CHAPTE!

R 45:
INTl!RIM FINANCIAL REPORTING

lA1'1 \ 1l lN'l'IN1: /,"l',\NI l,\111 I 11i:ii:11i:N1 'J:(11)1

ili11~ ,1-1 l11h•111111\111111,•11111!1·1.,11111•1 I
l'h11pl1•1• 011lll11r:
► N11l1111• ,11' l11h•1•1111 1'11111111'1111 lkjltll'li11:1,
► l\11111,•111•111,,11'1111 l11h•1·1111 l'i1111111'111i 1(1•1~•11
► 1111,d,1~1111· 111' 1 \1111pi111111•1• wilh ll'HS
► S,•h•,•i,,,I 1:xplm111hll'y N11k11
► 1'11•~1•11111111111,,11\,11111111111lvr l11io·d1111'11111111:iul l!c1H1rl~
► Vi,•w,, ,111 l11k1·i111 1'111,1111·1111 llq111rli11:~
► lk,'1>:J,111li1111111111 M,·11~1111·11w11I l'l'i1ll'lpl1·~
► ~111,· ,1111'11111,~.,· 111 i\1•1·111111li11•1 l',1lkv

rw.ll.t.ll..illn\!l.rlJILElJlllrLclnl.&_Rll!.Uilll.
► A n,m11clnl rcporllnlJ that lnvolveG lhe r,rcr,urallon and r,rcscnt.aUon of financial
~t,1lcmc11l~ lor ,1 period ol los~ l111111 one year.

► lnlerlm llm111clt1I report!. mt1y be Issued monlhly, quarterly, or semi-annually.

► The most co111111011 lnl.Crlm reports arc quarlerly lnlerlm reports or those financial
reports !hat Mt' l:.!ciucd every three months.
o Pullllcly trt1dcd companies arc encouraged to provide Interim nnanclal reports
at lc,1sl lwlcc J year or semi-annually and such reports are to be published
not later than 60 days arlcr the end of the Interim period.

Note:
► !AS 3•1 does not specify which entitles are required to publish Interim financial
reports, how orten they must be published, or how soon after the end of an
Interim pcrl011.

► The Securities and Exchange Commlsslon (SEC) and the Philippine Stock
Exchange (PSE) mandate companies covered by the Revised Securities Act to
file quarterly Interim nnanclal reports within 45 days of the end of each of the
first three quarters.
o The SEC also requires entitles covered by the Rules on Commercial Papers
and Financing Act to file quarterly financial reports within 45 days after the
end of each quarter.

►
Entities that submit Interim financial reports In accordance with IFRSs must
adhere to the recognition, measurement, and disclosure requirements of the
-~ndards.

~ CamScanner
 (fa.µ ' ,,., ~ - ; e . - s -
-W.,-1: ~ ~ " " " ' ~

Compoo,ng of ID Interim FJnand1I R1port

► An Interim financial report Is a flnencial report containing either a complete set of
financial statements or a set of condensed financial statements for an Interim
period.
o In other words, !AS 34 allows a company to publish a complete set of financial
5t!tements or a set of condensed financial statements In Its Interim-financial
report.

Note: !AS 34 does not prohibit or discourage an entity from publishing a complete set
of financial statements In its Interim financial report nor does this standard prohibit or
discourage an entity from including In condensed interim financial-statements more than
the minimum line items or selected explanatorv notes as set out In !AS 34.

► An interim financial report shall include, at a minimum, the following components:

✓ Condensed statement of financial position
✓ Condensed statement of comprehensive income
✓ Condensed statement of changes In equity
✓ Condensed statement of cash flows
✓ Selected explanatory notes

Note: An entity may present profit or loss items In a separate condensed income
statement

Pimosur:e of compliance with IFRS

► If an entity's interim financial report Is In compliance with IFRS, that fact shall be
disclosed.

► An interim financial report shall not be described as complying with IFRSs unless
it complies with all the requirements of IFRSs.

Selected Explanatory Notes

► The selected explanatory notes are intended to explain significant events and
transactions that have occurred since the last annual financial statements.

► !AS 34 assumes that a user of financial statements has access to the most recent
annual report of the entity.
o As a result, the standard emphasizes that including the same notes in the
interim financial report as in the most recent annual financial report is .
unnecessary.

► Examples of disclosures required in a condensed interim financial report include

but are not limited to the following:
✓ The write-<lown of inventories to net realizable value and the reversal of such
write-<lown.

✓ Recognition of a loss from the impairment of financial assets, property, plant

and equipment, Intangible assets, assets arising from contracts with
customers, or other assets, and the reversal of such Impairment loss.

✓ The reversal of any provisions for the costs of restructuring.

✓ Acquisitions and disposals of Items of property, plant, and equipment

1812
 ✓ Commitments for the purchase of property, plant, and equipment

✓ Litigation settlements.

✓ Corrections of prior. period errors.

✓ Changes In the business or econo!lllc circumstances that affect the fair value
of the entity's financial assets and financial llablllHes.

✓ Ally loan default or breach of a loan agreement that has not been remedied
on or before the end of the reporting period.

✓ Related party transactions.

✓ Transfers between levels of lt]e fair value hierarchy used In measuring the fair
value of financial Instruments.

✓ Changes In the classification of financial assets as a-result of a change In the

purpose or use of those assets; and

✓ Changes In contingent llablllHe~ or contingent assets.

[ Note: The disclosures of the above items are required only if they are significant

Presentation of Comparative Interim Financial Reports

~m122~at:i !lt Elomiill P1:!Zo0~20 Q( C!lmllilrillill!: Iati:cim

Statements Financial Statements
Statement of Financial Position a. Statement of financial position at the end of
current Interim period.

b. Comparative statement of financial position

at the end of preceding year.

