This document contains notes on advanced accounting topics for the CPA board exam, including partnership formation, operations, dissolution, and liquidation. Key points include methods for valuing partner contributions, allocating profits and losses, accounting for salaries and bonuses, and determining capital balances upon admission, retirement, or liquidation of a partner. The notes also discuss the statement of affairs process for insolvent companies.

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Advanced Accounting Notes - Summary Notes for Advanced
Accounting (CPA Board Exam)
Accounting (De La Salle Lipa)
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Advanced Accounting Notes - Summary Notes for Advanced
Accounting (CPA Board Exam)
Accounting (De La Salle Lipa)
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2. INTPRAB Notes from Brian Lim HDV/DNG
FORMATION
• In terms of legal and taxability aspect, it is
more advantageous for businessmen in the
Philippines
• Relatively easier to form
• Unlimited liability, limited life
Valuation of Contribution
• Only consider the assets invested and liabilities
assumed by the partnership.
• Accounts Receivable – can have an allowance for
doubtful account but deduct those deemed
uncollectible
• PPE- don’t include accumulated depreciation;
consider under/over depreciation if any.
Methods of Accounting for Capital Investment
1. Bonus Method (assumed if silent)
• Agreed Capital = Contributed Capital
• No recording of goodwill; there is only
transfer of capital
• TAC=TCC
N
TCC TAC (based on agreed
ratio of 50-50)
A 100,000 75,000
B 50,000 75,000
TCC 150,000 150,000
2. Direct Settlement
• Agreed Capital = Contributed Capital
• Similar to bonus method but there’s
cash settlement between partners that
are not recorded in the books
• TAC=TCC
TCC TAC (based on
agreed ratio of 50-50)
A 100,000 75,000
B 50,000 75,000
TCC 150,000 150,000
Inside the partnership, the entry is:
A, Capital 25,000
B, Capital 25,000
Outside the partnership, B pays A 25,000.
3. Capital Investment
• TCC ≠ TAC
• Total contributed capital will increase
Contribution AGREED ratio
A 100,000 60/100
B 50,000 40/100
Total 150,000
First step is to find out who and how much will
have to be invested
• It is incorrect to use B as a basis because
TCC will decrease
o TCC= 50,000/40% = 125,000.
• If we use A as a basis
o TCC = 100,000/60% = 166,667.
o Hence, B’s investment should be 66,667
(166,667 x 40%). He should invest an
additional 16,667. Since A is already the
basis, he doesn’t need to invest
additional capital.
NOTE: If there are 3 or more partners, choose the
partner that will yield the highest total contributed
capital. (If problem is silent.)
4. Capital Withdrawal
• TCC ≠ TAC
• Total Agreed Capital should decrease
Contribution AGREED ratio
A 100,000 60/100
B 50,000 40/100
Total 150,000
• Using B as a basis, agreed capital will
decrease
o TCC=125,000 (50,000/40%).
o Hence, A will have to withdraw 25,000
(150,000-125,000)
NOTE: Choose the partner with lowest contributed
capital as a basis.
Cash Face Value
Non-Cash Assets i. Agreed Value
ii. Fair Value/Appraised
iii. Carrying Value
PARTNERSHIP
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3. INTPRAB Notes from Brian Lim HDV/DNG
OPERATIONS
ISSUE: How to allocate partnership profits/losses?
Scenario P L Result
Both P&L
agreement are
given
✓ ✓ Follow Agreement
There’s profit
agreement but
no loss
agreement
✓ 
Follow profit
agreement for
BOTH profit and
loss
There’s loss
agreement but
no profit
agreement
 ✓
For profit, use
original capital
contribution ratio
For loss, follow
loss ratio
There’s no profit
or loss
agreement
 
Follow original
capital contribution
ratio for both
Methods of allocating capital balance (in order)
1. Weighted Average Capital
2. Simple Average Capital
3. Beginning Capital
4. Ending Capital
5. Original Capital (Use if there’s an agreement
but unsure as to which method to use)
Accounting for Salaries, Interest, and Bonus
1. Before salary, interest, bonus (assumed if
silent)
2. Before salary and interest, but after bonus
3. After salary and interest, but before bonus
4. After salary, interest, and bonus
Salaries and interest
o They are regardless whether there’s profit or
loss, EXCEPT when the problem states that
there’s an “order of priority” or “only up to
extend of earning”
o This could for a fractional year only. Annual or
monthly amount is usually given for salaries.
o Interest is based on capital balance (weighted,
simple, beg, end, orig)
o These are NOT treated as expense.
Bonus
o it should only be given if there is profit and the
basis (positive value) depends on partners
agreement
Example:
Salary – 50,000
Interest – 30,000
Net Income – 200,000
Bonus rate – 20%
Scenarios:
1. Before salary, interest, and bonus:
B = 200,000 x 20% = 40,000
B=NI X BR
2. Before salary and interest, and after bonus
B = 200,000 / (1.2) x 20% = 33,333
𝐁 =
𝐍𝐈 𝐗 𝐁𝐑
𝟏 + 𝐁𝐑
3. After salary and interest, but before bonus
B = (200,000-50,000-30,000) x 20% = 24,000
B=(NI – S – I) X BR
4. After salary, interest, and bonus
B = (200000-50,000-30,000)/1.2 x 20% = 20,000
𝐁 =
(𝐍𝐈 − 𝐒 − 𝐈) 𝐗 𝐁𝐑
𝟏 + 𝐁𝐑
*After allocating these items, any remaining profit
is allocated based on the stipulated profit or loss
ratio
Statement of Changes in Partner’s Capital
Beginning Balance P XX
Additional Investment XX
Less: Permanent Withdrawals (XX)
Balance P XX
Net Income Share XX
Less: Temporary Withdrawals (XX)
Ending Capital P XX
• Permanent: irregular drawings in excess of
capital (direct debit to capital)
• Temporary: regular drawings in anticipation
of future salaries
• If withdrawal is silent as to permanent or
regular, it will be considered as
PERMANENT withdrawal.
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4. INTPRAB Notes from Brian Lim HDV/DNG
DISSOLUTION
Methods:
1. Admission
a. Purchase of Interest
i. With revaluation
ii. No revaluation (if silent)
b. Direct Investment
2. Retirement
a. Bought by partner
i. With revaluation
ii. No revaluation
b. Bought by partnership (assumed)
Purchase of Interest Without Revaluation
• Purchase price is to be ignored.
• Transaction between new partner and the
partner who is selling shares is considered as
PERSONAL TRANSACTION.
• The total agreed capital would still be equal to
the total contributed capital TCC = TAC
Example:
C invests 100,000 for 30% share.
A’s capital is 100,000
B’s capital is 200,000
Journal entry to record purchase of interest:
A, Capital 30,000
B, Capital 60,000
C, Capital 90,000
Payment outside the partnership:
Transferred
Capital(∆ in Cap)
Gain Payment
Allocation
A 30,000 6,000 36,000
B 60,000 4,000 64,000
Total 90,000 10,000* 100,000
*Allocated using P&L ratio of partners
Purchase of Interest with Revaluation
• Purchase price is used to determine the
amount of revaluation
• The revaluation increases the amount of
capital of the old partner and so is distributed
among P& L ratio TCC ≠ TAC
= Total Agreed Capital
purchase price
% of interest
Less: Total Contributed Capital
Revaluation
Example:
C invests 100,000 for 30% share.
