Statement of Financial Position 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. G PERIOD... ‘od... 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 as a 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 Conceptual Framework and the PFRSs. ‘s at the date of 601 . 602 603 "ting frameworks Purpose of financial statements 1. Primary objective: To provide information about the Position, financial performance, and cash flows ofan enti he useful to a wide range of users in making economic eae - Secondary objective: To show the results of manager stewardship over the entity's resources. eames financial ity that isTo meet the objective, financial statements Prov i tion about an entity's: Se (economic resources); a Liabilities (economic obligations); c. Equity: d, Income; . Expenses; ae t Contributions by, and distributions to, owners; and & Cash flows. 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 Acomplete set of financial statements consist of: Statement of financial position; Statement of profit or loss and other comprehensive income; Statement of changes in equity; Statement of cash flows; Notes; (Sa) Comparative information; and 6 Additional statement of financial position (required only when certain instances occur). yee An entity may use other titles for the statements. For ven an entity may use the title “balance sheet” in lieu ¢ oe of financial position” or “statement of comprehens Sara oe of “statement of profit or loss and oth sive income.” ‘ieee “income statement”, is different Bee “statement ieee it or loss and other comprehensive income” OF" later. comprehensive income.” We will elaborate 0" statements, environmen the scope of General Fe 1. Fair Pre Fair pr stateme accords assets, Concep fairly j and af inforn releva by me comp of suc make requi cond misle PFR: Tequ shall pres requtery ts 5 Provig, On in the © net cash ncome; ed only nts. For lien of shensive 3 other from ? ae” or? on th? 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 Tepresenting, 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 disdosures whenever relevant to the understanding of the financial statements. Inappropriate accounting policies cannot be rectified by mere disclosure. PAS 1 requires an entity whose financial statements comply with PFRSs to make an explicit and unreserved statement of such compliance in the 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 PFRS requirement if the relevant regulatory framework requires or allows such a departure. When an entity departs from a PFRS 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Per 5 a are Se Statement of PERS from which the entity has departed; and the finan, = fect of the departure. 5. Offsetting . Assets and | ing Concern separately at 2. eee statements are normally prepared on a Boing permitted by Loa basis unless the entity has an intention to liquidate ad Offise ie i no other alternative but to do so. of the transa a When preparing financial statements, managemery a. Presentiz it ility to continue as a going c related s shall assess the entity's abi : P ‘Oncem, taking into account all available information about the future b. Presenti which is at least, but not limited to, 12 months from the mone reporting date. if they 2 i If the entity has a history of profitable operations ang eae ready access to financial resources, management may conclude that the entity is a going concern without detailed analysis. Me If there are material uncertainties on the entity's ability offsetting. to continue as a going concem, those uncertainties shall be accounts disclosed. depreciati If the entity is not a going concern, its financial statements ‘shall be prepared using another basis. This fact 6. Frequency shall be disclosed, including the basis used, and the reason Financial why the entity is not regarded as a going concem. ently shorter th 3. Acerual Basis of Accounting eae Al financial statements shall be prepared using the. accrual aaa basis of accounting except for the statement of cash flows bale which is prepared using cash basis, ig 4. Mat ity and ae 7. Compar i ma 4 Aggregati PAS Lre i ee dam of wate = similar items is presented separately. A respect is called a “line item.” Dissimilar items current indie S AS at December 5, 202 — es —lwompartnr, |» AsatDecember31, 201 4 3. Additional pe information’ Hse as ar ema gam Bs The na The openin, 1B (adit; .. b. Whether Sted 0 at the bane oacitional) statement of financial postion 2a rea Comparative jo. Preceding period even if the ett! |e. The as $224 Mot present the “tion for earlier periods. The e*# | covered ‘al position, ated notes to the opening statement d. The pre: e. The leve‘statement of Financial Position sora ted a, | 8 Consistency of presentation The presentation and classification of items in the financial Patatiy, _, statements is retained from one period to the next umiless 2 MEN. Fo, change in presentation: "MENt of a. is required by a PFRS; or tity need b. results in information that is reliable and more relevant financiay : > for that ‘A change in presentation requires the reclassification of items in the comparative information. If the effect 0! @ E reclassification is material, the entity stall provide the “additional statement of financial position” discussed earlier atements |) 2 Summary: General Features N certain (Pf 1. Fair presentation & Compliance | with PERSs 5. Offsetting y, makes [| 2 Going Concern 6. Frequency of reporting period stements, | 2 Accrual Basis 7. Comparative information 4. Materiality & aggregation 8. Consistency of presentation —_ nation in [structure and content of financial statements g of the |) 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, he entity financial statements are usually included in an annual report W's: which also contains other information. The PFR5s apply onby tc |) the financial statements and not necessarily to the other —— : * 20x2__| information. 