PARTNERSHIP Inside the partnership, the entry

is: A, Capital 25,000

B, Capital 25,000
FORMATION
 In terms of legal and taxability aspect, it is Outside the partnership, B pays A
more advantageous for businessmen in the
Philippines 25,000.
 Relatively easier to form
 Unlimited liability, limited 3. Capital Investment
 TCC ≠ TAC
life Valuation of Contribution  Total contributed capital will increase
Cash Face Value
Contribution AGREED ratio
Non-Cash Assets i. Agreed Value
A 100,000 60/100
ii. Fair Value/Appraised
iii. Carrying Value B 50,000 40/100
Total 150,000
 Only consider the assets invested and
liabilities assumed by the partnership. First step is to find out who and how much will
 Accounts Receivable – can have an allowance for have to be invested
doubtful account but deduct those deemed  It is incorrect to use B as a basis because
uncollectible TCC will decrease
 PPE- don’t include accumulated o TCC= 50,000/40% = 125,000.
depreciation; consider under/over  If we use A as a basis
depreciation if any. o TCC = 100,000/60% = 166,667.
o Hence, B’s investment should be 66,667
Methods of Accounting for Capital Investment
(166,667 x 40%). He should invest an
additional 16,667. Since A is already the
1. Bonus Method (assumed if silent)
basis, he doesn’t need to invest
 Agreed Capital = Contributed Capital
additional capital.
 No recording of goodwill; there is
only transfer of capital NOTE: If there are 3 or more partners, choose the
 TAC=TCC
partner that will yield the highest total contributed
N
capital. (If problem is silent.)
TCC TAC (based on agreed
ratio of 50-50)
4. Capital Withdrawal
A 100,000 75,000
 TCC ≠ TAC
B 50,000 75,000
 Total Agreed Capital should decrease
TCC 150,000 150,000
Contribution AGREED ratio
2. Direct Settlement
A 100,000 60/100
 Agreed Capital = Contributed Capital B 50,000 40/100
 Similar to bonus method but there’s Total 150,000
cash settlement between partners
that are not recorded in the books
 Using B as a basis, agreed capital
 TAC=TCC
will decrease
o TCC=125,000 (50,000/40%).
TCC TAC (based on
agreed ratio of 50-50)
o Hence, A will have to withdraw 25,000
(150,000-125,000)
A 100,000 75,000
B 50,000 75,000
NOTE: Choose the partner with lowest contributed
TCC 150,000 150,000
capital as a basis.
OPERATIONS

ISSUE: How to allocate partnership profits/losses? Example:

Scenario P L Result
Both P&L Salary – 50,000
agreement are   Follow Agreement Interest – 30,000
given Net Income – 200,000
There’s profit Follow profit Bonus rate – 20%
agreement but agreement for
 
no loss BOTH profit and Scenarios:
agreement loss 1. Before salary, interest, and bonus:
For profit, use
There’s loss original capital B = 200,000 x 20% = 40,000
agreement but contribution ratio B=NI X BR
 
no profit
agreement For loss, follow 2. Before salary and interest, and after bonus
loss ratio
There’s no profit Follow original B = 200,000 / (1.2) x 20% = 33,333
or loss   capital contribution 𝐍𝐈 𝐗 𝐁𝐑
agreement ratio for both 𝐁=
𝟏 + 𝐁𝐑

Methods of allocating capital balance (in order)
1. Weighted Average Capital
2. Simple Average Capital
3. Beginning Capital
4. Ending Capital
5. Original Capital (Use if there’s an agreement
but unsure as to which method to use)
Accounting for Salaries, Interest, and Bonus
1. Before salary, interest, bonus (assumed if
silent)
2. Before salary and interest, but after bonus
3. After salary and interest, but before bonus
4. After salary, interest, and bonus
3. After salary and interest, but before bonus
B = (200,000-50,000-30,000) x 20% = 24,000
B=(NI – S – I) X BR
4. After salary, interest, and bonus
B = (200000-50,000-30,000)/1.2 x 20% = 20,000
(𝐍𝐈 − 𝐒 − 𝐈) 𝐗 𝐁𝐑
𝐁=
𝟏 + 𝐁𝐑
*After allocating these items, any remaining
profit is allocated based on the stipulated profit or
loss ratio

