PARTNERSHIP

INTRO
PARTNERSHIP  Contract agreement: a. Oral
b. Written Partnership Agreement
 2 or more person partners -> owners
 Contribute: a. Money cash
b. Property non cash
c. Industry services/skills
 Dividing Profits

CHARACTERISTIC a. Ease of Formation d. Separate Legal Entity

b. Limited Life e. Sharing of Profit and Loss
c. Mutual Agency f. Unlimited Liability

FORMATION
DEFINITION  creation of the partnership

TYPES OF PARTNERSHIP 1. General Partnership • personally liable to the partnership's creditors

• at least one general partner in each partnership
2. Limited Partnership liable only up to the extent of their capital contribution

VALUATION a. Cash Face Value

b. Non Cash Asset 1. Agreed Value
2. FMV } if silent:
EQUAL
3. Carrying Value

Illustration: X contributed 1M and Y contributed land with mortgage assumed by the partnership
X Y
Cash 1,000,000 Land 5,000,000
X, Capital 1,000,000 Y, Capital 5,000,000

Y, Capital 2,000,000
Mort. Pay. 2,000,000
METHODS IN ACCOUNTING FOR
THE CAPITAL ACCOUNTS OF THE
PARTNERS 1. Net Investment Method (NIM) TCC = TAC
2. Bonus Method (BM) • There is a transfer of capital from one to another.
• There is no need for additional investment or
withdrawal
• TCC = TAC but amount contributed by partner shall ≠
to his capital credit
3. Goodwill Method (GW) TCC ≠ TAC
not allowed anymore

OPERATION
DEFINITION  allocation of net income/loss
 generate revenue
 incur expenses

RULE Allocate using P&L agreement

NOTE: 1. If only sharing of profits was stipulated sharing of losses will be the same
2. In absence of agreement ORIGINAL capital ratio
3. losses shall be divided in the same manner as that dividing profits
4. If losses only was stipulated, then the allocation of profits will be in #2

Contribution?
TYPES OF PARTNERS 1. Capitalist • Cash
• Non Cash
2. Industrial • Industry/Skills
TYPICAL TERMS S-I-B-R
1. Salaries Industrial Partner

2. Interest Capitalist Partner Basis:

Original Capital
Beginning Capital
Ending Capital
Average: a. simple
b. weighted

3. Bonus Managing Partner

% of Net Income
Net loss? Then no bonus

4. Remainder Residual after deducting all of the first 3 above

NOTE: These items are NOT recorded as expense of the partnership. These are just ways to allocate income to
the partners

WHAT WILL AFFECT THE CAPITAL Partner

OF THE PARTNERS? Ending xxx xxx Beginning
Share in NL xxx xxx Share in NI
Withdrawal xxx xxx Additional Invetsment

TWO TYPES OF DRAWINGS: 1. Regular • Do not affect the weighted average

(withdrawal) Initial 31-Dec
A, Drawings xx A, Capital xx
Cash xx A, Drawings xx

2. Permanent • Affects. Bumabawi ka ng investment mo (Derecho bawas sa capital account)

A, Capital xx
Cash

NOTE: Teknik sa pagcompute ng weighted average is 13 less kung pang ilan months sya .
For example: March. Edi 13-3 = 10. So, 10/12

NOTE: Ingat sa dates. If Hindi nagstart ng first day of the year, ang Salary and Interest ay kailangan ipro-rate since cinoconsider nito ang time value
of money

DISSOLUTION
DEFINITION  change in interest in the partnership a. admission
↳ addition/reduction in the # of partners b. withdrawal or retirement

ADMISSION a. Purchase of Interest this is a private/personal transaction. Kung magkano ang ibabayad sa
Ex. C buys interest of B partner kapalit ng interest sa partnership ay hindi yon magrereflect sa
books ng partnership
B, Capital 100,000
C, Capital 100,000
no ∆ in Partnership's Capital

b. Investment on Partnership ⇑ Capital ⇑ Assets

Observe the following rules:
 Contributed Capital (CC)
 Agreed Capital (AC)
 Total Contributed Capital (TCC)
 Total Agreed Capital (TAC)

TCC = TAC No Adjustment

TCC > TAC Overstatments of assets or diminution in partner's capital
TCC < TAC Unrecorded net assets or the required additional investment in partner's capital
CC = AC No transfer of capital
CC > AC Bonus to old partners
CC < AC Bonus to new partners
WITHDRAWAL  same accounting rules as admission of a new partners discussed above

a. Purchase of Interest this is a private/personal transaction. Kung magkano ang ibabayad sa

Ex. C buys interest of B partner kapalit ng interest sa partnership ay hindi yon magrereflect sa
books ng partnership
B, Capital 100,000
C, Capital 100,000
no ∆ in Partnership's Capital

b. Settlement by the Partnership si partnership ang magbabayad sa aalis na partner

⇓ Capital ⇓ Assets
C, Capital 100,000
Cash 100,000

Observe the following rules:

 Contributed Capital (CC)
 Agreed Capital (AC)
 Total Contributed Capital (TCC)
 Total Agreed Capital (TAC)

TCC = TAC No Adjustment

TCC > TAC Overstatments of assets or diminution in partner's capital
TCC < TAC Unrecorded net assets or the required additional investment in partner's capital
CC = AC No transfer of capital
CC > AC Bonus to old partners
CC < AC Bonus to new partners

NOTE: Whenever there is a dissolution, lagi mong iuupdate ang capital balances a. Allocate NI or NL to the partnerrs muna
b. Revalue Assets and Liabilities

INCORPORATION OF A WHAT IS THE ADVANTAGE?

