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Chapter 2
Statement of Comprehensive Income

PROBLEM 1: TRUE OR FALSE

1. TRUE
2. FALSE – five (5) categories
3. TRUE
4. TRUE
5. TRUE
6. FALSE – operating category
7. FALSE – Dividends received from investments in
associates accounted for under the equity method are
treated as reduction in the carrying amount of the
investment, rather than as income in profit or loss.

8. TRUE
9. FALSE – PFRS 18 does not require profit or loss from
investments
10. FALSE – PFRS 18 requires additional disclosures
when an entity uses the function of expense method.

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. D
3. C
4. D
5. B
6. A
7. D
8. B
9. C

10. D – the problem states income and expenses from

financial assets; thus, the income and expenses relate
to either operating or investing rather than financing

11. D
12. B
13. A
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14. B
15. C
16. C
17. A
18. D
19. A
20. A

PROBLEM 3: EXERCISE
1. Solutions:

Requirement (a):

Dinner Co.
Statement of profit or loss and other comprehensive
income
For the year ended December 31, 20x1
Not
es
16,800,00
Sales
0
(8,390,000
Cost of goods sold 12
)
Gross profit 8,410,000
(3,090,000
Distribution costs 13
)
(2,910,000
General and administrative expenses 14
)
Impairment loss (290,000)
Operating profit 2,120,000
Interest income 60,000
Dividend income 420,000
Unrealized loss on held for trading
(10,000)
securities
Profit before financing and
2,590,000
income taxes
Interest expense (280,000)
Profit before income tax 2,310,000
Income tax expense (552,000)
PROFIT 1,758,000
Other comprehensive income
Items that will not be reclassified
subsequently:
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Revaluation decrease during the

(120,000)
period
Items that will be reclassified subsequently
to profit or loss:
Translation gain on foreign operation 25,000
Other comprehensive income (95,000)
TOTAL COMPREHENSIVE 1,663,00
INCOME 0

Requirement (b):

Note 12: Cost of goods sold

This line item consists of the following:

2,100,00
Beginning inventory 0
6,800,00
Purchases 0
(480,00
Purchase returns 0)
350,00
Freight in
0
8,770,00
Total goods available for sale 0
(380,00
Ending inventory 0)
8,390,0
Cost of goods sold 00

Note 13: Distribution costs

This line item consists of the following:

870,00
Freight out 0
480,00
Sales commissions 0
320,00
Marketing expense 0
670,00
Salaries of sales personnel 0
210,00
Rent expense 0
540,00
Depreciation expense 0
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3,090,0
Distribution costs 00

Note 14: General and administrative expenses

This line item consists of the following:
2,520,00
Salaries of administrative personnel 0
210,00
Rent expense 0
180,00
Depreciation expense 0
2,910,0
General and administrative expenses 00
PROBLEM 4: CLASSROOM ACTIVITIES

ACTIVITY 1
1. Solutions:

Requirement (a): Adjusting/Correcting entries

(a) Adjustments for ending inventory:

Ending inventory, excluding freight-in 370,000

16,00
Allocation of freight-in (a) 0
Ending inventory, including of freight-in 386,000
NRV 270,000
Loss on inventory write-down 116,000
(a)
[320K freight-in x [370K ending inventory ÷ 7.4M gross
purchases)] = 16,000

(1) Inventory – end. 386,00

Income summary 0 386,000

(2) Loss on inventory write-down 116,00

Inventory – end. 0 116,000

(c) Adjustments for bad debt expense:

Allowance for bad

debts
280,000 beg.
 Page |5

120,
Write-offs 000 28,000 Recoveries
Bad debts
50,000 expense
end. (4.76M x 238,
5%) 000

(3) Bad debts expense 50,000

Allowance for bad debts 50,000

(d) Correcting entry and Adjusting entry for investment in

bonds:

Entry made Should be entry

Held for trading sec. 1M Held for trading sec. 800K
Investment in bonds Loss on reclassification 200K
1M Investment in bonds
1M

Correcting entry:
(4) Loss on reclassification 200,00
Held for trading securities 0 200,000

Held for trading sec. (adjusted carrying amt.) 800,000

Fair value on Dec. 31, 20x1 980,000

Unrealized gain 180,000

Year-end Adjusting entry:

(5) Held for trading securities 180,000
Unrealized gain (980K – 180,000
800K)

 Income tax expense

5,240,0
Profit before income taxes (see FS below) 00
Income tax rate 30%
 Page |6

1,572,0
Income tax expense 00

(6 Income tax expense 1,572,0

) Income tax payable 00 1,572,00
0

Requirement (b): Statement of P/L and OCI

Best Friends Co.