Salaries and interest Statement of Changes in Partner’s Capital

o They are regardless whether there’s profit or
loss, EXCEPT when the problem states that Beginning Balance P XX
there’s an “order of priority” or “only up to Additional Investment XX
extend of earning” Less: Permanent Withdrawals (XX)
o This could for a fractional year only. Annual or Balance P XX
monthly amount is usually given for salaries. Net Income Share XX
o Interest is based on capital balance Less: Temporary Withdrawals (XX)
(weighted, simple, beg, end, orig) Ending Capital P XX
o These are NOT treated as expense.
Bonus  Permanent: irregular drawings in excess of
o it should only be given if there is profit and capital (direct debit to capital)
the basis (positive value) depends on partners  Temporary: regular drawings in anticipation
agreement of future salaries
 If withdrawal is silent as to permanent or
regular, it will be considered as
PERMANENT withdrawal.
DISSOLUTION
Example:
Methods: C invests 100,000 for 30% share.
1. Admission Basis of new capital is the NEW PARTNER’S
a. Purchase of Interest PAYMENT. Hence, if this is the case,
i. With revaluation
ii. No revaluation (if silent) TAC = 100,000 / 30% = 333,333
b. Direct Investment TCC = 300,000
2. Retirement Revaluation = 333,333 – 300,000 = 33,333
a. Bought by partner
i. With revaluation This amount of revaluation pertains to one of the
ii. No revaluation partnership’s assets (e.g. Land), and is allocated
b. Bought by partnership (assumed) according to P&L ratio.

Purchase of Interest Without Revaluation Land 33,000

 Purchase price is to be ignored. A, Capital (60%) 20,000
 Transaction between new partner and the B, Capital (40%) 13,000
partner who is selling shares is considered as
PERSONAL TRANSACTION.
 The total agreed capital would still be equal to A, Capital 36,000
the total contributed capital TCC = TAC B, Capital 64,000
C, Capital 100,000
Example:
C invests 100,000 for 30% share. *(100K+20K)X30%=36K
A’s capital is 100,000 *(200K+13K)X30%=64K
B’s capital is 200,000
Direct Investment
Journal entry to record purchase of  Bonus method is to be applied if the problem is
silent. Revaluation method should also be
interest: A, Capital 30,000 applied if the problem says so.
B, Capital 60,000  Do purchase of purchase of interest first
C, Capital 90,000 before direct investment
 Simply compare new investment against new
Payment outside the partnership: agreed capital after revaluation. The difference
Transferred Gain Payment between the two is considered bonus.
Capital(∆ in Cap) Allocation
A 30,000 6,000 36,000 investment > agreed cap bonus to existing
B 60,000 4,000 64,000 TCC>TAC partners
Total 90,000 10,000* 100,000 investment < agreed cap bonus to new
*Allocated using P&L ratio of partners TCC < TAC partner

Purchase of Interest with Revaluation Bonus to old partner

 Purchase price is used to determine the Cash xxx
amount of revaluation Capital, old partner xxx
 The revaluation increases the amount of Capital, old partner xxx
capital of the old partner and so is Capital, new partner xxx
distributed among P& L ratio TCC ≠ TAC
Cash to new partner
Bonus
purchase price xxx
= Total Agreed Capital Capital, old partner xxx
% of interest
Less: Total Contributed Capital Capital, old partner xxx
Revaluation Capital, new partner xxx
Example:
C invests 100,000 for 30% share. Total Retirement of Partner Bought by Partnership
contributed capital of old partners is 300,000. Formula:
Total interest (after revaluation)* P XX
Investment 100,000 Less: Payment to Partner (XX)
Agreed new capital 120,000 (400k*30%) Bonus P XX
Bonus to new partner 20,000 Capital Balance P xxx
+/- Share in Net Income/Loss xxx
Entry: +/- Revaluation xxx
Cash 100,000 +Payable/Due to Partner xxx
A, Capital 12,000 -Receivable/Due from Partner (xxx)
B, Capital 8,000 Total Interest PXXX
C, Capital 120,000

Retirement of Partner Bought by Partner BONUS

with Revaluation Total interest > payment bonus to remaining
partners
Example: Total interest < payment bonus to retiring
A, Capital – partner
100,000 B, Capital
– 200,000 C Capital Example
– 120,000 120,000 is C’s Capital
150,000 is given by the partnership
B buys C’s capital for 150,000. P&L ratio: C-50%, A-30%, B-20%
P&L ratio: A-50%, B-25%, C-25%
Journal entry is:
Given 150,000
Capital (120,000) C, Capital 120,000
Revaluation 30,000 A, Capital 18,000
/ P&L Ratio 0.25
B, Capital 12,000
Revaluation 120,000 Cash 150,000
Journal entries:
Land 120,000
A, Capital 60,000
B, Capital 30,000
C, Capital 30,000

C, Capital 150,000
B, Capital 150,000

Retirement of Partner Bought by Partner

without Revaluation

Example:
A, Capital –
100,000 B, Capital
– 200,000 C,
Capital – 120,000

If B buys C, journal entry is:

