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INVENTORIESPAS 2
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Inventories includes:
Assets held for sale in the ordinary course
of business
Assets in production process for sale inthe ordinary course of business
(Work in Process)
Materials and supplies that are consumedin production process or in the rendering
of services
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urchase Transaction
FOB Destination exclude)
FOB Shipping Point include)
Sale Transaction
FOB Destination include)
FOB Shipping Point exclude)
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ILLUSTRATIVE PROBLEMS
RECOGNITION & ITEMS CONSIDEREDINVENTORIES
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800,000
120,000
300,00080,000
50,000
350,000280,000
20,000
260,000
40,000
P 2.3M
School of Business and Management
School of Business and Management
Answer : A
A consignmentis a method
of marketing goods inwhich the owner called the
consignortransfers
physical possession ofcertain goods to an agent
called the consigneewho
sells them on the ownersbehalf
urchase Transaction
FOB Destination exclude)
FOB Shipping Point include)
Sale Transaction
FOB Destination include)
FOB Shipping Point exclude)
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What goods shall be included in inventory?
Rule:It is the ownershipthat determines
inventory inclusion or exclusion
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PROBLEM 1
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Beg Inventory xx
Add: Net Purchases xx
Total GAS xx
Less: Ending MI xx
COGS xx
School of Business and ManagementSchool of Business and Management
Merchandise Inventory xx
COGS xx
Purchases xx
Accounts Payable xx
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B. Merchandise Inventory 134,200
Cost of sales 134,200
C. Sales 128,000
Accounts Receivable 128,000
D. Purchases 156,300
Accounts Payable 156,300
E. Merchandise Inventory 85,400
Cost of sales 85,400
School of Business and ManagementSchool of Business and Management
urchase Transaction
FOB Destination exclude)
FOB Shipping Point include)
Sale Transaction
FOB Destination include)
FOB Shipping Point exclude)
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F. Cost of sales 104,380
Merchandise Inventory 104,380
G. Cost of sales 105,200
Merchandise Inventory 105,200
H. Sales return 25,000
A/R 25,000
Merchandise Inventory 15,000
Cost of sales 15,000
Answer : D
School of Business and ManagementSchool of Business and Management
urchase Transaction
FOB Destination exclude)
FOB Shipping Point include)
Sale Transaction
FOB Destination include)
FOB Shipping Point exclude)
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PROBLEM 2
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FOB Seller FOB Shipping Point
FOB Buyer FOB Destination
Unadjusted 4M
Adjustment c) 80T
Adjustment e) 50T
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Unadjusted Bal 4M
Adjustment (c) 80TAdjustment (e) 50T
4.13M
Answer: B
School of Business and ManagementSchool of Business and Management
FOB Seller FOB Shipping Point
FOB Buyer FOB Destination
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PROBLEM 3
Answer: B
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PROBLEM 4
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Purchases P 70,560
Accounts Payable 70,560
Accounts Payable P 70,560
Cash 72,000
Answer: B
School of Business and Management
100,000 x .80 x .90 x .98
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PROBLEM 5
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Gross Method Net Method
Purchases` P 200,000 Purchases P 196,000Disc Taken 3,200 Multiply: 90%
Net Purchases 196,800
Multiply: 90%
COS P 177,120 COS P 176,400
Gross Method: Discount not taken ( capitalized )Net Method : Discount not taken ( other expense )
Answer: B
School of Business and Management
200,000x.98
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PROBLEM 6
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June 22 250 @ 3.50 = P 875
June 15 350 @ 3.40 = 1,190
End Inven P 2,065
Answer: C
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PROBLEM 7
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Ending Inventory = 600 @ P3.26
Answer: B
School of Business and Management
3250-2650 10,605/3250
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PROBLEM 8
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Beg. Inventory 393
