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    Ia3 Milan Chap 1 2

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    BENILDA CAMASO

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    © All Rights Reserved
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    TABLE OF CONTENTS CHAPTER 1 STATEMENT OF FINANCIAL POSITION. FINANCIAL STATEMENTS ComPLETE SET OF FINANCIAL STATEMENTS... GENERAL FEATURES OF FINANCIAL STATEMENTS ‘Additional Statement of financial position STRUCTURE AND CONTENT OF FINANCIAL STATEMENTS. STATEMENT OF FINANCIAL POSITION PRESENTATION ... CURRENT ASSETS AND CURRENT LIABILITIE: Refinancing agreement. Liabilities payable on demand . CHAPTER 1: SUMMARY... PROBLEMS... CHAPTER 2 STATEMENT OF COMPREHENSIVE INCOME... STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME, PROFIT OR LOSS Extraordinary items Presentation of Expenses . OTHER COMPREHENSIVE INCOME (OCI; Reclassification Adjustments Presentation of OCI. TOTAL COMPREHENSIVE INCOME. ADDITIONAL ILLUSTRATION CHAPTER 2: SUMMARY. PROBLEM! Scanned with CamScanner CHAPTER 3 REVENUE FROM CONTRACTS WITH CUSTOMERS. REVENUE RECOGNITION ,. Step 1: Identify the contract with the customer Combination of contracts... Step 2: Identify the performance obligations in the contract .. Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations .. Step 5: Recognize revenue when (or as) the entity sati performance obligation Performance obligations satisfied over time.. Performance obligations satisfied at a point in time APPLICATIONS OF BASIC CONCEPTS: CONTRACT COSTS: PRESENTATION. Customers’ unexercised rights ADDITIONAL CONCEPTS RELATED TO STEP Warranties .. Principal versus Agent considerations. Consignment arrangements Customer options for additional goods or service: Customer loyalty programs... Non-refundable upfront fees.... ‘ADDITIONAL CONCEPTS RELATED TO STEP. Variable consideration Discounts.. Sale with a right of return. Non-cash consideration Consideration payable to a customer. ADDITIONAL CONCEPTS RELATED TO STEP Bill-and-hold arrangement: Lay-away sale.. 174 Repurchase agreements 174 CONTRACT MODIFICATIONS .. 176 Scanned with CamScanner viti CHANGES IN THE TRANSACTIO Cuapten 3; SUMMARY PROBLEMS... 179 186 CHAPTER 4 NON-CURRENT ASSETS HELD FOR SALE DISCONTINUED OPERATIONS... CLASSIFICATION AS HELD FOR SALE .. CONDITIONS FOR CLASSIFICATION AS HELD FOR SALE .. Exception to the one-year requirement EXCLUSIVE VIEW OF SUBSEQUENT DISPOSAL... EVENT AFTER THE REPORTING PERIOD. PROPERTY DIVIDENDS .. NON-CURRENT ASSETS THAT ARE TO BE ABANDONED MEASUREMENT .. Changes in fair value less costs to sell. Depreciation and amortization Disposal group... CHANGES TO A PLAN OF SALE... REMOVAL OF AN INDIVIDUAL ASSET OR LIABILITY FROM A DISP( DISCONTINUED OPERATIONS ... Presentation of discontinued operations.... Gains or losses on disposal of discontinued operation: Direct costs associated to decision to dispose a component.. Retrospective application... PRESENTATION IN THE STATEMENT OF FINANCIAL POSITIOI CESSATION OF CLASSIFICATION AS DISCONTINUED OPERATION CESSATION OF CLASSIFICATION AS HELO FOR SALE... PRESENTING A DISCONTINUED OPERATION THAT HAS BEEN ABANDONED PRESENTATION IN STATEMENT OF CASH FLOWS , ILLUSTRATIVE FINANCIAL STATEMENTS CHAPTER 4: SUMMARY... PROBLEM: AND 'OSAL GROUP 229 Scanned with CamScanner CHAPTER 5 STATEMENT OF CHANGES IN EQUITY... STATEMENT OF CHANGES IN EQuiTy CHAPTER 5: SUMMARY... PROBLEMS... 267 CHAPTER 6 STATEMENT OF CASH FLows. CLASSIFICATION OF CASH FLOWS.. Operating activities. Special items included in operating act Investing activities Financing activities... Cash flows excluded from the activities sections INTERESTS AND DIVIDENDS PRESENTATION 269 270 270 Investing and Financing Activities 281 -Non-cash transactions... 282. ILLUSTRATIONS ..... . 283 CHAPTER 6: SUMMARY... . 303 PROBLEMS... CHAPTER 7 NOTES - PART 1... Notes. ACCOUNTING POLICIE Changes in Accounting Policies. Accounting for Changes in Accounting Policie: Voluntary change in accounting policy.... Change in reporting entity Changes in Accounting Estimates. Scanned with CamScanner Errors «.. Types of errors... Counterbalancing errors... Non-counterbalancing error: EVENTS AFTER THE REPORTING PERIOD... Adjusting events after the reporting perio Non-adjusting events after the reporting period. CHAPTER 8 NOTES — PART 2.... RELATED PARTIES Disclosure. OPERATING SEGMENTS... Reportable segments. Management approach Aggregation criteria ... Quantitative thresholds Operating segments not meeting any of the quantitative thresholds... Limit on external revenue... Reporting of non-reportable segment: Segment ceasing to be reportable. Segment becoming reportable Limit on the number of reportable segments. 412 Disclosures... 414 Disclosure on general information .. 414 Information about profit or loss, assets and liabilities ........ 414 Reporting of interest revenue and interest expense. 415 Information on segment assets 416 Reconciliations Changes in internal organization Entity-wide disclosures .. 417 Information about major customer: 418 Illustrative disclosure of segment information. 419 Scanned with CamScanner CHAPTER 8: SUMMAR' PROBLEMS .. CHAPTER 9 INTERIM FINANCIAL REPORTING... INTERIM FINANCIAL REPORT .... SIGNIFICANT EVENTS AND TRANSACTIONS. OTHER DISCLOSURES .. PERIODS FOR WHICH INTERIM FINANCIAL STATEMENTS ARE PRESENTED MATERIALITY. RECOGNITION AND MEASUREMENT. Same accounting policies as annual Two views on interim reporting .. Measurement... Revenues received seasonally, cyclically, or occasionally Costs incurred unevenly during the financial year... Examples of application of the recognition and measurement principles. CHAPTER 9: SUMMARY PROBLEMS... CHAPTER 10 2 CASH BASIS TO ACCRUAL BASIS OF ACCOUNTING.. ‘ACCRUAL BASIS OF ACCOUNTING. CASH BASIS OF ACCOUNTING... CASH BASIS TO ACCRUAL BASIS PROBLEMS... CHAPTER 11 PFRS FOR SMALL AND MEDIUM-SIZED ENTITIES (SMES).519 INTRODUCTION... Overview on the topi Purpose... Scanned with CamScanner SECTION 15 INVESTMENTS IN JOINT VENTURES ssusssssernsn SECTION 16 INVESTMENT PROPERTY . Measurement wee Transfers... SECTION 17 PROPERTY, PLANT AND EQUIPMENT .. Subsequent measurement Cost model 1 STB Revaluation model... 578 Depreciation ...., 100 579 SECTION 18 INTANGIBLE ASSETS OTHER THAN GOODWILL Initial measurement... Subsequent measurement... Amortization over useful life SECTION 19 BUSINESS COMBINATIONS AND GOODWILL SECTION 20 LEAsES.. Classification of leases Finance leases ~ Lessees Finance leases - Lessors Operating lease... Sale and leaseback transaction: SECTION 21 PROVISIONS AND CONTINGENCIES Initial measurement... Subsequent measurement Contingent liabilities . Contingent asset: SECTION 22 LIABILITIES AND EQUITY * Instruments classified as equity Instruments classified as liabilities , Classification of financial instrument as liability or equit Original issue of shares or other equity instruments... Sale of options, rights and warrants 595 Capitalization or bonus issues of shares and share Splits....444.595 Convertible debt or similar compound financial instruments. 596 Extinguishing financial liabilities with equity instruments ......596 Treasury shares., 597 Distributions to owners 597 Property dividends. 597 SECTION 23 REVENUE. 