Allowable Calculators

The Commission issued Memorandum Circular No. 2004-06 dated March 4, 2004 listing the brands and
models of non-programmable calculators that are allowed to be used in licensure examinations.
It has been observed during the conduct of examinations that there are still other brands and models
that are non-programmable that are not included in the list of those allowed to be used.
In order to properly guide the examinees and examination personnel, the following is the Updated List of
Non-Programmable Calculators that shall be allowed to be used in the examinations after verifications
with the distributors and identification of knowledgeable persons.
Accordingly, the examinees shall be allowed to bring in and use ONLY any of the following calculators
that were identified as non-programmable.

CASIO:

530 DS-208H fx-500A fx-82SX J-120TE MS-10TV NS-10T

20V DS-20TV fx-500ES fx-82TL JF-120TV MS-10V NS-20T

470LA DS-2TV fx-506G fx-85B JF-200TV MS-10VC NS-310TM

D-100V DS-3V fx-506M fx-85ES JS-10LA MS-115 O-40M

D-120TE DS-881 fx-509D fx-85ES PLUS JS-10TV MS-120TE SL-100L

D-120TV DW120TV fx-509G fx-85MS JS-110TV MS-120TV SL-100VC

D-208H fx-95ES PLUS fx-520G fx-85S JS-120TV MS-170LA SL-1000TV

D-20L fx-100D fx-531GH fx-85SA JS-140V MS-170T SL-1100

D-20M fx-100MS fx-546D fx-901 JS-20LA MS-20TV SL-200TE

D-40L fx-100S fx-570AD fx-911W JS-20TV MS-20V SL-210TE

D-60L fx-100W fx-570ES fx-95 JS-40LA MS-240T SL-220TE

D-60M fx-115D fx-570ES PLUS fx-95MS JS-40V MS-270LA SL-300LV

DF100 fx-115MS fx-570MS fx-991ES JS-SC MS-270T SL-300TV

DF120TM fx-115S fx-570S fx-991ES PLUS JW120TV MS-310TM SL-305TE

DF120TV fx-122S fx-570W fx-991H JW200 MS-350 SL-315TV

DF-240LB fx-220 fx-580 fx-991MS LC-1000T MS-373 SL-320TV

DF-320TM fx-250HC fx-580D fx-991N LC-1000T/TV MS-470 SL-320V

DJ-120T fx-260 fx-65 fx-991S LC-160LV MS-470LA SL-340VA

DJ-220 fx-300SA fx-75 fx-991W LC-401B MS-470LB SL-760LB

DJ-240 fx-300W fx-82 fx-992S LC-401L/LV MS-5VC SL-787LT

DM-1200T fx-350D fx-820MS fx-992VB LC-403LD MS-7T SL-797LT

DM-1200TEV fx-350ES fx-824 HC100 LC-403LD/TV MS-808V SL-910TM

DM-1400TV fx-350ES PLUS fx-825X HL-100LB M-7LB MS-80TE SX-100

DM-1600 fx-350HA fx-82C HL-1221 MJ-100 MS-80TV SX-220

DM-1600TV fx-350MS fx-82ES HL-4 MJ-100T MS-812TV SX-300

DN-858A fx-350TL fx-82ES PLUS HL-815L MJ-120T MS-8T SX-300P

DS-10TV fx-350TLG fx-82LB HL-820LV MS-1002 MS-8TV SX-320P

DS-120TV fx-350W fx-82LP HL-820V MS-100TE MW-5V WD-220T

DS-1800S fx-401 fx-82MS HL-821 MS-100TV MW-8V WM-200T

DS-1TV fx-451M fx-82Super HS-8LE MS-10TE MX8V WM-220T

CANON:

AD-11 HS-1200 TV LC-500H B LS-1200T LS-12TC LS-88Hi TS-120 TL

BS-1200TS HS-1200RS LC-500H G LS-120H LS-12TU LS-88Hi II TS-1200TG

CC-55 HS-1200TS LS-10 DT LS-120Hi LS-153TS LS-88HV B TS-120TL

F-502 HS-1200TSV LS-100 TSV LS-120Hi II LS-154H LS-88HV G TS-120TS

F-502G HS-1210TC LS-100DT LS-120L LS-154TG LS-88HV Y TS-121TC

F-604 HS-20 TG LS-100TC LS-120RS LS-22TC LS-88V TX-1210 E

F-710 KC-20 LS-100TS LS-120TSG LS-270H LS-88V II TX-1210Hi

F-715S KS-1200TS LS-100TSV LS-120TU LS-270V II LS-QT TX-1210Hi II

F-720 LC-210 Hi II LS-101H LS-120V LS-330H MP-120LTS TX-12H

F-720i LC-210HI LS-102Z LS-120V II LS-355TS MP-1211LTS WS-112H

F-760S LC-210Hi B LS-103TC LS-120V-B LS-39H MP-121DTS WS-1200TV

F-788DX LC-210Hi G LS-10DT LS-120V-G LS-566H MP-1411LTS WS-1210Hi

FC-45S LC-210Hi II G LS-120 Hi LS-120V-P LS-63TG P1-DTS II WS-1210Hi II

FC-4S LC-210Hi II GR LS-120 RS LS-121TC LS-82Z P23-DTS II WS-1210T

HS-1000TG LC-210Hi II PB LS-120 TU LS-122R LS-83TC P3420-DL WS-1410 T

HS-1200 T LC-210Hi Y LS120 V LS-123TC LS-88 L TS-10TS WS-1610 T

SHARP:
CH-312 EL-231L EL-331A EL-500M EL-509G EL-520W EL-6750

CH-412 EL-240S EL-334F EL-501 (BK) EL-509R EL-531GH EL-6810

CH-612 EL-242M EL-337C EL-501V EL-509V EL-531RH EL-6850

EL=124A EL-243S EL-338F EL-501W EL-509V/531WEL-531VH EL-771C

EL-144A EL-250S EL-339H EL-506P EL-510R EL-531W EL-M332

EL-125A EL-310A EL-376S EL-506R EL-520G EL-546L EL-M711G

EL-145A EL-310A-GR EL-378S EL-506V EL-520V EL-546VA EL-W211G

EL-2125 EL-327S EL-379S EL-506W EL-520V (BK) EL-556G EL-W531

EL-233S EL-330A EL-421M EL-509D EL-520VA EL-6053 -

HEWLETT-PACKARD:

HP 9S HP30S HP Office Calc 100 HP Office Calc 300 HP Quickcalc Lifestyle

HP 10S HP Smartcalc 300S HP Office Calc 200 HP Easycalc 100 HP Quickcalc Lifestyle
CITIZEN:

CT-580 SDC-84407E SDC-8610 SDC-8620A SLD-7008 STL-795 W-11S

ET-210 SDC-8560 SDC-8610A SDC-8975 SLD-742N TL-780 -

AURORA:
2512 DT210 DT-394 HC115 HC193 HL-125 SC-120

DB453B DT303 EB-964 HC133 HC205 MS-270LA SC582

DT120Vplus DT-393 HC106 - - - -

OLYMPIA:

ARCUS 1 HL-88L LCD-612ST SD-100HW SD-805M SD-828

HL-110 LCD-186 SD-100H SD-100V SD-81H SD-835

OTHER BRANDS:

CEBAR CD402 TL 30XS KARCE KC 539 PORPO YH-106 TAKSUN TS-217

DAL 506X KARCE-833 TEXAS TI 30 TIME BIRD SJC-122 TAKSUN TS-128B

LIFELONG KARCE KC 250 PORPO YH-105 TAKSUN TS-128 -

Other brands of desktop calculators may be allowed to be used in the CPA licensure examination subject
to inspection by the room watchers.
Concerned units are hereby directed to update the Examinee’s Kit/Guide and poster on the List of
Allowed Calculators.
This Memorandum Circular supersedes Memorandum Circular No. 2004-06 dated March 4, 2004.
Please be guided accordingly.

(orig. signed)
NICOLAS P. LAPEÑA, JR.
Chairperson
 REQUIREMENTS FORAPPLICATION FORTHE BOARDEXAMINATION
1. VALID Identification Card (School ID, GSIS/SSS, Driver’s License)
2. Original and photo/xerox copies of Transcript of Records with Special Order and Date of
Graduation SCANNED PICTURES AND WITH REMARKS “FOR BOARD EXAMINATION PURPOSES
ONLY” (Graduates of government schools and institutions/programs accredited by recognized
accredited agencies under the FAAP are exempted from SO [B]). Graduates of New Schools/degree
Programs must submit School Recognition and/or Permit to operate.
3. Original and photo/xerox copy of NSO-issued Birth Certificate (in NSO security paper; if NSO copy
not very clear, bring copy from the Local Civil Registrar)
4. Original and photo/xerox copies of Marriage Contract in NSO security paper (for married
female only; if NSO copy not very clear, bring copy from local civil registrar).
5. Four (4) passport size colored pictures in white background with complete name tag.
6. Current Community Tax Certificate (Cedula)
7. NBI Clearance
8. Other specific requirements as required by the Commission and/or Professional Regulatory Board.
 POINTERS FOR REVIEW

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

1. Partnership Accounting
I. Formation:
 Use Market Values (Based on Agreement).
 Liabilities are deducted if assume by the partnership, if silent it is assumed.
 If capital credit is not equal to the net assets contributed:

 Identify if there is an agreement that one or more partners will take

an action to make capital credit (agreed capital) = contributed
capital:
o Capital Credit > Contributed: Additional Investment

o Capital Credit < Contributed: Additional Withdrawals

 No Agreement:
o Bonus Method: Get total contributed capital and multiply by
percentage of interest. Then compare it to contributed
capital made. Difference is bonus.

o Goodwill Method: Get agreed capital (should be greater

than contributed capital) and compare with contributed
capital. Difference is goodwill.

II. Operation:
 Agreed Ratio (Based on Agreement).
 Withdrawals (Permanent) versus Drawings (Temporary, Profit Distribution).
 Salaries and Interest: Given whether the result of operation is either profit or
loss.
 Bonus: Given only when the result of the operation is profitable. Before (+),
After (-).
 Consider some additional type of profit distribution such as commission
(given only if some conditions like target sales were achieved)
 Salaries, Interest, Bonus, etc., are treated as profit distribution rather than
expenses.
 Consider minimum income agreement. If not satisfied, other partners (not the
partnership) will reduced their share in profit to satisfy a partner’s agreed
 minimum income based on new P/L ratio (exclude the partner with minimum
agreed income).
III. Dissolution:
 By Purchase:
 Purchase to one or more partners: Price paid is irrelevant to
partnership record, because it is a personal transaction only. Gain
or loss in purchasing interest is not recorded in the partnership.

