SCOPE

In this module, the learner is able to demonstrate understanding of key concept, uses
and importance of Intermediate Accounting 3 in real business world.

OVERVIEW and OBJECTIVES

The course is the final of the three classes for Intermediate Accounting. The course
continues the intensive study begun in Intermediate Accounting 1 and 2. The course
seeks to develop student’s ability to prepare and use financial accounting information,
learn the application of generally accepted accounting principles in order to analyze
and prepare financial statements, develop communicative, critical-thinking, and
technology skills through the study of this course. It is designed to provide the
students with an in-depth exposure to the following accounting topics: statement of
financial position; statement of comprehensive income; statement of changes in
equity; statement of cash flows; notes to financial statements; accounting changes;
interim financial reporting; operating segment; cash and accrual basis; and error
correction.

Intermediate Accounting 3 DISCUSSION OF TOPICS:

MODULE Chapter 1:
FINANCIAL STATEMENTS
Chapter Objectives:
 To identify the components of financial statements.
 To know the objective of financial statements.
 To know the objective of financial reporting.
 To understand the primary responsibility for the preparation of financial
statements.
 To identify the general features in the preparation of financial statements.

 FINANCIAL STATEMENTS
The means by which the information accumulated and processed in financial
accounting is periodically communicated to the users.
Clariza C. Gamboa
 General Purpose Financial Statements
IA Professor Intended to meet the needs of the users who are not in a position to require an
entity to prepare reports tailored to their particular information needs.
 General purpose financial reporting is directed primarily to the existing and
 Components of Financial Statements potential investors, lenders and other creditors which compose the primary user
1. Statement of Financial Position group.
2. Income Statement
3. Statement of comprehensive income GENERAL FEATURES OF FINANCIAL STATEMENTS
4. Statement of Changes in equity  Fair presentation and compliance with PFRSs
5. Statement of cash flows - Fair presentation requires the faithful representation of the effects of
6. Notes to FS transactions, other events, and conditions in accordance with the definitions
and recognition criteria for assets, liabilities, income and expenses set out in
An entity may use titles for the statements other than those stated above. All the Framework.
financial statements are required to be presented with equal prominence. - The application of PFRSs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a fair presentation.
 Objective of Financial Statements
To provide information about the financial position, financial performance and cash  Going concern
flows of an entity that is useful to a wide range of users in making economic The Conceptual Framework notes that financial statements are normally prepared
decisions. assuming the entity is a going concern and will continue in operation for the
foreseeable future.
Financial statements also show the results of the stewardship of management of
the resources entrusted to it.  Accrual basis of accounting
PAS 1 requires that an entity prepare its financial statements, except for cash flow
To meet that objective, financial statements provide information about an entity's: information, using the accrual basis of accounting.

 assets  Consistency of presentation

 liabilities The presentation and classification of items in the financial statements shall be
 equity retained from one period to the next unless a change is justified either by a change
 income and expenses, including gains and losses in circumstances or a requirement of a new PFRS.
 contributions by and distributions to owners (in their capacity as owners)
 cash flows.  Materiality and aggregation
Information is material if omitting, misstating or obscuring it could reasonably be
That information, along with other information in the notes, assists users of expected to influence decisions that the primary users of general purpose financial
financial statements in predicting the entity's future cash flows and, in particular, statements make on the basis of those financial statements, which provide
their timing and certainty. financial information about a specific reporting entity.

Financial Reporting  Offsetting

The provision of financial information about an entity to external users that is Assets and liabilities, and income and expenses, may not be offset unless required
useful to them in making economic decisions and for assessing the effectiveness or permitted by an PFRS.
of the entity’s management.
 Comparative information
Target users of financial reporting PAS 1 requires that comparative information to be disclosed in respect of the
previous period for all amounts reported in the financial statements, both on the
 face of the financial statements and in the notes, unless another Standard requires (settled) within 12 months, note disclosure is required that separates the
otherwise. Comparative information is provided for narrative and descriptive where longer-term amounts from the 12-month amounts.
it is relevant to understanding the financial statements of the current period.
Current assets are assets that are:
 Frequency of Reporting  expected to be realized in the entity's normal operating cycle
There is a presumption that financial statements will be prepared at least annually.  held primarily for the purpose of trading
If the annual reporting period changes and financial statements are prepared for  expected to be realized within 12 months after the reporting period
a different period, the entity must disclose the reason for the change and state  cash and cash equivalents (unless restricted).
that amounts are not entirely comparable.
All other assets are non-current.