598 Scanned with CamScanner Measurement... Customer loyalty program Sale of goods.. Rendering of services. Construction contracts Percentage of completion method Interest, royalties and dividends SECTION 24 GOVERNMENT GRANTS Recognition and measurement .. SECTION 25 BORROWING COSTS Recognition SECTION'26 SHARE-BASED PAYMENT .. Measurement of equity-settled share-based payment transactions ... Cash-settled share-based payment transactions Share-based payment transactions with cash alternatives. SECTION 27 IMPAIRMENT OF ASSETS. Impairment of inventorie: Impairment of assets other than inventories. Indicators of impairment... Measuring recoverable amount .. Fair value less costs to sell Value in use. Recognizing and measuring an impairment loss for a cash- generating unit .. SECTION 28 EMPLOYEE BENEFITS .... General recognition principle for all employee benefits. Short-term employee benefits Defined contribution plans... Defined benefit plans... Actuarial valuation method .. Defined benefit plan asset. Cost of a defined benefit plan Recognition — accounting policy election Other long-term employee benefits... Termination benefits SECTION 29 INCOME TAX Recognition and measurement of current tax .. Scanned with CamScanner Recognition of deferred tax..... Tax bases and temporary differences. Taxable temporary differences Deductible temporary differences. SECTION 30 FOREIGN CURRENCY TRANSLATION SECTION 31 HYPERINFLATION . Hyperinflationary economy. Measuring unit in the financial statements. Procedures for restating historical cost financial statements 634 Gain or loss on net monetary position .. SECTION 32 EVENTS AFTER THE END OF THE REPORTING PERIOD Recognition and measurement . Disclosure... SECTION 33 RELATED PARTY DISCLOSURES. Definition of Related party .. Disclosures... SECTION 34 SPECIALIZED ACTIVITIES .. Agriculture ... Exploration for and evaluation of mineral resources. Service concession arrangements .... SECTION 35 TRANSITION TO THE PFRS FOR SMES. REFERENCEG........... Scanned with CamScanner tement of Financial Position 1 Chapter 1 Statement of Financial Position Related standard: PAS 1 Presentation of Financial Statements Learning Objectives 1, Enumerate and describe the components of a complete set of financial statements. 2. Classify assets and liabilities into current and noncurrent. 3,__ Prepare a statement of financial position. Financial Statements Financial statements are the “structured representation of an entity's financial position and results of its operations.” (PAS 19) Financial statements are the end product of the financial reporting process and the means by which the information gathered and processed is periodically communicated to users. The financial statements of an entity pertain only to that entity and not to the industry where the entity belongs or the economy asa whole. General purpose financial statements. (‘financial statements’) are “those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.” (Pas 1.7) General purpose financial statements cater to most of the common needs of a wide range of external users. General purpose financial statements are the subject matter of the Conceptial Framework and the PFRSs. Purpose of financial statements 1. Primary objective: To provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. 2. Secondary objective: To show the results of management's stewardship over the entity’s resources. Scanned with CamScanner Chapter 1 oa eee To meet the objective, financial statements provide information about an entity's: Assets (economic resources); . Liabilities (economic obligations); Equity; Income; Expenses; Contributions by, and distributions to, owners; and Cash flows. amenaosPp This information, along with other information in the notes, helps users assess the entity's prospects for future net cash inflows. Complete set of financial statements A complete set of financial statements consist of: 1... Statement of financial position; Statement of profit or loss and other comprehensive income; Statement of changes in equity; Statement of cash flows; Notes; (6a) Comparative information; and 6. ‘Additional statement of financial position (required only when certain instances occur). seen An entity may use other titles for the statements. For example, an entity may use the title “balance sheet” in lieu of “statement of financial position” or “statement of comprehensive income” instead of “statement of profit or loss and other comprehensive income.” However, an “income statement” is different from a “statement of profit or loss and other comprehensive income” or @ “statement of comprehensive income.” We will elaborate on this later. at Scanned with CamScanner ‘statement of Financial Position 3 Reports that are presented outside of the financial statements, such as financial reviews by management, environmental reports and value added statements, are outside the scope of PFRSs. General Features of financial statements 1, Fair Presentation and Compliance with PFRSs Fair presentation is faithfully representing, in the financial statements, the effects of transactions and other events in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Conceptual Framework. Compliance with the PFRSs is presumed to result in fairly presented financial statements. Fair presentation also requires the proper selection and application of accounting policies, proper presentation of information, and provision of additional disclosures whenever relevant to the understanding of the financial statements. Inappropriate accounting policies cannot be rectified by mere disclosure. (PAS Vrequires an entity whose financial statements comply with PFRSs to make an explicit and unreserved statement of such complian he notes. However, an entity shall not make such statement unless it complies with all the requirements of PFRSs. There may be cases wherein an entity's management concludes that compliance with a.PFRS requirement is misleading. In such cases, PAS 1 permits a departure from a PERS requirement if the relevant regulatory framework requires or allows such a departure. : When an entity departs from a PERS requirement, it shall disclose the management's conclusion as to the fair presentation of the financial statements; that all other * requirements of the PFRSs are complied with; the title of the Scanned with CamScanner rn Chapter age ee ee PERS from which the entity has departed; and the finay, ial effect of the departure. 2. Going Concem “Financial statements are normally prepared on a Boing concern basis unless the entity has an intention to liquidate has no other alternative but to do so. When preparing financial statements, Managemen, Shall assess the entity’s ability to continue as a going cong i taking into account all available information about the future, which is at least, but not limited to, 12 months from the reporting date. ; Af the entity has a history of profitable operations and teady access to financial resources, management ma, conclude that the entity is a going concern without detailed analysis. or —Hf there are material uncertainties on the entity’s abi to continue as a going concem, those uncertainties shall be disclosed. Af the entity is not a going concem, its financial Statements shall be prepared using another basis, This fact shall be disclosed, including the basis used, and the reason why the entity is not regarded as a going concern, 3. Accrual Basis of Accounting All financial statements shall be prepared using the accrud basis of accounting except for the statement of cash flows, which is prepared using cash basis, 4. Materiality and Aggregation Each material class of similar it class of similar items is called are presented Individually im: items, fems is presented separately. A a “line item.” Dissimilar items Separately unless they are immaterial. material items are aggregated with other _ Scanned with CamScanner Statement of Financial 5, Offsetting Assets and liabilities or income and expenses are presented separately and are nof offset, unless offsetting is required or permitted by a PERS. Offsetting is permitted when it reflects the substance of the transaction. Examples of offsetting: ax” Presenting gains or losses from sales of assets net of the related selling expenses, b. Presenting at net amount the unrealized gains and losses arising from trading securities and from translation of foreign currency denominated assets and liabilities, except if they are material, c. Presenting a loss from a provision net of a reimbursement from a third party. Measuring assets net of valuation allowances is not offsetting. For example, deducting allowance for doubtful accounts from accounts receivables or deducting accumulated depreciation from a building account is not offsetting. 