Basis of new capital is the NEW PARTNER’S
PAYMENT. Hence, if this is the case,
TAC = 100,000 / 30% = 333,333
TCC = 300,000
Revaluation = 333,333 – 300,000 = 33,333
This amount of revaluation pertains to one of the
partnership’s assets (e.g. Land), and is allocated
according to P&L ratio.
Land 33,000
A, Capital (60%) 20,000
B, Capital (40%) 13,000
A, Capital 36,000
B, Capital 64,000
C, Capital 100,000
*(100K+20K)X30%=36K
*(200K+13K)X30%=64K
Direct Investment
• Bonus method is to be applied if the problem is
silent. Revaluation method should also be
applied if the problem says so.
• Do purchase of purchase of interest first before
direct investment
• Simply compare new investment against new
agreed capital after revaluation. The difference
between the two is considered bonus.
investment > agreed cap
TCC>TAC
bonus to existing
partners
investment < agreed cap
TCC < TAC
bonus to new
partner
Bonus to old partner
Cash xxx
Capital, old partner xxx
Capital, old partner xxx
Capital, new partner xxx
Bonus to new partner
Cash xxx
Capital, old partner xxx
Capital, old partner xxx
Capital, new partner xxx
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5. INTPRAB Notes from Brian Lim HDV/DNG
Example:
C invests 100,000 for 30% share. Total
contributed capital of old partners is 300,000.
Investment 100,000
Agreed new capital 120,000 (400k*30%)
Bonus to new partner 20,000
Entry:
Cash 100,000
A, Capital 12,000
B, Capital 8,000
C, Capital 120,000
Retirement of Partner Bought by Partner
with Revaluation
Example:
A, Capital – 100,000
B, Capital – 200,000
C Capital – 120,000
B buys C’s capital for 150,000.
P&L ratio: A-50%, B-25%, C-25%
Given 150,000
Capital (120,000)
Revaluation 30,000
/ P&L Ratio 0.25
Revaluation 120,000
Journal entries:
Land 120,000
A, Capital 60,000
B, Capital 30,000
C, Capital 30,000
C, Capital 150,000
B, Capital 150,000
Retirement of Partner Bought by Partner
without Revaluation
Example:
A, Capital – 100,000
B, Capital – 200,000
C, Capital – 120,000
If B buys C, journal entry is:
C, Capital 120,000
B, Capital 120,000
Retirement of Partner Bought by Partnership
Formula:
Total interest (after revaluation)* P XX
Less: Payment to Partner (XX)
Bonus P XX
BONUS
Total interest > payment bonus to remaining
partners
Total interest < payment bonus to retiring
partner
Example
120,000 is C’s Capital
150,000 is given by the partnership
P&L ratio: C-50%, A-30%, B-20%
Journal entry is:
C, Capital 120,000
A, Capital 18,000
B, Capital 12,000
Cash 150,000
Capital Balance P xxx
+/- Share in Net Income/Loss xxx
+/- Revaluation xxx
+Payable/Due to Partner
-Receivable/Due from Partner
xxx
(xxx)
Total Interest PXXX
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6. INTPRAB Notes from Brian Lim HDV/DNG
LIQUIDATION
Process:
1. Lump-sum/total
2. Installment/piecemeal realization
General steps:
1. Sell noncurrent assets
2. Pay creditors (in priority)
3. Distribute excess to partners
Marshalling of Assets/Hierarchy of Claims
Personal Assets Partnership Assets
1 Personal Creditors Partnership creditors
2 Partnership creditors Personal creditors
3 Other parties Other parties
NOTE:
• If silent, assume INSOLVENT.
• If partner has capital deficiency,
1. If solvent (A>L), contribute
2. If insolvent (A<L), loss absorption by
other partners (except those who are
deficient and insolvent)
Installment Liquidation
Formula:
Proceeds P xx
BV sold (xx)
G/L on revaluation P xx
EQUITY SIDE
Total Interest XX
Contribution XX
+/- Gain or Loss on Realization XX
Condonation of Debt XX
Liquidation Expenses (XX)
Maximum Possible Loss:
BV of asset unsold (XX)
Cash Withheld for future expenses (XX)
Total Distribution to Partners XX
ASSET-LIAB SIDE
Cash on Hand XX
Proceeds from Sale XX
Contribution (must be stated) XX
Liquidation Expenses (XX)
Payment of Liabilities(paid/unpaid) (XX)
Cash Withheld for future expenses (XX)
Total Distribution to Partners XX
Safe Payment Schedule
1. Compute total interest net of gain/loss on
condonation, liquidation expense, and
contribution to parties
2. Compute maximum possible loss
3. If there is capital deficiency  loss absorption
4. Distribute to partners
NOTE:
• Max Possible Loss =BV of asset unsold +Cash
withheld for future expenses
• Total interest after distribution = Max. Possible Loss
• Total interest of partner after distribution =
Max Possible Loss share + Loss Absorption
• Under the statement of liquidation, partners are
assumed to be solvent.
• Under the schedule of safe payment, partners are
assumed to be insolvent
Cash Priority Program (CPP)
1. Determine the total interest
2. Compute loss absorption balance or Maximum
Loss (ML)
3. Equalize maximum loss from the highest to the
second highest until equal to determine priority
of payment
4. Distribution to partners (difference in ML x P&L
ratio)
Partner A Partner B Partner C TOTAL
Total Interest P xxx P xxx P xxx P xxx
Divided by
P&L ratio
xxx xxx xxx xxx
Max Loss P xxx P xxx P xxx P xxx
Priority I P xxx P xxx
Priority II P xxx xxx xxx xxx
Priority III P xxx xxx xxx xxx
Cash
Distribution
P xxx P xxx P xxx P xxx
When to use CPP?
• If there is no deficiency in the partners’ capital
• When the problem gives payment to any of the
partners
o ex. If partner A receives P xxx, how
much will partner B receive?
• If there is no additional investment
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7. INTPRAB Notes from Brian Lim HDV/DNG
STATEMENT OF AFFAIRS
• initial report that shows the available asset
values and debts of the debtor corporation
• Assets should be recorded at Net Realizable
Value (NRV)
• Intangible assets and pre-payments are
DERECOGNIZED
Free Assets – Liabilities with Priority
=
Liabilities w/o priority – Capital Deficiency
CLASSIFICATIONS OF BALANCE SHEET ACCOUNTS
1. ASSETS
a. Assets pledged to fully secured creditors
 FV of Asset ≥ Liability
b. Assets pledged to partially secured
creditors
 FV of Asset≤ Liability
c. Free assets
 assets not pledged as security for any
liability
 includes value of APTFSC in excess of
liability
2. LIABILITIES
a. Unsecured liabilities with priority
i. Administrative/trustee expenses
ii. Unpaid salaries and wages
iii. Customer deposit
iv. Unpaid taxes
b. Fully secured creditors
c. Partially secured creditors
d. Unsecured liabilities without priority
Free
Assets
Liabilities
With priority
Liabilities
without
priority
Capital
Deficiency
unpledged
asset
administrative
trustee fee
unsecured
claims
total asset –
total liab
excess of
asset over
liability for
fully
secured
creditors
unpaid
salaries
+
customer
deposits
+
unpaid taxes
excess of
liability
over
assets for
partially
secured
asset.
