CHAPTER 3

THE STATEMENT OF FINANCIAL POSITION

AND NOTES TO THE FINANCIAL STATEMENTS

Discussion Question 15

1. C 11 C 21. E
2. C 12. B 22. B
3. B 13 A 23. E
4. E 14 Reported in SCE 24. A
5. A 15 B 25. F
6. B 16. B 26. B
7. E 17. E 27. D
8. A 18. A
9. D 19. B
10. E 20 F

Problems

3-1. (GARNET COMPANY)

Garnet Company
Statement of Financial Position
December 31, 2015

Assets

Current assets Note

Cash and cash equivalents P 86,250
Financial assets at FVPL 61,000
Trade and other receivables (5) 107,000
Inventory 322,000 P 576,250
Non-current assets
Property, plant and equipment (6) P1,433,000
Investment property 1,000,000
Investments in associates 250,000
Intangibles (7) 141,000 2,824,000
TOTAL ASSETS P3,400,250

Liabilities and Shareholders’ Equity

Current liabilities
Trade and other payables (8) P 307,250
Income tax payable 150,000 P 457,250
Noncurrent liabilities
Bonds payable (9) 731,000
Deferred tax liability 50,000 781,000
Shareholders’ equity
Share capital (10) P 1,534,000
Additional paid in capital (11) 321,000
Retained earnings (12) 307,000 2,162,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P3,400,250

8
Chapter 3 – The Statement of Financial Position
9 and Notes to the Financial Statements
Note 5 – Trade and other receivables
Accounts receivable P115,000
Less allowance for bad debts 8,000
Net trade and other receivables P107,000

Note 6 – Property, plant and equipment

Land P 250,000
Buildings P1,440,000
Less accumulated depreciation 530,000 910,000
Equipment P 624,000
Less accumulated depreciation 351,000 273,000
Total property, plant and equipment P1,433,000

Note 7 – Intangibles
Patents P120,000
Less accumulated amortization 22,000 P 98,000
Trademarks P 60,000
Less accumulated amortization 17,000 43,000
Total P141,000

Note 8 – Trade and other payables

Accounts payable P236,000
Salaries payable 20,000
SSS premium payable 21,250
Withholding taxes payable 30,000
Total P307,250

Note 9 – Bonds payable

Bonds payable (due 2017) P 800,000
Less discount on bonds payable 69,000
Total P731,000

Note 10 – Share capital

Preference share capital, P100 par P 210,000
Ordinary share capital, P10 par 1,300,000
Share dividends distributable 24,000
Total P1,534,000

Note 11 – Additional paid-in capital

Share premium -preference P 81,000
Share premium -ordinary 240,000
Total P321,000

Note 12 – Retained earnings

Appropriated P 45,000
Unappropriated 262,000
Total retained earnings P307,000

9
Chapter 3 – The Statement of Financial Position
10 and Notes to the Financial Statements
3-2. (RUBY CORPORATION)

Ruby Corporation
Statement of Financial Position
December 31, 2015

Assets

Current assets
Cash and cash equivalents P 116,000
Financial assets through profit or loss (Note 5) 160,000
Trade and other receivables (Note 6) 308,000
Inventories (Note 7) 985,000
Prepaid expenses 31,000
Non-current assets held for sale (Note 8) 210,000 P1,810,000
Non-current assets
Property, plant and equipment (Note 9) P3,248,000
Other financial assets (Note 10) 339,000
Intangible assets (Note 11) 182,000 3,769,000
TOTAL ASSETS P5,579,000

Liabilities and Shareholders’ Equity

Current liabilities
Trade and other payables P 580,000
Income tax payable 247,000
Unearned revenues 62,000
Provision for product warranty 73,000 P 962,000
Noncurrent liabilities
Bonds payable (Note 12) 848,000

Shareholders’ equity
Share capital (Note 13) P2,028,000
Additional paid in capital (Note 14) 537,000
Retained earnings 1,204,000 3,769,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P5,579,000

Note 5 – Financial assets through profit or loss

Financial assets through profit or loss, costing P150,000, are reported at market values.

