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Problem 44-1 (IAA)Transactions regarding the land of Simple Company are summarized below: The entity purchased land on January 1, 2009 for P500,00 cash. On December 31, 2009, the land has a current replacement cost of P600,00.  On December 31, 2010, the land has a current replacement cost of P750,...

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CURRENT COST ACCOUNTING

Problem 44-1 (IAA) Transactions regarding the land of Simple Company are summarized below:  The entity purchased land on January 1, 2009 for P500,00 cash. On December 31, 2009, the land has a current replacement cost of P600,00.  On December 31, 2010, the land has a current replacement cost of P750,00.  The entity sold the land for P1,000,000 cash on December 31, 2011. On this date, the current replacement cost of the land is P800,000 1. What is the unrealized holding gain to be reported in the 2010 income statement? a. 250,000 b. 150,000 c. 100,000 d. 0 2. What is the realized holding gain to be reported in the 2011 income statement? a. 300,000 b. 250,000 c. 50,000 d. 0 3. What is the gain on sale of land to be reported in 2011 under current cost accounting? a. 500,000 b. 250,000 c. 200,000 d. 150,000 Solution 44-1 Question 1 Answer b Current cost – December 31, 2009 Historical Cost Unrealized holding gain in 2009

600,000 500,000 100,000

Current cost – December 31, 2010 Historical Cost

750,000 500,000

Cumulative unrealized holding gain in 2010 Less: Unrealized holding gain recognized in 2009

250,000 100,000

Unrealized holding gain to be reported in 2010 150,000 For nondepreciabke asset or land, unrealized holding gain or loss is the difference between the current cost and historical cost of the asset unsold at the end of the year.

Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

CURRENT COST ACCOUNTING

Question 2 Answer c Current Cost – December 31, 2011 Historical Cost

800,000 500,000

Realized holding gain 2011 Less: Unrealized holding gain in 2009 and 2010

300,000 250,000

Realized holding gain to be reported in 2011

50,000

For nondepreciable asset, realized holding gain or loss is the difference between current cost at the time of sale and historical cost of the asset sold. Question 3 Answer c Sales price Less: Current cost – December 31, 2011 Gain on sale of land

1,000,000 800,000 200,000

Problem 44-2 (IAA) East Company acquired an equipment on January 1, 2009 for P5,000,000. Depreciation is computed using the straight line method. The estimated useful life of the equipment is 5 years with no residual value. A specific price index applicable to the equipment was 150 on January 1, 2009 and 225 on December 31, 2009 1. What is the realized holding gain on the equipment to be reported in 2009? a. 500,000 b. 250,000 c. 300,000 d. 0 2. What is the unrealized holding gain on the equipment to be reported in 2009? a. 1,250,000 b. 2,500,000 c. 2,000,000 d. 1,500,000 Solution 44-2 Question 1 Answer b Current cost Average current cost

(5,000,000 (5,000,000

Depreciation on average cost Depreciation on historical cost Realized holding gain Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

x +

(6,250,000 / 5) (5,000,000 / 5)

225/150) 7,500,000/2)

7,500,000 6,250,000 1,250,000 1,000,000 250,000

CURRENT COST ACCOUNTING

For depreciable asset, realized holding gain gain or loss is the difference between depreciation based on average current cost and depreciation based on historical cost. Question2 Answer C Current cost Accumulated depreciation Net current cost

(7,500,000 / 5)

7,500,000 1,500,000 6,000,000

Historical cost Accumulated depreciation Carrying amount

(5,000,000 / 5)

5,000,000 1,000,000 4,000,000

Net current cost Carrying amount Unrealized holding gain

6,000,000 4,000,000 2,000,000

For depreciable asset, unrealized holding gain or loss is the difference between net current cost and carrying amount of the asset. Problem 44-3 (IAA) Autumn Company had the following transactions for 2009 with respect to its inventory:  On January 1, the entity purchased 50,000 units at P100 per unit  During the year, the entity sold 40,000 units at P180 per unit.  The entity paid P700,000 for operating expenses.  The current replacement cost of the inventory on December 31 is P150 per unit. 1. What is the realized holding gain on inventory for 2009? a. 2,000,000 b. 1,000,000 c. 1,500,00 d. 0 2. What is the unrealized holding gain on inventory for 2009? a. 600,000 b. 250,000 c. 500,000 d. 0 3. What is the net income for 2009 under current cost accounting? a. 3,200,000 b. 2,500,000 c. 3,700,000 d. 3,000,000 Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

CURRENT COST ACCOUNTING

Solution 44-3 Question 1 Answer b Cost of sales at average current cost Historical cost

(40,000 x 125) (40,000 x 100)

