CHAPTER 2 STATEMENT OF FINANCIAL POSITION _ TECHNICAL KNOWLEDGE To know the nature of a statement of financial position. To understand the current and noncurrent classifications of assets and liabilities. To understand refinancing of a currently maturing debt. To identify the components of equity in a corporation. To identify the minimum line items in a statement of financial position. To be able to prepare a statement of, ‘financial position using Philippine format.and IFRS format. 29 Scanned with CamScannerSTATEMENT OF FINANCIAL POSITION A statement of financial pos ion is a formal statement showing the three elements comprising financial position, namely assets, liabilities and equity. Investors, creditors and other statement users analyze the statement of financial position to evaluate such factors ae liquidity, solvency and the need of the entity for additional financing. Liquidity is the ability of the entity to meet currently maturing obligations. Solvency is the availability of cash over the longer term to meet maturing obligations. Information about liquidity and solvency is useful in predicting the ability of the entity to comply with future financial commitments and to pay dividends to shareholders Current and noncurrent distinction PAS 1, paragraph 60, provides that an entity shall present current and noncurrent assets, and current and noncurrent liabilities, as separate classifications in the statement of financial position. When an entity supplies goods or services within a clearly identifiable operating cycle the separate classification of current and noncurrent assets and liabilities is a useful information. It highlights assets that are expected: to be realized within the current, operating cycle, and liabilities that are due for settlement within the same period, : AA . Kor come entities, such as financial institutions, # Presentation of assets and liabilities in increasing oT decreasing liquidit; i i Y provides informati is faithfully represented and more relevant, prmation that ie faith Ro Scanned with CamScannerAssets The Revised Co; neceptual Fy i "rame : economic resource controlled}, ve defines an asset as.a Present xy the r ese e entil ntity as a result of past An economic resource fi is a rig] economic benefits, “ight th; ‘at has the potential to produce In layman's language and in short, assets are properties owned. The essential characteristics of an asset are: a. The asset is controlled by the entity. b. The asset is the result of a Past event. c. The asset has the potential to produce economic benefits. Current assets PAS 1, paragraph 66, provides that an entity shall classify an asset as current when: a. The asset is cash or a cash equivalent unless the asset is restricted to settle a liability for more than twelve months after the reporting period. b. The entity holds the asset primarily for the purpose of trading. c. The entity expects to realize the asset within twelve months after the reporting period. s to realize the asset or intends to sell i ct i, Theentity oe he entity's normal operating cycle. or consume it within U 31 Scanned with CamScannerCash and,cash equivalents This category includes cash on hand, petty cash fund, cash in bank. and any cash equivalent. However, the cash and cash equivalent shall be unrestricted in use, meaning available anytime for the payment of current obligations. PAS 7, paragraph 6, defines cash equivalents as short-term, highly liquid investments that are readily convertible into known amount of cash and which are subject to an insignificant risk of changes in value. For an investment to qualify as a cash equivalent, it must be readily convertible into a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition. Examples of cash equivalents a. Three-month BSP treasury bill b. Three-year BSP treasury bill purchased three months before date of maturity c. Three-month time deposit d. Three-month money market instrument Note that what is important is the date of purchase which should be three months or less before maturity. Thus, a BSP treasury bill that was purchased three years ago cannot qualify as cash equivalent even if the remaining matwity is three months or less. Equity securities cannot i a qualify as cash equiv: because shares do not have a date Stmavanty: "equivalent be However, preference shares with specified redemption dat® and acquired three month: ‘ y eae aneaid alec tey 's before redemption date can quali 82 Scanned with CamScannerHeld for trading Appendix A of PFRg 9 provides t} S thi classified as he, 7 c ' held for trading when: * fnancial asset is a. It is acquired p, rinci; the near term, “PUY for the purpose of selling it in b. On initial recognition, ; * Pa nition, it i financial ' , it is part of a portfolio of ident; instruments that are iandeea eos er and for which there is evi idence rec short-term profit taking. of @ recent actual pattern of c. Itis a derivati pee ae eee oF derivative that is a financial hedging instrument. esignated and an effective Simply stated, financial asse ly stated, assets held for trading. or "trading aoe a debt and equity securities that are purchased with selling them in the "near term" or very soon in order to generate short-term gains or profits. Expected to be realized within twelve months - This category refers to short-term nontrade receivables. Nontrade receivables represent claims arising from sources other than the sale of merchandise or services in the ordinary course of business. das current assets nd of reporting period, cycle notwithstanding. Nontrade receivables are classifie! collectible within one year from the the length of the operating e receivables are classified as Otherwise, the nontradi noncurrent assets. Realized, sold or consumed ategory refers to. trade receivables, This current asset © inventories and prepay’ current assets b re classified as b manoted Be realized, sold or consumed = operating cycle or one year, whichever is longer. 33 ments. ecause they are in the normal Scanned with CamScannerOperating cycle is the time between the ting cycle of an en n wee) pete err ing and their realization, in acquisition of assets for proc cash or cash equivalents. When the normal operating cycle is not clearly identifiable, the duration is assumed to be twelve months. The operating cycle of a trading entity is the average period of time that it takes to acquire the merchandige inventory, sell the inventory to customers and ultimately collect cash from the sale. The operating cycle of a manufacturing entity is defined as the period of time between acquisition of materials entering into a process and their realization in cash or an instrument that is readily convertible into cash. The normal operating cycle is significant as it is the basis of determining the proper classification of assets into either current or noncurrent. Presentation of current assets Current assets are usually listed in the statement of financial position in the order of liquidity. PAS 1, paragraph 54, provides that as a minimum the line lems under current assets are: a. : Cash and cash equivalents Financial assets at fair value through profit or loss, such as trading securities an ity i d other inve: in quoted equity instruments stments in q c. Trade and other receivables a. Inventories e. Prepaid expenses Scanned with CamScannerNoncurrent assets The capti Tt PtiON Noncurrent assets is a resig residual defi inition. States that “ sified as curre PAS 1, paragraph 6 classify all other asge assets”. 