Note 6 – Trade and other receivables

Accounts receivable P323,000
Less Allowance for bad debts 15,000
Net trade receivables P308,000

Note 7 – Inventories (at lower of cost and NRV)

Finished goods P416,000
Goods in process 347,000
Raw materials 222,000
Total P985,000

10
Chapter 3 – The Statement of Financial Position
11 and Notes to the Financial Statements
Note 8 – Non-current assets held for sale
This classification represents a unit of machinery with carrying amount of P240,000
and fair value less cost to sell of P210,000. The sale is expected to be consummated in
May 2015.

Note 9 – Property, plant and equipment

Land P1,320,000
Land held for future use* 195,000
Buildings P1,824,000
Less accumulated depreciation 622,000 1,202,000
Machinery P 319,000
Less accumulated depreciation 106,000 213,000
Equipment P 530,000
Less accumulated depreciation 212,000 318,000
Total P3,248,000

 Land held for future use, which conventionally was classified as long-term investment,
is not qualified to be reported as Investment Property under par. 9 of IAS 40. Thus,
property held for future development and subsequent use as owner-occupied property is
part of property, plant and equipment.

Note 10 – Other financial assets

Debt investments at amortized cost P250,000
Cash surrender value of life insurance 89,000
Total P339,000

Note 11 – Intangible assets

Patents P200,000
Less Accumulated amortization 18,000
Total P182,000

Note 12 – Bonds payable

Bonds payable P800,000
Add Premium on bonds payable 48,000
Total P848,000

Note 13 – Share Capital

Preference share capital P 400,000
Ordinary share capital 1,628,000
Total P2,028,000

Note 14 – Additional paid in capital

Share premium - preference P234,000
Share premium - ordinary 303,000
Total P537,000

Retained earnings is adjusted by a decrease of P30,000 representing loss from

measurement to fair value less cost to sell of asset held for sale, thus retained earnings
balance is P1,204,000.

3-3. (DIAMOND COMPANY)

Diamond Company
Statement of Financial Position
December 31, 2015

Assets
Current assets
Cash P 230,000
Financial assets at fair value through profit or loss 320,000
Trade and other receivables (Note 5) 510,000
Inventory 600,000
Prepaid expenses (Note 6) 130,000 P1,790,000

11
Chapter 3 – The Statement of Financial Position
12 and Notes to the Financial Statements
Noncurrent assets
Property, plant and equipment (Note 7) P3,450,000
Financial assets at fair value through OCI 1,030,000
Intangible assets 470,000
Deferred tax asset 70,000 5,020,000
TOTAL ASSETS P6,810,000

Liabilities and Shareholders’ Equity

Current liabilities
Trade and other payables (Note 8) P1,390,000
Unearned rent 90,000 P1,480,000
Noncurrent liabilities
Bonds payable (Note 9) 1,000,000

Shareholders’ equity
Ordinary share capital, P10 par P1,200,000
Share Premium 1,040,000
Retained earnings 2,300,000
Total 4,540,000
Treasury shares, at cost (330,000)
Accumulated holding gains (losses) – investments
through other comprehensive income 120,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P6,810,000

Note 5 – Trade receivables

Accounts receivable P590,000
Less Allowance for uncollectible accounts 80,000
Net trade receivables P510,000

Note 6 – Prepaid expenses

Office supplies P 80,000
Prepaid insurance 50,000
Total P130,000

Note 7 – Property, plant and equipment

Land P 810,000
Buildings and equipment P3,560,000
Less accumulated depreciation 920,000 2,640,000
Total P3,450,000

Note 8 – Trade and other payables

Accounts payable P 990,000
Salaries payable 150,000
Taxes payable 250,000
Total P1,390,000

Note 9 – Bonds payable

Bonds payable (due 2017) P1,100,000
Less discount on bonds payable 100,000
Net P1,000,000

