CHAPTER 10

FINANCIAL STATEMENTS OF SMALL AND MEDIUM-SIZED ENTITIES

PROBLEMS

10-1. Brook Corporation

Brooks Corporation
Statement of Income and Retained Earnings
For the Year Ended December 31, 2016
Sales P 400,000
Cost of goods sold (280,000)
Gross profit P 120,000
Operating expenses (84,000)
Profit from operations P 36,000
Interest expense 4,000
Profit from continuing operations before income tax P32,000
Income tax expense 9,600
Profit from continuing operations P22,400
Discontinued operations, net of income tax of P12,000 28,000
Profit P50,400
Retained earnings, January 1, 2016 1,600,000
Correction of prior period error, net of income tax of P4,800 11,200
Cumulative effect of change in accounting policy, net of income tax of P7,200 (16,800)
Dividends declared in 2016 (12,000)
Retained earnings, December 31, 2016 P1,632,800

10-2. SME Company

SME Company
Statement of Financial Position
December 31, 2016

Assets

Non-current Assets
Property, plant and equipment, net of accumulated depreciation of
P1,450,000 P2,874,000
Investment property, at fair value 2,500,000
Total Non-current Assets P5,374,000
Current Assets
Cash and cash equivalents P 230,000
Accounts receivable, net of allowance for doubtful receivables of P200,000 1,700,000
Inventory 1,180,000
Total Current Assets P3,110,000
Total Assets P8,484,000

Liabilities

Non-current Liabilities
Long-term debt P1,800,000
Environmental provision 281,000
Total Non-current Liabilities P2,081,000
Current Liabilities
Trade payables and accrued expenses P 253,000
Dividends payable 100,000
Current portion of long-term debt 500,000
Interest accrued on long-term debt 230,000
Income tax payable 130,000
Warranty provision 400,000
Total Current Liabilities P1,613,000
Total Liabilities P3,694,000

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Chapter 10 Financial Statements of SMEs

Shareholders Equity

Share Capital P1,500,000

Retained Earnings (2,390,000 + 1,000,000 100,000) 3,290,000
Total Shareholders Equity P4,790,000
Total Liabilities and Shareholders Equity P8,484,000

10-3. Company Y
Restated
2016 2015
Sales P1,040,000 P735,000
Cost of goods sold (2015 as previously reported 435,000) (724,000)* (500,000)
Gross profit P 316,000 P235,000
Other income Change in fair value of investment in associate
(2015 as previously stated P0) 50,000 20,000
Selling expenses (80,000) (50,000)
Administrative expenses (50,000) (50,000)
Profit before income tax P236,000 P155,000
Income tax expense (2015 as previously reported P60,000) (70,800) (46,500)
Profit P 165,200 P108,500
Retained earnings, January 1
-as previously stated 340,000 P200,000
-effect of correction of prior period cost of goods sold (45,500)
-effect of change in accounting policy for investment in 14,000
associate
Retained earnings, December 31 P473,700 P308,500

*Revised annual depreciation effective 2016

Cost P60,000
Accumulated depreciation, 1/1/15 (60,000/4 x 2) 30,000
Carrying value 1/1/16 P 30,000
Remaining revised life (7-2) 5 years
Revised depreciation 6,000
Recorded depreciation for 2016 P15,000
Effect on cost of goods sold P( 9,000)
Cost of goods sold, before change in estimate 735,000
Revised cost of goods sold for 2016 P724,000

MULTIPLE CHOICE

MC1 E MC7 C
MC2 A MC8 B
MC3 C MC9 A
MC4 A MC10 B
MC5 A MC11 C
MC6 C MC12 B

MC13 C (4,600,000 4,500,000) + (4,800,000 5,200,000) = - 300,000 net decrease in FV

MC14 A 5,000,000/20 years = 250,000 depreciation
MC15 A Cost: 101,000 Recoverable amounts: 2014: 102,000 4,000 = 98,000
(impaired); 2015: 110,000 -4,000 = 106,000 (not impaired) and 2016: 90,000
4,000 = 86,000 (impaired) The investment is measured at cost because there is no
published price quotation; and is required to be tested for impairment. The
investment is impaired at Dec. 31, 2014 (P98,000 being lower than P101,000) and
2016 (86,000 is lower than 101,000).
MC16 C CV of equipment is P150,000 Recoverable amount of P120,000 = P30,000
impairment loss; P2,000,000 carrying value before impairment P30,000
impsirment = adjusted carrying amount is P1,970,000

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