PARTNERSHIP Partnerships Corporations 1. Limited Liability
Partners Shareholders
} 2. Ease of raising additional capital
3. Unlimited Life
4. Easy transfer of ownership

LIQUIDATION
DEFINITION  will undergo liquidation process (trustee/receivership/liquidator)
1. Sell all NCA @ NRV
2. Pay the creditors
3. Distribute remaining cash to the partners

Order of Priority (Partnership's Assets)

1. Partnership's Creditors (suppliers, loans, BIR) what if insufficient ang assets ng partnership to settle
these liabilities?

Partnership's Creditor can run after the personal assets of the partners. (This is the concept of
unlimited liability) BUT WITH ORDER OF PRIORITY:
1. Personal Creditors
2. Partnership's Creditors can be:
Solvent
Partner
Insolvent

2. Inside's Creditors (utang sa mga partners)

3. Partner's Capital Balances
TYPES 1. Lumpsum liquidation process is completed at a short period of time

1-Jan 1-Feb 1-Mar 1-Apr

LUMPSUM

2. Installment takes time to complete. Goal is how much cash can we safely distribute to the
partners

1-Jan 1-Feb 1-Mar 1-Apr

INSTALLMENT

a. Cash Priority Program maximum loss each partner can absobr

A (20%) B (30%) C (50%)
Capital 100,000.00 170,000.00 200,000.00
PL ratio 20% 30% 50%
500,000.00 566,666.67 400,000.00
2 1 3 Vulnerability Ranking

Who wil receive first? B (100%)

A, B (20,30)
A, B, C (20, 30, 50)

b. Schedule of Safe Payments total value of unsold NCA + cash withheld

for future obligations
Cash NCA Liab A B C
xx xx xx xx xx xx

We have the concept of Maximum Possible Loss

meaning, dapat malaman natin kung magkano yung safe
na ibigay natin sa mga partners (worst case scenario)
Components:
1. Estimated Liquidation Expenses eto yung gagastusin mo pa in the future
(Kapag kasi actual- iaalloacte mo agad)
2. Cash Withheld isesave na cash kasi in the future baka may liabilities ka
pa
3. Remaining BV of NCA
 CORPORATE LIQUIDATION
INTRO
DEFINITION  Financial condition in which the sum of all debts > its assets at fair valuation
 Possible outcome of bankcruptcy
 may be voluntary or involuntary

LIQUIDATION PROCESS 1. Selling all NCA @ NRV converts NCA to cash

2. Pay the Creditors since this is a corporation. It has limited liability unlike in partnership
3. Distribute remaining cash to the shareholders

REPORTS 1. Statement of Affairs prepared primarily for planning purposes

2. Statement of Realization periodic reporting

actual amounts

ROLES
CREDITORS appoint a trustee to manage the debtor's estate

TRUSTEES 1. continue operating the debtor's business if directed by court

2. realize free assets of the debtor's estate
3. pay cash to creditors

ACCOUNTANT 1. proper reporting of financial condition of the debtor

2. adequate accounting & reporting for the trustee

STATEMAMENT OF AFFAIRS

Assets pledged to fully secured creditors NRV > Liab

Assets Assets pledged to partially secured creditors NRV < Liab

(@ NRV)
Free assets Not pledged to any liabilities
It includes the excess of the assets
pledged to fully secured creditors

NOTE: if silent - ang NRV/FV, then assume na ang FV = 0

Fully Secured Creditors

Liability Partially Secured Creditors

(@ Settlement Amounts)
Unsecured creditors with priority Admin expense
Salaries and Wages
Taxes

Unsecured creditors without priority

Equity Deficit because usually Liab > Assets

Assets @ NRV FSC PSC USC w/o FA

xx xx xx
xx xx xx 0
xx xx
TOTAL xx
Less: Unsecured w/ Prio xx
NET FREE ASSETS xx
 Net Free Assets xx
Net Free Assets Less: Total Unsecured w/o Prio (xx)
Recovery Percentage
Total Unsecured Liability w/o priority Estimated Deficiency xx

OR

Total Unsecured w/o prio xx

multiply by 1-recovery %
Estimated Deficiency xx

NOTE: Prepaid expense and Goodwill, dahil nililiquidate mo na ang corporation- ang assumption mo na don is zero na ang NRV non.