6, Frequency of reporting Financial statements are prepared at least annually. If an entity changes its reporting period to a period longer or shorter than one year, it shall disclose the following: a. The period covered by the financial statements: b.. The reason for using a longer or shorter period, and c. The fact that amounts presented in the financial statements are not entirely comparable. ‘omparative Information AS 1 requires y to present comparative information in — an entity presents two of each of the statements and related notes. For example, when an entity Scanned with CamScanner Chapter; 62 eee nancial statements, the 2p,, s sents i nt year fi presents its 20x2 current y re shall also be Presenteg ‘i preceding year financial statemen' comparative information. Poi 4 3 PAS 1 permits entities to provide comparatiy, = information in addition to the minimum requirement, Fo, example, an entity may provide. a third pape of comprehensive income. In this case, however, # . entity Neeg not provide a third statement for the other financiay statements, but must to provide the related notes for tha, additional statement of comprehensive income. Additional Statement of financial position As mentioned earlier, a complete set of financial statements includes an additional statement of financial position when certain instances occur. Those instances are as follows: a. The entity applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements, or reclassifies items in its financial statements; and . The instance in (a) has a material effect on the information in the statement of financial position at the beginning of the = preceding period. For example, if any of the instances above occur, the entity shall present three statements of financial position as follows: Statement of financial position Date 1._ Current year >, As at December 31, 20x2 2. Preceding year > Asat December 31, 20x1 (comparative information) 3._ Additional > _Asat January 1, 20x1 The opening (additional) statement of financial position is dated as at the beginning of the preceding period even if the entity presents comparative information for earlier periods, The entity need not present the related notes to the opening statement of financial position. Scanned with CamScanner Statentent of Financial Position 7 8. Consistency of presentation The presentation and classification of items in the financial statements is retained from one period to the next unless a change in presentation: a. is required by a PFRS; or b. results in information that is reliable and more relevant. ~“A change in presentation requires the reclassification of items in the comparative information. If the effect of a reclassification is material, the entity shall provide the “additional statement of financial position” discussed earlier. eneral Features © Summary: f= Fair presentation & Compliance with PFRSs Offsetting 5. “2. Going Concern 6. Frequency of reporting period % 8., 13, Accrual Basis Comparative information 4. Materiality & agpregatior Consistency of presentati Structure and content of financial statements Each of the financial statements shall be presented: with equal prominence and shall be clearly identified and distinguished from other information in the same published document. For example, financial statements aré usually included in an annual report, which also contains other information. The PFRSs apply only to the financial statements and not necessarily to the other information. The following information shall be displayed prominently and repeatedly whenever relevant to the understanding of the information presented: a The name of the reporting entity -b> Whether the statements are for the individual entity or for a group of entities «© The date of the end of the reporting period or the period covered by the financial statements ‘d. The presentation currency €- The level of rounding used (¢.g., thousands, millions, etc.) Scanned with CamScanner ‘ a Chap Se ee Illustration: A heading for a financial statement is shown, beloy, ‘ABC Group Name of the reper ity statement of tnancl postion ——H tetra a As of December 31, 20x2 pertains toa rou (in thousands of Philippine Pesos) Date of the end of the reporting period Level of rouncing-off ang presentation currency The statement of financial position is dated as at the end of the reporting period while the other financial statements dated for the period that they cover. PAS 1 requires particular disclosures to be Presenteq either in the notes or on the face of the other financial statements (e.g., footnote disclosures). Other disclosures are addressed by other PFRSs. ate Management’s Responsibility over Financial Statements The management is responsible for an. entity's financial statements. The responsibility encompasses: a. the preparation and fair presentation of financial statements in accordance with PERSs.; b. internal control over financial reporting; ¢. going concern assessment; d. oversight over the financial reporting process; and e. review and approval of financial statements, ——Thie ‘responsibilities are expressly stated in a document called “Statement of Management's Responsibility for Financial Statements,” which is attached to the financial statements as @ cover letter. This document is signed by the entity's a. Chairman of the Board (or equivalent), b. Chief Executive Officer (or equivalent), and c. Chief Financial Officer (or equivalent) Scanned with CamScanner tement of Financial Position 9 statement of Financial Position ‘The statement of financial position shows the entity’s financial condition (status of assets, liabilities and equity) as at a certain ‘date. It includes line items “that present the following amounts: \ar Property, plant and equipment; Investment property; Intangible assets; Financial assets (excluding (e), (h) and (i)); Investments accounted for using the equity method; Biological assets; Inventories;” ._ Trade and other receivables; Cash and cash equivalents; Assets held for sale, including disposal groups; _ Trade and other payables; Provisions; . Financial liabilities (excluding (k) and (1)); _ Current tax liabilities and current tax assets; . Deferred tax liabilities and deferred tax assets; . Liabilities included in disposal groups; . Non-controlling interests; and Issued capital and reserves attributable to owners of the repos grrr ra me aos parent. (PAS 1.54) (ine item is a caption used to describe a group of accounts with similar nature, PAS 1 does not/prescribe the order or format of presenting items in the statement of financial position. The foregoing is simply a list of items that are sufficiently different in nature or function to warrant separate presentation. Accordingly, an entity may modify the descriptions used and the sequence of their presentation to suit the nature of the entity and its transactions. Moreover, additional line items may be presented whenever relevant to the understanding of the entity's financial position. Scanned with CamScanner x Chapt gO a et SC Presentation ot ee A statement of financial position may be presented in a “classified oran “unclassified” manner. a. A classified presentation shows distinctions benwnen current and noncurrent assets and current and noncurrent liabilities, b. An unclassified presentation (also called ‘based on liquidity’) shows no distinction between current and noncurrent items. CLASSIFIED, UNCLASSIFIED ‘ASSETS ASSETS Current assets Cash and cash equivalents a Cash end cesh equivalents ~ Receivables ~ ‘Trade and othor receivables ~ Inventories ~ Inventories ~ Investments in equity instruments Other current assots _x__| | Property, plant and equipment ax Tote! current assots “2 | | Other intangible assets ~ Non-current assets Goodwill x Investments in equity instruments x Other assets x Property, plant ond equipment x ‘| | TOTAL ASSETS. x (Other intangible assets a : Goodwill a