Statement of profit or loss and other comprehensive
income
For the year ended December 31, 20x1
Note
s
22,800,00
Sales
0
(9,664,00
Cost of sales
12 0)
13,136,00
Gross profit
0
(1,470,00
Selling expenses
13 0)
(6,450,00
General and administrative expenses
14 0)
Loss on inventory write-down (116,000)
Gain on impairment recovery 720,000
Operating profit 5,820,000
Loss on reclassification of financial
(200,000)
asset
Unrealized gains on financial assets 180,000
Profit before financing and income
5,800,000
taxes
Interest expense (560,000)
 Page |7

Profit before income tax 5,240,000

(1,572,00
Income tax expense
0)
PROFIT 3,668,000
Other comprehensive income:
Items that will not be reclassified
subsequently:
Revaluation increase during the
130,000
period
Items that will be reclassified subsequently to
-
P/L:
Other comprehensive income 130,000
TOTAL COMPREHENSIVE 3,798,00
INCOME 0

Note 12: Cost of sales

This line item consists of the following:
3,000,
Beginning inventory
000
7,400,
Purchases
000
(670,
Purchase returns
000)
320,
Freight in
000
10,050,0
Total goods available for sale
00
(386,
Ending inventory
000)
9,664
Cost of sales
,000

Note 13: Selling expenses

This line item consists of the following:

Sales commissions 480,000

Advertising expense 320,000
Salaries of sales personnel 670,000
Selling expenses 1,470,000

Note 14: General and administrative expenses

This line item consists of the following:
 Page |8

Salaries of administrative personnel 6,400,000

Bad debts expense 50,000
General and administrative expenses 6,450,000

ACTIVITY 2
2. Solutions:

Requirement (a):
Adjusting/Correcting/Reclassification entries

a. Cash in bank
 No adjustment is necessary. DIT and OC are bank
reconciling items; not book.

b. Money market placements

 This will be included in the ‘Cash and cash
equivalents’ line item.

c. Inventories
(c) Inventory 200,00
Accounts payable 0 200,000

d. Investment in equity securities measured at FVOCI

 The ₱260,000 Unrealized gain on equity securities
– FVOCI pertains to the current year because the
problem states that the related investment was
recently acquired. This amount will be presented
in OCI (‘not subsequently reclassified’) and
accumulated in equity.

e. Investment property (‘Land and building’)

 The ‘Land and building’ should be presented as
investment property, remeasured to year-end fair
value.

(e) Investment property (2.9M – 2,900,0

2.8M) 00 2,800,00
Land and building 0
Unrealized gain on IP 100,000

f. Building
 Page |9

 The building is 1 year old at the start of the

current year, is being depreciated under the
double declining balance method, and the
depreciation for the current year is not yet
recognized. The depreciation is computed as
follows:
o Double declining balance rate = (450K ÷
4.5M) = 10%
o Depreciation for 20x1 = (4.5M – 450K) x 10% =
405,000

(f) Depreciation expense – Bldg. 405,000

Accum. depreciation – Bldg. 405,000

g. Equipment
 The equipment is 1 year old at the start of the
year, has a useful life of 5 years and a residual
value of ₱200,000, and the depreciation for the
current year is not yet recognized. The
depreciation method used on the equipment is
determined using ‘trial and error’.
 First trial using ‘SYD’ method:
SYD denominator = Life x [(Life + 1) ÷ 2] = 5 x
[(5+1) ÷ 2] = 15
Depreciation, 20x0 = (1.4M – 200K) x 5/15 = 400,000

