SME -Abby Problem 49-5 (IFRS) On January 1, 2018 an SME acquired a building to be held as Investment Property in a remote location for 5,000,000. Afier initial recognition, the entity measured the investment property using the cost model because the fir value cannot be measured reliably without undue cost or effort on an ongoing basis (On December 31, 2018, the management assessed the building’s useful life at 20 years from the date of acquisition and presumed the residual value to be nil because the fair value cannot be determined reliably. On December 31, 2018, the entity declined an unsolicited offer to purchase the building For P6,500,000. This isthe one time offer that is unlikely to be repeated in the foreseeable future ‘What is the carrying amount of the building on December 31, 2018? 5,000,000 6,500,000 5,500,000 4,750,000 Solution 49-5 d Cost of investment property 5,000,000 Accumulated Depreciation(5,000,00020) (250,000) Carrying Amount-December 31, 2018, 4,750,000 Problem 49-6(FRS) (On January 1,2018,an SME acquired property .consisting of ten identical frechold detached houses each with separate legal ttle including the land on which itis built for P200,000,000,20% of which is attributable tothe land. The units have a useful life of 50 years The following costs are also incurred on such date: Nontefundable transfer taxes not included in the purchase price 20,000,000 Legal cost dircetly attributable tothe acquisition 1,000,000 Reimbursement to the previous owner for prepaying nonrefundable property taxes forthe six-month period ending June 30,2018 100,000 Advertising campaign 500,000 Opening function to celebrate new rental business 200,000 On June 30,2018,SME paid local property taxes of P200,000 forthe year ending June 30,2019, Throughout 2018,SME incurred repairs and maintenance cost of P120,000, SME used ‘one of the ten units to accommodate the administration and maintenance staff. The other nine units were rented out to independent parties under operating leases. Refundable deposits held by SME on December 31,2018totaled 270,000 Rent received in the year ended December 31,2018 totaled 1,550,000 of which PS0,000 related to January 2019. On Devember 31,2018.the fair value of each unit was reliably estimated at P25,000,000, The fair value of the units can be measured reliably on an ongoing basis without undue cost or effort| What isthe initial measurement of the investment property? 2.198,900,000 'b. 198,000,000 €.176,800,000 180,000,000, 2. What is the initial measurement ofthe land to be accounted for as property.plant and equipment? 4,400,000 b. 4,420,000 ©-4,000,000 44,430,000 3.What is the initial measurement ofthe building to be accounted for as property.plant and equipment? .17,690,000 b.17,600,000 «.17,680,000 4.16,000,000 4. What isthe gain from the inerease in fair value of investment property forthe current year? 51,100,000 '.27,000,000 €.45,000,000 426,100,000 5.What is the depreciation of the building for the current year? a, 353,600 'b. 320,000 €.352,000 353,800 Solution 49.6 Question | Answer a Purchase price 200,000,000 Nonrefundable transfertaxes 20,000,000 Legal cost 1,000,000 Total cost 221,000,000 Initial cost of investment property (221,000,000 x 9/10) Question 2 Answer b Total cost 221,000,000 Initial cost of investment property 198,900,000" Cost of land and building Initial cost of land (22,100,000 x 20%) Question 3 Answer € Initial cost of building (22,100,000 x 80) (7.680, Question 4 Answer dFair value- December 31, 2018 (25,000,000 x 9 units) 225,000,000 Carrying amount of investment property 198,900,000 Gain from inerease in fair value Question 5 Answera Depreciation of bung (17,680,000 (50 years) Note that the property taxes, advertising, cost of opening function, and repairs and maintenance are expensed immediately when incurred. Problem 49-7 (IFRS) ‘An SME incurred and paid the following expenditures in 2018: January 1 20% of the price is atributable to land 530,000,000 January 1 Nonrefundable transfer taxes not included 1,000,000 in the P50,000,000 purchase price January 1 Legal cost directly attributable to the acquisition 200,000 January | Reimbursing the previous owner for prepaying 100,000 the nonrefundable local government. property taxes for the six-month period ending June 30, 2018, June 30 Nonrefundable annual local government 200,000 property taxes for the year ending June 30, 2019 During 2018 Day-to-day repairs and maintenance 250,000 (On December 31,2018, SME assessed that the useful life ofthe building, is 40 years with residual value of P2,000,000, ‘What isthe initial carrying amount ofthe land? 10,240,000 10,000,000 10,200,000 10,040,000 ‘What isthe initial carrying amount of the building? «a. 40,800,000 b, 40,960,000 «, 40,000,000 4. 