AFAR QUICKNOTES

Partnership
Corporate Liquidation
Revenue Recognition
Decentralized Operations
Cost Accounting
Business Combination
Separate & Consolidated FS
Joint Arrangements
Foreign Exchange
Derivatives & Hedge Accounting
Government Accounting
Non-Profit Organizations
Special Topics (Insurance & Service Concession)

GATO, Abdul Barri Indol

MSU - Main Campus
09452146094
 PARTNERSHIPS DISSOLUTION

FORMATION 1) Admission of a new partner 2) Retirement/Death of a partner

a. Direct purchase from old partners Beg. Capital
Valuation b. Direct investment by new partner Partner’s +/- share in P&L
= +/- loan balance
1) Assets BONUS METHOD (if silent) Interest
+/- share in revaluation
Cash @ Face Value TCC - TAC = B
A/R @ Gross of ADA P1 xx Balance xx xx Partner’s Interest vs
xx} admission xx
before
Inventory @ LCNRV P2 xx Gain or Loss = Actual Payment to
Land 1) Agreed value xx xx xx retiring partner
} 2) Fair value Amount to
Depreciable Asset 3) Appraised value
Pnew xx be invested xx xx
Non-current Asset 4) Book value xx = xx ZERO 3) Incorporation

2) Liabilities TCC = Total Contributed Capital Excess of total par OVER total capital
TAC = Total Agreed Capital balance of all partners: share premiums
- if problem is silent: ignored / not assumed
= the new capital balances
3) Capital - excess goes to capital of partner Asset Revaluation? Adjust all
NET INVESTMENT METHOD
assets needed to be revalued before
Capital CreditPnew = FV of Assets admission/retirement of a partner
OPERATIONS - PV of Liabilities
Net Income Net Loss GOODWILL METHOD
- not used anymore
Salaries Given
Interest* } priority
LIQUIDATION
Bonus**
Remaining*** - always start with total partner’s interest for problem solving
* Beg.Cap. Bal X regardless what method (safe payment method or CPP method)
Addt’l inv X Permanent
Partner’s interest = Capital balance +/- Loan balance
Withdrawal X Temporary
- ‘drawings’ account
Share in NI/NL X - consider only if net loss is incurred SAFE PAYMENT METHOD CASH PRIORITY PROGRAM (CPP) METHOD
End. Cap. Bal X Other wise, ignored.. DISTRIBUTION
1) Distribute realized gains/losses P1 P2 P1 P2 Total
** Only given when base computation for bonus is positive from asset dispositions Total Interest X X

1-
*** Following order of priority shall be followed 2) Distribute share in liquidation expenses
for allocation of remaining balance: / P&L ratio % 1 %
3) Distribute share in maximum possible losses Loss Absorption Balance XA XB
2
Loss Maximum X1 X2 - X
Profit Book Value of unsold assets
Possible = X = X X - 3 X
⑥ Agreed sharing ⑥ Agreed sharing Losses + Anticipated liquidation expenses
⑥ Original capital balance ⑥ Profit sharing XA = partner with the highest LAB If cash to be distributed is in
excess of this amount, partners
⑥ Equal sharing ⑥ Original capital balance 4) Determine capital balances. If there is a = also the least vulnerable partner will share via P&L %

⑥ Equal sharing negative balance, let others partners absorb XB = partner with the lowest LAB
deficiency. If in case this is the last payment/ = also the most vulnerable partner
installment, let the deficient partner invest X1 = XA - XB
assets if he is solvent.. = difference bet ween who has the highest LAB and
Other wise, let other partners absorb.. the next highest (or lowest LAB for t wo partners)
X2 = X1 multiplied by XA’s P&L %
 CORPORATE LIQUIDATION
VALUATION T-ACCOUNT
1) Assets @ Fair Value or NRV - in computing net gain or loss
2) Liabilities @ Maturity Value
(Principal + Interest) To be realized Realized
Non-cash assets, beg PPE - net proceeds
TEMPLATE ASSETS Receivables - collection
Acquired
ASSETS Interest receivable Inventory - cost
Accounts receivable Not realized
Fully Secured Asset xx
xx Most likely there Non-cash assets, end
Less: Respective Secured Liability xx is excess asset

Partially Secured Asset xx Paid or Liquidated To be paid

Most likely
Less: Respective Secured Liability xx - naexhaust na LIABILITIES Not paid Beg balance
xx
ang asset
End balance Assumed
Other Free Assets Accrued expenses
Total Free Assets xx
Less: Unsecured Creditors Charges Credits
with priority SUPPLEMENTARY COGS Sales
Administrative expenses xx ITEMS Accrued expenses Accrued Income
Unpaid salaries/wages xx
Unpaid taxes xx xx NET INCOME
xx NET LOSS
Net Free Assets (NFA) (balancing figure) (balancing figure)
Deficiency xx
(Credits > Debits) (Credits < Debits)
Total Unsecured Creditors (USC) xx

LIABILITIES
Partially Secured Liability xx Estate equity = SHE, beg +/- Net Income (Loss)
Less: Respective Security Asset xx xx
Unsecured Creditors
without priority xx
Total Unsecured Creditors (USC xx

