JESSA MAE P.

ZERDA
CHAPTER 12

 QUESTIONS

1. Define events after the reporting period.

Events after the reporting period are those events, favourable and unfavourable, that
occur between the end of the reporting period and the date when the financial statements are
authorised for issue.

2. What are the types of events after the reporting period?

 those that provide evidence of conditions that existed at the end of the reporting
period (adjusting events); and
 those that are indicative of conditions that arose after the reporting period (non-
adjusting events)

3. Explain adjusting events after reporting period.

Adjusting events after the reporting period are those that provide evidence of
conditions that exist at the end of reporting period.

4. Explain nonadjusting events after reporting period.

Nonadjusting events after the period are those that are indicative of conditions that
arise after the end of reporting period.

5. When are financial statements considered authorized for issue?

Financial statements are authorized for issue when the board of directors reviews the
financial statements and authorizes them issue.

Problem 12-1 (IFRS)

Answer:

Doubtful allowance for bad debts 100,000

Accounts Receivable 100,000

The entity's issued share capital comprised 100,000 ordinary shares with P100 par value. The
entity issued additional 25,000 shares on March 1, 2021 at par value.

Answer:

Shared capital investment 100,000

Cash 100,000

Equipment with carrying amount of P525,000 was destroyed by fire on December 15, 2020. The
entity has booked a receivable of P400,000 from the insurance entity. After the insurance entity
completed the investigation on February 1, 2021, it was discovered that the fire took place due to
negligence of the machine operator. As a result, the insurer's liability was zero on the claim.

Equiment with book value of 525,000

Less: Perishable event 525,000
Equipment 0

Answer:
Disaster expense 525,000
Equipment 525,000

Problem 12-2 (IFRS)

1. Answer:
Accounts Recievable 400,000
Sales Revenue 400,000

2. Answer:
Share investment 2,000,000
Shares revenue 2,000,000

3. Answer:
Contingent liability expense 3,000,000
Legal payable 3,000,000

4. Answer:
Accounts Receivable (large customer) 3,500,000
Sales Revenue 3,500,000

Problem 12-3 (IFRS)

What amount should be reported as income before tax in the financial statements?
c. 4,000,000

Problem 12-4 (IFRS)

What amount should be recognized as accrued liability on December 31, 2020 to reflect the
event after reporting period?
b. 3,500,000

Problem 12-5 Multiple Choice (IAS 10)

1. C 3. B
2. A 4. A
Problem 12-6 Multiple Choice (IAA)
1. D 4. D
2. B 5. D
3. C

Problem 12-7 Multiple Choice (IFRS)

1. A 4. C
2. D 5. A
3. D

CHAPTER 13

QUESTIONS

1. Define related party.

Related party – Parties are considered to be related if one party has:
a. The ability to control the other party.
b. The ability to exercise significant influence over the other party.
c. Joint control over the reporting entity.

2. Give examples of related parties.

1. Affiliates
2. Associate
3. Venturer
4. Key management personnel
5. Close family members of an individual
6. Individuals
7. Postemployment benefit plan for the benefit of the employee.

3. Explain related party disclosures.

-A related party disclosure transaction is a transfer of resources or obligations between
related parties, regardless of whether a price is charged.

4. What are the minimum disclosures for related party transactions?

Disclosures of related party transaction
PAS 24, paragraph 17, provides that if there have been transactions between related parties, an
entity shall disclose the nature of the related party relationship as well as information about the
transactions and outstanding balances necessary for an understanding of the financial
statements.
As a minimum, the disclosures of related party transaction shall include:

 The amount of the transaction.

 The amount of outstanding balance, terms and conditions, whether secured or
unsecured, and nature of consideration to be provided in settlement.
 The allowance for doubtful accounts related to the outstanding balance.
  The doubtful accounts expense recognized during the period in respect of amount due
from related parties

5. Give examples of unrelated parties.

Unrelated parties include the following:

 Two entities simply because they have a director or key management personnel in
common.
 Providers of finance, trade unions, public utilities and government agencies in the course
of their normal dealings with an entity by virtue only of those dealings.
 A single customer, supplier, franchisor or general agent with whom an entity transacts a
significant volume of business merely by virtue of the resulting economic dependence.
 Two venturers simply because they share joint control over a joint venture.