total equity –
unrecorded
liabilities
+/- gain/loss
on liquidation
– liquidation
Expense
(1 - % of recovery) x without priority
%Recovery =
net free assets
liab without priority
PAYMENT TO CREDITORS
Fully Secured 100% of Liabilities
With Priority 100% of Liabilities
Without
Priority
Unsecured Claims
(Pxxx *% Recovery)
Partially - For asset pledged, use 100%
- For excess, apply
Pxxx *% Recovery
Total Assets
Net Free
Assets
Total Unsecured
Liabilities w/o
priority
Excess of fully secured XX
Excess of partially secured XX
Free assets XX
Liabilities w/o priority XX
Total Free Assets XX
Liabilities with priority (XX)
XX XX
Statement of Realization and Liquidation
– periodic report of the reviewer shows how the
receiver managed the assets of the debtor
corporation on behalf of the creditors
ASSET
To be Liquidated (Beg) (Dec) Liquidated/realized
Acquired (Inc) (End) Not realized
LIAB
Liquidated (Dec) (Beg) To be liquidated
Not liquidated (End) (Inc) Assumed
SUPPL
EMENT
ARY
supplementary debits supplementary credits
net gain net loss
If Dr > Cr, Net Loss
If Dr < Cr, Net Gain
Statement of Financial Position
Cash + Non-Cash Asset =Liability +Total Equity
Total Equity= Share Capital + Share Premium +
RE, end (RE beg +/- Net Income/Loss)
Cash=Total Equity + Liab Not Liquidated – Assets
Not Realized
CORPORATE LIQUIDATION
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8. INTPRAB Notes from Brian Lim HDV/DNG
Methods of recognition
1. Cost recovery method – collections are first
treated as cost recovery; recognize profit
once collections exceed cost
2. Gross profit realization – collections are first
treated as realization of gross profit
3. Installment method – part of collections is
treated as recovery of cost while part is
gross profit realization
Example:
Sales = 1,000,000
Y1 collection – 300,000
Y2 collection – 400,000
Y3 collection – 300,000
GP rate – 40%
Y1 Y2 Y3
Cost Recovery
Profit 100k 300k
Cost 300k 300k
GP Realization
Profit 300k 300k
Cost 100k 300k
Installment
Profit 120k 160k 120k
Cost 180k 240k 180k
Installment method:
Basic concept:
• Installment receivable x GPR = DGP
• Collections x GPR = RGP
Installment Receivable
Beginning xxx
Installment sales xxx xxx ICR – Repossessions
xxx ICR –Writeoff
xxx Collections
Ending xxx
Deferred Gross Profit
xxx Beginning
DGP-Repossessed xxx
DGP-Writeoff xxx
RGP xxx
xxx Ending
NOTE: If silent, Ending DGP is unadjusted, before
reduction of RGP
Composition of collections
1. Fair value of Trade In
2. Downpayment
3. Amortization of installments (principal only)
Gain or Loss Repossession
Gained: FV of repossessed item/appraised value
Foregone: Unrecovered/Uncollected cost
(ICR-Repo DGP = ICR Repo X Cost Ratio)
Estimated Selling Price after Recon P xxx
Reconditioning cost ( xxx)
Normal Profit ( xxx)
FV of Repossessed Item P xxx
FV of repo inventory P xxx
Unrecovered Cost (ICR X cost ratio) (xxx)
Gain(Loss) on Repossession P xxx
Journal entry:
Inventory @ FV XX
DGP Repo XX
Loss on Repo XX
ICR Repo XX
Gain on Repo (if any) XX
NOTES:
• If ESP is BEFORE reconditioning cost, IGNORE
the amount of reconditioning cost.
• If the problem is SILENT if the ESP before or
after recondition cost, deduct the recon cost
• If the problem says APPRAISED VALUE or
estimated wholesale value, the normal profit and
reconditioning cost should not be deducted
anymore.
• If profit margin is silent, do not deduct anything
• Normal profit margin = based on SP AFTER
reconditioning cost
Write-Off
Gained: None
Foregone: Unrecovered Loss
Journal Entry:
DGP – write-off XX
Loss – write-off XX
ICR – write-off XX
Trade-In
INSTALLMENT SALES
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9. INTPRAB Notes from Brian Lim HDV/DNG
Gained: FV of trade-in or Appraised
Foregone: Trade-in Allowance
FV of Trade In
Estimated Selling Price after Recon P xxx
Reconditioning cost ( xxx)
Normal Profit Margin ( xxx)
FV of Trade In P xxx
Underallowance(Overallowance)
FV of Trade in P xxx
Trade In allowance (given) (xxx)
Gain(Loss) on Trade In P xxx
GP Rate of Trade In
Installment Sales P xxx
Gain (Loss) on Trade In xxx
Adjusted Installment Sales P xxx
Cost of Sales (xxx)
Gross Profit (Compute GP rate) xxx
RGP of Trade In
Downpayment-Cash XX
Downpayment FV of Trade In XX
Collections for the year XX
Total Collection XX
X GR Rate %
RGP of Trade In XX
Journal entry:
Inventory (@FV) XX
Loss on trade-in XX
ICR (@ trade-in) XX
RULES:
• If FV is BEFORE reconditioning cost, IGNORE
the amount of reconditioning cost.
• If the problem is SILENT if the ESP before or
after recondition cost, deduct the
reconditioning cost
• If the problem says ESTIMATED WHOLESALE
VALUE or APPRAISED VALUE, the normal profit
and reconditioning cost should not be
deducted anymore.
• If profit margin is silent, do not deduct
anything.
• Normal profit margin = based on SP AFTER
reconditioning cost
FORMULAS:
Compute GP Rate of Installment Sales
IS-prior year IS-current year
DGP beginning
ICR, beginning
=
RGP
Collections
DGP of Inst.Sales
Installment Sales
Compute Cost of Sales
Beginning Inventory XX
Purchases XX
Repossessed Inventory XX
Trade Inventory XX
Ending Inventory (XX)
Cost of Sales-Total XX
Cost of Sales-Regular (XX)
Cost of Sales-Installment (current yr) XX
**NOTE: If silent, assume repo and TI are included
in ending inventory
Compute Total RGP
RGP – last year
(Total collections x GP rate last year)
XX
RGP – this year
(Total collections x GP rate this year)
XX
Total RGP-Installment XX
Income Statement
RGP – regular sales (Sales less COS) XX
RGP – Installment sales (Total) XX
Total RGP XX
Loss/Gain on Repo (XX)
Operating Expenses (with writeoff) (XX)
Interest Income XX
Net Income XX
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10. INTPRAB Notes from Brian Lim HDV/DNG
FRANCHISE REVENUE
A. Initial Franchise Fee
B. Continuing Franchise Fee
Initial Franchise Fee(IFF)
1. Is there substantial performance?
• Yes, record revenue
• No, do not record revenue and
recognize as unearned.
Criteria (All MUST BE met)
a. Initial services have been performed
• If initial services are not required and
there is no constructive obligation,
recognize revenue.
• If problem is silent, best indicator is
when company commences operation
b. Non-refundable payment (*if silent, nonrefun)
c. No adverse buyback/cancellation provision
**If any of the conditions is not followed, the entire
amount of IFF becomes an unearned revenue,
except when:
a) The down payment is non-refundable; and
b) The down payment represents the fair
measure of the services performed.
