UL College of Accountancy 1

ACC417/ACP: CASE STUDY no. 1

UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
Dagupan City

ACC417/ACP
1ST SEM/2021 – 2022

INSTRUCTIONS: THIS IS A GROUP WORK. SUBMIT YOUR OUTPUT NO

LATER THAN 12:00 PM SEPTEMBER 11, 2021. PREPARE YOUR
OUTPUT IN GOOD FORM USING MS EXCEL AS SOLUTION SHEET.
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ACC417/ACP: CASE STUDY no. 1

PROBLEM 1: STATEMENT OF FINANCIAL POSITION

Your client, Lance Livestrong, is preparing for a meeting with investors. He would like to provide
appropriate information about his company’s financial position. Lance has provided the
following accounts and balances at December 31, 2019, for Lance Livestrong Company.

Debit Credit
Cash P50,000
Accounts receivable (net) 38,500
Inventories 65,300
Equipment (net) 104,000
Patents 20,000
Notes and accounts payable P52,000
Non-current liabilities 100,000
Equity 125,800
P277,800 P277,800

Except for the following items, all adjustments have been recorded in the accounts.

1. Cash includes P200 petty cash and P20,000 in a fund designated for plant expansion in
2022.
2. The net accounts receivable is comprised of (a) accounts receivable P52,000 and (b)
allowance for doubtful accounts P13,500.
3. Equipment had a cost of P132,000 and accumulated depreciation of P28,000.
4. Notes and Accounts Payable is comprised of the following : Accounts Payable P32,000;
Taxes Payable P3,000; and Note Payable P17,000, due June 30, 2020.
5. Non-current liabilities are 10-year bonds paying interest at 9%, and maturing June 30,
2027.
6. Equity is comprised of Share Capital – Ordinary (P1 par) P50,000; Share Capital –
Premium P55,000; and Retained Earnings P20,800.

Requirements:

1. Prepare a corrected classified statement of financial position for Lance Livestrong

Company at December 31, 2019.

2. Livestrong is proud of his reporting and disclosure practices. He provides the three
primary financial statements along with a president’s letter describing the company’s
accomplishments for the past year. He is wondering whether there are specific guidelines
for presenting current and non-current assets and liabilities, as well as the prescribed
order and format for presenting items in the statement of financial position. Advise
Livestrong about these issues.
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ACC417/ACP: CASE STUDY no. 1

PROBLEM 2: STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

ACC CO. Group (parent and its 75 per cent owned subsidiary) presents the consolidated
statement of profit or loss and other comprehensive income following the single-statement
approach.

ACC CO. Group

Statement of comprehensive income at 31 December 2019
2019
Revenue 20,000 (a)
Cost of sales (7,000) (b)
Distribution costs (1,000) (c)
Administrative expenses (4,000) (d)
Other expenses (2,500) (e)
Extraordinary item (500) (f)
Finance costs (1,000) (g)
Profit before tax 4,000
Income tax expense (1,600) (h)
Dividend declared and paid (400) (i)
COMPREHENSIVE INCOME FOR THE YEAR 2,000

Notes that do not form part of the statement of comprehensive income prepared by the group’s
management.

Parent
Continuing Discontinued Subsidiary Total
Operation Operation
(a) Increase in fair value of investment 3,000
property
Sale of goods 10,000 1,500 5,000
Gain on disposal of discontinued 500
operation
Revenue 13,500 1,500 5,000 20,000
(b) Cost of sales 4,000 1,000 2,000 7,000
(c) Distribution costs 100 500 400 1,000
(d) Administrative expenses 2,000 1,000 1,000 4,000
(e) Advertising costs 1,000
Actuarial losses on defined benefit 700 800
plans
Other expenses 1,700 800 2,500
(f) Impairment of a sales office equipment 500 500
(g) Finance costs 500 500 1,000
(h) All items of income and expense are
subject to tax (deferred and current) at
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ACC417/ACP: CASE STUDY no. 1

40 per cent of the amount of the

income or expense.

(i) Dividend declared and paid 400 400

The parent raised 1,000 from the owners of the parent during 2019 by issuing shares to the
owners of the parent.

The group follows an accounting policy of recognizing actuarial gains and losses on its defined
benefit obligations in other comprehensive income.

Requirements:
1. Prepare ACC CO. Group’s financial performance statements for the year ended 31
December 2019 using the single-statement approach. Ignore comparative figures.

2. Prepare ACC CO. Group’s financial performance statements for the year ended 31
December 2019 using the two-statement approach. Ignore comparative figures.
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ACC417/ACP: CASE STUDY no. 1

PROBLEM 3: STATEMENT OF CASH FLOWS

Selected financial statement information and additional data for Stanislaus Co. is presented
below.
December 31
2018 2019
Land P 58,800 P 21,000
Equipment ............................................................... 504,000 789,600
Inventory .................................................................. 168,000 201,600
Accounts receivable (net).................................. 84,000 151,200
Cash ............................................................................ 42,000 63,000
TOTAL ........................................................P856,800 P1,226,400

Share capital–ordinary .......................................P420,000 P 487,200

Retained earnings ................................................. 67,200 205,800
Notes payable - Long-term................................ 168,000 302,400
Notes payable - Short-term............................... 67,200 29,400
Accounts payable .................................................. 50,400 86,000
Accumulated depreciation ................................ 84,000 115,600
TOTAL ........................................................P856,800 P1,226,400

Additional data for 2019:

1. Net income was P235,200.
2. Depreciation was P31,600.
3. Land was sold at its original cost.
4. Dividends of P96,600 were paid.
5. Equipment was purchased for P84,000 cash.
6. A long-term note for P201,600 was used to pay for an equipment purchase.
7. Share capital–ordinary was issued to pay a P67,200 long-term note payable.

Requirement: Prepare a statement of cash flows for the year ending December 31, 2019
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ACC417/ACP: CASE STUDY no. 1

PROBLEM 4: STATEMENT OF CHANGES IN EQUITY

Since the formation of ARENN CO. many years ago it has been a wholly owned subsidiary of ACC
CO..

In 2019, after the ACC CO. group’s consolidated financial statements for the year ended 31
December 2018 had been approved for issue, management discovered an error in its prior period
financial statements. The effect of the error is P230,000 overstatement of retained earnings at 1
January 2018. The error related to an error in the calculation of depreciation of ACC CO.’s sales
building.

The equity of ACC CO. (separate entity) and ARENN CO. (separate entity) before correcting the
prior period error is summarised as follows:

2018 2019
ACC CO. ARENN ACC CO. ARENN
CO. CO.
Total equity at the beginning of the year:
- share capital 2,500,000 10,000 2,500,000 10,000
- share premium 1,900,000 1,900,000
- retained earnings 2,070,000 80,000 2,415,100 82,000

Profit for the year 500,000 32,000 658,300 40,000

Actuarial gains/(losses) on defined benefit (1,900) (5,000) (3,000) 1,000
pension obligation, net of tax
Exchange gains/(losses) on translation of 67,000 (46,200)
foreign operation, net of tax
Issue of shares 6,000,000
Dividends declared and paid (220,000) (25,000) (320,000) (31,000)
Total equity at the end of the year 6,815,100 92,000 13,104,200 102,000

In 2019, ACC CO. issued 1,000,000 ordinary shares with a par value of P1 each for P6 each.

Requirement: Prepare ACC CO. Group’s consolidated statement of changes in equity for the
year ended 31 December 2019.