6, simph ta nat ng an entity shall nt as noncurrent In other words, what is i 1 , “1S not included j iti sosets is d ‘ed in the d assets, Ramee excludéd. All others are dassfed oe caren : 'Y, no: t assets include the following: . a. Property, plant and equ; I ‘quipm, b. Long-term investments pment c. d neurrent Intangible assets Other noncurrent assets PAS 1, paragraph 56, ql a , provides that deferre : classified as noncurrent asset, a eee Property, plant and equipment PAS 16, paragraph 6, defines property, plant and equipment as tangible assets which are held by an entity for use in production or supply of goods and services, for rental to others, or for administrative purposes, and are expected to bé used during more than one period. The major characteristics of the definition of property, plant and equipment are: a. The property, plant and equipment are tangible assets, meaning with physical substance. i re d in business, b. The property, plant and equipment are use , meaning used in production or supply of goods and services, for rental purposes and for administrative purposes. d for sale, including land, or held for Assets that are helt {included in property, plant and investment are no equipment. ant and equipment aze expected to be ©The property: i of more than one year. used over a perio 35 Scanned with CamScannerExamples of property, plant and equipment a. Land g. Motor vehicle b. Land improvement h. Furniture and fixtures ce. Building j. Office equipment d. Machinery j. Patterns, molds and digg e. Ship k. Tools f. Aircraft 1. Bearer plants The old term for property, plant and equipment is / assets. Long-term investments The International Accounting Standards Committee defines investment as an asset held by an entity for the accretion of wealth through capital distribution, such as interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the investing entity such as those obtained through trading relationship. A current investment is an investment that is by nature readily realizable and is intended to be held for not more than one year. A noncurrent or long-term investment is an investment other than a current investment or investment intended to be held for more than one year. Examples of long-term investments a. Investments in shares and bonds b. Investments in subsidiaries c. Investments in associates d. Investments in funds such as sinking fund, plant expansion fund and preference share redemption fund e Investment property ; Cash surrender value of life insurance policy Investment in Joint venture 36 Scanned with CamScannerIntangible assets PAS 38, paragraph 8, i ws , sim, 4 ; an identifiable nonmo, ply defines an intangible asset as neta il TY asset without Dhysical substance. Paragraph 8 further state: ‘S that "the j z trolled by ; le intan; ne controlled bythe entity asa result otpasterr anton mic benefits are expected to flow to th fom whi ch ie entity". Intangible assets do not h: ‘ave physical substan : expected to provide future economic benefits ieee The essence of intangible a i e sset i benefits that will flow to the entity.» the fature economic PAS 38, paragraph 12, provides that an i i i identifiable: an intangible asset is a. When it is separable or capable of being sold, transferred, licensed, rented or exchanged separate from the entity. b. When it arises from contractual or other legal right. The common examples of identifiable intangible assets include patent, franchise, copyright, trademark and computer software. Anexample ofan unidentifiable intangible asset is goodwill. Other noncurrent assets Other noneurrent assets are those assets that do not fit into the definition of the previously mentioned noncurrent assets. nt assets include long-term shareholders and employees, Examples of other noncurre fundable deposit. advances to officers, directors, Sh&"" or abandoned property and long-term re 37 Scanned with CamScannerLiabilities Under the Revised Conceptual Framework, a liabjtiy, . defined as a present obligation of an entity to transfer ( economic resource as a result of past events. mn The essential characteristics of a liability are: a. The entity has a present obligation. The entity liable must be identified. It is not necessary that the payee or the entity to whom, the obligation is owed be identified. b. The obligation is to transfer an economic resource. This is the very heart of the definition of a liability. Specifically, the obligation must be lo pay cash, transfer noncash asset or provide service at some future time. c. The liability arises from past event. This means that the liability is not recognized until it is incurred. Current liabilities PAS 1, paragraph 69, provides that an entity shall classify @ liability as current when: a. The entity expects to settle the liability within the entity's normal operating cycle. b, The entity holds the liability primarily for the purpose of trading, c. The liability is due to be settled within twelve months after the reporting period, d. The entity does not have an unconditional right to delet settlement of the liability for at least twelve months afte? the reporting period. 38 Scanned with CamScannerExamples of current liability eK a, Trade payables and accrual operating costs are par r the entity's normal ope: 6 for emple oof the work +4 rating cycle, and other Such operating item, lems are clannifie even if they are settled more thi ty the end of reporting poring 2” ve month b: Obligations that are not settled ¢ operating cycle but are d a Bo months after the end of repo for wetllement within twelve orLing period, Examples of such current obligations are bank overdr: dividends payable, income ta other nont and current portion of noncurrent, finan c. Financial liabilities held for trading are liabilities that are incurred with an in repurchase them in the near term. tention to An example of a financial liability held for trading quoted debt instrument that the issuer may buy the near term depending on changes in fair value. Long-term debt currently maturing due to PAS 1, paragraph 72, provides that a liability which is be settled within twelve months after the end of reporti period is classified as current, even if; a. The original term was for a period longer than tw months. b. An agréement to refinance or to reschedule payment on a long-term basis is completed after the end of reporting period and before the financial statements are authorize for issue. . on a long-term basis is completed of the reporting period, the ent and therefore the obligation However, if the refinancin on or before the end refinancing is an adjusting ev! is classified as noncurrent. 