UNIVERSITY OF THE EAST – Caloocan

College of Business Administration

Department of Accountancy, Business Law and Taxation
International Accounting (BSA 3106)
Module 3 – Problems and Exercises (1)

Name: _________________________________________________Yr. and Section: ____________________

Instructions: In the following questions, provide the best answer that corresponds to the question.
Provide solutions in good form.

Part I – Problems

Problem 1. Information on a country’s inflation rate is shown below:

CPI Change in CPI Annual inflation rate
Year
(a) (b) % = (b÷a) x 100%
January 1, 2021 100 -
December 31, 2021 130 30 30.00%
December 31, 2022 180 50 38.46%
December 31, 2023 220 40 22.22%

Requirement:
What is the cumulative inflation rate in 2023 to be used in determining if there is
hyperinflation?

Problem 2. The information given below is taken from the records of ABC Co.:

Cash 15.00 Trade Accounts Payable 40.00

Accounts Receivable, net of allowance 40.00 Income Tax Payable 10.00
Financial Assets held for trading 15.00 Utilities Payable 20.00
Financial Assets at FVOCI 20.00 Cash dividends payable 10.00
Financial Assets at amortized cost 60.00 Bonds Payable 40.00
Inventories 60.00 Warranty Obligation 20.00
Advances to suppliers 10.00 Deferred revenue 15.00
Prepaid expenses 5.00 Share capital 130.00
Property, plant and equipment 80.00 Share premium 20.00
Cash surrender value 20.00 Revaluation surplus 10.00
Investment in funds consisting of: Cumulative translation differences 20.00
Shares of stocks 5.00 Non - controlling interest 5.00
Bonds measured at amortized cost 30.00 Retained Earnings 20.00
Total Assets 360.00 Total Liabilities and Equity 360.00

Requirement:
Compute for the net monetary items.

Problem 3. ABC Co. operates in a hyperinflationary economy. Its unrestated financial statements are
provided below:

ABC Company
Statement of Financial Position
As of December 31, 2022

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 2022 2021
ASSETS
Cash 20,000.00 15,000.00
Accounts Receivable 40,000.00 30,000.00
Allowance for doubtful accounts (10,000.00) (5,000.00)
Inventory (at cost) 50,000.00 40,000.00
Land (at cost) 100,000.00 100,000.00
Building (at cost) 500,000.00 500,000.00
Accumulated depreciation (200,000.00) (150,000.00)
TOTAL ASSETS 500,000.00 530,000.00

LIABILITIES AND EQUITY

Accounts Payable 20,000.00 47,000.00
Loans Payable 100,000.00 80,000.00
Total Liabilities 120,000.00 127,000.00
Share Capital 300,000.00 300,000.00
Retained Earnings 80,000.00 103,000.00
Total Equity 380,000.00 403,000.00
TOTAL LIABILITIES AND EQUITY 500,000.00 530,000.00

ABC Company
Statement of Profit or Loss and Other Comprehensive Income
For the year ended December 31, 2022

Sales 400,000.00
Less: Cost of Sales
Inventory, January 1 40,000.00
Add: Purchases 300,000.00
Total Goods Available for Sale 340,000.00
Less: Inventory, December 31 (50,000.00) (290,000.00)
Gross Income 110,000.00
Less: Expenses
Depreciation Expenses 50,000.00
Distribution Expenses 35,000.00
Bad debt Expense 5,000.00
Finance Cost 10,000.00 (100,000.00)
Profit before income tax 10,000.00
Less: Income tax expense (3,000.00)
Profit for the year 7,000.00
Other comprehensive income -
Total comprehensive income for the year 7,000.00

ABC Company
Statement of Changes in Equity
For the year ended December 31, 2022

Share Retained
Total Equity
Capital Earnings
Balance, January 1 300,000.00 103,000.00 403,000.00
Changes in Equity for 2022 - - -
Dividends - (30,000.00) (30,000.00)
Total Comprehensive Income - 7,000.00 7,000.00
Balance, December 31 300,000.00 80,000.00 380,000.00

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 ABC Company
Statement of Cash Flows
For the year ended December 31, 2022

Cash flows from operating activities:

