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Quick Notes in AFAR
I. PARTNERSHIP
PARTNERSHIP FORMATION
VALUATION:
- Cash – Face Value
- Land, Depreciable Asset, & NCA a. Agreed Value b. Fair Value c. Appraised Value d. Carrying Value/Book Value
- Liabilities – are considered assumed if the problem is silent
- Inventory – Lower of Cost and Net Realizable Value (LCNRV)
- Capital 5.1. Bonus Method 5.2. Investment/Withdrawal Method
BONUS METHOD (*The problem is silent)
- There would be a transfer of capital.
- There is no recognition of goodwill.
- The total asset and capital will remain unchanged.
INVESTMENT/WITHDRAWAL
- Agreed Capital is more than Unadjusted Capital = Investment
- Agreed Capital is less than Unadjusted Capital = Withdrawal
ADJUSTING ENTRIES (*Use contra-asset)
- Building – Carrying Value: ₱10M, Agreed Value: ₱15M Accumulated Depreciation ₱5M Capital ₱5M
- Accounts Receivable – Cost: ₱10000, NRV: ₱ 9000 Capital ₱ Allowance for Doubtful Accounts ₱
- NOTES: To transfer the depreciable asset, it should be in net amount. To transfer the accounts receivable to the new book, it should not be in net amount. ₱ 3000 PURPOSE: To engage other party The juridical personality of the partnership arises from the meeting of minds. Partnership by Estoppel – legally binding the partnership but no formal agreement Limited Partnership – two or more general partners and one or more limited partners Particular Partnership – single transaction
PARTNERSHIP OPERATION
- Salaries This could be fractional year Given, regardless of the result of operation
- Interest This could be in fractional year Given, regardless whether there is profit or loss (*Use the salary/interest ratio if the problem states that the amount to be distributed to the partners is up to the extent of profit only or the profit is distributed based on the priority.)
- Bonus This is given if there is a profit only Bonus is not always given if there is profit
CASE 1: Net Income of ₱500000 before salaries of ₱55000, interest of ₱13000, and bonus of 15%
B =
B =
B =
B = ₱56, 347.
CASE 2: Net Income of ₱100000 before salaries of ₱5000, interest of ₱3000, and bonus of 10%
B =
B =
B =
B = ₱12,
***** NOTES: Advances made by the partnership to a partner are included in capital interest but shall not affect the capital balance of a partner. PROFIT RATIO LOSS RATIO
- Profit Ratio, Loss Ratio _
- Profit Ratio, Profit Ratio x _
- Original Capital Ratio, Loss ratio x _
- Original Capital Ratio, Original Capital Ratio x x _
EXAMPLE ON HOW TO COMPUTE THE AVERAGE CAPITAL:
1. 1/1 ₱1000 × 6/12 = ₱ 500 7 /1 800 × 3/12 = 200 10/1 1500 × 3/12 = 375 ₱ 1075 2. ₱ 500 × 12/12 = ₱ 500 100 × 9/12 = 75 (200) × 3/12 = (50) ₱ 525
_NOTE:_* P/L = Silent Original Capital Interest = Silent Average Capital Net income after interest and salary but before bonus Formula: Net Income – Total Interest – Total Salary = Bonus
PARTNERSHIP DISSOLUTION
- Change in numbers of partners.