Net Free Assets

% of recovery =
Total Unsecured Creditors

Total collection NRV of Partially Secured Asset

by unsecured = +
creditors (Total USC X % of recovery)
 REVENUE RECOGNITION PFRS 15
INSTALLMENT SALES
FIVE-STEP MODEL FRAMEWORK Principal Collections from Installment A/R
1) Identify Contract Collections FV of Trade-in merchandise
2) Identify Performance Obligations
3) Determine Transaction Price GPR IS = Gross Profit* or Deferred Gross Profit, before adj
4) Allocate the transaction price to performance obligations Sales Installment A/R, beg
- use relative stand-alone selling price of each (SASP) as base
5) Recognize revenue * If there is trade-in: consider over or under-
a. Point in time allowance for trade-in allowance granted
b. Over time (1 of 3 conditions is met) GPIS= Installment Sales +- over-allowance
under-allowance
- Cost of IS
- customer simultaneously receives & consumes benefit
- enhances/creates an asset controlled by customer Realized GPIS Total Realized GP
- has no alternative use & has present right of payment to entity Based on sales
x GPR Realized GP Reg
Principal =
= + Realized GP IS
FRANCHISE Collections x GPR
1 + GPR
Based on cost
OLD GAAP
If not met, recognize unearned
Initial Franchise Revenue (IFF) X Recognition
franchise revenue REPOSSESSED MERCHANDISE
When? (all are met)
Less: Direct costs X ⑥

1) substantial performance Except these: (recognize revenue)

Gross Profit - IFF X 2) refund period has expired downpayment is non-refundable Gain/Loss on Repossession TRADE-IN
3) no substantial future downpayment represents fair
Continuing Franchise Revenue (CFF) X measure of services performed FV of Repossessed Merch* X
ser vices are required
FV of Trade-in* > Trade-in allowance Under-allowance
Interest Income X ⑥ How? Collectibility of the note
Less: Unrecovered A/R Cost** X
Total Income X Reasonably
Not Installment Gain/Loss on Repossession X FV of Trade-in* < Trade-in allowance Over-allowance
reasonably - if silent
Less: Operating Expenses X assured
assured - principal collections X GP %
Net Income X Full accrual Cost recovery *1) Appraised Value; or *1) Appraised Value; or
2) Estimated SP - Reconditioning costs 2) Estimated SP - Reconditioning costs
- Normal Profit - Selling costs - Normal Profit - Selling costs
PFRS 15 ** Balance of X Cost Ratio %
repossessed A/R
Initial Franchise Revenue (IFF)
Downpayment X Installment A/R balance
Note receivable Interest bearing @ Face Value
Non-interest bearing @ Present Value X X = Balance - Collections
FV of Trade-in
from Installment A/R
Less: Direct costs X Cash Installments
Gross Profit - IFF X Interest accrued? Collection = Principal Installment
Continuing Franchise Revenue (CFF) X Unless stated in the problem that
Interest Income Interest bearing @ Stated Rate
Non-interest bearing @ Effective Rate X “Installment is applied first against the interest” OR
: Receivable is NON-INTEREST BEARING
Total Income X
Collection must exclude interest due
Less: Operating Expenses X
Net Income X SALE OR RETURN - sale made in the ordinary course of business
not necessarily with a right to return
Recognize revenue when: There is historical data present
⑥

(1 of 3 conditions is met) Item was acknowledged by customer

⑥

Period of return has lapsed

⑥
CONSTRUCTION CONTRACTS
Template in solving most problems
Construction Revenue
- normally POC method is used
Fixed Price X Y1 Y2 Y3
Variations X
Incentive Payments (early completion) X 1) Contract Revenue X X X
Penalties (for delays) X X 2) Costs incurred to date (CITD)* X X X
3) Estimated costs to complete (ECTC) X X X
Construction Costs 4) Total estimated costs (2+3) X X X
Directly 5) Total estimated gross profit (1-4) X X X
Indirectly }
Attributable costs X
6) % completion** % % %
X
Reimbursable costs X GP to date X X X
X
X GP, previous yr - X X

i.
GP, this yr X X X
PROFIT LOSS * Costin securing contract: include only if successful
Point in time Over time - immediately
Prepayments & Materials in store
- upon completion - check criteria for over recognized
Exclude in CITD; Include in ECTC
time recognition (1 of 3)
(regardless if with or w/o alternative)
Reliably Not reliably ** CITD Construction in Progress
% completion = CITD + ECTC OR Contract Revenue
measurable measurable

Percentage of Zero Profit

Y1 Y2 Y3
Completion (POC) Method (ZPM)
‘Cost to cost method’ ‘Cost recovery method’ Costs incurred to date X X X Only true when
Gross Profit to date X X X there is no loss

T-Accounts Construction in Progress (CIP) X X X

Less: Progress Billings (PB) to date X X X
Construction in Progress Progress Billings Accounts Receivable Due from (+) or Due to (-) *** X X X
Actual costs Beg bal Billings to
Collections *** Duefrom (+) Current Asset
incurred to date date
Addt’l billings Due to (-) Current Liabilities
(CITD)
End bal End bal
GP to date GL to date
End bal

Under CITD + GP to date

Only true when
POC OR there is no loss
Also Revenue to date
CIP =
Under
ZPM CITD
 DECENTRALIZED OPERATIONS
HOME OFFICE & BRANCH ACCOUNTING (HO-BA)
When HO bills above cost
Template in solving most problems the goods shipped to branch

BRANCH OPERATIONS @ Billed Price - @ Cost = Mark-up ‘Allowance for Inventory

Over-valuation’
From HO X X X
Inventory, beg
From others X X - When given in a problem,
it is most likely the
Shipments to Branch X* X* X unadjusted. This is this
Outside Purchases X X -
TGAS X X X
From HO X* X* X
Inventory, end From others X X - Billed = Cost for outside purchases
-

