a8 PROBLEMS : OR FALSE “M ty TRUE OR FALE PROBLEM 1 sna tation 0} al Statements request entity »AG 1 Presentalie eager es a ME x plicit statement of compliance will es eo fia to PAS 1 entity #8 oe eS ; in any 2, According S13 is saa 7 sincumstance, to depart from a provision © p ERS. , cl 7 ring to PAS 1, material items are presented separately 3. i fea of the financial statements while individually on ba immaterial items with similar nature are aggregated and a single line item. an presented under s 4. PAS 1 Presentation of Finaneial Stalements encourages, but does not require, the presentation of the preceding year's financial statements as comparative information to the current year’s financial statements. 5, Current liabilities are obligations that are expected to be liquidated through the use of current assets or the creation of other current liabilities. 6. Unless there is evidence to the contrary, accounts receivable is presented in the statement of financial position as current asset. - 7. Investments in held for trading securities are always presented in the statement of financial position as current assets. 8... Unless there is evidence to the contrary, investment.in equity securities measured at FVOCT is presented in the statement of financial position as current asset. 9 Investments in associates are non-current assets. 10. Investment properties are Presumed to be current assets. PROBLEM 2: FOR CLASSROOM. DISCUSSION 1. General purpose financial stat ere ae ‘ements cater to what type of a. common needs b. . specific needs Saad. d. loving and caring needsStatement of Financial Position 39 A complete set of financial statements does not include a. Statement of financial position b. Statement of profit or loss and OCI c. Statement of retained earnings d. Notes ABC Co.'s depreciation expense for the period is overstated. Which of the following statements is incorrect? a. ABC Co.'s financial _ statements provide relevant information but that information is not faithfully represented, b. ABC Co. cannot rectify. the error by simply making appropriate disclosures in the notes, c. ABC Co. can rectify the error by simply making appropriate disclosures in the notes. d. ABC Co/s financial statements do not comply with the general feature of fair presentation. According to PAS 1, this general feature of financial statements requires the presentation of the last year’s financial statements together with the current year’s financial statements. a. Frequency of reporting b. Comparability c.. Comparative information d. Two-statement presentation Which of the following is an example of offsetting under PAS v * a. Deducting the accumulated depreciation of an item of property, plant and equipment and presenting only the net amount on the face of the statement of financial position. b. Deducting allowance for bad debts from the related receivable and presenting only the net amount on the face of the statement of financial position.ape i sts from the sale ,. ing the related selling co: id : Riceeneeatie for the gain or loss on the sale of ay iter | wl 2 ment. f property, plant and equip! a / d. adding te debit balance in “Fair value adjustments” ‘ F the initial measurement of held for trading securities whee determining the jnvestment's carrying amount. 6. When is an entity not required to Present an addition, - balance sheet dated as of the beginning of the Preceding period? ; | “a. The entity changes an accounting policy. ; b. The entity makes a correction of a prior period error. c. The makes a reclassification adjustment. d. The entity changes the frequency of its reporting. 7. The trial balance of Morning Co. prepared as of December 31, 20x1 is shown below: Debits Credits Cash on-hand 60,000 Cash in bank 1,000,000 Accounts receivable 2,000,000 Allowance for doubtful accounts’ 300,000 Advances to employees 40,000 Inventories 1,200,000 Advances to suppliers 30,000 Held for trading securities 800,000 Investment in equity securities - FVOCT 300,000 Investment property 900,000 Land 2,200,000 Building 3,400,000 Accumulated depreciation - Bldg. 700,000 Accounts payable < 720,000 Accrued liabilities 80,000 Income tax payable. 500,000 Deferred tax liability ’ 300,000 Loans payable (due in 20x3) 3,000,000Statement of Financial Position 41 Discount on loan payable 740,000 Interest payable (due in 20x2) 340,060 Provision for probable loss on lawsuit 430,000 Ordinary share capital 4,000,000 Share premium 600,000 Retained earnings 1,640,000 Revaluation surplus 90,000 Translation loss on foreign operation 30,000 Totals 12,700,000 12,700,000 Requirements: a. Prepare the statement of financial position of Morning Co. Make a proper heading for the financial statement. Apply the general feature of “materiality and aggregation.” _ b. Prepare notes showing the breakdown of line items in the financial statement. Make proper cross-referencing of those notes; use “Note 6” as your first cross-reference. PROBLEM 3: EXERCISE 1. The trial balance of Evening Co. as of December 31, 20x1 is shown below: Debits Credits Cash on hand 120,000 Cash in bank 980,000 Accounts receivable - 2,000,000 Allowance for doubtful accounts 300,000 Advances to employees 40,000 Advances to officers (due in 20x3) 