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STATION 1

Classify if inventory or not.


1. An entity holds lubricants that are consumed by the entitys machinery in producing goods.
2. An entity holds a building to earn rentals under operating leases from independent third parties.
3. An entity trades in commercial property (ie it buys commercial property with a view to selling it at a profit in
the near term).
Cost Formula
An entity sells fibre cables. It measures the cost of inventories by using
in inventory occurred in 20X5. Determine COGS and ending inventory.
Date
Description
Units
1 January
Opening balance
1000
2 February
Sold
(200)
25 February
Purchased
400
2 March
Purchased
200
25 March
Sold
(900)
Closing Inventories
500

the FIFO method. The following movements


Total cost
10,000
?
6,000
4,000
?

Cost per unit


10
?
15
20
?

STATION 2
Financial Instruments- Impairment (Station 2)
An entity is concerned that one of its customers will not be able to make all principal and interest payments due on a
loan in a timely manner because the customer is experiencing financial difficulties. The entity and the customer
negotiate a restructuring of the loan. The entity expects that the customer will be able to meet its obligations under
the restructured terms. In which of the following cases (different restructuring scenarios) would the entity need to
recognise an impairment loss? (Hint: four answers)
(a) Customer B will pay the full principal amount of the original loan five years after the original due date, but none of
the interest due under the original terms.
(b) Customer B will pay the full principal amount of the original loan on the original due date, but none of the interest
due under the original terms.
(c) Customer B will pay the full principal amount of the original loan on the original due date but with interest at a
lower interest rate than the interest rate inherent in the original loan.
(d) Customer B will pay the full principal amount of the original loan five years after the original due date and all
interest accrued during the original loan term, but no interest for the extended term.
(e) Customer B will pay the full principal amount of the original loan five years after the original due date and all
interest, including interest for both the original term of the loan and the extended term.

STATION 3:
Determine the cost of inventory:
1.

A retailer buys a good priced at CU500 per unit. However, the supplier awards the retailer a 20 per cent
discount on orders of 100 units or more. The retailer buys 100 units in a single order.

2.

A retailer imported goods at a cost of CU130(1), including CU20 non-refundable import duties and CU10
refundable purchase taxes. The risks and rewards of ownership of the imported goods were transferred to
the retailer upon collection of the goods from the harbour warehouse. The retailer was required to pay for
the goods upon collection. The retailer incurred CU5 to transport the goods to its retail outlet and a further
CU2 in delivering the goods to its customer. Further selling costs of CU3 were incurred in selling the goods.

3.

An entity acquired an item of inventory for CU2,000,000 on two-year interest-free credit. The identical item is
available in the same market for CU1,654,000 if payment is made within 30 days of the date of purchase (ie
normal credit terms).

STATION 4
An entity enters into an arrangement with a third party under which the entity sells trade receivable assets with a
carrying amount of CU19,000 (CU20,000 gross amount less CU1,000 bad debt allowance) to the third party. The
third party pays the entity CU18,000 for the receivables. The entity and the third party estimate, on the basis of the
entitys experience, that CU19,000 of the CU20,000 trade receivables will be settled (ie bad debt losses are expected
to be CU1,000). However, the entity has not guaranteed to the third party that any particular amount will be collected.
The trade debtors will pay the entity and the entity will pass all receipts to the third party. Ultimately, because of one
customer going into liquidation, only CU17,000 of the trade receivables were actually settled. Therefore the entity
passed only CU17,000 to the third party.
Prepare journal entries.
STATION 5
On January 1, 2013, Fancy Company acquired P8,000,000 12% bonds to be held as financial assets at amortized
cost for P8,400,000 plus transaction costs of P198,400.
Interest is payable annually on December 31. The bonds mature on January 1, 2018.
The effective interest method of amortization is used. The bonds have a 10% effective yield.
Prepare journal entries for 2014.