Total non-current assets oe [TOTAL ASSETS =~ A classified presentation shall be used except when an unclassified presentation provides information that is reliable and more relevant. When that exception applies, assets and liabilities are presented in order of liquidity (this is normally the case for banks and other financial institutions). PAS 1 also permits a mixed presentation, i.c,, presenting some assets and liabilities using a current/non-current, classification and others in order of liquidity. This may be appropriate when the entity has diverse operations. Whichever method is used, PAS 1 requires the disclosure of items that are expected to be recovered or settled (a) within 12 months and (b) beyond 12 months, after the reporting period. A classified presentation highlights an entity's working capital and facilitates the computation of liquidity and solvency ratios. Scanned with CamScanner Statement of Fina i > Working capital = Current Assets — Current Liabilities Current assets and Current liabilities Current Assets are assets that are: ~ Expected to be realized, sold, or consumed in the entity’s normal operating cycle; . Held primarily for trading; Expected to be realized within Current Liabilities _| -are liabilities that are: _ Expected to be settled in the entity’s normal operating cycle; Held primarily for trading; Due to be settled within 12 months after the reporting period; or . The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. 12 months after the reporting period; or |. Cash or ‘cash equivalent, unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting eriod. Allother assets and liabilities are classified as noncurrent. “Thecoperating cycle’of an entity is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. When the entity's normal operating cycle is not clearly identifiable, it is assumed to be 12 months.” (PAS 1.68) Assets and liabilities that are realized or settled as part of the entity’s normal operating cycle (eg., trade receivables, inventory, trade payables, and some accruals for employee and other operating costs) are presented as current, even if they are expected to be realized or settled beyond 12 months after the reporting period. Assets and liabilities that do not form part of the entity’s normal operating cycle (e.g, non-operating assets and liabilities) are presented as current only when they are expected to be realized or settled within 12 months after the reporting period. Scanned with CamScanner Si a Deferred tax assets and liabilities are always Present Roncurrent items in a classified statement of financial Positig® Tegardless of their expected dates of reversal, " Examples: Current assets Current liabilities * Cash and cash equivalents * Accounts payable * Accounts receivable * Salaries payable * Non-trade receivable * Dividends payable collectible within 12 months Held for trading securities * Inventory * Prepaid assets Income (Current) tax Uneamned revenue * Portion of notes /loansy bonds payable due within 12 months Payable Noncurrent assets * Property, plant & Equipment * Non-trade receivable Noncurrent liabilities Portion of notes/loans/ bonds payable duue beyong collectible beyond 12 12 months months * Deferred tax liability * Investment in associate * Investment property * Intangible assets + Deferred tax asset Refinancing agreement A long-term obligation that is maturing within 12 months after the reporting period is classified as current, even if a refinancing agreement to reschedule payments on a long-term basis is completed after the reporting period but before the financial statements are authorized for issue. However, the obligation is classified as noncurrent if the entity expects, and has the discretion, to refinance it on a long term basis under an existing loan facility. i wenacinieell Scanned with CamScanner statement of Financial Position 7 If the refinancing is not at the discretion of the entity (for example, there is no arrangement for refinancing), the financial jiability is current. > (Refinancing refers to the replacement of an existing debt with a new one but with different terms, e.g; an extended maturity date or a revised payment schedule. Refinancing normally entails a fee or penalty. A refinancing where the debtor is under financial distress is called “troubled debt restructuring,” > Loan facility refers to a credit line. Illustration: _Hlustratiom: ________._-__ Jeon Entity A’s current reporting date is December 31, 20x1. A bank | Joan taken 10 years ago is maturing on October 31, 20x2. Len ee er a eee ‘Analysis: A currently maturing’ obligation (Le, due within 12 months after the reporting date) is classified as current even if that obligation used to be noncurrent. Therefore, the loan is presented as a current liability in Entity A’s December 31, 20x1 statement of financial position. [On january 15, 20%2, Entity A enters into a refinancing agreement | to extend the maturity date of the loan to October 31, 20x7. Entity | A’s financial statements are authorized for issue on March 31, [202 Analysis: Continuing with the general rule, a currently maturing obligation is classified as current even if a refinancing agreement, ona long-term basis, is completed after the reporting period and before the financial statements are authorized for issue. Accordingly, the loan is nevertheless presented as a current liability, Scanned with CamScanner 4 Chapter SET | Under the original terms of the loan agreement, Entity, A has 4, unilateral right to defer (postpone) the payment of the loan up toa maximum period of 5 years from the original maturity date, Eng, | A expects to exercise this right after the reporting date but befo,, | the financial statements are authorized for issue. Analysis: Entity A has the discretion (ie, unilateral right) jg refinance the obligation on a long-term basis under an existing loan facility (.e., the unilateral right is included in the origina terms of the loan agreement). Accordingly, the loan is classified ag noncurrent. In this scenario, Entity A has an unconditional right tg defer the settlement of the loan for at least twelve months after the teporting period. Therefore, condition ‘d’ above for curren, classification (i.e,, ‘...does not have an unconditional right to defer settlement...’) is inapplicable. Liabilities payable on demand Liabilities that are payable upon the demand of.the lender are classified as current. A long-term obligation may become payable on demand as a result of a breach of a loan provision. Such an obligation is classified as current even if the lender agreed, after the reporting period and before the authorization of the financial statements for issue, not to demand payment. This is because the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. However the liability is noncurrent if the lender provides the entity by the end of the reporting period (e.g., on or before December 31) a grace period ending at least twelve months after the reporting period, within which the entity can rectify. the breach and during which the lender cannot demand immediate repayment. Scanned with CamScanner statement of Financial Position s Illustration: In 20x1, Entity A took a long-term Joan from a bank. The loan agreement requires Entity A to maintain a current ratio of 2:1. If the current ratio falls below 2:1, the loan becomes payable on demand. On December 31, 20x1 (reporting date), Entity A’s current ratio was 1.8:1, below the agreed level. Entity A’s financial statements were authorized for issue on March 31, 20x2. Case 1: On January 5, 20x2, the bank gives Entity A a chance to rectify the breach of loan agreement within the next 12 months and promises not to demand immediate repayment within this period. Analysis: The loan is classified as current liability because the grace period is received after the reporting date. Case 2: On December 31, 20x1, the bank gives Entity A a chance to rectify the breach of loan agreement within the next 12 months and promises not to demand immediate repayment within this period. Analysis: The loan is classified as noncurrent liability because the grace period is received by the reporting date. Illustration 1: Current assets : The ledger of ABC Co. as of December 31, 20x1 includes the following: Assets : Cash 5,000 Trade accounts receivable (net of P5,000 credit balance in acets.) 