STATEMENT OF REALIZATION
DEFINITION  shows the progress of liquidation
 shows actual transactions that transpired during the period covered (Income Statement equivalent)
 bottomline is net income or net loss during the period

Assets to be realized xxx Assets realized xxx

total NCA to be sold proceeds received from
conversion of specific
assets

Assets Acquired xxx Assets not realized xxx

assets discovered from unsold NCA
operating activities during
that period. Ex: interest
receivable

Liabilities liquidated xxx Liabilities to be liquidated xxx

specific liabilities paid by total liabilities to be
the trustee settled

Liabilities not liquidated xxx Liabilities incurred xxx

those that remain to be additional liabilities
paid by the trustee during liquidation. Ex.
Interest payable

Supplementary debits xxx Supplementary credits xxx

excluding assets losses revenue excluding gains
and write offs on assets realization and
liability settlement

NOTE: ang macocompute natin dito ay Gain or Loss on assets or liabilities

 HOME OFFICE AND BRANCH
INTRO
BRANCH  established to decentralized operations or expand into new markets
 operates as independent entity
 has its own complete set of accounting records
 FS called separate FS
 Branch and HO represent two accounting systems BUT just one accounting and reporting entity

Cash, Inventory, Equipment, etc.

meaning we have to
HOME OFFICE Branch 1 Branch 2 Branch 3 eliminate reciprocal
accounts (IIB, HO, STB,
SFHO, A4OV)

FS + separate FS + separate FS + separate FS + Working Paper

Elim. Entries

Sales xx Sales xx
COGS* (xx) COGS @ billed price (xx)
Gross Profit xx outsiders (xx)
Expenses (xx) Gross Profit xx
Net Income xx Expenses (xx)
Net Income xx

Beg. Inventory xx
Purchases xx COMBINED FS
Less: Shipment to Branch (xx)
Ending Inventory xx In computing the combined net income, just add the two and then add A4OV
COGS* xx COGS

1. NOTE: pwede mo namang computin yung net income ni branch using @ cost
instead of @ billed price , then add mo yung net income ni HO, same pa din ang
lalabas na amount.

2. NOTE: if asked what is the true/correct net income of the branch, you must use
the method in the 1. NOTE above. COGS must be at cost

SIR BRAD'S TABLE

at COST at BILLED PRICE A4 OVERVALUATION OUTSIDERS

Beginning Inventory xx xx xx BI xx
Shipments xx xx xx Purchases xx
TGAS xx xx xx TGAS xx
Ending Inventory (aka unreal. m-up) (xx) (xx) (xx) EI (xx)
COGS (aka realized mark-up) xx xx xx COGS xx

shipment to branch shipment from HO

pag nakita mo sa given yung A4OV, dito
mo sya ilagay agad sa total tapos
shipment from HO (100K) workback
Billing Rate (125%)
shipment to branch (80K)
 NOTE: minsan trick yung in transits. Ex. Sasabihin na yung Shipment to is 400k at 25% Mark up, tapos ang given na Shipment from is only 450K.
Meaning, yung 50K don is in transit palang. Buong 500k na ang ilagay mo sa table. Then since hindi pa sya kasama sa Ending Invty, i-add mo din
sya. :) KAYA MO YAN!

ILLUSTRATIVE JOURNAL ENTRIES

TRANSCATIONS HOME OFFICE BRANCH
1. TRANSFER OF CASH FROM HO Investment in Branch xx Cash xx
Cash xx HO Equity xx

2. TRANSFER OF CASH FROM BRANCH Cash xx HO Equity xx

Invest. In Branch xx Cash xx

3. TRANSFER OF MDSE FROM HO isipin mo agad na @ BILLED

@ COST Investment in Branch xx Shipment from HO xx
Shipment to Branch xx HO Equity xx
isipin mo agad na @ COST

4. TRANSFER OF MDSE FROM HO

ABOVE COST Investment in Branch xx Shipment from HO xx
A4 Overvaluation xx HO Equity xx
this is basically the mark-up

5. PAYMENT OF HO OF BRANCH
EXPENSES Investment in Branch xx Expenses xx
Cash xx HO Equity xx

6. ALLOCATION OF PAID BRANCH

EXPENSES Investment in Branch xx Expenses xx
Expenses xx HO Equity xx

7. TRANSFER OF FIXED ASSETS

FORM HO TO BRANCH memo entry only memo entry only

8. TAKE UP BRANCH PROFIT Investment in Branch xx Income Summary xx

Branch Income xx HO Equity xx

9. TAKE UP BRANCH LOSS Branch Loss xx HO Equity xx

Investment in Branch xx Income Summary xx

10. TO ADJUST REPORTED NET

INCOME FOR REALIZED
ALLOWANCE A4 Overvaluation xx no entry
Branch Income xx

NOTE: yung freight in, irerecord mo sya kung nakanino ang inventory

COMPARISION

VS
AGENCY BRANCH
acts on behalf of the HO independent
not a separate entity separate entity
no reciprocal accounts with reciprocal accounts
no need to prepare combined FS need to prepare combined fs
normal net income computation

NOTE: applicable sa lahat ng subject , kapag silent ang Mark Up/Gross Profir- it is always based on sales . EXCEPT in HOBA, kapag silent- Mark
up is based on cost
 COST ACCOUNTING
INTRO
per total
GOAL to determine the product cost
per unit (more important here) because:

UNIT COST basis for SP (if you know the UC, you can set UC + Mark up = SP )

⇑ SP, ⇓ Demand
SP demand COSTING
⇓ SP, Not profitable naman

small volume
JOB ORDER COSTING
Hete rogeneous /unique/distinct ( ex. Building, Aircraft, etc.)
COST ACCOUNTING SYSTEMS
large volume
PROCESS COSTING Mass
Homo geneous /similar/identical (ex. Markers, Paper, Production
Calcu, etc)

DISCUSSION OUTLINE
 1. Job Order Costing
more appropriate on
2. Process Costing
Manufacting Companies
3. Joint and By-Product Costing RM/DM
(3 types of Inventories)
4. JIT and Backflush Costing WIP RM/DM
FG DL
OH

JOB ORDER COSTING

INTRO
DEFINITION where the company assigns costs to each job or to each batch of goods

JOURNAL ENTRIES
1 RM Inventory xx
Accounts Payable xx
Raw Materials
2 Work in Process xx
RM Inventory xx

3 Salaries Expense xx
Salaries Payable xx
Direct Labor
4 Work in Process xx
Salaries Expense xx

5 Depreciation Expense xx
Utilities Expense xx
Rent Expense xx Overhead (ACTUAL COST)
Accumulated Depreciation xx
Utilities Payable xx
Rent Payable xx

6 Overhead - Control xx
Depreciation Expense xx Overhead (ACTUAL COST)
Utilities Expense xx
Rent Expense xx
 7 Work in Process xx Standard Cost (SR x SH)
Overhead - Applied xx
take note, ang pumapasok sa WIP natin ay standard cost and not the actual cost

Underapplied OH-applied < OH-control Balancing figure is ADDITION

OVERHEAD
Overapplied OH-applied > OH-control Balancing figure is SUBSTRACTION

8 Every EOY, we need to reflect the actual overhead cost

Overhead - Applied xx Immateria/Insignificant COGS

Balancing Figure
Balancing Figure Materia/Significant WIP
Overhead - Control xx FG
COGS
NOTE: Overhead - Applied is also called Normal Costing

Actual
2 TYPES
Normal (  silent)

HOW TO COMPUTE UNIT COST? total mo lahat ng WIP above WIP

= Unit Cost
# of Good Units

FAQs 1. COGM
2. COGS

Formula:
DM, used xx
Add: DL xx
Add: OH xx
TMC xx cost incurred during the year
Add: WIP, beg xx
Less: WIP, end (xx)
COGM xx additional FG during the year
Add: FG, beg xx
Less: FG, end (xx)
COGS xx

TECNIQUE: ( T-Accounts ) RAW MATERIALS

Beg. xx End xx
RM Purch xx RM Used xx

RM used xx
+ DL xx FINISHED GOODS
+ OH xx Beg. xx End xx
TMC xx COGM xx COGS xx

WORK IN PROCESS
Beg. xx End xx
TMC xx COGM xx
 SPOILED GOODS/UNITS
DEFINITION  cannot be sold at its original price
 no longer good units

Normal within expectation Ex. 5 spoiled units and ineexpect mo every month, then
SPOILAGE can be: naging 7 units, yung 2 units doon ay…
Normal Specific
due to exacting specification from customers (may request sya)
spoiled units charged to WIP
charged to customers

EFFECT TO UNIT COST:

Total Units xx
WIP - Spoiled Units (xx)
= ⇑ Unit Cost xx
# of Good Units Goods Units

a. WIP xx
goods units
various xx

b. WIP xx
spoiled units
various xx

c. Cash (NRV) xx
sold
WIP xx

Normal Common
due to internal failure
all units charged to OH-control

EFFECT TO UNIT COST:

NO EFFECT!!!

a. WIP xx
goods units
various xx

b. OH-Control xx
spoiled units
various xx

c. Cash (NRV) xx
sold
OH-Control xx

Abnormal outside expectation

since abnormal sya, then it is charged to loss

EFFECT TO UNIT COST:

NO EFFECT!!!

a. WIP xx
goods units
various xx

b. Loss xx
spoiled units
various xx

c. Cash (NRV) xx
sold
Loss xx

DEFECTIVE GOODS/UNITS
DEFINITION  can be sold at its original price
 still good units but will incur re-work costs
 Normal within expectation Ex. 5 spoiled units and ineexpect mo every month,
DEFECTIVE can be: then naging 7 units, yung 2 units doon ay
Normal Specific
due to exacting specification from customers (may request sya)
spoiled units charged to WIP
charged to customers

EFFECT TO UNIT COST:

Total Units xx
WIP - Defective Units -
= ⇑ Unit Cost xx
# of Good Units Goods Units

a. WIP xx
goods units
various xx

b. WIP xx defective
various xx units

Normal Common
due to internal failure
all units charged to OH-control

EFFECT TO UNIT COST:

NO EFFECT!!!

a. WIP xx
goods units
various xx

b. OH-Control xx defective
various xx units

Abnormal outside expectation

since abnormal sya, then it is charged to loss

EFFECT TO UNIT COST:

NO EFFECT!!!

