Professional Documents
Culture Documents
PROBLEM 1
Galore Company and its subsidiaries own the following properties that are accounted for in a
cordance with international accounting standards:
• A vacant building owned by parent and to be leased out under an operating lease.
3,000,000
• Building owned by a subsidiary and for which the subsidiary provides security and
maintenance services to the lessees. 1,500,000
Compute for the total investment property that should be reported in the consolidated
statement of financial position of Galore Company and its subsidiaries.
Solution:
A vacant building owned by the parent and to be leased out under an operating lease.
3,000,000
Building owned by a subsidiary and for which the subsidiary provides security and maintenance
services to the lessees. 1,500,000
5,000,000+3,000,000+1,500,000+6,000,000 = 15,500,000
PROBLEM 2
The Paradise Company's accounting policy with respect to investment properties is to measure
them at fair value at the end of each reporting period. One of its investment properties was
measured at P8,000,000 on December 31, 2015.
The property had been acquired on January 1, 2015 for a total of P7600,000, made up of
P6900,000 paid to the vendor, P300,000 paid to the local authority as a property transfer tax
and P400,000 paid to professional advisers. The useful life of the property is 40 years.
What is the amount of gain to be recognized in profit or loss for the year ended December 31,
2015 in respect of the investment property?
a. 400,000
b. 700,000
c. 800,000
d. 590,000
Solution:
Fair Value 8,000,000
Acquisition Cost 7,600,000
Gain from change in fair value 400,000
PROBLEM 3
PAPASAA Co. had outstanding a 7%, 10-year P5,000,000 face amount bond. The bond was
originally sold to yield 6% annual interest. The entity used the effective interest method to
amortize bond premium. On January 1, 2013, the carrying amount of the bond payable was
P5,250,000. What amount of unamortized premium on bond payable should be reported on
December 31, 2013?
a. P225,000
b. P172,500
c. P215,000
d. P52,500
Solution:
PROBLEM 4
On June 30, 20x8, Ada Company sold its investment property for P7,500,000. The Company paid
P500,000 as a transaction cost.
The investment property was acquired five years ago at a cost of P8, 000,000. Its estimated
useful life was 10 years.
Compute for the gain or loss on derecognition assuming the company use Cost Model.
a. 6,000,000
b. 4,000,000
c. 3,500,000
d. 1,500,000
Solution:
Cost 8,000,000
Less: Transaction Cost (500,000)
Net Selling Price 7,500,000
Less: Carrying Amount
Cost 8,000,000
Less: Accum. Depre. (8M/10x5) 4,000,000 4,000,000
Gain on Derecognition 3,500,000
PROBLEM 5
Mercedes-Benz Company owned three properties which are classified as investment property.
Each property was acquired 3 years ago with a useful life of 25 years the accounting policy is to
use the fair value method for investment property
What is the gain or loss to be recognized for the year ended December 31, 2016
a. 189,000 loss
b. 300,000 gain
c. 150,000 loss
d. 450,000 loss
Solution:
(150,000)
PROBLEM 6
In 2014, Garlian Mining Company purchased property with natural resources for P28,000,000.
The property had a residual value of P5,000,000.
However, the entity is required to restore the property to the original condition at a discounted
amount of P2,000,000.
In 2015, an amount of P1,000,000 was spent for additional development on the mine.
The tonnage mined and estimated remaining tons for years 2014-2016 are as follows:
Tons Estimated
Year Extracted Tons Remaining
2014 0 10,000,000
a. 10,150,000
b. 11,025,000
c. 15,750,000
d. 9,450,000
DEPELETION 2015
Cost of land P28,000,000
Estimated restoration cost 2,000,000
Development cost – 2014 1,000,000
Development cost – 2015 1,000,000
Total cost 32,000,000
Residual value ( 5,000,000)
Depletable amount 27,000,000
DEPELETION 2016
Tons extracted in 2016 3,500,000
Remaining tons – Dec 31, 2016 2,500,000
Total estimated output - Jan 1, 2016 6,000,000
PROBLEM 7
In connection with your audit of Yeoj Corporation’s financial statements for the year 2017, you
noted the following liability account balances as of December 31, 2016:
Transactions during 2017 and other information relating to Yeoj’s liabilities were as follows:
a) The 12% note is dated May 1, 2016 and is payable in four equal annual installments of
800,000 beginning May 1, 2017. The first principal and interest payment was made on May 1,
2017.
b) The 10% 2,500,000 loan payable will mature on July 1, 2018. Interest on the loan is due every
July 1 and December 31. On December 1, 2017 the company entered into refinancing
agreement with a bank to refinance the loan on a long term basis. The refinancing and roll over
transaction was completed on December 31, 2017.
c) On January 1, 2017 the Company purchased a machinery by paying cash of 400,000 and
issuing a 10% interest bearing note payable of 1,600,000 due in 4 equal annual installments
starting December 31, 2017. The prevailing interest rate for this type of note is 12%.
Question:
1. How much is the carrying amount of the note issued for the machinery on initial recognition?
a) 1,518,650 c) 2,000,000
b) 1,535,823 d) 1,500,000
a) 4,687,000 c) 4,879,337
b) 4,244,995 d) 3,627,987
3. Current portion of notes payable as of December 31, 2017?
a) 1,126,890 c) 1,100,000
b) 1,475,000 d) 1,180,785
a) 200,000 c) 168,000
b) 192,000 d) 175,000
a) 644,000 c) 750,000
b) 754,299 d) 660,000
Solution:
1. B
2. C
Interest-bearing note:
1/1/17 1,535,823
4. B
12% NP:
10% NP:
PROBLEM 8
On January 2, 2004, the Suns, Inc. issued P2,000,000 of 8% convertible bonds at par. The bonds will
mature on January 1, 2008 and interest is payable annually every January 1. The bond contract
entitles the bondholders to receive 6 shares of P100 par value common stock in exchange for each
P1,000 bond. On the date of issue, the prevailing market interest rate for similar debt without the
conversion option is 10%.