 Purchase to partnership:
o Bonus Method: Get total contributed capital and multiply by
percentage of interest. Then compare it to purchase price.
Difference is bonus:
AC > PP = Bonus to New
AC < PP = Bonus to Old
o Goodwill Method:
Cash Paid X
Less: Interest Acquired (X)
Difference X
Divided by: % Acquired X
Goodwill X
 By Investing:
 Bonus Method: Total contributed capital multiply by percentage of
interest acquired. Then compare it to invested capital. Difference
is bonus:
o AC > Contributions = Bonus to New
o AC < Contributions = Bonus to Old

 Goodwill Method: Investment made = Agreed capital of incoming

partner.

 By Withdrawal or Retirement:
 Adjust Capital Balance (Share in Net Income/ (Loss), Loans to/
(from), Drawings, Capital Interest).
 Sold to outsider or existing partner: Similar to admission by
purchase (purchase to one or more partners).
 Sold to partnership:

o If payment given to retiring partner is less than his interest,

credit remaining partner’s capital, proportionately.
 Bonus Method: Difference will be credited to
remaining partners’ capital proportionately. Debit:
 Retiring Partner Capital and Credit: Cash, Existing
Partner(s) Capital
 Goodwill Method (Negative Goodwill/Asset Write-
down): The difference represents the share of the
retiring partner in the asset write-down. Debit
Retiring Partner Capital, Existing Partner(s) Capital
and Credit: Cash, Various Asset Account(Usually
Indicated)

o If payment given to retiring partner is more than his

interest:
 Bonus Method: debit remaining partners’ capital,
proportionately.
 Partial Goodwill Method: debit goodwill for the
excess.
 Full Goodwill Method: use this computation:
Cash Paid X
Less: Partner’s Capital (X)
Excess X
Divided by: Retiring Partner’s
P/L Ratio X
Goodwill X

 Incorporation
 Adjust Capital Balance
 Adjusted Capital Balance versus Par Value of Shares:
o ACB > Par: Difference is APIC or Share Premium
o ACB < Par: Difference is Goodwill

IV. Liquidation
 Combine each partner’s capital account with loans to or from partner.
 Allocate gain or loss on assets sold to partner (P/L Ratio)
 Eliminate any partner’s negative balance by allocating to remaining partners
using their P/L percentages. If silent, it is presumed the partner with deficient
balance is insolvent but if the problem state that partner is solvent, the
partner with the deficient balance will contribute cash which is equal to the
deficiency.
 Resulting balances will be the amounts to be distributed to remaining
partners.
 Cash Distribution Schedule:
 Partner R Partner L Total
Total Interest XX XX XX
Less: Loss (Actual and Possible*) (XX) (XX) (XX)
Cash Payment to Partner XX XX XX
*Possible Loss = Non-Cash Assets Balance + Estimated Future Expenses
 Safe Payment:
Book values of other asset unsold X
Add: Cash Withheld X
Maximum Possible Loss X
X: P/L Ratio per partner X
Max. Possible Loss per partner X
Less: Absorption of Deficiency (X)
Cash to be Distribute X
 Cash Priority:
Capital Interest X
Divided by: P/L Ratio X
Loss Absorption Ability* X
*Highest: First Priority, Least Vulnerable; Lowest: Opposite of the Highest

2. Corporate Liquidation

I. “Quit” Concern Assumption

II. Statement of Affairs – “The Plan”
III. Statement of Realization and Liquidation – “The Accomplishment”
IV. Procedural Approach:
 Compute the Net Free Asset = Asset Pledge (Full) – Fully Secured
Liability + Other Free Assets – Unsecured Liability with Priority.
 Compute the Total Unsecured Liability = Partially Secured Liability –
Asset Pledge (Partially) + Other Unsecured Liability without Priority.
 Compute Recovery Rate of Unsecured Liability* = Net Free Asset divided
by Total Unsecured Liability.
 Recovery Rate per Liability:
Fully Secured 100%
With Priority 100%
Partially Secured Liability:
Asset Pledge (Partially) x
Add: Excess x Total UL Recovery Rate x
Actual Recovered x AR/PSL
Without Priority UL Recovery %*
3. Joint Arrangements

I. Joint Operation:
 Rights to Assets and Obligations to Liabilities with or without Separate
Vehicle.
 With Separate Records:
Original and Additional Investment X X Withdrawals
Share in Income X X Share in Loss
Service Rendered to the Venture X X Cash Settlement
X = X
 Without Separate Records:

Contributions X X Withdrawals
Purchases and Freight-In X X Merchandise Returns
Sales Return and AllowancesX X Sales
Expenses X X Other Income
X = X

II. Joint Venture:

 Rights on net assets
 Separate vehicle only
 Equity method shall be used
 Computation of Acquisition Cost = Transaction Price + Direct Cost
 Computation of Goodwill and Gain on Bargain Purchase:
Acquisition Cost > Fair Value of Interest Acquired: Difference is Goodwill
Acquisition Cost < Fair Value of Interest Acquired: Difference is Gain on
Bargain Purchase (Added to the Retained Earnings).
 Computation of Carrying Value:
Beginning Balance (Acquisition Cost) XX
Share in Net Income or (Loss)* XX or (XX)
Share from Dividends (XX)
Ending Balance XX

*Share in Net Income or Loss:

Venture Income or Loss XX
Multiply by % of Interest x%
Balance XX
Less: Amortization of Excess:
Depreciable Asset/Remaining Life (XX)
Current Asset Understatement (XX)
 Share in Net Income or Loss XX
Note: Goodwill shall not be included in the computation of share in net
income or loss except when there is impairment.
Excess of fair value over book value of non-depreciable asset (e.g. land)
shall not be included in the computation of share in net income or loss
except if there is impairment.
If investment was acquired other than beginning of the year, share from
net income should be proportionate over the number of months the
investment has been held.

4. Special Revenue Recognition

I. Based on Collection Period (Method of Accounting)

 Accrual Method versus Installment Method versus Cost Recovery
Method:
 Collection:
o Accrual: Certain
o Installment: Uncertain
o Cost Recovery: Highly Uncertain
 Estimation of Bad Debts:
o Accrual: Possible
o Installment: Impossible
o Cost Recovery: Impossible
 Installment Method versus Cost Recovery Method:
 Installment Method recognizes gross profit upon collection,
while Cost Recovery Method recognizes gross profit after
recovery of the cost of installment sales.
 Realized Gross Profit under Installment Sales Method:
Previous Current
Installment Account Receivable Beginning X X
Add: Installment Sales X X
Less: Installment Account Receivable Ending (X) (X)
Decrease in Installment A.R. X X
Less: Defaults or Write-offs (X) (X)
Collections X X
Multiply by: Gross Profit Rate x% x%
Realized Gross Profit Current Year X X
 Deferred Gross Profit = ∑(Installment Account Receivable Ending X
Gross Profit Rate)
  Repossession:
Repossessed Value of Item (Net Realizable Value) X
Less: Unrecovered Cost:
Installment Receivable Defaulted X Cost Ratio (X)
Gain or (Loss) on Repossession X(X)

 Trade – In (Payment in Kind)

 Used Net Realizable Values (Market Values less Cost to Sell
and Rework less Normal Profit Margin)
 Compared NRV with the Trade – In Value:
o TI > NRV: Over-allowance (Deduction to Income)
o TI < NRV: Under-allowance (Addition to Income)

II. Based on Construction Period (Method of Accounting)

 Percentage of Completion Method versus Cost Recovery Method
 Percentage of Completion: Outcome of the construction can
be estimated reliably.
 Cost Recovery Method: Outcome of the construction cannot
be estimated reliably. Similar concept in cost recovery method
of Collection Period (Method of Accounting).
 Percentage of Completion Method versus Completed Contract
Method
 Percentage of Completion: Revenue is recognized as
production takes place.
 Completed Contract: Revenue is recognized when production
is finished.
 Measuring Percentage of Completion
 Input Measures (Accountant’s Approach)
o Cost-to-cost Method
o Efforts Expended Method
 Output Measures (Engineering Approach)
 Percentage of Completion = Cost Incurred to Date ÷ Total Estimated
Cost
 Current Gross Profit under Percentage of Completion Method:
Contract Price X
Multiply by: % of Completion X
Revenue to Date X
Less: Cost Incurred to Date (X)
Gross Profit to Date X
Less: Prior Gross Profit (X)
Current Year Gross Profit X
  When it is probable that total contract costs will exceed total contract
revenue, the expected loss should be recognized as expense
immediately. Loss is recognized in full amount + Prior year gross
profit.
 Change in Outcomes is accounted for as Change in Accounting
Estimates.
 Contract Revenue should comprise the initial amount of revenue
agreed on the contract + variations in contract work, claims and
incentives.
 Construction in Progress > Progress Billings: Excess is Current Asset
 Construction in Progress < Progress Billings: Excess is Current
Liabilities
 Construction in Progress Acct. (Specific Inventory Acct.):
Cost Incurred to Date X X Completed
Profit to Date X X Losses
X = X

III. Franchise Accounting

 Is Cash Refundable?
 Yes: Credit Unearned Revenue Account
 No: Proceed to the next question
 Exception: If Cash is non-refundable because it represents a
fair measures of services already performed, you may credit
revenue account.
 Are there substantial services to be performed?
 Yes: Credit Unearned Revenue Account
 No: Credit Revenue Account
 Are the notes assured of collection?
 Yes: Proceed to the prior question. Used Accrual Method in
recognizing profit.
 No: Proceed to the prior question. Used Installment Method of
Accounting in recognizing profit.
In most cases, the initial franchise fee is either entirely earned or
unearned as at a given date except when the downpayment is
non-refundable (refer to exception above) and future services are
to be performed in which case the downpayment is earned and
the future payment is unearned.
5. Home , Branch and Agencies