a. WIP xx
goods units
various xx

b. Loss xx defective
various xx units
 PROCESS COSTING
INTRO
per total
GOAL to determine the product cost
per unit (more important here) because:

UNIT COST basis for SP (if you know the UC, you can set UC + Mark up = SP )

⇑ SP, ⇓ Demand
SP demand COSTING
⇓ SP, Not profitable naman

small volume
JOB ORDER COSTING
Hete rogeneous /unique/distinct ( ex. Building, Aircraft, etc.)
COST ACCOUNTING SYSTEMS
large volume
PROCESS COSTING Mass
Homo geneous /similar/identical (ex. Markers, Paper, Production
Calcu, etc)

METHODS
1. FIFO
0% 30% 100%

WIP, Beg UAF

2. WAVE
0% 30% 100%

WIP, Beg UAF

COST OF PRODUCTION REPORT (CPR)

steps: (Compure for)

0% 100%

UTAF UAF
total units at the start

1. UNITS TO ACCOUNT FOR (UTAF) the number of units in the beginning work in process inventory plus the number of units started into
production. (total units at the start)
this total also represents the sum of the number of units completed and the number of units in the ending
work in process inventory.

WIP, beginning xx
Add: Started Units this month/during the process xx
Total UTAF xx
2. UNITS ACCOUNTED FOR (UAF) aalamin natin saan napunta yung UTAF
this must be always equal dahil
inaalam lang natin saan
napunta yung UTAF
WIP, Beg xx
Transferred Out
Started xx
(Units transferred Out - WIP, beg)
Normal Spoilage xx
Abnormal Spoilage xx
WIP, End xx
Total UAF xx

3. EQUIVALENT UNITS OF
PRODUCTION (EUP)
are used to measure the level of production work done on partially completed units at the end of the period.
number of whole units that could have been completed if all work of the period had been used to produce
whole units
this measurement is done to express the total number of completed units.
 NOTE: i f the problem is silent, materials are added at the start of production and the inspection point is at
the end of the process

1- % completed ng WIP, beg

current mont/period.production

FIFO Materials Conv. Cost

WIP, Beg xx 0% xx * 0% 60% xx * 60%
Transferred Out
Started xx 100% 100%
(Units transferred Out - WIP, beg)
malalaman natin at inspection Normal Spoilage xx 100% 100%
point, for example sinabi sa Abnormal Spoilage xx 100% 100%
problem na ang inspection point ay WIP, End xx 100% 70%
at 75%, edi 75% and ilalagay mo Total UAF xx xx xx
doon sa converstion cost

why zero? Kasi nalagyan na ng materials yan last

month/period/production

Kung ilan complete na yung WIP, end mo

current mont/period.production

WAVE Materials Conv. Cost

Hindi na relevant na ibreakdown mo pa.
Transferred Out xx 100% xx * 100% 100% xx * 100%
Total na agad
Normal Spoilage xx 100% 100%
Abnormal Spoilage xx 100% 100%
WIP, End xx 100% 70%
Total UAF xx xx xx

since sa WAVE ay binabalik natin sa umpisa, and if sabi

sa problem na ang materials ay inaadd at the start of
production, edi ang materials mo ay always at 100%

Kung ilan complete na yung WIP, end mo

4. COST PER EUP (UNIT COST) FIFO
Current Cost
= Cost per equivalent Unit
EUP

WAVE
WIP, Beg Cost + Current Cost
= Cost per equivalent Unit
EUP

NOTE: Since 1. Since as if binabalik natin sa umpisa yung WIP, beg, isasama mo yung cost ng WIP, beg sa
pagcompute ng Cost per EUP
2. kapag tinanong, how much is the unit cost of the product , i-add mo pareho yung EUP for
Materials and Conversion Cost. The answer is the total

5. COST ACCOUNTED FOR Cost

EUP x
EUP

imumultiply mo lang yung cost sa EUP

Example: what is the cost assigned to Ending Inventory under FIFO

13,000.00 1.50 = 19,500.00

9,100.00 4.34 = 39,494.00
58,994.00
 SPOILAGE
NORMAL SPOILAGE ⇑ your Unit Cost kasi isasama mo yan sa cost nung Transferred Out
units
So, kapag tinanong magkano ang total cost assigned to goods
transferred out , lagi mo isasama si normal spoilage
Example: using FIFO
M (65,000+1,100) x 1.5 99,150.00
TYPES: CC (4,500+65000+1,100) x 4.34 306,404.00
405,554.00
Add: WIP Beg Materials 10,400.00
CC 13,800.00
Can be based on: 429,754.00
1. Completed Units transferred out to other dept.
2. Started Units started units for the period Tandaan mo, kapag FIFO mo lang iaadd
3. Goods Units passed inspection point etong WIP, Beginning. Kapag wave hindi
(meaning hindi kasama mo na sila i-aadd. Okay gets?
dyan yung mga spoiled
units)

ABNORMAL SPOILAGE charged to loss

TYPES OF NORMAL SPOILAGE

DISCRETE with inspection point

TYPES:
CONTINOUS no definite inspection point
as if the spoiled units did not occur
method of neglect

