ADJUSTED PORTFOLIO AND RESERVE ACCOUNTS Year 1 Portfolio (reserve) Provisions
Year 2
Year 3
140,000
404,000
680,000
(14,000)
(40,400)
(68,000)
14,000
26,400
27,600
6,000
30,000
10,900
Extraordinary Write-Offs
The changes introduced to the financial statements will obviously effect the net income and accumulated earnings accounts.
These changes are incorporated in the Adjusted Financial
Statements presented at the end of the chapter.
2.2.2 Adjusting Asset Accounts: Fixed Assets
The same principles applied in assessing the real value of the portfolio may also be applied to an institution's fixed assets. First, it is necessary to verify that all equipment used in the institution's operations are in fact accounted for on the balance sheet. The unadjusted financial statements presented by FONDOEMPRESA indicate that the institution has no fixed assets.
However,
FONDOEMPRESA in fact owns vehicles and computers that were donated in Year 2. Since FONDOEMPRESA did not pay for the equipment, they never reported the transactions on their financial statements. To correct this situation it is first necessary to enter the value of the donation as income and book the equipment received as a fixed asset. As indicated in the table below, this is done in Year 2. Note that the P/30,000 donation is added to the P/75,000 of donation income already reported by FONDOEMPRESA.
Second, it is necessary to depreciate those assets according to a reasonable depreciation schedule. In the case of FONDOEMPRESA, the P/30,000 worth of equipment is depreciated out over five years, resulting in depreciation expenses of P/6,000 per year in Years 2 and 3. The cumulative depreciation appears in the depreciation account on the Balance Sheet.
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