20x1 | The following information shall be displayed prominentiy a and repeatedly whenever relevant to the understanding of ‘the 7 J information presented: *__—— || a Thename of the reporting entity is b. Whether the statements are for the individual entity or fo" sition is group of entities eo at®) ©. The date of the end of the reporting period or the peril J ane covered by the financial statements ment © d. The presentation currency ©. The level of rounding used (e.g., thousands, millions, etc.)AEC Group = nt of financial position Stat of December 31, 20x2 in thousands of Philippine Pesos) "porn the financial Salen Pertains toa Group i ages a » rap ogg mre re oP BOF & Date of the end of the reporting period Level of rounding-off ang) Presentation currency | The statement of financial position is dated as at the end dated for the period that they cover. PAS TI requires particular disclosures to be presented. either in the notes or on the face of the other financial statements (eg., footnote disclosures). Other disclosures are addressed by other PFRSs. F f 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 PFRSs.; | internal control ever financial reporting; going concern assessment; Oversight over thé financial Teporting process; and Teview and approval of financial statements, | peaos The responsibilitie i ent called “Statement of 'S are expressly stated in a docum Statements,” whien 2 imagement’s Responsibility for Financ! caver Lies a 3S attached to the financial statements 8 # @ Chairman of the nent signed by the entity’s equivalent), and of the reporting period while the other financial statements onl Statement of F —_—_ Statement c The stateme! condition (i. date. It inclu Property Investm Intangib Financia . Trade a Provisic . Financi Current Deferre Liabilit Non-co Issued parent. (PAS 1.54) (© A line item i PA items in simply a | function tc Ac and the s entity and presented. financial pStatement of Financial Position Statement of Financial Position The statement of financial position shows the entity's financial condition (i.e, status of assets, liabilities and equity) as at a certain date. It includes line items © that present the following amounts: Property, plant and equipment; Investment property; Intangible assets; ation curren, ee Financial assets (excluding (e), (h) and (i)); Investments accounted for using the equity method; d as at the Biological assets; Inventories; Trade and other Teceivables; Cash and cash equivalents; a b. 4a. e. f. statements ard . i. j. Assets held for sale, including disposal groups; k L m. n. °. P. q rn be presented cial Statements Trade and other payabl 7 addressed by ee 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 Parent. (PAS 154) ments S$ financial statements in ‘© A line item isa 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. » document Financial asa mentsSa ncial position may be presented in a “classifng) Astatem unclassified” manner. ae | oran re presentation shows distinctions between Currey, aA vanes assets and current and noncurrent liabilities t ‘an unclassified presentation (also called ‘based on liquidity owe no distinction between current and noncurrent items. | CiASSED UNCLASSIFIED i “ASSETS Current assets Cash and cash equivalents ‘Trade and other receivables 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 liabiltis ir Presented in order of liquidity (this is normally the case for banks and other financial institutions). PAS 1 also permits a mixed Presentation, i.e., presenting Cage 4 liabilities using a curcentinon-cumetl Classification and others in order of liquidity. This may rte when the entity has diverse operations Pir ae method is used, PAS 1 requires the dislo* * are expected to be recovered or settled (a) within” months and (b) beyond 12 Months, after the reporting period. A classified ‘ as 5 kins capital and faitates the iigtedieieles el ratios, computation of liquidity and solve" statement of Férancial | | > Working capit Current assets ar Current A || - are assets that are a. Expected to be or consumed in normal operati b, Held primarily c. Expected to be 12 months afte period; or d. Cash or cas unless restricts exchanged or 1 liability for a months after tod. All other assets ar “The oper acquisition of ass cash equivalents, clearly identifiabl Assets an the entity’s nor inventory, trade other operating « expected to be 1 reporting period. Assets ar normal operatin, are presented a Tealized or settle ———___Chi eee Statement of Financial Position 11 “classifieg» | rn > Working capital = Current Assets - Current Liabilities °N curren ayy. vent bilities, Current assets and Current liabi iquidity’y titems | Current Assets Current Liabilities - are assets that are: - are liabilities that are: D Expected: to be realized, sold, | a. Expected to be settled in the x x x x x x ~ eS =. or consumed in the entity's normal operating cycle; , Held primarily for trading; Expected to be realized within 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 period. entity's normal operating cycle; Held primarily for trading; c. Due to be settled within 12 months after the reporting period; or d. The entity does not have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after s the reporting period. _ Allother assets and liabilities are classified as noncurrent. when an “The operating cycle of an entity is the time between the able and | acquisition of assets for processing and their realization in cash or tjabilities | ©@Sh equivalents. When the entity's normal operating cycle is not > case for clearly identifiable, it is assumed to be 12 months.” (PAS 1.68) Assets and liabilities that are realized or settled as part of resenting the entity’s normal operating cycle (eg, trade receivables, “rent | inventory, trade payables, and some accruals for employee and Ce ie other operating costs) are presented as current, even if