- Admission by Purchase without Revaluation Silent Personal transactions Total asset and capital will remain unchanged Purchase price is ignored 2. Admission by Purchase with Revaluation Two Steps to be followed: Determined the asset revaluation Distribute the interest to the buying partner
TCC TAC Bonus / UVA / OVA *TAC=TCC *TAC>TCC *TAC<TCC 0 + −
Purchase Price ₱xx Divided by: New Interest of New Partner xx Adjusted Capital xx Add: Unadjusted xx Undervalued Asset (UVA) xx Multiply: Percentage % xx Add: Capital xx xx Multiply: (100% - New Partner %) xx ₱xx
RETIREMENT
- Compute the capital balance before retirement a. Capital balance b. Share in net income/net loss c. Drawings d. Additional investment e. Revaluation of UVA f. Revaluation of OVA g. Condonation of the partnership liability/receivable of your debtor
- Settlement is more than Capital Interest = Bonus to the retiring partner If the Settlement is less than Capital Interest = Bonus to the remaining partner
PARTNERSHIP LIQUIDATION
- Lump-sum Liquidation – single distribution
- Installment Liquidation – “piece meal”
3. OWNER’S EQUITY DEFICIENCY / CAPITAL
Capital
NET FREE ASSETS (NFA)
TOTAL UNSECURED CREDITORS WITHOUT PRIORITY (TULi-w/o)
- Excess of APTFSL ₱xx 1. Excess of PSL ₱xx over PSL xx ₱xx over APTPSL xx ₱xx
- Free Asset xx 2. UL w/o Priority xx TFA xx TULi w/o ₱xx
- Loss UL with Priority xx Net Free Asset ₱xx
ESTIMATED DEFICIENCY (ED):
ED = TULi – NFA or ED = TULi w/o × (1 – POR)
ED: A = L + C SHE beginning ₱xx Estimated net loss (xx) Accrued interest (xx) Liquidation expense (xx) EED ₱ xx +/−
_NOTE:_* Statement of Realization no cash
STATEMENT OF REALIZATION AND LIQUIDATION
- Assets to be realized (ATBR) Noncash Assets, beginning
- Assets acquired (AA) / ↑ on Asset Interest Receivable Accounts Receivable
- Liabilities liquidated (LL)
- Liabilities not liquidated (LNL) Ending balance of the liabilities
- Supplementary charges / Expenses Cost of Sales Accrued Expenses
- NET INCOME / GAIN
- Assets realized (AR) PPE – net proceeds Receivables – collection Inventory – cost of sales
- Assets not realized (ANR) Noncash Asset, ending
- Liabilities to be liquidated (LTBL)
- Liabilities assumed (LA) / ↑ in Liabilities Accrued Expenses Accounts Payable
- Supplementary credits / Revenue Sales Accrued Interest Income
- NET LOSS / LOSS
A
Cash, end ANR
= L
LNL
+ C
SHE, end
SHE, beginning ₱xx Net (loss) / Profit xx Estate Equity ₱xx
III. INSTALLMENT SALES
TYPES OF SALES
1. REGULAR SALES
Cash Sales Credit Sales Use the accrual method
2. INSTALLMENT SALES
Cost Recovery Gross Profit Realization Installment Method *all are prescribed by the standard
GP from Sale of Repossessed Merchandise* ₱xx GP on Regular Sales (Regular Sales – Cost of Regular Sales) xx RGP on Installment Sales: 2017 2017 2015 DGP to RGP xx 2017 2016 2016 (Collection × GPR) xx 2017 (Collection × GPR) xx Total RGP ₱xx Less: Expenses (Loss on Repossession and Loss/Expense from write-off) (xx) NET INCOME 2017 ₱xx
***** Sales ₱ xx Less: Cost of Sales: Fair Value of Repossessed Merchandise ₱xx Reconditioning Cost xx (xx) GP from Sale of Repossessed Merchandise ₱ xx
Fair Value of Repossessed Merchandise ₱xx Reconditioning Cost xx Net Purchases xx Estimated Selling Price ₱xx (*If silent, after)
Installment Sales ₱xx Cost of Sales (xx) Deferred Gross Profit ₱xx
Installment Accounts Receivable ₱xx Unsecured Cost xx Deferred Gross Profit ₱xx
EXAMPLE:
Fair Value of Repossessed Merchandise ***** ₱ Less: Unrecovered Cost: IAR/Repossessed Account (Receivable Defaulted/Unpaid Balance) ₱ Less: Deferred Gross Profit (20) (80) LOSS (UC > FV of Repossessed Merchandise) ₱(10)
ENTRIES:
1. Reposs. Mdse. – FV ₱ DGP 20 Loss 10 IAR ₱ 2. Expenses ₱ DGP (20%) 20 IAR ₱ write-off 3. Cash ₱___ IAR ₱___ 4. DGP ₱___ RGP ₱___
*Gain/Loss P/L **DGP Contra receivable account
(20%) IAR 2016
Beginning ₱100 Collection ₱ RA 30 WO 5 End ₱ 15
DGP 2016
RGP ₱
DGP on RA 6 DGP on WO 1
Beginning ₱
End ₱ 3
IAR 2017
AIS ₱___ Collection ₱___ RA ___ WO ___ End ₱___
DGP 2017
RGP ₱__
DGP on RA __ DGP on WO __
Beginning ₱__
End ₱ _
Beginning Inventory ₱xx Net Purchases xx Freight-in xx Repossessed Merchandise xx Reconditioning Cost xx TGAS ₱xx Ending Inventory (New + Unsold RM + RC) xx Cost of Sales (Regular/Installment/Repossessed Merchandise) ₱xx
TRADE-IN & SALE OF REPOSSESSED MERCHANDISE:
Down payment – Cash Down payment – FV of Trade-in Collection, net of interest Collection Multiply: Gross Profit Ratio Realized Gross Profit Gross Profit from Sale of Repossessed Merchandise Total Realized Gross Profit Loss (FV of Reposs. Mdse. – Unrecovered Cost) NET INCOME
₱xx xx xx ₱xx xx ₱xx xx ₱xx (xx) ₱xx
TRADE-IN:
Installment Sales ₱xx Fair Value of Trade-in xx Trade-in Allowance (xx) Adjusted Installment Sales ₱xx Cost of Sales (xx) GROSS PROFIT ₱xx
Adjusted Installment Sales ₱xx Down payment – Cash (xx) Fair Value of Trade-in (xx) CV of Receivable ₱xx
Installment Sales ₱xx Trade-in Allowance (xx) Collectibles ₱xx
COMPUTATION OF ADJUSTED CONTRACT PRICE: Contract Price ₱xx Variable Price xx Bonus xx Adjusted Contract Price ₱xx
COMPUTATION OF CIP: Cost Incurred to Date ₱xx Realized Gross Profit – to date xx Construction in Progress ₱xx
COMPUTATION OF REALIZED GROSS PROFIT – CURRENT YEAR:
Contract Price CITD (Prior Year + Current Year) Estimated Costs Total Costs Total Estimated Gross Profit Multiply: Percentage of Completion Total Realized Gross Profit – To Date Realized Gross Profit – Prior Year (+/−) Realized Gross Profit – Current Year
1 ST^ YEAR ₱xx ₱xx xx (₱xx) ₱xx % ₱xx xx ₱xx
2 ND^ YEAR ₱xx ₱xx xx (₱xx) ₱xx % ₱xx xx ₱xx
LAST YEAR ₱xx ₱xx xx (₱xx) ₱xx % ₱xx xx ₱xx
COMPUTATION OF CIP, net of PB (ZPM/CRM): Cost Incurred To Date Total Estimated Gross Profit Multiply: Percentage of Completion Total Realized Gross Profit – To Date
Progress Billings (PY + CY) Construction in Progress, net of PB
₱xx X -_ ₱-0- ₱xx (xx) ₱+/−
₱xx (₱xx) 100% (₱xx) ₱xx (xx) ₱+/−
₱xx (₱xx) 100% (₱xx) ₱xx (xx) ₱-0-
RECOGNITION OF REVENUE over time at a point in time
COMPUTATION OF DUE FROM / (DUE TO) CUSTOMER – Y2: Year 1 Billings Year 2 Billings Mobilization Fee Year 1 Collection [(Y1B × customer payment % of amount billed) × (100% - Retention Fee %)] Year 2 Collection [(Y2B × customer payment % of amount billed) × (100% - Retention Fee %)] Due from / (Due to) Customers – Y
₱xx xx (xx)
(xx)
(xx) ₱xx
V. IAS 18 – REVENUE
CRITERIA TO RECOGNIZE REVENUE:
- Receivables (*silent)
- Cash as Down Payment (*silent)
- Franchise Revenue
NOTE: These conditions shall meet to recognize revenue. IFRS 15 Contingent Franchise Fee = IAS 18 Continuing Franchise Fee
R C F
CASE 1
IFF = Revenue
CASE 2 x
IFF = Deferred Revenue
CASE 3 x
Cash ₱xx NR xx Discount ₱xx Franchise Revenue xx Deferred Revenue xx
EXCEPTION TO THE RULE: Down payment still considered as revenue if the DP is nonrefundable and DP represents fair measure of services already rendered.