Net Purchases 202TGAS 595
Unit sold 441
Ending Inv. 154
School of Business and Management
55+76+72-1
300+86+60-5
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Ending Inventory
( 154 units )
Dec. 26 72 @ 980 = P 70,560
Dec. 13 76 @ 960 = 72,960Dec. 09 6 @ 910 = 5,460
Ending 154 P 148,980
Inventory
Answer: A
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PROBLEM 9
Answer: B
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PROBLEM 10
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Inventory 6,000
Retained Earnings 4,200
Income Tax Payable 1,800
Answer: D
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PROBLEM 11
School of Business and ManagementSchool of Business and Management
Beg Inventory xx
Add: Net purchases xx
TGAS xx
Less: Ending-MI xx)
COGS xx
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2010 2011 2012
2010 100,000 (100,000)
2011 150,000 (150,000)
2012 200,000P 50,000
School of Business and ManagementSchool of Business and Management
Answer: D
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PROBLEM 12
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Subsequent measurement of Inventories
LOWER OF COST AND NRV
School of Business and ManagementSchool of Business and Management
Estimated selling priceEstimated selling cost
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Item Date Units Unit Cost NRV/Unit Lower of cost and NRV
C 7/16-31 30,000 8.00 6.48 P 194,400
7/1-15 15,000 6.50 6.48 97,20045,000 291,600
P 7/1-15 25,000 10.50 8.91 222,750
A 7/1-15 30,000 1.25 1.62 37,500
7/1 20,000 .90 1.62 18,00050,000 55,500
TOTAL P 569,850
Answer: B
School of Business and Management
8.00x.90x.90
11.00x.90x.90
2.00x.90x.90
School of Business and Management
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PROBLEM 13
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Item Total Cost Lower of cost or NRV Allowance for Inv W/D
C 337,500 291,600 45,900
P 262,500 222,750 39,750
A 55,500 55,500 -
Total 655,500 569,850 85,650
Less: Beg. Allowance 3,000
P 82,650
Answer: D
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Loss on Inventory write-down 82,650
Allowance for inventory 82,650
write-down
School of Business and ManagementSchool of Business and Management
P&L
SFP (CA)
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PROBLEM 14
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Inventory, 7/1 P 658,500
Purchases 1,205,000
TGAS 1,863,500
Inventory, 7/31 ( 655,500)COS before loss on inv. W/D 1,208,000
COS after loss on inv. W/D 1,290,650
Loss on inventory W/D 82,650
Allowance for Inventory W/D 82,650
Answer: B
School of Business and ManagementSchool of Business and Management
Loss on Inv. W/D 82,650
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PROBLEM 15
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Lower of Cost or NRV
A. P 2T
B. 9TC. 14T
25T
Allowance for Inv. Write-down 8,000
Gain on reversal 8,000
Answer: C
School of Business and ManagementSchool of Business and Management
33,00025,000
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PROBLEM 16
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Total Cost P 58.8M
Multiply: 16/84
Allocated Cost 11.2MAdd: 1M
Total 12.2M
Answer: C
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PROBLEM 17
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What are purchase commitments?
- obligation of an entity to acquire certain goods
sometime in the future at a fixed price and fixed
quantity
- lock on the inventory purchase price in advance
Current loss recognition is not appropriate when:
1. Commitments can be cancelled
2. Commitments provide for price adjustment
3. Hedging transactions prevent losses, or
4. Declines do not suggest reductions in sales price
School of BusinePROBLEM 13ss andManagement School of Business and Management
COST > BENEFIT
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Journal Entry
Loss on purchase commitment 1,000,000
Estimated Liability for PC 1,000,000
Purchases 8,000,000
Estimated Liability for PC 1,000,000
Accounts Payable 8,000,000
Gain on Purchase Commitment 1,000,000
School of Business and ManagementSchool of Business and Management
Answer: C
If , prior to delivery, the market increases,
the estimated loss on purchase commitments
account is reduced and a gain is recorded,
though such recovery can only berecognized to the extent of the original loss
recorded.