COGS X X X
*Be mindful for shipments in transit
True COGS to be
(if not yet included to the count, COGS presented by
presented in the
include such) branch in its own FS
combined statement
of HO & Branch

COMBINED OPERATIONS Inter-branch transfers

Combined Sales X Issue: FREIGHT to be shouldered by
Less: COGS, HO X the last receiver of goods
COGS, Branch (true) X X
Combined GP X Actual freight incurred
= LOWER
Less: Combined Operating Expenses X Direct freight from HO
Combined Net Income X to last receiver

CONSIGNMENT SALES AGENCY

Accounting issue: Freight-in (pro-rate) Accounting issue: Working Fund balance per books

Units sold Cost of Goods Sold - unchanging balance regardless of transactions

Units returned Operating Expense

Units on hand Ending Inventory
 COST ACCOUNTING
JOB ORDER COSTING
- for heterogenous products
- to accounts costs per ‘job’
INTRODUCTION
MATERIALS
Income Statement overview (Manufacturing) Costing Systems
1) Direct Materials - charged to WIP
Direct Materials, beg. X DM DL FOH 2) Indirect Materials - charged to FOH-control
Direct Materials purchases X 3) Other Materials
Total DM available for use X Actual A A A
Less: Direct Materials, end. X Normal A A S CHARGED TO SPECIFIC JOB CHARGED TO ALL PRODUCTION
Direct Materials, used X Standard S S S Customer failure Production failure

Direct Labor X a. Spoiled Materials UNIT COST (UC) = UNIT COST (UC) =
A - Actual
Factory Overhead-applied X S - Standard UC orig UC orig
Total Manufacturing Cost (TMC) X - SP defective *Include allowance for spoilage
Work in Process, beg. X DM + DL = Prime Costs + Rework Cost **Spoiled materials & rework of defective
b. Defective Materials materials are charged to FOH-control
Cost of Goods put in process X *Exclude allowance for spoilage
Less: Work in Process, end. X DDL + FOH applied = Conversion Costs
Cost of Goods Manufactured (COGM) X c. Scrap Materials Reduce WIP A. Recognize miscellaneous income
Finished Goods, beg. X FOH applied VS FOH control (actual) when sold B. Recovered from factory supplies

:
Total Goods Available for Sale (TGAS) X COGS - reduce FOH-control when sold
Less: Finished Goods, end. X Material or - allocated according to FG
Cost of Goods Sold normal X Significant their ending balances WIP LABOR
Under(over) applied Factory Overhead X Immaterial or - closed to COGS 1) Direct Labor - charged to WIP
Cost of Goods Sold actual X Insignificant 2) Other Labor
a. Indirect Labor - charged to FOH-control
b. Idle time - charged to FOH-control
JUST-IN-TIME & BACK-FLUSH COSTING c. Make-up Pay - earned pay did not reach minimum rate
- charged to FOH-control
materials are purchased shortened version of traditional accounting for d. Overtime premium - OT hours X OT premium
once order is received cost by combining T-accounts for some accounts - charged to FOH-control
- JIT system uses a back-flush costing e. Shift premium - charged to FOH-control
Trigger Points - point of recording transactions OVERHEAD
Three TPs Two TPs One TP
FOH-control: actual incurred overhead
Purchase FOH-applied: overhead “budgeted” for production
Production
Completion Issue: allocation of overhead from Service departments to Producing departments
Sale
1) Direct Method 2) Step Method 3) Algebraic Method
T-Accounts 1
S1 P1 S1 P1 S1 P1
Materials in Process (MIP) Finished Goods Cost of Goods Sold
Beg. Bal Materials purchased S2 P2 S2 2 P2 S2 P2
Beg. Bal (If One TP)
1
Materials purchased COGM 2 COGM COGS 2 Conversion Cost Base for allocation: Which service department gets Use algebraic equations. Develop equations on
depends per department to allocate first its overhead? how ser vice departments allocate (%) then
Conversion Cost End. Bal 3 End. Bal (labor hours, 1) department that provides solve using substitution/elimination methods..
End. Bal machine hours, etc) the greatest ser vices; or
2) department that has the
higher total overhead cost
*number of t-accounts depends on the number of TPs
JOINT & BY-PRODUCTS STANDARD COSTING
Joint products: products with joint costs
By-products: “scrapped” products after producing the main product Direct Materials Multi-variances (DM & DL)
AP x AQ MPV - for multiple inputs to one product
Allocating Joint Costs SP x AQ MQV
SP x SQ MPV/LRV Actual Costs
1) Benefits-received approaches Allocation base Actual Input @ Std Price/Rate
MMV/LMV Actual Input (AI) @ SIC
A. Physical Measure or Output method Unit output Direct Labor MYV/LYV Actual Output (AO) @ SOC
2) Relative Market value approaches AR x AH
SR x AH LRV SIC =
Total Standard Costs
A. Sales Value at split-off method Relative sales value @ split-off LEV Standard Inputs
SR x SH
B. Net Realizable Value method Sales Value - all necessary costs Total Standard Costs
to prepare & dispose the products SOC =
Standard Production
C. Approximated NRV at split-off method Final Sales Price - incremental
separate costs Overhead
1) 2-way 2) 3-way
Accounting for By-products
S AFOH
1) Sales method Con AFOH BAAH
BASH Va BASH = BFxOH + (SH x SVR)
A. Additional Sales revenue; or Vo SHSR BASH
B. Other Income Vo SHSR BAAH = BFxOH + (AH x SVR)
2) Production method 3) 4-way BFxOH = NH x SFxR
A. NRV method - as reduction to the cost of main products Variable component Fixed Component SFxOH = SH x SFxR
B. Reversal method - by working back to get allocated cost to SH = Actual units x SH/unit
by-product (squeeze COGS = Sales - Gross Profit) Var Sp AVOH Fx Sp AFxOH
AH x SVR BFxOH
Var Eff SH x SVR Vo SFxOH
 PROCESS COSTING Normal - charged to WIP
LOST or SPOILED UNITS? Abnormal - charged to FOH-c
- production of a single product (homogenous) - discovered at
- use of ‘cost of production report’ Costs from preceding dept
- costs are accumulated by process/department
⑥ Beginning - adjust UC PD = Transferred-in units - Normal Lost units - UC PD

