Applied Auditing 2017 Answer Key PDF

APPLIED
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
A guide in applying auditing procedures to specific

accounts of the financial statements.
TEACHERS MANUAL
2017
Edition
By
DARRELL JOE O. ASUNCION, MBA, CPA

MARK ALYSON B. NGINA, CMA, CPA
RAYMUND FRANCIS A. ESCALA, MBA, CPA
Dear fellow teacher,
This “Teacher’s Manual” should be used solely by the

teacher and for classroom purposes only. This manual
should NOT be reproduced either manually (e.g.,
printing or photocopy) or electronically (e.g., copying or
uploading in the net) without our written consent (or the
publisher’s written authorization).
If you have comments, queries or suggestions, please do

not hesitate to contact us at:
Telephone: 074-2441894
Mobile No.: Darrell Joe O. Asuncion – 0923-424-8286
Mark Alyson B. Ngina – 0915-510-7281
Raymund Francis A. Escala – 0917-715-1226
Email ad: appliedauditingnea@gmail.com.
Thanks and God bless.
Sincerely,
Darrell Joe O. Asuncion, MBA, CPA

Mark Alyson B. Ngina, CMA, CPA
Raymund Francis A. Escala, MBA, CPA
Table of Contents
CHAPTER 5: CASH TO ACCRUAL.................................... ............................................ 4

CHAPTER 6: CORRECTION OF ERRORS ..................................... ...........................19
CHAPTER 8: CASH AND CASH EQUIVALENTS ..................................... ..............28
CHAPTER 10: LOANS AND RECEIVABLES ...................................... .....................46
CHAPTER 12: INVENTORIES ....................................... ..............................................75
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT
IN EQUITY SECURITIES ..................................... ....................................................... 100
CHAPTER 15: INVESTMENT IN DEBT SECURITIES ..................................... . 117
CHAPTER 16 INVESTMENT IN ASSOCIATE...................................................... 133
CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT....................................148
CHAPTER 19 WASTING ASSETS............... ..................................................... ........ 172
CHAPTER 20 INVESTMENT PROPERTY ..................................... ....................... 178
CHAPTER 22 INTANGIBLE ASSETS ...................................... ............................... 184
CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET
HELD FOR SALE ...................................... ................................................................ ..... 195
CHAPTER 25 INTRODUCTION TO LIABILITIES....... . .. .. . . ..... .................. 212
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING.. 226
CHAPTER 27 LEASE ..................................... ..............................................................245
CHAPTER 29 SHAREHOLDERS’ EQUITY................. .......................................... .271
CHAPTER 30 BOOK VALUE AND EARNINGS PER SHARE ......................... .293
CHAPTER 32 STATEMENT OF FINANCIAL POSITION AND
COMPREHENSIVE INCOME .................................................................................... .305
CHAPTER 33 STATEMENT OF CASH FLOWS..................................... ............. .324
Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL
PROBLEM 5-1 (Computation of Sales under cash basis)
Accounts receivable/Notes receivable trade/Advances from customers

Beg. balance – AR 200,000 180,000 Balance end - AR
Beg. balance – NR 240,000 170,000 Balance end - NR
Balance end - Advances 40,000 55,000 Beg. balance - Advances
Sales on account 600,000 4,000 Sales ret. and allowance
Recoveries - 2,000 Salesdiscounts
Collections including
666,000 recoveries
3,000 Write-off
Total 1,080,000 1,080,000
Suggested answer: A
PROBLEM 5-2 Computatio n of Bad Debts
Allowance for bad debts

Ending balance 40,000 25,000 Beginning balance
Write-off 8,000 21,000 Bad debts expense
2,000 Recoveries
Total 48,000 48,000
Suggested answer: C
PROBLEM 5-3 (Computation of Purchases)
Accounts Payable / Notes Payable / Advances to Suppliers

Payments 800,000 200,000 Beg. balance - AP
Purchase ret. and allow. 6,000 400,000 Beg. balance - NP
Purchase discount 3,000 68,000 Balance end - Advances
Beg. balance - Advances 50,000 651,000 Purchases (gross)
Balance end – AP 250,000
Balance end – NP 210,000
Total 1,319,000 1,319,000
Suggested answer: A
4
PROBLEM 5-4 Computatio n of Cost of Sales
Accounts Payable (AP) / Notes Payable (NP)

Payments 800,000 200,000 Beg. balance - AP
Purchase ret. and allow. 6,000 - Beg. balance - NP
Purchase discount 3,000 859,000 Purchases (gross)
Balance end - AP 250,000
Balance end-NP -
Total 1,059,000 1,059,000
Merchandise Inventory
Beginning balance 400,000 210,000 Ending balance
Net purchases 860,000 1,050,000 Cost of sales
Total 1,260,000 1,260,000
Computation of the net purchases:

Grossp urchases onaccount 859,000
Addcash purchases 10,000
Total 869,000
Less: Purchase returns and allowances 6,000
Purchase discount 3,000
Netpurchases 860,000
Suggested answer: B
PROBLEM 5-5 (Computation of Income Other Than Sales)

Rent Receivable/Unearned rent income
Beg. Balance - Rent 200,000 250,000Balance end - Rent
Receivable Receivable
Balance end - Unearned 30,000 90,000 Beg. Balance – Unearned
rent income rent income
Rent Income (squeeze) 770,000 660,000 Collections
Total 1,000,000 1,000,000
Suggested answer: B
PROBLEM 5-6 (Computation of Expenses in General)

Prepaid Rent/Rent payable
Beg. Balance - Prepaid 200,000 250,000 Balance end - Prepaid
Salaries Rent
Balance end - Accrued 65,000 80,000 Beg. Ba lance – Re nt
Salaries payable
Payments 850,000 785,000 Rent Expense
Total 1,115,000 1,115,000
5
Suggested answer: C
PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold)
Question No. 1
Carrying amount of equipment sold 25,000
Add: Accumulated depreciation 15,000
Cost 40,000
Question No. 2
Equipment
Beg. Balance 100,000 120,000 Balance end
Cost of PPE acquired 60,000 40,000 Cost of PPE disposed
(squeeze)
Total 160,000 160,000
Accumulated depreciation
Balancee nd 18,000 15,000 Beg. Balance
Accumulated depreciation 18,000 Depreciation expense
ofP PE disposed 15,000
Total 33,000 33,000
SUMMARY OF ANSWERS:
1. D 2. A
PROBLEM 5-8
Question No. 1
Prepaid Insurance
Beg.Balance 7,500 6,000 Balancee nd
Payments 41,500 43,000 Expenses (squeeze)
Total 49,000 49,000
Question No. 2
Interest Receivable
Beg.Balance 14,500 3,700 Balancee nd
Income (squeeze) 112, 700 123,500 Collections
Total 127,200 127,200
6
Question No. 3
Salaries payable
Payments 481,000 489,500 Expenses
Total 542,500 542,500
Question No. 4
Accounts receivable trade
Sales 1,980,000 1,845,000 Collections (squeeze)
Total 2,395,000 2,395,000
Question No. 5
25,000 Write-off
Total 2,395,000 2,395,000
Question No. 6
Recoveries 20,000 25,000 Write-off
Total 2,415,000 2,415,000
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. A 5. A 6. B
PROBLEM 5-9
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R 100,000 100,000 I ncrease in N/R
Sales on account 4,260,000 10,000 Write-off
(squeeze) 4,200,000 Collections
30,000 Sales discounts

20,000 Sales ret. and allow.
Total 4,360,000 4,360,000
7
Question No. 2
Accounts payable
Cash paid to creditors 2,800,000 200,000 Decrease in Accounts
payable
Purchase discounts 40,000 2,650,000Gross purchases
(squeeze)
Purchase returns 10,000
Total 2,850,000 2,850,000
Question No. 3 Merchandise inventory

Decrease in Inventory 25,000 40,000 P urchase discounts
Gross purchases 2,650,000 10,000 Purchase returns
2,625,000 Cost of sales (squeeze)
Total 2,675,000 2,675,000
Question No. 4
Rental receivable/Unearned Rent Income
Rental revenue 454,000 14,000 I ncrease in Rental
(squeeze) receivable
40,000 Decrease in Unearned
rental
400,000 Collections from tenants
Total 454,000 454,000
Question No 5
Prepaid interest/Interest Payable
Decrease in Prepaid 5,500 114,000Interest expense
interest (squeeze)
Increase in Interest 8,500
payable
Interestpaid 100,000
Total 114,000 114,000
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. D
8
PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R 200,000 250,000 Bal. end – A/R
Beg. Balance – N/R 300,000 100,000 Bal. end – N/R
Sales on account 1,000,000 20,000 Sales ret. and allow.
(squeeze) 10,000 Sales discount
1,120,000 Collections
Total 1,500,000 1,500,000
Question No. 2
Accounts payable/Notes payable
Balance end – A/P 25,000 50,000 Beg. Balance – A/P
Balance end – N/P 75,000 100,000 Beg. Balance – N/P
Purchase returns and 40,000 650,000 Gross purchases
allow (squeeze)
Payments 650,000
Total 800,000 800,000
Gross purchases 650,000

Less: Purchase ret and allow 40,000
Purchased iscounts 10,000 50,000
Net Purchases 600,000
Question No. 3
Sales 1,000,000
Less:Salesret and allow 20,000
Salesdiscounts 10,000 30,000
Net
Sales 970,000
Less: Cost of Sales
Merchandiseinventorybeg. 200,000
Add: Net Purchases
Purchases 600,000
Add:Freight-in -
GrossPurchases 650,000
Less: Purch.R et and allow 40,000
Purchase discounts 10,000 6 00,000
Totalg oodsavailablefors ale 800,000
Less: Merchandisei nventory,e nd 100,000 700,000
Gross Income / Gross Profit 270,000
9
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid 100,000 125,000 Balance end - Pr epaid
Salaries Salaries
Balance end - Accrued 50,000 75,000 Beg. Balance - Accrued
Salaries Salaries
Payments 350,000 300,000Salaries expense
(squeeze)
Total 500,000 500,000
Question No. 5
Accrued rent/Unearned rent
Beg. Balance - Accrued 70,000 40,000
Balance end - Accrued
rent rent
Balance end - Unearned 40,000 80,000 Beg. Balance - Unearned
rent rent
Rent income (squeeze) 490,000 300,000 Collection of rent
Total 600,000 600,000
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. B 5. B
PROBLEM 5-11
Question No. 1
Recoveries 8,000 20,000 Sales discounts
Sales (squeeze) 1,570,000 1,408,000 Collections including
recoveries (1,498,000-
80,000+20,00-30,000)
50,000 Accounts written-off
Total 1,778,000 1,778,000
Sales 1,570,000
Less: Sales discount 20,000
Net Sales 1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,000- 150,000 Beg. Balance
20,000+30,000) 1,210,000 1 ,170,000 Purchases (squeeze)
Purchase ret. and allow. 10,000
Balance end 100,000
10
Total 1,320,000 1,320,000
Purchases 1,170,000
Less: Purchases discount 10,000
Net Purchases 1,160,000
Question No. 3
Merchandise inventory
Beg. Balance 380,000 330,000 Balancee nd
Net Purchases 1,160,000 1,210,000 Cost of Sales (squeeze)

(1,170,000-10,000)
Total 1,540,000 1,540,000
Question No. 4
Rent Receivable
Rent income (squeeze) 130, 000 120,000 Collections
Total 200,000 200,000
Question No. 5
Allowance for Doubtful accounts
Accounts written off 50,000 20,000 Beg. Balance
Balancee nd 30,000 52,000Doubtful account
expense (squeeze)
8,000 Recoveries
Total 80,000 80,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. A
PROBLEM 5-12 Comprehensive

Question No. 1
Professional fees 5,250,000 5,000,000 Collections
(squeeze)
Total 5,750,000 5,750,000
11
Question No. 2
ProfessionalFees(SeeN o.1) 5,250,000
Less: Rent expense (1.2M +100,000) 1,300,000
Supplies expense
(800,000+300,000-250,000) 850,000
Othero peratingexpense 750,000
Interest expense (1M x 12% x 9/12) 90,000
Depreciation expense (2,500,000/10) 250,000 3,240,000
Net income 2,010,000
Question No. 3
Cash 1,500,000
AccountsReceivable 750,000
Supplies 250,000
Total Current Assets 2,500,000
Question No. 4
Furniture and fixtures 2,500,000
Less: Accumulated Depreciation
(125,000+ 250,000) 375,000
Total Noncurrent Assets 2,125,000
Question No. 5
Total current assets (See No. 3) 2,500,000
Total noncurrent assets (See No. 4) 2,125,000
Total Assets 4,625,000
Question No. 6
NotesPayable 1,000,000
Accruedrent 100,000
Accrued interest on notes payable
(1,000,000 x1 2% x9/12) 90,000
Total Current Liabilities 1,190,000
Question No. 7
Total assets (See No.5 ) 4,625,000
Less: Total liabilities (See No. 6) – all are
current 1,190,000
Total Owner’s Equity 3,435,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. A 5. A 6. C 7. B
12
PROBLEM 5-13
Question No. 1
Salesonaccount 13,000 Salesdiscount
(squeeze) 1,535,000 1,500,000 Collections
Total 1,659,000 1,659,000
Salesonaccount 1,535,000
Add:
TotalCashsales
sales 160,000
1,695,000
Question No. 2
Grosss ales(seeNo.1) 1,695,000
Less:Sales discount 13,000
Net sales 1,682,000
Question No. 3
Accounts Payable
Payments 1,206,000 382,000 Beg. Balance
Balancee nd 410,000 1,234,000 Purchases (squeeze)
Total 1,616,000 1,616,000
Purchasesona ccount 1,234,000

Add:C ashp urchases 120,000
Total Purchases 1,354,000
Question No. 4
Net purchases 1,354,000 1,350,000 Cost of sales (squeeze)
Total 1,540,000 1,540,000
Question No. 5
Prepaid G&A/Accrued G&A
Beg. Balance - Prepaid 9,600 8,400Balance end - Prepaid
Interest Interest
Balance end – Accrued 9,000 7,000 Beg. Balance – Accrued
Interest Interest
Payments 204,000 207,200 Expenses
Total 222,600 222,600
13
Question No. 6
General and administrative expense (see No. 5) 207,200
Depreciationexpense 84,000
Warrantyexpense 6,400
Total operating expense 297,600
Question No. 7
Sellingprice of land 20,000
Less:Bookvalue of land 16,000
Gain on sale of land 4,000
Question No. 8
SellingPrice 12,000
Less Book value
Cost 25,000
Less: Accumulated depreciation 16,000 9,000
Gain on sale of warehouse equipment 3,000
Question No. 9
SellingPrice 42,000
Less: Book value
Cost 48,000
Gain on sale of boiler 14,000
Question No. 10
NetSales 1,682,000
Less:Cost ofSales 1,350,000
Gross Profit 332,000
Less:Operatingexpenses 297,600
Gain on sale (14,000+3,000+4,000) 21,000
Net income 55,400
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
6. A 7. A 8. C 9. B 10. A

Question No. 1
Sales (squeeze) 800, 000 10,000 Sales returns
740,000 Collections
Total 950,000 950,000
14
Question No. 2
Salesonaccount 800,000
Add:Cash sales 100,000
Total
sales 900,000
Less: Salesr eturns anda llowances 10,000
Net
sales 890,000
Less:Costo fsales( squeeze) 390,000
Grossprofit(200,000/40%) 500,000
Net Purchase s (squeeze) 420,000 390,000 Cost of Sales
Total 610,000 610,000
Question No. 3
Accounts Payable trade
Payments (squeeze) 470, 000 230,000 Beg. Ba lance - Accounts
payable
Purchase returns and 8,000 428,000 Gross purchases
allowances (420,000+8,000)
Balance end – Accounts 180,000
payable
Total 658,000 658,000
Question No. 4
Total payment of Accounts payable and admin expenses 518,000
Less: Payment ofA ccounts payable 470,000
Payment of admin expe nses 48,000
Question No. 5
Paymentof adminexpenses 48,000
Divided by: Percentage of cash expenses to total admin
expense 80%
Totaladminexpenses 60,000
Add:Sellingexpenses 200,000
Total selling and administrative expense 260,000
Question No. 6
Totaladministrativeexpenses 60,000
Less: Payment of administrative expense 48,000
Non-cash administrative expenses 12,000
Less: Depreciation for building
(440,000 x60%x 5% x9/12) 9,000
15
Depreciation for furniture andf ixtures 3,000

Divided by: Number of months used over 12 months 6/12
Annual depreciation 6,000
Dividedby: Depreciationrate 10%
Cost of Furniture and Fix tures (no res idual value ) 60,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. C 6. A
PROBLEM 5-15
Question No. 1
Cash Receipts:
Fromcustomers 360,000
From issue of ordinary shares 100,000
Frombankloan 100,000 560,000
Cash disbursements:
Purchaseo fi nventory 300,000
Rent 15,000
Salaries 30,000
Utilities 5,000
Insurance 3,000
Purchase of equipment and furniture 40,000 393,000
Cash 167,000
Question N os. 2 and 3

Current assets
Cash 167,000
Inventories 100,000
Prepaidrent(1,000x3) 3,000
Total current assets (No. 2) 270, 000
Noncurrent assets
Property, plant and equipment 40,000
Less accumulated depreciation 4,000 36,000
Total assets (No. 3) 306, 000
Question No. 4
Accountspayable 20,000
Utilitiespayable 1,000
Loanspayable 100,000
Interest on loans payable (100,000 x 12% x 9/12) 9,000
Total current liabilities 130,000
16
Question No. 5
Ordinary shares 100,000
Retained earnings (net income) 176,000
Shareholders’ equity 176,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. D 5. A
PROBLEM 5-16
Question No. 1
Notesreceivable–December3 1 210,000
Accountsreceivable– December31 950,000
Collectiono fnotesandaccounts 2,950,000
Notereceivablediscounted 200,000
Total 4,310,000
Less: Notes receivable – January 1 200,000
Accounts receivable– January1 740,000 940,000
Sales on account 3,370,000
Question No. 2
Notespayable –December31 580,000
Less:Notepayable–bank 300,000
Notespayable –trade 280,000
Accountspayable–December31 750,000
Paymentofn otesanda ccounts 2,100,000
Total 3,130,000
Less: Notes payable – January 1 750,000
Accounts payable – January 1 600,000 1,350,000
Purchases on account 1,780,000
Question No. 3
Equipment –January1 1,000,000
Add:Acquisition 280,000
Total 1,280,000
Less:Equipment–December3 1 1,200,000
Depreciation 80,000
Question No. 4
Interest accrued on note issued to bank (300,000 x 12% x 10/12) 30,000
Interest expense 30,000
Question No. 5
Volks Company
Income Statement
Year ende d Decembe r 31, 2016
17
Sales 3,370,000
Cost of sales:
Inventory – January1 1,600,000
Purchases 1,780,000
Goods available for sale 3,380,000
Less: Inventory – December 31 1,500,000 1,880,000
Gross income 1,490,000
Expenses:
*Expenses 820,000
Depreciation
**Losso ns ale ofi nvestment 80,000
50,000
***Loss on note receivable discounted 10,000
Interestexpense 30,000 990,000
Net
income 500,000
*Expensespaid 790,000
Add:Prepaidexpenses–January1 120,000
Accruedexpenses–December31 50,000
Total 960,000
Less: Prepaid expenses – December 31 100,000
Accrued expenses – January 1 40,000 140,000
Expenses 820,000
**Salesprice 250,000
Less:Cost ofinvestmentsold 300,000
Loss on saleof investment ( 50,000)
***Loss on note receivable discounted (200,000 – 190,000) 10,000
OR
Retained earnings – December 31 600,000
Add:Dividends 400,000
Total 1,000,000
Less: Retained earnings – January1 500,000
Net income 500,000
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. D
18
Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS
PROBLEM 6-1 Income Statement and SFP Errors

Que stions Nos. 1-6
2016 2017
RE, end RE, end
Net Workin of the Net Workin of the
income g capital year income g capital year
Unadjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
1 - - - - - -
2 - - - - - -
Adjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
Questions No. 7
Assuming errors were discover ed in 2016
ADJUSTING ENTRIES Debit Credit
1)
Miscellaneousi ncome 25,000
Rent income 25,000
2)
Notespayable 28,000
1) ADJUSTING ENTRIES
Noentry Debit Credit
2) Noentry

1) Noentry
2) Noentry
SUMMARY OF ANSWER S:
1. A 2. B 3. A 4. C 5. C 6. C
19
PROBLEM 6-2 Counterb alancing Erro rs

Que stions Nos. 1-6
2016 2017
Net Workin Net Workin
income g capital R/E income g capital R/E
Unadjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
1 (15,000) (15,000) (15,000) 15,000 -
2 20,000 2 0,000 2 0,000 (20,000) -
3 6,000 6,000 6,000 (6,000) -
4 (7,500) (7,500) (7,500) 7,500 -
Adjusted
balances 203,500 183,500 203,500 156,500 260,000 360,000
Question No. 7
A. Errors were dis covered in 2016
1) Interestexpense 15,000
Interestpayable 15,000
2) Interestreceivable 20,000
Interestincome 20,000
3) Prepaidi nsurance 6,000
Insuranceexpense 6,000
4) Rentrevenue 7,500
Unearnedrentrevenue 7,500
B. Errors were dis covered in 2017

Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
1) Retainedearnings 15,000
Interestexpense 15,000
2) Interestincome 20,000
Retainedearnings 20,000
3) Insuranceexpense 6,000
Rentrevenue 7,500
When books are already closed, no necessary adjusting entries to be
made.
C. Errors were dis covered in 2018
No necessary adjusting entries to be made.
1. C 2. B 3. C 4. C 5. B 6. C
20
PROBLEM 6-3 Counterb alancing Erro rs

Que stions Nos. 1-6
2015 2016
income g capital R/E, end income g capital R/E, end
Unadjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
1 (60,000) (60,000) (60,000) 6 0,000 - -
2 80,000 80,000 80,000 (80,000) - -
3 (20,000) (20,000) (20,000) 2 0,000 - -
Adjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
Question No. 7
A. Errors were dis covered in 2016
1) Purchases 60,000
2) Accountsreceivable 80,000
Sales 80,000
3) Cost of sales 20,000
Inventory 20,000
B. Errors were dis covered in 2017

Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
Purchases 60,000
2) Sales 80,000
Inventory,beginning 20,000
If books are already closed, no necessary adjusting entries to be made.
C. Errors were dis covered in 2018

No ne cessa ry adjusting entries to be made .
1. C 2. B 3. C 4. B 5. C 6. B
21
PROBLEM 6-4 Noncount erba lancing Errors

Que stions Nos. 1-6
2016 2017
RE, end RE, end
Net Workin of the Net Workin of the
income g capital year income g capital year
Unadjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
1. (30,000) ( 30,000) ( 30,000) (6,000) ( 36,000) ( 36,000)
2. 20,000 20,000 20,000 10,000 30,000 30,000
3. 12,000 - 12,000 - - 12,000
4. 150,000 - 150,000 (50,000) - 100,000
5. (12,000) - (12,000) - - (12,000)
6. (15,000) - (15,000) 5,000 - (10,000)
Adjusted
balances 325,000 170,000 325,000 119,000 254,000 444,000
Question No. 7
A. Errors were discovered in 2016
1) Insuranceexpense 30,000
Prepaidinsurance 30,000
2) Unearned rent income 20,000
Rent income 20,000
3) Accumulated depreciation 12,000
4) Building improvements 200,000
Repairsexpense 200,000
Depreciation expense 50,000
Accumulatedd epreciation 50,000
5) Other income 20,000
Accumulated depreciation 48,000
Gain on sale 8,000
Building 60,000
6) Repairsexpense 20,000
Building 20,000
B. Errors were discovered in 2017

Insuranceexpense 6,000
22

Rent income 10,000
Retained earnings
Accumulatedd epreciation 50,000 100,000
Building 60,000
Building 20,000
C. Errors were discovered in 2018
Retainedearni gs 30,000
Retained earnings 100,000
Building 60,000
6) Retained earnings
Building 20,000 20,000
23
1. D 2. A 3. D 4. A 5. A 6. D
PROBLEM 6-5 Comprehen sive

Que stions Nos. 1-3
Effects of error in
Net income Working
2015 2016 Capital
1)M Iover,N Iover 10,000 (10,000)
MIunder, NIunder (8,000) ( 8,000)
2) Purchases over, NI under (20,000) 20,000
(40,000) (40,000)
3)S aleso ver,NIover 20,000 (20,000)
70,000 70,000
4) Expenses over, NI under (80,000)
Depreciation exp under, NI over 20,000
5)O therincomeover 20,000
*Lossu nder,N Iover 5,000
Adjustment (45,000) 32,000 22,000
Computation of loss:
SellingPrice 20,000
Less: Book value
Cost 40,000
Loss on sale (5,000)
Question No. 4
Effect of errors to Retained Earnings in 2016
Understatement to2 015 net income 45,000
Overstatementto2 016net income 32,000
Net understatement to 2016 retained earnings 13,000
Questions No. 5
1) Retainedearnings,beg 10,000
Merchandiseinventory,beg 10,000
Merchandisei nventory, end 8,000
CostofSales 8,000
2) Purchases 20,000
Advances supplier 40,000
Purchases 40,000
3) Retainedearnings,beg 20,000
Sales 20,000
24
Sales 70,000
Advances customers 70,000
4) Depreciationexpense 20,000
Improvements 100,000
5) Accumulatedd epreciation 15,000
Retained earnings, beg 25,000
Equipment 40,000
1. A 2. A 3. A 4. A 5. C
PROBLEM 6-6 Comprehen sive

Que stions Nos. 1-5
12/31/2
2015 2016 016
Income g capital Income g capital R/E
Ending Inventory 2015
understated, NI (6,000) (6,000) 6,000 - -
understated
Ending Inventory 2016
10,000 10,000 10,000
overstated, NI overstated
Depreciation exp. 2015
overstated, NI (11,000) - - - (11,000)
understated
Depreciation exp. 2016
over tated, NI (7,000) - ( 7,000)
understated
Accrued expense
understated, NI 4,500 4,500 (4,500) - -
overstated 2015
Accrued expense
understated, NI 7,500 7,500 7,500
overstated 2016
Prepaid expense
understated, NI (5,000) (5,000) 5,000 - -
understated 2015
Prepaid expense
understated, NI (12,000) (12,000) (12,000)
understated 2016
Accrued revenues
understated, NI (3,000) (3,000) (3,000)
understated 2016
Deferred revenues
understated, NI 1,200 1,200 (1,200) - -
overstated 2015
Total (16,300) 5,300 800 2,500 (15,500)
25
1. D 2. D 3. A 4. A 5. C
PROBLEM 6-7
Note to pro fessor:

Item letter b - On December 31, “f” should be December 31, 2016.
Item letter e - Additional industrial robots were acquired at the beginning of
20X0 (should be 2015).

Adjusting entries:
a) PrepaidI nsurance( 14,000
InsuranceExpense( 7,000
RetainedEarnings( 21,000
b) Retained earnings, beginning 25,000
MerchandiseI nventory, beginning 25,000
c) Retained earnings,beg 15,500
Commissionexpense 15,500
d) This is not an error, rather it is a
change in accounting estimate.
e) Equipment 100,000
( 20,000
Depreciation expense ( 10) 10,000
Question No. 5
Item
a 21,000
Item
b (25,000)
Item
c (15,500)
dItem -
Item
e 80,000
Net adjustment to retained e arnings (E) 60,500
1. B 2. B 3. A 4. B 5. (E)
26
PROBLEM 6-8
Net
Income CA NCA CL RE
Unadjusted
balances 200,000 1 ,570,400 1 ,365,600 636,000 300,000
1. Advtg exp
over, NI under 50,000
2. Advances rec.
as sales
2016 60,000
2017
3. Advances rec. (100,000) 100,000 (100,000)
as purchases
2016 (50,000)
2017 80,000 80,000 80,000
4. Gain
understated 64,000 64,000
Cost under (336,000)
Accumulated
depreciation 400,000
Depr. Over, NI
under 13,600 13,600 13,600
5. Rent revenue
under 20,000 (60,000) 60,000
6. Bad debts
exp under
(5% x 480K)-
16,000) (8,000) (8,000) (8,000)
7. Purchases
under 20,000
EI under 20,000
8. Ins. Exp.
Under, NIover 15,000 15,000
Adjusted
balances 344,600 1 ,662,400 1 ,443,200 696,000 424,600
1. C 2. C 3. D 4. A 5. D
27
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS
PROBLEM 8-1 Cash and Cash Equivalents

CurrentaccountatM etrobank 1,000,000
Payrollaccount 250,000
Pettycashfund( 2,000
Postalmoneyorder 15,000
Traveler’scheck 25,000
Treasury bills, due 3/31/2018 (purchased 12/31/2017) 100,000
Treasurywarrants 150,000
Undeliveredcheck 100,000
Company’spostdatedcheck 50,000
Stale checkissued 25,000
Total cash and cash equivalents (E) 1,717,000
PROBLEM 8-2 Cash and Cash Equivalents

Reportedc ashandc ash equivalents 6,325,000
Certificate of deposits with maturity of 120 days (500,000)
Postdated check (125,000)
Adjusted cash and cash equiva lents P5,700,000
Suggested answer: A
PRO BLEcoins
Billsand M 8-3 Cash and Cash Equivalents
onhand 105,560
Checking Account Balance in Bank of Philippine Island 44,000
Money order 1,600
Pettycash ( - 1,650) 2,350
Traveler’scheck 44,800
Total 198,310
Suggested answer: (E)
PROBLEM 8-4 Cash and Cash Equival ents

Cash on hand 80,000
CheckingaccountNo.1 43-BPI 200,000
CheckingaccountNo.1 55-BPI (30,000)
*Securities classified as cash equivalents 3,600,000
Checking account No. 155 - BPI 3,850,000
*Breakdown of securities classified as cash equivalents
Date Maturity
Securities: Acquired Date Amount
120-day Certificate of Deposit 12/10/2016 01/31/2017 P 600,000
BSP-Treasury Bills (No.2) 10/31/2016 01/20/2017 1,000,000
28
Money Market Funds 11/21/2016 02/10/2017 2,000,000

Suggested answer: A

Bank cheque account P 58,400
Bank savings account (collectible immediately) 23,440
Cash 10,000
Treasury bonds – maturing in 2 months 8,500
Cash and cash equi valents P 100,340
Suggested answer: B

Petty cash fund (70,000-15,000-5,000) 50,000
Current account – Metro Bank (4,000,000+100,000) 4,100,000
Cash and cash equi valents P4,150,000
Suggested answer: C
PROBLEM 8-7 Effective Interest Rate

Question No. 1
Let X = Principal amount of the loan
Principal X
Less: Compensating balance 5%X
Add:Currentbalance 50,000
Amountneeded P3,375,000
X-.05X+50,000 = 3,375,000
.95X = 3,375,000-50,000
.95X/.95 = 3,325,000/.95
X = 3,500,000
Question No. 2
Annual interest payment (3,500,000 x 12%) 420,000
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%] 5,000
Netinterest 415,000
Divide by loan proceeds (3,500,000-175,000) 3,375,000
Effective interest rate
12.30%
Suggested answers:
1.C 2C.
29
PROBLEM 8-8 Petty Cash Fund
Requirement No. 1: Wor king Paper for the Petty Cash Fund
Petty Cash Count Sheet
January 3, 2017; 9:00 AM
Denomination Quantity Total
Bills 200 10 2,000
100 20 2,000
20 40 800
Coins 10 10 100
59 45
1 804 804
.25 1,410 352.50
.10 1,520 152
.05 810 40.5
TotalBillsandCoins 6,258
Checks for Deposits:
Maker Date Payee Amount
W. Ally, Cashier 12/28/17 ABC Company 500
I.O.U's D at e Amount
A. Braham, janitor 12/19/17 250
R. Tica, clerk 12/20/17 150
P. Du, Bookkeeper 12/22/17 200
Total 600
Vouchers:
Payee Date Accountcharged Amount
J. Cruz, messenger 12/14/17 Advances to employees 125.00
CidBookstore 12/15/17 Supplies 150.00
DalinLiner 12/19/17 Freight-out 192.00
Bureau of Posts (stamps) 12/20/17 Supplies 300.00
A. Bala, carpenter 12/21/17 Repairs 450.00
Total 1,217.00
Billsandcoins 6,258
Checksfordeposit 500
I.O.U’s 600
Voucherspaid 1,217
Unusedstamps 50
TotalPettyCashAccounted 8, 625
Less: Petty cash Accountabilities 12,600
PettyCashShortage (3,975)
30
Petty cash accountabilities

Pettycashimprestbalance 12,000
Unclaimedpayroll 600
Pettycashaccountabilities 12,600
Acknowledgment
I hereby acknowledge that the above petty cash fund items were counted in my
presence and the same were returned to me intact. I further acknowledge a petty cash
short of three thousand nine hundred seventy-five ( 3,975). I have no other fund
accountabilities.
W. Ally
Petty Cash Custodian
Requirement No. 2
1)
Employeea dvances 600
Petty cashfund 600
2)
Expenses 1,217
Officesupplies 50
Petty cashfund 1,267
3) Cashs hortorover 3,975
4) Cashs hortorover 3,975

Requirement No 3
Billsand coins 6,258
Checksfordeposit 500
TotalPetty CashFund 6,758
PROBLEM 8-11 Bank Reconciliation

Oct.3 1 Receipts Disb Nov.3 0
Unadjusted bank bal 18,005 17,709 25,620 10,094
Erroneousbank credit (500) (500)
DIT:October 1,790 (1,790)
November 3,600 3,600
OC: October (6,681) (6,681)
Nov.(760+1,868) 13,114 19,019 2,628

21,567 (2,628)
10,566
Unadjusted book bal 11,534 18,269 21,575 8,228

Creditmemo Oct. 1,600 1,600
Nov. 750 750
31
NSF-Nov 665 (665)

BSC: Oct (20) (20)
Nov 22 (22)
35 (35)
Check No. 148
overstated
disbursement (1,000) 1,000
Check No. 150
understated
disbursement 270 (270)
13,114 19,019 21,567 10,566

SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
PROBLEM 8-12 Deposit in Transit

Depositin transit,beg P 50,000
Add: Book debits for the month P 400,000
Less: CM recorded this month 5,000
Error – check received (Jan) 36,000
Error – check issued (Jan) 27,000
Add: Error – check received (Feb) 16,000 348,000
Total 398,000
Less: Bank debits for this month P 360,000
Less:CMforthismonth 6,000
Erroneous bank credit - Feb 2,500
Erroneous bank charge - Jan 1,000 350,500
Deposit in tran it, end P 47,500
Suggested answer: A
PROBLEM 8-13 Outstanding Checks

Outstanding checks, beg (squeeze) P 12,880
Add: Book credits for the month P8 5,800
Less: Errorin recording 1,800
Servicec hargerecorded 30 83,970
Total 96,850
Less: Bank debits for this month P 97,650
Less: NSF check returned 2,300
DMforthismonth 3,000 92,350
Outstanding checks, end P 4,500
Suggested answer: A
32
PROBLEM 8-14 Proof of Cash

Question No. 1
Outstanding checks, beg. 100,000
Add:Checksissued 2,500,000
Total 2,600,000
Less: Checks paid by the bank 2,200,000
Outstanding checks, end 400,000
Question No. 2
Deposits intransit, beg 300,000
Add:Depositsmade 1,800,000
Total 2,100,000
Less: Deposits acknowledged by the bank 1,600,000
Deposits intransit, end 500,000
31-May Receipts Disb. 30-Jun

Unadjusted bal-bank 2,600,000 *2,190,000 **2,410,000 2,380,000
Deposit in transit-May
31 300,000 (300,000)
-June30 500,000 500,000
Outstanding checks-
May31 (100,000) (100,000)
-June30 400,000 (400,000)
Erroneous bank credit (60,000) (60,000)
Erroneous bank charge 40,000 (40,000)
Adjusted balances 2,780,000 2,350,000 2,650,000 2,480,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
31-May Receipts Disb. 30-Jun
Unadjusted bal-book 2,190,000 ***2,400,000 2,500,000 2,090,000
Bank service charge-
May31 (10,000) (10,000)
-June30 50,000 (50,000)
CM for collection-May
31 600,000 (600,000)
-June30 550,000 550,000
NSFchecksforJune30 100,000 (100,000)
Adjusted balances 2,780,000 2,350,000 2, 650,000 2,480,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
33

Question No. 2
Outstandingchecks, beg. 150,000
Add Checks issued
Bookdisb. 1,500,000
LessDMlastmo 110,000
Error last mo. C T M
Under ofCD -
OverofCR - 1,390,000
Total 1,540,000
Less checks issued
Bank disb. 1,300,000
lessDMthismo 75,000
Under ofCD -
Erroneous B Cr-LM 45,000
Erroneous BC H-TM 30,000 1,150,000
Outstandingchecks, end 390,000
Deposits intransit, beg 200,000

Add deposits made
Book receipts 1,300,000
Less: CM last month 125,000
Under of CR (21K-12K) 9,000
OverofCD 1,166,000
Total 1,366,000
Less: Deposits acknowledged by the bank
Bankr eceipts 1400000
Less: CM this month 150,000
Under of CR
Erroneous B CH-LM 20,000
Erroneous B Cr-TM 17,000 1,213,000
Deposits intransit, end 153,000
BANK 31-May Receipts Disb. 30-Jun

Unadjusted bal-bank 1,250,000 1,400,000 1,300,000 1,350,000
Deposit in transit-May 31 200,000 (200,000)
-June30 153,000 153,000
Outstanding checks-May 31 (150,000) (150,000)
-June30 390,000 (390,000)
Erroneous bank credit-May
31 (45,000) (45,000)
-June30 (17,000) (17,000)
34
Erroneous bank charge-

May31 20,000 (20,000)
-June30 (30,000) 30,000
Adjusted balances 1,275,000 1, 316,000 1,465,000 1, 126,000
BOOK 31-May Receipts Disb. 30-Jun
Unadjusted bal-book 1,251,000 1, 300,000 1,500,000 1,051,000
NSF-May31 (110,000) (110,000)
-June30 75,000 (75,000)
CM for collection-May 31 125,000 (125,000)
-June30 150,000 150,000
Undero fC R-May 9,000 (9,000)
Adjusted balances 1,275,000 1, 316,000 1,465,000 1, 126,000
SUMMARY OF ANSWERS:
1. C 2. D 3. C 4. D 5. A 6. D

Question No. 1
Beg.Bal.,7/1 P 128,384
Add:CashreceiptsforJuly 1,364,858
Cash receiptsfor Aug. 1,839,744
Total P3,332,986
Less: Cashd isbursementf or July 1,330,882
Cashd isbursementforAug. 1,712,892
Bankreconciliationitem 750
Unadjusted balance P 288,462
Question No 2
Outstandingcheck,Aug.31 P 67,122
Add: Checks paid by the bank
Bank debits except serv. charge P1,702,830
Less: Erroneous bankc harge 1,166
DM on Interest on note 4,950 1,696,714
Total P1,763,836
Less: Checks issued by the company
thisAugust 1,712,892
Outstanding check, July 31 P 50,944
Questions No 3 to 5
BANK 31-Jul Receipts Disb. Aug.3 1
Unadjusted balances 180,250 1,830,752 *1,702,918 308,084
Outstanding checks
July31 ( 50,944) ( 50,944)
August31 67,122 (67,122)
Deposit in transit
July31 32,844 ( 32,844)
35
August31 41,836 41,836

Erroneousbank charge - - ( 1,166) 1,166
Adjusted Balances 162,150 1,839,744 1,717,930 283,964
(*1,702,830 + 88)
BOOK 31-Jul Receipts Disb. Aug. 31

Unadjusted balances P162,360 P1,839,744 **P1,713,642 P288,462
Error in recording check
no. 216 taken up as
P1,930 but should be
P1,390 (1,930-1,390) 540 540
DM forint.onnote 4,950 ( 4,950)
Bank service charge
July
31 ( 52) ( 52)
August 31 88 ( 88)
NSF forJuly 31 ( 698) - ( 698) -
Adjusted balances P162,150 P1,839,744 P1,717,930 P283,964
**(1,712,892+750)
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. A

Question No 1
Outstanding check
Check Nos. 144 P 1,500
149 8,000
150 12,000
Total P 21,500
Alternatively, it may also be computed as f ollows:
Outstandingcheck,beg P 7,000
Add:Checksissued 75,000
Total P82,000
Less: Checks paid by the bank
Bank Debits P 113,000
Less: DM for this month
NSF checks (10,000+40,000) 50,000
Banks ervicecharge 2,000
ErrorCorrection 500 60,500
Outstanding checks, end P 21,500
Question No 2
Unadjustedrec.perbank P171,500
Deposit in transit:
November30 (11,000)
December 31 20,000
36
Error correction (500)

NSF check, no entry on the books when ret urned
andredeposited ( 40,000)
Adjusted balance 140,000 P
Question No 3
Unadjusted disbursement, per bank P1 13,000
Outstanding checks
November30 (7,000)
December 31 21,500
Error correction (500)
NSF check, no entry on the
books on the returned and redeposit ( 40,000)
Adjusted balance P 87,000
Question No 4
Unadjustedbank bal. P 127,500
Deposit in transit
November 30
December 31 20,000
Outstanding checks
November 30
December 31 ( 21,500)
Adjusted bal. P126,000
Question No 5
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Nov.3 0 Receipts Disb. Dec. 31
Unadjusted bank balance 69,000 171,500 113,000 *127,500
Deposit in transit
November30 11,000 (11,000)
December 31 *20,000 20,000
Outstanding checks
November30 (7,000) (7,000)
December 31 21,500 (21,500)
Error correction (500) (500)
NSF check, no entry on the
books on the return and
redeposit (40,000) (40,000)
Adjusted bal. 73,000 140,000 87,000 126,000
* (69,000+171,500-113,000)
** (18,000+2,000)
Nov.3 0 Receipts Disb. Dec. 31
Unadjusted book balance 66,000 113,800 85,000 94,800
Credit memo for note
collected
37
November30 8,800 (8,800)

December 31 35,000 35,000
Bank service charge
November30 (1,800) (1,800)
December 31 2,000 (2,000)
Adjusted bal. 73,000 140,000 87,000 126,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. A

Question No. 1
Outstandingchecks,beg P 16,250
Add: Check s issued this mont h
Book disbursements (squeeze) P128,750
Less: DM recorded this month 2,500 126,250
Total 142,500
Less: Checks paid by the bank P 133,750
Erroneousbank charge 3,750 130,000
Outstandingchecks,end P 12,500
Question No. 2
Depositin transit,beg P 12,500
Add: Deposits made by the company 152,500
Total 165,000
Less: Deposits acknowledged by the bank 145,000
Deposit in transit, end P 20,000
Question No. 3
Unadjusted cash in bank balance per ledger P 37,500
Add: Under-footing ofc ash receipts 2,500
Total 40,000
Less: Unrecorded bank service charges
(3,250 +1,500-2,500) 2,250
Adjusted cash in bank balance, 12/31 P 37,750
Question No. 4
Bank service charges per
bankstatementi nD ecember P 3,250
Less: Bank service charge in December
recorded
Total in December
BSC recorded in the books Dec P 2, 500
Less: BSC in Nov. recordedi nD ec. 1,500 1,000
Unrecorded BSC charge in December P 2,250
38
Question No. 5
Unadjusted cash in bank, November (squeeze) P 16,250
Add: BookR eceipts (152,500 - 2,500) 150,000
Total 166,250
Less:Bookdisbursements 128,750
Unadjusted cash in bank, December P 37,500
Unadjusted cash in bank, November (squeeze) P 16,250

Less:BSCinNovember 1,500
Adjusted cash in bank, December P 14,750
SUMMARY OF ANSWERS:
1. C 2. D 3. C 4. D 5. B

Question No. 1
Outstanding checks, beg (squeeze) P 8,000
Book disbursements P 148,000
Less: DM recorded this month 2,500 145,500
Total 153,500
Less:B ankd isbursements P1 50,000
Add: Paid out in currency 2,000
Less:NSF redeposited 3,000
DMforthismonth 1,500 147,500
Outstandingchecks, end P 6,000
Question Nos 2 to 5
BANK Sept.3 0 R eceipts Disb. Oct.3 1
Unadj. balance - bank 100,000 200,000 150,000 150,000
Undeposited collections:
September3 0 5,000 (5,000)
October 31 7,000 7,000
Outstanding checks:
September 30 (8,000) (8,000)
October 31 6,000 (6,000)
Paidoutincurrency 2,000 2,000
Adjusted balances 97, 000 201,000 147, 000 151, 000
BOOK Sept.3 0 R eceipts Disb. Oct.3 1

Unadj. balance - book 91,500 196,000 148,000 139,500
Customer’s notes
collected:
September3 0 8,000 (8,000)
October 31 13,000 13,000
Bank service charge:
39
September 30 (2,500) (2,500)

October 31 1,500 1,500
Adjusted balances 97,000 201,000 147,000 151,000
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. A 5. A

Question No. 1
Account No. 143: Bank Book
Unadjusted balances P1,000,000 P1,099,400
Depositin transit *80,000
Misplaced check ( 20,000)
Outstandingcheck (**60,000)
Note chargedbythebank - ( 74 400)
Adjusted balance P1,020,000 P1,020,000
*(100,000 - 20 ,000, Misplaced check)
**(75,000 - 15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
AccountNo.143 P 60,000
*Account No.144 1,860,000
Total outstanding check 1,92
P 0,000
*Outstanding check for Account No. 144 is computed as follows:

Outstandingchecks, beg P 250,000
Book Credits P3,500,000
Less: BSC November 10,000 3,490,000
Total P 3,740,000
Less: Checks paid by the bank
BankD ebits P2,000,000
Less: BSC December 20,000
NSF check 100,000 1,880,000
Outstanding checks, end P1,860,000
Question Nos. 3 to 4
December
Unadjusted bank balance Nov.3 0

2,200,000 R eceipts
1,000,000 Disb.
2,000,000 Dec.3 1
1,200,000
Deposit in transit:
November 30 90,000 ( 90,000)
December 31 **240,00 240,000
40
0
Outstanding check:
November30 (250,000) (250,000)
December 31 1,860,000 (1,860,000)
Erroneous bank charge -
November 20,000 (20,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
Unadjusted book
balance 1,980,000 1,420,000 3,500,000 (100,000)
Bank service charge:
November30 (10,000) (10,000)
December 31 20,000 (20,000)
Unrecorded collections -
November3 0 90,000 (90,000)
Uncollected customer's
note already recorded
ascashreceipt (200,000) (200,000)
NSF-December31 100,000 (100,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
**Depositi ntransit,beg P 90,000

Add: Deposit made by the co. this month
BookDebits P1,420,000
Less: Unrecorded collection 90,000
Customer’s
cash receiptsnote recorded as 200,000 1,130,000
Total P1,22000
Less: Deposits acknowledged by the bank
BankC redits P1,000,000
Less: Erroneous bank charge 20,000 980,000
Outstandingchecks,end P 240,000
Question No. 5
Adjusted balances:
AccountNo.1 43 P1,020,000
AccountNo.1 44 ( 420,000)
Total adjusted balances P 600,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C

Question No. 1
RCBC Account Book Bank
Unadjustedbalance P 165,000 P 125,000
41
Creditmemof ornotec ollected 6,000

Bank service charge (1,000)
Depositin transit 60,000
Outstanding checks (25,000+20,000) (45,000)
Unrecordeddisbursement ( 30,000) -
Adjusted balance P 140,000 P 140,000
Question Nos. 2-3
Equitable PCI Bank Book Bank
Unadjusted bal. (squeeze) P 62,000 P 93,000
Creditmemof ornotec oll. 10,000
Bank service charge ( 2,000)
Deposit int ransit (15,000+20,000+50,000*) 85,000
Outstandingchecks (28,000)
Unrecorded transfer (30,000+50,000*) 80,000 -
Adjusted balance P 150,000 P150, 00 0
*fund transfer No. 4 (Included both as unrecorded transfer and deposit in
transit)
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000) P 45,000
EquitablePCI Bank 28,000
Total outstanding checks P 73,000
Question No. 5
Fund transfer No. 1 is recorded in the disbursing book during December while it
only cleared in the disbursin g bank in January.

SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. B

BOOK Jan. 31 R eceipts Disb Feb. 28
Unadjusted balances-books 200,000 150,000 80,000 270,000
CreditMemo-January 9,000 (9,000) - -
CreditMemo-February - 13,000 - 13,000
BSCcheck-January (100) - (100) -
BSCcheck-February - - 150 ( 150)
Check of the company issued in 700 - - 700
January was muti lated and
returned by the payee. A
replacement check was issued.
Both checks were entered in the
Check register but no entry was
made to cancel the mutilated
check, P700.
42
The company issued a sto p - (1,200) (1,200) -

payment order to the bank in
February for check issued in
February which was not
received by the payee. A new
check was written and recorded
in the Check register in
February. The old check was
written off by a journal entry
also in February, P1,200.
Adjusted balances 209,600 1 52,800 78,850 2 83,550
BANK Jan.3 1 Receipts Disb Feb.2 8

Unadjusted balances-bank 206,600 159,000 88,650 276,950
Deposit int ransit-January 10,000 (10,000) - -
Depositint ransit-February - 11,000 - 11,000
Outstanding checks-January (4,200) - ( 4,200) -
Outstanding checks-February - - 1,800 ( 1,800)
Erroneous bankc redit-January (6,000) - (6,000) -
Erroneous bankc redit-February - (4,000) - (4,000)
Erroneous bankc harge-January 3,200 (3,200) - -
Erroneous bank charge- - - (1,400) 1,400
February
Adjusted balances 209,600 152,800 78,850 283,550
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. A 5. C
PROBLEM 8-23 Computation of Cash Shortage

Question No. 1
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961) (39,347.50)
Add:Undepositedreceipts 35,000
Adjustedbankbalance P221,052.50
Question No. 2
Unadjustedbookbal. P242,310.50
Creditmemof ornotescollection 30,000
Creditmemo
Balance( for
cash int.
accountability) 900
P273,210.50
43
Question No. 3
Adjusted bank bal. (Cash accounted) P221,052.50
Less: Cash in bank bal. (cash accountability) 273,210.50
Shortage (P52,158.00)
SUMMARY OF ANSWERS:
1. B 2. D 3. B

Question No. 1
Outstandingchecks ( 11,500)
Undeposited collections 5,000
Adjusted bank balance P 35,900
Question No. 2
Unadjustedbookbal. P 46,500
Creditmemop roceedscleandraft 900
Debit memo for bank servicec harge ( 100)
Balance (cash accountability) P 47,300
Question No. 3
Adjusted bank bal.( Cash accounted) P3 5,900
Cash inb ank bal.( cash accountability) 47,300
Shortage asofJune30 ( P11,400)
Question No. 4
Additional cas shortage from July 1-15
JulycollectionperduplicateO.R. P 18,800
Less: collections in July that were deposited in
July
Collection per duplicates lips P1 1,000
Less :Undeposited collection, June 30 5,000 6,000
Casht hatshouldb eo nh andonJuly1 5 P 12,800
Less:Actualc ashonh andonJuly1 5 4,800
Cash shortage from July 1-15 P 8, 000
Question No. 5
Understatement of cash in bank per books (46,500-45,600) P 900
Overstatement of cash in bank per bank (44,000-42,400) 1,600
Understatement of outstanding checks (11,500-3600) 7,900
Overstatement of undeposited collections (5,100-5,000) 100
Non-recording of credit memo-proceeds of clean draft 900
Cash shortage as of Jun e 30 P11,400
SUMMARY OF ANSWERS:
44
1. C 2. D 3. B 4. D 5. D

Question No. 1
Deposit int ransit,u nadjustedb al. P 175,250
Less:C ustomer's Post-dated check 50,000
Adjusted Deposit in transit 125,250 P
Question No. 2
Outstanding checks, unadjusted balance P 246,760
Less:Unreleased check ( 14,750)
Company's post-dated check ( 37,210)
Adjusted Outstanding checks 194,790 P
Question No. 3
Unadjustedbal.perbank P350,000
Add:Deposit intransit( No. 1) 125,250
Less: Outstanding checks (No.2 ) (194,790)
Erroneousbankcredit ( 30,000)
Adjusted cash in bank bal. 250,460 P
Question No. 4
Unadjustedbal.perbooks P 293,500
Add:Creditmemofornotecoll. 15,000
Unreleasedcheck 14,750
Company'spost-datedcheck 37,210
Total 360
P 460
Less: Customer s post-dated check (50,000)
Cashi nb ankperbooksbal. P310,360
Less: Adjusted cash in bank balance 250,460
Cash shortage (P60,000)
Question No. 5
Unadjustedbal.perbooks P293,500
Less: Adjusted cash in bank balance 250,460
Net adjustments P 43,040
SUMMARY OF ANSWERS:
1. B 2. D 3. B 4. C 5. A
45
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES
Note to pro fessor: Page 257.