CASE 1 R – Interest Bearing (Accrual Method) C F Revenue (IFF) Cost of Sales (Direct Cost for Initial Services) Gross Profit Continuing Franchise Fee (Sales × %) Interest Income (Face Amount × Interest Rate × ?/12) Expense (IC for IS + IC for CS + DC for SC) NET INCOME
₱xx (xx) ₱xx xx xx (xx) ₱xx
CASE 2 R x – Non-interest Bearing (Installment Method) C F
Down Payment – Cash Collection during the period Total Collection Multiply: Gross Profit Ratio (GP ÷ Revenue) *REVENUE = IFF Realized Gross Profit Continuing Franchise Fee Interest Income Expenses NET INCOME
₱xx xx ₱xx % ₱xx xx xx (xx) ₱xx
CASE 3 R – Non-interest Bearing C F Revenue (DP + PV) Cost of Sales Gross Profit Continuing Franchise Fee Interest Income (PV × IR × ?/12) Expenses NET INCOME
₱xx (xx) ₱xx xx xx (xx) ₱xx
CASE 4 R x – Non-interest Bearing C F Down Payment Collection, net of interest income Total Collection Multiply: Gross Profit Ratio (GP ÷ Revenue) *REVENUE = DP + PV Realized Gross Profit Continuing Franchise Fee Interest Income (PV × IR × ?/12) Expenses NET INCOME
₱xx xx ₱xx % ₱xx xx xx (xx) ₱xx
TOTAL REVENUE OF THE FRANCHISOR Down payment ₱xx Collection xx CFF xx Interest Income xx TR-F ₱xx
TOTAL REVENUE FROM F.F. Down payment ₱xx Collection xx CFF xx TR from FF ₱xx
VI. HOME OFFICE AND BRANCH ACCOUNTING
BP − Cost = AFOBI Beginning Inventory: Home Office* Outsider Shipment, net* Purchases (NP) Freight in Total Goods Available for Sale Ending Inventory: Home Office* Outsider Cost of Goods Sold
₱xx xx SFHO xx xx ₱xx
(xx) (xx) ₱xx
₱xx xx STB xx xx ₱xx
(xx) (xx) ₱xx
₱xx
xx
(xx) (xx) ₱xx
(GPR-PY)
(GPR-CY)
RGP
BP (Reported) Cost (True/Correct) Sales Cost of Goods Sales Gross Profit Expenses Net Income
₱xx (xx) ₱xx (xx) ₱xx
₱xx (xx) ₱xx (xx) ₱xx
AFOBI RGP Beginning Shipment End
HO 1. 100 – 80 = 20
2. 100 × 20% = 20 3. 100 × 25/125 = 20 4. 80 × 25% = 20
VII. BUSINESS COMBINATION (IFRS 3) & CONSOLIDATED
F.S. (IFRS 10)
BUSINESS COMBINATION is a transaction where the acquirer obtains control over the net assets of the acquiree.
OWNERSHIP ACCOUNT TITLE METHOD 51% to 100% 20% to 50% 1% to 19%
Investment in Subsidiary Investment in Associate FA @ FVPL/FVOCI
Cost / Equity / Fair Value Equity Cost / FV
COST METHOD – CV P/L Purchase Price ₱xx Transaction Cost xx Impairment Loss (xx) CV of Investment ₱xx
Impairment Loss ₱( − ) Dividend Income + P/L ₱xx
FAIR VALUE METHOD – CV P/L Purchase Price ₱xx Unrealized Gain xx Unrealized Loss (xx) CV of Investment ₱xx
Unrealized Gain ₱ + Unrealized Loss ( − ) Dividend Income + Transaction Co ( − ) P/L ₱xx
EQUITY METHOD – CV P/L Purchase Price ₱xx Transaction Cost xx Investment Income xx Dividend xx Impairment Loss (xx) CV of Investment ₱xx
Investment Income ₱ + Impairment Loss ( − ) P/L ₱xx
_NOTE:_* The fair value method is applicable only for trading securities.
