CMU

Enrichment Learning Activity

Name: Veralou M. Urbino Date: December 7, 2021

Year and Section: BSA – 4A Instructor Mr. Jefferson Cruz
:
Module #: 1 Topic: Financial Reporting in
Hyperinflationary Economies

Directions:

Use the following information for the next seven questions:

SOBRIQUET NICKNAME Co. operates in a hyperinflationary economy. Its unrestated financial statements are provided
below:

SOBRIQUET NICKNAME Co.

Statement of financial position

As of December 31, 20x2

  20x2 20x1

ASSETS

Cash 80,000 60,000

Accounts receivable 160,000 120,000

Allowance for doubtful accounts (40,000) (20,000)

Inventory (at cost) 200,000 160,000

Land (at cost) 400,000 400,000

Building (at cost) 2,000,000 2,000,000

Accumulated depreciation (800,000) (600,000)

Total assets 2,000,000 2,120,000

LIABILITIES AND EQUITY

Accounts payable 80,000 188,000

Loan payable 400,000 320,000

Total liabilities 480,000 508,000

Share capital 1,200,000 1,200,000

Retained earnings 320,000 412,000

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Total equity 1,520,000 1,612,000

Total liabilities and equity 2,000,000 2,120,000

SOBRIQUET NICKNAME Co.

Statement of profit or loss and other comprehensive income

For the year ended December 31, 20x2

Sales 1,600,000

Cost of sales:

Inventory, January 1 160,000

Purchases 1,200,000

Total goods available for sale 1,360,000

Inventory, December 31 (200,000) (1,160,000)

Gross income 440,000

Depreciation expense (200,000)

Distribution costs (140,000)

Bad debts expense (20,000)

Finance cost (40,000)

Profit before tax 40,000

Income tax expense (12,000)

Profit for the year 28,000

Other comprehensive income -

Total comprehensive income for the year 28,000

Additional information:

 The land and building were acquired on April 1, 20x0.

 The share capital was issued on March 1, 20x0.
 Sales, purchases, and expenses (except interest expense) were incurred evenly during the year.
 Interest expense was recognized and paid on December 31, 20x2.
 Dividends of ₱120,000 were declared and paid on December 31, 20x2.

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Enrichment Learning Activity

 Selected values of general price indices (CPI) are shown below:

March 1, 20x0……………………………………………...100
April 1, 20x0………………………………………………..100
Average for 20x1…………………………………………..110
December 31, 20x1…………………..………….…………120
Average for 20x2…………………………………………..125
December 31, 20x2………………………………………….140
1. How much is the restated total assets in the 20x1 comparative statement of financial position?
2. How much is the restated total liabilities in the 20x1 comparative statement of financial position?
3. How much is the restated total assets in the 20x2 statement of financial position?
4. How much is the restated total liabilities in the 20x2 statement of financial position?
5. How much is the restated profit?
6. How much is the gain (loss) on net monetary position (purchasing power gain or loss)?
7. How much is the restated retained earnings on December 31, 20x2?

The next two items are based on the following information:

Rice Wholesaling Corp. accounts for inventory on a FIFO basis. There were 8,000 units in inventory on January 1, 20x3.
Costs were incurred and goods purchased as follows during 20x3:

20x3 Historical costs Units purchased Units sold

1st qtr. 410,000 7,000 7,500

2nd qtr. 550,000 8,500 7,300

3rd qtr. 425,000 6,500 8,200

4th qtr. 630,000 9,000 7,000

Totals 2,015,000 31,000 30,000

Rice estimates that the current cost per unit of inventory was ₱57 at January 1, 20x3, and ₱71 at December 31, 20x3.

8. How much is the December 31, 20x3 inventory restated to current cost?
9. How much is the 20x3 cost of goods sold restated to current cost?

10. Fair Value, Inc., paid ₱1,200,000 in December 20x7 for certain of its inventory. In December 20x8, one half of the
inventory was sold for ₱1,000,000 when the replacement cost of the original inventory was ₱1,400,000. Ignoring
income taxes, what amount should be shown as the total gain resulting from the above facts in a current value
accounting income statement for 20x8?

Answers and Solution:

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I. SOBRIQUET NICKNAME Co.

SOBRIQUET NICKNAME Co.