Physical Flow of Units in a Department Sample Product Flow ⑥ End - allocate all costs of normal lost units to
in Departments cost of completed & transferred-out (C-TO) units
UNITS TO ACCOUNT FOR UNITS ACCOUNTED FOR Cabinet Components
Costtheofgood
C-TO units allocate

Beginning Units in Process

Cutting Dept 1 Writing Dept 3
WIP, end (%) > Inspection pt (%) units
Cost of WIP, end } using
EUP
their
⑥
Specific
+ Staining Dept 2 Resting Dept 4
Units completed & completion %
Units started in process or transferred-out (C-TO) WIP, end (%) < Inspection pt (%) Allocate to the
Units received from previous dept = + Combining Dept 5 cost of C-TO only
+ Ending Units in Process Packaging Dept 6
Increase in units due 4) Compute for the following costs
to addition of materials Finished Goods Inventory a. Beginning inventory c. Cost of of completed/transferred units
Procedure to answer most problems PD = UC PD X EUP BI FIFO method
+ DM = UC DM X EUP DM in BI PD = (UC PD X Units completed) + Prior BI Costs PD
1) Account for the physical flow of units into and out of departments
+ CC = UC CC X EUP DM in BI + DM = (UC DM X Units completed) + Prior BI Costs DM
2) Calculate Equivalent Units of Production (EUP) for DM, DL and FOH
(or DL + FOH as one as conversion costs if not explicitly separated) b. Ending inventory + CC = (UC CC X Units completed) + Prior BI Costs CC
+ NLU =
Beg. Units X %* X *% completion for: PD = UC PD X EUP EI UC PD X EUP NLU allocated to C-TO units
Completed units** X 100% X Beg. Inventory: % left to be done + DM = UC DM X EUP DM in EI + UC DM X EUP DM in NLU allocated to C-TO units
End. Units X %* X End. Inventory: % already done + CC = UC CC X EUP DM in EI + UC CC X EUP CC in NLU allocated to C-TO units
Lost / Spoiled Units X **Completed units (work back physical flow) + NLU = Average method
EUP DM OR EUP CC X = BI units + Units started - EI units UC PD X EUP NLU allocated to EI
+ UC DM X EUP DM in NLU allocated to EI (Completed Units X UC PD+DM+CC )
Notes: + NLU =
+ UC CC X EUP CC in NLU allocated to EI
For lost/spoiled units, give EUP to them also regardless normal or not UC PD X EUP NLU allocated to C-TO units
: Consider what method is being used: c. Cost of abnormal lost units + UC DM X EUP DM in NLU allocated to C-TO units
PD = UC PD X EUP ALU + UC CC X EUP CC in NLU allocated to C-TO units
FIFO method - include beginning units in process + DM = UC DM X EUP DM in ALU
Average method - exclude beginning units in process in EUP computation + CC = UC CC X EUP CC in ALU
- diretso completed units, EI units & lost/spoiled units
3) Determine the unit costs for DM, DL and FOH
(or DL + FOH as one as conversion costs)

UC DM = DM costs UC CC = Conversion costs UC PD = Costs from preceding dept

EUP for DM EUP for CC Units received from prec dept

FIFO method - exclude cost for DM, DL or FOH incurred

in the beginning units in process
- current month costs only
Average method - include cost for DM, DL or FOH incurred
in the beginning units in process
- cumulative costs incurred (prior + current)
 BUSINESS COMBINATION PFRS 3
4) Determine non-controlling interest (NCI)
a. Full or Fair Value
Purchase Price* - Control Premium + Control Discount X NCI %
As to structure Fair Value is given NCI =

:
% ownership acquired
1) Vertical - integration of suppliers If not given, use implied FV
2) Horizontal - integration of competitors * FV of previously held interest
3) Circular - diversification + FV of additional consideration
4) Conglomerate - combination b. Partial or Proportionate

As to method NCI = FV of Net Assets X NCI % Addt’l consideration

Addt’l % X Old %
1) Acquisition of net assets - always 100% NOTE: FV of NCI >= Proportionate NCI share
a. Merger A + B = A or B
b. Consolidation A+B=C 5) Measure and recognize goodwill or gain on acquisition
2) Acquisition of stocks - walang madissolve na company Purchase Price X Total Parent NCI
% of ownership PREFERRED SHARES ORDINARY SHARES + Non-controlling interest (NCI) X
Total FV of Subsidiary X X X
X
< 20% FV-P&L FV-P&L / FV-OCI - FV of Net Assets FV of Net Assets X X X
X
20% - 50% or Investment in Associate Goodwill (Gain) Goodwill (Gain) X X X
X
> 50% - 100% FV-OCI Investment in Subsidiary
As to accounting method used Goodwill impairment? Allocate based on:

