CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
Atty. RCS
Statement of Cash Flow
Accounting Policies, Estimate and Errors
Events After the Reporting Period
Problem I
An audit of Blue Company for the year ended December
31, 2022 was completed on March 1, 2023.
The financial statements were signed by the managing
director on March 15, 2023 and approved by the
shareholders on March 31, 2023.
The following events have occurred:
1. On January 15, 2023, a customer owing P900,000
to Blue filed for bankruptcy.
The financial statements include an allowance for
doubtful accounts pertaining to this customer only
of P100,000.
2. The entity issued share capital comprised of
100,000 ordinary shares with P100 par value.
The entity issued additional 25,000 shares on
March 1, 2023 at par value.
3. Equipment with carrying amount of P525,000 was
destroyed by fire on December 15, 2022.
The entity has booked a receivable of P400,000
from the insurance entity.
After the insurance entity completed the
investigation on February 1, 2023, it was
discovered that the fire took place due to negligence
of the machine operation.
As a result, the insurer’s liability was zero on the
claim.
Required:
Prepare the adjusting entries on December 31, 2022 for
the events after the reporting period.
Homework
Conceptual Framework and Accounting Standards
Problem II
1. Define accounting policies.
2. Define a change in accounting policy.
3. Give five examples of a change in accounting policy.
4. When is a change in accounting policy allowed?
5. How is a change in accounting policy reported?
6. Define a change in accounting estimate.
7. How is a change in accounting estimate reported?
8. Define prior period errors.
9. Explain the treatment of prior period errors.
Problem III
1. Define a statement of cash flows.
2. Explain the primary purpose of a statement of cash
flows.
3. Define cash.
4. Define cash and cash equivalents.
5. Explain operating activities, investing activities, and
financing activities.
6. Explain the treatment of noncash investing and
financing transactions.
7. Explain the treatment of interest paid and interest
received in a statement of cash flows.
8. Explain the treatment of dividend received and
divided paid in a statement of cash flows.
9. Explain the treatment of income taxes in a
statement of cash flows.
Problem IV
On January 1, 2021, Red Company purchased an
equipment for P6,000,000. The equipment had been
depreciated using the straight line with a residual value
of P600,000 and useful life of 20 years.
On January 1, 2023, the entity determined that the
remaining useful life is 10 years and a residual value of
P800,000.
1. What is the depreciation for 2023?
2. What is the accumulated depreciation for 2023?