*Under the two conditions, the amount of down
payment becomes revenue, however, the
remaining balance is considered unearned revenue
2. When do you recognize revenue?
• If collection of note is likely, use accrual
(recognize 100%, reasonably assured)
• If collection of note is unlikely, use
installment method (% of Collections)
3. How much to recognize?
• Interest-bearing
 Downpayment + Face Amount of Note
• Noninterest-bearing
 Downpayment + PV of Note
NOTE: For % of completion, collection applied to
PRINCIPAL only. Hence, if the given note is
noninterest bearing, deduct the interest from the
collection.
Continuing Franchise Fee(CFF)
• Based on % of net sales as fixed payment
Franchise Cost Direct Cost Indirect Cost
IFF Matched w/
Revenue
Expense
CFF Expense Expense
PROFIT RECOGNITION-INSTALLMENT
1. Computation of Gross Profit
Downpayment XX
Fair Value/PV of Note XX
Initial Franchise Fee (IFF) XX
Direct Cost related to IFF (XX)
DGP-IFF XX
2. Computation of GP Rate
DGP-IFF XX
Divided by: IFF XX
GP Rate %
3. Computation of RGP-IFF
Collections XX
Multiply: GP Rate %
RGP-IFF XX
4. Net Income
RGP-IFF XX
CFF XX
Total Franchise Revenue XX
Interest Income XX
Total Revenue XX
Franchise Cost (XX)
Net Income XX
FRANCHISE ACCOUNTING
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11. INTPRAB Notes from Brian Lim HDV/DNG
(Source: Ferrer Lecture Notes from ADV)
Application of PFRS 15
Identify Contract Franchise Agreement
Identify Performance Obligation
(PO)
Initial Services, PPE, Intellectual Property
Determine Transaction Price Amount of Franchise Fee
Allocate Transaction Price to
Performance Obligations
Allocate franchise fee based on relative standalone values or prices of
initial services, PPE and intellectual property
Recognize Revenue when PO is
satisfied
Initial Services – over time as work progresses
PPE – point in time, upon delivery
IP
Finite Life – IP can be changed, “right to access”  over time
- Recognized over life of franchise
Finite Life – IP can’t be changed, “right to use”  point in time
- Upon substantial performance
Infinite Life – point in time, upon substantial performance
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12. INTPRAB Notes from Brian Lim HDV/DNG
Construction Revenue
Fixed Price XX
+ Variations XX
+ Claims XX
+ Incentive Payments (early completion) XX
- Penalty/Liq Damages(delays) (XX)
TOTAL XX
Construction Costs Excluded
Directly attributable
costs
Selling cost
Indirectly
attributable costs
General and administrative
cost
Reimbursable costs Depreciation of idle asset
R&D Costs
Advances to subcontracted
(Receivable)
Materials delivered but not
yet utilized except
specialized materials
Methods of revenue recognition
1. % of completion
2. zero-profit
ZERO-PROFIT
• No reliable estimate of costs or outcome of
contract
• No profit is recognized until construction
contract is completed.
• Revenue is recognized only to the extent of
contract costs incurred that it is probable will be
recoverable. (If POC is not yet 100%, CR=CC,
therefore RGP=0)
• Contract costs are recognized as an expense in
the period in which they incurred.
PERCENTAGE OF COMPLETION
• If SILENT, use this method.
• With reliable estimate of costs
• Input method: cost to cost method
• Output Method: Engineering estimate
POC =
Total Costs Incurred to Date
Estimated Total Contract Costs
POC =
Total Costs Incurred to Date
Total Costs Incurred to Date
+Estimated Costs to Complete
TWO ISSUES:
1. Is the outcome profit or loss?
• POC
o If profit, use % of completion
o If loss, use 100%
• Zero-profit
o Profit = 0
o Loss = 100%
2. Data – per year or as of?
• Income statement – what you get first is as
of, so just deduct previous year to get
current year values.
• Balance sheet – as of data
Balance Sheet Approach
Construction in Progress
Cost to Date Cumulative RGL
Cumulative RGP
Ending Balance
Progress Billings
Beginning
Additional Billings
Ending Balance
Accounts Receivable
Progress Billings to
Date
Collections
Ending Balance
Construction in Progress XX
Progress Billings (XX)
Net XX
If positive, current asset (Due from customer)
If negative, current liability (Due to customer)
NOTE: Upon completion, CIP=PB=TCR
LONG-TERM CONSTRUCTION
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13. INTPRAB Notes from Brian Lim HDV/DNG
Journal entries
1. Incurrence of cost
Construction in Progress XX
Cash XX
2. Progress Billings
Accounts Receivable XX
Progress Billings XX
3. Collection on Progress Billings
Cash XX
Accounts Receivable X
4. Profit Recognition
Const. in Progress (profit)XX
Construction Costs XX
Construction Revenue XX
5. Settlement
Progress Billings XX
Const. in Progress XX
CONTRACT RETENTION
-may be part of billing but not paid to contractor
– Does not have an income element
Cash XX
Contract Retention XX
Accounts Receivable XX
Cash XX
Contract Retention XX
MOBILIZATION FEE
– Deducted from the bills of contractors in equal installments covering the project period
– Does not have income element
REMEMBER:
Always If profit (CIP> CI) If loss (CIP<CI)
Construction
revenue (as of)
POC x TCR CIP CIP + (1-POC) x Loss
Construction cost
(as of)
CR – RGP
(to date)
Cost to Date CI + (1 – POC) x Loss
Percentage of Completion (Cost to Cost Method)
20X1 20X2 20X3
a) Contract Price P xxx P xxx P xxx
b) Cost incurred to date P xxx P xxx P xxx
c) Estimated costs to complete xxx xxx xxx
d) Total Estimated Costs (b+c) xxx xxx xxx
e) Total Estimated Gross profit (a-d) P xxx P xxx P xxx
f) Multiply by POC x % x % x %
Gross Profit to date P xxx P xxx P xxx
Gross Profit - previous year (xxx) (xxx)
Gross Profit - current year P xxx P xxx P xxx
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14. INTPRAB Notes from Brian Lim HDV/DNG
*IF Total Estimated Gross Profit is Positive*
20X1 20X2 20X3
Contract Price P xxx P xxx P xxx
Multiply by POC x % x % x %
Contract Revenue to Date (cum) P xxx P xxx P xxx
Contract Revenue –prior year (xxx) (xxx)
Contract Revenue- current year P xxx P xxx P xxx
Cost incurred–current year (xxx) (xxx) (xxx)
Gross Profit(loss)- current year P xxx P xxx P xxx
20X1 20X2 20X3
Cost incurred to date P xxx P xxx P xxx
Gross Profit to date xxx xxx xxx
Construction in Progress P xxx P xxx P xxx
Progress Billings to date (xxx) (xxx) (xxx)
Due from(Due to) P xxx P xxx P xxx
20X1 20X2 20X3
Contract Price P 1,000,000 P 1,000,000 P 1,000,000
Cost incurred to date P 200,000 P 825,000 P 950,000
Estimated costs to complete 600,000 275,000 -
Total Estimated Costs (b+c) 800,000 1,100,000 950,000
Total Estimated Gross profit (a-d) P 200,000 P (100,000) P 50,000
Multiply by POC x 25% x 100% x %
Gross Profit to date P 50,000 P(100,000) P 50,000
Gross Profit - previous year (50,000) 100,000
Gross Profit - current year P 50,000 P (150,000) P 150,000
20X1 20X2 20X3
Contract Price P 1,000,000 P 1,000,000 P 1,000,000
Multiply by POC x 25 % x 75 % x 100 %
Contract Revenue to Date (cum) P 250,000 P 750,000 P 1,000,000
Contract Revenue –prior year (250,000) (750,000)
Contract Revenue- current year P 250,000 P 500,000 P 250,000
Reversal of Provision 25,000
Total Income P 250,000 P 500,000 275,000
Cost incurred–current year (200,000) (625,000) (125,000)
Provision of full contract loss** (25,000)
Total Expenses (200,000) (650,000) (125,000)
Gross Profit(loss)- current year P 50,000 P (150,000) P150,000
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15. INTPRAB Notes from Brian Lim HDV/DNG
Branch vs Agency
Sales Agency Branch
Not a self-contained
businesses, acts only
on behalf of home
office
Self-contained business
which acts
independently, but
subject to control of
home office
Displays merchandise,
takes orders but has no
inventory/stocks
Carries merchandise
used to fill customers’
orders
Customers’ orders are
sent to HO for
approval. Customers
remits payments
directly to HO
Grants credit, makes
warranties, fill orders,
and make collections
on sales
Holds revolving cash
fund from HO
Has its own assets and
liabilities
Not a separate
accounting entity. It
only maintains a simple
record for cash receipts
and disbursements.