Statement of Comprehensive a. Statement of comprehensive Income for the

Income current interim period.

b. Statement of comprehensive Income

cumulatively for the current financial year to
date.

c. Comparative statement of comprehensive

income for the comparable interim period of.
the preceding year.

d. Comparative statement of comprehensive

I
I financial year to date of the preceding year.
I

1813

~ CarnScanner
6--.uNdf« ~ " " ' a..-- S#IIM
-W.- I : ~ ~ - - ~ ~

Statement of Changes In Equity a. Statement of changes In equity cumulaUvely

for the current financial year to date.

b. Comparative statement of changes In equity

for the comparable financial year to date of.
the preceding year.

Statement of Cash Rows a. Statement of cash flows cumulatively for the

current financial year to date.

b. Comparative statement of cash flows for the

comparable financial year to date of the
orecedina vear.

Dlustration 1
Assume an entity publishes interim financial reports semi-annually. The following
comparative interim reports are presented on June 30, 2023:

Report:
Statement of financial position as of... June 30, 2023 December 31, 2022

Statement of comprehensive income

for the 6 months ending... June 30, 2023 June 30, 2022

Statement of cash flows

for the 6 months ending... June 30, 2023 June 30, 2022

Statement of changes in equity

for the 6 months ending... June 30, 2023 June 30, 2022

Dlustration 2
Assume an entity publishes interim financial reports quarterly. The following comparative
interim reports are presented on June 30, 2023:

Report:
Statement of financial position as of... June 30, 2023 December 31, 2022

Statement of comprehensive Income

for the 3 months ending ... June 30, 2023 June 30, 2022
for the 6 months ending ... June 30, 2023 June 30, 2022

Statement of cash flows

for the 6 months ending ... June 30, 2023 June 30, 2022

Statement of changes in equity

for the 6 months endln ... June 30 2023 June 30 2022

1814

£E CamScanner
Yl•wt on Interim Fjnancial Reporting
1. Integral view
2. Independent view

Integral V..ew
► Each Interim period Is an Integral part of the annual accounting period.

► Under this view, annual operating expenses are estimated and then allocated to
Interim periods based on forecasted revenue or sales volume.
o In other words, costs incurred that benefit the entire year are assigned to the
interim periods benefited.

Note:
► Estimations and allocations are required to avoid creating misleading
fluctuations in interim period income.

► Using the integral view would result in interirri income that would be more .
indicative of the annual income and thus making it useful in predicting fuwre I
ooerations and makina informed decisio'ns. I

Independent View
► Each interim period is considered a discrete or separate accounting period with a
status equal to a fiscal year.
o As a result. no estimates or allocations are made for interim purposes unless
such estimations or allocations are allowed for annual reporting.

► The same expense recognition rules as for annual reporting apply, and no special
interim accruals or deferrals are permitted.
o In other words, annual operating expenses are recognized in the interim
period in which they are incmred, regardless of the number of interim periods
benefited unless deferral or accrual is permitted in the annual financial
statements.

Note:
► !AS 34 does not mention which of the two views is required to be used.

► In effect the standard adopts a mix of inteoral and indeoendent views.

Recognition and Measurement Principles

► AA entity shall apply the same accounting policies In its Interim financial statements
as are applied _in its annual financial statements.

Note: The frequency of an entity's reporting (annual, half-yearly, or quarterly) shall not \
affect the measurement of its annual results. •
► To achieve this, measurements for interim reporting purposes shall be made on
a vear-to-date basis.
.
I
► Revenues from the sale of goo,ds or services rendered are nonnally recognized in
1
interim reports on the same basis as in annual reports.

► In an interim period, costs and expenses are recognized as incurred.

o In the interim periods in which the related revenue is recorded, expenses
associated directly with revenue are matched against revenue.

1816

~ CamScanner
 ~,iowA--u,,,~S-
~ I: ~ A'"°""""' - ' ~

o Expenses that are not directly related to re11enue are recOQnlzed as Incurred
or all0<=ated aaoss the Interim periods benefltted.

► If the business Is seasonal, the entity Is encouraged to provide flnanclal

Information In addition to the ament Interim period financial statements:
o For the latest 12 months.

o Comparative Information for the prior comparable 12-month period.

► In general, the preparation of • Interim financial reports necessitates more

estimation than the preparation of annual financial reports.

Inventories
► Inventories are measured for lntl?rlm financial reporting using the same principles
as at the end of the financial year.
o In other words, Inventory must be valued at the lower of cost or net realizable
value, e11en If only for Interim purposes.

► For inventories at Interim date, full Inventory and valuation procedures are not
required.

► A loss.on in11entory write-down shall be reported if the net realizable value Is less
than the cost

► The disclosure of the write-down of Inventories to net realizable value and the
reversal of such write-down In a later Interim period is required.

Note: Selling prices and accompanying cost to complete and dispose at Interim dates
are used to establish the net realizable value of1nventor .

SeasoniJt Cydica/ or Occasional Revenues

► Seasonal, cyclical, or occasional revenues shall not be anticipated or deferred as
of an interim date If such anticipation or deferral would not be appropriate at the
end or the entity's reporting period.

Uneven costs
► Costs that are incurred unevenly during an entity's financial year shall be
anticipated or deferred for Interim reporting purposes If, and only if, It Is also
appropriate to anticipate or defer that type of cost at the end of the financial year.

Year-end bonuses
► A bonus Is anticipated for Interim purposes If and only If the following conditions
are met:
✓ The bonus is a legal obligation, or past practice would imply that the bonus Is
a· constructive obligation for which the company has no realistic alternative
but to make the payment

✓ A reliable estimate of the bonus obligation can be made.

Irregular costs
► These costs shall not be anticipated as of the interim period because these costs
have not been incurred yet.

1816
Oepreci11tion and amortization
► Depredation and amortization for an Interim per1od shall be based only on assets
owned during that Interim period.

► Asset acquisitions or dlspositlons planned for later In the fiscal year shall not be
considered or taken Into account.

Paid vacation and holiday leave

► Paid vacation and holiday leave must be accrued for Interim purposes since they
are legally binding.