ILLUSTRATION : Sales Disco unt (PAS 18 vs. PFRS 15)
SOLUT ION: (PAS 18 )
Accountsreceivable 100,000
Sales (inst ead of allowance for sales discount ) 100,000
PROBLEM 10-1 Trade and oth er receiva bles

Trade Trade and other Noncurrent
Receivables receivables Asset
1 277,000 277,000 -
2 150,000 150,000 -
3 - 10,000 -
4 - 30,000 -
5 - - 110,000
6 - 15,000 -
7 70,000 70,000 -
8 - 80,000 220,000
9 100,000 100,000 -
Adjusted bal. 597,000 1. C 732,000 2. C 330,000
PROBLEM 10-2 Different Fre ight terms

Question No. 1
FOB Destination, freight prepaid
Invoicepriceofmerchandisesold 300,000
Less:Invoicep riceof merchandisereturned -
Netinvoiceprice 300,000
Less:Salesdiscount( 300,000x 2%) 6,000
Collectionbeforefreight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid -
( B)
Total Net Cash Collection 294,000
Question No. 2
FOB Destination, freight collect
Less:Invoicep riceof merchandisereturned -
NetPayment
Less: Freightbefore freight
payment - FOB Destination, freight collect 294,000
5,000
Total Net Cash Collection(A) 289,000
46
Question No. 3
FOB Shipping point, freight prepaid
Less:Invoicep riceofm erchandisereturned -
NetReceiptbefore freight 294,000
Add: Freight payment - FOB shipping point, freight prepaid 5,000
Total Net Cash Collection(C) 299,000
Question No. 4
FOB Shipping point, freight prepaid
Less:Invoicep riceofm erchandisereturned -
Collectionbeforefreight 294,000
Total Net Cash Collection(B) 294,000
1. B 2. A 3. C 4. B
PROBLEM 10-3 Gross method and Net method

List
price P100 000
Less: Trade discounts
15%: (100,000 x1 5%) 15,000
20%: (100,000 – 15,000) x 20% 17,000 32,000
Invoice price, gross of discount (C) 68,000
Less: Sales discount (68,000 x3 %) 2,040
Invoice price, net of discount (D) P 65,960
1. C 2. D
PROBLEM 10-4 Compu tatio n of Percentage of Bad Debts Expens e

CASE 1
Credit Sales Accounts written off Recoveries
2013
2014 2,000,000 40,000 20,000
2015 3,500,000 270,000 15,000
7,000,000 330,000 50,000
47
2016 2,000,000 65,000 30,000

9,000,000 395,000 80,000
2017 3,000,000 85,000 40,000
12,000,000 480,000 120,000
Question No. 1
Accounts written off minus Recoveries
Percentage =
Total credit sales
Total years fr om 2013 to 2017:
480,000 - 120,000
Percentage = 12,000,000
Percentage = 3.00 %
Question No. 2
Bad debts expense = 3% x 3,000,000
= 90,000
Question No. 3
Allowance for Bad debts
Writeoff 85,000 400,000 Beg.Balance
Balance end (squeeze) 445,000 90,000 Bad debts exp
40,000 Recovery
520,000 520,000
Question No.4 CASE 2

Percentage =
Total credit sales
Total years from 2013 to 2015 (years should exclude the last two years ):
330,000 - 50,000
Percentage =
7,000,000
Percentage = 4 %
Question No. 5
Bad debts expense = 4% x P3,000,000
= 0,000
Question No. 6
Credit Sales BD exp Recoveries Write-off Net AB
2016 2,000,000 80,000 65,000 30,000 1 15,000
2017 3,000,000 1 20,000 85,000 40,000 165,000
Allowance for BD (D) 280,000
48
CASE 3
Question No. 7
Percentage of bad Accounts written off minus Recoveries
=
debts to AR Total credit sales

Percentage of bad 395,000 - 80,000
=
debts to AR 9,000,000
Percentage = 3.5%
Percentage
debts to of
ARbad = Accounts written
Total off minus
credit sales Recoveries
Percentage of bad 480,000 -
=
debts to AR 12,000,000
Percentage = 3 %
Question Nos. 8 and 9

Allowance for Bad deb ts
Balance end Beg. Balance
(3,400,000 x 3%) 102,000 105,000 (3,000,000 x 3.5%)
Writeoff 85,000 (D)42,000 Bad debts exp (squeeze)
40,000 Recovery
187,000 187,000
Case 1 Case 2 Case 3
1. B 4. D 7. C
2. B 5. D 8. D
3. B 6. D 9. C
PROBLEM 10-5 Aging Based on Out standin g Receivab les

Question No. 1
Categories Uncollectible
Balance
(No. of Days) Percent Amount
0-30d ays 500,000 2% 10,000
31-60d ays 600,000 3% 18,000
61-90d ays 750,000 5% 37,500
over 91 days 300,000 10% 30,000
Totals 2,150,000 95,500

Balancee nd 95,500 40,000 Beg. balance
49
(see above table)

Writeoff 12,000 Recoveries
(23,000+100,000) 123,000 166,500 Bad debts exp (squeeze)
218,500 218,500
Question No. 2
Accounts receivable, end (see above table) 2,150,000
Less: Allowance for doubtful accounts, end 95,500
Net Realizable Value 2,054,500
1. A 2. A
PROBLEM 10-6 Aging Base d On Days Past Due

Question No. 1
Overdue accounts % uncollectible Balance Al lowance
Forl ess than 31 days 5.00% 300,000 15,000
From31-60days 6.00% 220,000 13,200
From61-90days 8.00% 150,000 12,000
From91-120d ays 15.00% 60,000 9,000
For over121days 20.00% -
Required allowance for doubtful accounts 49,200
Question No. 2
Balance end 49,200 20,000 Beg. balance
29,200 Bad debts exp (squeeze)
158 000 158,000
1. A 2. A
PROBLEM 10-7 Interest -bearing Not e with Realistic Intere st Rate

Requirement No. 1
*Selling price P100,000
Less: Carrying amount of machinery
Cost 500,000
Loss on sale 50,000) (P
The selling price is equal to the face amount, which is likewise equal to
*Note:
the present value of the note since the note bears an annual interest rate that is
similar with the market rate.
50
Requirement No. 2
Interest income = (100,000 x 10%) = P10,000
Requirement No. 3
Zero. The principal amount is collectible beyond one year from the reporting
date and thus, reported as non-cu rrent.
Requirement No. 4
P100,000. The entire principal amount of notes receivable is treated as
noncurrent asset since it i s collect ible beyond one year from the reporting date.
Journ al entries are as follows:

01/01/2016 Notes receivable 100,000
Losson sale 50,000
Machinery 500,000
\
12/31/2016 Cash 10,000

PROBLEM 10-8 Interest-bearing Note with Unrealistic Interest Rate,

Interes t Is Payable Ann ually, One-Ti me Col lection of Principa l
Question No. 1
Present value of principal (2,000,000 x 0.7118) P 1,423,600
Add: Present value of interest payments
(2,000,000x 10%x2.4018) 480,366
Total present value/ Selling price 1,903,966
Cost 1,000,000
Gain on sale P1,053,966
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2016 1,903,960
12/31/2016 200,000 228,475 28,475 1,932,435
12/31/2017 200,000 231,892 31,892 1,964,327
12/31/2018 200,000 235,704 35,672 2,000,000
The total
due to be amount
coll ectedofbeyond
1,932,435 is reported
twelve m onthsas noncurrent
from the end of the reportingsince
receivable it is
period.
1. B 2. B 3. A 4. A 5. C
51
PROBLEM 10-9 Interest-bearing Note with Unrealistic Interest Rate,

Interes t Is Payable Semi-A nnu ally, One-Time Collecti on of Principa l
Question No. 1
Present value of principal (2,000,000 x 0.7050) P 1,410,000
(2,000,000x 5%x4.9173) 491,730
Total present value/ Selling price 1,901,730
Cost 1,000,000
Gain on sale P1,051,730
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2016 1,901,730
07/31/2016 100,000 114,104 4,104
1 1,915,834
12/31/2016 100,000 114,950 14,950 1,930,784
07/31/2017 100,000 115,847 15,815 1,946,599
12/31/2017 100,000 116,796 16,796 1,963,395
07/31/2018 100,000 117,804 17,804 1,981,198
12/31/2018 100,000 118,602 18,802 2,000,000
Question No. 2
Interest income up to 07/31/2016 114,104
Interest income up to 12/31/2016 114,950
Total interest income 229,054
Question No. 3
1,930,784. See amortization table above.
Que stion No .s 4 and 5

The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collecte d beyond twe lve month s from the end of the reporting period.
1. B 2. B 3. B 4. A 5. D
PROBLEM 10-10 Interest -bearing Note with Unrea listic Interest Rate,
Uniform Coll ection of Principal
Question No. 1
52
Computation of present value of all payments:

Present Interest Total
Principal To
tal PV
value fact or collections collections
0.8929 600,000 180,000 780,000 696,462
0.7972 600,000 120,000 720,000 573,984
0.7118 600,000 60,000 660,000 469,788
Totalpresentvalue 1,740,234
Total present value / Selling price 1,740,234

Cost 1,000,000
Gain on sale P890,234
Amortization table
Interest Interest Amortizatio Principal Carrying
Date
Collections Income n collections amount
01/01/16 1,740,234
12/31/16 180,000 208,828 28,828 600,000 1,169,062
12/31/17 120,000 140,287 20,287 600,000 589,350
12/31/18 60,000 70,651 10,651 600,000 -
Question No. 2
208,828. See amortization table above.
Question No. 3

Question N . 4
Principal collections – 2017 600,000
Less: Amortization – 2017 20,287
Current portion – 12/31/2016 579,713
Question No. 4
Carrying value – 12/31/2016 1,169,062
Less: Current portion – 12/31/2016 579,713
Non-current portion – 12/31/2016 589,350
1. B 2. B 3. A 4. B 5. A
PROBLEM 10-11 Non-interest-bearing Note with Unrealistic Interest Rate,

Non-Uniform Collection of Principal
Question No. 1
Computation of present value of all payments:
53
Total
PV facto r collections TotalP V
0.8929 1,000,000 892,900
0.7972 600,000 478,320
0.7118 200,000 142,360
Total present value of the notes 1,513,580
Total present value / Selling price 1,513,580

Cost 1,000,000
Amortization table
Interest Amortizatio Principal Carrying
Date
income n Collections amount
01/01/16 1,513,580
12/31/16 181,630 181,630 1,000,000 695,210
12/31/17 83,425 83,425 600,000 178,635
12/31/18 21,382 21,365 200,000 -
Question No. 2
Question No. 3
Question No. 4
Principal collections – 2017 600,000
Less: Amortization – 2017 83,425
Current portion – 12/31/2016 516,575
Question No. 5
Carrying value – 12/31/2016 695,210
Less: Current portion – 12/31/2016 516,575
Non-current portion – 12/31/2016 178,635
1. B 2. B 3. A 4. B 5. D
PROBLEM 10-12 Noninterest-bearing Note, One-T ime Collection of

Principal
Question No. 1
Total present value (1,800,000 x 0.7118) 1,281,240
54

Cost 1,000,000
Amortization table
Date Inter est Income Amortization Carrying amount
01/01/16 1,281,240
12/31/16 153,749 153,749 1,434,989
12/31/17 172,199 172,199 1,607,187
12/31/18 192,812 192,812 1,800,000
Question No. 2
Question No. 3
Que stion No . 4 and 5
The total amount of 1,434,989 is reported as noncurrent receivabl e since it is
due to be coll ected beyond twelve m onths from the end of the reporting period.
1. B 2. B 3. A 4. B 5. A
PROBLEM 10-13 Com putation of Annual Payment or Collection
CASE 1: Based on the original data

Requirement No. 1
Present value of the notes
Annual collection =
Present value of ordinary annuity for 3 periods
1,500,000
Annual collection =
2.4018
Annual collection = P624,532
Requirement No. 2
Interest income (1,500,000 x 12%) = P180,000
CASE 2
Requirement No. 1
Present value of the notes
Annual collection =
Present value of annuity due for 3 periods
1,500,000
Annual collection =
2. 6901
Annual collection = P557,600
55
Requirement No. 2
Interest income (1,500,000 – 557,600) x 12% = P113,088
PROBLEM 10-14
Sales 250,000
Sales discount 250,000 x 3% x4 0%) 3,000
Allowanceforsalesdiscount 3,000
Cash( 250,000x 50%x97%) 121,250
Allowancef ors alesdiscount 3,000
Sales discount [ 250,000 x (50% - 40%) x 3%] 750
Accounts receivable ( 250,000x 50%) 125,000
On December 31, 2016, the receivable then is included in the statement of
financial position as follows:
Accountsreceivable,end 250,000
Less: Allowancef ors ales discount 3,000
Netrealizablevalue 247,000
SOL UTION: (PFRS 15)

Refund liability 1,000
Sales [ 100,000 – ( 100,000x2 %x 50%) 99,000
Cash( 100,000x 60%x9 8%) 58,800
Sales discount [ 100,000 x (60% - 50%) x 2%] 200
Refundliability 1,000
Accountsreceivable( 100,000x 60%) 60,000
On December 31, 2016, the receivable then is included in the statement of
financial position as follows:
Accounts receivable = Net realizable value 100,000
PROBLEM 10-15
SOLUTION:
Requirement No. 1 PAS 18
2017:
Dec.3 1 Accountsreceivable 550,000
Sales 550,000
Cost of sales 300,000
Merchandiseinventory 300,000
Sales returns ( 550,000 x 30%) 165,000
56
Allowancefors alesreturn 165,000

2018:
Jan. 5 Cash [ 550,000 - (45% x 550,000)] 302,500
Sales returns [(45%-30%) x 550,000] 82,500
Allowance for sales returns 165,000
Requirement No. 2 PAS 18
2017:
Dec. 31 No journal entry. No revenue is recognized because the company
cannot estimate reliably any future returns.
2018:
Feb.1 Accountsreceivable 550,000
Sales 550,000
Note: Revenue is recognized since the time period for rejecting/accepting has
elapsed.
Requirem ent No. 1 PFRS 15

2017:
Dec.3 1 Accountsreceivable 5,000
Sales[ 550,000x (100%-30%)] 5,000
Cost of sales ( 300,000 x 70%) 210,000
Asset for right to recover product to be 90,000
returned
Merchandise inventory 300,000
2018:
Jan. 5 Cash [ 550,000 - (45% x 550,000)] 302,500
Sales returns [(45%-30%) x 550,000] 82,500
Merchandisei nventory 135,000
Costof sales 45,000
Asset for right to recover product to 90,000
be returned
Requirem ent No. 2 PFRS 15
2017:
Dec. 31 Asset for right to recover product to be 300,000
returned
2018:
Feb.1 Accountsreceivable 550,000
Sales 550,000
57

Asset for right to recover product to 300,000
be returned
PROBLEM 10-16 Impairment of Receivable, One-time Collection of

Principal
CAS E NO. 1
Question No. 1
Principal 16,000,000
Add: Accrued interest receivable 1,600,000 17,600,000
Less: *Present value of expected cash flows 7,705,280
Loan impairment ( A) 9,894,720
*Computation of prese nt value of all payments:

PV factor Total collections Total PV
0.9091 1,600,000 1,454,560
0.8264 3,200,000 2,644,480
0.7513 4,800,000 3,606,240
Total present value of the notes 7,705,280
Amortization table
Interest Carrying
Date Collections Income Amortization amount
12/31/2015 7,705,280
12/31/2016 1,600,000 770,528 829,472 6,875,808
12/31/2017 3, 200,000 687,581 2,512,419 4,363,389
12/31/2018 4,800,000 436,339 4,363,389 -
CAS E NO. 2
Question No. 4
Carrying value – 12/31/2015 (see table below) 15,458,634
Loan impairment (B) 9,894,720
Amortization table
Interest
Received Interest Carrying
Date Or Accrued Income Amortization amount
01/01/2013 14,846,080
12/31/2013 1 ,600,000 1,781,530 181,530 15,027,610
12/31/2014 1 ,600,000 1,803,313 203,313 15,230,923
12/31/2015 1,600,000* 1,827,711 227,710 15,458,634
*Interest accrued .
58
12/31/2015 Accrued interest receivable 1,600,000

Interestincome 1,600,000
Unearned interest income 227,710
CAS E NO. 3
Question No. 5
Loan impairment ( C) 9,353,354

Amortization table
Interest
01/01/2013 14,846,080
12/31/2013 1 ,600,000 1,781,530 181,530 15,027,610
12/31/2014 1 ,600,000 1,803,313 203,313 15,230,923
12/31/2015 1,827,711 1 ,827,711 17,058,634
12/31/2015 Unearned interest income 1,827,711

CAS E NO. 4
Question No. 6
Loan impairment C) 9,894,720
Amortization table
Interest
01/01/2013 14,846,080
12/31/2013 1 ,600,000 1,781,530 181,530 15,027,610
12/31/2014 1 ,600,000 1,803,313 203,313 15,230,923
12/31/2015 1 ,600,000 1,827,711 227,710 15,458,634
12/31/2015 Cash 1,600,000
Unearned interest income

Interestincome 227,710 227,710
59
1. A 2. B 3. B 4. B 5. C 6. C
PROBLEM 10-17 Rev ersal of Impairment Loss

Question No. 1
Present value of expected cash flows P6 54,552
vs. Would have been present value if there was no
impairment 600,000
Lower 600,000
Less:Actualamortizedcost 396,681
Gain on reversal of impairment loss (A) P 2 03 ,319

Question No. 2
Present value of expected cash flows P6 54,552
Less:Actuala mortizedc ost 396,681
Gain on reversal of impairment loss (D) P 2 57 ,871
Question No. 3
Interest inc ome (600, 000 x 10%) ( B) P 60,000
Question No. 4
Interest inc ome (654, 552 x 10%) (A) P 65,4 55
1. A 2. D 3. B 4. A
PROBLEM 10-18 Pledge of Receiv able

Principalamountborrowed P900,000
Less: One year interest deducted in advance (900,000 x 10%) ( 90,000)
Cash received on December 1 ( B) P810,000
PROBLEM 10-19 Assignment of Accounts Receivable

Question No. 1
Principalamountborrowed P150,000
Less: Finance fee (150,000 x 5%) ( 7 ,500)
Cash received on December (1D) P 142,50 0
Question No. 2
Notespayable P150,000
Less: Princip al payment
Remittance 95,000
Less: Interest (150,000 x 12% x 3/12) ( 1,500) 93,500
Notes payable – Decemb er 31 (C) P56,500
Question No. 3
60
Accounts receivable – assigned (200,000 – 100,000) P 100,000

Less:Notespayable ( 56,500)
Equity in assigned account (C) P 43,500
1. D 2. C 3. C
PROBLEM 10-20 Factorin g of Rec eivables

Entries to reco rd transactions
Option Accounts Debit Credit
One Cash( 400,000x90%) 360,000
Receivable from factor
(25,000 – [5% x 400,000]) 5,000
Loss on sale of receivables (squeeze) 35,000
Notespayable 400,000
Two Cash( 400,000x90%) 360,000
Receivable from factor
(25,000 – [4% x 400,000]) 9,000
Loss on sale of receivables (squeeze) 34,000
Estimatedr ecoursel iability 3,000
1. B 2. C
PROBLEM 10-21 Notes Receivab le Discounting and Notes Receiv able

Dishonored
CASE NO. 1
Question No. 1
Principal P 600,000.00
Add: Interest over full credit period (600,000 x 9% x 90/360) 13,500.00
Maturity value 613,500.00
Less: Discount (613,500 x 12% x6 5/360) 13,292.50
( C)
Net proceeds from discounting P 600,207.50
Question No. 2
Netproceeds fromdiscounting P 600,207.50
Less: Carrying amount on date of discounting
Principal 600,000.00
Add:
Loss on Interest
notes (600,000
receivable x 9% x 25/360)
discounting ( A) 3,750.00(P 3,5603,750.00
4 2.50)
CASE NO. 2
Question No. 3
61
Loss of P3,524.50. The amount of loss to be recognized is computed in a

similar way as to th at of discounted note without recourse. (A)
Question No. 4
Maturityv alue oft he note P 613,500
Add: Protest fee and other bank charges 5,000
Cash received on December 1 (C) P618,500
CASE NO. 3
Question No. 5
Interest expense of P3,524.50 . The amoun t of interest ex pense is compute d
in a similar
sale. (A)way as to that of discounted note without recourse or conditional
Question No. 6
Maturityv alue oft he note P 613,500
Add: Protest fee and other bank charges 5,000
Cash received on December 1 (C) P618,500
1. C 2. A 3. A 4. C 5. A 6. C
PROBLEM 10-22 Discount ing “Own” Note

Question No. 1
Notepayable P250,000
Less: Discount on note payable (250,000 x 12%) ( 30,000)
Carrying amount – Date ofi ssuance P2 20,000
Effective interest rate = Discount/Net proceeds
= 3 ,000/220,000
= 1 3.60% (D)
Question No. 2
Entry to record trans action
Cash 220,000
Discount on notes payable 30,000
1. D 2. B
COMPREHENSIVE PROBLEMS
PROBLEM 10-23
Question No. 1
Credit Sa les Accounts written off Recoveries
2013 2,220,000 52,000 4,300
2014 2,450,000 59,000 7,500
2015 2,930,000 60,000 7,200
62
7,600,000 171,000 19,000

Percentage =
Total credit sales
171,000 - 19,000
Percentage =
7,600,000
Percentage = 0.02 or 2%
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3
Reported doubtful account expense (bad debts written off) P 62,000
Less: Correct doubtful account expense (see No. 2 ) ( 60,000)
Overstatement in doubtful account expenses P 2,000
Question No. 4
Sales on account 3,000,000 62,000 Write-off
2,710,400 Collections excluding
advance from customers
Total 3,418,000 3,418,000
Question No. 5
All wa nce for Doubtful accounts
Accounts written off 62,000 15,200 Beg. Balance
Balance end 21,600 60,000 Doubtful accounts expense
8,400 Recoveries
Total 83,600 83,600
1. A 2. A 3. B 4. B 5. A
PROBLEM 10-24
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze) 21,800
P
Add:Adjustednet sales 255,000
Total 276,800
Less: Collections, net of discounts 156,800
63
Estimated uncollectible accounts charged to AR in Dec. 30,000

Unadjusted accounts receivable, Dec. 31 P 90,000
Subsidiary ledgerb alance, Dec. 1 P 59,000

Less: AR controlling account, Dec. 1 (see above) 21,800
Add: Estimated uncollectible account
chargedtoARin Dec. 6,000 27,800
Customers’ credit balance (D) P31,200
Question No. 2
Collection, net of discount P1 56,800
Divideby:(100%-2%) 98%
Total credit to AR for collection (A) P160,000
Question No. 3
Customer credit balance, Dec. 1 P 31,200
Less: sale to customer with credit balance 10,000
Customer Credit balance, Dec. 31(A) P 21,200
Question No. 4
Unadjusted Sales, balance P2 60,000
b) Sales, FOB shipping pt., not yet recorded 10,000
c)S ales,F OB destination ( 15,000)
Adjusted Sales balance ( A) P 255,000
Question No. 5
Subsidiary ledger, balance, 12/1 P 59,000
Add: Adjusted Sales in December 255,000
Freight prepaid by the company 1,000
Total P315,000
Less: total credit to AR for coll. 160,000
Adjusted accounts receivable in Dec. (B) P1 55,000
1. D 2. A 3. A 4. A 5. B
64
PROBLEM 10-25
Question No. 1
Balance Accounts
De c. 31 Not due 1 - 6 0 da y s 61-120 d ays Over 120
1 12,000 3,000 8,000 1,000
2 22,000 22,000
4 20,000 10,000 10,000
5 55,000 2,220 52,780
6 7,500 7,500
116,500 27,220 68,280 11,000 10,000
Multiply by: 0.50% 2% 5% 50%
136.10 1,365.60 550 5,000.00

Required balance (P136.10+P1,365.60+P550+P5,000) P 7,051.70
Less: Allowance for doubtful accounts, beginning 5,000.00
Doubtful accounts expense 2,051.70 P

Interest Accrued interest
Interest income income income
(120,000X6 %X2 /12) P 1,200 P -
(100,000X 6%X 1/12) 500 500
Interest income P 1,700 P 500
SUMM
1. DARY OF
2. ANSWER
C 3.S: B 4. D 5. A
PROBLEM 10-26
Question No. 1
Principal 4,000,000
Originationf ees received (342,100)
Direct origination cost incurred 150,020
Initial Carrying amount of the loan 3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118) 2,847,200
Present value of Int. (4M x 10% x 2.4018) 960,720
Present value of Loan Receivable 3,807,920
65

Interest Carrying
01/01/2016 3,807,920
31/12/2016 400,000 456,950 56,950 3,864,870
31/12/2017 400,000 463,784 63,784 3,928,655
31/12/2018 400,000 471,439 71,346 4,000,000
Question No. 5
Zero, As of December 31, 2016, the entire loan proceeds will be collectible on
December 31, 2018, that is two years from the repor ting date.
1. A 2. C 3. B 4. A 5. A
PROBLEM 10-27
Question No. 1
Annual Cash PV
Date flows factor Amount
Dec. 31, 2015 P1,750,000 0.9091 P 1,590,925
Dec. 31, 2016 2,000,000 0.8264 1,652,800
Dec. 31, 2017 1,750,000 0.7513 1,314,775
Total 4,55P8,500
Question No. 2
Carrying amount oft he loan P 5,500,000
Less: Present value of the loan 4,558,500
Impairment loss P 941,500
Interest Reduc tion to Carrying
Date P a y me n t Income Principal amount
12/31/2014 P4,558,500
12/31/2015 P1,750,000 P455,850 P1
,294,150 3,264,350
12/31/2016 2,000,000 326,435 1,673,565 1,590,785
12/31/2017 1,750,000 159,079 1,590,785 -
1. C 2. A 3. B 4. A 5. C
66
PROBLEM 10-28
Accounts Allow Mdse. Net Cost of
Receivable for DA Inventory Sales Sales
Unadjusted balances 300,000 3,000 400,000 1, 000,000 800,000
2)Salereturn (30,000) (30,000)
Cost of return
Merchandise
(30,000 x80%) 24,000 (24,000)
3)Sales FOB shipping
point
not
Salerecorded as 40,000 40,000
Cost of mdse sold
(40,000 x80%) (32,000) 32,000
4) Goods shipped
FOB
Destination recorded
assale (50,000) (50,000)
Cost of goods
(50,000 x 80%) 40,000 (40,000)
6)D oubtful accts exp (12,000)
Adjusted bal. 260,000 15,000 432,000 960,000 768,000
Question No. 5
Accounts receivable P 260,000
Less: Allowance for doubtful accounts ( 15,000)
Net realizable value P245,000
1 B 2 B 3. B 4. B 5. C
PROBLEM 10-29
Question No. 1
Estimated
Classification Balance
Percentage Amount
1-60 days P1 ,000,000 1% P 10,000
61-120days 400,000 5% 20,000
121-180days 300,000 10% 30,000
181-360days 200,000 25% 50,000
More than oney ear 60,000 80% 48,000
Totals P1 ,960,000 P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1) P 1,960,000
Less: Allowance for doubtful accounts, end (see no. 1) 158,000
Net realizable value P1,802,000
67
Question No. 3
Doubtful accounts per books (9,000,000 x 2%) P 180,000
Less: *Adjusted doubtful accounts expense 188,000
Understatement of doubtful accounts (P 8,000)
*Adjusted doubtful account expense

Allowance for Dou btful accounts
Write off (100,000+40,000) 140,000 90,000 Beg. Balance
Balance end (required) 158,000 20,00 Recoveries
188,000 Doubtful account expense
Total 298,000 298,000
Question No. 4
Totalcarryingv alue P3,000,000
Less: **Present value of the loan 2,790,000
Impairment loss 210,000 P
*Computation of present value
Annual Cash flow PV factor Total
P1,000,000 1.00 P 1,000,000
1,000,000 0.93 930,000
1,000,000 0.86 860,000
Total Present value of the loan P 2,790,000
Question No. 5
Interest Amortizatio Carrying
Date Collections Income n amount
01/01/2016 2,790,000
12/31/2016 1,000,000 1,000,000 1,790,000
12/31/2017 1,000,000 143,200 856,800 933,200
1. A 2. B 3. D 4. B 5. B
PROBLEM 10-30
Question No. 1
Accounts receivable, unadjusted balance
Per subsidiary ledger P1,660,000
Note receivablei
Factored Accountsncluded in theA R
receivable (200,000)
(160,000)
SalesFOBshipping point 100,000
Adjusted AR balance P1,400,000
68
Question No. 2
Allowancef ord oubtfula ccts,b eg. P 100,000
Add: Doubtful accounts (P15,000,000 + P100,000) x 1% 151,000
Total 251,000
P
Less:Accountswrittenoff 28,000
Allowance for doubtful accts, end 223,000 P
Question No. 3
UnadjustedNetSales P15,000,000
Add:Sales,FOBshippingpoint 100,000
TotalSales P 15,100,000
Multiply by:
rate 1%
Doubtful accounts P 15 1,000
Question No. 4
No effect . The audit adjustmen ts did not result to any changes to inventory
account.
Question No. 5
Sales, FOB shipping point 100,000 P
1. D 2. A 3. D 4. D 5. A
PROBLEM 10-31
Question No. 1
Accountsreceivablef actored P 400,000
Less: Service charge (400,000x 5%) 20,000
Receivable from factor (400,000 x 20%) 80,000 100,000
Customers’ credit balance P300,000
Question No. 2
Principal P 300,000
Add: Interest over full credit period (300,000 x 12% x 6/12) 18,000
Maturity value 318,000
Less:D iscount(318,000x1 2%x3 /12) 11,925
Net proceeds from discounting 306,075 P
Question No. 3
Maturity value of the notes (see item in No. 2) 318,000
Add:Protest fee 12,000
Total cash paid/Amount to be debited to AR 330,000 P
Question No. 4
Notep ayable( 80% xP600,000) 480,000
Less: Service fee (5% x P600,00) 30,000
Cash received 450,000 P
69
Question No. 5
TotalCash paid(see No.3) 330,000
Add: Interest income (P330,000x 12% x2 /12) 6,600
Cash received 336,600 P
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000) P 700,000
Add:Accountsreceivableassigned 600,000
Total 1,300,000
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%) 65,000
Net realizable value P1,235,000
1. B 2. C 3. A 4. B 5. D 6. D
PROBLEM 10-32
60 days and 61 to 90 Over 90
Total below days days
Unadjusted Balance,
12/31/2016 1,900,000 1,000,000 5 00,000 4 00,000
Adjustments:
WriteOff (40,000) (40,000)
Unrecordedsale 50,000 50,000
NSFCheck shipment –
In transit 20,000 20,000
FOB Destination (45,000) (45,000)
Consignment (45,000) (45,000)
Erroneous unit price (7,500) (7,500)
Adjusted balance,
12/31/2016 1,832,500 930,000 49
2,500 410,000
PercentageofU ncollectibility 4% 5% 10%
Required allowance,
12/31/2016 108,825 37,200 24,625 41,000
Question No. 4
Allowance for Dou btful accounts
Write off 40,000 100,000 Beg. Balance
Balance end (required) 102,825 - Recoveries
(squeeze)
Total 142,825 142,825
70
Item Accounts Debit Credit

1 Allowancef orb ad debts 40,000
2 Accountsreceivable 50,000
Sales 50,000
Cash inbank 20,000
4 Sales 45,000
5 Sales 45,000
6 Sales 7,500
1. C 2. D 3. D 4. D 5. C
PROBLEM 10-33
Adjusting entries for Accounts receivable
Allowance for doubtful accounts 20,000
2 Salesdiscount 16 00
Miscellaneous income 30,000
Accounts receivable
Beg. Balance 220,000 2,720,000 Balance end
(20,000+200,000)
Sales
Recoveries 4,000,000
30,000 30,00 Recoveries
*1,500,000 Collections, gross of
discount
71
Total 4,250,000 4,250,000
*Collections from customers excludin g recoveries

Collections withoutdiscount 700,000
Add:Collections withd iscount 784,000
Cash discount availed (784,000/98% x 2%) 16,000
Total collections excluding recoveries P 1,500,000
Allowance for Doubtful accoun ts
20,000 Beg. Balance

Balancee nd 170,000 30,000 Recoveries
Total 170,000 170,000
Accounts receivable 2,720,000

Less: Allowance for bad debts 170,000
Net realizable value 2,55P0,000
Question N os. 2, 4 and 5

Adjusting entries for Loans receivable
1 LoanR eceivable 400,000
2 Unearned interest income 45,382
Principal 4,000,000
Direct origination cost incurred 11,520
Direct origination fees received (300,000)
Initial carrying amount 3,711,520
Amortization table at 12% Effective Rate

Interest Carrying
01/01/2015 3,711,520
12/31/2015 400,000 445,382 45,382 3,756,902
12/31/2016 400,000 450,828 50,828 3,807,731
12/31/2017 400,000 456,928 56,928 3,864,658
12/31/2018
12/31/2019 400,000
400,000 463,759
471,410 63,759
71,583 3,928,417
4,000,000
1. B 2. C 3. D 4. D 5. A
72
PROBLEM 10-34
Question No. 1
Unrecorded gain on sale of machinery – 2015 (see below) 90,183
Unrecorded interest income – receivable from sale of machinery
(240,183 x12%) 28,822
Unrecorded accrued interest – receivable from sale of plant
(1,500,000x 12%x9/12) 135,000
Net adjustment to R/E – 01/01/16 (B) 254,005
Cash consideration 200,000

Add: Present value of future cash flows (2.4018 x 100,000) 240,183
Totalsellingprice 440,183
Less: Carrying value of machine (800,000 – 450,000) 350,000
Gain on sale of machine 90,183
Amortization table (receivable from s ale of machinery):

Interest Carrying
01/01/2015 240,183
12/31/2015 100,000 28,822 71,178 169,005
12/31/2016 100,000 20,281 79,719 89,286
12/31/2017 100,000 10,714 89,286 -
Question No. 2
Interest income from note receivable:
Saleofmachinery( 169,005x1 2%) 20,281
Sale of plant [(1,500,000 x 12% 3/12) + (1M x 12% x 9/12) 135,000
Sale of equipment (170,750 x 10% x 9/12) 12,806
Total interest income (C) 168,087
Question No. 3
Current portion of note receivable fr om:
Sale of machinery (see amortization table above) 89,286
Sale
of
plant 500,000
Total current portion (B) 589,286
Question No. 4
Non-current portion of note receivable from:
Sale
of
plant 500,000
Sale of equipment( 170,750 + 12,806) 183,556
Total non-current portion
( D) 683,556
73
Question No. 5
Interestincomefroms aleofmachine 20,281
Interest income from sale of plant (180,000 – 135,000) (45,000)
Interest income froms ale of equipment 12,806
Net overs tatement of income
( D) (11,912)
1. B 2. C 3. B 4. D 5. D
74
Chapter 12: Inventories
CHAPTER 12: INVENTORIES
PROBLEM 12-1 Cost of Purchase

Purchasep rice basedo n vendors’ invoices 1,250,000
Brokerage commission paid to agents for arranging imports 50,000
Import duties 100,000
Freightandinsuranceonpurchases 250,000
Otherh andling costs relatingt oimports 25,000
Total cost of purchase (B) P1,675,000
Note that the trade discount was already deducted in arriving at the vendor’s
invoice.
PROBLEM 12-2 Inventoriable Cost

Materials 350,000
Irrecoverablepurchasetaxes 30,000
Labor 120,000
Variableproduction overhead 50,000
Fixedproduction costs 40,000
Cartage in 8,000
Total (C )
PROBLEM 12-3 Rebates

Question No. 1
Invoice price ( o VAT is charged on these goods)
Less: Rebate offered to the entity by the supplier 10,000
Inventoriable cost (B)
Question No. 2
Inventoriable cost (C)
PROBLEM 12-4 FREIGHT TERMS & FOREIGN EXCHANGE

Question No . 1 Free o n Board
Cost of inventory ($100,000 x
ForEx loss ( - (A) 187,500
Qu esof
Cost tion No. 2 Co
inventory st, Insuraxnce and Freight
($100,000
ForEx loss ( - (D) 125,000
75
PROBLEM 12-5 MANUFACTURING COST

Question No. 1
Variable cost:
Direct labor (
Directmaterials( 200,000
Fixed Cost ( / 100,000 normal capacity) x 100,000 actual 100,000
Total cost (C)
Question No. 2
Variable cost:
Directlabor( 120,000units) 1,080,000
Direct materials ( 2 excluding VAT x 120,000 units) 200,000
Fixed Cost ( 100,000
Total cost (C) 420,000
Question No. 3
Variable cost:
Direct labor (
Directmaterials( 160,000
Fixed Cost( 80,000
Total cost (D) 960,000
PROBLEM 12-6 Items to b e Included in th e Inventory

1 Items in the warehouse during the count P1,090,000
2 Items out on consignment at another company's store 70,000
4 Items purchased
December 31 FOB shipping point that are in transit at 500,000
5 Freight charges on goods purchased above 13,000
Items sold to another company, for which our company
has signed an agreement to repurchase at a set price that
covers all costs related to the invent ory. Total cost of
7 merchandiseis 200,000
Items sold FOB destination that are in transit at December
10 31, at
cost 75,000
14 Items currently being used for window display 100,000
15 Itemsoncounterfor sale 400,000
17 Items included in the count, damaged and unsalable (150,000)
Items in receiving dept., returned by customer, in good
18 condition( not includedi nt hec ount) 50,000
19 Merchandise inventories out on approval, at cost 100,000
Finished special article goods, made to order (included in
20 thecount) (78,000)
Total (A) P2,370,000
76
The following items would not be reported as inventory:

3 Cost of goods sold in the income statement 40,000
6 Not reported int he financial statements 300,000
11 A dvertising exp. In the income statement 10,000
12 Not reported in the financial statements 100,000
13 Temporary investments in the current
assets section oft he balance sheet 125,000
16 N ot reported in the financial statements 360,000
21 Office
sectionsupplies in thesheet
ofthebalance current asset 40,000
PROBLEM 12-7 Accounts Payable

Unadjustedbalance 1,800,000
Goods acquired in transit, FOB shipping point 100,000
Goodslost intransit 50,000
Adjusted Accounts Payable (A) P 1, 95 0, 000
The journal entry on item 2 would include the following:

Purchases/Inventory 50,000
AccountsPayable 50,000
To record the purchase on December 20.
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventor y?
Answer: No, since the inventories were lost in transit and it is improper to
report inventories that is not existing (i.e. it violates the existence assertion).
Thus the journal entry at December 31 if no claim was filed and the common
carrier has yet to acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as 50,000
other expense and not as cost of goods sold)
Inventory /Purchases 50,000
And on the next year (January 5), when the claim was filed and acknowledged
by the common carrier, the journal entry will be:
Claimsfromc ommonc arrier 50,000
Gaino n reimbursement of lost inventory 50,000
To record the claim against common carrier on January 5.
77
PROBLEM 12-8 Consigned Goods

Inventory shipped on consignment to Lomasoc 360,000
FreightbyDesireetoLomasoc 18,000
Total Inventoriable cost (D) P 378,000
PROBLEM 12-9 Gross method vs. Net method

CASE NO 1: Gross method
Date Accounts Debit Credit
01/02 Purchases (100,000 x [1-20%]) 80,000
01/12 Accountspayable 80,000
Cash (80,000x[1-98%]) 78,400
01/14 Accountspayable 80,000
Cash 80,000
CASE NO 2: Net method
01/02 Purchases (100,000 x [1-20%]
x[1-2%]) 78,400
01/12Accountspayable 78,400
Cash (80,000x[1-98%]) 78,400

01/14Accountspayable 78,400
Purchased iscountlost 1,600
Cash 80,000
SUMMARY OF ANSWERS:
CASE NO. 1 CASE NO. 2
1. B 5. C
2. C 6. C
3. D 7. A
4. A 8. D
PROBLEM 12-10 Cost Formulas - Diffe rent Methods

Question No s. 1 and 2
Weighted average
Weighted average Total goods available for sale (in peso value)
=
unit cost Total goods available for sale (in units)
Weightedaverage = 1,105,000
78
unit cost 85,000

Weighted average unit cost = P13/unit
Inventoryend(40,000x13) = P520,000 (C)
Cost of goods sold (20,000+5,000+21,000–1,000) x 13 = P585,000 (C)

Moving average
Units Unit cost Total cost
April1 balance 20,000 10 200,000
Apr. 2 Purchase 30,000 12 360,000
Balance 50,000 11 560,000
Apr. 4 Sale (25,000) 11 (280,000)
Balance 25,000 11 280,000
Apr. 10 Purchase 15,000 14 210,000
Balance 40,000 12 490,000
Apr. 15 Sales (21,000) 12 (257,250)
Balance 19,000 12 232,750
Apr. 17 Salesreturn 1,000 12 12,250
Apr. 28 Balance 20,000 245,000
Apr.2 8 Purchase 20,000 16.75 335,000
Balance 40,000 15 580,000
Inventoryend = P580,000 (A)

Cost of goods sold (280,000 + 257,250 – 12,250) = P525,000 (A)
FIFO Units Unit cost Total cost

April 1balance 20,000 10 200,000
Apr.2 Purchase 30,000 1 2 360,000
Apr. 4 (25,000 units sold) From Apr. 1 (20,000) 10 (200,000)
FromApr.2 (5,000) 12 (60,000)
Balance from Apr. 2 25,000 12 300,000
Apr.10 Purchase 15,000 14 210,000
Apr. 15 (21,000 units sold) From Apr. 2 (21,000) 12 (252,000)
Balance from April 2 4,000 12 48,000
Apr.17 Salesreturn 1,000 12 12,000
Balance
Apr.28 Purchase 20,000 17 335,000
Total Balance 40,000 605,000
Inventoryend = P605,000 (B)

Cost of goods sold (200,000 + 60,000 + 252,000 – 12,000) = P500,000 (B)
Note that inventory and cost of goods sold under FIFO periodic and perpetual is
the same.
79
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4. A 5. B 6. B 7. B 8. B
PROBLEM 12-11 Lower of Cost or Net Realizable Value
Question No. 1 Raw Mater ials

Supply of steel (used for motorbikes) Write-down
Cost 40,000
Moreprofitable( asis) 25,000 15,000
Supply of aluminum (used for bicycles)

Cost 60,000
More profitable (completed product) 50,000 10,000
Total write-down (C) 5,000
Question No. 2 Work-in- process

Incompletemotorbikes Write-down
Cost 30,000
More profitable (completed product) 25,000 5,000
Incomplete bicycles
Cost 50,000
Moreprofitable (asis) 60,000 -
Total write-down (D) 5,000
Question No. 3 Finished goods

Motorbikes Write-down
Cost 0,000
More profi able (completed product) 60 000 20,000
Bicycles
Cost 80,000
More profitable (completed product) 110,000 -
Total write-down (C) ,000
Question No. 4 Adju sted COGS

Cost of goods sold before write-down
Add: Write-down
Raw materials 25,000
Work-in-process 5,000
Finished goods 20,000
Adjusted cost of goods sold (C)
PROBLEM 12-12 Purchase Commitment

CASE NO. 1
80
11/15 No entry
12/31 Loss on purchase commitment (20,000 x [25-20]) 100,000
Estimated liability for purchase commitment 100,000
03/15 Purchases(25,000x2 5) 500,000
Accountspayable/Cash 500,000
Gainonp urchasecommitment 100,000
CASE NO. 2
11/15 No entry
12/31 No entry
03/15 Purchases(25,000x2 5) 500,000
Accountspayable/Cash 500,000
PROBLEM 12-15 Purchase Commitment

3/31 No entry
12/31 Loss on purchase commitment (1,200,000-1,000,000) 200,000
04/30 Purchases 1,200,000
Accountspayable/Cash 1,200,000
Gainonpurchasec ommitment 200,000
SUMMARY OF ANSWERS:
1. B 2. A
PROBLEM 12-13 Inventory Estimation - Gross Profit Rate Method

Sales 3,400,000
Less: Salesreturns (30,000)
Net Sales excluding Sales discount 3,370,000
Multiplyb y:C ost ratio (1-30%) 70%
Cost of Goodssold 2,359,000
Inventory,January 1 650,000
Add: Net Purchases
Purchases
Add:Freight-in 2,300,000
60,000
Less: Purchaser eturns (80,000) 2,280,000
TotalGoodsavailableforsale 2,930,000
Less: Cost ofgoodssold (2,359,000)
81
Merchandise inventory that should be on hand 571,000

Less: Actual merchandise inventory on hand (420,000)
Cost of Missing inventory (A) 151,000
PROBLEM 12-14 Inve ntory Estimation: Average Method - Retail Method

Computation of cost ratio:
Cost Retail
Inventorya t January 1 250,000 375,000
Purchases 1,325,000 1,750,000
Netmarkups - 200,000
Netmarkdowns - (75,000)
Totals 1,575,000 2,250,000
Cost ratio (1,575,000 / 2,250,000) = 70%
Computation of Inventory end at retail
Balance up to markdowns (see above computation) 2,250,000
Less:Sales 1,500,000
Estimated normal shrinkage (1,500,000 x 5%) 75,000
Estimated normal shoplifting losses 50,000
Inventoryendat retail P 625,000
Computation of Cost of goods sold
Total goods available for sale at cost 1,575,000
Less: Inventory end at cost (625,000 x 70%) 437,500
Cost of Sales (B) 1,137,500
PROBLEM 12-15 Inventory Estimation: FIFO Method - Retail Method

Computation of cost ratio:
Cost Retail
Purchases 292,500 400,000
Net markups - 75,000
Netmarkdowns - (25,000)
Totals 292,500 450,000
Cost ratio (292,500 / 450,000) = 65%
Computation of Inventory end at retail
Balance up to markdowns (see above computation) 450,000
Add:Inventorybeginning 100,000
Less:Sales 375,000
Inventoryendat retail P 175,000
Multiply: Costratio 65%
Inventory end at cost (A) P113,750
82
PROBLEM 12-16
PROBLEM 12-17
Question No. 1
A EI over (P129-P119)x 4,000 40,000
B EI under (70,000)
C EI over 100,000
Overstatement of ending inventory 70,000 (C)
Question No. 2
D. Ending inventory understated (140,000) (B)

2015 2016
Unadjustedbalance 1,000,000 1,200,000
A. EI over, NI over (P129-P119) x 4,000 (40,000) 40,000
B. EI under,NIunder 70,000 (70,000)
C. EI over, NI over (100,000) 100,000
D. EI under,NIunder 140,000
Adjusted balances 930,000 1,410,000
(A) (C)
Question No. 5
Unadjusted net income (1,000,000+1,200,000) 2,200,000
Less: Adjusted net
Net adjustment income (930,000+1,410,000)
to income-understated 2,340,000 (D)
(140,000)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. C 5. D
PROBLEM 12-18
Ledger Physical
Balance Count
Balances priort o adjustment P3 14,800 P 293,600
Add: Goods in transit sold, FOB destination 3,200 3,200
Less:unrecorded sale ( 8,400) -
Less:unrecordedp urchasereturns ( 6,000) -
Less:goodsheldonc
Add:unrecorded onsignment
purchase 3,640-- ( 8,800)-
Add: Goods in transit purchased, FOB shipping point 1,600
Add:Goodsoutonconsignment - 14,800
Adjusted balances P 307,240 P 304,400
83
(A) (C)
Question No. 3
Adjusted balances, perl edger P 307,240
Adjusted balances, physical count 304,400
Inventory shortage P 2 , 84 0 (B)
SUMMARY OF ANSWERS:
1. A 2. C 3. B
PROBLEM 12-19
Note to the professor: Use the following guide questions in answering this
question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts
Was there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
SOLUTION:
Ending Net
Inventory Sales Purchases AP Income
679 Unadjusted balances 550,000 1 ,000,000 600,000 450,000 120,000

680
681
682 Purch over, COS over, NI
under (46,740) (46,740) (46,740)
EI over, COS under, NI
over (46,740) 46,740
683 EI ov er, COS un der, NI
over (4,500) (4,500)
684 Purchunder, NI over 1,060 1,060 (1,060)
685 No, No, No
686 No, No, No
310 Yes, Yes, Yes
311 Sales over, NI over (560) (560)
EI under, NI under (560 x
70%) 392 392
312 Sales over, NI over (31,940) (31,940)
EI under, NI under (31,940
x 70%) 22,358 22,358
EI under, NI under (6,350
x 70%) 4,445 4,445
315 No, No, No
316 No, No, No
84
317 No,No , No
318
Net adjustment (24,045) (40,780) (45,680) (45,680) (19,145)
Adjusted balances 525,955 959,220 554,320 404,320 100,855
(A) (A) (A) (A) (D)
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. D
PROBLEM 12-20
Ending Accounts Accounts

inventory receivable payable Sales Neti ncome
Unadjusted
balance P220,000 P104,000 P138,000 P 1,010,000 P180,400
A (20,000) 20,000
B (10,000) (10,000)
C 50,000 (64,000) (64,000) (14,000)
D 14,000 (16,000) (16,000) (2,000)
E ( 24,000) ( 24,000)
Adjusted P 250,000 P24,000 P108,000 P930,000 P160,400
(A) (C) (D) (D) (A)
SUMMARY OF ANSWERS:
1. A 2. C 3. D 4. D 5. A
PROBLEM 12-21
Accounts Accounts Net
Inventory payable Re ce iv ab le Ne t Sa le s Pu r chase s N etin c o me
Unad usted
balances 250,000 400,000 1,000,000 4,000,000 2,500,000 600,000
A - - - - - -
B 35,000 - - - - 35,000
C 4,000 4,000 - - 4,000 -
D (25,000) - 40,000 40,000 - 15,000
E 10,000 - - - - 10,000
F - - (30,000) (30,000) - (30,000)
G 34,000 - ( 68,000) (68,000) - (34,000)
H - - (10,000) (10,000) - (10,000)
I - - - (90,000) - (90,000)
J 60,000 60,000 - - 60,000 -
Adjusted
b alan ce s 3 68 , 00 0 4 64 , 00 0 932 ,000 3 , 8 42 ,0 0 0 2 , 5 64 ,0 0 0 4 96 , 00 0
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4. A 5. D 6. D
PROBLEM 12-22
Questions No. 1 to 5
85
R /E Sales EI A /P CGS
2016 Purchases under, CGS 36,000
under, NI over, RE over
2017 Purchases over, CGS 36,000
over
2016 EI under, NI under, RE (32,000)
under
2017 BI under, CGS under (32,000)
Salesunder (20,000)
Purchasesu nder,C GSu nder (24,000) (24,000)
EIunder, CGSover (8,000) 8,000
Purchases under,C GS under (4,000) (4,000)
EIunder, CGSover (4,000) 4,000
Total 4,000 (20,000) (12,000) (28,000) (12,000)
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings – 12/31/2016 or 01/01/2017
4,000 – overstated
(4,000) – understated
Note: The effect of errors on December 2016 and January 2017 has no effect on
the ending balance of the accounts payable on December 31, 2017 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. C
PROBLEM 12-23
Question No. 1
Sales (475,000/80%) P593,750 100%
Less:Cost ofsales 475,000 80%
Grossprofit 118,750 20%
Inventory (in units)
Beg. Balance (60,000/P3) 20,000 25,000 Balance end (squeeze) or
(125,000/5)
Purchases 100,000 95,000 Cost of sales (475,000/5)
Total 120,000 120,000

Inventory (in peso amount)
Beg. Balance (squeeze) 60,000 125,000 Balance end (squeeze)
Purchases 540,000 475,000 Costo fs ales
86
Total 600,000 600,000
Weighted average unit cost = TGAS (peso) / TGAS (units)

Weighted average unit cost (P600,000/120,000) = P5/unit
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. B
PROBLEM 12-24
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2016 or
December 31, 2015 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2015. (B)
Question No. 2
Netincome– weightedaverage P3,250,000
Beginning inventory under, CGS under, Net income over (150,000)
Ending inventory under, CGS over, Net income under 100,000
Adjusted net income – FIFO (B) P3,200,000
Question No. 3
Computation of units sold:
Beginninginventory–units 10,000
Add:Total purchases–units 100,000
Totalgoodsavailablef ors ale–units 110,000
Less: Units sold (P6,400,000 / P80/unit) 80,000
Ending inventory inunits 30,000
The 30,000 ending inventory comes from the last two purchases as follows:
Units Unit cost Total cost
From 4th quarterpurchases 10,000 68 680,000
From 3rd quarter purchases 20,000 66 1,320,000
Total 30,000 (B) 2,000,000
Question No. 4
Cost (refer tono.3) 2,000,000
Net realizable value [(P70 – P5) x 30,000] 1,950,000
Loss on inventory write-down (B) 50,000
Question No. 5
Beginninginventory–FIFO 500,000
Add: Net Purchases (P6,480,000 – 980,000) 5,500,000
Totalgoodsavailablef ors ale 6,100,000
Less: Ending inventory at cost (see no. 3) 2,000,000
87
Cost of goodssoldat cost 4,100,000

Add: Loss on inventory write-down (see no. 4) 50,000
Cost of goods sold afte r inventory write-down (A) 4, 150,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. A
PROBLEM 12-25
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units Unit cost Total
3,000 14 P 42,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
12,000 P 176,000 (A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units Unit cost Total
1,800 19 P 34,200
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
5,800 P 117,400 (A)
Question No. 3
T-shirts:
Net realizable value NRV Cost Lower
(12,000 x (P16-(10% x P16)) P172,800 P176,000 P 172,800
Jackets:
(5,800 x (P22-(10%xP22) 114,840 117,400 114,840
Lower of cost or NRV P287,640 P 293,400 P287,640
Question No. 4
Totalcost (seeno. 3) P 293,400
Less: Lower ofc ost or NRV( see no. 3) 287,640
Loss on inventory write-down (B) P 5, 760
Question No. 5
Beginning inventories:
T-shirts(9,000xP11) P 99,000
Jackets(5,000xP15) 75,000 P 174,000
Add:*Total purchases (299,500 + 183,900) 483,400
Totalgoodsavailablef ors ale P 657,400
88
Less: Merchandise inventory atc ost 293,400

