Duazo, Noriel B.

ACC 221 (7751)

1:30-2:30 PM

ULO 1-3: Let’s Check

Activity 1
1. NM 6. M
2. NM 7. NM
3. NM 8. NM
4. NM 9. M
5. M 10. M

Activity 2
1. D. 11. C.
2. C. 12. A.
3. A. 13. A.
4. B. 14. A.
5. D. 15. A.
6. D.
7. A.
8. A.
9. B.
10. A.

Let’s Analyze

Activity 1 – Cherry Company

Cherry Company reported that financial position did not change during the current year. The
general price index was 120 on January 1 and 300 on December 31. The
entity provided the following statement of financial position on January 1 and
December 31:
Cash 500,000
Accounts Receivable 1,000,000
Trading Securities 800,000
Inventory 5,000,000
Land 2,700,000
Accounts Payable 3,000,000
Mortgage Payable 1,000,000
Share Capital 5,000,000
Retained Earnings 1,000,000
 What is the purchasing power gain or loss for the current year?

Solution:
Monetary Assets:
Cash ₱ 500,000
Accounts Receivable 1,000,000 ₱ 1,500,000
Monetary Liabilities:
Accounts Payable 3,000,000
Mortgage Payable 1,000,000 4,000,000
Net Monetary Liability-Dec 31 2,500,000
Net Monetary Liability-Restated
(2,500,000 x 300/120) 6,250,000
Net Monetary Liability- Dec 31 2,500,000
Gain on purchasing power ₱ 3,750,000

Activity 2 – Grace Company

At the beginning of current year, Grace company had monetary assets of P10,000,000 and
monetary liabilities of P6,000,000. During the current year, the entity’s monetary inflows and
outflows were relatively constant and equal so that it ended the year with the same net
monetary assets of P4,000,000. The index number on January 1 was 125 and the index
number on December 31 was 280. What is the gain or loss on purchasing power during the
current year?

Solution:

Monetary Assets ₱ 10,000,000

Monetary Liabilities 6,000,000 Net
Monetary Assets-Dec.31 at cost 4,000,000
Net Monetary Assets- restated
(4,000,000 x 280/125) 8,960,000
Loss on purchasing power (₱4,960,000)

Activity 3 – Alona Company

Alona company reported the following machinery on December 31, 2019:
Cost Accumulated Depreciation
Acquired in December 2016 8,000,000 3,200,000
Acquired in December 2018 2,000,000 400,000
Index numbers at the end of each year: 2016, 120; 2018, 125 and 2019, 350. In a
hyperinflationary statement of financial position prepared on December 31, 2019, what
should be reported as carrying amount of machinery?

Solution:
Cost Accumulated CA
Depreciation
Acquired in December 2016 ₱ 8,000,000 ₱ 3,200,000 = ₱ 4,800,000
Acquired in December 2018 2,000,000 400,000 = 1,600,000

Acquired in Dec.2016 (4,800,000 X 350/120) ₱ 14,000,000

Acquired in Dec.2018 (1,600,000 x 350/125) 4,480,000
Total Carrying Amount as Restated ₱ 18,480,000

Activity 4 – Irish Company

Irish company provided the following information for the current year:

Net monetary assets-January 1 1,760,000

Sales 6,000,000
Purchases 2,400,000
Expenses 1,800,000
Income Tax 1,200,000
Cash dividend paid on Dec. 31 400,000

The sales, purchases, expenses and income tax accrued evenly during the year. The index
numbers are 110 on January 1 and 140 on December 31. Compute the gain or loss on
purchasing power for the current year.

Solution:
Historical Fraction Restated
Net Monetary assets - 1/1 ₱ 1,760,000 280/110 ₱ 4,480,000
Sales 6,000,000 280/195 8,615,385
Purchases (2,400,000) 280/195 (3,446,154)
Expenses (1,800,000) 280/195 (2,584,615)
Income Tax (1,200,000) 280/195 (1,723,077)
Cash Dividend (400,000) 280/280 (400,000)
Net Monetary assets-12/31 ₱ 1,960,000 ₱ 4,941,539

Net Monetary Asset-December 31 at cost ₱ 1,960,000

Net Monetary-Restated (4,941,539)
Loss on purchasing power ₱ 2,981,539
Activity 5 – Emma Company
Emma company acquired an equipment on January 1, 2018 for 10,000,000. Depreciation is
computed using the straight line method. The estimated useful life of the equipment is 5 years
with no residual value. A specific price index applicable to the equipment was 150 on
January 1, 2018 and 225 on December 31, 2018.