1) Pooling of Interests - those under common control Goodwill sharing bet ween parent & NCI
2) Purchase method - those under SMEs % of ownership
3) Acquisition method - those required to use full PFRS
Goodwill (Gain) sharing?
PURCHASE METHOD ACQUISITION METHOD
Full Partial
DACs? Capitalized Expensed
Goodwill Parent & NCI Parent Same goes with goodwill impairment
Indirect Expensed outright
costs? Gain Parent Parent

Stock issue 1) Share Premium - related issuance

SEPARATE FS
Charged against
costs? 2) Retained Earnings PAS 27
Non-controlling
interest? Partial Full or Partial Issue: accounting for Investment in Subsidiary
a) Cost model
ACQUISITION METHOD b) FV model
c) Equity method
1) Determine the acquirer
2) Determine the acquisition date (measurement date) Cost Equity FV
- net assets of subsidiary can be adjusted within
FV-P&L: expensed
1 yr from acquisition date (resulting goodwill or Transaction costs Capitalized FV-OCI: capitalized
gain will also be adjusted) Share in net income - P&L -
3) Recognize and measure identifiable assets & liabilities Share in OCI / OCL - OCI/OCL -
@ FAIR VALUE Dividends P&L Deduction P&L
- any pre-existing goodwill of subsidiary is ignored Impairment P&L P&L -
Changes in FV - - OCI and P&L
 CONSOLIDATED FS PFRS 10 SALE OF LAND Consolidated Gain = SP - Cost
- subsequent to date of acquisition - if sold to outside parties
- parent & subsidiary is considered one reporting entity Effects if not eliminated Eliminating Entries
- basis: there is control when there is Power to govern Land is overstated by Unrealized Gain Gain X Upstream or
- same reporting date (parent & subsidiaries) Exposure to variable returns ⑥ Year of Sale Land X
Downstream
Rights to variable returns Net Income is overstated by Unrealized Gain
- uniform accounting policy Ability to exercise power * If FV or Cost method
- name of consolidated FS under parent ⑥ Subsequent to Land is overstated by Unrealized Gain RE, beg* X Use Investment in
Subsidiary
Year of Sale RE, beg is overstated by Unrealized Gain NCI (upstream) X (equity method)

CONSOLIDATION PROCEDURE (If unsold) NCI is overstated by Unrealized Gain Land X

assets, liabilities, equity items
1) Combine like income, expenses and cash flow items ⑥ Subsequent to Land (blue check)
RE, beg* X
Year of Sale and RE, beg is overstated by Unrealized Gain
NCI (upstream) X
2) Eliminate investment in subsidiary account against Year of Sale to NCI is overstated by Unrealized Gain
Gain X
SHE of subsidiary @ book value @ date of acquisition Outside Party Net Income is understated by Unrealized Gain
3) Record FV of Net Assets, Goodwill (Gain) & NCI
4) Eliminate in full the inter-company accounts SALE OF DEPRECIABLE ASSETS
Parent Eliminating Entries
Downstream Upstream Effects if not eliminated
Depreciation is overstated by Unrealized Gain Depreciation Exp X
Subsidiary ⑥ Year of Sale Gain X
Net Income is overstated by Unrealized Gain
Parent FS + Subsidiary FS +/- Eliminating entries = CONSOLIDATED FS Accum Depreciation X
@ BV @ BV Depreciation is overstated
by Amortization of Gain Accum Depreciation X
B/S Date Depreciation Exp X
DIVIDENDS FROM SUBSIDIARY Accumulated Depreciation is overstated
by Amortization of Gain
- eliminate from the reported net income of parent, if already included RE, beg* X
NCI (upstream) X
⑥ Subsequent to
SALE OF INVENTORIES Depreciation is overstated by Unrealized Gain Depreciation Exp X
Year of Sale
RE, beg & NCI is overstated by Unrealized Gain Accum Depreciation X
Effects if not eliminated Eliminating Entries (If unsold) * If FV or Cost method
Depreciation is overstated Use Investment in
Subsidiary
⑥ Sales & COGS are overstated Sales X Upstream or
Downstream by Amortization of Gain (equity method)

by Inter-company Sales Purchases (COGS) X Accumulated Depreciation is overstated Accum Depreciation X