*Holds samples that
are depreciated using
useful life*
A separate accounting
entity for internal
reporting.
For external reporting,
its financial statements
are combined with HO.
Accounting for branch operations
I. Eliminate Unique accounts/Reciprocal Accounts
-intercompany/inter-office accounts
Home Office Branch
Balance
Sheet
Investment in
Branch/Branch
Current -Asset
Home
Office/HO
Current –
Equity
Income
Statement
Shipment to
Branch
(reduction in
TGAS)
Shipments
from Home
Office
(addition to
TGAS)
II. Reconciliation of Inv in Branch and Home Office
• Debit in one account w/o corresponding credit
in the other account (and vice versa)
• Errors
Working Paper Eliminating Entry
Home Office xx
Investment in Branch xx
Shipments to Branch xx
Shipments from Home Office xx
Investment in Branch (HO Books)
Asset transfers to
branch
Asset is received from
branch
Profit of branch
Liabilities and expenses
incurred or paid by
home office on behalf
of branch
Loss of branch
Ending Balance*
Home Office (Branch’s Books)
Asset transfers to
home office
Asset is received from
home office
Loss Profit
Liabilities and expenses
incurred or paid by
home office on behalf
of branch
Ending Balance*
HO Inv in Br
Unadjusted P xxx P xxx
Reconciling Items xxx xxx
Adjusted (after closing NI) P xxx P xxx
HOME OFFICE AND BRANCH ACCTG
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16. INTPRAB Notes from Brian Lim HDV/DNG
COMMON TRANSACTIONS JOURNAL ENTRIES
Home Office Branch
Shipment of Merchandise Investment in Branch
Shipment to Branch
Shipments from HO
Home Office
Acquisition of PPE (purchased by
HO, recorded by BR)
Investment in Branch
Cash
PPE
Home Office
Acquisition of PPE (purchased by
BR, recorded by HO)
PPE
Investment
Home Office
Cash
Allocated expense Investment in Branch
Cash
Expenses
Home Office
Return of merchandise Shipment to Branch
Investment in Branch
Home Office
Shipment from HO
Cash remittance Cash
Investment in Branch
Home Office
Cash
Take up of branch income Investment in Branch
Investment Income
P&L Summary
Home Office
Transfer at billed price
*DGP is realized upon sale to third
parties.
*Branch income, unadj is
understated due to higher cost
Investment in Branch
Shipment to Branch (@cost)
DGP/Allowance (mark up)
Upon sale to third parties:
DGP
RGP/Br. Income
Shipment from
Home Office (@BP)
ACCOUNTING FOR INTERBRANCH TRANSFER
HO B1 B2
Merchandise
transfer
Inv in Br1 XX
Shipment XX
Inv in Br2 XX
Inv in Br1 XX
Shipment from HO XX
HO XX
HO XX
Shipment from HO XX
Shipment from HO XX
HO XX
If with freight, it follows the inventory.
Merchandise
Transfer with
Freight
Actual Freight fr B1
ro B2- 1500 (1000
+500)
Freight from HO to
B2- 1300
*Excess cost is
recorded as an
expense to the
home office.
Inv in Br 1 10,000
Shipments to Br 1 9000
Cash 1000
Inv in Br2 10,300
Expense 200
Inv in Br1 10,500
NOTE: freight is recorded
at the LOWER of actal
freight incurred AND
direct freight (from HO
to Branch).
Shipment from HO 9000
Freight in 1000
HO 10,000
HO 10,500
Shipment from HO 9000
Freight In 1000
Cash 500
Shipment from HO 9000
Freight In 1300
HO 10,300
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17. INTPRAB Notes from Brian Lim HDV/DNG
Billed
Price
Cost DGP/Allowance Purchases-
Outsiders
Total
Beginning Inventories xxx6
xxx5
xxx4
Shipments xxx2
xxx1
xxx3
Returns (xxx) (xxx) ( xxx)
Total Goods Available for Sale (TGAS) xxx xxx xxx
End Inventory (xxx) (xxx) ( xxx)
Cost of Sales xxx xxx xxx
Notes:
• Check if End Inventory > Shipmnts
o It means part of ending inventory is
from beginning
o Mark up rate may be different last year
vs this year
• Assumption of silent- BRANCH view
o Inventory is @billed price unadjusted
• Stated in problem– HO View
o Combined FS, true cost, adjusted If
silent, branch inventory is TOTAL, from
HO and outsiders
• Combined NI = HO NI + Branch NI
o Branch Income must represent true or
ADJUSTED NET INCOME
o Branch Income = Unadjusted NI + RGP
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18. INTPRAB Notes from Brian Lim HDV/DNG
Format:
Physical
Units
DM DL FOH
Beginning WIP xx xx xx xx
Started and
Completed
xx xx xx xx
EWIP xx xx xx xx
Normal Loss xx xx xx xx
Abnormal Loss xx xx xx xx
Total xx
NOTE: Transferred Out = BWIP + S&C
ISSUE 1: Method of Accounting
1. FIFO
• Accounts only for this month’s units and costs
• Transferred-out units:
• Beginning WIP – EUP is only to the
extent of work done with this month
• Started and completed – EUP is 100%
automatically
Unit Cost =
Cost this Month
EUP
2. Weighted Average
• Accounts for costs and units to date
• Transferred-out units – automatically 100%
Unit Cost =
Cost last Month + Cost this Month
EUP
ISSUE 2: EUP Calculation
RULES:
1. Beginning and Ending WIP
Compare application vs % of completion
• Application rate: rate at which DM, DL, and
OH are applied
• Percentage of completion: cutoff point when
WIP ended
Scenarios:
Application
Rate
POC EWIP BWIP
Start < 30% 100% 0%
50% > 30% 0% 100%
30% = 30% 100% 100%
Evenly 30% POC POC-TM
2. Started and Completed
• EUP is automatically 100%
3. Normal Losses and Abnormal Losses
• Compare application rate versus inspection
point
Scenarios:
Application
Rate
Inspection
Point
EUP
Start < 30% 100%
30% = 30% 0%
50% > 30% 0%
Evenly 30% Inspection Point
ISSUE 3: Cost Allocation for Normal and
Abnormal Losses
Normal Losses
• Recurring and unavoidable
• Treated as product costs and absorbed by good
units (units that passed inspection point)
GOOD Units
1. Transferred Out
2. Ending WIP
a. If POC > Inspection, Good Units
b. If POC ≤ Inspection, Not good units
RULES:
• If ending WIP are good units, allocate
normal loss costs to beginning WIP, started
and completed, and ending WIP based on
EUP or actual costs.