they are muy expected to be realized or settled beyond 12 months after the re Teporting period. isco Assets and liabilities that do not form part of the entity's within ** normal operating cycle (e.g., non-operating assets and liabilities) jiod- are presented as current only when they are expected to ‘be w orkine realized or settled within 12 months after the reporting period. solver™oh 2 a creases Deferred tax assets and liabilities are always presen i items in a classified statement of financial srrent “ regardless of their expected dates of reversal. re PoSitiy not consider the goten the obligation as.zirren Examples: : > Refinancing reterss ae ‘Current assets Current liabilities ~ sew one ‘mut with * Cashand cash equivalents | Accounts payable date or a revised © Accounts receivable * Salaries payable entails» fee: ar o © Non-trade receivable * Dividends payable under inancal collectible within 12 months | « Income (Current tax payay, soreneeaa ‘ «Held for trading securities | Unearned revenue ? Loan facility reterset ¢ Inventory * Portion of notes /loans/ = Prepaid assets bonds payable due Within US oe 12 months Fact patt Entity ’s current: rep Noncurrent assets Noncurrent liabilities ~!08" ‘kes 10_vearsa * Property, plant & Equipment | Portion of notes/loans/ Fs natysia: & cumeniie * Non-trade receivable bonds payable due beyond, “yonthe alters Sere collectible beyond 12 12 months get cal ts months * Deferred tax liability as a current liatilite in . rvestnent in associate firumeial positnnn * Investment property * Intangible assets | Case 1: Norright den * Deferred tax asset | ee Refinancing agreement A long-term o Teportin bligation that is maturing within 12 months after te riod is classified as current, even if a refinancitt sch Porting period and before the finané#! entity wen jhe obligation is classified as nomcurrent if the obligation fee at the end of the reporting period, to roll 0 tnder an enter 3 28t twelve month after the reporting pe" od lity. Without such right, the entity & loan facil On January 15; 20x26 to extend the maturity A’s financial statemer © Analysis: Continuing: obligation is classified on a long-term basis: before the financial Accordingly, the lar liabilitystatement of Financval Pas not consider the potential to refinance the obligation and classifies the obligation as current, » — Refinaneing reters to the replacement of an existing debt witha 1 bilities new one but with different terms, e.g., an extended maturity ble date or a revised payment schedule. Refinancing normally ec entails a fee or penalty. A refinancing where the debior is able under financial distress is called “troubled debt 1) tax Payable restructuring,” nue » Loan facility refers to a credit line. s Moans/ due within Illustration: sea ea sanded Fact pattern: oes Entity A’s current reporting date is December 31, 20x1. A bank bilities loan taken 10 years ago is maturing on October 31, 20x2. Aoans/ Analysis: A currently maturing obligation (ie, due within 12 months after the reporting date) is classified as current even if that obligation used to be noncurrent. Therefore, the loan is presenies a8 a current liability in Entity A’s December 31, 20x] statement of financial position. lue beyond vility Case 1; No right to defer settlement On January 15, 20x2, Entity A enters into a refinancing agreemen! to extend the maturity date of the loan to October 31, 207. Tantity A's financial statements are authorized for issue on March 3! hs after the BH) 20x2. refinancins n basis * ; Analysis: Continuing with the general rule, a currently matuting e financ® obligation is classified as current even if a refinancing agreemen’ on a long-term basis, is completed after the reporting pesor aut before the financial statements are authorized for issue Accordingly, the loan is nevertheless presented as # curneatt liability. went if the 9 roll 08 ing pe nity doeinancial position because Entj f 11, 20x1 statement of fini rea tity, “ ba is of Dez. 31, 20x1, to rll over the obligation for a twelve months after the reporting period under the existing agreement. Liabilities payable on demand Liabilities that are payable upon the demand of the lender a classified as current. A long-term obligation may become payable on dem; as a result of a breach of a loan provision. Such an obligation have an unconditional right to defer settlement of the liability fa at least twelve months after the reporting period. — However the liability is noncurrent if the lender provid: tity 4 ae of Bs reporting period (e.g., on or befor s ‘ce period ending at ee s se ig at least twelve months afte amt, ao which the entity can rectify = B the lender cannot demand immediat loan becomes payable t 31, 2 \ 20x1 (reporting date), Entity *" seston of Financial Positis current ratio was 18:1 statements were authe Case 1: On January 5, 20x2, tt breach of loan agreem not to demand immee ‘Analysis: The loan is period is received aft Case 2: On December 31, 20: the breach of loan promises not to dem Analysis: The loan i grace period is recei Tilustration 1: Curr The ledger of ABC Assets Cash Trade accounts rece Held for trading sec Financial assets des Investment in equit Investment in bonds Prepaid assets Deferred tax asset ( Investment in Assc Investment proper Sinking fund Property, plant, an Goodwill TotalsStatement of Financial Position _ current ratio was 1.8:1, below the agreed level. Entity A's Gnanciai statements were authorized for issue on March 31, 20x2. Case 1: On January 5, 20x2, the bank gives Entity A a chance to rectify she breach of loan agreement within the next 12 months and promises not to demand immediate Tepayment 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 cectify 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 Trade accounts receivable (net of P5,000 credit balance in accts.) Held for trading securities Financial assets designated at FVPL Investment