130,000 Advances to affiliates (no agreed due date) 670,000 Inventories 200,000 Dairy cattle (used to produce milk) 1,200,000 ‘Advances to suppliers 30,000 1,000,000 Fair value of plan assets ; Land (held for long term capital appreciation) —_ 900,000 Land (office building site) 1,200,000 Building 4,800,000ey Accumulated depreciation - Bldg. Eton 1.60094, Patent ‘Accumulated amortization - Patent parton 80,0) Web site costs ; : : Accumulated amortization - Web site 50,009 | Accounts payable 720,009 | Utility payables 80,00) Loans payable (short-term bank loan) 2,500,009 Discount on loan payable 740,000 Provision for probable loss on lawsuit - 430,000 Deposit liability for returnable containers (short-term) 120,009 Present value of defined benefit obligation 2,700,000 Ordinary share capital 4,000,000 Share premium fo, 600,000 Share premium - Share warrants outstanding 300,000 Share premium - Treasury shares 70,000 Retained earnings 1,030,000 Reserves for contingencies 190,000 Translation gain on foreign operation 30,000 Treasury shares 100,000 Totals 14,800,000 _ 14,800,000 — Requirements: a. Prepare the statement of financial Position of Evening Co. Make a proper heading for the financial statement. Observe compliance with the general featire of “1 aggregation.” b. Prepare notes showing the breal financial statement. Make Pro notes; use “Note 6” ‘materiality and kdown of line items in the Per cross-referencing of those as your first cross-reference, PROBLEM 4: CLASSROOM ACTIVITY INSTRUCTIONS: 1, Find a study partner (preferably a smart one... ; Or cute). A 2.- Imagine that you and your study partner are accountants.Statement of Financial Pe seo 3, Answer the requirements INDIVIDUALLY FIRST. Next, compare your answers with your study partner, Discuss any differences between your answers, Agree on your. final answer. You will be graded as a couple based on your final answer. Good luck. The adjusted trial balance of Friendships Co. as of December 31, 20x1 is shown below: Debits Cash on hand 62,350 Cash in bank - BPI (Savings) 1,720,500 Cash in bank - BPI (Current) 1,890,234 Cash in bank - BDO (Current) 567,891 Accounts receivable 8,341,689 Allowance for doubtful accounts 347,182 Advances to employees 57,610 Loans receivable (due in 20x4) 9,827,341 Unearned interest income 1,234,819 Raw materials inventory 1,237,398 Work in process inventory 7,987,908 Finished goods inventory 12,892,309 Prepaid income tax 234,125, Prepaid supplies 890,239 Advances to suppliers 34,981 Held for trading securities 2,834,079 Investment in equity securities - FVOCI 987,234 Investment in associate 1,290,347 Interest receivable (due on Mar. 1, 20x2) 946,013 Land . 8,980,751 Building 3,419,877 Accumulated depreciation - Bldg. 712,930 Equipment 917,387 Accumulated depreciation - Equipt. 234,125 Accounts payable 9,071.259 Accrued liabilities 889,712 Income tax payable 721,346 1,092,387- Deferred tax asset“ i oe Deferred tax liability ; usr Loans payable (due in oe raeosy Discount on loan payable | Interest payable (due on July 1, 20x2) 3g Deferred credits 717 Provision for warranty obligations os 3217 Ordinary share capital 0 Share premium ; etn Retained earnings - unrestricted 144 6 Retained earnings - appropriated 1,200,009 Revaluation surplus 873.984 Uncealized gains on equity securities-FVOCI _ 13341 Totals 66,958,902 66,958,999 SSE Requirements: a. b. Prepare the statement of financial position of Friendships Co, like a pro. Prepare notes showing the breakdown of line items in the financial statement. Make. proper cross-referencing of those notes; use “Note.4”.as your first cross-reference. PROBLEM 5: MULTIPLE CHOICE - THEORY 1. The purpose of general purpose financial statements is to provide information about the a. economic resources and obli useful to a wide rang decisions, igations of an entity that is e of users in making economic financial position and financial performance of an entity that isvuseful to a wide rang decisions, c. financial position, financial of an entity that is useful making economic decisions, d. financial position, financi \ cial perform. flows of an entity that is usena > eee ful to a wi in making economic decisions wide range of users € of users in making economic performance, and cash flows to a limited range of users it | | } 4Statement of Financial Position 45 tC ee 2. Acomplete set of financial statements includes a. directors’ reports c. notes k b. income tax return d. all of these 3, An additional statement of financial position as at the beginning of the preceding period is prepared when an entity makes (choose the incorrect statement) a. retrospective application b. retrospective restatement ¢. prospective application d. makes reclassification adjustments. 