SOLUTIONS TO SELECTED PROBLEMS (FAR 2ND PREBOARD SPSPS CPARC) Corrections 41 B-->C 62 A-->B

SITUATIONAL PROBLEM 1 SITUATIONAL PROBLEM 2

22) Cost of aircraft 10,400 23) In theory, the most applicable method approximates 24) AR (1600+100) 1,700 25) AP (4000+100+500) 4,600
Inspection cost - 400 the degree of consumption of the asset. In this FA@FVTPL 500 Acc Exp 1,500
Cost of aircraft less insp. costs 10,000 problem, the units of production method proved to Cash 1,100 Est Premium Liab 600
Jet engine x 60% 6,000 be the most appropriate. We only use straight line Invty 3,000 Total Current Liab 6,700
Body and equipment (20%+10%) x 30% 3,000 method for practical reasons (e.g. less cost in Prep Exp 100
Furniture and fittings x 10% 1,000 computation). Total Current Assets 6,400

Inspection costs 400 26) Sales 5,000 28) Year 1 error is counterbalancing
CGS 2,800 no effect on year 3 RE
Note: Inspection cost is capitalizable because it is necessary for it is a GP 2,200 Year 2 error is counterbalancing
regulatory requisite before usage of such asset. No inspection cost, Other Income 400 but the effect of the error
asset cannot be used. No asset at all. Total Income 2,600 has not yet counterbalanced
Since it has different life (3 years), in this case, it was separated in 27) Expenses: Selling 700 End RE of Year 2 is Beg RE
the computation in terms of percentages. G&A 600 1,300 of Year 3
Inc before taxes 1,300 End Invty COS NI RE
SITUTATIONAL PROBLEM 3 Inc tax exp - 150 75,000 overstated
29) Cost of razing old building 300 30) Proceeds 290 Inc after taxes 1,150
Architect fee 950 Cost of Inv Prop 220
Construction cost 8,000 AccDep(22040x3yrs) (16.5) (203.5) SITUATIONAL PROBLEM 4
9,250 Gain on Sale 86.5 36) Securities Hist Cost Market 37) NY-Assoc 7,000
PIC of 2012 ruled that the cost of demolition (on a land bought with F 1,500 1,600 Own Interest
a dilapidated building) for the purpose of cleaning up the area so the A 1,200 1,400 (10% + 20%) x30%
entity can build a new building should be capitalized to the NEW BUILDING R 2,300 2,400 Inv Income 2,100
Total 5,000 5,400 400
31) Replacement cost (shingle roof) 750 32) Items counted in the bodega 4,000 1-Tax rate (140 200) x70%
Major improvement (elec wiring) 350 Items segregated per contract 100 A-OCI 12/31/20x4 280
Capitalizable improvements 1,100 Returned goods 50
Ordered items 400 38) Answer (d) is correct because IFRS requires that if 39) Inv in Rea
33) FV @ auction 800 Items shipped, FOB Destination 150 an asset is classified as fair value through profi t or loss, it is 400 15
Transportation costs - 8 Items, window display 200 remea sured to fair value and any profi t or loss is recorded in 50
Auctioneer's fee (800x2%) - 16 Items, on counter 800 the period. Therefore, Acadia should recognize a P3,000 gain 435
Bio Asset, initial recognition 776 Damage goods, counted - 50 in current earnings of the period.
Items in the shipping dept 250
34) Gross Selling Price 160 5,900 SITUATIONAL PROBLEM 6 44) Int. Pay. Int. Exp. Amort. CV
Auctioneer's fee (3.2) 35) Cost 3,000 43) Bonds @ 103 (1,000k x 1.03) 1,030 1/1 833,760
Transportation costs (1.2) Life 6 years Accrued Interest (1000x9%x9/12) 15 6/30 45,000 50,025.60 5,025.60 838785.6
Net Proceeds 155.6 Depreciation 500 Transactions costs - 5 12/31 45,000 50,327.14 5327.14 844,112.74
Net Cash Receipt 1,040 ###
SITUATIONAL PROBLEM 5 PV factor
40) We will use the FV Model because there is a published 41) FV 12/31/14 (64x40,000) 2,560 45) Proceeds 7,700,000 Liab 7,393,472 Principal 8,000,000 0.620921 4,967,368
price quotation Acq Cost -3,000 (residual method) Equity 306,528.32 Interest 640000 3.790787 2,426,104
in FV-Loss (440) PV of Liab 1/1 7,393,472
FV 12/31/14 (81.25x40,000) 3,250 Div Inc (1,000x20%) 200 12/31/12 640,000 739,347 99,347 7,492,819
Acq Cost (3,000 - 50) - 2,950 Total inc related to the Investm 240 12/31/13 640,000 749,282 109,282 7,602,101
in FV-Gain 300 12/31/14 640,000 760,210 120,210 7,722,311
Dividend Income (1,000x20%) 200 **approx values, difference in rounding off
Transaction Cost - 50
Total Inc related to the Investm 450 SITUATIONAL PROBLEM 7
46) Govt T-bills 2,000 47) ADA AR, gross 590
42) Goodwill is amortized in SMEs (gen. 10 years) Cash 3,400 40 90 ADA -50
Cash and cash equi 5,400 AR, net 540
AC 800 Goodwill (20%) 200 50
BINA (3,000x20%) - 600 10 years 48) Trade AR 93
Excess-->Goodwill 200 Amortization-full year 20 Claims (shipper) 3
x6/12 ADA - 2
NY-Abet 320 Amortization 10 Trade AR, net 94
Own. Interest x20%
Inv Inc 64 Inv in Abet
800 40
Dividend declared-Abet 200 64 10
Own. Interest x20% 814
40

SITUATIONAL PROBLEM 8 SITUATIONAL PROBLEM 9

49) In this problem, the writedown is closed to CGS 56) Sales 6,600 59) Brough forward 14
CGS 5,600 Annual days of leave (6x8) 48
Book Value, End Invty 7,000 Beg Invty 5,000 Dealer's profit 1,000 Total number days of leave 62
Invty A, NRV - 500 Purchases (20,000+500) 20,500 Used leave (50-12) -38
Book Value, End Invty needs to be NRV - 2,000 End Invty -6,500 58) Operating lease-portion of land 800 Balance 24
4,500 CGS 19,000 1.5M/7.5M x20% Rate per day 150
LCNRV, Inv A 800 Operating lease exp 160 3,600
NRV, End Invty 2,000 x75%
End Invty 6,500 2,400
60) HAPPY Deferred 61) CV 210,000
51) Site prep 50,000 52) Re-dev't of detecting eqt 4,000 LONELY Outright FV 184,337 25,663 LOSS
Machinery and eqt 300,000 Final adj to destecting eqt 2,500 SP 150,000
Initial delivery 10,000 Capitalizable Intangible asset 6,500 CV 210,000
Installation and assembly 40,000 FV 184,337 60,000 LOSS
Testing 5,000 SP 150,000
Directly attrib prof fees 15,000

PV of decommissioning cost 23,160

(50,000x.4362)
Capitalizable 443,160

SITUATIONAL PROBLEM
63) Income tax expense for half year ended 6/30/2014 (5,000,000 x 35%) 1,750,000
Profit from January 1 to June 30, 2014 5,000,000
Profit from July 1 to December 31, 2014 9,000,000
Expected profit for the year 14,000,000

Since the expected profit for the year exceeds P 1 1,000,000, the applicable income tax rate is 35%