Intermediate Accounting 3_module 3_ernesto Nogoy Jr.docx

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MODULE 3 Intermediate Accounting 3

YOUR GOALS This module will help the students in learning the Interim Financial Reporting, Operating Segment and hyperinflation. As a future Accountant, it is important that you have an in-depth understanding and knowledge in dealing accounting errors and changes in accounting estimates and how these errors can impact your financial statements. At the end of this learning module, you are expected to demonstrate the following competencies: 1. Gain knowledge about lease accounting, its concepts for the measurement, classification, recognition and application of accounting standards. 2. Identify the characteristics of a hyperinflationary economy and the process of restatement of financial items. 3. Familiarize to standards under Interim Financial reporting and know how to apply it. YOUR PROJECT When you have finished going through the experiences and reading resources contained in this module, you will prepare an evaluation based on the materials that are provided. Please take note of the writing conditions and expectations that follow. CHOOSE TO EXPLAIN WELL! The following will be the rubrics for assessing your examination: 21-30 points: The submitted output provided an excellent discussion Level 1 - Evaluate only one of three assessment. Your highest possible grade ison30the Interim Financial Reporting, Operating Segment and hyperinflation and given examples are presented in a very orderly points. and clear manner, according to the requirements of the task. Level 2 - Evaluate two of three assessment. 11-20 points: The submitted output provided an excellent discussion Your highest possible grade is 60 points. on the Interim Financial Reporting, Operating Segment and hyperinflation and given examples are presented in an orderly Level 3 - Evaluate all the given assessment. Your highest possible grade is 90 points. manner but does not meet the key requirements of the task. CHOOSE YOUR ADVENTURE

1-10 points: The submitted output does not effectively reflect the student’s understanding Interim Financial Reporting, Operating If you evaluate at least two out of three cases, Segment and hyperinflation. Ideas are presented loosely and does not effectively meet the requirements of the task. you automatically get an addition of 10 points

Assessment 1: Multiple Choice Questions- Problems regarding changes in Hyperinflation economy and lease accounting. Assessment 2: Multiple Choice Questions- Case Problems regarding changes in hyperinflation economy and lease accounting.

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Assessment 3: Multiple Choice Questions- Case Problems regarding changes in hyperinflation economy and lease accounting. WRITING CONDITIONS: 1. Illustrate your examination per topic in exercises given in this module. 2. The examination may be computer-generated or handwritten on a short bond paper using normal margins. 3. For purposes of readability, electronic outputs should be encoded using Century Gothic font size 12. Handwritten outputs should be rendered in print, not in script. 4. Electronic output may be sent to the official email address for the class. Meanwhile, handwritten outputs may be resent to the school via courier or be dropped off at the specific collection area on campus. 5. All output in this module shall be considered the first three assessment of the semester.

YOUR EXPERIENCE Be guided by the following schedule that you can follow in order to manage your learning experience well: WEEK TASK OUTPUT Able to exhibit strong knowledge and understanding on lease accounting, 1 know the what have been revised in IFRS16. 1 2

Demonstrate strong knowledge on classifying lease item, measurement and recording of lease payments.

3

2

Demonstrate clear understanding on the hyperinflation economy, its types and in restating monetary items.

4

3

5 6

Assessments

Able to exhibit clear understanding on the Interim Financial Reporting principles. Finals

There are required reading resources for this module. You are allowed to look for other related resources if you have the means to do so. Note that our school library has online resources that you can access.

