Conceptual Framework

MIDTERM EXAMINATION
CONCEPTUAL FRAMEWORK
Part 1
1. Explain the disclosures relating to changes in accounting policies
Disclosures relating in changes in accounting policies is a change in
how financial information is calculated. It can include inventory valuation
or revenue recognition changes. changes are done retroactively, where
financial statements have to be restated. When an entity chooses to
adopt a different method from the one it currently employs, it is required
to record and report that change in its financial statements.
2. Explain the disclosures relating to changes in accounting

estimates
Disclosures relating in changes in accounting estimates are a change in
the actual financial information. It is related to depreciation or bad-debt
allowances. Changes in accounting estimates not applied retroactively.
It is used in the reports when it is impossible or impractical to provide
exact numbers. When these estimates prove to be incorrect, or new
information allows for more accurate estimations, the entity should
record the improved estimate in a change in accounting estimate.
3. Explain the fundamental principle of IAS 7

This explains that all companies that prepare financial statements are
required to present a statement of cash flows. It is also explains about
the analysis changes in cash and cash equivalents during a period and
comprise cash on hand and demand deposits, together with short-term.
Another explanation why cash flows is important because Cash flow
information can provide more detail about the quality of the entity's
revenue.
Part 2
Problem 1
Xavier Company purchased a machinery on January 1, 2008 for
P7,200,000. The machinery has useful life of 10 years with no
residual value and was depreciated using the straight line method.
In 2011, a decision was made to change the depreciation method
from'straight line to sum of years' digits method. The estimates of
useful life and residual value remained unchanged. What is the
depreciation for 2017?
FOR THE YEAR 2011
Straight line Depreciation
Purchased Machinery= 7,200,000

Useful life= 10 years
P7,200,000 = Machinery
10 = useful life
= P720,000 = Depreciated amount
Sum of years dIgits method

Purchased Machinery= 7,200,000
Salution: 10(10+1)÷2 = 10(11)÷2 = 110÷2= 55
The depreciated will be 10/55 of amount to be depreciated.
The first year will use 10/55 of 720,000 depreciated amount is

P130,909.090 depreciated amount for 2017.
But if you will use the purchased amount of machinery which is

7,200,000, you will use the tenth year which is 1/55 to get P130,909.090
depreciated amount for 2017.
Problem 2
On January 1, 2008, Flax Company purchased a machine for
P5.280,000 and depreciated it by the straight line method using an
estimated useful life of eight years with no residual value. On
January 1, 2011, Flax determined that the machine had a useful life
of six years from the date of acquisition and will have a residual
value of P480,000. An accounting change was made in 2011 to
reflect these additional data. What is the accumulated depreciation
for the machine on December 31,2011?
STRAIGHT LINE DEPRECIATION
For the January 1, 2011
Purchased Machine= 5,280,000

P5,280,000= purchased Machine

8 = useful life
= P660,000 = depreciated amount
For the December 31, 2011

Residual value= 480,000
=(5,280,000 - 480,000)÷6
=P800,000 depreciated amount
Problem 3
Blue Company purchased a machine on January 1, 2008 for
P6,000,000. At the date of acquisition, the machine had a life of six
years with no residual value. The machine is being depreciated on
a straight line basis. On January 1, 2011, Blue determined that the
machine had a useful life of eight years from the date of
acquisition with no residual value. What is the depreciation of the
machine for 2011?
For the January 1, 2011


6 = useful life
= P1,000,000 depreciated amount

For the year 2011
purchased Machine= 6,000,000


8 = useful life
= P750,000 depreciated amount
Problem 4
On January 1, 2005, Paragon Company paid P6,000,000 to acquire
a new barge. In the belief that it was entitled to a refund of
purchase taxes on the acquisition of the barge, the entity claimed
and was refunded P600,000 by the local government. However, in
late 2011 the entity repaid the refund when it became apparent that
it had made an error in making the claim to the local government
as it had not been entitled to the refund of purchase taxes on
acquisition of the barge. The useful life of the barge is 15 years
from the date of acquisition. The residual value of the barge is NIL.
In 2011, the period over which the barge is expected to be
economically usable increased from 15 to 26 years. However, the
entity expects to dispose of its barge after using it for 20 years
from the date of acquisition. On December 31, 2011, the entity
assessed the residual value of the barge at P800,000. What is the
carrying amount of the barge on December 31, 2011?
For the year 2011
New barge = 6,000,000

Useful life = 15 years
P6,000,000 = new barge

15 = useful life
= P400,000 Depreciated amount
For the December 31, 2011
useful life = 20
New barge = 6,000,000
Residual value = 800,000
(6,000,000 - 800,000)÷20
= P260,000 depreciated amount

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MIDTERM EXAMINATION

2. Explain the disclosures relating to changes in accounting

3. Explain the fundamental principle of IAS 7

Straight line Depreciation

Purchased Machinery= 7,200,000

= P720,000 = Depreciated amount

Sum of years dIgits method

Salution: 10(10+1)÷2 = 10(11)÷2 = 110÷2= 55

The depreciated will be 10/55 of amount to be depreciated.

The first year will use 10/55 of 720,000 depreciated amount is

But if you will use the purchased amount of machinery which is

For the January 1, 2011

Purchased Machine= 5,280,000

P5,280,000= purchased Machine

For the December 31, 2011

Useful life= 6 years

For the January 1, 2011

Purchased Machine= 6,000,000

P6,000,000= purchased Machine

= P1,000,000 depreciated amount

purchased Machine= 6,000,000

P6,000,000= purchased Machine

For the year 2011

New barge = 6,000,000

P6,000,000 = new barge

For the December 31, 2011

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