⑥ Beginning Inventory is overstated RE, beg* X * If FV or Cost method by Amortization of Gain Depreciation Exp X
Use Investment in
by Unrealized Profit - BI (if unsold) NCI (upstream) X Subsidiary
Beg. Inventory X (equity method)
CHANGE OF % OWNERSHIP
⑥ Ending Inventory is overstated COGS X Upstream or
Downstream
by Unrealized Profit - EI End. Inventory X Proceeds X
⑥ A/R & A/P are overstated A/P X Upstream or + FV (retained %) X
Downstream
by Inter-company Sales A/R X + NCI @ Carrying Amount X
Total X
- BV of Net Assets X
- Goodwill X
G/L on Deconsolidation X 1) There is loss of control - P&L
2) No loss of control - Equity
 TEMPLATE FORMULAS
NET INCOME NET INCOME
PARENT NCI 1) Balance Sheet items NCI, beginning XX
FV of Net Assets (subsidiary) XX Net Income - NCI XX
1) Net Income - Parent XX
Over-valuation XX Dividend Share (Div. paid X NCI %) XX
2) Dividend received from subsidiary
Under-valuation XX NCI, ending XX
(Dividend declared by subsidiary X % acquired) XX
Separate Income - Parent XX XX - SHE, beginning (subsidiary) XX Retained Earnings XX
3) Net Income - Subsidiary XX XX Net Income, subsidiary XX Parent Conso Net Income XX
4) Amortization of Asset Under/Over-valuation Dividend, subsidiary XX Dividend Declared XX
Under: [(U-VA/remaining life) X n/12] Asset Depreciation Net Income XX SHE, ending (subsidiary) XX XX
Consolidated RE
Over: [(O-VA/remaining life) X n/12] Asset Depreciation
Net Income XX XX XX
5) Gain on Acquisition (only on yr of business combination) XX - Total A/R or A/P XX Ordinary Shares - Parent XX
6) Goodwill Impairment XX XX Inter-company A/R or A/P XX Share Premium - Parent XX
Consolidated A/R or A/P XX Consolidated RE XX
INTER-COMPANY TRANSACTIONS
NCI, ending XX
- for share of NCI, only consider upstream transactions Consolidated SHE XX
7) Inventories
Unrealized Profit from EI: (Buyer EI X GPR of Seller) XX XX 2) Income Statement items
Realized Profit from BI: (Buyer BI X GPR of Seller) XX XX Sales - Parent XX Consolidated Sales XX
Sales - Subsidiary XX Consolidated COGS XX
EI X GPR = Unrealized Profit in 2021 Inventory, end Inter-company sales (up or down) XX Consolidated GP XX
Realized Profit in 2022 Inventory, beg
Consolidated Sales XX
8) Depreciable Asset OpEx - Parent XX
Unrealized Gain XX XX COGS - Parent XX OpEx - Subsidiary XX
Unrealized Loss }
Year of
Sale Proceeds - Book Value XX XX COGS - Subsidiary XX Realized Loss thru depreciation of XX
Yearly Realized Loss UG or UL n XX XX Inter-company sales (up or down) XX Realized Gain depreciable assets XX
Realized Gain } Remaining Life
amortize X
12 XX XX Unrealized Profit - EI XX Amortization of over
Realized Profit - BI XX or under-valuation (X)X
9) Land
XX XX Amortization of over or under-valuation (X)X Consolidated OpEx XX
Unrealized Gain
Unrealized Loss } Proceeds - Book Value
Year of
Sale
XX XX Consolidated COGS XX
3rd party Realized Loss
XX XX Consolidated GP XX
Realized Gain }
G/L on sale XX GP - Parent XX Consolidated OpEx XX
sale
XX
GP - Subsidiary XX Consolidated NI XX
SHARE IN NET INCOME XX + XX = CONSO NET Unrealized Profit - EI XX
INCOME Realized Profit - BI XX
Amortization of over or under-valuation X(X)
Consolidated GP XX
 JOINT ARRANGEMENTS
- arrangement of which t wo or more parties have joint control
Characteristics
Parties are bound by a contractual agreement
Contractual arrangement gives t wo or more of those parties: joint control
Joint Control
There is a contract
There is unanimous consent
Relevant activities are done

JOINT OPERATIONS PFRS 11 JOINT VENTURE PAS 28

- parties have the right to the assets and obligations - parties have the right to the net assets of the arrangement
for the liabilities relating to the arrangement Recording of transactions
Recording of transactions 1) separate books (normal journalizing)
1) separate books (normal journalizing) - use Equity method
2) without separate books
- each joint operator shall record his own investments, INVESTMENT IN JOINT VENTURE

I
withdrawals, share in income & expenses
Initial Investment Share in Loss
Share in Profit Share in OCL
JOINT OPERATIONS Share in OCI Dividends
Sales discounts Withdrawals
Merchandise Contributions Merchandise Withdrawals Additional Investments Impairment
Purchases Sales
Freight-in End Balance
Other Income
Sales returns & allowances Purchase returns & allowances
Sales discounts Purchase discounts
Other Expenses

Any unsold merchandise

NET INCOME NET LOSS

(balancing figure) (balancing figure)
(Credits > Debits) (Credits < Debits)
 FOREIGN EXCHANGE PAS 21

- what exchange rates to use for FS presentation

- how to report gains or losses
FOREX TRANSLATION (FS)
TERMINOLOGIES
Functional Currency Presentation Currency
Foreign currency - currency in which the FS are presented
Functional currency - currency of the primary economic environment NON HYPER-INFLATIONARY ECONOMY
in which entity operates - when an entity’s functional currency is NOT the currency of
Presentation currency - currency in which the FS are presented hyper-inflationary economy, entity should translate:
Spot rate - exchange rate NOW
Closing rate - spot rate at the reporting date Assets & Liabilities @ Closing rate
(including goodwill)
FOREX TRANSACTIONS Equity
Share Capital @ Exchange rate, Date of transaction
RECOGNITION Share Premium
Initial Recognition Retained Earnings
- Beginning balance @ Exchange rate, Date of transaction (if not given)
- all transactions shall be translated to functional currency - Net Income @ Exchange rate, Date of transaction
at the date of transaction
- item by item
Subsequent Reporting - average rate if not practicable
- Dividends @ Exchange rate, Date of Declaration
- at the end of each reporting period, ff should be translated:
Monetary items* CUMULATIVE TRANSLATION ADJUSTMENT
@ Closing rate
Non-monetary items = Net Assets, end @ Translated Amounts - Net Assets, beg @ closing rate
a. Measured at historical cost @ Exchange rate, Date of transaction = initially in OCI but reclassified to P&L upon disposal
b. Measured at fair value @ Exchange rate, Date when FV was determined
HYPER-INFLATIONARY ECONOMY
* includes - when an entity’s functional currency IS the currency of
Cash hyper-inflationary economy, the approach slightly changes:
Accounts Receivable
Allowance for Doubtful Accounts 1) The entity’s current year FS are restated first
Lease receivables to reflect the hyperinflation
Loans Receivable 2) Translate FS using non-hyperinflation translation guide
Financial Asset @ Amortized Cost
EXCHANGE DIFFERENCES
- all exchange rate differences shall be recognized in P&L, except:
Exchange rate G/L on non-monetary items
: Exchange rate G/L on a monetary item that forms part of a reporting
entity’s net investment in a foreign operation shall be recognized:
- in the separate entity’s FS: P&L
- in the consolidated FS:
initially in OCI;
subsequently reclassified to P&L upon disposal
 DERIVATIVES & HEDGE ACCOUNTING HEDGING: designating one or more hedging instruments so that their
change in fair value is an offset, in whole or in part, to the change in
fair value or cash flows of a hedged item
DERIVATIVES Examples
-
- used for hedging; also called hedging instruments For ward Contracts
Types Hedged Items
- financial instrument that derives its value from the ⑥ Futures Contracts ⑥ Fair value hedge - protection against ⑥
A single asset or liability
movement in commodity prices, forex rate and interest ⑥ Options risk from changes in fair value ⑥ Firm Commitment
rate of an underlying asset / financial instrument ⑥ Interest Rate Swaps ⑥ Cash flow hedge - protection against ⑥ Highly Probable Forecast Transaction

