ILLUSTRATIVE EXAMPLES
Current Liabilities
1. [Current vs. Noncurrent] On December 31, 2025, Pinnacle Company provided the following
information:
Accounts payable, including advances
from customers of P250,000 P1,250,000
Notes payable, including note payable to bank
due on December 31, 2027 of P500,000 1,500,000
Share dividend payable 400,000
Credit balances in customers’ accounts 200,000
Serial bonds payable in semi-annual installment of P500,000 5,000,000
Accrued interest on bonds payable 150,000
Contested BIR tax assessment – possible obligation 300,000
Unearned rent income 100,000
Requirement: Compute for the following:
1. Total current liabilities on December 31, 2025.
2. Total noncurrent liabilities on December 31, 2025.
2. CPA Company provided the following information on December 31, 2025:
Notes payable:
Trade P3,000,000
Bank loans (maturing June 30, 2026) 2,000,000
Advances from officers and employees 500,000
Accounts payable – trade 4,000,000
Bank overdraft 300,000
Cash dividends payable 1,000,000
Withholding tax payable 100,000
Mortgage payable 3,800,000
Income tax payable 800,000
Estimated warranty liability 600,000
Estimated damages payable by reason of breach of contract 700,000
Accrued liabilities 900,000
Estimated premium liability 200,000
Contract entered into for the construction of building 5,000,000
Requirement: Compute for the following:
1. Total current liabilities on December 31, 2025.
2. Total noncurrent liabilities on December 31, 2025.
3. [Refinancing] ABC Company has a 10%, P1,000,000 loan payable as of December 31, 2025 that is
maturing on July 1, 2026. Interest on the loan is due every July 1 and December 31. Consider the
following scenarios:
Scenario 1: On February 1, 2026, ABC entered into a refinancing agreement with a bank to refinance
the loan on a long-term basis. Both parties are financially capable of honoring the agreement’s
provisions. ABC’s financial statements were authorized for issue on March 15, 2026.
Scenario 2: On February 1, 2026, ABC entered into a refinancing agreement with a bank to refinance
the loan on a long-term basis. Both parties are financially capable of honoring the agreement’s
provisions. ABC has the discretion to refinance or roll over the loan for at least twelve months from
December 31, 2023 under an existing loan facility. ABC’s financial statements were authorized for
issue on March 15, 2026.
Scenario 3: On December 1, 2023, ABC entered into a refinancing agreement with a bank to refinance
the loan on a long-term basis. The refinancing and roll over transaction was completed on December
31, 2025.
Scenario 4: [Using the facts, except that the loan payable pays annual interest every July 1] On
February 1, 2026, ABC entered into a refinancing agreement with a bank to refinance the loan on a
long-term basis. Both parties are financially capable of honoring the agreement’s provisions. ABC has
the discretion to refinance or roll over the loan for at least twelve months from December 31, 2025
under an existing loan facility. ABC’s financial statements were authorized for issue on March 15,
2026.
Requirement: For each scenario, indicate whether the liability should be presented as current or
noncurrent in ABC’s December 31, 2025 financial statements.
4. [Payable on demand] On January 1, 2025, BSA Company took a 3-year, P1,000,000 loan from a bank.
The loan agreement requires BSA to maintain a current ratio of 2:1. If the current ratio falls below
2:1, the loan becomes payable on demand. As of December 31, 2025, BSA’s current ratio is 1.8:1.
Scenario 1: Despite the breach of loan agreement on December 31, 2025, there is no indication that
the bank will demand payment over the next 12 months.
Scenario 2: On January 5, 2026, the bank agreed not to collect the loan in 2026 and gave BSA 12
months to rectify the breach of loan agreement.
Scenario 3: On December 31, 2025, the bank agreed not to collect the loan in 2026 and gave BSA 12
months to rectify the breach of loan agreement.
Requirement: For each scenario, indicate whether the liability should be presented as current or
noncurrent in BSA’s December 31, 2025 financial statements.
5. [Accounts payable] On December 31, 2025, XYZ Company has accounts payable of P1,000,000 before
possible adjustment for the following:
a. Goods in transit from a supplier to XYZ on December 31, 2025 with an invoice cost of P50,000
purchased FOB shipping point was not yet recorded.
b. Goods shipped FOB shipping point from a supplier to XYZ was lost in transit. The invoice cost of
P20,000 was not yet recorded.
c. Goods shipped FOB shipping point from a supplier to XYZ on December 31, 2025 amounting to
P8,000 was recorded and included in the year-end physical count as “goods in transit.”
d. Goods in transit from a supplier to XYZ on December 31, 2025 with an invoice cost of P10,000
purchased FOB destination was not yet recorded. The goods were received on January 2026.
e. Goods with invoice cost of P15,000 was recorded and included in the year-end physical count as
“goods in transit”. It was found out that the goods were shipped from a supplier under FOB
destination.
Requirement: Compute for the adjusted accounts payable on December 31, 2025 and prepare the
adjusting journal entries.
6. [Unearned subscriptions] Mr. Accounting Company sells monthly subscriptions for an industry
publication. Subscriptions received after the November 1 cut-off date are held for publication in the
following year. Receipts during 2025 for subscriptions were made evenly. Information on
subscriptions is shown below:
Unearned revenue – January 1, 2025 P3,000,000
Receipts from subscriptions during 2025 24,000,000
Requirement: Compute for the following:
a. Unearned revenue balance on December 31, 2025.
b. Revenue from subscriptions during 2025.
c. Prepare the journal entries for the year.