• If FIFO method is used, an inventory can
only absorb normal losses once. Hence, if
beginning WIP has already absorbed last
month, do not allocated normal losses this
month to BWIP.
Abnormal losses
• Non recurring, avoidable
• Treated as period costs
PROCESS COSTING
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19. INTPRAB Notes from Brian Lim HDV/DNG
ISSUE 4: DEPT 1 vs DEPT 2
Department 1 Department 2
DM DM
DL DL
OH OH
Transferred In
(From Dept 1)
EUP of transferred in
• If FIFO, 100% of this month’s units
• If Average, 100% of total units
FIFO Actual
Units
DM DL FOH
Transf
In
Beg WIP xx xx xx xx %
Started &
Completed
xx xx xx xx
100%
EWIP xx xx xx xx 100%
Normal Loss xx xx xx xx 100%
Abnormal Loss xx xx xx xx 100%
Total xx
AVERAGE Actual
Units
DM DL FOH
Transf
In
Transf Out
(BWIP +
S&C)
xx xx xx xx
100%
EWIP xx xx xx xx 100%
Normal Loss xx xx xx xx 100%
Abnormal
Loss
xx xx xx xx
100%
Total xx
ISSUE 5: Discrete vs Continuous Losses
• Discrete Losses – with inspection point
• Continuous loss – without inspection point
o Assumption of EUP
o Normal loss: 0%
o Abnormal loss: 100%
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20. INTPRAB Notes from Brian Lim HDV/DNG
ISSUE 1: COST FLOW
Materials Labor
Beginning Used Incurred Distributed
Purchases
Ending
Overhead WIP
Ind. Matls Used Beginning COGM
Ind. Labor DM
Other OH DL
Applied
OH
Ending
FG
Beginning Sold
COGM
Ending
ISSUE 2: Over/Underapplied OH
• Overapplied – Favorable Variance
• Underapplied
o Immaterial: closed to COGS
o Material: Allocate to WIP, FG, COGS
Applied FOH= Predetermine OH rate x Actual Driver
Predetermined OH Rate =
Budgeted FOH
Budgeted Basis
ISSUE 3: COGS
• deduct overapplied
• add underapplied
ISSUE 4: Spoilage/Defective Goods
Treatment:
Again, Unit Cost = COST/GOOD UNITS, so deduct
spoilage units from good units
Rework cost and loss on spoilage
1. if customer fault/specific job – charged to
FG, add to cost
2. if production/internal failure – charged to
actual OH, do not add to cost
NOTE:
• if customer fault. specific job, deduct
allowance for loss (w/o allowance)
• if production/internal failure, do not deduct
allowance (w/ allowance)
Same with job order, the difference is with WIP
because in backflush costing, there is no WIP.
DL, DM, FOH --> Finished Goods
Journal Entry:
Finished Goods XX
Direct Material XX
Direct Labor XX
Applied OH XX
Journal Entries:
MATERIALS
Raw Materials (SP x AQ) XX
Materials Price Variance XX
Accounts Payable (AP x AQ) XX
WIP (SP x SQ) XX
Material Usage Variance XX
Raw Materials (SP x AQ) XX
LABOR
Factory Payroll (SRxAQ) XX
Labor rate variance XX
Salaries Payable(AR x AQ) XX
WIP (SR x SQ) XX
Labor usage variance XX
Factory Payroll (SQ x AQ) XX
OVERHEAD
FOH – Actual XX
Various Payables XX
(AR x AQ)
WIP XX
FOH – Applied XX
(SR x SQ)
JOB-ORDER COSTING
BACKFLUSH COSTING
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21. INTPRAB Notes from Brian Lim HDV/DNG
FOH-Applied XX
Budg. Variance XX
Vol. Variance XX
FOH-Actual XX
Allocation of Joint/Common Cost
1. By-product first; then
2. Main products
By-product recognition
1. Upon Sale
Cash XX
Other Income XX
2. Upon production
By-product inventory XX
Joint Cost/WIP XX
AMOUNT:
a. NRV (assumed)
Est. selling price – Cost to Complete – Cost
to Sell
b. Reversal Cost
Est. Sales Value – Gross Profit – Selling and
Admin Cost
OR
Total mfg. cost – further processing cost
Remaining Joint Cost:
Approaches:
1. Physical Method
There is physical measure (litres, kg), or by
units produced, or by weighted average of units
produced
# of units produced x assigned weights
2. Monetary Method
A. SV @ split-off/Relative SV
= SP@splitoff x units produced
B. Actual NRV @ Split-off
= SV@splitoff – cost to sell/disposal
C. Estimated/Approximated NRV @ Split-
off/Adjusted MV
= Final SP – further processing cost –
disposal costs
JOINT COST ALLOCATION
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22. INTPRAB Notes from Brian Lim HDV/DNG
TERMINOLOGIES
• Exchange rate – rate at which foreign
currencies are translated
• Spot rate - exchange rate NOW
• Closing rate – spot rate at balance sheet
date
• Functional currency – currency of primary
economic environment in which an entity
operates
• Foreign currency – currency other than the
functional currency
• Presentation currency – currency in which
financial statements are presented
• Exchange difference - difference from
converting one currency another at different
exchange rate; forex gain or loss
Foreign Currency Transactions
-transactions entered into by entities in foreign
currency
• What rate to use – spot rate, direct quotation
o Direct quotation (1 FC = P __)
o Seller – buying spot/BID
o Buyer – selling spot/ASK
• Monetary versus nonmonetary
o Monetary – Cash, AR, AP, NP, LP
▪ These must be restated/updated to
SPOT RATE
▪ Gives rise to forex gain or loss
o Nonmonetary – Inventory,PPE,I/S accounts
▪ No update needed - HISTORICAL
▪ except for those items that are
measured at FV/NRV
▪
• How to know if gain or loss?
o Buyer’s perspective
▪ If translated A/P increases, Loss
▪ If translated A/P decreases, Gain
o Seller’s perspective
▪ If translated A/R increases, Gain
▪ If translated A/R decreases, Loss
• Gain or Loss Presentation
o For F/S transaction, it goes to profit and
loss.
Example:
BUYER SELLER
Transaction
Date, 1:46
Inventory 46
A/P 46
A/R 46
Sales 46
Balance Sheet
Date, 1:50
Forex Loss 4
A/P 4
A/R 4
Forex Gain 4
Settlement
Date, 1:48
A/P 2
Forex Gain 2
A/P 48
Cash 48
Forex Loss 2
A/R 2
Cash 48
A/R 48
Foreign Exchange Translation
-converting the FS of subsidiaries/associates/joint
ventures/branch to the entity’s reporting currency
• What rate to use?
o Asset and Liabilities – closing rate
o Income statement – actual spot rate/
weighted average rate
o Equity
▪ Cap. Stock/APIC – actual/spot/historical
▪ Retained Earnings
• Beginning – Roll Forward
• Net Income – Weighted Ave.