39 Scanned with CamScannerDiscretion to refinance PAS 1, paragraph 73, provides that if the entity has the discretion to refinance or roll over an obligation for at least twelve months after the reporting period under an existing Joan facility, the obligation is classified as noncurrent even if it would otherwise be due within a shorter period. Note that the refinancing or rolling over must be at the discretion of the entity. Otherwise, if the refinancing or rolling over is not at the discretion of the entity, the obligation is classified as a current liability. Covenants Covenants are often attached to borrowing agreements which represent undertakings by the borrower. These covenants are actually restrictions on the borrower as to undertaking further borrowings, paying dividends, maintaining specified level of working capital and so forth. Under these covenants, if certain conditions relating to the borrower's financial situation are breached, the liability becomes payable on demand. PAS 1, paragraph 74, states that such a liability is classified as current even if the lender thas agreed, after the end of reporting period and before the statements are authorized for issue, not to demand payment as a consequence of the breach. However, Paragraph 75 states that the liability is classified as noncurrent if the lender has agreed on or before the end of reporting period to provide a grace period ending at least twelve months after the end of reporting period. In this context, the grace period is a period within which the borrower can rectify the breach and during which the lender cannot demand immediate payment. 40 Scanned with CamScannerPresentation of & ‘urrent liabj]j a iabilities Ss PAS 1, paragraph 54, provide, the statement of financial pos line items for current liahiliti hat as a minimum, the face of ; A ie shall include the following a. ‘Trade and other payables p. Current provisions ¢. Short-term borrowing d, Current portion of long-term debt e, Current tax liability ° The term "trade and other payables" is a line item for accounts payable, notes payable, accrued interest on note payable, dividends payable and accrued expenses. No objection can be raised if the trade accounts and notes payable are separately presented. Noncurrent liabilities The term noncurrent liabilities is a residual definition. ph 69, simply states that all liabilities not PAS 1, paragra rent liabilities are classified as noncurrent classified as cur liabilities. Examples of noncurrent liabilities Noncurrent portion of long-term debt Lease liability Deferred tax liability d. Long-term obligations to © e. Long-term deferred revenue erp ntity officers 56, provides that deferred tax liability is PAS 1, paragraph paragrap rrent liabilily- classified as noncurren 41 Scanned with CamScannerWorking capital The entity’s liquidity is of primary concern to most. statement users and this can be properly evaluated through the curren, and noncurrent classifications. For example, working capital is the excess of current asset, over current liabilities and the working capital ratio j, current assets divided by current liabilities. Estimated liabilities Estimated liabilities are obligations which exist at the end of reporting period although the amount is not definite. In many cases, the date when it is due or payable is not also definite and in some instances, the exact payee cannot be identified or determined. Common examples of estimated liabilities include estimated liability for premiums, estimated liability for warranties and estimated liability under customer loyalty program. Estimated liabilities may be classified either as current or noncurrent. Contingent liability PAS 37, paragraph 10, defines a contingent liability in two ways: A contingent liability is a possible obligation that arises from past event and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity. A contingent liability is a present obligation that arises fro™ past event but is not recognized because: mbodyiné a. It is not probable that an outflow of resources emb ligation economic benefits will be required to settle the ob b. The amount of the obligation cannot be measured reliably. 42 Scanned with CamScanner| | Range.of outcome The range of outcome o may be described oe of unceres: a. Probable The future 5 The e event is | probable means tm ikely oe than b. Possible 2 te future event The future ¢ is 50% or | is less likely to ox ur. The Remote 9 The future is least like, the future event occurring i The occurrence is 10% or | Treatment of contingent liability A contingent liability statements. A contingent liabil not recognized in the financial hall be disclosed only. The required disclosures are: a. Brief description of the nature of the conting b. An estimate of the financial effe ¢. An indication of the uncertai d. Possiblity of any reimbursement remote, no disclosure is that exist If the contingent liability necessary. able and the amount can be ee ob. If the present obligation 6 Pi contingent liability measured reliably, the obligation is not 2 but shall be recognized as 2 provision. jability 5 e ded in An expense and an estimated liability shall be reco! rewgnizing a provision. Thus, a contingent liability is either but not both. probable or measurable 43 Scanned with CamScannerContingent asset PAS 37, paragraph 10, defines contingent asset ag asset that arises from past event and whose exig ei be confirmed only by the occurrence or nonoccurre ence Wi or more uncertain future events not wholly within a fon, of the entity. Ne con, Contingent assets usually arise from unplanned unexpected events that give rise to the possibj] inflow of economic benefits to the entity. OF Othe, ity of, An example is a claim that an entity is pursuing throug legal processes when the outcome is uncertain. ° Treatment of contingent asset A contingent asset shall not be recognized because this may result to recognition of income that may never be realized However, when the realization of income is virtually certain the related asset is no longer contingent asset and its recognition is appropriate. The outcome of a contingent asset is reported as follows: a. A contingent asset is recognized in the period whet realized. b. A contingent assct is only disclosed when it ts prob «— aasure iF c. If the contingent asset is possible, no disclost® required. ad , . po quite’ da. Ifthe contingent asset is remote, no disclosure is *4 Scanned with CamScannerEquity The term equity is the residual entity after deducting all of the lebaguan (he 2ssets of the es, Simply stated, equity me. liabilities. ans nel assets or total assets minus Equity is increased by rn ati by owners. profitable operations and contribution Conversely, equity is decrea: . Aas Se poulaistribuciontistownerst ed by unprofitakle operations The terms used in reporting the equi i i ty on the form of the entity are: eee a. Owner's equity in a proprietorship b. Partners’ equity in a partnership c. Shareholders’ equity in a corporation However, the term equity may simply be used for all business entities. Shareholders’ equity Shareholders’ equity or stockholders’ equity is the residual interest of owners in the net assets of a