1. What amount of depreciation should be reported in the historical cost income

statement for 2018?

Solution:
Depreciation on historical cost (10,000,000/5) = ₱ 2,000,000

2. What amount of depreciation should be reported in the current cost income statement
for 2018?

Solution:
Current Cost (10,000,000 x 225/150) ₱ 15,000,000
Average Cost (10,000,000+15,000,000/2) 12,500,000
Depreciation on average current cost
(12,500,000/5) ₱ 2,500,000

3. What is the realized holding gain on the equipment to be reported in 2018?

Solution:
Depreciation on average current cost ₱ 2,500,000
(12,500,000/5)
Depreciation on historical cost (10,000,000/5) 2,000,000
Realized holding gain ₱ 500,000

4. What is the unrealized holding gain on the equipment to be reported in 2018?

Solution:
Current Cost ₱ 15,000,000
Accumulated depreciation (15,000,000/5) (3,000,000)
Net current cost 12,000,000

Historical cost 10,000,000

Accumulated depreciation (10,000,000/5) (2,000,000)
Carrying Amount 8,000,000

Net current cost ₱ 12,000,000

Carrying Amount (8,000,000)
Unrealized Holding Gain ₱ 4,000,000
Activity 6 – Rome Company
Rome company reported the following information with respect to cost of goods sold for 2018:
Units Historical cost
Inventory-January 1 10,000 530,000
Purchases 45,000 2,790,000
Inventory, Dec. 31 15,000 945,000

The current cost per unit of inventory was P58 on January 1, 2018 and P72 on December 31,
2018.

1. In the statement of financial position restated to current cost, what is the inventory on
December 31, 2018?

Solution:
Inventory - Dec.31 (15,000 x 72) = ₱ 1,080,000

2. What is the unrealized holding gain on inventory for 2018?

Solution:
Inventory-Dec.31 at current cost ₱ 1,080,000
Inventory-Dec.31 Historical Cost (945,000)
UNREALIZED HOLDING GAIN ₱ 135,000

3. In the income statement restated to current cost, what is the cost of goods sold for
2018?

Solution:
COGS at average cost ( 40,000 x 65) ₱ 2,600,000

Average current cost (58+72/2) 65

4. In the income statement restated to current cost, what is the realized holding gain
from the inventory sold in 2018?

Solution:
COGS at average current cost(40,000 x 65) ₱ 2,600,000
COGS at historical cost (2,375,000)
REALIZED HOLDING GAIN ₱ 225,000
Activity 7 – Georgia Company
At the beginning of current year, Georgia company purchased 50,000 units at P100 per unit.
During the year, the entity sold 40,000 units at P180 per unit. The entity paid P700,000 for
operating expenses. The current replacement cost of the inventory at year-end is P150 per
unit.

1. What is the realized holding gain on inventory for the current year?

Solution:
Cost of Sales at Average Current Cost ₱ 5,000,000
(40,000 X 125)
Historical Cost (40,000 X 100) 4,000,000
Realized Gain ₱ 1,000,000

Average current cost (100+150/2) = 125

2. What is the unrealized holding gain on inventory for the current year?

Solution:
Inventory- 12/31 at current cost (10,000 x 150) ₱ 1,500,000
Inventory-12/31 at historical cost (10,000 x 100) 1,000,000 Unrealized
Holding Gain ₱ 500,000

3. What is the net income under current cost accounting for the current year?

Solution:
Sales (40,000 x 180) ₱ 7,200,000
COGS (40,000 X 125) (5,000,000)
Gross Income 2,200,000

Other Income:
Realized Holding Gain ₱ 1,000,000
Unrealized Holding Gain 500,000 ₱ 1,500,000
Total Income 3,700,000
Operating Expenses (700,000)
Net Income ₱ 3,000,000

4. What is the net income under historical cost accounting for the current year?

Solution:
Sales ₱ 7,200,000
Cost of Sales:
Purchases ₱ 5,000,000
Inventory – Dec. 31 (1,00,000) 4,000,000
Gross Income 3,200,000
Operating Expenses (700,000)
Net Income ₱ 2,500,00