ReSA ‘The Review School of Accountancy ‘WTel. No. 735-9807 & 734-2989 PRACTICAL ACCOUNTING 1 __G._UBERITA/7. ESPENTLLA/G, MACARIOLA Method of prevent Two separate statements ive income beginning With profit or hss and displaying components of ‘other comprehensive income Single statement of comprehensive income — this aetually a combined profit oF lass statement and Statement of other comprehensive income Comprehensive income income during a period Other comprehensive income —ineluies wer of incorne and expenses that are not recognized in profit oF Foss ‘but are recognized directly as required or permited by accounting standards, The following are examples of ‘other comprehensive income: Ales the eomponents of profit or loss and the components of other comprehensive 1 Unrealized gains and fosses on equity investments and debt investments 2. Gains and losses arising from translating the financial statemenis ofa foreign operation 3. Changes in revaluation surplus (using the full application of the standards) for property, plant and {cash flow goss the cHfeetive portion), croft pension pis Approach of Presentation Transaction approach ~ this isthe conventional or wadiional preparation of income statement i9 confor With the GAAP. This approach of determining net income or nt loss by comparing the total revenues earned ‘against the toal amount of expenses incurred Forms of Inconre statement: T Funetional presentation also known as cow of sks msthod. this form classifies expenses according to their function as part of cost of sles, selling activities, aninistrative activities and other activities Function of expense or cost of sales" method: (snle stsimen: of coinprehensive income) Revenue ees Cost af sales en Gross profit, = Other income ee Disisbation costs co Administrative sis 19 Ounce expenses = Prat less) faa Income a (a savings) tee Net incomet los) ar tas pc Other comprehensive income, At of as ‘Unrealized pais a Unrealized ssc at eat Comprehensive netincometloss) ron 2. Natural presentation also known as nature of expense method, this form, expenses are agerezated according {0 their nature and not allocated among vanous funetions within the ently. (for example amended to cequire tha where an entity inthe course of is ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others to transfer the assets (o inventories at theie carying amount when they ceased to be rented and become held forsale. The ‘proceeds from the sale for such assets are recognized! as reverie in accordance with IAS. 18 IFRS. S does. not apply when assets that are held forsale inthe ordinary course of husiness are transferred to inventories. 8. Customer loyalty programmes — under IFRIC 13, an entity must apply pat. 13 of VAS 18 and account for award ‘credits as a separately identifiable component of the sales transaction(s) in which they ate granted (the inital ‘sale). The fair value of the consideration received or receivable in respect of the iniiat sale must be allocated between the award credits and the other components ofthe sale U.the entity supplies the awards itself. it should socognize the consideration allocated to award credits as revenue when award credits are redeemed and st 1eiil its obligations to supply awards. The amount of revenue recognizes should be based on the number of award eredis that have been redeemed in exchange for ‘awards, relative tothe total number expected to be redeemed, 4 supplies the anand tie ety us asses whether it lst the consideration located 9 the war eredis on sown account (as the pinciel nthe Wansaction oon hal ofthe third pay (sm et forthe third party) see iri eniy i eoletng the consideration on behalf of the hind par t must (1) messre its revenue as there! unount retained ens own acount he difference Between the Consideration located tothe awd Cres andthe amount payable tothe hd pany Tor supoving the award) and 2) rogaine this nt tious a even when the til party becomes cliged 10 supply the awards and eile to reerve onideration for omg 30. These evens ctu as soon a6 the award Company % swaps 8 cortainer oF iG milk c+ + cycacer uf ruih of Company M in order to beable to deliver to ‘2 customer located closer to Compast! Ns d-xbution Centar The value ofthe container of milks 720,000, ‘Minch the seme for bath compainex. 