in equity securities at FVOCI Investment in bonds measured at amortized cost (due in 3 yrs.) Prepaid assets Deferred tax asset (expected to reverse in 20x2) Investment in Associate Investment property Sinking fund Property, plant, and equipment Goodwill Tetan eee esessaa Statement of Farce Posctaan for the total current assets. I ion 2 C t The ledger of ABC Ce “solution: following Requirement; Compute Gaeta oR Liabilities a : 000 +5, sq Bank overdraft ee ng oem at a og oan ele esas er ec © Accounts receivables should not have abnormal balance, Deferred tax liability (ex Therefore, the credit balance is added back to accoung Income tax payable receivable and presented as liability. Contingent liability = Assets which are held primarily for trading (e.g,, finangg Reserve for contingencis assets measured at fair value through profit or loss ‘FVPL’ . _Zetals Held for trading securities and Designated financial assets) ar presented as current assets, : Requirement: Compute Investments in equity securities measured at fair value : through other comprehensive income (FVOCI) are classifiee —S0#tion: spgoncurrent inthe absence of evidence tothe contrary, Howeve, Cement Habits _ Bees in FVOCLis expected to be realized within 12 ee payabl m the end of reporting peri i 00 conti oe Ps Period, the investment is ies ee . © Deferred ; eds pay pela are presented as noncurrent irrespective 1 Bonds payable (due on + sage ersal dates, Discount on bonds pa eee Parallels the classification of the related liabilt” Dividends payable contrary, peti! 's set up. In the absence of evidence to tte Income tax payable _ Investment in 8 fund is classified as noncurrent. [otal current liabiliti te, Investmney a nt and equipm nt property, Pr lant ‘pment, and Goodzvit fl ty, Property, pl :balances, accounts financial ‘FVPL’ - ssets) are it value classified fowever, within 12 Statement of Financial Position Illustration 2: Current liabilities The ledger of ABC Co. as of December 31, 20x1 includes the following: Liabilities Bank overdraft Trade accounts payable (net of ¥5,000 debit balance in accounts) Notes payable (due in 20 semi-annual Payments of P2,000) Interest payable Bonds payable (due on March 31, 202) Discount on bonds payable Dividends payable Share dividends payable Deferred tax liability (expected to reverse in 20x2) Income tax payable Contingent liability Reserve for contingencies Totals 215,000 15,000 Requirement: Compute for total current liabilities, Solution: Current liabilities Bank overdraft Trade accounts payable (20,000 + P5,000) Notes payable (p2,000 semi-annual instalment x 2) Interest payable Bonds payable (due on March 31, 20x2) Discount on bonds payable Dividends payable “Beometexpayable 22,000. Total current liabil § Notes: * Bank overdrafts are repayable on demand, thus, they are classified as current liability.not have abnormal bi dded back to accounts Pavabje should Accounts Pays ce isa Therefore, the debit ted as.asset ion of the notes pavab eben tig pm © ed classified as current abil, able, cash dividends payee © Unless stated ees presumed to be due currently and income Be ae d the related discount) are classified ae bareiiedl they mature within 12 months from end current epor! ting fod. ait @ Share dividends payable is not a liability but rather a conizs. vr ve tax liabilities are presented as noncurrent irrespective of their expected reversal dates. : fa © 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 tte 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 statemen rized for issue April 15, 2032. ]- . The 10% note payable; ; annual meer yee due on July 1, 20x2 and pays 85” 20x2, ABC Co, head July 1 and December 31. On January tered into a refinancing agreement wit'# slain ase 8 toe by sang» koe . Co. does not have the right, as of Decent® Summer’ of Fmrab' Pus 1. Zins. av mall « bea. eo The I2% mate ga ermal! ates 2 sextendied! dine man thas fee might ©I balances ints Payable ' Payable ig nds payable rently, ‘lassifieg as rom end of eT a contra. iTrespective but rather ssible. ponents of cludes the 40,000 60,000 30,000 r issue on nays sem nary 25 nt with 4 long-te™™ December Statement of Financial Position B 31, 20x1, to roll over the existing obligation on a long-term basis. * 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. ABC Ca. has the right to roll over the loan under the existing agreement. © 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 Interest payable on the 12% note (60,000 x 12% x 9/12) 14% Mortgage note payable Interest payable on the 14% note (30,000 x 14% x 6/12) Current liabilities + Notes: + The 10% note is presented as current liability because, as of Dec. 31, 20x1, ABC Co. does not have a right to defer/postpone the settlement under the existing loan agreement. % The 12% note is noncurrent because ABC Co. has a right to defer settlement. However, since the 12% note pays annual’ interest every March 31 and there is no balance in the “Interest payable” account, the interest for the months of April to December 31, 20x1 must not have been recorded yet. The accrued interest is presented as current liability. 