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

TASK 1: Read the material for Lease Accounting topic, from IFRS publication) and gain clear understanding on the new lease accounting standards regarding treatment, measurement and recognition. 1. Read through carefully the Lease Accounting, gain knowledge and have a clear understanding on what are the changes in IFRS 16 specially the measurement and recognition of liability. 2. Based on what you have read and noted, discuss the importance of having clear understanding on IFRS 1 or Lease Accounting Site important points that you’ve noted from the illustration given. 3. Discuss on how you will be able to identify an item if it is a lease or not, provide at least an explanation on you will correctly record such lease and its impact to Income statement. 4. For purposes of reliability, electronic outputs should be encoded using Century Gothic font size 12. Handwritten outputs should be rendered in print not in script TASK 2: Read the material for Hyperinflation Economy, (sourced material) and gain clear understanding on the constant peso accounting, the monetary and nonmonetary items. It is expected that you will have strong knowledge on how to restate items in Statement of Financial position and Income Statement. 1. Read through carefully the Hyperinflation Economy, have a clear understanding as to what could be monetary and nonmonetary items and how this could affect Financial Statements. 2. Based on what you have read and noted, discuss the importance of hyperinflation economy and its concepts. Site at least an example of monetary and nonmonetary and how can you classify a specific account if it is a monetary or nonmonetary. 3. From your understanding in the given material’s illustration, practice what you’ve learned by discussing the concepts and application to one of your friends. 4. From the discussion that you had with your friend, gather feedback regarding how did the discussion helps them understand the hyperinflation and site your realization during preparation up to the discussion of the same. Please include the feedback as part of your learning experience on this topic. 5. For purposes of reliability, electronic outputs should be encoded using Century Gothic font size 12. Handwritten outputs should be rendered in print not in script

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

TASK 3: Read the material on Interim Financial Reporting, from the book of Conrado Valix and gain clear understanding on the interim financial reporting could affect company’s financial statement.

1. Read through carefully the cash basis and accrual basis of accounting., have a clear understanding of different kinds of the reports and its purpose(s). 2. Based on what you have read and noted, discuss the importance of Interim Financial Reporting. Site the important points that you’ve noted from the illustration given. 3. From your understanding in the given material’s illustration, practice what you’ve learned by discussing the concepts and application to one of your friends. 4. From the discussion that you had with your friend, gather feedback regarding how did the discussion helps them understand the Interim Financial Reporting and site your realization during preparation up to the discussion of the same. Please include the feedback as part of your learning experience on this topic. 5. For purposes of reliability, electronic outputs should be encoded using Century Gothic font size 12. Handwritten outputs should be rendered in print not in script

READING MATERIAL NO. 1 Quick Recap on Leases:

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

According to IFRS 16, the following examples illustrate how an entity determines whether a contract is, or contains, a lease.

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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Example: Truck Rental

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Example: Contract for Energy/Power

