SFP Sci

MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY
: A & A: CONCEPT & APPLICATIONS 1

STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT
I. Enumerate the complete set of financial statements.

A complete set of financial statements comprises (PAS 1)
a) a statement of financial position at the end of the period;
b) a statement of profit or loss and other comprehensive income for the period
(presented as a single statement, or by presenting the profit or loss section in a
separate statement of profit or loss, immediately followed by a statement
presenting comprehensive income beginning with profit or loss);
c) a statement of changes in equity for the period;
d) a statement of cash flows for the period;
e) notes, comprising a summary of significant accounting policies and other
explanatory information; and
f) a statement of financial position as at the beginning of the earliest comparative
period when an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, or when it
reclassifies items in its financial statements.
II. What is the distinction between current and non-current?

An entity shall present current and non-current assets, and current and non-current
liabilities, as separate classifications in its statement of financial position except when a
presentation based on liquidity provides information that is reliable and is more relevant.
When a presentation based on liquidity provides information that is reliable and is
more relevant than presentation on a current/non-current basis, an entity shall present all
assets and liabilities in order of liquidity.
Whichever of the methods of presentation is adopted, for each asset and liability line
item that combines amounts expected to be recovered or settled:
a) no more than twelve months after the end of the reporting period, and
b) more than twelve months after the end of the reporting period,
an entity shall disclose the amount expected to be recovered or settled after more than
twelve months.
CURRENT NON-CURRENT
ASSETS a) it expects to realise the asset, or intends to An entity shall classify all
sell or consume it, in its normal operating assets, other than those
cycle; or meeting one of the
(Note: The operating cycle of an entity is the time

between the acquisition of assets for processing
and their realisation in cash or cash equivalents.
When the entity’s normal operating cycle is not
clearly identifiable, its duration is assumed to be
twelve months. Current assets include assets
(such as inventories and trade receivables) that
are sold, consumed or realised as part of the
normal operating cycle even when they are not
expected to be realised within twelve months after
criteria, as non-current.
the end of the reporting period.)
b) it holds the asset primarily for the purpose

of trading; or
c) it expects to realise the asset within twelve
months after the end of the reporting period;
or
d) the asset is cash or a cash equivalent (as
defined in PAS 7) unless the asset is
restricted from being exchanged or used to
settle a liability for at least twelve months
after the reporting period.
LIABILITIES a) it expects to settle the liability in its normal An entity shall classify all
: operating cycle; or liabilities, other than those
meeting one of the
(Note: Some current liabilities, such as trade criteria, as non-current.
payables and some accruals for employee and
other operating costs, are part of the working
capital used in the entity’s normal operating cycle.
Such operating items are classified as current
liabilities even if they are due to be settled more
than twelve months after the end of the reporting
period. The same normal operating cycle applies
to the classification of an entity’s assets and
liabilities. When the entity’s normal operating
cycle is not clearly identifiable, its duration is
assumed to be twelve months.)
b) it holds the liability primarily for the
purpose of trading; or
c) the liability is due to be settled within
twelve months after the end of the reporting

period; or
d) the entity does not have an unconditional
right to defer settlement of the liability for at
least twelve months after the reporting
period.
An entity classifies its financial liabilities as
If an entity expects, and
current when they are due to be settled within
has the discretion, to
twelve months after the reporting period,
refinance or roll over an
even if:
obligation for at least
a) the original term was for a period longer
twelve months after the
than twelve months; and
reporting period under an
existing loan facility, it
b) an agreement to refinance, or to
classifies the obligation as
reschedule payments, on a long-term basis is
non-current, even if it
completed after the reporting period and
would otherwise be due
before the financial statements are
FINANCIAL within a shorter period.
authorised for issue.
LIABILITIES When refinancing or rolling over the
obligation is not at the discretion of the entity
(e.g. there is no agreement for refinancing),
the potential to refinance is not considered
When an entity breaches a provision of a
long-term loan agreement on or before the
end of the reporting period with the effect that
the liability becomes payable on demand
even if the lender agreed, after the reporting
period and before the authorisation of the
financial statements for issue, not to demand
payment as a consequence of the breach.
III. Proforma Statement of Financial Position including notes.
CMP Corporation
Statement of Financial Position
December 31, 2020
Assets Liabilities and

Shareholder's Equity
Current Assets: Not Current Liabilities Not
e e
Cash and Cash X Trade and Other (6) X
(1)
Equivalents X Payables X
Trade and Other (2) X Provisions (7) X
Receivables X Current Portion of X
Inventories X LT Payable X
X X
Prepaid Expense X X Current Tax Payable X X
(3)
X X X X
Non-Current
Liabilities:
Non-Current Assets: Mortgage Payable X
X
Property, Plant and Deferred Tax X
Equipment X Liability X
(4)
X Long-Term Provision X X
X X
Investment X Total Liabilities X
Property X X
Intangible Assets X
(5)
X
Goodwill X Equity:
X
Non-current Share Capital (8) X
Financial Share Premium (9) X
Assets X X X
X X X
Retained Earnings X
X
Other Components X X
of X X
Equity
X Total Liabilities and X
Total Assets X Shareholder's Equity X
Note 1-Cash and Cash Equivalents Note 3-Prepaid Expenses