2 ‘oll meck. Conpany N’ swaps 2 container Of mk (with & ‘Yale of P20,000) with Company In excaunge fer a cantamer ot cram The value of Company 1.'scontames of ereamn is P24.000 Company Nai reerved 2.400 from Company 1. What amount of revenue shou ‘Company ' recognized related to the «aps 2) 20,000 «24.000 ) Pato P60 3701Res Hin, Accue, & Reporting Starernen of Comprehensive Income Joy Company bas canted with a castoniey of sella yoo and end irimsaction price ss PLO 800 The sta alone sell peices oF the 1) 04 rexpeatively A discount of P the necessary services. The sand service are 900,000 and 01,000 prosided an the contract price. What amount of revenue too sale tl Joy Company tees aired he the completion of the sl trans sve oth PPP -an0.000 Pst. 182 P00 000) Action Company, a atencty cet er, rants 100,008 paints Foe customers seho- purchase goods totaling PRS AN, Fat valk of Jancary 08 The oowiapcment estimates that each point caw he redeemed of fies However, Action Compas expects that ony 80,000 points to be redeemed From oF 10.000 0000 nil the grant of ports, what amount should Action Company immediately ecojgize asa ee fr one 6) P9.890.000 9,800 000 40,000,000 Yor a quarter endo March 31, 2088, eo Hacel pacts customers who have stayed iv the hotel a toral of 900,00 pants ‘hich can he wed fs redeem He stay", free food and everage andior free spa treatment the terms af the redemption are w {Ne otpoims forredempion — [ Normal seling price | Veee-ame night stay | sw I 500 | Free fond and beverage 1,00 P1000 i] Free spa teatment 1 100 | Py,800 1 Based on he operaor's pas experience. thet 1 10% sability that customers will opt for the free one-night 430% probability for each ofthe orher swe awards, K further estimates that 30% ofthe customers will rt eect thei award eres Question 1. What ammo oferred revenue stould REA Hotel tecopnize forthe quarter ended March 31 201K? ay 3,500,000 +) P4410.000 by P8200.000 ps 50.000 Question 2° Assuine that customers of the horel would only avail the Free-one night stay, What amount of deferred revenue should the company recy. fe the quister cmd March 31-2018" a) 3,500,000 cy 410,000 by P4.200.000 4) PS,250,000 rs W loyalty poms for vers can sedeem the points for further graweries. The points have no expiry peri. Lys A, pans and mangement expects 80%. of these pasnts tw be redeemed. Crystal estmane= ts fof evel foyatiy point tw be PS and the amoust of deferred revere initially is PIOG,O0K.-At the end of she current year December 31, 2018 8,000 paints have heen tedcemed in exchange for groceries — What amoual of revenue front the Iya programme should be recognized on December 31.2018 a) none Pat, 00 by P30,000 ty P6000 Drake Elect Crystal Company operates 2 crstamee hy every PI,000 amouat of groves Hregratne 3 . parcrpates in a Custsnce “ay ty programme operated by an aurine company It grant fogramme members one simile wa each FLW they spend on electrical goods. Programme members c redeem the aimiles for air travel wish the sith, tyeet to avatlabilty. The rettr gays the airline 1 60 foe cach airmile, During the carrent sear. 201% Drake Company sells elecinal goods for consideration tain 110,000,000 and granis 109,000 aves. va Company esanutes that the fat vale othe airme 6 P2 0 Questom 1A Dake Company 1 collect the awand credits oa sts awn arcount, wha the airmile should Drake Compans recogni a) None ©) Pia8.008 by 40,000 {by P00. 100 imran of reventae fron Question 2 Drake Company 1s collecting dhe asard credit. on behal 0 the airline company fa 38 age of he aieline), st measures the revenue 4s th ct amaunt HE EANNS ON AS we aCCOUNL, What AMOR OF eSErHE should Drake reconie? 4) None 1) Pr60.40 by Pao 000 a 204 040 be following mfurmation pertwes te Sursty Cominans § 201K Cant af sales” tnventany fant PS 000,600 wentory. Dee 31, P3,000,000 Net purines, 1 140,000 and cont of obsolete inventory PSO0.060 I the company's policy 1 to inchade decline wate fn dhe salve wt amcioty an the gest at sales, what amount should the company repr as cant of ale a) PHO 240 600 © PL200,000 8 Pio 740.00 praia od) 3701BeSA.LEin. Acts. & Reporting ‘Statement of Camprehensive Income 14. Choese Company has the follow account Malamss Seles revenue, P1,600,000,. income from continuing tion, P200,000 net income. P18¢.100. incoxne from operation, P440,000; selling and administrative ‘expenses, P1,000,000, raome hea. m.are tas 400,00 What i the amour of finance cost? a) P20,000 ©) 160,000 by” P40 060 4) P200,000 18 Havel Corporation has an inc sme trate of 3.%e and uacame before non-operating items of P524,000, It also has the following sems (at gross amounts) {'nusual loss, P74,000; discominued operation loss, P202,000; gain from the disposal of equipnient, PI6-000 and change « a€counting principle increasing prior year's income, 106,000. What 1s the amcunt of income ‘ax expense Hazel Corporation would report on is statement of ‘comoprehensive income” ay P 84.380 ©) P77,920 by P149,120 . 