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

READING MATERIAL NO. 2 Quick Recap on Hyperinflation A general price change is increase or decrease in the overall level of prices of goods or services throughout the economy.  An increase in the general price means that the purchasing power of money has decreased.  A decrease in the general price means that the purchasing power of money has increased.  Purchasing power means the goods and services that money can buy. General price changes are measured by using a general price index constructed by a government body like the Bangko Sentral ng Pilipinas. Such an index is designed to show how much the overall level of prices in the economy has changed over time. A specific price change is increase or decrease in the price of a specific good or service, such as food, clothing and car. Specific price change occurs primarily because of change in supply and demand for a particular good or service. The law of supply and demand is in operation in the case of a specific price change. The specific price of a good or service may change at a different rate and even in the opposite direction from the general price level change of price in the economy. PAS 29 on financial reporting in a hyperinflationary economy does not establish an absolute rate at which hyperinflation is deemed to arise. This is a matter of judgment. Hyperinflation is indicated by characteristics of the economic environment of a country which include but are not limited to the following: a) The general population prefers to keep its wealth in nonmonetary assets or in relatively stable foreign currency. Accordingly, amounts held in local currency are immediately invested in nonmonetary assets or stable foreign currency to maintain purchasing power. b) The general population regards monetary amounts not in terms of local currency but in terms of a relatively stable foreign currency. Thus, prices may be quoted in that foreign currency. c) Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period even if the period is short. d) Interest rates, wages and prices are linked to a price index. e) The cumulative rate over 3 years is approaching or exceeds 100%. Although PAS 29 sets out the characteristics that may indicate hyperinflationary economy, it also states that judgment may be used in determining whether restatement of financial statements is required. Financial reporting in hyperinflationary economy PAS 29, paragraph 8, provides that the financial statements of an entity that reports in the currency of a hyperinflationary economy, whether they are used on historical cost approach or a current cost approach, shall be stated in terms of the measuring unit current at the end of reporting period. Presentation of the information required under PAS 29 as a supplement to un-restated financial statements is not permitted. Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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The restatement of financial statements of an entity that reports in the currency of a hyperinflationary economy is accomplished by means of constant peso accounting and current cost accounting. Constant peso accounting is the restatement of conventional or historical financial statements in terms of the current purchasing power of the peso through the use of index number. Constant peso accounting also known as purchasing power or price level accounting. The traditional concept of preparing financial statements based on historical cost is known as nominal peso accounting. Monetary Items PAS 21 defines “monetary items as money held and assets and liabilities to be received or paid in fixed or determinable amount of money”. The essential feature of a monetary item is a right to receive or an obligation to deliver a fixed or determinable amount of money. In simple language, monetary items refer to cash and assets that represent a fixed amount of pesos to be received, or obligations that represent a fixed amount of pesos to be paid. Monetary items are assets and liabilities whose amounts are fixed in the sense that the amounts ultimately realizable or the amounts ultimately payable are the same amounts that appear on the historical statements. Stated differently, assets and liabilities are classified as monetary because by their very nature, they are already expressed in terms of current pesos and therefore realizable or payable at no more or no less than their face or stated amounts. Monetary assets and liabilities remain the same regardless of the change in the general price level. Illustration If an account receivable amounts to P500, 000 collectible after 3 years, such amount does not change regardless of the change in price level the 3- year period. When the account is collected ultimately, the amount realized is P500, 000, same amount as before. This account receivable is a monetary asset. Similarly, if a P1, 000,000 is paid after 5 years, regardless of the change in price level, the same amount of P1,000,000 is paid after 5 years. This obligation is a monetary liability.   Nonmonetary items Nonmonetary items, by the process of exclusion, may be defined as those items that cannot be classified as monetary. These items are so called nonmonetary because their peso amounts reported in the financial statements differ from the amounts that are ultimately realizable or payable. The essential feature of a nonmonetary item is the absence of a right to receive or an obligation to deliver a fixed or determinable amount of money. Examples of monetary and nonmonetary items Following is a list of statement of financial position items with their proper classification as monetary or nonmonetary.   Monetary Nonmonetary Cash Financial assets held for trading Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

x  

  x

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Financial assets at fair value through other comprehensive income

 

x

Financial assets at amortized cost Accounts and notes receivable Allowance for doubtful accounts and notes Inventories Advances to employees Prepaid insurance, taxes, advertising rent Prepaid interest Receivables under finance lease Long term receivables Special deposits which are recoverable Pension, sinking and another fund: Consisting of financial assets at fair value Consisting of bonds at amortized cost Property, plant and equipment Accumulated depreciation Cash surrender value Advances to suppliers Discount on bonds payable Intangible assets Goodwill Accounts and notes payable Accrued expenses Cash dividend payable Liability for refundable deposits  

x x x   x   x x x x  

      x   x        

x     x   x     x x x x

  x x   x   x x        

Monetary

Nonmonetary

  x x x x x            

x           x x x x x  

Advances from customers Accrued losses on the firm purchase Commitments Bonds payable Obligations under financial lease Pension benefits to be paid in cash Provisions that are to be settled in cash Deferred revenue Noncontrolling interest Preference share capital Ordinary share capital Share premium Retained earnings

x

“Retained earnings” is residual and should not be classified as either monetary or nonmonetary.

