May 2018 Crammer's Guide Answers

1. 2,000,000
SOL:
Total grants received 60,000,000
Less: recognized as income
2015 4,000,000
2016 8,000,000 12,000,000
Deferred income as of December 31, 2016 48,000,000
Less; Repayment of grant 50,000,000
Excess payment 2,000,000
2. 35,489,778
SOL:
20,000,000 x 104% / 105% 19,809,524
15,000,000 x 104% x 104.5% /105% /105% 14,646,571
Total 34,456,095
Multiply by 103%
Total present value of provision 35,489,778
3. overstated by P24,000
SOL:
Effect on profit over (under)
2015 ending inventory, under 10,000
2016 ending inventory, over 4,000
2016 depreciation, under 6,000
2015 accrued salaries, under (8,000)
2016 accrued salaries, under 12,000
Net effect on 2016 profit 24,000
4. P72,135 decrease
SOL:
Inventory to be removed from inventory because of purchase cutoff test
RR No. 682 140,220
RR No. 683 13,500
Should be removed from the inventory count 153,720

Inventory to be added to inventory because of sales cutoff test

SI No. 311 1,680
SI No. 312 95,820
SI No. 313 19,050
Total 116,550
To be added to inventory at cost (116,550 x 70%) 81,585

Net inventory adjustment

Decrease due to error from receipt of goods 153,720
Increase due to error from shipment of goods (81,585)
Net decrease in inventory 72,135
 5. 3,880,000
SOL:
Investment held for trading securities are initially recorded at the fair market value of the securities
received which is equal to the market value of the consideration being sacrificed in acquiring the
instrument. Any transaction cost incurred in relation to the acquisition of an instrument under the category
of held for trading securities, is not included as part of the cost on initial recognition.
6. 200,000
SOL:
The employee decide whether to take their leave during the next annual reporting period. Jona Company
does not have an unconditional right to defer settlement of the liability for at least 12 months after the
reporting period.
7. 442,500
SOL:
Listing fee 300,000
Joint costs allocated to previously issued shares
((P125,000 + P75,000 + P300,000) x (300/1,000)) 142,500
Total amount in profit or loss 442,500
8. 140,000
SOL:
P4,400,000 - P4,000,000 = P400,000 x 35% =P140,000
9. 145,050
SOL:
Cumulative expense, year 3 ((167 x 100 x ((21 x 3/3) + (P3 x 2/2)) 400,800
Cumulative expense, year 2 ((165 x 100 x ((P21 x 2/3) + (P3 x 1/2)) (255,750
Expense, year 3 145,050
10. 100,000
SOL:
The entity should recognize a decrease in equity and increase in liability of P100,000 on February 1, 2015
equal to the present value of the obligation to deliver P104,000. The difference between P104,000 and
P100,000 should be recognized as interest expense from February 1, 2015 to January 31, 2016.

If the contract will be settled net in shares, Entity A shall record

Equity 2,000
Forward asset 2,000

If the contract will be settled net in cash, net in shares or by an exchange of cash for shares, at December
31, 2015 the contract shall be classified as
When a derivative financial instrument gives one party a choice over how it is settled, it is a financial
asset or financial liability unless all of the settlement alternatives would result in it being an equity
instrument (PAS 32 par. 26).
11. 1,166,786
SOL:
Patents balance per books, December 31, 2015 1,650,000
Unamortized balance of P225,000 erroneously charged to account in (157,500)
January 2012 (225,000 x 7/10)
Corrected balance before 2015 amortization 1,492,500
2015 amortization:
Patent with 2 years remaining life ((630,000 x 7/14)/2 years (157,500)
Remaining patent ((1,492,500 - 315,000)/7 years) (168,214)
Carrying value, December 31, 2015 1,166,786