Gains and losses

► Gains and losses from the disposal of property, discontinued operatlons, and other
gains or losses are not allocated during the interim periods.

► The gain is reported in the interim period wtien realized and the loss Is reported
In the interim period when Incurred.

Income tax
► Income tax expenses for interim periods must adhere to the same general
principles of income tax accounting that apply to annual reporting.

► The interim period income tax expense is accrued using the annual effective
income tax rate applied to the interim period's pretax Income.

Not.e:
► If the financial reporting year and the income tax year differ, the income tax
expense for interim periods. of that financial year is calculated using separate
effective tax rates for each of the tax years applied to the portion of pretax
income earned in each of those tax years.
o In simple terms, the effective tax rate of a given tax year is applied to the
oretax inco'me durina that same tax vear's interim period.

Illustration 3
The following income before tax of ABC Company for the year 2023 are provided below:

Income before tax Effective tax rate

1'1 quarter P6,000,000 32%
2rd quarter 7,000,000 32%
Jill quarter 8,000,000 32%
4th quarter 9,000,000 28%
Total P30 000 000

® Q-1: How much is the income tax expense for the first quarter?
® Q-2: How much is the income tax expense for the second quart.er?
@Q-3: How much is the income tax expense for the third quarter?
@Q-4: How much is the income tax expense for the fourth quarter?
OA-1: Pl,920,000
P6,000,000 x 32% = el,.9.20,.000

@A-2: P2,240,000
P7 000 000 X 32% = .2AD 000

1817

CB CamScanner
 Nata: This method can be performed if the effective tax rate is the same as in prior
periods.

Alternative solution:
1st quarter pre-tax lna:ime P6,000,000
Add: 2nd quarter pre-tax income 7,000,000
Cumulative ina:ime for the first two quarters P13,000,000
X: Effective tax rate 32%
Income tax expense to date P4,160,000
Less: Income tax expense for the prior quarter (See A-1) (1,920,000)
1 Income tax expense for the second quarter e2,~.00.Q

, gA-3: P2,560,000
PS,000,000 x 32% = P2-560 000

Note: This method can be performed if the effective tax rate is the same as in the prior
periods. I

Alternative solution:
1st quarter pre-tax income P6,000,000
Add: 2nd quarter pre-tax incom!! 7,000,000
Add: 3"' quarter pre-tax income 8,000,000
Cumulative income for the first three quarters P21,000,000
X: Effective tax rate 32%
Income tax expense to date P6,720,000
Less: Income tax expense for the prior quarters
Income tax expense - Ql (See A-1) (1,920,000)
Income tax expense - Q2 (See A-2) (2,240,000)
Income tax expense for the third quarter P2,560 000,

S A-4: Pl,680,000
1st quarter pre-tax income P6,000,000
Add: 2"° quarter pre-tax income 7,000,000
Add: 3'° quarter pre-tax income 8,000,000
Add: 4"' quarter pre-tax income 9,000,000
Income t3x expense to date P30,000,000
X: Effecti...e tax rate 28%
Income tax expense - 2023 PS,400,000
Less: Income tax expense for the prior quarters
Income tax expense - Ql (See A-1) (1,920,000)
Income tax expense - Q2 (See A-2) (2,240,000)
Income tax expen.se - Q3 (See A-3) (2,560,000)
Income tax expense for the fourth quarter gl,,MO,Q.QQ

II
I
l
181.8

~ CamScanner
 Illustration 4
ABC Company's fiscal year ends on June 30 while the tax year ends December 31. The
following income before tax of ABC Company July l, 2023, through June 30, 2024 are
provided below:

Income before tax Effective tax rate

l" .quarter P6,000,000 32%
2nd quarter 7,000,000 32%
3n1 quarter 8,000,000 28%
4th quarter 9,000,000 28%
Total e.10.000.00.0

@Q: How much is the incom~ tax expense for the year ended lune 30, 20247

§ A: PS,920,000
l't quarter income tax expense (P6,000,000 x 32%)
2nd quarter income tax expense (P7,000,000 x 32%)
3n1 quarter income tax expense (PS,000,000 x 28%)
4th quarter income tax expense (P9,000,000 x 28%)
Total income tax ex ense

Rule on Change in Accounting Policy

• ► A change in accounting policy other than one for which transition procedures are
specified in a new standard shall be recognized by restating the financial
statements of the prior interim periods of the current year and the comparable
inrerim periods of the previous period.

► A single accounting policy shall be applied to a particular type of transaction

throughout the entire financial year.
o Allowing different accounting policies for the same class of transactions within
the same financial year would cause interim allocation difficulties, obscured
operating results,· and complicated analysis and understandability of interim
information.

-oOo-
 ~ ... 6 - o f « ~ . a . . - - s -
-w- I: 'J<-d,,( .f'f--cu.,,.,. ~a-,

EXERCISES
FINANCIAL ACCOUNTING AND REPORTING THEORIES

Nttur:e of Interim Einandal Reporting

1. The preparation and presentation of financial statements for a ~riod of less than
one year is referred ro as;
A. Internal financial reporting.
B. Interim financial reporting.
C. External financial reporting.
D. Special financial reporting.

2. IAS 34 Interim Finandal Reporting-.

A. requires listed entities to provide interim fim1ndal reports.
B. requires listed entities and those in the process of enlisting their securities to
provide interim financial reports.
C. requires listed entities and those in the process of enlisting their securities and
non-SMEs to provide Interim financial reports.
D. does not state which entities are required to provide interim financial reports.

3. Interim financial reporting must be viewed as:

A. reporting for an integral part of an annual period.
B. reporting for a separate accounting period.
C. a special type of reporting that need not follow financial reporting standards.
D. useful only if economic activity is evenly spread throughout the year so that
estimates are unnecessary.