12
Chapter 3 – The Statement of Financial Position
13 and Notes to the Financial Statements
3-4. (EMERALD COMPANY)

Emerald Company
Statement of Financial Position
December 31, 2015

Assets

Current assets Note

Cash P 380,000
Equity securities through profit or loss (5) 485,000
Trade and other receivables (6) 2,780,000
Inventories 450,000
Prepaid expenses 290,000
Non-current asset held for sale (7) 1,200,000 P 5,585,000
Noncurrent assets
Property, plant and equipment (8) P 5,600,000
Investment property (9) 2,900,000
Other financial assets (10) 1,600,000
Intangibles (11) 960,000 11,060,000
TOTAL ASSETS P16,645,000

Liabilities and Shareholders’ Equity

Current liabilities
Trade and other payables (12) P 1,350,000
Income taxes payable 720,000
Provision for warranties 200,000
Mortgage Payable Current Portion (15) 400,000 P2,670,000
Noncurrent liabilities
Notes payable (13) P 1,000,000
Bonds payable (14) P 4,430,000
Mortgage payable, (P2,000,000) (15) 1,600,000 7,030,000
Total Liabilities P 9,700,000

Shareholders’ equity
Share capital (16) P 1,700,000
Share premium 1,820,000
Retained earnings 3,605,000
Total P 7,125,000
Treasury shares, at cost (180,000) 6,945,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P16,645,000

Retained earnings before adjustment P3,580,000

Unrealized gain on equity securities through profit or loss 25,000
Retained earnings after recognition of gain P3,605,000
Note 5 – Equity securities through profit or loss
The equity securities are intended for immediate trading in the future. The
securities cost P460,000 and are reported at market value.

Note 6 – Trade and other receivables

Accounts receivable P1,850,000
Notes receivable (due July 1, 2016) 1,000,000
Allowance for uncollectible accounts (70,000)
Net trade and other receivables P2,780,000

Note 7 – Noncurrent asset held for sale

The non-current asset held for sale represents land that is available for immediate sale
and its carrying amount will be recovered through a sale transaction. The sale is

13
Chapter 3 – The Statement of Financial Position
14 and Notes to the Financial Statements
highly probable as the plan for its sale has already been completed at yearend. Its fair
value less cost to sell at December 31, 2014 was P1,400,000.
Note 8 – Property, plant and equipment
Land P1,400,000
Buildings P4,340,000
Less accumulated depreciation 1,800,000 2,540,000
Equipment P2,960,000
Less accumulated depreciation 1,300,000 1,660,000
Total P5,600,000

Note 9 – Investment property

Land P1,200,000
Building P2,000,000
Accumulated depreciation (300,000) 1,700,000
Total P2,900,000

Note 10 – Other financial assets

Investment in Day Corporation bonds (market, P906,000) P 900,000
Sinking fund for bond retirement 700,000
Total P1,600,000

Note 11 – Intangibles
Patents P820,000
Less accumulated amortization 230,000 P 590,000
Trademarks P520,000
Less accumulated amortization 150,000 370,000
Total P 960,000

Note 12 – Trade and other payables

Accounts payable P 940,000
Wages payable 410,000
TOTAL P1,350,000

Current portion of mortgage payable P400,000

Total

Note 13 – Notes payable

The notes payable was issued on June 30, 2014 and matures on June 30, 2016. As
of December 31, 2014, the company has negotiated with the lender to extend the
maturity date to June 30, 2017.

Note 14 – Bonds payable

Bonds payable P4,000,000
Add premium on bonds payable 430,000
Total P4,430,000

Note 15 – Mortgage Payable

Mortgage payable, P2,000,000 which is due in five
equal annual payments of P400,000 starting
December 31, 2016. Current portion is P400,000 and
the non-current portion is P1,600,000.

