Reference no: EM132599839

Provisions - Changes in estimates Among the transactions of ABC Company for the first two quarters of 20x1 were the following: a. ABC recognized a P100,000 write-down in its inventory during the first quarter. ABC had expected that the write-down will reverse in the second quarter, and in fact, in the second quarter, the recovery exceeded the previous write-down by P20,000. b. ABC provides warranty for its sales. In the first quarter, ABC estimated a 5% warranty obligation on its first quarter sales of P1,000,000. In the second quarter, a change in accounting estimate was made. It was estimated that the cost of warranty should be 10% of total sales. The second quarter sales amounted to P1,200,000. c. ABC has been estimating its bad debt expense 2% of credit sales. However, in the second quarter, a change was made to the percentage of ending percentage of ending receivable. Under this method, the required balance of the allowance for doubtful accounts as of June 30,20x1 is computed at P30,000. The allowance has a balance of P5,000 at the beginning of the year. Total write-offs during the first six months of 20x1 amounted to P12,000; recoveries totaled P3,000. Credit sales for the 1 st and 2 nd quarters amounted to P1,000,000 and P2,000,000, respectively.

Requirement:

Question 1: What are the effects of the transactions listed above on profit or loss before tax in the first and second quarter interim financial statements of ABC?