Intermediate Accounting – Recitation 1

(Group 4)

1. What are the orders of presenting the notes to the financial statements? (10
points).

The orders of presenting the notes to the financial statements are as follows:
A. Statement of compliance with PFRS
B. Summary of significant accounting policies used
C. Supporting information or computation for line items presented in the financial
statements
D. Other disclosures, such contingent liabilities, unrecognized contractual
commitments and non-financial disclosures.

2. Name three instances when are parties considered to be related and give at
least two examples of who are related parties? (10 points).

Parties are considered to be related if one party has:

A. Ability to control the other party. Control is the power over the investee or the
power to govern the financial and operating policies of an entity so as to obtain
benefits. It is also an ownership directly or indirectly through subsidiaries of more
than half of the voting power of an entity.

B. The ability to exercise significant influence over the other party. Significant
influence is the power to participate in the financial and operating policy decision
of an entity, but not control of those policies. It may be gained by share
ownership of 20% or more.

C. Joint control over the entity. Joint control is the contractually agreed sharing of
control over an economic activity.

Examples of related party disclosure:

• Entities directly or indirectly through one or more intermediaries, control or are
controlled by or under common control with the reporting entity.

• Associates - These are the entities over which one party exercises significant
influence.
3. Name at least five examples of related party transactions and describe
each.(10 points).

• Purchase and sale of goods

An activity where the related parties is obliged and can control to deliver goods,
transfer or can share ownership of the said resources whether the price is
changed.

• Transfer of research and development

Related parties have the control to ask for information or process intended to
create or improve technology that can provide a competitive advantage at the
business, industry like process of technological innovation.

• Rendering or receiving services

It happens when the related parties are providing services or helping one another
to a particular task to furnish, such as accounting, management, engineering,
and legal services. The price depends on the agreement.

• Leases
Related parties can also borrow resources or property from one another these
are contracts in which the property/asset owner allows another party to use the
property/asset in exchange for something, usually money or other assets.

• Settlement of Liabilities on behalf of the entity or by the entity on behalf of other

party.
Parties involved have the ability to control to ask or request for payment or
reimbursement obligation in respect of a Settlement Payment It can also refer to
the completion of an offset process between two or more parties in an
agreement, whether a positive balance remains in any of the accounts.

4. Discuss the two types of adjusting events after the reporting period and
give at least three examples each. ((20 points).

A. Adjusting Events after the reporting period- these are the events that provide
evidence of conditions that existed at the end of the reporting period. Hence,
requires adjustments of amounts in the financial statements.

Examples of adjusting events after the reporting period:

• Settlement after the reporting period of a court case because it confirms that the
entity already had a present obligation at the end of reporting period.
• The discovery of fraud or errors that indicate that the financial statements are
incorrect.
 • The determination after the reporting period of the profit-sharing or bonus
payments, if the entity had a present legal or constructive obligation at the end
of reporting period.

B. Non Adjusting events after the reporting period- these are the events that are
indicative of conditions that arose after the end of reporting period. Therefore,
they do not require adjustments of amounts in the financial statements rather,
they are disclosed if they are material.
Examples of non adjusting events after the reporting period:
• Changes in fair values, foreign exchange rates, interest rates or market
prices after the reporting period.
• Entering into significant commitments or contingent liabilities, e.g., significant
guarantees
• Major ordinary share transactions and potential ordinary share transactions
after the reporting period.
5. Define events after the reporting period (5 points)

PAS 10, paragraph 3, defines events after the reporting period as those events,
whether favorable or unfavorable, that occur between the end of reporting period
and the date on which the financial statements are authorized for issue. Events
after the reporting period are also known as "Subsequent Events."

6. When does financial statements are considered authorized for issue and
where can you find its disclosure? (5 points)

Generally, financial statements are authorized for issue when the board of
directors reviews the financial statements and authorizes them for issue.

But in some cases, an entity is required to submit its financial statements to the
shareholders for approval after the financial statements have been issued.

And in such cases, financial statements are authorized for issue on the date of
issue by the board of directors and not on the date when shareholders approve
the financial statements.
7. When does significant influence measured? Give at least three instances
what will evidence the existence of significant influence. (10 points).

It is presumed that the entity has significant influence if it holds 20% or more of
the voting power, directly or indirectly through subsidiaries, on an investee,
unless it can be clearly demonstrated that this is not the case. If the holding is
less than 20%, the entity is presumed not to have significant influence unless
such influence can be clearly demonstrated. A substantial or majority ownership
by another investor does not necessarily preclude an entity from having
significant influence.

The existence of significant influence by an entity is usually evidenced in the

following ways:

a. Representation on the board of directors or equivalent governing body of the

investee.
b. Participation in the policy-making process, including participation in decisions
about dividends or other distributions.
c. Material transactions between the entity and the investee.

8. Problem application: Chapter 5, problem 5-4. ( 10 points)

Answer: C. P 1,000,000 Additional Provision

Group 4 Members:
Alce, Riza Mae
Cerro, Analy
Custodio, Jenalyn Mary
Duco, Jhoana Marielle
Garcia, Rose Lyn
Sepe, Angela
Suarez, Bea Angelica