TERMINAL OUTPUT FOR THE FINAL TERM (2ND SY 2018-2019)

TO BE PASSED ON APRIL 1, 2019

BSA 1

GENERAL INSTRUCTION: READ AND COMPREHEND THE FOLLOWING PROBLEMS. GIVE WHAT IS ASKED. SHOW YOUR SOLUTION
ON A SEPARATE PAPER AND DO NOT WRITE AT THE BACK PORTION. BOX YOUR FINAL ANSWER.

Problem 1: A parent company, Jay R Corporation has a foreign subsidiary, My Telekom. You have been tasked with identifying
whether the impairment writedown is required under PAS 36, and if so, how it should be allocated. The net assets of MyTelekom
as stated in consolidated accounts of Jay R are as follows:
Assets Amount
Goodwill P2,000
Factory 10,500
Plant and machinery 4,800
Delivery vehicles 1,500
Inventory 2,600
Accounts receivable 2,400
Cash 100
Other payables (12,000)
Accounts payable (1,900)
Total P10,000

Due to the serious decline in demand for My Telekom’s products, Jay R concludes that it is necessary to undertake an impairment
test under PAS 36.

It first assesses the fair value less cost to sell of My Telekom’s assets. This establishes the following:
 The factory is not of specialize design and it could be sold for P12,000.
 The plant and machinery are, however, highly specialized and would have no other than as scrap, assessed at P100.
 The delivery vehicle could be sold for P1,200
 Inventory has already been substantially written down to net realizable value and is therefore expected to be
recoverable at its book value.
 All the monetary items are expected to be settled at their book amounts.
 The goodwill would have no value if the business were to be broken up.

The fair value less cost to sell of the company as a whole is not determinable, as it is unlikely that there would be a ready buyer.

For the purposes of the value in use test, it is considered that the smallest cash generating unit that can be identified is the
whole company, because there is no subdivision within My Telekom that generates cash flows that are largely independent of
cash flows of any other subdivision. Accordingly, cash flow forecasts are prepared:
 From the most recent financial budgets/forecasts for the next five years approved by management.
 By estimating subsequent cash flows based on declining growth rates.

These are discounted at the following discount rates:

 12% representing a pretax rate that reflects current market assessments of the time value of money and the risks
specific to the business of the company. This produces a figure for the value in use of the business of P6,000.

 8.75% representing a post tax rate that reflects current market assessments of the time value of money and the risks
specific to the business of the company. This produces a figure for the value in use of the business of P4,000.

Based on the above and result of your audit, answer the following:
1. How much should be recognized as impairment loss?
2. How much will be allocated as impairment loss to plant and machinery?
3. How much will be recognized as inventory?

4. An entity operates in the travel industry and incurs cost unevenly though the financial year. Advertising costs of P2
million were incurred on March 1, 2014 and staff bonuses are paid at year-end based on sales. Staff bonuses are
expected to be around P20 million for the year; of that sum, P3 million would relate to the period ending March 31,
2014. What costs should be included in the entity’s quarterly financial report in March 31, 2014?
A. Advertising costs _______________ ; staff bonuses _______________

5. The terms and conditions of employment with the Amseksi Company include entitlement to share in the staff bonus
system under which 5% of the profits for the year before charging the bonus are allocated to the bonus pool, provided
the annual profits exceed P50 million. The profits (before accrual of any bonus) for the first half of 2013 amount to
P40 million and the latest estimate of the profits (before accrual of any bonus) for the year as a whole is P60 million.
How much should be recognized in profit or loss in respect to the staff bonus for the half year to June 30, 2013, according
to PAS 34 Interim Financial Reporting? _______________
6. On January 5, 2014, Ampriti Co. paid P60,000 for insurance on its buildings for the calendar year 2014. In the first week
of April 2014, the company made unanticipated major repairs to its equipment at a cost of P240,000. These repairs
benefited operations for the remainder of 2014. How should these expenses be reflected in Ampriti Co.’s quarterly
income statement?
Three Months Ended
Mar. 31 Jun. 30 Sep. 30 Dec. 31
A. P 15,000 P 95,000 P 95,000 P 95,000
B. 60,000 240,000 - -
C. 75,000 75,000 75,000 75,000
D. 255,000 255,000 15,000 15,000

7. Vannie Corporation and its divisions are engaged solely in manufacturing. The following data pertain to the industries
in which operations were conducted for the current year:
Division Operating Profit (Loss)
A P 30,000,000
B 10,000,000
C (8,000,000)
D (2,000,000)
E 5,000,000

In its current year financial statements, Vannie Corporation should disclose an operating segment if operating profit or loss
is at least _____________