TYPES OF BUSINESS COMBINATION
1. ASSET ACQUISITION (100% Ownership) 1.1. Statutory Merger A + B = A / B 1.2. Statutory Consolidation A + B = C 2. STOCK ACQUISITION A + B = AB (Parent – Subsidiary) 2.1. Fully Owned 2.2. Partially Owned
ACCOUNTING METHOD
IFRS 3 – Acquisition Method ( *OLD Purchase Method)
Disclose the following:
- Determine the acquirer
- Determine the acquisition date The acquisition date is the measurement date, and you have within 1 year from the balance sheet date to adjust the fair value of those assets and liabilities The net assets of the subsidiary can be adjusted within 1 year from the acquisition date
- Recognize and measure identifiable assets, identifiable liabilities, and non-controlling interest (*The pre-existing goodwill of subsidiary is ignored.)
- Measure and recognize goodwill or gain
FORMULAS
* × PHI% = ₱xx
EXAMPLE:
Purchase Price ₱ NA@BV (SHE) (700) Excess ₱ 300 OVA (50) UVA (100) Goodwill ₱ 250
NA@BV – 12/31 ₱xx Net Income (xx) Dividend xx NA@BV – BC ₱xx
Purchase Price ₱ NA@FV (squeezed) (750) Goodwill ₱ 250
NA@BV – BC ₱
UVA 100
OVA (50)
NA@FV ₱ 750
ACQUISITION RELATED COST
1. Direct Cost expense 2. Indirect Cost expense 3. Cost to Issue or Register (CTIR) Based on priority: 3.1. Share Premium from issuance; 3.2. Share Premium from original issuance; 3.3. Debit to Stock Issuance Cost
CTIR Keywords: SEC Stock Share Documentary Stamp Tax
EXAMPLE:
Share Premium from issuance ₱ 50 Share Premium from original issuance 30 CTIR 100
ENTRY:
Share Premium ₱ Share Premium 30 SIC 20 Cash / Payable ₱
PRESENTATION OF NCI
1. FV of NCI / Full Goodwill If the fair value is unknown compute the implied fair value FORMULA : 2. Proportionate Share / Relevant Share / Interest in the Net Asset of Subsidiary (INAS) FORMULA : FV of Net Assets × NCI% = INAS
CONTROL PREMIUM (CP)
1. It must be included in the purchase price 2. Excluded in computing NCI 3. It affects goodwill or gain
CONTINGENT CONSIDERATION PAYABLE (CCP)
1. If the information existed already as of the acquisition date, any adjustment to fair value would affect the goodwill or gain. 2. If the information is related to target profit or target market price, any adjustment goes to P/L and it does not affect the goodwill or gain.
NOTE: Adjustment to goodwill should be applied retrospectively. *SME − Direct Cost is capitalized / capitalizable − NCI is measured using proportionate − Goodwill goes to parent − Goodwill is subject to amortization (10 years)
TOTAL LIABILITIES:
*If, unpaid
Total Liabilities of Parent @ BV Total Liabilities of Subsidiary @ FV CPP Purchase Price (Liabilities) Direct Cost Indirect Cost CTIR Total Liabilities
₱xx xx xx xx xx xx xx ₱xx
TOTAL SHAREHOLDER’S EQUITY:
*Paid/ Unpaid
SHE of Parent @ BV NCI on BPO ₱xx Gain on PHI xx on CCP xx Purchase Price (Stocks @FV) Direct Cost Indirect Cost CTIR Total Assets
₱xx xx
xx xx (xx) (xx) (xx) ₱xx
