less payment applied to liability component (see no. 3) 2,162,290
Retirement price - equity (residual amount) 37,710

Requirement No. 5
Ordinary shares to issued - amended terms (P2,000,000/P20) 100,000
Ordinary shares to issued - original terms (P2,000,000/P25) 80,000
Incremental ordinary shares to be issued 20,000

Fair value of incremental shares to be issued (20,000 x P32) 640,000

PROBLEM NO. 9 - Ebony/Ivory Ltd

Requirement No. 1
Computation of net investment in the lease:
Fair value of asset 467,100
Initial direct cost (IDC) 9,414
476,514

Using 6%: Cash flow PVF at 6% PV

PV of rental payments 150,000 2.6730 400,950
PV of GRV 60,000 0.8396 50,376
PV of MLP 451,326
PV of URV 30,000 0.8396 25,188
476,514
The interest rate implicit in the lease is the discount rate that, at the inception of the lease,
causes the aggregate present value of (a) the minimum lease payments and (b) the URV to be
equal to the sum of (i) the FV of the leased asset and (ii) any initial direct costs of the lessor.

Requirement Nos. 2&3

Refer to the amortization schedule below.
Amortization schedule (Lessor)
Date Payment Interest (6%) Principal C.A.
7/1/11 476,514
6/30/12 150,000 28,591 121,409 355,105
6/30/13 150,000 21,306 128,694 226,411
6/30/14 240,000 13,589 226,411 -

Requirement No. 4
Interest expense (see amortization schedule below) 27,080
Executory costs 15,000
Depreciation [(P451,326 - P60,000) / 3] 130,442
Lease related expenses 172,522

Requirement No. 5
Amortization schedule (Lessee)
Date Payment Interest (6%) Principal C.A.
7/1/11 451,326
6/30/12 150,000 27,080 122,920 328,406
6/30/13 150,000 19,704 130,296 198,110
6/30/14 210,000 11,890 198,110 -
PROBLEM NO. 10 - Jackie Corporation/Lessee Corporation

Requirement No. 1
Computation of net investment in the lease:
Fair value of asset 34,797
Initial direct cost (IDC) 1,000
35,797

Using 9%: Cash flow PVF at 9% PV

PV of rental payments 8,000 3.8897 31,118
PV of GRV 3,600 0.6499 2,340
PV of MLP 33,457
PV of URV 3,600 0.6499 2,340
35,797
The interest rate implicit in the lease is the discount rate that, at the inception of the lease,
causes the aggregate present value of (a) the minimum lease payments and (b) the URV to be
equal to the sum of (i) the FV of the leased asset and (ii) any initial direct costs of the lessor.

Requirement No. 2
Profit under operating lease (As recorded)
Rent income 8,000
Depreciation [(P34,797 - P2,000)/8] (4,100)
IDC amortization (P1,000/5) (200)
3,700
Profit under finance lease (Should be)
Interest income (P35,797 x .09) 3,222
Over (Under) 478

Requirement No. 3
Computation of present value of MLP:
PV of rental payments 8,000 3.8897 31,118
PV of GRV 3,600 0.6499 2,340
PV of MLP 33,457
The PV of the MLP is 96% (P33,457/P35,797) of the fair value of the leased asset.

Amortization schedule (Lessee)

Date Payment Interest (9%) Principal C.A.
1/1/12 33,457
12/31/12 8,000 3,011 4,989 28,468
12/31/13 8,000 2,562 5,438 23,030
12/31/13 8,000 2,073 5,927 17,103
12/31/14 8,000 1,539 6,461 10,642
12/31/15 11,600 958 10,642 -

Requirement No. 4
Cost 33,457
Guaranteed residual value (3,600)
Depreciable amount 29,857
/ Lease term 5
Annual depreciation 5,971

Requirement No. 5
Expenses under operating lease (As recorded)
Rent expense 8,000
Expenses under finance lease (Should be)
Interest expense 3,011
Depreciation 5,971 8,982
Over (Under) (982)

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 Therefore, profit is overstated.

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PROBLEM NO. 11 - Roy Ltd

Requirement No. 1
Accounting profit 256,700
Reversal of accounting items:
Royalty revenue (exempt from taxation) (8,000)
Gain on sale of building (P75,000 - P70,000)* (5,000)
Entertainment expense (non-deductible) 1,700
Depreciation expense - buildings 7,600
Depreciation expense - plant 22,500
Doubtful debts expense 4,100
Annual leave expense 46,000
Insurance expense 4,200
Development expense 15,000
344,800
Add (deduct) tax amounts:
Depreciation expense - plant (P150,000 x .2) (30,000)
Bad debts written off (item e) (3,500)
Annual leave paid (item d) (52,000)
Insurance paid (item d) (3,700)
Tax losses from prior years (item g) (12,500)
Taxable profit 243,100
Tax rate 30%
Current tax expense 72,930
* Non assessable since depreciation is not deductible for tax purposes

Requirement No. 2
Current tax expense (see no. 1) 72,930
Less quarterly income tax installments paid 53,500
Current tax payable 19,430