corporation measured by the excess of assets over liabilities. Generally, the elements constituting shareholder’ with their equivalent IAS term are: ‘s' equity Philippine term TAS term i Share capital / Sues nee I stock Subscribed share capital Ce Ordinary share capital pommen sia Preference share capital Raat Share premium Ret ined ewrni ora ficit) ‘Accumulated profits ( ee earnings ( : ropriate’ Appropriation reserve ied connie Revaluation reserve Revaluation surplus ‘Treasury share ‘Treasury stock 45 Scanned with CamScannerShare capital and share premium y is the port {the paid in capital rep, . Share capital is the portion of p i resent lolal par or stated value of the shares issued. in, 8 th ribed share capital is the portion of the ay ee ate been subscribed but not yor Tein ued. : Y aig Subs: share capital that h and therefore still unis Subscriptions receivable shall preferably be reflected , deduction from the related subscribed share capital! ® 4 However, subscriptions receivable collectible withi shall be classified as current asset. TONE Yous Share premium is the capital contributed by the shareholder, in excess of the par or stated value of the shares Subscribed and issued. Retained earnings Retained earnings represent the cumulative balance of periodie ne income or loss, dividend disti ibutions, prior period errors, changes in accounting policy and other capital adjustments. Unappropriated retained earnings represent that portion which is free and can be declared as dividends to. the shareholders. Appropriated retained earnings represent that portion which is restricted and therefore not available for any dividend declaration. A deficit is a debit balance in retained earnings. The deficit 15 not presented as an asset but as deduction from shareholders’ equity. Revaluation surplus Revaluation surplus is the excess of sound value over cary! amount of the revalued asset, Sound value is equa ; ciated § equal to the fair va * deprecia replacement cost, ee ee CnOTRGeD Depreciated replacement eo. cost minus accumulated depres ! is equal to replacement ciation, Carrying amount is com ated puted by sting accumul epreciation on cost from’ a ousting ac historical cost. 46 Scanned with CamScanner| Treasury shares Treasury shares ar : issued and then reacquired Dut not anres that have beén nceled. Treasury shares a) re usually recognized as an aseet, “Y Teeorded at cost and are not The cost of treasury sh s ares from the shareholders’ equine be reported as a deduction When treasury shares are acquired, must be appropriated to the shares. extent of , the retained earnings f the cost of the treasury Reserves The term “reserves” is not offici: i : ially defined in any i standard or in the Conceptual Framework. y accounting Under international accounting standard, the use of equity reserves is based on whether a reserve is part of distributable equity or nondistributable equity. Distributable equity is that portion that can be distributed to shareholders as dividends without impairing the legal capital of the entity. This squarely pertains to unappropriated retained earnings. Nondistributable equity is that portion that cannot be distributed to the shareholders in any form during the lifetime of the entity. Generally, nondistributable equity reserves represent those items of equity other than the aggregate par or stated value of share capital and retained earnings unappropriated. Examples of reserves a. Share premium reserve oF additional paid in capital tion reserve OF technically known as retained b. Appropria s earnings appropriated aluation reserve OF revaluation surplus c. Asset reve ae rve d. Other comprehensive income reser 47 Scanned with CamScanner~ N ERESESY WS S Bes OE OBIVION PAS 1, Paragraph 54, states that asa minimum, th of financial position shall include the following 1. Cash and cash equivalents 2. Financial assets (other than 1, 3 and 6) 3. Trade and other receivables 4. Inventories 5. Property, plant and equipment 6. Investment in associates using the equity method 7. 8. 9. 0. Intangible assets Investment property Biological assets Total of assets classified as held for sale and asset, included. in disposal group classified as held for sale 11. Trade and other payables 12. Current tax asset and liability 13. Deferred tax asset and deferred tax liability 14. Provisions 15. Financial liabilities (other than 11 and 14) 16. Liabilities included in disposal group held for sale 17. Noncontrolling interest 18. Share capital and reserves The listing of the line items is not exclusive. Paragraph 54 simply provides a list of items that are sufficiently different in nature and function to warrant separate presentation on the face of the statement of financial position. Paragraph 55 provides that additional line items, headings and subtotals shall be presented on the face of the statement. of financial position when such presentation is relevant to the understanding of the financial position of an entity. The judgment on whether additional line items are presented separately is based on the assessment of the following a. Nature and liquidity of assets b. Function of assets within the entity c. Amount, nature and timing of liabilities 48 Scanned with CamScannerf statement of fin sition Forms 0} ancial posit; The format of a state specified jn PAS 1, ment of fin, ‘ancial position is not In practice, there are tw. | oc statement of financial A Customary a fe i . osition, masleae in presenting the a. Report form This form sets forth the three major ; . downward sequence of assets, liabilities and equigy . b. Account form As BU suggests, the presentation follows that of an ne Tee the assets are shown on the left side an e liabilities and equity on the ri: i i statement of financial position. ee Actually, the statement of financial position is an expansion of the accounting equation “asset equals liability plus equity”. PAS 1, paragraph 57, provides that the standard does not prescribe the order or format in which line items are to be presented. In the Philippines, the common practice is to present in the statement of financial position current assets before noncurrent assets, current liabilities before noncurrent liabilities, and equity after liabilities. ally appropriate provided the Other formats may be equ 1 dance with paragraph 7 of the distinction is clear in accor Preface to IAS 1. Note that the format of the statem illustrated in the appendix to IAS ent of financial position as 1 is in the following order: Noncurrent assets Current assets Equity Noncurrent liabilities Current liabilities This may be the practice in other jurisdiction, like the United Kingdom. 