Current liabilities are those:

-End of Discussion-  expected to be settled within the entity's normal operating cycle
 held for purpose of trading
 due to be settled within 12 months
Chapter 2:  for which the entity does not have the right at the end of the reporting period
STATEMENT OF FINANCIAL POSITION to defer settlement beyond 12 months.

Chapter Objectives: Other liabilities are non-current.

 To know the nature of statement of financial position.
 To understand the current and noncurrent classifications of assets and Discretion to Refinance
liabilities. When a long-term debt is expected to be refinanced under an existing loan facility,
 To understand refinancing of a currently maturing debt. and the entity has the discretion to do so, the debt is classified as non-current,
 To identify the components of equity in a corporation. even if the liability would otherwise be due within 12 months.
 To identify the minimum line items in a statement of financial position.
 To be able to prepare a statement of financial position using Philippine format Covenants
and IFRS format. - If a liability has become payable on demand because an entity has breached
an undertaking under a long-term loan agreement on or before the reporting
date, the liability is current, even if the lender has agreed, after the reporting
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) date and before the authorization of the financial statements for issue, not to
A formal statement showing the three elements comprising financial position, demand payment as a consequence of the breach.
namely assets, liabilities and equity.
- However, the liability is classified as non-current if the lender agreed by the
Current and non-current classification reporting date to provide a period of grace ending at least 12 months after the
- An entity must normally present a classified statement of financial position, end of the reporting period, within which the entity can rectify the breach and
separating current and non-current assets and liabilities, unless presentation during which the lender cannot demand immediate repayment.
based on liquidity provides information that is reliable.
Settlement by the issue of equity instruments does not impact classification.
- In either case, if an asset (liability) category combines amounts that will be
received (settled) after 12 months with assets (liabilities) that will be received Format of statement
 IAS 1 does not prescribe the format of the statement of financial position. Assets The notes must:
can be presented current then non-current, or vice versa, and liabilities and equity  present information about the basis of preparation of the financial statements
can be presented current then non-current then equity, or vice versa. A net asset and the specific accounting policies used
presentation (assets minus liabilities) is allowed. The long-term financing approach  disclose any information required by IFRSs that is not presented elsewhere in
used in UK and elsewhere – fixed assets + current assets - short term payables = the financial statements and
long-term debt plus equity – is also acceptable.  provide additional information that is not presented elsewhere in the financial
statements but is relevant to an understanding of any of them
Share capital and reserves
Notes are presented in a systematic manner and cross-referenced from the face
Regarding issued share capital and reserves, the following disclosures are of the financial statements to the relevant note.
required:
Order of Presenting the Notes
numbers of shares authorized, issued and fully paid, and issued but not fully paid  A statement of compliance with IFRSs
par value (or that shares do not have a par value) a reconciliation of the number  A summary of significant accounting policies applied, including:
of shares outstanding at the beginning and the end of the period description of - the measurement basis (or bases) used in preparing the financial
rights, preferences, and restrictions treasury shares, including shares held by statements
subsidiaries and associates shares reserved for issuance under options and - the other accounting policies used that are relevant to an understanding of
contracts a description of the nature and purpose of each reserve within equity. the financial statements
Additional disclosures are required in respect of entities without share capital and  Supporting information for items presented on the face of the statement of
where an entity has reclassified puttable financial instruments. financial position (balance sheet), statement(s) of profit or loss and other
comprehensive income, statement of changes in equity and statement of cash
-End of Discussion- flows, in the order in which each statement and each line item is presented

 Other disclosures, including:

Chapter 3:  contingent liabilities and unrecognized contractual commitments
NOTES TO FINANCIAL STATEMENTS  non-financial disclosures, such as the entity's financial risk management
objectives and policies
Chapter Objectives:
 To know the nature of statement of financial position. Other disclosures
 To understand the current and noncurrent classifications of assets and
liabilities. Judgments and key assumptions
 To understand refinancing of a currently maturing debt.
 To identify the components of equity in a corporation. An entity must disclose, in the summary of significant accounting policies or other
 To identify the minimum line items in a statement of financial position. notes, the judgments, apart from those involving estimations, that management
 To be able to prepare a statement of financial position using Philippine format has made in the process of applying the entity's accounting policies that have the
and IFRS format. most significant effect on the amounts recognized in the financial statements.