I. Home Office and Branch Accounting

 Separate accounting entities but not separate legal entities, and their financial
statements are used only for internal reporting purposes.
 Branch Account on the home office books is an assent account while the
Home Office Account on the branch books is an equity account. Thus, the
branch account and the home office account are reciprocal.
 Entries to record transfer of merchandise at prices in excess of cost do not
change the reciprocal relationship between the home office and branch
accounts, but they do affect the “shipment accounts” because the “shipment
to branch account” is credited at cost while “shipment from home office
account” is debited at transfer price. The difference between shipments
account lies in the mark-up that is reflected in the loading of branch
inventories account. This loading account is frequently designated
“unrealized profit branch inventories.”
 When a branch receives merchandise at transfer prices that include a loading
factor and sells that merchandise, its cost of sales is overstated and income
is understated. Adjustments are made.
 Branch Inventory at cost:
Branch Inventory (Acquired from Home Office) at Transfer Price X
Add: Shipment from Home Office X
Total X
Less: Mark – Up (X)
Branch Inventory (Acquired from Home Office) at Cost X
Add: Branch Inventory from Outside Supplier X
Branch Inventory at Cost X
 Branch Net Income:
Branch Reported Net Income (Unadjusted) X
Add: Realized Profit on Branch Inventory X
Adjusted Branch Net Income X
 Freight Costs shipped between home office and locations should be included
in branch inventory and cost of sales measurement. Excessive or
Unnecessary Freight is not part of merchandise cost but treated as a loss
account.
 Reconciliations: Errors committed by the home office or branch require
adjusting entry(s) on their corresponding books, whereas timing differences
does not require adjustments.

II. Sales Agencies

 Not a separate accounting or business entity.
6. Business Combination, Separate and Consolidated Financial Statements

I. Business Combination – Date of Acquisition

 Used Market Values
 Direct and Indirect Costs are expensed and cost of stock issuance and
registration are reduction of share premium.
 If acquisition cost is greater than market value of the net assets acquired, the
difference is goodwill.
 If acquisition cost is less than market value of the net assets acquired, the
difference is accounted as gain from acquisition. The same is included in the
income determination during the year the combination is consummated.
 Goodwill is no longer amortized but is tested for possible impairment.
 Contingent Considerations accrue on the date of acquisition if reliably
measurable otherwise disclose. If not accrued and becomes demandable in
the future:
 Charge to expense if conditions are met such as meeting income
level. Charge to share premium, if due to change in market values
of the securities issued.
 Not adjusted against goodwill.

II. Business Combination – Subsequent to Date of Acquisition

 Cost Method, Investment in subsidiary account does not change. Dividends
received shall be accounted for as investment income.
Consolidated Minority
Parent’s Net Income 100% -
Subsidiary’s Net Income CI % NCI%
Amortization of Excess (except goodwill and land) (CI %) (NCI%)
Intercompany profit on beg. inventory (ds) 100% -
Intercompany profit on beg. inventory (us) CI % NCI%
Intercompany profit on end. inventory (ds) (100%) -
Intercompany profit on end. inventory (us) (CI %) (NCI%)
Unrealized gain on sale on fixed asset (ds) (100%) -
Unrealized gain on sale on fixed asset (us) (CI %) (NCI%)
Realized gain on sale of fixed asset (ds) 100% -
Realized gain on sale of fixed asset (us) CI% NCI%
Unrecognized gain on retirement of bonds (ds) 100% -
Unrecognized gain on retirement of bonds (us) CI % NCI%
Recognized gain on retirement of bonds (ds) (100%) -
Recognized gain on retirement of bonds (us) (CI %) (NCI%)
Net Income to Parents X
+Net Income Minority X___
Consolidated Net Income X
 Ds – Downstream Sales (Parent to Subsidiary) Us – Upstream Sales
(Subsidiary to Parent).

 Unrealized gain on sale of fixed asset or unrecognized gain on retirement of

bonds are adjustments on the net income only in the year of sale or retirement.

 Realized gain on sale of fixed asset or Recognized gain on retirement of bonds

are amortization of the unrealized gain/ unrecognized gain over the life of the
fixed asset or the bonds from the date of sale or retirement.

 Consolidated Sales = Total Sales – Intercompany Sales

 Consolidated Cost of Sales = Total Cost of Sales – Intercompany Sales – Profit

in Beginning Inventory + Profit in Ending Inventory

 Consolidated Depreciation Expense = Total Depreciation – Realized Gain or +

Realized Loss

 Consolidated Interest Income = Zero

 Consolidate Accounts Receivable or Payable = Total AR or AP – Intercompany

AR or AP

 Consolidated Inventory = Total Inventory – Intercompany Profit in Ending

Inventory

 Consolidated Fixed Assets = Total Fixed Assets -/+ Unamortized gain or loss on
sale of fixed asset.

 Consolidated Bonds Payable = Total Bonds Payable – Book Value of Bonds

Retired

 Consolidated Common Stock Account = Parent’s common stock account only

 Consolidated Retained Earnings Account = Parent’s retained earning account

only +/- prior period adjustments

 The Parent has the option to measure minority interest as a direct percentage of
the fair value of the net assets of the subsidiary (partial goodwill approach) or the
number of shares held by the minority times the selling price of subsidiary’s
shares (market based, full goodwill approach).
7. Foreign Activity

I. Foreign Transactions
 Monetary Items recorded at spot rate at reporting date.
 Non-Monetary Items carried at Cost, recorded at spot rate at inception date
or date of transaction.
 Non-Monetary Items carried at Fair Market Value, recorded at spot rate that
existed when fair market value is determinable.
 Gain or Loss due to exchange difference:
 Generally in the Income Statement
 Exception, if gain or loss of an item is carried in the OCI, same
rule shall follow (reported in the OCI).

II. Translation
 Asset and Liability Accounts recorded at closing rate.
 Equity Accounts recorded at spot rate in the inception date.
 Revenue and Expense Account recorded at average spot rate.
 Translation Differences are recognized in the OCI and not in the Income
Statement

III. Hyper Inflation

 Monetary Items are not restated (Foreign Currency x Consumer Price Index).
 Non-Monetary Items carried at Cost, are restated. Consumer Price Index ÷
Based Price Index x Foreign Currency.
 Non-Monetary Items carried at Fair Market Value, are not restated (Foreign
Currency x Consumer Price Index).
 Gain or loss on restatement is recognized in the income statement.

IV. Hedging
 Two Elements of Hedging:
(1) Hedged Item (Asset and Liability or transactions that exposes the
entity to risk in the fair value or cash flow) and;
(2) Hedged Instruments (Either Derivative and/or Non-Derivative only
in case of hedging foreign currency risk):
o Forward Contract
o Future Contract
o Option Contract
o Swaps
 Highly Effective: 80-125%
 Type of Hedges:
 Undesignated Hedges:
o Hedged Item [Spot Rate: Inception Date vs BS Date vs
Maturity Date] = Income Statement
 o Hedged Instrument [Forward Rate Inception Date vs
Forward BS Date vs Spot Rate Maturity Date] = Income
Statement
 Firm Commitment (non cancellable)
o If designated at Fair Value Hedge:
 Gain or Loss Hedged Item: Income Statement
 Gain or Loss Hedged Instrument: Income
Statement, net
o If designated at Cash Flow Hedge:
 Gain or Loss Hedged Item: Not Recognized (Zero)
 Gain or Loss Hedged Instrument: Equity or Other
Comprehensive Income if Effective. Ineffective
portion goes to Income Statement. The Gain or
Loss that is accounted in the equity component will
be taken in the income statement when the related
asset or liability is already included in Income or
loss determination.
 Forecasted Transaction (designated as cash flow hedge)
 Net Investment in a Foreign Operation, Gain or Loss is recognized in
Equity or Other Comprehensive Income.
 Speculative, Gain or Loss is recognized in Income Statement.
 Foreign Currency Option Situations:
Option Spot ₱ = Exercise ₱ Spot ₱ > Exercise ₱ Spot ₱ < Exercise ₱
Call(buy) At the Money In the Money Out of the Money
Put(sell) At the Money Out of the Money In the Money
o Intrinsic Value = ∑In the money [(difference Spot ₱ vs
Exercise ₱) x Notional Amount]
o Time Value = Fair Value of Option less Intrinsic Value
o Non Exercise of Option, Loss = Fair Value of Option

 Definition of Terms:
 Forward Contract – is an agreement between a buyer and seller that
requires the delivery of same commodity at a specified future date at
a price agreed to today (Two-Sided Protection).
 Option Contract – is an agreement giving the holder the right to buy or
sell a given amount of currency at a specified price for a period at a
time (One-Sided Protection).
 Futures Contract – similar to Forward Contract except that it is not
directly negotiated
 Swap Contract – a contract in which two parties agreed to exchange
payments in the future based on the movement of some agreed upon
price or rate (Two-Sided Protection).
8. Cost Accounting

I. Job Order Costing

 Manufacturing Statement Format:
Raw Materials Beginning X
Add: Raw Material Purchases X
Raw Materials Available for Use X
Less: Raw Materials Ending (X)
Direct Materials X
Add: Conversion Cost (Labor + FOH) X
Total Manufacturing Cost X
Add: In Process Beginning X
Total goods placed into process X
Less: In Process Ending (X)
Cost of Goods Manufactured X
Add: Finished Goods Beginning X
Cost of Goods Available for Sale X
Less: Finished Goods Ending (X)
Cost of Goods Sold X

 Prime Cost (Direct Materials and Labor): Actual ; Overhead: Applied

 For Specific Job, Heterogeneous or Dissimilar Type
 Since Overhead is Applied, compare it with Actual Overhead:
 Actual > Applied: Under-Applied
 Actual < Applied: Over-Applied

