EVENTS AFTER REPORTING PERIOD_CORRECTION OF ERRORS

AiRnotes2020

Identifying adjusting and non-adjusting events

1. AIR Co.’s current reporting period ends on 31 Dec 20x1. The following transactions occurred after
the end of reporting period:
a. On 5 Jan 20x2, AIR declared P2,000,000 dividends.
b. On 15 Jan 20x2, AIR issued 1,000 shares with par value per share of P100 for P600 per share
c. On 1 Feb 20x2, a building with carrying amount as of 31 Dec 20x1 of P500,000 was totally razed
by fire
d. On 2 Feb 20x2, AIR installed an oil rig. Current legislation requires that the oil rig be uninstalled
at the end of its useful life and the site where it was installed be restored. AIR estimates the PV
of the decommissioning and restoration cost at P1,000,000
e. On 10 Feb 20x2, AIR received notice of a litigation in relation to an accident that happened on
31 Dec 20x1. AIR estimates a probable loss of P200,000
f. On 5 March 20x2, AIR purchased a subsidiary for P10,000,000 in a business combination
accounted for using the acquisition method. Goodwill of P2,500,000 was recognized on the
business combination.

Required: Compute the total adjusting events.

Accounting for adjusting events

2. AIR Co.’s current reporting period ends 31 Dex 20x1. The following transactions occurred after the end
of reporting period:
a. On 20 Jan 20x2, a pending litigation was resolved requiring a settlement amount of P100,000.
The 20x1 year-end financial statements included a provision for loss on litigation of P120,000.
b. Inventories costing P1,000,000 were recognized at their net realizable value of P900,000 in the
20x1 year-end financial statements. During January 20x2, the inventories were sold for P880,000.
Actual selling costs amounted to P30,000
c. The year-end accounts receivable include a P100,000 receivable from XYZ, Inc. No allowance for
doubtful accounts was recognized on this receivable as of 31 Dec 20x1. On 3 Feb 20x2, XYZ filed
for bankruptcy. It was estimated that the receivable will not be collected
d. The FV of financial assets measured at FV through profit or loss significantly declined to P80,000
on 28 Feb 20x2. The financial assets are recognized in the 20x1 year-end financial statements at
P300,000 which is their FV as of 31 Dec 20x1
e. On 5 March 20x2, a case was resolved requiring a settlement amount of P200,000. The 20x1
year-end financial statements included a provision for loss on litigation of P150,000

AIR Co.’s 20x1 profit before tax before consideration of the above transactions is P2,200,000. The
financial statements were authorized for issue on 1 March 20x2.

Required: Compute for the adjusted profit. Provide journal entries.

Current period error

3. On 10 Jan 20x2, prior to the authorization of LIM Co.’s31 Dec 20x1, financial statements for issue, the
accounting of LIM Co. received a bill for an advertisement made in the month of 31 Dec 20x1 amounting
to P1,600,000. This expense was not accrued as of 31 Dec 20x1.

Required:
a. Provide correcting entry, if the books are still open.
b. Provide correcting entry, if the books are already closed.

Prior period error

4. On 15 Jan 20x3, while finalizing its 20x2 financial statements, DTC discovered that depreciation
expense recognized in 20x1 is overstated by P1,600,000. Ignoring income tax, what is the entry to
correct the prior period error?

Albert I. Rivera, CPA, MBA, CRA 1 of 2

EVENTS AFTER REPORTING PERIOD_CORRECTION OF ERRORS
AiRnotes2020

Counterbalancing and non-counterbalancing errors

5. GGC reported profits of P4,000,000 and P8,000,000 in 20x1 and 20x2, respectively. In 20x3, the
following prior period errors were discovered:
a. The inventory on 31 December 20x1 was understated by P200,000
b. An equipment with an acquisition cost of P1,200,000 was erroneously charged as expense in 20x1.
The equipment has an estimated useful life of 5 years with no residual value. GGC provides full year
depreciation in the year of acquisition

The unaudited balances of retained earnings are P8,800,000 and P16,800,000 as of 31 December 20x1
and 20x2, respectively.

Required:
a. How much is the correct profit in 20x1?
b. How much is the correct profit in 20x2?
c. How much is the correct retained earnings in 20x1?
d. How much is the correct retained earnings in 20x2?

Couterbalancing and non-counterbalancing errors

6. HSC reported profits of P1,600,000 and P2,400,000 in 20x1 and 20x2, respectively. In 20x3, the
following prior period errors were discovered:
a. Prepaid supplies in 20x1 were overstated by P80,000
b. Accrued salaries payable in 20x1 were understated by P160,000
c. Repairs and maintenance expenses in 20x1 amounting to P400,000 were erroneously capitalized
and being depreciated over a period of years

The unadjusted balances of retained earnings are P6,400,000 and P8,800,000 as of 31 Dec 20x1 and
20x2, respectively:
Required:
a. How much is the correct profit in 20x1?
b. How much is the correct profit in 20x2?
c. How much is the correct retained earnings in 20x1?
d. How much is the correct retained earnings in 20x2?

Albert I. Rivera, CPA, MBA, CRA 2 of 2