Examples include management's judgments in determining:

NOTES TO THE FINANCIAL STATEMENTS
 when substantially all the significant risks and rewards of ownership of financial Chapter 4:
assets and lease assets are transferred to other entities RELATED PARTIES
 whether, in substance, particular sales of goods are financing arrangements
and therefore do not give rise to revenue.
Chapter Objectives:
 To understand the concept of related parties
An entity must also disclose, in the notes, information about the key assumptions
 To identify related parties
concerning the future, and other key sources of estimation uncertainty at the end
 To know the requirements for disclosure of related party relationship.
of the reporting period, that have a significant risk of causing a material adjustment
 To know the requirements for disclosure of related party transactions.
to the carrying amounts of assets and liabilities within the next financial year.
These disclosures do not involve disclosing budgets or forecasts.
RELATED PARTIES (PAS 24)
Dividends
Objective of PAS 24
In addition to the distributions information in the statement of changes in equity,
The objective of IAS 24 is to ensure that an entity's financial statements contain
the following must be disclosed in the notes:
the disclosures necessary to draw attention to the possibility that its financial
position and profit or loss may have been affected by the existence of related
 the amount of dividends proposed or declared before the financial statements
parties and by transactions and outstanding balances with such parties.
were authorized for issue but which were not recognized as a distribution to
owners during the period, and the related amount per share
Who are related parties?
 the amount of any cumulative preference dividends not recognized.
A related party is a person or entity that is related to the entity that is preparing
its financial statements (referred to as the 'reporting entity').
Capital disclosures
a) A person or a close member of that person's family is related to a reporting
An entity discloses information about its objectives, policies and processes for
entity if that person:
managing capital. To comply with this, the disclosures include:
i. has control or joint control over the reporting entity;
ii. has significant influence over the reporting entity; or
 qualitative information about the entity's objectives, policies and processes for
iii. is a member of the key management personnel of the reporting entity
managing capital, including>
or of a parent of the reporting entity.
 description of capital it manages nature of external capital requirements, if any
 how it is meeting its objectives
b) An entity is related to a reporting entity if any of the following conditions
 quantitative data about what the entity regards as capital
applies:
 changes from one period to another
i. The entity and the reporting entity are members of the same group (which
 whether the entity has complied with any external capital requirements and
means that each parent, subsidiary and fellow subsidiary is related to the
 if it has not complied, the consequences of such non-compliance.
others).
ii. One entity is an associate or joint venture of the other entity (or an
associate or joint venture of a member of a group of which the other entity
-End of Discussion-
is a member).
iii. Both entities are joint ventures of the same third party.
iv. One entity is a joint venture of a third entity and the other entity is an
associate of the third entity.
 v. The entity is a post-employment defined benefit plan for the benefit of Management compensation.
employees of either the reporting entity or an entity related to the reporting Disclose key management personnel compensation in total and for each of the
entity. If the reporting entity is itself such a plan, the sponsoring employers following categories:
are also related to the reporting entity.
vi. The entity is controlled or jointly controlled by a person identified in (a).  short-term employee benefits
vii. A person identified in (i) has significant influence over the entity or is a  post-employment benefits
member of the key management personnel of the entity (or of a parent of  other long-term benefits termination benefits
the entity).  share-based payment benefits
viii. The entity, or any member of a group of which it is a part, provides key
management personnel services to the reporting entity or to the parent of Key management personnel are those persons having authority and
the reporting entity*. responsibility for planning, directing, and controlling the activities of the entity,
directly or indirectly, including any directors (whether executive or otherwise) of
the entity.
The following are deemed not to be related:
If an entity obtains key management personnel services from a management
 two entities simply because they have a director or key manager in entity, the entity is not required to disclose the compensation paid or payable by
common the management entity to the management entity’s employees or directors.
 two venturers who share joint control over a joint venture
 providers of finance, trade unions, public utilities, and departments and Instead the entity discloses the amounts incurred by the entity for the provision
agencies of a government that does not control, jointly control or of key management personnel services that are provided by the separate
significantly influence the reporting entity, simply by virtue of their normal management entity*.
dealings with an entity (even though they may affect the freedom of action
of an entity or participate in its decision-making process)
 a single customer, supplier, franchiser, distributor, or general agent with Related party transactions.
whom an entity transacts a significant volume of business merely by virtue If there have been transactions between related parties, disclose the nature of the
of the resulting economic dependence related party relationship as well as information about the transactions and
outstanding balances necessary for an understanding of the potential effect of the
relationship on the financial statements. These disclosure would be made
What are related party transactions? separately for each category of related parties and would include:
A related party transaction is a transfer of resources, services, or obligations  the amount of the transactions
between related parties, regardless of whether a price is charged.  the amount of outstanding balances, including terms and conditions and
guarantees
Disclosure  provisions for doubtful debts related to the amount of outstanding balances
Relationships between parents and subsidiaries. Regardless of whether there have  expense recognized during the period in respect of bad or doubtful debts
been transactions between a parent and a subsidiary, an entity must disclose the due from related parties
name of its parent and, if different, the ultimate controlling party. If neither the
entity's parent nor the ultimate controlling party produces financial statements
available for public use, the name of the next most senior parent that does so must Examples of the kinds of transactions that are disclosed if they are with
also be disclosed. a related party
 purchases or sales of goods
  purchases or sales of property and other assets
 rendering or receiving of services  Non-adjusting event: An event after the reporting period that is indicative of a
 leases condition that arose after the end of the reporting period.
 transfers of research and development
 transfers under license agreements ACCOUNTING
 transfers under finance arrangements (including loans and equity  Adjust financial statements for adjusting events - events after the balance
contributions in cash or in kind) sheet date that provide further evidence of conditions that existed at the end
 provision of guarantees or collateral of the reporting period, including events that indicate that the going concern
 commitments to do something if a particular event occurs or does not occur assumption in relation to the whole or part of the enterprise is not appropriate.
in the future, including executory contracts (recognized and unrecognized)
 settlement of liabilities on behalf of the entity or by the entity on behalf of  Do not adjust for non-adjusting events - events or conditions that arose after
another party the end of the reporting period. [IAS 10.10]