• Dividends – Spot Rate
Computing for translation adjustment
Net Assets –end @ closing rate XX
Net Assets- beg @ closing rate XX
Additional Investment @ spot XX
Net Income @ WAR XX
Dividends @spot (XX)
Net Assets-end (historical) XX
Translation Adjustment for the period XX
NOTE:
• The amount above goes to OCI and will be
transferred to P&L only upon disposal.
• NA @ closing > NA@ historical  Gain
• NA @ closing < NA@ historical  Loss
FOREX
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23. INTPRAB Notes from Brian Lim HDV/DNG
Hedging – Forwards/Futures
Hedged Item Hedging
Instrument
RATE • If actual
transaction, use
SPOT
• If firm
commitment,
use FUTURE
• If only highly
probable
forecasted
transaction, DO
NOT
RECOGNIZE
• Use FUTURE
RATE
G/L • Treated with
normal view (If
seller, gain if
increase. If
buyer, gain is
decrease).
• Treated with
opposite view
(if buyer, gain
if increase. If
seller, gain if
decrease).
Prese-
ntation
• FV Hedge –
goes to P&L
(for actual/firm
commitment)
• CF Hedge –
goes to OCI
(for highly
probable
forecasted
trans)
• FV Hedge –
goes to P&L
(for actual/firm
commitment)
• CF Hedge –
goes to OCI
(for highly
probable
forecasted
trans)
Hedging - Options
- Always favorable at the option holder’s side
- has two kinds
1. Call – option to buy
2. Put – option to sell
General formula:
Fair Value XX
Intrinsic Value (XX)
Time Value XX
TWO IMPORTANT TABLES:
TABLE 1: G/L derived from:
Trans.
Date
BS Date Settlement
Date
FV Option
Premium
Given FV=IV
IV (Strike – Spot) x # of options
TV Difference between FV and IV
TABLE 2: IN/OUT/AT THE MONEY
Call option
Strike VS Spot Intrinsic
Value
48 < 50 2 In the
money
48 > 46 0 Out of the
money
48 = 48 0 At the
money
Put option
Strike VS Spot Intrinsic
Value
48 < 50 0 Out of the
money
48 > 46 2 In the
money
48 = 48 0 At the
money
G/L Presentation
1. FV Hedge
a. Nonsplit/TV included
i. Change in FV – goes to P&L
b. Split/TV excluded
i. Changes in Intrinsic (aka
EFFECTIVE gain) – goes to
OCI
ii. Changes in Time Value (aka
INEFFECTIVE gain) – goes to
P&L
2. CF Hedge
a. Nonsplit
i. Change in FV – goes to OCI
b. Split
i. Changes in Intrinsic (aka
EFFECTIVE gain) – goes to
OCI
ii. Changes in Time Value (aka
INEFFECTIVE gain) – goes to
P&L
Speculation
- No hedge item, only hedging instrument
- Rate used – FUTURE rate.
- Gain/Loss – use OPPOSITE view.
- Gain/Loss presentation – goes to P&L
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24. INTPRAB Notes from Brian Lim HDV/DNG
-
• IFRS3
• Transaction in which the acquirer obtains
control of one or more businesses
• Not simply an asset but a group of assets
• Assets + organized workforce +target
customer
• FV approach- arm’s length transaction
• Excluded
o Formation of joint venture
o Acquisition of a group of assets that
does not constitute a business
o Combination of entities under common
control (same party controls entities
before & after acquisition)
Forms of Business Combination
1. Asset Acquisition
• 100% Acquisition
• Merger  A+B=A
• Consolidation  A+B=C
2. Stock Acquisition
• Partial  A= 80% B + NCI
• Whole  100%
Acquisition Method
1. Identify acquirer
2. Determine acquisition date (Valuation Date-
date you obtain control)
3. Use Goodwill Formula
• Consideration transferred
• Non-controlling interest
• Previously held interest
• Identifiable assets and liabilities
Goodwill Formula
GENERAL IDEA:
Total Parent NCI
Bus XX XX XX
INA (XX) (XX) (XX)
Goodwill/Gain XX XX XX
RULES:
• NCI can never have negative value (only
goodwill). Hence, the minimum value that it can
have is its proportionate share.
AFTER BUSINESS COMBINATION
Computation of Goodwill
FV of consideration transferred XX
FV of Prev. Held Interest XX
Non-controlling Interest XX
FV of Identifiable Net Assets (XX)
Goodwill/BPO XX
Total Assets Total
Liabilities
Total Equity
BV of Acquirer BV of Acquirer BV of Acquirer
+ FV of
Acquiree
+ FV of
Acquiree
+ FV of equity
issued
+ Goodwill + FV of
liability issued
+ Gain from
Acquisition
- Assets Paid + CC Payable +/- Gain or loss
on Prev. Held
Intrest
- ARC Paid + ARC unpaid +/- Gain or loss
on change in
contingent
consideration
+ Non
Controlling
Interest
+ ARC incurred
TOTAL
ASSETS
TOTAL
LIABILITIES
TOTAL
EQUITY
CS APIC RE NCI
BV Acquirer XX XX XX
Equity Issued XX XX
G/L from Acquisition XX
G/L on PHI XX
G/L on change in CC
payable
XX
NCI XX
ARC Incurred
i. SIC
ii. Excess SIC
(XX)
(XX)
(XX)
Measurement Period Adjustments
- Within ONE YEAR from acquisition date
whereby the acquirer can retrospectively
adjust the provisional (estimate) amounts
recognized in FS
- Purpose: reflect new information about
existing events or conditions EXCEPT CC
BUSINESS COMBINATION
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25. INTPRAB Notes from Brian Lim HDV/DNG
Payable (EXCEPT IF IT’S AN ERROR like the
one in the exam )
TABLE 1: Computation of share in NI
Conso
NI
Parent NCI
NI-Parent XX XX
Dividends (XX)
NI-Subsidiary XX XX
+/- FV Amortization XX XX
Goodwill Impairment (XX) (XX)
Total Share in NI XX XX XX
RULES:
1. Net Income of parent – always get full year
regardless of when it was acquired
2. Dividend share – deduct unless stated that
it is still not included
3. Net income of subsidiary – add/deduct from
date of acquisition
4. FV Amortization – depends on the ff:
a. Inventory – realized upon sale
(assume SOLD)
b. PPE and intangibles – realized
through usage (depreciation) (use
remaining useful life)
c. Land – realized upon sale (assume
not yet sold)
5. Allocation of impairment loss is based on:
a. Goodwill amount
b. % of ownership
EQUITY COMPUTATIONS
1. NONCONTROLLING INTEREST
Equity at Acquisition Date XX
CNI Share XX
Dividend Share (XX)
NCI XX
2. CONSOLIDATED RE
Parent’s Retained Earnings XX
CNI Share XX
Dividend Paid (XX)
NCI XX
3. TOTAL EQUITY
Capital Share –parent XX
APIC –Parent XX
Conso RE (XX)
Equity Parent XX
Equity NCI XX
Total Equity XX
4. PARENT’S RE
RE @ year end – parent XX
Add:
NI – sub XX
Dividend – sub XX
Amortization – sub XX
Impairment – sub XX
Total Sub. NI XX
Share of Parent XX% XX
Conso RE XX
FOR INTERCOMPANY TRANSACTIONS
CNI PARENT NCI
US-UGP (XX) (XX)
US-RGP XX XX
DS-UGP (XX) -
DS-RGP XX -
UGP RGP
Inventory Buyer EI x
Seller GP
Buyer BI x
Seller GP
PPE/Intangibles Proceeds –
BV = UGP
UGP/Useful
Life
Land Proceeds –
BV = UGP
G/L on Sale
CONSOLIDATION
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26. INTPRAB Notes from Brian Lim HDV/DNG
Joint Venture
- Jointly controlled entity
- Rights and Obligations: Net Assets
Joint Operations
- Jointly controlled assets
- Jointly controlled operation
- Rights and Obligations: Assets and
Liabilities
Accounting Method
Joint Venture Net Asset Method
Joint Operation Take up share in assets and
liabilities
SME Joint Venture
- Entity may choose between cost, FV, or
equity method
Cost Equity FV
Purchase Price ✓ ✓ ✓
Transaction
Cost
✓ 
(expense)
✓
Net Income   ✓
(take up
share)
Dividend  (to
P&L)
 (to P&L) ✓
(deducti
on)
Change in FV
of Investment
 ✓ (to
P&L)

Impairment ✓ (to
P&L)
 ✓ (to
P&L)
NOTE:
• If you’re using cost method, and there EXISTS a
published price quotation, use FAIR VALUE
METHOD.
