CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

MODULE 4: PREPARING THE FINANCIAL STATEMENTS

B. Statement of Financial Position. The newly-hired and inexperienced bookkeeper of

BLUE Company prepared the Statement of Financial Position as of December 31,
2019:

BLUE Company
Statement of Financial Position
December 31, 2019

Current Assets
Inventory P 600,000
Accounts receivable 590,000
Cash 230,000
Treasury shares (at cost) 330,000
Long-term investments
Financial assets at fair value through profit or loss 330,000
Financial assets at fair value through
other comprehensive income 960,000
Property, Plant and Equipment
Land 810,000
Office supplies 80,000
Buildings and equipment 3,560,000
Intangible Assets
Patents – net 470,000
Prepaid insurance 120,000
Discount on bonds payable 100,000
Unaccounted difference 60,000
TOTAL ASSETS P 8,240,000

Current liabilities
Accounts payable P 990,000
Allowance for uncollectible accounts 80,000
Salaries payable 150,000
Taxes payable 250,000
Long-term liabilities
Bonds payable (due 2022) 1,100,000
Unearned rent revenue (for 3 months) 90,000
Shareholders’ Equity
Retained earnings 2,310,000
Accumulated depreciation – buildings and equipment 920,000
Share premium 1,040,000
Ordinary share capital – P10 par 1,200,000
Unrealized holding gains/(losses) on investments at
fair value through other comprehensive income 50,000
Unaccounted difference 60,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P 8,240,000

Additional information are as follows:

a. The investments classified at fair value through profit or loss have a fair value
of P320,000.
b. The investments classified at fair value through other comprehensive income
have a fair value of P1,030,000.

The fair value gain or loss on these investments were not yet recorded at December
31.

1|Page
 Required: Prepare a properly classified statement of financial position for Blue
Company as of December 31, 2019 with appropriate notes to support the line items
presented on the face of the financial statement.

Solution to Problem B

The following errors were noted in the statement of financial position prepared by the
newly-hired bookkeeper:

a. Assets and liabilities should be classified in the statement of financial position as

CURRENT or NON-CURRENT.

b. Material classes of items called line items should be presented separately in the
statement of financial position. Any breakdown or disaggregation of these line
items shall be presented in the notes to the financial statements.

c. There should be no unaccounted difference. At all times, the statement of

financial position should be in balance. The unaccounted difference is as follows:

 Fair value loss on investments at fair value through profit or loss for the year
amounting to P10,000 [P320,000 – P330,000] should decrease both the
investment balance and profit or loss for the year, which will eventually
decrease the balance of the retained earnings account at the end of year.

 Fair value gain on investments at fair value through other comprehensive

income amounting to P70,000 [P1,030,000 – P960,000] should increase both
the investment balance and other comprehensive income presented as
unrealized holding gains/losses on investments at FVOCI as part of
shareholders’ equity.

The properly classified statement of financial position for BLUE Company is presented at
the next page.

2|Page
 BLUE Company
Statement of Financial Position
December 31, 2019
(in Philippine Peso)

ASSETS

Note

Current assets
Cash and cash equivalents P 230,000
Financial assets at fair value
through profit or loss 320,000
Trade and other receivables - net 1 510,000
Inventory 600,000
Prepaid expenses 2 200,000

Total current assets 1,860,000

Non-current assets
Property, plant and equipment 3 P 3,450,000
Patents – net 470,000
Financial assets at fair value
through other comprehensive income 1,030,000

Total non-current assets 4,950,000

TOTAL ASSETS P 6,810,000

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Trade and other payables 4 P 1,480,000

Non-current liabilities
Bonds payable – net 5 1,000,000

Total liabilities 2,480,000

Shareholders’ equity
Ordinary share capital P 1,200,000
Reserves 6 1,160,000
Retained earnings 2,300,000
Treasury shares, at cost ( 330,000)

Total shareholders’ equity 4,330,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P 6,810,000

3|Page
Notes to the Financial Statements

Note 1 – Trade and other receivables - net

Accounts receivable P 590,000

Allowance for doubtful accounts ( 80,000)
Amortized cost of accounts receivable P 510,000

Note 2 – Prepaid expenses

Prepaid insurance P 120,000

Office supplies 80,000
Total prepaid expenses P 200,000

Note 3 – Property, Plant and Equipment – net

Land Buildings and Total

equipment
Cost P 810,000 P 3,560,000 P 4,370,000
Accumulated - ( 920,000) ( 920,000)
depreciation
Carrying P 810,000 P 2,640,000 P 3,450,000
value

Note 4 – Trade and other payables

Accounts payable P 990,000

Taxes payable 250,000
Salaries payable 150,000
Unearned revenue 90,000
Total trade and other payables P 1,480,000

Note 5 – Bonds payable - net

Bonds payable P 1,100,000

Discount on bonds payable ( 100,000)
Amortized cost of bonds payable P 1,000,000

Note 6 – Reserves

Share premium P 1,040,000

Unrealized holding gains/losses on
investments at FVOCI* 70,000
Total reserves P 1,110,000

* Recorded balance in the SFP P 50,000

Increase in FV during the year 70,000
Required increase in investment in FVOCI P 120,000

4|Page