4, According to PAS 1 Presentation of Financial Statemenis, the general features of financial statements include all of the following, except a. Fair presentation and compliance with PFRSs b. Comparability of presentation c. Materiality and aggregation, d. - Comparative information 5. According to PAS 1 Presentation of Financial Statements, inappropriate accounting policies are rectified either by disclosure of the accounting policies used or by notes or explanatory material. b. not rectified either by disclosure of the accounting policies used or by notes or explanatory material. ted as long as they are used consistently from a. c. permit period to period. d. disclosed in the notes only. 6. When an entity changes the end of its reporting period and ptesents financial statements for a period longer or shorter than one year, an entity shall disclose all of the following, except a. the period covered by the financial statements.q 46 Be eo, 10. eason for using a longer or shorter Period, re pane amounts presented in the financig pa not entirely comparable. sole ak uantification of the possible adjustments that Woy a. asinine the effects of the longer or shorter roma period. 1 “Meme, | The statement of financial position may be Presen{ . ene Cite, showing current/non-current distinction (classified) OF ba on liquidity (unclassitied). PAS 1 Presentation Of Finan, cia Statements encourages the . a. classified presentation ¢. combination of a andb b- unclassified presentation d. none of these In a classified statement financial position, PAS ] Presentation of Financial Statements requires deferred: tax assets and deferred tax liabilities to be presented as a. current items c. either a orb b. noncurrent items d. none of these PAS 1 Presentation of Financial Statements % prescribes the order or format in which an entity presents items in the financial statements, b. does not prescribe the order or format in which an entity Presents items in the financial statements, “ Prescribes some order or some format in which an entity Presents items in the financial statements, & does not deal with the Presentation of items in the financial statements, ig fot 1 is to prescribe the basis Presentation of 8enerai ents, 1° Purpose financial statements ' ensure comparability b oth with the entity’s finand®statements of previous periods and with the financial statements of other entities, b. PAS 1 shall be applied to all-purpose financial statements prepared and presented in accordance with Philippine Financial Reporting Standards (PFRSs). cc. The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. d. inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material. 11. Financial statements are a structured representation of the * financial position and financial performance of an entity. The objective of general purpose financial statements is to provide information about an entity's (choose the incorrect statement) a. financial position c. cash flows b. financial performance d. valuation 12, The general features listed in PAS 1 includes the following I. Fair Presentation and compliance with PFRSs Il. Accounting Entity ffl. Going Concern IV. Accrual Basis of Accounting V. Consistency of Presentation VL Materiality and Aggregation VIL Offsetting VII. Comparability a. I, IL, HL IV, V, VI c. 1, OL IV, V, VI, Vi b. 1, U1, I, IV, V, VI, VIL d. all of these 13. In virtually all circumstances, a fair presentation is achieved - by compliance with applicable PFRSs. A fair presentation also Tequires an entity (choose the incorrect statement)P| $2. a. to select and apply accounting Policies in Accordance re : PAS 8 Accounting Policies, Changes in Accountin, Estas and Errors. PAS 8 sets out a hierarchy of authorian guidance that management considers in the absen, e wd Standard or an Interpretation that Specifically ap . to presi information, including accounting polices manner that provides relevant, reliable, coniparable andl understandable information. c. to have its financial statements examined by an exte, party d. to provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, ‘other events and conditions on the entity's financial position and financial performance, Of Plies 1, Tal 14. All of the following are examples of offsetting, except a. presenting accounts receivable net of allowance for doubtful accounts. b. gains and losses on the disposal of non-current assets, including investments and Operating assets, are reported by deducting from the Proceeds on disposal the carrying amount of the asset and related selling expenses ©. expenditure related to a Provision that is recognized in accordance with PAS 37 Provisions, Contingent Liabilities and reimbursement, 7 foreign exchange gains and losses or gains and: loss arising on financial instruments held for trading are netted | and presented as net gains or net losses in the inco™ statement . i 3 3 | 15. Which of the following Statements is incorrect?Statement of Financial Position 49. a. PAS 1 requires an entity to present assets and liabilities in” the order of liquidity only when a liquidity presentation provides information that is reliable and is more relevant than a current/non-current presentation. b. Financial statements are often made more understandable by presenting information in thousands or millions of units of the presentation currency. This is acceptable as long as the level of rounding in presentation is disclosed and material information is not omitted. c. PFRSs apply to financial statements and to other information presented in an annual report or other document. d. Financial statements shalll be presented at least annially. PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL 1. Mare Co.'s December 