Assignment 005 Interim and Segment Reporting

Problem 1 Interim Reporting

XYZ Company prepared the following condensed trial balance on March 31, 2017:
Cash 1,000,000
Accounts receivable 2,000,000
Inventory 1,500,000
Prepaid insurance 400,000
Note receivable 5,000,000
Land 1,500,000
Buildings and equipment 18,000,000
Accounts payable 8,500,000
Share capital 5,000,000
Share premium 4,000,000
Retained earnings 9,500,000
Sales 25,000,000
Purchases 17,000,000
Distribution costs 3,200,000
Administrative expenses _2,400,000
52,000,000 52,000,000

1. Uncollectible accounts typically average 1% of net sales.

2. On January 1, 2017, buildings and equipment have an average remaining life of 10 years. One-third of the account
balance consists of assets related to selling activities. The entity uses the straight line method.
3. The note receivable is dated January 1, 2017, matures on January 1, 2019, and carries a 12 % interest rate. Interest will
be collected annually starting January 1, 2018.
4. On January 1, 2017, the entity had purchased a one-year insurance policy debiting the payment to prepaid insurance.
5. The gross profit method is used to determine the interim inventory. Gross profit has averaged 40% of net sales.
6. The income tax rate is 30% and the income tax will be paid on or before April 15, 2017.

Compute for the following:

1. Doubtful accounts expense 250,000
2. Depreciation (Administrative and Selling) 300,000 and 150,000 respectively
3. Interest income 150,000
4. Insurance 100,000
5. Gross Income 10M
6. Income tax 1,125,000
7. Net income 2,625,000
8. Total Current assets 6,700,000
9. Total assets 30,750,000
10. Total liabilities 9,625,000
11. Total equity 21,125,000

Problem 2 Interim Financial Reporting

ABC Company prepares quarterly and year to date interim reports. The interim income statement for the quarter ended March 31,
2017 is as follows:
Sales 7,500,000
Cost of sales (4,500,000)
Gross income 3,000,000
Dividend revenue 300,000
Total income 3,300,000
Distribution costs (900,000)
General expenses (500,000)
Depreciation (400,000)
Interest expense (100,000)
Income tax (400,000)
Net income 1,000,000
On June 30, 2017, the accountant completed a worksheet in preparing the year to date income statement. The worksheet showed
the following income statement accounts:
Sales 20,000,000
Interest revenue 250,000
Dividend revenue 500,000
Cost of sales 11,500,000
Distribution costs 2,500,000
General expenses 1,100,000
Depreciation 700,000
Interest expense 300,000
Income tax expense 1,300,000
Required:
1. Net income for the first six months of 2017 Answer: 3,350,000
 2. Interim income statement for the second quarter of 2017 Answer: 2,350,000

Problem 3 Interim Financial Reporting

DEF Company encountered the following product cost situations as part of the quarterly financial reporting:
 The entity conducted inventory count at the end of the second quarter and end of the fiscal year.
 Typical gross profit rate 30%
Actual gross profit rate at the end of the second quarter 35%
Actual gross profit rate at the end of the year 25%
 Quarterly sales:
First quarter 10,000,000
Second quarter 8,000,000
Third quarter 7,000,000
Fourth quarter 15,000,000
 There was a temporary decline in inventory value of P100,000 in the first quarter which was recovered fully in the second
quarter.
 There was a net realizable value adjustment of PP150,000 in the third quarter.

The inventory value increased by P200,000 at the end of the fourth quarter.

Required:
1. Compute the cost of goods sold for each quarter. 7,100,000; 4,600,000; 5,050,000; 13,250,000
2. Compute the gross income for each quarter. 2,900,000; 3,400,000; 1,950,000; 1,750,000

Problem 4 Segment Reporting

ABC Company does business in several different industries. The condensed income statement for the entire entity for the current
year is as follows:

Sales 60,000,000
Cost of goods sold (28,000,000)
Gross income 32,000,000
Expenses (14,000,000)
Depreciation (4,000,000)
Income tax expense (4,000,000)
Net income 10,000,000
The entity has two major reportable segments X and Y. An analysis reveals that P1,000,000 of the total depreciation expense and
P2,000,000 of the expenses are related to general corporate activities. The chief operating decision maker allocates income tax
expense to reportable segments as a measure of profit or loss. The expense and sales are directly allocable to segment activities
according to the following percentages:
Segment X Segment Y Others
Sales 40% 45% 15%
Cost of goods sold 35 50 15
Expenses 40 40 20
Depreciation 40 45 15
Income tax expense 50 40 10
1. Determine the following: Segment profit or loss of X, Y and others. 6,200; 5,250; 1,550
2. If you are to prepare the disclosure requirements of PFRS 8, what are the accounts to be disclosed for each segment? Include
amount. Sales 24, 27, 9; P/L 6.2; 5.25; 1.55; Depreciation 1200; 1350; 450

Problem 5 Segment Reporting

ABC Company provided the following data for the current year:
Segment Revenue Profit(loss) Assets
1 620,000 200,000 400,000
2 100,000 20,000 80,000
3 340,000 70,000 300,000
4 190,000 (30,000) 140,000
5 180,000 (25,000) 180,000
6 70,000 10,000 120,000
7 120,000 (20,000) 140,000
Others 380,000 (25,000) 140,000

 The “others” category includes five operating segments, none of which has revenue or assets greater than P80,000 and
none with an operating profit.
 Operating Segments 1 and 2 produce very similar products and use very similar production processes, but serve different
customer types and use quite different product distribution system. These differences are due in part to the fact that
Segment 2 operates in a regulated environment while Segment 1 does not.
 Operating Segments 6 and 7 have very similar products, production processes, product distribution systems, but are
organized as separate divisions since they serve substantially different types of customers. Neither Segments 6 and 7
operate in a regulated environment.

1. Determine the reportable segments without regard to aggregation criteria. 1,3,4,5

2. If the 75% overall size test for reportable segments is yet met, identify additional reportable segments. Justify. 6,& 7