49 Scanned with CamScannerMlustration - report form SAMPLAR COMPANY Statement of Financial Position December 31, 2019 ASSETS Note Current assets: Cash and cash equivalents (@) 500,000 Financial assets at fair value 200,000 Trade and other receivables (2) 700,000 Inventories (3) 900,000 Prepaid expenses (4) » 50,000 Total current assets 2,350,000 Noncurrent assets: Property, plant and equipment (6) 5,000,000 Investment in associate, at equity 1,000,000 Long-term investments (6) 5,100,000 Intangible assets (7) 2,000,000 Other noncurrent assets (8) 100,000 Total noncurrent assets 13,200,000 Total assets 15,550,000 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Trade and other payables 750,000 Note payable - short-term debt 400,000 Current portion of bonds payable 200,000 Warranty liability 50,000 ‘Total current liabilities 1,400,000 Noncurrent liabilities: . Bonds payable- remaining portion 1,800,000 Note payable - due July 1, 2021 600,000 Deferred tax liability 100,000 Total noncurrent liabilities 2,500,000 Shareholders’ equity Share capital, P100 par 5,000,000 Reserves (10) 3,000,000 Retained earnings 31650,000 ; Total shareholders’ equity 11,650,008 00 Total liabilities and shareholders’ equity 15,550.00 50 Scanned with CamScannerNote 1- Cash and cash equivalents Cash on hand Cash in bank 40,000 1,000 Petty cash fund 300,000 BSP Treasury bill, purchase 10,000 and due March 1, 2020 don December 1, 2019 150,000 ‘Total cash and cash equivalents 500,000 Note 2 - Trade and other receivables Accounts receivable ‘Allowance for doubtful accounts 580,000 Notes receivable ( 20,000) Accrued interest on notes receivable at Advances to employees, collectible currently : aol000 Total trade and other receivables Note 8 - Inventories Finished goods 300,000 Goods in process 400,000 Raw materials 150,000 Manufacturing supplies . 50,000 900,000 Total inventories Note 4 - Prepaid expenses Office supplies unused Prepaid insurance Total prepaid expenses Note 5 - Property, plant and equipment 1,500,000 Ballin 4,500,000 _ (0,000 Machinery and equipment Soon cad Furniture and fixtures TOL000 Patterns, molds, dies and tools, net _100,000 Total - 7,400,000 7 (2,400,000) Acer tion 2,400,000 umulated deprecia suo 000 Carrying amount 51 Scanned with CamScannerAccumulated depreciation: Building Machinery and equipment Furniture and fixtures Total accumulated depreciation Note 6 - Long-term investments Plant expansion fund | Financial assets at amortized cost Cash surrender value Total other long-term investments Note 7 - Intangible assets Patent Trademark Total intangible assets Note 8 - Other noncurrent assets Long-term refundable deposit Long-term advances to officers Total other noncurrent assets Note 9 - Trade and other payables Accounts payable Notes payable Accrued interest on note payable Income tax payable Dividends payable Accrued expenses Total trade and other payables Note 10 - Reserves Share premium Retained earn i earnings appropriated for contingencies Total reserves 52 2400, Ay 2.00004 000,645 — 100,04 5,100,099 500,009 1,500,009 000,000 20,000 80,000 100,000 350,000 150,000 15,000 50,000 100,000 85,000 Be 750,000 — 0 2,000,00 000 1,000.07 0,000 3,000,002 fee Scanned with CamScannerIllustration ~ account fo rm SAMPLA| Statement of R COMPANY Financial Position December 31, 2019 ASSETS Current assets: Cash and cash equivalents 500,000 Financial assets at fair value 200,000 ‘Trade and other receivables 700,000 Inventories 900,000 Prepaid expenses 50,000 Total current assets 2,350,000 Noncurrent assets: Property, plant and equipment 5,000,000 Investment in associates 1,000,000 Long-term investments 5,100,000 Intangible assets 2,000,000 Other noncurrent assets __ 100,000 ‘Total noncurrent assets 13,200,000 ‘Total assets 15,550,000 53 LIABILITIES AND EQUITY Current liabilities: Trade and other payables 750,000 Note payable - short-term debt 400,000 Current portion of bonds payable 200,000 Warranty liability 50,000 ‘Total current liabilities 1,400,000 Noncurrent liabilities: Bonds payable-remaining portion 1,800,000 Note payable-due July 1, 2021 600,000 Deferred tax liability 100,000 ‘Total noncurrent liabilities 2,500,000 Equity: Share capital, P100 par 5,000,000 Reserves 3,000,000 Retained earnings 3,650,000 Total equity 11,650,000 ‘Total liabilities and equity 16,550,000 Scanned with CamScannerIllustration - United Kingdom Style SAMPLAR COMPANY _ Statement of Financial Position December 31, 2019 ASSETS Noricurrent assets: Property, plant andequipment —_ 5,000,000 Investment in associates 1,000,000 Long-term investments 5,100,000 Intangible assets 2,000,000 Other noncurrent assets 100,000 13,200,000 Current assets: : Cash and cash equivalents 500,000 Financial assets at fair value 200,000 Trade and other receivables 700,000 Inventories 900,000 Prepaid expenses 50,000 2,350,000 Total assets 15,55! EQUITY AND LIABILITIES Equity: Share capital 5,000,000 Reserves 3,000,000 Retained earnings 3,650,000 11,650,000 Noncurrent liabilities: Bonds payable-remaining portion 1,800,000 Note payable ~ due July 1, 2021 600,000 Deferred tax liability 100,000 2,500,000 Current liabilities: Trade and other payables 750,000 Note payable ~ short-term 400,000 Current portion of bonds payable 200,000 Warranty liability 50,000 1,400,000 . _1,400,000 Total liabilities 3,900,000 3,900,008 Total equity and liabilities 550,000 54 Scanned with CamScanner' QUESTIONS - Define a statement of financial Position, 10n of Q Fetes statement of financial ponice wie and liabilities in the we & % 2 B. 5 = 3 9 g 3 & 8 8 s £ . Define assets. ~ V] im i 4, What are the essential characteristics of assets? 5. Define current assets. 6. Explain briefly an operating cycle. 7. What are the line items that should be shown under current assets on the face of the statement of financial position? 8. Define noncurrent assets. 9. Define property, ‘plant and equipment. 10. Define investments. 11. Define intangible assets. 12. Define other noncurrent assets. 13. Define liabilities. 14. What are the essential characteristics of liabilities? 15. Define current liabilities. 16. Explain fully the treatment of currently maturing long-term debt. 17. What are covenants? 55 Scanned with CamScannerlain the classification of a liability if the Felateg ai 18. Exp are preached. covenants should be shown Unde tems that the statement of financiay 19, What are the line ‘the face of current liabilities on position? 90, Define noncurrent liabilities. 21, What is working capital? 22, What are estimated liabilities? 23, Define a contingent liability. 24. Explain the treatment of a contingent liability. 25. Define a contingent asset. 26. Explain the treatment of a contingent asset. 27. Define equity. 28, What are the components of shareholders’ equity? 29. Explain share capital, subscribed share capital and share premium. 30. Explain treasury shares. 81. Explain retained earnings. 32. Explain revaluation surplus. 33. Discuss the meaning of the term reserves. 34, What are the line the face of the st; items that are required to be shown 0? ‘atement of financial Position? 35. Explai ‘plain the forms of statement of financial position. 56 Scanned with CamScannerPROBLEM Problem 2-1 (LAA) Dilemma Company provided 4) the December 31, 2019: fe a lowing information on Cash Accounts receivable Allowance for doubtful account 250,000 Prepaid expenses ‘ 50,000 Inventory 160,000 Financial assets at fair value 1,000,000 Land - 690,000 Building in process 500,000 Patent. 