Quick Notes in AFAR NOTES - 1 File Download

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

Page | 1 CPA Review School of the Philippines – Batch 82

Quick Notes in AFAR

I. PARTNERSHIP

PARTNERSHIP FORMATION

VALUATION:

1. Cash – Face Value 2. Land, Depreciable Asset, & NCA

a. Agreed Value b. Fair Value c. Appraised Value d. Carrying Value/Book Value

3. Liabilities – are considered assumed if the problem is silent 4. Inventory – Lower of Cost and Net Realizable Value (LCNRV) 5. Capital

5.1. Bonus Method 5.2. Investment/Withdrawal Method

BONUS METHOD

(*The problem is silent) 1. There would be a transfer of capital. 2. There is no recognition of goodwill. 3. The total asset and capital will remain unchanged.

INVESTMENT/WITHDRAWAL

1. Agreed Capital is more than Unadjusted Capital = Investment 2. Agreed Capital is less than Unadjusted Capital = Withdrawal

ADJUSTING ENTRIES (*Use contra-asset)

1. Building – Carrying Value: ₱10M, Agreed Value: ₱15M Accumulated Depreciation ₱5M Capital ₱5M

2. Accounts Receivable – Cost: ₱10000, NRV: ₱9000

Capital ₱1000 Allowance for Doubtful Accounts ₱1000

*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

1. Salaries

This could be fractional year

Given, regardless of the result of operation

2. 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.)

3. 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, 347.83



CASE 2: Net Income of ₱100000 before salaries of ₱5000, interest of ₱3000, and bonus of 10%

B =

B =

B =

B = ₱12,000

*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 1. Profit Ratio, Loss Ratio _ 2. Profit Ratio, Profit Ratio x _ 3. Original Capital Ratio, Loss ratio x _ 4. 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.

1. 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

1. 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

2. 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

1. Lump-sum Liquidation – single distribution 2. Installment Liquidation – “piece meal”



STEPS IN LUMP SUM LIQUIDATION

1. Realization of Non-cash Asset (Profit/Loss) 2. Payment of liabilities and liquidation expense

Liability ₱xx Capital ₱xx

Cash ₱xx Cash ₱xx

3. Elimination of deficiencies 4. Distribution

INSTALLMENT LIQUIDATION

Cash beginning ₱xx Add: Proceed xx Minus: Liabilities xx Total

Liquidation Expense xx Total Distribution ₱xx

Maximum Possible Loss (MPL):

1. Unsold Non-cash Asset ₱xx 2. Anticipated Liquidation Expense (future LE) xx Unpaid

₱xx

CASH PRIORITY PROGRAM *(Receive cash-given)

1. Determine the capital interest 2. Compute loss absorption balance (LAB): Capital Interest ÷ P/L Ratio 3. Equalize the LAB – deduct the second highest from the highest until equal 4. Distribution: Difference in LAB × P/L Ratio

When to use Cash Priority Program?

- When the problem says, what amount should be distributed to the partners

EXAMPLE:

A G J Capital Interest ₱100000 ₱ 80000 ₱ 75000 P/L % ÷ 50% ÷ 20% ÷ 30% LAB ₱200000 ₱400000 ₱250000 Priority 1 _______ 150000 _______ ₱200000 ₱250000 ₱250000 Priority 2 _______ 50000 50000 ₱200000 ₱200000 ₱200000

If A received ₱35500, how much was given to J? A G J Total Priority 1 ₱ -0- ₱30000 ₱ -0- ₱ 30000 Priority 2 -0- 10000 15000 25000 NPP 35500 14200 21300 71000 ₱35500 ₱54200 ₱36300 ₱126000

SAFE PAYMENTS 1. Determine the capital interest 2. Deduct the Maximum Possible

Loss 3. Absorb deficiency 4. Distribute

Capital Beginning ₱xx Gain/Loss +/- xx Maximum Possible Loss - xx Elimination Deficiency - xx Condonation +/- xx Cash Distribution ₱xx

II. CORPORATE LIQUIDATION Three (3) years to liquidate

The extinguishment of juridical personality happens in dissolution

VALUATION: 1. Asset – Fair Value 2. Liabilities – Maturity Value (Principal + Interest)

CLASSIFICATION (Statement of Affairs): 1. ASSETS

Assets Pledge with Fully Secured Creditors

Assets Pledge with Partially Secured Creditors

Free Assets assets that are not originally pledge to any liabilities

2. LIABILITIES

Fully Secured Liabilities

Partially Secured Liabilities

Unsecured Liabilities with Priority * Salaries * Taxes * Administrative Expense (Liquidation Expense) * Customer Deposit

Unsecured Liabilities without Priority (no collateral)

Percentage of Recovery (POR) =



3. OWNER’S EQUITY DEFICIENCY / CAPITAL

Capital

NET FREE ASSETS (NFA)

TOTAL UNSECURED CREDITORS WITHOUT PRIORITY (TULi-w/o)

1. Excess of APTFSL ₱xx 1. Excess of PSL ₱xx over PSL xx ₱xx over APTPSL xx ₱xx

2. Free Asset xx 2. UL w/o Priority xx TFA xx TULi w/o ₱xx

3. 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

1. Assets to be realized (ATBR)

Noncash Assets, beginning

2. Assets acquired (AA) / ↑ on Asset

Interest Receivable

Accounts Receivable

7. Liabilities liquidated (LL)

8. Liabilities not liquidated (LNL)

Ending balance of the liabilities

9. Supplementary charges / Expenses

Cost of Sales

Accrued Expenses

11. NET INCOME / GAIN

3. Assets realized (AR)

PPE – net proceeds

Receivables – collection

Inventory – cost of sales

4. Assets not realized (ANR)

Noncash Asset, ending

5. Liabilities to be liquidated (LTBL)

6. Liabilities assumed (LA) / ↑ in Liabilities

Accrued Expenses

Accounts Payable

10. Supplementary credits / Revenue

Sales

Accrued Interest Income

12. 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* ₱70 Less: Unrecovered Cost:

IAR/Repossessed Account (Receivable Defaulted/Unpaid Balance) ₱100

Less: Deferred Gross Profit (20) (80) LOSS (UC > FV of Repossessed Merchandise) ₱(10)

ENTRIES:

1. Reposs. Mdse. – FV ₱70 DGP 20 Loss 10

IAR ₱100 2. Expenses ₱80

DGP (20%) 20 IAR ₱200

write-off

3. Cash ₱___ IAR ₱___

4. DGP ₱___

RGP ₱___

*Gain/Loss P/L **DGP Contra receivable account

(20%) IAR 2016

Beginning ₱100 Collection ₱50 RA 30 WO 5

End ₱ 15

DGP 2016

RGP ₱10 DGP on RA 6 DGP on WO 1

Beginning ₱20

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



IV. LONG TERM CONSTRUCTION CONTRACTS (IAS 11)

1. PERCENTAGE OF COMPLETION METHOD - outcome can be estimated reliably - if the problem is silent

1.1. INPUT MEASURE (Cost to Cost) Cost Incurred To Date ÷ Total Cost 1.2. OUTPUT MEASURE

Total Units Prod. ÷ Total Units Expected Prod.

2. COST RECOVERY METHOD - outcome cannot be estimated reliably

CONTRACT RETENTION

receivables

does not the an income element

reduces collection PRO-FORMA ENTRY:

Cash ₱xx Contract Retention xx

Accounts Receivable ₱xx

UPON COMPLETION OF PROJECT: Cash ₱xx

Contract Retention ₱xx

MOBILIZATION FEE

no income element PRO-FORMA ENTRY:

Cash ₱xx Advances from Customers ₱xx

COMPUTATION OF COST INCURRRED TO DATE (CITD): (1.) Direct Materials ₱xx

+ (2.) Direct Labor xx + (3.) Overhead xx + (4.) Depreciation of Construction Equipment (*Idle = Expense) xx + (5.) Any reimbursable Cost xx + (6.) xx + (7.) Borrowing Cost (Qualifying Asset) xx

*Specific = IE – II; **General = (AI × C) × CR + (8.) Unused Supplies / Materials without Alternative Use xx + (9.) Incidental Income from Sale excess over Scrap Materials xx

COST INCURRED TO DATE ₱xx

COMPUTATION OF ADJUSTED PRICE BILLING (APB):

Contract Price ₱xx + EC (↑ in certain cost) xx − DC (↓ in certain cost) xx − Penalty Clause (due to late turnover) xx + IP (due to early turnover) xx +/− Modification / Change Order / Variation xx

ADJUSTED PRICE BILLING (CP = APB) ₱xx

CITD + PTD-LTD

CIP − APB (Due to)/Due from ↓ ↓ Liability Asset

YEAR 1 ₱xx xx ₱xx xx ₱xx



= 0 → CIP @ the end of the year of contract.

