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    Assessment Task 2

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    Christian N Magsino
    1. The document provides information to calculate warranty expenses and estimated warranty liabilities for Joaquin Company for 2020 and 2021. It states the sales amounts and actual warranty expenditures for each year, and provides the estimated warranty cost percentages. 2. The document describes 4 cases involving potential legal liabilities for Lance Company and asks how each case would be treated in the December 31, 2020 financial statements according to PAS 37. 3. For each case, it asks how the liability would be accrued or disclosed based on the information provided about the likelihood and estimated amount of the potential liabilities.

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    Assessment Task 2

    Uploaded by

    Christian N Magsino
    472 views4 pages
    1. The document provides information to calculate warranty expenses and estimated warranty liabilities for Joaquin Company for 2020 and 2021. It states the sales amounts and actual warranty expenditures for each year, and provides the estimated warranty cost percentages. 2. The document describes 4 cases involving potential legal liabilities for Lance Company and asks how each case would be treated in the December 31, 2020 financial statements according to PAS 37. 3. For each case, it asks how the liability would be accrued or disclosed based on the information provided about the likelihood and estimated amount of the potential liabilities.

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    ACCTG-ATS2

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    1. The document provides information to calculate warranty expenses and estimated warranty liabilities for Joaquin Company for 2020 and 2021. It states the sales amounts and actual warranty expenditures for each year, and provides the estimated warranty cost percentages. 2. The document describes 4 cases involving potential legal liabilities for Lance Company and asks how each case would be treated in the December 31, 2020 financial statements according to PAS 37. 3. For each case, it asks how the liability would be accrued or disclosed based on the information provided about the likelihood and estimated amount of the potential liabilities.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    472 views4 pages

    Assessment Task 2

    Uploaded by

    Christian N Magsino
    1. The document provides information to calculate warranty expenses and estimated warranty liabilities for Joaquin Company for 2020 and 2021. It states the sales amounts and actual warranty expenditures for each year, and provides the estimated warranty cost percentages. 2. The document describes 4 cases involving potential legal liabilities for Lance Company and asks how each case would be treated in the December 31, 2020 financial statements according to PAS 37. 3. For each case, it asks how the liability would be accrued or disclosed based on the information provided about the likelihood and estimated amount of the potential liabilities.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Assessment Task 2

    Problem Solving
    1. Sebastian Company includes one coupon in each box of hotcake mix it sells. A spoon is
    offered as a premium to customers who presents 10 coupons and a cash remittance of P10.00.

    Cost of distributing the premium is P5.00. Experience indicates that only 30% of the
    coupons will be redeemed 2020 2021
    Boxes of hotcake mix sold 2,000,000 2,500,000
    Number of spoons purchased at P50 each 50,000 80,000
    Coupons redeemed 400,000 700,000

    Required:
    a. Compute for the premium expense for the year 2020
    b. Compute the estimated premium liability on December 31, 2020
    c. Compute for the premium expense for the year 2021
    d. Compute for the estimated premium liability on December 31, 2021

    Requirement 1:

    a.) 2,700,000
    Solution:

    Cost of towel 50
    Remittance from customer (10)
    Distribution cost 5
    Net premium cost 45

    Coupons to be redeemed in 2020 (2,000,000 x 30%) 600,000


    Coupons redeemed in 2020 (400,000)
    Coupons outstanding - December 31, 2020 200,000

    Premium expense for 2020 (600,000 / 10 x 45) 2,700,000


    b.) 900,000
    Solution:
    Estimated liability – 12/31/2020 (200,000 / 10 x 45) 900,000

    c.) 3,375,000
    Solution:

    Coupons to be redeemed in 2021 (2,500,000 x 30%) 750,000

    Premium expense for 2021 (750,000 / 10 x 45) 3,375,000

    d.) 1,125,000
    Solution:

    Coupons outstanding - December 31, 2020 200,000


    Coupons to be redeemed in 2021 (2,500,000 x 30%) 750,000
    Total coupons to be redeemed 950,000
    Coupons redeemed in 2021 (700,000)
    Coupons outstanding - December 31,2021 250,000

    Estimated liability – 12/31/2020 (250,000 / 10 x 45) 1,125,000

    2. During 2020, Joaquin Company introduced a new line of machines that carry a two-year
    warranty against manufacturer’s defects. Based on industry experience, the estimated
    warranty cost percentages related to peso sales are as follows:
    Year of sale 1%
    Year after sale 6%
    Sales and actual warranty expenditures for 2020 and 2021 were as follows:
    Year Sales Actual warranty expenditures
    2020 P1,000,000 P54,000
    2021 1,400,000 89,000

    a. How much is the warranty expense to be recognized in 2020 and 2021, respectively?
    b. What is the estimated warranty liability as of December 31, 2020 and 2021, respectively?
    3. Determine the implication of the following independent cases to the December 31, 2020
    financial statements as per PAS 37, on Provisions, Contingent Liabilities, and Contingent
    Assets.

    Case 1
    On December 5, 2020, an employee filed a P3,000,000 lawsuit against Lance Company for
    damages suffered when one of the company’s equipment malfunctioned in August, 2020. In
    your inquiry of the company’s legal counsel, the legal counsel expects the company will lose the
    lawsuit and estimates the losses to be between P500,000 and P1,500,000. The employee has
    offered to settle the lawsuit out of court for P1,200,000, but Lance Company will not agree to the
    settlement.

    Case 2
    Lance Company has guaranteed a loan of P2,000,000 of one of its key officers from a bank in
    2020. By the time the financial statements of Lance Company were approved for issuance by its
    BOD, it is clear that the key officer is in financial difficulties and it is probable that Lance
    Company will meet the guarantee.

    Case 3
    On December 20, 2020, an explosion occurred at Lance Company’s plant causing extensive
    property damages to adjacent areas. Although no claims had yet been asserted against Lance
    Company by April 15, 2021, Lance Company’s management and legal counsel believes that it is
    probable that the company will be liable for damages, and that P2.5M would be reasonable
    estimate of its liability. The legal counsel further opines that the total liability may possibly be up
    to P5M given the extent of damages to the neighboring areas. Lance Company’s P10M
    comprehensive public liability policy has a P1M deductible clause.

    Case 4
    On January 12, 2021, a fire at the production area of Lance Company damaged a number of
    adjacent buildings. Lance Company’s insurance policy does not cover damages to property of
    others. The adjacent neighbors have filed a P2M damages suit against the company and the
    legal counsel opines that it is probable that such damages will be awarded to them.
    Case 1 Case 2 Case 3 Case 4
    a. Accrue liability at Disclose contingency Accrue liability at Accrue liability at
    P1,200,000 at P2,000,000 P1,500,000 P2,000,000
    b. Accrue liability at Disclose contingency Accrue liability at Disclose contingency
    P1,000,000 at P2,000,000 P1,000,000 at P2,000,000
    c. Accrue liability at Accrue liability at Accrue liability at Disclose contingency
    P1,000,000 P2,000,000 P1,000,000 at P2,000,000
    d. Accrue liability at Accrue liability at Accrue liability at Accrue liability at
    P1,000,000 P2,000,000 P1,500,000 P2,000,000

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