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Gain or loss on purchasing power Purchasing power means the goods and services that money can buy. In a period of inflation or rising prices, a purchasing power loss is incurred on monetary assets and purchasing power gain is realized on monetary liabilities. In a period of deflation or falling prices, a purchasing power gain is realized on monetary assets and a purchasing power loss is incurred on monetary liabilities. Illustration A person deposits P100, 000 in a savings account at the beginning of the current year to earn 8% interest. Five years later, having withdrawn neither the principal nor the interest, the depositor owns a passbook that shows a balance P146,930, which is the amount of P100, 000 compounded annually at 8% for 5 years. Obviously, there is a monetary income of P46,930 because the depositor now has more pesos than before. But economically speaking, is there gain or loss? If during the five-year period, the price level approximately increased 100%, then to maintain the purchasing power of the P 100, 000 in the current year, the depositor should have P 200, 000 after 5 years. But the depositor has only P 146, 930. Thus, there is an economic loss of P 53, 070. Clearly, when prices increase, the value of money decreases. Another Illustration A person borrows at the beginning of the current year P 100, 000 payable after 5 years at 7% interest compounded annually. The table of amounts shows that the value of P 100, 000 after 5 years at 7% compounded annually is P 140, 260. This is therefore, the amount to be paid by the debtor. If during the five- year period the price level increased by approximately 100%, then the creditor should receive at least P 200, 000 to maintain the purchasing power of the P100, 000 in the current year. But he receives only P 140, 260. Thus, there is an economic loss on the part of the creditor, and an economic gain on the part of the debtor, in the amount of P59, 740. Clearly, when prices increase, it is more advantageous to incur fixed obligations rather than hold monetary assets. Items need to be restated? Only nonmonetary items are restated when preparing constant peso financial statements. Monetary items are not restated anymore because they are automatically stated in terms of current purchasing power of the peso. The objective of constant peso accounting is to report elements of the financial statements in terms of pesos that have the same purchasing power. The formula for restatement is: Index number at end of reporting period Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

x

Historical cost

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Index number on acquisition date For instance, a land was acquired on January 1, 2010 for P500, 000 when the index number is 125. If the land is to be restated on December 31, 2011 when the index number is 300, the restated amount is computed as follows: Restated amount = 300/ 125 x P500, 000 = P1, 200, 000 Procedures for restatement 1. The restatement is made by applying a general price index. 2. The items in the financial statements are classified into monetary and nonmonetary. 3. Monetary items are not restated because these are already expressed in terms of the monetary unit current at the end of reporting period. 4. Nonmonetary items are restated by applying the general price index from the date of acquisition to the end of reporting period. Some nonmonetary items are carried at amounts current at the end of reporting period, such as net realizable value and fair value. Thus, inventory carried at net realizable value and financial assets measured at fair value are no longer restated. 5. Some nonmonetary items are carried at amount current at date other than acquisition date. For example, property, plant and equipment are revalued. In such case, the carrying amounts are restated from the date of revaluation. 6. All items in the income statement are restated by applying the change in the general price index from the dates when the items of income and expenses were initially recorded. However, for practical purposes, the average index may be used. 7. The general purchasing power gain or loss is computed. This pertains only to monetary items. The gain or loss on purchasing power is included in profit or loss and separately disclosed 8. The restated amount of a nonmonetary item is reduced when it exceeds the recoverable amount. Hence, restated amounts property, plant and equipment, goodwill, patent and trademark are reduced to recoverable amount. Restated amount of inventory is reduced to net realizable value. 9. Any revaluation surplus recognized previously is eliminated. 10. Retained earnings would be the balancing figure in the restated statement financial position. 11. When comparative statements are prepared, the monetary items of the preceding year are expressed in terms of the index number at the end of the current year. Illustration Examplar Company provided the following financial statements based on historical cost: EXAMPLAR COMPANY Statement of Financial Position 31-Dec-11 (With comparative figures on December 31, 2010) Assets 2011 2010 Cash 450,000.00 400,000.00 Accounts receivable 600,000.00 450,000.00 Allowance for doubtful accounts (20,000.00) (30,000.00) Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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Inventories Land Building Accumulated depreciation Equipment Accumulated depreciation

300,000.00 200,000.00 600,000.00 (240,000.00) 800,000.00 (320,000.00) 2,370,000.00