20,000 Held for trading securities 40,000 Financial assets designated at FVPL. 15,000 Investment in equity securities at FVOCI 35,000 Investment in bonds measured at amortized cost (duein3 yrs) 30,000 Prepaid assets ° 5,000 Deferred tax asset (expected to reverse in 20x2) 6,000 Scanned with CamScanner x 6 Chapter SS - ToT Investment in Associate 3B Investment property ‘ey Sinking fund 009 Property, plant, and equipment 50,09) Goodwill 14,0¢9 Totals 280,099 Requirement: Compute for the total current assets. Solution: Curentassets SSCS Trade accounts receivable (20,000 +: 5,000) 25,000 Held for trading securities 40,000 Financial assets designated at FVPL 15,000 Prepaid assets 5,000 Total current assets 90,000 e—ee—e——asSsS 00 ¥ Notes: * Accounts receivables should not have abnormal balances, Therefore, the credit balance is added back to accounts receivable and presented as liability. Assets which are held primarily for trading (e., financial assets measured at fair value through profit or loss ‘FVPL’ - Held for trading securities and Designated financial assets) are presented as current assets, Investments in equity securities measured at fair value through other comprehensive income (FVOCI)-are classified as noncurrent in the absence of evidence to the contrary. However, if the investment in FVOCT is expected to be realized within 12 months from the end of Teporting period, the investment is classified as current, © Deferred tax assets are Presented as noncurrent irrespective of their expected reversal dates, Sinking fund Parallels the classification of the related liability on which the fund is set up. In the absence of evidence to the contrary, sinking fund is classified as noncurrent. Scanned with CamScanner sutement of Financial Position a Investment in Associate, Investment property, Property, plant and equipment, and Goodill are noncurrent items. Illustration 2: Current liabilities The ledger of ABC Co. as of December 31, 20x1 includes the following: Liabilities ies Bank overdraft 5,000 Trade accounts payable (net of 5,000 debit balance in accounts) 20,000 Notes payable (due in 20 semi-annual payments of £2,000) 40,000 Interest payable 15,000 Bonds payable (due on March 31, 20x2) 35,000 Discount on bonds payable, (15,000) Dividends payable 5,000 Share dividends payable 6,000 Deferred tax liability (expected to reverse in 20x2) 18,000 Income tax payable 22,000 Contingent liability 50,000 Reserve for contingencies 14,000 Totals 215,000 Requirement: Compute for total current liabilities. Solution: Current liabilities Bank overdraft 5,000 Trade accounts payable (P20,000 + P5,000) 25,000 Notes payable (2,000 semi-annual instalment x 2) 4,000 Interest payable 15,000 Bonds payable (dire on March 31, 20x2) 35,000 Discount on bonds payable (15,000) Dividends payable 5,000 Income tax payable 22,000 Total current liabilities 96,000 Scanned with CamScanner it Chapter 1 3B Chapter & Notes: Bank overdrafts are repayable on demand, thus, they are classified as current liability, © Accounts payables should not have abnormal balances, Therefore, the debit balance is added back to accounts payable and presented as asset. = Only the currently maturing portion of the notes payable is classified as current liability, * Unless stated otherwise, interest payable, cash dividends payable, and income taxes payable are presumed to be due currently, © -Thé bonds payable (and the related discount) are classified as current because they mature within 12 months. from end of Teporting period. Share dividends payable is not a liability but rather a contra- equity item, © Deferred tax liabilities are presentéd as noncurrent irrespective of their expected reversal dates, ‘© Contingent liability is not recognized as liability but rather disclosed only in the notes if they are reasonably possible. “* Appropriated reserves for contingencies are components of equity. Illustration 3.1; Current and noncurrent liabilities The ledger of ABC Co. as of December 31, 20x1 includes the following: 10% Note payable 40,000 12% Note payable, 60,000 14% Mortgage note payable 30,000 Interest payable Additional information: * ABC Co.'s financial statements were authorized for issue on April 15, 20%2. * The 10% note payable is due on July 1, 20x2 and pays semi- annual interest every July 1 and December 31. On January 28, 20x2, ABC Co. entered into a refinancing agreement with a Scanned with CamScanner statement of Financ pank to refinance the entire note by issuing a long-term obligation. The 12% note payable is due on March 31, 20x2 and pays annual interest every March 31. On January 31, 20x2, ABC Co- extended the maturity of the note to March 31, 20x3 under the existing loan agreement. The extension of maturity date is at the option of ABC Co. The 14% mortgage note is due on December 31, 20x9. Per agreement with the creditor, ABC Co. is to pay quarterly interests on the note, failure to do so will render the note payable on demand. ABC Co. failed to pay the 3" and 4" quarterly interests on the note during 20x1. Requirement: Compute for the current liabilities. Solution: 10% Note payable 40,000 Inorest payable on the 12% note (60,000 12% x 9/12) 5400 14% Mortgage note payable 30,000 Interest payable on the 14% note (30,000 x 14% x 6/12) 2,100 Current liabilities 77,500 —_ ¥ Notes: w The 10% note that is currently maturing is presented as current liability because the refinancing agreement is not at the discretion of ABC Co. © The 12% note is noncurrent because the refinancing under the existing loan facility is at the discretion of ABC Co. However, since the 12% note pays annual interest every March 31 and there is no balance in the “Interest payable” account, the accrued interest for the months of April to December 31, 20x1 must not have been recorded yet. The accrued interest is computed and included in current liabilities. © The 14% mortgage note is current because it is due on demand, Again, since the “interest payable” account has no balance, the unpaid interest for the 3“ and 4" quarters must Scanned with CamScanner DOE sos Ss at not have been recorded yet. The accrued interest is computed and included in current liabilities. It is presumed that there are no unpaid interests on the 10% note because the scheduled interest payment dates are on July and December 31, which coincide with the reporting period. Illustration 3.2; Current and noncurrent liabilities The ledger of ABC Co. as of December 31, 20x1 includes the following; 15% Note payable 25,000 16% Bonds payable 50,000 18% Serial bonds payable 100,000 Interest payable " Additional information: * ABC Co.'s financial statements were authorized for issue on April 15, 20x2. © The 15% note payable was issued on January 1, 20x1 and is “due on January 1, 20x5. The note pays annual interest every year-end. The agreement with the lender provides that ABC Co. shall maintain an average current ratio of 2:1. If at any time the current ratio falls below the agreement, the note payable will become due on demand. As of the 3% quarter in 20x1, ABC Co.'s average current ratio is 0.50:1. Immediately, ABC Co. informed the lender of the breach of the agreement. On December 31, 20x1, the lender gave ABC Co. a grace period ending on December 31, 20x2 to rectify the deficiency in the current ratio. ABC Co, promised the creditor to liquidate some of its long-term investments in 20x2 to increase its current ratio. * The 16% bonds are 10-year bonds issued on December 31, 1992, The bonds pay annual interest every year-end. ¢ The 18% serial bonds are issued at face amount and are due in semi-annual