31, 20x1, balance sheet reported the following current assets: Cash 70,000 Accounts receivable 120,000 Inventories 60,000 Total 250,000 An analysis of the accounts disclosed that accounts receivable consisted of the following: Trade accounts - 96,000 Allowance for uncollectible accounts (2,000) Selling price of Mare's unsold goods out on consignment, at 130% of cost, not included in Mare's ending inventory 26,000. Total-* 3 120,000 At December 31, 20x1, the total of Mare's current assets is a. 224,000 b. 230,000 c, 244,000 d. 270,000 (aicra)ew! ce induded the following account 2, Mill Co’s trial balan’ ae alances at December 3* : 3 le Accounts payabl i Bonds payable, due 20x4 wave met sn Discount on bonds oe = Dividends payable 1/31/ s Notes payable, due 20x What amount should be included in the current liability Section of Mill’s December 31, 20x3 balance sheet? és d a. 45,000 b. 51,000 c. 65,000 . 78,000 (AICPA) The next three items are based on the following: The following trial balance of Mint Corp. at December 31, 203, has been adjusted except for income tax expense. Dr. Cr Cash 660,000 Accounts receivable, net 3,500,000 Cost in excess of billings on long-term contracts aan Billings in excess of costs on long-term contracts 700,000 Prepaid taxes 450,000 Property, plant, and equipment, net 1,480,000 Note payable - noncurrent 1,620,000 Ordinary share capital "750 000 Share premium ! < n 2,000,000 Retained eamings - unappropriated 900,000 Retained earnings - Testricted for : note payable 160,000 Earnings fr | , "85 from long-term contracts 6,680,000 _Costs and expense Totals 5,180,000 12,810,000 _ 12,810,000 Other financial data for the year ended December 31, 20x3, are ‘cember 31, 7Statement of Financial Position 51 « Mint uses the percentage-of-completion method to account for long-term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within twelve months. « During 20x3, estimated tax Payments of P450,000 were charged to prepaid taxes. Mint has not recorded income tax expense. There were no temporary or permanent differences, and Mint's tax rate is 30%, In Mint’s December 31, 20x3 balance sheet, what amount should be reported as: 3. Total retained earnings? a. 1,950,000 b. 2,110,000 —¢. 2,400,000 » d. 2,560,000 (AICPA) ; 4, Total noncurrent liabilities? i a. 1,620,000 b. 1,780,000 —c. 2,320,000 —_d. 2,480,000 (AICPA) 5. Total current assets? a. 5,000,000 b. 5,450,000 ¢. 5,700,000 d. 6,150,000 (AICPA) 6. When preparing a draft of its 20x3 statement of financial position, Mont, Inc. reported net assets totaling P875,000. Included in the asset section of the statement of financial position were the following: Treasury share of Mont, Inc. at cost 24,000 Idle machinery 11,200 Cash surrender value of life insurance on corporate executives 13,700 Allowance for decline in market value of noncurrent , equity investments 8,400 At what amount should Mont’s net assets be reported in the December 31, 20x3 statement of financial position? a. 851,000 ‘ b. 350,100 c. 842,600 d. 834,500 (AICPA)rancial Reporting teri i 473 reporting (annual, half-yearly, or quarterly) does not affect the measurement of its annual results, 7 Changes in accounting estimates are accounted for prospectively by increasing or decreasing estimates. in subsequent interim periods. Financial statements in interim periods are not restated. Changes in accounting policy and correction of prior period errors are generally accounted for retrospectively by restating previously presented interim financial statements, preceding pROBLEMS PROBLEM 1: TRUE OR FALSE 1. PAS 34 Interim Financial Reporting requires listed entities to provide interim financial reports. . , Interim financial reports may be prepared using either PAS 1 Presentation of Financial Statements or PAS 34 Interim Financial Reporting. . : . Only selected explanatory notes are provided in interim financial reports prepared under PAS 1. , When preparing interim financial reports in accordance with PAS 34, financial statement users are presumed to have. access to the most recent annual financial report of the entity. . An entity may rely on estimates to a less extent during interim reporting compared to annual reporting. When an entity presents a semi-annual statement of financial position dated as at June 30, 20x1, the comparative information is dated as at June 30, 20x0. An entity is prohibited from publishing a complete ‘set of financial statements in accordance with PAS 1 in its interim financial report. . An entity is not prohibited from including in its condensed interim financial statements information that is more than the minimum line items or selected explanatory notes set out under PAS 34.mr ¢ publicly traded entities to provide ay financial report and publish them ayy the end of the interim period. late, 10. Income tax expense in the interim periods is computeg : tho best estimate of the weighted average annual incom rate expected for the full financial year- 9. PAS 34 encourage’ quarterly interim than 45 days after Sin, © fay CLASSROOM DISCUSSION interim financial reports should be publish, ed time in that year. PROBLEM 2: FOR 1. Under PAS 34, i a, Oncea year at any b. Within a month of the half year end. c. Ona quarterly