Statement of financial position

As of December 31, 20x2

(Restated in terms of December 31, 20x2 current pesos)

20x2 20x1

Historical Fraction Restated Historical Fraction Restated

ASSETS

Cash 80,000 N/A 80,000 60,000 140/120 70,000

Accounts receivable 160,000 N/A 160,000 120,000 140/120 140,000

Allowance for doubtful N/A (40,000) 140/120 (23,333)

accounts (40,000) (20,000)

Inventory (at cost) 200,000 140/125 224,000 160,000 140/110 203,636

Land (at cost) 400,000 140/100 560,000 400,000 140/100 560,000

140/100 2,800,000 140/100 2,800,000

Building (at cost) 2,000,000 2,000,000

140/100 (1,120,000) 140/100 (840,000)

Accumulated depreciation (800,000) (600,000)

2,664,000 2,910,303
Total assets 2,000,000 2,120,000

LIABILITIES AND EQUITY

Accounts payable 80,000 N/A 80,000 188,000 140/120 219,333

Loan payable 400,000 N/A 400,000 320,000 140/120 373,333

Total liabilities 480,000 480,000 508,000 592,667

140/100 1,680,000 140/100 420,000

Share capital 1,200,000 1,200,000

Retained earnings 320,000 (squeeze) 504,000 412,000 (squeeze) 1,897,636

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2,184,000 2,317,636
Total equity 1,520,000 1,612,000

2,664,000 2,910,303
Total liabilities and equity 2,000,000 2,120,000

SOBRIQUET NICKNAME Co.

Statement of profit or loss and other comprehensive income

For the year ended December 31, 20x2

(Restated to December 31, 20x2 current pesos)

Historical Fraction Restated

Sales 1,600,000 140/125 1,792,000

Cost of sales:

Inventory, January 1 160,000 140/110 203,636

Purchases 1,200,000 140/125 1,344,000

Total goods available for sale 1,360,000 1,547,636

(1,323,636
(200,000) (1,160,000) 140/125 (224,000)
Inventory, December 31 )

Gross income 440,000 468,364

Depreciation expense (200,000) 140/100 (280,000)

Distribution costs (140,000) 140/125 (156,800)

Bad debts expense (20,000) N/A (20,000)

Finance cost (40,000) 140/140 (40,000)

Gain on Net Monetary Position 28,240

Profit before tax 40,000 (196)

Income tax expense (12,000) 140/125 (13,440)

Profit for the year 28,000 (13,636)

Other comprehensive income - -

Total comprehensive income for the year 28,000 (13,636)

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Enrichment Learning Activity

Total Monetary Assets, Dec. 31, 20x2, Historical Cost:

Cash 80,000

Accounts Receivable 160,000

Allowance for Doubtful Accounts (40,000) 200,000

Total Monetary Liabilities, Dec. 31, 20x2, Historical Cost:

Accounts Payable 80,000

Loans Payable 400,000 (480,000)

Net Monetary Items, Dec. 31, 20x2, Historical Cost (a) (280,000)

Total Monetary Assets, Dec. 31, 20x1, Restated:

Cash 70,000

Accounts Receivable 140,000

Allowance for Doubtful Accounts (23,332) 186,668

Total Monetary Liabilities, Dec. 31, 20x1, Restated:

Accounts Payable 219,332

Loans Payable 373,332 (592,668)

Net Monetary Items, Dec. 31, 20x1, Restated (406,500)

Increase in Net Monetary Items during 20x2:

Sales, restated 1,792,000

Decrease in Net Monetary Items during 20x2:

Purchases, restated (1,344,000)

Distribution Costs, restated (156,800)

Bad Debts Expense (20,000)

Finance Cost, restated (40,000)

Income Tax Expense, restated (13,440)

Dividends Paid, restated (120,000 x 140/140) (120,000) (1,694,240)

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Net Monetary Items, Dec. 31, 20x2, Restated (308,240)

Gain on Net Monetary Position (a-b) 28,240

1. The restated total assets in the 20x1 comparative statement of financial position is P2,910,303
2. The restated total liabilities in the 20x1 comparative statement of financial position is P592,667
3. The restated total assets in the 20x2 statement of financial position is P2,664,000
4. The restated total liabilities in the 20x2 statement of financial position is P480,000
5. The restated profit/loss is (P13,636)
6. There is a gain on net monetary position amounting to P28,240
7. The restated retained earnings on December 31, 20x2 is P504,000

II. RICE WHOLESALING CORP.

Beginning Inventory - Units 80,000

Units Purchased 31,000

Total Goods Available for Sale - Units 39,000

Units Sold 30,000

Ending Inventory in Units 9,000

Current Cost Per Unit 71

Ending Inventory – Current Cost 639,000

Units Sold 30,000

Average Current Cost [(71 + 57) / 2] 64

Cost of Sales – Current Cost 1,920,000

8. The December 31, 20x3 inventory restated to current cost is P639,000

9. The 20x3 cost of goods sold restated to current cost is P1,920,000
III. FAIR VALUE, INC.

Sales 1,000,000

Historical Cost of Portion Sold (1,200,000 x ½) (600,000)

Realized Gain 400,000

Current Cost of Unsold Portion (1,400,000x ½) 700,000

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Enrichment Learning Activity

Historical Cost of Portion Unsold (1,200,000 x ½) (600,000)

Unrealized Gain 100,000

Total Gain 500,000

10. The total gain resulting from the above facts in a current value accounting income statement for 20x8 is P500,000.

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