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-END-
School of Business and ManagementSchool of Business and Management
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ESTIMATING INVENTORIES
PAS 2
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PROBLEM 1
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Beg Inventory P 200,000
Net Purchases 98,000
TGAS 298,000
COS 224,000Est. Ending Inventory 74,000
Show-room Merchandise ( 8,000)
Downtown Show Room Merch ( 20,000)
Est Merchandise destroyed by P 46,000
Fire
Answer: D
School of Business and ManagementSchool of Business and Management
320,000 x 560/800
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PROBLEM 2
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2012
Beg Inventory P 1,020,000
Net purchases 3,137,000
TGAS 4,157,000Net Sales P 4,080,000
Cost ratio: 76% 3,100,800
Estimated ending MI 1,056,200
Undamaged merchandise (91,200)
Damaged merchandise (18,000)
Estimated loss on Fire P 947,000
School of Business and ManagementSchool of Business and Management
2011
Cost Ratio = 3,049,400 / 3,860,000
= 79% `
4,300,000 - 230,600 - 1,020,000s
3,940,00080,000Answer: B
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PROBLEM 3
School of Business and ManagementSchool of Business and Management
Accounts Receivable
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School of Business and ManagementSchool of Business and Management
752,100 x .30
130,590 753,800
128,890
Beg
Sales
Collection
End88,140 487,500
122,850
Beg
Purchases
Payment
Accounts payable
143,850 526,470
522,210
Beg
Purchases
COGS
End
Merchandise Inventory
752,100
522,210
139,590
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Estimated MI-end P 139,590
Goods out on consignment (52,900)
Estimated Fire Loss P 86,690
Answer: C
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PROBLEM 4
School of Business and ManagementSchool of Business and Management
60T + 200T + 30T120T
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Material Used xx
Direct Labor xx
Factory Overhead xxTotal manufacturing Cost xx
Add: Beg Work in Process xx
Total goods in process xx
Less: End Work in process xxTotal goods manufactured xx
Add: Beg Finished Goods xx
Total goods available for sale xx
Less:End Finished goods xxCost of Good sold xx
Answer: C
School of Business and ManagementSchool of Business and Management
P 170,000
160,000
100,000
160,000 / 1.60
430,000
200,000
630,000
?
?
280,000
?
240,000
?
SALES 135% 546,750
MULTIPLY: 100% 100/135E.COGS 405,000405,000
645,000
365,000
265,000
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PROBLEM 5 - 7
School of Business and ManagementSchool of Business and Management
A B A C
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Cost Retail
Beg Inventory 1,300,000 2,600,000
Net Purchases 17,500,000 28,200,000
Departmental T/I 400,000 600,000TGAS 19,200,000 31,400,000
Net Markup 600,000
Net Markdown (2,000,000)
Total 30,000,000
Less: Net salesMIending @ retail 5,000,000
Conservative = 19.2M/32T
= 60%
Average = 19.2M/30M
= 64%
FIFO = 17.9M/27.4M
= 65%
School of Business and ManagementSchool of Business and Management
SALES P24,700,000
SALES RETURN (350,000)
SALES DISCOUNT (200,000)
EMPLOYEE DISCOUNT 600,000LOSS ON BREAKAGE 50,000
NET SALES P25,000,000
25,000,000
5M x .60 = 3M
5M x .64 = 3.2M
5M x .65 = 3.25M
Answer : B,A,C
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PROBLEM 8
School of Business and ManagementSchool of Business and Management
SALES
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School of Business and ManagementSchool of Business and Management
500,000 ?
6,500,000
100,000
Sales Return
Sales Allow
Sales
Net Sales
Employee
discounts
Theft &other losses
200,000
100,000
SALES
6.9M
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TGAS P 4.8M
COS 4.416MESTIMATED MIEND P 384,000
COST RATIO = 4.8M/7.5M
= 64%
Answer: B
School of Business and Management
6.9M X .64
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-END-
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BIOLOGICAL ASSETS
&
AGRICULTURAL PRODUCE
PAS 41
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Biological asset are living animals & living
plants
Agricultural Produce is the harvested
product of an entitys biological asset
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PROBLEM 1
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Only the freestanding trees shall be classified as biologicalassets.