- requires no initial investment or a little net investment risk from changes in cash flows ⑥ Net Investment in a foreign operation

- settled at a future date ⑥ Hedge of a net investment in a foreign

operation - involves an underlying

FORWARD CONTRACTS variable which is the foreign currency
- contract to purchase or sell a particular commodity HEDGE ACCOUNTING
at a designated future date at a predetermined price - all derivatives are measured at Fair Value
- private or over-the-counter contract bet ween t wo - change in FV requires recognition of a G/L that is
parties where banks are the typical counter-parties accounted for depending on how the derivative is used:
FUTURES CONTRACTS 1) No hedging designation
- contract to purchase or sell a particular commodity Changes in FV P&L
at a designated future date at a predetermined price
2) Fair Value hedge
- standard contract traded in a future exchange
market where one party will never know who is on Changes in FV P&L
the other side of the contract
G/L on hedged item P&L
OPTIONS attributable to hedged risk

CALL OPTION PUT OPTION 3) Cash Flow Hedge

- gives the holder the right - gives the holder the Effective Portion of G/L
to buy / purchase an asset right to sell an asset OCI
on hedging instrument

INTEREST RATE SWAP Ineffective Portion of G/L

on hedging instrument P&L
- contract whereby t wo parties agree to exchange cash flows or
future interest payments based on a contract of loan 4) Hedge of a net investment in foreign operation
- contract of loan is the primary financial instrument while Effective Portion of G/L
IRS agreement is the derivative financial instrument on hedging instrument OCI

Ineffective Portion of G/L

on hedging instrument P&L
 GOVERNMENT ACCOUNTING Presidential Decree
(PD) # 1445

COVERAGE PRINCIPLES BOOKS OF ACCOUNTS NOTABLE JOURNAL ENTRIES

1) National Government In accordance with GAM 1) Journals 1) Receipt of Budget Allocation
- COA, DBM, Bureau of Treasury Accrual basis is used - General Journal Cash - Modified Disbursement System (MDS) X
- State Universities & Colleges (SUCs) For budgeting: CASH basis - Cash Receipts Journal Subsidy from National Government X
- Other Government Agencies Double-entry bookkeeping - Cash Disbursements Journal
2) Local Government Responsibility accounting - Check Disbursements Journal 2) Return of Unused Allocation
Provinces, cities, municipalities, barangays - same concept under MAS
2) Ledgers Subsidy from National Government. X
3) GOCCs - manager having direct
Cash - Modified Disbursement System (MDS) X
responsibility for his - General Ledger
GOVERNMENT ACCOUNTING MANUAL (GAM) department performance - Subsidiary Ledger 3) Constructive Receipt of TRA
Fund cluster accounting (Tax Remittance Advice from BIR for taxes)
Chart of Account to be used - use of different funds REGISTRIES
Government accounting policies to be followed for different uses Cash - TRA X
Accounting books, registries, forms & reports required 1) RROR (Registry of Revenue & Subsidy from National Government X
Other Receipts)
GENERAL PURPOSE FS 2) RAPAL (Registry of Appropriations 4) Constructive Remittance of TRA
& Allotments) Due to BIR X
Components of General Purpose FS 3) RBUD (Registry of Budget, Cash - TRA X
Statement of Financial Position (SFP) Utilization & Disbursements)
- difference with regular SFP: 4) RAOD (Registry of Allotments, OTHER GOVERNMENT ACCOUNTING PRINCIPLES
Assets = Liabilities + Accumulated Surplus (Deficit) Obligations & Disbursements)
Statement of Financial Performance (SFPer) 1) Imprest Fund system is used
Statement of Cash Flows (SCF) CATEGORIES OF DISBURSEMENTS 2) For inventories, use weighted average method
Statement of Changes in Net Assets/Equity (SCNA/E) under perpetual system
Statement of Comparison of Budget & Actual Amounts (SCBAA) 1) Personnel Ser vices (PS) 3) For PPE, depreciate over useful life
Notes to Financial Statements - employee compensation (2 to 50 yrs & residual value: minimum P15,000)
2) Maintenance & Other
GOVERNMENT BUDGET Operating Expenses (MOOE)
3) Capital Outlay (CO)
Budget Cycle PLEA - buildings, etc.
1) Preparation President’s Budget
4) Financial Expenses (FE)
- interest payments, etc.
Budgets from Agencies DBM President Congress
Budget Call & Hearings
(Use of zero-based budgeting like in MAS)
2) Legislation
Congress DBM President Congress
General General
Appropriation Bill Appropriation Act
3) Execution & Operation
- release of revenue allotment
4) Accountability
- liquidation reports and the audit by COA
 NON-PROFIT ORGANIZATIONS SFAS 116 & 117