Cash in Bank XX Office Supplies XX
Petty Cash Fund XX Prepaid Insurance XX
Three-month BSP Treasury Bill XX Total XX
Total XX
Note 4-Property, Plant and
Equipment
Note 2-Trade and Other Receivables Land XX
Accounts Receivable XX Buildings XX
Allowance for Doubtful Accounts XX Accumulated Depreciation-Building XX
Notes Receivable XX Machinery XX
Accumulated Depreciation-
Accrued Interest on Notes XX Machinery XX
Total XX Total XX
Note 5-Intangible Assets Note 8-Share Capital

Patent XX Preference Share XX
Trademark XX Ordinary Share XX
Franchise XX Total XX
Total XX
Note 9-Share Premium
Note 6-Trade and Other Payables Share Premium-Preference XX
Accounts Payable XX Share Premium-Ordinary XX
Salaries Payables XX Total XX
Accrued Interest Payable XX Machinery XX
Total XX Accumulated Depreciation-Machinery XX
Total XX
Note 7-Provisions
Provision for Warranties XX
Provision for Machinery Dismantling XX
Total XX
IV. Proforma Statement of Comprehensive Income including notes.

CMP Corporation
Statement of Comprehensive Income
For the Years Ended December 31, 20x2 and 20X1
20X
Note 20X1
2
Revenue (1) XX XX
Cost of Sales (2) XX XX
Gross Profit XX XX
Other Income (3) XX XX
Distribution Costs (4) (XX) (XX)
Administrative Expense (5) (XX) (XX)
Other Expense (6) (XX) (XX)
Finance Costs (XX) (XX)
Share of Profit of Associates XX XX
Profit before Tax XX XX
Income Tax Expense (XX) (XX)
Profit for the Period for Continuing Operations XX XX
Loss for the year from Discontinued Operations (XX) (XX)
Profit for the Year XX XX
Other Comprehensive Income:

Other Comprehensive Income that will not be reclassified to
profit or loss
Gains on Property Valuation XX XX

Remeasurement of defined benefit plans XX XX
Gains and losses from investments in equity designated at

XX XX
FVTOCI
Other comprehensive income on hedging instruments that hedge
XX XX
investments in equity measured at FVTOCI
Change in Fair Value that of Financial Liability attributable to
XX XX
change in the liability's credit risk
Share of other comprehensive income of associates and joint
ventures accounted for using equity method that will not be
reclassified to profit or loss XX XX
Income Tax relating to other comprehensive income (XX) (XX)
Other comprehensive income that will be reclassified to

Profit or loss
Exchange differences on translation
Exchange differences on translating foreign operations XX XX
Reclassification adjustments on exchange differences on
translation (XX) (XX)
Cash Flow Hedges

Effective portion of cash flow hedges XX XX
Reclassification adjustments on cash flow hedge (XX) (XX)
Amounts removed from equity and included in carrying
amount of non-financial asset (liability) whose acquisition
or incurrence was hedged highly probably forecast transaction (XX) (XX)
Change in value of time value options

Gains (losses) on change in value of time value of options XX XX
Reclassification adjustments on change in value of forward (XX) (XX)
elements of forward contracts
Change in value of forward elements of forward contracts

Gains (losses) on change in value of forward elements of
forward contracts XX XX
Reclassification adjustments on change in value of forward
elements of forward contracts (XX) (XX)
Financial Assets measured at fair value through other

comprehensive income
Gains (losses) on financial assets measured at fair value
through other comprehensive income XX XX
Reclassification adjustments on financial assets measured
at fair value through other comprehensive income (XX) (XX)
Amounts removed from equity and adjusted against fair
value of financial assets on reclassification out of fair value
through other comprehensive income measurement category (XX) (XX)
Share of other comprehensive income of associates and
joint ventures accounted for using equity method that will be
reclassified to profit or loss XX XX
Income tax relating to the other comprehensive income (XX) (XX)

Other comprehensive income, net of income tax XX XX
Total other comprehensive income for the year XX XX

Total comprehensive income for the year XX XX
20x2 20X1
Profit attributable to:
Equity Holders of the parent XX XX
Non-controlling interest XX XX
Total XX XX
20X
20X1
2
Earnings per share:
Basic XX XX
Diluted XX XX
20x2 20x1
Total comprehensive income attributable to:
Equity holders of the parent XX XX
Non-controlling interest XX XX
XX XX
20X
20X1
2
Note – Revenue
Gross Sales XX XX
Sales returns and allowances (XX) (XX)
Sales discounts (XX) (XX)
Total XX XX
20X
20X1
2
Note 2 – Cost of Sales
Inventory, January 1 XX XX
Purchases XX XX
Freight In XX XX
Purchase Returns and allowances (XX) (XX)
Purchase discounts (XX) (XX)
Goods available for Sale XX XX
Inventory, December 31 (XX) (XX)
Cost of Sales XX XX
20X
20X1
2
Note 3 – Other Income
Rental Income XX XX
Dividend Revenue XX XX
Total XX XX
20X
20X1
2
Note 4 – Distribution Costs
Freight Out XX XX
Salesmen’s Commission XX XX
Depreciation – Store Equipment XX XX
Total XX XX
20X
20X1
2
Note 5 – Administrative Expenses
Officers’ Salaries XX XX
Depreciation – Office Equipment XX XX
Total XX XX
20X
20X1
2
Note – Other Expenses
Loss on sale of Equipment XX XX
Loss on sale of Investment XX XX
Total XX XX
V. What should be included in OCI? What items can be recycled or reclassified to

profit or loss?
Statement of Comprehensive Income
An entity shall present all items of income and expense recognized in a period:
(a) in a single statement of comprehensive income, or
(b) in two statements:
1) an income statement displaying components of profit or loss
2) a statement of comprehensive income that begins with profit or loss (bottom
line of the income statement) and displays components of other
comprehensive income
Information to be presented in the statement of comprehensive income