Franchise agreement, balance per books, December 31, 2015 285,000

Annual payment charged to account (135,000)
Corrected balance before 2015 amortization 150,000
2015 amortization: (30,000)
Carrying value, December 31, 2015 120,000
12. 1,200,000
SOL:
P4,000,000 x 30% = P1,200,000
13. 62,000
SOL:
Retained earnings, beginning 75,000
Net loss (10,000)
Additional shares (1,500 shares x P2) (3,000)
Retained earnings, end 62,000
14. P1,000 decrease
SOL:
Effect on profit increase (decrease)
Prepaid insurance (P12,000 x 3/12) 3,000
Unearned rent (P6,000 x 2/3) (4,000)
(1,000)
15. P40,000 and P26,500
SOL:
Cost model
Historical cost 580,000
Depreciation, 12/2015 (58,000)
Carrying value, 12/31/2015 522,000
Fair value 510,000
Impairment loss 12,000
Depreciation/year 14,500
Total expense 26,500
 Fair value model
Historical cost 580,000
Unrealized loss (30,000)
Fair value 550,000
Fair value 510,000
Unrealized loss 40,000
Depreciation/year 0
Total expense 40,000
16. 400,000
SOL:
Selling price 1,200,000
Historical value 800,000
Unrealized gain to retained earnings 400,000
17. 3,880,000
SOL:
2016 2017 2018
Total salaries 12,000,000 12,000,000 12,000,000
x with vested rights 95% 94% 95%
Vested benefits 11,400,000 11,280,000 11,400,000
x ratio 1/3 2/3 3/3
Value of compensation 3,800,000 7,520,000 11,400,000
Less: Prior year (s) - 3,800,000 7,520,000
Salaries expense 3,800,000 3,720,000 3,880,000
18. 12,000
SOL:
Auctioners’ fee (P300,000 x 2%) 6,000
Transport costs (P3,000 + P3,000) 6,000
Total loss at initial recognition 12,000
19. 603,625
SOL:
Units sold during 2015
Cash balance, December 31, 2014 100,000
Sales (Squeeze) 920,000
Cash paid for operating expenses (220,000)
Cash paid on accounts payable (471,700)
Collections on notes receivable 25,000
Cash balance, December 31, 2015 353,300

Units sold (P920,000/P50) = 18,400

Accounts payable balance, December 31, 2015

Accounts payable balance, December 31, 2014 75,000
Purchases ((P32.60 + P33.70)/2) x (1,500 x 12) 596,700
Cash payment on accounts payable (471,700)
Accounts payable balance, December 31, 2015 200,000
 Inventory quantity, December 31, 2015
Inventory, December 31, 2014 (P199,875/P32.50) 6,150
Purchases 18,000
Units sold (18,400)
Inventory, December 31, 2015 5,750

Cost of inventory, December 31, 2015

FIFO Cost of inventory, December 31, 2015 50,550
December purchases (1,500 x P33.70) 50,400
November purchases (1,500 x P33.60) 50,250
October purchases (1,500 x P33.40) 41,750
September purchase (1,250 x P33.40) 192,950

Cost of goods sold, December 31, 2015

Inventory, January 1, 2015 199,875
Purchases 596,700
Goods available for sale 796,575
Inventory, December 31, 2015 (192,950)
Cost of goods sold 603,625
20. 1,989,000
SOL:
Trading securities at fair value = P1,989,000

Unrealized gain on securities reported in the 2016 income statement

Carrying value Fair value
Sutherland Company 1,710,000 1,759,500
Icon, Inc (P135 x 1,800) 243,000 229,500
1,953,000 1,989,000

Unrealized gain = 1,989,000 - 1,953,00 = P36,000

Gain on sale of Tower Company ordinary shares on March 1, 2016?