The land under trees and road in forests shall be included in
property, plant and equipment.
Answer: B
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PROBLEM 12
4
Joan Company
School of Business and ManagementSchool of Business and Management
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Requirements 1
1.Biological asset 600,000
Cash 600,000
2. Biological asset 700,00
Gain from change in FV 700,000
3. Biological Asset 100,00
Gain from change in FV 100,000
4. Loss from change in FV 90,000
Biological asset 90,000
5. Cash 400,000
Biological asset 400,000
Requirements 2
Acquisition cost
1/1/2010 P 600,000
Increase in FV on initial recognition 700,000
Increase in FV due to growth and price 100,000
Decrease in FV due to harvest 90,000)
Decrease due to sale 400,000)
Carrying amount
12/31/2010 P 910,000
School of Business and ManagementSchool of Business and Management
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PROBLEM 12
7
Farmland Company
School of Business and ManagementSchool of Business and Management
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1. Fair value of biological assets on January 1, 2011:
2 yrs old cows on 1-1-11 8,400,000
1 yr old heifers-purchased on 1-1-11 900,000
2. Fair value of heifers which are 1 yr old purchased on
07-01-11
2,250,000
3. Fair value of biological assets
on Dec 31, 2011
Cows w/c are now 3 yrs old 10,500,000
Heifers w/c are now 2 yrs old 1,350,000
Heifers w/c are now 1.5 yrs old 2,700,000
14,550,000
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4. FV12/31/2011 14,550,000
FV1/1/2011 (9,300,000)
FV7/1/2011 (2,250,000)
Increase in FV 3,000,000
Increase due to price change
2,100 x (4,5004,000) 1,050,000
300 x (3,2003,000) 60,000
750 x ( 3,200 - 3,000) 150,000 1,260,000
Increase due to price change
2,100 x (5,0004,500) 1,050,000
300 x (4,5003,200) 390,000
750 x ( 3,6003,200) 300,000 1,740,000
5. Lower of cost and NRV
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PROBLEM 12
8Forester Company
School of Business and ManagementSchool of Business and Management
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Freestanding trees P 5,100,000
Land under trees 600,000
Roads in forest 300,000
Answer: A
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PROBLEM 12
10Colombia Company
School of Business and ManagementSchool of Business and Management
Fair value measurement stops at the point of harvestand
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For the purpose of applying PAS 2, the
Fair value less cost to sell of P 3,500,000
at the point of harvest is the initial cost
of coffee beans inventory
Answer: C
School of Business and ManagementSchool of Business and Management
PAS 2 on inventory applies after such date
( Lower of cost and NRV )
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Answer: A
School of Business and ManagementSchool of Business and Management
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-END-
School of Business and Management
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PROPERTY, PLANT & EQUIPMENT
(Acquisition & Subsequent Expenditure)PAS 16
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PAS 16 par. 6 defines Property, plant &
equipment as tangible items that are:
i. held for use in the production or supply of
goods or services, for rental to others, or for
administrative purposes; and
ii. expected to be used during more than one
period
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Recognition
Future economic benefits associated with
the asset will flow to the enterprise; and
The cost of the asset can be measured
reliably
Initial Measurement
at cost
Subsequent Measurement
Cost model or Revaluation model
School of Business and Management
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PROBLEM 1
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Cost of PPE
a. Its purchase price, including import duties and non-refundable purchase taxes, after deducting tradediscounts and rebate
b. Cost directly attributable to bringing the asset to itsintended use
c. Initial estimate of the cost of dismantling andremoving the item (Provision)
Answer: C
School of Busivness and Management
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PROBLEM 2
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Purchase Price P 4,410,000Delivery cost 80,000
Installation &Testing 310,000
Total 4,800,000
Answer: B
School of Business and Management
4,500,000x.98
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PROBLEM 3
School of Business and ManagementSchool of Business and Management
