Deloy, Jenivieve O.

BSA601
03 CASE PROBLEMS – AUDIT OF NON-CURRENT LIABILITIES

CASE 1

1. The liability component of convertible debt

Present value of Principal (5,000,000 x 0.77218) P 3,860,900
Present value of Interest Payments (5,000,000 x 6% x 2.53130) 759,390
Liability component of convertible debt P 4,620,290

2. Interest Expense, December 31, 20X2

Date Interest Paid (6%) Interest Expense Discount Carrying Value
(9%) Amortization
1/1/ 20x1 - - - 4,620,290
12-20X1 300,000 415,826 115,826 4,736,116
12-20X2 300,000 426,250 126,250 4,862,366
12-20X3 300,000 437,613 137,613 4,999,979

3. Share Premium of Issuance of Ordinary Share

Carrying Value of Bonds, Dec 31, 20X2 P 4,862,366
Add: Share premium-conversion privilege (5,000,000 – 4,620,290) 379,710
Total Consideration 5,242,076
Par Value of Ordinary Share P2 x (5,000 x 200) 2,000,000
Share Premium of Issuance of Ordinary Share P 3,4242,076

CASE 2

4. Current Liabilities
Notes Payable: P 608,000
Arising from purchase of goods 1,000,000
Arising from bank loans, which marketable securities
valued at P1,200,000 have pledge as security, due on
December 31,20x4 100,000
Arising from advances by officers, due June 30.20x4 40,000
Employees income tax withheld 128,000
Advances received from customers on purchase orders 100,000
Container deposit 370,000
Accounts payable from purchasing goods (340,000 + 30,000) 60,000
Customers account with credit balances 160,000
Cash dividends payable 200,000
Current portion of serial bonds (100,000 x 2) 180,000
 Overdraft with allied bank 180,000
Estimated damages to be paid as a result of unsatisfactory
performance on a contract 320,000
Estimated expenses on meeting guarantee for services requirements
on merchandise sold 240,000
Estimated premium payable 150,000
Deferred revenue 174,000
Accrued interest on bonds payable 720,000
BIR settlement 400,000
Total Current Liabilities P 4,950,000

5. Total Noncurrent Liabilities

Convertible bonds, due January 31, 20x5 P 2,000,000
Non-current portion of serial bonds (4,000,000 – 200,000) 3,800,000
Total Noncurrent Liabilities P 5,800,000

CASE 3

6.) Carrying Value of Bonds 9,096,967

Principal Payment interest payment Total Payment PV Factor Present Value

1/2/2021 1,000,000.00 1,000,000.00 0.8929 892,857
1/2/2022 1,000,000.00 1,000,000.00 0.7972 797,194
1/2/2023 1,000,000.00 1,000,000.00 0.7118 711,780
1/2/2024 1,000,000.00 1,000,000.00 0.6355 635,518
1/2/2025 1,000,000.00 1,000,000.00 0.5674 567,427
1/2/2026 2,000,000.00 1,000,000.00 3,000,000.00 0.5066 1,519,893
1/2/2027 2,000,000.00 800,000.00 2,800,000.00 0.4523 1,266,578
1/2/2028 2,000,000.00 600,000.00 2,600,000.00 0.4039 1,050,096
1/2/2029 2,000,000.00 400,000.00 2,400,000.00 0.3606 865,464
1/2/2030 2,000,000.00 200,000.00 2,200,000.00 0.3220 708,341
9,015,149

Year Interest payment Interest expense Amortization Installment Balance

1/2/2020 9,015,149
1/2/2021 1,000,000 1,081,818 81,818 9,096,967
1/2/2022 1,000,000 1,091,636 91,636 9,188,603
1/2/2023 1,000,000 1,102,632 102,632 9,291,235
1/2/2024 1,000,000 1,114,948 114,948 9,406,183
1/2/2025 1,000,000 1,128,742 128,742 9,534,925
1/2/2026 1,000,000 1,144,191 144,191 2,000,000 7,679,116
1/2/2027 800,000 921,494 121,494 2,000,000 5,800,610
1/2/2028 600,000 696,073 96,073 2,000,000 3,896,684
1/2/2029 400,000 467,602 67,602 2,000,000 1,964,286
1/2/2030 200,000 235,714 35,714 2,000,000 (0)
7.) Notes Payable 1,050,000.00
Less: (1,050,000/4yrs = 262,500 annual payment)
Payment 2019-2020 (262,500 x 3yrs) 787,500.00
Carrying value of Notes payable to supplier 262,500.00
Bank loan - Bank of Oro 500,000.00
Bank loan - Metrobanking Corp. 1,000,000.00
Notes Payable Balance Dec. 31, 2020 1,762,500.00

8.) Accrued Interest Payable balance 1,150,000.00

Interest payable on Bank of Oro (500,000 x .10) x 9/12 37,500.00
Interest payable on Metrobanking (1,000,000 x .10) x 5/12 41,666.67
Interest on notes payable(525,000 x .05) 26,250.00
Total Accrued Interest payable 1,255,416.67

9.) 2017 Depreciation per Tax 2,000,000.00

2018 Depreciation per Tax 400,000.00
Total 2,400,000.00
2017 Difference 2,000,000.00
2018 Difference 400,000.00
2019 Difference (560,000.00)
2020 Difference (1,136,000.00)
Total 704,000.00
Multiply by: 30%
Provision for deferred income tax 211,200.00
Deferred Tax Liability, Balance 552,000.00
Deferred Tax Liability, Dec. 31, 2020 763,200.00

10.) Balance of Finance Lease (200,000 x 6.7101) 1,342,016.28

Less:
Applicable interest (1,342,016 x .08) 107,361.30
Balance of finance lease obligation, Dec 31, 2020 1,234,654.98

11.) Bonds Payable 9,096,967.00

Notes payable 1,762,500.00
Deferred Tax Liability 763,200.00
Finance lease obligation 1,234,654.98
Total Noncurrent Liabilities 12,857,321.98

12.) Notes payable 262,500.00

Finance Leases Interest payable 107,361.30
Total Current Portion of Noncurrent Liabilities 369,861.30
13.) Interest expense in bonds (see amort table no. 6) 1,091,636.00
Notes payable (262,500 x .05) 13,125.00
Finance lease (1,234,654.98 - 200,000 = 1,034,654.98 x .08) 82,772.40
Interest expense Dec, 31, 2021 1,187,533.40

14.) 2021 Difference (704,000.00)

Multiply by Tax rate 30%
Deferred Tax expense for 2021 (211,200.00)
Deferred Tax expense for 2022 211,200.00
Deferred Tax Liability for Dec 21, 2021 -

15.) Bonds payable -

Notes Payable 262,500.00
Finance Lease (200,000 - 82,772.40) 117,227.60
Total Current liabilities pertaining to bonds, note and leases 379,727.60