Ateneo de Zamboanga University

School of Management and Accountancy

Accounting 315: Financial Accounting III
Long quiz #2: Preparation of Statement of Comprehensive Income

Mewtwo Inc. recently hired a bookkeeper who has little knowledge about IAS and IFRS. The following profit or loss statement
was prepared by the said bookkeeper for the year ended December 31, 2016:

Income and Retained Earnings Statement

For Mewtwo Inc.
December 31, 2016

Sales P1,457,800
Purchases (582,500)
Operating expenses (Schedule 1) (493,000)
Other items - net (Schedule 2) 13,700
Profit 396,000
Tax on profit due to BIR (30% x 396,000) (118,800)
Net Profit 277,200
Add: Retained earnings, beginning 1,357,800
Retained earnings, end P1,635.000

When you examined the records of Mewtwo Inc., as of year-end, you discovered the following items:
 Sales discounts of P18,500 and purchase discounts of P11,000 was not deducted from sales and purchases, respectively,
as shown above.
 The following schedules for operating expenses and other items were prepared by the inexperienced bookkeeper:
Schedule 1: Operating expenses Schedule 2: Other items – net
Utilities expense P31,000 Interest income P9,400
Administrative salaries 144,000 Increase in revaluation surplus 47,600
Sales salaries and commissions 163,500 Dividends income 4,800
Interest expense 12,500 Cash dividends declared (30,000)
Loss on sale of fixed assets 2,000 Bad debts expense (5,100)
Advertising expenses 4,500 Decrease in value of FAFVPL (3,000)
Insurance expense 10,000 Loss due to typhoon (30,000)
Supplies expense 5,500 Increase in value of FAFVOCI 20,000
Rent expense 120,000
Depreciation expense -
___________ __________
Total – Operating expenses P493,000 Total – Other items – net P13,700
It was determined that utilities, insurance, supplies and rent are to be allocated to the administrative and selling function
using a 60:40 ratio, respectively.
 During the year, the company decided to change its policy of valuing its inventory from the weighted average to the FIFO
method. The following are the computed ending inventory balances under the two methods:
Weighted FIFO
Ending inventory, 2015 223,800 P224,200
Ending inventory, 2016 180,000 175,000
 The company has a set of computers that the selling department uses to monitor sales and customer information. The
computers were purchased last January 1, 2014 for P250,000 with an estimated useful life of 5 years from the date of
acquisition and a salvage value equal to 10% of cost. During 2016, new information led management to decide to change
the depreciation method for this asset to SYD method. Also, the remaining useful life from the date of change was revised
to 4 years and the salvage value was reduced to zero. Due to the complicated nature of the change, the bookkeeper decided
not to include any depreciation expense for the current year, as shown in the schedule above.
 The following prior period errors were discovered:
o Ending inventory of 2014 was overstated by P25,000 due to a computational error.
o Expenses of 2015 amounting to P15,000 were inappropriately capitalized to “Other Assets”
o Last January 1, 2015, office furniture was purchased for P100,000. The furniture has an estimated useful life
of 10 years with no salvage value. However, the entry made to record the acquisition was a debit to expense
and a credit to cash. The company uses the straight-line method for depreciating

REQUIRED:
a. Prepare a revised statement of comprehensive income for Mewtwo Inc. based on IAS 1 and all relevant IFRS.
b. Compute for the correct retained earnings balance to be presented on the December 31, 2016 statement of financial
position.