CHARACTERISTICS EXAMPLES ACCOUNTING

Nature of NPO is of public service Hospitals Computation of Operating Revenues
No profit motives Schools & Universities (private) 1) Hospitals 2) Schools / Universities
Financed by citizenry Voluntary Health & Welfare Orgs
There is stewardship of resources Others Gross Patient Ser vice rendered X Tuition Fees X
(Include premiums like Less: Refunds X
CLASSIFICATION capitation/subscriber fees) Gross Revenue X
Less: Charity Care X Less: Scholarships X
1) Government NPOs - uses GAM Gross Patient Ser vice Revenue X Net Tuition Fee Revenue X
2) Non-government NPOs - uses standards SFAS 116 & 117 Less: Contractual Adjustments X
Discounts to hospital employees * Ignore tuition remissions
(or courtesy allowances) X X to faculty members’ families
FINANCIAL STATEMENTS REQUIRED
Net Patient Service Revenue X
Statement of Financial Position
- reports total assets but net asset is sub-classified into: Valuation of Contributions Revenue
⑥ Permanently restricted - unconditional transfers of cash or other asset to NPOs in a voluntary,
⑥ Temporarily restricted - restriction may expire non-reciprocal transfer by another entity acting other than as owner
⑥ Unrestricted
- imposed with a condition: no revenue yet
Statement of Functional Expenses
1) Cash: FACE VALUE
1) Functional presentation
2) Non-cash
a. Program expenses - those incurred in line with the NPO’s “mission”
a. In kind: FV of item
b. Supporting expenses
⑥ Management & General expenses
b. Service: FV of service
⑥ Fund-raising expenses (i.e telethon)
recognized only if
⑥ Member development
service gives rise to a financial asset; and
it is a specialized service by a professional
2) Natural presentation - itemized listing of expenses
Statement of Activities Journal Entries
- income statement equivalent for NPOs
- reports changes in the 3 classes of net assets Goods: Inventories x Cash x
- uses accrual basis Services: Salaries expense x Other Operating Revenue x
Free rent: Rent expense x (Cafeteria proceeds or
Statement of Cash Flows (SCF)
Contribution Revenue x fees from parking lots
1) Operating - those unrestricted
2) Financing - those temporary & permanently restricted
3) Investing- acquisition/disposal of PPE & Investments
Notes to Financial Statements
SERVICE CONCESSION AGREEMENTS IFRIC 12

- arrangement whereby government contracts with a private operator

to develop, operate and maintain grantor’s infrastructure assets
- grantor controls or regulates what services the operator must provide
using the assets to whom and to what price
- grantor also controls any significant residual interest in the assets
at the end of the term of the arrangement

OTHER NAMES
Build, Operate, Transfer (BOT) Contracts
Public-Private Partnership (PPP)

PARTIES STANDARDS USED METHODS USED

GRANTOR
⑥ Government
1
PPSAS 32 Grant of Right to Operator Model (GORTOM)
- government accounting
for such arrangements OR
2
⑥ Private company No specific Financial Liability Model (FLM)

OPERATOR Borrowing costs?

1
⑥ Private company IFRIC 12 Intangible Asset Model CAPITALIZED
- grantor gives ‘right to charge’ thus intangible asset
* If operator is also the one constructing for - accounted under PAS 38 (Intangible Assets)
the arrangement, also account construction - i.e charging toll fees
under PFRS 15 (Construction Contracts) OR @ Cost model
@ Revaluation model
2
Financial Asset Model EXPENSED
- grantor gives ‘right to receive’ thus receivable
- accounted under PFRS 9 (Financial Asset: Debt Securities)
@ Amortized Cost if silent
OR
@ FV-P&L
OR @ FV-OCI

EXAMPLE
1) Government grants right to construct expressway to operator
Who incurs costs to build? Operator
How will operator recover costs?
Grantor gives Right to charge toll fees INTANGIBLE ASSET MODEL
operator Right to be reimbursed FINANCIAL ASSET MODEL
 INSURANCE CONTRACTS PFRS 4

January 2023 onwards: PFRS 17

EXAMPLES
Life insurance & prepaid funeral plans
Life-contingent annuities & pensions
Reinsurance contracts
Disability & medical cover
Surety, fidelity, performance and aid bonds
Credit insurance
Product warranties
Title insurance
Travel assistance
Catastrophe bonds
Insurance swaps & other contracts
Insurance against theft or damage to property
Insurance against product, professional, civil or legal liability

PARTIES
Direct Insurance Reinsurance Retrocession

Policyholder Cedent Retrocessionaire

(insured) (reinsurer)

Insurance
(insurance company)
How to recognize revenue for premiums received?
- accrual basis
- recognize earned & unearned portion
* Be mindful of the date. For instance, issuance of the insurance policy is on
April 1, 2021 for 24 semi-monthly payments in a year. If paid in advance:
Earned portion: 17 months (April 1-15 is presumed not covered)
Unearned portion: 7 months (24 months-17months)
When to recognize insurance settlement liability?
- recognize liability when obligating event happens
(i.e upon death of insured)