Note 16 – Share capital

Preference share capital P 600,000
Ordinary share capital 1,100,000
Total P1,700,000

3-5. (SAPPHIRE COMPANY)

Current assets consist of

14
Chapter 3 – The Statement of Financial Position
15 and Notes to the Financial Statements
Cash (1,240,000 – 500,000) P 740,000
Securities held for trading
900,000 + 500,000+ (500,000 x 4.8% x 105/360) 1,407,000
Trade accounts receivable (net of P60,000 allowance for bad debts)
1,220,000 + 50,000 – 60,000 1,210,000
Notes receivable 920,000
Creditor’s account with debit balance 100,000
Merchandise inventory 1,360,000
Total current assets P 5,737,000

Current liabilities consist of

Trade accounts payable (750,000 + 150,000 + 100,000) 1,000,000
Customer deposit 50,000
Notes payable (1,500,000 – 300,000) 1,200,000
Current portion of bonds payable 500,000
Accrued interest on bonds payable (2.5M x .10 x 6/12) 125,000
Income taxes payable 280,000
Employees income tax withheld 40,000
Total current liabilities P 3,195,000

3-6. (TURQUOISE COMPANY)

Current liabilities consist of

Accounts payable P 270,000
Mortgage notes payable 1,300,000
Bank notes payable 100,000
Interest payable 7,500
VAT payable (2,688,000/1.12) x .12 288,000
Withholding tax payable 120,000
Income taxes payable (186,500 – 70,000) 116,500
Provision for damages 650,000
Total current liabilities P2,852,000

Note: The entire amount of mortgage notes payable is classified as current liabilities
because as of December 31, 2014, the company has no discretion yet to refinance the
obligation on a long-term basis. The refinancing of the mortgage payable in 2015 is non-
adjusting event that requires disclosure in the notes to the financial statements.

3-7. (OPAL COMPANY)

Current assets consists of

Cash (400,000 + 20,000 - 30,000 + 25,000 + 540,000) P 955,000
Accounts receivable (net) 800,000 + 30,000 – 150,000 680,000
Inventories (1,200,000 – 40,000) 1,160,000
Prepaid insurance (250,000 – 50,000) 200,000
Total current assets at December 31, 2015 P2,995,000
OR
Reported total current assets P4,580,000
Bank overdraft 20,000
Cash for purchase of plant site (1,500,000)
Unreplenished petty cash expenses (15,000)
Goods held on consignment (40,000)
Cash surrender value of life insurance (50,000)
Total current assets at December 31, 2015 P2,995,000

3-8. (AQUAMARINE COMPANY)

15
Chapter 3 – The Statement of Financial Position
16 and Notes to the Financial Statements
Current Non-current Current Non-current
assets assets liabilities liabilities
Reported totals P3,500,000 P8,000,000 P2,400,000 P2,700,000
(a) Sinking fund cash 380,000 380,000
(b) Treasury shares (500,000)
(b) NCA held for sale 3,000,000 (3,000,000
(c) Cash fund for taxes 140,000 140,000
(d) Advances and
commissions payable 210,000 210,000
(e) Provision for damages (12,000)
Correct totals P6,850,000 P4,880,000 P2,738,000 P3,080,000

3-9. (PERIDOT COMPANY)

FA Accounts
Cash at FVPL receivable Inventory
Reported amounts P536,000 P500,000 P3,285,000 P3,500,000
(a) Post dated check recorded 80,000
(b) Increase in market value 50,000
(c) Goods shipped FOB
destination (180,000) 120,000
(d) Goods out on consignment 135,000
Correct balances, Dec. 31, 2015 P616,000 P550,000 P3,105,000 P3,755,000

3-10. (ZIRCON COMPANY)

Current assets:
Accounts receivable (net)148,000 – 12,000 P136,000
Citibank current account 98,000
Inventories 217,500
Office supplies 3,500
Total current assets P455,000
Current liabilities:
Accounts payable P124,000
Income tax payable 16,000
Advances from customers 150,000
Accrued interest on bonds payable 17,000
Provision for warranties 60,000 367,000
Working capital P 88,000