Cost of sales before inventory write-down P 364,000
Add: Lossoninventory write-down 5,760
Cost of sales after inventory write-down
(B) P369,760
*T-shirts
4,000 P12 P 48,000
3,000 12 36,000
2,500 13 32,500
3,500 14 49,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
22,000 P 299,500
Jackets
900 P16 P 14,400
1,100 18 19,800
1,500 19 28,500
2,000 19 38,000
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
9,500 P1 83,900
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B
PROBLEM 12-26
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance 600,000 1,200,000 B alance end
Net Purchases 2,200,000 1,600,000 Direct materials used
Total 2,800,000 2,800,000
CASE NO. 1
Question No. 1
GP Rate: 2013 2014 2015 2016
Gross Profit 2,000,000 3,500,000 4,000,000
Divide by: Sales 1,700,000 2,800,000 3,000,000
GrossProfit Rate 0. 15 0.20 0.25 0.30
89
The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2016 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales 6,000,000
Multiplyb y:C ostRatio 0.70
Cost of goods sold 4,200,000 (B)
Question No. 2
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,200,000 Cost of goods sold
manufactured 3,400,000
Total 6,200,000 6,200,000
Work in Process
Beginning balance 2,000,000 2,600,000 Balance end (A)
Direct materials used 1,600,000 Cost of goods
Direct labor 1,600,000 3,400,000 manufactured
Factory overhead 800,000
Total 6,000,000 6,000,000
Computation of factory overhead:

Directlaborcost 1,600,000
Multiply by: Predetermined rate 50%
CASE NO. 2:
Question No. 3
GP Rate: 2013 2014 2015 2016
GrossProfit 340,000 630,000 1,000,000
Divide by: Sales 2,000,000 3,500,000 4,000,000
GrossProfit Rate 0.17 0 . 18 0.25 0.20
The GP rate in 2016 is computed as follows:
16% + 18% + 25%
Gross Profit Rate =
3
= 20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods
sold is computed as follows:
Sales 6,000,000
Cost of goods sold 4,800,000 (B)
90
Question No. 4
Finished Goods
Total 6,800,000 6,800,000
Work in Process
Beginning balance 2,000,000 2,000,000 Balance end (A)
Direct materials used 1,600,000 Cost of goods
Total 6,000,000 6,000,000
CASE NO. 3:
Question No. 5
The gross profit for 2016 is computed based on the overall gross profit for 2014
and 2015:
800,000 + 1,000,000
Gross Profit Rate =
3,500,000 + 4,000,000
1,800,000
=
7,500,000
Gross Profit Rate = 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods
sold is computed as follows:
Sales 6,000,000
Cost of goods sold 4,560,000 (A)
Question No. 6
Finished Goods
Total 6,560,000 6,560,000
Work in Process
Beginning
Direct balance
materials used 2,000,000
1,600,000 Balanofcegoods
2,240,000 Cost end (A)
Total 6,000,000 6,000,000
91
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. A 6. A
PROBLEM 12-27
Question No. 1
Accounts payable
Purchase ret.
Purchase and allow.
discounts 70,000
80,000 3,000,000
100,000 Purchases
Freight-in
Payments to supplier 3,255,000
(squeeze)
Total 3,655,000 3,655,000
Question No. 2
Direct materials inventor y
Net purchases 2,950,000 2,830,000 Direct materials used
Total 3,150,000 3,150,000
Purchases 3,000,000
Add:Freight-in 100,000
GrossPurchase
Less: Purchasesreturns and allow 3,100,000
70,000
Purchasediscounts 80,000
NetPurchases 2,950,000
Question No. 3
Work in process
Direct materials used 2,950,000 4,375,000 Cost of goods
Directlabor 900,000 manufactured
Factoryo verhead 675,000
Total 4,655,000 4,655,000
Question No. 4
Sales P5,100,000 120%
Less: Cost of sales (5,000,000/120%)
Grossprofit
4,250,000 100%
850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
92
Question No. 5
Finished goods
Cost of goods 4,375,000 4,250,000 Cost of goods sold
manufactured
Total 4,775,000 4,775,000
Estimated finished goods 525,000

Less: Cost of goods out on consignment 20,000
Salvage
Inventory firevalue
loss 10,000
495,000
Question No. 6
Cost of goods sold (80% x P5,100,000) =
P4,080,000
Question No. 7
Sales (5,100,000-100,000) P5,000,000 100%
Less: Cost of sales (80% x P5,100,000) 4,080,000 80%
Grossprofit 1,000,000 20%
Finished goods
Cost of goods 4,375,000 4,080,000 Cost of goods sold
manufactured
Total 4,775,000 4,775,000
Estimated finished goods 695,000

Less: Cost of goods out on consignment 20,000
Salvagevalue 10,000
Inventory fire loss 665,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B 6. A 7. A
PROBLEM 12-28
Question No. 1
Accountspayable,March3 1 2,370,000
Less:
TotalPaymentinApril 300,000
2,070,000
Accounts payable for April Purchases
Totalpurchases 600,000
Less:PaymentinA pril 200,000 400,000
93
Total (B) 2,470,000
Question No. 2
Purchases,a s of March3 1 4,200,000
Add:PurchasesinApril 600,000
Grosspurchases 4,800,000
Less:Purchasereturns 12,000
Net purchases (B) 4,788,000
Question No. 3
Accounts receivable
Beg. Balance 2,700,000 3,000,000 Bal. end
Collections including
Sales on account 1,488,000 938,000 recoveries
Recoveries 0 250,000 Writeoff
0 Sales returns
4,188,000 4,188,000
Net Sales
SalesasofMarch3 1 9,040,000
AprilSales 1,488,000
Less: Sales return 100,000 1,388,000
Net Sales (C) 10,428,000
Question No. 4
NetSales 10,428,000
Multiply by:Costratio 60%
Cost of Sales (C) 6,256,800
Costo f Sales 9,000,000 10,500,000

Divide by: Gross Profit 9,000,000 4,500,000
50.000% 30.000%
Average gross profit = (50%+30%)/2 = 40%
Cost ratio = 100% - 40% = 60%
Question No. 5
Estimatedinventory 3,031,200
Less:Shipment int ransit 40,000
Undamaged goods at cost 120,000
Salvagevalue 25,000
Inventory fire loss (C) 2,846,200
SUMMARY OF ANSWERS:
1 . B 2 . B 3. C 4. C 5. C
94
PROBLEM 12-29
Questions No. 1 and 2
Purchases ending
11m os 12m os
Unadjustedbalance 2,700,000 3,200,000
Shipment in Nov. included in December purchases 30,000 -
Unsalables hipmentsreceived (4,000) (6,000)
Deposits in October shipped February (8,000) (8,000)
Depositsmadev endorinNovember (22,000) -
Adjustedbalance 2,696,000 2,186,000
1.( D) 2.( D)
Question No. 3
Beginning inventory – January 1, 2015 350,000
Add: Purchases for 11 months (see No. 1) 2,696,000
Less: Ending inventory – Nov. 30, 2015 (360,000- 358,000
22,000 + 20,000)
Cost of sales 2,688,000 (A)
Cost ratio (5,736,000 / 6,720,000) = 80%
Question No. 4
Sales endingD ecember 31, 2015 3,840,000
Less: Sales ending Nov. 30, 2015 (3.4M-40,000) 3,360,000
SalesSales
Less:–December
at cost 2015 480,000
40,000
Sales in December 2015 made at a profit 440,000
Multiply: Cost ratio (2,688,000 / 3,360,000) 80%
Cost ofs alesmadeat profit 352,000
Add:Costo fs alesmadea tc ost 40,000
Total Cost of Sales -December 392,000 (A)
Question No. 5
Beginning inventory – Nov. 30, 2015 358,000
Add: Purchases for December (3,186,000 – 2,696,000) 490,000
Less:Costo fSales–December 392,000
Ending inventory – December 31, 2015 456,000 (A)
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. A
PROBLEM 12-30
Cost Retail
Inventory,Jan1 300,000 1,200,000
95
Purchases 6,000,000 8,500,000

Purchasereturns (400,000) (800,000)
Purchase discounts (150,000) -
Purchase allowance (50,000) -
Freight-in 20,000 -
Departmental Transfer-In 600,000 1,100,000
Departmental Transfer-Out (560,000) (1,334,000)
Totals 5,760,000 8,666,000
Basis of computation of cost ratios

Totals 5,760,000 8,666,000
Markups 600,000
Markupcancellations (50,000)
Basis of computation (conservative) 5,760,000 9,216,000
Markdown (316,000)
Markdowncancellations 100,000
Basis of computation (average) 5,760,000 9,000,000
Cost ratios:
Conservative
5,760,000
Cost ratio =
9,216,000
Cost ratio = 62,50%
Average
Cost ratio = 5,760,000

9,000,000
Cost ratio = 64%
FIFO
5,760,000 – 300,000
Cost ratio =
9,000,000 – 1,200,000
Cost ratio = 70%
Estimated ending inventory @ ret ail – for all methods

TGAS @ retail under average method 9,000,000
Sales (7,000,000)
Salereturns 700,000
NormalShrinkage (500,000)
Estimated ending inventory @ retail 2,200,000
Ending inventory at cost Cost of goods sold
Cost method (EI @ retail x cost ratio) (TGAS @cost – EI @cost)
Conservative (62.5%) P1 ,375,000 4,385,000
96
FIFO (70%) 1,540,000 4,220,000

Average (64%) 1,408,000 4,352,000
SUMMARY OF ANSWERS:
1 . A 2 . B 3. B 4. C 5. C 6. D
PROBLEM 12-31
Question No. 1
Subsidiary General
Ledger Ledger
Unadjustedbal. P 760,000 P 1,020,000
Undeliveredsales ( 100,000)
Valid Sales 60,000
SalesFOBdestination ( 100,000)
NSFcheck 50,000 50,000
Collectionbyt hebank ( 60,000) ( 60,000)
Sales in 2015 recorded in 2016 DR No. 38740 3,360 3,360
Receivable ins. Co DR No. 38741 ( 10,080) ( 10,080)
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200) ( 19,200)
Adjusted balance (D) P 784,080 P 784,080
Question No. 2
Current:
UnadjustedbeginningBalance 97,500
Add: ValidS ales in 2015 (60,000+ 3,360) 63,360
Total 160,860
Less:Receivablei ns Co(DR#3 8741) 10,080
Sales in 2016 recorded in 2015 (DR # 38743) 19,200
Current Accounts Receivable balance 131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1) 784,080
Less: Current Accounts Receivable balance 131,580
Past due Accounts Receivable *652,500
*or (662,500+50,000-60,000)
Age classification Amount Percentage Total
Current 131,580 6 7,894.80

Past due 652,500 10 65,250.00
Allowance for doubtful accounts (A) 73, 144. 80
Question No. 3
Allowance for doubtful accounts, beginning 7,000.00
Less:Accountswrittenoff -
Less: Allowance for doubtful accounts, ending 73,144.80
97
Doubtful accounts expense (A) 66,144.80
Question No. 4
Unadjusted Merchandise Inventory, ending 316,000
Add: Cost of merchandise sold of DR # 38743(19,200/120%) 16,000
Doubtful accounts expense (B) 332, 000
Question No. 5
UnadjustedNetSalesbalance P3,000,000
Undeliveredsales ( 100,000)
SalesFOBdestination ( 100,000)
Sales in 2015 recorded in 2016D R No. 38740 3,360
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200)
Adjusted balance (B) P2 ,784,160
SUMMARY OF ANSWERS:
1 . D 2 . A 3. A 4. B 5. B
PROBLEM 12-33
Accounts Accts. Net Net

Inventory payable Receivable Net Sales Purchases income
Unadj. 625,000 500,000 500,000 4,500,000 1,607,500 1,086,000
(77,500) (77,500) - - (77,500) -
(11,000) - - - - (11,000)
- - 20,000 20,000 - 20,000
105,000
12,500 12,500- -- -- - 105,000 -
1 2,500
1,000 1,000 - 1,000 -
(2,650) (2,650) - - (2,650) -
Adj. 652,350 433,350 520,000 4,520,000 1,540,850 1,200,000
SUMMARY OF ANSWERS:
1 . D 2 . B 3. B 4. B 5. C
PROBLEM 12-34
SUMMARY OF ANSWERS:
1 . C 2 . A 3. A 4. A 5.
PROBLEM 12-35
SUMMARY OF ANSWERS:
1 . C 2 . D 3. D 4. D 5. B
PROBLEM 12-36
98
SUMMARY OF ANSWERS:
1 . A 2 . A 3. C 4. C 5. B
99
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET

AND INVESTMENT IN EQUITY SECURITIES
PROBLEM 14-1 Financial Assets and Financial Liabilities

FA NFA FL NFL
Accounts receivable 300,000
Accruedinterestexpense 54,000
Accumulated depreciation (150,000)
Advances
Allowancefrom customers
for bad debts (30,000) 48,000
Biologicalassets 360,000
Bonds payable 360,000
Cash and cash equivalents 210,000
Cash dividendspayable 81,000
Cash surrender value 180,000
Claimsf ort axrefund 135,000
Deferredtaxassets 180,000
Deferredtaxliabilities 57,000
Discountonbondspayable (45,000)
Finance leaseliability 135,000
Income taxes payable 27,000
Intangibleassets 90,000
Interest receivable 63,000
Investment in associate 135,000
Investment in bonds 510,000
Investment in equity
instruments 375,000
Investment in subsidiary 210,000
Issued redeemable
preference shares (with
mandatoryredemption) 300,000
Merchandisei nventories 399,000
Notes receivable 450,000
PHILHEALTH contributions
payable 18,000
Prepaid interest (not a
valuation account to financial
liability) 60,000
Prepaidrent 60,000
Security deposit 90,000

Sinkingfund 120,000
SSScontributionspayable 15,000
Stock appreciation rights
payable (SARs Payable) 360,000
101
Unearned interest on
receivables 15,000
Unearnedrentincome 24,000
Utilitiespayable 750,000
Warrantyobligations 39,000
2,673 1,074 2,445 243
(E) (C) (E) (D)
Legend: FA – Financial Asset NFA – Non-Financial Asset

FL – Financial Liabilities NFL – Non-Financial Liabilities
SHE: Shareholders equity
SUMMARY OF ANSWERS:
1. E 2. C 3. E 4. D
PROBLEM 14-2 Acquisition of Investment

Journal entries are:
1) FVTPL
1/5/2017 Financial Asset at FVTPL 1,000,000
Brokeragefee 20,000
CommissionExpense 5,000
Cash 1,025,000
1/10/2017 Dividend receivable 20,000
Dividendincome 20,000
2/14/2017 Cash 20,000
Dividendreceivable 20,000
2) FVTOCI
1/5/2017 Financial Asset at FVTOCI 1,025,000
Cash 1,025,000
1/10/2017 Dividend receivable 20,000

2/14/2017 Cash 20,000

The difference between FVTPL and FVTOCI is the treatment of transaction cost.
102
PROBLEM 14-3 Basic Journal Entries- Acquisitions in Between Dates of

Declaration and Record
1) Trading securities
1/5/2017 Financial Asset at FVTPL
(Squeeze) 980,000
Dividends receivable 20,000
Brokerageexpense 20,000
CommissionExpense 5,000
Cash 1,025,000
2/14/2017 Cash 20,000

12/31/2017 Unrealized Loss – P&L 30,000
FinancialAssetat FVTPL 30,000
12/31/2018 Financial Asset at FVTPL 250,000

Unrealizedgain–P&L 250,000
2) Fair Val ue through Other Comprehensive Income securities

1/5/2017 FVTOCIs ecurities 1,005,000
Cash 1,025,000
2/14/2017 Cash 20,000

12/31/2017 Unrealized loss - OCI 30,000

FVTOCI securities 30,000
12/31/2018 FVTOC secur ties 250,000
Unrealizedloss–OCI 30,000
Unrealizedgain–OCI 220,000
PROBLEM 14-4 Derecognition of Financial Assets - Sale of Investment

CASE NO. 1: FVTPL
Question No. 1
Nil, since the above securities are FVTPL unrealized gain or loss is recognized in
the profit or loss. (A)
Question No. 2
Consideration received ( x 15,000 x 1/2) 750,000
Less: Brokerage andc ommission 20,000
NetSellingPrice 730,000
Less: Carrying value( 1,600,000x ½) 800,000
Realized loss on sale – P&L (B) (70,000)
103
CASE NO. 2: FVTOCI

Question No. 3
Fairvalue,12/31/2016 1,600,000
Less:Cost 1,500,000
Unrealized gain - P&L (B) 100,000
Question No. 4
Considerationreceived 750,000
Less: Brokerage andc ommission 20,000
Less: Carrying value (1,600,000 x ½) 800,000
Realized loss on sale – P&L (B) (70,000)
Question No. 5
Journal entries for the sale are :
1) FVTPL
12/31/2016 FVTPL 100,000
Unrealizedgain-P&L 100,000
1/2/2017 Cash 730,000
Loss on sale 70,000
FVPTL 800,000
To record the sale
2) FVTOCI
12/31/2016 FVTOCI 100,000
Unrealizedgain-OCI 100,000
1/2/2017 Cash 730,000
Loss on sale 70,000
FVTOCI 800,000
To record the sale
Unrealized Gain (100,000 x ½) 50,000
To record transfer of unrealized gain to Retained earnin gs
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B
PROBLEM 14-5 Share Dividends
1. Memo entry: Received

from Pulsate Company.1,500 ordinary shares
2. Investment in Preference shares - FVTOCI 250,000
Investment in Ordinary shares - FVTOCI 250,000
104
Allocation: Total Fraction Allocated

Fair value cost
Pref. shares (1,500 x P200) 300,000 3/18 250,000
Ordinary shares (15,000 x P100) 1,500,000 15/18 1,250,000
Total 1,800,000 1,500,000
Share dividends is not regarded as an income., however different type of

shares received from the shares held is allocated using the relative fair
value.
Comments on share dividends:
Accounting treatment for share dividends is actually a gray area, no clear
cut rules is provided under PFRS or other accounting standard setting
body. However, the authors believe that share dividends will onl y be
accounted as an increase in number of shares held and a decrease on the
price per unit.
PROBLEM 14-6 Cash Dividends

Question No. 1
The dividend income to be recognized in 2016 is P30,000 (15,000 x P2). (B)
Question No. 2
December 1 Dividend Receivable (15,000 x P2) 30,000
December 15 No formal accounting entry
December31 Cash 30,000
DividendReceivable 30,000
PROBLEM 14-7 Property Dividends

Question No. 1
Property dividends are as income at fair value at date of declaration (250,000 x
15%) = P37,500. (B)
Question No. 2
November 1 Dividend Receivable (250,000 x 15%) 37,500
December 31 No journal entry
February 15 NoncashAsset 37,500

DividendReceivable 37,500
105
PROBLEM 14-8 Cash Received in Lieu of Share dividends

Question No. 1
Nil. The share divide nd is not considered an income. (A)
Question No. 2
NetSelling Price( 15,000x 15%xP36) 81,000
Less: Carrying amount of the investment sold
[(345,000/(15,000+(15% x 15,000)] x 2,250 45,000
Gain (or loss) on sale (D) 36,000
Question No. 3
October 1 Memo entry
October31 Cash 81,000
Gain on sale 36,000
FAatFVTOCI 45,000
PROBLEM 14-9 Shares Received in Lieu of Cash Div idends

Question No. 1
Shares received in lieu of cash dividends are in effect recorded at the fair value
of shares received on date of payment. Since the date of declaration and date of
payment is within the same period, the dividend income is computed as follows:
(15,000/5 x P44) = P132,000 (C)
Question No. 2
October 1 Dividend Receivable (15,000 x P8) 120,000
October 31 FA at FVTOCI (15,000/5 x P44) 132,000
PROBLEM 14-10 Dividends Out Of Capital

Cash (P100 x 15% x 20,000) 300,000
Investment 300,000

Cash 300,000
Losso nl iquidation 110,000
Investment 440,000
SUMMARY OF ANSWERS:
1. A 2. D 3. B 4. C
106
PROBLEM 14-11 Stock Split and Special Assessment

Question No. 1
Date No. of Cost per Total
shares share Cost
1/1 10,000 P42 P420,000
3/1stock split 15,000
Total(10,000 x5/2) 25,000 P16.80 P420,000
11/1 Special assessment (P3.2 x
25,000) 80,000
Total 25,000 P20 500,000
(D)
Question No. 2
Fair value( P30 x 25,000) P750,000
Less:Carryingv alue 500,000
Unrealized gain-OCI P250,000 (D)
Questions No. 3 an d 4
1/1 Financial Asset atF VTOCI P420,000 (B)
Cash P420,000
3/1 Received `5,000 shares as a result of 5
for 2 share split.
11/1 FinancialAssetatF VTOCI 80,000
Cash (P3.20 x25,000) 80,000
12/31 Finan ialAssetatF VTOCI 2500 00
Unrealized gain – OCI (C) 250,000
[(P30 x 25,000) – P500,000]
SUMMARY OF ANSWERS:
1. D 2. D 3. B 4. C
PROBLEM 14-12 Stock Rig ht

Question No. 1
Nil. The company will only make a memo entry to record the receipt of stock
right on a financial asset at FVTPL. (A)
Question No. 2
The stock right should be initially recorded at fair values as follows:
(P20 x 10,000) = P200,000. (B)
107
Question No. 3
The cost of the investment will only include the subscription price of P400,000
(5,000 x P80). (B)
Question No. 4
The cost of the investme nt will include the subscription price of P400,000 and
cost of stock rights exercised of P200,000 = P600,000. (C)
The journal entries under the two classifications are as follows:
Fair Value through profit and loss securities
June 15 Memo entry (Received 10,000 stock
rights)
July15 FVTPL(P80 x1 0,000/2) 400,000
Cash 400,000
Fair Value Through Other Comp rehensive Income
June 15 Stock rights( P20 x 10,000) 200,000
Unrealizedgain-P/L 200,000
July 15 FVTOCI (P80 x 10,000/2)+ 200,000 600,000
Cash 400,000
Stockrights 200,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C
PROBLEM 14-13 Theoretical Value of Rights

Question No. 1
When the stock is selling right on
P320 – P200
Value of one right =
5+1
= P20
Question No. 2
When the stock is selling ex-right
P320 – P100
5
= P24
SUMMARY OF ANSWERS:
1. B 2. C
PROBLEM 14-13 Dividend Income

Cash dividend 1,500,000
Shares in lieu of cash dividends (5,000 x P150) 750,000
108
Total dividend income (C) 2,250,000
PROBLEM 14-15 Dividend Income

The dividend income to be recorded is equal to P2,400,000 (300,000 /
1,000,000 x P8,000,000). The base is on actual dividends declar ed. A share
dividend is not regarded as an income. (A)
PROBLEM 14-16 Reclassifications of Investments in Equity Securities

Question No. 1
Not allowed. The only allowed reclassification is from Financial Asset at
Amortized Cost (FAAC) to held for trading Financial Asset at Fair Value Through
Profit or Loss debt securities (FVTPL), or vice versa. Therefore the securities
remain as FVTPL. Since reclassification is not allowed, there is no
reclassification gain or loss. (A)
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as
FVTOCI. Since reclassification is not allowed, there is no reclassification gain or
loss. (A)
PROBLEM 14-17 Purchase: Trade Date vs. Settlement Date Accounting
SUMMARY OF ANSWERS:
1. B 2. D
PROBLEM 14-18 Sale: Trade Date vs. Settlement Date Accounting

SUMMARY OF ANSWERS:
1. D 2. A
PROBLEM 14-19 Exchange of One Financial Asset into Another Financial

Asset
Question No. 1
Fair value- Ordinary Shares (6,000 x P40) 240,000
Less: Carrying value- Pref. Shares (P425,000/8,000 x 4,000) 212,500
Gain on exchange (C) 27,500
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P30) 240,000
109
Gain onexchange 27,500

Investment in Trading- Pref. Shares (P425,000/8,000 x 4,000) 212,500
SUMMARY OF ANSWERS:
1. C 2. B
PROBLEM 14-20 Exch ange of a PPE for Financial Asse t

Question No. 1
Fair valueo f the financiala sset 820,000
Less: Carryingv alue oft hel and 600,000
Gain onexchange 220,000 (B)
Question No. 2
March3 1 Financial asset at FVTOCI 820,000
Land 600,000
Gain on exchange (820,000-600,000) 220,000
SUMMARY OF ANSWERS:
1. B 2. D
PROBLEM 14-21 Exch ange of a Financial Asset for PPE

Question No. 1
Fair valueo f the financiala sset 650,000
Less: Carrying value of the financial asset 600 000
Question No. 2
March 31 Land (at fair value of the asset given up) 650,000
FVTOCI 600,000
Gain on exchange (650,000-600,000) 50,000
Unrealized loss (625,000-600,000) 25,000
SUMMARY OF ANSWERS:
1. B 2. B
110
PROBLEM 14-22 Trading Securities

Question No. 1
(A) The cost of investment is P880,000. The brokerage fee and commission of
P10,000 and P10,000 respectively is charged to expense since the investment
acquired is a trading security. The investments are also acquired prior to the
declaration of dividends on January 10, 2016 so they are not purchased
dividend on.
Question No. 2
Dividend income (P2 x 6,000 + P16,000) =P28,000 (A)
Question No. 3
Sellingprice P50,000
Less:Commission andtaxes 5,000
Netsellingprice 45,000
Less: Carrying value [2,500x(P90,000/6,000)] 37,500
Gain on sale (C) P7,5 00
Question No. 4
EDA Corp. shares [P50 – (P30,000/1,000)] x 1 ,000 = P20,000
DJOA,Inc. [P15– (P90,000/6,000)] x 3,500 = -
RVFE, Co. [P45– (P80,000/2,000)] x 2,000 = 10,000
ARP, Co. [P100 – (P880,000/8,000)] x 8,000 = ( 80,000)
Loss chargeable to income statement (B) (P50,000)
Question No. 5
EDAC orporationshares P50 x 1,000 = P50,000
DJOA,Inc. P15 x 3,500 = 52,500
RVFE,Co. P45 x 2,000 = 90,000
ARP, Co. P100 x 8,000 = 800,000
Total balance of financial asset at profit or loss (A) P992,500
(Note: Reclassification of equity securities are not allowed.)
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. A
PROBLEM 14-23 Fair Value through Other Comprehensive Income

Question No. 1
1/1/2016BookValue P 880,000
Brokeragefee 10,000
Commission 10,000
Dividendsreceivable ( 16,000)
Cost ofFVTOCI P 884,000 (C)
111
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds(P35x 500) P 17,500
Carrying value (P500 x (P88,000/(2,000 x 110%)) ( 20,000)
Loss on sale P (2,500)
Net Proceeds (P40,000 – P5,000) P 35,000

Carrying value (2,500 x (P90,000/6,000)) ( 37,500)
Dividends on stocks sold (P2 x 2,500)

Loss on sale (P 5,000)*
(7,500)
Total loss on sale (P2,500 + P7,500) P (10,000) (D)
*This was sold dividend-on.
Question No. 4
March3 1 (65,000-50,000) 15,000
June15 (50,000-20,000) 30,000
Gain/(Loss) on Exchange (A) 45,000
Question No. 5
EDA Corporation preference shares (500 x P50) P 25,000
DJOA,Inc.(3,500xP15) 52,500
RVFE Co. ((2,000 x 110% - 500) x P45) 76,500
ARPCo.(8,000xP100) 800,000
LCC(1,000x 60) 60,000
Adjustedbalance P 1 014,000 (D)
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. A 5. D
PROBLEM 14-24
Question No. 1
Stockrights( 11,000xP6) P 66,000 (D)
Question No. 2
Cashp aid (P90 x( 10,000/5)) P 180,000
Cost of stock rights used (P4 x 10,000) 40,000
Totalinvestmentc ost P 220,000 (B)
Question No. 3
Proceeds(P5.5x1 ,000) P 5,500
Costo fs tockrights( P4x 1,000) 4,000
Gaino nsaleofstockrights P 1,500 (C)
112
Question No. 4
Proceeds P 440,000
Cost of shares sold (P76 ** x 4,000) 304,000
Gain onsaleofstocks P 136,000 (D)
Question No. 5
Original investment cost P 880,000
Costa llocated to stock rights* ( 44,000)
Additionali nvestment** 220,000
Saleofinvestment
Adjusted cost of investment ( P 304,000)
752,000 (D)
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. D 5. D
PROBLEM 14-25
Question No. 1
Cashp aid(400K+20K) 420,000
Less:dividends 10,000
Correctcost 410,000 (D)
Question No. 2
Feb.
10 30,000
Nov. 2
(10,000+(11,000/5) x 1 13,200
Totaldividendi ncome 43,200 (C)
Question No. 3
Fair value of new FA (10,000 x 40) 400,000
Less: Carrying value (975,000/15K x
5K) 325,000
Gain onconversion 75,000 (C)
Question No. 4
Consideration received (2,000 x 70) 140,000
Less: Dividends (2,000 xP 1) 2,000
Less:Carryingv alue 99,000
Gain onsale 39,000 (C)
Carrying
Shares value
10000 451,000
10-Feb 1,000 -
113
Total 11,000 451,000

1-May
(11,000/5) 2,200 202,400
Total 13,200 653,400
15-Nov (2,000) (99,000)
Total 11,200 554,400
Cost of stocks on May 1

Subs. Price( 11,000/5x P62) 136,400
Add cost of stock rights (6 x 11,000) 66,000
Costo fs tocksonM ay1 202,400
Shares Cost
10000 550,000
10-Feb 1,000 -
Total 11,000 550,000
1-May
(11,000/5) 2,200 202,400
Total 13,200 752,400
15-Nov (2,000) (114,000)
Total 11,200 638,400
Question No. 5
Fairv alues Cost Difference
Gerrit-PS (70 x 10,000) 700,000 600,000 (900,000/15K x 10K)
-OS (45 x 10,000) 450,000 400,000
Loesch (72 x 11,200) 806,400 638,400
Barr( 20 x2 0,000) 400,000 410,000
2,356,400 2,048,400 308,000 (A)
Note: Use bid price on asse t held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. B 5. A
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio – 12/31/2015
ColomaCompany 3,070,000
Soliman 2,737,500
VillanuevaCompany 1,871,000 7,678,500
Less: FVTOCI Portfolio – 01/01/2015
Soliman 2,725,000
114
Unrealized gain – SFP (C) 28,500
Question No. 2
Fairvalue ofshares 2,797,500
Less: Carrying amount of Soliman portfolio 2,737,500
Note that the carrying amount is equal to the fair value previous
remeasurement date (12/31/2015).
Question No. 3
Proceeds from sale of Aquino shares 2,590,000
Less: Carrying amount of Aquino portfolio 2,600,000
Loss on sale (10,000) (B)
Question No. 4
FVTOCI Portfolio – 12/31/2016
Less: FVTOCI Portfolio – 01/01/2015
Unrealized gain – SFP (cumulative) (C) 22,500
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 – 4,000) x P50 = P200,000 (A)
Question No. 2
Type of Fair Total fair Allocated
stocks # shares value value cost
Ordinary 10,000 P30 P300,000 P234,375
Preference 2,000 10 20,000 15, 625 (B )
Totalcost P320,000 P250,000
Question No. 3
Allocate part of the investment cost to the prefe rence shares.
Question No. 4
Proceeds(1,000xP17) P 17,000
Carrying amount [(P15,625/(10,000/5)) x 1,000)( 7,812.50)
Gain onsale P 9,187.50 (C)
115
Question No. 5
Proceeds, exclusive of interest P 2 80,000
Carrying amount (250 x 1,000 x 110%) ( 275,000)
Gain onsale P 5,000 (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. A
PROBLEM 14-28
Question No. 1
NetSellingprice 250,000
Less: Carrying value (740,000/40,000 x 5,000) 92,500
Gain on sale (D) 157,500
Question No. 2
Considerationreceived 270,000
Less:
Dividend income of the investment sold (6,000 x *P20 x 20%) 24,000
NetSellingprice 248,000
Less: Carrying value (740,000/40,000 x 6,000) 111,000
*The par value after 2 for 1 share split is equal to P40 x ½= P20
Question No. 3
6/1/2016(35,000x4) 140,000
12/1/2016(35,000x 20%xP20) 140,000
Total dividend income (A) 280,000

Fairvalue( 29,000xP43) 1,247,000 4.(D)
Less: Cost (700,000/40,000 x 29,000) 507,500
Unrealizedgain 739,500 5.(D)
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. D 5. D
116
Chapter 15: Investment in Debt Securities
CHAPTER 15: INVESTMENT IN DEBT SECURITIES
PROBLEM 15-1 Acquisition of FAAC Term Bonds on Interest Date

Question No. 1
Present value of Principal (1,200,000 x 0.6355 ) 762,600
Add: Present Value of interest payments (120,000 x 3.0373 ) 364,476
Present value of the investment bonds (C) 1,127,076
Question No. 2
Amortization table:
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 1,127,076
12/31/2015 120,000 )(B135,249 5,249
1 1,142,325
PROBLEM 15-2 Acquisition of FAAC Term Bonds in Between Interest Dates

Question No. 1
Present value oft hei nvestment bonds 1,878,460
Add: Discount amortization
Effectiveinterest 56,354
Nominalinterest 50,000 6,354
Present value of the investment bonds, April 1 1,884,814
AddAccruedinterest 50,000
Total Present value of the bonds (D) 1,934,814
Question No. 2
Amortization table:
Interest Interest Discount Present
01/01/2015 1,878,460
12/31/2015 200,000 225,415 25,415 1,903,875
Total interest income (P225,425 x 9/12) = P169,061 (B)
PROBLEM 15-3 Interpolation of Effective Interest Rate of FAAC - Term

Bonds and Computation of Interest Income
Purchase price P1,100,000
Add:Transactioncost 44,752
Initialcarryingamount P1,144,752
117
Since there is transaction cost incurred, effective rate must be computed. The
effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the
textbook for example of interpolation).
Interest income (11.5% x P1,144,752)
=1 31,646 (B)
PROBLEM 15-4 Acquisition of FAAC - Serial Bonds

Question No. 1
Interest Total Present Total Present
Principal
450,000 Collection
180,000 Collection
630,000 Val ue Factor
0.8929 Value
562,527
450,000 135,000 585,000 0.7972 466,362
450,000 90,000 540,000 0.7118 384,372
450,000 45,000 495,000 0.6355 314,573
Total Pre sent Value of the serial bond s (C) 1,727,834
Question No. 2
Interest income (1,727,834 x 12%) = 207,340 (B)
PROBLEM 15-5 Reclassification
Note to Teacher: The requi rement shoul d be “ Under each item described
above, prepare the necessary entries on January 1, 2016 and December 31,
2018.”
SCENARIO 1: Securities are properly classified as FVTPL under PFRS 9

Dec. 31, Investment in bonds - FVTPL 208,985
2016 nrealized
U gain ( - 208,985
1,855,809)
Unrealizedloss
Dec. 31, 113,668
2017 Investment in bonds -FVTPL 113,668
( -
Cash 0,000
To record the receipt of interest.
SCENARIO 1: CASE NO. 1: Financial asse t at FVT OCI

Jan. 1, Investment in Bonds - FVTOCI 1,951,126
2018 Investment in Bonds

To record the – FVTPL
transfer 1,951,126
of financial asset at FVTPL to FVTOCI.
Cash
Dec. 31, 0,000
2018Interestincome 0,000
118
InvestmentinBonds –FVTOCI 14,624
To record premium amortizati on using 11% revised effectiv e rate.
Amortization table-based on the 11% effective rate on the date of

reclassification is:
Interest Interest Present
Date Collection Income Amortization Value
December31,2017 1,951,126
December 31, 2018 200,000 214,624 14,624 1,965,750
December 31, 2019 200,000 216,233 16,233 1,981,983

December 31, 2020 200,000 218,018 18,018 2,000,000
SCENARIO 1: CASE NO. 2: Financial Ass et at amor tized cost (FAAC)

Jan. 1, Investment in Bonds - FAAC 1,951,126
2018 Investment in Bonds – FVTPL 1,951,126
To record the transfer of financial asset at FVTPL to amortized cost.
Cash
Dec. 31, 0,000
InvestmentinBonds–FAAC 14,624
SCENARIO 2: Securities are properly classified as FVTOCI

Dec. 31, nvestment
I in bonds - FVTOCI 186,288
2016 nrealized
U gain ( - 186,288
)
Dec. 31, Unrealizedgain-OCI 139,089
2017 Investment in bonds - FVTOCI 139,089
( - )–186,288
Cash 0,000
SCENARIO 2: CASE NO. 1: Financial asset at FVTPL

Jan. 1, Investment in Bonds - FVTPL 1,951,126
2018 Investment in Bonds – FVTOCI 1,951,126
To record the transfer of financial asset at FVTOCI to FVTPL.
Unrealizedgain-OCI 47,199
Reclassificationgain 47,199
Cash
Dec. 31, 0,000
119
SCENARIO 2: CASE NO. 2: Financial Ass et at amortized cost (FA AC)

Jan. 1, Investment in Bonds - FAAC 1,903,927
2018 Unrealizedgain–OCI 47,199
Investment in Bonds – FVTOCI 1,951,126
To record the transfer of financial asset at FVTOCI to FAAC.
Cash
Dec. 31, 0,000
InvestmentinBonds–FAAC 28,471
Amortization table-based on the 12% ORIGINAL effective rate on the date of

reclassification is:
January 1, 2016 1,855,809
December 31, 2016 200,000 222,697 22,697 1,878,506
December 31, 2017 200,000 225,421 25,421 1,903,927
December 31, 2018 200,000 228,471 28,471 1,932,398
December 31, 2019 200,000 231,888 31,888 1,964,286
December 31, 2020 200,000 235,714 35,714 2,000,000
SCENARIO 3: Securities are properly classified as FAAC

Cash
Dec. 31, 0,000
Investment in Bonds – FAAC 22,697
Cash
Dec. 31, 0,000
Investment in Bonds – FAAC 25,421
SCENARIO 3: CASE NO. 1: Financial asset at FVTPL

Jan. 1, Investment in Bonds - FVTPL
2018 Reclassificationgain–P&L 47,199
Investmentin Bonds –FAAC 1,903,927
To record the transfer of financial asset at FAAC to FVTPL.
Cash
Dec. 31, 0,000
120
SCENARIO 3: CASE NO. 2: Financial ass et at FVT OCI

Jan. 1, Investment in Bonds – FVTOCI
2018 Reclassificationgain–OCI 47,199
Investmentin Bonds –FAAC 1,903,927
To record the transfer of financial asset at FAAC to FVTOCI.
Cash
Dec. 31, 0,000
PROBLEM 15-6 (Initial and Subsequent measurement, Derecognition and

Reclassification of Trading Debt Secu rities)
Question No. 1
Face value 5,000,000
Multiplyb y:N ominalr ate 12%
Multiply by: Months outstanding 12/12
Interest Income (C) 600,000
Question No. 2
Fair value of the bonds (5M X 104) 5,200,000
Less:Carryingv alue 5,379,079
Unrealized gain (or loss)-P&L (B) (179,079)
Question No. 3
Ne Selling Price (5M x ½ x 05) 2,625,000
Less: Carrying value (5M x ½ x 104) 2,600,000
Gain (or loss) on sale (B) 25,000
Question No. 4
Facev alue( 5M x½) 2,500,000
Interest Income (B) 300,000
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next repor ting period (January 1, 2017). The investment
therefore would be continued to be reported as held for trading on December
31, 2016.
121
Question No. 5
Fair value of the bond s on the 2,600,000
reclassification date, 1/1/ 17 (2.5M X 104)
Less: Carrying value (2.5M X 1.02) 2,550,000
Unrealized gain (or loss)-P&L (C) 50,000
Question No. 6
reclassification date, 1/1/17 (2.5M X 104)
Less: Carrying value (2.5M X 1.02) 2,550,000
Unrealized gain (or loss)-OCI (A) 50,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. B 5. C 6. A
PROBLEM 15-7 (Initial and Subsequent measurement, Derecognition and

Reclassification of FAAC Securities)
CASE NO. 1
Question No. 1
Interest Income (B) 537,908
The present value of the bonds is computed as follows:

Present value of Pr ncipal (5,000,000 x 0.6209 ) 3,104,607
Add: Present Value of interest payments (600,000 X 3.7908) 2,274,472
(Please carry all the decimal places in the comp utation)
Amortization table (srcinal):

01/01/2015 5,379,079
12/31/2015 600,000 53
7,908 (C) 2,092
6 5,316,987
12/31/2016 600,000 531,699 68,301 5,248,685
12/31/2017 600,000 524,869 75,131 5,173,554
12/31/2018 600,000 517,355 82,645 5,090,909
12/31/2019 600,000 509,091 90,909 5,000,000
Question No. 2
Nil. No unrealized gain or loss is recognized if the financial asset is classified as
financial asset at amortized cost. (A)
122
Question No. 3
Net Selling Price (5M x ½ x 105) 2,625,000
Less: Car rying value (see amort ization 2,658,494
table) (5,316,987 x ½)
Gain (or loss) on sale (C) (33,494)
Question No. 4
Carrying value, 12/31/16 (5,316,987 x ½) 2,658,494
Interest Income (A) 265,849
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next reporting period (January 1, 2017). The investment
therefore would be continued to be reported as Financial Assets at Amortized
Cost on Dec ember 31, 201 6.
Question No. 5
reclassification date, 1/1/ 17 (2.5M X 104)
Less: Carrying value (2,658,494 X 1. 10) - 2,624,343
300,000)
Reclassificati on loss- P&L (B) (24,343)
SUMMARY OF ANSWERS:
1. B 2. A 3. C 4. A 5. B
CASE NO. 2
Note to teacher: You may ignore this since there is incomplete information to
answer some of the questions under this case.
PROBLEM 15-8
Requirement No. 1
Annual expected loss
Multiply by: Present value of ordinary annuity for 5 years using
12% 3.6048
Lifetime expected credit losses
Requirement No. 2
Multiply by: Present value of 1 for 5 years using 12% .5674
12-month expected credit losses
123
Requirement No. 3
On initial recognition, Bank Company records the foll owing journal entries:
January1 , LoanR eceivable 1,500,000
2017 Cash 1,500,000
To recognize loan asset at gross amount.
Impairment loss – P&L 11,348
Loss allowance in SFP 11,348
To recognize 12-month expected credit losses.
Requirement No. 4
If, at the end of 2017, there is no significant deterioration of the credit quality,
there would be no change to the recognition of the 12-month expected credit
losses.
Requirement No. 5
If, at the end of 2017, there is a significant deterioration of the credit quality, the
company should record lifetime expected credit loss. The amount to be
recognized is computed as follows:
Multiply by: Present value of ordinary annuity for 4 years using
12% 3.0373
Lifetime expected credit losses
Less: 12-m onth expect ed credit loss recognized January 1 11,348
Impairment loss – P&L
The journal entry therefore to record the increase in allowance is as follows:
Dec.3 1, Impairmentloss–P&L 49,398
2017 Loss allowance inSFP 49,398
To recognize lifetime expected credit losses
PROBLEM 15-9
Requirement No. 1
Since the expected probability of default is only 2%, this is not considered
significant. Therefore the Company will only recognize 12-month expected loss.
Requirement No. 2
12-month expected credi t loss is computed as follows :
= 2%
x ,000
PROBLEM 15-10
Requirement No. 1
70%probability(4.8M–4.8M) 0
20%probability(4.8M–3.6M) 1,200,000
124
10%probability(4.8M–3M) 1,800,000
Totalexpectedcashshortf all 2,000,000
Requirement No. 2
70%probability(4.8M–4.8M)x 70% 0
20%probability(4.8M –3.6M)x2 0% 340,000
10%probability(4.8M–3M)x 10% 180,000
Probability weightedcashshortfall 420,000
Requirement No. 3
Annual cashshortfall 420,000
Multiply by: Present value of annuity using 6.4% for 5 years 4.1669
Present value – lifetime expected credit loss 1,750,098
Requirement No. 4
Annual cashshortfall 420,000
Multiply by: Present value of 1 using 6.4% for 1 year .9398
Present value – 12 month expected credit loss 394,716
Requirement No. 5
Jan.1, Loan receivable 20M
2017 Cash 20M
To recognize the loan at gross amount
Impairmentloss- P&L 394,716
Loss allowance–SFP 394,716
To recognize 12-month expected credit loss.
PROBLEM 15-11
Requirement No. 1
Customer: Gross Lifetime
Group A carrying Expected Expected
amount credit loss Credit Loss
Not pastdue ,700,000 0.3% 17,100
1-30d ayspastdue 3,000,000 1.2% 36,000
31-60d ayspastdue 1,000,000 3.3% 33,000
61-90d ays past due 2,200,000 8.0% 176,000
>90daysp astdue 800,000 11.5% 92,000
Total 12,700,000 354,100
Customer: Gross Lifetime

Group B carrying Expected Expected
amount credit loss Credit Loss
Notpastdue 3,700,000 0.3% 11,100
125
1-30d ayspastdue 1,200,000 1.5% 18,000

31-60d ayspastdue 1,500,000 3.9% 58,500
61-90d ayspastdue 800,000 7.2% 57,600
>90daysp astdue 900,000 8.3% 74,700
Total 219,900
The total lifetime expected credit loss is 574,000 ( 354,100+ 219,900).
Requirement No. 2
Gross carrying amount( + ) 20,800,000
Less:Lifetimeexpectedcreditl oss 574,000
Amortizedcost 20,226,000
PROBLEM 15-12
Amortization Table @ 6.1932%
January 1, 2017 0,000
December 31, 2017 100,000 117,670 17,670 1,917,670
December 31, 2018 100,000 118,766 18,766 1,936,436
December 31, 2019 100,000 119,928 19,928 1,956,364
December 31, 2020 100,000 121,162 21,162 1,977,524
December 31, 2021 100,000 122,472 22,472 2,000,000
Requirement No. 1
Investment in Bonds – FVTOCI 1,900,000
Cash 1,900,000
Impairmentloss–P&L 10,000
Loss allowance -OCI 10,000
Requirement No. 2
Cash ( 2,000,000x 5%) 100,000
InvestmentinBonds–FVTOCI 17,670
Interest income( 1,900,000 x6 .1932%) 117,670
To record interest collection and amortization.
Requirement No. 3
If both prime rate
If interest has not If only prime rate and credit risk
changed changed by 25% changed
Discountrate 6.1932% 6.4432% 6.9432%

Present value:
Principal 1,572,690 1,557,968 1,529,034
Interest 344,980 343,022 339,156
TotalPV *1 ,917,670 1,900,990 1,868,190
126
*Based on the amortization table.
The change in fa ir value may be analyzed as follows:

Accretion due to time factor as interest income (Discount
amortization) 17,670
Decrease due to prime rate ( 1,917,674 - 1,900,990) (16,684)
Decrease due to credit risk ( 1,900,990 - 1,868,190) (32,800)
Total change in fair value ( 1,900,000 - 1 ,868,190) 31,810
Requirement No. 4
Unrealized loss – OCI ( 16,684 + ,000) 26,684
Impairment loss – P&L ( 32,800 - 10,000) 22,800
Loss allowance ( - ,000) 22,800
InvestmentinBonds–FVTOCI 26,684
To record impairment loss in profit or loss and decrease in fair value of asset.
Fairvalue –12/31/2017 1,868,190
Less: Amortized cost (see amortization table) 1,917,670
Decreaseinfairvalue (49,480)
Less: Decrease in fair value due to credit risk = impairment 22,800
Decreaseinfairvalue–OCI 26,680)
Requirement No. 5
Investment in Bonds – FVTOCI – 01/01/2017 1,900,000
Add:DiscountAmortization 17,670
Less:Decreaseinfair value 26,684
Less:Impairmentloss 22,800
Carrying amount = Fair value 12/31/2017 1,868,186
PROBLEM 15-13
Requirement No. 1
Cash
Lossa llowance– SFP 433,000
Investmentin Bonds –FAAC ,000,000
Requirement No. 2
Cash 5,000,000
Investment in Bonds – FAAC 5,000,000
Gaino n reversalo f impairment 433,000
Requirement No. 3
Cash ,500,000
127
Impairmentloss – P&L 67,000

Investment in Bonds – FAAC 5,000,000
PROBLEM 15-13 Impairment of Financial Asset at Amortized Cost

SOLUTION:
Question No. 1
Carrying amount of the investment – 12/31/2015 3,864,680
Less: Present value of expected cash flows (get the present value
computed using srcinal effective rate ) 3,188,800
Impairment loss (B) 675,880
Question No. 2
Interest income (3,188,800 x 12%) = 382,656 (D)
PROBLEM 15-14 Reversal of Impairment on Financial Asset at Amortized

Cost
Present Value of Principal (5,000,000 x 0.8929) 4,464,500
Add: Present Value of interest payments (500,000 x 2 x 0.8929) 892,900
CASE NO. 1 PAS 39

Present value expected cash flows, date of reversal 5,357,400
Would have been present value had there been no impairment 4,910,521
Lowerofthe two above 4,910,521
Less: Actual amortized cost (P3,986,000 x 1.12) 4,464,320
Gain onreversalof impairment 446,201
CASE NO. 2 PFRS 9

Gain onreversalof impairment 893,080
PROBLEM 15-15
Question No. 1
Cost of investment – Jan. 21(P2,000,000 x 102%) =P2,040,000 (A)
Question No. 2
Proceeds P 1,060,000
Less: Accrued interest (P1,000,000 x 9% x 3/12) 22,500
NetProceeds 1,037,500
Less: Carrying amount (P2,000,000 x 102%) 1,020,000
128
Gain on sale (A) P 17,500
Question No. 3
Proceeds P 419,000
Less: Accrued interest (P400,000 x 9% x 5/12) 15,000
Net
proceeds 404,000
Carrying amount(P400,000 x102%) 408,000
Loss on sale (A) ( 4,000)
Question No. 4
Sold bonds: x9%x 38/360

P1,000,000 P 9,500
P400,000x 9%x280/360 28,000
Outstanding bonds:
P600,000x 9%x340/360 51,000
Total interest income (A) P 88,500
Question No. 5
Carrying value – 12/31/20 16 (P600, 000 x 102%) = P612,000 (A)
The market value is equal to its cos t.
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A
PROBLEM 15-16 Impairment and Reversal of Impairment Loss
CASE NO. 1 PAS 39

Question No. 1
Present value of Principal (5,000,000 x 0.6209 ) 3,104,607
Question No. 2
01/01/2015 5,379,079
12/31/2015 600,000 537,908 62,092 5,316,987
12/31/2016 600,000 531,699 68,301 5,248,685
12/31/2017 600,000 524,869 75,131 5,173,554
12/31/2018 600,000 517,355 82,645 5,090,909
12/31/2019 600,000 509,091 90,909 5,000,000
129
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above) 5,248,685
Less: Present value of expected cash flows 3.756,574
Impairmentloss 1,492,111

Add: PV of interest payments (No interest will be recovered) -
Present value of the investment bonds 3,756,574
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Would have been present value had there been no impairment 5,173,554
(see srcinal amortization table)
Lowerofthe two above 5,173,554
Gaino nreversalofi mpairment 1,041,322

Add: Present value of interest payments (600,000 x 3 x 0.8264) 1,487,603
CASE NO. 2 PFRS 9

Question No 1
Question No. 2
01/01/2015 5,379,079
12/31/2015 600,000 537,908 62,092 5,316,987
12/31/2016 600,000 531,699 68,301 5,248,685
12/31/2017 600,000 524,869 75,131 5,173,554
12/31/2018 600,000 517,355 82,645 5,090,909
12/31/2019 600,000 509,091 90,909 5,000,000
130
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above) 5,248,685
Less: Present value of expected cash flows 3.756,574

Add: PV of interest payments (No interest will be recovered) -
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Gaino nreversalofi mpairment 1,487,604

Add: Present value of interest payments (600,000 x 3 x 0.8264) 1,487,603
PROBLEM 15-17
Question No. 1
Proceeds P204,000
Less: Carrying amount [(P432,000/24,000) x 12,000) 216,000
Loss on sale (B) (12,000)
Question No. 2
Cost,1/1/2015 P 5,311,400
Less:Amortizedcost,1 2/31/2015 5,242,540
Premiumamortization 68,860
Less: Nominal interest( 5,000,000x 12%) 600,000
InterestIncome 531,140
Effective interest (P531,400/5,311,140) = 10%
Interest income (P5,242,540 x 10%) = P524,254 (B)
Questi
2015 on No. 3amortization (P1,903,150 – P1,881,000)
discount P 22,500
Nominalinterest(P2,000,000x 13%) 260,000
Effective interest P 282,500
Divide by: 1/1/2015 amortizedc ost P 1,881,000
131
Effective interest rate 15%