8. The following information pertains to Darkman Corp. and its divisions for the current year.
Sales to unaffiliated customers P 2,000,000
Intersegment sales of products similar to those sold to unaffiliated customers 600,000
Interest earned on loans to other operating segments 40,000

Darkman and all of its divisions are engaged solely in manufacturing operations. Darkman has a reportable segment if that
segment’s revenue is at least __________

9. Dearie Corporation’s revenue for the current year are as follows:

Consolidated revenue per income statement P 1,200,000
Intersegment sales 180,000
Intersegment transfers 60,000
Combined revenues of all operating segments 1,440,000

Dearie has a reportable segment if that operating segment’s revenue is at least __________

10. Nasugbu Co. incurred the following costs during the current year:

Quality control during commercial production, including routine testing of products P58,000
Laboratory research aimed at discovery of new knowledge 68,000
Testing for evaluation of new products 24,000
Modification of the formulation of a plastic product 26,000
Engineering follow-through in an early phase of commercial production 15,000
Adaptation of an existing capability to a particular requirement of customer’s need as
a part of continuing commercial activity 13,000
Trouble shooting in connection with breakdowns during commercial production 29,000
Searching for applications of new research findings 19,000

What is the total amount Nasugbu should report as research and development expense?

11. UR Co. purchased a customer database and a formula for a new fuel substitute for diesel fuel for a total of P100,000.
UR Co. uses the expected cash flow approach for estimating the fair value of these two intangibles. The appropriate
interest rate is 5%. The potential future cash flows from the two intangibles and their associated probabilities, are as
follows:

Customer database:
 Outcome 1 – 20% probability of cash flows of P10,000 at the end of each year for 5 years
Outcome 2 – 30% probability of cash flows of P2,000 at the end of each year for 4 years
Outcome 3 – 50% probability of cash flows of P200 at the end of each year for 3 years

Formula:
Outcome 1 – 10% probability of cash flows of P50,000 at the end of each year for 10 years
Outcome 2 – 30% probability of cash flows of P30,000 at the end of each year for 4 years
Outcome 3 – 60% probability of cash flows of P10,000 at the end of each year for 3 years

How much should be recognized as customer database?

12. During 2013, Oyob Co. guaranteed a supplier’s P750,000 loan from a bank. On October 1, 2013, Oyob was notified
that the supplier has defaulted on the loan and filed for bankruptcy protection. Counsel believes Oyob will probably
have to pay between P375,000 and P675,000 under its guarantee. As a result of the supplier’s bankruptcy, Oyob
entered into a contract in December 2013 to retool its machines so that Oyob could accept parts from other suppliers.
Retooling costs are estimated to be P450,000. What amount should Oyob report as a liability in its December 31,
2013, statement of financial position?

13. INVESTMENT PROPERTY ITO Corp.’s investment properties included the following items:
 Land held as potential plant site, P5,000,000
 A vacant building to be leased out under an operating lease, P20,000,000
 Property held for sale in the ordinary course of its business, P30,000,000
 Property held for administrative purposes, P10,000,000
 A hotel managed and owned, P50,000,000
 A building being leased out to a subsidiary, P8,000,000
 A building, which cannot be sold or leased out separately, used in the production of goods and around 2% of
the area being leased out to canteen operators, P2,000,000

How much will be reported as investment properties in INVESTMENT PROPERTY ITO Corporation’s separate financial
statements?

14. Francis Ramil Dairy Ltd. is engaged in milk production for supply to various customers. At December 31, 2013, the
Company held 419 cows able to produce milk (mature assets) and 137 heifers being raised to produce milk in the
future (immature assets). The company produced milk with a fair value of P550,000 (that is determined at the time
of milking) in the year ended 31 December 2013.

The Company also estimated the following costs:

Commission to brokers and dealers 20,000
Levies by regulatory agencies and commodity exchanges 55,000
Transfer taxes and duties 20,000
Transport and other costs necessary to get assets to the market 10,000

The milk should be valued at ______________.

An entity provided you the following information during the current year.

Jan. 1, 2016 Ordinary Shar capital, P80 par, 400,000 authorized shares authorized, P 5,600,000
70,000 shares issued and outstanding
14% Convertible cumulative Preference Share capital, P120 par value, 4,800,000
P40,000 shares – 2 preference shares are convertible into 5 ordinary
shares
March 1 Issued 25,000 new ordinary shares
April 1 Declared 10% dividend on ordinary shares
June 1 Purchased 15,000 treasury shares
July 1 Issued a 12% convertible bonds, each P5,000 bond is convertible into 2,000,000
40 ordinary shares
Dec. 31 Net income 6,500,000

15. Compute for the earnings per share.

16. Compute for the diluted earnings per share.