48,000,000 3. What isthe depreciation of the building for 2018? 1,024,000 1,000,000 974,000 950,000 Solution 49-7 Question T Answer a Purchase price 50,000,000 Nonrefundable tansfertaxes 1,000,000 Legal cost 200,000 Total cost 51,200,000 Initial carrying amount of land (20% x 51,200,000) 10,240,000Question 2 Answer b Initial carrying amount of building (80%xS 1,200,000) 40,960,000 Question 3 Answer e Annual depreciation (38,960,000 /40) 974,000 Initial carrying amount of building 40,960,000 Residual value (2,000,000) Depreciable amount 38,960,000 ProBlem 49-8 (IFRS) On January 1, 2018, an SME received a P1,000,000 grant from national government as an incentive to establish and operate a manufacturing, plant in a particular development zone. Funds are remitted from the government to SME when SME incurs the expenditure, Grant of P600,000 is conditional on erecting the plant costing at least 2,000,000 in the development zone and the plant commencing ‘commercial production on or before December 31, 2019, Certain conditions are attached to the type of expenditure making up the P2,000,000. If these conditions are not met, SME will be obliged to refund the P600,000 to the national government. Grant of P400,000 is conditional upon maintaining commercial production atthe plant for a period of four years from the date when commercial production begins. ‘SME will become unconditionally entitled to P100,000 at the end of | each of the first four years of the commercial operation of the plant. During 2018, SME constructed the plant at a cost of P2,100,000, all of which met the type of expenditure specified under the conditions of the grant, During the first quarter of 2018, SME tested the plant's manufucturing process, On April 1.2019, SME began commercial production at the plat 1, What amount of income from government grant should be recognized in 2018? 1, 1,000,000 '. 600,000 . 700,000 a0 2. What amount of income from government grant should be recognized in 2019 1. 1,000,000 b. 600,000 €. 700,000 40Solution 49-8 Question | Answer d No income is recognized in 2018 because the performance conditions for the grant are not yet fully met in 2018. Under PFRS for SMEs, a grant that imposes specified future performance conditions is recognized in income only when the performance conditions are met. Grant received before the recognition criteria are satisfied is recognized asa liability. Question 2 Answer b Grant with two performance conditions 600,000 The two performance conditions on the P600,000 grant are construction of plant and the plant must commence commereial production on or before December 31, 2019, The construction was completed in 2018 but the commercial production of the plant began on April 1, 2019, Since the two conditions are fully met in 2019, the grant of P600,000 is, recognized as income only in 2019, The grant of P400,000 is recognized at the end of each of the first four years of commercial production. Since the commercial production began on Aprill,2019, the income ‘fP 100,000 (P400,000/4 years) is recognized on April 1,2020, end of the frst year of commercial production, Problem 49-9 (IFRS) On January1,2015,SME acquired a trademark for line fiom a competitor For P3,000,000. The SME expected to continue marketing the line of products using the trademark indefinitely. An analysis of market, competitive and environmental trend provides evidence that the line of trademarked products ‘may generate net cash inflows for the acquiring entity for an indefinite period. Management is unable to estimate the useful life of the trademark. In 2018, competitor unexpectedly revealed a technological breakthrough that is expected to result in a product, that ‘when launched by competitor, will extinguish demand for SME patented product (On Devember31,2018,SME assessed the recoverable amount of the trademark at P500,000. Demand for SME patented product line is expected to remain strong new product.‘SME intended to continue manufacturing the patented products until December31,2020. |. What is the amortization of the patent for 2015? A. 600,000 B. 900,000 €. 300,000 D0 2. What isthe carrying amount ofthe patent on January1,2018? ‘A. 3,000,000 B. 2,100,000 c.2,400,000 D. 2,700,000 3. What is the Amortization of the patent for 2018? ‘A, 300,000 B. 600,000 €. 