2016 Interest Inc ome = 12/31/2015 amortized cost x Effective inte rest rate
= P1,903,150 x 15% = P285,472.50 (C)
Question No. 4
Fair value, 1/1/2017 (2,000,000x 101) P 2,020,000
Less: Amortized cost – 01/01/2017
Book value, 12/31/2015 P 1,903,150
Nominalinterest 260,000
Less: Effective interest 282,473 22,473 1,928,623
Gain on reclassification (C) P 91,377
Question No. 5
Trading securities:
Panaghoy, Inc. (14,400 x P22) P 316,800
Lamentation, Inc. [(24,000 – 12,000) x P15] 180,000
Total P 496,800
FVTOCI:
Zephaniah, Inc. ( x 360,000) P10,080,000
Genesis bonds (1.04 x 5,000,000) 5,200,000
Total P15,280,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. C 5. A
132
Chapter 16: Investment in Associate
CHAPTER 16: INVESTMENT IN ASSOCIATE
PROBLEM 16-1 Investment securities and equity method investments

compared
Question No. 1
Cost of Investment 30,000,000
Less: Book value of net asset acquired (P120M x 20%) 24,000,000
Excesso fc ostoverbookvalue 6,000,000
Less: Overvalued depreciable asset (P6M x 20%) 1,200,000
Goodwill (A) 4,800,000
Question No. 2
Dividendsdeclared andpaid 5,000,000
Multiplyb y:Percentageofownership 20%
Dividends Revenue (C) 1,000,000
Question No. 3
Shareinnetincome(P8Mx20%) 1,600,000
Less: Amortization of Undervalued valued asset (see below) 200,000
Adjusted net investment income (A) 1,400,000
Amortization of Undervalued asset

Depreciable Asset 1,200,000
Divideby:Averageremainingusefullife 6
Amortization ofU ndervalued valued asset 200,000
Question No. 4
Add: Net investment income (see no. 3) 1,400,000
Less: Dividends received (P1 x 1M shares) 1,000,000
Carrying value – 12/31/2015 (B) 30,400,000
Question No. 5
Investment using Fair Value ( 32 x 1,000,000) = 32,000,000 (D)
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. D
PROBLEM 16-2
Question No. 1
133
Over or (under )valued asset:

Inventory[ (P900,000 – P800,000) x 30%] (30,000)
Machinery [(P2,200,000 – P2,500,000) x 30%] 90,000
Goodwill (C) 2,060,000
Question No. 2
Shareinnetincome(P2Mx30%) 600,000
Less: Amortization of undervalued valued asset (see below) 30,000
Add: amortization ofovervalued asset 18,000
Adjusted net investment income (A) 588,000
Amortization of asset: 2016 2017

Inventory (30,000)
Machinery 90,000 90,000

Divideby:Remaininglife 5 5
Amortization of overvalued machinery 18,000 18,000
2016 2017
Net incomeo ft hea ssociate 2,000,000 4,500,000
Multiplyb y: Percentage of ownership 30% 30%
Shareinthenetincome 600,000 1,350,000
Dividends declareda nd paid 800,000 1,600,000
Dividendsreceived 240,000 480,000
Question No. 3
Add: Net investmenti ncome (see no. 2) 588,000
Less: Dividends received (P800,000x 30%) 240,000
Carrying value – 12/31/2016 (A) 5,348,000
Question No. 4
Sharein netincome(P4.5M x3 0%) 1,350,000
Add: Amortization of Overvalued valued asset (see no. 2) 18,000
Adjusted net investment income (C) 1,368,000
Question No. 5
Carryingvalue– 01/01/2017 5,348,000
Less: Dividends received( P1.6M x3 0%) 480,000
Carrying value – 12/31/2017 (A) 6,236,000

SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. C 5. A
134
PROBLEM 16-3 Investment in Associate with Inventories, Machinery and

Land - Land Was Subsequently Sold
Question No. 1
Over or (under) valued asset
Inventory((P50,000)x20%) (10,000)
Machinery((P500,000)x2 0%) (100,000)
Land(P300,000 x20%) 60,000
Amortization of Over (Under) valued asse t 2016 2017

Inventory (10,000)
Machinery (100,000) (100,000)

Divideby:Remaininglife 10 10
Amortization of Under (over) valued asset (10,000) (10,000)
Land - 60,000
2016 2017
Sharein thenetincome 1,600,000 2 ,000,000
Dividends declareda nd paid 2,000,000 3,000,000
Question No. 2
Shareinnetincome(P8Mx20%) 1,600,000
Less: Amortization of Undervalued valued asset (see table 20,000
above)
Adjusted net investment income (A) 1,580,000
Question No. 3
Less:Dividends received( P2M x20%) 400,000
Carrying value – 12/31/2016 (A) 6,180,000
Question No. 4
Sharein netincome(P10Mx20%) 2,000,000
Less: Amortization of Undervalued valued asset (see table 10,000
above)
Add: amortization ofovervalued asset 60,000
135
Adjusted net investment income (C) 2,050,000
Question No. 5
Carryingvalue– 01/01/2017 6,180,000
Less:Dividends received (P3Mx2 0%) 600,000
Carrying value – 12/31/2017 (A) 7,630,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. C 5. A
PROBLEM 16-4 Associate with Outstanding Cumulative Preference Shares

When an investee has outstanding cumulative preference share capital, an
investor should compute its share of earnings after deducting the investee’s
preference dividends, whether or not such dividends are declared.
Net
income 600,000
Less: Preference dividend (10% x 1,000,000) ( 100,000)
Net income toordinaryshares 500,000
Share in net income – ordinary shares (80% x 500,000) (A) 400,000
PROBLEM 16-5 Associate with Outstanding Preference Shares

CASE NO. 1
Question No. 1
Netincome P2,500,000
Less: Total preference dividends ( 3,000,000 x 10%) 300,000
Netincomet oordinaryshares P2,200,000
Sharein thenetincomeofa ssociate 660,000
Less: Amortization of undervalued asset ( 1,000,000/8) 125,000
Net investment income (B) 535,000
Question No. 2
Add: Net investment income (see no. 1) 535,000
Less:Dividendsreceived -
Carrying value – 12/31/2016 (B) 6,535,000
CASE NO. 2
Question No. 1
Less: Total actual preference dividends declared 450,000
Netincomet oordinaryshares P2,050,000
136

Less: Amortization of undervalued asset (1,000,000/8) 125,000
Net investment income (A) 490,000
Question No. 2
Carrying value – 12/31/2016 (A) 6,490,000
CASE NO. 3
Question No. 1
Less: Amortization of undervalued asset ( 1,000,000/8) 125,000
Net investment income (C) 625,000
Although the answe r shoul d be 400,000, the next best poss ible answer is
500,000.
Question No. 2
Carrying value – 12/31/2016 (C) 6,625,000
SUMMARY OF ANSWERS:
CASEN O.1 CASEN O.2 CASEN O.3
1. B 2. B 1. A 2. A 1. C 2. C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity
Method - Step Acquisition
Question No. 1
Fairvalue –12/31/2017 3,600,000
Less: Carrying value (Fair value – 12/31/2016) (3,900,000)
Unrealized loss – P&L (B) (300,000)
Question No. 2
Investment income ( 550,000 x 15%) (C) 82,500
137
Question No. 3
Nil. No catch-up adjustment on retained earn ings. (A)
Fair valueo f previously held interest 3,600,000
Acquisitioncost 3,600,000
Totalcost ofinvestment 7,200,000
Less: Book value of net asset acquired (12.5m x 30%) 3,750,000
Excesso fa ttributablet o machinery 3,450,000
Divideby:Remaininglife 10
AmortizationofU ndervaluedasset 345,000
Netincomeo ft hea ssociate-2018 1,600,000

Multiply by: Percentage of ownership (15% + 15%) 30%
Shareinthenetincome 480,000
Dividendsdeclared andpaid 700,000
Dividendsreceived 210,000
Question No. 4
Shareinnetincome 480,000
Less: Amortization of Undervalued asset (see table above) 345,000
Adjusted net investment income (A) 135,000
Question No. 5
Less:Dividendsreceived 210,000
Carrying value – 12/31/2018 (A) 7,125,000
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4. A 5. B
PROBLEM 16-7 Cost To Equity Method

Question No. 1
Consideration received (40,000 x 130) P5,200,000
Less:Dividendincome(10x 40,000) 400,000
Netsellingprice 4,800,000
Less:Carryingv alue( 5,000,000) 5,000,000
Loss on sale (A) (P200,000)
(Assuming FIFO Method)
Question No. 2
Considerationreceived P5,200,000
Less:Dividendincome(5x 40,000) 200,000
138
Less: Carrying value [12M-(P5 x 100,000)/100,000] x 40,000) 4,600,000

Gain on sale (B) P400,000
Question No. 3
Fair value (P140 x 60,00 0) (A) P8,400,000
Question No. 4
Costo fI nvestment–01/01/2015 2,400,000
Add: Net investment income - 2015 (5,000,000 x 30%) 1,500,000
Less: Dividends received -2015 (30% x 2,000,000) 600,000
Carrying
Add: Netvalue– 12/31/2015
investment income - 2016 (6,000,000 x 30%) 3,300,000
1,800,000
Less: Dividends received -2016 (30% x 3,200,000) 960,000
Carryingvalue– 12/31/2016 4,140,000
LessC arrying amount (P4,140,000 x ½) 2,070,000
Gain on sale (B) P330,000
Question No. 5
Investment in Kababain – FVTOCI:
Fairvalue( P150x1 5,000) 2,250,000
Less:Carryinga mount 2,070,000 180,000
Investment in Passing Rate – FVTOCI:
Fairvalue( P140x60,000) 8,400,000
Less Cost (12M-(10 x 100,000))/100,000 x 60,000) 6,600,000 1,800,000
Total Unrealized Gain –OCI to SFP (C) 1,980,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. C
PROBLEM 16-8 Change From Equity to Cost Method

Question No. 1
Add: Net investment income [(1.8M-840,000) x 20%] 192,000
Less: Dividends received (P100,000 + P100,000) 200,000
Carrying value – 12/31/2015 (B) 3,992,000
Note:
The dividend received on August 1, 2015 need not be prorated even though
the investment was acquired on July 1, 2015 since dividends is considered
when the investor has the righ t to recei ve paymen t (i.e. date of declara tion).
The P1.8M net income wa s for a peri od of 12 months en ding Dece mber 31.
139
Question No. 2
Salesprice (P25x50,000) 1,250,000
Carrying value of shares (P3,992,000 x 50,000/200,000) 998,000
Gain on sale of inve stment (B) 252,000
Question No. 3
Fair value of retained investment (P25 x 150, 000) 3,750,000
Less: Carrying amount of retained investment (P3,992,000 x
150,000/200,000) 2,994,000
Gain on reclassification to P&L (C) 756,000
Question No. 4
Fair value, Dec.3 1, 2016 (P30 x 150,000) 4,500,000
Fair value, Jan. 1, 2016 (P25 x1 50,000) 3,750,000
Unrealized gain, Dec. 31, 2016 (B) 750,000
Question No. 5
Fair value, Dec. 31, 2016 (P30 x 150,000) (A) 4,500,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. B 5. A
PROBLEM 16-9: Discontinuance of Equity Method

Question No. 1
Cost (300,000x100) 30,000,000
Add:Income(4,000,000x. 3) 1,200,000
Less:Dividends (2,500,000x 3) (750,000)
Carrying Amount - 2015 (C) 30,450,000
Question No. 2
Netproceeds(160,000x120) 19,200,000
Less: Carrying amount (30,450,000x(160,000/300,000)) (16,240,000)
Gain on Sale (C) 2,960,000
Question No. 3
FVTOCI (140000x120) 17,080,000
Less: Carrying amount (30,450,000x(140,000/300,000) 14,210,000
Gain on Reclassification (B) 2,870,000
Question No. 4
Dividend Income (2,000,000x .14) (A) 280,000
140
Question No. 5
Investment in FVTOCI (140,000x125) (B) 17,500,000
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. B
PROBLEM 16-10 Associate Having Heavy Losses

Originalcost 1,400,000
Cash advances 400,000
Totalinterest 1,800,000
Net loss from 2015 to 2017 (40% x 4,000,000) (1,600,000)
Carrying amount of investment – 12/31/2017 200,000
Share in net loss of 2018 (40% x 800,000) 320,000
Loss to be reported in 2018 should be equal to the investment
balance only (C) 200,000
PAS 28, paragraph 29, provides that if under equity method an investor’s share
of losses of an associate equals or exceeds the carrying amount of an
investment, the investor discontinues recognizing its share of further losses.
The investment is reported at NIL or zero value.
PROBLEM 16-11 Downstream Sale of Inventory

2015 2016
Netincomey: Percentage of ownership

Multiplyb 1,000,000
25% 1,500,000
25%
Share in the net income before adjustment 250,000 375,000
Less: Unrealized profit on downstream sale of
inventory (30,000) 30,000
Share in the net income after adjustment 220,000 405,000
(B) (D)
PROBLEM 16-12 Upstream Sale of Inventory

2015 2016
Netincome 1,000,000 1,500,000
Less: Unrealized profit on upstream sale of
inventory (9,000) 9,000
(B) (D)
141
PROBLEM 16-13 Downstream Sale of Depreciable Asset

2015 2016
Netincome 1,000,000 1,500,000
Less: Unrealized gain on downstream sale of PPE (160,000) 40,000
(B) (D)
PROBLEM 16-14 Upstream Sale of Depreciable Asset

2015 2016
Netincome 1,000,000 1,500,000
Less: Unrealized gain on upstream sale of PPE (40,000) 10,000
(B) (D)
PROBLEM 16-15
2015 2016
Multiplyb
ShareinNI y: Percentage of ownership 30% 1,200,000
750,000 30%
Less: Gaino sale of equipment (100,000)
Add:Depreciationo fExcess 20,000 20,000
Gain on sale of inventory (upstream) (50,000x .3) (15,000) 15,000
Less: Gain on sale of inventory (Downstream) (150,000)
NetshareinNI 655,000 1,085,000
1.( B) 2.( B)
Question No. 3
Cost 5,000,000
Add:Investment Income2015 655,000
Less:Dividends(900,000x.3) 270,000
Carrying amount 2015 (A) 5,385,000
Question No. 4
Carryingamount01/01/2016 5,385,000
Add:Income 1,085,000
Less:Dividends(2,000,000x.3) 600,000
Carrying Amount - 2015 (B) 5,870,000
142
Question No. 5
Carryingamount01/01/2016 5,385,000
Add:Income 1,085,000
Less:Dividends(2,000,000x.3) 600,000
Less: Amortization of goodwill (400,000 x 2/10) 80,000
Carrying Amount - 2015 (A) 5,790,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity canno t determine reliably the useful life, it is
assumed to be 10 yea rs.
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
PROBLEM 16-16
Question No. 1
Cost P1,700,000
Less:Equityinnetassets 1,400,000
Implied goodwill (D) 300,000
Question No. 2
Proceeds(2,500xP13) P 32,500
Less: Carrying amount [(P60,000/6,000) x 2,500] 25,000
Gain on sale (C) 7,500
Question No. 3
Proceeds(500 xP21) P 10,500
Less: Carrying amount [(P66,000/(2,000 x 110%)) x 500] 15,000
Loss on sale (D) 4,500
Question No. 4
FV off inancial asset received (1,500 xP 21) P 31,500
Less: Carrying amount [(P45,000/1,000) x 500] 22,500
Gain on conversion (A) 9,000
Question No. 5
Investment in Roque Corporation:
3/9 1,000x
P1.2 1,200
9/9 1,000 x
P1.2 1,200
Investment in Ocampo Corporation:
6/30 (6,000 –2,500)xP1 3,500
Total dividen d income (D) 5,900
143
Question No. 6
1/2/2016 AcquisitionCost 1,700,000
Add: Share in net income of associate (P1,200,000 x 30%) 360,000
Less:Dividends(P.50x4x100,000) 200,000
12/31/2016 carrying amount (D) P1,860,000
Question No. 7
Roquepref.(1,000–500)xP56 28,000
Roqueordinary(1,500xP20) 30,000
Ocampo(6,000-2,500)xP11 38,500
Dagumboy Co.( 2,000 x 110% -500) x P22 37,400
12/31/2016 FVTOCI Balance (C) 133,900
SUMMARY OF ANSWERS:
1. D 2. C 3. D 4. A 5. D 6. D 7. C
PROBLEM 16-17
Question No. 1
Solano (264,500-250,000) 14,500
Castaneda (280,000-320,000) (40,000)
(70,000-195,000) (125,000)
Unrealized G/(L) (C) (150,500)
Question No. 2
Zero, gain or loss on reclassifi cation is NOT allowed (A)
Question No. 3
Fair value previously held interest (50,000 x 30) 1,500,000
Less:Carrying value 1,350,000
Gain on reclassificati on-P&L (C) 150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D) 270,000
Question No. 5
Fair value previously held interest (50,000 x 30) 1,500,000
Add:Acquisitioncost 3,000,000
Initial carrying amount – investment in associate 4,500,000
Add:
Less:Net investment
Dividends income
declared (see
(P2x No.4 )
150,000) 270,000
300,000
Investment balance end (C) 4,470,000
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. D 5. C
144
PROBLEM 16-18
Question No. 1
Consideration received (P230 x4 ,000) 920,000
Less: Dividend of the investment sold (P8 x 4,000) 32,000
Less: Carrying value of the investment sold (*1,970,000/10,000
x 4,000) 788,000
Gain on sale (B) 100,000
*(10,000 x P200) -(P8 x 10,00 0) + P50,000

The dividend that was paid and sold is not classified as dividend income since
the company did not ow n the shar es when the dividend was declared.
Question No. 2
Net Selling Price( P450 x 50,000x 1/2) 11,250,000
Less: Carrying value of the investment sold (P20,800,000 x 1/2) 10,400,000
Beg. Balance of Investment in Associate 18,000,000
Add: Share in the net income of associate (25% x P20M) 5,000,000
Total 23,000,000
Less: Amortization (P2,000,000/10) 200,000
Dividends received( P40x 50,000) 2,000,000
Ending balance of investment in associate – 12/31/2016 20,800,000
Question N . 3
Nil. (A)
The dividend that was paid and sold in Boy-ot shares is not classified as
dividend income since the company did not own the shares when the
dividend was declared.
The dividend received in Cleo Shares is not regarded as income, but as a
deduction of the initial carryin g amount of the investment in associate.

Fair value Cost (UL)/ UG
Rodolfo (P46 x 20,000) 920,000 1 ,000,000 (80,000)
Boy-ot (P192 x 6,000) 1,152,000 *1,182,000 (30,000)
Gene (P28 x 40,000) 1,120,000 1,280,000 (160,000)
Cleo( P450 x2 5,000) 11,250,000 11,250,000 -
Total 14,442,000 14,712,000 (270,000)
(C) (C)
* (1,970,000/10,000 x 6,000)
145
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4. C 5. C
PROBLEM 16-19 Impairment losses recognized by an associate or joint

venture
Question No. 1
In accounting for its associate, Mark Co. should recognize impairment loss.
However, it is generally not acceptable to simply multiply the amount of
impairment recognized in the investee’s own books by the investor’s percentage
of ownership, because the investor should initially measure its interest in an
associate’s identifiable net ownership at fair value at the date of acquisition of
an associate. Accordingly, appropriate adjustments based on those fair values
are made for impair ment losses recognized by the associa te.
Carrying amount
reflecting fair
values made by Recoverable Impairment
Mark Co. amount (40%) loss
CGU A
CGUB 100,000 180,000 n/a
CGUC 320,000 160,000 160,000
Netassets 560,000 460,000 180,000
(A)
Question No. 2
The carrying amount refl ecting fair values made by Mark Co. after imp airment:
CGU A
CGUB 100,000
CGUC 160,000
Netassets 380,000
Goodwill 40,000
Investment in associate (A)
PROBLEM 16-20: PFRS for SME: Jointly Controlled Entity

CASE NO. 1
Question No. 1 Cost model
Total dividend paid by Entity Z’s
Multiply by:Percentage 30%
Dividend income – P&L to SCI (B)
Question No. 2 Cost model

Carrying amount (D)
146
CASE NO. 2
Question No. 3 Fair value mode l
Fair value – Decemb er 31
Less:Acquisition cost 300,000
Gain on change in fair value – P&L to SCI
Add:Dividendincome( 45,000
Total to P&L (A)
Question No. 4 Fair value mode l

Carrying amount = Fair value Dec. 31 (A)
CASE NO. 3
Question No. 5 Equity method
Entity Z’s reported profit
Multiply by:Percentage 30%
Share in net income (C)
Question No. 6 Equity method

Acquisition cost
Add:Shareinnetincome 120,000
Less:Dividendsreceived (( 45,000
Carrying value – December 31 (B)
147
Chapter 18: Property, Plant and Equipment
CHAPTER 18: PROPERTY, PLANT AND EQUIPMENT
PROBLEM 18-1 Capitalizable Cost of Machinery

Machinery Others
Purchase price including VAT (1,568,000/1.12) 1,400,000 -
Costo f waterd evice to keep machine cool. 8,000 -
Cost of safety rail and platform surrounding machine 12,000 -
Installation cost, including site preparation and
assembling. 20,000 -
Fees paid to consultan ts for advice on acquisition of
themachinery. 13,000 -
PV of estimated dismantling cost of the new machine 10,000 -
Repair cost of the ma chine damaged while i n the
processof installation - 5,000
Losso np remature retirement-old machine - 18,000
Other nonrefundable salestax 13,000 -
Cost of training for personnel who will use the
machine - 25,000
Adjusted balances (A) 1,476,000 48,000
PROBLEM 18-2 Capitalizable Cost of Land, Building and Land

Improvements
Question No. 1
Purchase Price 925,000
Title Insurance 7,500
Legal feestopurchaseland 5,000
Property taxes, January 1, 2016 -June 30, 2016 15,000
Costo fg rading and filling building site 45,000
Total Cost of t he land (A) 997,500
Question No. 2
Costo fbuildingconstruction 3,100,000
Interestonconstruction loan 60,000
Costo frazingoldbuildingonlot 42,500
Proceeds from sale of salvageable materials (6,000)
Total cost of the building (A) 3,196,500
Question No. 3
Cost of constructingdriveway 400,000
Cost ofparkinglot and fencing 60,000
Total cost of the land improvements (B) 460,000
148
PROBLEM 18-3 Deferred Settlement Terms (With or Without Cash Price

Equivalent)
Question No. 1
Cash price equivale nt (A) 800,000
Question No. 2
Principal 1,000,000
Multiply by:Presentvalueof1 0.7972
Cost of the equipment (B) 797,200
PROBLEM 18-4 Exchange (With or Without Commercial Substance)

Question No. 1
Fairvalue oftheassetgiven 1,200,000
Add:Cash payment 200,000
Cost of equipment (D) 1,400,000
Question No. 2
Fairvalue oftheassetgiven 1,200,000
Less:Carrying amount 800,000
Gain on exchange (B) 400,000
Question No. 3
Carryingamountoft heassetgiven 800,000
Add:Cash payment 200,000
Cost of equipment (B) 1,000,000
Question No 4
Zero, the transaction lacks c ommercial substance. (A)
PROBLEM 18-5 Trade–in

Question No. 1
Cash price witho ut trade in (A) 340,000
Question No. 2
Cash pricewithout tradein 340,000
Less:Cash pricewithtradein 270,000
Tradein
value 70,000
Loss on trade in (B) (160,000)
149
PROBLEM 18-6 Acquisition through Issuance of Equity Instrument

Question No. 1
Fair value of the equipment received (D) 4,000,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
share premium in the equit y. (A)
PROBLEM 18-7 Acquisition through Issuance of Bonds Payable

Question No. 1
Fair value of the bonds (10,200 x 500) (C) 5,100,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
premium on bonds payable. (A)
PROBLEM 18-8 Acquisition by Donation

Question No. 1
Fair
value 4,000,000
Add:Directcost 40,000
Total cost (B) 4,040,000
Question No. 2
Fair value (C) 4,000,000
The registration and transfer of title is charged to Donated Capital / Share

Premium.
PROBLEM 18-9 Subsequent Expenditure on PPE

Question No. 1
Beginningbalance –Jan 1 790,000
Add:Overhaul–June30 60,000
Total cost of motor veh icle (C) 850,000
Question No. 2
Beginningbalance –Jan 1 1,900,000
Add: Rearrangement and installation – March 2 45,000
Improvement that extend the life – December 60,000
Total cost of machine (B) 2,005,000
150
Question No. 3
Beginningbalance –Jan 1 600,000
Add:Unloadingand set upcost 48,000
Total cost of precision machine (C) 648,000
Question No. 4
Beginningbalance –Jan 1 4,100,000
Add: Installation of sprinkler system – part of blue print 130,000
Add:Cost of attic 500,000
Total cost of building (B) 4,730,000
Question No. 3
Routine repairs and maintenance (D) 26,000
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. B 5. D
PROBLEM 18-10
Question No. 1
Interest paid(2,000,000 x1 4% x1 2/12) 280,000
Less: Investment income
1,400,000x 10%x 6/12 70,000
200,000 x10%x 2/12 3,333
Capitalizable borrowingcost 206,667
Note that capitalization of borrowing costs does not cease during a temporary
de ay in construct on
Question No. 2
Interest paid (2,000,000 x 14% x 12/12) 280,000
Less:Capitalizedborrowingcost 206,667
Note that the interest paid and investment income is used to compute for the
capitalizable borrowing cost. However, the amount recognized as an interest
expense is the difference between the total interest paid and capitalizable
borrowing cost. Also, the amount recognized as interest income is 73,333.
Question No. 3
Totalprogresspayments 20,000,000
Add:Capitalizedborrowingcost 206,667
Totalcost ofthe stadium 20,206,667
151
PROBLEM 18-11
Question No. 1
Interest expense under effective interest method (5,000,000 x 808,129
.176319 x 11/12)
Less: Investment income (250,000 x 11/12) 229,167
Question No. 2
Interest expense under effective interest method (5,000,000 x 881,595
.176319 x 12/12)
Question No. 3
Totalexpenditures 2,700,000
Totalcost ofthebuilding 3,278,962
Question No. 3
Totalcost ofthe building 3,278,962
Less:Residualvalue 1,000,000
Depreciable amount 2,278,962
Divideby:Useful life 10
Multiply by: Months 1/12
Depreciation -2016 18,991
Note depreciation will start when the asset is available for use.
PROBLEM 18-12
Question No. 1
Rate Principal Interest
15% 4,000,000 600,000
20% 2,000,000 400,000
Total 6,000,000 1,000,000
Capitalization Rate (P1,000,000 / P6,000,000) = 16.67%
January 1 (600,000 + 2,100,000) 2,700,000 x 12/12 2,700,000

July1 1,200,000 x6/12 600,000
December
Averagea 1ccumulatedexpenditure 240,000 x 1/12 20,000
3,320,000
Multiply by: Rate 16.67%
152
Note that investment income is not considered since the two loans are
considered general borrowings.
Question No. 2
Totalinterestexpense 1,000,000
Question No. 3
Expenditures capitalized – previous period 600,000
Add: Expenditures during the current year 3,540,000
Totalcosto fthef actorybuilding 4,693,334
PROBLEM 18-13 Specific and General Borrowings
Questions No. 1 & 2

January 1,2 015 200,000 x 12/12 200,000
September1,2 015 300,000 x4 /12 100,000
December31,2015 300,000 x0/12 0
Average accumulated expenditure (A) 1. 300,000
Multiply by: Rate 12%
Capitalizable borrowing cost (D) 2. P36,000
Since the average accumulated expenditure did not exceed the principal of the
specific borrowing, the specific rate was used in determining the capitalizable
borrowing cost.
Question No. 3 & 4

Accumulated expenditures – 836,000 x 9/9 836,000
12/31/2015 (P800,000 + 36,000)
March 31, 2016 300,000 x 6/9 200,000
September30,2016 200,000 x 0/12 0
Average accumulated expenditure (D) 3. 1,036,000
Less:Specificborrowing 750,000
Excessa ttributablet og eneralb orrowing 286,000
Multiply by: Monthsoutstanding 9/12
Capitalizable borrowing cost – general borrowings 19,305
Add: Specific borrowings (750,000 x 12% x 9/12) 67,500
Total capitalizable borrowing cost (B) 4. 86,805
153
PROBLEM 18-14 Specific Borrowing Used For General Purposes

Totalexpenditures 6,000,000
Divide
by 2
Total 3,000,000
Less: Investment income (50,000x 3/12) 12,500
Weightedaverageexpenditures 2,987,500
Capitalizable borrowing cost (A) 298,750
PROBLEM 18-15 Different Depreciation Methods

Cost P3,300,000
Less:Residualvalue 300,000
Depreciable amount P3,000,000
Requirement No. 1 Straight Line

2016(P3,000,000/ 5x 12/12) 600,000
2017(P3,000,000/ 5x 12/12) 600,000
Requirement No. 2 Service Hours

Depreciation rate per hour (P3,000,000 / 60,000 hours) = P50/hour
2016(P50/hourx 3,000hours) 150,000
2017(P50/hourx 3,500hours) 175,000
Requirement No. 3 Units of Output Method

Depreciation rate per unit (P3,000, 000 / 50,000 units) = P60/unit
2016(P60/unitx 5,000units) 300,000
2017(P60/unitx 4,500units) 270,000
Requirement No. 4 Sum-of the Years’ Digits

Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016(P3,000,000x 5/15) 1,000,000
2017(P3,000,000x 4/15) 800,000
Requirement No. 5 Sum-of the Years’ Digits

Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016(P3,000,000x5 /15x 3/12) 250,000
154
2017 (P3,000,000 x 5/15 x 9/12) + (P3,000,000 x 4/15 x 9/12) 950,000
Requirement No. 6 Double-declining balance

Double declining rate (2/5) = 40%
2016(P3,300,000x 40%) 1,820,000
2017 [(P3,300,000 – 1,820,000) x4 0%] 792,000
Requirement No. 7 Double-declining balance
Double declining rate (2/5) = 40%

2016(P3,300,000x4 0%x3/12) 990,000
2017 [(P3,300,000 – 990,000) x 40% x 12/12)] 924,000
Requirement No. 8 150% declining balance

150% declining rate (1.5/5) = 30%
2016(P3,300,000x 30%) 990,000
2017 [(P3,300,000 – 990,000) x 30% x 12/12)] 693,000
PROBLEM 18-16 Composite Method

Salvage Depreciable Estd. Annual
Cost Value Amount Life Depreciation
MachineA 275,000 25,000 250,000 20 12,500
MachineB 100,000 10,000 90,000 15 6,000
Machine C 20,000 - 20,000 5 4,000
Total 395,000 35,000 360,000 22,500
Composite Life = (Depreciable amount / Total annual depreciation)
= P360,000 / P22,500
= 16 years (B)
PROBLEM 18-17 Retirement Method

Original
cost 5,000
Less:Salvage proceeds 600
Depreciation (B) 4,400
155
PROBLEM 18-18 Change in Estimate

Cost 3,300,000
Less: Accumulated depreciation – 12/31/2016
[(P3,300,000 – P300,000) / 8 x4 ] 1,500,000
Carryingvalue– 12/31/2016 1,800,000
CASE NO. 1
Requirement No. 1
Carryingvalue– 12/31/2015 1,800,000

Dividedby:R evisedremainingusefull ife 2
Depreciation –2016 750,000
Requirement No. 2
Carryingvalue– 12/31/2015 1,800,000
Less: Depreciation –2016 750,000
Carryingvalue– 12/31/2016 1,050,000
CASE NO. 2
Requirement No. 1
Carryingvalue– 12/31/2015 1,800,000
Dividedby:R emainingusefullife(8 –4) 4

Requirement No 2
Carryingvalue– 12/31/2015 1,800,000
Less: Depreciation –2016 412,500
Carryingvalue– 12/31/2016 1,387,500
CASE NO. 3
Requirement No. 1
Carryingvalue– 12/31/2015 1,800,000
Multiply by: Fraction (SYD=10) 4/10
Requirement No. 2
Carryingvalue– 12/31/2015 1,800,000
Less: Depreciation–2016 600,000
Carryingvalue– 12/31/2016 1,200,000
156
PROBLEM 18-19 Replacement Method

Replacementcost 6,000
Less:Salvage proceeds 600
Depreciation (C) 5,400
PROBLEM 18-20 Fixed Asset Turnover

Let X = Net Fixed Asset at the end of 2016
Sales
Fixed asset tur nover =
Average Fixed Asset
P1,480,000
4=
.5 (P320,000 + X)
P1,480,000
4=
P160,000 + .5x
P1,480,000 = P640,000 + 2x
X= P420,000 (C)
PROBLEM 18-21
Question No. 1
Beg.Balanceofthe Land P 700,000
Cash paid 2,500,000
Mortgage assumed 4,000,000
Realtor's
Legal commission
fees, realty taxes and documentation expenses 300,000
50,000
Amount paid to rel cate persons squatting on the property 100,000
Total Cost of t he Land (B) P7,650,000
Question No. 2
Beginning balanceo f theL and Improvement P 10,000
Cost offencingproperty 110,000
Total cost of Land Improve ment (A) P 120,000
Question No. 3
Beg.Balanceofthe Building P 900,000
Amount recovered from salvage of building (150,000)
Costo ft earingdownanoldbuilding 120,000
Amountpaidto contractor 2,000,000
Buildingpermit 20,000
Excavationexpenses 50,000
Architects'fees 50,000
Total cost of building (A) P2,990,000
157
Question No. 4
Beg.BalanceoftheM achinery P 980,000
Invoicecostofmachinery 2,000,000
Freight,unloading 60,000
Customs duties 140,000
Allowancesduringinstallations 400,000
Total cost of machin ery (B) P3,580,000
Question No. 5
Totalcosto fLandImprovement P 120,000
Totalcost ofbuilding 2,990,000
Totalcost ofmachinery 3,580,000
Total depreciable property (A) P6,690,000
Royalty payment on machines purchased in the amount of P120,000 should be

included as part of manufacturing overhead in the company’s income statement,
if the same is based on units produced. However, if royalty payment is based on
units produced and sold, it sho uld be treated as a selling ex pense.
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. B 5. A
PROBLEM 18-22 Specific and General Borrowings

Question No . 1 an d 2
WEIGHTED AVERAGE INMonths

2014
Date Expenditures outstanding Average
01/01/2015 3,000,000 12 36,000,000
07/01/2015 7,000,000 6 42,000,000
11/01/2015 6,000,000 2 12,000,000
Total 16,000,000 90,000,000
Divide
by 12
Weighted averagec arryinga mount 7,500,000
Specific borrowings (2,000,000 x 10%) 200,000
General borrowings:
Rate Principal Interest
14% 2,000,000 280,000
12% 18,000,000 2,160,000
Total 20,000,000 2,440,000

Capitalization Rate (P2,440,000 / P20,000,000) = 12.20%
Weighted average borrowing cost:
Specific borrowings
158
Actualborrowing cost 200,000

Less:Investmentincome 13,000 187,000
General borrowings:
Weighted average carrying amount 7,500,000
Less: Principal amount of Specific borrowings 2,000,000
Weighted average related to General borrowings 5,500,000
Multiplyb y: Capitalization rate 12.20%
Multiply by: Months/12 1 671,000
Weightedaverageb orrowingcost: 858,000
vs.Actual borrowingcost 2,640,000
Capitalizable borrowing cost
(lower) (A) 858,000
WEIGHTED AVERAGE IN 2015
Months
Date Expenditures outstanding Average
01/01/2016 *16,858,000 8 134,864,000
07/01/2016 1,000,000 2 2,000,000
08/01/2016 2,000,000 1 2,000,000
Total 19,858,000 138,864,000
Divide
by 8
Weighted averagec arryinga mount 17,358,000
*Total expenditures in 2015 plus capitalized borrowing cost in 2015.

Specific borrowings
Actual borrowing cost (P2,000,000 x 10% x 8/12) 133,333
Less:Investmentincome - 133,333
General borrowings:
Multiplyb y: Capitalization rate 12.20%
Multiply by:M onths/12 8/12 1,249,117
Weightedaverageb orrowingcost: 1,382,451
vs. Actual borrowing cost (2,640,000 x 8/12) 1,760,000
Capitalizable borrowing cost (lower) (B) 1,382,451
Question No. 3
Actualborrowingcost-2015 2,640,000
Less: Capitalizable borrowingc ost - 2015 858,000
Interest expense (C) 1,782,000
Question No. 4
Actualborrowingcost-2016 2,640,000
Less: Capitalizable borrowing cost - 2016 1,382,451
Interest expense (C) 1,257,550
159
Question No. 5
Totalcost,2015 16,858,000
Expendituresin2016 3,000,000
Add: Capitalizable borrowing cost - 2016 1,382,451
Total cost of the building (B) 21,240,451
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. C 5. B
PROBLEM 18-23
Question No. 1
The computation of the income from government grant is as follows:
Totalcashreceived 20,000,000
Divideby:Usefullifeof thebuilding 20
Incomef romgovernmentgrant 1,000,000
Question No. 2
Cost ofbuilding 24,000,000
Depreciation 1,200,000
Question No. 3
Less:Governmentgrant 20,000,000
Total 4,000,000
Divideby Usefu lifeof thebuilding 20
Depreciation 200,000
Question No. 4
Less:Depreciation–2016 1,200,000
Carryingamount–12/31/2016 22,800,000
Question No. 5
Netcostofbuilding 4,000,000
Less:Depreciation–2016 200,000
Carryingamount–12/31/2016 3,800,000
PROBLEM 18-24 Grants Related to Nondepreciable Assets

Question No. 1
The computation of the income from government grant is as follows:
Totalfair valueoftheland 10,000,000
160
Dividebyusefullifeof thebuilding 10
Incomef romgovernmentgrant 1,000,000
Question No. 2
Cost offactorybuilding 15,000,000
Depreciation 1,500,000
Question No. 3
Less:Governmentgrant 10,000,000
Total 5,000,000
Question No. 4
Less:Depreciation–2016 1,500,000
Carryingamount–12/31/2016 13,500,000
Question No. 5
Netcostoff actorybuilding 5,000,000
Less:Depreciation–2016 500,000
PROBLEM 18-25
Question No. 1
Cost( 800,000+45,000-5,000) 840,000
Less ResidualValue 40,000
Depreciable cost 800,000
Divide
by 5
Question No. 2
Cost( 800,000+45,000-5,000) 840,000
Less Accumulated Depreciation (160,000 x 3) 320,000
Carryingamount 520,000
Less newresidualvalue 70,000
Dividebyremainingusefull ife (5-2) 3
Depreciation (A) 150,000
161
Question No. 3
Cost 270,000
Less Accumulated depreciation (270,000/4 x 8/12) 45,000
Total 225,000
Carrying amount of old tires (12,000-(12,000/4 x 8/12) (10,000)
Cost ofnewtires 24,000
Total 239,000
Depreciation
Motor vehicle:
Sept.1 -May 30, 2019( 270,000/4 x8 /12) 45,000
June 1-Sept. 30 (215,000/4 x 12 mos-8 mos x 4 mos) 21,500
Tyres from June 1- Sept 30 (24,000/24 mos x 4 mos) 4,000
Depreciation expense (D) 70,500
Question No. 4
Depreciable Divide Depreciation
cost by exp
Residual Useful
Cost Value life
Airframe 800,000 10 80.000
800,000 0 years
Interior 100,000 10 10,000
100,000 0 years
Engines and 370,000 74,000
rotary blades 400,000 30,000 5 years

Inspection 240,000 0 240,000 3y ears 80,000
Total 244 000
Question No. 5
Cost 280,000
Less ResidualValue 40,000
Divide
by 3
Multiply by 8/12
SUMMARY OF ANSWERS:
1. B 2. A 3. D 4. D 5. B
PROBLEM 18-26
Question No. 1
SellingPrice P52,000
Less Book value
162
Cost P140,000
Upto 1/1 P92,800
From Jan. 1-May 1
[(140,000 -12,400) x 5/55]* 11,600 (104,400) 35,600
Gain on sale of mac hinery D (A) P 16,400
Note: No depreciation is recorded in the year an asset is purchased, and full
year depreciation is provided in the year an asset is disposed of
Question No. 2
Accumulatedd epreciation,RJan1 P1 40,800
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100] 26,880
Accumulated depreciation, R Dec. 31 (B) 167,680
P
Question No. 3
Accumulatedd epreciation,IJan1 P60,000
Add: Depreciation expense [(320,000-60,000-20,000)/10] 24,000
Accumulated depreciation, I Dec. 31 (C) 84,000
P
Question No. 4
Accumulatedd epreciation,AJan1 P 64,000
Add: Depreciation expense (320,000-64,000) x 20% 51,200
Accumulated depreciation, A Dec. 31 (A) 115,200
P
Question No. 5
Depreciation expense
D (seecomputation on
1)Machinery:
inno. P 11,600
R(seecomputationinno.2) 26,880
I(seecomputationinno.3) 24,000
A(seecomputationinno.4) 51,200
N(88,000/20%) 17,600
Total depreciation expense (D) P 131,280
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. A 5. D
PROBLEM 18-27 Component Depreciation

Question No. 1
Purchase of bottling plant P1,500,000
Delivery and installation (750,000x 1/3) 250,000
Testing (33,000/3) 11,000
Total cost of engine (C) P1,761,000
163
Question No. 2
Purchase of bottling plant P2,000,000
Testing (33,000/3) 11,000
Total cost of conveyor belt and fittings (C) P2,261,000
Question No. 3
Purchase of bottling plant P 800,000
Testing (33,000/3) 11,000
Total cost of outer struc ture (C) P1,061,000

Question No. 4
Depreciation of component of plant:
Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years x
11/12 231,183
Conveyor belt etc = (2,000,000 + 250,000 + 11,000 – 0) / 8
years 11/12
x 259,073
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years 11/12
x 308,917
Total depreciation of plant (A) P 799,173
Depreciation starts from the date that the asset was available for use: February
1, 2016.
Question No. 5
Depreciation of component
Engine = (1,500,000 of plant:
+ 250,000 + 11,000 – 500,000) / 5 years 252,200
Conveyor bel t etc = (2,0 00 000 + 250,000 + 11 000 – 0) / 8
years 282,625
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years 337,000
Total depreciation of plant (A) P 871,825
SUMMARY OF ANSWERS:
1. C 2. C 3. C 4. A 5. B
PROBLEM 18-28
Question No. 1
Fair
value 1,400,000
Legal fees cost

Remodeling 50,000
100,000
Total cost of building (C) 1,550,000
164
Question No. 2
Fairvalueo ftheassetreceived 1,200,000
Less:Cash paid 400,000
Fairvalue oftheassetgiven 800,000
Less: Book value of the asset giv en
Cost 1,000,000
Less: Accumulated depreciation (1M/10 x 3.5) 350,000 650000
Gain on exchange (A) 150,000
Question No. 3
OfficebuildingNo.1 (940,000/7) 135,000
Office building No.2 (1,000,000/10 x 6/12) 50,000
Office building No.3 (1,200,000/4 x 6/12) 150,000
Factoryb uilding(1,550,000/10) 155,000
Total Depreciation expense (C) 490,000
Costo foffice building No. 1 1,000,000

Less: Accumulated Depreciation 300,000
Bookvalue 700,000
Add:Majorimprovements 245,000
Total 945,000
Question No. 4
Income from government grant (1,400,000/10) (A) 140,000
Questi
Total on No. 5 cost
depreciable 945,000
Less:Subsequentd epreciation 135,000
Book value (A) 810,000
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. A 5. A
PROBLEM 18-29
Question No. 1
Months
Date Exp enditures outstanding Average
January1 ,2 015 2,000,000 12 24,000,000
July1, 2015 4,000,000 6 24,000,000
November1 ,2015 3,000,000 2 6,000,000
Total 9,000,000 54,000,000
Divide
by 8
Weightedaveragec arryinga mount 4,500,000
165

Specific borrowings
Actual borrowing cost (2M x 10% x 12/12) 200,000
General borrowings:
Multiplyb y:Capitalizationrate 12%
Multiply by: Months/12 12/12 300,000
Weightedaverageb orrowingcost: 500,000

Capitalizable borrowing cost (lower) (D) 500,000
Question No. 2
Totalexpenditures–2015 9,000,000
Totalexpenditures-2016 1,000,000
Capitalizedborrowingcost-2015 500,000
Capitalized borrowing cost – 2016 (see computation below) 1,160,000
Total cost of building (C) 11,660,000
Months
Date Exp enditures outstanding Average
January1 ,2 016 *9,500,000 12 114,000,000
July1, 2016 1,000,000 6 6,000,000
Total 10,500,000 120,000,000

Divide
by 12
Weig tedaveragec arryinga mount 10,000,000
Total of expenditure in 2015 of P9M and capitalized borrowing cost of

P500,000.

Specific borrowings
Actual borrowing cost (2M x 10% x 12/12) 200,000
General borrowings:
Multiplyb y:Capitalizationrate 12%
Multiply by: Months/12 12/12 960,000
Weightedaverageborrowingc ost: 1,160,000
Capitalizable borrowing cost (lower) 1,160,000
166
Question No. 3
Totalexpenditures–2015 9,000,000
Totalexpenditures-2016 1,000,000
Total cost of building (A) 10,000,000
Borrowing cos t under PFRS for SME is expens ed outrig ht.
Question No. 4
Costo fM achineryandEquipment 3,000,000
Multiply by: Fraction 3/15
SYD is 15 yea rs and useful life is 5 year s.
Question No. 5
Depreciation – remaining delivery truck (see below) 114,000
Depreciation – overhauled delivery truck (see below) 30,000
Depreciation – new delivery truck (see below) 24,000
Total depreciation on delivery truck (B) 168,000
Delivery truck:
Cost 1,152,000
Less:Accumulateddepreciation 432,000
Carryingvalue –12/31/2015 720,000
Less: Carryingv alue ofo verhauled truck 150,000
Balance 570,000
Divideby:Remaining
Depreciation usefullife
on remaining (8-3) ruck
deliveryt 5
114,000
Overhauled delivery truck:

Cost P240,000
Less: Accumulated depreciation (P240,000 / 8 x 3) 90,000
Carryingvalue –12/31/2015 150,000
Add:Overhaulingcost 60,000
Adjusted carrying value – 01/01/2016 210,000
Divide by: Revised remaining usefull ife( 5 +2 ) 7
Depreciation on overhauled delivery truck 30,000
New Delivery truck:

Invoice
cost 400,000
Freight 20,800
Installation andtesting
Totalcosto fnew deliverytruck 40,000
460,800
Annual depreciation 57,600
Multiply by: Number of months used (July 26 to December 31) 5/12
167
Depreciation on remaining deliveryt ruck 24,000
Question No. 6
Beginningbalance 1,152,000
Add:Overhaulingcost 60,000
Add:Cost ofnewdelivery truck 460,800
Adjustedcostofdeliverytruck 1,672,800
Less: Accumulated depreciation (432,000 + 168,000) 600,000
Carrying value – 12/31/2016 (C) 1,072,800
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. A 5. B 6. C
PROBLEM 18-29
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C 5. B
PROBLEM 18-31
Question No. 1
SYD =(5 (5+1)/2 = 15

Date Fraction tob e used
4/1/06-4/1/07 (5/15)
4/1/07-4/1/08 (4/15)
Depreciation exp:
Jan 1-4/1/08 (4/15*1,500,000*3/12)
Add: depreciation from 4/1-12/31 180,000
Of the 1.2M (3/15*1,200,000*9/12)
Of the 300,000 (see computation below) 30,000
Total depreciation expense P3 10,000
Depreciation exp. from (4/1/-12/31):
Cost 300,000
5/15*300,000 100,000
4/15*300,000) 80,000
Book Value, 4/1/08 120,000
Divide by remaining Life (5-2) 3
Total 40,000
Multiply by: 9/12
Depreciation 30,000
Question No. 2
Accumulated depreciation, beg. 800,000
Add depreciation expense 320,000
168
Accumulated depreciation, End P 1,120,000
Question No. 3
Beg.Balofland 550,000
Add: Acquisition on Nov 4 700,000
Total cost of the land 1,250,000
Question No. 4
Directcost 2,220,000
Fixedc ost (15,000 X 25) 375,000
Variable cost (15,000 X 27) 405,000
Total Cost of bldg. 3,000,000
Question No. 5
Depreciation on the beginning
balance (6M-4,427,136-1,300,000) 272,864
Add: Depre ciation on new bldg.
(3,000,000X 20%) 600,000
Totaldepreciation 872,864
Question No. 6
Cost of the machinery-beg bal. 3,000,000
Addmajoroverhaul 600,000
Add: Cost of the new machinery
Invoicec ost 356,000
Concrete embedding 18,000
Walldemolition 7,000
Rebuilding ofw all 19,000 4000 00
Total costo fm achinery P4 ,000,000
Question No. 7
Depreciation of machinery
Depreciation of the beg bal of machinery
OriginalCost P 3,000,000
Add:Major overhaul 600,000
Total 3,600,000
Accum. depreciation
(3,000,000/20*10) P1,500,000
Adjustedbookvalue P 2,100,000
Dividedby:r evisedremaininglife 15
Depreciation of the beg bal of machinery P 140,000
Depreciation on the new machinery
(400,000/20*6/12) 10,000
Depreciationofm achinery P 150,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A 5. D 6. C 7. B
169
PROBLEM 18-32
Question No. 1
Property-cost 3,400,000
Less: Accumulated depreciation (1,360,000)
Depreciation (3,400,000 x 4%) (136,000)
Carrying value of property (C) 1,904,000
Question No. 2
Cost at 30June2016 360,000
Less:Disposal1July2 016 32,000 3 28,000
Accumulatedd epreciation (126,000)

Disposal 1 July 2016 (32,000 x 20% x 2yrs) 12,800 (113,200)
Carrying value1 July 2016a fter disposal 214,800
Less:Depreciation(214,800 x1 5%) (32,220)
Additions1 April2017 78,000
Less: Depreciation (78,000 x 15% x 3/12) (2,925) 75,075
Carrying value – 30 June 2017 (C) 257,655
Question No. 3
Constructioncosts 1,200,000
Professionalfees 7,800
Sitepreparation
Total costs
cost of retai l outlet (B) 90,000
1,297,800
Question No. 4
Intangible–brand( cost) 290,000
Less: Accumulated amortization – 30 June 2016 101,500
Less: Amortization – 2017 (290,000 / 10) 29,000 159,500
Capitalized development cost (96,000 / 6 x 4) 64,000
Less: Amortization (64,000 /4 x3 /12) 4,000 60,000
Carrying value – 30 June 2017 (C) 219,500
Land 1,500,000
Property-cost 3,400,000
Less: Accumulated depreciation (1,360,000)
Depreciation (3,400,000 x 4%) (136,000) 1,904,000
Constructions costs 1,297,800
Fixtures&fittings 257,655
Carryingvalue of PPE 4,959,455
170
Question No. 5
Depreciation:
Property 136,000
Fixtures and fittings (32,220 + 2,925) 35,145 171,145
Amortization(29,000+4,000) 33,000
Total depreciation and amortization (D) 204,145
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. C 5. D
171
Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS
PROBLEM 19-1 Depletion with Change in Estimate

Question No. 1
Acquisitioncost P164,000
Less:Estimatedresidualvalue -
Depletable costo f then aturalr esource P164,000
Divide by: Tons estimatedt o be extracted 20,000
Depletion perton P8.20
Multiplyb y:Tonsextracted-2015 4,000
Depletion – 2015 (B) P32,800
Question No. 2
Acquisitioncost P164,000
Less: Accumulated depletion – 12/31/2015 32,800
Carryingvalue –01/01/2016 131,200
Divide by: Tons estimatedt o be extracted 20,000
Depletion perunit P6.56
Multiplyb y:Tonsextracted–2016 8,000
Depletion – 2016 (C) P52,480
PROBLEM 19-2 Depletion with Change in Estimate

Exploration cost. 15,000,000
Intangibledevelopmentcost 4,000,000
To al cos oft henaturalresources 390 00,000
lesse stimatedresidualvalue 1,000,000
Total depletable cost of the natural resources 38,000,000
divideby unitsest.t o be extracted 2,000,000
Depletion perunit 19.00
x unitsextracted 500,000
Depletion from2015to 2017 9,500,000
Question No. 1
Cost ofnatural resource 39,000,000
Accumulated depletion 9,500,000
Carryingamount,12/31/2017 29,500,000
Residualvalue 600,000
Depletablecost 28,900,000
Divideby revisedr emainingunits 400,000
Depletion rateper unit 72.25
Multiply by: Unitsextracted 200,000
Depletion (D) 14,450,000
172
Question No. 2
Cost ofnaturalresource 39,000,000
Carrying amount, 12/31/2018 (D) 15,050,000
PROBLEM 19-3 Depreciation of Movable and Immovable Equipment –

Useful Life of the Immovabl e Equipment is Shorter
Question No. 1
Total costo ft he natural resources 25,000,000
less estimatedresidualvalue -
divide by units est.t o be extracted 2,000,000
Question No. 2
Costoft hemovableequipment 4,000,000
Divideby:Usefullife 10
Question No. 3
Costo ft hemovableequipment 2,000,000
Divideby:Usefullife(shorter) 4
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life

of the Wasting Asset is Shorter
Question No. 1
Total costo ft he natural resources 25,000,000
less estimatedresidualvalue -
divide by units est.t o be extracted 2,000,000
173
Question No. 2
costo ft hemovableequipment 4,000,000
dividebyunitsest. tobeextracted 20
Question No. 3
Costo ft hemovableequipment P2,000,000
Divide by: Units estimated to be extracted (shorter)* 2,000,000
Depreciationrateperunit P1
Multiplyb y:A ctualunitse xtracted 500,000
Depreciation - 2016 (B) 500,000
*Estimated useful li fe using output method (2,000, 000 / 500,000) = 4 years
PROBLEM 19-5 Depreciation –No Production