C, Capital 120,000
B, Capital 120,000
 LIQUIDATION
Safe Payment Schedule
Process:
1. Lump-sum/total 1. Compute total interest net of gain/loss on
2. Installment/piecemeal realization condonation, liquidation expense, and
contribution to parties
General steps: 2. Compute maximum possible loss
1. Sell noncurrent assets 3. If there is capital deficiency  loss absorption
2. Pay creditors (in priority) 4. Distribute to partners
3. Distribute excess to partners
NOTE:
Marshalling of Assets/Hierarchy of Claims  Max Possible Loss =BV of asset unsold
Personal Assets Partnership Assets +Cash withheld for future expenses
1 Personal Creditors Partnership creditors  Total interest after distribution = Max. Possible Loss
2 Partnership creditors Personal creditors  Total interest of partner after distribution =
3 Other parties Other parties Max Possible Loss share + Loss Absorption

NOTE:  Under the statement of liquidation, partners

 If silent, assume INSOLVENT. are assumed to be solvent.
 If partner has capital deficiency,  Under the schedule of safe payment, partners are
1. If solvent (A>L), contribute assumed to be insolvent
2. If insolvent (A<L), loss absorption by
other partners (except those who are Cash Priority Program (CPP)
deficient and insolvent)
1. Determine the total interest
Installment Liquidation 2. Compute loss absorption balance or Maximum
Loss (ML)
Formula:
3. Equalize maximum loss from the highest to the
Proceeds P xx
second highest until equal to determine priority
BV sold (xx)
of payment
G/L on revaluation P xx 4. Distribution to partners (difference in ML x P&L
ratio)
EQUITY SIDE Partner A Partner B Partner C TOTAL
Total Interest XX Total Interest P xxx P xxx P xxx P xxx
Contribution XX Divided by
xxx xxx xxx xxx
+/- Gain or Loss on Realization XX P&L ratio
Condonation of Debt XX Max Loss P xxx P xxx P xxx P xxx
Liquidation Expenses (XX) Priority I P xxx P xxx
Maximum Possible Loss: Priority II P xxx xxx xxx xxx
BV of asset unsold (XX) Priority III P xxx xxx xxx xxx
Cash Withheld for future expenses (XX) Cash
Distribution P xxx P xxx P xxx P xxx
Total Distribution to Partners XX

ASSET-LIAB SIDE When to use CPP?

Cash on Hand XX  If there is no deficiency in the partners’ capital
Proceeds from Sale XX  When the problem gives payment to any of
Contribution (must be stated) XX the partners
Liquidation Expenses (XX) o ex. If partner A receives P xxx,
how much will partner B receive?
Payment of Liabilities(paid/unpaid) (XX)
 If there is no additional investment
Cash Withheld for future expenses (XX)
Total Distribution to Partners XX
 PAYMENT TO CREDITORS
CORPORATE LIQUIDATION Fully Secured 100% of Liabilities
With Priority 100% of Liabilities
STATEMENT OF AFFAIRS Without Unsecured Claims
 initial report that shows the available Priority (Pxxx *% Recovery)
asset values and debts of the debtor Partially - For asset pledged, use 100%
corporation - For excess, apply
 Assets should be recorded at Net Realizable Pxxx *% Recovery
Value (NRV) Total Assets
 Intangible assets and pre-payments are
DERECOGNIZED
Total Unsecured
Net Free
Liabilities w/o
Free Assets – Liabilities with Priority Assets
priority
= Excess of fully secured XX
Liabilities w/o priority – Capital Deficiency Excess of partially secured XX
Free assets XX
CLASSIFICATIONS OF BALANCE SHEET ACCOUNTS Liabilities w/o priority XX
1. ASSETS Total Free Assets XX
a. Assets pledged to fully secured creditors
 FV of Asset ≥ Liability Liabilities with priority (XX)
b. Assets pledged to partially secured XX XX
creditors
 FV of Asset≤ Liability Statement of Realization and Liquidation
c. Free assets – periodic report of the reviewer shows how the
 assets not pledged as security for any receiver managed the assets of the debtor
liability corporation on behalf of the creditors
 includes value of APTFSC in excess of
liability
To be Liquidated (Beg) (Dec) Liquidated/realized
2. LIABILITIES ASSET Acquired (Inc) (End) Not realized
a. Unsecured liabilities with priority Liquidated (Dec) (Beg) To be liquidated
i. Administrative/trustee expenses LIAB Not liquidated (End) (Inc) Assumed
ii. Unpaid salaries and wages SUPPL supplementary debits supplementary credits
iii. Customer deposit EMENT net gain net loss
ARY
iv. Unpaid taxes
b. Fully secured creditors
c. Partially secured creditors If Dr > Cr, Net Loss
d. Unsecured liabilities without priority If Dr < Cr, Net Gain