4. Interim financial reports shall be published:

A. On a quarterly basis.
B. On a monthly basis.
C. Semi-annually.
D. Whenever the entity wishes.

5. Publicly traded entities are encouraged to provide interim financial reports:

A. On a quarterly basis.
B. On a monthly basis.
C. Semi-annually.
D. Whenever the entity wishes.

6. Interim financial statements are usually presented on a(n):

A. Monthly basis
B. Semi-annual basis.
C. Quarterly basls.
D. Annual basls.

7. What is the concept that supports the Issuance of Interim reports?

A. Relevance
B. Materiality
C. Consistency
D. Faithful Representation
E. c.ompllanc.e with the IFRSs

1820

r~msc-~nni,r
 8. Conceptually, Interim financial statements can be described as emphasizlnO:
A. Comparability over reliability.
B. Reliabnlty over understandability
C. Reliability over timeliness.
O. Relevance over understandability.
E. Timeliness over reliability.

9. Interim financial reports are intended to:

A. provide an update on the latest complete set of annual financial statements.
B. correct error discovered subsequent to the release of the financial statements.
C. provide additional information not disclosed previously in the annual financial
statements.
0. provide information that are requested by the lnyestors in relation to a
planned initial public offering.
E. All of the foregoing.

10. Under IAS 34, the preparation of interim reports generally will require:
A. Lesser use of estimation methods than annual financial reports.
B. Greater use of estimation methods than annual financial reports.
C. The same amount of estimation methods with annual financial reports.
0. No use of estimation methods.

9>roponent:s of an Interim Financial Report

11. An interim financial report contains:
A. A complete set of financial statements.
B. A condensed set of financial statements.
C. Both A and B
0. Either A or B.
E. Neither A nor B.

12. Which of the following reports are prepared as a minimum for Interim financial
reporting?
I. Condensed statement of finandai position
II. Condensed statement of comprehensive income
m. Condensed statement of changes in equity
N. Condensed statement of cash flows
V. Selected explanatory notes

A. I and II only.
B. I, II, and m.
C. I, II, 111, and N.
0. I, II, 111, N, and V.

13. The frequency of an entity's reporting, whether it be annual, semi-annual, or

quarterly. shall not affect the measurement of its annual results. To achieve this,
measurements for interim reporting purposes shall be made on a:
A. Year-to-date basis.
B. Year-to-year basis.
C. Period-to-period basis.
O. Any of the foregoing.

1821

~ CamScanner
 e-~ ~.. t i c , ~ - s-
1/ot.- I: ~ t rf~t-,-' ;a;>~

14. There is a presumption that anyone reading Interim flnanclal reports:

A. have access to the records of the entity,
8. have access to the most recent annual report
C. understand all financial reporting standards.
D. do not make decisions based on the report.

Selected Explanatory Notes

15. Which of the following is usually not disclosed In the selected explanatory notes
for an interim financial report?
A. Accounting policies and methods.
8. Events after the interim period.
C. Nature of ·entity's operations.
D. Seasonality or cyclicality of interim operations.

Presentation of Comparative Interim financial Reports

16. Shaw Enterprises is preparing interim financial statements for six months ended
June 30, 2022. In the interim financial statements for six months, a statement of
financial position on June 30, 2022, a statement of comprehensive income for six
months ended June 30, 2022, and statement of cash flows for six months ended
June 30, 2022 shall be presented. In·addition, all the following shall be presented,
except:
A. Statement of flnancial position on June 30, 2021.
8. Statement of financial position on December 31, 2021.
C. Statement of comprehensive income for six months ended June 30, 2021.
0. Statement of cash flows for six months ended June 30, 2021.

Views on Interim financial Reporting

17. Which of the following statements are correct concerning the two views on interim
financial reporting?
I. Under the integral view, each interim period is an integral part of .the
annual accounting period.
If. Under the independent view, each inte_rim period is an integral part of the
annual accounting period.
III. Under the integral view, each interim period is considered a discrete or
separate accounting period with a status equal to a fiscal year.
N. Under the independent view, each interim period is considered a discrete
or separate accounting period with a status equal to a fiscal year.
v. No estimates or allocations are made for- interim purposes unless such
estimations or allocations are allowed for annual reporting under the
integral view.
VI. No estimates or allocations are made for interim purposes unless such
estimations or allocations are allowed for annual reporting under the
independent view.

A. I, 'N, and V.
8. . I, 'N, and VI.
C. II, Ill, and V.
0. II, IIL and VI.

1822
 18. Which of the two views is required for Interim financial statements In accordance
with IAS 34 Interim Rnanclal Reporting?
A. Integral view.
B. Independent view.
C. Both A and B.
D. Neither A nor B.

9sic Principles of Interim Financial Reporting

19. Which statement about interim reporting Is true?
A. All entities that.issue annual reports should also issue interim financial reports.
B. A complete set of financial statements must be presented for an interim
period.
C. The integral view is the appropriate approach In preparing Interim financial
reports.
D. The independent view is the appropriate approach in p(eparing interim
financial reports.
E. The same accounting policies shall be applied by an entity in its interim
financial ~tements as are applied in its annual financial statements.

20. If an entity does not prepare interim financial reports:

A. The year-end financial statements are deemed not to comply with accounting
standards.
B. The year-end financial statements' compliance with accounting standards is
not affected.
C. The year-end financial statements shall not be acceptable under local
jurisdiction.
D. Interim financial reports shall be included in the year-end financial statements.

21. If the business is seasonal, the entity is:

A. required to provide disclosure of financial information for the latest 12 months
and comparative information for the prior comparable 12-month period in
addition to. the interim financial statements.
B. encouraged to provide disclosure of financial information for the latest 12
months and comparative inform~tion for the prior comparable 12-month
period in addition to the interim financial statements.
C. Mandated to provide additional note disclosures about the seasonal nab.Jre of
the business.
D. Encouraged to provide additional note disclosures about the seasonal nature
of the business.
E. Not required to provide additional disclosures.