7 The 14% mortgage note is current because it is due on demand. Again, since the “interest payable” account has. = balance, the unpaid interest for the 3° and 4! quarters swst not have been recorded yet. The accrued interest is computed and included in current liabilities.. Cha, ad of Ei ee ae Seater —— are no unpaid interests On the 103, : itis presumed that there 27 xt payment dates are on Jub} equiremet! © Iti because the scheduled acide with the reporting periog fae December 31 hich Solution: 1 goad urrent liabilities 16% Bonds ra . . Current and © »mber 31, 20x1 includes Interest payab! me ae a Co. as of De® ‘ Current liabili following: 5.0 ; 15% Note payable 50,0) + Notes: able 100, @ The 15%" 16% Bonds payable i at fod 18% Serial bonds Pay" oe interest payable Ree: t breach of itional information: i : & The 16% eeeas - vancial statements were authorized for issue on, oe April 15, 20%2. | _| @& The 18% . te 15% note payable was issued on January L 20x1 and is), (?100,00¢ due on January 1, 20x5. The note pays annual interest eveiy be paid year-end. The agreement with the lender provides that ABC installme Co. shall maintain an average current ratio of 2:1. If at any due on time the current ratio‘ falls below the agreement, the note April 1, able will become due on demand. As of the 3 quarter in pay due on demand. As of the 3* q through 20x1, ABC Co.'s average current ratio is 0.50:1. Immediately, bonds & ABC Co. informed the lender of the breach of the agreement are due On December 31, 20x1, the lender gave ABC Co. a grace | for 3 1 Period ending on December 31, 20x2 to rectify the deficiency comput H Le current ratio. ABC Co. promised the creditor | = It is pre as late some Of its long-term investments in 20x2 to increase and 169 current ratio, e is every The 16% bonds 1992. The bonds a 10-year bonds issued on December 31, | The 18% seria a annual interest every year-end. semi-annual nds are issued at face amount and are due vstallments of 10,000 every April 1 até annually, The a on the bonds are also due sem September 39, 947, "Stallment on the bonds is due °issue on x1 and is est every that ABC If at any the note uarter in ediately, reement. a grace eficiency ditor to increase aber 31 » due 3 ane » sem | jue ‘statement of Financial Position 2 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 34500 ‘& Notes: @ The 15% note is noncurrent because ABC Co. received a grace period from the lender as of the end of reporting period (ie, 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. © It is 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.Additional information: © Cash consists of the following: Petty cash fund (unreplenished petty cash expenses, P1,500) Cash in bank Payroil fund Tax fund ‘the retirement of bonds mat Total Cash ° Checks amounting to P30,500 w Cash to be contributed to a sinking fund established for turing on December 31, 20x3 ital forking janes prepared by the bookkeepe; bey Below are the accoUl 31, 20x1: Co. as af Decem ABC Liabilities os ; 75,000 Accounts payable 20,09 js vaneret #4000 Notes payable 199, ‘Accounts receivable, 40,000 Inventory 8,000 Prepaid income tax 5,000 Prepaid assets imomanany 100 Land held for sale " , plant, and Property; Pl 50,000 120,00 2,000 (10,009) 14,000 7,000) | 2,000 15,000) * 7 1] seo on ere written to suppliers and aes Tateber 30, 20x1, resulting to a bank overdrelt ok checks were mailed on January 5, 20x2. | eceiy i | Accounts veces i. consists of the following: | Allo eoeivab | carne ety cm Sale price of unsold ™ Aecounts tot Inc. at 120% of Sent on consi, “4 inventory of cost and &xcluded from mace — ne | pou) 0's | I ite, ey 100) ay «The inventory incl that are expected t ordinary course of of consigned goo Numerix Co. amou « Prepaid income quarterly corporat annual corporate is « Prepaid assets ir operating lease wt The security depo: «The land qualifies under PFRS 5 Nor Operations as of De ¢ Accounts payable accounts. Account consignment fron in inventory. © The notes payable 20x4. The notes 5 Interest is payabl Requirement: Comput Solution: > The adjusted cash Cash ~ unadjusted « Unreplenished petty Unreleased checks re overdraft Contribution to sinki Adjusted cash balanceThe inventory includes cost of goods amounting to P10,000 that are expected to be sold beyond 12 months but within the 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 P2,000 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 PFRS 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 2,000 in inventory. (10,000) The notes payable are dated July 1, 20x1 and are due on July 1, 14,000 20x4. The notes payable bears an annual interest rate of 10%. 7,00 Interest is payable annually. 2,000} Requirement: Compute for the adjusted working capital. 2.0) 15,000, Solution: suppliers and unk overdrat > The adjusted cash is computed as follows: 20x2. Cash - unadjusted » : 15,000 Unreplenished petty cash expenses (1,500) ooo | Unreleased checks recorded as disbursement resulting 0 40." | overdraft 30,500 (6.2%) | Contribution to sinking fund (2,000) (3.00) | Adjusted cash balance 22,000 _is com > The adjusted inventory 15 ae ee on consignment © Costof ‘unsold goods sent out Cost : from inventory ee EY Cost of goods held o Adjusted inventory *The cost of inventory expected t normal operating cycle is proper presented as current assets. 0 be sold > The adjusted prepaid assets are computed as follows: | Prepaid assets seaty deposit (to be presented as noncurrent) Adjusted prepaid assets > The adjusted accounts payable is computed.as follows: Accounts payable (20,000 + 6,000 debit balance) ‘Unreleased checks recorded as disbursement tesulting to overdraft Cost of goods held on consignment Adjusted accounts payable, net ly included as part of cost of inventor beyond 12 months but within the |~Dec. 31, || 20x1 | (| Dee. ; 31, 5,000 20x1 2,009) || —— 3,000 | 31, 20x1 26,00. The Curre: 30,500 | ‘Cash 5.00. Acco 51500) “Adva ie : 5 Inver erivoate toe enn Payable is computed as follows: | Prep: 590) | Prep: Land Tota Tota es snl The | Wo | Wo 30,500 | Wo j3, ‘Statement of Financial Position Be. | Sinkingfund ~~ —S«~YSCSi oC Cash in bank | 2,000 2001 gate from cash the contribution toa sinking fund i Dee. | Accounts receivable 3,000 | a Advances from customers 3,000 40, 2031 | to ciminate the credit balance in customers’ accounts 000 | | “De [Sales 12,000 | i Accounts receivable | 12,000 20x1 Inventory Cost of goods sold eed to reverse entries made to record unsold goods sent out on 10,000 ba consignment as sale im within the | [Oe | Accounts payable 5,000 of inventories iat Inventory 5,000 “TT to derecognize cost of inventory held on consignment improperly included