Effect on CPR: NORMAL SPOILAGE always 0%

ABNORMAL SPOILAGE always 100%
always reported as loss because this is inefficiency

POINTS TO REMEMBER
1. if WIP, end did not pass the inspection point, isasama mo yung normal spoilage sa total cost assigned to goods
transferred out
2. if WIP, end passed the inspection point so yung normal spoilage na makukuha mo is need mo i-allocate sa
good units using their EUP (WIP, end and transferred out unit)
 JOINT AND BY-PRODUCT COSTING
INTRO
DEFINITION  two or more different products manufactured in the same production process
 called: Joint Production Process

Example: Company X Manufactures Wooden furnitures

split-off point
0% 30% 100%
Joint Cost (Common to all)
DM, DL, OH (WIP) A Chairs
B Tables main products (Joint
C Cabinets Products)
D Saw Dust (By Products)
(relatively small value)

will separate cost

(Further Processing Cost)

ISSUES
1. HOW TO ALLOCATE JOINT COST TO THE MAIN PRODUCTS?
a. Physical Measure # of Units, Kilograms, Meter
b. Sales value (MV) at Split-off # of Units x Selling Price
c. NRV at Split-off # of Units x (Selling Price - CTS)
d. Approximated/Estimated/Hyphotetical NRV # of Units x (Final Selling Price - CTS - FPC)

2. HOW TO REPORT BY PRODUCTS? always measured at NRV

Split-off/Production Sale
Significant/Material recognize at point of By Product Invty Cash
production WIP By Product Invty
By Products (Inventory) (⇓ Joint C.)

Insignificant/Immaterial recognize at point of sale No entry Cash

Other Income

NOTE: If walang ending inventory , same lang ang other presentation:

magiging Net Income nila regardless if Significant or 1. addition to sales revenue of the main
Insignificant product
2. reduction from cost of sales
(regardless of the presentation, same NET
INCOME will result)
 JIT AND BACKFLUSH COSTING
JUST IN TIME
DEFINITION  inventory management system; wherein we only produce as needed
 reduces inventory storage costs & obsolescense

Difference in Traditional: Manufactures Warehouse Order Deliver

BACKFLUSH COSTING
DEFINITION  method used by companies adapting JIT systems
 concept of Trigger Points (where we make journal entries)

Traditional: Backflush:
(4 Trigger Points) (3 Trigger Points) (2 Trigger Points) (Ulitmate JIT)
version 1
1. RM 1. MIP(RIP) 1. MIP(RIP) 4. COGS
AP AP AP AP
(Upon Purchase) (Upon Purchase) (upon Purhcase) CC-Applied
(upon Sale)
2. WIP 3. FG 4. COGS
Various Accounts MIP MIP
(Upon Production) CC-Applied CC-Applied
(Upon Completion) (upon Sale)
3. Finished Goods
WIP 4. COGS version 2
(Upon Completion) FG 1. FG
(Upon Sales) AP
4. COGS CC-Applied
Finished Goods (upon Completion)
(Upon Sale)
4. COGS
FG
(upon Sale)

wala kang trigger #2 kagaya nang sa traditional

NOTE: Every EOY, difference between CC-Applied and CC-Controlled is always charged to COGS

CC-Applied xx
CC-Controlled xx
COGS xx
 ACTIVITY-BASED COSTING
INTRO
DEFINITION  a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services
 allocates overhead to multiple activity cost pools and assigns the activity cost pools to products and services by
means of cost drivers
 more accurate than the traditional costing

NOTE: 1. products consumes activities, and activities consumes resources (MH, LH)
2. we have multiple OH rate

STEPS: 1. Identifies activities

2. Identify cost driver per activity
3. Compute OH rate per activity
4. Allocate OH to products

DEFINITION OF TERMS 1. Activity event, action, transaction, or work sequence that causes the incurrence of cost
2. Cost Driver factor or activity that has a direct cause-effect relationship with the resources
consumed

DIFFERENCE IN TRADITIONAL Example:

A B TOTAL A B
Units Procuced 100 200 300 DM 2,000.00 4,000.00
Machine Hours 40 60 100 DL 5,000.00 10,000.00
DM 2,000.00 4,000.00 6,000.00 OH 24,000.00 36,000.00
DL 5,000.00 10,000.00 15,000.00 31,000.00 50,000.00
OH 60,000.00 U produced 100 200
let's say the cost driver is Machine Hours 100 U Cost 310.00 250.00
600.00 /hour

Formula:

Total Overhead
= Overhead Rate
Cost Drivers

NOTE: 1. the total OH of the department, derecho inaallocate natin to the products
2. we only use 1 OH rate , which in this example is 600.00/hour
3. if the Cost Driver is silent: use Direct Labor cost

ACTIVITY BASED MANAGEMENT

DEFINITION  focuses on reducing costs and improving processes and decision making
 enchance value adding activities (necessary to produce)
⇓ cost, ⇑ profitability
 reduce non-value adding activities (do not add value)
Purpose: to reduce or eliminate the time and cost devoted to non value adding activites

NOTE: Kapag during production, value adding yon.