5,000,000 Machinery and equipment aes Accumulated depreciation aa Discount on bonds payable Say Accounts payable 200 00 Accrued expenses Bead Note payable due July 1, 2021 pea cH Bonds payable 2.000000 Share capital 3,000,000 Retained earnings 4,000,000 Retained earnings appropriated for contingencies 150,000 The financial assets at fair value include Dilemma The bonds pay 10% interest semiannually on April 1 and April 1, 2022. No interest has P100 par, are authorized, of which ed including 2,000 shares in the balance of P150,000 was | The retai -nings appropriated fi The retained earnings approP! lt of a pending lawsuit. for the resw orting period, the suit was * Company shares acquired at cost of P250,000. - October 1 and mature on been accrued on the bonds. *. Forty thousand shares, 30,000 shares are issu treasury. * created in anticipation Shortly after the end of reportin amicably settled and the entity paid P 100,000. Required: Prepare statement of financial position. 57 Scanned with CamScannerProblem 2-2 (IAA) Socorro Company provided the following informa; On December 31, 2019: Currentassets 3,100,000 Current liabilities Other assets 5,900,000 Long term liabilities Capital Cash (including P200,000 invested in money market and restricted foreign deposit of P300,000) Land held for undetermined use Accounts receivable less allowance of P50,000 Inventories Socorro Corporation share capital, at cost Total current assets Store supplies Building less allowance of P500,000 Equipment less allowance of P250,000 Financial assets at amortized cost Trademark : Advances to officers-indefinite repayment Patent Land Total other assets Accounts payable Note payable, due December 31, 2020 Income tax payable Share premium Total current liabilities Unearned leasehold income (five years starting 2020) Stock dividend payable Serial bonds payable (P100,000 maturing annually) Total long-term liabilities Retained earnings Share capital, P100 par Retained earnings appropriated for plant expansion Total capital Required: 400,000 900,000 500,000 100,000 150,000 1,000,000 350,000 150,000 500,008 int Prepare statement of financial position with supP ™ notes and computations. 58 Scanned with CamScannerproblem 2-3 (IAA) Magna Company re . aa Ported ncial posit d the final Position on December 4; following P31, 2019. 8 Statement of Current assets 2,000,099 Investments 400,000 tangible assets 7,150,000 Intangible assets 400,000 —tL000 Curent abi Long term liabiliti Baus abilities 8 1,500,000 2,000,000 6,450,000 * Equity has preference share F a capital, no par va : Psat eee on ae jemeanrap rdinary share capital, P20 par va authorized 400,000 shares, i pital, P20 par value, share. shares, issued 100,000 shares of P30 per * » Tangible assets include building P5,000,000 les: eae 000, 88 a la depreciation P1,600,000, equipment P1.100,000 ieee accumulated depreciation P400,000, land P1,250,000, and Jand held for future plant site P1,500,000. * ‘The current assets include: Cash P400,000, accounts receivable P750,000 less P50,000 for allowance for doubtful accounts, inventories P800,000, and prepaid expenses P100,000. * The investments include the cash surrender value of a life insurance contract P50,000, investment in securities, short-term, P100,000, and long-term, 250,000. * Intangible assets include @ franchise P100,000, goodwill P200,000 and discount on bonds payable P100, y , notes * Current liabilities include accounts payable s 400,000, er payable - short-term debt ye doe contin ba 1" a iS taxes payable P150,000, and apP! 200,000. rised solel, * Long-term liabilities comp eal payable due on December 3% ~ y of 12% bonds Required: , : classified statement of -operly tof notes. Prepare in good form @ P r¢ ate mancial position with approP™ 59 Scanned with CamScannerProblem 2-4 (AICPA Adapted) lowing condensed Boracay Company prepared the fol a statement of financial position on December 31, 2019. 4,000,000 Current assets 1,500,000 Current liabilities + 500.000 Working capital 100,000 Add other assets 500,000 Working capital plus other assets 4, aoiagt Déduct other liabilities er 4,200,000 Net assets es Money market placement — three months peed Cash in bank ; ee Accounts receivable 800, Notes receivable 200,000 Financial assets at fair value 400,000 Inventory 1,300,000 Goodwill __ 100,000 Total current assets 4,000,000 The inventory account was found to include the cost of office supplies of P50,000 and office equipment acquired at the end of 2019 at a cost of P250,000. Other assets included land and building acquired on January 1, 2018 for P4;000,000, less mortgage of P2,000,000 and accrued interest on'the mortgage of P200,000. At the time of purchase, the land was worth P1,000,000. The building on December 31, 2019 has a remaining life of 18 years. Current liabilities represented balances that were pay: ‘ r repres B 8 tha payable to trade creditors. Other liabilities consisted of withholding tax payable. However, no recognition was given to accrued salaries of P250,000. The entity was originally organized in 2 , g . 2018 when 30,000 ordinary shares with par value of P100 Bere issued in exchange for assets with fair value of P3,200,000. Required: Prepare a statement of financial position. 60 Scanned with CamScannerproblem 2-5 (IAA) ak Company provided th . nalfjon on December 31, 209 Mowing statement of financial - cial nt assets 2,700,000 care Curre: erassets 6,600,000 erliabiiice | cae Qther Habiitien 000.000 Scan 4,800,000 * . 300,000 ‘Analysis of current assets discloses the foll a lowin, Cash and cash equivalents Financial assets held for tradin, 500,000 Accounts receivable 8 600,000 Inventories 750,000 _ 850,000 2,700,000 Other assets include: Property, plant and equipment, cost P6,000,000 4,000,000 ‘Advances to subsidiary Me Goodwill recorded on the books to cancel losces ce incurred by the entity in prior years 350,000 6,600,000 Current liabilities include: Accrued expenses 100,000 Customers’ deposit 400,000 ‘Advances from officer, not payable currently 200,000 Accounts payable 1,000,000 Note payable-bank due December 31, 2021 _"800.000 2,500,000 Other liabilities include: Bonds payable in annual installment of P500,000 2,000,000 i y riginally Share capital, 50,000 shares, P100 par, was originally issued and credited for a total consideration of Ee but the losses of the entity for past years were charge against the share capital balance. Required: Prepare a properly classified stateme nt of financial position. 61 Scanned with CamScannerProblem 2-6 (IFRS) y provided the following information at pan. Darwin Com year-end: 1,500,009 Cash , . 