 The 400,000 depreciation is equal to the

accumulated depreciation in unadjusted trial
balance. Therefore, the depreciation method used
on the equipment is SYD. The SYD depreciation
for 20x1 is computed as follows:

Depreciation for 20x1 = (1.4M – 200K) x 4/15 =

320,000

(g) Depreciation – Equipment 320,00

Accum. depreciation – 0 320,000
Equipt.

h. Patent
 The patent was acquired on July 1, 20x1. The
unadjusted trial balance does not show patent
amortization. Therefore, amortization is not yet
 P a g e | 10

recognized. The patent amortization for 20x1 is

computed as follows:
o Estimated useful life = 17 yrs.
o Remaining legal life = 20 yrs. – 5 yrs. = 15 yrs.
(shorter)
o Amortization expense = 900,000 ÷ 15 x 6/12 =
30,000

(h) Amortization expense - Patent 30,000

Accum. amortization - 30,000
Patent

i. Loans payable
 The inventory (i.e., custom-built machinery) meets
the definition of a qualifying asset. Therefore, the
interest on the related loan should be capitalized.
The capitalizable borrowing cost is computed as
follows:
o (1.8M ÷ 2) = 900,000 average expenditure x
12% = 108,000

(i) Inventory 108,00

Interest expense 0 108,000

j. Bonds payable
 The bonds were issued at a discount because the
effective interest rate of 14% is higher than the
nominal rate of 10%. However, Colleagues
recorded the bonds at face amount. The
corrections are determined as follows:
Entry made Should be entry
Cash in bank 8M Cash in bank 7,067,612
Bonds payable Discount on B/P(1) 932,388
8M Bonds payable
8M

(1)
The issue price of the bonds is computed as follows:
Cash flows PVF PV
0.5920802 4,736,64
P: 8,000,000 PV of 1 @14%, n=4 7735 2
PV ord. ann. 2.9137123 2,330,97
i: 800,000 @14%, n=4 0464 0
7,067,61
 P a g e | 11

 8,000,000 face amount - 7,067,612 = 932,388 Discount on

bonds payable

(j.1 Discount on bonds payable 932,38

) Cash in bank 8 932,388

 Since Colleagues recorded the bonds at face

amount. The interest expense recognized would
probably be based on the nominal rate of 10%
(rather than 14% using the effective interest
method). This assumption is tested as follows:

Face Nominal
amount rate Interest
240
Loans payable 2,000,000 12% ,000
800
Bonds payable 8,000,000 10% ,000
1,040,
Total 000

 The amount computed above tallies with the

amounts in the unadjusted trial balance. The
correction is determined as follows:

Partial amortization table:

Payme Int. Amo
Date nts expense rt. Present value
1/1/x1 7,067,612
12/31/ 189,4
x1 800,000 989,466 66 7,257,078

Entry made Should be entry

Interest expense 800,000 Interest expense 989,466
Interest payable Interest payable
800,000 800,000
Discount on B/P
189,466

Correcting entry:
(j.2Interest expense 189,46
) Discount on bonds payable 6 189,466
 P a g e | 12

k. Utility bills

(k) Utilities expense 360,00

Accrued liabilities 0 360,000

l. Income tax expense

(l) Income tax expense 719,86

Current tax asset 0 719,860

SEE WORKSHEET FOR COMPUTATION OF INCOME

TAX EXPENSE (i.e., separate file in Excel format)

Requirements (b), (c) and (d):

SEE “CHAPTER 2_ACTIVITY 2_WORKSHEET” (i.e.,
separate file in Excel format)

PROBLEM 5: MULTIPLE CHOICE – COMPUTATIONAL

1. B
Solution:
EB Bongo Co.
Statement of profit or loss and other
comprehensive income
For the year ended December 31, 20x1
4,000,00
Sales
0
 P a g e | 13

Sales discounts (32,000)