As a minimum, the statement of comprehensive income shall include line items that
present the following amounts for the period:
a) revenue;
b) finance costs;
c) share of the profit or loss os associates and joint ventures accounted for using
the equityh methold;
d) tax expense;
e) a single amount comprising the total of:
i. the post-tax profit or loss of discontinued operations and
ii. the post-tax gain or loss recognized on the measurement to fair value less
costs to sell or on the disposal of the assets or disposal group(s)
constituting the discontinued operation;
f) profit or loss;
g) each component of other comprehensive income classified by nature (excluding
amounts in (h));
h) share of the other comprehensive income asoociates and joint ventures
accounted for using the equity method; and
i) total comprehesive income
An entity shall disclose the following items in the statement of comprehensive income as
allocations of profit or loss for the period:
a) profit or loss for the period attributable to:
i. non- controlling interest, and
ii. Owners of the parent
b) Total comprehensive income for the period attributable to:
i. non- controlling interest, and
ii. Owners of the parent
VI. Events after reporting period. Differentiate adjusting event from non-adjusting
event. Give examples.
Events after the reporting period is an event which could be favorable or unfavorable,
that occurs between the end of the reporting period and the date that the financial
statements are authorized for issue. Events can either be:
Adjusting Event Non-adjusting Event
An event after the reporting period An event after the reporting period that
that provides further evidence of is indicative of a condition that arose after
conditions that existed at the end of the the end of the reporting period. This is also
reporting period, including an event that knows as Type II event.
indicates that the going concern

assumption in relation to the whole or
part of the enterprise is not appropriate.
This is also known as Type I event.
Examples: Examples:
a. Loss on receivables resulting a. Decline in market value of
from bankruptcy of major investments between the end of the
customer that was in a reporting period and the date when
deteriorating condition the financial statements are
b. Settlement of litigation for an authorized for issue
amount different from an b. Sale of a bond or capital stock issue
estimate at year-end c. Declaration of dividends after the
c. Settlement of recorded year-end reporting period
estimated product warranty d. Purchase of a business
liabilities at a different amount e. Settlement of litigation when the
than recorded event giving rise to the claim
d. The determination after the ooccured subsequent to the
reporting period of the amount reporting period
of profit-sharing or bonus f. Commencing major litigation arising
payments and the entity had a solely out of events that occured
present legal or constructive after the reporting period
obligation at the end of the g. Loss of plant or inventories as a
reporting period to make such result of fire or flood; and
payments h. Loss on receivables resulting from
e. The discovery of fraud or errors conditions arising subsequent to the
that show that the financial reporting period
statements are incorrect
f. Disposal of an incestment or of
obsolete or scrapped inventory
at a price below book value; and
g. Disposal of a segment that has
been incurring operating losses
if the disposal is at a price below
book value
Recognition and Measurement

An entity shall adjust the amounts An entity shall not adjust the amounts
recognised in its financial statements and/or recognised in its financial statements to
relevant disclosures to reflect such events. reflect non-adjusting events after the
reporting period. Only disclosure is required
where it is material and is relevant to user’s
decision making
VII. Related Party Disclosures. What should be disclosed.

Related Party Transactions
A related party transaction is a transfer of resources, services or obligations between a
reporting entity and a related party, regardless of whether a price is charged.
Disclosure Requirements
(a) The following matters shall be disclosed for all entities:
(i) relationships between a parent and its subsidiaries shall be disclosed
irrespective of whether there have been transactions between them. An entity
shall disclose the name of its parent and, if different, the ultimate controlling
party;
(ii) If neither the entity’s parent nor the ultimate controlling party produces
consolidated financial statements available for public use, the name of the
next most senior parent that does so shall also be disclosed.
(b) An entity shall disclose compensation of key management personnel in total and
for each of the following categories:
(i) short-term employee benefits;
(ii) post-employment benefits;
(iii) other long-term benefits;
(iv) termination benefits; and
(v) share-based payments
If an entity obtains key management personnel services from another entity (“the
management entity”), the entity is not required to disclose the compensation paid or
payable by the management entity to the management entity’s employees or
directors.
(c) If an entity has had related party transactions during the periods covered by the
financial statements, it shall disclose the nature of the related party relationship
as well as information about those transactions and outstanding balances,
including commitments, necessary for users to understand the potential effect of
the relationship on the financial statements. At a minimum, in addition to
disclosure of compensation of key management personnel, disclosure shall
include:
(i) the amount of the transactions;

(ii) the amount of outstanding balances, including commitments and:
 their terms and conditions, including whether they are secured, and
the nature of the consideration to be provided in settlement; and
 details of any guarantees given or received;
(iii) provisions for doubtful debts related to the amount of outstanding
balances;
and
(iv) the expense recognised during the period in respect of bad or doubtful
debts due from related parties.
The disclosures required above shall be made separately for each of the following
categories:
(i) the parent;
(ii) entities with joint control of, or significant influence over, the entity;
(iii) subsidiaries;
(iv) associates;
(v) joint ventures in which the entity is party to the joint venture;
(vi) key management personnel of the entity or its parent; and
(vii) other related parties.
Items of a similar nature may be disclosed in aggregate except when separate disclosure is
necessary for an understanding of the effects of related party transactions on the financial
statements of the entity.
(d) A reporting entity is exempt from the disclosure requirements of related party
transactions and outstanding balances, including commitments, with:
(i) a government that has control or joint control of, or significant influence
over,
the reporting entity; and