basis. d. Whenever the entity wishes. (Adapted) 2. The IASB encourages publicly traded entities to provide interim financial reports a. At least’at the end of the half year a the end of the interim period. b. Within a month of the half-year-end. c. Ona quarterly basis. d. Whenever the entity wishes. (Adapted) 60 days of then 3. Ifanentity does not prepare interim financial reports, jot to a. The year-end financial statements are deemed 1 comply with IFRS. b. The year-end financial statements’ compliance with is not affected. c. The year-end financial statements will not be ace?! under local legislation. d. Interim financial reports should be included in the ¥ end financi (Adapted) cial statements. IFRS able eat 4. Interim i financial reports should include as a minimu™475 ‘A complete set of financial statements complying with pAS1. _ ‘ A condensed set of financial statements and selected notes, A balance sheet and income statement only. ‘ ; i. A condensed balance sheet, income statement, and cash | flow statement only. uaapted an entity owns a number of farms that harvest produce seasonally. Approximately 80% of the entity's sales are in the eriod August to October. Because the entity’s business is seasonal, PAS 34 suggests a. Additional notes be written in the interim reports about the seasonal nature of the business. pb. Disclosure of financial information for the latest and comparative 12-month period in addition to the interim report. c. Additional disclosure in the accounting policy note. d. No additional disclosure. (Adapted) 5. \ 6 Anentity is preparing half-yearly financial information in line with PAS 34. The period to be covered by the financial statements is the six months to June 30, 20X7. A new IFRS has been published that is effective for periods beginning on or + after January 1, 20X7. The entity must adopt the IFRS a. In the financial statements for the year to December 31, 20X7, only. b. In its interim financial statements to June 30, 20X7, only. c. Inits interim financial statements to June 30, 20X7, and its annual financial statements to December 31, 20X7. | d: At its own discretion. | (Adapted) 7. Which of ‘the following statements is most likely not true Tegarding standards for interim reporting? , & Declines in inventory value should be deferred to future interim periods.met, 7 b. Use of the gross margin method for computing i goods sold must be disclosed. Costs and expenses not directly associated With inier revenue must be allocated to interim periods . reasonable basis. a d. Gains and losses that arise in an interim period shoulg ‘i recognized in the interim period in which they arise if ty, would not normally be deferred at year-end. (Adapted) ey 8. The inexperienced accountant of Friday Corp. prepares the following statement of profit or loss and other comprehensive income for the first quarter ended March 31, 20x1: 7 Revenue 9,000,000 Dividend income 100,000 Cost of goods sold (5,000,000) Commission expense Other operating expenses Profit Other comprehensive income Comprehensive income Additional information: a. On January 28, 20x1, the entity acquires 10% interest in the ordinary shares of Sunday Co. for P500,000. Transactions costs on the acquisition amounts to P60,000. The transaction costs are recognized as commission expense. The investment i§ classified as financial asset measured at fair value through other comprehensive income. The fair value of the investment on March 31, 20x1 is P450,000. Friday Corp. strongly believes that the fluctuation in fair value is only temporary. In fact te fir value ofthe investment increases to P580,000 on Apel 5 x1. b. Sunday Co. has an established practice of declaring di every year-end. Friday expects that Sunday will 4 vidends jarery fai Financial Reporting ‘v gividends of P1,000,000 on December 20x1, Friday recognizes ineestimate as dividend income, on January 1 20x1, Friday has an outstanding 12%, long-term, Joan receivable with carrying amount of P2,000,000. Although ihe principal amount is due only at maturity, interests are collectible every year-end. Friday recognizes interest income every year-end when the interest is collected. As of March 31, 20x1, Friday’s inventory has a total cost of 2,800,000 and a net realizable value of 2,200,000. The inventory decline is not recognized because Friday believes that it is only temporary. Friday’s past experience supports this fact. Requirement: Prepare a correct statement of profit or loss and other _ comprehensive income for Friday Corp. (Ignore income taxes) 9, The statement of profit or loss of Sunny Corporation for the first quarter ended March 31, 20x1 is shown below: Revenue 7,000,000 Cost of goods sold (3,000,000) Gross profit 4,000,000 Other operating expenses (2,800,000) Property tax expense (1,200,000) Depreciation expense (240,000) Insurance expense (60,000) Profit (300,000) Other comprehensive income: Revaluation increase 150,000 Comprehensive income (150,000) | Additional information: | & The 20x1 property tax of P1,200,000 was paid on February 28, 20x. >. Sunny’s depreciable asset consists only of equipment with “carrying amount of 21,200,000 and remaining useful life of 5Requirement: Prepare a CO’ 20x1. Sunny depreciates this