installments of P10,000 every April 1 and September 30. Interests on the bonds are also due semi- peel Scanned with CamScanner ‘statement of Financial Position 1 annually. The last installment on the bonds is due on September 30, 20x7. ‘Requirement: Compute for the current liabilities. Solution: 16% Bonds payable 50,000 Interest payable on the serial bonds (100k x 18% x 3/12) 4,500 Current liabilities 54,500 & Notes: # The 15% note is noncurrent because ABC Co. received a grace period from the lender as of the end of reporting period (i.e. December 31, 20x1) covering a 12-month period to rectify the breach of loan agreement. & The 16% bonds are presented as current liability because they mature on December 31, 20x2. © The 18% serial bonds are-due in 10 semi-annual installments (P100,000 face amount + P10,000 semi-annual installments) to be paid over 5 years (10 semi-annual installments + 2 installments per year). Since the last installment payment is due on September 20x7, the first installment will be paid on April 1, 20x3 (i.e. two installments in each of years 20x3 through September 30, 20x7). Therefore, none of the serial bonds is currently maturing in 20x2. However, since interests are due semi-annually, the accrued interest on the serial bonds for 3 months (September 30 to December 31, 20x1) is computed and presented as current liability. ¢Tis presumed that there are no unpaid interests on the 15% and 16% notes because their scheduled interest payment date is every year-end, which coincides with the reporting period. Ilustration 4: Working capital Below are the account balances prepared by the bookkeeper for ABC Co. as of December 31, 20x1: Scanned with CamScanner Chapter 1 2 ent Se Accounts receivable, net 44,000 Notes payable 100,000 Inventory 40,000 Prepaid income tax 8,000 Prepaid assets 5,000 Investment in subsidiary 10,000 Land held for sale 28,000 Property, plant, and equipment 50,000 Totals 200,000 120,000 SS Additional information: * Cash consists of the following: Petty cash fund (unreplenished petty cash expenses, P 1,500) 2,000 Cash in bank (10,000) Payroll fund 14,000 Tax fund 7,000 Cash to be contributed to a sinking fund established for the retirement of bonds maturing on December 31, 20x3 2,000 Total Cash _ 15,000 50 Checks amounting to P30,500 were written to suppliers and recorded on December 30, 20x1, resulting to a bank overdraft (of P10,000. The checks were mailed on January 5, 20x2, * Accounts receivable consists of the following: Accounts receivable 40,000 Allowance for uncollectability (6,000) Credit balance in customers’ accounts (3,000) Sale price of unsold goods sent on consignment to XYZ, Inc. at 120% of cost and excluded ftom ABC Co's inventory 12,000 Accounts receivable, net 44,000 * The inventory includes cost of goods amounting to 10,000 that are expected to be sold beyond 12 months but within the Scanned with CamScanner sgatemet of Financial Position B ordinary course of business. Also, the inventory includes cost of consigned goods received on consignment from Alpha- Numerix Co. amounting to P5,000, « Prepaid income tax represents excess of payments for quarterly corporate income taxes during 20x1 over the actual annual corporate income tax as of December 31, 20x1. Prepaid assets include a 2,000 security deposit on an _ operating lease which is expected to expire on March 31, 20x3. The security deposit will be received on lease expiration. The land qualified for classification as “asset held for sale” under PERS 5 Non-current Assets Held for Sale and Discontinued Operations as of December 31, 20x1. ‘Accounts payable is net of P6,000 debit balance in suppliers’ accounts. Accounts payable includes the cost of goods held on consignment from Alpha-Numerix Co. which were included in inventory. The notes payable are dated July 1, 20x1 and are due on July 1, 20x4. The notes payable bears an annual interest rate of 10%. Interest is payable annually. Requirement: Compute for the adjusted working capital. Solution: > The adjusted cash is computed as follows: Cash - unadjusted 15,000 Unreplenished petty cash expenses (1,500) Unreleased checks recorded as disbursement resulting to overdraft 30,500 Contribution to sinking fund (2,000) Aafjsted cash balance 42,000 > The adjusted accounts receivable is computed as follows: Accounts receivable < 40,000 Allowance for uncollectability 6,000) Aajusted accounts receivable, net 35,000 Scanned with CamScanner Chapie 4 pel > The adjusted inventory is computed as follows: Inventory* 40,000 Cost of unsold goods sent out on consignment excluded from inventory (12,000 + 120%) 10,000 Cost of goods held on consignment (5,000) Feast eo Adjusted inventory 45,000 “The cost of inventory expected to be sold beyond 12 months but within the normal operating cycle is properly included as part of cost of inventories presented as current assets. > The adjusted prepaid assets are computed as follows: Prepaid assets 5,000 Security deposit (to be presented as noncurrent) (2,000) Adjusted prepaid assets 3,000 > The adjusted accounts payable is computed as follows: Accounts payable (20,000 + 6,000 debit balance) 26,000 Unreleased checks recorded as disbursement resulting to overdraft 30,500 Cost of goods held on consignment 5,000) Adjusted accounts payable, net 51,500 > Accrued interest on the notes payable is computed as follows: (100,000 x 10% x 6/12) . 5,000 The following are the adjusting entries: Dec. | Various expense accounts 1,500 a Petty cash fund 1,500 to record unreplenished petty cash expenses Dez. | Cash in bank 30,500 a Accounts payable 30,500 to revert back unreleased checks to cash and accounts payable Dec. | Sinking fund 2,000 at Cash in bank 2,000 to segregate from cash the contribution to a sinking fund Scanned with CamScanner sqaement of Financial Position a Accounts receivable 3,000 Advances from customers 3,000 toeliminate the credit balance in customers’ accounts Sales 12,000 Accounts receivable 12,000 Inventory Cost of goods sold 10,000 to reverse entries made to record unsold goods sent ot on 10,000 consignment as sale De. | Accounts payable 5,000 3, Inventory 5,000 201 || to derecognize cost of inventory held on consignment improperly included in inventories and accounts payable De | Advances to suppliers 000 3h Accounts payable 6,000 2081 | to elinninate debit balance in suppliers’ accounts ‘Dec. | Interest expense 5,000 3h, Interest payable : 5,000 201 | io recognize accrued interest payable currently The current assets and current liabilities are computed as follows: Curent assets Current liabilities Cash 42,000 Accounts payable 51,500 ‘Accounts receivable, net 35,000 Advances from customers 3,000 Advances to suppliers 6,000 Interest payable 5,000 Inventory 45,000 Prepaid income tax 8,000 Prepaid assets 3,000 é Land held for sale 28,000 * Total current assets 167,000 __Total current liabilities 59,500 ‘The adjusted working capital is computed as follows: Working capital = Current assets ~ Current liabilities Working capital = P167,000 - 959,500 Working capital = 107,500 Scanned with CamScanner 26 Chapter} a ee! Illustration 5: Working capital The ledger of ABC Co. as of December 31, 20x1 includes the following: Cash in bank - Banco De Oro 15,000 Gash in bank - Metrobank 5,000 Accounts receivable (including P15,000 pledged accounts) 35,000 Accounts receivable - assigned 23,000 Equity in assigned receivables 10,000 Notes receivable (including #20,000 notes receivable discounted) 45,000 Notes receivable discounted 20,000 Advances to subsidiary 32,000 Held for trading securities : 20,000 Inventory 62,000 Deferred charges 18,000 Cash surrender value 6,000 Bond sinking fund : 100,000 Total assets 400,000 Liabilities ‘Accounts payable 40,000 Estimated warranty liability x 14,000 Loans payable related to assigned receivables (due in 12 mos.) 15,000 Accrued expenses 13,000 Bonds payable (due on December 31,2012) 100,000 Premium on bonds payable 8,000 Total liabilities 190,000 