Liabilities and Share Holders’ Equity Accounts payable Bonds payable Share capital Retained earnings

2011

350,000.00 200,000.00 600,000.00 (200,000.00) 800,000.00 (240,000.00) 2,330,000.00 2010

250,000.00 500,000.00 1,000,000.00 620,000.00 2,370,000.00

300,000.00 500,000.00 1,000,000.00 530,000.00 2,330,000.00

EXAMPLAR COMPANY Statement of Income and Retained Earnings Year ended December 31, 2011 Sales Cost of sales: Inventory, January 1 Purchases Goods available for sale Inventory, December 31 Gross Income Expenses: Distribution and administrative expenses Depreciation – building Depreciation – equipment Interest expense Income before tax Less: income tax Net income Retained earnings, January 1 Total Less: Dividends paid as July 1 Retained earnings, December 31

3,000,000.00 350,000.00 1,900,000.00 2,250,000.00 (300,000.00) 600,000.00 40,000.00 80,000.00 30,000.00

1,950,000.00 1,050,000.00

750,000.00 300,000.00 75,000.00 225,000.00 530,000.00 755,000.00 135,000.00 620,000.00

The price index numbers prevailing at the date various assets and equities arose are as follows: Date Item Index number 1-Jan-05 Share capital 100 1-Jan-05 Land 100 1-Jan-05 Building 100 1-Jan-07 Equipment 110 1-Jul-11 Dividends 150 Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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31-Dec-11

Interest

160

a. Price rose evenly and index numbers expressing the general price level changes were: 1-Jan-10 31-Dec-10 31-Dec-11 Average for 2010 Average for 2010

130 140 160 135 135

b. Sales and purchases were made and expenses other than depreciation were incurred evenly. c. Inventory were reported at cost using FIFO and average index numbers for the year are applicable in restating inventories. The following is the restatement of the statement of financial position and income statement. Cash Cash on December 31, 2011 would remain at 450,000 Cash on December 31, 2010 should be restated in terms of the December 31, 2011 price level because a comparative statement of financial position is prepared. The amount should be (400,000x160/140) 457,143 Accounts receivable Balance on December 31, 2011, no change 600,000 Balance on December 31, 2010 (450,000x160/140) 514,286 Allowance for doubtful accounts December 31,2011, the same 20,000 December 31,2010 (30,000x160/140) 34,286 Inventories The restatement of inventories requires knowledge of the dates of acquisition and the historical cost. In example, it is assumed that the FIFO method is applied and average index numbers for the year are applicable in restating inventories. Accordingly, the inventories are restating as follows: 31-Dec-11 (300,000x160/150) 320,000 December 31, 201 (350,000x160/135) 414,815 Land 31-Dec-11 (200,000x160/100) 320,000 31-Dec-10 (200,000x160/100) 320,000 Building 31-Dec-11 (600,000x160/100) 960,000 31-Dec-10 (600,000x160/100) 960,000 Accumulated depreciation – building Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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31-Dec-11 31-Dec-10 Accounts Payable December 31, 2011, the same December 31, 201 Bonds payable December 31, 2011, the same 31-Dec-10 Retained earnings

(320,000x160/110) (240,000x160/110)

465,455 349,091

(300,000x160/140)

250,000 342,857

(500,000x160/140)

500,000 571,429

The retained earnings balance is the amount needed to balance the statement of financial position. It is therefore the residual amount or “balancing” figure. Sales Inasmuch as sales are spread evenly over the year, the average index for 2011 pesos. The amount should be (3,000,000x160/150) 349,091 Purchases The average index for 2011 is also used because the purchases are made evenly through the year. The amount should be (1,900,000)x160/150) 3,200,000 Distribution and administrative expenses The average index for 2011 is also used (350,000x160/135) 414,815 Depreciation - Building 40,000x160/100 64,000 Depreciation - Equipment 80,000x160/110 116,364 Interest expense Same amount as reported because it is paid on December 31, 2011 30,000 Income tax The income tax is assumed to be incurred evenly throughout the year (75,000x160/150) 80,000 Dividends Since the dividends are paid on July 1, 2011, the index on that date is used (135,000x160/150) 144,000