Kapag nakapagproduced ka na saka mo naincur yung cost, non value adding yon.

CLASSIFICATION OF ACTIVITY LEVELS

1. Unit-Level Activities performed for each unit of production
2. Batch-Level Activities performed for each batch of production (ex. Set up, Shipping, etc.)
aka Product Sustaining Level 3. Production-Level Activities performed in support of an entire product line (ex. Engineering Cost)
aka General Operations Level/ 4. Facility-Level Activities entire production process (ex. Plant Maintenance, Taxes, Insurance)
Factory Level
QUALITY COSTS
 In order to deliver quality products, we have to incur what we call quality costs
1. Prevention Cost avoid defects during production (ex. Worker training, Proper Maint)
2. Appraisal Cost identification of defects before shipment (ex. Inspection)
3. Internal Failure Cost actual removal of defects before shipment (ex. Re-work)
4. External Failure Cost already shipped (ex. Warranties, Replacement)
 FOREX (IAS 21)
INTRO
Transactions Example: You import to manufacture goods and export for sale
IAS 21
Operations Example: Branch/ Subsidiary/ Associates

ISSUES: 1. What exchange rate to use?

2. How to report G/L from forex?

TYPES OF CURRENCIES
is mgmt has a choice? how many currencies can be
used?
FUNCTIONAL currency of the primary economic equivalent in which
the entity operates (dominant currency)  1

FOREIGN other than functional currency  >1

PRESENTATION currency in which FS are presented  >1

(option of the mgmt)

DIFFERENT RATES IN FOREX

EXCHANGE RATE SIGNIFICANCE

1. Spot Rate Rate today and applicable today
2. Future Rate Rate today and applicable in the future; aka FORWARD RATE
3. Historical Rate Spot rate in transaction date
4. Closing Rate Spot rate in balance sheet date
5. Actual Rate Spot rate in settlement date

MEASUREMENT

1-Jan 31-Dec
Foreign to Functional (Remeasurement)
Temporal Method
Initial Subsequent
Spot Rate Functional to Presentation (Translation)
this is the rate when the transactions Closing/Current Rate Method
happened

Monetary Closing Rate (Dec. 31)

B/S

Non-Monetary Historical Cost Date of Transaction

( Ex. Inventory, PPE, Intangible Assets)
Special Treatment for Inventory, COGS, Sales:
If Quarterly rate is given then use it, if not then use date of purchase/sale rate
TEMPORAL METHOD
Fair Value Rate at the date when FV is determined
( Ex. Investment Prop @ FV Method)

Hierarchy:
I/S 1. Date of Transaction
Special Treatment for Inventory, COGS, Sales:
If Quarterly rate is given then use it, if not then use date of purchase/sale rate

2. Average Rate (practicality)

NOTE: in this method, all ∆ s in forex will be presented in P/L
Is there a right or objective to deliver fixed or YES Monetary Example: Cash, AR, AP, Debt Securities
determinate amount of currency? NO Non-monetary Example: Inventory, PPE, IA, Equity Sec

Assets & Liabilities Closing Rate (Dec. 31)

B/S
Equity (C/S, APIC) Date of Transaction

R/E Net Income Average

CLOSING/CURRENT RATE METHOD Dividends Date of Transaction

(regardless of the method, always DoT)

I/S Average

NOTE: in this method, all ∆ s in forex will be presented in OCI

NOTE: 1. IS items in Temporal method has hierarchy , wherein Closing/Current rate has none
2. Monetary and Non-monetary items applies only to BS items in Temporal Method
 DERIVATIVES
INTRO
DEFINITION a financial intrument that derives its value from an underlying Risks
Stock Price Price Risk
FVPL (Derivative Asset/Derivative Liability) Interest Rate Int. Rate Risk
Exchange Rate Forex Risk
Commodity Price Price Risk
used for hedging (risk management)

ACCOUNTING HEDGED ACCOUNTING (IFRS 9) Hedging Instruments (aka Derivatives)

eto yung pinangmamanage
natin ng risks

Hedged Items eto yung risks

BASIC TYPES OF HEDGING INSTRUMENTS/DERIVATIVES

1. FORWARD CONTRACT over the counter transactions (private)
obligation to buy and sell at a fixed price in the
future
2. FUTURE CONTRACT traded in future exchange market (public)

3. OPTIONS Call Option to BUY

contract that gives the holder the right (not obligation)
to purchase or sell within a given future time period Put Option to SELL
Downside: you need to give option premium , unlike in forward and future there is no cash outflow in the
beginning
balancing figure
FV measurement of Options: FV = Intrinsic Value + Time Value always decreasing
(composed of 2) depends on the spot rate (ineffective portion) P&L
(effective portion) OCI
pag tapos na yung transaction, irereclass mo sya from OCI to P&L

Intrinsic Value
CALL Option to Buy Spot Price - Exercise Price Exercise?
if: S > X in the money 
Formula of Intrinsic Value: S = X at the money 
S < X out of the money 

PUT Option to Sell Exercise Price - Spot Price

if: S < X in the money 
S = X at the money 
S > X out of the money 

NOTE: 1. Exercise Price is also known as Strike Price

2. Intrinsic Value at the start is always zero because it is always at the money
3. Time Value , is always zero at the end because it is decreasing