Problem 13-1 (AICPA Adapted)

What total amount should be reported as related party disclosures in the notes to Dean
Company’s consolidated financial statements for the current year?
ANSWER: C. 1, 750, 000

Problem 13-2 (IFRS)

What total amount should be disclosed as compensation to key management personnel?
ANSWER: A. 3, 500,000

Problem 13-3 Multiple Choice (PAS 24)

1. D 4. D
2. B 5. D
3. D

Problem 13-4 Multiple Choice (IFRS)

1. D 6. B
2. A 7. C
3. C 8. C
4. D 9. B
5. D 10. B

CHAPTER 14

QUESTIONS:

1. Define inventories.
Inventories are assets held for sale in the ordinary course of business, in the process of
production for such sell or in the form of materials or supplies to be consumed in the production
process or in the rendering of services.
2. What are the components of cost of inventories?
 Cost of purchase
 Cost of conversion
 Other cost incurred in bringing the inventions to their present location and condition.

3. Explain cost of purchase, cost of conversion and other cost included in cost of
inventories.

Cost of purchase
The cost of purchase of inventories comprises the purchase price, import duties and
irrecoverable taxes, freight, handling and other costs directly attributable to the acquisition of
finished goods, materials and services. Trade discounts, rebates and other similar items are
deducted in determining the cost of purchase.

Cost of conversion
The cost of conversion of inventories includes cost directly related to the units of
production such as direct labor. It also includes a systematic allocation of fixed and variable
production overhead that is incurred in converting materials into finished goods. Fixed
production overhead is the indirect cost of production that remains relatively constant regardless
of the volume of production. Examples are depreciation and maintenance of factory building and
equipment and the cost of factory management and administration. Variable production overhead
is the indirect cost of production that varies directly with the volume of production. Examples
are indirect labor and indirect materials.

Other cost
Other cost is included in the cost of inventories only to the extent that it is incurred in
bringing the inventories to their location and condition. For example, it may be appropriate to
include the cost of designing product for specific customers in the cost of inventories. However,
the following costs are excluded from the cost of inventories and recognized as expenses in the
period when incurred:
 Abnormal amounts of wasted materials, labor and other production costs.
 Storage costs, unless necessary in the production prior to a further production stage.
Process Thus, storage costs on goods in process are capitalized but storage costs on
finished goods are expensed.
 Administrative overheads
 Distribution or selling costs

4. Identify certain costs that are excluded from the cost of inventories.
However, the following costs are excluded from the cost of inventories and recognized as
expenses in the period when incurred:
 Abnormal amounts of wasted materials, labor and other production costs.
 Storage costs, unless necessary in the production prior to a further production stage.
Process Thus, storage costs on goods in process are capitalized but storage costs on
finished goods are expensed.
  Administrative overheads
 Distribution or selling costs

5. Explain the cost of inventories of a service provider.

The cost of inventories of a service provider consists primarily of the labor and other
costs of personnel directly engaged in providing the service, including supervisory personnel and
attributable overhead. Labor and other costs relating to sales and general administrative
personnel are not included but are recognized as expenses in the period in which they incurred.

6. Explain the cost formulas in determining cost of inventories.

PAS 2, paragraph 25, expressly provides that the cost of inventories shall be determined by using
either:
 First in, First out
 Weighted average
 The standard does not permit anymore the use of the last in, first out (LIFO) as an
alternative formula in measuring cost of inventories.

7. Explain the specific identification of determining cost of inventories.

Specific identification means that specific costs are attributed to identify items of
inventory. The cost of the inventory is determined by simply multiplying the units on hand by
the actual unit cost. PAS 2, paragraph 23, provides that this method is appropriate for inventories
that are segregated for a specific project and inventories that are not ordinarily interchangeable.