Costo fi mmovableequipment 4,000,000
Divide by: Units est. to be extracted 2,000,000
Depreciationper unit 2.00
Accum. Depreciation 1,000,000
Question No. 1
Less:Accumulatedd epreciation 1,000,000
Bookvalue,Dec. 31,2017 3,000,000
Divideby Unitsest.t beextracted 12
Depreciation in 2018 (B) 250,000
Question No. 2
Less:Accumulateddepreciation 1,250,000
Bookvalue,Dec. 31,2018 2,750,000
Divide by: Remaining units to be extracted 1,500,000
Depreciationper unit 1.83
Depletion (A) 183,333
PROBLEM 19-6 Liquidating Dividends

Accumulated profits -unappropriated 9,000,000
Total 13,000,000
less: Capital liquidated 850,000
174
Depletion in the ending inventory

(150,000 units X4 ) 600,000 1,450,000
Maximum Dividend (C ) 11,550,000
PROBLEM 19-7
Question No. 1
Acquisitioncost P9,075,000
Divide by: Tons estimated to be extracted 1,100,000
Depletion perton P8.25
Multiplyb y:A ctual tons extracted – 2016 100,000
Depletion - 2016 (D) 825,000
Question No. 2
Cost of Installation 1,925,000
Divide by: Tons estimated to be extracted 1,100,000
Depreciationper ton 1.75
Multiplyb y:A ctual tons extracted – 2016 100,000
Question No. 3
Cost ofminingequipment 4,400,000
Depreciation – 2016 (A) 550,000
Question No. 4
Acquisitioncost P9,075,000
Less:Accumulated Depletion 825,000
Carryingvalue– 12/31/2016 P8,250,000
Add: Additionald evelopment cost - 2017 750,000
Remainingdepletable cost P9,000,000
Divide by: Estimatedt ons to be extracted 1,000,000
Depletion perton P 9
Multiplyb y:Tonsextracted–2017 150,000
Depletion - 2017 (C) P1,350,000
Question No. 5
Installation ((P1,925,000/1.1M) x 150,000 tons) P 262,500
Miningequipment(P4,400,000/8) 550,000
Total depreciation expense (C) P 812,500
SUMMARY OF ANSWERS:
1. D 2. B 3. A 4. C 5. C
175
PROBLEM 19-8 Cost of Wasting Asset with Estimated Restoration Cost,

Depletion, Depreciation of Movable and Immovable Equ ipment
Question No. 1
Acquisition costo ft he wastinga ssets 150,000,000
Explorationa nd intangible devt.C ost 8,000,000
Estimated decommissioning and restoration costs-at PV 8,196,161
Initial cost (A) 166,196,162
Estimatedrestorationcost P12,000,000
Multiply by: Present value of 1 for four periods 0.6830
Present value oft he restorationc ost P 8,196,161
Question No. 2
Totalcosto fthew astingassets 166,196,162
Divide by: Total units estimated to be extracted 12,000,000
Multiply by:U nitsextracted 1,600,000
Depletion expense (B) 22,159,488
Question No. 3
Question No. 4
Costo ft hemovableequipment 9,000,000
Depreciationperunit .75
Note: Units of output method was used since the useful life in years using the
estimated units to be extracted each year (8 years) is shorter than the useful life
of the immovab le equipmen t.
*Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years
Question No. 5
Date Interest expense Present value
01/01/2015 8,196,161
12/31/2015 819,612 (A) 9,015,777
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. A
176
PROBLEM 19-9 Cost of Wasting Asse t with Est imated Restor ation Cost,
Deple tion, Depre ciation of Movable and Immov able Equip ment
Question No. 1
Acquisition costo ft he wastinga ssets 120,000,000
Explorationa nd intangible devt.C ost 6,000,000
Estimated decommissioning and restoration costs-at PV 6,355,181
Initial cost (A) 132,355,181
Estimatedrestorationcost P10,000,000
Multiply by: Present value of 1 for four periods 0..6355
Present value oft he restorationc ost P 6,355,181
Question No. 2
Totalcosto fthew astingassets 132,355,181
Question No. 3
Depreciation (A) 1,000,000
Question No. 4
Divideby:Usefullife(shorter) 5
Depreciation (A) 1,800,000
*Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years
Question No. 5
Date Interest expense Present value
01/01/2016 6,355,181
12/31/2016 2,6
7622 (A) 7,117,803
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
177
Chapter 20: Investment Property
CHAPTER 20: INVESTMENT PROPERTY
PROBLEM 20-1: Classificat ion Issu e

Question No. 1
Farming land was purchased for its investment potential. 800,000
Planning permission has not been obtained for building
constructions of any kind.
A building that is held under mixed use; half is to earn rentals 860,000
A building leased to an associate under an operating lease 1,620,000
Total investment property (D) 3,280,000

Question No. 2
A new office building used by one of its subsidiaries as its head 1,200,000
office which was purchased specifically in the center of Makati
City in orde r to exploi t its capital gains potential.
Owner-occupiedproperties 1,600,000
Buildings occupied by employees, including Ms. Munda – the 760,000
accountant. The employees pays rent on the building they
occupied
A building occupied by employees, the employees do not pay 240,000
market rent on the building they occupied.
A building that is held under mixed use; half of it is owner- 860,000
occupied
A property wherein significant ancillary services are provided 960,000
to occupants
Land and building leased to a subsidiary 2,100,000
A new machine leased to another associate under an operating 530,000
lease
A building that is being constructed for future use as 870,000
administration building.
Total PPE (B) 9,120,000
Question No. 3
A property that is in the process of construction for sale 950,000
A property intended for sale in the ordinary course of business 450,000
Total inventories (C) 1,400,000
Question No.4 (C) Question No.5 (C)
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. C 5. C
178
PROBLEM 20-2: Classificati on Issue
Question No. 1 Separate if portions can be sold or leased out separately. (C)
Question No. 2 (A )
Question No. 3 (B )
Question No. 4 (C )
PROBLEM 20-3: Ancillary services

Question No.1 (C ) Question No.2 (D)
PROBLEM 20-4: Intracompany rentals

Question No.1 (B) Question No.2 (D)
PROBLEM 20-5: Initial measurement - Investment property leased under

finance lease
Lower of fair val ue or present value of minim um lease pay ments.
Suggested answer: (B)
PROBLEM 20-6: Subsequent measurement: Cost model vs Fair value model

SUMMARY OF ANSWERS:
1. D 2. B 3. D 4. B 5. D 6. A
PROBLEM 20-7: Transfer from PPE to Investment Property – Fair value vs

Cost model
Question No. 1 (D)
No gain or loss is recognized if the transfer is made at cost model.
Question No. 2 (D)
No gain or loss is re cognized if the transfer is m ade at cost mo del.
Question No . 3 an d 4
Fair value date of trans fer
Less: Carryingv alue– 12/31/2016( 80,000,000
Revaluationsurplus–OCI 6,000,000
Less: Transfer of revaluation surplus to R/E as a result of
reclassification 6,000,000
179
Gain (loss) on transfe r (D)
SUMMARY OF ANSWERS:
1. D 2. D 3. D 4. D
PROBLEM 20-8: Transfer from inventory to investment property – Fair

value vs Cos t model
Question No. 1 (B)
Cost
Netrealizablevalue( - 2,700,000
Lower of cos t and net re alizable value
Question No. 2 (B)

The initial carrying amount under the new classification is the previous carryin g
amount of
Question No. 3 (D)

No gain or loss is recognized if the transfer is made at cost model.
Question No. 4 (A)

2,880,000. Fair value at the date of transfe r. Don’t deduc t cost to sell.
Question No. 5 (A)

Fair value at the date of transfer
Gain on transfer
PROBLEM 20-9: Derecognition of investment property – Fair value vs Cost

Model
Question No. 1
Gross selling price
Less:Disposalcost 120,000
Less:Carryingv alue– 12/31/2015( 2,700,000
Gain on sale (D)
Question No. 2
Gross selling price
Less:Disposalcost 120,000
Less: Carrying value – 12/31/2015 (fair value) 2,450,000
180
PROBLEM 20-10
Question No. 1
Cost
Depreciable cost 13,000,000
Dividedby: Usefullife 10 years
Annual depreciation 1,300,000
Multiply by: Monthsoutstanding 8/12
Depreciation – 2010 (D)
Question No. 2
Depreciation [( –
Impairmentloss 480,000
Total amount to SCI (A)
Question No. 3
Cost
Accumulated depreciation 3,466,667
Carrying value, beforei mpairment 10,533,333
Carrying value, after impairment - 12/31/2012 10,053,333
Divide by: Remaining useful life (120 – 32) 88 months
Multiply by: Numberof months 12
Depreciation – 2013 (to SCI) (B) 1,234,545
Question No. 4
Cost
Accumulated depreciation 3,466,667
Carrying value, beforei mpairment 10,533,333
Carrying value, after impairment - 12/31/2012 10,053,333
Depreciation -2013[( - 1,234,545
Depreciation –2014 [( - 1,028,788
Carrying value, 10/31/2014
Depreciation –2014 [( - 1,028,788

Gaino ntransfer( 10,050,000- 2,260,000
Unrealized gain - change in fair value( - 950,000
Total amount to SCI (A)
181
Question No. 5
Fair value - 12/31/2015
Fairvalue -12/31/2014 11,000,000
Gain on change in fair valu e (B) 450,000
Question No. 6
Reclassification loss:
Fairvalue- 05/01/2016 9,500,000
Carrying value, 05/01/2016 11,450,000
Depreciation -2016 [( - 2,322,222
Total (A)
PROBLEM 20-11 Various investments

No. of Cost per Total
Date shares share Cost
1/1 10,000 21 210,000
3/1stock split 15,000 -
Total(10,000x5/2) 25,000 8.4 210,000
11/1 Special assessment ( 1.60 x
25,000) 40,000
Total 25,000 10 250,000
Question No. 1
Fair
value ( 375,000
Less:Carrying value 250,000
Unrealized gain-OCI (D) 125,000
Question No. 2
Broker’s expense over, net income under ( 10,000)
Operating expense over, NI under ( 1. 60 x 25,000 shares) (40,000)
Net income understated (B) ( 50,000)
Question No. 3
Netincome ofassociate 3,000,000
Share in the net income before adjustment 900,000
Less: Unrealized gain on downstream sale of PPE 320,000
[( -
Less: Unrealized profit on upstream sale of inventory
( 30,000
Share in the ne t income after adjustment (C) 550,000
182
Question No. 4
Add: Net investment income - 2016 (see No. 3) 550,000
Less: Dividends received -2016 (30% x 800,000) 240,000
Add: Share in the translation gain (30% x 1,000,000) 300,000
Carrying value – 12/31/2016 (B) 4,610,000
Question No. 5
Add: Net investment income - 2016 (see No. 3) 550,000
Less: Dividends received -2016 (30% x 800,000) 240,000
Add: Share in the translation gain (30% x 1,000,000) 300,000
Less: Amortization of goodwill ( 200,000/10) 20,000
Carrying value – 12/31/2016 (C) 4,590,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity canno t determine reliably the useful life, it is
assumed to be 10 yea rs.
Question No. 6
Fairvalue ofbuildingA 1,500,000
Unrealized gain - P&L (B) 500,000
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. B 5. C 6. B
183
Chapter 22: Intangible Assets
CHAPTER 22: INTANGIBLE ASSETS
PROBLEM 22-1 Research and Development Cost

R&D Others
Cost of activities aimed at obtaining new
knowledge 700,000 -
Marketingr esearch to study consumert astes - 16,000
Cost of developing and producing a prototype
model 23,000 -
Cost of testing the prototype model for safety and
environmentalfriendliness 80,000 -
Cost revising designs for flaws in the prototype
model 15,000 -
Salaries of employees, consultants, and technicians
involvedinR&D 120,000 -
Amount paid for conference for the introduction of
the newly developed product including fee of a
model hiredasendorser - 102,000
Advertising to establish recognition of the newly
developed product - 43,000
Cost incurred on search for alternatives for
materials, devices, products, processes, systems or
services 30,000 -
Cost of final selection of possible alternatives for a
newprocess 96,000 -
Periodic or routine design changes to existing
products - 2,500
Modification of design for a specific customer - 10,000
Cost of design, constru ction and operation of a pilot
plant that is not of a scale economically feasible for
commercialproduction 5,000 -
Cost of routine, seasonal, and periodic design of
tools,jigs,moldsanddies - 18,000
Cost of quality control during commercial
production - 32,000
Cost of purchased building to be used in various
R&D projects - 1,000,000
Depreciation on the building described above 100,000 -
Personnel costs of persons involved in research
anddevelopment
Design, projects
construction, and testing of preproduction 41,200 -
prototypesandmodels 96,000 -
Adjusted balances 1,306,200 1,223,500
(A)
184
PROBLEM 22-2 Research and Development

Question No. 1
Subsequent expenditure on research
Development expenditures not qualifying for recognition
( 5/12) 200,000
Research and development expense (A)
Question No. 2
Acquisition cost of research and develop ment
Development expen ditures qualifyi ng for recognition
( 280,000
Intangible Asset under Development (A)
In-process research and development acquired is recorded as intangible asset at

cost. Subsequent expenditure on an in-process research and development
project recognized as usually done: research is expensed and development costs
capitalized only if all criteria for capit alization of development costs are met.
PROBLEM 22-3 Purchased computer software

Purchase price excluding refundable purchase tax 550,000
Add:Customizationc ost( 120,000+ 135,000
Testing cost
( 37,000
Amortization (D) 722,000
PROBLEM 22-4 Website Cost

Question No. 1
Zero. All cost s are charged to expense. (A)
Question No. 2
Obtainingadomainname 32,000
Installing developed applications on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information 60,000
Updating graphics and revisingc ontent 32,000
Adding new functions, features and content 12,000
Reviewing securityaccess 36,000
Total intangible asset (B) 424,000
185
PROBLEM 22-5 Renewable Rights

Question No. 1
As the costs associated with the renewal are insignificant, the asset must be
amortized over the 10 year useful life. The entity intends to renew the license
and the government intends to re-issue the license to Bangus Co., and therefore
it must be treated as an asset with a 10 year useful life.
Amortization ( (D)
Question No. 2
As the cost
initial costsofassociated with
the license, thethe renewal
asset areamortized
must be significant, andthe
over almost equaling
5 year the
useful life.
Although the entity intends to renew the license, the renewed license, when it is
acquired, must be treated a separate asset and amortiz ed over a useful life of 5
years.
Amortization ( (C)
PROBLEM 22-6 Goodwill Computation
Current Assets ( 6,000,000 + 800,000) 6,800,000
Investments 2,000,000
PPE( 13,000,000+ 1,850,000) 14,850,000
Currentliabilities (3,500,000)
Noncurrent liabilities (2,500,000)
Fairvalueo fnetassetacquired 17,650,000
Fairvalueo fnetassetacquired 176 50,000
Multiply by: Normal rateofreturn 10%
Normalearnings 1,765,000
Totalearnings 9,000,000
Losso n sale(or Gain)onsale (100,000)
Bonus ( 150,000 x4years) 600,000
Operating income 9,500,000
Divideby:No. ofyears 4
Averageearnings 2,375,000
Question No. 1
Less:Normal earning 1,765,000
Averageexcessearnings 610,000
Multiply by: Capitalization period 4
Add: Fair value ofn eta sseta cquired 17,650,000
Purchase price (A) 20,090,000
186
Question No. 2
Divideby:Capitalizationrate 10%
Goodwill (B) 6,100,000
Add: Fair value of net asseta cquired 17,650,000
Purchase price (B) 23,750,000
Question No. 3
Divideby:Capitalizationrate 8%
Purchase price (B) 29,687,500
Less:Fairvalueo f netasset 17,650,000
Goodwill (B) 12,037,500
Question No. 4
Multiply by: Present value of ordinary annuity 3.0373
Goodwill (C) 1,852,753
Add: Fair value of net asset acquired 17,650,000
Purchase price (C) 19,502,753
SUMMARY OF ANSWERS:
1 A 2. B 3. B 4. C
PROBLEM 22-7
Question No. 1
NetPatent,January1 336,000
Divideby: Remaininglife(8years-2y ears) 6
Amortization (A) 56,000
Question No. 2
None, the tradem ark has an indefinite life. (B)
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4) 400,000
Amortization expense (A) 80,000
187
Question No. 4
Purchase price 2,400,000
Less: Fair valueo fn et assets acquired 1,600,000
Goodwill (carrying amount) (A) 800,000
The goodwill shall not be amortized because its useful life is indefinite.
However, goodwill shall be tested for impairment at least annually, or more
frequently if events or changes in circumstances indicate a possible impairment.
Question No. 5
Cost-Patent 384,000
Less: Accumulated Amortization (48,000 + 56,000) 104,000 280,000
Cost - Trademark (no amortization) (1.6M x 3/4) 1,200,000
Cost- Noncompetition agreement 400,000
Less: Accumulated Amortization (see no. 3) 80,000 320,000
Total carrying amount of the Intangible assets (B) 1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not
identifiable.
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. B
PROBLEM 22-8
Question No. 1
Legal cost 7,000
Payment of licenses to author excluding refund able purchase
taxes (100,000-10,000) 90,000
Total cost of intangible assets (D) 97,000
Question No ’s 2, 3 and 5
Cost 97,000
Less: Amortization in 2016 (97,000/5 x 6/12) 9,700 No. 2 (C)
Carryingvalue,12/31/2 016 87,300 No. 3 (C)
Less: Amortization in 2017 (97,000/5 ) 19,400
Carryingvalue,12/31/2 017 67,900 No. 5 (D)
Question No. 4
Generalstart-upcost 1,500
Amortization 9,700
Cost of
printing 100
Advertisingexpense(20,000x6 /12) 10,000
Total Expense (B) 21,300
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. B 5. D
188
PROBLEM 22-9 Patent, Competitive, Related Pate nt

Question No. 1
Cost 500,000
Divideby:Remaining usefullife 10
Amortization (C) 50,000
Question No. 2
Cost of theoldPatent 500,000
Less: Accumulated Amortization (500,000 / 10 x 2) 100,000
Carryingvalue,1/1/2014 400,000
Competitive Patent 240,000
Total 640,000
Divideby:Remaininglife 8
Amortization (D) 80,000
Question No. 3
Less:Amortization2014 80,000
Carrying value, 12/31/2014 (D) 560,000
Question No. 4
Add:Related patent 200,000
TotalCarryingvalue,1/1/2015 760,000
Divideby:Extendedlife 20
Amortization (A) 38,000
Question No. 5
TotalCarryingvalue,1/1/2015 760,000
Less:Amortization,2015 38,000
Carrying value, 1/1/2016 = Loss (A) 722,000
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. A 5. A

Question No. 1
Acquisitioncost 600,000
Costs of employee benefit s arising directl y from bringing the
assettoi tsi ntendedcondition 60,000
Professional fees arising directly from bringing the asset to its
intended condition 13,000
Total cost of the trademark (C) 673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
189
Question No. 3
Amortization-Trademark -
Amortization-Customerlist 60,000
Total a mortization (B) 60,000
Question No. 4
Amortization-Trademark -
Amortization-Customerlist 60,000
Amortization-Franchise 165,416
Total a mortization (A) 225,416
Downpayment 400,000
Add: Present Value of notes payable (600,000 x .7118) 427,080
Cost offranchise 827,080
Question No. 5
Cost of trademark 673,000
Cost of customer list 300,000
Less: AccumulatedA mortization 120,000 180,000
Cost offranchise 827,080
Less: Accumulated Amortization 165,416 661,664
Total carryin g value (A) 1,514,664
SUMMARY OF ANSWERS:
1. C 2. A 3. B 4. A 5. A
PROBLEM 22-11
Question No. 1
Zero, organiz ation cost is treated as outrig ht expense .(A)
Question No. 2
Designcosts 3,000,000
Add:Legalfees 300,000
Registration fee with Patent office 100,000
Total cost of tradem ark (B) 3,400,000
Question No. 3
Cash 400,000
Add Present value of the note (200,000 x 2.91) 582,000

Cost of Franchise (B) 982,000
Question No. 4
Cost (seeno. 3) 982,000
Less:Amortization(982,000/20) 49,100
190
Carrying value, 12/31/2016 (A) 932,900
Question No. 5
Amortization of the franchise P49,100 (D)
The trademark has no amortization because it has an indefinite life. It is only

tested for possible impairment .
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. D
PROBLEM 22-12
Question No. 1
Cost-Patent 136,000
Less: Amortization for the year (136,000/20) 6,800
Carrying value of the Patent (C) 129,200
Question No. 2
Licensing agreement No. 1
Unadjustedbalance 100,000
Less: Amortization for 2 years (100,000/20 x 2) 10,000
Total 90,000
Less: Reduction inv alue (90,000x 60%) 54,000
Carrying value (B) 36,000
Question No 3
Add: Amount creditedf ora dvancec ollection 2,000
Total
cost 120,000
Less:Amortization(120,000/10) 12,000
Carrying value - Licensing agreement No. 2 (C) 108,000
Question No. 4
Carrying values:
Patent(seeno.1) 129,200
LicensingAgreementNo.1(No.2) 36,000
LicensingAgreementNo.2(No.3) 108,000
Total carryin g value (C) 273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for
incorporation should be charged to expense when it were incurred.
Question No. 5
Nonamortization of Licensing Agreement No 1 (100,000/20 x 1) 5,000
Expenses capitalized:
191
Goodwill(16,000+32,000) 48,000
Organization cost 58,000
Overstatement of Retained earnings (A) 111,000
All the expenses above were understated thereby overstating the net income
and retained ea rnings.
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. C 5. A
PROBLEM 22-13
Question No. 1
Less: Unamortized portion of improvements debited
Cost P75,000
Less: Amortization (P75,000 / 10 x 3) 22,500 52,500
Adjustedbalance–01/01/2016 497,500
Less: Amortization 2016 (P52,500 + P56,071) – see below 108,571
Carrying value – 12/31/2016 (A) 388,929
Computation of amortization:
Adjustedbalance–01/01/2016 497,500
Less: CV of Patent with remaining UL of 2 years – 01/ 01/2016
Cost 210,000
Less: Accumulated amortization 01/01/2016
(P210,000/14x7 ) 105,000 105,000
CV of Patent with remaining UL of 7 years – 01/01/2016 392,500
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2) 52,500
Patent with remaining UL of 7 years (392,500 / 7) 56,071
TotalAmortization 108,571
Question No. 2
Franchise cost 50,000
Less:Amortization(50,000/ 5) 10,000
Carrying value 12/31/2016 (A) 40,000
Question No. 3
The amount to be rep orted as goodwill is the excess of cost over the fair va lue of
net asset acquired. Goodwill is not amortized but only subject to impairment
testing. Therefore, the amount to be repor ted is P200,000. (A)
Question No. 4
Other coding costs after establishment of technological
feasibility 240,000
192
Other testing costs after establishment of technological

feasibility 200,000
Costs of producing master for training materials 150,000
Total Software Cost (A) 590,000
Question No. 5
Completion of detailedp rogram design 130,000
Costs incurred for coding and testing to establish technological
feasibility 100,000
Total Cost charged to Expense (A) 230,000
Question No. 6
Amortization:
Patent(seeNo. 1) 108,571
Franchise(see No.2) 10,000
Software cost–noneyet -
Total Cost charged to Expense (C) 118,571
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A 6. C
PROBLEM 22-14 Inventories, PPE and Intangible Asse ts

Question No. 1
Unadjustedbalance 4,300,000
Add: Goods purchased FOB Shipping Point 40,000
Adjusted balance (B) 4,340,000
Question No. 2
Totalacquisitioncost 4,000,000
Add:Mortgageassumed 800,000
Totalcosto flandandb uilding 4,800,000
Multiplyb y: Percentage allocated to building 80%
Total Purchase Price allocated to Building 3,840,000
Add: Remodeling Cost( 300,000 – 20,000) 280,000
Total Cost of Building (A) 4,120,000
Question No. 3
Cost of improvement 500,000
Less: Accumulated depreciation (500,000/8 x 9/12) 46,875
Carrying value (B) 453,125
Question No. 4
Carryingvalue –01/01/2016 432,000
Less: Amortization 2016 (432,000 / 3 years remaining UL) 144,000
193
Carrying value (C) 288,000
Question No. 5
Building( 4,120,000-120,000)/50 80,000
Leasehold Improvements (500,000/8 x 9/12) 46,875
Furnitureand Fixtures 150,000
Franchise (500,000/10) 50,000
Licensingagreement 144,000
Total depreciation and amortization expense (A) P470,875
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. C 5. A
194
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
CHAPTER 23: REVALUATION, IMPAIRMENT AND

NONCURRENT ASSET HELD FOR SALE
PROBLEM 23-1 Revaluation, No Change in Estimate

Question No. 1
Historical Replacement
Cost Cost Increase
Machinery 8,000,000 15,000,000 7,000,000
Accumulated depreciation (25%) 2,000,000 3,750,000 1,750,000
CA/DRC/RS 6,000,000 12,250,000 5,250,000
(C)
Carrying amount/Depreciated R eplacement Cost/Revaluation Surplus
Question No. 2
DepreciatedReplacementcost 11,250,000
Divideby:Remainingusefullife(20–5) 15
Depreciation Expense – 2017 (C) 750,000
Question No. 3
Revaluationsurplus,b eginning 5,250,000
Less: Piecemeal realization – 2017 (5,250,000 / 15) 350,000
Remaining revaluation surplus end of 2017 (B) 4,900,000
Que
Net stionPrice
Selling No. 4 10,000,000
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation 11,250,000
Less: Subsequent depreciation (P750,000 x 2 1,500,000 9,750,000
years)
Gain on sale (A) 250,000
Question No. 5
Less: Piecemeal realization for two years (5,250,000/ 15 x 2) 700,000
Remaining revaluation surplus to R/E (B) 4,550,000
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. B
195
PROBLEM 23-2 Revaluation, With Change in Useful Life

Question No. 1
Replacement
Cost Cost Increase
Machinery 12,000,000 14,000,000 2,000,000
Accumulated depreciation (25%) 2,400,000 2,800,000 400,000
CA/DRC/RS 9,600,000 11,200,000 1,600,000
(B)
Question No. 2
DepreciatedR eplacementcost 11,200,000
Divideby:Remainingusefullife 25
Depreciation Expense – 2016 (B) 448,000
Question No. 3
Revaluationsurplus,01/01/2016 1,600,000
Less: Piecemeal realization – 2016 (1,600,000/ 25) 64,000
Remaining revaluation surplus end of 2016 (C) 1,536,000
Question No. 4
NetSellingPrice 10,000,000
Less: Subsequent depreciation (P11.2M / 25 x 2) 896,000 10,304,000
Gain on sale (A) (304,000)
Question No. 5
Less: Piecemeal realization for two years (1,600,000 / 25 x 2) 128,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. A 5. B
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Replacement
Machinery Cost
4,550,000 Cost
9,100,000 Increase
4,550,000
Less: Accumulated depreciation *1,125,000 **2,250,000 1,125,000
CA/DRC/RS 3,425,000 6,850,000 3,425,000
(C)
196
*This amount should be the actual amount of accumulated depreciation (i.e.

using the original residual value)
** (9,100,000 – 100,000) / 20 x 5. This is computed using the revised residual
value.
Question No. 2
DepreciatedR eplacementcost 6,850,000
Less:Revisedamount
Depreciable residualvalue 100,000
6,7500,000
Depreciation Expense – 2016 (B) 270,000
Question No. 3
Revaluationsurplus,0 1/01/2016 3,425,000
Less: Piecemeal realization – 2016 (3,425,000 / 25) 137,000
Remaining revaluation surplus end of 2016 (B) 3,288,000
Question No. 4
NetSellingPrice 7,000,000
Less: Subsequent depreciation (P540,000 x 2) 540,000 6,310,000

Question No.
Less: Piecemeal realization for two years (P274,000 x 2) 274,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C 5. B
PROBLEM 23-4 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL

Question No. 1
Cost 2,200,000
Divideby:Estimated usefullife 10
197
Question No. 2
Zero. The company is usin g the cost model . (A)
Question No. 3
Cost 2,200,000
Less:Accumulatedd epreciation 200,000
Carryingamount 2,000,000
Less:Revised residualvalue 290,000
Depreciation - 2017 (D) 190,000
Question No. 4
Cost 2,200,000
Less: Accumulated Depreciation (200,000 + 190,000 + 190,000) 1,620,000
Less: Recoverable amount, date of impairment 939,500
Impairment loss (C) 680,500
Question No. 5
Recoverable amount 939,500
Depreciable amount 899,500

SUMMARY OF ANSWERS:
1. B 2. A 3. D 4. C 5. B
CASE NO. 2 REVALUATION MODE L

Question No. 1
Cost 2,200,000
Question No. 2
Recoverablea mount/fairv alue 2,990,000
Less: Carr ying

Machinery amount
at cost 2,200,000
Less: Accumulated depreciation 200,000 2,000,000
Revaluation surplus (D) 990,000
198
Question No. 3
Recoverablea mount/fairv alue 2,990,000
Depreciation (C) 300,000
Question No. 4
Recoverablea mount, date of revaluation 2,990,000
Less: Subsequentd epreciationf or 2y ears 600,000
Less: Recoverable amount, date of impairment 939,500
Decreaseinvalue 1,450,500
Less: Remaining r evaluation
Revaluation surplus, date of revaluation 990,000
Less: Piecemeal realization for two years 220,000 770,000
Question No. 5
Recoverable amount 939,500
Depreciation-2019 (B) 128,500
PROBLEM 23-5 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL

Question No. 1
Cost 2,300,000
Depreciation - 2016 (C) 210,000
Question No. 2
Cost 2,300,000
Less:AccumulatedD epreciation 210,000
Less: Recoverable amount, date of impairment 1,850,000
199
Question No. 3
Recoverable amount 1,850,000
Question No. 4
Recoverablea mount –01/01/2017 1,850,000
Less: Accumulated Depreciation – 12/31/2018 400,000
Lower of:
Would have been carrying amount no impairment 2,300,000
Less: Recoverable amount – 01/01/2019 630,000 1,670,000
Gaino nimpairmentrecovery–P&L 49,400
The increase in fai r value is recogniz ed in P&L. (A)
Would have been carrying amoun t had been there no impairmen t:

Cost 2,300,000
Less: Depreciation
2016 210,000
2017 210,000
2018 210,000
Would have been carrying value – 12/31/2018 1,670,000
Question No. 5
Lower between Recoverable amount and would have been book 1,499,400
value – 01/01/2019
Less:Newresidual value 0
Divideby:Remainingusefullife( 10–3) 7
Depreciation (D) 214,200
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. D
CASE NO. 2 REVALUATION MODE L

Question No. 1
Cost 2,300,000
Depreciation - 2016 (C) 210,000
200
Question No. 2
Cost 2,300,000
Less:AccumulatedD epreciation 210,000
Less: Recoverable amount, date of impairment 1,850,000
Question No. 3
Question No. 4
Less: Accumulated Depreciation – 12/31/2018 400,000
Lower of:
Would have been carrying amount no impairment 2,300,000
Less: Recoverable amount – 01/01/2019 630,000 1,670,000
Gaino nimpairmentrecovery–P&L 49,400
The increase in fai r value is recogni zed in P&L. (A)

Would have been carrying amoun t had been there no impairmen t:
Cost 2,300,000
Less: Depreciation
2016 210,000
2017 210,000
2018 210,000
Would have been carrying value – 12/31/2018 1,670,000
Zero, since recoverable amount is lower than the would have been book
value if there is no impairment loss.
Question No. 5
Less:Revised residualvalue -
Divideby:Remainingusefullife( 10–3) 7
Depreciation (D) 214,200
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. D
201
PROBLEM 23-6 Impairment of Intangible Assets

Question No. 1
Patent(200,000/10) 20,000
Computer software(100,000x6 0/120) 50,000
Total a mortization (A) 70,000
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carryingvalue 400,000
Less: Recoverable amount (80,000 / .05) 160,000 240,000
Tradename:
Carryingvalue 350,000
Less: Recoverable amount (15,000 / .05) 300,000 50,000
Goodwill:
Carrying value of reporting unit 3,000,000
Less: Recoverable amount (200,000 x 14.0939) 2,818,780 181,220
Total impairment loss (C) 471,220
Question No. 3
Carrying valueo fg oodwill – 12/31/2015 900,000
Less: Allocated impairment loss of reporting unit 181,220
Carrying value of goodwill – 12/31 /2016 (B) 718,780
Question No 4
Patent(P200,000–P20,000) 180,000
Copyright(recoverableamount) 160,000
Tradename(recoverableamount) 300,000
Computer software (100,000 – 50,000) 50,000
Carrying value of intangible assets – 12/31/2016 (A) 690,000
Note that goodwill is not rep orted as an intan gible asset.
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A
202
PROBLEM 23-7 Amortization and Impair ment of Intangible Assets
Questions 1 and 2
Trademark-Unadjustedbalance 1,430,000
Less: Unamortized cost of improvement
that should have been expensed
Cost 150,000
Less: Accum. amortization (150,000/10 x 2) 30,000 120,000
Total 1,310,000
Add: Competitive patent debited to expense
Cost
Less: Accum. amortization (135,000/9 x 1) 135,000
15,000 120,000
Adjustedbalance,January1.2016 1,430,000
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4) 40,000 1() A
Remaining patent (1,430,000-160,000)/15-7) 158,750 198,750
Carrying value of the Patent, 12/31/2016 2) A ( 1,231,250
Computation of the P160,000:

Original
cost 300,000
Less: Accumulated amortization (300,000/15) x 7 years)) 140,000
Remainingc arryingv alue,1/1/2016 160,000
The 7 years age is from January 1, 2009 to January 1, 2016.
Questions 3
Carrying value of the trademark (no amortization) 800,000
Less: Recoverable amount (P75,000/10%) 750,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3) (B)
Questions 5
Downpayment 500,000
Add:Presentvalue ofthenote 874,000
Totalcost ofthe franchise 1,374,000
Amortization expense (D) 137,400
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. D
203
PROBLEM 23-8 Impairment of Cash Generating Unit

Question No. 1
Total carrying amount before impairment 72,000,000
Less:Fairv aluel esscosts to sell 60,000,000
Less: Impairment loss allocated to Goodwill (D) 2,000,000
Impairment loss allocated to other assets 10,000,000
Questions No. 2 and 3 (A)

Other assets in this case would include only PPE and Patent. Impairment of
inventories (i.e. write-down to NRV) is covered by PAS 2 while impairment of
FA at FVTOCI will be covered by PAS 39 / PFRS 9.

Carryinga mount Allocated
before impairment Ratio Impairment loss
PPE (atc ost model) 30,000,000 0.75 7,500,000 (D)
Patent 10,000,000 0.25 2,500,000 (D)
Total 40,000,000 10,000,000(D)
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. D 5. D
PROBLEM 23-9 Impairment and Reversal of Impairment of Cash

Generating Unit
Cash 100,000
Inventory 800,000
Accountsreceivable 1,200,000
Plant andequipment 24,000,000
Less:Accumulateddepreciation 10,400,000
Trademark 2,550,000
Patent 850,000
Goodwill 400,000
TotalCarryingamountof CGU 19,500,000
Less:Value inuse 16,300,000
Less: Impairment allocated to goodwill 400,000
Impairment loss allocatedt o othera sset 2,800,000
204
Balance Balance
before Impairment after
Impairment Fraction Loss Impairment
Plant and equipment 13,600,000 13.6/17 (2,240,000) 11,360,000
Trademark 2,550,000 2.55/17 (420,000) 2,130,000
Patent 850,000 .85/17 (140,000) 710,000
Total 17,000,000 2,800,000 14,200,000
Balance Balance
after after
Impairment Reallocation Reallocation
Plant and equipment 11,360,000 (40,000) 11,320,000 1.
(B)
Trademark 2,130,000 (7,500) 2,122,500 2.
(B)
Patent 710,000 47,500 757,500 3.
(B)
Total 14,200,000 - 3,520,000
Plant and Equipment:

Would have been BV, no impairment
Cost 24,000,000
Less: Accumulated depreciation (2.6M +300,000) 11,600,000 12,400,000
Actual Book value

Impairedvalue 11,320,000
Less: Subsequent depreciation 1,000,000 10,320,000
Maximumg aino n reversal ofi mpairment 2,080,000
Trademark:
Cost 2,550,000
Less: Subsequent amortization 120,000 2,430,000
Actual Book value

Impairedvalue 2,122,500
Less: Subsequent depreciation 112,000 2,010,500
Maximumg aino n reversal ofi mpairment 419,500
Patent:
Cost 850,000
Less: Subsequenta mortization 80,000 770,000
Actual Book
Impaired value
value 757,500
Less: Subsequent depreciation 60,000 697,500
Maximumg aino n reversal ofi mpairment 72,500
205
Balance
before Allocated
Reversal Fraction Gain Max gain
Plant and equipment 10,320,000 10320/13028 1,901,136 1,901,136
Trademark 2,010,500 2010.5/13028 370,372 370,372
Patent 697,500 697.5/13028 1 28,492 72,500
Total 13,028,000 2,400,000 2,344,008
Balance
Balance after
Max gain bef. Reall Reallocatio n reallocation
Plant and equipment 1,901,136 12,221,136 46,863 12,267,999
Trademark 370,372 2 ,380,872 9,130 2,390,001
Patent 72,500 825,992 (55,992) 770,000
Total 2,344,008 15,428,000 - 15,428,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. C 5. C 6. A
PROBLEM 23-10 Noncurrent Assets Held for Sale -Sing le Asset

Question No. 1
Cost 1,200,000
Less:Accumulatedd epreciation 480,000
Less: Initial amount recognized– lower of:
Fairvalue lesscosttosell 600,000 600,000
Question No. 2
Zero. Non-current asset hel d for sale should not be depreciated. (A)
Question No. 3
Lower of:
FVLCTS 790,000 720,000
Less: Carrying amount at initial recognition 600,000
Gain on reversal – P &L (C) 120,000
Question No. 4
Net Selling Price( 1,800,000 – 50,000) 750,000
Gain on sale (B) 30,000
206
Question No. 5
Cost 1,200,000
Fairvalue lesscosttosell 800,000 720,000
Impairment loss (A) -
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. B 5. A
PROBLEM 23-11 Noncurrent Assets held for Sale- Disposal Group

Question No. 1
C P8,800,000.
Question No. 2
(C) P6,000,000.
Question No. 3
Total carrying amount before impairment 59,600,000
Less:Fairv aluel esscoststosell 52,000,000
Less: Impairment loss allocated to Goodwill (B) 6,000,000
Impairment loss allocated to othera ssets 1,600,000
Questions No. 4 & 5

Carrying
amount as Allocated Revaluation
remeasured Decrease surplus
PPE(atc ostmodel) 22,800,000 0.59 940,206 -
PPE (at revaluation model) 16,000,000 0.41 659,794 400,000
Total 38,800,000 1,600,000 1,000,000
Revaluation Carrying
surplus amount
Impairment after
loss impairment
PPE(atc ostmodel) - 940,206 21,859,794
PPE
Total(at revaluation model) 400,000
400,000 259,794
1,200,000 15,340,206
37,200,000
Remaining revaluation surplus is

(P3,000,000 minus (P32M-P30M) P1,000,000
207
Decrease in value of the PPE (at revalu ation model) is allocat ed to

1. First, remaining revaluation surplus
2. Balance to impairment loss.
SUMMARY OF ANSWERS:
1. C 2. E 3. D 4. B 5. A
PROBLEM 23-12 Noncurrent Assets held for Sale – Investment in Associate
Question No. 1
Sharein netincome(900,000x 30%) 270,000
Less: Amortization of undervalued asset 10,000
Net investment income (B) 260,000
Question No. 2
Beginningbalance– 01/01/2016 5,000,000
Add: Net investmentincome (see No.1 ) 260,000
Less: Dividends received( 150,000 x 30%) 45,000
Carrying amount – 12/31/2016 (A) 5,215,000
Question No. 3
Fair value less cost to sell 4,900,000 4,900,000
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when
the investment in associate is classified as noncurrent held for sale. The cash
dividend shall be recognized as income. (A)
Question No. 5
Net Selling Price (P4,900,000 – P100,000) 4,800,000
Less:Carrying amount 4,900,000
Loss on sale (D) (100,000)
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. D
208
PROBLEM 23-13
Question No. 1
Irrigation Equipment P 740,000
Freight
in 10,000
Installation cost 192,000
Total Machinery and Equipment, end (A) P 942,000
Question No. 2
Tradeinallowance 400,000
Book Value:
Cost 1,300,000
Less: Accum. Depreciation (P660,000+ P165,000) 825,000 475,000
Loss on trade in (B) 75,000
Question No. 3
Before addition [(P3,100,000 – P100,000)/20 x 3/12) 37,500
After addition: [(P3,100,000 – (P562,500 + P37,500) + 980,000
P200,000)/20)x9/12) 123,000
Depreciation expense (B) 160,500
Remaining life (20 – 4 + 4) = 20 ye ars
Question No. 4
Turf cutter [{(P1,300,000 – P200,00 0)/5} x 9/12] +
{(P800,000 – P50,000)/6 x3 /12)}] P 196,250
Water desalinator [(P3,780,000 – P270,000)/10] 351,000
Irrigation equipment [(942,000/4) x 6/12] 117,750
Officebuilding 160,500
Total Depreciation expense (B) P 825,500
Question No. 5
Fairvalueo ninitialr evaluation P 3,780,000
Book value on initial revaluation:
Cost P4,000,000
Accumulated d epreciation
[(P4,000,000 – P200,000)/10 x 2) ( 760,000) 3,240,000
12/31/2016RevaluationS urplus P 540,000
Less: Piecemeal realization in 2017 (P540,000/10) 54,000
12/31/2017Revaluations urplus P 486,000
12/31/2017Fairvalue P 3,400,000
12/31/2017 Book value:
Adjustedcost P 3,780,000
Accumulated Depreciation
[(P3,780,000 – P270,000)/10] ( 351,000) 3,429,000
Revaluation decrease – charged to Revaluation Surplus (A) P 29,000
209
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B 5. A
PROBLEM 23-14
Cost-beginningbalance 126,000
Less Accumulated depreciation, beginning 144.375
Heldfor sale-carryingamount 8,200
Total 232,425
Depreciation charge for the year
Held fors ale(8,200x20%x6/12) 820 (A
1.)
Remaining balance (232,425 x 20%) 46,845 47,305
Classified as held for sale:
Depreciationfor theyear 820
Carrying amount 185,940
(A)
Question No. 3
Carryingamountat1Oct2015 372,000
Lessvaluationa t1 October2015 449,500
Revaluationsurplus 77,500
Valuation at1October2015 449,500

Less Depreciation expense (449,500/(40-9) 14,500
Revaluation surplus (B) 435,000
Question No. 4
Carryingamountat1Oct2015 1,080,000
Decreaseinvalue 480,000
Valuation at1October2015 600,000

Less Depreciation expense (600,000/(50-20) 20,000
Revaluation surplus (B) 580,000
Question No. 5 C
Carryingamountat1Oct2015 1,080,000
Decreaseinvaluerevaluations urplus
Lessremaining 480,000
456,000
Impairmentloss-PropertyB 24,000
Impairment loss-held for sale
(8,200-820)-6,500 880
210
Total impairment loss (C) 24,880
Question No. 6
Depreciation expense based on revalued amount 14,500
Less depreciation expense based on historical cost (400,000/40) 10,000
Piecemeal realization (D) 4,500
Or
Revaluation surplus,b eginning( Prop. A) 62,000
Addrevaluations urplus,Oct.1 ,2 015 77,500
Totalrevaluation surplus 139,500
Dividebyremaininglife 31
Piecemeal realization (D) 4,500
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C 6. D
211
Chapter 25: Introduction to Liabilities
CHAPTER 25: INTRODUCTION TO LIABILITIES
PROBLEM 25-1 Total Liabilities

Total liabilities
Current
Accountspayable P 1,000,000
Loanp ayable– currentportion 1,000,000
Unearnedrent income 300,000
Income taxpayable 250,000
Dividendspayable
Totalcurrentliabilities 100,000
P 2,650,000
Non-current
Bonds payable P 5,000,000
Discountonbondspayable ( 500,000)
Loanp ayable– non-current portion 1,500,000
Deferredtax liability 15,000
Totalnon-currentliabilities P 6,015,000
Total liabilities (B) P8 ,665,000

Below items shall be presented as part of entity’s assets:
Current asset
Advances toemployees P 45,000
Non-current asset
Cash surrender value of officers’ life insurance 75,000

Patent 50,000
Below ite m shall be pre sented in the shareholder’s equity:
Sharedividendspayable P 150,000
Below item shall be disclosed in the not es to financial stateme nts:
Contingent liability – guarantee to James P 500,000
The bank overdraft, which is part of cash management, is offset to an y bank

balance with posi tive bala nce as provided under PAS 7.
PROBLEM 25-2 Current Liabilities

Current liabilities
Accounts payable –unadjusted P 4,000,000
Add/(Deduct): Adjustments
Debit balances in suppliers’ accounts 100,000
Postdated checksof 50,000
Accountspayable–adjusted P 4,150,000
Credit balances in customers’a ccounts 500,000
212
Premiumspayable 600,000
Accruedexpenses 150,000
Total current liabilities (A) P5 ,400,000
Below items shall be presented as part of entity’s non-cur rent liabilities:

Bonds payable 1,000,000
Premiumonbondspayable 100,000
Mortgage payable 850,000
Deferredtaxliability 200,000
Deferredrevenue 175,000
Below item shall be presented as part of shareholders’ equity:

Stockdividendspayable 750,000
PROBLEM 25-3 Refinancing

Current liabilities
10% note payable, maturing 03/3 1/2015 P10,000,000
Annuals inkingfund requirement 500,000
Total current liabilities (C) 10,500,000
Below items shall be presented as part of entity’s non-cur rent liabilities:

12% note payable, maturing 06/30/2015 6,000,000
7% guaranteed debentures, due2 018 2,000,000

(A) The amount to be reported as current liabilities in 2014 is P2,000,000 since
the refinancing agreement was completed af ter the reporting date.

(A) The amount to be reported as current liabilities in 2014 is P2,000,000 since
the grace period was gran ted after the reporting date.
PROBLEM 25-6 Accounts payable

Accounts payable
Accounts payable –unadjusted P 8,000,000
Cost of goodslostintransit 500,000
Cost ofreturnedgoods ( 200,000)
Accounts payable – adjusted (B) P8 ,300,000
213
PROBLEM 25-7 Accounts payable

Amount of cash to eliminate accou nts payable
Accounts payable from:
*Purchases through March 15 (gross)(P4,900,000 / 98%) P 5,000,000
Merchandise inventory at cost(P1,500,000 / 150%) 1,000,000
Accounts payable (B) P6 ,000,000
*The amount was gros sed-up since the entity is no longer enti tled to cash
discount. The liability as of March 15, 2015 has been outstanding for more than
10 days.
PROBLEM 25-8 Bonus payable

Amount of bonus
Net income before bonus and income tax P 2,200,000
Less: Required income to earn bonus 880,000
Basis of bonus P 1,320,000
Multiply by: Bonusrate 10%
Total current liabilities (C ) P 132,000
PROBLEM 25-9 Bonus payable

Amount of bonus
Net income before bonus and income tax P 1,600,000
Less: Required income to earn bonus 1,000,000
Amount of income subject to bonus (125%) P 600,000
Less: Bonus (25%)
(squeeze) (D) 120,000
Basis of bonus (100%) (P600,000/125%) P 480,000
PROBLEM 25-10 Unearned Revenue

Unearned revenue – gift certificates
Unearned revenue
1,500,000 Balance, Beg.
Gift certificate Cash receipts from
redeemed 4,000,000 5,000,000 gift certificate sold
Expired gift
certificate 300,000
4,300,000 6,500,000
Balance, End (B) 2,200,000
6,500,000 6,500,000
214
PROBLEM 25-11 Advances from Customers

Unearned rev enue – Advance s from customers
Unearned revenue
1,100,000 Balance, Beg.
Advances applied to Advances
shipments 1,600,000 1,800,000 received
Ordersc ancelled 100,000
1,700,000 2,900,000
Balance, End (C) 1,200,000
2,900,000 2,900,000
PROBLEM 25-12 Escrow Liability

Deposits received – Escrow account
Escrow liability
600,000 Balance, Beg.
Cash payments nine Cash receipts for
months 4,200,000 4,500,000 nine months
4,200,000 5,100,000
Balance, End (C) 900,000
5,100,000 5,100,000
PROBLEM 25-13 Container’s Deposits

Deposits received – Escrow account
Liability for Deposits
Cash refunds for
container returned in Cash deposits
2014 92,000 100,000 from d eliveries
92,000 200,000
Balance, End (C) 108, 000
200,000 200,000
PROBLEM 25-14 VAT payable

Provision - VAT payable
VAT Payable
- Balance, Beg.
Payment made 120,000 120,000 For October
84,000 For November
96,000 For December
120,000 300,000
Balance, End (A) 180, 000
300,000 300,000
215
PROBLEM 25-15 Provision: Continuous range of outcome

(D) A range between 10,000 and means that the contingency
cannot be reliab ly estimated, hence no pro vision is recognized.
PROBLEM 25-16 Provision: Expected value with adjustment factor

70% chance that outcome will occur × 20% × 200,000 28,000
70% chance that outcome will occur × 80% × 100,000 56,000
Expectedvalue 84,000
Multiply by: Riskadjustment 1.07
Risk adjustedexpected value 89,880
Multiplyb y:Presentvaluefactor 89,000
Provision (D) 81,709
PROBLEM 25-17 Restructuring Provisions

Wagesofretrenchedemployees 1,000,000
Salary ( 50,000x 60%) 30,000
Retrenchmentpackage 150,000
Restructuring provision (D) 1,180,000
Note that 60% (administering the closure and transfer of employees of Factory
A) is only included in computing the restructuring provision since it is directly
related to the restructuring.
PROBLEM 25 18 Continge ncies

(C) Since the outcome of the lawsuit remains uncertain, disclosure of the
contingency in the notes to financial statements would be the necessary.
PROBLEM 25-19 Continge ncies

(B) Since it is probable that De rick will be liab le to pay the 3,000,000 as
supported by Rose’s filing of a petition for bankruptcy, Derick should accrue and
disclose the provision for guarantee on a loan of 3,000,000.
PROBLEM 25-20 Premiums Payable

Provision – Premiums liability
Premiums liability
- Balance, Beg.
**Coupons redeemed 50,000 80,000 *Premiums expense

50,000 80,000
Balance, End (D) 30,000
216
80,000 80,000
*(20,000 x 80%)/5 x (P30 + P5 - P1 0)
**(10,000/5) x (P30 + P5 - P10)
PROBLEM 25-21 Premiums

Premiums liability (2015)
**Balance,E nd 200,000 - Balance,Beg.
Premiums
*Coupons expense
redeemed 800,000 1,000,000 (squeeze)
1,000,000 1,000,000
Premiums liability (2016)
**Balance, End 120,000 200,000 Balance, Beg.
Premiums
*Coupons expense
redeemed 2,000,000 1,920,000 (squeeze) (D)
2,120,000 2,120,000
*Number of towels distributed x net cost of P40
**Number of towels yet to be distributed x net cost of P40
The beginning balance of the 5,000 towels is included as part of the 50,000
towels distributed in 2016. If the actual towels distributed from 2016 is
different from that was recorded as of the end of 2015, this is considered as a
change in accounting estimate which should be taken into account during 2016
and fo r the succeeding accounting period.
PROBLEM 25-22 Warranty Liability

Warranties liability (2015)
- Balance, Beg.
Actual expenditures 150,000 500,000 * Warranties expense
150,000 500,000
Balance,End 350,000
500,000 500,000
Warranties liabil ity (2016)

Actual expenditures 550,000 600,000 *Warranties expense
550,000 950,000
Balance, End (A) 400,000
950,000 950,000
*Sales x Total estimated warranty cost of 10%
PROBLEM 25-23 Warranty Liability

217
Warranties liability
- Balance, Beg.
Actual expenditures 140,000 480,000 Warranties expense
140,000 480,000
Balance, End (C) 340,000
480,000 480,000
PROBLEM 25-24 Warranty - Sales are Made Evenly
Pattern of Realized Revenues:

2015 SALES
Fromsalesi n: 2015 2016 2017 2018 Total
1st (40%x½) 0.20 0.20 0.40
2nd (36%x½) 0.18 0.18 0.36
3rd (24%x½) 0.12 0.12 0.24
Total 0.20 0.38 .30
0 0.12 1
2016 SALES
Fromsalesi n: 2016 2017 2018 2019 Total
1st (40%x½) 0.20 0.20 0.40
2nd (36% x½ 0.18 0.18 0.36
3rd (24%x½) 0.12 0.12 0.24
Total 0.20 0.38 0.30 0.12 1
Requirement No. 1 (A)

Warranty Sales in 2015 earned in 2016 (38% x 1,000 x P1,500) 570,000
Warranty Sales in 2016 earned in 2016 (20% x 1,200 x P1,500) 360,000
Total warranty sales revenue earned in 2016 930,000
Notes:
The 38% repre sents the reali zed reven ue in 2016 from 2015 Sales.
The 20% repre sents the reali zed reven ue in 2016 from 2016 Sales.
Requirement No. 2 (B)

Total warranty sales revenue earned in 2016 (see No. 1) 930,000
Expenses relating to computer warranties 60,000
Profitfromsales warranty 870,000
Requirement No. 3 (A)

Unearned sales warranty from 2015 [(30% + 12% x 1,000 x 630,000
P1,500)]
Unearned sales warranty from 2016 [(100%-20%) x 1,200 x 1,440,000
P1,500)]
Totalunearnedsalesw arranty 2,070,000
Notes:
218
The 30% and 12% repr esent the unrealized revenues in 2016 fro m 2015
Sales.
The 20% rep resents the realized revenue in 2016 from 2016 Sales. So
100% minus 20% realized is equal to 80% unrealized revenue in 2016 from
2016 Sales.
SUMMARY OF ANSWERS:
1 . A 2. B 3 . A

1. P2,000,000 (Letter B). The entire amount is payable within one year from
the report ing date thus presen ted as current liabi lity.
2. Nil (Letter A). Since both parties are financially capable of honoring the
agreement’s provisions and the debtor has the discretion to refinance or
roll over the loan for at least twelve months from December 31, 2014 the
entire amount is treated as Noncurrent liabili ty.
3. Nil (Letter A). Since the company entered into a refinancing agreement
with a bank to refinance the loan on a long-term basis before the reporting
date, the entire amount of liabilit y is treated as noncurren t.
4. P2,000,000 (Lett er B). Since the company entered into a refinancing
agreement with a bank to refinance the loan on a long-term basis after the
reporting date, the entire amount of liability is treated as current.
PROBLEM 25-26 Obligations Payable on Demand, Breach of Loan

Agreement
1. P2,000,000 (Letter C). Only if an enforceable promise is received by the
end of the reporting period from the creditor not to demand payment for at
least 12 months from the end of the reporting period that the note may be
classified as noncurrent.
2. Nil (Letter A). The entire amount of loan is noncurrent liability since there
was an agreement on the reporting date not to demand payment in order
for the debtor to rectify the breach with 12 months from the reporting date.
3. P2,000,000 (Letter B). The entire amount of loan is current liability since
the agreement not to demand payment happened after the reporting
period.