 Accounting for:
 Scrap:
o Additional Revenue; or
o Cost of Sale Reduction; or
o Overhead Reduction; or
o Cost Reduction
 Spoilage:
o Abnormal – Expense or losses
o Normal:
 Internal Factors: Charged to all productions (net of
allowance)
 External Factors: Charged to specific job
 Defective Units:
o Internal Factors: Charged to all Production (net of allowance)
o External Factors: Charged to Specific Job
 II. Process Costing
 Homogeneous, Similar type of Products
 EUP Cost of Allocation:
 FIFO Method – Beginning work-in process is handled separately;
equivalent units refer only to the work done in the current period.
EUP Material* EUP Conversion Cost
WIP Beg, Finished and Transferred X X
Started, Finished and Transferred X X
WIP End X X
X X
*Added Beginning of Production: EUP WIP Beg = 0; Added During
Production EUP = 100%; Added End of Production: EUP WIP End = 0
 Weighted Average Method – Beginning work-in process is handled
separately; equivalent units refer only to the work done in the current
period.
EUP Material** EUP Conversion Cost
Finished and Transferred X X
WIP End X X
X X
**Added Beginning or During Production EUP = 100%; Added End of Production: EUP
WIP End = 0
 Accounting for Lost units:
 Normal and Abnormal:
o Start of Production (Continuous Loss) - 0
o During Production:
 With Inspection Point – Inspection %
 Without – 0
o End of Production (Discrete Loss) – 100%
Where did the loss occur?
Initial Department – no cost from preceding department
Succeeding Department – with cost
Initial:
 Started or During Production: 0
 End: Unit Cost x EUP of Lost units
Succeeding:
 Started or During: Unit Cost X EUP of Lost Units Initial
 End: Preceding Lost Units + Current Production Units
  Absorbing Units:
o Abnormal Loss: Expense (not absorbed)
o Normal Loss:
 FIFO Method:
Started or During End of
Production Production
In Process Beginning, Finished and Transferred - X
Started/Received, Finished and Transferred X X
In Process Ending X -
 Weighted Average Method:
Started or During End of
Production Production
Finished and Transferred X X
In Process Ending X -

III. Joint and By Product

 Joint Cost is allocated based on specified mode of allocation, in case problem
is SILENT, it should be allocated based on market value.
 Accounting for by-products:
 No Joint Cost Allocated: Either Increase in Revenue or Decrease in
Cost
 With Joint Cost Allocated based on specified mode of allocation.

IV. Activity Based Costing

 Traditional (DL Hours): ∑FOH ÷ DL Hrs (Generally); Single Based
 AB Costing (Cost Driver): Respective Based

V. Back flushed Costing – Just-In-Time System

 Use “Raw and In Process” Account
Raw and In Process ____
Beginning X X Ending
Raw Materials X X Backflushed
X = X

VI. Standard Costing

 Actual.> Standard: Unfavorable
 Actual < Standard: Favorable
9. Government Accounting
I. Modified Basis
II. Chart of Accounts – 3 digits
III. Accounting Reports: Trial Balance – Monthly
Financial Statement – Quarterly
IV. Receipt of Appropriation and Allotment, and Incurrence of Obligation: Memo
Entry only
V. Payment of Obligation Incurred and Receipt of NCA: Journal Entry
VI. Recognition of Accrual: Same as accrual basis
VII. Depreciation:
Salvage Value: 10% of Cost
Start of Depreciation: One month after purchase or completion
Leasehold Improvement: Whichever is Shorter (Lease Term versus
Useful life)

10. Not for Profit Entities

I. Unrestricted – No Stipulations or If any as long the one who impose it is internal
party or board of directors (Automatic Revenue)
II. Temporarily Restricted –Upon fulfillment becomes unrestricted or simply become
revenue (example: Specified Purpose, Terms and Conditions)
III. Permanently Restricted – Upon wish only of the donor can the fund become
unrestricted.

11. Insurance Contracts

I. Does not apply to PAS 39 (Financial Asset and Liability)
II. Prohibits provision that is not in existence as of balance sheet date.
III. Requires test of adequacy of recognized insurance liability and an impairment
test of an asset.
IV. Requires an insurer to keep insurance liability in its balance sheet until they are
discharged or cancelled, expires and prohibit reporting.
POINTERS FOR REVIEW

MANAGEMENT ADVISORY SERVICES

1. Management Consultancy
I. Advises = improve client’s use of capabilities and resources.
II. Consultation (answering queries based on existing knowledge) versus
Engagement (Scientific Process)
III. Areas of Consultancy:
 As to nature (corrective, progressive or opportunistic)
 As to field (Accounting and Finance versus non-accounting and non-
finance)
 Traditional versus Emerging
 As to skills needed [Basic or usual, somewhat specialize (additional study
or training is required) and highly specialized (need help from expert such
as engineers, lawyers etc.)]
IV. Analytical Process (Identifying Objectives, Definition of Problems, Gathering
Data, Evaluation, Findings and Recommendation)
V. Professional Attributes (Technical, Inter-personal, and Consulting Process Skills)
VI. Practice Standards (Personal Characteristics, Competence, Due Professional
Care, Client Benefit, Understanding with clients, Planning and Supervision,
Sufficient Relevant Data, and Communication of Results)
VII. Steps in MAS Engagement (Negotiation, Planning, Conducting, Evaluation of the
Engagement, and Post-Engagement Follow-up)

2. Management Accounting Concepts

I. Manager’s Activities [Planning, Organizing (Directing, Motivating, Subordinating,
Staffing) and Controlling
II. Financial Accounting versus Managerial Accounting (Difference is based in users
of information)
III. Controller (Financial Information) versus Treasurer (Financial Transaction)
IV. Line (provide goods and services to customers) and Staff (supporting group)
V. Code of Ethics (Competence, Integrity, Confidentiality, Credibility)

3. Cost Concepts and Analysis

I. Sacrifices to achieve the objective versus Expense versus Expenditures
II. As to Purpose [Product Cost (Production of goods and services) versus Period
Cost (Not related in the production process)
III. As to FS Presentation (Cost of Sales, Operating Expenses, Financing Costs)
IV. As to Traceability (Direct versus Indirect)
V. As to effects of decisions (Controllable and Non-controllable)
VI. As to role in decision making (Differential, Opportunity and Sunk)
VII. As to behavior (Variable and Fixed)
VIII. Cost Behavior Pattern:
Activity Changes
Variable Cost Direct
Variable Cost per unit Constant
Fixed Cost Constant
Fixed Cost per unit Inverse
IX. Cost Function: Y = a + bX
Y: Total Cost (Dependent Variable) b: Variable Cost per unit (Slope)
a: Total Fixed Cost (Y-Intercept) X: Activity Level (Independent)
X. Cost Segregation Techniques:
 Qualitative Approach
o Account Analysis
o Engineering Approach
 Quantitative Approach
o High Low Method
Compute first the variable cost per unit (b):
b = [YH – YL] ÷ [XH - XL]
Note: Choose the highest and lowest level of activity within
the relevant range. In case in XH: The higher cost should
be selected while in XL: The lower cost should be selected,
for better estimation.
o Scatter Graph / Visual Fit Approach (Least Accurate)
o Least Square Regression Analysis (Most Accurate)
1. ∑Y = na + b∑X
2. ∑XY = a∑x + b∑X2

Correlation (r): +1: Direct; 0: None; -1: Inverse

Determination (r2): 0: Curve ±1: Straight

Note: Established the cost function and then substitute the

computed variable cost per unit and selected activity level
(with their respective total cost), to compute the fixed cost.
 4. Cost Volume and Profit Analysis
I. Objective: To determine the level of sales that will maximize profit with respect to
current cost structure (ratio between variable and fixed cost)
II. Contribution Approach Income Statement:
III. Assumed Constant: Selling Price, Quantity, Unit Variable Cost, Fixed Cost,
Contribution Margin Ratio and Sales Mix, any desired changes will affect the
desired profit of the company.
Budgeted Sales - Break-Even Sales = Margin of Safety
Sales X X X
Variable Cost (X) (X) (X)
Contribution X X X
Fixed Cost (X) (X) 0
Profit X X X
IV. Contribution Margin Formula:
 Per Unit = Unit Selling Price – Unit Variable Cost
 Ratio or % of Sales = 100% - Variable Cost Ratio
 Multi-product:
Wtd. Average UCM = ∑(UCM per product X Sales Mix based in units)
Wtd. Average CMR = ∑(CMR per product X Sales Mix in peso sales)
V. Break-Even Point
 Zero Profit, Total Revenue = Total Cost, Total CM = Total Fixed Cost
 Point of Intersection between total revenue and total cost. Upper right
portion of the graph represents the profitable area while the lower left
graph represents loss margins.
 BEP PESO = Fixed Cost / CM Ratio
 BEP UNITS = Fixed Cost / UCM
VI. Margin of Safety
 Margin in which Sales can decline without incurring a loss
 Part of Actual Sales that provides the provide since BEP answer for the
fixed cost
 Budgeted Sales – Break Even Sales
VII. Degree of Operating Leverage – the ratio between contribution margin and profit;
the number of times income will change with respect to changes in actual sales.
VIII. Target Profit:
 Before Tax: (Profit + Fixed Cost) ÷ Contribution Margin Ratio
 After Tax: [(Profit after Tax ÷ (100% - Tax Rate) + Fixed Cost] ÷ CMR
 With Target Return on Sales: Fixed Cost ÷ (CMR – ROS)
IX. Indifference Point:
(UCM x Qty) – FC (Both Alternatives)
FC + (UVC x Qty)
5. Product Costing
I. Objective: To determine the amount of inventoriable cost
II. Point of Incurrence of Cost (Production [DM, DL, VOH and FOH] versus Selling
and Administrative [VSA and FSA])
III. Types of Product Costing
 Throughput (DM only)
 Variable Costing (DM, DL and VOH)
 Absorption Costing (DM, DL, VOH and FOH)
IV. Presumptions
Units Income Inventory
Production > Sold Absorption > Variable Ending > Beginning
Production < Sold Absorption < Variable Ending < Beginning
V. Absorption versus Variable Costing
Absorption Variable
Approval of GAAP Approved Not
Treatment of Fixed OH Product Period
Basis Incurrence Behavior