7. [Premiums]
Mr. Accounting Company manufactures a product that is packaged and sold. A planner is offered to
customers sending in stickers accompanied by a remittance of P10. Data with respect to the premium
offer are summarized below:
2025 2026
Sales P3,600,000 P4,200,000
Purchase of premium, P50 per planner 390,000 580,000
Number of planners distributed as premium 5,000 9,000
Estimated number of planners to be distributed 2,000 3,000
in subsequent period
Distribution cost P20 per planner
Requirement: Prepare journal entries that would be made in 2025 and 2026 to record sales, premium
purchases and redemptions, and year-end adjustments.
8. [Customer loyalty program]
ABC Company operates a customer loyalty program. The entity grants loyalty points for goods
purchased. The loyalty points can be used by the customers in exchange for goods of the entity. The
points have no expiry date. During 2025, the entity issued 50,000 awards credits and expects that
80% of these award credits shall be redeemed. The stand-alone selling price of the award credits
granted is reliably measured at P1,000,000.
In 2025, the entity sold goods to customers for a total consideration of P7,000,000 based on stand-
alone selling price. The award credits redeemed and the total award credits expected to be redeemed
each year are as follows:
Redeemed Expected to be redeemed
2025 15,000 80%
2026 7,950 85%
2027 2,550 85%
2028 15,000 90%
Requirement: Prepare journal entries from 2025 to 2028.
9. [Warranties] ABC Company sells color television sets with a two-year repair warranty. The sale price
for each set is P15,000. The average repair cost per set is P800. Research has shown that 20% of all
sets sold are repaired in the first year and 40% in the second year.
2025 2026
Number of sets sold 300 500
Total payments for warranty repairs P40,000 P150,000
Requirements:
1. Prepare journal entries in connection with the warranty.
2. Determine the estimated warranty liability on December 31, 2026.
10. [Provision – best estimate] In 2025, DEF Company received a court order requiring the cleanup of
environmental damages caused by one of DEF’s factory. DEF has no other realistic alternative but to
comply with the court order. Other entities have incurred around P15,000,000 for similar cleanup;
however, DEF’s best estimate of the cost of cleanup is P20,000,000.
Requirement: Prepare the journal entry to recognize the provision on December 31, 2025.
11. [Provision – expected value] In 2025, CPA Company recalled a product due to a possible defect
caused by malfunctioning factory equipment. The products recalled will be repaired free of charge.
CPA is uncertain whether all products recalled will have the possible defect. However, the following
estimate was made by CPA’s engineers and managerial accountants and approved by the board of
directors.
Repair Cost Probability
P20,000,000 5%
15,000,000 20%
10,000,000 35%
5,000,000 40%
Requirement: Prepare the journal entry to recognize the provision on December 31, 2025.
12. [Provision – midpoint] In 2025, a lawsuit was filed against ABC Company for patent infringement.
The plaintiff is claiming P100,000,000 in damages. ABC’s legal counsel believes that it is probable that
ABC will lose the lawsuit and pay damages of not less than P10,000,000 but not more than
P100,000,000. The probability of any amount within the range is as likely as any other amount also
within the range.
The plaintiff has offered to settle the lawsuit out of court for P90,000,000 but ABC did not agree to
the settlement.
Requirement: Prepare the journal entry to recognize the provision on December 31, 2025.
13. Mr. Accounting Company provided the following facts regarding pending litigation on December 31,
2025:
● The entity is defending against a first lawsuit and believes there is a 51% chance it will lose in
court. The entity estimates that damages will be P1,000,000.
● The entity is defending against a second lawsuit for which management believes it is virtually
certain to lose in court. If it loses the lawsuit, management estimates damages will fall somewhere
in the range of P3,000,000 to P5,000,000 with each amount in that range equally likely to occur.
● The entity is defending against a third lawsuit but the relevant loss will only occur far into the
future. The present values of the endpoints of the range are P1,500,000 and P2,500,000. The
management believes the effects of time value of money on these amounts are material but also
believes the timing of these amounts is uncertain.
● The entity is defending against a fourth lawsuit and believes there is only a 25% chance it will lose
in court. If the entity loses, management believes damages will fall somewhere in the range of
P3,000,000 to P4,000,000 with each amount in that range equally likely to occur.
Requirement: Indicate how the entity would disclose or account for the four lawsuits under IFRS in
the financial statements for the year-ended December 31, 2025.
14. [Contingent asset] XYZ Company is involved in a tax dispute. XYZ has wrongfully paid taxes and is
claiming for refund of the taxes it has previously paid. As of December 31, 2025, XYZ’s legal counsel
was very confident that XYZ will be able to recover the tax refund amounting to P10,000,000 in the
coming year.
Requirement: Provide the journal entry, if any, to recognize the probable receipt of the tax refund.
15. [Virtually certain] In 2025, there was a robbery in one of DEF’s branches. There has been a dispute
on the P100,000,000 insurance claim that DEF has presented to its insurance provider. On December
31, 2025, the insurance company approved the payment of 80% of DEF’s claim.
DEF received a letter that the settlement check for this amount had been mailed, but such check was
received only on January 5, 2026.
Requirement: Provide the journal entry to be made by DEF on December 31, 2025, if any.