(2,200,0
Cost of sales
00)
1,768,00
Gross profit
0
Other operating income 40,000
(890,000
Selling expenses
)
(220,000
General and administrative expenses
)
Impairment loss on inventories (78,000)
Service cost (62,000)
Other operating expenses (20,000)
Operating profit 538,000
Dividends received from investments in FVOCI
Securities 30,000
Share in profit of joint venture 60,000
Unrealized gains on held for trading securities 15,000
Interest income on money market placements 45,000
Profit before financing and income taxes 688,000
Gain on early retirement of bonds payable 50,000
Interest expense on lease liability (22,000)
Interest expense on net defined benefit liability (13,000)
Profit before income tax 703,000
(150,000
Income tax expense
)
PROFIT 553,000
Other comprehensive income:
Items that will not be reclassified
subsequently to profit or loss:
Unrealized gains on investments in FVOCI
equity
Securities 19,000
Gain on revaluation of property 15,000
Remeasurement of net defined benefit liability -
(11,000)
loss
23,000
Items that will be reclassified
subsequently to profit or loss:
Effective portion of cash flow hedge – gain 4,000
4,000
Other comprehensive income 27,000
TOTAL COMPREHENSIVE INCOME 580,000
 P a g e | 14

Notes:
 Dividends received from investment in joint venture –
treated as reduction in the carrying amount of the
investment
 Gain on sale of treasury stocks – recognized directly
in equity as addition to share premium
 Cash dividends and Stock dividends declared and paid
– recognized directly in equity as deduction from
retained earnings
 Correction of understatement of depreciation in prior
year – treated as a direct adjustment to the opening
balance of retained earnings

2. B – see solution above

3. D – see solution above

4. B – see solution above

5. C – see solution above

6. C

Solution:

a) Sale of investment in bonds:

Entry made Should be entry
Cash 950K Cash 950K
Investment in bonds Investment in bonds
950K 800K
Gain on sale of bonds
150K

Correcting entry:
(a) Investment in bonds 150,00
Gain on sale of bonds 0 150,000

b) Remeasurement of biological assets:

Biological assets, carrying amount 2,800,000
Biological assets, FVLCS 2,500,000
Unrealized loss on change in FVLCS (300,000)
 P a g e | 15

(b) Unrealized loss 300,00

Biological assets 0 300,000

c) Investment in associate:
Entry made Should be entry
Cash (300K x 30%) 90K Cash 90K
Dividend income Investment in assoc. 46K
90K Sh. in profit of assoc.(a)
100K
Share in OCI of assoc.(b)
36K
(a)
(1,000,000 x 30% x 4/12) = 100,000
(b)
(120,000 x 30%) = 36,000

Correcting/Adjusting entry:
(c) Dividend income 90,000
Investment in associate 46,000
Sh. in the profit of 100,000
associate 36,000
Sh. in revaluation increase

d) Defined benefit plan:

o Service cost – presented in operating category
o Net interest cost in net defined benefit liability –
presented in financing category
o Remeasurements to the net defined benefit liability
– presented in not reclassifiable other
comprehensive income

e) Income tax expense:

3,682,0
Profit before income taxes (see FS below) 00
Income tax rate 30%
1,104,6
Income tax expense 00

(e) Income tax expense 1,104,6

Income tax payable 00 1,104,60
0
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Buddies Co.
 P a g e | 17

Statement of profit or loss and other

comprehensive income
For the year ended December 31, 20x1
12,000,0
Revenue from service fees
00
(4,000,0
Contract costs
00)
(3,000,0
Salaries expense
00)
(680,000
Advertising expense
)
(300,000
Unrealized loss on biological assets
)
(336,000
Service cost )
3,684,0
Operating profit 00
Gain on sale of bonds 150,000
Share in profit of associate 100,000
3,934,0
Profit before financing and income taxes
00
Net interest cost in net defined benefit (252,000
liability )
3,682,0
Profit before income tax
00
(1,104,6
Income tax expense
00)
2,577,4
PROFIT
00
Other comprehensive income:
Items that will not be reclassified
subsequently:
Share in revaluation increase of associate 36,000
Remeasurements to net defined benefit (252,000
liability )
Items that will be reclassified subsequently to
-
P/L:
(216,00
Other comprehensive income for the year
0)
2,361,4
TOTAL COMPREHENSIVE INCOME
00

