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PRACTICAL ACCOUNTING PROBLEMS I SUGGESTED SOLUTIONS Statement of Financial Position and Comprehensive Income 1. Cash (4M + the overdraft of 500k) current liability Accounts receivable (5M + 600k) 500k Inventory (4.5M + (3M/150%)) Financial assets at FVTPL Prepaid expenses (net of CSV, should be LTI) Noncurrent classified as held for sale Total current assets 4,500,000 5,100,000 6,500,000 1,000,000 300,000 3,000,000 20,400,000

2.

Cash 550,000 Accounts receivables (1.65M 250k*) 1,400,000 Total current assets 1,950,000 *Not collectible within the normal operating cycle hence amount to be collected beyond 12 months shall be classified as a noncurrent receivable. Retained earnings 1/1 Add: Net income (3.6M 2.6M (1M x 30%)) Retained earnings 12/31 430,000 700,000 1,330,000 2,500,000 4,500,000 7,000,000

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Key officers salaries Loans to officers Total related party disclosures

The officers expenses are the officers expense accounts that are representation expenses of the company within the operations of the company and regarded as an arms length transaction while the intercompany sales will be eliminated during the consolidation procedures hence are not anymore disclosed in the consolidated financial statements. 4. Accounts payable (1.9M + 100k) Accrued expenses Bonds payable (3M 200k) Income tax payable Cash dividends payable Notes payable 6% Total current liabilities 2,000,000 500,000 2,800,000 700,000 800,000 1,500,000 8,300,000

The 6% note was refinanced on long-term basis after the balance sheet date, that is a non adjusting event therefore it will still be classified as current liability. Since the company has the discretion which is similar to an unconditional right to defer the settlement of the liability, the 8% note payable shall be classified as a noncurrent liability. 5. Merchandise inventory Beginning Retained earnings 300,000 300,000 D

Merchandise inventory is an example of a counter balancing error therefore the effect of the 2011 ending inventory in the January 1, 2013 retained earnings can be ignored because it was already offset by the reversing effect in the income statement that occurred at the end of 2012. 6. Write off of accounts receivable Liability for damages Total adjusting events 2,000,000 2,500,000 4,500,000

The contingent liability was only a disclosure on December 31, 2013 but before the issue of the financial statements, a decision by the court rendered the liability to become a present obligation that is probable and measurable hence warranting an adjustment. The receivable on balance sheet should now be written-off because the declaration of the customers bankruptcy after the balance sheet date still means that the customer did not have the means to pay this receivable as of balance sheet date. Take note that both events occurred before the issuance of the 2013 financial statements. 7. Accumulated depreciation 1/1/13 (5.28M / 8) x 3 2013 Depreciation expense ((5.28M 1.98M) 480T) / (6 3) Accumulated depreciation 12/31/09 Cost Less: Accumulated depreciation Carrying amount 12/31/12 Less: 2013 Depreciation (2,160,000 600,000) / 3 Carrying amount 12/31/13 Income from continuing operations Income from discontinued operations Net income Unrealized gain on FA at FVTOCI Unrealized gain on futures contract designated as a cash flow hedge Fully recognized actuarial loss Foreign translation adjustment loss Revaluation surplus Comprehensive income 1,980,000 940,000 2,920,000 6,000,000 3,840,000 2,160,000 520,000 1,640,000 5,000,000 1,000,000 6,000,000 1,500,000 500,000 ( 400,000) ( 100,000) 2,000,000 9,500,000

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