A statement that related party transactions were made on terms equivalent to  If an entity declares dividends after the reporting period, the entity shall not
those that prevail in arm's length transactions should be made only if such terms recognise those dividends as a liability at the end of the reporting period. That
can be substantiated. is a non-adjusting event.

Going concern issues arising after end of the reporting period

-End of Discussion- - An entity shall not prepare its financial statements on a going concern basis if
management determines after the end of the reporting period either that it intends
to liquidate the entity or to cease trading, or that it has no realistic alternative but
Chapter 5: to do so.
EVENTS AFTER THE REPORTING PERIOD
Disclosure
Chapter Objectives: - Non-adjusting events should be disclosed if they are of such importance that non-
 To understand the concept of events after the reporting period. disclosure would affect the ability of users to make proper evaluations and
 To know the types of events after reporting period. decisions. The required disclosure is (a) the nature of the event and (b) an estimate
 To understand the recognition of adjusting and non-adjusting events. of its financial effect or a statement that a reasonable estimate of the effect cannot
 To know the date of authorization for issue of financial statements. be made.

Summary of PAS 10 - Key definitions - A company should update disclosures that relate to conditions that existed at the
end of the reporting period to reflect any new information that it receives after the
 Event after the reporting period: An event, which could be favourable or reporting period about those conditions.
unfavourable, that occurs between the end of the reporting period and the date
that the financial statements are authorized for issue. - Companies must disclose the date when the financial statements were authorised
for issue and who gave that authorisation. If the enterprise's owners or others
 Adjusting event: An event after the reporting period that provides further have the power to amend the financial statements after issuance, the enterprise
evidence of conditions that existed at the end of the reporting period, including an must disclose that fact.
event that indicates that the going concern assumption in relation to the whole or
part of the enterprise is not appropriate. -End of Discussion-
 1. Two-statement approach
2. Single statement approach
Chapter 6:
STATEMENT OF COMPREHENSIVE INCOME Sources of Income
a. Sales of merchandise to customers
Chapter Objectives: b. Rendering of services
 To understand the nature and usefulness of the income statement. c. Use of entity resources
 To understand the concept of comprehensive income, profit or loss and other d. Disposal of resources other than products
comprehensive income.
 To identify the components of other comprehensive income. Components of Expense
 To recognize the reclassification adjustment related to other comprehensive a. Cost of goods sold or cost of sales
income. b. Distribution costs or selling expenses
 To be able to present the income statement following the functional and c. Administrative expenses
natural presentation. d. Other expenses
e. Income tax expense