22. An entity owns several farms that harvest produce seasonally. Approximately 90%
of the entity's sales are between the second and third quarter of each year.
Because the entity's business is seasonal, IAS 34 suggests:
A. Additional notes be wri~n in the Interim reports about the seasonal nature
of the business.
B. Additional disclosure In the accounting policy note.
C. Disclosure of financial information for the latest and comparative 12-month
period in addition to the interim report.
D. No additional disclosure.

1823

~ CamScanner
23. Which of the following statements ·are correct regarding Interim financial
reporting?
A. Inventories must be valued at the lower of cost or net realizable value, even
if only for Interim purposes.
B. Costs that ate Incurred unevenly during an entity's financial year shall be
anticipated or deferred for Interim reporting purposes only If It Is also
appropriate to anticipate or defer that type of cost at the end of the llnancial
year. '
C. Gains and losses from the disposal of property, discontinued operations, and
other gains or losses are not allocated during the Interim periods.
D. All of these are correct regarding interim financial reporting.

24. For external reporting purposes, It is appropriate to use estimated gross profit rate
to determine the cost of goods sold for:
A. Interim reporting.
B. Year-end reporting. •
C. Interim reporting and year-end reporting.
D. Neither interim reporting nor year-end reporting.

25. For interim reporting, an inventory loss from a market decline in the second quarter
shall be recognized as a loss:
A. Proportionately in each of the second, third and fourth quarters.
B. Proportionately in each of the first, second, third and fourth quarters.
C. In the second quarter.
D. In the fourth quarter.

26. Due to a decline in market price in the second quarter, an entity incurred an
inventory loss. The market price is expected to return to previous level by the end
of the year. At the end of the year, the decline had not reversed. When should the
loss be reported in the interim income statement?
A. Prorated over the first, second, third and fourth quarters.
B. Prorated over the second, third and fourth quarters.
C. Prorated over the third and fourth quarters.
D. In the second quarter.
E. In the fourth quarter.

27. For interim financial reporting, an expropriation loss occurring in the second
quarter shall be:
A. Recognized in the second quarter.
B. Disclosed in the secon~ quarter.
C. Recognized ratably over the last three quarters.
D. Recognized ratably over all four quarters ~ith the first quarter being restated.

28. Advertising costs incurred shall be deferred to provide an appropriate expense in

each period for:
A. Interim reporting.
B. Year-end reporting.
C. Interim reporting and year-end reporting.
D. Neither Interim reporting nor year-end reporting.

1824
29. In interim reporting, which of the following should be accounted for on a time
proportion basis?
A. Cost of goods sold
8. Bonus to employees
C. Depredation expense
o. Decline in the net realizable value of Inventories

30. For Interim financial reporting, the Income tax expense for the third quarter shall
be computed by using the:
A. Statutory tax rate for the year.
B. Effective tax rate expected to be appllcable for the third quarter.
C. Effective tax rate expected to be applicable for the full year as estimated at
the end of the second quarter.
o. Effective tax rate expected ID be applicable for the full year as estimated at
the end of the third quarter.

-oOo-
 FINANCIAL ACCOUNTING AND REPORTING PROBLEMS

t'«08l.EM ◄S-1 /ntfflm Reporting of Various Expenses

~- ~"'Ch 1s. 2023, Apple Company paid property taxes of PlB0,000 on its factory building
~- -:~~ ye1r 2023. On April 1, 2023, Apple paid P300,000 In unanticipated repairs to
J:s. ~-it eq\jpment. The repairs will benefit operations for the remainder of the calendar
'~-
HQw much total expenses shall be induded in Apple Company's quarterly Income
SQtement w the three months ended lune 30, 20237
~ P300,000 C. P145,000
S.. ?195,000 0. P480,000

PROBLEM ◄S-1 Answer & Solution Guide

l,JCSWER=C
~ l2x expense (PlB0,000/4) P45,000
~ expense (P300,000/3) 100,000
Total exp~ - 2nd quarter P14S ooo

Not2; The repairs expense shall be allocated across the interim periods benefitted. In this
:ase, the repairs expense shall be allocated across the 2nd, 3rd, and 4th quarter of the year
:x23.

PROBLEM 45-2 Interim Reporting of Various Expenses

~ Maich 15, 2023, Lapis Company paid prope.rty taxes of P600,000 on the factory building
;:i.caendar year 2023. On April 1, 2023, the entity paid P900,000 in unanticipated ordinary
re:::as to equipment
What total amount of these expenses should be induded in the quarterly income
statement for the three months ending lune 30, 2023?
,.._ Pl,050,000 C. P450,000
3. Pl,500,000 D. P900,000

PROBLEM 45-2 Answer & Solution Guide

AltSWER: A
?roperty tax expense (P600,000/4) PlS0,000
ie;)a:IS expense 900,000
Total expenses - 2nd quarter Pl oso ooo

Note: The ordinary repairs shall be expensed in full in the period of incurrence. Since the
&ty inaJrred the repairs during the 2nd quarter of the year, it must be reported as expense
-;-, l'ull in the said quarter.

1829
 e...,. .. '" ..:... ~-..., ~ s-
f " ' - ' .. ~ . r l c - - , "-" ~

PROBLEM ◄S-J Interim Reporti'!J of Vorio14 Expenses

Conan Company operates in the travel industry and incurs costs une,'Crly throughout the
year. Advertising costs of PJ,000,000 were incurred on March 1, 2023, and staff boruses
are paid at yea~nd based on sates. Staff bonuses are expected to be around PlS,000,000
for the year. Of that amount. P2,000,000 would relate to the quarter ending March 31,2023.

What costs shall be included in the company's Income statement fOf' the quarter
ended March 31, 20237
A. Advertising cost of PS,000,000; staff bonuses of P3,000,000
8. Advertising cost of P2,000,000; staff bonuses of 1"3,000,000
C. Advertising cost of P3,000,000; staff bonuses of P2,000,000
D. Advertising cost of P3,000,000; staff bonuses of PS,000,000

PROBLEM 4S-J Answer & Solution Guide

ANSWER: C
Costs that are incurred unevenly during an entity's financial year shall be antidpal'ed or
deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate oc-
derer that type of cost at the end of the financial year.

PROBLEM 4S-4 Interim Reporting of Various Expenses

Toe Patrol Company operates in the travel industry and incurs costs unevenly throughout
the year. Advertising costs of P2,000,000 were incurred on March 1, 2023, and staff bonuses
are paid at year-end based on sales.

Staff year-end bonuses are expected to be around P40,000,000 for the year.

What total amount of expenses should be induded in the income sta~ent for
the quarter ending March 31, 20237
A. 12,000,000 C. 5,000,000
8. 5,500,000 D. 3,500,000

PROBLEM 4S-4 Answer & Solution Guide

ANSWER: A
Advertising cost P2,000,000
Allocated staff bonuses (40M/4) 10,000,000
Expenses - 1st quarter e12,ooo ooo
PROBLEM 4S-S Interim Reporting of Various Expenses
Vina Company has estimated that the total depreciation expense for the year ended
December 31, 2023, will amount to PS00,000, and that 2023 year-end bonuses to employee
will total Pl,200,000.

What total amount of these expenses shall be reported in the interim inc11ffle
statement fOf' the six months ended June 30, 20237
A. Pl,700,000 C. PS00,000
8. Pl,100,000 D. PSS0,000

1830

~ CamScanner
ANSWER: D
- -
PROBLEM 45.5 Answer & SolutJon Gulde
-
Allocated dcpreclaUon (P500,000 x 6/12) P250,000
Allocated employee bonuses (Pl,200,000 x 6/12) _GQ_O,QQQ._
Expenses fOI' the alx month• ended June 301 2023 eJISO,IHIO
PROBLEM 45-6 Interim Reporting of Bonus to Employe..;.es_ _ _ _ _ _ _ _ __
The terms and conditions of employment with Undertaker Company lndude entitlement to
a share In the staff bonus system, under which 5% of the profit for the year before charging
the bonus Is allocated to the bonus pool, provided that the annual profit exceeds
PS0,000,000.

The profit before accrual of any bonus for the first half of the current year amounted to
P30,000,000 and the latest estimate of the profit before acaual of any bonus for the year
Is P60,000,000.

What amount shall be recognized in profit Of' loss as bonus expense fOI' the aix
months ended June 307
A. 1,500,000 C. 2,000,000
B. 3,000,000 D. Zero

PROBLEM 45-6 Answer & Solution Gulde

ANSWER: A
30M X 5% = !,~film

The entity shall already recognize bonus expense for the first half of the rurrent year since
the entity already estimated that the current year profit will exceed PS0,000,000.

PROBLEM 45-7 Interim Reporting of Bonus to Employees

The terms and conditions of employment with Undertaker Company Include entitlement ID
a share in the staff bonus system, under which 5% of the profit for the year before cha19ing
the bonus is allocated to the bonus pool, provided that the annual profit exceeds
PS0,000,000.

The profit before accrual of any bonus for the first half of the current year amounted to
P20,000,000 and the latest estimate of the profit before accrual or any bonus for the year
is P40,000,000.

What amount shall be recognized in profit or loss as bonus expense for the six
months ended June 307 •
A. 1,000,000 C. 2,000,000
B. 1,500,000 D. Zero

PROBLEM 45.7 Answer & Solution Gulde

ANSWER: D
The entity shall not recognize any bonus expense for the first half of the current year since
the entity estimated that the current year's profit will not exceed PS0,000,000.

1831

~r-:1m(;::r-":lnnP.r
 e.....- - ~ ~ $#1114
~ I: ~ A ~ . . , . ~1'1"9

PROBLEM 45-8 /nterlm Reporting of Warranty Cosu

Dwayne Company prepares quarterly Interim financial reports. The entity sells electrical
goods and normally 5% of customers claim on tl)eir warranty.

The provision in the first quarter was calculated at 5% of sales to date, which amounted to
P20,000,000. However, in the second quarter, a design fault was found, and warranty
claims were expected to be 10% for the whole year. Sales for the second quarter amounted
to P30,000,000.
1. What amount of provision should be charged in the inll!rim income
statement for the first quarter?'
A. PS00,000 C. Pl,500,000
B. Pl,000,000 D. P2,0001 000
2. What amount of provision should be charged in the interim income
statement for the second quarter?
A. Pl,500,000 C. P3,000,000
B. P2,500,000 D. P4,000,000

PROBLEM 45-8 Answer & Solution Guide

1. ANSWER: B
P20,000,000 X 5% = el,.00.0,00.Q

2. ANSWER: D
Cumulative warranty provision for Q2 [(20M + JOM) x 10%) 5,000,000
Less: Warranty provision - Ql (See no. 1) (1,000,000)
Warranty provision - Q2 ~00.0,000

PROBLEM 45-9 Interim Reporting of Gain or Loss on Disposal of Fixed Assets

During the second quarter of 2023, Marie Company sold a piece of equipment at a P12,000
gain.

What portion of the ·gain shall the company report in its income statement for
the 2nd quarter?
A. None C. P12,000
B. PB,000 D. P3,000

PROBLEM 45-9 Answer & Solution Gulde

ANSWER: C
The gain on sale of equipment is ·reported in the Interim period in which it is realized.

PROBLEM 45-10 Interim Reporting of Gain or Loss on Dlsp9sal of Rnd Aueu

On Joly 1, 2023, Bully Company incurred a loss of P300,000 on the disposal of an
investment.

What portion of the loss shall the company report in its Income sbltement for
the quarter ended September 30, 20237
A. P300,000 C. P200,000
B. PS00,000 D. None

1832
PROBLEM 45-10 Answer & Solution Gulde
ANSWER: A
The loss on the disposal of an asset Is reported In the period In which It is incurred and shall
not be allocated over the remaining Interim periods.