Free Liabilities Liabilities Capital

Statement of Financial Position
Assets With priority without Deficiency
priority Cash + Non-Cash Asset =Liability +Total Equity
unpledged administrative unsecured total asset –
asset trustee fee claims total liab Total Equity= Share Capital + Share Premium +
excess of unpaid excess of total equity – RE, end (RE beg +/- Net Income/Loss)
asset over salaries liability unrecorded
liability for + over liabilities
fully assets for
Cash=Total Equity + Liab Not Liquidated – Assets
customer +/- gain/loss
secured deposits partially on liquidation Not Realized
creditors + secured – liquidation
unpaid taxes asset. Expense
(1 - % of recovery) x without priority
net free assets
%Recovery =
liab without priority
 NOTE: If silent, Ending DGP is unadjusted, before
reduction of RGP
INSTALLMENT SALES
Composition of collections
1. Fair value of Trade In
Methods of recognition 2. Downpayment
1. Cost recovery method – collections are first 3. Amortization of installments (principal only)
treated as cost recovery; recognize profit
once collections exceed cost Gain or Loss Repossession
2. Gross profit realization – collections are first
treated as realization of gross profit Gained: FV of repossessed item/appraised value
3. Installment method – part of collections is Foregone: Unrecovered/Uncollected cost
treated as recovery of cost while part is (ICR-Repo DGP = ICR Repo X Cost Ratio)
gross profit realization
Estimated Selling Price after Recon P xxx
Example: Reconditioning cost ( xxx)
Sales = 1,000,000 Normal Profit ( xxx)
Y1 collection – 300,000
Y2 collection – 400,000 FV of Repossessed Item P xxx
Y3 collection – 300,000
GP rate – 40% FV of repo inventory P xxx
Unrecovered Cost (ICR X cost ratio) (xxx)
Y1 Y2 Y3 Gain(Loss) on Repossession P xxx
Cost Recovery
Profit 100k 300k Journal entry:
Cost 300k 300k Inventory @ FV XX
GP Realization DGP Repo XX
Profit 300k 300k Loss on Repo XX
Cost 100k 300k ICR Repo XX
Installment Gain on Repo (if any) XX
Profit 120k 160k 120k
Cost 180k 240k 180k NOTES:
 If ESP is BEFORE reconditioning cost,
Installment method: IGNORE the amount of reconditioning cost.
Basic concept:  If the problem is SILENT if the ESP before or
 Installment receivable x GPR = DGP after recondition cost, deduct the recon cost
 Collections x GPR = RGP  If the problem says APPRAISED VALUE or
estimated wholesale value, the normal profit and
Installment Receivable reconditioning cost should not be deducted
Beginning xxx anymore.
Installment sales xxx xxx ICR – Repossessions  If profit margin is silent, do not deduct anything
xxx ICR –Writeoff  Normal profit margin = based on SP AFTER
xxx Collections reconditioning cost
Ending xxx
Write-Off
Deferred Gross Profit Gained: None
xxx Beginning Foregone: Unrecovered Loss
DGP-Repossessed xxx
DGP-Writeoff xxx Journal Entry:
RGP xxx DGP – write-off XX
xxx Ending Loss – write-off XX
ICR – write-off XX

Trade-In
Gained: FV of trade-in or Appraised
Foregone: Trade-in Allowance

FV of Trade In
Estimated Selling Price after Recon P xxx
Reconditioning cost ( xxx) FORMULAS:
Normal Profit Margin ( xxx)
Compute GP Rate of Installment Sales
FV of Trade In P xxx
IS-prior year IS-current year
Underallowance(Overallowance) DGP beginning RGP DGP of Inst. Sales
FV of Trade in P xxx =
ICR, beginning Collections Installment Sales
Trade In allowance (given) (xxx)
Gain(Loss) on Trade In P xxx
Compute Cost of Sales
GP Rate of Trade In Beginning Inventory XX
Installment Sales P xxx Purchases XX
Gain (Loss) on Trade In xxx Repossessed Inventory XX
Adjusted Installment Sales P xxx Trade Inventory XX
Cost of Sales (xxx) Ending Inventory (XX)
Gross Profit (Compute GP rate) xxx
Cost of Sales-Total XX
Cost of Sales-Regular (XX)
RGP of Trade In Cost of Sales-Installment (current yr) XX
Downpayment-Cash XX
Downpayment FV of Trade In XX
**NOTE: If silent, assume repo and TI are included
Collections for the year XX in ending inventory
Total Collection XX
X GR Rate %
RGP of Trade In XX

Journal entry:
Inventory (@FV) XX
Loss on trade-in XX
ICR (@ trade-in) XX
 Compute Total RGP
RGP – last year
XX
(Total collections x GP rate last year)
RGP – this year
XX
(Total collections x GP rate this year)
Total RGP-Installment XX