INCOME STATEMENT Forms of Income Statement

It is a formal statement showing the financial performance or profit or loss of an entity  Functional presentation
for a period of time.  Natural presentation

Comprehensive Income COGS for Merchandising Entity

The change in equity during a period resulting from transactions and other events, Beginning inventory xxx
other than changes resulting from transactions with owners in their capacity as Net purchases xxx
owners. Goods available for sale xxx
Ending inventory xxx
Profit or Loss Cost of goods sold xxx
The total income less expenses, excluding the components of OCI. An entity may use
net income or net loss to describe profit or loss.  FORMULAS

Other Comprehensive Income (OCI) Components STATEMENT OF COST OF GOODS SOLD

1. Unrealized gain or loss on equity investment measured at FVOCI Raw Materials, beginning P xx
2. Unrealized gain or loss on debt investment measured at FVOCI Add: Purchases xx
3. Gain or loss from translating the FS of foreign operation. Total Raw Materials Available P xx
4. Revaluation surplus during the year Less: Raw Materials, ending xx
5. Unrealized gain or loss from derivative contracts designated as cash flow hedge Total Materials Used P xx
6. Remeasurements of defined benefit plan Add: Direct Labor xx
7. Change in fair value attributable to credit risk of a financial liability designated at Manufacturing Overhead Applied xx
FVPL Total Manufacturing Costs P xx
Add: WIP, beginning xx
Presentation of Comprehensive Income Total Costs of Goods Put in Process P xx
 Less: WIP, ending xx It is a formal statement that shows the movements in the elements or components of
Total Costs of Goods Manufactured P xx the shareholders’ equity.
Add: Finished Goods, beginning xx
Total Goods Available for Sale P xx PAS 1 requires an entity to present a separate statement of changes in equity. The
Less: Finished Goods, ending xx statement must show:
Total Cost of Goods Sold P xx  total comprehensive income for the period, showing separately amounts
attributable to owners of the parent and to non-controlling interests
INCOME STATEMENT
Sales P xx  the effects of any retrospective application of accounting policies or
Less: Cost of Goods Sold xx restatements made in accordance with PAS 8, separately for each component
Gross Profit P xx of other comprehensive income
Less: Operating Expenses xx
Net Income Before Tax P xx  reconciliations between the carrying amounts at the beginning and the end of
Provision for income tax xx the period for each component of equity, separately disclosing:
Net income after tax P xx o profit or loss
o other comprehensive income*
o transactions with owners, showing separately contributions by and
-End of Discussion- distributions to owners and changes in ownership interests in
subsidiaries that do not result in a loss of control
Chapter 7:
STATEMENT OF CHANGES IN EQUITY An analysis of other comprehensive income by item is required to be presented either
in the statement or in the notes.
Chapter Objectives:
The following amounts may also be presented on the face of the statement of changes
 To understand the concept of equity.
in equity, or they may be presented in the notes:
 To know the preparation of the statement of change in equity.
 amount of dividends recognised as distributions
 To identify the components of equity.
 the related amount per share.
 To identify the items directly affecting retained earnings.
-End of Discussion-
EQUITY
The residual interest in the assets of an entity after deducting all of the liabilities. It is Chapter 8:
the equivalent of net assets (total assets less total liabilities).
NONCURRENT ASSET HELD FOR SALE
In a corporate entity, the following sub-classifications may be shown separately:
a) Share capital Chapter Objectives:
b) Share premium
This chapter should enable you:
c) Retained earnings  To understand the recognition of noncurrent asset held for sale.
 To know the conditions for the classification of a noncurrent asset as held for
Statement of Changes in Equity sale.
 To know the measurement and presentation of noncurrent asset held for sale.
  To know he recognition of a noncurrent asset that ceases to be classified as An entity shall not classify as held for sale a noncurrent asset or disposal group that
held for sale is to be abandoned.