8. What is the standard in measuring inventory in the statement of financial position?

PAS 2, paragraph 9, provides that inventories shall be measured at lower of cost and net
realizable value. The cost of inventory is determined using either FIFO cost or average cost. The
measurement of inventory at the lower of cost and net realizable value is known as LCNRV.

9. Explain net realizable value.

Net realizable value or NRV is the estimated selling price in the ordinary course of business
less the estimated cost of completion and the estimated cost of disposal. The cost of inventories
may not be recoverable under the following circumstances:
 The inventories are damaged.
 The inventories have become wholly or partially obsolete.
 The selling prices have declined.
 The estimated cost of completion or the estimated cost of disposal has increased.
 Inventories are usually written down to net realizable value on an item by item or individual
basis.

10. Explain the accounting for inventory write-down.

 If the cost is lower than net realizable value, there is no accounting problem because the
inventory is stated at cost and the increase in value is not recognized. If the net realizable value
is lower than cost, the inventory is measured at net realizable value. In this case, the problem is
the proper treatment of the write down of the inventory to net realizable value. The write down
of inventory to net realizable value 18 accounted for using the allowance method.

Problem 14-1 (IFRS)

B. 760,000

Problem 14-2 (IFRS)

C. 750,000

Problem 14-3 (AICPA Adapted)

C. 4,080,000

Problem 14-4 (IFRS)

A. 5,700,000

Problem 14-5 (IFRS)

D. 240,000

Problem 14-6 (AICPA Adapted)

A. 5,850,000

Problem 14-7 (IAA)

A. 330,750

Problem 14-8 (IAA)

D. 1,529,600

Problem 14-9 (AICPA Adapted)

D. 1,500,000

Problem 14-10 (AICPA Adapted)

B. 3,225,000

Problem 14-11 (IAA)

C. 886,100

Problem 14-12 (ACP)

Determine the valuation of the inventory following the measurement at LCNRV.

Units Cost or NRV Inventory

Materials
Item 1 1,000 100 100,000
Item 2 2,000 250 500,000
 Item 3 3,000 300 900,000
Goods in process
Item 4 4,000 480 1,920,000
Item 5 5,000 620 3,100,000
Finished goods
Item 6 2,000 790 1,580,000
Item 7 2,000 730 1,460,000
Valuation at LCNRV 9,560,000

Problem 14-13 (IAA)

Determine the inventory value applying the lower of cost and net realizable value.

Units Unit Cost NRV Inventory

A 1,000 120 150 120,000
B 1,500 110 120 165,000
C 1,200 150 140 168,000
D 1,800 140 160 252,000
E 1,700 130 160 221,000
926,000

Problem 14-14 (AICPA Adapted)

Determine the unit value for each product applying the LCNRV in measuring inventory.

Produc Original Cost Cost to Dispose Est. Selling Net Lower of Cost or
t Price Realizable NRV
1 700 150 800 650 650
2 475 205 950 745 475
3 255 50 350 300 255
4 450 260 1,000 740 450

Problem 14-15 (IAA)



Problem 14-16 (IAA)

C. 4,800,000

Problem 14-17 (AICPA Adapted)

D. 4,800,000

Problem 14-18 (AICPA Adapted)

A. 1,100,000

Problem 14-19 (AICPA Adapted)

A. 1,400,000

Problem 14-20 Multiple Choice (PAS 2)

1. D 4. D
2. C 5. A
3. D

Problem 14-21 Multiple Choice (IFRS)

1. A 6. C
2. B 7. A
3. D 8. B
4. D 9. A
5. C 10. A

Problem 14-22 Multiple Choice (IAA)

1. B 4. A
2. A 5. A
3. B

Problem 14-23 Multiple Choice (IFRS)

1. A 4. B
2. A 5. C
3. C

Problem 14-24 Multiple Choice (IAA)

1. D 4. B
2. C 5. B
3. B

Problem 14-25 Multiple Choice (PAS 2)

1. C 4. A
2. D 5. C
3. D

Problem 14-26 Multiple Choice (IFRS)

1. C 6. A
2. D 7. C
3. B 8. A
4. A 9. B
5. A 10. B