RULES:
 If FV is BEFORE reconditioning cost, IGNORE Income Statement
the amount of reconditioning cost. RGP – regular sales (Sales less COS) XX
 If the problem is SILENT if the ESP before RGP – Installment sales (Total) XX
or after recondition cost, deduct the Total RGP XX
reconditioning cost Loss/Gain on Repo (XX)
 If the problem says ESTIMATED WHOLESALE Operating Expenses (with writeoff) (XX)
VALUE or APPRAISED VALUE, the normal Interest Income XX
profit and reconditioning cost should not be Net Income XX
deducted anymore.
 If profit margin is silent, do not
deduct anything.
 Normal profit margin = based on SP AFTER
reconditioning cost
 Continuing Franchise Fee(CFF)
FRANCHISE ACCOUNTING
 Based on % of net sales as fixed payment

FRANCHISE REVENUE Franchise Cost Direct Cost Indirect Cost

A. Initial Franchise Fee IFF Matched w/ Expense
B. Continuing Franchise Fee Revenue
CFF Expense Expense
Initial Franchise Fee(IFF)
1. Is there substantial performance? PROFIT RECOGNITION-INSTALLMENT
 Yes, record revenue
 No, do not record revenue and 1. Computation of Gross Profit
recognize as unearned. Downpayment XX
Fair Value/PV of Note XX
Criteria (All MUST BE met) Initial Franchise Fee (IFF) XX
a. Initial services have been performed Direct Cost related to IFF (XX)
 If initial services are not required
DGP-IFF XX
and there is no constructive
obligation, recognize revenue.
2. Computation of GP Rate
 If problem is silent, best indicator is
DGP-IFF XX
when company commences operation
Divided by: IFF XX
GP Rate %
b. Non-refundable payment (*if silent, nonrefun)

c. No adverse buyback/cancellation provision 3. Computation of RGP-IFF

Collections XX
**If any of the conditions is not followed, the entire Multiply: GP Rate %
amount of IFF becomes an unearned revenue, RGP-IFF XX
except when:
a) The down payment is non-refundable; and
b) The down payment represents the 4. Net Income
fair measure of the services
performed.

*Under the two conditions, the amount of down

payment becomes revenue, however, the
remaining balance is considered unearned revenue

2. When do you recognize revenue?

 If collection of note is likely, use accrual
(recognize 100%, reasonably assured)
 If collection of note is unlikely, use
installment method (% of Collections)

3. How much to recognize?

 Interest-bearing
 Downpayment + Face Amount of Note
 Noninterest-bearing
 Downpayment + PV of Note

NOTE: For % of completion, collection applied to

PRINCIPAL only. Hence, if the given note is
noninterest bearing, deduct the interest from the
collection.
RGP-IFF XX
CFF XX
Total Franchise Revenue XX
Interest Income XX
Total Revenue XX
Franchise Cost (XX)
Net Income XX
(Source: Ferrer Lecture Notes from ADV)
Application of PFRS 15
Identify Contract
Identify Performance Obligation
(PO)
Determine Transaction Price
Allocate Transaction Price to
Performance Obligations
Recognize Revenue when PO is
satisfied
Franchise Agreement
Initial Services, PPE, Intellectual Property
Amount of Franchise Fee
Allocate franchise fee based on relative standalone values or prices of
initial services, PPE and intellectual property
Initial Services – over time as work progresses
PPE – point in time, upon delivery
Finite Life – IP can be changed, “right to access”  over time
- Recognized over life of franchise
Finite Life – IP can’t be changed, “right to use”  point in time
IP - Upon substantial performance
Infinite Life – point in time, upon substantial performance
 POC = Total Costs Incurred to Date
Total Costs Incurred to Date
LONG-TERM CONSTRUCTION +Estimated Costs to Complete

Construction Revenue TWO ISSUES:

Fixed Price XX 1. Is the outcome profit or loss?
+ Variations XX  POC
+ Claims XX o If profit, use % of completion
+ Incentive Payments (early completion) XX
o If loss, use 100%
- Penalty/Liq Damages(delays) (XX)  Zero-profit
TOTAL XX o Profit = 0
o Loss = 100%
Construction Costs Excluded
Directly attributable Selling cost 2. Data – per year or as of?
costs  Income statement – what you get first is as
Indirectly General and administrative of, so just deduct previous year to get
attributable costs cost current year values.
Reimbursable costs Depreciation of idle asset  Balance sheet – as of data
R&D Costs
Advances to subcontracted Balance Sheet Approach
(Receivable)
Materials delivered but not Construction in Progress
yet utilized except Cost to Date Cumulative RGL
specialized materials Cumulative RGP