(ii) another entity that is a related party because the same government has
control or joint control of, or significant influence over, both the reporting
entity and the other entity.
If a reporting entity applies this exemption, it shall disclose the following about the
transactions and related outstanding balances:
(i) the name of the government and the nature of its relationship with the reporting
entity (i.e. control, joint control or significant influence);
(ii) the following information in sufficient detail to enable users of the entity’s financial
statements to understand the effect of related party transactions on its financial
statements:
• the nature and amount of each individually significant transaction; and
• for other transactions that are collectively, but not individually, significant, a
qualitative or quantitative indication of their extent.
(iii) An entity shall present and disclose information that enables users of the financial
statements to evaluate the financial effects of government grants and other forms of
government assistance.
VIII. Problems
PROBLEM 36-2 Current and Noncurrent Assets
Kings Company’s trial balance reflected the following account balances on December 31,
2018:
Cash, net of bank overdraft of P300,000 and unreleased check
of P100,000 and including customer’s post-dated check of
P50,000 and sinking fund amounting to P280,000 P1,000,000
Acounts receivable 3,250,000
Investment securities held for trading (including long-term
investment of P500,000 in ordinary shares of josiah Company) 1,800,000
Inventories (including goods received on consignment of P200,000) 800,000
Prepaid expenses 391,000
Property, plant and equipment (excluding P300,000 of equipment
still in use, but fully depreciated) 5,000,000
Goodwill (based on estimated by the President) 1,000,000
Total assets P13,241,000
An analysis of the accounts receivable disclosed the following:
Trade accounts receivable P3,000,000

Allowance for doubtful accounts (200,000)
Selling price of King’s Company’s unsold goods sent to
Ruth Company on consignment at 125% cost and
excluded from King’s ending inventory 450,000
Total Accounts Receivable P3,250,000
Prepaid expenses consist of the following:
Prepaid insurance P 48,000

Deposit to supplier for inventories to be delivered in 16 months 23,000
Prepaid taxes 300,000
Cash surrender value 20,000
Total Prepaid expenses P391,000
During 2018, estimated tax payments of P300,000 were charged to prepaid taxes. Kings has
not yet recorded income tax expense. There were no differences between financial and
taxable income. Kings’ tax rate is 30%. Adjusted total revenues and expenses for the year
are P3,000,000 and P2,000,000 respectively.
Questions:
Base on the above data, answer the following:
1. How much is the total current assets for the year ended December 31, 2018?
a. P6,228,000 c. P6,850,000
b. P6,178,000 d. P6,428,000
2. How much is the total noncurrent assets for the year ended December 31, 2018?
a. P5,823,000 c. P6,823,000
b. P5,523,000 d. P6,523,000
SOLUTION:
1. Current Assets
Cash (1,000,000+300,000+100,000-50,000-280,000) P1,070,000
Account Receivables (3,000,000-200,000+50,000) 2,850,000
Investment (1,800,000-500,000) 1,300,000
Inventories (800,000-200,000+(450,000÷125%) 960,000

Prepaid Expense 48,000
Total Current Assets P6,228,000
2. Non-current Assets
Sinking Fund P 280,000
Long-term Investment 500,000
Property, Plant, and Equipment 5,000,000
Deposit to supplier for inventories to be delivered in 16 months 23,000
Cash Surrender Value 20,000
Total Non-current Assets P5,823,000
 Current assets are all the assets of a company that are expected to be sold or used
in its normal operating cycle within 12 months after the reporting period. And all other
assets that are not current assets are classified as non-current assets.
 Bank overdraft and unreleased check is added back to cash and sinking fund is
deducted because it is a non-current asset.
 Customers’ post-dated check should be reverted to account receivable.
 The selling price of the unsold goods out on consignment is excluded from account
receivable but the cost of the goods should be included in inventory.
 Investment amounting to 500,000 is classified as non-current asset.
 The goods received on consignment should be excluded from inventory.
 Deposit to supplier for inventories to be delivered in 16 months and cash surrender
value are excluded from the prepaid expenses but are classified to non-current
assets.
 Prepaid taxes and goodwill is excluded in the computation of current and non-current
assets.
PROBLEM 36-3 Current and Noncurrent Liabilities

Chronicles Company’s trial balance reflected the following account balances on December
31,2018:
Cash, net of bank overdraft of P300,000 and unreleased check of
P100,000 and including customer’s post-dated check of
P50,000 and sinking fund amounting to P280,000 P1,000,000
Acounts payable, net of debit balance in suppliers accounts
amounting to P25,000 1,000,000
Bonds payable 3,400,000
Premium on bonds payable 200,000