Temporarily abandoned
NONCURRENT ASSET HELD FOR SALE An entity shall not account for a noncurrent asset that has been temporarily taken out
A noncurrent asset or disposal group is classified as held for sale if the carrying amount of use as if it had been abandoned.
will be recovered principally through a sale transaction rather than through continuing
use. Change in classification
Measurement of NCA ceases to be classified as held for sale at the lower of:
Conditions for classification as Held for Sale a) Carrying amount before the asset was classified as held for sale adjusted for
1. The asset or disposal group is available for immediate sale in the present condition. any depreciation or amortization that would have been recognized if the asset
2. The sale must be highly probable. had not been classified as held for sale.
b) Recoverable amount at the date of the subsequent decision not to sell.
Measurement of Asset Held for Sale
In general terms, assets (or disposal groups) held for sale are not depreciated, are Presentation
measured at the lower of carrying amount and fair value less costs to sell, and are Assets classified as held for sale, and the assets and liabilities included within a disposal
presented separately in the statement of financial position. group classified as held for sale, must be presented separately on the face of the
statement of financial position.
Writedown to Fair value less cost of disposal Assets classified as held for sale, and the assets and liabilities included within a disposal group classified as held fo r sale, must be presented separately on the face of the statement of f inancial position.

 If FV less cost of disposal < Carrying Amount, the writedown is treated as an -End of Discussion-
impairment loss.
 If the noncurrent asset is a disposal group, the impairment loss is apportioned
across the assets based on carrying amount after writing off any goodwill first. Chapter 9:
DISCONTINUED OPERATION
Subsequent increase in Fair Value
An entity shall recognize a gain but not in excess of any impairment loss previously Chapter Objectives:
recognized. This chapter should enable you:
 To understand the concept of a discontinued operation.
Revalued Asset classified as held for sale  To know the recognition of a discontinued operation.
When an entity adopts the revaluation model for the measurement of assets, any asset  To know the presentation of discontinued operation in the income statement.
classified as held for sale should be revalued to fair value immediately prior to the  To know the presentation of discontinued operation in the statement of
classification as held for sale. financial position.
 To know the presentation of a discontinued operation in the statement of cash
The additional revaluation surplus is equal to the fair value at the classification date flows.
less the carrying amount at that date.

Any cost of disposal at classification date should be recognized as impairment loss for DISCONTINUED OPERATION
the period and deducted from the asset held for sale. A discontinued operation is a component of an entity that either has been disposed of
or is classified as held for sale, and:
Abandoned Noncurrent Asset
  represents either a separate major line of business or a geographical area of Detailed disclosure of revenue, expenses, pre-tax profit or loss and related income
operations taxes is required either in the notes or in the statement of comprehensive income in
 is part of a single coordinated plan to dispose of a separate major line of a section distinct from continuing operations. Such detailed disclosures must cover
business or geographical area of operations, or both the current and all prior periods presented in the financial statements.
 is a subsidiary acquired exclusively with a view to resale and the disposal
involves loss of control. Cash flow information
The net cash flows attributable to the operating, investing, and financing activities of
PFRS 5 prohibits the retroactive classification as a discontinued operation, when the a discontinued operation is separately presented on the face of the cash flow
discontinued criteria are met after the end of the reporting period. statement or disclosed in the notes.

Component of an Entity Disclosures

A discontinued operation occurs when the operations and cash flows of that The following additional disclosures are required:
component have been or will be eliminated from the ongoing operations of the entity  Adjustments made in the current period to amounts disclosed as a discontinued
and the entity will have no significant continuing involvement in that component after operation in prior periods must be separately disclosed
disposal.  If an entity ceases to classify a component as held for sale, the results of that
component previously presented in discontinued operations must be
Examples of Discontinued Operation reclassified and included in income from continuing operations for all periods
1. Selling by a diversified entity of a major division that represents the entity’s only presented.
activities in the electronics industry.
2. Selling by meat packing entity of controlling interest in a furniture entity.
Assets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, must be presented separ ately on the face of the statement of f inancial position.

-End of Discussion-
3. Selling by an entity of all its radio stations.
4. A conglomerate is engaged in commodity business, real estate, manufacturing and SELF – CHECK TEST:
construction business.
 Indicate the proper classification or presentation of the items listed below. Use
Examples which are not discontinued operation the following classifications:
a) Phasing out of product line within a product group.
b) Shifting of production or marketing activities for a particular line of business from A. Current Assets
one location to another. B. Noncurrent Assets
c) Closing of a facility, factory or branch to achieve productivity improvement or other C. Current Liabilities
cost saving. D. Noncurrent Liabilities
E. Equity
Disclosure in the statement of comprehensive income F. Notes to FS