CONSTRUCTION IN PROGRESS:

(1) If Profit: Contract Price × Percentage of Completion = CIP (2) If Loss: [(CP × POC) – LTD × (1 − POC)] = CIP (3) [(TC × POC) – LTD] = CIP

ENTRIES:

1.) Construction in Progress Various Accounts

₱xx ₱xx

2.) Accounts Receivable Progress Billings

₱xx ₱xx

3.) Cash Accounts Receivable

₱xx ₱xx

4.) COC Construction in Progress

Construction Revenue

₱xx xx

₱xx

5.) Accounts Receivable Progress Billings

₱xx ₱xx

6.) Progress Billings Construction in Progress

₱xx ₱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

1ST YEAR ₱xx ₱xx xx (₱xx) ₱xx % ₱xx xx ₱xx

2ND 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 – Y2

₱xx xx

(xx)

(xx)

(xx) ₱xx

V. IAS 18 – REVENUE

CRITERIA TO RECOGNIZE REVENUE:

1. Receivables (*silent) - reasonably assured

2. Cash as Down Payment (*silent)

- nonrefundable 3. Franchise Revenue

- substantial performance

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


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


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) ₱xx

(GPR-PY)

(GPR-CY)

RGP



*NOTE:

Beginning Inventory – HO (a) In transit – prior year (b) Freight Charges

Ending Inventory – HO (a) In transit – current year (SFHO is < its true amount) (b) Freight Charges

EXAMPLE:

Freight Charges Home Office to Branch 1 ₱10 Branch 1 to Branch 2 5 Home Office to Branch 2 (4) (Excess Freight) Expenses ₱11

Net Income @ Billed Price Reported Net Income (Branch) Net Income @ Cost True Net Income (Home Office) COGS @ BP – COGS @ Cost + Net Income @ BP = Realized Gross Profit

Net Income reported by the branch Unrecorded expenses of branch:

Depreciation

Allocation of expense Net Income that should have reported Realized Gross Profit True Net Income

₱xx

(xx) (xx) ₱xx xx ₱xx

EXAMPLE ₱ 87

(5) (2) ₱ 80 20 ₱100

*ENTRIES

#11 #12

FREIGHT PREPAID

FREIGHT COLLECT



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 (*OLDPurchase Method)

Disclose the following:

1) Determine the acquirer 2) 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

3) Recognize and measure identifiable assets, identifiable liabilities, and non-controlling interest (*The pre-existing goodwill of subsidiary is ignored.)

4) Measure and recognize goodwill or gain



FORMULAS

*

× PHI% = ₱xx

EXAMPLE:

Purchase Price ₱1000 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 ₱1000 NA@FV (squeezed) (750) Goodwill ₱ 250

NA@BV – BC ₱700 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 ₱50 Share Premium 30 SIC 20

Cash/Payable ₱100

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)



EXAMPLE:

Case 1

(100%) (80%) (20%) TOTAL Purchase Price NCI Fair Value of Subsidiary Net Assets @ FV Goodwill

₱1700000 (1000000) ₱ 700000

₱1300000 (800000) ₱ 500000

₱ 400000 FV (200000) ₱ 200000

Impairment Loss ₱50000 ₱35714 (5/7) ₱14286 (2/7)

*If the problem is silent, use the FV. The FV of NCI should not lower of INAS.

FV ₱400000

vs.

INAS

Case 2 [CP = ₱300000]


₱1550000 (1000000) ₱ 550000

₱1300000 (800000) ₱ 500000

₱ 250000 (200000) ₱ 50000

₱200000

vs.

Case 3


₱1250000 (1000000) ₱ 250000

₱1000000 (800000) ₱ 200000

₱ 250000 (200000) ₱ 50000

₱200000 vs.

Case 4 [CP of ₱300000 is included]


₱1200000 (1000000) ₱ 200000

₱1000000 (800000) ₱ 200000

₱ 200000 (200000) ₱ -0-

₱200000

vs.

Case 5


₱ 900000 (1000000) ₱(100000)

₱ 700000 (800000) ₱ (100000)

₱ 250000 (200000) ₱ -0-

NOTE: Gain is never allocated. It goes to Parent. 01/01/17 12/31/17 Purchase Price Net Assets @ Fair Value Goodwill

₱1000000 (700000) ₱ 300000

₱1000000 (800000) ₱ 200000

Goodwill on December 31, 2017 = ₱200000 Goodwill on January 1, 2017 = ₱200000

CONSOLIDATED FINANCIAL STATEMENT (*At the date of business combination) TOTAL ASSETS:

*If, paid

Total Assets of Parent @ BV Total Assets of Subsidiary @ FV Goodwill Purchase Price (Cash/NCA) Direct Cost Indirect Cost CTIR Total Assets

₱xx xx xx

(xx) (xx) (xx) (xx) ₱xx



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 ₱1000 Cost of Sales (700) Gross Profit ₱300 Ending Inventory % × 50% UPEI ₱150

Ending Inventory (1000×50%) ₱500 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 ₱90 Gain 7

Equipment ₱70 Cash ₱70

Gain ₱ 7 Equipment 20

Acc. Dep. ₱27

Dep. Exp. ₱ 9 Acc. Dep. ₱ 9

Dep. Exp. ₱10 Acc. Dep. ₱10

*(₱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 ₱7 Equipment ₱7

NO ENTRY

Realized Gain

Acc. Dep. ₱2 Dep. Exp. ₱1 RE 1

RE ₱5 Dep. Exp. ₱1 Gain 4

EXAMPLE: Intercompany Sale of Land

Land (selling price) - ₱100 CL - 80 Sale to third party - 150

YEAR 1 YEAR 2 YEAR 3 Recorded – Subsidiary ₱50

UG ₱(20) -0- -0- Not yet recorded 20 RG -0- -0- ₱20 ₱70



FORMULAS: Non-controlling Interest, beginning Non-controlling Interest – Net Income Dividend Share Non-controlling Interest, end

₱xx xx

(xx) ₱xx

Retained Earnings – Parent Consolidated Net Income – Parent Dividend – Parent Consolidated Retained Earnings

₱xx xx

(xx) ₱xx

Ordinary Share – Parent Share Premium – Parent Consolidated Retained Earnings Non-controlling Interest Consolidated Shareholder’s Equity

₱xx xx xx xx ₱xx

Shareholder’s Equity, end Net Income of Subsidiary Dividend of Subsidiary Shareholder’s Equity at book value Overvalued Assets (OVA) Undervalued Assets (UVA) Net Assets at fair value

₱xx (xx) xx ₱xx

(xx) xx ₱xx

Sales – Parent Sales – Subsidiary Intercompany Sales & Purchases at Selling Price Consolidated Sales

₱xx xx

(xx) ₱xx

Cost of Sales – Parent Cost of Sales – Subsidiary Intercompany Sales & Purchases at Selling Price Unrealized Profit in Ending Inventory (UPEI) Realized Profit in Beginning Inventory (RPBI) Amortization of Undervalued Assets Amortization of Overvalued Assets Consolidated Cost of Sales

₱xx xx

(xx) xx

(xx) xx

(xx) ₱xx

Consolidated Sales Consolidated Cost of Sales Consolidated Gross Profit

₱xx (xx) ₱xx

Gross Profit – Parent Gross Profit – Subsidiary Unrealized Profit in Ending Inventory (UPEI) Realized Profit in Beginning Inventory (RPBI) Amortization of Undervalued Assets Amortization of Overvalued Assets Consolidated Gross Profit

₱xx xx

(xx) xx

(xx) xx ₱xx

Operating Expense – Parent Operating Expense – Subsidiary Realized Loss (thru depreciation/amortization) Realized Gain (thru depreciation/amortization) Impairment Loss Amortization of Undervalued Assets Amortization of Overvalued Assets Consolidated Operating Expense

₱xx xx xx

(xx) xx xx

(xx) ₱xx

Inventory – Parent @ BV Inventory – Subsidiary @ BV Undervalued Inventory Overvalued Inventory Amortization of Undervalued Assets – Inventory Amortization of Overvalued Assets – Inventory Unrealized Profit in Ending Inventory (UPEI) Consolidated Inventory

₱xx xx xx

(xx) (xx) xx

(xx) ₱xx

Consolidated Net Income attributable to Parent Non-controlling Interest in Net Income Consolidated Net Income

₱xx xx ₱xx

VIII. JOB ORDER COSTING Predetermine OH Rate = Based on BUDGETED

Spoilage vs. Defect no use can be reworked

*Charged to all

- add allowance (unit cost) *Charged to specific job

- deduct allowance

Loss – add – FOH control account

(actual)



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 350000

(350000) ___-___

-0-

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 -

25%

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

350000 (421053)

71053 -0-

Maintenance 200000 84211

(284211) -0-

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

Assets & Liabilities Closing Rate Shareholder’s Equity Historical Rate Revenue & Expenses Average [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



ENTRIES:

BUYING OF INVENTORY

Purchases ₱xx Accounts Payable ₱xx

Forex Loss ₱xx

Accounts Payable ₱xx Accounts Payable ₱xx

Forex Gain ₱xx Accounts Payable ₱xx

Cash ₱xx

BUYING OF F.C.

