ACC 142 - Quiz 2 Answer Key
1 PAS 29 prescribes the restatement procedures for the financial statements of an entity whose functional currency is the currency of
TRUE
a hyperinflationary economy.
2 PAS 29 on financial reporting in a hyperinflationary economy establishes an absolute rate at which hyperinflation is
F
deemed to arise.
3 Inflation is normally ignored in accounting due to the stable monetary unit assumption. TRUE
4 Hyperinflation is a matter of judgment. TRUE
5 Hyperinflation refers to gain or loss of purchasing power of money at such rate that comparison of amounts from transactions and
F
other event that have occurred at different times, even within the same accounting period, is MISLEADING.
6 Hyperinflation occurs when inflation is very high. TRUE
7 Hyperinflation occurs when specific price level within a specific economy increases rapidly wherein the functional currency loses its
F
real value very quickly.
8 PAS 29, paragraph 8, provides that the financial statements of an entity that reports in the currency of a hyperinflation economy,
whether they are based on historical cost approach or a current cost approach, shall be stated in terms of the measuring unit TRUE
current at the end of reporting period.
9 The corresponding figures for the previous period required by PAS 1 Presentation of Financial Statements and any information in
TRUE
respect of earlier periods shall also be stated in terms of the measuring unitcurrent at the end of the reporting period.
10 The gain or loss on the net monetary position shall be included in profit or loss and separately disclosed.
TRUE
11 Presentation of the information required under PAS 29 as supplement to unrestated financial statements is permitted. Furthermore,
F
separate presentation of the financial statements before restatement is encouraged..
12 The restatement of financial statements of an entity that reports in the currency of a hyperinflationary economy is accomplished by
means of current peso accounting. F
13 Price level change is the increase or decrease in the price of goods or services in a given market during a given interval. TRUE
14 Purchasing power means the goods and services that money can buy. TRUE
15 If the general price level increases, this means that thepurchasing power of money has increased– a condition known as inflation. F
16 If the general price level decreases, this means that thepurchasing power of money has increased – a conditionknown as deflation TRUE
17 Only non-monetary items, statement of financial performance amounts not already expressed in terms ofthe measuring unit current
F
the end of the reporting period, are restated when using the constant peso accounting.
18 Monetary items are not restated because they are already expressed in terms of the monetary unitcurrent at the end of the
TRUE
reporting period.
19 Monetary items are money held and assets and liabilities to be received or paid in fixed ordeterminable amount ofmoney.These
TRUE
items remain the same regardless of change in thegeneral price level.
20 Non-monetary items are assets that cannot be classified as monetary.They are non-monetary because their peso amounts reported
TRUE
differ from the amounts that are ultimately realizable or payable.
21 Estimated warranty liability NML D
22 Accounts payable ML C
23 Accounts receivable MA A
24 Accrued expenses ML C
25 Advances from customers NML D
26 Advances to employees NMA B
27 Advances to suppliers NMA B
28 Allowance for doubtful accounts MA A
29 Bonds payable ML C
30 Cash in bank MA A
31 Deferred tax liability NML D
32 Finance lease liability ML C
33 Financial asset at amortized cost MA A
34 Financial asset at fair value NMA B
35 Inventory NMA B
36 Patent NMA B
37 Prepaid expense NMA B
38 Retained earnings - is a balancing figure and should
not be classified as neither
monetary nor non- monetary E
39 Share capital E
40 Unearned revenue NML D
SOLUTIONS:
1. A 2,910,303 (See solutions below)
2. D 592,667 (See solutions below)
3. A 2,664,000 (See solutions below)
4. B 480,000 (See solutions below)
Solution: ABC 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
80,000 80,000 60,000 70,000
Cash N/A 140 / 120
160,000 160,000 120,000 140,000
Accounts receivable N/A 140 / 120
Allowance for doubtful (40,000) (40,000) (20,000) (23,333)
accounts N/A 140 / 120
200,000 224,000 160,000 203,636
Inventory (at cost) 140 / 125 140 / 110
400,000 560,000 400,000 560,000
Land (at cost) 140 / 100 140 / 100
2,000,000 2,800,000 2,000,000 2,800,000
Building (at cost) 140 / 100 140 / 100
(800,000) (1,120,000
(600,000) (840,000)
)
Accumulated depreciation 140 / 100 140 / 100
2,000,000 2,664,000 2,120,000 2,910,303
Total assets
LIABILITIES AND
EQUITY
80,000 80,000 188,000 219,333
Accounts payable N/A 140 / 120
400,000 400,000 320,000 373,333
Loan payable N/A 140 / 120
480,000 480,000 508,000 592,667
Total liabilities
1,200,000 1,680,000 1,200,000 420,000
Share capital 140 / 100 140 / 100
320,000 504,000 412,000 1,897,636
Retained earnings (squeeze) (squeeze)
1,520,000 2,184,000 1,612,000 2,317,636
Total equity
Total liabilities and 2,000,000 2,664,000 2,120,000 2,910,303
equity
5. B
ABC NICKNAME Company
Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x2
(Restated to December 31, 20x2 current pesos)
Historical Frac-tion Restated
Sales 1,600,000 140/125 1,792,000
Cost of sales:
Inventory, Jan. 1 160,000 140/110 203,636
Purchases 1,200,000 140/125 1,344,000
Total goods available for sale 1,360,000 1,547,636
Inventory, Dec. 31 (200,000) (1,160,000) 140/125 (224,000) (1,323,636)
Gross income 440,000 468,364
Depreciation expense (200,000) 140/100 (280,000)
Distribution costs (140,000) 140/125 (156,800)
Bad debts expense (20,000) N/A (20,000)
Finance cost (40,000) 140/140 (40,000)
Gain on net monetary position 7,060
Profit before tax 40,000 (196)
Income tax expense (12,000) 140/125 (13,440)
Profit for the year 28,000 (13,636)
Other comprehensive income - -
Total comprehensive income for the yr. 28,000 (13,636)
6. C
Total monetary assets, Dec. 31, 20x2, Historical cost:
Cash P80,000
Accounts receivable 160,000
Allowance for doubtful accounts (40,000) P200,000
Total monetary liabilities, Dec. 31, 20x2, Historical cost:
Accounts payable 80,000
Loan payable 400,000 (480,000)
Net monetary items, Dec. 31, 20x2, Historical cost (a) (280,000)
Total monetary assets, Dec. 31, 20x1, Restated:
Cash 70,000
Accounts receivable 140,000
Allowance for doubtful accounts (23,332) 186,668
Total monetary liabilities, Dec. 31, 20x1, Restated:
Accounts payable 219,332
Loan payable 373,332 (592,668)
Net monetary items, Dec. 31, 20x1, Restated (406,500)
Increases in net monetary items during 20x2:
Sales, restated 1,792,000
Decreases in net monetary items during 20x2:
Purchases, restated (1,344,000)
Distribution costs, restated (156,800)
Bad debts expense (20,000)
Finance cost, restated (40,000)
Income tax expense, restated (13,440)
Dividends paid, restated (120,000 x 140 /140) (120,000) (1,694,240)
Net monetary items, Dec. 31, 20x2, Restated (b) (308,240)
Gain on net monetary position (a - b) P28,240 C
7. D 504,000 (See restated statement of financial position above)
8. D
Solution:
Beginning inventory - units 8,000
Units purchased 31,000
Total goods available for sale - units 39,000
Units sold 30,000
Ending inventory in units 9,000
Current cost per unit 71
Ending inventory - current cost 639,000
9. A
Solution:
Units sold 30,000
Average current cost [(71 + 57) ÷ 2] 64
Cost of sales - current cost 1,920,000
10. D
Solution:
Sales 1,000,000
Historical cost of portion sold (1,200,000 x 1/2) (600,000)
Realized gain 400,000
Current cost of unsold portion (1,400,000 x 1/2) 700,000
Historical cost of portion unsold (1,200,000 x 1/2) (600,000)
Unrealized gain 100,000
Total gain 500,000
BRANCH
BILLED PRICE COST AOI others/notes
Beg. Inventory 26,000.00
Outside 5,200.00 5,200.00 0
Home Office 20,800.00 15,600.00 5,200.00 diff AOI = 31.2k - 26k
Puchases 39,000.00 39,000.00 0.00
Puchase Returns, Discounts,
Allowances 0.00 0.00 0.00
Freight-In 0.00 0.00 0.00
Shipment from
HO 104,000.00 78,000.00 26,000.00 0.33
Freight-In 0.00 0.00 0.00
Returns 0.00 0.00 0.00
In transit 0.00 0.00 0.00
TGAS 169,000.00 137,800.00 31,200.00
End Inventory
Outside 7,800.00 7,800.00 0.00
Home Office 26,000.00 19,500.00 6,500.00
In -Transit 0.00
COGS 135,200.00 110,500.00 24,700.00 Realized Mark-up
Home Office Branch
Sales 260,000.00
COGS 135,200.00
Gross Profit 0.00 124,800.00
OpEx 78,000.00
Net Income/Profit 0.00 46,800.00 Individual Branch Profit
24,700.00 Realized Mark-up
71,500.00 True Branch Profit
0.00 71,500.00 71,500.00 Combined Profit
1 Realized Profit/Mark-up 24,700.00
2 Branch Beginning Inventory from Home Office 20,800.00
3 Unrealized Profit/Mark-up in separate books of HO 6,500.00
4 Cost of goods available for sale in Branch Books 169,000.00
5 Branch Ending Inventory in Combined FS 27,300.00
6 Branch Individual Profit 46,800.00
7 Branch True Profit 71,500.00