The sum of the post-tax profit or loss of the discontinued operation and the post-tax Items:
gain or loss recognized on the measurement to fair value less cost to sell or fair value 1. Accrued interest on bonds payable
adjustments on the disposal of the assets (or disposal group) is presented as a single 2. Accrued rental income
amount on the face of the statement of comprehensive income. If the entity presents 3. Accrued interest on note receivable
profit or loss in a separate statement, a section identified as relating to discontinued 4. Advances to suppliers
operations is presented in that separate statement. 5. Advances to affiliated entities
6. The entity is a defendant in a lawsuit for a certain amount. The loss is amounting to P700,000 1,000,000
reasonably possible. Prepaid expenses 100,000
7. Destruction of entire plant by earthquake after the end of reporting period but Financial asset held for trading 200,000
before issuance of statements Equity investment at fair value through OCI 800,000
8. Fully depreciated machinery still in use Deferred tax asset 150,000
9. Share capital
10. Retained earnings appropriated What amount should be reported as total current assets at year-end?

PROBLEM SOLVING:
Problem 2:
 Easy To Company provided the following information on December 31, 2021: Brain Company provided the following information on December 31, 2021:
Accounts payable 350,000
Accounts receivable 450,000 Accounts payable 550,000
Property, plant and equipment 5,600,000 Unsecured note payable, 8%, due July 1, 2022 4,000,000
Accumulated depreciation 1,200,000 Accrued expenses 350,000
Mortgage payable due in 5 years 1,500,000 Contingent liability 450,000
Share capital, P100 par 4,000,000 Deferred tax liability 250,000
Share premium 500,000 Senior bonds payable, 7%, due March 31, 2022 5,000,000
Cash and cash equivalents 800,000
Accrued expenses 100,000 The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed
Inventories 900,000 against the entity. The legal counsel expects the suit to be settled in 2022 and has
Long-term investments 950,000 estimated that the entity will be liable for damages in the range of P450,000 to
Note payable, long-term debt 500,000 P750,000.
Note payable, short-term debt 200,000
Office supplies unused 50,000 The deferred tax liability is not related to an asset for financial reporting and is
Patent 800,000 expected to reverse in 2022.
Prepaid rent 150,000
Retained earnings 1,350,000 What total amount should be reported as current liabilities?

Required:
Prepare in good form a properly classified statement of financial position in
accordance with PFRS. Problem 3:
Gold Company provided the following information at year-end:
Problem 1: Share Premium 1,000,000
Danny Company provided the following information at year-end: Accounts payable 1,100,000
Preference share capital, at par 2,000,000
Cash 300,000 Ordinary share capital, at par 3,000,000
Accounts receivable 1,200,000 Sales 10,000,000
Inventory, including inventory expected in the ordinary Total expenses 7,800,000
course of operations to be sold beyond 12months Treasury shares at cost – ordinary 500,000
 Dividends 700,000 Compute for the following:
Retained earnings – January 1 1,000,000  Total current assets
 Total current liabilities
What total shareholders’ equity should be reported on December 31?  Total shareholders’ equity

Problem 4: - END OF MODULE-

Amihan Company provided the following information at year-end:
Property, plant and equipment 35,000,000
Land 20,000,000
Cash 5,000,000
Accounts receivable 20,000,000
Allowance for doubtful accounts 1,000,000 REFERENCES/ LEARNING RESOURCES:
Merchandise inventory 13,000,000
Prepaid insurance 2,500,000 1. Intermediate Accounting Series
Financial asset at FVOCI 7,000,000 Volume 3 (based on IFRS including IFRS effective 2018)
Accounts payable 8,000,000 2016 Edition
Wages payable 2,000,000 Nenita S. Robles/Patricia M. Empleo
Short-term note payable 3,000,000
Bonds payable 40,000,000 2. Intermediate Accounting
Premium on bonds payable 3,000,000 Volume 3
2019 Edition
What is the working capital?
Valix, Conrado; et al.
Problem 5:
Sassa Company provided the following trial balance on December 31, 2021:

Cash overdraft 100,000

Accounts receivable 350,000
Inventory 580,000
Prepaid expenses 120,000
Land classified as held for sale 1,000,000
Property, plant and equipment 950,000
Accounts payable 200,000
Accrued expenses 150,000
Ordinary share capital 1,500,000
Share premium 250,000
Retained earnings 800,000

Required: