The draft balance sheet of Tere Corporation as of December 31, 2019 reported the net property, plant and equipment at P110,000,000. Details of the amount follow: Land at cost P10,000,000 Building at cost P50,000,000 Less accumulated depreciation at 12/31/18 (20,000,000) 30,000,000 Plant at cost 94,500,000 Less accumulated depreciation at 12/31/18 (24,500,000) 70,000,000 110,000,000 The following matters are relevant: • On 30 June 2019, Tere terminated the production of one of its product lines. From this date, the plant used to manufacture the product has been actively marketed at an advertised price of P4.2 million which is considered realistic. Assume that this plant qualified as held for sale in accordance with PFRS 5. It is included in Plant and equipment at a cost of P9 million with accumulated depreciation (at 1 January 2019) of P5 million. • On 2 January 2019, the directors of Tere decided that the financial statements would show an improved position if the land and buildings were revalued to market value. At that date, an independent valuer valued the land at P12 million and the buildings at P35 million and these valuations were accepted by the directors. The remaining life of the building at that date was 14 years. Tere does not make a transfer to retained earnings for excess depreciation. Ignore deferred tax on the revaluation surplus. • Plant and equipment is depreciated at 20% per annum using the reducing balance method and time apportioned as appropriate. • All depreciation is charged to cost of sales, but none has yet been charged on any non-current assets for the year ended 31 December 2019. QUESTIONS: Based on the above and the result of your audit, determine the amounts that should be reported as of and for the year ended December 31, 2019 for the following. (Compute for the following) 1. Plant and equipment 2. Plant held for sale 3. Property, plant and equipment 4. Total depreciation 5. Revaluation surplus
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The draft balance sheet of Tere Corporation as of December 31, 2019 reported the net property, plant and equipment at P110,000,000. Details of the amount follow:
Land at cost P10,000,000
Building at cost P50,000,000
Less
depreciation
Plant at cost 94,500,000
Less accumulated
depreciation at 12/31/18 (24,500,000) 70,000,000
110,000,000
The following matters are relevant:
• On 30 June 2019, Tere terminated the production of one of its product lines. From this date, the plant used to manufacture the product has been actively marketed at an advertised price of P4.2 million which is considered realistic. Assume that this plant qualified as held for sale in accordance with
PFRS 5. It is included in Plant and equipment at a cost of P9 million with accumulated depreciation (at 1 January 2019) of P5 million.
• On 2 January 2019, the directors of Tere decided that the financial statements would show an improved position if the land and buildings were revalued to market value. At that date, an independent valuer valued the land at P12 million and the buildings at P35 million and these valuations were accepted by the directors. The remaining life of the building at that date was 14 years. Tere does not make a transfer to retained earnings for excess depreciation. Ignore
revaluation surplus.
• Plant and equipment is
• All depreciation is charged to cost of sales, but none has yet been charged on any non-current assets for the year ended 31 December 2019.
QUESTIONS:
Based on the above and the result of your audit, determine the amounts that should be reported as of and for the year ended December 31, 2019 for the following. (Compute for the following)
1. Plant and equipment
2. Plant held for sale
3. Property, plant and equipment
4. Total depreciation
5. Revaluation surplus
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