6. Relevant Costing
I. Objective: To conduct cost-benefit analysis with respect a given decision
II. Type of Costs:
 Relevant (Differential [Incremental versus Avoidable] and Opportunity
Costs)
 Irrelevant (Committed [Future Costs] and Sunk [Past])
III. Make or Buy decision or outsourcing decision (cost to make versus cost to
purchase). Decision Criteria: Lower cost should be selected
IV. Accept or Reject Special Orders (cost to make and sell versus discounted selling
price). Decision Criteria: if (+): Accept and if (-): Reject
V. Drop or Maintain (Loss CM versus Avoidable and Incremental Costs). Decision
Criteria: if (+): Maintain and if (-): Drop. Consider other factors when dropping a
segment
 Complimentary Products (May result to decrease of sale)
 Substitutes (May result to increase of sale)
VI. Sell or Process Further (Incremental income versus Incremental Costs). Decision
Criteria: if (+): Process Further and if (-): Do not process further
VII. Constrained Resources (CM per constrained resources)
 The Highest CM will be prioritized if there is maximum market limit and
minimum required production.
7. Budgeting
I. Objective: To express in financial terms the planned activities of management
II. Types of Budget:
 Static versus Flexible
 Rolling versus Zero Based Budgeting
 Short Term versus Long Term
 Master Budget (Operational and Financial) Versus Capital Budget
 Participative versus Imposed
III. Master Budget - Operational
 Sales
 Production
 Purchase
 Conversion Cost
 Operating Expenses
IV. Master Budget - Financial
 Cash Budget
 Cash Receipts (Cash Sales and Collection of Credit Sales based
on pattern of collection)
 Cash Disbursements (Cash Purchases and Payment of Credit
Purchases based on pattern of payment)
 Minimum Cash Balance = Treated as the zero balance, any
amount below is already considered as a negative balance
 Budgeted Balance Sheet (Balances depends on what is left of the
operational and cash budget)

8. Standard Costing
I. Objective: To set the expected (standard) performance of personnel within an
entity to emphasize management by exception
II. Development of Standard
 Cost = whatever will be recorded as part of costs under financial
accounting
 Quantity = actual content in the finished product + provisions for normal
spoilage
III. Computation of Variance
 DM Cost and Quantity Variance
 Material Price Variance: (Actual Price – Standard Price) x Actual
Quantity.
 Material Quantity Variance: (Actual Qty – Standard Qty) x
Standard Price
 DL Rate and Efficiency Variance
 Labor Rate Variance: (Actual Rate – Standard Rate) x Actual Hrs
 Labor Efficiency Variance: (Actual Hrs – Standard Hrs) x
Standard Rate
  Overhead Variance
 2 Way Analysis:
o Controllable Variance:
AFOH (Actual Overhead) x
- BASH:
Fixed (Normal Capacity X SFOR) x
Variable (Standard Hrs x SVOR) x (x)
Controllable Variance x

o Fixed Volume Variance:

BASH x
- SFOH (Standard Overhead) (x)
Fixed Volume Variance x

 3 Way Analysis:
o Spending Variance:
AFOH (Actual Overhead) x
- BAAH:
Fixed (Normal Capacity X SFOR) x
Variable (Actual Hours X SVOR) x (x)
Spending Variance x

o Variable Efficiency Variance:

BAAH x
- BASH (x)
Variable Efficiency Variance x

o Fixed Volume Variance (Similar Computation in 2 way

analysis)

9. Responsibility Accounting
I. Objective: To set up an evaluation system to emphasize management by
objective
II. Type of Organizational Structure: Centralized versus Decentralized
III. Types of Responsibility Center (Cost, Profit and Investment Center)
IV. Evaluation
 Profit Center – Segmented Income Statement (Contribution format
income statement except that fixed cost is classified either
direct/traceable or indirect)

 Investment Center:
o ROI = Net Income/Investment (Investment = average assets); or
Asset Turnover x Return on Sales
 o Residual Income = Actual Profit – Minimum Income*
*Minimum Income = Invested Capital x Imputed Interest
o Economic Value Added = After Tax Profit – [(Total Asset – Current
Liability) x Weighted Average Cost of Capital]

10. Transfer Pricing

I. Objective: To set a price that will aid intercompany transactions
II. Ceiling Price: Market Value of Units (Seller = Sale Price; Buyer = Outside
Purchase Price)
III. Floor Price: Variable Cost of Units
IV. Negotiated Price: Relevant cost to make and sell (Incremental Cost +
Opportunity Cost)

11. Financial Statement Analysis

I. Objective: To interpret the FS in order to evaluate the risks and profitability of
reporting entity
II. Type of Analysis
 Horizontal or Trend Analysis: (Current Year 'X’ – Based Year ‘X’) ÷ Based
Year ‘X’
 Vertical or Common Size Analysis: (Account Balance ÷ Based Amount)
 Ratio Analysis:
 Profitability Analysis (return on acct. “X” = Net Income ÷ acct. “X”).
 Liquidity and Activity Ratio:
o acct “X” turnover = Income Statement Acct ÷ acct. “X”
o age of “X” acct. = (360 or 365) ÷ acct. “X” turnover
o Current Ratio = Current Asset ÷ Current Liabilities
o Quick Ratio = Current Asset (excluding inventory and
prepayments) ÷ Current Liabilities
 Growth Ratio and Solvency Ratio [(“x to y” ratio or “x-y” ratio)] =
acct. “X” ÷ acct. “Y”

12. Activity Based Costing

I. Objective: To provide a more accurate cost allocation technique
II. Similar concept in Advanced Accounting and Reporting
 13. Financial Management - Financing
I. Concept of Present Value (i=Prt)
II. Leverages (Operating and Financing Leverage)
III. Weighted Average Cost of Capital:
Sources Costs
Debt After tax interest rate*
Preferred Stock Dividend Yield**
Common Stock Dividend Yield** + growth %
Retained Earnings Dividend Yield*** + growth %
* Interest yield rate x (1 – tax rate)
** Dividend yield = [Dividends per share ÷ Price per share(net of flotation
cost)]
***Flotation Cost is not deducted
IV. Capital Asset Pricing Model and Growth Model

14. Financial Management – Capital Budgeting

I. Net Cost of Investment – How much strategic amount of capital is needed?
 Cash Outflow – Cash Inflow = Net Cost of Investment
 Cash Outflow = Purchase Price + Direct Cost + Additional tax from
savings and gain on disposal of an old asset + Increase in working capital
 Cash Inflow = Proceeds from sale or Trade-in allowance + Tax savings
from loss on disposal of an old asset + Avoidable cost
II. Net returns – How would the investment be recovered?
 Annual Net Income After Tax = Operating Profit – Income Tax
 Annual Cash Inflows = A.N.I.A.T. + Non Cash Expenses
III. Project Evaluation Techniques:
Model Concept of Focus of Decision
net returns measurement Criterion
1. Payback Period Net Cash Inflow Liquidity shorter: better
2. Payback Reciprocal Net Cash Inflow Liquidity higher: better
3. Payback Period Net Cash Inflow Liquidity shorter: better
4. Accounting Rate of Return Profit Profitability higher: better
5. Net Present Value Net Cash Inflow Liquidity (+): Accept; (-): Reject
6. Profitability Index Net Cash Inflow Liquidity (>1): Accept; (<1): Reject
7. Discounted Payback Net Cash Inflow Liquidity shorter: better
8. Internal Rate of Return Net Cash Inflow Liquidity higher: better
 No. 1, 2, 3 and 4: Traditional Model (Doesn’t consider time value of money)
No. 5, 6, 7 and 8: Discounted Model (Consider time value of money)
 Payback Period: Even = Net COI ÷ Annual Cash Inflow
Uneven = Net COI ÷ Cash to date
 Payback Reciprocal = 1 ÷ Payback Period
 Payback Bailout = (Net COI less Residual Value) ÷ Cash to date
(Uneven) or Cash Inflow (Even)
 Accounting Rate of Return = Profit ÷ Average Investment
 Net Present Value = PV of Cash Inflow – PV of Cash Outflow
 Profitability Index = PVCI ÷ PVCO
 NPV Index = NPV ÷ PVCO
 Discounted Payback: PVCI = Net Cost of Investment (Similar to Payback
Period)
 Internal Rate of Return: PVCI = PVCO, NPV = 0, Profitability Index = 1

15. Financial Management – Working Capital Management

I. Working Capital:
 Temporary versus Permanent Asset
 Spontaneous, Temporary versus Permanent Financing
II. Inventory Management:
 How much to order: EOQ (Carrying Cost = Ordering Costs)
 When to order: Re - Order Point:
 Carrying Cost versus Stock Out Cost
 Lead Time x Daily Usage + Safety Stock
III. Receivable Management:
 To offer or relax credit term (Increase in CM versus Bad debts, Collection
Costs, Opportunity Costs due to increase in investment in receivable)
 To be strict [Decrease in Receivable = freed cash = additional investment
income versus cost of collection (either by offering discount or lockbox
system)
IV. Cash Management:
 Float: Maximize Disbursement Float (Positive Float) and Minimize
Collection Float (Negative Float)
 Optimal Balance: Similar to EOQ of Inventory Management
 Cash Conversion Cycle = Inventory Days + Receivable Days – Payable
Days. Minimize Inventory and Receivable days and Maximize Payable
days. The shorter the cycle the better.
V. Marketable Securities Management:
 Private MS is better than Government MS
VI. Financing Working Capital:
 Aggressive: Higher Risk, Higher Return, Lower Current Asset, Higher
Current Liabilities, Lower Working Capital
  Conservative: Lower Risk, Lower Return, Higher Current Asset, Lower
Current Liabilities, Higher Working Capital
16. Quantitative Techniques Applied in Business
I. Linear Programming
 Use linear relationships of variable
 Made use of certain math techniques to get the possible solution
(maximize profit or minimize cost)
 Parts:
 Objective Function: Introduced by the word “maximize or
minimize”
 Constraints: Introduce by the word “subject to”
 Ways to Solve:
 Graphical
 Simplex [Usage of Slack (less than) and Surplus (more than)]
II. Profitability Analysis and Decision Theory
 Decision Alternative – Courses of action available to the decision maker
(square)
 States of Nature – Future events which are not normally under control of
decision maker (circle)
 Optimal Decision – Best Decision Alternative
III. Decision Making under Certainty
 Depend on two factors:
 Probability of Incurrence
 Amount to be received in relation to the event
Expected Value = Probability X Amount
Payoff Criterion: Highest
Opportunity Cost Criterion: Lowest
IV. Learning Curve
V. Forecasting: Extrapolation (With stable analysis) versus Judgmental (based on
opinion)
VI. Program Evaluation and Review Technique