CONTROL PREMIUM Additional investment Part of purchase price Affects goodwill/(gain) Ignored in computing NCI PURCHASE PRICE Cash Noncash Liability Stock
WORKING PAPER ELIMINATING ENTRIES
1. DIVIDEND RECEIVED
Dividend Income ₱xx NCI (partially) xx Dividend Declare – Subsidiary ₱xx
2. SUBSIDIARY – SHE
Ordinary Share – Subsidiary ₱xx Share Premium – Subsidiary xx Retained Earnings – Subsidiary xx Investment in Subsidiary ₱xx NCI xx
3. OVA, UVA, & GOODWILL Equipment ₱xx Inventory xx Goodwill xx Investment in Subsidiary ₱xx NCI xx 4. AMORTIZATION OF IMPAIRMENT LOSS Operating Expense ₱xx PPE, net ₱xx
Impairment Loss ₱xx Goodwill ₱xx
Cost of Sales ₱xx Inventory ₱xx
5. INTERCOMPANY SALES & PURCHASES Sales ₱xx Cost of Sales ₱xx 6. UPEI Cost of Sales ₱xx Inventory ₱xx 7. RPBI Retained Earnings – Parent ₱xx NCI (up) xx Cost of Sales ₱xx
*Ending Inventory ₱xx Multiply: GPR of Seller % UPEI – 20x6 ₱xx RPBI – 20x7 ₱xx
NOTE: CONSO COS NI INVENTORY UPEI + − − RPBI − + Ignored
EXAMPLE: Intercompany Sale of Inventory Sales ₱ Cost of Sales (700) Gross Profit ₱ Ending Inventory % × 50% UPEI ₱ 150
Ending Inventory (1000×50%) ₱ GPR × 30% UPEI (12/31/16) ₱ 150
RPBI (01/01/17) ₱ 150
Working Paper Eliminating Entries DOWN UP UPEI: COS ₱xx Inventory ₱xx
COS ₱xx Inventory ₱xx
RPBI: RE, beg. ₱xx COS ₱xx
RE, beg. ₱xx NCI xx COS ₱xx
EXAMPLE: Intercompany Sale of Equipment Sales ₱ 70 CV [₱90-(₱90/10) ×3)] (63) Gain ₱ 7
SELLER BUYER W.P.E.E.
Cash ₱ 70 Acc. Dep. 27 Equipment ₱ Gain 7
Equipment ₱ Cash ₱
Gain ₱ 7 Equipment 20 Acc. Dep. ₱
Dep. Exp. ₱ 9 Acc. Dep. ₱ 9
Dep. Exp. ₱ Acc. Dep. ₱ *(₱70/7=₱10)
Acc. Dep. ₱ 1 Dep. Exp. ₱ 1 *(RG thru amortization: ₱7/7=₱1)
UNREALIZED GAIN
Gain ₱ 7 Equipment ₱ 7 *(it depends upon the Selling Price)
YEAR 2 YEAR 3
Unrealized Gain
RE ₱
Equipment ₱
NO ENTRY
Realized Gain
Acc. Dep. ₱ Dep. Exp. ₱ RE 1
RE ₱
Dep. Exp. ₱ Gain 4
EXAMPLE: Intercompany Sale of Land Land (selling price) - ₱ CL - 80 Sale to third party - 150
YEAR 1 YEAR 2 YEAR 3 Recorded – Subsidiary ₱ UG ₱(20) - 0 - - 0 - Not yet recorded 20 RG - 0 - - 0 - ₱ 20 ₱ 70
ALLOCATION OF COST
DIRECT METHOD
Service Provided by Quality Control Maintenance
to Machining
262500 120000 382500
Assembly
87500 80000 167500
STEP-DOWN
*Benefit provided ranking table (Company Policy) *Based on the service department which has the highest cost
QC
Maintenance
QC
-
Maintenance 200000 70000 (270000) -0-
Machining 400000 210000 162000 772000
Assembly 300000 70000 108000 478000
*Once the OH cost of the service department becomes exhausted, do not allocate other cost to the service department
RECIPROCAL METHOD
Quality Control Maintenance
QC
Maintenance 20%
Machining 60% 45%
Assembly 20% 30%
Quality Control = 350000 + 0.25M Maintenance = 200000 + 0.20QC QC = 350000 + 71053 = 421053 M = 200000 + 0.20(421053) = 284211
QC
Maintenance 200000 84211 (284211)
Machining 400000 252632 127894 780527
Assembly 300000 84211 85263 469474
IX. JUST IN TIME
TRIGGER POINTS:
Purchase Production Completion Sale
GOALS:
1. Eliminating any production process that does not add value 2.
JOURNAL ENTRIES:
Purchase Raw and In Process ₱xx Accounts Payable ₱xx
Conversion Cost ₱xx Various Accounts ₱xx
Completion Finished Goods ₱xx Raw and In Process ₱xx Conversion Cost xx
Sales Cost of Sales ₱xx Finished Goods ₱xx
Cost of Sales ₱xx Raw and In Process ₱xx Conversion Cost xx 75% were sold Cost of Sales ₱xx Finished Goods xx Conversion Cost ₱xx Raw and In Process xx
Substitute
X. JOINT COSTING
Joint Cost Less: NRV of By-product Remaining Joint Cost
₱xx (xx) ₱xx
if, inventoriable/ material
TREATMENT OF BY-PRODUCT
1. Upon sale or realization - recorded as other income, if the by-product is immaterial. 2. Upon production or inventoriable - the NRV of by-product is deducted from the total joint cost
ALLOCATION OF REMAINING
1. PHYSICAL 1.1. Physical measure such as gallon/kilogram 1.2. Units produce 1.3. Weighted average units produce 2. MONETARY 2.1. Sales value at split-off also known as relative market value 2.2. Net realizable value at split-off 2.3. Hypothetical/approximated/estimated at split-off also known as adjusted market value
TWO TYPES OF COST FOR THE JOINT PRODUCT
1. Joint Cost Share or Allocated Joint Cost 2. Traceable Cost or Additional Processing Cost
XI. STANDARD COSTING
Purchased
Used
DM
AQAP
AQSP
AQSP
SQSP
DMPV
DMUV
Rate
Efficiency
DL
AHAR
AHSR
AHSR
SHSR
DLRV
DLEV
XII. FOREIGN EXCHANGE (IAS)
1. Foreign Currency Transaction 2. Foreign Exchange Translation 3. Hedging of FOREX Risk
EXCHANGE RATE – This is the ratio of exchange between two currencies. SPOT RATE – Rate for immediate delivery. CLOSING RATE – This is the spot rate at Balance Sheet date. FUNCTIONAL CURRENCY – Currency of primary economic environment in which the entity operates. What is the primary driver of functional currency? – SALES
A ssets & Liabilities C losing Rate S hareholder’s Equity H istorical Rate R evenue & Expenses A verage [Computation: (B+E)/2 ] Spot Rate (Theory)
FOREX TRANSACTION: Importation (Hedge Item) BUYING OF INVENTORY
1. ER ↑ = Forex Loss [100] 2. ER ↓ = Forex Gain
(Hedging Instrument) BUYING OF F.C.
3. FR ↑ = Forex Gain [80] = [20] 4. FR ↓ = Forex Loss
FOREX TRANSACTION: Exportation SELLER OF MERCHANDISE
5. ER ↑ = Forex Gain 6. ER ↓ = Forex Loss
SELLER OF F.C.
7. FR ↑ = Forex Loss 8. FR ↓ = Forex Gain
THREE HEDGE RELATIONSHIP
(1) Fair Value Hedge
- Hedges of exposure to the changes in value of a recognized asset/liability or unrecognized firm commitment
- If the problem is silent, use the FVH (2) Cash Flow Hedge
- Hedges of probable forecasted transactions or the variability in the cash flow of a recognized asset or liability (3) Net Investment Hedge
- Hedges of the net investment in a foreign operation
OPTIONS Contracts that are right and not obligation to buy or sell commodities at a certain price This is always favorable on the part of the holder If it is gain or in the money, exercise the option If it is out of the money, do not exercise the option Call option is on the part of the buyer Put option is on the part of the seller
CALL OPTION:
Market Price = Strike Price AT THE MONEY Market Price > Strike Price IN THE MONEY (UG) Market Price < Strike Price OUT OF THE MONEY
PUT OPTION:
Market Price = Strike Price AT THE MONEY Market Price > Strike Price IN THE MONEY Market Price < Strike Price OUT OF THE MONEY
CFH
FVH
CFH
FVH
SPLIT ACCOUNTING Intrinsic Value – Unrealized Gain Time Value – Gain/Loss
Intrinsic Value – Unrealized Gain Time Value – Gain/Loss
NON-SPLIT ACCOUNTING Intrinsic Value – Unrealized Gain