700,000 D. 0 ‘4. What is the carrying amount of the trademark before impairment und] December 2020, when the competitors expected to launch the on December3 1.2018? ‘A. 3,000,000 B. 1,800,000 C. 1,400,000 D. 1,500,000 ‘5. What amount of impairment loss should be recognized in 2018 with respect to the trademark? ‘A. 3,000,000 B. 2,500,000 C. 900,000 Dd. 0 Solution 49-9 Question T Answer © Amortization of trademark for 2015 (3,000,000/10) 300,000 Under PFRS for SME's the usefll life ofan intangible asset isa considered to be finite, Ifthe useful life of an intangible asset cannot be estimated reliably, itis best estimate of management but not exceeding 10 years. Question 2 Answer b Trademark January 1,2015 3,000,000 Amortizationfor2015,2016 and2017 (900,000) (3,000,000 / 10 years x3) Carrying amount January 1, 2018 2,100,000 Question 3 Answer €Amortization of trademarkfor2018 700,000 (2,100,000 /3 years remaining) (On January 1, 2018, the remaining life of the trademark is years from January I, 2018 to December31, 2020. Question 4 Answer ¢ Carrying Amount- January 1, 2018 2,100,000, Amortization for 2018 (700,000) Carrying Amount- December 31, 2018 1,400,000 Question 5 Answer e Carrying Amount- December 31, 2018 1,400,000 Recoverable Amount (500,000) Impairment loss in 2018 900,000 Problem 49-10 (IFRS) An SME provided the following assets at year end: Cash on hand 500,000 Cash in bank 2,000,000 Accounts receivables 1,500,000 Notes receivable 1,000,000 Loan receivable from employee fixed term 100,000 Loan receivable from associate on demand 1,800,000 Investment in non puttable ordinary-shares 400,000 Investment in convertible preference shares 600,000 Investment in bonds 1,200,000 Investment in associate 1,400,000 Inventory 1,300,000 Property, plant and equipment 4,000,000 intangible assets 700,000 Deferred tax asset 300,000 ‘What total amount should be reported as basic financial assets? A. 8,500,000 B. 9,100,000 €. 9,900,000 D. 7,300,000 Solution 49-10 Answer a Cash on hand 500,000 Cash in bank 2,000,000 Accounts Receivables 1,500,000 Notes Receivables 1,000,000 Loan receivable from employee 100,000 Loan receivable from associate 1,800,000 Investment in nonputtable ordinary shares 400,000Investment in bonds 1,200,000 Total basic financial assets 8,500,000 Problem 49-11 (IFRS) ‘An SME provided the following liabilities at year-end Accounts payable 1,500,000 Notes payable 1,000,000 Bank loan payable 2,000,000 Estimated warranty liability 200,000 Accrued rent payable 300,000 Accrued interest payable 100,000 Income tax payable 400,000 Bank overdraft 500,000 Accrued benefit cost 1,200,000 Finance lease liability 1,300,000 ‘What total amount should be reported as basic financial liabilities? A. 5,800,000 B. 5,400,000 C. 5,600,000 D._ 7,200,000 Solution 49-11 Answer b Accounts payable 1,500,000 Notes payable 1,000,000 Bank loan payable 2,000,000 Accrued rent payable 300,000 Accrued interest payable 100,000 Bank Overdraft 500,000 Total basie financial liabil 5,400,000 The estimated warranty liability is not a basie Financial liability becaus And there is no contractual obligation to pay cash. e the obligation is to perform service The income tax payable is not a financial liability because Contractual, ‘Statutory or imposed by law and not Under PFRS for SMEs, the basie financial instruments include the 1. Cash demand and fixed term deposits or bank accounts 2. Trade accounts and notes receivable and payable ‘Accounts payable in foreign currency Loans from bank and other third parties Bondls and similar debt instrument ‘Commercial papers or commercial bills Investment in nonputtable ordinary shares whether listed or unlisted8. Investments in nonconvertible and nonputtable preference shares whether listed or unlisted 9. Commitment to receive a loan the commitment cannot be net settles in cash 10, Loans to or from subsidiaries or associates that are due on. demand The Investments in ordinary shares and nonconvertible preference shares are nonputtable: 1. When the entity does not have an option to sell the shares back to the issuer for cash. 2. When there is no arrangement that could result in the shames being automatically sold or retumed to the issuer because of a future event Nonbasic financial instruments of an SME L. _Assettbacked securities, such collateralized mortgage obligations, repurchase arrangement and securitized packages of receivables 2. Derivative contracts Hedging Instruments Commitments to rake a loan to another entity Commitments to receive a loaning the commitment can be settled in cash Investment in subsidiaries, associates and joint ventures Financial instruments that meet the definition of an entity’s own equity instruments Leases Employee benefit plans