Methods of revenue recognition

1. % of completion Ending Balance
2. zero-profit
Progress Billings
ZERO-PROFIT Beginning
 No reliable estimate of costs or outcome of Additional Billings
contract
 No profit is recognized until
construction contract is completed. Ending Balance
 Revenue is recognized only to the extent of
contract costs incurred that it is probable will Accounts Receivable
be recoverable. (If POC is not yet 100%,
Progress Billings to Collections
CR=CC, therefore RGP=0)
Date
 Contract costs are recognized as an expense
in the period in which they incurred.
Ending Balance
PERCENTAGE OF COMPLETION
 If SILENT, use this method.
 With reliable estimate of costs Construction in Progress XX
 Input method: cost to cost method Progress Billings (XX)
 Output Method: Engineering estimate Net XX
Total Costs Incurred to Date
POC = If positive, current asset (Due from customer)
Estimated Total Contract Costs If negative, current liability (Due to customer)

NOTE: Upon completion, CIP=PB=TCR

 Journal entries

1. Incurrence of cost

Construction in Progress XX 4. Profit Recognition

Cash XX
Const. in Progress (profit)XX
2. Progress Billings Construction Costs XX
Construction Revenue XX
Accounts Receivable XX
Progress Billings XX
5. Settlement
3. Collection on Progress Billings
Progress Billings XX
Cash XX Const. in Progress XX
Accounts Receivable X

CONTRACT RETENTION
-may be part of billing but not paid to contractor
– Does not have an income element

Cash XX
Contract Retention XX
Accounts Receivable XX

Cash XX
Contract Retention XX

MOBILIZATION FEE
– Deducted from the bills of contractors in equal installments covering the project period
– Does not have income element

REMEMBER:
Always If profit (CIP> CI) If loss (CIP<CI)
Construction POC x TCR CIP CIP + (1-POC) x Loss
revenue (as of)
Construction cost CR – RGP Cost to Date CI + (1 – POC) x Loss
(as of) (to date)

Percentage of Completion (Cost to Cost Method)

20X1 20X2 20X3
a) Contract Price P xxx P xxx P xxx
b) Cost incurred to date P xxx P xxx P xxx
c) Estimated costs to complete xxx xxx xxx
d) Total Estimated Costs (b+c) xxx xxx xxx
e) Total Estimated Gross profit (a-d) P xxx P xxx P xxx
f) Multiply by POC x % x % x %
Gross Profit to date P xxx P xxx P xxx
Gross Profit - previous year (xxx) (xxx)
Gross Profit - current year P xxx P xxx P xxx
*IF Total Estimated Gross Profit is Positive*
20X1 20X2 20X3
Contract Price P xxx P xxx P xxx
Multiply by POC x % x % x %
Contract Revenue to Date (cum) P xxx P xxx P xxx
Contract Revenue –prior year (xxx) (xxx)
Contract Revenue- current year P xxx P xxx P xxx
Cost incurred–current year (xxx) (xxx) (xxx)
Gross Profit(loss)- current year P xxx P xxx P xxx

20X1 20X2 20X3

Cost incurred to date P xxx P xxx P xxx
Gross Profit to date xxx xxx xxx
Construction in Progress P xxx P xxx P xxx
Progress Billings to date (xxx) (xxx) (xxx)
Due from(Due to) P xxx P xxx P xxx

20X1 20X2 20X3

Contract Price P 1,000,000 P 1,000,000 P 1,000,000
Cost incurred to date P 200,000 P 825,000 P 950,000
Estimated costs to complete 600,000 275,000 -
Total Estimated Costs (b+c) 800,000 1,100,000 950,000
Total Estimated Gross profit (a-d) P 200,000 P (100,000) P 50,000
Multiply by POC x 25% x 100% x %
Gross Profit to date P 50,000 P(100,000) P 50,000
Gross Profit - previous year (50,000) 100,000
Gross Profit - current year P 50,000 P (150,000) P 150,000

20X1 20X2 20X3

Contract Price P 1,000,000 P 1,000,000 P 1,000,000
Multiply by POC x 25 % x 75 % x 100 %
Contract Revenue to Date (cum) P 250,000 P 750,000 P 1,000,000
Contract Revenue –prior year (250,000) (750,000)
Contract Revenue- current year P 250,000 P 500,000 P 250,000
Reversal of Provision 25,000
Total Income P 250,000 P 500,000 275,000
Cost incurred–current year (200,000) (625,000) (125,000)
Provision of full contract loss** (25,000)
Total Expenses (200,000) (650,000) (125,000)
Gross Profit(loss)- current year P 50,000 P (150,000) P150,000
 Working Paper Eliminating Entry
HOME OFFICE AND BRANCH ACCTG
Home Office xx
Branch vs Agency Investment in Branch xx
Sales Agency Branch
Not a self-contained Self-contained business Shipments to Branch xx
businesses, acts only which acts Shipments from Home Office xx
on behalf of home independently, but
office subject to control of
home office Investment in Branch (HO Books)
Displays merchandise, Carries merchandise Asset transfers to Asset is received from
takes orders but has no used to fill customers’ branch branch
inventory/stocks orders
Customers’ orders are Grants credit, makes Profit of branch Loss of branch
sent to HO for warranties, fill orders,
approval. Customers and make collections Liabilities and expenses
remits payments on sales incurred or paid by
directly to HO home office on behalf
Holds revolving cash Has its own assets and of branch
fund from HO liabilities
Not a separate A separate accounting
accounting entity. It entity for internal Ending Balance*
only maintains a simple reporting.
record for cash receipts
and disbursements. For external reporting, Home Office (Branch’s Books)
its financial statements Asset transfers to Asset is received from
*Holds samples that are combined with HO. home office home office
are depreciated using
useful life* Loss Profit

Accounting for branch operations Liabilities and expenses

incurred or paid by
I. Eliminate Unique accounts/Reciprocal Accounts home office on behalf
-intercompany/inter-office accounts of branch

Home Office Branch Ending Balance*

Balance Investment in Home
Sheet Branch/Branch Office/HO
Current -Asset Current –
Equity
Income Shipment to Shipments
Statement Branch from Home
(reduction in Office
TGAS) (addition to
TGAS)

II. Reconciliation of Inv in Branch and Home Office

 Debit in one account w/o corresponding
credit in the other account (and vice versa)
 Errors
HO Inv in Br

Unadjusted P xxx P xxx

Reconciling Items xxx xxx
Adjusted (after closing NI) P xxx P xxx
COMMON TRANSACTIONS JOURNAL ENTRIES
Home Office Branch
Shipment of Merchandise Investment in Branch Shipments from HO
Shipment to Branch Home Office
Acquisition of PPE (purchased by Investment in Branch PPE
HO, recorded by BR) Cash Home Office
Acquisition of PPE (purchased by PPE Home Office
BR, recorded by HO) Investment Cash
Allocated expense Investment in Branch Expenses
Cash Home Office
Return of merchandise Shipment to Branch Home Office
Investment in Branch Shipment from HO
Cash remittance Cash Home Office
Investment in Branch Cash
Take up of branch income Investment in Branch P&L Summary
Investment Income Home Office
Transfer at billed price Investment in Branch Shipment from
Shipment to Branch (@cost) Home Office (@BP)
*DGP is realized upon sale to third DGP/Allowance (mark up)
parties.
*Branch income, unadj is Upon sale to third parties:
understated due to higher cost DGP
RGP/Br. Income

ACCOUNTING FOR INTERBRANCH TRANSFER

HO B1 B2
Merchandise Inv in Br1 XX Shipment from HO XX
transfer Shipment XX HO XX

Inv in Br2 XX HO XX Shipment from HO XX

Inv in Br1 XX Shipment from HO XX HO XX
If with freight, it follows the inventory.
Merchandise Inv in Br 1 10,000 Shipment from HO 9000
Transfer with Shipments to Br 1 9000 Freight in 1000
Freight Cash 1000 HO 10,000

Actual Freight fr B1
ro B2- 1500 (1000 Inv in Br2 10,300
+500) Expense 200 HO 10,500 Shipment from HO 9000
Inv in Br1 10,500 Shipment from HO 9000 Freight In 1300
Freight from HO to Freight In HO 10,300
B2- 1300 NOTE: freight is 1000
recorded at the LOWER Cash 500
*Excess cost is of actal freight incurred
recorded as an AND direct freight (from
expense to the HO to Branch).
home office.
 Billed Cost DGP/Allowance Purchases- Total
Price Outsiders
Beginning Inventories xxx6 xxx5 xxx4
Shipments xxx2 xxx1 xxx3
Returns (xxx)(xxx)
Total Goods Available for Sale (TGAS) xxx xxx xxx
End Inventory (xxx)(xxx)
Cost of Sales xxx xxx xxx

Notes:
 Check if End Inventory > Shipmnts
o It means part of ending inventory
is from beginning
o Mark up rate may be different last
year vs this year
 Assumption of silent- BRANCH view
o Inventory is @billed price unadjusted
 Stated in problem– HO View
o Combined FS, true cost, adjusted If
silent, branch inventory is TOTAL, from
HO and outsiders
 Combined NI = HO NI + Branch NI
o Branch Income must represent true or
ADJUSTED NET INCOME
o Branch Income = Unadjusted NI + RGP
 PROCESS COSTING 2. Started and Completed