asso, d with no residual value. on January 1, 20x1 a years as of January 1 usin the straight line metho 8 Sunny took a one-year fire insurance 60,000. During January 20x1, Sunny reva cost of P3,800,000 to P4,400,000. lued its land from its origing rect statement of profit or loss and other comprehensive income for Sunny Corporation. (Ignore income taxes) 10. The statement of profit or loss of Sunset Co. for the first quarter ended March 31, 20x! is shown below: Revenue 9,000,000 Cost of goods sold (3,000,000) Gross profit 6,000,000 Other operating expenses (2,800,000) Impairment loss (125,000) Profit 3,075,000 Additional information: a. Sunset Co. pays its employees 13 month pay as year-end bonus. Since the bonus is paid only at year-end, this is not reflected in the statement of profit or loss above. Sunset expects that a total amount of P2,800,000 will be paid to the employees as 13 month pay on December 31, 20x1. The estimate is based on Sunset’s current number of employees the employees’ expected service’ hours during the year, and their expected salary levels on December 20x1. b. On March 1, 20x1, the carrying amount of Sunset’s Jand exceeded its recoverable amount by 500,000. A portion of this amount is recognized during the quarter. On March 16, 20x1, Sunset committed to a plan to sell 4 component of an entity. All of the conditions under PFRS5 2 met. The carrying amount of the net assets of the compone™™cial Reporting 179 P ; the fair value less costs t: oximates t ‘0 sell. The component aor d an operating loss of P700,000 during the first quarter a “set decided to defer = loss until the actual sale of the enone The component is sold on April 8, 20x1: aq Prepare a correct statement of profit or loss and other S nprenensive income for Sunny Corporation, (Ignore income we) 1.0n Janwary 1, 20x1, Midnight Co, has an operating loss " farryforward of P300,000. Midnight Co. is subject to an income tax rate of 30%. For the year 20x1, Midnight expects to earn profit of P1,200,000 before tax and before the loss carryforward. Midnight Co. earns profit before tax of P350,000 during the first quarter of 20x1. Requirement: Compute for the income tax expense for the 1 quater of 20x1. PROBLEM 3: EXERCISES 1. Canine Corporation’s statement of profit or‘loss for the first quarter ended March 31, 20x] is shown below: Revenue 9,000,000 Cost of goods sold (5,000,000) | Gross profit 4,000,000 Other operating expenses (2,800,000) | Property tax expense (250,000) Dividend income 200,000 _ Impairment loss (150,000) Gainon inventory write-up 100,000 Profit 1,100,000 Mion information:Oe Pete ee erg a. Canine paid the 20x1 property tax of P1,000,000 on Febry, 20x1. Canine deferred this cost and recognizeq it ey throughout the interim periods. & evenly b. The dividend income is recognized in anticipation of the, end dividends not yet declared by the investe. Hoy based on Canine’s past experience, the investee has eae failed to declare year-end dividends. t c. On March 31, 20x1, an item of property, plant and equipmen; with carrying amount of P1,600,000 is determined io have a recoverable amount of P1,000,000. Canine decided ¢ difference and amortize it over the interim periods. d. On March 31, 20x1, Canine’s inventory with total cost g 900,000 has a net realizable value of P1,000,000. Although Canine believes the market recovery is only temporary, Canine decided to recognize the entire inventory write-up in the first quarter. Canine has not recognized any inventory in the past. ary 2 ‘0 defer the rite-down of Requirement: Prepare a correct statement of profit or loss for Canine Corp. (Ignore income taxes) 2. The statement of profit or loss and other comprehensive income of Feline Corporation for the first quarter ended March 31, 20x1 is shown below: Revenue 9,000,000 Cost of goods sold (5,000,000) Gross profit 4,000,000 Other operating expenses (2,800,000) Insurance expense (60,000) Commission expense (80,000) Profit from continuing operations 1,060,000 Discontinued operations (200,000) Profit for the year, 860,000 Other comprehensive income: Comprehensive income 360,000i rt a Finciel Reporting 481 tional information: ~ ; Ad reine takes a two-year fire insurance on January 1, 20x1 for * 960,000. . 5 On January 28, 20x1, the Feline acquires 10% interest in the ordinary shares of Meow Co. for P1,500,000, Transactions costs on the acquisition amounts to P80,000. The transaction costs are recognized as commission expense. The investment is dassified as held for trading securities, The fair value of the jnvestment on March 31, 20x1 is P1,450,000, Canine Corp. does not recognize the change in fair value because Canine strongly pelieves that the fluctuation in fair value is only temporary. In fact, the fair value of the investment increases to P1,580,000 on April 5, 20x1. < On March 16, 20x1, Feline commits to a plan to sell a component of an entity. All the conditions under PFRS 5 are met, The carrying amount of the net assets of the component is 3,000,000 while the fair value less costs to sell is P2,800,000. The component incurs an operating loss of P800,000 during the first quarter. Feline decides to spread out the operating oss over the interim periods. The component is sold