Intrinsic Value – Unrealized Gain
OCI P/L
P/L P/L
OCI
P/L
XIII. ACCOUNTING OF NPO (AICPA)
COMPUTATION:
Gross Patient Service Revenue Charity Care Amount Charge / Billed to Customers Contractual Adjustment (PHILHEALTH, MEDICARE) Discount to Hospital Employees Net Patient Service Revenue
₱xx (xx) ₱xx (xx) (xx) ₱xx
STATEMENT OF ACTIVITIES Shows contractual adjustment This is collectible at third party payor (1) For Hospitals (contra-revenue account) Contractual Adjustment ₱xx Accounts Receivable ₱xx
(2) For Schools (contra-revenue account) Expenditure for student ₱xx Accounts Receivable ₱xx
CONTRIBUTED MATERIALS, SERVICES, & FACILITIES − Unrestricted funds (1) Inventory ₱xx Contribution Revenue ₱xx
(2) Salaries ₱xx Contribution Revenue ₱xx
(3) Rent Expense ₱xx Contribution Revenue ₱xx
OTHER OPERATING REVENUE − Unrestricted funds Cash ₱xx Other Operating Revenue* ₱xx
__* EXAMPLE OF OTHER OPERATING REVENUE Proceeds from cafeteria Proceeds from parking lots
FINANCIAL STATEMENTS
(1) STATEMENT OF ACTIVITIES
Amount of changes in each of the three classes of net assets (a) Changes in Unrestricted Net Assets (b) Changes in Temporary Restricted Net Assets (c) Changes in Permanently Restricted Net Assets
(2) BALANCE SHEET Assets, Liabilities, Net Assets Three types of Net Assets: (a) Unrestricted Net Assets (b) Temporary Restricted Net Assets (c) Permanently Restricted Net Assets The restricted cash and investment are prescribed separately All securities are valued at fair value
(3) STATEMENT OF CASH FLOW Restricted whether temporary/permanent (FINANCING) Quasi-endowment unrestricted (OPERATING) Receipts of donation to purchase PPE (Inflow: INVESTING) Cash outflow to purchase PPE (FINANCING) Term endowment Temporary (FINANCING) Pure endowment Permanent (FINANCING)
(4) STATEMENT OF FUNCTIONAL EXPENDITURE Specifically for Voluntary Health and Welfare Organization (NGOs)
XIV. GOVERNMENT ACCOUNTING
PHASES OF BUDGETARY PROCEDURE
1. PREPARATION AND PRESENTATION
− Submission of budget of the expenditure
2. BUDGET AUTHORIZATION − Enactment by the congress of the General Appropriation Act 3. BUDGET EXECUTION AND OPERATION − Release of revenue allotment 4. BUDGET ACCOUNTABILITY − Liquidation of expenditure and audit conducted by Commission on Audit
GOVERNMENT ACCOUNTING MANUAL (GAM)
Under GAM, entity shall not maintain regular agency book and national government book GAM supersedes NGAS effective January 1, 2016 implemented in 2002 Commission on Audit has exclusive authority to define the scope of audit
COMPONENTS OF GENERAL PURPOSE FINANCIAL STATEMENTS
(1) Statement of Financial Position (2) Statement of Financial Performance (3) Statement of Changes in Net Assets / Equity (4) Statement of Cash Flow (5) Statement of Comparison of Budget and Actual Amounts (6) Notes to the financial statements, comprising a summary of significant accounting policies and other explanatory notes
BOOKS OF ACCOUNTS & REGISTRIES
1. JOURNALS
a. General Journal b. Cash Receipts Journal c. Cash Disbursement Journal d. Check Disbursement Journal
2. LEDGERS a. General Ledgers b. Subsidiary Ledgers
REGISTRIES
(1) RROR – Registries of Revenue and Other Receipts (2) RAPAL – Registry of Appropriation and Allotments (3) RAOD – Registries of Allotments, Obligation and Disbursements (4) RBUD – Registries of Budget, Utilization and Disbursements
CLASSIFICATION OF RAOD & RBUD
PS – Personnel Services MOE – Maintenance and Other Operating Expenses FE – Financial Expenses CO – Capital Outlay