Installment/Deferred payment
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p y
Interest bearing:
i. Realistic/market rate = Face Value
ii. Unrealistic/below market value
1) Cash Price
2) PV of payments
Non-interest bearing:
1) Cash Price2) PV of payments
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Purchase price P 240,000
Reconditioning cost 10,000
Installation cost 4,000
Testing cost 1,800
Delivery cost 5,000
Safety devices 12,000
Total 272,800
Answer: C
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PROBLEM 4
School of Business and ManagementSchool of Business and Management
1 [1 12(-3)] x 1 12
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P1,000,000 x 2.69 = P 2,690,000
3,000,000 x .71 = 2,130,000
P 4,820,000
Answer: A
School of Business and Management
1[1.12 (-3)] x 1.12
.12
1.12(-3)ALTERNATIVE SOLUTION:
1,000,000 X 1.69 = P 1,690,000
1,000,000 X 1.00 = 1,000,000P 2,690,000
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PROBLEM 5
School of Business and ManagementSchool of Business and Management
EXCHANGE WITH BOOT
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School of Business and Management
EXCHANGE WITH BOOT
With commercial substancePayor = FV of AGU + cash paid = FV of AR
Recipient = FV of AGU - cash received = FV of AR
Without commercial substancePayor = CA of AGU + cash paid = FV of AR
Recipient = CA of AGU - cash received = FV of AR
1. FV of asset given up ( AGU )
2. FV of asset received (AR )
3. Carrying amount of asset given up
P 35,000 P 10,000 P 45,000
Answer: A
P 39,000P 10,000
P 49,000MACHINERYNEW 45,000
LOSS ON EXCHANGE 4,000
MACHINERYOLD 39,000
CASH 10,000
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PROBLEM 6
School of Business and ManagementSchool of Business and Management
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Without commercial substance
Payor = CA of AGU + cash paid = FV of AR
Recipient = CA of AGU - cash received = FV of AR
Answer: B
School of Business and Management
TRUCKNEW 1,880,000
LOSS ON TRADE IN 80,000
TRADE-IN 320,000ACCUMULATED DEP 1,200,000
TRUCK-OLD 1,600,000
CASH 1,560,000
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PROBLEM 7
School of Business and ManagementSchool of Business and Management
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Without commercial substance
Payor = FV of AGU + cash paid = FV of AR
Recipient = FV of AGU - cash received = FV of AR
Answer: C
School of Business and Management
1,560,000 320,000 1,880,000
TRUCKNEW 1,880,000
LOSS ON TRADE IN 80,000ACCUMULATED DEP 1,200,000
TRUCK-OLD 1,600,000
CASH 1,560,000
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PROBLEM 8
School of Business and ManagementSchool of Business and Management
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Cost of dismantling P 14,480
Cash proceeds from sale 12,000
Raw material used 76,000
Labor on construction 49,000
Cost of installation 11,200
Materials spoiled in machine
trial runs 2,400Profit on construction 24,000
Purchase of machine tools 13,000
Purchase discount ( 3,000 )
FOH 16,900
P 152,500
Answer: D
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PROBLEM 9
School of Business and ManagementSchool of Business and Management
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LAND 280/800 P 241,500WAREHOUSE 320/800 276,000
OFFICE BUILDING 200/800 172,500
P 690,000
Answer: C
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PROBLEM 10
School of Business and ManagementSchool of Business and Management
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Purchase price P 1,000,000
Demolition cost 40,000
Salvage materials from demo (5,400)
Legal fees 3,480
Title insurance cost 2,400
Special assessment 6,400
P 1,046,880
Answer: C
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PROBLEM 11
School of Business and ManagementSchool of Business and Management
Purchase through issuance of own securities
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LAND BLDG
Purchase Price
Repairs made to Bldg
Special tax assessment
Remodeling
Landdonation
Answer: B
School of Business and Management
1. FV of consideration received
2. FV of shares issued
3. Par value of shares issued
LANDDONATED 1,500,000
MISC INCOME 1,500,000
P 2M P 6M
50T
400T1.5M
P 3.55M P 6.7M
300T
P 2.25M P 6.75M
P 3.8M P 7.45M
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PROBLEM 12
School of Business and ManagementSchool of Business and Management
Are subsequent expenditures to be
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capitalized?
