Cpa Review School of The Philippines Manila: Financial Accounting and Reporting Valix/Valix/Escala/Santos/Dela Cruz
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May JailaniCpa Review School of The Philippines Manila: Financial Accounting and Reporting Valix/Valix/Escala/Santos/Dela Cruz
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May JailaniCommon questions
Powered by AIFinancial statements must reflect anticipated outcomes. If management estimates 80% opt for cash dividends and 20% for noncash assets, this affects the dividend payable liability and potential changes in asset accounts meticulously, impacting end-of-year equity .
Declaring a property dividend reduces retained earnings by the fair value of the dividend at the declaration date, which was P1,500,000 on July 1, 2022. This reduces retained earnings to P4,000,000 (P5,000,000 - P1,500,000). For inventory, it should be reported at the fair value less cost to distribute of P1,800,000 on December 31, 2022. Thus, reported retained earnings at year-end is P6,500,000, and inventory is P1,800,000 .
The purchase of treasury shares reduces retained earnings by P600,000. Reissuing at a gain increases retained earnings by P200,000. Considering other activities (net income P5,500,000 and cash dividends P2,000,000), retained earnings end at P6,600,000, computed as initial P3,500,000 + P5,500,000 - P2,000,000 - P600,000 + P200,000 .
Issuance of shares increases share capital and possibly share premium, boosting equity. Reissuance of treasury shares affects retained earnings directly if gains or losses occur on the buyback and resale. In 2022, a gain on reissuance increased equity indirectly by affecting retained earnings .
Dividends declared are deducted from retained earnings at declaration, lowering equity prior to payment. With a cash dividend of P2,500,000, retained earnings at year's end drop immediately upon declaration irrespective of payment timing .
The gain on distribution of a property dividend is measured at the difference between the asset's fair value upon distribution and its carrying amount. If shareholders opt for the noncash asset (vehicle), the gain is P250,000 (P700,000 fair value - P450,000 carrying amount) per car for 2 cars, totaling a gain of P500,000 .
While declared at P150, the issue at P200 signifies no required restatement of declared amounts but impacts market perception of equity value. It affects additional paid-in capital and has no retroactive impact on retained earnings, focusing on market value shifts .
The dividend payable is determined based on the estimated choice of shareholders. 80% are expected to choose cash, resulting in a cash dividend payable of P4,000,000 (P500,000 x 8), and 20% are expected to select the noncash asset with a fair value of P1,200,000 (P600,000 per car x 2). Thus, the total dividend payable is P5,200,000 .
The retained earnings at the beginning of 2022 was P5,000,000. The entity declared a 10% share dividend when the market value per share was P150, impacting the retained earnings by P750,000 (5,000 shares x P150). Additionally, the entity sustained a net loss of P2,000,000. Therefore, the retained earnings on December 31, 2022, is calculated as follows: P5,000,000 - P750,000 - P2,000,000 = P2,250,000 .
The understatement of prior year depreciation and change in inventory method both impact retained earnings after adjusting for tax. The prior period error reduces retained earnings by P375,000 (500,000 x (1 - 0.25)) and the inventory method change further decreases it by P750,000 (1,000,000 x (1 - 0.25)). The end retained earnings is P5,250,000, considering income and adjustments: P3,500,000 + P5,000,000 - Total Adjustments .