1. A
2. D
3. B
4. B
219
5. A (Amount of accrual is P2,040,000 using expected value method which is

calculated as (P1.6M x 20 + (2M x 50%) + (2.4M x 30%)
6. A (Amount of accrual is P2,250,000 using midpoint of the range which is
calculated as (P1.5M+3M)/2)

1. A
2. B (Disclose an amount of P1,500,000)
5. D
6. A (It is virtually certain that the company will be receiving the
P1,5000,000.)
PROBLEM 25-29 Bonus Computation

1. Net income before bonus but before tax
B = NY x BR
= 3,090,000 x 20%
= 618,000
2. Net income after bonus but before tax

NY
B = BR x
100% + BR
= 20% x 3,090,000
100% + 20%
= 515,000
3. Net income after bonus and tax

B = BR X (NY – B – T)
B = 20% x (3,090,000-B-(927,000-3.B)
B = 20% x (3,090,000-B-927,000+.3B)
B = 618,000-.2B-185,400+.06B
1B+.2B-.06B = 618,000-185,400
1.14B = 432,600
1.14 1.14
B = 379,474
T = 30% X (3,090,000 – B)
= 927,000-.3B
OR
BR x [NY x (1-TR)]
B =
1 + [BR x (1-TR)]
220
= 20% x (3,090,000 x (1-30%)

1+[20% x (1-30%)]
= 20% x (3,090,000 x 70%)
1+(20% x 70%)
= 20% x (2,163,000)
1.14
= 379,474
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T =T ax
TR = Tax Rate
SUMMARY OF ANSWERS:
1 . D 2. B 3 . C
PROBLEM 25-30
Estimated liability from Warranties
Disbursement for 44,800 Beginning balance
warranties 164,000
Balance end 212,000 240,000 Warranty expense.
Total 376,000
Divideby% ageofwarranty 4%
Sales from musical instruments and sound
reproduction equipment ( Question No. 1) 6,000,000
Question No. 3
Premium
expense
= P2,000,000 X 1c oupon x 9 0% P34-P20
P2
200 coupons
= P63,000
221
Question No. 4
Inventory of Premium
Beg.Balance 39,950 56,950 Balance end
Net Purchases (6,500 x 221,000 Cost of issued premium
P34)
204,000 (1.2M coupons.200 coupons
x P34
Total 260,950
Question No. 5
Estimated liability for Premiums
Disbursement for premiums 44,800 Beginning balance
(1.2M coupons/200 coupons
x P(34-P20) 84,000
Balance end 23,800 63,000 Premium expense.
Total 107,800
SUMMARY OF ANSWERS:
1 . A 2. A 3 . C 4 . D 5. D
PROBLEM 25-31 Refinancing of Loan, Notes Payable Interest and Non-

Interest Bearing
Note to the Professor: This problem should be discussed after the discussion
in Chapter 26.
Question No. 1 (A)
Periodic payment-NP Deli very equipment
(P2M/4) 500,000
Multiplyb y PV of ordinarya nnuity 3.0373
Present value of NP-delivery equipment 1,518,650
Amortization table:
Payment Interest Discount Present
Date Expense Amortization value
01/01/2015 1,518,650
12/31/2015 500,000 182,238 317,762 1,200,888
12/31/2016 500,000 144,107 355,893 844,995

Noncurrent Current
12% Note payable 1,400,000 700,000
10% note payable 2,000,000
Note payable-del. 844,995 355,893
222
Equipment
Total 4,244,995 1,055,893
Question No. 4
Accrued interest payable-12% Note payable
=P2,100,000 x 12% x 8/12
=P168,000
Question No. 5
Interest expense:
12% Note payable
1/1-5/1 (2.8M x 12% x 4/12) 112,000
5/1-12/31 (2.1M x 12% x 8/12) 168,000
10% Note payable (2M x 10%) 200,000
Note payable - Delivery. Equipment
(seea mortization table) 182,238
Total 662,238
SUMMARY OF ANSWERS:
1 . A 2. B 3 . B 4 . B 5. C
PROBLEM 25-32 Warranty, Premiums and Bonus

Question No. 1
Warrantyexpense(P150x1,200) 180,000
Less:Warrantypaid 85,000
Estimated Premiums payable (A) 95,000

Question No 2
Premium expense
(P1,200,000 x 1 coupon/P1)/400 x 60% x (P45-P20) 45,000
Less: Net cost of redeemed coup ons
(500,000/400)x(P45-P20) 31,250
Estimated Premiums payable (C) 13,750
Question No. 3
Unadjustednetincome 1,935,000
Warranty expense under, Net income over (P180,000-P85,000) (95,000)
Premium expense over, Net income under (P270,000-P45,000) 225,000
Adjusted Net income (C) 2,065,000
Question No. 4
Net income after bonus but be fore tax
NY
B = BR x
100% + BR
= 20% x 2,065,000
100% + 20%
223
= 344,167 (B)
Question No. 5
Net income after bonus and tax
B = BR x (NY – B – T)
T = TR x (NY – B)
OR
BR x [NY x (1-TR)]
B =
1 + [BR x (1-TR)]
Net income after bonus and tax
B = BR X (NY – B – T)
B = 20% x (2,065,000-B-(9619,500-3.B)
B = 20% x (2,065,000-B-619,500+.3B)
B = 413,000-.2B-123,900+.06B
1B+.2B-.06B = 413,000-123,900
1.14B = 289,100
1.14 1.14
B = 253,596 (C)
T = 30% X (2,065,000 – B)
= 619,500-.3B
OR
BR x [NY x (1-TR)]
B = 1 + [BR x (1-TR)]
= 20% x (2,065,000 x (1-30%)
1+[20% x (1-30%)]
= 20% x (2,065,000 x 70%)
1+(20% x 70%)
= 20% x (1,445,500)
1.14
= 253,596
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T =T ax
TR = Tax Rate
SUMMARY OF ANSWERS:
1 . A 2. C 3 . C 4 . B 5. C
224

Question No. 1
SSS
Payable 10,000
Philhealth payable 9,000
Estimated liabilities under guarantee agreement 110,000
Estimatedwarrantieso ng oodss old 120,000
Utilities payable 6,000
Trade payables (170,000+30,000+20,000+12,000-8,000) 224,000
Notesp ayablea risingf rom purchaseo fg oods 200,000
Convertibleb ondsp ayable due July1 ,2 014 1,000,000
Serial bonds payable(40,000 x 2) 80,000
Accrued interestexpense 4,000
Advances from customers 25,000
Unearned rent income 36,000
Unearned interestonreceivables 3,500
Incometaxes payables 45,000
Cashdividends payable 100,000
Property dividends payable 120,000
Creditbalanceof notes payable 40,000
Overdraft with PNB 80,000
Container's deposit 45,000
Loans payable-12% 270,000
Financiall iabilityd esignateda s FVTPL 200,000
Current liabilities (B) 2,727,500
Question No. 2
Deferred
Notes taxliability
payable 40,000
Arsingfrom 4-year bankloan 400,000
Arising from advances by officers, dune in 3 years 300,000
Serial bonds payable (800,000 minus (40,000 x 2) 720,000
Security deposit received froml essee 89,000
Loanspayable-10% 150,000
Total noncurrent liabilities (A) 1,699,000
Question No. 3
Total liabilities
Currentliabilities 2,727,500
Totalnoncurrentl iabilities 1,699,000
Total liabilities (B) 4,426,500
SUMMAR
1. B 2. Y OF
A 3AN
. SWERS
B :
225
Chapter 26: Financial Liabilities and Debt Restructuring
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT

RESTRUCTURING
BONDS PAYABLE
PROBLEM 26-1 Financial Liabil ities at FVTPL (Interest Expense and
Unrealized gains or losses)
Question No. 1
Multiply by:nominal rate 8%
Multiplyb y: months outstanding/12 12/12
Interest expense (A) P240,000
Question No. 2
Fairvalue ofthebonds 3,090,000
Less:Carryingvalue 2,850,756
Unrealized loss (or gain)-P&L (B) 239,244
Question No. 3
RetirementP rice(3M x 104) 3,120,000
Less: Carryingv alue( 3M x1 03) 3,090,000
Realized loss on derecognition- P&L (D) 30,000
SUMMARY OF ANSWERS:
1. A 2. B 3 . D
PROBLEM 26-2 Unrealized Gain or Loss of FVTPL with Change Due To

Credit Risk
Question No. 1
Market price of the liability, end of the period 4,000,000
Less: Fair value of liability using the sum observed interest rate
andinstruments pecificIRR 4,155,480
Unrealized gain - OCI ( C) 155,480
Internal rate of return at the start of the period - yield or

effective rate 10%
Less: Observed (benchmark) interest rate, date of inception 9%
InstrumentspecificIRR 1%
Observed (benchmark) interest rate, end of period 8%

Add:Instrumentspecific-IRR 1%
Discount
rate 9%
226
PROBLEM 26-3 Financial Liabilities at Amortized Cost-Term Bonds

Question No. 1
Present value of Principal (1,200,000 X 0.7513 ) 901,560
Add: PV of interest payments (96,000 X 2.4869 ) 238,742
Present value of the investment bonds (C) 1,140,302
Que stion No. 2Table

Amortization
Date payment expense Amortization value
01/01/2016 1,140,302
227
12/31/2016 96,000 114,030 (B) 18

,030 1,158,333
12/31/2017 96,000 115,833 19,833 1,178,166
12/31/2018 96,000 117,867 21,835 1,200,000
SUMMARY OF ANSWERS:
1. C 2. B
PROBLEM 26-4 Financial Liabilities at Amortized Cost- Serial Bonds

Question No. 1
Interest Total Preset value
Principal payment payment factor TotalP V
400,000 96,000 496,000 0.9091 450,914
400,000 64,000 464,000 0.8264 383,450
400,000 32,000 432,000 0.7513 324,562
Total PV of the bonds (A) P1,1 58,925
Question No. 2
Interest Interest Discount Princi- Present
Date Payment Expense Amortization pal value
01/01/2016 1,158,925
12/31/2016 96,000 115,892 19,892 400,000 778,817
12/31/2017 64,000 77,882 13,882 400,000 392,699
12/31/2018 3 2,000 39,301 7,301 400,000 -
SUMMARY OF ANSWERS:
1. A 2. A
PROBLEM 26-5 Financial Liabilities at Amortized Cost - Term Bonds with

Transaction Costs
IssueP rice (5,000,000x98%) 4,900,000
Less:Bondissue cost 140,000
PresentvalueonJanuary1,2015 4,760,000
Nominalinterest(5Mx1 0%) 500,000
Effective interest (4,760,000 x 12%) 571,200 71,200
Carrying value – 12/31/2015 (D) 4,831,200
PROBLEM 26-6 Financial Liabilities at Amortized Cost - Term Bonds with

Transaction Costs
IssueP rice( 5,000,000x110%) 5.500,000
Less:Bondissue cost 80,000
PresentvalueonJanuary1,2015 5,420,000
228
Less: Premium amortization

Nominalinterest(5Mx8 %) 400,000
Effective interest (5,420,000 x 6%) 325,200 74,800
Carrying value – 12/31/2016 (B) 5,345,200
PROBLEM 26-7 Bonds payable wi th warr ants

Market value of the bonds without the warr ants (B) 4,800,000
PROBLEM 26-8 Issuance of Convertible Bonds

Question No. 1
TotalProceeds( P1,000x1,000) 1,000,000
Less: Fair value of the bonds without conversion privilege 900,000
Total Share Premium (A) 100,000
Using 7.48%
Present value of Principal (1,000,000 x 0.7 ) 700,000
Add: Present value of interest payments (50,000 x 4 ) 200,000
Totalpresentvalue 900,000
Question No. 2 See amortization table below.

Amortization Table
Date Payment Expense Amortization value
01/01/2016 900,000
12/31/2016 500 00 67,320 173 20 917,320
SUMMARY OF ANSWERS:
1 . A 2. B
PROBLEM 26-9 Retirement of Bonds Pay able

Retirementp rice( 5,000,000 x. 98) 4,900,000
Less: Carrying value ( 5,000,000 - 50 0,000 - 30 0,000) 4,200,000
Loss on retirement (A) 700,000
PROBLEM 26-10 Conversion of Convertible Bonds
Question No. 1 – Case No. 1

Nil. (A) No gain or loss on conversion of convertible bonds unless the
conversion is induced by the company. The journal entry to record the
transaction would then be:
229
Share premium-conversion option 60,000

Ordinarys hares(20000X50) 1,000,000
SharePremium 612,049
Question No. 2 - Case No. 2

Fairvalue ofliability 1,600,000
Less: Carrying amount of the bonds payable 1,552,049
Loss on settlement (convers ion) of liabi lity (B) 47,951
Fairvalue ofliability 1,600,000
Less: Totalp arv alueo ft he shares issued 1,000,000
The journal entry to record the transaction would then be :

Losso ns ettlementofliability 47,951
Ordinarys hares(20,000X50) 1,000,000
SUMMARY OF ANSWERS:
1 . A 2. B
PROBLEM 26-11 Induced Conversion

Facea mount of debts ecurities converted 1,500,000
Divideby:New conversionprice 20
Number ofs haresi ssued upon conversion 75,000
Multiply by: Fair value of shares on the conversion date 30
Fairvalueo fsharesconverted 2,250,000
Facea mount of debts ecurities converted 1,500,000

Divideby:Old conversion price 25
Number of shares issued under original conversion 60,000
Multiply by: Fair value of shares on the conversion date 30
Fair value of shares under original conversion 1,800,000
Fairvalueo fsharesconverted 2,250,000

Less: Fair value of shares under original conversion 1,800,000
Debt conv ersion expense or loss on induced conversion (B) 450,000
Journal entry is:

Debt conv ersion expense or loss on
inducedconversion 450,000
Ordinaryshares(75,000x10 ) 750,000
230
Sharepremium 1,252,049
PROBLEM 26-12 Interest-Bearing Note

Accrued interest 2015 ( 0,000 x 12% x 9/12) 450,000
Accrued interest 2016 ( 5,450,000 x 12% x 12/12) 654,000
Total accrued interest (C) 1,104,000
PROBLEM 26-13 Non-Interest Bearing Note

Principal 2,000,000
Less: Discount on notes payable 216,000
(2M x 10.8% x 12/12)
Amortization (216,000/12x 5) (90,000) 126,000
Carrying amount of the note payable (B) 1,874,000
PROBLEM 26-14 Interest-Bearing Note

Accrued interest [( 1,350,000 - 450,000) x 12% x 4/12] (B) 36,000
PROBLEM 26-15 Loans Payable

Principal 1,500,000
Less: Directo riginationf ees paid (1.5M x4 %) 60,000
Initial carryin g amount of the loans payable (D) 1,440,000
PROBLEM 26-16 Debt Restructuring

Carrying value of liability ( 6,000,000 + 00,000) 6,600,000
Less: Cost orcarryingvalueofl and 3,500,000
Gain on extingui shment (D) 3,100,000

Fair value of equity securities ( 70 x 50,000) 3,500,000
Less:Par value( 2,500,000
Share premium (D) 1,000,000

Question No. 1
Present value of Principal ( 4,000,000 x 0.75) 3,000,000
231
Add: Present value of interest payments (320,000 x 2.49) 796,800

Presentvalueoft he notespayable 3,796,800
Less: Carrying value of the notes ( 5,000,000 + 00,000) 5,500,000
Gain on extingui shment (B) 1,203,200
The gain is recognized since the restructuring results in a substantial

modification (i.e., 21.88% = 1,203,200 / 5,500,000)
Question No. 2
Interest expense (3,796,800 x 10%) (B) 379,680
SUMMARY OF ANSWERS:
1 . B 2. B

Principal P6,000,000
Add: Accrued interest – January 1,2 015 600,000
Accruedinterest–2015 600,000
Carryingamountofo ldl iability 7,200,000
Less: Present value of new liability
Present value of principal (P5M x .6209) 3,104,500
Present value of interest (P5M x .08 x 3.7908) 1,516,320 4,620,820
Gain on extinguishment of liability (A) 2,579,180
PROBLEM 26-20 Interest-Bearing Note – Lump Sum
Question No. 1
Add: Present value of interest payments (600,000 x 3.1699) 1,901,919
Present value of the notes payable (D) 4,633,973
Amortization Table:
01/01/2017 4,633,973
12/31/2017 600,000 463,397 136,603 4,497,370
12/31/2018 600,000 449,737 150,263 4,347,107
12/31/2019 600,000 434,711 165,289 4,181,818
Question No. 2
Interest Expense (4,633,973x .10) =463,397 (C)
Question No. 3
P4,497,370. See amortiz ation table above. (C)
232
Question No. 4
Nil. (A) The entire note payab le is noncurr ent liability.
Question No. 5
P4,497,370. (D) The entir e note payable is current liabil ity.
SUMMARY OF ANSWERS:
1 . D 2. C 3 . C 4 . A 5. D
PROBLEM 26-21 interest-be aring note – non-uniform installments

Question No. 1
Interest Total Preset value Present
Principal payment payment factor Value
1,200,000 60,000 1,260,000 0.8929 1,125,054
400,000 24,000 424,000 0.7972 338,013
400,000 12,000 412,000 0.7118 293,262
Total PV of notes payable (D) 1,756,328
Amortization Table
Date Interest Discount Principal Present
Date Expense on N/P Payment Value
01/01/2016 1,756,328
12/31/2016 60,000 210,759 150,759 1,200,000 707,088
12/31/2017 24,000 84,851 60,851 400,000 367,938
12/31/2018 12,000 44,079 32,062 400,000 -
Question No. 2
Interest expense (1,756,328 x .12) P210,759 (D)
Question No. 3
Carrying amount – December 31, 2016 P707,088 (C)
Question No. 4
Principal payable Dec. 31,2 017 P400,000
Carrying amount-current liability (C) P339,149
Question No. 5
Principal payable Dec.3 1,2 018 P400,000
Carrying amount-noncurrent liability (C) P367,938
SUMMARY OF ANSWERS:
233
1. D 2. D 3. C 4. C 5. C
PROBLEM 26-22 Interest-Bearing Note –Uniform Installments

Question No. 1
Interest Total Preset value Present
Principal payment payment factor Value
1,000,000 600,000 1,600,000 0.9091 1,454,545
1,000,000 450,000 1,450,000 0.8264 1,198,347
1,000,000 300,000 1,300,000 0.7513 976,709
1,000,000 150,000 1,150,000 0.6830 785,465
Total PV of notes payable (C) 4,415,066
Amortization Table
Interest Interest Premium Principal Present
Date Payment Expense Amortization Payment Value
01/01/2017 4,415,066
12/31/2017 600,000 441,507 158,493 1,000,000 3,256,573
12/31/2018 450,000 325,657 124,343 1,000,000 2,132,230
12/31/2019 30 0,000 213,223 86,777 1,000,000 1,045,453
12/31/2020 150,000 104,545 45,455 1,000,000 0
Question No. 2
Interest expense (4,415,066 x .10) P441,507 (B)
Question No. 3
Carrying amount – December 31, 2017 3,256,573 (B)
Question No. 4
Principal (payable Dec. 31, 2018) P1,000,000
Add: Premium on notes payable 124,343
Carrying amount-current liability (C) P1,124,343
Question No. 5
Carrying amount – December 31, 2017 P3,256,573
Add: Premium on notes payable 1,124,343
Carrying amount-noncurrent liability (D) P2,132,230
SUMMARY OF ANSWERS:
1. C 2. B 3 . B 4 . C 5. D
PROBLEM 26-23 Noninterest-Bearing Note – With Cash Price Equivalent

Question No. 1
234
The carrying amount of the note on initial recognition is equal to its cash price
equivalent of P994,760 . (C)
Coincidentally, the effective rate using the cash price equivalent is 12% and the
amortization table is as follows:
Amortization Table at 12%

Principal Interest Present
01/01/2016 994,760
12/31/2016 400,000 99,476 300,524 694,236
12/31/2017 400,000 69,424 330,576 363,660
12/31/2018 400,000 36,340 363,660 -
Question No. 2
Interest expense (994,760x .12) P99,476 (A)
Question No. 3
Carrying amount – December 31, 2016 P694,236 (A)
Question No. 4
Principal (payableD ec.3 1,2 017 P400,000
Carrying amount-current liability (B) P330,576
Question No. 5
Carrying amount noncurrent liabi lity (C) P363,660
SUMMARY OF ANSWERS:
1. C 2. A 3 . A 4 . B 5. C
PROBLEM 26-24 Noninterest-Bearing Note – Lump Sum

Question No. 1
Present value of Principal (1,200,000 x 0.7118 ) (B) 854,160
Amortization Table
Date Intereste xpense Presentv alue
01/01/2016 854,160
12/31/2016 102, 499 956, 659
12/31/2017 114,799 1,071,458
12/31/2018 128,542 1,200,000
235
Question No. 2
Interest expense (854,160 x .12) P102,499 (B)
Question No. 3
Carrying amount – December 31, 2016 P956,659 (A)
Question No. 4
Nil. The entire note payable is noncurrent liability since it is due beyond 12
months from the reporting date. (B)
Que
The sti onentire
total No. 5 carrying amount of note payable is presented as noncurrent
liability. See Question No. 4. (A)
SUMMARY OF ANSWERS:
1 . B 2. B 3 . A 4 . B 5. A
PROBLEM 26-25 Noninterest-Bearing Note – Installments

Question No. 1
Present valu e of Princi pal (400,000 X 2.4018 ) (D) 960,720
Amortization Table
Date Inte rest Interest Present
Payment expense Amortization value
01/01/2016 960,720
12/31/2016 400,000 115,286 284,714 676,006
12/31/2017 400,000 81,121 318,879 357,127
12/31/2018 400,000 42,873 357,127 -
Question No. 2
P115,286. See amortization table above. (A)
Question No. 3
P676,006. See amortization table above. (A)
Question No. 4
Carrying amount-current liability (B) P318,879
Question No. 5
Carrying amount-noncurrent liability (C) P357,127
236
SUMMARY OF ANSWERS:
1 . D 2. A 3 . A 4 . B 5. C
PROBLEM 2 6-26 Issuance, Retirement and Conversion of Non-Convertible

Bonds
Question No. 1
Present value of Principal (3,000,000 X 0.6499 ) 1,949,794
(3,000,000 x12%x3.8897) 1,400,274
Present value of the bonds payable (B) 3,350,068
Amortization Table
Date Inte rest Interest Discount Present
payment expense Amortization value
01/01/2014 3,350,068
12/31/2014 360,000 301,506 58,494 3,291,574
12/31/2015 360,000 296,242 63,758 3,227,816
Question No. 2
RetirementPrice 1,900,000
Less: Carrying amount (3,227,816 x 1/2) 1,613,908
Loss on retirement (B) 286,092
QuestionNo. 3 (B )
Amortization table:
12/31/2015 1,613,908
12/31/2016 180,000 145,252 4,748
3 1,579,160
Question No. 4
Fair value of the ordinary shares issued (460 x 5,000) P2,300,000
Less: Carryinga mount oft he liability 1,579,160
Loss on conversion (D) P720,840*
Or P720,839*
Question No. 5
Fair
Less:value
Totalof thevalue
par ordinary shares
of the issued
shares (460
issued (40 x 5,000)
x 5,000) P2,300,000
200,000
Share Premium (D) P2,100,000
SUMMARY OF ANSWERS:
1 . B 2. B 3 . B 4 . D 5. D
237
PROBLEM 26-27 Issuance, Retirement and Conversion of Convertible

Bonds
Question No. 1
TotalProceeds P3,000,000
Less: Present value of the bonds without the
conversion option
Present value of interest payments (300,000 x 1,081,433
3.6048 ) 2,783,713
Residual amount to equity (B) 216,287
Amortization Table
Date Inte rest Interest Discount Present
payment expense Amortization value
01/01/2015 2,783,713
12/31/2015 300,000 334,046 (34,046) 2,817,759
12/31/2016 300,000 338,131 (38,131) 2,855,890
Question No. 2
Fair value of liability using current rate 1,537,969
Less: Carryinga mount (2,817,759 x ½) 1,427,945
Loss on settlement of liability (B) 110,024
Present value using 9% for 3 per iods

Present value of Principal (1,500,000 X 0.7722) 1,158,275
Add: Present value of interest payments (150,000 X 2.5313) 379,694
Presentvalueoft he bondsp ayable 1,537,969
Question No. 3
Retirement Price 1,600,000
Less: Fair value of liability using current rate 1,537,969
Decrease in equity (C) 62,031
Question No. 4
Interest expense is P338,131 based on the amor tization table above. (D)
Question No. 5
Shares to be issued based on amended terms (1.5M/400) 3,750
Less: Shares to be issued based on original terms (1.5M/500) 3,000
Incrementalshares 750
Multiply by: Fairvalue 420
Debt settlement expense (C) 315,000
SUMMARY OF ANSWERS:
1 . B 2. B 3 . C 4 . D 5. C
238
PROBLEM 26-28 Redeemable Preference Shares and De bentures

Present value of the redeemable preference shares
Present value of Principal (15,000 x 1.05 x 0.72161 ) 11,365
Add: Present value of interest payments (1,500 x 2.42308 ) 3,635
Present valueoft he preferences hares 15,000
Amortization table:
Payment Expense Amortization value
01/01/2016 15,000
12/31/2016 1,500 1,723 223 15,223
12/31/2017 1,500 1,749 249 15,472
12/31/2018 1,500 1,778 246 15,718
Question No. 1
P1,723. See amortization table above. (B)
Question No. 2
P1,749. See amortization table above. (C)
Question No. 3
P1,778. See amortization table above. (D)
Present value of the debentures

Present value of Principal (20,000 x 1.02 x 0.53884 ) 10,992
Add: Present value of interest payments (2400 x 3.5032 ) 8,408
Presentvalueofbonds payable 19,400
Amortization Table
Payment Expense Amortization value
12/31/2018 19,400
12/31/2019 2,400 2,554 (154) 19,554
Question No. 4
Question No. 5
SUMMARY OF ANSWERS:
1 . B 2. C 3 . D 4. B 5. B
239
PROBLEM 26-29
Question No. 1
Accounts payable, unadjusted P1,350,000
Good in transitF OB shippingp oint 75,000
Accounts payable, adjusted (D) P1,485,000
Question No. 2
14% Note payable (1,250,000 x 14%) P175,000
16% Note payable (3,000,000 x 16%) 480,000
10% Note payable (2,000,000 x 10% x 6/12) 100,000
Interest expense (D) P755,000
Question No. 3
14% Note payable (1,250,000 x 14% x 3/12) P43,750
16% Note payable (3,000,000 x 16% x 9/12) 360,000
10% Note payable (2,000,000 x 10% x 6/12) 100,000
Interest expense (C) P503,750

Current Noncurrent
Accountspayable 1,485,000
14%Notepayable 1,250,000
Accruedinterestpayable 503,750
Total P3 238,750 P5,000,000
(C) (C)
SUMMARY OF ANSWERS:
1 . D 2. D 3. C 4. C 5. C
PROBLEM 26-30 (Comprehensive)

Question No. 1
Present value of Principal (10,000,000 X 0.3118 ) 3,118,000
Add: Present value of interest payments (500,000 X 11.46992 ) 5,734,960
Present value of the bonds payable (A) 8,852,960
Question No. 2
April
1,1,2016
July 2016 P400,000
600,000
October1,2016 300,000
January 1, 2017 300,000
Notes payable-current liability (B) P1,600,000
240

Estimated liability from Warranties
Disbursement fo r 180,000 Beginning balance
warranties 358,000
Balance end
(A) 342,000 520,000 Warranty expense (C)
Total 700,000
Question No. 5
(a) (b) ( c) d =b x c E =d - a
Accrued
Fixed Comm. Comm. Salaries
salary Net Sales Rate Expense Payable
A 10,000 200,000 4% 8,000 0
B 14,000 4 00,000 6% 24,000 10,000
C 18,000 600,000 6% 36,000 18,000
Total (C) P28,000
Current Noncurrent
Int. payable - Bonds (10M x 10% x 3/12) 250,000
Int.payable-Notepayable 600,000
Notespayable 1,600,000 5,400,000*
Estimated warranties payable 342,000
Tradepayable 740,000
Salescommissionspayable 28,000
Cash dividends payable (6M x P.2) 1,200,000
Total P4,760,000 P14,370,751**
(B) (C)
*(P7M-1.6M)
** or P14,370,783 which is the same as P8,952,185 x 100% +(Effective rate x
months outstanding/12) minus payment
Or [(P8,952,185 x 103%) - P250,000]
Amortization Table
07/01/2014 8,852,960
01/01/2015 500,000 531,178 31,178 8,884,138
07/01/2015 500,000 533,048 33,048 8,917,186
01/01/2016 500,000 535,031 34,999 8,952,185
03/31/2016 250,000 268,566 18,566 8,970,751
241
(8,952,185 x 12% x 3/12)
SUMMARY OF ANSWERS:
1 . A 2. B 3 . A 4 . C 5. C 6 B 7 C
PROBLEM 26-31 Financial liabilities , Investment in associate and research

and development cost
Question No. 1
Totalproceeds(P100x2M) 200,000,000
Less: Present value of the convertible debt (see No. 2) 181,635,200
Share premium – conversionp rivilege 18,364,800
Less:Shareissuancecost 4,000,000
Net amount allocated to equity (C) 14,364,800
Question No. 2
Present value of convertibl e debt without conversion option at 11.81%
Present value of Principal (200M x .7154) 143,080,000
Add: Present value of interest payments (200M x .08 x 2.4097) 38,555,200
Present value of the convertible debt (B) 181,635,200
Question No. 3
Interest expense (181,635,200 x .1181) (D) 21,451,117
Question No. 4
Netassetof GL 380,000,000
Less:Recoverableamount 370,000,000
ImpairmentlossofGL 10,000,000
Multiply by:Percentageshare 20%
Impairment loss (C) 2,000,000
Question No. 5
1. Researcho n sizeo fp otential market 800,000
6. Stafftraining costs 600,000
7. Advertisementcosts 3,400,000
Total amount expensed (B) 4,800,000
Question No. 6
2. Productsdesigning 1,500,000
3.
4. Laborc osts in refinement
Development of productsto finalize the
work undertaken 950,000
productdesign 11,000,000
Total Development cost capitalized (C) 13,450,000
242
SUMMARY OF ANSWERS:
1 . C 2. B 3 . D 4. C 5. B 6 C
PROBLEM 26-32 Financial Liability at FVTPL vs. FLAC
CASE NO. 1
Question No. 1
Initial carrying amount is fair value or issuance price of 1,898,205.
Transaction cost is expensed outright. (D)
Question No. 2
Interest expense ( 2,000,000 x 8%)= 160,000 (A)
Question No. 3
Fair value 12/31/2015 (1.02 x 2,000,000) 2,040,000
Less:Initialcarryingamount 1,898,205
Unrealized loss (C) 141,795
Question No. 4
Carrying value ( 2,000,000 x .98)= 1,960,000 (C)
Question No. 5
Fair value1 2/31/2017 (.99 x 2,000,000) 1,980,000
Less:Carrying value (.98x 1,960,000
Unrealized loss (D) 20,000
Question No. 6
Retirementp rice (1.05 x 2,000,000) 2,100,000
Totalretirementprice 2,120,000
Less:Carrying value (.98x 1,980,000
Loss on derecognition (A) 140,000
SUMMARY OF ANSWERS:
1 . D 2. A 3 . C 4 . C 5. D 6. A
CASE NO. 2
Question No. 7
Issue price 1,898,205
Less:Transactioncost 25,000
Initial carrying amount (C) 1,873,205
243
Question No. 8
Effective interest rate = 10% (B)
Please refer to discussion on interp olation.
Question No. 9
Interest expense ( x 10%)= 187,321 (B)
Question No. 10
No gain or loss due to change in fair value is not recognized . (D)
Question No. 11
Carrying value 12/31/2016 (A) 1,930,579
Question No. 12
Retirementp rice (1.05 x 2,000,000) 2,100,000
Totalretirementprice 2,120,000
Less:Carryingv alue– 01/01/2018 1,963,636
Loss on derecognition (B) 156,364
SUMMARY OF ANSWERS:
7. C 8. B 9. B 10. D 11. A 12. B
244
Chapter 27 – Lease
CHAPTER 27: LEASE
PROBLEM 27-1 Uneq ual rental paym ents

2014 20,000
2015 18,000
2016 16,000
2017 14,000
Totalrent 68,000
Divideby:Numberofyears 4
Rent expense per year (C) 17,000
PROBLEM 27-2 Ope rating Lea se - Une qual rental payme nts
07/01/2014 to 06/30/2015 60,000
07/01/2015 to 06/30/2016 90,000
07/01/2016 to 06/30/2017 210,000
Total 360,000
Divideby:Leaseterm 3
Rentincomepery ear 120,000
Rent income to date (120,000 x 2) 240,000
Less: Collection to date (60,000 +
90,000) 150,000
Rent receivable (A) 90,000
PROBLEM 27-3 Ope rating Lease - Comprehensive

CAS E NO. 1
Question No. 1
Periodic rent-one year ( (B) 300,000
CAS E NO. 2
Question No. 2
Periodicrent-oneyear 300,000
Amortization of lease bonus (180,000 / 3 ) 60,000
Rent expense (C) 360,000
CAS E NO. 3
Question No. 3
Total lease payments [(3 x 12) – 6) x 25,000] 750,000
Divideby:Leaseterm
Rent expense per year (D) 3
250,000
245
Question No. 4
Total payments to date, 2016 (6 x 25,000 ) 150,000
Less: Total expenset o date, 2016 250,000
Accrued rent payable (D) 100,000
CAS E NO. 4
Question No. 5
Total lease payments
(25,000x 2x 12) 600,000
(30,000x1x12) 360,000 960,000
Rent expense per year (A) 320,000
Question No. 6
Totalpayments todate, 2016 300,000
Less: Total expenset o date, 2016 320,000
Accrued rent payable (D) (20,000)
CAS E NO. 5
Question No. 7
Rent Revenue 300,000
Less: Amortization of Direct Cost (120,000 / 3) 40,000
Insurance and property tax expense on 40,000
leased asset
Depreciationo ft he leased asset 30,000
Net income (A) 190,000
CAS E NO. 6
Question No. 8
Periodrentforoneyear 300,000
Add: Contingent rent
1st [(2,500,000 – 1,500,000) x 10%] 100,000
2nd [(6,000,000 – 2,500,000) x 8%] 280,000 380,000
Total rent expense (A) 680,000
1. B 2. C 3. D 4. (D) 5 . A
6 . D 7. A 8. A
PROBLEM 27-4 Finance Lea se - Lea se Liabil ity

(A) The capitalized lease liability should be the annual lease payments less the
executory
annuity of cost
1 for(real
nineestate taxes)
years at 9%. times the present
The calculation valuebe:
would factor for an- ordinary
(P26,000 1,000) ×
6.0 = P150,000. The real estate taxes are a period cost and should be charged to
expense.
246
PROBLEM 27-5 Finance Lea se with Bargain Purchas e Option

QuestionNo. 1 ( A)
Present value of periodic payment (120,000 x 3.4018) 408,220
Add: Present value of bargain purchase option (20,000 x 0.6355) 12,710
Present value ofm inimuml ease payments 420,926
Amortization Table
Annual Interest Present
Date payment expen se Amortization value
12/31/2016 420,926
12/31/2016 120,000 - 120,000 300,926

12/31/2017 120,000 36,111 83,889 2 17,037
12/31/2018 120,000 26,044 93,956 123,082
12/31/2019 120,000 14,770 105,230 17,851
12/31/2020 20,000 2,142 17,858 (6)
QuestionNo. 2 ( B)
P36,111. See amortization table above.
QuestionNo. 3 (C)
QuestionNo. 4 ( B)
1. A 2. B 3. C 4. B
PROBLEM 27-6 With Gua ranteed Residual Value And Initial Direct Cost
CAS E NO. 1
Question No. 1
Add: Present value of guaranteed residual value (50,000 x 0.683) 34,150
Add:Initialdirect cost 40,000
Cost of the Machinery (C) 527,447
Amortization Table
12/31/2016 487,447
12/31/2016 130,000 - 130,000 357,447
12/31/2017 130,000 35,745 94,255 2 63,192
12/31/2018 130,000 26,319 103,681 159,511
12/31/2019 130,000 15,951 114,049 45,462
12/31/2020 50,000 4,538 45,462 0
247
QuestionNo. 2 ( B)
QuestionNo. 3 ( C)
QuestionNo. 4 ( B)
Question No. 5 CAS E NO. 2

Add: Present value of guaranteed residual value (50,000 x 0.647) 32,350
Present value of minimum lease payments = Fair value 477,288
Cost of the Machinery (D) 517,288
Amortization Table: Effective rate = 11.50%
12/31/2016 477,288
12/31/2016 130,000 - 130,000 347,288
12/31/2017 130,000 39,938 90,062 2 57,226
12/31/2018 130,000 29,581 100,419 156,807
12/31/2019 130,000 18,033 111,967 44,840
12/31/2020 50,000 5,160 44,840 (0)
QuestionNo 6 (D)
QuestionNo. 7 ( A)
QuestionNo. 8 (D)
1. C 2. B 3. C 4. B 5. D 6. D 7. A 8. D
248
PROBLEM 27-7 Finance Lea se - Deprecia tion

Question No. 1
Cost of the lease asset 487,447
Less: Estimated residual value end of the useful life of the asset 60,000
Question No. 2
Cost of the lease asset 487,447
Less: Gross amount of guaranteed residual value 50,000
PROBLEM 27-8 Compu tatio n of Periodic Lease Payments

Fair
value 800,000
Less: Present Value of Guaranteed Residual Value 59,630
Total 740,370
Divide by: Present valueo f Annuity Due 4.8897
Periodic lease payments (B) 151,414
PROBLEM 27-9 Direct Financing Lease - Lessor

Question No. 1
Gross Investment:
Total Periodic Lease Payment (261,692 x 4) *1,046,775
Add: Unguaranteed Residual value (URV) 150,000 1,196,775
Less:Cost oftheequipment 1,000,000
Unearned interest income (C) 196,775
*1,046,770 OR 1,046,775
Amortization Table
12/31/2016 1,000,000
12/31/2016 261,692 - 261,692 738,308
12/31/2017 261,692 81,214 180,479 557,829
12/31/2018
12/31/2019 261,692
261,692 61,361
39,325 200,331
222,368 357,498
135,130
12/31/2020 150,000 14,864 135,136 (6)
249
QuestionNo. 2 (C)
QuestionNo. 3 ( A)
1. C 2. C 3. A
PROBLEM 27-10 Direct Financing Lea se - With Initial Direct Cost

Question No. 1
Gross Investment:
Total Periodic Lease Payment (251,600 X 4) *1,006,402
Add Unguaranteed Residual value (URV) - 1,006,402
Less:Cost oftheequipment 924,128
Unearned interest income (A) 82,273
*4,796,278 OR *4,796,28 0
Costo ft heequipment 900,000
Add: Initialdirectc ost 24,128
Net cost ofi nvestment 924,128
Amortization Table
12/31/2016 900,000
12/31/2016 251,600 - 251,600 648,400
12/31/2017 251,600 51,872 199,728 448,671
12/31/2018 251,600 35,894 215,707 232,964
12/31/2019 251,600 18,637 232,963 1
QuestionNo. 2 ( A)
QuestionNo. 3 ( B)
1 . A 2 . A 3. B
250
PROBLEM 27-11 Direct Financing Lea se - Sale Of Lea sed Asset

CAS E NO. 1
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4) 1,200,000
Add:ResidualValue 50,000 1,250,000
Present value of the leased asset
Present value of minimum lease payments
(300,000 x3.3121) 993,630
Add: Present value of residual value (50,000 x
.735) 36,750 1,030,380
( A)
Unearned interest income 219,620
Amortization Table
01/01/2016 1,030,380
12/31/2016 300,000 82,430 217,570 812,810
12/31/2017 300,000 65,025 234,975 577,835
12/31/2018 300,000 46,227 253,773 324,062
12/31/2019 350,000 25,906 324,094 (32)
Question No. 2
Question No. 3: Guarant eed

Sales 1,030,380
Less: Costo f goods sold 900,000
Initialdirectcost 10,000
Dealer's profit (B) 120,380
Question No. 4
Nil. (A)
The journal ent ry is:
Inventory 44,000
Cash 6,000
Leasereceivable 50,000
1. A 2 . B 3. B 4. A
251
CAS E NO. 2
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4) 1,200,000
Add:ResidualValue 50,000 1,250,000
Present value of the leased asset
Present value of minimum lease payments
(300,000 x3.3121) 993,630
Add: Present value of residual value (50,000 x
.735) 36,750 1,030,380
Unearned interest income

( A) 219,620
QuestionNo. 2 (B)
Amortization Table
01/01/2016 1,030,380
12/31/2016 300,000 82,430 217,570 812,810
12/31/2017 300,000 65,025 234,975 577,835
12/31/2018 300,000 46,227 253,773 324,062
12/31/2019 350,000 25,906 324,094 (32)
Question No. 3: Ungua ranteed

Sales 993,630
Less: Net cost
Costo fgoodssold 900,000
Less: Present value of URV 36,750 863,250
Initialdirectcost 10,000
Dealer's profit (B) 120,380
QuestionNo. 4 ( B)
P6,000.
The journal ent ry is:
Inventory 44,000
Lossons alestype 6,000
Leasereceivable 50,000
1. A 2 . B 3. B 4. B
PROBLEM 27-12 Sales-Typ e Lease

Less: Present value of lease receivable 150,000
252
PROBLEM 27-13 Sale and Leaseback as Finance Lease

Question No. 1
SalesPrice 993,630
Less:Carryinga mount 1,100,000
Loss on sale and le aseback (B) (106,370)
Question No. 2
SalesPrice 993,630
Deferred gain on sale and leaseback 93,630
Gain on sale an d leaseb ack (D) 23,408
PROBLEM 27-14 Sale and Leaseback as Operating Lease - Treatment of

Gain
QuestionNo. 1 ( B)
SalesPrice =Fair value 800,000
Gain on sale - recognize immediately 300,000
QuestionNo. 2 ( B)
Salesprice 800,000
Less:Carryinga mount 1,000,000
Loss on sale - recognize immediately (200,000)

Question No.
Salesprice 800,000
Less:Fair value 600,000
DeferredGain 200,000
Fairvalue 600,000
Outright gain (D) 150,000
QuestionNo. 4 ( B)
Gain on sale - recognize immediately 400,000
QuestionNo. 5 ( B)
Lossons aleandleaseback (80,000)
253
Question No. 6
Nil. The loss is compensate d by future lease rental below the market r ate.
1. B 2. D 3. D 4. B 5. B 6. A
PROBLEM 27-16
QuestionNo. 1 (ACAS
) E NO. 1
“Substantially all” test
Present value of Periodic Payment (200,000 x 6.75902) 1,351,805
% age 1,351,805 =68%
2,000,000
Not substantially all.
Major part test
%age 10 =50%
20
The lease term does not amount to major part of the economic life of the asset.
Answer: Nil. The lease do not classify as finance lease.
QuestionNo. 2 ( B)
Rente xpense P200,000
QuestionNo. 3 ( A)
Nil.
QuestionNo. 4 ( A)
Nil.
QuestionNo. 5 (D)
Depreciation expense overstated, net income understated (115,181)
Interest expense overstated, net income understated (135,181)
Rent expense understated, net income overstated 200,000
Netincome understated (50,362)
SUMMARY OF AN SWERS – CAS E NO. 1:

1. A 2. B 3. A 4. A 5. D
CAS E NO. 2
QuestionNo. 1 ( B)
“Substantially all” test
254
% age 1,351,805 =90%

1,500,000
The lease is a finance lease. The cost of the leased asset is lower between the
fair value and the present value of minimum lease payment which is
P1,351,805.
Amortization Table
01/01/2015 1,351,805
12/31/2015 200,000 - 200,000 1,151,805
12/31/2016 200,000 115,181 84,819 1,066,986
12/31/2017 200,000 106,699 93,301 973,684
12/31/2018 200,000 97,368 102,632 871,052
QuestionNo. 2 (D)
Depreciation expense (1,351,805/10) 135,181
Total lease- related expenses 250,362
QuestionNo. 3 (C)
QuestionNo. 4 ( B)
P1,066,986. See amortization table above.
QuestionNo. 5 ( A)
Nil. The company did not commit any error.
SUMMARY OF AN SWERS – CAS E NO. 2:
1. B 2. D 3. C 4. B 5. A
PROBLEM 27-17
QuestionNo. 1 ( B)
Lease is a finance lease thus any gain should be deferred and amortize over the
lease term.
SellingPrice 379,695
Deferred gain on sale and leaseback 29,695
Less: Amortization in 2014 (29,695/10) 2,970
Deferred gain on sale and leaseback, end 26,725
QuestionNo. 2 (D)
Depreciation expense (379,695/10) 37,970
Rentexpense(5,000x1 2) 60,000
255
Totalleaserelated expenses 136,333
Amortization Table
01/02/2016 379,695
01/02/2016 60,000 - 60,000 319,695
01/02/2017 60,000 38,363 21,637 298,058
QuestionNo. 3 ( C)
Sale and leaseback as finance lea se
Leaseliability, 01/02/2016 319,695
Add:Accruedinterest 38,363
Totallease-relatedl iability 358,058
QuestionNo. 4 ( B)
Amortization of deferred gain on sale and leaseback (see No. 1) 2,970
Add: Gain on sale and leaseback as operating lease (P400,000- 50,000
P350,000)
Totalgainonsale andleaseback 52,970
QuestionNo. 5 ( B)
The deferred gain on sale and leaseback should be recognized immediately.
1. B 2. D 3. C 4. B 5. B
PROBLEM 27-18
QuestionNo. 1 ( C)
Present value of Periodic Payment (50,000 x 4.0373) - LOWER 201,865
FairValue ofthe leasedasset P213,213
PAR. 20 OF PAS 17 States that: At the commen cement of the lease term, lessees
shall recognise finance leases as assets and liabilities in their balance sheets at
amounts equal to the fair value of the leased property or, if lower, the present
value of the minimum lease payments, each determined at the inception of the
lease. The discount rate to be used in calculating the present value of the
minimum lease payments is the interest rate implicit in the lease, if this is
practicable to determine; if not, the lessee’s incremental borrowing rate shall be
used. Any initial direct costs of the lessee are added to the amount recognized as
an asset.
Question Nos. 2-4
Amortization Table
256
12/31/2015 201,865
12/31/2015 5 0,000 50,000 1 51,865
12/31/2016 50,000 18,224 31,776 120,089
12/31/2017 50,000 14,411 35,589 84,499
12/31/2018 50,000 10,140 39,860 44,639
12/31/2019 50,000 5,361 44,639 0
QuestionNo. 2 (D)
QuestionNo. 3 ( C)
QuestionNo. 4 ( C)
QuestionNo. 5 ( A)
Depreciation expense (201,865/5) P40,373
1. C 2. D 3. C 4. C 5. A
PROBLEM 27-19
QuestionNo. 1 ( A)
Fair market value – Present value of

Annual lease payments = Unguaranteed R esidual Value
Annuity due
286,420 - (.5066 X 20,000)
=
4.6048
Annual lease payments = 60,000
QuestionNo. 2 ( C)
Total minimum lease payments(60,000 x 6) 360,000
Add: Unguaranteedr esidual value 20,000
Totalleasereceivable 380,000
Less: Fair market value of thele ased asset 286,420
TotalFinancialrevenue 93,580
257
QuestionNo. 3 ( A)
Amortization Table
01/01/2016 286,420
01/01/2016 6 0,000 60,000 2 26,420
12/31/2016 60,000 27,170 32,830 193,590
QuestionNo. 4 (C)
Present value of periodic lease payments (60,000 x 4.6048) P 276,288
Amortization Table
01/01/2015 276,288
01/01/2015 6 0,000 60,000 2 16,288
12/31/2015 60,000 25,955 34,045 182,243
Depreciation expense (276,288/6) 46,048
Add:Interestexpense 25,955
Totalexpenses 72,003
QuestionNo. 5 ( C)
P182,243. See amortization table in No. 4.
1. A 2. C 3. A 4. C 5. C
PROBLEM 27-20
QuestionNo. 1 ( B)
Periodic rent(12,000x12) 144,000
Amortization of lease bonus (300,000/6) 50,000
Rentexpense 194,000
QuestionNo. 2 ( C)
Periodicrent 480,000
Contingent rent:
1st(4Mx4%) 160,000
2nd( 6M-4M)x5%) 100,000 260,000
Amortization of lease bonus (500,000/5) 100,000
Totalrentexpense 840,000
258
QuestionNo. 3 ( B)
[(3 x 12)-6] x 10,000
Rent expense =
3
Rent expense = 100,000
QuestionNo. 4 ( B)
Lease No. 1 (Rent expense overstated, asset understated)
(P444,000-P194,000) (250,000)
Lease No. 2 (Rent expense overstated, asset understated) (400,000)
Assetunderstated (650,000)
Rentexpenseperyear-Lease3 100,000
Less:Payment(10,000x6 months) 60,000
Accrued rent payable under, Liability understated (40,000)
QuestionNo. 5 ( C)
Lease no. 1 (Rent expense overstated, net income understated) (250,000)
Lease No. 2 (Rent expense overstated, net income understated) (400,000)
Lease No. 3 (Rent expense understated, net income overstated) 40,000
(100,000-60,000)
Netincome understated (610,000)
1. B 2. C 3. B 4. B 5. C
PROBLEM 27-21
QuestionNo. 1 ( B)
The present value of annuity due of 12% for 10 periods can be computed as:
[1 – (1+12%) -9] + 1 = 6.33
12%
Annual rentals P1,440,000
Executory costs (49,410)
Minimumleasepayment P1,390,590
Multiply by: Present value of annuity due 6.33
Present value of minimum lease payments P8,802,438
Fairvalueo ftheproperty P8,800,000
(The difference is immaterial, implicit rate is 12% at P8.8M)
QuestionNo. 2 (D)
[12/31/2015
balance balance x (1+Effective rate)] – annual payments = 12/31/15
[(P8,800,000 – P1,390,590) x 1.12%] - P1,390,590 = P 6,907,949

The current portion as of 12/31/2016 can be compu ted as:
(P6,907,949 - P1,390,590) x 12% = P561,636
259
QuestionNo. 3 ( B)
12/31/2016 balance – current portion(no.2) = Non-current portion
= P6,907,9 49 - P561,636 = P6,346,313
QuestionNo. 4 ( A)
P8,800,000/10 = P880,000
QuestionNo. 5 ( A)
Depreciationexpense P 880,000
Interest
Executoryexpense
costs (P8,800,000 – P1,390,590) x 12 889,129
49,410
Total lease-related expenses P1,818,539
1. B 2. D 3. B 4. B 5. A
PROBLEM 27-22
QuestionNo. 1 ( B)
07/01/2015 to 06/30/2016 60,000
07/01/2016 to 06/30/2017 90,000
07/01/2017 to 06/30/2018 210,000
Total 360,000
Rent expense per year 120,000
Rent expense to date (120,000 x 1) 120,000
Less:Payment odate 60,000
Accrued rent payable 60,000
QuestionNo. 2 ( B)
Present value of Periodic Payment (400,000 x 5.9500) 2,380,000
Fairvalue ofleasedasset P2,380,000
Cost is equal to P2,380,000 (Fair value which is the same as the Present value of
minimum lease payments .)
Amortization Table
06/30/2016 2,380,000
06/30/2016 400,000 - 400,000 1,980,000
06/30/2017 400,000 277,200 122,800 1,857,200
260
QuestionNo. 3 ( A)
Firstl ease( SeeN o.1) 60,000
Second lease (see amortization table) 122,800
Current liabilities 182,800
QuestionNo. 4 ( A)
Rent expense (First lease) 120,000
Depreciation expense (2,380,000/10) 238,000
Total lease-related expenses 635,200
1. B 2 . B 3. A 4. A
PROBLEM 27-23 Exercise of Gua ranteed Residual Value

