Profe03 Activity Chapter 7

PROFE03 ACCOUNTING FOR BUSINESS COMBINATIONS
ACTIVITY CHAPTER 7
Answer the following problem. Show your solutions in good form.
SOBRIQUET NICKNAME Co. operates in a hyperinflationary economy. Its unrestated

financial statements are provided below:
SOBRIQUET NICKNAME Co.
Statement of financial position
As of December 31, 20x2
20x2 20x1
ASSETS
Cash 80,000 60,000
Accounts receivable 160,000 120,000
Allowance for doubtful accounts (40,000) (20,000)
Inventory (at cost) 200,000 160,000
Land (at cost) 400,000 400,000
Building (at cost) 2,000,000 2,000,000
Accumulated depreciation (800,000) (600,000)
Total assets 2,000,000 2,120,000
LIABILITIES AND EQUITY
Accounts payable 80,000 188,000
Loan payable 400,000 320,000
Total liabilities 480,000 508,000
1
Share capital 1,200,000 1,200,000
Retained earnings 320,000 412,000
Total equity 1,520,000 1,612,000
Total liabilities and equity 2,000,000 2,120,000
SOBRIQUET NICKNAME Co.
Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x2
Sales 1,600,000
Cost of sales:
Inventory, January 1 160,000
Purchases 1,200,000
Total goods available for sale 1,360,000
Inventory, December 31 (200,000) (1,160,000)
Gross income 440,000
Depreciation expense (200,000)
Distribution costs (140,000)
Bad debts expense (20,000)
Finance cost (40,000)
Profit before tax 40,000
2
Income tax expense (12,000)
Profit for the year 28,000
Other comprehensive income -
Total comprehensive income for the year 28,000
Additional information:
 The land and building were acquired on April 1, 20x0.

 The share capital was issued on March 1, 20x0.
 Sales, purchases, and expenses (except interest expense) were incurred evenly
during the year.
 Interest expense was recognized and paid on December 31, 20x2.
 Dividends of ₱120,000 were declared and paid on December 31, 20x2.
 Selected values of general price indices (CPI) are shown
below: March 1, 20x0.....................................................100
April 1, 20x0...................................................................100
Average for 20x1............................................................110
December 31, 20x1.........................................................120
Average for 20x2............................................................125
December 31, 20x2...........................................................140
1. How much is the restated total assets in the 20x1 comparative statement of financial
position?
a. 2,910,303 b. 3,004,604 c. 3, 028,640 d. 2,910,340
2. How much is the restated total liabilities in the 20x1 comparative statement of
financial position?
a. 592,677 b. 508,000 c. 584,767 d. 592,667
3
3. How much is the restated total assets in the 20x2 statement of financial position?
a. 2,664,000 b. 2,894,00 c. 2784,000 d. 2,646,000
4. How much is the restated total liabilities in the 20x2 statement of financial
position? a. 520,000 b. 480,000 c. 460,000 d. 540,000
5. How much is the restated profit?
a. 13,636 b. (13,636) c. (13,726) d. 13,726
SOLUTION:
SOBRIQUET NICKNAME Company

Statement of financial position
As of December 31, 20x2
(Restated in terms of December 31, 20x2
current pesos)
20x2 20x1
Historical Fraction Restated Historical Fraction Restated
ASSETS
Cash 80,000 N/A 80,000 60,000 140 / 120 70,000
Accounts
160,000 N/A 160,000 120,000 140 / 120 140,000
receivable
Allowance for
doubtful (40,000) (40,000) (20,000) (23,333)
N/A 140 / 120
accounts
Inventory (at cost) 200,000 140 / 125 224,000 160,000 140 / 110 203,636
Land (at cost) 400,000 140 / 100 560,000 400,000 140 / 100 560,000
2,000,000 2,800,000 2,000,000 2,800,000

Building (at cost) 140 / 100 140 / 100
Accumulated (800,000)
140 / 100 (1,120,000) (600,000) 140 / 100 (840,000)
depreciation
Total assets 2,000,000 2,664,000 2,120,000 2,910,303
LIABILITIES
AND EQUITY
Accounts payable 80,000 N/A 80,000 188,000 140 / 120 219,333
Loan payable 400,000 N/A 400,000 320,000 140 / 120 373,333

Total liabilities 480,000 480,000 508,000 592,667
Share capital 1,200,000 140 / 100 1,680,000 1,200,000 140 / 100 420,000
4
(squeeze (squeeze
Retained earnings 320,000 504,000 412,000 1,897,636
) )
Total equity 1,520,000 2,184,000 1,612,000 2,317,636
Total liabilities and 2,000,000 2,664,000 2,120,000 2,910,303

equity

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PROFE03 ACCOUNTING FOR BUSINESS COMBINATIONS

Answer the following problem. Show your solutions in good form.

SOBRIQUET NICKNAME Co. operates in a hyperinflationary economy. Its unrestated

SOBRIQUET NICKNAME Co.

Statement of financial position

As of December 31, 20x2

Cash 80,000 60,000

Accounts receivable 160,000 120,000

Allowance for doubtful accounts (40,000) (20,000)

Inventory (at cost) 200,000 160,000

Land (at cost) 400,000 400,000

Building (at cost) 2,000,000 2,000,000

Accumulated depreciation (800,000) (600,000)

Total assets 2,000,000 2,120,000

LIABILITIES AND EQUITY

Accounts payable 80,000 188,000

Loan payable 400,000 320,000

Total liabilities 480,000 508,000

Share capital 1,200,000 1,200,000

Retained earnings 320,000 412,000

Total equity 1,520,000 1,612,000

Total liabilities and equity 2,000,000 2,120,000

SOBRIQUET NICKNAME Co.

Statement of profit or loss and other comprehensive income

For the year ended December 31, 20x2

Inventory, January 1 160,000

Total goods available for sale 1,360,000

Inventory, December 31 (200,000) (1,160,000)

Gross income 440,000

Depreciation expense (200,000)

Distribution costs (140,000)

Bad debts expense (20,000)

Finance cost (40,000)

Profit before tax 40,000

Income tax expense (12,000)

Profit for the year 28,000

Other comprehensive income -

Total comprehensive income for the year 28,000

 The land and building were acquired on April 1, 20x0.

SOBRIQUET NICKNAME Company

2,000,000 2,800,000 2,000,000 2,800,000

Loan payable 400,000 N/A 400,000 320,000 140 / 120 373,333

Total liabilities and 2,000,000 2,664,000 2,120,000 2,910,303

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