Additional information: * Petty cash fund includes IOU's from employees amounting to 2,000. The remaining balance of P5,000 represents bills and coins. * Cash in bank - Banco de Oro represents the balance per bank statement. As of December 31, 20x1, deposits in transit amounted to P10,000 while outstanding checks amounted to i Daa Scanned with CamScanner yatement of Financial Position ” 3,000. Included in the bank statement as of December 31, 20x1 is an NSF check amounting to P8,000. Cash in bank - Metrobank represents the balance per ledger. ‘As of December 31, 20x1, deposits in transit amounted to p2,000 while outstanding checks amounted to P1,000. Accounts receivable (unassigned) includes uncollectible past due accounts of P4,000 which need to be written-off. Also included in accounts receivable (unassigned) is a P5,000 receivable from a customer which was given a special credit term. Under the special credit term, the customer shall-pay the 5,000 receivable in equal quarterly installments of P625. The Jast payment is due on Decembér 31, 20x3. ‘The held for trading securities include the reacquisition cost of ABC Co's shares amounting to P4,000. Inventory includes P30,000 goods in transit purchased FOB Destination but excludes P12,000 goods in transit purchased FOB Shipping point. Requirement: Compute for the working capital. Solution: Current assets Petty cash fund (7,000 - P2,000 1OU's) 5,000 Cash in bank - Banco De Oro (15,000 + 10,000 DIT -3,000 OC) 22,000 Cash in bank - Metrobank 5,000 Advances to employees (representing the IOU's) 2,000 Accounts receivable* 28,500 Accounts receivable - assigned 25,000 Notes receivable 45,000 Notes receivable discounted (20,000) Held for trading securities (?20,000 - P4,000 Treasury shares) 16,000 Inventory (P62,000 - P30,000 FOB Dest. + ?12,000 FOB SP) 44,000 100,000 Bond sinking fund Total current assets 272,500 Scanned with CamScanner 28 Chapter 1 i Current liabilities Accounts payable (40,000 - 30,000 FOB Dest. + 12,000 FOB SP) 22,000 Estimated warranty liability 14,000 ‘Loans payable related to assigned receivables (due in 12 mos.) 15,000 ‘Accrued’ expenses 13,000 Bonds payable (due on December 31, 20x2) 100,000 Premium on bonds payable 8,000 Total current liabilities 172,000 Working capital (272,500 - 172,000) 100,500 & Notes: @ The IOU's (‘I owe you’) represents advances to employees that are presented as current receivables. © The balance of “Cash in bank — Banco De Oro” is the balance per bank statement, thus, the deposits in transit are added while the outstanding checks are deducted in order to compute for the adjusted balance of cash. The NSF check is ignored because this is a book reconciling item and not a bank reconciling item. © The balance of “Cash in bank - Metrobank” is the balance per ledger (or per books), thus, the’ deposits in transit and outstanding checks are ignored because they are bank reconciling items. “The adjusted accounts receivable is computed as follows: Accounts receivable 35,000 Uncollectible accounts written-off (4,000) Accounts with special credit term — noncutrent portion (625 quarterly installment x 4 installments in 20x3) (2,500) Adjusted accounts receivable (unassigned) 28,500 © The pledged accounts receivables are properly included in current receivables. "1 ® The “accounts receivable ~ assigned” is properly included as part of current assets. However, the equity in assigned receivables (computed as the difference between the balance of the assigned receivables and the outstanding balance of the Scanned with CamScanner semen of Financial Position 29 related loan) is presented as a disclosure only in the notes- The assigned receivable and the related loan are presented separately on the face of the statement of financial position. The “notes receivable discounted” is deducted from total receivables and disclosed as a contingent liability in the notes. The shares of ABC Co. inappropriately included in “held for trading securities” are treasury shares..Tteasury shares are presented as unallocated deduction from shareholders’ equity. The classification of the bond sinking fund parallels the dassification of the related bonds. The related bonds are maturing currently, thus the bond sinking fund is also presented as current item. ‘Adoances to subsidiary are presented as noncurrent in the absence of evidence to the contrary. @ Deferred charges are similar to “prepaid assets” except that deferred charges are long-term. e-ersh surrender value is normally included as part of “other long-term investments.” ” ustration 6: Reconstruction of financial statement The edger of ABC Co. in 20x! includes the following: fan. 1, 20x1 Dec. 31, 20x1 Current assets 600,000 ? Noncurrent assets 2,000,000 ? Current liabilities . 450,000 500,000 ? 1,500,000 Noncurrent liabilities Aiditional information: + ABC’s working capital as of December 31, 20x1 is twice as much as the working capital as of January 1, 20x1. * Total equity as of January 1, 20x1 is P850,000. Profit for the year is P1,200,000 while dividends declared amounted to P500,000. There were no other changes in equity during the year, Requirements: Compute for the following: Scanned with CamScanner 30 a. Noncurrent liabilities as of January 1, 20x1. b. Current assets as of December 31, 20x1. c. Noncurrent assets as of December 31, 20x1. Solutions: Requirement (a): Noncurrent liabilities as of January 1, 20x1, Current z Noncurrent Current Noncurrent assets assets liabilities liabilities * Equity (600,000 + 2,000,000) = (450,000 + Noncurrent liabilities) + 850,000 Noncurrent liabilities = 2,600,000 ~ 450,000 ~ 850,000 Noncurrent liabilities, Jan. 1, 20%1 = 1,300,000 Requirement (b): Current assets as of December 31, 20x1. Working capital = Current assets ~ Current liabilities Working capital, Jan. 1, 20x1 = 600,000 - 450,000 Working capital, Jan. 1, 20x1 = 250,000 Working capital, Dec. 31, 20x1 = Working capital, Jan. 1,20x1 times 2 Working capital, Dec. 31, 20x1 = 150,000 x 2-= 300,000 Working capital = Current assets - Current liabilities 300,000 = Current assets, Dec. 31, 20x1 - 500,000 Current assets, Dec. 31, 20x1 = 800,000 Requirement (c): Noncurrent assets as of December 31, 20x1. Equity 850,000 Jan. 1 Dividends 500,000 | _1,200,000_ Profit for the year Dec. 31 1,550,000 Current assets + Noncurrent assets = Current liabilities + Noncurrent liabilities + Equity (800,000 + Noncurrent assets) = (500,000 + 1,500,000) + 1,550,000 Noncurrent assets, Dec. 31, 20x1 = 2,000,000 + 1,550,000 ~ 800,000 Nontcurrent assets, Dec. 31, 20x1 = 0 Scanned with CamScanner saatemet of Financial Position 31 llustration 7: Reconstruction of financial statements ‘The ledger of ABC Co. in 20x1 includes the following: Cash 100,000 ‘Accounts receivable 200,000 Inventory 500,000 Accounts payable 150,000 Note payable 50,000 During the audit of ABC's 20x1 financial statements, the following were noted by the auditor: Cash sales in 20x2 amounting to P10,000 were inadvertently included as sales in 20x1. ABC recognized gross profit of 3,000 on the sales. ‘A collection of a P20,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash discount of P1,000 was given to the customer. During January 20x2, a short-term bank loan of 25,000 obtained in 20x1 was paid together with P2,500 interest accruing in January 20x2. The payment transaction in 202 was inadvertently included as a 20x1 transaction. Requirement: Compute for the adjusted working capital as of December 31, 20x1. Solution: > The adjusted balance of cash is computed as follows: Cash (unadjusted) 100,000 Cash sales in 20x2 recorded as 20x1 sale (10,000) Collection of account in 20x2 recorded as 20x1 collection (20,000 account less 1,000 cash discount) (19,000) Loan payment in 20x2 recorded as 20x1 transaction 25,000 2,500 Interest payment in 20x2 recorded as 20x1 transaction Adjusted cash balance, Dec. 31, 20x1 10. > The adjusted balance of accounts receivable is computed as follows: Scanned with CamScanner » Chapter] ee