on April 8, 20x1. Requirement: Prepare a correct statement of profit or loss and other + comprehensive income for Sunny Corporation. (Ignore income taxes) 3. The statement of profit or loss of Puppy Co. for the first quarter ended March 31, 20x1 is shown below: Revenue 9,000,000 Cost of goods sold (5,000,000) Gross Profit 4,000,000 Other Operating expenses __ (2,800,000) Prot for the year 1,200,000Additional information: es its employe iE nae Meee aang the period. Puppy estimates that the 20x1 year-end bonuses will total to P1,200,000, of whic 450,000 relates to the first quarter. The bonus is not Teflecteg Puppy’s first quarter financial performance: 2 b. Puppy defers to year-end the recognition of depreciation for an equipment. At the start of the year, the equipment is two years old and has a carrying amount of 460,000 and accumulated depreciation of ?540,000. The equipment has an estimated useful life of five years and a residual value of P 100,000 at acquisition date. c. On January 1, 20x1, Puppy has an outstanding 10%, long-term, loan receivable with carrying amount of P1,200,000. Although the principal amount is due only at maturity, interests are collectible every year-end. Puppy recognizes interest income every year-end when the interest is collected. year-end bonuses for Services the Requirement: Prepare a correct statement of profit or loss for Puppy Corporation. (Ignore income taxes) 4. On January 1, 20x1, Midday Co. has a deferred tax asset of P300,000 arising solely from an operating loss carryforward. Midday Co, is subject to an income tax rate of 30%. For the “year 20x1, Midday expects to earn profit of P1,200,000 before tax and before the loss carryforward. Midday Co. earns profit before tax of P350,000 during the first quarter of 20x1. Requirement: Compute for the incom t the 1* quarter of 20x1. le tax expense for 5. On January 1, 20x1, Arf-a carryforward of P100,000. tax rate of 30%, of P800,000 bet rf Co. has an operating loss Arf-arf Co. is subject to an income For the year 20x1, Arf-arf expects to earn profit fore tax and before the loss carryforward. AttFinancial Reporting Fue 483 fit before tax of f Co. earns pro! of P280,000 duri . ar! vet of 20x1. luring the first tax expense for the 1# aout enero * OBLEM 4: MULTIPLE CHOICE - THEORY * which of the following entities are required under PAS 34 to prepare and presentinterim financial reports? a. listed entities c.aandb p. financial institutions d. none of these 7, PAS 34 shall be applied by a. entities which are required by the government or other entities to provide interim financial reports b. those who choose to provide interim financial reports aandb d. all reporting entities who are adopting the “full” PERSs 3. PAS 34 applies toa a. condensed set of financial statements b. complete set of financial statements c aorb d. none of these 4, Which of the following expenses is recognized immediately in the interim period and not allocated to the other interim periods? F a. Annual depreciatiori of equipment that benefits the entire | annual period. » Real property tax 13% month pay of employees | Impairment of assetsBoge 4, a # haptery Which of the following income is recognized immediately 7 the interim period and not allocated to the other intern, periods? : a, gain on changes in fair v b, gain on disposal of property dividend income from investments alues of investments cc. receipt of d. all of these In the interest of timeliness and cost considerations, less information may be provided at interim dates. This is mos likely an application of the concept of a, materiality c. relevance over reliability b. consistency d. faithful representation When an entity that uses a calendar year period presents a statement of financial position the current and comparative financial statements are dated Current period Comparative information As of March 31, 20x1 As of March 31, 20x0 As of March 31, 20x1 As of December 31, 20x0 For the period ended Mar. 31, 20x1__ For the period ended Mar. 31, 20x0 For the period ended Mar. 31,20x1 For the period ended Dee. 31, 20x0 PAS 34 states a presumption that anyone. reading interim financial reports will a. Understand all International Financial __ Reporting Standards. b. Have access to the records of the entity. c. Have access to the most recent anriual report. d. Not make decisions based on the report. (Adapted) 9. Income tax expense in the interim financial statemen'® pecpared in accordance with PAS 34 is measured using » fe current tax rate applicable to the interim period. b. i the substantially enacted future tax rate as at the € the interim period, ctl d of a”cial Reporting 485 ina te E timate of the weighted the best es| ighted avera, e : ax rate expected for the full financial ni annual income timate of the wei i the best es ghted.avera, : + ax rate expected for the interim period, ge annual income ity changes an accounting esti 7 : an entity g estimate durin, . 