• If you’re using FV method, but there is NO
AVAILABLE FV (cannot be measured reliably
without undue cost or effort), use COST method.
• If you’re using equity method, it’s always at cost.
JOINT ARRANGEMENTS
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27. INTPRAB Notes from Brian Lim HDV/DNG
Governed by Government Accounting Manual
Budgetary Process
I. Budget Preparation
1. Agencies submit budget needs to DBM
2. DBM submits to president proposal of
budget
3. President reviews and prepares budget
4. President submits budget to legislation
II. Legislation
1. Senate and House of Rep individually and
collectively (through bi-cameral) approves
budget through General Appropriations
Bill
2. Senate and House of Rep. submits
approved bill to President for final
approval
3. President approves bill to become law
III. Execution
1. Agencies, through DBM and BOT allotment,
use the funds
Registry
- Requires memo entry only
1. Registry of Revenue and Other Receipts
(RROR) – for receipts
2. Registry of Appropriations and Allotment
(RAPAL) – for disbursements
3. Registry of allotment, Obligations, and
Disbursement (RAOD) – contracts only
Issue:
• Allotment is based on appropriations
• Obligations (contracts signed) are based
on allotment of funds
• Disbursements (payments) are based on
contracts (obligations)
Subservices of RAOD:
1. Personnel services – for salaries and
wages
2. Financial expenses – for borrowing
costs
3. Capital outlay – for capital
expenditures
4. Maintenance and other expenses
(MOOE)
4. Registry of Budget, Utilization, and
Disbursements (RBOD)
• Used only for special funds
• Same service as RAOD
JOURNAL ENTRIES
1. Receipt of Notice of Cash Allocation
Cash – Modified Disbursement System XX
Subsidy from National Gov. XX
Must be net of TRA.
2. Unused NCA (expiration of regular
NCA ever end of quarter)
Subsidy from National Gov. XX
Cash – MDA XX
3. Constructive Receipt of Tax
Remittance Advice (for Withholding
Tax)
Cash – TRA XX
Subsidy from Nat’l Govt XX
4. Constructive Remittance of TRA
Due to BIT XX
Cash – TRA XX
CASH ACCOUNTS
Receipt/Debit Disbursement/Credit
1. Cash – Modified Disb.
System
a. Regular
b. Special
c. Trust
Funds from national
govt
Cash – MDS
Subs. From
Nat’l Govt
In general expenses
2. Cash – collecting
officer
From other sources
than nat’l
government
For remittance only
to agency account or
to national
government
3. Cash –
Treasury/Agency
Deposit
Regular
Special
Trust
Remittance of cash
collected from other
sources to national
government (if w/o
authority to use)
Cash –Treasury/
Agency
Cash –
Collecting Officer
Upon closing of
books:
Acc. Surplus/Deficit
Cash–TA deposit
4. Cash in Bank – Local
Currency
Current/Savings
Account
Remittance of cash
collected from other
sources to national
Authorized expenses
Expenses
CIB
GOVERNMENT ACCOUNTING
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28. INTPRAB Notes from Brian Lim HDV/DNG
government (if w/
authority to use)
CIB
Cash-CO
5. Cash – TRA Receipt of TRA Remittance of TRA to
BIR
6. Advances for Payroll
(salaries)
Advances for special
disbursing officer
(special project-time
bound)
Advances for
operating expenses
(field/operating unit)
Advances to officers
and employees
(office travel)
Advances
Cash-MDS
Upon liquidation
Expenses
Advances
Closing entries
1. Income/Subsidy from National Govt
Revenue and Exp. Summary
2. Revenue and Exp. Summary
Expenses
3. Revenue and Exp. Summary
Acc. Surplus/Deficit
4. Acc. Surplus/Deficit
Cash-Treasury/Agency Deposit
Assumptions
a. Inventory – use specific identification or
moving average
b. PPE – depreciate over life. Has a minimum
residual value of 15,000 php.
c. Infrastructure - depreciate
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29. INTPRAB Notes from Brian Lim HDV/DNG
ISSUE: Statement Presentation
• Assets and Liabilities – same with IFRS
• Net assets
o Has no CS, APIC, or RE
o Has the ff. accounts:
▪ Unrestricted NA (Quasi-endowment)
- BOT restricted
- No donor-imposed restriction
- Assumed if silent
▪ Temporarily restricted NA (Term
endowment)
- Purpose/time-bound
- Reclassified once purpose is fulfilled
▪ Permanently restricted NA (Regular
endowment)
- Indefinite/In perpetuity
- For endowment or legacy
STATEMENT OF ACTIVITIES
UR TR PR
Donation/Public
Support/Cont.
XX XX XX
Investment Inc. XX XX XX
Operations:
Revenue XX
Expenses
Program
Support
(XX)
(XX)
Reclassification XX (XX)
Increase/Decrease
in NA
XX XX XX
Beginning Net
Asset
XX XX XX
Ending Net Asset XX XX XX
STATEMENT OF CASH FLOWS
1. Operating – unrestricted
2. Financing – temporary and permanent
restrictions
3. Investing – acquisition/disposal of
investments and PPE
HOSPITAL
Gross Patient Service Rendered XX
Less: Charity Care (XX)
Gross Patient Service Revenue XX
Less: Discounts/Adjustments (XX)
Net Patient Service Revenue XX
SCHOOL
Tuition Fee Revenue XX
Scholarship (XX)
Gross Revenue XX
Less: Discounts/Adjustments (XX)
Net Revenue XX
NOTE: If with service requirement, it is treated as
salary expense.
VALUATION OF DONATION
• Cash – at face value
• Noncash
o In kind – FV of item
o Service – FV of service
Note: This can only be recognized when:
1 Gives rise to nonfinancial asset
2 It’s a specialized service performed by a
professional
CONDITION vs. RESTRICTION
• Condition is unearned and gives rise to
liability
• Restriction is earned and recognized as
revenue
PASS-THROUGH DONATION
• If principal, REVENUE (has no specific
beneficiary)
• If agent, LIABILITY (has specific
beneficiary)
=
Liabilities (liab, end) + Total Equity (CS, APIC, RE,
Beg +NI-NL)
Computation for ending cash balance
Beginning cash balance XX
Assets Realized XX
Liabilities Liquidated (XX)
Liquidation expenses paid (XX)
Ending Cash Balance XX
NOT FOT PROFIT ACCOUNTING
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