Mean (Expected) “E” = (P + 4M + O) ÷ 6

Pessimistic Time (P): The time activity would take if things did not go to well
Most Likely Time (M): Consensus best estimate of the activity’s duration
Optimistic Time (O): The time activity would take if things did go to well
VII. Critical Path Method:
 Critical Path: Longest Pair which have no slack time and avoiding a delay
is a must
 Slack Time: Time which an entity can have delay
17. Information Technology
I. Systems Development and Life Cycle:
Planning, Analysis, Design, Development, Testing, Implementation, and
Maintenance
II. Type of Testing: Unit versus System versus Integration versus User Acceptance
III. Implementation Phase:
 Parallel: Used both systems simultaneously until new system operates
properly
 Direct or Plunge: Use new system immediately (Old system ceases to be
used immediately)
 Pilot: Until one group of individuals satisfied with the new system, it will be
implement to all group
 Phased: Installation in a series of phase
IV. Type of Computers
 Supercomputers
 Mainframe computers
 Servers
 Micro computers
 Tablets or Smartphones
V. Part of Computers
 Hardware: CPU, Storage Devices, Input and Output Devices
 Software: General and Application Software
18. Emerging Business Concept and Philosophy
I. Just In Time System:
 Fewer Supplier
 Frequent Delivery
 Zero or Lower Carrying Cost
 Higher Risk of Stock-out
II. Total Quality Management:
 Continuous Improvement
 Customer and Employee Relation
III. Business Process Re-engineering
 Complete Redesigning of Process
 Eliminate Non Value Added Activity
IV. Kaizen Costing
 Small Continuous Cost Reduction
V. Theory of Constraints
 Focuses on Constraints for Efficient Production
VI. Corporate Social Responsibility
 Sustainable Business Practices with regards to employee, community and
environment

 VII. Benchmarking
 Comparison of Company’s Business Practices and Performance
VIII. Value Engineering
 Systematic Approach to Reaching Cost Levels During Value Chain Analysis
IX. Activity Based Management
 Process of studying activities and classify them and devise ways to eliminate
or minimize value added activities
 Activities and Time:
 Process or Service Time – Value Added
 Inspection Time – Non Value Added
 Transfer Time – Non Value Added
 Idle Time – Non Value Added
X. Quality Cost
 Prevention Cost – Before Production
 Appraisal Cost – After Production
 Internal Failure Cost – Before Delivery
 External Failure Cost – After Delivery
XI. Balanced Scorecards
 Allow managers to look at the business from four important perspectives
 Customer – Lead Indicator
 Internal Process – Lead Indicator
 Innovation – Lead Indicator
 Financial – Lag Indicator

18. Feasibility Study

I. Stages:
 Identification – the establishment of the objectives to be attained
 Pre-Selection Stage – should include:
 Market Description
 Outline of Manufacturing Process
 Information concerning availability of materials and labor
 Estimate of necessary investment and cost of cooperation.
 Estimate of return on investment
 Statement of anticipated major problems and risks
 Analysis Stage
II. Components of a Project Feasibility Study:
 Economic Feasibility – contains a brief description of market, analysis of past
and present demand and supply broken down as to sources or segments,
estimated future demand for the product with the estimate of the project’s
share of the market
 Marketing Feasibility – contains the product description, the related prices,
places of distribution, and promotional activities.
  Technical Feasibility – the manufacturing process, plant sizes, lay-out and
location, production schedule, machinery and equipment required, study of
the availability of raw materials, utilities, and labor required, determination of
type and quantity of wasted to be disposed of, and estimated of the
production cost of the product
 Management Feasibility – management structure, human resource policy on
hiring, promoting, and terminating employees, salary and compensation
scheme, compatibility with industry
 Financial Feasibility – audited financial statements, statement of total project
costs, financial projection and analysis
 Social Desirability Analysis – to evaluate the project’s contribution to the
environment, community and economy.
19. Economics
I. Determinants of Demand and Supply:
Demands: Supply:
A. Primary: Price (Inverse) A. Primary Price (Direct)
B. Others: B. Others:
Income Technology
Population Cost of Production
Taste and Preference Taxes and Subsidies
Demand > Supply: Shortage
Demand = Supply: Equilibrium
Demand < Supply: Surplus
II. Elasticity of Demand:
 Price:(>1): Elastic; (<1): Inelastic; (=1):Unitary Elastic; (0):Perfect Inelastic
 Cross: (+): Substitute; (-): Complements; (0): Unrelated
 Income: (+): Normal; (-): Inferior; (0): Unrelated
III. Market Structures:
No. of Sellers Products Price Control Entrants
Pure Competition Very large Identical No Control Easy
Pure Monopoly Single Seller Unique Considerable Restricted
Monopolistic Large Same but Limited Easy
Competition brand is
differentiated
Oligopoly Few Seller Identical or Circumscribed Difficult
differentiated
IV. Business Cycle:
 Turning Points: Peaks versus Depressions
 Major Phases: Recessions(long run), Decline(short run) and Recovery
 POINTERS FOR REVIEW

REULATORY FRAMEWORK FOR BUSINESS TRANSACTION

1. Law on Obligations
I. Requisites:
 Parties: Active (Creditor) and Passive (Debtor)
 Prestation: To give, to do and not to do
 Juridical Tie: Law, contracts, quasi-contracts, delicts and quasi-delicts
II. Obligations of Debtor:
 To Give (Specific):
 Specific performance, even if the other thing is the same value or
higher, the creditor is not bound to accept it
 Exercise diligence of a good father of a family unless expressed
by law or stipulated
 Deliver its accessories and accessions
 Pay damages in case of breach of contracts
 To Give (Generic):
 Neither superior nor inferior quality must be deliver
 Pay damages in case of breach of contracts
 To Do and Not to Do:
 Specific performance
 Pay damages in case of breach of contracts
III. Breach of Contracts:
 Delay (Mora)
 General Rule: No demand no delay
 Exceptions:
o Time is essence
o Stipulated
o Law
o There is performance by a party in a reciprocal obligations
o Demand is useless
 Fraud (Dolo)
 Dolo Causante: Voidable, cannot demand damages
 Dolo Incidente: Give rise to demand damages
 Note: Waiver for future fraud is void, while past fraud is valid
 Negligence (Culpa):
 Culpa Contractual (With Contracts)
 Culpa Aquillana (Quasi-Delicts)
 Culpa Criminal
 Contravention
IV. Rights of a creditor
 Specific:
 Ask for performance
 Damages
 Generic:
 Ask for performance
 Ask that the obligation to be complied with at the debtor expense
 Damages
V. Fortuitous Event
 Specific:
 General Rule: Extinguish
 Exceptions:
o Stipulations
o Requires assumption of risk
o Law (In case of breach of contracts)
 Generic: Not Extinguish
VI. Rights
 General Rule: Transmissible
 Exceptions:
 Law
 Stipulations
 Personal in Nature
VII. Remedies of a creditor
 Exact fulfillment
 Pursue the leviable properties of the debtor
 Accion Subrogatoria
 Accion Pauliana
VIII. Kinds of Obligations:
 Pure Obligation: No condition, demandable at once
 Conditional:
 Suspensive: Upon happening, obligation arises
 Resolutory: Upon happening, obligation extinguish
 Potestative: Depend upon the will of one of the contracting party.
In case of potestative suspensive (debtor) - void
 Casual – Depend upon chance or upon will of a third person. In
case of false hope or chances that will never happen – void
 Positive – an act is supposed to be performed
 Negative – an act is supposed to be omitted
 Note:
o Resolutory Condition – Demandable at once
o Obligation to do impossible things – Void
o Obligations not to do impossible things – valid and
demandable at once
 o If one party prevented the obligation to happen, it is
deemed fulfilled
o During pendency of condition:
 Loss and Deterioration:
 With Fault: Liable
 Without Fault: Not liable
 Improvement:
 By nature or time: benefit of creditor
 Debtor’s expense: if can be taken without
damage, it will be back to the debtor, but if not,
it is still benefit of the creditor
 Obligation with a period:
 Suspensive: Upon arrival, obligation arises
 Resolutory: Upon arrival, obligation extinguished. Demandable at
once
 Benefits of both party (General Rule)
 In case benefit of one only:
o Benefit of debtor – Premature payment to creditor is
allowed but premature collection of creditor to debtor is not
allowed
o Benefit of creditor – Premature collection to debtor is
allowed but premature payment of debtor to creditor is not
allowed
 Debtor losses the right to make use of the period:
o Insolvency unless he gives a guaranty or surety
o Fail to furnish guaranty or surety
o Impaired said guaranty
o Violated any undertaking
o Abscond attempt
 Alternative Obligations:
 General Rule: Right of selecting among prestations – Debtor
 Exceptions: Creditor if stipulated
 Limitations:
o No impossible or unlawful type of prestations
o No more right to select if only one is available
o Cannot choose part of one prestation and part of another
 Facultative Obligations:
 Right to choose is always given to the debtor even if not stipulated
 Before Substitution (In case of lost):
o Principal: Without fault – not liable; With fault – liable
o Substitute (With or Without Fault) - Not liable
 After Substitution (In case of lost):
o Principal (With or Without fault) - not liable
o Substitute: Without Fault – not liable; With Fault – liable
 Joint and Solidary Obligation:
 Solidary: treated as “1” versus Joint: treated based on “x”
 General Rule: treated Joint
 Exceptions (treated Solidary):
o If Stipulated
 Solidaria; in solidum; together and/or separately;
individually and/or collectively; jointly and severally; “I
promise to pay” signed by two or more persons
o Nature of obligation and required by law:
 Persons who are guilty of delicts, quasi-delicts and
fraud
 Bailees in commodatum
 Principals in agency
 Joint indorsers in nego
 Payees who receives payment under the principle of
solution indebiti
 Gestors in negotiorium gestio
 Related rule (Solidary):
o Insolvency of one should be shouldered by others
o A solidary debtor paying the entire obligation shall be
entitled to reimbursement plus interest computed as follow:
 If paid at or after maturity, interest shall run from the
date of payment until reimbursement is made
 If paid before maturity, interest shall run from the date
of maturity
o Physical and mental incapacity of one doesn’t make others
liable for their incapacitated debtors
o Remission of the share of one of the creditors will not
affect his liability as a solidary debtor
o Remission of entire obligation shall not give rise the right to
demand reimbursement
o Payment made by one debtor after the prescription cannot
demand reimbursement to others
 With a penal clause
 General Rule: Penalty can be substitute for damages
 Exceptions: (Obligee can recover penalty plus damages)
o Stipulation
o Obligor is sued for refusal to pay penalty
o Obligor is guilty of fraud
 When penalty may be reduced:
o Principal obligation is partly or irregularly complied
o Penalty is iniquitous or unconscionable
 Penalty is an accessory (in case principal is void penalty is also
void)
IX. Rights to the fruits – Principal must be specific even without stipulation
 Ordinary Contracts or Obligation:
 No condition imposed – creditor is entitled at the time the
obligation to deliver the principal thing arises
 With suspensive condition – debtor is entitled to the fruits unless
stipulated
 Contract of Sale – buyer or vendee is entitled as early as perfection
 Contract of Pledge – debtor/pledgor is entitled unless stipulated
X. Mode of Extinguishment:
 Payment or Performance:
 General Rule: Creditor is not bound to accept payment or
performance by third person
 Exceptions:
o Third person is interested for the fulfillment
o Stipulation
Note: Rights of third party:
 With consent of debtor:
 Reimbursement
 Subrogation
 Without consent:
 Reimbursement only (beneficial part only)
 In case of donation:
 With consent – valid
 Without consent – invalid
 Must be in legal tender (payment in cash not checks or other
negotiable instruments)
 Special forms of payment:
o Application of Payment:
 Debts must be due (same kind)
 Debtor is given the preferential right to apply,
unless stipulated or doesn’t make any designation
 If neither makes a designation, apply it first to the
most burdensome. In case of same nature or
burden, apply it among them on a pro-rata basis
o Dation in Payment:
 Property alienated by the debtor to the creditor in
satisfaction of debt in money; transmission of
ownership of a thing as an accepted equivalent of
the performance of the obligation.
 Governed by the law on sales
o Payment by Cession:
 Debtor abandons all of his properties for the benefit
of creditors, in order that proceeds may serve as
payment.
 o Consignation:
 General Rule: Shall produce effect of payment only
if there is a valid tender of payment
 Exceptions:
 Creditor is absent or unknown
 Creditor is incapacitated to receive payment
(valid only to the extent it become beneficial
to the incapacitated creditor)
 When two or more persons claim the right to
collect
 When the title of the obligation has been
lost
 When without just cause the creditor
refuses to give a receipt
 Withdrawal:
 Before acceptance – obligation shall remain
in force
 After acceptance – obligation shall be
revived
 Place of payment:
 Specific – location or thing
 Generic – domicile of debtor, but in case of
changes expenses should be charged if:
good faith - creditor should still bear the
expenses while if bad faith – debtor must
bear the expenses