3-11.
1. C 5. B 9. A
2. A 6. C 10. B
3. C 7. A
4. A 8. A

MULTIPLE CHOICE QUESTIONS

Theory

MC1 D MC9 C MC17 D

MC2 A MC10 C MC18 A
MC3 A MC11 B MC19 C
MC4 A MC12 D MC20 C
MC5 A MC13 C MC21 D
MC6 C MC14 D MC22 C
MC7 D MC15 B MC23 C
MC8 D MC16 C MC24 A

16
Chapter 3 – The Statement of Financial Position
17 and Notes to the Financial Statements
MC25 B

Problems

MC29 A (200,000-50,000) + 120,000 + 79,000 + (280,000– 60,000) =569,000

MC30 B 3,740,000 + 50,000 – 4,000 + 100,000 – 180,000 + 50,000 = 3,756,000
MC31 B 2,680,000 + 50,000 + 100,000 +50,000 – 1,000,000 = 1,880,000
MC32 D 4,014,000 – 9,000 - 150,000 = 3,855,000
MC33 C 137,000+90,000+92,000+(122,000+7,000–6,000)+136,000+12,000=590,000
MC34 B 13,000+ 102,000+ 7,000 + 120,000 +4,000+50,000+28,000 = 324,000
MC35 C 376,000 + (2,000,000+100,000 – 8,000) = 2,468,000
MC36 B (1,125,000+65,000) + 136,000 + 96,000 + 150,000 + (750,000/5)=1,722,000
MC37 A 360,000 + 480,000 – 30,000 – 12,000 + 90,000 + 120,000 = 1,008,000
MC38 A 450,000 + 750,000 – 90,000 + 240,000 = 1,350,000
MC39 A 2,160,000 – 250,000 + 224,000 + 830,000 + 970,000 = 3,934,000
MC40 C 980,000 + 108,000 + 720,000 = 1,808,000
MC41 D 160,000 + 50,000 + 110,000 + 300,000 + 10,000 = 630,000
MC42 A (490,000 – 25,000) + (380,000 – 200,000) + (1,250,000 – 500,000) + 100,000 +
900,000 + 80,000 = 2,475,000
MC43 A 25,000 + 500,000 + 200,000 + 3,750,000 = 4,475,000
MC44 D 675,000 + (2,695,000 – 500,000) + 2,185,000 = 5,055,000
MC45 A 1,801,000 + (654,000 – 475,000) = 1,980,000
MC46 C 13,360,000–11,180,000–654,000=1,526,000; 1,526,000+3,350,000=4,876,000
MC47 B (1,200,000 – 200,000) + 1,500,000 + 25,000 = 2,525,000
MC48 C 500,000 + 550,000 – 250,000 = 800,000 + 1,000,000 + 250,000 + 450,000 = 2.5M
MC49 B 150,000 + (2,100,000 – 500,000 – 80,000) + (1,600,000 – 200,000)=3,070,000
MC50 B (550,000 – 95,000) + 800,000 + (800,000 X 12% X 7/12) + 6,500 = 1,317,500
MC51 C 8,700,000 – (4,000,000 – 2,000,000 + 5,000,000 – 1,000,000) =2,700,000
MC52 B 175,000 + 136,000 + 820,000 + 153,000 + 366,000 = 1,650,000
MC53 A 250,000 + 140,000 + 228,000 + 248,000 = 866,000
MC54 C 525,000 – 400,000 + 300,000 + 1,020,000 + 1,200,000 + 450,000=3,095,000
MC55 B (950,000 x 2.50) + 2.5M + (10M x 12% x 3/12) + (12M + 30M – 25M) = 22,175,000
MC56 B AR: 247,000 – 40,000 + (58,000 x 1.25) = 179,500
Invy: 220,000 + (40,000 x 75%) + 22,000 = 272,000
PPE: 3,200,000 – 1,200,000 = 2,000,000

17