Requirement No. 3
Total taxable temporary differences (see analysis below) 27,000
Tax rate 30%
Deferred tax liability, 6/30/12 8,100

Requirement No. 4
Total deductible temporary differences (see analysis below) 29,100
Tax rate 30%
Deferred tax asset, 6/30/12 8,730

Comparison of carrying amount of asssets/liabilities and tax base

Carrying amount Tax base Difference Remarks
Accounts receivable 17,400 21,500 4,100 Deductible
Prepaid insurance 4,500 - 4,500 Taxable
Buildings 110,500 110,500 - Permanent
Plant 82,500 60,000 * 22,500 Taxable
Development expenditure - 15,000 15,000 Deductible
Annual leave 10,000 - 10,000 Deductible

* P150,000 x 2/5

Requirement No. 5
Ending Beginning Inc(Dec) Effect on tax expense
Deferred tax liability 8,100 27,270 (19,170) Credit
Deferred tax asset 8,730 9,600 (870) Debit

Journal entry:
Deferred tax liability 19,170
Deferred tax asset 870
Income tax expense 18,300
PROBLEM NO. 12 - Belen Corporation

Requirement No. 1
Accounting profit 18,500
Reversal of accounting items:
Depreciation - motor vehicle 4,500
Depreciation - equipment 20,000
Rent revenue (16,000)
Royalty revenue (exempt from taxation) (5,000)
Doubtful debts expense 2,300
Entertainment expense (non-deductible) 1,500
Gain on sale of equip. (P19,000 - P18,000) (1,000)
Annual leave expense 5,000
29,800
Add (deduct) tax amounts:
Depreciation - motor vehicle -
Depreciation - equipment (15,000)
Rent revenue collected (P16,000 + P2,400 - P2,800) 15,600
Royalty revenue (exempt from taxation) -
Bad debts written off (P2,500 + P2,300 - P3,000) (1,800)
Entertainment expense (non-deductible) -
Loss on sale of equip. - tax [P19,000 - (P30,000 x .7)] (2,000)
Annual leave paid (P5,000 + P6,000 - P4,500) (6,500)
Taxable profit 20,100
Tax rate 30%
Current tax expense 6,030

Requirement Nos. 2-4

Comparison of carrying amount of asssets/liabilities and tax base
Carrying
amount Tax base Difference Remarks
Receivables 9,000 12,000 3,000 Deductible
Rent receivable 2,800 - 2,800 Taxable
Motor vehicle 2,250 - 2,250 Taxable
Equipment 40,000 55,000 a 15,000 Deductible
Provision for annual leave 4,500 - 4,500 Deductible
a - [P100000-(P100000*0.15*3)]
b - (P12,000 + P3,000)

Requirement No. 2
Deferred tax liability, 12/31/12 (P5,050 x .3) 1,515

Requirement No. 3 6,750

Deferred tax asset, 12/31/12 (P22,500 x .3)

Requirement No. 4
Ending Beginning Inc(Dec) Effect on tax expense
Deferred tax liability 1,515 2,745 (1,230) Credit
Deferred tax asset 6,750 5,550 1,200 Credit

Journal entry:
Deferred tax liability 1,230
Deferred tax asset 1,200
Income tax expense 2,430
PROBLEM NO. 13 - Celtics Corporation

Requirement No. 1
15% Note payable, bank
Balance, 12/31/12 (P5,600,000 - P1,400,000) 4,200,000
Less installment due on April 1, 2013 1,400,000 2,800,000
Liability under finance lease
Balance, 12/31/11 430,000
Less principal payment on 12/31/12:
Total payment 100,000
Applicable to interest (P430,000 x .14) 60,200 39,800
Balance, 12/31/12 (see no. 1) 390,200
Less principal payment due on 12/31/13:
Total payment 100,000
Applicable to interest (P390,200 x .14) 54,628 45,372 344,828
10% bonds payable
Carrying amount, 7/1/12 1,774,000
Add discount amortization:
Effective interest (1,774,000 x .12 x 6/12) 106,440
Nominal interest (2,000,000 x .10 x 6/12) 100,000 6,440 1,780,440
Deferred income tax liability
Balance, 12/31/11 700,000
Effect of change in tax rate [(P700,000/.32 x .35) - P700,000] 65,625
Provision for deferred income tax (P312,500 x .35) 109,375 875,000
Total noncurrent liabilities, 12/31/12 5,800,268

Requirement No. 2
Note payable, bank - due 4/1/13 1,400,000
Finance lease liability - principal payment due on 12/31/13 (see no. 2) 45,372
Current portion of long-term liabilities, 12/31/12 1,445,372

Requirement No. 3
Note payable, bank
1/1 to 3/31 (P5,600,000 x .12 x 3/12) 168,000
4/1 to 12/31 (P4,200,000 x .12 x 9/12) 378,000 546,000
Liability under finance lease (see no. 1) 60,200
Bonds payable (1,774,000 x .12 x 6/12) 106,440
Total interest expense for 2012 712,640