 Condonation or Remission
 Must comply with the forms of donation:
o Immovable Property: Regardless of amount – Must be in
public instrument
o Movable/ Personal: “> 5k” must be in writng; “≤ 5k” can be
oral

 Confusion or Merger of Rights:

 Merger of the characteristics of the creditor and debtor in one and
the same person by virtue of which the obligation is extinguished
 In case (Creditor to Guarantor) – only the guaranty is
extinguished, the guarantor can still go after the debtor and
becomes the new creditor
 In case (Joint Obligation) – only the person with the debts to and
receivables from the creditor is extinguish, others remain liable on
their part
  Compensation:
 Bound reciprocally
 Same kind and quality
 Both are due
 Liquidated and demandable
 No retention or controversy to third and communicated in due time
 Not susceptible to compensation:
o Contracts of deposit
o Contracts of commodatum
o Claims for support due by gratuitous title
o Obligation arising from criminal offense
o Certain obligations in favor of government
 Novation:
 Change objects or principal conditions
 Substitution of debtor
 Subrogation of new creditor
 Two forms of subrogation:
o Expromission:
 Without knowledge
 Against the will of debtor
o Delegacion
o With knowledge
 General Rule: Subrogation cannot be presumed
 Exceptions:
o Creditor pays another creditor who is preferred, without
debtor’s knowledge
o A third person not interested in the obligation, pays with
the express or tacit approval of the debtor
o When even without the debtor’s knowledge, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to latter’s share.

2. Contracts
I. Characteristics:
 Autonomy of wills or liberty of contract - may stipulate anything as long
as it is legal
 Mutuality – both parties must be bound
 Obligatoriness - have force of law
 Relativity – binding only between parties, their assigns and heirs, except
those rights and obligations not transmissible
 II. Essential Elements:
 Consent (Common):
 Offers:
o Must be certain
o Advertisements are not definite offers but mere invitation
only
o Becomes ineffective if something happen to either parties if
not yet accepted
o Allowed to be withdrawn until not yet accepted except with
option contract
 Acceptance:
o Must be absolute and not counter offers
o Will take effect only at the time it came to offerer’s
knowledge
 Object (Common):
 All things which are not outside the commerce of men, including
future things
 Legal
 Cause (Common):
 Onerous – cause is prestation
 Remuneratory – cause is service or benefit
 Gratuitous – cause is liberality
 Requisites:
o Must exist
o Lawful
o Must be true, in case of false it does not automatically
render it as void if the first two requisites still are present
 Formalities (For formal or solemn contracts only)
 Delivery (For real contracts only)

III. Defective Contracts:

Rescissible Voidable Unenforceable Void
Origin of Defect Damage or Incapacity of one Entered into Absence of any
lesion party behalf of another essential
person without requisites or
Required by law Vitiated consent authority or elements
excess of
authority
Non-compliance
with statute of
frauds
Incapacity of
both party
 Damaged or Necessary Not Necessary Not Necessary Not Necessary
Prejudiced
Legal Effect Valid until Valid until Inoperative until Do not produce
rescinded annulled ratified effect
Remedy or Rescission Annulment Personal Declaration of
Action defense only nullity
Person who can Gen. Rule: Gen. Rule: Contracting party Contracting party
file Contracting Contracting only and third person
Party Party if his interest is
directly affected
Exception: Exception: Third
Creditor who is person
defrauded prejudiced
Susceptability of Need not be Susceptible Susceptible Not susceptible
Ratification
Prescription of 4 yrs 4yrs Not written–6 yrs Does not
Action prescribe
Written – 10yrs

IV. The following contracts are void if orally entered [must be in writing (enough) or
public instrument (better)]:
 Donation of real estate – regardless of value
 Donation of movable (> ₱5000)
 Stipulation of interest, but the contract of load is still valid (since the
interest is an accessory obligation)
 Agency contract and consequently contract of sale – sale of land through
an agent
 Stipulation limiting carrier’s liability to less than extra-ordinary diligence
 Contract of Anthicresis
V. The following are unenforceable if orally entered:
 Agreements not to be performed within one year
 Promise to answer for the debt, default or miscarriage of another
 Agreement in consideration of marriage other than mutual promise to
marry
 Contract of lease for a period longer than one year
 Agreements for the sale of property or interest therein
 Representation as to credit of a third person
VI. Type of Real Contracts:
 Pledge
 Commodatum
 Deposit
 Mutuum
3. Contract of Sale
I. Essential Requisites:
 Objects:
 Seller must have the right to transfer ownership of the thing, not at
the time of perfection but at the time of delivery
 Things having potential existence may be object of contract of
sale except future inheritance
 Emptio Rei Sperati – Future thing, Not effective upon non-
occurrence
 Emptio Spei – Hope, Effective even if non-occurrence.
 Sale of vain hope or expectancy – void
 May sell divided interest therein in case of co-ownership
 May be subject to resolutory condition
 Sale of fungible goods:
o Delivered > Sold: Co-ownership
o Delivered < Sold: Seller is bound to deliver the remaining +
damages
 Loss of the object:
o Before perfection – seller bears the loss
o At the time of perfection – contract is void or inexistent.
Seller bears the loss
o After perfection but before delivery or after delivery – buyer
bears the loss
 Consent
 Cause (Price):
 Gross Inadequacy:
o Default Consent: - Voidable
o Other intentions not contract of sale (simulated for other
reasons other than contract of sale) - Void
II. Related Terms and Comparisons:
 Sale (general, ordinarily) versus Piece of Work (specific customers,
incidental or special order)
 Sale (Money) versus Barter (Other thing or property except money):
 If partly money and partly another thing:
o Depends upon the intention
o Intention not clear:
Thing > Money: Barter
Thing ≤ Money: Sale
 Sale (upon delivery, positive resolutory, risk of loss: buyer) versus
Contract to sell (upon complying, negative resolutory, risk of loss: seller)
III. Kind of Delivery:
 Actual or Real
 Constructive:
  Legal Formalities or Public Instrument
 Quasi Traditio – Incorporeal property
 Traditio symbolica or tradition clavium
 Tradition longa manu – pointing
 Tradition brevi manu – buyer already in possession
 Traditio longa manu – seller is still in possession until buyer is fully
paid
IV. Earnest Money versus Option Money
Earnest Money Option Money
Partial payment of the purchase price Not part of purchase price
Considered proof of perfection of sale Proof of the perfection of option
contract
May file action for specific performance Specific performance only
or rescission