PROBLEM 45-1 I Interim Reporilng of Various Expenses

LODI company had the following transactions during the first quarter:

Los.s from typhoon P700,000

Los.s from inventory write-down 500,000
Los.s from disposal of a business segment 1,000,000
Payment of fire insurance premium for calendar year 150,000

What total amount of expenses should be included in the income statement for
the first quarter?
A. 1,300,000 C. 1,475,000
8. 2,237,500 D. 2,300,000

PROBLEM 45-11 Answer & Solution Guide

ANSWER: B
Los.s from typhoon P700,000,
Los.s from inventory write-down • 500,000
Los.s from disposal of a business segment 1,000,000
Payment of fire insurance premium for calendar year (PlS0,000/4) 37,500
Expenses - Ql P2 UZSJHI.

PROBLEM 45-12 Interim Reporting of Doubtful Accounts

GTR Company has historically reported bad debt expense of 5% of sales in each quarter.
For the current year, the entity followed the same procedure in the three quarters of the
year.

However, on December 31 of the-current year, the company determined that the bad debt
expense for the entire year should be P450,000.

Sales in each quarter of the year were first quartl!r P2,100,000, second quarter Pl,500,000,
third quarter P2,500,000 and fourth guarter P4,000,000.

What amount of bad debt expense should be recognized for the fourth quarter?
A. 200,000 C. 300,000 •
B. 145,000 D. 400,000

PROBLEM 45-12 Answer & Solution Guide

ANSWER: B
Bad debt expense - current year P450,000
Less: Bad debt expense: Ql - Q3 [(P2.1M + 1.5M + 2.5M) x 5%] (305,000)
Bad debt expense - Q4 Pl.iS.JlQQ,

1833

~ CamScanner
 e-,,-....- ~ ~ s-
~ I: ~tJ'l,-,,,t("') a,,c ~I("')

PROBLEM 45-13 Interim Reporting of Expenses

Bugatti Company is preparing interim financial statements for the first quarter ended March
31. Expenses in the first quarter totaled P6,000,000 of which 25% was variable.

The fixed expenses included a television advertising expense of Pl,600,000 represenllng

airtime to be incurred evenly during the current year and depreciation expense of P600,000
for the year for an equipment that was available for use on January 1.

What amount should be reported as total expen~ for the first quarter ended
March 317
A. 4,350,000 C. 4,150,000
B. 2,600,000 D. 2,350,000

PROBLEM 45-13 Answer & Solution Guide

ANSWER:A
Vllliable expenses for the 111 quarter (6M x 25%) 1,500,000
Add: A~sted fixed ~penses for the 1" quarter
Unadjusted fixed expenses (6M x 75%) 4,500,000
Less: Advertising expense for the year (1,600,000)
Less: Depreciation expense for the year (600,000)
Add: Advertisjng expense allocated to the 1~ quarter (1.6M x ¼) 400,000
Add: Depreciation expense allocated to the 111 quarter (SOOT~¼) 150.000 2,850,000
Total expenses -1 st quarter ~

PROBLEM 45-14 /nterim Reporting of Expenses

MC Cabrera Company provided the following information for the first quarter:

Loss from typhoon P400,000

Insurance for the calendar year 100,000
Loss on inventory write-down 50,000
Property taxes for the calendar year 250,000
Advertising of a new product 150,000
Depreciation expense for the calendar year 300,000
Year-€fld bonuses to employees 600,000
Ordinary repairs to machinery 75,000

What total amount of expenses should be reported in the first quarter?

A. 837,500 C. 987,500
B. 875,000 D. 1,175,000

PROBLEM 45-14 Answer & Solution Gulde

ANSWER: C
Loss from typhoon 400,000
Insurance for the calendar year {l00T/4) 25,000
Loss on inventory write-down 50,000
Prqperty taxes for the calendar year (250T/4) 62,500
Advertising of a new product 150,000
Depredation expense for the calendar year (300T/4) 75,000
Year-end bonuses to employees (600T/4) 150,000
Ordinary repairs to machinery 75,000
Expenses - 1st quarter DLm

1834

~ CamScanner
~al.EH 45-1 S lnttrim ~ " I of lnvent!!l lon
~- ,,,c-~ o.:ss from a pennanent mao.--et dcdinc of P260,000 orolff'Cd In Mlly 2023. May
, ' : \ - : + ~ ~ ' I ~ tNs loss In ~lay 2023 a~r Its March 31, 2023 quarterty
~'-'~"~cssued.
What -01.1nt ol inventocy loss should be repofted In the q1111rterty Income
Jtlttment for the three months ended lune 30, 2023?
~ ?lS0.000 C. PS00,000
S.. ?:&JJXlO D~ ?450,000

PROSLEH ◄ 5-1 S Answe,- & Solution Guide

~'tSWER:B
~~ css from permanent market decline shall be reported In the Interim period In
•'"'IC" ~ CMnne OCOJrs. A gain shall be recognized in the later Interim period If there Is
~-~ o: such loss in later interim period.
PROBLEM ◄5-16 Interim Reporting of Inventory Lon and Recovery
Company experiena!d a Pl,000,000 decline In the market value of inventory at
:-.."\.-.: i=a,.'"I(
::-e ex ol the first quarter. ~ company had expected this decline to reverse In the
s.i:se;cl:nt c;~. and in fact, the second quarter recovery exceeded the l)fevlous decline
:,, ::>21,"10,000. What amount of gain or loss should be reported In the interim financial
~ents for the first and second quarters?
1" auarter 2,d auarter
~ 1,000,000 loss 1,000,000 gain
3. 1,000,000 loss 1,200,000 gain
:: 250,000 bss 400,000 gain
::, 250,000 bss 150,000 gain

PROBLEM 45-16 Answer & Solution Gulde

AlfSWER:A
J;,- emty shall recognize the loss on inl.1:!ntory write-down due to market decline In the
::eiod it occurred. Sueh loss is recognized whether the market decline Is temporary or nol

'-• en:ity is allowed to recognize gain on recovery of inventory write-down but is limited
er;.•, m the loss previously recognized.