Deferred tax liability 400,000
Property dividends payable 400,000
Income tax payable 300,000
Note payable, due to January 31, 2019 500,000
Continguent liability 150,000
Share dividends payable 320,000
Cash dividends payable 80,000
Financial liabilities at fair value through profit or loss 130,000
Reserve for contigencies 430,000
Estimated expenses of meeting warranties 335,000
Estimated damages as a result of unsatisfactory performance
on a contract 268,000
Mortgage payable 1,000,000
Loans payable (Payable in five equal annual installment) 500,000
Questions:
Based on the above data, answer the following:
1. How much is the total current liabilities for the year ended December 31, 2018?
a. P3,538,000 c. P3,688,000
b. P3,238,000 d. P3,399,000
2. How much is the total noncurrent liabilities for the year ended December 31, 2018?
a. P5,500,000 c. P5,400,000
b. P6,003,000 d. P6,103,000
SOLUTION:
CURRENT LIABILITIES
Bank Overdraft P 300,000
Accounts Payable* 1,125,000
Property Dividends Payable 400,000
Income Tax Payable 300,000
Note Payable 500,000
Cash Dividends Payable 80,000
Financial liabilities at fair value through profit and loss 130,000
Estimated Expenses of meeting Warranties 335,000
Estimated damages as a result of unsatisfactory performance on a contract 268,000
Loans Payable-Current portion 100,000
Total Current Liabilities P3,538,000
*Accounts payable=Accounts payable+debit balance in supplier’s

account+unreleased checks
=1,000,000+25,000+100,000
=1,125,000
 Bank overdraft, unrealesed check including the customer’s post-dated checks are
payables of company, checks are available but not yet deliver. They are current
liabilities because it is payable in in demand.
 Accounts payable and note payable are current liabilities, mostly they are payable
in the suppliers that in line in the ordinary course of business.
 Property dividends payable, income tax payable, cash dividend payables and
financial liabilities at FVPL are payable that are paid annually.
 Estimated expense of meeting warranties and estimated expenses as a result of
unsatisfactory performance on a contract are expense that paid and disclosed in
the income statement annually and also in line with the ordinary course of
business.
 The loan payable is partly current and partly non current; PhP 500,000.00/5 = PhP
100,000.00 Current (first payment that will mature in 12 months) and the rest PhP
400,000.00 is non-current.
Noncurrent Liabilities
Bonds payable P 3,400,000
Premium on bond payable 200,000
Deferred tax liability 400,000
Mortgage payable 1,000,000
Loan payable 400,000
Total P 5,400,000
 Bonds payable and its premium are a long term debt that expected to pay more than
one accounting period.
 Deferred tax liability is a noncurrent liabilities even it is payable yearly.
 Mortgage payable is amortize yearly and expected to fully amortized more than one
accounting period.
 The loan payable is partly current and partly non current; PhP 500,000.00/5 = PhP
100,000.00 Current (first payment that will mature in 12 months) and the rest PhP
400,000.00 is non-current.
PROBLEM 36-5 Adjusting and Non-adjusting Events

The financial statements of Esther Company were authorized for issue on March 31, 2019
and the statement of financial position is December 31, 2018.
Esther Company provided the following data:
 On January 4, 2019, Esther co.’s inventories amounting to P100,000 were
expropriated by the government.
 On January 6, 2019, Esther Co. declared cash dividends amounting to P200,000.
 On January 14, 2019, Esther Co. received a noticed from a liquidator in relation to its
accounts receivable of P1,000,000 on December 31, 2018 informinf Esther Co. that
the customer was insolvent and only 40% of accounts receivable would be paid on
july 1, 2019.
 On January 31, 2019, Esther Co. machinery with a carrying amount of P100,000 was
totally destroyed by flood because of typhoon Mario.
 On March 1, 2019, Esther Co. received a notice of litigation relative to a pending
court case arising from employee accident on December 31, 2018,
Esther Co. estimates that probable loss of P1,000,000 will be incurred.
 On March 2, 2019, Esther Co. purchase an associate for P4,000,000.
How much is the total amount of “adjusting events’ on December 31, 2018?
a. P1,700,000 c. P1,000,000
b. P700,000 d. P1,900,000
SOLUTION:
Expropriated by the government P 100,000
Impairment loss on account receivable (PhP 1,000,000.00 x 60%) 600,000
Litigation loss 1,000,000
Total adjusting event P 1,700,000
 Inventories expropriated by the governement is a adjusting event, because it is

expected to occur in the date on or before the Statement of Financial Position
(December 31, 2018).
 Insolvent customer is a part of adjusting event, it is an event that provide the further
evidence of conditions that existed at the end of the reporting period.
 Litigation loss also an adjusting event, the event occur before the reporting period but
the effect or result shows after the reporting period (adjusting period).
 The declaration of cash dividends are disclosed in notes.
 The machinery destroyed by typhoon also disclosed in notes and recorded in next
accounting period.
 The purchase for associate is also disclosed in notes and it is not an adjusting event.
PROBLEM 36-6: Related Party Relationship