QuestionNo. 1 ( C)
Cost of the Machinery 453,005
QuestionNo. 2 ( B)
Executory cost
Depreciation 20,000
105,751
Total lease related expenses 160,182
Amortization Table
12/31/2016 433,005
12/31/2016 120,000 - 120,000 313,005
12/31/2017 120,000 34,431 85,569 227,436
12/31/2018 120,000 25,018 94,982 132,453
12/31/2019 120,000 14,570 105,430 27,023
12/31/2020 30,000 2,977 27,023 (0)
QuestionNo. 3 (C)
QuestionNo. 4 ( B)
261
QuestionNo. 5 ( B)
Gross amount of guaranteed residual value 30,000
Less:Fairvalue 25,000
Losson finance lease 5,000
QuestionNo. 6 ( A)
Zero
QuestionNo. 7 ( C)
Cost of leased asset 453,005
Less: Accumulatedd epreciation 211,503
Add:Cashpayment 200,000
Totalconsideration 441,503
Less:Leaseliability 227,436
Costo fequipmentpurchased 214,067
1. C 2. B 3. C 4. B 5. B 6. A 7. C
PROBLEM 27-24 Direct Financing Lea se

QuestionNo. 1 ( C)
Annual payment = P3,224,000 = P750,000
4.312
Total interest to be earned = [(P750,000 x 5) – P3,234,000] = P516,000

QuestionNo 2 ( B)
(P3,234,000 – P750,000) x 8% = P198,720
QuestionNo. 3 ( A)
The PV annuity due of 12% ov er 8 years can be com puted as:
[1 – (1+12%) -7 ] + 1= 5.5638
12%
The present value of 12% f or 8 years can also be computed as:
(1+12%) -8 = 0.4039
The total interest revenue is the difference the lease receivable and the present
value of the minimum lease payments.
Lease receivable (P959,500 x 8 + P400,000) P 8,076,000
Present value of the lease
Unguaranteed residual value
(P400,000 x 0.4039) P 161,560
Present value of lease payments
(P959,500 x5 .5638) 5,338,466 5,499,966
Total interest over the lease term P2,576,034*
262
Since the lease is a direct financing lease (meaning, present value of the
minimum lease payments approximates the value of the property upon the
commencement of the lease), this can b e solved alternatively as:
[(P959,500 x 8 + P400,000) – P5,500,000)] = P2,576,000
QuestionNo. 4 ( B)
(P5,500,000 – P959,500) x 12% = P544,860
1. C 2. B 3. A 4. B
PROBLEM 27-25 Sales-Typ e Lease

QuestionNo. 1 ( A)
Lease receivable (P3,000,000 x 5 + P1,000,000) P16,000,000
Present value of minimum lease payments:
Rental (3.60 x P3,000,000) P10,800,000
Unguaranteed residual value
(0.57 x P1,000,000) 570,000 (11,370,000)
Total unearned interest income P 4,630,000
QuestionNo. 2 ( B)
Present value of minimum lease payments 11,370,000
Cost of goods sold (P8,000,000 + P300,000) (8,300,000)
P3,070,000
QuestionNo. x312% = P1,364,400(A)

P11,370,000
QuestionNo. 4 ( B)
Selling price P 7,040,000
Book value ( 5,600,000)
Gaino n sale P1 ,440,000
QuestionNo. 5 ( B)
P7,040,000 x 10% x 6/12 = P352,000
1. A 2. B 3. A 4. B 5. B
263
PROBLEM 27-26 Financial Liability, Sale and Leaseback, Impairment loss

on PPE and Inv estment in Associate
QuestionNo. 1 ( B)
Interestcostpaid(50Mx1 2%) 6,000,000
Less: Interest expense for the year (47,078,000 x 14%) 6,590,920
Understatedfinancecost (590,920)
Rounded off to P59 1,000
QuestionNo. 2 ( C)
Profit accounted for on disposal of plant 10,000,000
Profittobebooked(10M/5X. 5) 1,000,000
Overstated profit on sale and leaseback 9,000,000
QuestionNo. 3 (C )
Depreciationperbook(30M/15) 2,000,000
Depreciation to be booked Apr. 1, 2015 to Sept. 30,
2015 (30M/15X.5) 1,000,000
Depreciation to be boo ked Oct . 1, 2015 to Mar ch 31, 201 6
(16M/5 X.5) 1,600,000 2,600,000
Understateddepreciation (600,000)
QuestionNo. 4 ( C)
Carrying value as of October 1, 2015 (30M/15 X 10.5) 21,000,000
QuestionNo. 5 ( C)
Dividend income( P20x 50,000) (1,000,000)
Share in the net income( P10M x2 5%) 2,500,000
Share in the comprehensive income (P2M x 25%) 500,000
Investmentinassociate 8,000,000
1. B 2. C 3. C 4. C 5. C
264
PROBLEM 27-27 Inves tment Property

QuestionNo. 1 ( A)
Nil, since the property should be investment property and not property, plant
and equipment.
Present value of periodic payment (500,000 x 4.97) 2,485,000
Present value of Minimum lease payments 2,645,000
Present value of minimum lease payments 2,645,000
Less: Fair value of the land at the inception of the lease 200,000
Cost of the building as investment property 2,445,000
Amortization Table
01/01/2016 2,645,000
12/31/2016 500,000 317,400 182,600 2,462,400
12/31/2017 500,000 295,488 204,512 2,257,888
QuestionNo. 2 ( C)
QuestionNo. 3 ( C)
QuestionNo. 4 ( C)
P2,257,888. See amortization table above.
Que stion No . 5 and 6

Total rent income (40,000 x 24) + (50,000 x 24) x 20 43,200,000
Rentincomeper year 10,800,000
Periodicrent 10,800,000
Add: Amortization of lease bonus (30,000 x 20)/4 150,000
Gross Ren tal income (No. 5) (A) 10,950,000
Less: Expenses
Amortization of initial direct cost (5,000 x 20)/4 25,000
Annualmaintenancecost 40,000
Depreciation *(2,645,000-200,000/10) 244,500
Net rental income (B) 10,323,100
1. A 2. C 3. C 4. C 5. A 6. B
265
PROBLEM 27-28
QuestionNo. 1 (D)
(900,000+50,000+25,000) P 975,000
QuestionNo. 2 (D)
Total warranty expense (1.4M x 12%) P 168,000
Less: Total actuale xpenditures 63,000
Warranty liability end of 2015 P 1 05,000
QuestionNo. 3 ( C)
Legal services P 4,600
Add:Medicalservices 5,500
Payroll(14,400/12 x8) 9,600
Royalties 3,900
Totalaccrual P 23,600
QuestionNo. 4 (D)
Fair value (equal to present value MLP) P 490,000
Less:First payment 70,000
Total 420,000
Add: Interest accrued( 420,000x 9%) 37,800
Totallease liability P 457,800
QuestionNo. 5 ( A)
(3,875,902 x1 11%)-400,000 P 3,902,251
1. D 2. D 3. C 4. D 5. A
PROBLEM 27-29
QuestionNo. 1 ( C)
Unadjusted balance – Accounts Payable 450,000
2 60,000
3 45,000
Adjustedbalance 555,000
QuestionNo. 2 ( A)
Units sold:
October 32,000
November 28,000
December 40,000
Total 100,000
Multiply by 2%
Totalfailuresexpected 2,000
266
Less: Failures already recorded:

October sales 640
Novembersales 360
December sales 180 1,180
Expectedfuturefailures 820
Multiply by 150
Estimatedcost 123,000
Estimated warranty liability 123,000
QuestionNo. 3 (C)
Notes payable is (200,000 x 3.6048 ) = 720,960
Amortization Table
01/01/2016 720,960
12/31/2016 200,000 86,515 113,485 607,475
12/31/2017 200,000 72,897 127,103 480,372
QuestionNo. 4 ( A)
Present value ofp rincipal (4M x .6830) 2,732,000
Present value of interest payments (480,000 x 3.1699) 1,521,552
TotalPresentvalue 4,253,552
Amortization Table

01/01/2016 4,253,552
12/31/2016 480,000 425,355 54,645 4,198,907
QuestionNo. 5 (D)
Present value of minimum lease payments (200,000 x 6.759) P1,351,800
Amortization Table
01/01/2016 1,351,800
01/01/2016 200,000 - 200,000 1,151,800
12/31/2016 115,180 1,266,980
1. C 2. A 3. C 4. A 5. D
267
PROBLEM 27-30
QuestionNo. 1 (D)
Zero, the two notes payable should be presented as noncurrent liabi lities.
QuestionNo. 2 (D)
FINANCE LEASE: Amortization Table
12/31/2015 379,692
12/31/2015 60,000 - 60,000 319,692
12/31/2016 60,000 38,363 21,637 298,055
12/31/2017 60,000 35,767 24,233 273,822
Answer: P273,822. Refer to amortization table above.
QuestionNo. 3 (B)
Answer: P38,363. Refer to amortization table above.
QuestionNo. 4 ( D)
Annual rent expe nse = P720,000/3=P240,000
Operating lease
Date Expense Expense Payment Accrued rent
To date to date (Prepaid)
1/1-12/31/16 240,000 240,000 120,000 120,000
1/1-12/31/17 240,000 480,000 300,000 180,000
1/1-12/31/18 2 40,000 720,000 720,000 -
QuestionNo 5 ( C)
CONTINGENCIES
Answer: P400,000 (P200,000+P200,000)
1. Only a disclo sure is necessary because it is not p robable that the com pany
will be liable, alth ough the a mount can be measured reliably.
2. Retainedearnings 200,000
Estimated liability for income tax 200,000
3. Accounts receivable – Innova 120,000
Lossonguaranty 80,000
Notepayable –bank 200,000
1. D 2. D 3. B 4. (D) 5 . C
268
PROBLEM 27-31
Question No. 1
Date Finance cost Present Value
04/01/2011 19,000,000
03/31/2012 1,900,000 20,900,000
03/31/2013 2,090,000 22,990,000
03/31/2014 2,299,000 25,289,000
03/31/2015 2,528,900 27,817,900
03/31/2016 2,781,790 30,599,690
Revised
Date Finance cost Present Value
04/01/2016 25,000,000
09/30/2016 1,250,000
10/1/2016 to 3/31/2016 (2,781,790 x 6/12) 1,390,895
04/01/2016 to 9/30/2016 (25,000,000 x 10% x 6/12 1,250,000
Finance cost (C) 2,640,895
Question No. 3
Cost of theplant 130,000,000
Add: Present value of decommissioning cost 19,000,000
Total 149,000,000
Less: Accumulated depreciation (149M/20 x 5) 37,250,000
Carryingvalue,3/31/2016 111,750,000
Less: Decrease due to revision of decom liability
Present value of decommissioning liability 30,599,690
Less Revisedestima e 25,000,000 5,599,690
Total 106,150,310
Less: Depreciation April to Sept 2016 3,538,344
(106,160,310/15 x 6/12)
Carrying value, 9/30/2016 (B) 102,611,966
Question No. 2
DepreciationOctober1 to March31 3,725,000
Depreciation April to Sept 2016 (106,160,310/15 x 6/12) 3,538,344
Total depreciation (B) 7,263,344
Question No. 4
2016 6,000,000
2017 6,300,000
2018 6,615,000
Total 18,915,000
Divideby:Totalsemi-annualpayments 6
Semi-annual income (B) 3,152,500
269
Question No. 5
Totalincometodate 3,152,500
Less:Totalcollectiontodate 3,000,000
Rent receivable (B) 152,500
1. C 2. B 3. B 4. B 5. B
270
Chapter 29 – Shareholders’ Equity
CHAPTER 29: SHAREHOLDERS’ EQUITY

PROBLEM 29-1
Question No.1 ( A)
Authorized ordinary shares at P10 stated value 1,200,000
Less: Unissued ordinarys hares 650,000
OrdinarySharesissued 550,000
Question No.2 ( B)
Authorized preference
Less: Unissued shares
preference at P50 par value
shares 800,000
150,000
PreferenceSharesi ssued 650,000
Question No.3 (D)

Share Premium on ordinary shares 300,000
Share Premium conversion option-bonds payable 40,000
Share premium on preference shares 150,000
Gaino nsale oftreasuryshares 60,000
Ordinary share warrants outstanding 35,000
Donatedcapital 40,000
Ordinary shares options outstanding 25,000
TotalShare Premium 650,000
Question No.4 (D)

SubscribedO rdinarys hares 200,000
Subscription receivable – ordinary shares (20,000)
SubscribedP reference shares 50,000
Subscription receivable – preference (15,000)
TotalShare Premium 650,000
ContributedCapital 2,075,000
Question No.5 ( C)
SubscribedP reference shares 60,000
SubscribedO rdinaryshares 200,000
Share Premium on ordinary shares 300,000
TotalLegal Capital 1,760,000
271
Question No.6 (D)

ContributedCapital 2,075,000
Accumulated profits – unappropriated 500,000
Unrealized increase in value of FVTOCI securities 10,000
Reserve for bond sinking fund 320,000
Total Shareholders' Equity 3,035,000
1. A 2. B 3. D 4. D 5. C 6. D
PROBLEM 29-2
1. Cash (2,000x P50) 100,000
Share capital 100,000
To record share issuance at a premium
2. Cash (5,000x P60) 300,000
Share capital (5,000 x P50) 250,000
Share premium 50,000
To record share issuance at a premium
Cash 70,000
To record payment of share issue cost
3. Cash (4,000x P40) 160,000
Discount onshare capital 40,000
To record share issuance at a discount
PROBLEM 29-3
1. Machinery 180,000
To record share issuance for machinery
2. Patent(1,000x P65) 65,000
Share capital (1,000 x 50) 50,000
To record share issuance for patent
3. Organization expense 40,000
Share capital (400 xP50) 20,000
ToShare premium
record share issuance for organization services. 20,000
272
PROBLEM 29-4
Loanspayable-bank 150,000
Share premium** 40,000
Gain on settlement on liability 10,000
To record issuance of shares for liability
*Computation of loss on extinguishment of liability
Fair value of equity instruments issued (or if not reliably determinable, use 140,000
the fair value of liability) (2,000 x P70)
Less:Carryinga mountofliability 150,000
Gainonsettlementof liability 10,000
**Computation of increase in share premium
Fair value of equity instruments issued (or if not reliably determinable, use 140,000
the fair value of liability) (2,000 x P70)
Less: Total par or stated value of equity issued (2,000 x P50) 100,000
Share premium(or Discount) 40,000
PROBLEM 29-5
1. Cash (2,500x P216) 540,000
Preferenceshares( 2,500x P200) 500,000
Share premium-pref.share 40,000
To record issuance of preference shares
2. Cash (500x P120) 60,000
Ordinary shares (500x P100) 50,000
Share premium -ordinary shares 10,000
To record issuance of ordinary shares
PROBLEM 29-6
Allocated
Allocation of the lump-sum price: Total Fair value Fraction proceeds
Preferences hares( 2,500x P216) 540,000 54/60 810,000
Ordinarys hares( 500x1 20) 60,000 6/60 90,000
Total 600,000 900,000
The transaction will then be recorded as follows:
Cash 900,000
Preferenceshares (2,500 x P200) 500,000
Share premium-preference share (810,000-500,000) 310,000
Ordinary shares (500x 100) 50,000
Sharepr emium - ordinary share (90,000-50,000) 40,000
PROBLEM 29-7
Allocation of the lump-sum price:

Total
proceeds 900,000
Less: Total fair value of preference shares (2,500 x P216) 540,000
273
Amounta llocatedtotheordinaryshares 360,000

The transaction will then be recorded as follows:
Cash 900,000
Preferenceshares (2,500 xP200) 500,000
Share premium-preference share (540,000-500,000) 40,000
Ordinary shares (500x P100) 50,000
Share premium-ordinary share (360,000-50,000) 310,000
To record issuance of preference and ordinary shares
PROBLEM 29-8
1. Subscription receivable (4,000 xP 60) 240,000
Subscribedsharec apital( 4,000xP 50) 200,000
To record subscriptions of share capital
2. Cash (240,000x 40%) 96,000
Subscriptionreceivable 96,000
To record cash collection
3. Cash (240,000x 60%) 144,000
To record cash collection
Subscribedsharecapital 200,000
ShareCapital(4,000x 50) 200,000
To record issuance of share certificate
PROBLEM 29-9
1. Subscriptions receivable (5,000 xP 60) 300,000
Subscr bedo rdinarys hares( 5,000xP 50) 250,000
Sharepremium-ordinary share 50,000
To record subscriptions of 10,000 shares at P110
2. Cash (300,000x 40%) 120,000
Subscriptionsreceivable 120,000
To record receipt of cash for subscriptions
3. Subscribedordinaryshares 250,000
Sharep remium-ordinarys hare 50,000
Subscriptions receivable (300,000x 60%) 180,000
Sharep remiumf orfeited down-payment 120,000
PROBLEM 29-10
Journal entries to record the transactions would be:
To record the expenses

Receivable incurred
from highest related to the auction
bidder P 10,000
Cash P 10,000
To record the collection from highest bidder
Cash 300,000
274
Receivablefromh ighestbidder 10,000

To record the issuance of share capital
Subscribed share capital (7,500 x P50) 375,000
PROBLEM 29-11
To record the expenses incurred related to the auction

Receivable from highest bidder P 10,000
Cash P 10,000
To record the acquisition of entity’s own shares
Treasuryshares 300,000
Receivablefromh ighestbidder 10,000
To record the issuance of share capital
Subscribed share capital (7,500 x P50) 375,000
PROBLEM 29-12
1) Treasuryshares( 15,000x 24) 360,000
Cash 360,000
2) Cash (5,000x P26) 130,000
Treasuryshares (5,000x P24) 120,000
Share premium-Treasuryshares 10,000
3) Cash (4,000x 20) 80,000

Sharep remium-Treasuryshares 10,000
Treasuryshares (4,000x 24) 96,000
4) Ordinarys hares( 6,000x2 0) 120,000
Share premium (600,000/100,000) x 6,000 36,000
Share premium-Treasuryshares 12,000
Treasuryshares (6,000x P24) 144,000
5) Memo entry: Received 5,000 shares from a stockholder as
a donation.
Cash (2,000x 28) 56,000
Donated capital 56,000
PROBLEM 29-13
a. Preferences hares(
Share Premium on 3,000xP 100)
Preference shares [(300,000/30,000) x 300,000
3,000] 30,000
Accumulated profits (balancing figure) 90,000
Cash (3,000x P140) 420,000
b. Preference shares 300,000
275
Share Premiumo n Preferences hares 30,000

Cash (95 x 3,000) 285,000
Share premium retirement of shares (balancing figure) 45,000
PROBLEM 29-14
1) Preferences hares( 4,000xP 100) 400,000
Share Premium on Preference shares [(300,000/30,000) x
4,000] 40,000
Ordinary shares (4,000x P50) 200,000
Sharep remium-ordinaryshares 240,000
2) Preference shares( 4,000xP 100) 400,000
Share Premium on Preference shares [(300,000/30,000) x
4,000] 40,000
Accumulatedprofits 560,000
Ordinarys hares( 4,000x5 /1xP 50) 1,000,000
PROBLEM 29-15
1a. Ordinarys hares( 50,000xP 50) 2,500,000
Share Premium on Ordinary shares 100,000
Ordinarys hares( 50,000x P40) 2,000,000
Sharep remium-recapitalization 600,000
1b. Ordinary shares 2,500,000
Share Premium on Ordinary shares 100,000
Accumulatedprofits 4,400,000
Ordinarys hares( 50,000x P140) 7,000,000
2. Ordinary shares ((P50-P40) x5 0,000) 500,000
Sharep remium-recapitalization 500,000
3. Share split
Before Multiplyb y After
OrdinaryS harec apital issued 100,000 5/1 500,000
Subscribedsharecapital - 5/1 -
Total 100,000 5/1 500,000
Less:Treasuryshares - 5/1 -
Outstandingshares 100,000 5/1 500,000
Before multiply by After
Par valueper share P50 1/5 P10
Memo entry:
Changes: increase number of shares
Same SHE
Decrease number in Par value
276
PROBLEM 29-16
CASE NO. 1
Total Fair Fraction Allocated cost
value
Preferences hares( 2,000x P80) 160,000 80% 320,000
Warrants (2,000 x P20) 40,000 20% 80,000
Total 200,000 400,000*
*(150 x 4,000)
Cash 400,000
PreferenceSharecapital( 2,000xP 50) 100,000
ShareP remium(320,000-100,000) 220,000
Ordinarys harewarrantsoutstanding 80,000
When the warrants are exercised:
Cash(1,000x 80% x P40) 32,000
Ordinary share warrants outstanding (80,000 x 80%) 64,000
OrdinaryS hare capital( 1,000x 80% xP 20) 16,000
Share Premium–ordinaryshare 80,000
CASE NO. 2
Total
proceeds 400,000
Less: Total fair value of the preference shares (2,000 x P80) 160,000
Valueofthewarrants 240,000
Cash 400,000
Share Premium(160,000-100,000) 60,000
CASE NO. 3
Marketvalueofordinary shares P 50
Less:Option price/exercise price 40
Intrinsic valueof warrant 10
Multiply: # of ordinary shares claimable under warrants 1,000
Marketvalueofshare warrants P 1 0,000
Total
proceeds 400,000
Less:ValueofSharewarrants 10,000
Valueassignedt oPreferenceS hare 390,000
Cash 400,000
Share Premium(390,000-100,000) 290,000
PROBLEM 29-17
Ordinarys haresi ssued 40,000
Less:Treasury shares 2,000
Outstandingshares 38,000
a. Retainede arnings( 38,000x P5) 190,000
277
Dividends payable 190,000

b. No formal accounting entry
c. Dividends payable 190,000
Cash 190,000
PROBLEM 29-18 Cash dividends for Preference Shares-Semi-annual Payment
July1: RetainedEarnings 45,000

Dividends Payable (9,000 x P100 x 10% x6 /12) 45,000
Dec. 31: Retained Earnings
Dividends Payable (9,600 x P100 x 10% x 6/12) 48,000
48,000
Computation of outstanding shares:
July1 December 31
Preference shares issued 10,000 Preference shares issued 10,000
Less: Treasury shares 1,000 Less: Treasury shares (1,000-600) 400
Outstanding shares 9,000 Outstanding shares 9,600
PROBLEM 29-19
Feb.15, Retained earnings 450,000
2017 Dividends payable 450,000
Dec. 31, Retained earnings 150,000
Fair value,Dec.31 600,000
Less:PreviousF airv alue 450,000
Increase ind ividendsp ayable 150,000
Feb.15, Dividends payable 60,000
2017 Retained earnings 60,000
Fair value,Feb. 15 540,000
Decrease ind ividendsp ayable (60,000)
Inventory 500,000
Gain on distribution - prop.d ividends 40,000
Carrying amount of dividend payable = Fair value 540,000
Less: Carrying amount of noncash assets 500,000
Gain on distribution of prop. Dividends 40,000
PROBLEM 29-20
Nov. 1, Retained earnings 450,000
Equipment-noncurrent asset for distribution* 450,000
278
Impairment loss (P500,000 – P450,000) 50,000

Equipment 500,000
Dec. 31, Retained earnings 150,000
Fair value,Dec.31 600,000
Increase ind ividendsp ayable 150,000
Equipment-noncurrent asset for distribution** 50,000
Gain onrecoveryo fi mpairmentl oss 50,000
Feb.15, Dividends payable 60,000
2018 Retainedearnings 60,000
Fair value,Feb. `5 540,000
Decrease ind ividendsp ayable (60,000)
Equipment-noncurrent asset for distribution 500,000
Gain on distribution of prop.D ividends 40,000
Carrying amount of dividend payable = Fair value 540,000
Less: Carrying amount of noncash assets 500,000
Gain on distribution of prop. Dividends 40,000
*(Lower between P500,000 and P450,000)
**(P800,000 minus P600,000) but the gain shall not exceed the amount of impairment
loss of P100,000.
Alternative Computation:
*Computation of the impairment loss is as follows:
Original carryingamount 500,000
Less: Lower between these two amounts
FV LessC ost To Distribute (FVLCTD) 450,000
Originalc arryinga mount 500,000 450,000
Impairment loss 50,000
**Computation of the gain on reversal of the impairment loss is as follows:
Lower between subsequent FVLTCD and srcinal carrying amount
Original carrying amount 500,000
FVLCTD, Dec. 31 600,000 500,000
Carryingamounta ti nitialrecognition 450,000
Gain
onreversal 50,000
PROBLEM 29-21 Cash and Noncash Altern ative

Retainede arnings P 84,000
Dividends payable P 84,000

Supporting computation:
Casha lternative(10x6 0%x P8,000) P 48,000
Non-casha lternative( 10x 40%x P9,000) 36,000
Totaldividends P 84,000
279
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
a. Dividends payable 84,000
Cash (10 X 8,000) 80,000
Retainede arnings(balancingf igure) 4,000
If the shareholders opted to receive noncash, the journal entry is:
b. Dividends payable 84,000
Loss on distribution of dividends (balancing figure) 6,000
Noncash(10x 9,000) 90,000
PROBLEM 29-22 Share Divid ends: Small, Large and Tre asury Shares
Computation of outstanding shares:
Ordinarys haresi ssued 53,000
Less:Treasuryshares 3,000
1) Accumulated Profits 400,000
[(50,000) x 10% x P80]
Share dividends payable [(50,000) x 10% x P50] 250,000
Sharep remiumo nOrdinaryshares 150,000
2) Accumulated Profits 500,000
[(50,000) x 20% x P50]
Share dividends payable [(50,000) x 20% x P50] 500,000
3) Capital Liquidated (P2 x 50,000 shares) 100,000
Cash 100,000
4) AccumulatedProfits 120,000
Treasuryshares 120,000
PROBLEM 29-23 Fra ctional Share right s

1. Date of declaration of share dividends
Retained earnings (100,000 x 30% x 50) 1,500,000
Sharedividendspayable 1,500,000
2. Issuance of full share dividends and the fractional share warrants or rights
Share dividends payable 1,500,000
Sharec apital (27,000x 50) 1,350,000
Fractional warrants outstanding 150,000
3. Issuance of full shar es as a result of the exe rcise of the frac tional share
warrants
Fractional warrants outstanding 150,000
Sharec apital(2,800x 50) 140,000
Share premium-unexercised warrants 10,000
280
PROBLEM 29-24 Comprehens ive Problem
Questions 1 to 3
Date Ordinary Preference
shares shares
A. Jan.2,2012 20,000 10,000
B. Jan.3,2013 (10,000/50x2) 400
C. May1, 2014 10,000
BAL Dec. 31, 2014 (D ) 1. 30,400 10,000
D. Jan. 1, 2015 [(30,400/2 x 3) - 30,400] 15,200
BAL Dec. 31, 2015 (B) 2. 45,600 10,000

Jan. 1, 2016 [(45,600/1 x 2) - 45,600] 45,600
E. July 1,2 016 (10,000x 2 x 20%) 4,000 (10,000)
BAL Dec. 31, 2016 (A) 3. 95,200 -
Question No. 4
June 30 ( 1.50 x 45,600) 68,400
Dec.3 1 ( 2.50 x 45,600) 114,000
Total Dividends (A) 182,400
Question No. 5
June 30 ( 1.25 x9 1,200) 114,000
Dec.3 1 ( 1.00 x 95,200) 95,200
Total Dividends (D) 209,200
1. D 2. B 3. A 4. A 5. D
PROBLEM 29-25
Questions 1 to 3
Total Subs.
Pref. Ord. Share Retained Treasury Ord. Subs.
*in ‘000s shares shares Premium earnings shares share Receivable
Beginning 1,400 3,500 1,925 4,500
Jan.5 600 60 (20)
(60)
Jan.
28 1,000
Feb. 2 Memo
Feb.
14 50 (500)
880
Jul. 15 800 100 200

Oct.15 2,250 1,500 3,750
Nov. 15 (1,500)
Nov. 27 1,000 (1,000) (1,500)
Dec. 31 1,000
Total 2,200 5,200 5,305 5,480 500 500 750
281
1.( B) 2.( C) 3.( C)
Question No.4 ( C)
Retainedearnings,total P 5,480,000
Outstanding balance of treasury stocks ( 50 0,000)
Retained earnings – unappropriated P 4,980,000
Question No.5 (B )
Preferenceshares P 2,200,000
Ordinary shares 5,200,000
Subscribedo rdinarys
Subscriptionsr hares
eceivable 500,000
(750,000)
Retained Earnings 5,480,000
Treasurystocks ( 500,000)
Total P17,435,000
1. B 2. C 3. C 4. C 5. B
PROBLEM 29-26
Pref. Ord. Share Retained Treasury
shares shares Prem earnings shares
Beg. 400,000 200,000 250,000 900,000
Balances
2.) 200,000
3) 20,000 (80,000)
4.) 400,000 80,000
5.) 6,000 30,000
6.) 38,200 (38,200)
8.) 2,400,000
9.) (80,000)
(91,680)
Total 800,000 244,200 380,000 3,090,120 120,000
1 . ( C) 2. ( D) 4. (D)
Number of Shares
Ordinary Preference
Beginningbalance 40,000 4,000
2.T reasuryshares
3. Reissuance of treasury shares (5,000)
2,000
4. Issuance of P/S 4,000
5.E xercise of warrants 1,200
6.S hared ividends 7,640
282
Balance 45,840 8,000

Dividendpershare x2 x 10
Dividends 91,680 80,000
Question No.3 (D)

Retained earnings (see table above) P 3,090,120
Retained earnings - unappropriated P 2,970,120
Question No.5 (A )
Preferenceshares P 800,000
Sharepremium 380,000
Retainedearnings-total 3,090,120
Treasuryshares (120,000)
Totalshareholder’sequity P 4,394,320
1. C 2. D 3. D 4. D 5. A
PROBLEM 29-27
Subscri Subscri Total Retaine
bed ption Share d Treasu
Pref. Ord. share Receiva Premiu Earnin ry
Shares Shares Capital ble m gs Shares
Beg. 4,000 840 100 52 968 15,000 44
1.) 80 (100) (52) 9.6
2.) (200) 40 160
3.) 1,350 675
4.) 27 (33)
5.) 280
6.) 2,500
7.) (1,217)
Total 3,800 2,310 0 0 1,839.6 16,563 11
1 . ( D) 2 . ( C) 3 . ( C)
Ordinary
Shares
Beginningbalance -issued 84,000
Beginningbalance -treasury (4,000)
1.) February 1,2 016 Issuance ofshares 8,000
2.) March 1, 2016 Conversion of preference shares 4,000
3.) April 1, 2016 Exercise of stock rights (67,500 x 2) 135,000
Balance –April30 227,000
4. ) September 30, 2016 Reissuance of treasury shares 3,000
283
Balance –October 31 230,000
Preference
Shares
Beginning balance– issued ando utstanding 40,000
2.) March 1, 2016 Conversion into ordinary shares (2,000)
Balance –April30&October 31 38,000
Compu tation of dividends:

Ordinary shares:
April30 (227,000x P1) 227,000
October31(230,000 xP1) 230,000
Preference shares:
April30 (38,000xP100x10%) 380,000
October31(38,000xP100x10%) 380,000
Totaldividends 1,217,000
QuestionNo. 4 (B)
Retained earnings (see table above) P16,563,000
Retained earnings - unappropriated P16,552,000
QuestionNo. 5 (B)
Preferenceshares 3,800,000
OrdinaryShares 2,310,000
SharePremium 1,839,600
Retained Earnings - Unappropriated 16,552,000
Retained Earnings - Appropriated 11,000
Less: Treasury Shares 11,000
Shareholder’s Equity 24,501,600
1 . D 2 . C 3 . C 4 . ( B) 5 . ( B)
PROBLEM 29-28
Total
Preference Ordinary Share Retained Treasury
Shares Shares Premium Earnings Shares
Beginning 840,000 4 20,000 15,000,000 44,000
A.) 13,500 (16,500)
B.)
C.) SPLIT2 for1 (650,000)
D.) 200,000 340,000
60,000
E.) 8,000 16,000
284
F.) (10,000) (5,000) (25,000)

G.) (650,400)
H.) 2,400,000
Total 200,000 838,000 844,500 16,074,600 27,500
1.( C) 2 . ( D) 3.( C)
Computationo fc ashdivid ends: Ordinary
Shares
a.J an1 5R eissuanceo ft reasuryshares 1,500
Balance 81,500
b. March 12for1sharesplit 81,500
e. October 1 Exercise of warrants (80% x 2,000) 1,600
f.N ovember2Retirementofshares (2,000)
Balance –December 31 162,600
Multiply: Dividendpershare P4
Totaldividends 650,400
QuestionNo. 4 ( A)
Retained earnings (see table above) P16,074,600
Retained earnings - unappropriated P16,047,100
QuestionNo. 5 (A)
Preferenceshares 200,000
OrdinaryShares 838,000
Retained earnings unappropriated 16,047,100
Retained earnings - appropriated 27,500
Less:Treasury Shares 27,500
Shareholders’E quity 17,929,600
1. C 2. D 3. C 4. A 5. A
PROBLEM 29-29
Total
Preferenc Ordinary Share Retained Treasury
e Shares Shares Premium Earnings OCI Shares
Beg. 1,200,000 1,800,000 4,116,000 2,300,000 61,740 420,000
Jan.4 300,000 750,000
Mar. 2 400,000 500,000
May7 18,000 (126,000)
2-for-1
Jun. 15 split
Jul.2 98,000 274,400 (274,400)
285
Oct.1 61,740 (61,740)

Oct.
1 (329,280)
Oct. 15 400,000 5,000 800,000
Nov. 1 (82,320)
Dec. 31 (825,200)
(224,000)
2,250,000
Total 2,000,000 2,203,000 6,458,400 2,876,540 0 294,000
1.( D) 2.( C) 3.( B)
Ordinary
Shares
Jan.4Issuanceof shares 30,000
Balance –January30 190,000
May7R eissuanceoftreasuryshares 6,000
Balance beforesharesplit 196,000
Add:Sharesplit–2 for1 196,000
Balance 392,000
July2 5%sharedividends 19,600
Oct. 15Issuance of shares 1,000
Preference
Shares
Beginning balance– issued ando utstanding 12,000

Mar.2 Issuanceof shares 4,000
October15 Iss ance ofshares 4,000
Compu tation of cash dividen ds:

Ordinary shares:
Dec31(P2x412,600) 825,200
Preference shares:
Dec31 (8%xP2,800,000) 224,000
Totaldividends 1,049,200
Question No. 4 (E)

Retainedearnings-total 2,876,540
Less: Appropriated for Treasury shares 294,000
Retained earnings-unappropriated 2,582,540
Question No. 5 (E)

Preferenceshare 2,000,000
Ordinary share 2,203,000
286
Totalsharepremium 6,458,400
Retained earnings - unappropriated 2,582,540
Retained earnings – appropriated 294,000
Less:TreasuryShares 294,000
Total Shareholders’ equity 13,243,940
1 . D 2. C 3. B 4. (E) 5. (E)
PROBLEM 29-30
Jan.1 Land 340,000
Organizationexpense 140,000
Ordinarys hares( 1,000x P100 10,000
SharePremium-O/S 470,000
Feb. 23 Cash (20,000 x 150)-150,000 2,850,000
Preference shares (20,000 x P100) 2,000,000
Sharepremium-PS 850,000
Mar. 10 Cash (6,000 x 390)-50,000 2,290,000
Ordinarys hares( 6,000x P10) 60,000
Sharepremium-OS 2,230,000
Apr. 10 Subscriptions receivable (8,000 x P450) 3,600,000
Subs.O rdinary shares( 8,000x P10) 80,000
Sharepremium-OS 3,520,000
July14 Building 1,080,000
Preferences hares( 2,800 x P100) 280,000
Share Premium-PS (460,000-280,000) 180,000
Share premium-OS (560,000-14,000) 546,000
Fair valueo f the building 1,020,000
Less: Fair value of the ordinary shares 560,000
(480,000/1,200 x 1,400)
Valueo f the pref. shares 460,000
July14 Cash 480,000
SharePremium-OS 468,000
Aug.3 Cash 2,800,000
Subscriptionsreceivable 2,800,000
Subs. Ordinary shares (8,000 x ½ x P10) 40,000
Dec.1 Retainedearnings 580,000
287
Dividendspayable 580,000
Pref.d ividends (2,280,000 x 10%) 228,000
OSI ssued (136,000/10) 13,600
Add:SubscribedOS 4,000
Multiplyb y:D ividend pers hare 20 352,000
Totaldividends 580,000
Dec.3 1 Dividendspayable 228,000
Cash 228,000
Subs.
Ordinar Subscrib Receiv
P/S SP– P/S y Shares SP – O/S ed O/S able R/E
1/1 P - P - P10 P 470 P - P -
2/23 2,000 850 - - - -
3/10 60 2,230
4/10 3,520 80 3,600
7/14 280 180 14 546
7/14 12 468
8/3 40 (40) (2,800)
12/1 (228)
(352)
50 1,280
Total P2,280 P1,030 P136 P7,234 P 40 P800 P700
1 . ( B) 2. (C) 3. (C) 4. (C) 5. (B)
QuestionN o.6 (C)

Preference shares 2,280,000
Subscribed ordinary shares 40,000
Less: Subscriptions receivable 800,000 (760,000)
Paidi nc apital-Pref.s hares 1,030,000
Paidi nc apital-Ordinarys hares 7,234,000
Totalshareholders’equity 10,620,000
Note:
Sec. 43 of the Corporation Code of the Philippines states that “ The board of
directors of a stock corporation may declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or in stoc k to all stockholders on the
basis of outstanding stock held by them: Provided, That any cash dividends due on
delinquent stock shall first be applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid”
288
Thus, the dividend on the subscribed share capital is paid to that shareholder because he
was not yet declared delinquent by corporation.
1. B 2. C 3. C 4. C 5. B 6. C
PROBLEM 29-31
Question No.1 ( C)
Preferenceshares,beg. P 800,000
Additionali ssue (20,000x P10) 200,000
Total P1,000,000
Question No.2 ( A)
Ordinary shares,beg. P 200,000
Stockdividend(3,480sharesx P5)* 17,400
Total P 217,400
Outstandingshares,beginning 40,000
Treasurysharesacquisition (8,000)
Treasurysharesre-issue 2,800
Totaloutstandingshares 34,800
Multiplied
by: 10%
Dividendshares 3,480
Question No.3 ( A)
Sharepremium,beg. P 384,000
Premium on treasury share re-issue (100,000 – (2,800 x P20) 44,000
Premium on preference share ssue (P15 – P10) x 20,000 shares 100,000
Premium on stock dividends (P12 – P5) x 3,480 shares 24,360
Totalsharepremium,end P 552,360
Question No.4 (D)

Retainedearnings,beg. P 2,400,000
Add: Net Income
UnadjustedN etIncome P 1,780,000
Overstatement in operating expenses 100,000 1,880,000
Less: Dividends
Stock dividends (3,480 x P12) P 41,760
Cash dividends* 119,140 (160,900)
Retainedearnings,adjusted P 4,119,100
Retained earnings, appropriated for treasury shares (104,000)
Retained earnings, appropriated for plant expansion (1,200,000)
Retained earnings, unappropriated P 2,815,100
* Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1 P 100,000
289
Ordinarys hares (34,800+ 3,480) x P.50 19,140

Totalcashdividends P 119,140
Question No.5 ( B)
Treasury shares acquired (8,000x P20) P 160,000
Treasury shares reissued (2,800x P20) ( 56,000)
Treasuryshares,end P 104,000
* Computation of the Cash dividends

Preferred stock dividends (80,000 + 20,000) x P1 P 100,000
Ordinarys hares (34,800+ 3,480) x P.50

Totalcashdividends 19,140
P 119,140
Computation of the net income:
Net Income
Unadjusted NetIncome P 1,780,000
Overstatement in operatinge xpenses 100,000
Adjustednet income P 1,880,000
1. C 2. A 3. A 4. D 5. B
ADJUSTING JOURNAL ENTRIES:

EntriesM ade Shouldb ee ntries Adjustinge ntries
a Other 100 Dividends 100 Dividends 100
. operating payable payable
expense
Cash 100 Cash 100 Other 100

operation
exp
b Ordinary 160 Treasury 160 Treasury 160
. shares shares shares
Cash 160 Cash 160 Ordinary 160
shares
c Equipment 100 Equipment 1 00 Ordinary 14
. shares
Ordinary 14 Treasury 56 Share 86
shares shares Premium
(2,800 x P5) (2,800 x 20)
Share 86 Share 44 Treasury 56
Premium Premium-TS shares
(2,800 x 20)
Share 44
Premium-TS
d Cash 300 Cash 300 Preference 100
. shares
Preference 300 Preference 200 Share 100
shares shares Premium-PS
(20,000 x
P10)
Share 100
Premium-PS
290
e Memoe ntry Retained 41,7 Retained 41,7

. earnings 60 earnings 60
(40K-5,200) (40K-5,200)
x 10% x x 10% x
P12) P12)
Share div. 17.4 Share div. 17.4
payable payable
(34,800 x (34,800 x
10% x P5) 10% x P5)
Share 24.3 Share 24.3
premium 6 premium 6
f. Share 17.4 Share div. 17.4 Share div. 17.4
Premium payable payable
Ordinary 17.4 Ordinary 17.4 Share 17.4
shares shares Premium
g No journal Retained* 119. Retained 119.
. entry earnings 14 earnings 14
Dividends 119. Dividends 119.
payable 14 payable 14
h Retained 1,20 Same AJE NO
. earnings- 0
unappropria
ted
Retained 1,20
earnings 0
appropriate
d for plant
expansion
No journal Retained 104 Retained 104
entry earnings- earnings-
unappropria unappropria
ted ted
Retained 104 Retained 104
earnings earnings
appropriate appropriate
d for d for
Treasury Treasury
shares shares
i. No journal Income 1,88 Income 1,88
entry summary 0 summary 0
Retained 1,88 Retained 1,88
earnings- 0 earnings- 0
unappropria unappropria
ted ted
* Computation of the Cash dividends
Preferred stock dividends
(80,000 + 20,000) x P1 P 100,000
Ordinary shares
(34,800+ 3,480) xP .50 19,140
Total cash dividends P 119,140
Computation of the net income:

Net Income
UnadjustedN et Income P 1,780,000
Overstatement in
291
operatingexpenses 100,000
Adjustedneti ncome P 1,880,000
292
Chapter 30 – Book Value and Earnings Per Share
CHAPTER 30: BOOK VALUE AND EARNINGS PER

SHARE
PROBLEM 30-1 One Class of Shares

Totalshareholders'equity 16,220,000
Add:Subscriptionreceivable 1,200,000
Total SHE excluding subscription receivable 17,420,000
Divided by:O rdinarys hares outstanding* 200,000
Book value per share (A) 87.10
Sharesissued 200,000
Add: Subscribed shares (P1,000,000 / P50 par) 20,000
Ordinary sharesoutstanding 200,000
PROBLEM 30-2 Two Classes of Shares - Pre ference and Ordinary Shares
Total
Preference shares: Shares par value
Preference share capital issued 12,500 P5,000,000
Add:Subscribedpreferenceshares - -
Total 12,500 P5,000,000
Less:Treasurysharesatpar - -
Shares outstanding and total par value 12,500 P5,000,000
Total
Ordinaryshares: Shares par value
Ordinarys harec apitali ssued 75,000 P3,000,000
Add:Subscribedordinaryshares - -
Total 75,000 P3,000,000
Less:Treasury sharesatpar - -
Less: Par value of outstanding preference shares 5,000,000
Par value of outstanding ordinary shares 3,000,000
Excessoverpar 7,000,000
CASE NO. 1
Question No. 1 & 2
Excess Preference Ordinary
over par shares shares
Balances P7,000,000 P5,000,000 P3,000,000
Preference dividend
(5,000,000 x 8% x 4) (1,600,000) 1,600,000
Balancet o ordinarys hares 5,400,000 5,400,000
293
Total shareholders’ equity 6,600,000 8,400,000

Divide by: Outstanding shares 12,500 75,000
Book value per share P528. 00 P112.00
CASE NO. 2
Question No. 3 & 4
Balances P7,000,000 P5,000,000 P3,000,000
Preference dividend
(5,000,000 x 8% x 4) (1,600,000) 1,600,000
Liquidation premium [(P420-
P400)x 12,500] (250,000) 250,000
CASE NO. 3
Question No. 4 & 5
Balances P7,000,000 P5,000,000 P3,000,000
Preference dividend
(5,000,000 x 8% x 1) (400,000) 4 00,000
Total shareholders’
Divide equity
by: Outstanding shares 5,400,000
12,500 9,600,000
75,000
CASE NO. 4
Question No. 7 & 8
Balances P7,000,000 P5,000,000 P3,000,000
Preference dividend
(5,000,000 x 8% x 4) (1,600,000) 1,600,000
Ordinary dividend
(3,000,000 x8%x 1) (240,000) 240,000
Balance for participation 5,160,000
Preference (5/8 x 5,160,000) (3,225,000) 3,225,000

SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. D 5. C 6. B 7. D 8. C
294
PROBLEM 30-3 Book Valu e per Share

Total
Preference shares: Shares par value
Preference share capital issued 40,000 P4,000,000
Add:Subscribedpreferenceshares - -
Total 40,000 P4,000,000
Less:Treasury sharesatpar - -
Total
Ordinaryshares: Shares par value
Ordinarys harec apitali ssued 26,000 P1,040,000
Add:Subscribedordinaryshares - -
Total 26,000 P1,040,000
Less:Treasurys haresatpar 1,000 40,000
Less: Par value of outstanding preference shares 4,000,000
Par value of outstanding ordinary shares 1,000,000
Excessoverpar 6,970,000
CASE NO. 1
Question No. 1 & 2
Balances dividend
Preference P6,970,000 P4,000,000 P1,000,000
(40 00,000x 8% x4 ) (1,280,000) 12 80,000
Book value per share P132. 00 P2 67. 6 0
CASE NO. 2
Question No. 3 & 4
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000 x 8% x 4) (1,280,000) 1,280,000
Liquidation premium
[(P105-P100) x 40,000] (200,000) 200,000
295
CASE NO. 3
Question No. 5 & 6
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
CASE NO. 4
Question No. 7 & 8
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
Ordinary dividend
(1,000,000 x8%x 1) (80,000) 80,000
Balance for participation 6,570,000
Preference (4/5 x 6,570,000) (5,256,000) 5,256,000
Book value per share P239. 40 P95. 76
SUMMARY OF ANSWERS:
1. B 2. C 3. B 4. B 5. C 6. A 7. D 8. D
296
PROBLEM 30-4 Weighted Average with Bonus Issue

Outstanding
Date Shares Fraction Average
01/01/2015 200,000 x 120% 240,000 12/12 240,000
03/01/2015 15,000x 120% 18,000 10/12 15,000
07/01/2015 (10,000) (10,000) 6/12 (5,000)
10/01/2015 4,000 4,000 3/12 1,000
Weighted average outstanding shares (A) 251, 000
PROBLEM 30-5 Weighted Average with Share Split

Outstanding
Date Shares Fraction Average
01/01/2015 220,000 x 4/1 880,000 12/12 880,000
03/01/2015 12,000 x 4/1 48,000 10/12 40,000
04/01/2015 9,000 9,000 9/12 6,750
10/01/2015 6,000 6,000 3/12 1,500
Weighted average outstanding shares (A) 928, 250
PROBLEM 30-6 Basic Earnings per Share

QuestionNo. 1 (B)
Basic EPS = [P3,000,000 / 40,000] = P75 per share
QuestionNo. 2 (C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
QuestionN . 3 (C)
Basic EPS = [P3,000,000 - (1 0,000 x 10% x P50)]/40,000= P73.75 per share
PROBLEM 30-7 Basic Loss per Share

QuestionNo. 1 (B)
Basic LPS = [P2,000,000 / 30,000] = P66.67 per share
QuestionNo. 2 (C)
Basic LPS = [P2,000,000 + (5,000 x 10% x P100)]/30,000= 68.33 per share
QuestionNo. 3 (D)
Basic LPS = [P2,000,000 + (60,000)]/30,000= P68.67 per share
PROBLEM 30-8 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P3,000,000 / 120,000 = P25 p er share
297
Question No. 2
Diluted P3,000,000 + [(P1,800,000 x 10%) x (1 – 30%)]
=
EPS 129,000 shares *
Diluted EPS = P2 4.23 per share
Weighted average of actual ordinary shares 120,000
Add: Weighted average of potentia l ordinary
shares from assumed conversion (1,800 x 5 x 12/12) 9,000
Total weighted averageo f ordinary shares 129,000
Question No. 3
Diluted = P3,000,000 + [(P1,800,000 x 10% 8/12) x (1 – 30%)]
EPS 126,000 shares *
Weighted average of actual ordinary shares 120,000
Add: Weighted average of potentia l ordinary
shares from assumed conversion (1,800 x 5 x 8/12) 6,000
Question No. 4
P3,000,000
Basic EPS =
123,750*
= P24.24
Weighted averageo f actual ordinary shares 120,000
Add: Issuance of shares related to conversion
(1,800 x5x5/12) 3,750
Total weighted average of actual ordinary shares issued 123,750
Add: Assumed converted ordinary shares x months
outstanding(1,800x5x7/12) 5,250
Total weighted average outstanding ordinary shares 129,000
Question No. 5
P3,000,000 + [(P1,800,000 x 10% x 7/12) x (1 – 30%)]
Diluted EPS =
129,000 shares *
SUMMARY OF ANSWERS:
1. A 2. D 3. B 4. D 5. B
PROBLEM 30-9 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
298
Question No. 2
P4,000,000 + [(P1,123,910 x 10% x 8/12) x (1 – 30%)]
Diluted EPS =
210,000 shares*
Add: Weighted average of potential ordinary shares from
assumedc onversion(15,000 x8 /12) 10,000
PROBLEM 30-10 Basic and Diluted EPS with Convertible Preference Shares
Question No. 1
P4,000,000 - [5,000 x P100 x 10%]
Basic EPS =
200,000 shares
Basic EPS = P19.75 per share
Question No. 2
P4,000,000
Diluted EPS =
225,000 shares*
Diluted EPS = P17.78 per share
*[200,000 + (5 x 5,000 x 12/12)]
Question No. 3
P4,000,000
Diluted EPS =
Diluted EPS = P18.2218,750
9 per shshares
are
*[200,000 + (5 x 5 000 x 9/12)]
Question No. 4
P4,000,000 – (5,000 x P100 x 10% x 9/12)]
Basic EPS =
206,250 shares
Basic EPS = P19.21 per share
*[200,000 + (5 x 5,000 x 3/12)]
Question No. 5
P4,000,000
Diluted EPS =
225,000 shares
*[200,000 + (5 x 5,000 x 3/12) + (5 x 5,000 x 9/12)]
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. C 5. D
299
PROBLEM 30-11 Basic and Diluted EPS with Warrants and Options
Question No. 1
Question No. 2
P4,000,000
Diluted EPS =
101,200 shares *
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 12/12) 1,200
Note: Months outstanding for assumed exercise of options is 12 months, which
is from date of issu ance up to the reporting date.
Option shares 9,000
Multiplyb y: Totale xercise price( 120+10) 130
Proceeds from assumed exercise of options 1,170,000
Divided by: Average market price during the year 150
Assumed treasuryshares 7,800
Option shares 9,000
Less:Assumedtreasuryshares 7,800
Incrementalshares 1,200
Question No. 3
P4,000,000
Diluted EPS =
100 900 shares *
from assumed exercise of options (1,200 x 9/12) 900
Question No. 4
P4,000,000
Diluted EPS =
104,667 shares *
Weighted average of actual beginning ordinary shares 100,000
Add: Weighted average number of shares from issuance of
Totalshare options
weighted (9,000of
average x4/12)
actual ordinary shares issued 3,000
103,000
from assumed exercise of options (2,500 x 8/12) 1,667
Total weighted average outstanding ordinary shares 104,667
300
Option shares 9,000

Multiplyb y: Totale xercise price( 120+10) 130
Proceeds from assumed exercise of options 1,170,000
Divided by:M arketp riceatexercise date 180
Assumedtreasuryshares 6,500
Option shares 9,000
Less:Assumedtreasury shares 6,500
Incrementalshares 2,500
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. D
PROBLEM 30-12 Multiple Potential Dilutive Securities

QuestionNo. 1 (A)
P2,360,000 – (60,000 x P100 x 6%)
Basic EPS =
200,000
Basic EPS = P10 per share
Question No. 2
1) Check for initial test of dilution
a. Options
Dilutive. The exercise price (P50) is less than the average market price
(P100).
b. Convertible preference
Probably dilutive . Theshares
incremental EPS (P1.2) is less than the basic
EPS (P10).
(P6,000,000 x 6%)
Incremental EPS =
(60,000 x 5)
Incremental EPS = P1.2 per share
c. Convertible bonds
Probably dilutive. The incremental EPS (P.84 ) is less than the basi c
EPS (P10).
(P2,000,000 x 12%) x (1-30%)
Incremental EPS =
(P2,000,000/P1,000) x 100
Incremental EPS = P.84 per share
`
2) Rank the dilutive potential diluters from the most dilutive to the leas t
dilutive.
1st Options
2nd Convertible bonds (incremental EPS of P.84 per share)
3rd Convertible preference share (incremental EPS of P1.2 per share)
3) Include potentially dilutive convertible securities one by one. Every time an
item is included, calculate new earnings per share or new loss per share
amount as follows:
301
Ordinary
Profit shares EPS
Basic EPS from continuing *2,000,000 200,000 10
operations
Options 0 10,000
Total 2,000,000 210,000 9.52
Convertible Bonds payable 168,000 200,000
Total 2,168,000 410,000 5.29
Convertible Preference share 360,000 300,000
Total 2,528,000 710,000 3.56
*Net Income less preference dividends [(P2,360,000 –(60,000 x P100 x
12%)]
Answer: The final diluted EPS would be P3.56 per share. (D)
QuestionNo. 3 (B)
P500,000
BasicE PS =
200,000
BasicE PS = P2.5 per share
Q u e st i o n N o . 4 ( C)
P500,000
Diluted EPS =
710,000
Diluted EPS = P. 70 per share
SUMMARY OF ANSWERS:
1 . A 2 . D 3. B 4. C
PROBLEM 30-13 Rights Is sue