Requirement No. 4
Note payable, bank (P4,200,000 x .12 x 9/12) 378,000
Bonds payable (P2,000,000 x .10 x 6/12) 100,000
Accrued interest payable, 12/31/12 478,000
PROBLEM NO. 14 - Mavericks Corporation

Requirement No. 1
Category A employees
[(32.5* days x P392.16**) + (32.5 days x P411.76***)] 26,127
Category B employees [(200 x 6 days x P50,000/255] 235,294
Category C employees (non-accumulating and non-vesting) -
Short-term employee benefits (holiday leave) 261,421
working days for the year (255) = [(365/7 x 5) - 6]
* {[(9 x 10) - 25]/2}
** P100,000/255
*** [(P100,000 x 1.05)/255]

Requirement No. 2
To be paid, 12/31/13 (Joined 12/31/08)
(P102,500* x .05 x 8 x 4/5 x 0.9524) 31,239
To be paid, 12/31/14 (Joined 12/31/09)
(P107,625* x .05 x 1 x 3/5 x 0.9009) 2,909
Other long term benefits - Category A employees 34,148

*Computation of expected salary:

For 2013: Jan - Jun (P100,000/2) 50,000
Jul - Dec (P100,000/2 x 1.05) 52,500 102,500
For 2014: Jan - Jun (P100,000/2 x 1.05) 52,500
Jul - Dec (P52,500 x 1.05) 55,125 107,625

Requirement No. 3
To be paid, 12/31/13 (Joined 12/31/08)
(P51,750* x .05 x .77** x 196 x 4/5 x 0.9524) 297,534
To be paid, 12/31/14 (Joined 12/31/09)
(P55,373* x .05 x .77 x 9 x 3/5 x 0.9009) 10,371
To be paid, 12/31/15 (Joined 12/31/10)
(P59,250* x .05 x .77 x 10 x 2/5 x 0.8547) 7,799
To be paid, 12/31/16 (Joined 12/31/11)
(P63,398* x .05 x .77 x 11 x 1/5 x 0.8) 4,296
Other long term benefits - Category B employees 320,000

*Computation of expected salary:

For 2013: Jan - Jun (P50,000/2) 25,000
Jul - Dec (P50,000/2 x 1.07) 26,750 51,750
For 2014: Jan - Jun (P50,000/2 x 1.07) 26,750
Jul - Dec (P26,750 x 1.07) 28,623 55,373
For 2015: Jan - Jun (P26,750 x 1.07) 28,623
Jul - Dec (P28,623 x 1.07) 30,627 59,250
For 2016: Jan - Jun (P28,623 x 1.07) 30,627
Jul - Dec (P30,627 x 1.07) 32,771 63,398
**Estimated payment for a five-year cycle (saving of 23% due to employees leaving before vesting)
Computation of saving: {[36 + (36/4)]/196}
Requirement No. 4
To be paid, 12/31/13 (Joined 12/31/08)
(P26,125* x .05 x .73** x 306 x 4/5 x 0.9524) 222,321
To be paid, 12/31/14 (Joined 12/31/09)
(P28,476* x .05 x .73 x 18 x 3/5 x 0.9009) 10,113
To be paid, 12/31/15 (Joined 12/31/10)
(P31,039* x .05 x .73 x 11 x 2/5 x 0.8547) 4,261
To be paid, 12/31/16 (Joined 12/31/11)
(P33,833* x .05 x .73 x 15 x 1/5 x 0.8) 2,964
Other long term benefits - Category C employees 239,659

*Computation of expected salary:

For 2013: Jan - Jun (P25,000/2) 12,500
Jul - Dec (P25,000/2 x 1.09) 13,625 26,125
For 2014: Jan - Jun (P25,000/2 x 1.09) 13,625
Jul - Dec (P13,625 x 1.09) 14,851 28,476
For 2015: Jan - Jun (P13,625 x 1.09) 14,851
Jul - Dec (P14,851 x 1.09) 16,188 31,039
For 2016: Jan - Jun (P14,851 x 1.09) 16,188
Jul - Dec (P16,188 x 1.09) 17,645 33,833
**Estimated payment for a five-year cycle (saving of 27% due to employees leaving before vesting)
Computation of saving: {[66 + (66/4)]/306}

Requirement No. 5
Short-term employee benefits (see no. 1) 261,421
Other long term employee benefits (long service awards)
Category A employees (see no. 2) 34,148
Category B employees (see no. 3) 320,000
Category C employees (see no. 4) 239,659 593,807
Post-employment benefits - defined contribution plan (pension) 100,000
Termination benefits (see computation below) 1,350,000
Total 2,305,228

*Computation of termination benefits:

Category A employees (P100,000 x 1) 100,000
Category B employees (P50,000 x 10) 500,000
Category C employees (P25,000 x 30) 750,000
1,350,000
PROBLEM NO. 15 - Theory

1 C
2 B
3 B
4 B
5 D
6 A
7 C
8 B
9 C
10 B
11 A
12 A
13 D
14 C
15 B
16 A
17 D
18 C
19 A
20 A