In your audit of Frozen Throne Company, you gathered the following data during the audit
planning phase that is useful in identifying related party.
Name Description
1) Sand King Co. Post-employment benefit plan established by
Frozen Throne
2) Shadow Fiend Co. Associate
3) Mirana Co. Subsidiary of Shadow Fiend Co.
4) Harbringer Co. Subsidiary
5) Niht Crawler Co. Subsidiary of Harbringer
6) Disruptor Co. Associate of Harbriner
7) Geomancer Co. Parent
8) Jakiro Co. Parent of Geomancer
9) Rylai Co. Sister company of Frozen Throne Company
10) Medusa Co. Key Management Personnel of Frozen Throne
Company
11) Barathrum Co. Bank
12) Zeus Co. Major customer
13) Raymunda Co. Major supplier
14) Magina Co. Major distributor
15) BIR Government agency
16) Pudge Co. Joint venturer of Frozen Throne Company
17) Invoker Co. Koint venture of Frozen Throne
18) Miss Universe 1% shareholder of the company
Required:
1) Identify which of the above companies is a related party of Frozen Thrones Company.
ANSWER:
1 Sand King Co. Post-employment benefit plan established by Frozen Throne
2 Shadow Fiend Co. Associate
4 Harbringer Co. Subsidiary
5 Night Crawler Co. Subsidiary of Harbringer
6 Disruptor Co. Associate of Harbringer
7 Geomancer Co. Parent
8 Jakiro Co. Parent of Geomancer
9 Rylai Co. Sister company of Frozen Throne Company
10 Medusa Co. Key Management personnel of Frozen Throne Company

11 Barathrum Co. Bank
16 Pudge Co. Joint venturer of Frozen Throne Company
17 Invoker Co. Joint venture of Frozen Throne Company
 According to PAS 24 “Related Party Disclosures”, parties are related if one party has
the ability to affect the financial and operating decisions of the other party through
control, significant influence or joint control.
2) Of the related party identified, which company(ies) needs to be identified and disclosed
regardless whether there is a transaction to Frozen Throne Company.
ANSWER:
7 Geomancer Co. Parent
8 Jakiro Co. Parent of Geomancer
 According to PAS 24 “Related Party Disclosures”, a parent-subsidiary relationship is

disclosed even if there have been no transactions between them during the period. A
subsidiary discloses the name of its parent, and if different, the name of the ultimate
parent. If neither of these two prepares consolidated financial statements for public
use, the subsidiary discloses the name of the next most senior parent that does so.
PROBLEM 36-7 Distribution Costs and General and Administrative Expenses

Nehemiah Company’s trial balance reflected the following account balances on December
31, 2018:
Auditing and Accounting fees P 300,000

Advertising 500,000
Delivery expense 300,000
Interest 125,000
Loss on sale of long-term investment 110,000
Officers’ salaries 625,000
Rent for office space 500,000
Insurance 200,000
Sales commissions 1,075,000
Loss on sale of equipment 75,000
Depreciation on factory machine 12,500
Depreciation on office equipment 15,000
Depreciation on delivery truck 14,000
One-half of the rented premises is occupied by the sales department.
Questions:
1. What amount should be reported as total distribution costs?
a. P2,014,000 c. P2,375,000
b. P2,139.000 d. P2,389,000
2. What amount should be reported as general and administrative expenses?
a. P1,440,000 c. P1,527,500
b. P1,352,500 d. P1,390,000
SOLUTION:
Distribution Costs: General and Administrative
Expenses:
P
Delivery Expense P 300,000 Auditing and Accounting Fees 300,000
Advertising 500,000 Officers' Salaries 625,000
Rent - Sales department 250,000 Rent for Office Space 250,000
Sales Commissions 1,075,000 Insurance 200,000
Depreciation on office
Depreciation on delivery truck 14,000 equipment 15,000
P1,390,00
TOTAL P2,139,000 TOTAL 0
 Distribution Costs are expenditures incurred to deliver the product from the production
unit to the end users, resellers or other destination.
 General and administrative expenses are expenditures that relates to day-to-day
operations of a business and pertain to operating expenses rather than that of
expenses directly related to production of any goods or services.
COMPREHENSIVE PROBLEMS
PROBLEM 36-9
You have been engaged to examine the financial statements of NORTH COTABATO
Company for the year 2018. The client provides you with the following information given
below:
NORTH COTABATO COMPANY

Statement of financial position
For the Year Ended December 31,2018

Current Assets P44,300 Current liabilities P66,600
Long-term investments 13,600 Long-term liabilities 24,100
Property and equipment 123,500 Contributed capital 17,000
Intangible assets 7,700 Unrealized capital 22,500
Other assets 13,600 Retained earnings 72,500
Total Assets P202,700 Total Equities P202,700
The following information is also available:

1. Current assets include cash P3,800, accounts receivable P18,500, note
receivable(maturity date July1, 2020) P10,000 and land P12,000.
2. Long-term investments include a P4,600 investment in fair value through other
comprehensive income securities that is expected to be sold in 2019 and a P9,000
investment in Day Company bonds that are expected to be held until their December 31
2027 maturity date.
3. Property and equipment include buildings costing P63,400, inventory costing P30,500
and equipment costing P29,600.
4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization
have accumulated, and treasury shares that cost P1,800.
5. Other assets include prepaid insurance (which expires on November 30, 2019) P2,900
sinking fund for bond retirement P7,000 and trademarks that cost P5,200 and on which
P1,500 amortization has accumulated.
6. Current liabilities include accounts payable P19,400 bonds payables (maturity date
December 31, 2029) P40,000, and accrued income taxes payable P7,200.
7. Long-term liabilities include accrued wages P4,100 and the mortgage payable (which is
due in five annual payments starting December 31,2019)
8. Contributed capital includes ordinary shares (P5 par) P11,000 and preference shares
(P100 par) P6,000.
9. Unrealized capital includes premium on bonds payable P4,300, premium on preference
shares P2,400, premium on ordinary shares P14,700, and unrealized increase in value
of securities available for sale P1,100.
10. Retained earnings includes unrestricted retained earnings, P37,800, allowance for
doubtful accounts P700 and accumulated depreciation on building and equipment of
P21,000 and P13,000 respectively.
Questions:
Base on the above data, compute for the following as of December 31, 2018:
1. Current asset
a. P54,300 c. P60,300
b. P59,600 d. P62,500
2. Total assets
a. P166,200 c. P169,100
b. P140,200 d. P30,700
3. Current liabilities
a. P34,700 c. P74,700
b. P50,700 d. P30,700
4. Total noncurrent liabilities
a. P95,000 c. P56,000
b. P60,300 d. P64,300
5. Total shareholders’ equity
a. P71,200 c. P71,900
b. P73,000 d. P74,800
SOLUTION:
Current Assets Non-current Assets Total Assets
Unadjusted Balance P44,300 P158,400 P202,700