7. A – see solution above

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8. C – see solution above

9. A – see solution above

10. A – see solution above

11. B
 Cost ratio is derived from the percentages of
operating expenses over sales and cost of sales as
follows:
Cost ratio = 13% / 20% = 65%

Amount
Sales 200,000 (130,000 COS ÷ 65%)
(130,00
Cost of sales 0) (start)
Gross profit 70,000
Operating expenses (26,000) (200,000 x 13%) or (130,000 x 20%)
Interest expense (10,000) (200,000 x 5%)
Profit before tax 34,000
Income tax expense (10,200) (20,000 x 30%)
Profit after tax 23,800

12. A
Solution:
Advertising
150,000
Freight-out
80,000
Rent for office space (220,000 x 1/2)
110,000
Sales salaries and commissions
140,000
Total selling expenses
480,000

13. A
Solution:
Contribution to youth and educational 250,0
programs 00
Contribution to health and human-service 140,0
 P a g e | 19

organizations 00
(80,00
Contribution shouldered by employees 0)
310,0
Charitable contributions expense 00

14. C

4,680,00
Revenue 0
(3,420,0
Cost of sales 00)
1,260,00
Gross profit from the sale of goods 0
Interest revenue related to providing financing 1,434,00
to customers 0
Interest expenses related to providing
financing (1,320,0
to customers 00)
Net interest income 114,000
(346,80
Selling expenses 0)
(189,60
Research and development expenses 0)
(274,80
General and administrative expenses 0)
Other operating expenses (54,000)
508,80
Operating profit 0
Income from investments in held for trading
securities 66,000
Profit before financing and income taxes 574,800
Interest expenses on borrowings not related
to providing financing to customers (45,600)
Interest expenses on pension liabilities (43,200)
Profit before income taxes 486,000
(121,50
Income tax expense 0)
PROFIT 364,500

15. B
 150,000 gross of tax – 60,000 tax effect = 90,000 net
of tax reclassification adjustment, as a deduction
 P a g e | 20

because the amount reclassified to profit or loss is a

gain

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. C

2. D
 Dividends from investments accounted for under the
equity method are treated as reduction in the carrying
amount of the investment.
 Unrealized gains from investments measured at
FVOCI are presented in other comprehensive income.
 Corrections of prior period errors are reported in the
statement of changes in equity as direct adjustments
to the opening balance of retained earnings.

3. D
4. C

5. D – Choices (a) to (c) are classified under the

investing category.

6. A
7. D
8. A
9. A
10. A
11. C – Choices (a), (b) and (d) are classified under the
financing category.
12. D
13. C
14. A
15. D
16. B
 P a g e | 21

17. D – Choice (d) will most likely be disclosed only in the

notes as required by PAS 24 Related Party
Disclosures.
18. D
19. D

20. Solution:
Entity A
Statement of profit or loss and other comprehensive
income
For the year ended December 31, 20x2
(amounts in Philippine Pesos)
Notes 20x2 20x1
Revenue 700,000 500,000
Cost of sales (200,000) (120,000)
Gross profit 500,000 380,000
Other operating income 22,000 12,000
Distribution costs (48,000) (39,000)
Research and development
(10,000) -
expenses
General and administrative
(92,000) (71,000)
expenses
Other operating expenses (6,000) (5,000)
Operating profit 366,000 277,000
Share in profit of associate 35,000 30,000
Profit before financing & inc.
taxes 401,000 307,000
Interest expenses from
(15,000) (18,000)
borrowings
Profit before income taxes 386,000 289,000
Income tax expense (86,000) (79,000)
Profit from continuing
300,000 210,000
operations
Loss from discontinued
- (10,000)
operations
PROFIT 300,000 200,000
Items that will not be reclassified subsequently to profit
or loss:
Gain on property revaluation - 23,000
Remeasurements of defined
benefit (1,000) 2,000
plan
(1, 25,
 P a g e | 22

000) 000
Items that will be reclassified subsequently to profit or
loss:
Gain on translation of foreign
53,000 20,000
operations
Loss on cash flow hedges (2,000) (5,000)
51,000 15,000
Other comprehensive income 50,000 40,000
TOTAL COMPREHENSIVE
350,000 240,000
INCOME