FCR ₱xx FCP (fixed) ₱xx

FCR ₱xx

Forex Gain ₱xx Forex Loss ₱xx

FCR ₱xx FCP (fixed) ₱xx Cash xx

FCR ₱xx

SELLER OF MERCHANDISE

Accounts Receivable ₱xx Sales ₱xx


Forex Gain ₱xx Forex Loss ₱xx


SELLER OF F.C.

FCR (fixed) ₱xx FCR ₱xx

Forex Loss ₱xx

FCP ₱xx

FCP ₱xx Cash xx

FCR (fixed) ₱xx

FOREX TRANSLATION only reflected in consolidated FS an Other Comprehensive Income component OCI:

1. Forex Translation (IAS 21) 2. Effective Portion of Cash Flow Hedge (IFRS 7/9) 3. Revaluation Surplus (IAS 16) 4. Remeasurement G/L related to employee benefit (IAS 19R) 5. Estimated Unrealized G/L on FA at FVTOCI (IFRS 7/9) 6. Risk G/L on credit risk for financial liability designated to P/L

RECLASSIFIED TO P/L: 1. Forex Translation 2. Effective portion of Cash Flow Hedge

A $ 10M × ₱1 ₱ 10M

$ 10M × ₱1 ₱ 10M

=

=

=

L $ 8M × ₱1 ₱ 8M

$ 8M × ₱1 ₱ 8M

+

+

+

C $ 2M

× ₱0.5 ₱ 1M

$ 2M × ₱2 ₱ 4M

+

+

₱ 1M

₱ 2M

Translation Adjustment Credit

Translation Adjustment Debit

NA, ending @ CR > NA, ending @ RF = Translation Adjustment Credit NA, ending @ CR < NA, ending @ RF = Translation Adjustment Debit

NA, beg. OS × HR

RE, beg. Net Income @ Average Dividend @ SR NA, end @ RF

₱xx xx xx

(xx) ₱xx

(translated amount)

QUOTATION: 1. DIRECT – Foreign Currency to Philippine Peso 2. INDIRECT – Philippine Peso to Foreign Currency SPOT RATE: 1. BUYER – Selling Spot Rate / Offer Rate / Asking 2. SELLER – Buying Spot Rate / Bid Rate FIRM COMMITMENT (1) The hedge is perfect when the company acquired a forward contract for

the same amount of the same currency in which the firm commitment is (2) Under perfect hedging, the amount of forex gain from hedging instrument

is equal to firm commitment as liability (3) The amount of forex loss from hedging instrument is equal to firm

commitment as asset (4) TYPES OF FIRM COMMITMENT

4.1. Sales Commitment 4.2. Purchase Commitment

(5) The asset sold or purchased is recorded at the date of settlement based on the forward rate on the date of commitment



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



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



NOTICE OF CASH ALLOCATION (NCA) Issued by Department of Budget and Management (DBM) to an agency

authorizing the latter to disburse by checks

(1) RECEIPT OF NCA

Cash – MDS, Regular ₱xx Subsidy from National Government ₱xx

*Net of 5% final VAT and 1% creditable income tax

(2) UNUSED NCA Subsidy from National Government ₱xx

Cash – MDS, Regular ₱xx

ACCOUNTING FOR DISBURSEMENTS

1. Net Payroll Advances to Disbursing Officer

Advances for Payroll ₱xx Cash – MDS, Regular ₱xx

2. Payable to Officers and Employees and to set up salary deductions

Salaries and Wages – Regular ₱xx PERA xx

Due to BIR ₱xx Due to GSIS xx Due to Pag-IBIG xx Due to PhilHealth xx Due to Officers and Employees xx

3. Remittance of Salary Deductions

Due to GSIS ₱xx Due to Pag-IBIG xx Due to PhilHealth xx

Cash – MDS, Regular ₱xx

4. Liquidation of Advances for Payroll

Due to Officer and Employees ₱xx Advances for Payroll ₱xx

MESSAGE TO THE READERS

Magandang buhay sa inyo mga ka-reviewee! Ang notes na ito ay hango sa mga itinuro ni Sir Ferrer (*one of my fave

reviewer). Kung sakaling may mapansin man kayo na kulang o mali ay kayo na lang ang magkusang magtama nito. Hindi naman perpekto ang pagkaka-type nito, tulad ko (*ansabe!?).

Nawa ay makatulong ito sa inyong pag-aaral. Fighting! Ipaglaban natin ang ating pangarap. May the odds be in our favor. God bless us all! ^_^ Sincerely, LFA

“For whatever is born of God overcomes the world. And this is the victory that has overcome the world – our FAITH.” 1 JOHN 5:4

Quick Notes in AFAR NOTES - 1 File Download

Documents

Transcript of Quick Notes in AFAR NOTES - 1 File Download