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Chapter 48

First-time Adoption of Philippine Financial


Reporting Standards

PROBLEM 48-1: THEORY


1. A 6. B 11. C 16. C
2. E 7. C 12. B 17. B
3. D 8. A 13. D 18. A
4. B 9. C 14. B 19. D
5. C 10. C 15. B 20. E

PROBLEM 48-2: EXERCISES


1. Solution:
a. The deferred loss is recognized directly in retained earnings. If
compensation from the insurance company is virtually certain, a
separate claims receivable is recognized. (PAS 8 – correction of
error; PAS 16 and 36 – impairment of asset and compensation for
impairment are two separate and distinct events)
b. Recognize the subscriptions received as liability until the refund
period expires. (PAS 32)
c. Derecognize the dividends payable. (IFRIC 17)
d. Derecognize the organization costs. (PAS 38)
e. Reclassify the shares to liability. (PAS 32)
f. Restate the deferred taxes to undiscounted amount. (PAS 12)

2. Solution:
a. Recognize directly in retained earnings the unamortized balance
of deferred advertising costs. (The Conceptual Framework for
Financial Reporting – concept of “immediate recognition” and
PAS 8 – correction of error)
b. Recognize an intangible asset. (IFRIC 12)
c. The unamortized balance of R&D is transferred directly to
retained earnings. (PAS 38)
d. Reclassify the land to non-current assets. (PFRS 5)
e. Derecognize the provision for future losses. (The Conceptual
Framework for Financial Reporting – recognition criteria for
liabilities)
f. Recognize a liability for warranty obligation. (PAS 37)

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3. Answer: No. Since the use of the “aging of accounts receivable”
method is also acceptable under PFRSs, WOO Co. need not
revise its estimate.

4. Answer: Yes. Since the PFRSs requires accrual basis of


accounting, WOO Co. is required to make estimates of bad
debts as of January 1, 20x4 on December 31, 20x5. The
estimated amount shall be set up as an allowance with a direct
charge to retained earnings. The amount of bad debts
recognized during years 20x4 and 20x5 under the previous GAAP
shall be adjusted accordingly in profit or loss.

5. Answer: Yes. Since the estimate made is clearly erroneous,


WOO Co. shall adjust the estimate in order to correct the error.
The adjustment shall be recognized directly in retained earnings.

6. Answer: No. The receipt of the information on January 5, 20x4 is


accounted for prospectively as a non-adjusting event after the
reporting period.

7. Answer: No. The receipt of the information on January 5, 20x4 is


accounted for prospectively as a non-adjusting event after the
reporting period. The effect of the increase in the rate will be
reflected in profit or loss in 20x4.