5,000,000 4,000,000

Realized holding gain

1,000,000

Average current cost (100 + 150 = 250 / 2)

125

For inventory, the realized holding gain or loss is the difference between cost of sales at average current cost and cost of sales at historical cost. Question 2 Answer c Inventory – 12/31 at current cost Inventory – 12/31 at historical cost

(10,000 x 150) (10,000 x 100)

1,500,000 1,000,000

Unrealized holding gain 500,000 For inventory, the unrealized holding gain or loss is the difference between the ending inventory at current cost and ending inventory at historical cost. Question 3 Answer d Sales (40,000 x 180) Cost of sales (40,000 x 125)

7,200,000 5,000,000

Gross income Other income: Realized holding gain Unrealized holding gain

2,200,000 1,000,000 500,000

1,500,000

Total income Operating expenses

3,700,000 700,000

Net income

3,000,000

Incidentally, the historical cost income statement is as follows: Sales Cost of sales: Purchases 5,000,000 Less: Inventory 12/31 1,000,000 Gross income Operating expenses Net income Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

7,200,000 4,000,000 3,200,000 700,000 2,500,000

CURRENT COST ACCOUNTING

Problem 44-4 (AICPA Adapted) Details of Weaver Company’s property, plant and equipment at December 31, 2009 are: Year Percent Historical Current Acquired depreciated cost Cost 2007 2008 2009

30 20 10

1,000,000 300,000 400,000

1,400,000 380,000 440,000

Weaver calculates depreciation at 10% straight line. A full year’s depreciation is charged in the year of acquisition. There were no disposals of property. In Weaver’s statement of financial position restated to current cost, the net current cost of the property, plant and equipment should be a. 1,160,000 b. 1,300,000 c. 1,680,000 d. 1,820,000 Solution 44-4 Answer c 2007 (1,400,000 x 70%) 2008 ( 380,000 x 80%) 2009 ( 490,000 x 90%)

980,000 304,000 396,000 1,680,000

Problem 44-5 (AICPA Adapted) Information with respect to Roundtree Company’s cost of goods sold for 2009 is: Units Historical Cost Inventory – January 1 Purchases

10,000 45,000

530,000 2,790,000

Goods available for sale Inventory – December 31

55,000 (15,000)

3,320,000 (945,000)

Cost of goods sold

40,000

2,375,000

Roundtree estimates that the current cost per unit of inventory was P58 at January1,2009 and P72 at December 31, 2009. In Roundtree’s income statement restated to average current cost, the realized holding gain from the inventory sold is

Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

CURRENT COST ACCOUNTING

a. b. c. d.

225,000 135,000 350,000 505,000

Solution 44-5 Answer a Cost of sales: Average current cost (40,000 x 65) Historical cost

2,600,000 2,375,000

Realized holding gain Average unit cost

225,000

(58 + 72 = 130 / 2)

65

Problem 44-6 (IFRS) Rice Company accounts for inventory on FIFO basis. There were 8,000 units in inventory on January 1,2009. Costs were incurred and goods were purchased during 2009 as follows:

First quarter Second quarter Third quarter Fourth quarter

Historical Cost 410,000 550,000 425,000 630,000 2,015,000

Units Purchased 7,000 8,500 6,500 9,000 31,000

Units sold 7,500 7,300 8,200 7,000 30,000

Rice estimates that the current cost per unit of inventory was P57 at January 1,2009 and P71 at December 31, 2009. 1. In Rice’s statement of financial position restated to current cost, the December 31, 2009 inventory should be a. b. c. d.

576,000 585,000 630,000 639,000

2. In Rice’s income statement restated to current cost, the cost of goods sold for 2009 would be a. b. c. d.

1,920,000 1,944,000 2,100,000 2,130,000

Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

CURRENT COST ACCOUNTING

Solution 44-6 Question 1 Answer d Inventory – December 31

(9,000 x 71)

639,000

Question 2 Answer a Cost of sales at average current cost (30,000 x 64) Average unit cost

1,920,000

(57 +71 = 128 / 2)

64

Problem 44-7 (AICPA Adapted) Information with respect to cost of goods sold of Bar Company for 2009 is as follows: Historical cost

Units

1,060,000 5,580,000

20,000 90,000

Inventory, January 1 Purchases during the year Good available for sale Inventory, Decmber 31

6,640,000 (2,520,000)

Cost of goods sold

4,120,000

110,000 (40,000) 70,000

Bar estimates that the current cost per unit of inventory was P58 at January 1, 2009 and P72 at December 31, 2009. In the income statement restated to current cost, the cost of goods sold for 2009 should be a. b. c. d.