Generally, No( outright expense )
Except when;
1. extension of useful life
2. Increase in production capacity
3. Improvement in efficiency
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Purchase price P 5M
Installation cost 400TParts addedSC 2.M
Labor & OverheadSC 600T
Total cost of Machinery P 8M
Answer: A
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GOVERNMENT GRANT
&
ASSISTANCEPAS 20
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Government GrantsGovernment grants are assistance by
government in the form of transfer of
resources to an entity in return for past or
future compliance with certain conditionsrelating to the operating activities of the
entity
Types of government grant
Grants related to assets
Grants related to income
School of Business and Management
Primary condition is that
an entity qualifying for
them should purchase,
construct or otherwise
acquire long-term
assets
Recognition of government grants
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The enterprise will comply with any
conditions attached to the grant
Grant will be received
Grant is recognized as income over
the period necessary to match themwith the related costs on a
systematic basis and should not to be
credited directly to equity
( even if there are no condition
attached )
School of Business and Management
PAS 20 provides that grants related to
d i bl t ll i d
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depreciable assets are usually recognized
as income over the periods and in
proportion to the depreciation of therelated assets
PAS 20 provides that a government grant
that becomes receivable for expenses
already incurredor for the purpose of
giving financial support to the entity with
no related future costs is recognized as
income of the period in which it becomesreceivable or when received
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A grant receivable as compensation for
costs already incurred or for immediate
financial support, with no future related
cost should be recognized as income in
the period in which it is receivable
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Presentation of Government Grants
A grant relating to assets may be
presented in one of two ways:
1. as deferred income, or2. By deducting the grant from the assets
carrying amount
A grant relating to income may be
reported separately as other income ordeducted from the related expense
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Grant that becomes repayable (change in acctg estimate)
Original grant related to income
Original grant related to an asset
School of Business and Management
The repayment should be appliedfirst against any related
unamortized deferred credit and
any excess should be dealt with as
an expense
Repayment should be treated as
increasing the carrying amount ofthe asset or reducing the deferred
income balance
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BORROWING COST
PAS 23
School of Business and Management
Borrowing costs are interest and other
costs that an entity incurs in connection
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costs that an entity incurs in connection
with the borrowing of funds
Borrowing cost may include
Interest expense calculated using
effective interest rate method
Finance charges in respect of finance
leases
Exchange differences arising from foreign
currency borrowings to he extent thatthey are regarded as an adjustment to
interest cost
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Accounting treatmentDirectly attributable to theacquisition, construction orproduction of a qualifying asset
Other borrowing cost
Capitalized
Expense
School of Business and Management
An asset that takes a substantial
period of time to get ready for its
intended use
Borrowing costs eligible for capitalization
S ifi b i
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1. Specific borrowings
2. General borrowings
Commencement of capitalization
Commences when expenditures are being incurred
( activities necessary to prepare the asset )Suspension and cessation of capitalization
Suspension
Cessation
School of Business and Management
Actual costany income earned
on the temporary investment
Where funds are part of a
general pool, the eligible
amount is determined by
applying a capitalization rate
to the expenditure on that
asset
Active development is interrupted
Substantially all of the activities
necessary to prepare the asset
for its intended use or sale are
completed
PAS 23 provides that the amount of
borrowing cost capitalized during a period
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borrowing cost capitalized during a period
shall not exceed the amount of borrowing
cost incurred during that period
PAS 23 provides that the average
expenditures during a period shall include
the borrowing costs of previouslycapitalized