Fairvalue pershare–righton P 150
Less:Theoreticalvalueofoneright* 22
Theoretical ex-rights fair valuep er share P 128
150 –40
*Value of one right = = 22
4* + 1
Adjustmentfactor (150/128) 1.17
Question No. 1
2014:
Weighted average outstanding shares (40,000 x 1.17 x 12/12) 46,800
Basic EPS (P562,500 /46,800) (D) P12.02 / sh are
302
Question No. 2
2015:
Weighted average outstanding shares
(40,000x1.17x3 /12) 11,700
[(40,000+ 10,000)x9/12] 37,500 49,200
Basic EPS (P800,000/49,200) (B) P16.26 / sh are
Question No. 3
2016:
Weighted average outstanding shares[(40,000 + 10,000) x 12/12] 50,000
Basic EPS (P1,000,000 /50,000) (A) P20p ers hare
PROBLEM 30-14 Written Put Options (C)
(P350 – P280) x 10,000

Incremental shares = = 2,500 shares
P280
PROBLEM 30-15 Comprehensive Problem

Retained
Item NetI ncome Earnings
2015 2016 12/31/16
Unadjusted **1,300,000 *500,000 1,800,000
1) (50,000) 50,000 -
2) - (30,000) (30,000)
3) 45,000 (45 000) -
4) ***28,000 (28,000) -
5) 5,000 (5,000) -
6) (20,000) (20,000)
7) - - -
8) - - -
9) - - -
Adjusted 1,328,000 422,000 1,750,000
* (P5 EPS x P1 ,000,000 / P10 par)
** (1,800,000 – 500,000 2015 net income)
*** (P48,000 / 12 x 7 months)
Question No. 1 (D)

Refer to table above. Adjusted Net Income in 2016 is P422,000.
Question No. 2 (C)

Refer to table above.
303
Question No. 3 (C)

EPS 2016 (P42 2,000 / 100,000 shares) = P4.22
Question No. 4 (B)

Ordinarys harec apital,P10par 1,000,000
Sharepremium 500,000
Retained earnings, 12/31/2016 (as adjusted) 1,750,000
Question No. 5 (B)

BVPS (P3,250,000 / 100,000) = P32.50
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. B 5. B
304
Chapter 32 – Statement of Financial Position and Comprehensive Income
CHAPTER 32: STATEMENT OF FINANCIAL POSITION

AND COMPREHENSIVE INCOME
PROBLEM 32-1 Current and Noncurrent Assets

Question No. 1
Cash 400,000
Tradereceivables 1,500,000
Inventory, including inventory expected in the ordinary course of 1,200,000
operations to be sold beyond 12 months amounting to P800,000
Prepaid insurance 240,000
Financial assets at fair value through profit or loss 300,000
NoncurrentA ssets held fors ale building 650,000
Total Current Assets (D) 4,290,000
Question No. 2
Financial assets at fair value through other comprehensive income 600,000
Financialassetsatamortizedc ost 1,000,000
Deferredtaxasset 150,000
Machinery 800,000
Accumulated depreciation (200,000)
Landusedasaplant site 920,000
Total Noncurrent Assets (C) 3,270,000
PROBLEM 32-2 Current and Noncurrent Assets

Question No 1
Cash (1M+300,000+100,000-50,000-280,000) 1,070,000
Accounts receivable (3M-200,000+50,000) 2,850,000
Investments securities held for trading (1.8M-500,000) 1,300,000
Inventories (800,000-200,000+(450,000/125%) 960,000
Prepaid Expenses (only the prepaid insurance) 48,000
Total Current Assets (A) 6,228,000
Question No. 2
Cash in sinking fund 280,000
Long-term investments 500,000
Deposit to supplier for inventories to be delivered in 16 months 23,000
Cash surrender value 20,000
Property,plantandequipment 5,000,000
Total noncurrent Assets (A) 5,823,000
305
PROBLEM 32-3 Current and Noncurrent Liabilities

Question No. 1
Bank overdraft 300,000
Accounts payable (1M+25,000+100,000) 1,125,000
Property dividendspayable 400,000
Income taxpayable 300,000
Notepayable,d ueJanuary31,2 016 500,000
Cash dividendspayable 80,000
Financial liabilities at fair value through profit or loss 130,000
Estimated expenses of meeting warranties 335,000
Estimated damages as a result of unsatisfactory performance on 268,000
a contract
Loanspayable-current 100,000
Total current liabilities (A) 3,538,000
Question No. 2
Bondspayable 3,400,000
Mortgage payable 1,000,000
Loanspayable-noncurrent 400,000
Total noncurrent liabilities (C) 5,400,000
PROBLEM 32-4 Shareholders’ Equity
Ordinary share capital 10,000,000

Subscribed ordinary share 100,000
Subscriptionsreceivable (120,000)
Retained earnings unappropriated (6M-2M cost of treasury) 4,000,000
Reserves:
Retained earnings appropriated for treasury shares 2,000,000
Reserveforcontingencies 3,000,000
Unrealizedgain onFVTOCI 1,000,000
Revaluationsurplus 4,000,000
Cumulative translation adjustment – debit (1,500,000)
Total 23,480,000
Less:Treasuryshares 2,000,000
Total Shareholders' Equity (C) 21,480,000
306
PROBLEM 32-5 Adjusting and Nonadjusting events

Lossonexpropriation 100,000
Impairment loss on Accounts Receivable 600,000
Litigationloss 1,000,000
Total adjusting events (A) 1,700,000
All other data are nonadjusting events.
PROBLEM 32-6: Related Party Relationship

Requirement No. 1
The following companies are considered to be related parties of Frozen Throne
Company in accordance with PAS 24 Related Party Disclosures:
Name Description
1) Sand King Co. Post-employment benefit plan established by
Frozen Throne
2) Shadow Fiend Co. Associate
4) Harbringer Co. Subsidiary
5) Night Crawler Co. Subsidiary of Harbringer
6) Disruptor Co. Associate of Harbringer
7) Geomancer Co. Parent
8) Jakiro Co. Parent ofG eomancer
9) Rylai Co. Sister company of Frozen Throne Company
10) Medusa Co. Key Management personnel of Frozen Throne
Company.
11) BarathrumC o. Bank
16) Pudge Co. Joint venturer of Frozen Throne Company
17) Invoker Co. Joint venture of Frozen Throne Company
Requirement No. 2
Regardless of whether there have been transactions between a parent and a
subsidiary, an entity must disclose the name of its parent and, if different, the
ultimate controlling party. Therefore, Frozen Throne Company should disclose
Jakiro Co., its ultima te parent or controlling party.
PROBLEM 32-7 (Distribution costs and gener al and administrative

expenses)
Question No. 1
Advertising 500,000
Deliveryexpense 300,000
Rentforo ffices pace(500,000X1 /2) 250,000
Salescommissions 1,075,000
Depreciationondeliverytruck 14,000
Total distribution costs (B) 2,139,000
307
Question No. 2
AuditingandAccounting fees 300,000
Officers’salaries 625,000
Rentforo ffices pace(500,000X1 /2) 250,000
Insurance 200,000
Depreciationonofficeequipment 15,000
Total general and administrative expenses (D) 1,390,000
PROBLEM 32-8 Comprehensive Income

Net
Sales 4,000,000
Cost of goodssold 2,500,000
Grossincome 1,500,000
Other income 30,000
Shareofprofitof associate 125,000
Totalincome 1,655,000
Expenses:
Distribution costs 60,000
Administrativeexpenses 120,000
Financecost 35,000
Otherexpense 50,000 265,000
Income beforeincome tax 1,390,000
Income taxexpense 408,000
Incomef romc ontinuingo perations 982,000
Incomef rom discontinued operations 100,000
Net
Income 1,082,000
Other comprehensive income:
Revaluationsurpus 300,000
Translationgain 50,000
Unrealized gain on FVTOCI securities 200,000 550,000
Comprehensive income (C) 1,632,000
Other income:
Other expense:
Lossonsaleofequipment 50,000
308
PROBLEM 32-9
Non-
Current current
Asset asset Total Asset
Unadjusted balance 44,300 158,400 202,700
1. Notes receivable – maturity (10,000) 10,000 -
date July 1, 2018
Land (12,000) 12,000 -
2. FVTOCI 4,600 (4,600) -
3. Inventory 30,500 (30,500) -
4. Treasuryshares (1,800) (1,800)
5. Prepaid insurance 2,900 (2,900) -
10. Accumulated depreciation (21,000) (21,000)
– Building
Accumulated depreciation (13,000) (13,000)
– Equipment
Allowance for baddebts (700) (700)
Adjustedbalance 59,600 106,600 166,200
1. (B) 2. (A)
Non-
Current current
Liabilities liabilities Equity
Unadjusted balance 66,600 24,100 112,000
4. Treasuryshares (1,800)
6 Bondspayable (40,000) 40 000
7. Accruedwages 4,100 (4,100)
8. Mortgage – current portion 4,000 (4,000)
9. P remiumonbondspayable 4,300 (4,300)
10. Allowance for baddebts (700)
– Building
– Equipment
Adjustedbalance 34,700 60,300 71,200
3. (A) 4. (B) 5. (A)
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. B 5. A
309
PROBLEM 32-10
Cash in Accts. Accum. Depre-
bank Inventory Receivable PPE Depr ciation
Unadjusted 100 1,800 2,500 1,000 400 -
balances
1 - 4- - - -
2 - (15) - - - -
3 (14) - - - - -
4 20 - - - - -
5 (5) - 5 - - -
6 - -- - - -
7 - - - 500 112.5 112.5
8 - -- - - -
9 - 60 - - - -
10 - - - (20) (4) (4)
11 - - - - - -
Adjusted 101 1,849 2,505 1,480 508.5 108.5
balances 1. (B)
Continuation…
Advances
from Accounts Interest Bonds Amorti-
customers payable payable payable Discount zation
Unadjusted - 320 1,924,144 - -
balances
1 - 4 - - - -
2 - - - - - -
3 - 14 - - - -
4 - 20 - - - -
5 - - - - - -
6 - - - - - -
7 - - - - - -
8 5 (5) - - - -
9 - 60 - - - -
10 - - - - - -
11 - - 180 75,856 63.442 12.414
Adjusted 5 413 180 1, 936,558 63.442 12,414
balances 2. (B)
*000
Current Assets:
Cash inbank 101,000
Inventory 1,849,000
Accounts Receivable 2,505,000 4,455,000 3.(A)
Noncurrent assets:
PPE 1,480,000
Less: Accumulated Depreciation 508,500 971,500 4.(B)
Totalassets 5,426,500
310
Current liabilities:
Advances from customers 5,000
Interestpayable 180,000 598,000 5.(B)
Noncurrent liabilities:
Bondspayable 2,000,000
Discount on bonds payable 63,442 1,936,558 6.(C)
Totalliabilities 2,534,558
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. B 6. C
PROBLEM 32-11
2015
Sales COS EI OPEX
1. EI over, COS under 385,000 157,600 98,500 69,300
2015 6,200 (6,200)
2016
2. Salaries expense under
2015 14,600
2016
3. Sales ov erstated
2015 (1,700)
2016
4 Expe nse ov rstated
2015 (180)
2016
5. Purch. Over, COS over
2015 (3,200)
2016
6. Sales und er
2015 2,500
2016
7. Bad debt under
2015(32.4+2.5) x2% 698
2016 (66.1+4) x 2%-698
8. Dep. Expense under
2015 14,500
2016
Adjusted bal. 385,800 160,600 92,300 98,918
311
2016
Sales COS EI OPEX
1. EI over, COS under 420,000 203,800 164,900 76,700
2015 (6,200)
2016 8,500 (8,500)
2. Salaries expense under
2015 (14,600)
2016 17,300
3. Sales ov erstated
2015 1,700
2016 (800)
4. Expense overstated
2015 180
2016 (200)
5. Purch. Over, CO S over
2015 3,200
2016 (4,600)
6. Sales und er
2015 (2,500)
2016 4,000
7. Bad debt under
2015 (32.4+2.5) x 2%
2016(66.1+4) x2%-698 704
8. Dep. Expense under
2015
2016 14,500
Adjusted bal. 422,400 2 04,700 1 56,400 94,584
Question No. 6 (A)

Sales 385,800
LessCost ofsales 160,600
GrossProfit 225,200
LessOperatingexpenses 98,918
AddOther income 2,100
Netprofit 128,382
Add: Retained earnings, beginning 23,400
Retained earnings, December 31, 2015 ) 151,782
Question No. 7 (C)

Cost 145,000
Less Accumulated depreciation (14,500 x 2) 29,000
Book value of machinery, December 31, 2016 116,000
312
Question No. 9 (B)

Accounts receivable, 2015 (32,400+2,500) 34,900
Less: Allowance for bad debts (32,400+2,500) * 2% 698
Netrealizablevalue 34,202
Question No. 10 (B)

Sales2016 422,400
Less:Cost ofsales 204,700
GrossProfit 217,700
Less:Operatingexpenses 94,584
Add:Otherincome 1100
Netincome 124,216
SUMMARY OF ANSWERS:
1. C 2. C 3. D 4. A 5. C
6 . A 7. C 8. B 9. B 1 0. B
PROBLEM 32-12
Question No. 1
Unadjustedsales 4,323,600
Less:Advances 132,000
Adjusted Sales (A) 4,191,600
Question No. 2
Carryingvalue( 100,000x70%^4*) 24,010
Less:Recoverableamount(higher) 23,000
*future value after 4 periods = carry ing value after 4 periods.
Question No. 3
Sales 4,191,600
Add: Increase in raw materials (75,800 – 56,800) 19,000
Increase in finished goods (130,700 – 105,800) 24,900
Less: Purchaseo fr awm aterials (2,056,500)
Othere xpenses(seebelow) (522,100)
Wages and salaries (890,400 + 33,000) (923,400)
Amortization of development cost (648,000 / 3 x 4/12) (72,000)
Impairmentloss (1,010)
Depreciation [(567,000 – 402,000) x 30%] (49,500)
Tax expense (52,000 + 35,000 – 30,000) (57,000)
313
UnadjustedOther Expense 569,900

Add: Rent expense [10,000+ (4,000/4)**] 11,000
Increase in accrued expense (26,700 - 17,000) 9,700
Less: Taxsettlement (35,000)
Increase in prepaid expense (45,000 – 11,500) (33,500)
AdjustedOtherExpense 522,100
**Since the deposit is non-refundable, this is recognized as additional expense
over the lease term.
Questions No. 4 to No. 7

Current assets:
Cashi nbank(41,850–33,000) 8,850
Trade receivables and other receivables 245,800
Raw materials 75,800
Finished goods 130,700
Prepaidexpense 45,000 506,150
4. (B)
Non-current assets:
Intangible asset (648,000 – 72,000) 576,000
Plant (567,000 – 402,000 – 49,500 – 1,010) 114,490
Leasedeposit(4,000 –1,000) 3,000 693,490
Total assets . (C 5 ) 1,199,640
Tradeandotherpayables 156,700
Incometaxfromc
Advances payable
ustomers 52,000
132,000
A cruedpurchases 26,700 367,400
6. (C)
Non-current liabilities:
None - -
Totalliabilities 367,400
Equity:
Retained earnings (553,990 – 1,750 deficit – 7. (A)
20,000) 532,240 832,240
Total liabilities and shareholders’ equity 1,199,640
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. C 6. C 7. A
314
PROBLEM 32-13
2015 2016
Unadjustednetincome 195,000 220,000
1) BD expense under, NI over (392,000 x 10% )-
37,000 (2,200)
2) Unreal. Gain (Loss) (81,000-78,000) and
(62,000-81,000) 3,000 (19,000)
3) EI overstated, NI over (4,000) 4,000
EI overstated, NIover (6,100)
4) *Expenseo ver,NIunder 10,900
Depreciation expense under, NI over (1,100)
5) **Gainon saleunder, NIunder 2,500
6) Exp.Over 1,800 (900)
Adjustednet income 206,700 197,200
1.( B) 2.( B)
*(Expenses recorded P12,000 should be (12,000-1,000)/10= 12,000-1,000)
**NetSellingPrice 2,500
Less carrying amount
Cost 17,500
Less Accumulated depreciation 17,500 0
Gain onsale 2,500
Question No. 3
Cash 82,000
Accounts receivable (296,000-18,000) 278,000
Tradings ecurities at Fairv alue 81,000
Merchandise inventory (202,000-4,000) 198,000
Prepaidi nsurance( 2,700-900) 1,800
Total current assets (D) 640,800
Question No. 4
Cash 163,000
Accounts receivable (392,000 x 90%) 352,800
Tradings ecurities at Fairv alue 62,000
Merchandise inventory (207,000-6,100) 200,900
Prepaid insurance 900
Totalcurrentassets 779,600
Property, plant and equipment
(169,500+12,000-17,500) 164,000
Less: Accumulated. Depreciation
(121,600+1,100+1,100-17,500) 106,300
NetBook value 57,700
Total Assets (B) 837,300
315
Question No. 5
Sharec apital(20,000xP10) 200,000
Sharepremium 60,000
Retained earnings (206,700+197,200+*52,000) 455,900
Adjusted Shareholders' equity (A) 715,900
*(247,000-195,000)
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. B 5. A
PROBLEM 32-14
Question No. 1
Unadjustedsales 550,000
Less: Sale with a repurchase agreement (selling price) (10,000)
Adjusted Sales (B) 540,000
Note: The transaction should be reported as a financing arrangement, rather

than sale. Hence, the company will instead report a liability and interest. Also,
the cost sho uld be included as part of inventory.
Question No. 2
Unadjustedcost ofsales 411,500
Less: Sale with a repurchase agreement (cost) (7,000)
Add: Depreciation on Plant (see below) 13,600
Depreciation onB uilding (35,000/ 14) 2,500
Adjusted cost of sales (D) 420,600
Depreciation of plant asset is com puted as follows:

Plant asset classified as held for sale [(9,000 – 5,000) x 20% x
6/12] 400
Remaining plant asset [(70,000 – 4,000) x 20%] 13,200
Totalplant assetdepreciation 13,600
Non-current asset held for sale:

Fairvalue lesscosttosell 4,200
Carrying value date of classification (4,000 – 400) 3,600
Initial carryin g amount - LOWER 3,600
Question No. 3
Sales 540,000
Grossprofit 119,400
Less: Distribution cost (21,500)
Administrativeexpenses (30,900)
Interest [(700 + (10,000 x 10% x6 /12*)] (1,200)
316
Provision for bonus (540,000 x1 %) (5,400)

Tax expense (increase in DTL an d CTL) – (27, 200 + 9,400
–1,200–6,200) (29,200)
Question No. 4
Net
income 31,200
Add: Revaluation surplus (see computation below) 7,000
Total comprehensive income (B) 38,200
Land:
Appraisedvalue 12,000
Carryingamount 10,000 2,000
Building:
Appraisedvalue 35,000
Less: Carrying amount (50,000 – 20,000) 30,000 5,000
Totalrevaluation surplus 7,000

Current assets:
Tradereceivables 42,200
Inventory(43,700+7,000) 50,700
Non-currentasset held for sale 3,600 96,500
5. (D)
Non-cur
Land rent assets: 12,000
Building( 35,000–2,500) 32,500 (6.
C )
Plant (66,000–13,200) 52,800 97,300
Total
assets 193,800
Tradepayables 35,100
Currenttaxliability 27,200
Provision –bonus 5,400 74,500
7. (C)
Deferredtax liability 9,400 -
Bank loan 10,000 (D
8.)
Interestpayable 500 19,900
Equity:
Equityshares 50,000
Sharepremium 20,000
317
9. (B)
Retained earnings (11,200 + 31,200 – 20,000) 22,400 99,400
Total liabilities and shareholders’ equity 1,199,640
Question No. 10
Net
income 31,200
Divided by: Weighted average shares (see below) 96,739
Earnings per share (A) 3225
April 1 to July 1 (80,000* x 2 / 1.84** x3/12) 21,739

July1t oMarch31(100,000x9/12) 75,000
Weightedaveragen umberofs hares 96,739
*The number of shares before the exercise of the rights may be computed
by dividing the ( ¼rights).
**Adjustment factor.
Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
-
4+ 1
=
Fair value per share – rig ht on

Less:T heoreticalvalueof oneright .16
Theoretical ex-rights fair value per share
SUMMARY OF ANSWERS:
1. B 2. D 3. A 4. B 5. D
6 . C 7. C 8. D 9. B 1 0. A
PROBLEM 32-15
Question No. 1
Inventoriesat30September2015 31,800
Add:Purchases 344,000
Less: Inventories at 30 September 2016 27,300
Add: Depreciation – plant and machinery (see below) 46,485
Add: Depreciation – ma chine classi fied as held for sale (8,2 00 x
20%
6/12)
x 820
Add: Impairment loss – noncurrent asset held for sale [(8,200 –
820)
6,500]
– 880
Adjusted Cost of Sales (B) 396,685
Plant and Machinery
Cost –balanceforward 385,000
Less: Accumulated depreciation – balance forward 144,375
318
Less: Held fors ale asset – carrying amount 8,200

Balance 232,425
Less: Depreciation during the year (232,425 x 20%) 46,485
Carryingamount–year end 185,940
Question No. 2
Trial balance 216,200
Add: Depreciation – Property (14,500 + 30,000) - see below 34,500
Add: Downward Valuation (480,000 – 456,000) 24,000
Adjusted Admin Expense (C) 274,700
Property Valuations
Property A Property B
Carrying amount – October 1, 2015 372,000 1,080,000
Valuation– October 1,2 015 (449,500) (600,000)
Revaluation(gain)/loss (77,500) 480,000
Valuation– October1,2 015 449,500 600,000

Less: Depreciation (Property A: 31 years;
PropertyB :3 0y ears) (14,500) (20,000)
Carrying amount – October 1, 2016 435,000 580,000
Question No. 3
Trial balance 86,900
Add:Provisioncharge( seebelow) 33,600
Add:LeaseOther
Adjusted expense (seebelow)
Operating Costs (C) 27,600
148,100
Provision – Onerous Lease

Current liabilities [(3,000 – 2,300)x 12] 8,400
Non-current liabilities (8,4000 x3 years) 25,200
Total 33,600
Operating Lease
Total Payments [(18,000 x 7 years) + (36,000 x 8 years)] 414,000
Dividedby: 15 years
Operatingl easeexpensep eryear 27,600
Question No. 4
Revenue 1,057,000
Gross
profit 660,315
Less: Administrative expenses ( see No. 2) 274,700
Other operating costs (see No. 3) 148,100
Profitbefore tax 237,515
Less:
Tax 56,000
319
Profit after tax (A) 181,815

Current assets:
Inventories 27,300
Tradeandotherreceivables 61,500
Cash in
bank 5,100
93,900
Non-currentassetheldf ors ale 6,500 100,400
5. (D)
Non-current assets:
PPE (185,940 + 400,000 + 435,000 + 580,000) 1,600,940 1,600,940
Total assets (D) 6. 1,701,340
Tradeandotherpayables 199,800
Incometax payable 56,000
Provisions 8,400 264,200
7. (A)
Leaseliability( 27,600–18,000) 9,600 -
Provision 25,200 34,800
Equity:
Ordinary share capital 672,600
Revaluationsurplus 135,000 (B
8.)
Retainedearnings 594,740 1,402,340
Total liabilities and shareho ders’ equity 1,701,340
Retained Revaluation
Earnings Surplus
Beginningbalance 576,875 518,000
Total comprehensive income for the year 181,515 (378,500)
(77,500 – 456,000)
Dividend on ordinary shares (168,150)
Piecemeal realization of revaluation surplus 4,500 (4,500)
Ending balance 594,740 135,000
SUMMARY OF ANSWERS:
1. A 2. C 3. D 4. A 5. D 6. D 7. A 8. B
320
PROBLEM 32-16
SUPPORTING COMPUTATIONS:
Cost of Sales:
Add: Amortization of leased property [36,000 / (12 – 4)] 4,500
Add: Amortization of leased plant (25,000 / 5) 5,000
Add: Depreciation of other plant and equipment [(47,500 –
33,500) 20%]
x 2,800
AdjustedCostof Sales 311,000
Leased Property:
Carrying amount – April 1, 2015 (48,000 – 16,000) 32,000
Add: Revaluation surplus (36,000 – 32,000) 4,000
Revaluedamount–April1,2015 36,000
Less: Amortization (36,000 / remaining life 8 years) (4,500)
Carryingamount–March3 1,2016 311,000
Leased Liability:
Amortization Table:
Principal Interest Present
April
1,
2015 25,000
April1,2015 2,000 - 2,000 23,000
March3 1,2 016 6,000 2,300 3,700 19,300
March3 1,2 017 6,000 1,930 4,070 15,230
Leased Plant:
Fairvalue –April1, 2015 25,000
Less:Amort zation(25,000 /5years) 5,000
Carryingamount–March3 1,2016 20,000
Deferred Tax:
Deferred tax liability – March 31, 2016 (12,000 x 25%) 3,000
Deferredtaxliability–April1,2 015 3,200
Decreaseindeferredtaxliability 200
Question No. 1
Revenue 350,000
Grossprofit 39,000
Less: Distribution costs 16,100
Administrative expense (26,900 + 3,000 fraud) 29,900
Finance cost (300 + 2,300 interest in the lease) 2,600
Lossbeforetax (9,600)
Incomet ax benefit [(9,600 x 25%) + 200 – 800] 1,800
Loss after tax (D) (7,800)
321
Questions No. 2 to 5
Current assets:
Inventory 25,200
Trade receivables (28,500 – 4,000) 24,500
Current tax refund (9,600x 25%) 2,400 52,100
Non-current assets:
Leasedproperty 31,500
Leased plant (25,000 –5,000) 20,000
Owned plant (47,500 – 33,500 – 2,800) 11,200 62,700
Total
assets 114,800
Tradepayables 27,300
Financel ease liability – current 4,070 32,770
Finance lease liability – noncurrent 15,230
Deferredtax liability 3,000 18,230
Equity:
Share
capital 54,000
Reserves:
Sharepremium 9,500
TotalRetainedearnings
shareholders’ equity (3,200) 9,800
63,800
Statement of Changes in Equity:

Share Share Revaluation Retained
Capital Premium Surplus Earnings
Begbal 45,000 5,000 - 5,100
Prior period adjustment
fraud
– (1,000)
Restatedbalance 4,100
Rights issue (see below) 9,000 4,500
Net
loss (7,800)
Piecemeal realization of
R/S . . (500) 500
Ending bal. 54,000 9,500 3,500 (3,200)
The rights issue was 18 million shares (45,000/50 cents each x 1/5) at 75 cents
= 13·5 million. Thi s equates to the balance on the susp ense account. Thi s
should be recorded as 9 million equity shares (18,000 x 50 cen ts) and 4.5
million share pr emium (18,000 x (75 cents – 50 cents)).
322
The discovery of the fraud represents an error part of which is a prior period
adjustment ( 1 million) in accor dance with PAS 8 Accounti ng policies, chan ges
in accounting estimates and errors.
Question No. 6
Loss
after tax 7,800
Divided by: Weighted average shares (see below) 99,000
Loss per share (B)
April 1 to December 31 (90,000 x 1.20 / 1.125* x 9/12) 72,000

January1 toMarch31( 108,000x3/12) 27,000
Weightedaveragen umberofs hares 99,000
*Adjustment factor.
Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
-.
5+ 1
=
Fair value per share–right on 1.20

Less:T heoretical valueof one right .075
Theoretical ex-rights fair value per share
SUMMARY OF ANSWERS:
1. D 2. D 3. B 4. A 5. B 6. B
323
Chapter 33 – Statement of Cash Flows
CHAPTER 33: STATEMENT OF CASH FLOWS
PROBLEM 33-1 Cash flows and non-cash activities

1) Sale of common stock F
2) Sale of land I
3) Purchase of treasury stock F
4) Merchandise sales O
5) Issuance of long-term note payable F
6) Purchase of merchandise O
7)
8) Repayment of note
Receipts from payable
sale of half of investment in associate FI
9) Employee salaries O
10) Sale of equipment at a gain I
11) Issuance of bonds F
12) Acquisition of bond of another corporation I
13) Acquisition of a 60-day treasury bills Not
reported**
14) Purc hase of building I
15) Acquisition of a land und er a finance lease NC
16) Collection of nontrade note receivable (principal amount) I
17) Loan to another firm I
18) Declaration of cash dividend NC
19) Retirement of common stock F
20) Income taxes paid O
21) Issuance of short-term note p ayable to a supplier NC

22) Sale of a copyright I
23) Purchase of a treasury share of another corporat on I
24) Payment of cash dividends F
25) Receipt of dividends O
26) Payment for the acquisition of additio nal 10% interest in a F**
subsidiary
27) Payment of semiannual interest on bon ds payable F
28) Receipt of interest O
29) Increase in shareholders’ equity from a dividend NC
reinvestment plan
30) Declaration of share dividend NC
31) Interest paid capitalized under PAS 23 I
*Acquisition of 60-day treasury bills is transaction reclassifying cash to cash
equivalent.
**PFRS 10.23 Changes in a parent’s ownership interest in a subsidiary that do

not result in the parent losing control of the subsidiary are equity transactions
(ie transactions with owners in their capacity as owners). PAS 7 par 42A Cash
flows arising from changes in ownership interests in a subsidiary that do not
324
result in a loss of control shall be classified as cash flows from financing

activities.
PROBLEM 33-2 Indirect Method - Operating Activities

Net
income 668,000
Decreaseinaccountsreceivable 96,000
Increaseinaccountspayable 44,000
Net cash provided by operating activities (A) 828,000
PROBLEM 33-3 Indirect Method - Operating Activities

Net
income 292,000
Increaseinaccountsreceivable (40,000)
Decreaseinprepaidexpenses 12,000
Increase in accumulated depreciation-depreciation expense 64,000
Decreaseinaccountspayable (16,000)
Net cash provided by operating activities (A) 312,000
PROBLEM 33-4 Investing Activities

Cash acquisition of fair value through other comprehensive
securities (100,000)
Proceeds from sale of the company’s used equipment 1,000,000
Purchase of equipment (560,000)
Net cash provided by investing activities (B) 340,000
PROBLEM 33-5 Financing Activities

Issuance of shares of the company’s own ordinary shares 680,000
Dividends paid to the company’s own shareholders (28,000)
Repayment of principal on the company’s own bonds (160,000)
Net cash provided by financing activities (A) 492,000
PROBLEM 33-6
Question No. 1
Cash receipts from receivable (216 + 800 – 324) 692
Cash payment for purchases [(321 + 300 – 425) + 117 – 210] (103)
Cashd isbursement –
Cash disbursement –insurance (66
salaries (93 +4 0––102)
+ 120 88) (18)
(111)
Cashd isbursement–interest( 50–10) (40)
Cashd isbursement–tax(78+5 2– 60) (70)
Net cash provided by operating activities (D) 350
325
Question No. 2
Net
Income 88
Depreciation 123
Gain onsaleofbuilding (11)
Losson saleof machinery 12
Increase
in
A/R (108)
DecreaseinInventory 104
Decreaseinprepaidinsurance 22
IncreaseinAccountsPayable 93
Increase
Increase
ininsalariespayable
DTL 8 9
Bonddiscountamortization 10
Net cash provided by operating activities (D) 350
Note that cash flows for operating activities using direct or indirect method
is the same.
PROBLEM 33-7
Question No. 1 (B)
Accounts receivable
Beg. balance – AR 125,0000 135,000 Balance end - AR
Sales on account 1,000,000 - Sales returns and
allowance*
Recoveries - - Sales
990,000 discounts
Collections (squeeze)
- W ite-off
Total 1,125,000 1,125,000
Question No. 2 (C)

Accounts Payable Trade
Payments (squeezed) 525,000 190,000 Beg. balance – AP
Purchase returns and 0 485,000 Purchases
allow.
Purchased iscounts 0
Balance end – AP 150,000
Total 675,000
Net Purchases (squeeze) 485,000 500,000 Cost of Sales
Total 660,000
326
Question No. 3 (D)

Deferred income taxes
Payments (squeezed) 190,000 175,000 Beg. balance
100,000 Income tax expense
Balance end 85,000
Total 275,000
Question No. 4 (D)

Collectiono fa ccountsreceivable 990,000
Paymentof accountspayable (525,000)
Paymentof income taxes* (190,000)
Paymentofo peratingexpenses (180,000)
Net cash prov ided by (or used in) Operating activit ies 95,000
*Computation of Payment of income taxes
Prepaid insurance
Payment (squeezed) 180,000 165,000 Operating expenses
excluding depreciation
(260,000-95,000)
Total 205,000
Depreciation expense=245,000-150,000
=95,000
Question No. 5
Receipt of cash from note payable-bank (200,000-160,000) 40,000
Issuance for cash of ordinary shares(225,000-200,000) 25,000
Dividendspaid (75,000)
Net cash provided used in Financing activities (A) (10,000)
Question No. 6
*ProceedsfromSaleofi nvestment 20,000
Cash acquisition of PPE (540,000-460,000) (80,000)
Net cash provided used in investing activ ities (B) (60,000)
Costo fi nvestment sold (190,000-180,000) 10,000
Add:Gainon sale 10,000
Proceedsfroms aleofi nvestment 20,000

SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. D 5. A 6. B
327
PROBLEM 33-8
Question No. 1 (A)

Accounts receivable
Beg. Balance 600,000 1,250,000 Bal. end
Sales on account 5,000,000 4,330,000 Collections
20,000 Write-off
5,600,000 5,600,000
Question No. 2 (B)

Accounts payable
Bal. end 4,800,000 4,500,000 Beg. Balance
Payment 1,900,000 2,200,000 Net purchases
6,700,000 6,700,000
Net purchases 2,200,000 2,000,000 Cost of goods sold
4,200,000 4,200,000
Question No. 3 (A)

Net
income 700,000
Amortization of premium of Investment in Bonds 60,109
Gain onsaleofequipment (220,000)
Amortizationof franchise 100,000
Decrease (or increase) in Trading securities (450,000)
De rease(ori ncrease)inNetAR (530,000)
Decrease (ori ncrease) in Inventories (200,000)
Increase(ordecrease)inAP 300,000
Increase(ordecrease) in DTL 200,000
Net cash prov ided by (or used in) Operating activit ies 860,109
Computation of accumulated depreciation:

Beg.Balance 3,200,000
Add:Depreciationexpense 900,000
Less: Accumulated depreciation of asset sold 200,000
Balance end 3,900,000
Gain or (loss) on sale
Less: Carry ing amount
Cost 480,000
Less: Accumulated Depreciation 200,000 280,000
Gain onsale 220,000
328
Amortization table:
01/01/2015 4,253,552
12/31/2015 480,000 425,355 54,645 4,198,907
12/31/2016 480,000 419,891 60,109 4,138,798
Question No. 4 (B)

AcquisitionofPPE (1,000,000)
Sale
of
PPE 500,000
Net cash provided by (or used in) investing activities (500,000)
Question No. 5 (D)

Cash receipts-issuance of OS (10,000 x 120) 1,200,000
Cashp aidforT reasuryshares (500,000)
Net cash provided by (or used in) Financing activities 400,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. D
PROBLEM 33-9
Question No. 1 (D)
Accounts payable
5,300,000 5,300,000
3,800,000 3,800,000
Question No. 2 (B)

Income tax payable/Deferred tax liability
Bal. end-ITP 150,000 200,000 Beg. Balance-ITP
Bal. end-DTL 700,000 500,000 Beg. Balance-DTL
Payment 150,000 300,000 Income tax expense
1,000,000 1,000,000
Question No. 3 (A)

Net
income 700,000
Share in the net income ofa ssociate (1,024,000)
Cash dividendsfromassociate 280,000
329
Losson saleofequipment 100,000
Decrease (or increase) in Tradin g securities
Decrease(ori ncrease)inNetAR (90,000)
Decrease(ori ncrease)in Inventories 200,000
Increase(ordecrease)inAP (100,000)
Increase(ordecrease)inITP (50,000)
Increase(ordecrease)inDTL 200,000
Net cash provided by (or used in) Operating activities 516,000
Year of Acquisition
Percentageof ownership 20%
Less: Book value of net asset acquired 2,400,000
Excess ofc ost over book value 1,600,000
Inventory (40,000)
Machinery 240,000
Land -
Goodwill 1,800,000
Amortization of Over (Under) valued asset 2015 2016
Inventory 40,000
Machinery (240,000)
Divideby:Remaining life 10
No of monthsdivideby12(1st year) 1 1
2015 2016
2015 2016
Shareinthenetincome 800,000 1,000,000
2016 Investment Income
ShareintheNetIncome 1,000,000
Add: Amortization ofo vervalued machinery 24,000
Netinvestmentincome-2016 1,024,000
Investment in Associate
330
Beg.Balance 4,584,000
Add:Netinvestmentincome 1,024,000
Question No. 4 (B)

Cashr eceiptfromloanreceivable 120,000
AcquisitionofPPE (2,000,000)
Sale
of
PPE 500,000
Net cash provided by (or used in) investing activities (1,380,000)
Question No. 5 (D)

Cash receipts-issuance ofO rdinary shares 1,120,000
Cash receipts-reissuance of Treasury shares 105,000
SUMMARY OF ANSWERS:
1. D 2. B 3. A 4. B 5. D
PROBLEM 33-10
Question No. 1 (D)
Accounts payable
Payment ,700,000 2,200,000

15,700,000 5,700,000 Net purchases
3,700,000 3,700,000
Question No. 2 (B)

Income tax payable/Deferred tax liability
Bal. end-ITP 150,000 200,000 Beg. Balance-ITP
Bal. end-DTL 700,000 500,000 Beg. Balance-DTL
1,120,000 1,120,000
Question No. 3 (A)

Net
income 980,000
Share in thenet income ofa ssociate (630,000)
Cashd ividendsfromassociate 225,000
331
Losson saleofequipment 150,000

Amortization of disc on investment in bonds (12,708)
Decrease (or increase) in Net Accounts Receivable (90,000)
Decrease (ori ncrease) in Inventories (200,000)
Increase (or decrease) in Accounts Payable 500,000
Increase (or decrease) in Income Tax Payable (50,000)
Increase (or decrease) in Deferred Tax Liability 200,000
Net cash provided by (or used in) Operating activities 1,372,292
Amortization table:
01/01/2016 939,230
12/31/2016 100,000 112,708 12,708 951,938
12/31/2017 100,000 114,233 14,233 966,170
Year of Acquisition
Percentageof ownership 25%
Cost ofInvestment 3,500,000
Less: Book value of net asset acquired 2,500,000
Excess ofc ost over book value 1,000,000
Inventory (50,000)
Machinery 300,000
Land -
Goodwill 1,250,000
Amortization of Over (Under) valued asset 2015 2016
Inventory 50,000
Machinery (300,000)
Divideby:Remaining life 10
No of monthsdivideby12(1st year) 1 1
2015 2016
Dividends declareda nd paid 800,000 900,000
2015 2016
Shareinthenetincome 500,000 600,000
Dividends declareda nd paid 800,000 900,000
332
ShareintheNetIncome 500,000
Less:Undervaluationofinventory 50,000
Netinvestmentincome-2015 480,000
Cost of investment 3,500,000
Add:Netinvestmentincome 480,000
Balance end, 12/31/2015 3,780,000

ShareintheNetIncome 600,000
Netinvestmentincome-2016 630,000
Beginningbalance,01/01/2016 3,780,000
Add:Netinvestmentincome 630,000
Balance end, 12/31/2016 4,185,000
Property, Plant and Equipment

Beg. Balance 9,000,000 900,000 C ost of equipment sold
Acquisition cost 600,000 9 ,069,180 bal. end
Present value of MLP 369,180
9,969,180 9,969,180
Bal.e nd 3,000,000 3,200,000 Beg. Balance
of asset sold 400,000 200,000 Depreciation expense
3,400,000 3,400,000
Cost 900,000
Losson sale (150,000)
Question No. 4 (B)

Casha cquisition ofI nvestment inB onds (939,230)
AcquisitionofPPE (600,000)
Sale
of
PPE 350,000
Net cash provided by (or used in) investing activities (1,189,230)
Present Value of Periodic Payment (100,000 x 3.4869) 348,690
Add: Present Value of Bargain Purchase option(30,000 x 0.683) 20,490
333
Present Value ofM inimuml ease payments 369,180
Amortization table:
12/31/2016 369,180
12/31/2016 100,000 - 100,000 269,180
12/31/2017 100,000 26,918 73,082 196,098
Question No. 5 (D)

Payment of principal finance lease liability (100,000)
Cash receipts-issuance ofO rdinary Shares 720,000
Share Capital
Issuancefor cash 600,000
IssuancethruSDP 1,910,000
Share Premium
Retained Earnings
Add:Netincome 980,000
Less:Dividendsdeclared-cash 350,000
Less:Sharedividend 1,910,000
SUMMARY OF ANSWERS:
1. D 2. B 3. A 4. B 5. D
PROBLEM 33-11
Question No. 1
Collection from customers (202M + 410M – 200M – 6M) 406M
Proceeds from investment income (4M + 5M – 6M) 3M
Proceedsfroms aleofc ash equivalent 2M
Payment of purchases [(205M + 180M -200M) + 65M – 50M] (200M)
Paymentofi nsurance(4M+7M-8M) (3M)
Paymentofs alaries(11M+65M–6M) (70M)
Paymentofi nterest( 4M+25M–8M) (21M)
Payment oft ax( 14M + 8M + 36M – 12M – 11M) (35M)
334
Net cash provided from operating activities (C) 82M
Question No. 2
Purchase of land(196M–150M) (46M)
Proceeds from sale of major components of machine 17M
Purchase of long-term investment (25M)
Proceeds froms ale ofl ong-term investment 23M
Net cash used from investing activities (C) (31M)
Long-term Investment
Beg.Balance 125M 156M Bal.e nd
Investment income
(associate) 6M 23M Disposal
Acquisition (Tory) 48M
Total 179M 179M
Question No. 3
Retirement ofbonds (60M)
Proceeds fromi ssuanceofp referreds tock 75M
Acquisitionoftreasuryshares (9M)
Dividendspaid (22M)
Net cash used from financing activities (A) (16M)
Retained Earnings
Balancee nd 242M 227M Beg.Balance
Dividends 52M 67M Netincome
Total 294M 294M
Total
dividends 52M
Less: Stock dividends – small (4M shares x 7.50 fair value) 30M
Cash dividendspaid 22M
SUMMARY OF ANSWERS:
1. C 2. C 3. A
PROBLEM 33-11
Question No. 1
Overdraft
end
– 110
Add:Bank,beginning 120
Netc asho utflow (A) (230)
Question No. 2
Profitfor the year 135
335
Depreciation 115
Amortization 25
Increaseininventory( 200–110) (90)
Increase in trade receivable (195 – 75) (120)
Increaseintradepayable(210–160) 50
Decrease in current tax payable( 80 – 110) (30)
Net cash from operating activities (D) 85
Question No. 3
Acquisition of PPE (see computation below) (305)
Acquisition of intangible assets (see computation below) (125)
Acquisitionofinvestment (230)
Net cash used in investing activities (A) (660)
PPE, net
Balanceb eginning 410 680 Endingb alance
Acquisition 305 - Disposal
Revaluation 80 115 Depreciation
Total 795 795
Intangible asse t, net

Balanceb eginning 200 300 Endingb alance
Acquisition 125 - Disposal
Revaluation - 25 Amortization
Total 325 325
Question No. 4
10%securedloannotes 300
Issuanceofshares 100
Dividends paid (seec omputation below) (55)
Net cash from financing activities (C) 345
Retained Earnings
Balancee nd 375 295 Beg.Balance
Dividends 55 135 Net income
Total 430 430
SUMMARY OF ANSWERS:
1 . A 2 . D 3. A 4. C
336
PROBLEM 33-13
Question No. 1
Cash 5,639,900
Accountsreceivable 1,000,000
Allowancef ord oubtfula ccounts (180,000)
Inventories 2,200,000
Total current assets (A) 8,659,900
Question No. 2
Investment in bonds - FA at amortized cost 3,861,105
Propertyp lant and equipment 9,520,000
Accumulatedd epreciation (3,900,000)
Franchise -net 500,000
Total noncurrent assets (A) 9,981,105
Totalassets 18,641,005
Question No. 3
Liabilities and equity
Accountspayable 4,800,000
Dividendspayable 400,000
Total current liabilities (A) 5,200,000
Question No. 4
Total noncurrent liabilities (C) 700,000
Totalliabilities 5,900,000
Question No. 5
Ordinary shares, P100 parv alue 11,000,000
SharePremium 1,200,000
Treasurysharesatc ost (500,000)
Retainedearnings 1,041,005
Total shareholders' equity (C) 12,741,005
Total liabilities and equity 18,641,005
Accounts receivable
Beg. Balance 600,000 1,000,000 Bal. end
Sales on account 5,000,000 4,600,000 Collections
- Write-off
5,600,000 5,600,000
Allowance for doubtful accounts
Bal.e nd 180,000 40,000 Beg. Balance
Write-off - 140,000 Baddebts
180,000 180,000
337
4,200,000 4,200,000
Accounts payable
6,700,000 6,700,000
Amortization table:
01/01/2015 3,746,368
12/31/2015 320,000 374,637 54,637 3,801,005
12/31/2016 320,000 380,100 60,100 3,861,105
12/31/2017 320,000 386,111 66,079 3,927,184
12/31/2018 320,000 392,816 72,816 4,000,000
Property, Plant and Equipment

Beg. Balance 9,000,000 480,000 Cost of equipment sold
Acquisition cost 1,000,000 9,520,000 bal. end
PresentvalueofM LP -
10,000,000 10,000,000
Bal.e nd 3,900,000 3,200,000 Beg. Balance
of asset sold 200,000 900,000 Depreciation expense
4,100,000 4,100,000
Cost 480,000
Gain onsale 220,000
Ordinary shares
Issuancefor cash 1,000,000
Share Premium
338

Retained Earnings
Beginningbalance 461,005
Add:Netincome 980,000
Less:Dividendsdeclared-cash 400,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. C 5. C
PROBLEM 33-14
QuestionNo. 1 (C)
Income tax payable
Ending balance 143,700 65,000 Beg. Balance
Total 219,700 219,700
QuestionNo. 2 (C )
PPE, net
Balance beginning 791,500 805,300 Ending balance
Acquired–cash 50,000 - Disposal
Acquired – lease 12,130 153,330 Depreciation
Acquired – business
combination
Total 105,000
958,630 958,630
QuestionNo. 3 (A)
Profitfor the year 471,440
Amortization 8,200
Shareinprofitofassociate (24,700)
Increase in inventory (57,300 – 46,900) (10,400)
Increase in trade and other receivables (excluding receivable (17,520)
from business combination) – (75,900 – 51,930 – 6,450)
Decrease in trade and other payab les (excluding re ceivable from (43,758)
business combination) – (82,600 + 9,950 – 48,792)
Increaseinincome taxpayable 87,800
Net cash provided by operatinga ctivities 615,292
QuestionNo. 4 (C)
Proceeds from sale of license (see computation below) 21,600
AcquisitionofPPE (50,000)
AcquisitionofHey Jude (10,000)
339
AcquisitionofYesterday (58,800)
Cash and cash equivalents acquired in business combination 8,700
Net cash used by investing activities (88,500)
Intangible asse t, net

Balance beginning 33,450 28,800 Ending balance
Acquisition - 8,200 Amortization
Goodwill* 25,150 21,600 Disposal
Total 58,600 58,600
Consideration transferred [(58,500 + (35,000 x 1.4)] 107,800

Less:FVNAA(110,200x 75) 82,650
Goodwill 25,150
QuestionNo. 5 ()
PROBLEM 33-15
QuestionNo. 1 (A)
Interest receivable – investing
Beg. Balance 10,500 1 2,500 Endingb alance
Interestincome 52,000 50,000 Collection
Total 62,500 62,500
QuestionNo. 2 (A)
Income tax payable
Ending balance 170,000 130,000 Beg. Balance
Total 310,000 310,000
QuestionNo. 3 (B)
Increase in cash and cash equivalents (12,500 – 400) 12,100
Add:Decrease inbankoverdraft 3,500
Netcashinflows 15,600
Net
income 834,900
Gaino nsale(450,000–324,500) (125,500)
Interest income – investing activities (52,000)
Decreaseininventory 56,400
Decrease in trade and other r eceivables (exclud ing interest 79,500
related to investing) – (495,100 – 415,600)
Decrease in trade and other payables (122,600)
Decreaseinwarranty (30,000)
340
Increaseinincome taxpayable 40,000

Net cash provided by operating activities 1,240,700
QuestionNo. 4 (A)
Interest collected – investing activity 50,000
Proceedsfroms aleofm achinery 450,000
Proceeds froms ale off actory building 340,000
Loans to unrelated parties (1,000,000 – 850,000) (150,000)
Acquisition of PPE (see computation below) (2,022,500)
Net cash used by investing activities (1,332,5000
PPE, net
Balance beginning 1,594,400 2,567,400 Ending balance
Acquisition 2,022,500 324,500 Disposal - Machinery
Revaluation 220,000 340,000 Disused factory
560,000 Depreciation
Total 3,791,900 3,791,900
Revaluation surplus
Ending balance 350,000 250,000 Balance beginning
Transfer to R/E 120,000 220,000 R/S – current period
Total 470,000 470,000
QuestionNo. 5 (C)
Dividends paid (seec omputation below) (42,600)
Proceeds from issuance of shares (100,000 x 1.50) 150,000
Net cash provided from financing activities 107,400
Retained Earnings
Balance end 1,478,300 876,000 Beg. Balance
Bonus issue* 310,000 834,900 Net income
Transfer to R/E 120,000
Dividends 42,600
Total 1,830,900 1,830,900
*Total increase in share capital and share premium 460,000

Less:Issuanceofshareforc ash 150,000
Bonusissue 310,000
341

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APPLIED

A guide in applying auditing procedures to specific

DARRELL JOE O. ASUNCION, MBA, CPA

This “Teacher’s Manual” should be used solely by the

If you have comments, queries or suggestions, please do

Thanks and God bless.

Darrell Joe O. Asuncion, MBA, CPA

CHAPTER 5: CASH TO ACCRUAL.................................... ............................................ 4

CHAPTER 5: CASH TO ACCRUAL

PROBLEM 5-1 (Computation of Sales under cash basis)

Accounts receivable/Notes receivable trade/Advances from customers

PROBLEM 5-2 Computatio n of Bad Debts

Allowance for bad debts

PROBLEM 5-3 (Computation of Purchases)

Accounts Payable / Notes Payable / Advances to Suppliers

PROBLEM 5-4 Computatio n of Cost of Sales

Accounts Payable (AP) / Notes Payable (NP)

Computation of the net purchases:

PROBLEM 5-5 (Computation of Income Other Than Sales)

PROBLEM 5-6 (Computation of Expenses in General)

PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold)

30,000 Sales discounts

Question No. 3 Merchandise inventory

Total 454,000 454,000

Gross purchases 650,000

Total 1,320,000 1,320,000

Net Purchases 1,160,000 1,210,000 Cost of Sales (squeeze)

PROBLEM 5-12 Comprehensive

Purchasesona ccount 1,234,000

PROBLEM 5-14 Comprehensive

Depreciation for furniture andf ixtures 3,000

Question N os. 2 and 3

***Loss on note receivable discounted (200,000 – 190,000) 10,000

CHAPTER 6: CORRECTION OF ERRORS

PROBLEM 6-1 Income Statement and SFP Errors

Assuming errors were discover ed in 2017

Assuming errors were discover ed in 2018

PROBLEM 6-2 Counterb alancing Erro rs

B. Errors were dis covered in 2017

PROBLEM 6-3 Counterb alancing Erro rs

B. Errors were dis covered in 2017

C. Errors were dis covered in 2018

PROBLEM 6-4 Noncount erba lancing Errors

B. Errors were discovered in 2017

2) Unearned rent income 30,000

PROBLEM 6-5 Comprehen sive

PROBLEM 6-6 Comprehen sive

Note to pro fessor:

20X0 (should be 2015).

CHAPTER 8: CASH AND CASH EQUIVALENTS

PROBLEM 8-1 Cash and Cash Equivalents

PROBLEM 8-2 Cash and Cash Equivalents

PROBLEM 8-4 Cash and Cash Equival ents

Money Market Funds 11/21/2016 02/10/2017 2,000,000

PROBLEM 8-5 Cash and Cash Equival ents

PROBLEM 8-6 Cash and Cash Equival ents

PROBLEM 8-7 Effective Interest Rate

PROBLEM 8-8 Petty Cash Fund

Petty cash accountabilities

Petty cashfund 3,975

PROBLEM 8-11 Bank Reconciliation

Nov.(760+1,868) 13,114 19,019 2,628

Unadjusted book bal 11,534 18,269 21,575 8,228