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

The following formula may be used in computing the “constant peso” net monetary assets at the end of current years: Monetary assets, beginning, restated Less: Monetary liabilities, beginning, restated Net monetary liabilities, beginning, restated Add: Increase in net monetary assets, restated Total Less: Decrease in net monetary assets, restated Net monetary assets, end, restated

xx xx xx xx xx xx xx

Illustration On January 1,2011, an entity had monetary assets of P5,000,000 and monetary liabilities of P3,000,000 and therefore net monetary assets of P2,000,000. During 2011, the entity’s monetary inflows and outflows were relatively constant and equal so that it ended the year with the same net monetary assets of P2,000,000. The general price index number was 125 on January 1 and 200 on December 31, 2011. In this case, since there is no change in the net monetary assets, the gain or loss on purchasing power is simply computed as follows: Net monetary assets – December 31, 2011, historical cost 2,000,000 Less: Net monetary assets – December 31, 2011, restated (2,000,000x200/125) 3,200,000 Loss on purchasing power -1,200,000 Economy ceasing to be hyperinflationary Judgment shall also be exercised whether an economy is no longer hyperinflationary. The criterion is that whether the cumulative inflation rate drops below 100% in a three- year period. When an economy ceases to be hyperinflationary, an entity shall discontinue the preparation and presentation of financial statements under a condition of hyperinflationary economy. The amounts expressed in the measuring unit current at the end of the previous reporting period shall be the carrying amounts in subsequent financial statements.

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

READING MATERIAL NO. 3  

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

Assessment 1 1.

The following information pertains to Meliza Company for the year ended December 31, 2015:

Net monetary assets – January 1 Sales Purchases Expenses Income tax Cash dividends paid on December 31, 2015

P 880,000 3,900,000 2,340,000 975,000 585,000 200,000

The sales, purchases, expenses and income tax accrued evenly throughout the year. Selected general price index numbers are 110 on January 1 and 280 on December 31. What is the gain or loss on purchasing power during the year? a. P1,360,000 gain c. P200,000 gain b. P1,360,000 loss d. P200,000 loss 2. The following liabilities appear on the statement of financial position of Malto Company: Deferred tax liability 400,000 Estimated warranty liability 200,000 Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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Advances from customers Unearned revenue Finance lease liability Bonds payable Accrued payable Accounts payable

1,200,000 300,000 4,000,000 3,000,000 500,000 1,000,000

In preparing financial statements in a hyperinflationary economy, how much should the entity classify as monetary liabilities? a. 8,900,000 b. 9,700,000 c. 8,500,000 d. 4,500,000 3. Navarro Company showed the following information for purposes of preparing hyperinflationary financial statements on December 31, 2015: Note receivable (note was received on October 1, 2014) 2,400,000 Price index numbers October 1, 2014 80 January 1, 2015 100 December 31, 2015 400 Average for 2015 250 What is the fraction that should be used in restating the note receivable on December 31, 2015? a. 400/150 b. 400/250 c. 44/80 d. 400/400 4. Tabal Company purchased land for P3,000,000 on December 31, 2014 when the index number was 120. The land was held until December 31, 2015 when it was sold for P4,000,000. The index number on December 31, 2015 was 300. What amount should be reported in the income statement for 2015 in a hyperinflationary economy as gain or loss on sale of land? a. 3,500,000 loss c. 1,000,000 gain b. 3,500,000 gain d. 1,000,000 loss 5. Villena Company’s machinery and equipment account on December 31, 2015 is analyzed as follows: Cost Accumulated Depreciation Acquired in December 2012 4,000,000 1,600,000 Acquired in December 2013 1,000,000 200,000 Pertinent index numbers at the end of each year are: 2012 120 2013 125 2014 350 What should be reported in a hyperinflationary statement of financial position prepared on December 31, 2014 as the carrying amount of machinery and equipment? a. 8,960,000 b. 7,800,000 c. 3,200,000 d. 9,240,000 Assessment 2 Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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On December 31, 2018. Tito Co. signed a 4 year noncancelable lease for a new machine requiring P 120, 000 annual payments beginning December 31,2018. The machine has a useful life of 8 years, with no salvage value. The rate implicit on the lease is 12%. Tito has a bargain purchase option amounting to P20, 000. It is certain that the company will exercise this option. The fair value of the machine at the inception of the lease amounted P447,794. 1. How much is the amount to be capitalized as machinery (leases asset) on December 31, 2018? a. 420,926 c. 480,000 b. 474,660 d. 500,000 2. How much is the interest expense in 2019? a. Nil b. 36,111