in inventories and accounts payable Dec. | Advances to suppliers 6,000 & Accounts payable 6,000 to eliminate debit balance in suppliers’ accounts Dec. | Interest expense 5,000 Ps Interest payable 5,000 | to recognize accrued interest payable currently 26,000 The current assets and current liabilities are computed as follows: 30,500 Current assets Current liabilities 5 Cash 42,000 Accounts payable 31500 (5,000) | Accounts receivable, net 35,000 Advances from customers 3,000 51,500. | Advances to suppliers 6,000 Interest payable 5,000 en BE inventory 45,000 sow Prepaid income tax 8,000 Prepaid assets 3,000 Land held for sale 28,000 Total current assets 167,000 Total current liabilities 59,500 0 The adjusted working capital is computed as follows: Working capital = Current assets - Current liabilities Working capital = £167,000 - #59,500 Working capital = 107,500counts) Cash in ing P5000 pled 2° Cashin et ‘Accoun svable- ia iscounted) ‘Accounts jvabl notes receivable dis Ei able cece 00 Ne receivable du ‘Advances to subsidiary Held for trading securities Accounts payable Estimated warranty ibility Loans payable related ‘Oassigned receivables (due in 22 mos.) Accrued expenses TBE Cochi 13; Cash Bonds payable (due, ; Ereniunon bonds pean Y Adios Total abilities | Accoy Additional jy tion: Notes * Petty cash py | Notes Ncludes lou: ; ; se ye meaning coins of 5,009 Tepresents pills an’ inven * Cash in bank — | Bond Statement. A, oF Dag O” Tpreseng ooh) Total MOU fo Piggy Aer 31 eS the balance A oun 20x, deposits in éransil ie a et ee— Shape y Statement of Financial Position 7 Ichud, i les 3,000. Included in the bank statement as of December 31, 20x1 is an NSF check amounting to 8,000. Cash in bank ~ Metrobank represents the balance per ledger. As of December 31, 20x1, deposits in transit amounted to 2,000 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 last payment is due on December 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. “400,000, Requirement: Compute for the working capital. Solution: Current assets oat Petty cash fund (P7,000- 2,000 IOU's) a 15,00) Cash in bank — Banco De Oro (1500 + 1.000D1T -3400 00) 0 13,005 Cash in bank - Metrobank 500 100,00) Advances to employees (representing the 10U's) a Accounts receivable* 25,000 Accounts receivable - assigned et Notes receivable ent) Notes receivable discounted eb Held for trading securities (40,000 -P4,000 Treasury shares) aoe Inventory (P62,000 - P30,000 FOB Dest. + P12,000 FOB SP) pee Bond sinking fund S00 Total current assetshap, | 28 ao relate ant bites p08 * a a assigh le ( ooo i ‘Accounts payable ity due in 12 mos.) 1 sepat ; arranty Hiab? jvables ( Say : Estimated oe tated £0 ssigned rece! By” Th. Loans pay! Z 1004, recei ‘Accrued expense - x 31, 20%2) a, 7 The (due if . Bonds poya ls able my tradi Premium on a Habilities ? 1) Pre? Tota tT gg 17200) Ms The Working ¢4] las: . 1 mat : athe 1OU's (Towe you’) represents advances to employees th m= i = ted as current receivables. ia r Thebalance of “Cash in bank ~ Banco De Ores oa ieee per bank statement, thus, the deposits in transit are addej: + De while the outstanding checks are ‘deducted in order def compute for the adjusted palance of cash. The NSF check is @ Ca: ignored because this is a book reconciling item and not a bank lor reconciling item. @ The balance of “Cash in bank - Metrobank” is the balance per Tlustr ledger (or per books), thus, the deposits in transit and The le outstanding checks are ignored because they are bank) i reconciling items. i Non “The adjusted accounts receivable i , | a le 1S COI a eee mputed. as follows: ol Non paoletble scout written-off, coy wil i it i a : Special credit term - noncurrent i yaaa nd Inert Portion (P625 | e £ Adjusted accounts receivable (unassi, a igned) 23,50, Ae: © The pledged accounts : ft 7 Tecej ink ii current receivables, *ivables are Properly included in| The ‘accounts rece} : Vable ~ age: naa Part of current assets Hemet is properly included # receivables (computed as thew’ the equity in assign! | Of the assigned teceivabje the difference betw eile sent S and the Outstanding pees of the |atement 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. Treasury shares are presented as unallocated deduction from shareholders’ equity. @ The classification of the bond sinking fund parallels the classification of the related bonds. The related bonds are maturing currently, thus the bond sinking fund is also presented as current item. @ Advances 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. . @ Cash surrender value is normally included as part of “other long-term investments.” ‘Tllustration 6: Reconstruction of financial statement The ledger of ABC Co. in 20x1 includes the following: sae Jan.1,20x1 Dec. 31, 20x1 Current assets 600,000 z Noncurrent assets 2,000,000 2 Current liabilities 450,000 500,000 2 1,500,000 Noncurrent liabilities Additional information: © ABC's working capital as of December 31, much as the working, capital as of January 1, 20x1. «Total equity as of January 1, 20x1 is 850,000. Profit for the year is 1,200,000 while dividends declared amounted to 500,000. There were no other changes in equity during the year. 20x1 is twice as s \ele 88 2.5 24Solutions: Requirement @ current _ Current, Nom assets assets (600,000 + 2,000,000) = (450,000 + t liabilities = 2,600,000 Near 2x4 = 1,300,000 Requirement (b): Working capital = Working capital, Noncurrent liabilities, Jan. 1, ): Curren Current asset Jan. 1, 20x1 ) Noncurrent Hiabilities 45 of Ja nuary 1, 20x1. Noncurrent Current oy + liabilities liabilities Noncurrent Jiabilities) + 850,000 = 450,000 - 850,000 t assets as of December 31, 20x1. ts — Current liabilities = 600,000 - 450,000 Working capital, Jan. 1, 0x1 = 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 Noking itl Crent exes Curent libltes 800 = Curent ese, Dee 31,2021 500,000 current assets, Dec. 31, 20r1 = 800,000 