Net proceeds ((P93 x 15,000) - 13,500) 1,381,500
Carrying value (1,251,000)
Gain on sale 130,500
21. 93,105
SOL:
Carrying value 369,000
Value in use 275,895
Impairment loss 93,105
22. 12,000
SOL:
Income from Butler investment
Dividend received (P60,000 x 20%) = P12,000
 Carrying amount of Rose Company investment
Acquisition cost 600,000
Share of profit of investee (P400,000 x 20%) 80,000
Dividends received (P100,000 x 20%) (20,000)
Carrying amount of Rose investment, 12/31/2015 660,000

Carrying amount of Butler Company investment

Fair value (20,000 shares x P20) = P400,000

Income from Rose Company investment

Share of profit = P80,000

Other comprehensive income

Rose Company = P0
Butler Company (P400,000 - P300,000) = P100,000
23. 6,200,000
SOL:

Revenue from sale 6,000,000

Increase in fair value of aquaculture stocks:
Opening aquaculture stocks at fair value ((20 x P5,000) +
(25 x P10,000) + (25 x P15,000) + (15 x 20,000)) 1,205,000
Closing aquaculture stocks at fair value ((15 x P5,000) +
(25 x P10,000) + (20 x P15,000) + (30 x P20,000)) 1,225,000 200,000
Total net income from aquaculture 6,200,000
24. 500
SOL:
Capital before closing entries 12,500
Net income (loss):
Revenue 22,000
Purchases (19,200)
Rent (5,400)
Bank interest (825)
Heat and light (4,475) (7,900)
Drawings (4,100)
Capital, May 1, 2017 500
25. 36,000
SOL:
Compensation Cumulative
Year Computation expense for period compensation expense
1 (P15 x 3,000 x 1/3) 15,000 15,000
2 (P15 x 3,000 x 2/3) - P15,000 15,000 30,000
3 (P12 x 3,000 x 3/3) - P30,000 6,000 36,000
26. P15,000 loss
SOL:
Fair value at Fair value at
December 31, 2015 December 31, 2014 Difference
 Property 1 350,000 320,000 30,000
Property 2 285,000 305,000 (20,000)
Property 3 360,000 385,000 (25,000)
(15,000)

The correct answer is the sum of the changes in the fair value of each of the properties in 2015.
27. 1,168,723
SOL:
January 1, 2015 5,178,326
December 31, 2015 (500,000 - 414,266) = 85,734 5,092,592
December 31, 2016 (500,000 - 407,407) = 92,592 5,000,000

Present value:
P2,000,000 x .925926 1,851,852
P3,000,000 x .857339 2,572,017
Total 4,423,869

Amortized cost 5,092,592

Accrued interest 500,000
Total 5,592,592
Less: Present value 4,423,869
Impairment loss 1,168,723
28. 35,700
SOL:
January 1, 2013
Total cost of machine (P300,000 + P3,000 + P12,000) 315,000
Residual value (12,000)
Depreciable cost 303,000
Estimated useful life 10 years
Annual depreciation 30,300

Depreciable cost 303,000

Depreciation, 2013 - 2015 (P30,300 x 3 years) (90,000)
Remaining depreciable cost, Jan 1, 2016 212,100
Cost of new parts 37,800
Total 249,900
Remaining useful life (10 years - 3 years) 7 years
Revised annual depreciation 35,700
29. 6,444,000
SOL:
Lease liability, 12/31/2016 current = P424,000

Interest expense for 2016

Date Payment Interest Principal Present value
Jan. 1, 2016 - - - 6,760,000
Jan. 1, 2016 1,000,000 - 1,000,000 5,760,000
Jan. 1, 2017 1,000,000 576,000 424,000 5,336,000
 Carrying amount: (6,760,000 + 400,000 - 716,000) = 6,444,000
30. 5,855,000
SOL:
Unadjusted inventory, 12/31/16 5,000,000
Unshipped goods, excluded 80,000
Goods in the hands of customs broker 800,000
Goods purchased in transit, FOB destination (25,000)
Adjusted inventory, 12/31/16 (lower than NRV) 5,855,000
31. 1,378,700
SOL:
Consultation service fee
Present value of principal (P3,600,000 x 0.7514) 2,705,040
Present value of interest (3,600,000 x 5% x 2.4860) 447,480
Consultation service fee revenue 3,152,520