1.a Note Receivable(7/1/20-Maturity) (10,000) 10,000
1.b Land (12,000) 12,000
2 LT-Investments (FV-OCI) 4,600 (4,600)
3 Inventory 30,500 (30,500)
4 Treasury Shares (1,800) (1,800)
5 Prepaid Insurance 2,900 (2,900)
10.1 Allowance for Doubtful Accounts (700) (700)
10.2 Acc, Depreciation-Building (21,000) (21,000)
10.3 Acc. Depreciation-Equipment (13,000) (13,000)
Adjusted Balances P59,600 P106,600 P166,200
SOLUTION:
Current Liabilities Non-current Liabilities Equity

Unadjusted Balance P112,00
P66,600 P24,100
0
4 Treasury Shares (1,800)
6 Bonds Payable (12/31/29-Maturity) (40,000) 40,000

7.a Accrued Wages 4,100 (4,100)
7.b Mortgage Payable 4,000 (4,000)
9 Premium on Bonds Payable 4,300 (4,300)
10.1 Allowance for doubtful accounts (700)
10.2 Acc, Depreciation-Building (21,000)
10.3 Acc. Depreciation-Equipment (13,000)
Adjusted Balances P34,700 P60,300 P71,200
 For items 1, 2 and 5, current assets are expected to be realised within twelve months
after the end of the reporting period.
 For item 3, current assets are expected to be realised, or intended for sale or
consumption, in its normal operating cycle
 For item 4, it is an equity account
 For item 6 and 7.b, current liabilities are due to be settled within twelve months after
the end of the reporting period
 For item 7.a current liabilities are expected to be settled in its normal operating cycle
 For item 9, it is a liability account
 Items in 10 are contra-asset accounts
PROBLEM 36-11
Jeremiah Company, manufacturer and dealer of baby apparel, has not been subjected to
audit for the year 2018 and 2017. But due to the desire of the board of directors to evaluate
company operations, your services were engaged to audit both years. The following were
given to you for examination,
December 31
2018 2017
Petty Cash Fund P 2,000 P 2,000
Cash 81,200 61,500
Accounts Receivable 66,100 32,400
Inventories 164,900 98,500
Prepaid Expenses 5,000 4,500
Machinery & Equipment, at cost 145,000 145,000
Accounts payables 35,000 54,100
Accrued Expenses 3,000 4,000
Other Payables 2,000 2,200

Share Capital 100,000 100,000
Retained Earnings, beginning 183,600 23,400
Sales 420,000 385,000
Cost of Sales 203,800 157,600
Operating Expenses 76,700 69,300
Other Income 1,100 2,100
Your audit disclosed the following:

2018 2017
1) Ending inventories, per summary,
included items under consignment P 8,500 P 6,200
2) Salaries expense that was not accrued 17,300 14,600
3) Deposits made by customers were
recorded as sales during the year cash
was receive 800 1,700
4) Unused Supplies charged entirely to
expense in the year of acquisition 200 180
5) Advances to suppliers recognized as
purcahses in the year cash is paid 4,600 3,200
6) Deliveries made at the end of the year
recorded as sales the following year 4,000 2,500
7) Based on the analysis of accounts receivable aging
schedule, an allowance of 2% of accounts receivable
must be set-up for both years
8) Depreciation must also be provided using 10% rate.
Questions:
Based on the above and the result of the audit, answer the following:
1. Adjusted sales for 2017
a. P387,500 c. P385,800
b. P385,900 d. P384,200
2. Adjusted sales for 2018
a. P418,300 c. P422,400
b. P422,600 d. P419,100
3. Adjusted cost of sales 2017
a. P159,900 c. P163,800
b. P151,400 d. P160,600
4. Adjusted cost for sales 2018
a. P204,700 c. P206,100
b. P202,400 d. P202,900
5. Adjusted operating expense 2018
a. P94,588 c. P94,584
b. P95,286 d. P92,068
6. Adjusted retained earnings, end, December 31, 2017
a. P151,782 c. P158,418
b. P166,382 d. P155,962
7. Book value of machinery & equipment, December 31, 2018
a. P145,000 c. P116,000
b. P130,500 d. P108,750
8. Adjusted inventories, December 31, 2018
a. P150,200 c. P167,200
b. P156,400 d. P164,900
9. Net realizable value of accounts receivable, December 31, 2017
a. P31,752 c. P35,868
b. P34,202 d. P33,418
10. Adjusted net income for the year 2018
a. P123,714 c. P125,718
b. P124,216 d. P124,412
 For items 1 and 5, ending inventories have inverse relationship while net purchases
have direct relationship to cost of sales.
 For items 3 and 6, the audit result disclosed the overstatement and understatement
of sales respectively.
 For items 2, 4, 7 and 8, the audit result disclosed the understatement of Salaries
Expense (2), overstatement of expenses (4), understatement of allowance for
doubtful accounts (7) and understatement of depreciation expense (8).
SOLUTION:
Operating
Sales Cost of Sales Inventory
Expenses
2017 2018 2017 2018 2017 2018 2017 2018
Unadjusted Balances P385,000 P420,000 P157,600 P203,800 P98,500 P164,900 P69,300 P76,700
1 Ending Inventory, over
Cost of Sales under
2017 - - 6,200 (6,200) (6,200) - - -
2018 - - - 8,500 - (8,500) - -
Salaries Expense,
2
under
2017 - - - - - - 14,600 (14,600)