On December 31, 2005, the holders of the bonds with total face value of P1,000,000 exercised their
conversion privilege. In addition, the company reacquired at 110, bonds with a face value of
P500,000.
QUESTIONS: Based on the above and the result of your audit, answer the following
1. How much of the proceeds from the issuance of convertible bonds should be allocated
to equity?
a. P634,000 b. P126,816 c. P221,664 d. P0
2. How much is the carrying value of the bonds payable as of December 31, 2004?
a. P2,000,000 b. P1,389,400 c. P1,796,170 d. P1,900,502
3. How much is the interest expense for the year 2005?
a. P160,000 b. P138,940 c. P179,617 d. P190,050
4. The entry to record the conversion on December 31, 2005 will include a credit to APIC of:
a. P365,276 b. P400,000 c. P307,893 d. P0
5. How much is the loss on bond reacquisition on December 31, 2005?
a. P50,000 b. P96,053 c. P67,362 d. P0
SOLUTION:
Question No. 1
Total proceeds 2,000,000
Less liability component:
Present value of the principal (P2,000,000 x 0.6830) 1,366,000
Present value of the interest [(P2,000,000 x 8% x 3.1699) 507,184 1,873,184
Equity component 126,816
Question 2 & 3
Question no. 4
Bonds Payable 1,000,000
Discount on bonds payable (P1,000,000 - P965,276) 34,724
Common stock 600,000
APIC 365,276
Question no. 5
Reacquisiton price (P500,000 x 110%) 550,000
Carrying value of bonds reacquired (P1,930,553 x 1/4) 482,638
Loss on bond reacquisition 67,362
PROBLEM 9
On June 30, 2017, the GENLUNA MINES, INC. purchased a copper mine for P14,580,000. The
estimated capacity of the mine was 1,620,000 tons. Genluna Copper Mines expects to extract
15,000 tons of ore a month with an estimated selling price of P50 per ton. Production started
immediately after some new machines costing P1,800,000 were bought on June 30, 2017,
These new machines had an estimated useful life of 15 years with a scrap value of 10% of cost
after the ore estimate has been extracted from the property, at which time the machines will
already be useless. Genluna’s vooks show the following expenses for 2017:
A. Overstated by P270,000
B. Understated by P270,000
C. Overstated by P405,000
D. Understated by P405,000
SOLUTION:
PROBLEM 10
JC Company has a 10% note receivable dated June 30, 2016, in the original amount of P9 000
000. Payments of P3 000 000 in principal plus accrued interest are due annually on July 1, 2017,
2018 and 2019.
In its June 30, 2018 balance sheet, what amount should JC report as current asset for interest
on the note receivable?
PROBLEM 11
On october 1, 2018, BALANTON Corp. issued a 500,000, 12 month 12% note to ABC Company in
payment of account. On the same date, the company borrowed 1,000,000 from the Asian Bank
by signing a 12-month, non interest bearing, 1,120,000 note.
What is the total/net liability reported in December 31, 2018 for the non-interest bearing note?
Answer: 1,030,000
PROBLEM 12
Cost model
Depreciation Expense for 2012 (5.8M/40) ₱ 145,000.00
PROBLEM 13
On January 1, 2007, LACEA COMPANY issued 7% term bonds with a face amount of
P1,000,000 due January 1, 2015. Interest is payable semiannually on January 1 and July 1.
On the date of issue, investors were willing to accept an effective interest of 6%.
Questions
2. Assume the bonds were issued on January 1, 2007, for P1,062,809. Using the effective
interest amortization method, LACEA COMPANY recorded interest expense for the 6 months
ended June 30, 2007, in the amount of
a. P 70,000 b. P 63,769 c. P 35,000 d. P 31,884
3. Same information in number 2. LACEA COMPANY recorded interest expense for the 6
months ended December 31, 2007, in the amount of
a. P 70,000 b. P 63,769 c. P 31,884 d. P 31,791
5. A bond issue sold at a premium is valued on the statement of financial position at the
a. Maturity value.
b. Maturity value plus the unamortized portion of the premium.
c. Cost at the date of investment.
d. Maturity value less the unamortized portion of the premium.
Solution
1. B
If nominal rate is less than the yield rate, there is discount
11
PROBLEM 14
If nominal rate is more than the yield rate, there is premium
2. D
Date Interest expense Interest paid Amortization Carrying Value
1,062,809
July 2007 31,884 35,000 3,116 1,059,693
December 2007 31,791 35,000 3,209 1,056,484
July 2008 31,695 35,000 3,305 1,053,179
Interest expense = Carrying value of the note X yield rate x 6/12
Interest paid = Face value of the note X nominal rate x 6/12
Amortization = Interest expense – Interest paid
Carrying value – end = Carrying value – beg. – Amortization
3. D 4. D 5. B
PROBLEM 15
On January 1, 2007, LACEA COMPANY issued 7% term bonds with a face amount of P1,000,000 due
January 1, 2015. Interest is payable semiannually on January 1 and July 1. On the date of issue, investors
were willing to accept an effective interest of 6%. Questions
a. A premium
b. Book value
c. An amortized value
d. A discount
2. Assume the bonds were issued on January 1, 2007, for P1,062,809. Using the effective interest
amortization method, LACEA COMPANY recorded interest expense for the 6 months ended June 30,
2007, in the amount of
3. Same information in number 2. LACEA COMPANY recorded interest expense for the 6 months ended
December 31, 2007, in the amount of
a. Maturity value.
PROBLEM 16