Gain on sale of equipment

Interest Principal Total PVF Present value
12/31/15 288,000 2,400,000 2,688,000 0.8772 2,357,914
12/31/16 192,000 2,400,000 2,592,000 0.7695 1,994,554
12/31/17 96,000 2,400,000 2,496,000 0.6750 1,684,800
Present value of note 6,037,258
Carrying amount of equipment 4,800,000
Gain on sale of equipment 1,237,258

Note receivable from sale of land

Date Interest income Carrying amount
1/1/15 - 2,181,960 (a)
12/31/15 218,196 2,400,156
12/31/16 239,844 (b) 2,640,000
(a)P2,640,000 principal x 0.8265 PVF at 10% for 2 periods
(b) P2,640,000 - P2,400,156

Note receivable from consultation

Date Effective interest Nominal interest Discount amort Carrying amount
1/1/15 - - - 3,152,520
12/31/15 315,252 180,000 135,252 3,287,772
12/31/16 328,777 180,000 148,777 3,436,549
12/31/17 343,451 (d) 180,000 163,451 (c) 3,600,000
(c) P3,600,000 - P3,436,549 = P163,451
(d) P163,451 + P180,000 = P343,451
 Note receivable from sale of equipment
Date Effective Nominal Amort Principal Carrying amount
interest interest collection
1/1/15 - - - - 6,037,258
12/31/15 845,216 288,000 557,216 2,400,000 4,194,474
12/31/16 587,226 192,000 395,226 2,400,000 2,189,700
12/31/17 306,300 (e) 96,000 210,300 2,400,000 -
(e) P2,400,000 - P2,189,700 =P210,300 + P96,000 = P306,300

Interest income
Note receivable from sale of land 218,196
Note receivable from consultation 315,252
Note receivable from sale of equipment 845,216
1,378,664
32. Compensation expense of P3,740,000
SOL:
(8,500 x 80 x (P27.50 - P22)) = P3,740,000
33. 391,800
SOL:
Date Payment Interest (10%) Principal Carrying amount
1/1/2015 - - - 5,280,000
1/1/2015 900,000 - 900,000 4,380,000
a/1/2016 900,000 438,000 462,000 3,918,000
1/1/2017 900,000 391,800
34. overstated by P405,000
SOL:
Depletion rate per ton (14,580,000/1,620,000) 9
Copper ore mined in 2016 (15,000 x 6 months) 90,000
Depletion for 2016 810,000
Depletion per books 1,215,000
Overstatement of depletion expense 405,000

Recorded depreciation expense was

Depreciable cost of machinery (P1,800,000 x 90%) 1,620,000
Estimated copper ore reserve 1,620,000
Depreciation rate per ton 1
Copper ore mined in 2016 90,000
Depreciation expense for 2016 90,000
Depreciation per books 120,000
Overstatement of depreciation expense 30,000
35. 331,760
SOL:
Trade payables, December 31, 2017 84,000
Cash paid to suppliers 302,800
Discounts received 2,960
Contra between payables and receivables 2,000
 Trade payables, December 1, 2017 (60,000)
Purchases 331,760
36. 660,000
SOL:
Accumulated gross profit, 12/31/2016 - Accrual 4,200,000
Accumulated gross profit, 12/31/2016 - Installment (2,000,000)
Taxable temporary difference, 12/31/2016 2,200,000
Tax rate 0.30
Deferred tax liability, 12/31/2016 660,000
37. 22,800
SOL:
Accounting profit 90,000
Rent received in advance 16,000
Income from exempt municipal bonds (20,000)
Excess tax depreciation (10,000)
Taxable profit 76,000
Current tax expenses/liability (P76,000 x .30) 22,800
38. 135,020
SOL:
Raw materials, January 1 42,500
Purchases 96,000
Raw materials available for use 138,500
Less: Raw materials, June 30 52,000
Raw materials used 86,500
Direct labor 130,000
Factory overhead (P130,000 x .60) 78,000
Total manufacturing cost 294,500
Work in process, January 1 115,000
Total cost placed in process 409,500
Less: Work in process, June 30 135,020
Cost of goods manufactured 274,480
Finished goods, January 1 120,000
Total goods available for sales 394,480
Less: Finished goods, June 30 112,000
Cost of goods sold (P428,000 x .66) 282,480
39. 4,500
SOL:
Fair value based on Level 1 input (P5,300 - P300) 5,000
Estimated costs to sell (commissions) (500)
Carrying amount of biological assets 4,500
40. 1,350,000
SOL:
Category A employees (P100,000 x 1) 100,000
Category B employees (P50,000 x 10) 500,000
Category C employees (P25,000 x 30) 750,000
1,350,000
41. 4,042,413
SOL:
Interest Interest Net premium
Acquisition date earned income amortization Book value
January 1, 2014 - - - 4,050,000
December 31, 2014 280,000 276,331 3,669 4,046,331
December 31, 2015 280,000 276,081 3,919 4,042,413