PROBLEM 45-17 Interim R~orting of Income Tax Expense

•·~ Company reported profit before tax for the first six months ended June 30, 2023, at
?5,000,000. However, the business is seasonal and profit before tax for the last six months
?!'lded December 31, 2023, is almost certain to be 1'9,000,000. Profit before tax equals
'Z.CZ!1e profit for this entity.

71e entity operates in a country where income tax on entities is at a rate of 30% if annual
,rotit is below Pll,000,000 and a rate of 35% where annual profit exceeds Pll,000,000.
~ tax rates apply to the entire profit for the year.

Wlat amount should be reported as income tax expense In the lnblrim finandal
lltMements for the six m~nths ended June 30, 2023?
A. Pl,750,000 C. P3,150,000
8. P2,100,000 O. P4,900,000

1836

~ CamScanner
 &'-I'<--~~ s-
1'«- I:~~~ - t ~

PROBLEM 45-17 Ans-r & Solution Gulde

ANSWER:A
PS,000,000 x 35% = gl,ZS.O,OO(l

The actual profit before tax for the first six months ended June 30 shall be multJplied by
35% since it was detennined by the entity that the 2023.profit will exceed Pll,000,000.

PROBLEM 45-18 Interim R~ortJng oflnco,:ne Tax Expense -Accounting Yea_r and Tox
Yur are the some
Battle Company, a calendar-year entity, had the following income before tax provision and
effective annual tax rate for the first three quarters of the current year:

Income before tax Tax rate

Rrst quarter P6,000,000 30%
Second quarter 7,000,000 30%"
Third quarter 8,000,000 25%

What amount should be reported as income tax iµ:pense in the •interim income
statement for the third quarter?
A. • 5,250,000 C. 2,000,000
B. 2,400,000 D. , 1,350,000

PRQBLEM 45-18 Answer & Solution Gulde

ANSWER: D
Cumulative income tax expense [(6M + 7M + BM) x 25%] 5,250,000
Less: Income tax expense (Ql and Q2) [(6M+7M) x 30% (3,900,000)
Income tax expense - Q3 1.350 000

PROBLEM 45-19 Jn_terim R~ortJng of Income Tax Expense -Accounting Year and Tox
Year are not the some
Signora Company has a financial reporting year that ~ins on July 1, 2022 and ends on
June 30, 2023. The tax year ends every December 31. •

The entity reports quarterly for interim purposes and the quarterly income is Pl,000,000
for the first quarter, Pl,500,000 for the second quarter, P2,500,000 for the third quarter
and P4,000,000 for the fourth qua~er.

The income tax rate is 30% for 2022 and is% for 2023.

What is the total income tax expense for the year ended June 30, 20237
A. 2,700,000 C. 1,625,000 •
B. 2,250,000 D. 2,375,000

PROBLEM 45-19 Ans-r & Solution Guide

ANSWER: D

Rrst quarter (Pl,000,000 x 30%) P300,000

Second quarter (Pl,500,000 x 30%) 450,000
Third quarter (P2,500,000 x 25%) 625,000
Fourth quarter (P4,000,000 x 25%) 1,000,000
Total income tax expense ~,.QQ.Q

1836

£E CamScanner
PROBLEM ◄5-20 Comprehensive - Interim Flnonclol Reportlnr
Bell Company reported P950,000 net Income for the quarter ended September 30, 2023,
which included the following alter-tax Items: /I P600,000 gain from expropriation realized
on April 30, 2023, was allocated equally to the second, third and fourth quarters of 2023.
A PlS0,000 toss resulting from a change In tnv1intory valuaHon method wilS recognized on
August 1, 2023.

In addition, the entity paid P480,000 on February 1, 2023, for 2023 property taxes. Of this
amount, P120,000 was allocated to the third quarter of 2023.
For the quarter ended September 30, 2023, what amount should &e report.eel ••
net income?
A. Pl,200,000 C. P950,000
B. Pl,400,000 D. P900,000

PROBLEM 45-20 Answer & S0l11tlon Gulde

ANSWER: D
Reported net income P950,000
Less: Erroneous allocation of gain from expropriation (PGOOT/3) (200,000)
Less: Erroneous recognition of change in inventory valuation method. 150,000
Correct net income gg.oo 000
Note:
► The gain from expropriation shall be reported in full In the period it is realized.

► A change in inventory valuation method Is a change in accounting policy that shall

be applied retrospectively through the beginning balance of retained earnings.

PROBLEM 45-21- Comprehensive - Interim Financial Reporting

Trickster Company prepared the following income statement for the year ended December
31, 2022:

Sales 3,000,000
Cost of goods sold (1,400,000)
Gross profit 1,600,000
Gain on sale of equipment so,ooo·
Operating expenses (250,000)
Casualty loss due to fire (150,000)
Pre-tax income 1,250,000
Income tax expense (375,000}
Net income 875,000

Additional information:
• Third quarter sales were 30% of total sales.
• For interim reporting purposes, a gross profit rare of 40% can be justified.
• Variable operating expenses are allocated In the same proportion as sales.
• Axed operating expenses are allocated based on passage of time.
• Of the total operating expenses, P200,000 relal'e to variable expenses and the
remainder relate to fixed expenses.
• The equipment was sold on June 1, 2022.
• The fire casualty loss occurred on September 1, 2022.

1837

EiEJ CamScanner
What amou_nt should be reported as pre-tax income fDf" the third quarter ended
September 30, 2022? •
A. 137,500 C. 187,500
8. 150,000 D. 250,000

PROBLEM 4S-21 Answer & Solution Gulde

ANSWER: A
Gross profit - 3rd quarter [(3M x 30%) x 40°/aj 360,000
Variable operating expenses - 3rd quarter (200T x 30%) (60,000)
Fixed operating expenses - 3rd quarter (S0T/4) (12,500)
Casualty loss due to fire (150,000)
Pre-tax income

-End of Chapter-