5,040,000 4,550,000 4,410,000 4,060,000

Solution 44-7 Answer b Current cost per unit – January 1 Current cost per unit – December 31

58 72

Total

130

Average current cost (130 / 2)

65

Cost of goods sold at average current cost Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

(70,000 x 65)

4,550,000

CURRENT COST ACCOUNTING

Problem 44-8 (AICPA Adapted) The following information pertains to each unit of merchandise purchased for resale by Vanessa Company: March 1, 2009 Purchase price Selling price Price level index

8 12 110

December 31, 2009 Replacement cost Selling price Price level index

10 15 121

Under current cost accounting, what is the amount of holding gain on each unit of this merchandise? a. b. c. d.

0 0.80 1.20 2.00

Solution 44-8 Answer d Replacement cost Historical cost

10 8

Holding gain

2

Problem 44-9 (AICPA Adapted) Kerr Company purchsed a machine for P1,150,000 on January 1, 2009, the entity’s first day of operation. At the end of the year, the current cost of the machine was P1,250,000. The machine has no residual value, has a five-year life, and is depreciated by the straight line method. For the year ended December 31, 2009, the amount of depreciation expense whoch would appear in the current cost income statement is a. b. c. d.

140,000 230,000 240,000 250,000

Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

CURRENT COST ACCOUNTING

Solution 44-9 Answer c Historical cost – January 1 Current cost – December 31

1,150,000 1,250,000

Total

2,400,000

Average current cost (2,400,000 / 2)

1,200,000

Depreciation (1,200,000 / 5)

240,000

Problem 44-10 (AICPA Adapted) Divine company declared changing prices. The entity computed the following cost of inventory: Increase in current cost (nominal peso) 1,500,000 Increase in current cost (constant peso 1,200,000 What amount should be declared as the inflation component of the increase in current cost? a. 2,700,000 b. 1,500,000 c. 1,200,000 d. 300,000 Answer: D Inflation component (1,500,000 – 1,200,000) 300,000 Problem 44-11 (AICPA Adapted) On Dec. 31, 2015 Michelle company owned the following assets: Equipment Current cost 300,000 Recoverable amount 125,000 The entity voluntarily disclosed supplemental information of total cost on dec. 31, 2015. In such disclosure, what amount should be reported as total assets? a. 175,000 b. 180,000 c. 185,000 d. 190,000 Answer: A (300,000 – 125,000) Problem 44-12 (AICPA Adapted) On January 1, 2015, Zoe Company paid 2,000,000 for land. On December 31, 2015, the current cost of the land was 2,200,000, on January 2016 the land was sold for 2,250,000. 1. Under cost accounting what is the increase Under current cost accounting, what is the increase of the shareholders equity on 2015? Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

CURRENT COST ACCOUNTING

a. 200,000 b. 250,000 c. 50,000 d. 0 2. Under current cost accounting, what is the increase of the shareholders equity on 2016? a. 250,000 b. 200,000 c. 50,000 d. 0 Question 1: Answer A Current cost – Dec. 31, 2015 Historical Cost Unrealized holding gain in 2015

2,200,000 2,000,000 200,000

Question 2: Answer C Sale Price Current cost – Dec. 31, 2015 Gain on sale

2,250,000 2,200,000 50,000

Problem 44-13 (AICPA Adapted) Ken Company purchsed a machine for P2,150,000 on January 1, 2009, the entity’s first day of operation. At the end of the year, the current cost of the machine was P1,150,000. The machine has no residual value, has a five-year life, and is depreciated by the straight line method. What is the average current cost? a. 140,000 b. 230,000 c. 240,000 d. 1,000,000 Solution 44-13 Answer D Historical cost – January 1 Current cost – December 31

2,150,000 1,150,000

Total

2,000,000

Average current cost (2,000,000 / 2)

1,000,000

Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

CURRENT COST ACCOUNTING

Problem 44-14 (AICPA Adapted) On January 1, 2015, Knick Company paid 6,000,000 for land. On December 31, 2015, the current cost of the land was 8,200,000, on January 2016 the land was sold for 7,250,000. Under cost accounting what is the increase Under current cost accounting, what is the increase of the shareholders equity on 2015? a. 200,000 b. 250,000 c. 50,000 d. 0 Answer A Current cost – Dec. 31, 2015 Historical Cost Unrealized holding gain in 2015

8,200,000 8,000,000 200,000

Problem 44-15 (AICPA Adapted) Dianne company declared changing prices. The entity computed the following cost of inventory: Increase in current cost (nominal peso) 8,200,000 Increase in current cost (constant peso) 7,400,000 What amount should be declared as the inflation component of the increase in current cost? a. 700,000 b. 1,000,000 c. 800,000 d. 300,000 Answer: D Inflation component (8,200,000 – 7,400,000)

Submmitted by: Dianne Lorraine B. Mandocdoc BSA 321

800,000...