1,200,009 Accounts receivable expected in the ordinary Inventory, pela fo be sold beyond 12 months inventory urse of opera 1,00 cone oo to P700,000 296,000 Financial assetheld for trading | , Equity investment at fair value throug! ere comprehensive income 2,000,000 Equipment held for sale 000.000 Deferred tax asset What amount should be reported as total current assets at year-end? a. 6,000,000 b. 4,000,000 c. 6,800,000 d. 4,800,000 Problem 2-7 (AICPA Adapted) At year-end, the current assets of Hazel Company revealed cash and cash equivalents of P700,000, accounts receivable of P1,200,000 and inventories of P600,000. The examination of accounts receivable disclosed the following: Trade accounts 930,000 Allowance for doubtful accounts (20,000) Claim against shipper for goods lost in transit 30,000 Selling price of unsold goods sent by Hazel on consignment at 130% of cost and not included in ending inventory 260,000 __ 260,000 Total accounts receivable 1,200,000 = What total Jt year-end? mount should be reported as current assets a. 2,412,000 b. 2,440,000 c. 2,240,000 d. 2,500,000 Scanned with CamScannerproblem 2-8 (AICPA Adapted) Petite Company report, . : December 31, 2019; °4 the following current, assets on Cash Accounts receivable 5,000,000 Inventory, including goods received o: 2,000.000 consignment P200,000 “4° Prepaid expenses, includin, : la d : fa depo oninventory tobe delivered in 18 ace 450,000 Total current assets — 7,950,000 Cash in general checking accou int. 5 Cash fund to be used to retire bo Scan aon nds payable i Cash held to pay value added taxes Pt 60-000 Total cash 5 5,000,000 What total amount of current assets should be r December 31, 2019? ee eee 6,750,000 6,700,000 : 7,700,000 7,750,000 Problem 2-9 (AICPA Adapted) Rice Company was incorporated on January 1, 2019 with P5,000,000 from the issuance of share capital and borrowed funds of P1,500,000. During the first year, net income was P2,500,000. On December 15, the entit On December 31, 2019, tl P 1,800,000. On December 31, as total assets? a. 6,500,000 b. 9,300,000 ©. 8,800,000 4. 6,800,060 Be op y paid a P500,000 cash dividend. he liabilities had increased to 2019, what amount should be reported 63 Scanned with CamScannerProblem 2-10 (AICPA Adapted) Arabian Company reported the following at year-end: Cash svable receival . Notes recelvable, net of discounted note P500,000 Inventory An analysis disclosed that accounts receivable comprised the following: oon i 5,000,000 Trade accounts receivable 090,000 Allowance for doubtful accounts econe (200000 Selling price of Arabian Company's unsold goo igson to Tar Company on consignment at 150% of cos\ ; and excluded from Arabian’s ending inventory 3,000,000 7,500,001 What amount should be reported as total current assets at year-end? a. 17,000,000 b. 17,500,000 c. 15,000,000 d. 16,500,000 Problem 2-11 (AICPA Adapted) Mirr Company was incorporated on January 1, 2019 with proceeds from the issuance of P7,500,000 in share capital and borrowed funds of P1,100,000. During the first year, revenue from sales and consulting amounted to P8,200,000, and operating costs and expenses totaled P6,400,000. On December 15, 2019, the entity declared a ~P300,000 dividend, payable to shareholders on January 15 : he liabilities increased to P2,000,000 by December ga Devember 31, 2019, what amount should be reported as total a. 11,000,000 b. 11,300,000 ©. 10,100,000 d. 12,100,000 64 Scanned with CamScannerProblem 2-12 (AICPA Adapted) Gar Company rep. wy ed the fi ‘ a aN he following accour 1 Accounts payable 1,909,000 Bonds payable Premium on bonds payable 4,400,000 Deferred tax liability 290,000 Dividend payable 400,000 Income tax payable 500,000 Note payable, due January 31, 2020 $800,000 a si 660,000 On December 31, 2019, wha | r » 2019, what total a 5 rf See ee il amount should be reported a. 7,100,000° b. 4,300,000 c. 8,900,000 d. 4,100,000 Problem 2-13 (PHILCPA Adapted) Burma Company disclosed the following liabilities: Accounts payable, after deducting debit balances in suppliers’ accounts amounting to P100,000 4,000,000 Accrued expenses 1,500,000 Credit balances of customers’ accounts 500,090 1,900,000 Share dividend payable Claims for increase in wages and allowance by 400,000 employees, covered in a pending lawsuit Estimated expenses in redeeming prize coupons 600,000 What total amount should be reported as current liabilities? a. 6,700,000 b. 6,600,000 €. 7,100,000 d._ 7,700,000 65 Scanned with CamScanner14 (AICPA Adapted) ym 2- . . Proble Sor provided the following informatio, as Ronna Com 3 December 31, 2019: “abit reditors ae! Accounts payable, net ofcredi 2,000,009 balances P200,000 ao Accrued expenses ne ean due December 31, 2021 50. Premium on bonds payable noe Deferred tax liability r ie Income tax payable oy 100 Cash dividend payable 600,00 Share dividend payable Marek 1, 3020 1 sen x vable — 6%, due March 1, 500, Note payable - 6%, 1s Note payable - 8%, due October 1, 2020 The financial statements for 2019 were issued on March 31, 2020. On December 31, 2019, the 6% note payable was refinanced on a long-term basis. Under the loan agreement for the 8% note payable, the entity has the discretion to refinance the obligation for at least twelve months after December.31, 2019. 1. What amount should be reported as total current liabilities? a. 7,200,000 b. 4,700,000 ¢. 6,200,000 d. 5,100,000 2. What amount hi liabilities? Should.be reported as total noncurrent 8,400,000 5,500,000 8,000,000 - 7,500,000 Be op ea Scanned with CamScanner j iProblem 2-15 (AICPA Adapted) Gold Company provid led the i 30, 2019: following trial balance on June Cash overdraft Accounts receivable : 100,000 Inventory 350,000 Prepaid expenses 580,000 Land held for sale 1 nant Property, plant and equipme ,000,000 ‘Accounts payable ene 950,000 Accrued expenses 200,000 Share premium 150,000 Share capital ' ereeee tained earni ,500,000 Re eae 800,000 Checks amounting to P300,000 were written to vendors and recorded on June 29, 2019 resulting in a cash overdraft of P100,000. The checks were mailed on July 9, 2019. Land held for sale was sold for cash on July 15, 2019. The entity issued the financial statements on July 31, 2019. 1. What total amount should be reported as current assets? a. 2,250,000 b. 2,050,000 ce. 1,950,000 d. 1,250,000 2, What total amount should be reported as current liabilities? a. 450,000 b. 350,000 c. 650,000 d. 300,000 3. What total amount should be reported as shareholders equity? a. 2,550,000 b. 1,750,000 c. 1,500,000 d. 2,300,000 67 Scanned with CamScannerProblem 2-16 (AICPA Adapted) a lowing trial bal sey Company provided the follow punce Deesmber 31, 2019 which had been adjusted except for ing Ie tax expense: 5,000,000 Cash eee valence 8,000,000 Accounts receiva ea Prepaid taxes 6,000,000 I ator, p f paacri plant and equipment 17,000,000 Accounts payable 10,000,009 Share capital 20,000,004 Retained earnings , 5,000,000 Foreign currency translation adjustment 2,500,000 Revenue 15,000,000 Expenses 10,000,000 —— 50,000,000 50,000,000 During 2019, estimated tax payments of P1,500,000 were charged to prepaid taxes. The entity has not yet recorded income tax expense. The tax rate is 30%. The accounts receivable included P3,000,000 due from a customer. Special terms granted to this customer require payment in equal semiannual installments of P500,000 every April 1 and October 1. 1. On December 31, 2019, what total amount should be reported as current assets? 21,000,000 18,500,000 17,000,000 19,500,000 eee rp On December 31, 2019, what amount should be reported as total retained earnings? a. 10,000,000 b. 8,500,000 ¢. 