CA5106: CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

EXERCISE 2: CLASSIFICATION OF LIABILITIES INTO CURRENT AND NON-

CURRENT IN THE STATEMENT OF FINANCIAL POSITION:

Answers will be provided later this week.

1. Based on our class discussion on the classification of liabilities into current

and non-current, determine the amount of the notes payable reported as
current and non-current at December 31, 2020.

Case 1

Taft, Inc. has P3 million of notes payable due June 15, 2021. At December
31, 2020, Taft signed an agreement to borrow up to P3 million to refinance
the notes payable on a long-term basis. The financing agreement called for
borrowings not to exceed 80% of the value of the collateral Taft was providing.
At the date of issue of the December 31, 2020 financial statements, the value
of the collateral was P3.6 million and was not expected to fall below this
amount.

Case 2

Taft, Inc. has P2 million of notes payable due June 15, 2021. At February 15,
2021, Taft signed an agreement to borrow up to P2 million to refinance the
notes payable on a long-term basis. The financing agreement called for
borrowings not to exceed 80% of the value of the collateral Taft was providing.
The value of the collateral was P2.4 million and was not expected to fall below
this amount. The financial statements are authorized for issuance on March
5, 2021.

Case 3

In October 2018, Wilson Corporation acquired land from Woodrow, Inc. by

paying P1,000,000 down and signing a note with a maturity value of P6
million due October 31, 2020.

Situation A. Under the terms of the financing agreement, Wilson has the
discretion to roll over the obligation for at least twelve months. In October
2020, management decides to exercise its discretion to extend the maturity
date of its obligation to December 31, 2021.

Situation B. Under the terms of the financing agreement, Wilson has the
discretion to roll over the obligation for at least twelve months. In October
2020 management decides to exercise its discretion to extend the maturity
date of its obligation to December 31, 2022.

Situation C. The existing loan agreement does not carry a provision to

refinance. In October 2020, Wilson was experiencing financial difficulty and
was unable to pay the maturing obligation. On February 1, 2021, Woodrow
has agreed not to demand payment for at least 12 months as a consequence
of the breach of payment on the principal of the loan. The financial
statements were authorized for issue on March 31, 2021.

Situation D. The existing loan agreement does not carry a provision to

refinance. In October 2020, Wilson was experiencing financial difficulty and
was unable to pay the maturing obligation. On December 31, 2020, Woodrow
signed an agreement to provide Wilson a grace period of 15 months from that
date, during which period, Woodrow will not demand immediate payment in

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 CA5106: CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

order to give Wilson the chance to rectify the breach. The financial
statements were authorized for issue on March 31, 2021.

2. Included in Harding Company’s liability account balances at December 31,

2020 were the following:

14% note payable issued, October 1, 2016, maturing September 30, 2021,
P2,500,000

16% note payable issued October 1, 2020 payable in six equal semi-annual
installments of P800,000 every April 1 and October 1, beginning April 1,
2021, P4,800,000

Harding’s December 31, 2020 financial statements were issued on March 31,
2021. On March 10, 2021, Harding consummated a non-cancelable
agreement with the lender to refinance the 14% P2,500,000 note on a long-
term basis, on readily determinable terms that have not yet been
implemented.

REQUIRED:

On the December 31, 2020 statement of financial position, what amount of the
notes payable should Harding classify as current liabilities? (Disregard any
amount of accrued interest as of December 31, 2020)

3. At December 31, 2020, Roosevelt Corporation owed notes payable of

P2,000,000 with a maturity of April 30, 2021. These notes did not arise from
transactions in the normal course of business. On February 1, 2021,
Roosevelt issued P4,000,000 of ten-year bonds with the intention of using
part of the bond proceeds to liquidate the P2,000,000 of notes payable.
Roosevelt’s 2020 financial statements were issued on March 29, 2021.

REQUIRED:

How much of the P2,000,000 notes payable should be classified as non-current

liabilities in Roosevelt’s statement of financial position at December 31, 2020?

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 CA5106: CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

ANSWER SHEET

NAME:

Answers:

1. Case 1. ___________________________

Case 2. ___________________________

Case 3.

Situation A. ___________________________

Situation B. ___________________________

Situation C. ___________________________

Situation D. ___________________________

2. ____________________________________

3. ____________________________________

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