4) P183,040 16. David Corp reports operating expen'ss i two vategures (1) selling and (2) general and administrative ‘The tedjusted tra! balance at December 31, 2018 incised the following expense and loss accounts: ‘Accounting and legal foes. P140,000, Advertising 160,000 Freightout 80,900 Inierest 70,000 {Loss on sae of long-term inves'ment 30,000 ‘Ofticers salaries 225,000 Rent for office space 220,000 Sales salaries and commissions 170.000 (One-half of the rented prevsises » ox¢upiey “» the sales department. Davids toal selling expenses for 2018 a) P350,000 <) Pa0.000 by 410,000 «) 520,000 1%. The following stems were among thie that sere reported on Denver Co's income statement for the year ‘ended December 31,2018 egal and audit fees P150,000, Rent for office space 180,000 Ierest on bank loan 210,000 {Loss on abandoned equipment ssa operations 35,000 The office space is used equally by Detves + < and secounting departments. What amount ofthe above- listed items should be classifica as gencra! acd“ vmistative expenses in Denver's income statement? a) 240.000 ©) 330,000 'b) 275,000 2) P430,000 18 Logan Corp’ trial balance of mceme atemen accounts forthe vear ended December 31, 2018 included the following i ; Debit Credit : Sales revenue 149,000 - Cost of sales P 60.000 ‘Administrative expenses 75-000 Loss on se of equipment 9.000 ‘Commissions fo salespersons 8 000 Interest revenue 5.000 Fright-out Loss on disposition of wholesale division + Bad debt expense: Totals ‘other information Logan's income tx rate 16 10%» Mrckand inventory Jancary 1, 2018 PRO,vEH December 31, 2018 7000 ‘Question 1: On Logan's income sistem at te 18 eerste purchases are = PS0.000 eo PI b Ps3,000) SV P73 010 Meee a eee eee nTae i Flee ae 3701ReSA/Pin, Accu. Reporting Statement of Comprehensive Income 19, The following information pertains to Wendy Corapany dering 2018, incr 31, 2018 inventory. P80,000; Purchases during the yea, ces, P105.000, Purchase discounts, P25,000; transportation in, 10,0009, Sales during the year, P®.850 000, Sales disciwnts granted, P70,000, Sales retums, P120,000; Selling sjones, P990,000, Admmistraive expenses, PR?S.i00: Rental revenue, P6S,000; Dividend received, 150.000; Income tax expense, 183,200; and Ketamned earnings, January 1, 2018, 200,000 Unrealized gain y investment at fair value to other coniprehensive income, net of tax. P20,000; Revaluation surplus, net of ta P10,000 and Dividends paid of °150,000 cn redeemable preferences shares accounted as a liability January 1, 2018 tnventory, PASO LAK. Da Pt 800,000; Purchase retumns and allow Wha amount of comprehensive income Sul the eSmpany report? 2) "P176.300, 6) 206 800 wy Pise.s00 £1 7288 800 20, Presented below are year-end balances the 1s:20 and liabilities pertaining to Glacier Merchaidisin: 2017 cash 150,000 P120.000 Accrued revenue 260,000 230,000 Accounts receivable, net 360.000 400.000 Inventories. 703.00 635.000 Prepaid expenses 130,000 128.000 Accounts payable... 182,000 136,000 ‘Other current ails 141,000 125.000 Bonds payable 200,000 200,000 Additional investment made by the ow ner during 2018 was P: 50,000 but a P260,000 personal liability was paid “out of company's funds. What is she company s wot ut loss for tne year ended Devember 31, 2018? a) P 30,000 ) P190,000 b) P140.000 <2) 290.000 20. Monarch Coropany’s account balances duriae 2418 showed the following changes Current assets 3,000,000 increase Non-current assets 2,500,000 decrease Current liabilities, 1,600,000 decrease Non-current liabilities £090,000 increase Share Capital #.200,000 increase Share premium eapitat ‘300.000 increase “There were no changes in retained earnings for 2018 other than a P1,500,000 divdend payment and year-end ‘result of operations. How much is Monarchs et neame for 2018? a) P500,000 «) #700,000 ) 600,000 3) 800,000 22. For the year ended December 31 2018. 111 Compary sweonded sale revenue ot P3,600,000. The fotlosins items of income and expenses were recarded forthe nancial year ; costof —Dasttibution ‘Tonal goodssold costs Administranon Rand 1 Opening inventories 400.000 400.000 Purchases + 600,009 1,600,000 Closing inventories 100.000 ‘Wages and salaries 800.990 200.000 400.000 190.000 Depreciation 700.600 40.000 120,000 20,000 ‘Supplies and materials aa.coe 4.000 6.000 30,000 ‘Amortization 20000 i 20000 Total 24100026000 170.000 Unallocated Costs: : Directors salaries 200.000 Depreciation - head office 000 Write-down of inventories 160,000 Impairment toss 100,000 Allowance for bad debis 90,000 Other operating income 200.000 Pare bofReSA / bio. Aceig. & Reporting Statement of Compechensive Income Management has concluded that a reasonable has to allocate common costs t0 the eost of sale, distribution, administration and R and D Fan-tions yes ely rs the following ratios. of ead office asset ratio 03.61 Inpairment loss and allowance for bad debt ratio 8 6 Income Statement by Nat Revenue 3,600,000 ‘Other operating Income 200,000 Purchase 1,600,060 Fnceease i inventories 300.008) Wetedose of mentors 160.000 Supplies and materats 40,000 1 Waves and salaries (700,000 ~ 200,008) 90.000 Depreciation (180.000 » 120.0005, 309.000 Amorizion 20.09 Impairment loss 100.960 ad debts 9.000 2,800,000 Profit from operation },000,000 Income Statement by Function Revenue 3,600,000 (Cost sales (100,000 - 400.000 = 16.004) (4,360,000) Gross profit 2%340,000 (ther operating income 200,000 Distribution costs 248,000 © 3 326.000 — 4 < 180 900) « 412,000) Administration (526,000 - 6 4 320.0009 x 180,00 « 826,000) Wand 270.000 $9320.90) 202,000) Profit from operation 7,000,000 3701