5,750,000 d. 6,000,000 68 Scanned with CamScannerProblom 217 (AICPA Adapted) Mint Company provided 4 December 31, 2019 whie income tx Expenno: Cah ‘Account receivable, not Cost in excens of billings on long [yilling in excoms of eonton long ! wpaid taxes pperty, it nt, and ¢ Not payabl Share capiti Share premium Retained carnings unappropriated Retained earnings r Rarnings from long. Conta and expenses All collectible within 12 months. term cont, term cont Hipment, net Gi mi contracks During the year, estimated tax payments of P450,000 were The entity has not recorded income charged to prepaid tax expense. Th On De 1. Total retained earnings? a. 1,950,000 b. 2)110,000 e. 2/400,000 d. 2}560,000 2, Total noncurrent liabilities? a, 1,620,000 b. 1,780,000 ¢. 2,320,000 d. 2/480,000 3. Total current assets? a. 5 000,000 b. 4,100,000 c 5, 700, 000 d. 6,150,000 4. Total shareholders’ equity? a. 2,940,000 b. 21780,000 c 4, "390,000 d. 4,730,000 x rate 18 30%, 69 Ae following a ACCOUNL ch had hoon adjusted. ted for note payable alan on t for 600,000. 4,500,000 1,600,000 700,000 450,000 1,510,000 1,620,000 750,000 2,030,000 900,000 160,000 6,680,000 5,180,000 eeivables on long-term contracts are considered to be mber 31, 2019, what amount should be reported as Scanned with CamScannerted) A Adap' . a 8 (AICP ing trial balan Problem 2-1 rovided the following bee ° Shaw Compans ty which had been @ om December 31, 2019 income tax expense: . . 600,000 . 2,800, Ca ata receivable 2,000,000 ry 10,500, Inventory ipment (net) , vty, plant and equipment (net) 1,800,09 Proper payable and accrued liabilities 180.0% Income tax payable 700,004 Deferred tax liability 2,500 Share capital Foo remium 4 Tk earnings, January 1 Bone Net sales and other revenue nen 000, Costs and expenses 4 100'000 Income tax expense 100, ae 28,000,000 28,000,009 The accounts receivable included P1,000,000 due from a customer and payable in quarterly installments of P125,000, The last payment is due December 30, 2021. During the year, estimated tax payment of P600,000 was charged to income tax expense. The income tax rate is 30%. On December 31, 2019, what amount should be reported as 1. Total current assets? a. 3,400,000 b. 4,400,000 ¢. 5,400,000 d. 4,900,000 2. Total current liabilities? a. 2,700,000 b. 3,300,000 ©. 4,050,000 d. 3,450,000 3. Retained earnings? a. 8,500,000 b. 6,400,000 ©. 7,000,000 4. 3,500,000 70 I Scanned with CamScannerproblem 2-19 (AICPA. Adapted) Charice Company Provide f ‘ Cavember 31, 2019: led the following, information on * Accounts payable for Sood orvil open account amounted to P500,000 00 1 totaled P300,000 on December 31, 01% purchased on * On December 15, 2019 th i yn ae! » “ the entity declared a cash dividend of P7 per share, payable on January 15, 2020, to shareholders of record on December 31, 2019. | ' The entity had 100,000 shares issue: ‘ate , throughout 2019, ‘es issued and outstanding * On July 1, 2019, the entity issued P5,000,000, 8% bonds: for P4,400,000 to yield 10%. The bonds mature on June 30, 2024, and pay interest annually every June 30. On December 31, 2019, the bonds were trading in the open market at 86 to yield 12%. The entity used the effective interest method to amortize bond discount. * The pretax financial income was P8,500,000 and taxable income was P6,000,000. The difference is due to P1,000,000 permanent difference and P1,500,000 of taxable temporary difference which is expected to reverse in 2020. % and made * ‘The entity is subject to income tax rate of 30) : ar 0) estimated income tax payments during the ye P1,000,000: What total amount should be reported as current liabilities on December 31, 2019? a 3,500,000 b. 2,700,000 ©. 2,300,000 a. 2,500,000 71 Scanned with CamScannerProblem 2-20 (IAA) Kaye Company reported the following liabilities 6 December 31, 2019: Accounts payable 6,500,009 Bank note payable — 10% 00,009 Bank note payable ~ 11% 100,009 Mortgage note payable — 10% 2,000,009 Bonds payable 5,000,009 * The P3,000,000, 10% note was issued March 1, 2019 payable on demand. Interest is p yable every six months. The one-year P5,000,000, 11% note was issued January 15, 2019. On December 31, 2019, the entity negotiated a written agreement with the bank to replace the note with a 2-year, P5,000,000, 10% note to be issued January 15, 2020. The 10% mortgage note was issued October 1, 2017 with a term of 10 years. Terms of the note give the holder the right to demand immediate payment if the entity fails to make a monthly interest payment within 10 days from the date the payment is due. On December 31, 2019, the entity is three months behind in paying the required interest payment. The bonds payable are ten-year, 8% bonds, issued June 30, 2010. Interest is payable semiannually on June 30 and December 31. The entity has not prepared the adjustment for any accrued interest on the liabilities. What total amount should be r jabilities e rted as current liabill! on December 31, 2019? reported as curren! a. 15,650,000 b. 11,650,000 Ei 20,650,000 13,650,000 72 Scanned with CamScanner =eproblem 2-21 Multiple choice (AA) ener ; 1. Which of the following is now a Honcurvent. Inveut * eel) a. Cash surrender y life ; cor sate value of life insurance c. Land held for s d. A sinking fund peculation 2. The term deficit refers to a. ress of current assets ( 5 rent assets over current Liabilities, b. xcess of current liabilities over current aguets c. A debit balance in retained earnings, ‘ d. A loss reported as a prior period error, 3. Which should be classified as a noncurrent as) a. Plant expansion fund b. Prepaid rent c. Supplies d. Goods in process 4, Which of the following items would normally be excluded from the computation of working capital? a. Advances from customers b. The portion of long-term debt that matures within one year after the reporting period c. Prepaid insurance d. Goodwill 5. Accrued revenue would normally appear in the statement of financial position under a. b. G d. Noncurrent assets Current liabilities Noncurrent liabilities Current assets Scanned with CamScanner6. For a liability to exist it. There must be a past even known. act amount must be ° a identity of the party to whom the liability is owed t be known. . | There must be an obligation to pay cash in the future, a. d. Which statement best describes the term liability? _ _ An excess of equity over current assets - Resources to meet financial commitments when due The residual interest in the assets of the entity after deduction all of the liabilities / d. A present obligation arising from past event a. c. 8. Which item is not a current liability? Unearned revenue Share dividend payable The currently maturing portion of long-term debt Trade accounts payable Boop Noncurrent liabilities include go a. Bonds payable b. Short-term obligation refinanced on a long-term basis at the end of reporting period Deferred tax liability d. All of these are noncurrent liabilities 2 10. Which is not within the definition of a liability? a. The signing of a three -year empl ti j xed annual salary Peiment contrac: at a aoe to provide goods or services in the future hoa eee le with no specified maturity date 0 ligation that is estimated in amount Scanned with CamScanner