Reguis : ‘quirement (c): Noncurrent assets as of December 31, 20x1 fetid assets + liabilities + Equi (600004 None Noncurrent assets, Noncurrent assets, ie Jan. 1 1000 _ Profit for the year Noncurent assets = E gui Jilus! Thel Cast Act! Inve Acc Not wer Current liabilities + Noncurtét! : 500,000) + 1,550,000 1= 2z50, + 1,550,000 ~ 800,000ig 7 Statement of Financial Position 31 Illustration 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 P3,000 on the sales. e A collection of a P20,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash discount of ?1,000 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 20x2 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 (20,000) 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 Interest payment in 20x2 recorded as 20x] transaction 2,500 Adjusted cash balance, Dec. 31, 20x1 98,500Ss receivable is computey it spe adjusted palance of accoun ] es : c follow accounts ecevable cna ded as 20x1 collection 2004, Land Collection of account in ec. 31 20x1 Hj Buile Adjusted units receivable palance, DE °* —2y Fhecu F is computed Equi] > Theadjusted palance of inventory is comp! as follows: Pheu inventory (unadjusted) 50qq, Patet a ycashsae in 2082 eCorGea aS 20x1 sale a ‘a 00 sale ~ 3.000 P08 it) Enea Adjusted inventory palance, Dec. 31, 20x1 Ecco Note Adjusted current assets, Dec. 31, 20x1: (98.5K + 220K + 507K) = Note ; Inco: > The adjusted current liabilitie Accounts payable ies are computed as follows: Inter Nie papale Salar Loan payable Utili: Adjusted current liabilitic Unez liabilities, Dec. 31, 20x1 Roce Working capital 225 Defe Working pital, Dec. 31, 20x1 = C Ba capita, Dec. 31, 204 « apne) et erent liabil L, 20x1 = (825,500 - 225,000) nt liabilities Retai deca Notice that the 000) = 600,500 Reva i ac ‘ use it has accrued inten interest is not a liabi acum Ulustrati january 20x2, a liability in 26° Total on §; — ABC Co's & Preparation of Sta the following losing trial 5 tement of financi Requ cial position Solui account balan ee OF stances: December 31, 20x2 show Accouns Market . Allovanee able instruments ; 15,000 OS ree T bad q, 900,000 abe age 800,000 ‘) 122,000 3008Requirement: Prepare the statement of financial position. Solution: Statement of Financial Position 33 Inventory 200,000 Land 6,000,000 Building 10,000,000 Accumulated depreciation - Bldg. 7,200,000 Equipment : 800,000 Accumulated depreciation — Equipment 250,000 Patent ~ 350,000 Accumulated amortization — Patent 315,000 Trademark 120,000 Accounts payable 100,000 Notes payable - short term loan 200,000 Notes payable - long term loan (P50,000 due in 1 yr.) 1,450,000 Income tax payable 670,000 Interest payable 65,000 Salaries payable 105,000 Utilities payable 8,000 Unearned income 35,000 Provision for warranty obligation 260,000 Deferred tax liability 70,000 Share capital 3,500,000 Retained earnings 5,440,000 Revaluation surplus 260,000. Cumulative translation gain - foreign operation 357,000 Totals 20,315,000 _ 20,315,000“~——” jt of finan ae ae statemepecember 31208 yee tes 202 2 ‘ASSETS 7 ff 6 — 2,715,000 P2,800,04 Current dpet equivalents 7 100,000 280,09, Trade and er ceva 200,000 180,05 as 3,015,000 3,260, Tonal current assets Noncumentassels | 8 9,350,000 7,012.55, Property, plant and'equipment 9 155,000 186,00 [ivatuibiesssts 9 505,000 7.198.515 it assets: redhat? : 712,520,000 _ P10,458,54, LIABILITIES AND EQUITY Current liabilities Trade and other payables 10. P313,000 200,00 Short-term borrowings 200,000 : Current tax payable . 670,000 490,000 Curent portion of long-term borrowings 12 50,000 50,000 Provisions 260,000 Total current liabilities : Noncurrent liabilities Long-term borrowings ferred tax liabili Total noncurre nann az >iY 2,800,049] 280,09] 180,009 7,012,509 186,009 || 7,198,500 P 10,458,500 ——e Statement of Financial Position 35 The breakdowns of the line items are shown in the “Notes” (ie,, the 5 component of a complete set of financial statements) as follows: Note 6: Cash and cash equivalents This line item consists of the following: Cash on hand 15,000 Cash in bank : 1,900,000 Cash equivalents Cash and cash equivalents 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 i: 8,000. Trade and other receivables 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) Equipment 800,000 Accumulated depreciation- Equipment (250,000) Property, plant & equipment P 9,350,000 Note 9: Intangible assets This line item consists of the following: Patent 350,000 Accumulated depreciation - Patent (315,000)120,000 - 000 Trademark : Intangible assets ' ayables Trade and other P a arse i consists of the follo is li 100,000 ble enone Accounts pay Interest payable enn Salaries payable 0 . Utilities payable sto : Unearned income 35000, | — Tr Note 11: Current & Noncurrent portions of Long-term borrowing; Long-term borrowings consist of the following: Current portion 50,000 Noncurrent portion 1,400,000 7 Total long-term borrowings 1,450,000 — Note 12: Share Capital Share Capital consists of the following: Shares Amounts 20x2 20x1 Common shares P10 par value Authorized — 1,099; 000 shares a 4 outstanding lanes at a " beginning of year ring the year ee 100,000 1,000,000 = 1,000,000 100,000__ 3,500,000 1,000,000 On January 31, 2042 ‘ additional 250909 ¢,¢'® COMPANY filed an anon cae 1,000 com, application wi sting & share. Proceeds faseaee Shares through a pis figs a ite equals eric P| _£ompletion of the 5 fering ata price 0! ting to P2509, Hock tights offering, ete received in December 20x? u?