Cash and cash equivalents 5,14 P 3,985,000 Receivables, net 6,14 7,742,000 Inventories 7 15,859,000 Short-term investments 8,14 3,280,000 Other current assets 10 352,000 Total current assets P 31,218,000 Note 8 on investments described the investments as equity securities held primarily for being traded to takeadvantage of price fluctuations in the market. The following information shows the breakdown of the investmentaccount per client's subsidiary records: Held for Trading Securities: Securities No. ofShares MarketPrice Amount SMCOrdinary 5,000 176 P 880,000 AC Ordinary 3,000 800 2,400,000 Total P 3,280,000 You were able to verify that the quantity and valuation of the shares as of December 31, 2019 were appropriate. Based on your substantive test of details of transactions and balances for the investment account you gatheredthe following information for 2020: SMC declared and distributed 10% bonus issue to its shareholders on February 1, 2020. On March 31, 2020 AC declared and paid P5.00 cash dividend to its shareholders. On May 30, 2020 Classic Corporation sold 550 shares of SMC ordinary shares for P200 per share. On July 1, 2020 Classic Corporation acquired 1,000 ordinary shares of Excel Company for P26 per share.Classic Corporation paid P2,000 in transfer taxes and commissions. The company designated the shares at fair value through other comprehensive income. On November 30, 2020, Classic Corporation sold 1,000 shares of AC ordinary for P780.00 per share. On December 15, 2020 AC declared P2 cash dividend per share on its ordinary shares, payable on January31, 2021 to shareholders of record as of December 30, 2020. Refer to WB for HO.2 excel file for market prices of the equity investments as of December 31, 2020.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
|
Cash and cash equivalents |
5,14 |
P 3,985,000 |
|
Receivables, net |
6,14 |
7,742,000 |
|
Inventories |
7 |
15,859,000 |
|
Short-term investments |
8,14 |
3,280,000 |
|
Other current assets |
10 |
352,000 |
|
Total current assets |
|
P 31,218,000 |
Note 8 on investments described the investments as equity securities held primarily for being traded to takeadvantage of price fluctuations in the market. The following information shows the breakdown of the investmentaccount per client's subsidiary records:
Held for Trading Securities:
|
Securities |
No. ofShares |
MarketPrice |
Amount |
|
SMCOrdinary |
5,000 |
176 |
P 880,000 |
|
AC Ordinary |
3,000 |
800 |
2,400,000 |
|
Total |
|
|
P 3,280,000 |
You were able to verify that the quantity and valuation of the shares as of December 31, 2019 were appropriate.
Based on your substantive test of details of transactions and balances for the investment account you gatheredthe following information for 2020:
- SMC declared and distributed 10% bonus issue to its shareholders on February 1, 2020.
- On March 31, 2020 AC declared and paid P5.00 cash dividend to its shareholders.
- On May 30, 2020 Classic Corporation sold 550 shares of SMC ordinary shares for P200 per share.
- On July 1, 2020 Classic Corporation acquired 1,000 ordinary shares of Excel Company for P26 per share.Classic Corporation paid P2,000 in transfer taxes and commissions. The company designated the shares at fair value through other comprehensive income.
- On November 30, 2020, Classic Corporation sold 1,000 shares of AC ordinary for P780.00 per share.
- On December 15, 2020 AC declared P2 cash dividend per share on its ordinary shares, payable on January31, 2021 to shareholders of record as of December 30, 2020.
- Refer to WB for HO.2 excel file for market prices of the equity investments as of December 31, 2020.
Requirements:
Download WB for HO.2 excel file from Module 2 in your Canvas and it use as working paper to summarize theaudit procedures performed on audit of investment account of Classic Corporation. Based on your audit findings,answer the following questions:
- How much equity investments at fair value through profit or loss should be presented by Classic Corporation inthe current assets portion of its
statement of financial position as of December 31, 2020? - How much equity investments at fair value through other comprehensive income should be presented byClassic Corporation in the non-current assets portion of its statement of financial position as of December 31,2020?
- How much investment income (loss) should be presented in profit or loss in 2020?
- How much investment income (loss) should be presented in other comprehensive income in 2020?
- How much cumulative gains or losses should be presented as a separate component in shareholders' equityrelated to equity investments at fair value through other comprehensive income as of December 31, 2020?
Use this excel file for your working note:
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