c. 57,600 d. 60,000

3. How much is the lease-related liability to be shown as current in the statement of financial position on December 31,2018? a. 300,926 c. 83,889 b. 217,037 d. 36,111 4. How much is the lease-related liability to be shown as non-current in the statement of financial position on December 31,2018? a. 300,926 c. 83,889 b. 217,037 d. 36,111 Use the following data for questions 5 and 6: Information with respect to cost of goods sold of Maghari Company for 2015 is as follows: Historical cost Units Inventory, January 1 1,060,000 20,000 Purchases during the year 5,580,000 90,000 Goods available for sale 6,640,000 110,000 Inventory, December 31 (2,520,000) (40,000) Cost of goods sold 4,120,000 70,000 Maghari estimates that the current cost per unit of inventory was P58 on January 1, 2015 and P72 on December 31, 2015. 5. In the income statement for 2015 restated to current cost, what should be reported as cost of goods sold? a. 4,550,000 b. 4,410,000 c. 4,060,000 d. 5,040,000 6. In the income statement for 2015 restated to current cost, what should be reported as realized holding gain from inventory sold? a. 920,000 b. 560,000 c. 980,000 d. 430,000

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

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Assessment 3 Use the following data for questions 1 to 4: Transactions regarding the land of Subing-Subing Company are summarized below: • The entity purchased land on January 1, 2013 for P500,000 cash. On December 31, 2013, the land has a current replacement cost of P600,000. •

On December 31, 2014, the land has a current replacement cost of P750,000.

The entity sold the land for P1,000,000 cash on December 31, 2015. On this date, the current replacement cost of the land is P800,000. 1. What is the unrealized holding gain to be reported in the 2013 income statement? a. 100,000 b. -0c. 600,000 d. 500,000 2. What is the unrealized holding gain to be reported in the 2014 income statement? a. 100,000 b. 250,000 c. 150,000 d. -03. What is the realized holding gain to be reported in the 2015 income statement? a. 250,000 b. -0c. 300,000 d. 50,000 4. What is the gain on sale of land to be reported in 2015 under current cost accounting? a. 150,000 b. 200,000 c. 250,000 d. 500,000 Use the following data for questions 5 to 6: The following data relate to a sale and leaseback of equipment of Mrs. Robinson Co on December 31,2018. Sales Price (equal to the present value of rentals) Cost of Equipment Accumulated Depreciation Annual Rental Payable Estimated remaining life Lease Term Implicit rate

P993,630 1,200,000 100,000 300,000 5 4 8%

5. What amount of loss on sale and leaseback should Mrs. Robinson Co. recognized immediately as of December 31, 2018? a. Nil c. 206,370 b. 106,370 d. 506,370 6. Assume instead that the cost of the equipment is P1,000,000 and the accumulated depreciation is P100,000, what amount of gain on sale and leaseback should Mrs. Robinson Co. recognized as of December 31,2018? a. Nil b. 93,630 Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

Adaptive Community for the Continuity of Education and Student Services National Teachers College

c. 18,726

Intermediate Accounting 3 School of Business, First Semester, SY 2020-2021

d. 23,408