7454 Comprehensive Income and Accounting Changes Flashcards
(10 cards)
An entity reported the following data for the current year:
Income from continuing operations 4,000,000
Income from discontinued operation 500,000
Unrealized gain on financial asset - FVPL 800,000
Unrealized loss on equity investment at FVOCI 1,000,000
Unrealized gain on debt investment at FVOCI 1,200,000
Unrealized gain on forward contract designated as a cash flow hedge 400,000
Net remeasurement gain on defined benefit plan 600,000
Foreign translation loss 200,000
Loss on credit risk of financial liability designated at FVPL 300,000
Revaluation surplus during the current year 2,500,000
I. The net amount of other comprehensive income should be reported at P3,200,000.
II. The net amount of other comprehensive income reclassified to retained earnings should be reported at P1,800,000.
III. The comprehensive income should be reported at P8,500,000.
A. Statements I, II and III are true
B. Statements I, II and III are not true
C. Only statements I and II are true
D. Only statements I and III are true
C. Only statements I and II are true
OCI - recycled to P/L 1.4M
OCI - recycled to RE 1.8M
Total OCI 3.2M
NI (4M+500k) 4.5M
OCI 3.2M
Compre Inc 7.7M
An entity reported net income of P7,400,000 for the current year. The auditor raised questions about the following amounts that had been INCLUDED in net income:
Equity in earnings of an associate – 25% interest 1,500,000
Dividend received from the associate 400,000
Unrealized loss on equity investment at FVOCI 550,000
Gain on early retirement of bonds payable 2,200,000
Debit adjustment of profit of prior year for error in under depreciation, net of tax 750,000
Loss from fire 1,400,000
Unrealized gain on equity investment at FVPL 500,000
What amount should be reported as net income for current year?
A. 8,300,000
B. 8,800,000
C. 8,700,000
D. 8,850,000
A. 8,300,000
7.4M
(400k) <– Liquidating dividend
+550k <– dapat OCI
+750k <– <-Dapat adjustment sa RE. Add back kay gi minus sa adjustment, gi debit
On January 1, 2024, an entity purchased for P4,800,000 a machine with a useful life of ten years and a residual value of P200,000.
The machine was depreciated by the double declining balance and the carrying amount of the machine was P3,072,000 on December 31, 2025. The entity changed to the straight line method on January 1, 2026. Th residual value did not change.
I. A change from double declining balance to straight line depreciation is a change in accounting estimate.
II. The depreciation should be reported at P359,000 for 2026.
A. Statements I and II are true.
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true
A. Statements I and II are true.
(3,072,000-200k)/8
On January 1, 2025, an entity decided to decrease the estimated useful life of an existing patent from 10 years to 8 years. The patent was purchased on January 1, 2020 for P3,000,000. The estimated residual value is zero.
The entity decided on January 1, 2025 to change the depreciation method from an accelerated method to the straight line method.
On January 1, 2025, the cost of an equipment is P8,000,000 and the accumulated depreciation is
P3,400,000. The remaining useful life of the equipment on January 1, 2025 is 10 years and the residual
value is P200,000.
What is the total charge against income for 2025 as a result of the accounting changes?
A. 940,000
B. 960,000
C. 627,500
D. 647,500
A. 940,000
Amort 500k (3M-1.5M)/3
Depre 440k (4.6M-200k)/10
Tot Exp 940k
During 2025, an entity decided to change from the FIFO method of inventory valuation to the weighted
average method. Inventory balances under each method were:
FIFO WA December 31, 2022 4,500,000 5,400,000 December 31, 2023 7,800,000 7,100,000 December 31, 2024 8,300,000 7,800,000
The income tax rate is 25%.
I. The net effect of the accounting change should be reported as P500,000 decrease in retained earnings.
II. A change from FIFO to weighted average of inventory valuation is a change in accounting policy requiring prospective application.
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true
B. Statements I and II are not true
8,300,000 - 7,800,000 decrease 500k
I. False. 500k * 75% = 375k after tax dapat.
II. False. Retrospective
Retained earnings 375k
Income tax payable 125k
Inventory 500k
Journal entry on Jan 1, 2025
On January 1, 2026, an entity changed from the average cost method to the FIFO method to account for inventory. The entity provided the following ending inventory for each method:
2025 2026 Average cost 500,000 900,000 FIFO cost 700,000 1,400,000 Difference in ending inventory 200,000 500,000
The entity reported income before tax of P1,500,000 for 2025 and P2,000,000 for 2026 using the average cost method.
What amount should be reported as net income in 2026 after the change from average to the FIFO inventory method?
A. 1,725,000
B. 2,300,000
C. 2,700,000
D. 2,025,000
A. 1,725,000
IBT - ave 1.5M 2M
EI - 2025 200k (200k)
EI - 2026 - 500k
IBT - FIFO 1.7M 2.3M
IAT - FIFO 1.275M 575k
Income Before Tax (IBT)
Income After Tax (IAT)
Which is the first step within the hierarchy of guidance when selecting accounting policies?
A. Apply a standard from IFRS if it specifically relates to the transaction
B. Apply the requirements in IFRS dealing with similar and related issue
C. Consider the applicability of the definitions, recognition criteria and measurement concepts in the Conceptual Framework
D. Consider the most recent pronouncements of other standard setting bodies
A. Apply a standard from IFRS if it specifically relates to the transaction
Ga sunod yarn
In the absence of an accounting standard that applies specifically to a transaction, what is most authoritative source in developing an accounting policy?
A. Apply the requirements in IFRS dealing with similar and related issue.
B. The definition, recognition criteria and measurement of asset, liability income and expense in the
Conceptual Framework.
C. Most recent pronouncement of other standard setting body.
D. Accounting literature and accepted industry practice.
A. Apply the requirements in IFRS dealing with similar and related issue.
A change in accounting policy includes all of the following, except
A. The initial adoption of an accounting policy to carry asset at revalued amount
B. The change from cost model to revaluation model in measuring property, plant and equipment
C. A change in the measurement basis
D. A change from one method of depreciation to a different method of depreciation
D. A change from one method of depreciation to a different method of depreciation
When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as
A. Change in accounting estimate with appropriate disclosure
B. Change in accounting policy
C. Correction of an error
D. Initial adoption of an accounting policy
A. Change in accounting estimate with appropriate disclosure