40. pee the change shall be applied '§ an interim as at the beginning of that interim period where the change occurred. as at the beginning of the current year. a b. ¢, as at the end of the interim period where the change occurred. d. asat the end of the current year. pROBLEM 5: MULTIPLE CHOICE - COMPUTATIONAL 1, Farr Corp. had the following transactions during the quarter ended March 31, 20X7: Loss from rare earthquake P7000 Payment of fire insurance premium for calendar year 20X7 100,000 What amount should be included in Farr's income statement for the quarter ended March 31, 20X7? Casualty loss Insurance expense a 70,000 100,000 b. 70,000 : 25,000 «17,500 25,000 d. 0 100,000 (aicra) - 2 Vilo Corp. has estimated that total depreciation expense for the year ending December 31, 20X6, will amount to P60,000, and that 20X6 year-end bonuses to employees will total °120,000. In Vilo's interim income statement for the six months | &nded June 30, 20X6, what is the total amount of expense }Telating to these two items that should be reported?a | ] | b, 30,000 c~90,000 4. 180,099 a.0 (AICPA) : 3. On March 15, 20X4, Rex Company paid property taKes g 180,000 on its factory building for calendar year 20x4 April 1, 20X4, Rex incurred costs of P300,000 that are expected to benefit the remainder of the calendar year. What total f these expenses should be included in Rey's amount 0} quarterly income statement for the three months endeq Jane 30, 20X4? - a. 75,000 b. 145,000. 195,000. 345,099 (AICPA) 4, Wilson Corp. experienced a P50,000 decline in the value of its inventory in the first quarter of its fiscal year. Wilson had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery exceeded the previous decline by P10,000. Wilson’s inventory did not experience any other declines in value during the fiscal year. What amounts of loss and/or gain should Wilson report in its interim financial statements for the first and third quarters? First quarter Third quarter a 0 0 b 0 10,000 gain c. 50,000 loss F 50,000 gain d. 50,000 loss 60,000 gain (AICPA) 5. On February 2, Flint Corp’s Board of Directors committed to plan to sell its frozen food component and to sell the component's assets on the open market as soon as possible. AS a result, the component's operations and cash flows will be eliminated from the entity’s operations and the entity will have no significant continuing post-disposal involveme # the component's operations. The division reported net pperefing losses of P20,000 in January and 30,000 in amie “ggcbtuary 26, sale ofthe division's assets 54 000. What amount of gain from dispos! ©f | nancial Reporting 87 te nent should Flint reorganize in its inco ore Seen me statement for ir b. 40,000 c. 60,000 d. 90,000 cra) puting the first quarter of 20X4, Tech Co. had income before 6. PU of P200,000, and its effective income tax rate was 15% Tech's 20X3 effective annual income tax rate was 30%, but Tech expects its 20X4 weighted average annual income tax rate t0 be 25%. In its first quarter interim income statement what amount of income tax expense should Tech report? i a0 b. 30,000 cc. 50,000 d. 60,000 (arc) 7, Aninventory loss from market decline of P900,000 occurred in April 2002. CD Company recorded this loss in April 2002 after its March 31, 2002 quarterly report was issued. None of this Joss was recovered by the end of the year. How should this Joss be reflected in the quarterly income statements of CD Company? Three months ended (201 March31 June30 —September 30 Detember 31 a 0 0 O° 900,000 b. 0 300,000 300,000 300,000 c 0 900,000 0 0 d. 225,000 225,000 225,000 225,000 (Adapted) 8. Eureka Corp. experienced a P50,000 decline in the fair value of its held for trading securities in the first quarter of its fiscal year. Eureka had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery exceeded the Previous decline by P10,000. Eureka’s held for trading securities did not experience any other declines in value during the fiscal year. What amounts of loss and/or gain should Eureka report in its interim financial statements for the first and third quarters?8 tes First quarter Third quarter 0 0 h. 0 10,000 gain c. 50,000 loss 50,000 gain d. 50,000 loss 60,000 gain (Adapted) 9. At the start of the year, Ancing Corp. classified its equipme with carrying amount of P1,000,000 as noncurrent asset a for sale, All the conditions in PFRS 5 are met. The fair Value of the equipment is P1,000,000 and the costs to sell are P50,00n Ancing had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery exceedeg te previous decline by P10,000. Ancing’s noncurrent asset helg for sale did not experience any. other declines in value during the fiscal year. What amounts of loss and/or gain should Ancing report in its interim financial statements for the first and third quarters? First quarter Third quarter a. Oo 0 beaecao 10,000 gain cc. 50,000 loss 50,000 gain d. 50,000 loss 60,000 gain (Adapted) 10. On January 1, 20x1, Sunrise Co. has a deferred tax asset of P120,000 arising solely from an operating loss carryforward Sunrise Co. is subject to an income tax rate of 30%. For the year 20x1, Sunrise expects to earn profit of P1,200,000 before tax and before the loss carryforward. Sunrise Co. earns profits before tax of P350,000, P200,000 and P400,000, in the first second and third quarters of 20x1. How much are the incom? tax expenses recognized in the interim periods? 1 quarter - 24 quarter 31 quarter : ae 40,000 90,000 c. 80,000 40,000 80,000 4. 80,000 50,000 80,000 : 50,000 90,000 aera