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PROBLEM 4: FOR CLASSROOM DISCUSSION
1. C
2. B
3. C
4. C – A change from FIFO to LIFO is inappropriate
because LIFO is not an acceptable cost formula under
PAS 2.
5. C
Choice (a) is a correction of error.
Choices (b) and (d) are changes in accounting policy
6. B – Under the consistency concept, users of financial
statements should be informed of changes in
accounting policies.
7. C
8. A
DDB rate = 2/Life = 2/8 = 25%
Carrying amount on 1/1/x4: (600,000 x 75% x 75% x
75%) = 253,125
Depreciation expense for 20x4: (253,125 –
150,000) ÷ 5 = 20,625
Carrying amount on 12/31/x4: 253,125 – 20,625 =
232,500
Accumulated depreciation on 12/31/x4: (600,000
historical cost – 232,500 CA on 12/31/x4) = 367,500
9. C
Journal entry:
Inventory (400K – 360K) 40,000
Retained Earnings (40,000 x 70%) 28,000
Deferred tax liability 12,000
10. B
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20x
20x2
1
55,00 (55,000
Under (Over) – inventory, 20x1
0 )
(22,000
Under (Over) – inventory, 20x2
)
Understatement of depreciation – (22,00
20x1 0)
Understatement of depreciation – (33,000
20x2 )
Understatement of accrued salaries – (44,00
44,000
20x1 0)
Understatement of accrued salaries – (66,000
20x1 )
Effect on profit or loss - (Over) (11,0 (132,0
Under 00) 00)
Effect on 12/31/x2 retained earnings = (11,000) +
(132,000) = (143,000)
11. C
12. C
Under PAS 37, a provision is recognized if all of the
following conditions are met:
a. The item meets the definition of a liability (i.e.,
present obligation arising from past events);
b. Probable outflow of resources embodying
economic benefits; and
c. The outflow can be measured reliably.
If not all the conditions are met, no provision is
recognized. However, the entity may disclose a
contingent liability if the outflow is deemed
reasonably possible.
In the problem above, the fact that a lawsuit is filed
cannot be presumed that the outflow is probable.
13. B
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14. D – Only a disclosure shall be made because there is
no present obligation as of the end of the reporting
period, i.e., the fire happened subsequent to year-end.
15. B
2,000
Unadjusted profit ,000
(500
(c) Impairment loss on receivable ,000)
1,50
Adjusted profit 0,000