Interest earned: P4,000,000 x 7% = P280,000

Interest income:
December 31, 2014 (P4,050,000 x 6.823%) 276,331
December 31, 2015 (P4,046,331 x 6.823%) 276,081
42. P150,000 and P13,500
SOL:
Machine 300,000
Accumulated depreciation (150,000)
Carrying value, machine 150,000

Deferred income 27,000

Realized income (13,500)
Carrying value, deferred income 13,500
43. P11.622 million
SOL:
Revaluation surplus, 2015
in million
Fair value, 12/31/2015 (P115 million + P11.6 million) 126.6
Less: Carrying amount, 12/31/2013 (P120 million x 111.0
37/40)
Revaluation surplus, 12/31/2015 15.6

Revaluation surplus, 12/31/2015 15.6

Decrease in decommissioning liability 5
Revaluation decrease:
Fair value, 12/31/2016 (P107 million + P7.2 million) 114.2
Less: Carrying amount, 12/31/2016 (P126.6 million x 123.178 (8.978)
36/37)
Revaluation surplus, 12/31/2016 11.622
44. 280,000
SOL:
PV of benefit obligation, December 31 7,200,000
Add: Benefits paid 600,000
Total 7,800,000
Less: PV of benefit obligation, January 1 6,700,000
Add: Remeasurement loss 150,000
Interest on beginning ABO (P6,700,000 x 10%) 670,000 7,520,000
Service cost 280,000
45. 472,000
SOL:
Year-end balance 900,000
Beginning balance 400,000
Interest on beginning balance (7% x 400,000) 28,000 428,000
Additional provision during the year 472,000
46. 4,750
SOL:
50/2,000 x 190,000 = P4,750
47. 110,000
SOL:
Asset 1 Asset 2
Balance of revaluation surplus before revaluation 60,000 30,000
Revaluation increase (decrease) 50,000 (40,000)
Balance of revaluation surplus after revaluation 110,000 -

Total expense to be recognized in profit or loss

Revaluation increase (decrease) computation

Asset 1 Asset 2
Fair value 450,000 260,000
Carrying amount before classification as held for sale (400,000) (300,000)
Revaluation increase (decrease) 50,000 (40,000)

Impairment loss computation

Asset 1 Asset 2
Carrying amount after revaluation (fair value) 450,000 260,000
Fair value less costs to sell (430,000) (248,000)
Impairment loss in profit and loss 20,000 12,000

Revaluation decrease on Asset 2 (P40,000 - P30,000) 10,000

Impairment losses in accordance with PFRS 5 32,000
Total expense in profit and loss 42,000

Net amount to be recognized in other comprehensive income

Revaluation increase on Asset 1 50,000
Revaluation decrease on Asset 2 (Balance of
Revaluation surplus) (30,000)
Net amount in OCI 20,000
48. 3,864,795
SOL:
Date Interest income Interest received Amortization CA
Jan. 1 , 2016 - - - 3,711,618
Dec. 31, 2016 445,394 400,000 45,394 3,757,012
Dec. 31, 2017 450,841 400,000 50,841 3,807,853
Dec. 31, 2018 456,942 400,000 56,942 3,864,795
 2016 unrealized gain on the financial asset
Fair value, Dec. 31, 2016 3,875,902
Carrying amount per schedule (3,757,012)
Unrealized gain - OCI, 2016 118,890