Profit before income tax 10,000.00
Adjustments for:
Depreciation Expense 50,000.00
Operating income before changes in working capital 60,000.00
Increase in accounts receivable, net (5,000.00)
Increase in inventory (10,000.00)
Decrease in accounts payable (27,000.00)
Cash generated from operations 18,000.00
Less: Income taxes Paid (3,000.00)
Cash flow from operating activities 15,000.00

Cash flows from investing activities: -

Cash flows from financing activities:

Proceeds from long-term borrowings 20,000.00
Dividends paid (30,000.00)
Cash used in financing activities (10,000.00)

Increase in cash during the year 5,000.00

Add: Cash, beginning 15,000.00
Cash, end of the year 20,000.00

Additional information:
• The land and building were acquired on April 1, 2020.
• The share capital was issued on March 1, 2020.
• Sales, purchases, and expenses (except interest expense) were incurred evenly during the year.
• Interest expense was recognized and paid on December 31, 2022.
• Dividends of P30,000 were declared and paid on December 31, 2022.
• Selected values of general price indices (CPI) are shown below:
o March 1, 2020 100
o April 1, 2020 100
o Average for 2021 110
o December 31, 2021 120
o Average for 2022 125
o December 31, 2022 140

Solution:
Prepare a constant peso financial statement.

Problem 4. ABC Co. has the following information during 2021:

Sales (all on account) made evenly throughout 2021 P 400,000

Cash collections from customers on account made evenly throughout 2021 220,000
Purchases (all on account) made evenly throughout 2021 200,000
Cash payments to suppliers on account made evenly throughout 2021 180,000
Land purchased for cash on February 1, 2021 40,000
Equipment purchased on credit on March 1, 2021 and paid on April 1, 2021 30,000
Proceeds of a loan taken on July 1, 2021 100,000
Investment in trading securities sold on August 1, 2021 60,000
Cash dividends declared on October 1, 2021 and paid on December 31, 2021 50,000
Operating expenses paid evenly throughout 2021 120,000
Share capital issued on December 31, 2021 80,000
Partial payment on the loan on December 31, 2021 50,000
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Monetary Assets:
January 1, 2021 30,000
December 31, 2021 200,000
Monetary Liabilities:
January 1, 2021 15,000
December 31, 2021 85,000

The following are selected values of Consumer Prices Indices – Urban (CPI - U) for 2021:
January 1 100 February 1 110
March 1 120 April 1 130
August 1 140 October 1 150
December 31 160 Average for the year 125

Requirement:
Compute for the gain or loss on net monetary position (purchasing power gain or loss).

Problem 5. On January 1, 2021, ABC Co. had monetary assets of P2,000,000 and monetary liabilities
of P1,000,000. During 2021, ABC Company’s monetary inflows and outflows were relatively constant
and equal so that it ended the year with net monetary assets of P1,000,000. Assume that the
consumer price index (CPI) was 200 on January 1, 2021, and 220 on December 31, 2021.

Requirement:
Compute for the purchasing power gain (loss) on net monetary items.

Problem 6. ABC Co. has previously been preparing financial statements restated in accordance with
PAS 29. As of December 31, 2021, the following are among the assets of ABC Co.:
• Inventory from purchases made evenly throughout 2021 with historical cost of
P100,000 and net realizable value of P80,000 as of year-end.
• Held for trading securities acquired on January 1, 2021 for P50,000. The fair value of
the securities as of year-end is P60,000.
• Land acquired on January 1, 2020 for P1,000,000 was revalued to P1,200,000 on July
1, 2021.

The following are the selected general price index numbers:

January 1, 2020 100
January 1, 2021 120
July 1, 2021 125
December 31, 2021 140

Requirement:
Determine the amounts to be recognized for the assets listed above in the restated
financial statements.

Problem 7. ABC Co. reported sales of P1,000,000 in 2021 which was made evenly throughout the year.
The consumer price index – urban (CPI-U) was 100 on January 1, 2021 and 120 on December 31,
2021.

Requirement:
Compute for the sales adjusted to constant pesos.

“That in all things, GOD maybe glorified”

“Hear; for I will speak of excellent things; and the opening of my lips shall be right things” Proverbs 8:16

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