V. Persons incapacitated to enter in a contract of sale

 Minors and other incapacitated persons
 Husband and wife except when there is a separation of property (agreed
upon or judicial)
 Persons whose position and relation with the owner is fiduciary in nature:
 Guardians
 Agents
 Executors and administrators
 Public officers and employees
 Judicial officers and employees
 Lawyers
 The seller in an auction sale cannot bid unless there has been reservation
of the right
 Unpaid seller cannot buy the goods sold by him in case of resale
VI. In case of sale by a person who is not the owner at the time of delivery:
 Buyer doesn’t acquire title even if good faith
 Exceptions (Acquires valid title):
 The owner is stopped by his conduct
 Under recording laws
 Sales sanctioned by judicial or statutory authority
 Purchase in a merchant’s store, fairs or markets
 Title of the seller was merely voidable or defective at the time of
sale
VII. Remedies of unpaid seller
 General
 Action for specific performance + damages or
 Action for rescission + damages
 Special
 Sale of personal property under installment (Recto law)
o Specific performance, if not paid;
 o Rescission, in case of default of 2 or more installment
o Foreclosure of chattel mortgage on the thing sold in case
of default of 2 or more installments. In this case, the seller
shall have no further action for deficiency judgment
o Note: Installment paid maybe retain by seller if expressly
stipulated. Remedies are alternative and not cumulative.
In case of DEFICIENCY In case of EXCESS
Sale of movables on
installment basis (Recto
Law):
Specific Performance Recoverable Law is silent – goes to the
(Judicial Foreclosure) owner
Foreclosure by the seller ABSOLUTE RULE: Not Law is silent – goes to the
recoverable, any seller unless stipulated
stipulation is void
 Sale of goods:
o Lien
o Stoppage in transitu
o Resale of thing
o Rescission
 Sale of real property under installment (Maceda law)
o Specific performance without additional interest
o Rescission
o Right on Installment:
 < 2 yrs: Absolute
 ≥ 2 yrs: not more than 50% of installment paid only
VIII. Rule in case of double sale:
 Personal property – 1st possessor in good faith
 Real property:
 Recorded the sale in registry of property
 If not, first possessor in good faith
 If none of the above, oldest title in good faith
IX. Area or number is < or > than stated in contract
 “>”:
 Refuse: Do not pay or
 Accept: Pay
 “<”:
 Price Reduction
 Cancellation if deficiency ≥ 10%
X. Warranty – Implied Elements
 Against eviction:
 Elements:
o Deprivation of thing purchase and financial judgment
 o Summon in the suit of eviction
o No waiver of warranty by the vendee
 Remedies:
o Total Eviction:
 Value of the thing at the time of evicition
 Income or fruits if he has been ordered to deliver
them to the party who won the suit
 Costs of the suit
 Expenses of the contract
 Damages and interest if the sale was in bad faith
o Partial Eviction:
 Similar to total eviction
 Rescission
 Waiver:
o Consciente – without knowledge
o Intencionada – with knowledge
 Against hidden defects
 Elements:
o Defect must be serious
o It must be hidden
o It must exist at the time of sale
o No prescription yet 6 mos. from delivery of thing or 40 days
in case of animals)
o No waiver of warranty
 Remedies of the buyer:
o Accion Redhibitoria (rescission) – avoidance of a sale in
account
o Accion quanti minoris (reduction of the price)
 As to fitness or merchantability:
 Goods are reasonably fit for the purpose for which they are sold
XI. Extinguishment of Sale (Redemptions)
 Conventional:
 If no agreement to redeem: no right of redemption
 If with agreement:
o If no stipulated time: 4 yrs only
o If with stipulation: up to 10 yrs only (maximum period in the
stipulation)
 Legal:
 Must be paid in case of redemption: price of sale, expenses of
contract and other necessary expenses
 Instances of legal redemption:
o Sale of co-owner of his share to stranger
o Incorporeal rights in litigation sold
o Sale of heir his hereditary rights to stranger
 o Sale of adjacent rural lands not exceeding 1 hectare
o Sale of small urban lands merely for speculations
o An equity of redemption in case of judicial foreclosures
o A right of redemption in case of extra-judicial foreclosures

4. Contract of Agency
I. Parties in a contract of agency and their effect if incapacitated:
 Principal, if incapacitated:
 Contract of agency and transactions entered by agent on behalf of
the principal are both voidable
 Agent, if incapacitated
 Contract of agency is voidable but transactions entered by agent
on behalf of the principal is valid
II. Acts that may be delegated:
 Lawful
 Not personal in nature
III. Effect of Agent’s Act:
 With authority:
 In principal’s name – valid
 In his own name – not binding on the principal, except regarding
things belonging to principal or when the principal ratifies the
contract or derives benefit there from.
 Without Authority or excess of authority:
 In principal’s name - unauthorized and unenforceable but may be
ratified, in which case, may be validated retroactively from the
beginning
 In his own name – valid as between the agent and the third
person
IV. Agency couched in general terms versus specific terms:
 General terms:
 General power of attorney is needed
 Acts of administration or acts of management
 Specific terms
 Special power of attorney is needed
 Acts of strict dominion or acts of ownership
V. Obligations of an agent:
 Carry out agency in accordance with its terms
 Act within the scope of his authority
 Act in behalf of the principal
 Answer for damages which through his non-performance the principal
may suffer
 Exercise diligence
  Not to carry out the agency if its execution would result in loss or damage
to principal
 Not to prefer his own interest to that of his principal
 Render an account of his transactions, any waiver is void
 Answer for his fraud or negligence
 Pay interest on funds he has applied to his own use
 Agent’s liability when he appoints a substitute:
 Authorized by Principal:
o Designated by principal: not liable
o Not designated: liable only if person appointed is
notoriously incompetent or insolvent
 Not authorized but not prohibited by Principal: liable
 Prohibited: all acts of the substitute are void
VI. Obligations of the principal:
 Comply with all the obligations which the agent may have contracted
within the scope of his authority
 Advance to the agent sums necessary for the execution of agency
 Reimburse the agent for all advances made except for stipulated limits or
fixed funds agreed upon and agent’s fault
 Indemnify the agent for all damages which agent may suffer
 Pay the agent the compensation agreed upon
VII. Modes of extinguishment of agency:
 Revocation
 Withdrawal
 Death, civil interdiction, insanity or insolvency
 Dissolution
 Accomplishment of the purpose of agency
 Expiration
 Other modes:
 Mutual consent
 Novation
 Loss of subject matter of the agency
 Outbreak of war if inconsistent with the agency

5. Contract of Commodatum, Guaranty, Deposit, Antichresis, Pledge and

Mortgage
I. Contract of Loan (Borrowing)
 Commodatum (Not consumable):
 Essentially gratuitous
 Bailor/ lender retains ownership
 Perfected upon delivery of a thing
  Consumable goods may be subject of commodatum if the purpose
of the contract is not the consumption of the object, as when it is
merely for exhibition
 Movable or immovable property may be the object of
commodatum
 The bailor in commodatum need not be the owner of the thing
loaned
 Commodatum is purely personal in character. Consequently:
o The death of one of the party extinguishes the contract
o The bailee can neither lend nor lease the object of the
contract to a third person. However, the members of the
bailee’s household may use the thing loaned except if
stipulated
 Bailees in commodatum is solidary liable, unless stipulated
 Mutuum (Money or any other fungible thing)
 May be gratuitous or with a stipulation to pay interest
 A person who receives is bound jointly, unless stipulated
II. Guaranty (Jointly) and Suretyship (Solidary)
 The guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor, and has resorted to all the
legal remedies against the debtor
III. Deposit (Safekeeping only)
 Perfected upon delivery
 Generally gratuitous, except when stipulated or nature of business is
storing goods
 Only movable things may be the object of a deposit, exception if
immovable property is subject by law itself
IV. Antichresis
 Right to receive the fruits of an immovable of his debtor, with the
obligation to apply them to the payment of the interest, if owing, and
thereafter to the principal of his credit
 Must be in writing otherwise void
 Creditor is obliged to pay the taxes and charges upon the estate unless
stipulated
 Creditor is also bound to bear the expenses necessary for its preservation
and repair and shall be deducted from the fruits
V. Pledge and Mortgage
Pledge Real Mortgage Chattel Mortgage
Accessory Contract
Pledgor/mortgagor must be the absolute owner of property pledged or mortgage
Things pledged/mortgaged may be alienated when principal obligation becomes
due for payment
3rd person not parties may be the pledgor or mortgagor
Can secure pure, conditional, natural obligations, voidable and unenforceable
contracts
 Indivisible
Real contract
Constituted on movables
Delivery is necessary
Not valid against 3rd
person unless stipulated
in public instrument
Debtor is not entitled to
excess unless otherwise
agreed or except in case
of legal pledge
Creditor is not entitled to
deficiency
notwithstanding
stipulation to contrary
Consensual contract
Constituted on Constituted on movables
immovables
Delivery is not necessary
Not valid against 3rd Registration in chattel
person if not registered mortgage register is
necessary for validity
If property is foreclosed, If property is foreclosed,
the excess over the the excess over the
amount due goes to the amount due goes to the
debtor debtor
If property is foreclosed, If property is foreclosed,
and there is deficiency, and there is deficiency,
creditor is entitled to creditor is entitled to
recover the deficiency recover the deficiency
from the debtor from the debtor

6. Partnership
I. Essential Requisites:
 Valid contract
 Parties must have legal capacity
 There must be mutual contribution to common fund
 Object must be lawful
 The primary purpose must be to obtain profits and to divide the same
among the partners or to exercise profession
 The articles of partnership must not be secret among its members
II. Form of a partnership contract
 May be constituted in any form, except as follows:
 Immovable property or real rights are contributed it must be in
public instrument and an inventory of the said property must be
made, signed by the parties and attached to the public instrument.
If not complied with partnership contract is void and partnership
will not have any juridical personality
 Where the capital of the partnership is 3000 or more in money or
property must be in public instrument and must be registered in
the SEC. If not complied with partnership contract is still valid and
partnership still acquires juridical personality
 If the partnership is a limited partnership, a certificate signed
under oath by the partners and recorded with the SEC is require.
Failure to comply will make the partnership considered as general
partnership
III. Universal Partnership:
 All present property:
 Property belonging to partners at the time of constitution of the
partnership
 Profits that may be acquired from the present property
 Property acquired by each partner after the formation of
partnership but only if stipulated. In case stipulated, it excludes
property acquired by inheritance, legacy or donation but profit or
fruits derived from such transfers are included
 Profits:
 Profits obtained by the partners by their work or industry during
the existence of partnership. Accordingly, profits acquired by the
partners without the exertion of physical or intellectual efforts,
such as those acquired by chance or lucrative title are excluded
 The usufruct (the use) of the property belonging to each partner at
the time of the constitution of the partnership. Ownership of
property remains and only usufruct is passed
 Profits and fruits, if stipulated, of property acquired by each
partner after the constitution of the partnership
 Rule in case universal partnership is without specification – considered as
universal partnership of profits
 Prohibited to enter:
 Donations between spouses during the marriage except moderate
gifts on the occasion of family rejoicing.
 Person guilty of adultery or concubinage at the time of donation
 Person guilty of same criminal offense
 Those made to a public officer or his wife, descendants or
ascendants by reason of his public office.