2018 - - - - - - - 17,300
3 Sales overstated
2017 (1,700) 1,700 - - - - - -
2018 - (800) - - - - - -
4 Expense overstated
2017 - - - - - - (180) 180
2018 - - - - - - - (200)
5 Purchases, over
Cost of Sales, over
2017 - - (3,200) 3,200 - - - -
2018 - - - (4,600) - - - -
6 Sales understated
2017 2,500 (2,500) - - - - - -
2018 - 4,000 - - - - - -
7 Allowance for Doubtful
Accounts understated
2017:
- - - - - - 698 -
(32,400+2,500)(2%)
2018:
(66,100+4,000)(2%)- - - - - - - - 704
698
8 Depreciation Expense
under
2017 - - - - - - 14,500 -
2018 - - - - - - - 14,500
Adjusted Balances P385,800 P422,400 P160,600 P204,700 P92,300 P156,400 P98,918 P94,584
Question no. 6 Question no. 9

Sales P385,800 Accounts Receivable
P34,900
Less: Cost of Sales (160,600) (32,400+2,500)
Gross Profit P225,200 Less: Allowance for Doubtful
(698)
Less: Operating Expenses (98,918) Accounts
Add: Other Income 2,100 NRV of Accounts Receivable 2017 P34,202
Net Income 12/31/17 P128,382
Question no. 10
Retained Earnings, 1/1/17 P 23,400 Sales P422,400
Add: Net Income 128,382 Less: Cost of Sales (204,700)
Retained Earnings, 12/31/17 P151,782 Gross Profit P217,700
Less: Operating Expenses (94,584)
Question no. 7 Add: Other Income 1,100
Cost of Machinery and Net Income 12/31/18 P124,216
P145,000
Equipment
Less: Acc. Depreciation
(29,000)
(14,500)(2)
Book Value of Machinery and
P116,000
Equipment 12/31/18

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MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

: A & A: CONCEPT & APPLICATIONS 1

I. Enumerate the complete set of financial statements.

II. What is the distinction between current and non-current?

(Note: The operating cycle of an entity is the time

b) it holds the asset primarily for the purpose

twelve months after the end of the reporting

III. Proforma Statement of Financial Position including notes.

Assets Liabilities and

Note 1-Cash and Cash Equivalents Note 3-Prepaid Expenses

Note 5-Intangible Assets Note 8-Share Capital

IV. Proforma Statement of Comprehensive Income including notes.

Other Comprehensive Income:

Gains on Property Valuation XX XX

Gains and losses from investments in equity designated at

Other comprehensive income that will be reclassified to

Cash Flow Hedges

Change in value of time value options

Change in value of forward elements of forward contracts

Financial Assets measured at fair value through other

Income tax relating to the other comprehensive income (XX) (XX)

Total other comprehensive income for the year XX XX

V. What should be included in OCI? What items can be recycled or reclassified to

Information to be presented in the statement of comprehensive income

Adjusting Event Non-adjusting Event

indicates that the going concern

Recognition and Measurement

VII. Related Party Disclosures. What should be disclosed.

(i) the amount of the transactions;

the reporting entity; and

An analysis of the accounts receivable disclosed the following:

Trade accounts receivable P3,000,000

Prepaid expenses consist of the following:

Prepaid insurance P 48,000

Inventories (800,000-200,000+(450,000÷125%) 960,000

PROBLEM 36-3 Current and Noncurrent Liabilities

Premium on bonds payable 200,000

*Accounts payable=Accounts payable+debit balance in supplier’s

PROBLEM 36-5 Adjusting and Non-adjusting Events

 Inventories expropriated by the governement is a adjusting event, because it is

PROBLEM 36-6: Related Party Relationship

10 Medusa Co. Key Management personnel of Frozen Throne Company

 According to PAS 24 “Related Party Disclosures”, a parent-subsidiary relationship is

PROBLEM 36-7 Distribution Costs and General and Administrative Expenses

Auditing and Accounting fees P 300,000

One-half of the rented premises is occupied by the sales department.

NORTH COTABATO COMPANY

For the Year Ended December 31,2018

The following information is also available:

Unadjusted Balance P44,300 P158,400 P202,700

Current Liabilities Non-current Liabilities Equity

6 Bonds Payable (12/31/29-Maturity) (40,000) 40,000

Other Payables 2,000 2,200

Your audit disclosed the following:

2017 - - - - - - 14,600 (14,600)

Question no. 6 Question no. 9

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