Name of Team Members: 1.

2.
3.
4.
ACCOUNT
TRANSACTIONS
DEBITED CREDITED

1. The entire cost of leasehold improvement is to be

Leasehold Expenses Cash
charged to an expense account.

2. An account receivable for Php 30,000 is carried with a

customer who has not been seen for about a year. The Bad Debt Expense Accounts Receivable
account is expensed.

3. The company has paid Php 300,000 for an advertising

campaign to promote a new product that will be placed
Prepaid Advertising Cash
on the market for the following year. The expenditure is
charged to prepaid advertising.

4. The cash surrender value of life insurance with a

balance of Php 60,000 is reported as a loss since the
Loss in Life Insurance Life Insurance
company does not expect to make any claim on the
policy until maturity.

5. Goods that cost Php 150,000 have become obsolete.

The goods are included as part of the inventory at Php
Inventory-Ending Income Summary
150,000 since no loss can be realized until the goods
are sold.

6. The Company acquired another company and pays

Php 500,000 in excess of tangible and intangible
Acquisition Loss &
identifiable assets because of the exceptionally high Cash
Acquired Asset Accounts
earnings of the acquired company. The excess payment
is charged to a loss account.
7. Inasmuch as profit for the year appears to be
extremely small, no depreciation is recorded as an none none
expense for the current year.

8. A fire destroyed a considerable amount of uninsured

inventory. No entry is made because the ending
inventory will of course be reduced by the amount of
none none
destroyed merchandise, so that its cost will be included
in the cost of goods sold and the net income figure will
be correct.

9. The company operates a canteen for the convenience Cash/AR Sales

of its employees. Sales made by the canteen are
credited to the regular sales account for product sales. Purchases Cash
Food purchased and salaries paid for the canteen
operations are recorded in the regular purchases and
payroll accounts. Salaries Expense Cash

10. A building purchased by the company 5 years ago at

Php 3,000,000 including the land on which it stands, can
now be sold for Php 5,000,000. The accountant instructs Building Owners Capital
that the new values of Php 5,000,000 be entered into
the accounts.
 Legend: 1
2
3

Conformed/Violated Accounting Principles Effects of Error(s) (if a

Descriptions of Error (if any)
& Concepts (if any), why? ASSETS

It depends. If the amount did not

exceed the capitalization limit of the
company or the improvement did
Leasehold improvement should be recorded as a
not add value to the property, the
fiixed asset rather than outright expense. Due to
charging to expense is correct.
the outright expense of the improvement, the
However, if the amount exceeded 2
amount will not be capitalized and amortize over
the capitalization limit or added
the shorter between the leasehold improvement's
value to the property, the amount
useful life and the lease term.
should be capitalized and amortized
over its remaining useful life or
remaning term of lease

Matching principle. Companies must estimate

their bad debt expense in the year when the credit
sales were made.It is a common practice to write-
n/a off a bad debt when the debt remain unpaid for
more than 90 days. Since the example did not
show an allowance for doubtful account, the direct
write-off method is correctly used.

Paid rights to receive future services shall be

recorded as an asset rather than an outright
n/a
expense, be it an isurance, rent, or
advvertisements.

The comany shall still record cash Cash surrender value is treated as an other asset
surrender value even havin no plans which comes from a portion of insurance 2
to make any claim until maturity payments.

The cost of inventory shall be recognized,

Obsolete goods shall be written-off. subsequently, at LCNRV. Since the goods is 1
already deemed obselete, this shall be written-off

A goodwill shall be recognized when a company

The excess payment shall be
paid a premium price over the fair market value of 2
recorded as goodwill.
the net asset of the purchased company.
 Matching Principle. Expenses shall be recorded
in the same period in which revenue is earned
Regardless whether the business
from them. Hence, the cost of asset that is spread
incur profit or loss, depreciation 1
over the years wherein the asset is useable should
shall be recorded
be matched with the revenues earned by using the
asset.

When a company determines that its inventory are

Cost of destroyed inventory due to no longer fits to be sold, the company must
fire should be accounted for as loss, remove the inventory on its book. The company 1
hence, writing the inventory off. should write off the asset and record expense
instead.

n/a

If a revaluation results in an increase in value, it

should be credited to other comprehensive
The increase in value should be inncome and accumulated in eequity under thhe
credited to revaluation surplus. heading "revalation surplus" unless it represents
1
Also, only increase should be posted the reversal of a revaluation decrease of the same
instead of the whole new valuation asset previously recognised as an expense, in
which case it should be recognised in profit or
loss.
 Overstated Legend: 1 Increase
Understated 2 Decrease
No Effect 3 No Effect

Effects of Error(s) (if any) to Company's… Real/Correct Effects of Transaction to Company's…

LIABILITIES EQUITY REVENUE EXPENSES ASSETS LIABILITIES EQUITY REVENUE

3 3 3 1 3 3 3 3

2 3 3 3

3 3 3 3

3 3 3 1 1 3 3 3

3 1 3 2 2 3 2 3

3 3 1 3 3 3 3 3
3 3 1 2 2 3 3 2

3 3 3 2 2 3 3 3

1 3 1 1

3 1 2 2 2 3 2 1
tion to Company's…
EXPENSES

3
1