2017 unrealized gain on the financial asset

Fair value, Dec. 31, 2017 4,101,252
Carrying amount per schedule (3,807,853)
Cumulative balance 293,399
Less: Unrealized gain - OCI, 2016 (118,890)
Unrealized gain - OCI, 2017 174,509

Interest income for 2018 (12% x 3,807,853) = 456,942

49. 355,105
SOL:
Lessor books
Fair value of the asset 467,100
Initial direct cost 9,414
476,514

Date Payment Interest (10%) Principal Amount

1/1/17 - - - 476,514
12/31/17 150,000 28,591 121,409 355,105
12/31/18 150,000 21,306 128,694 226,411
12/31/19 240,000 13,589 226,411 -

The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the
aggregate present value of (a) the minimum lease payments and (b) the URV to be equal to the sum of fair
value of the leased asset and any initial direct costs of the lessors.

Lessee books
Date Payment Interest (10%) Principal Amount
1/1/17 - - - 451,326
12/31/17 150,000 27,080 122,920 328,406
12/31/18 150,000 19,704 130,296 198,110
12/31/19 210,000 11,890 198,110 -

Lease related expenses for December 31, 2017

Interest expenses 27,080
Executory costs 15,000
Depreciation (P451,326 - P60,000)/3 130,442
Lease related expenses 172,522
50. 262,500
SOL:
Share in net income, 2014 ((P3,800,000 x 25%) x 3/12) 237,500
Understatement in depreciation ((800,000/10) x 3/12) (20,000)
217,500
Dividend income (2 x 40,000) 80,000
Unrealized holding gain (155 - 145) x 40,000 400,000
Investment income per books in 2014 480,000
Investment income per audit in 2014 217,500
Retroactive adjustment to retained earnings, 262,500
beginning

Carrying value of the investment in bonds as of December 31, 2015

Principal (8,000,000 x 0.5674) 4,539,415
Interest (800,000 x 3.6048) 2,883,821
Initial fair value (1/1/2013) 7,423,236

Interest Nominal interest Amortization Balance

January 1, 2013 7,423,236
December 31, 2013 890,788 800,000 90,788 7,514,024
December 31, 2014 901,683 800,000 101,683 7,615,707
December 31, 2015 913,885 800,000 113,885 7,729,592
December 31, 2016 927,551 800,000 127,551 7,857,143
December 31, 2017 942,857 800,000 142,857 8,000,000

Carrying value of the investment in stocks as of December 31, 2014

Investment in Associate (25%)
acquisition cost 5,800,000
Book value of assets acquired (P20,000,000 x 25%) 5,000,000
Excess of acquisition cost attributed to depreciated asset 800,000

September 30, 2014 acquisition cost 5,800,000

Share from dividends, 2014 (80,000)
Share from net income, 2014 ((P3,800,000 x 25%) x 3/12) 237,500
Understatement in depreciation (P800,000/10 x 3/12) (20,000) 217,500
December 31, 2014 carrying value 5,937,500
Share from dividends, 2015 (160,000)
Share from net income, 2015 (P5,200,000 x 25%) 1,300,000
Understatement in depreciation (P800,000/10) (80,000) 1,220,000
Share from OCL (P400,000 x 25%) (100,000)
Share from OCI (P300,000 x 25%) 75,000
December 31, 2015 carrying value 6,972,500

Amount recognized in the statement of comprehensive income upon reclassification of building from PPE
to investment
Fair value on reclass date (6/30/2015 3,200,000
Carrying value/Depreciated cost (6/30/2015) (6,400,000 x
4.5 years/10 years) 2,700,000
Revaluation surplus (OCI) on reclass 500,000