1-Oct 31-Dec 31-Mar

TECNIQUE SA OPTION: Make a table for the Hedged Item Intrinsic Value 0 xx xx
Time Value xx xx 0
Fair Value xx xx xx
*if tumataas, then gain
*if bumababa, then loss
T-Accounts for the Hedged Instrument

Fixed to Floating
kapag ineexpect mo na bababa yung
4. SWAPS Interest Rate Swap (IRS) interest rate in the future. Kung ano yung
Loans
Other Term: Plain Vanilla Swap magiging interest rate ayun yung
babayaran mo
 Floating to Fixed
residual definition. Kapag ineexpect mo
naman na tataas ang interest rate ,
ififixed mo na ngayon palang

Has Journal Entry on Day 1?

1. FORWARD CONTRACT 
2. FUTURE CONTRACT 
3. OPTIONS 
4. SWAPS 

NOTE: Kapag Hedging Instrument , Forward Rate ang gagamitin mo

HEDGED ITEMS
1. FIRM COMMITMENT also known as Purchase Commitment

1-Jan 31-Dec

entered purchase commitmen with a dito mangyayari yung transaction but finixed na natin nung
supplier at a fixed price Jan 1, so kahit anong mangyari, kung ano yung nafixed ayun
yung babayayaran natin na price

2. HIGHLY PROBABLE FUTURE

TRANSACTION
Opposite ng Firm Commitment. Dito, let's say sa Christmas Season, madaming bibili ng Calculators, so tataas yung
presyo. So kung ano man yung maging presyo nya, since wala kang commitment, ayun yung babayaran mo

1-Jan 31-Dec

no commitment kung magkano sya dito, ayun yung babayaran mo

3. FIXED INTEREST RATE Fixed

Example: 10% fixed rate

4. FLOATING INTEREST RATE Variable

Example: PDEX + 3% let's say PDEX is 10%, so + 3% total of 13% rate ang babayaran mo

NOTE: These Hedged items are very important because ito yung magiging basis natin if the transactions qualifies under FV Hedge or CF Hedge

NOTE: Kapag Hedged Item , Spot Rate ang gagamitin mo

HEDGED ITEMS QUALIFIES UNDER:

FAIR VALUE HEDGE CASH FLOW HEDGE
( fixed yung cash flow) ( variable yung cash flow)
1. FIRM COMMITMENT 
2. HIGHLY PROBABLE FUTURE TRANSACTION 
3. FIXED INTEREST RATE 
4. FLOATING INTEREST RATE 

SUMMARY FAIR VALUE HEDGE CASH FLOW HEDGE

HEDGING INSTRUMENTS MTM (∆ P&L) MTM (∆ OCI)

HEDGED ITEMS MTM (∆ P&L) Normal Accounting

Example:
Inventory PAS 2
PPE PAS 16
OBJECTIVE: Minimize the fluctuation in P&L (IS)

Instrument
dito hindi nag ooffset kasi wala naman
offset
connect sa Income Statement
Item

NOTE: If the Hedging Instrument is Loss, then the Hedged Items is Gain, lagi silang opposite

3 TYPES OF HEDGING
1. Fair Value Hedge
2. Cash Flow Hedge
3. Hedge of a Net Investment in foreign operations same accounting treatment as CF Hedge
Example:
loan
JFC JFC
(PH) int. exp (HKG)
HKD
 JOINT ARRANGEMENT (PFRS 11)
INTRO
DEFINITION An arrangement of which two or more parties have joint control

Example: Ayala Land (contributes expertise) partnered with ABC (may ari ng lupa) to contruct condominiums

STRUCTURE 1 (Joint Venture) STRUCTURE 2 (Joint Operation)

Ayala ABC Ayala ABC

share share A+L A+L

XYZ Condo
separate entity/vehicle
aka special purpose vehicle

Condo
this will generate income that Ayala and
ABC will share (Dividends)

NOTE: to qualify for a Joint Arrangement, there must be a Joint Control

ELEMENTS: 1. Contractual Arrangement there must be written contract/some documented

2. Sharing of Control no single party can decide
3. Unanimous Consent all party must agree before making decisions

2 TYPES OF JOINT ARRANGEMENT

1. JOINT VENTURE (JV) parties must be at least a combination of two natural persons or entites
single enterprise or project for profit sharing
right to net assets (shares)
we use equity method
parties: Joint Venturer

2. JOINT OPERATION (JO) right to assets and liabilities

we use proportionate share in Asset, Liabilites, Revenues, and Expenses
parties: Joint Operators

Joint Venture
if silent , then may separate vehicle, automatic Joint
NOTE: 1. if may separate vehicle, pwedeng maging
Venture
Joint Operation

NOTE: 2. if walang separate vehicle automatic Joint Operation . Hindi pwedeng maging Joint
Venture kapag walang seprate vehicle

JOINT ARRANGEMENT QUALIFIES AS SME

Fair Value Model
If it qualifies, there is an option for the venture to use: Cost Model
Equity Method