Accounts receivable (unadjusted) ; ee Collection of account in 20x2 recorded as 20x1 collection : ),000 Adjusted accounts receivable balance, Dec. 31, 20x1 220,009 > The adjusted balance of inventory is computed as follows: Inventory (unadjusted) 500,000 Cost of cash sale in 20x2 recorded as 20x1 sale j (10,000 sale - 3,000 gross profit) 000 Adjusted inventory balance, Dec. 31, 20x1 507,000 Adjusted current assets, Dec. 31, 20x1: (98 5K + 220K + 507K) = 825,500 > The adjusted current liabilities are computed as follows: Accounts payable 150,000 Note payable 50,000 Loan payable 25,000. ss ties 2 Adjusted current liabilities, Dec. 31, 20x1 5,000 Working capital, Dec. 31, 20x1 = Current assets - Current liabilities Working capital, Dec. 31, 20x1 = (825,500 ~ 225,000) = 600,500 Notice that the accrued interest is not a liability in 20x1 because it has accrued in January 20x2, Illustration 8: Preparation of Statement of financial position ABC Co.'s post-closing trial balance on December 31, 20x2 shows the following account balances: COO A counts Dr. Cr. Petty cash fund 15,000 Cash in bank 1,900,000 90-day money market instruments 800,000 Accounts receivable 122,000 Allowance for bad debts 30,000 Notes receivable (Trade) 8,000 Inventory 200,000 Land 6,000,000 Scanned with CamScanner statement of Financial Position Building ‘Accumulated depreciation - Bldg. Equipment ‘Accumulated depreciation - Equipment Patent ‘Accumulated amortization - Patent Trademark Accounts payable Notes payable - short term loan Notes payable - long term loan (P50,000 due in 1 yr.) Income tax payable Interest payable Salaries payable Utilities payable Unearned income Provision for warranty obligation Deferred tax liability Share capital Retained earnings Revaluation surplus 33 ae eee ee 10,000,000 7,200,000 800,000 250,000 350,000 315,000 120,000 100,000 200,000 1,450,000 670,000 65,000 105,000 8,000 35,000 260,000 70,000 3,500,000 5,440,000 260,000 Cumulative translation gain - foreign operation 357,000, Totals 20,315,000 20,315,000 Requirement: Prepare the statement of financial position. Solution: Scanned with CamScanner , Chapter 4 . saicienectialtnn one Entity A Statement of financial position As of December 31, 20x2 (amounts in Philippine Pesos) [ Notes 20x2 20x1 ASSETS Current assets Cash and cash equivalents 6 — 2,715,000 2,800,000 Trade and other receivables 7 100,000 280,000 Inventories 200,000 180,000 Total current assets 3,015,000 3,260,000 Noncurrent assets Property, plant and equipment 8 9,350,000 7,012,500 Intangible assets 155,000 186,000 Total noncurrent assets 9,505,000 7,198,500 Total Assets 712,520,000 P'10,458,500 LIABILITIES AND EQUITY Current liabilities Trade and other payables 10 313,000 200,000 Short-term borrowings 200,000 : Current tax payable 670,000 490,000 Current portion of long-term borrowings’ 11 50,000 50,000 Provisions 260,000 : Total current liabil Noncurrent liabilities 1,493,000 740,000 Long-term borrowings m1 1,400,000 1,450,000 Deferred tax liability 70,000 90,000 Total noncurrent liabilities 1,470,000 1,540,000 Total Liabilities 2,963,000 2,280,000 Equity Share capital 2 3,500,000 1,000,000 Retained earnings 5,440,000 6,684,900 Other components of equity 13___617,000 493,600 Total Equity 9,557,000 __ 8,178,500 Total Liabilities and Equit 712,520,000 _ 10,458,500 This statement should be read in conjunction with the accompanying notes. Scanned with CamScanner cnet of imac Ps statement ‘The breakdowns of the line items are shown in the “Notes” the 5c a je, the 5" component of a complete set of financial statements) a5 follows: Note 6: Cash and cash equivalents This line item consists of the following: Cash on hand : 15,000 Cash in bank to 1,900,000 Cash equivalents 800,000 Cash and cash equivalents 2,715,000 ee Note 7: Trade and other receivables This line item consists of the following: Accounts receivable 122,000 ‘Allowance for bad debts (30,000) Notes receivable 8,000 Trade and other receivables P 100,000 Note 8: Property, plant and equipment This line item consists of the following: Land 6,000,000 Building 10,000,000 ‘Accumulated depreciation - Bldg. (7,200,000) Equiprient 800,000 Accumulated depreciation - Equipment (250,000) Property, plant & equipment 9,350,000 Note 9: Intangible assets This line item consists of the following: Patent 350,000 Accumulated depreciation — Patent (315,000) Scanned with CamScanner Chapter wo Trademark Intangible assets 120,000 155,000 ——— Note 10: Trade and other payables This line item consists ofthe following: Accounts payable Interest payable Salaries payable Utilities payable Unearned income Trade and other payables 100,000 65,000 105,000 8,000 35,000 313,000 Note 11: Current & Noncurrent portions of Long-term borrowings Long-term borrowings consist of the following: Current portion 50,000 Noncurrent portion 1,400,000 Total long-term borrowings 1,450,000 ees Note 12: Share Capital Share Capital consists of the following: Shares Amounts 20x2 20x1 20x2 20x1 ‘Common shares - P10 par value : = Authorized ~ 1,000,000 shares Issued and outstanding: Balance at beginning of year 100,000 100,000 1,000,000 1,000,000 Issued during the year 250,000 - 2,500,000 = Balance at end of year 350,000 100,000 _ 3,500,000 P1,000,000 On January 31, 20%2, the Company filed an application with the PSE fora listing of additonal 250000 common shares through a stock rights offering ata price of P10 per share, Proceeds amounting to P2,500,000 were received in December 20x2 upon completion of the stock rights offering, Scanned with CamScanner statement of. Financial Position 37 Note 13: Other components of equity This line item consists of the following: Revaluation surplus 260,000 Cumulative translation gains on foreign operations 357,000 Total long-term borrowings P617,000 — Chapter 1: Summa General purpose financial statements are those statements that cater to the common’ needs of a wide range of primary (external) users. The purpose of general purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. ‘A complete set of financial statements consists of the following: (1) statement of financial position, (2) statement of profit or loss and other comprehensive income, (3) statement of changes in equity, (4) statement of cash flows, (5) notes, (5a) comparative information, and (6) additional statement of financial position when an entity makes a. retrospective application, retrospective restatement, or reclassifies items — with material effect. + The statement of financial position may be presented either showing current/non-current distinction (classified) or based on liquidity (unclassified). PAS 1 encourages the classified presentation. © Current assets are those that are expected to be realized within 1 year, All other assets are noncurrent. * Current liabilities are those that are expected to be settled within 1 year. All other liabilities are noncurrent. * Deferred tax assets and deferred tax liabilities are presented as noncurrent items in a classified statement of financial position. * PAS 1 does not prescribe the order or format iri which an presents items. Scanned with CamScanner 38 Chepteey SB PROBLEMS PROBLEM 1: TRUE OR FALSE 1. PAS 1 Presentation of Financial Statements requires an entity to make an explicit statement of compliance with PFRSs. 2. According to PAS 1, an entity is never allowed, in any circumstance, to depart from a provision of a PERS. 3. According to PAS 1, material items are presented separately on the face of the ‘financial: statements while individually immaterial items with similar nature are aggregated and presented under a single line item. 4, PAS 1 Presentation of Financial Statements 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 FVOCI 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 statements cater to what type of needs of users? a. common needs c.aand b b.. specific needs 4d. loving and caring needs Scanned with CamScanner

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