*|"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 ° 617,000 Chapter 1: Summary * 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 vings 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 in which an entity presents items, 00eofiiea linn tUne ee PROBLEMS : FALSE ~ PROBLEM 1: TRUE OR fements tequires an entity ic ial Stal 1. PAS 1 Presentation of Financial : ; make an explicit statement of compliance with PFRSs, a ding to PAS 1, an entity is never allowed, in a, circumstance, to depart from a provision of a PFRS, 3. According to PAS 1, material items are Presented SeParate, on the face of the financial statements while individya: immaterial items with similar nature are aggregated ang presented under a single line item. 4. PAS 1 Presentation of Financial Statements encoura; es, but 1B dog not #quire, the presentation of the preceding year’s financs statements as comparative information to the current year; financial statements. 5. Current liabilities are obligations that are e see xpected to by liquidated Sn the use of current assets or the creation ¢ other current iabilities, 6 Unless there is evi ‘ 7 he ane to the contrary, accounts receivable’ sie "ment of financial Position: as current 8 Unless there is ey; oth is si pind the Contrary, investment in equits — ie 35 cag otis Presented in the statement 7 Current asset, Its in assoc 10. Investmeny ates are no, 7 t Prope; i N-current a: ets. = are Presumed tobe ome assets. SS, "POSe Financia) = Discussion tements Cater to what type” >. specific Needs Gaandb d, loving and caring needs z Boge Ac stat stal stat Pe Pe a ree °< es BR 265 §# BE = \ of af 2G Fe . Acomplete set of financial statements does not include a. . Statement of profit or loss and OCT b. e d. Statement of financial position Statement of retained earnings |. Notes . ABC Co.’s depreciation expense for the period is overstated. Which of the following statements is incorrect? a. | According to PAS 1, this general feature of financial statements requires the presentation of the last year’s financial statements together with the current year’s financial statements. a. Frequency of reporting b. Comparability 7G d. Two-statement presentation ABC Co.'s financial statements provide relevant information but that information is not faithfully represented. ABC Co. cannot rectify the error by simply making appropriate disclosures in the notes. ABC Co. can rectify the error by simply making appropriate disclosures in the notes. . ABC Co.'s financial statements do not comply with the general feature of fair presentation. Comparative information Which of the following is an example of offsetting under PAS nr a. Deducting the accumulated depreciation of an item of Property, plant and equipment and presenting only the net amount on the face of the statement of financial Position, » Deducting allowance for bad debts from the telated receivable and Presenting only the net amount on the face of the statement of financial position.from the sale prig| costs P the related selins 108s 07 the sale of an iter, ain t I “ Deducting puting for 3 ‘ =: ; when col ty, Pl t and equip’ esi value adpaterents a wa “ =f i held for trading, securities wher, : da A i ' cu ine aie 5 ing amoul 1 i ie einen iS ! : a an ent dition; . When tity not required to present i oo 7 al eet dated as of the beginning © P ‘ balance ‘te accounting policy- tity changes an : A b be ae makes a correction of a prior period error. 2 The makesarecassification adjustment.- 4d. The entity changes the frequency of its reporting. 7. The trial balance of Morning Co. prepared as of December 31,] 20x1 is shown below: Debits Credits ahaa 60,000 Accounts receivable 1,000,000 oes 2,000,000 Ad doubtful accounts a 300,00 hae 40,000 Heats suppliers 1,200,000 Investment Securities 30,000 Im ty Securities 800,000 {teste property *“FVOCI 390,009 Building ese Accumulated 2200000 depreciag, A counts payable” Bldg, 3,400,000 cmc 700,000 mete ate 720,000 tax liability a 5 S Payable (due in 2043 Bey 0? i ; sn—epter > sale Prigg e of an item, stments” tp ities When, additiona] | Preceding 300,000 700,000 720,000 80,000 5093,000 1 0 41,08 ‘Statement of Financial Position “ Discount on loan payable 740,000 Interest payable (due in 20x2) 340,000 Provision for probable loss on lawsuit 430,000 Ordinary share capital 4,000,000 Share premium aeons Retained earnings s caaeas Revaluation surplus Translation loss on foreign operation 30,000 Totals 12,700,000 Requirements: a. Prepare the statement of financial position of Morning Co. Make a proper heading for the financial statement. Apply the general feature of “materiality and aggregation.” b. Prepare notes showing the breakdown of line items in the financial statement. Make proper cross-referencing of those notes; use “Note 6” as your first cross-reference. PROBLEM 3: EXERCISE 1. The trial balance of Evening Co. as of December 31, 20x1 is shown below: Debits Credits Cash on hand 120,000 Cash in bank 980,000 Accounts receivable 2,000,000 Allowance for doubtful accounts 300,000 Advances to employees 40,000 Advances to officers (due in 20x3) 130,000 Advances to affiliates (no agreed due date) 670,000 Inventories 200,000 Dairy cattle (used to produce milk) 1,200,000 Advances to suppliers 30,000 Fair value of plan assets 1,000,000 Land (held for long term capital appreciation) 900,000 Land (office building site) 1,200,000 Building 4,800,000‘Accumulated depreciation - Bldg. coo 1600; tent ated amortization - Patent 250,000 $0, Web site costs a ~ Accumulated amortization - Web site Accounts payable : Utility payables Loane payable (short-term bank loan) 2,500,00 Discount on loan payable 740,000 Provision for probable loss on lawsuit 4300 Deposit liability for returnable containers (short-term) 120,008 Present value of defined benefit obligation 2,700, Ordinary share capital 4,000.0 Share premium . Share premium - Share warrants outstanding Share premium - Treasury shares Retained earnings Reserves for contingencies Translation gain on foreign operation Treasury shares Totals 100,000 74,800,000_14,80000 Requirements: : Mec. ba See of financial position of Evening oy compliance ies for the financial statement. Pediat Seneral feature of “materiality financial stern 8 the breakdown of line items it ™ notes; use “Note 6” ag oa ito of ‘ a4 g PROBLEM 4: Ct acon —