Format:  EUP is automatically 100%

Physical
DM DL FOH
Units 3. Normal Losses and Abnormal Losses
Beginning WIP xx xx xx xx
Started and  Compare application rate versus inspection
xx xx xx xx
Completed point
EWIP xx xx xx xx
Normal Loss xx xx xx xx Scenarios:
Abnormal Loss xx xx xx xx Application Inspection
EUP
Total xx Rate Point
Start < 30% 100%
NOTE: Transferred Out = BWIP + S&C 30% = 30% 0%
50% > 30% 0%
ISSUE 1: Method of Accounting Evenly 30% Inspection Point

1. FIFO ISSUE 3: Cost Allocation for Normal

 Accounts only for this month’s units and costs and Abnormal Losses
 Transferred-out units:
 Beginning WIP – EUP is only to the Normal Losses
extent of work done with this  Recurring and unavoidable
month  Treated as product costs and absorbed by
 Started and completed – EUP is 100% good units (units that passed inspection point)
automatically
Cost this Month
Unit Cost = GOOD Units
EUP
1. Transferred Out
2. Weighted Average 2. Ending WIP
 Accounts for costs and units to date a. If POC > Inspection, Good Units
 Transferred-out units – automatically 100% b. If POC ≤ Inspection, Not good units
Cost last Month + Cost this Month
Unit Cost =
EUP RULES:
 If ending WIP are good units, allocate
ISSUE 2: EUP normal loss costs to beginning WIP, started
Calculation and completed, and ending WIP based on
EUP or actual costs.
RULES:
1. Beginning and Ending WIP  If FIFO method is used, an inventory can only
absorb normal losses once. Hence, if beginning
Compare application vs % of completion WIP has already absorbed last month, do not
 Application rate: rate at which DM, DL, and allocated normal losses this month to BWIP.
OH are applied
 Percentage of completion: cutoff point when Abnormal losses
WIP ended  Non recurring, avoidable
Scenarios:  Treated as period costs
Application
POC EWIP BWIP
Rate
Start < 30% 100% 0%
50% > 30% 0% 100%
30% = 30% 100% 100%
Evenly 30% POC POC-TM
ISSUE 4: DEPT 1 vs DEPT 2
Department 1 Department 2
DM DM
DL DL
OH OH
Transferred In
(From Dept 1)

EUP of transferred in
 If FIFO, 100% of this month’s units
 If Average, 100% of total units

FIFO Actual Transf

DM DL FOH
Units In
Beg WIP xx xx xx xx %
Started & 100%
xx xx xx xx
Completed
EWIP xx xx xx xx 100%
Normal Loss xx xx xx xx 100%
Abnormal Loss xx xx xx xx 100%
Total xx

AVERAGE Actual Transf

DM DL FOH
Units In
Transf Out 100%
(BWIP + xx xx xx xx
S&C)
EWIP xx xx xx xx 100%
Normal Loss xx xx xx xx 100%
Abnormal 100%
xx xx xx xx
Loss
Total xx

ISSUE 5: Discrete vs Continuous Losses

 Discrete Losses – with inspection point
 Continuous loss – without inspection point
o Assumption of EUP
o Normal loss: 0%
o Abnormal loss: 100%
 2. if production/internal failure – charged to
actual OH, do not add to cost
JOB-ORDER COSTING
NOTE:
 if customer fault. specific job,
ISSUE 1: COST FLOW deduct allowance for loss (w/o
allowance)
Materials Labor  if production/internal failure, do not deduct
Beginning Used Incurred Distributed allowance (w/ allowance)
Purchases

Ending
BACKFLUSH COSTING
Overhead WIP
Ind. Matls Used Beginning COGM Same with job order, the difference is with WIP
Ind. Labor DM because in backflush costing, there is no WIP.
Other OH DL
Applied DL, DM, FOH --> Finished Goods
OH
Ending Journal Entry:

FG Finished Goods XX
Beginning Sold Direct Material XX
COGM Direct Labor XX
Applied OH XX
Ending
Journal Entries:
ISSUE 2: Over/Underapplied OH
 Overapplied – Favorable Variance MATERIALS
 Underapplied Raw Materials (SP x AQ) XX
o Immaterial: closed to COGS Materials Price Variance XX
o Material: Allocate to WIP, FG, COGS Accounts Payable (AP x AQ) XX

Applied FOH= Predetermine OH rate x Actual Driver WIP (SP x SQ) XX

Material Usage Variance XX
Predetermined OH Rate = Budgeted FOH Raw Materials (SP x AQ) XX
Budgeted Basis
LABOR
ISSUE 3: COGS Factory Payroll (SRxAQ) XX
 deduct overapplied Labor rate variance XX
 add underapplied Salaries Payable(AR x AQ) XX

ISSUE 4: Spoilage/Defective Goods WIP (SR x SQ) XX

Labor usage variance XX
Treatment: Factory Payroll (SQ x AQ) XX
Again, Unit Cost = COST/GOOD UNITS, so deduct
spoilage units from good units OVERHEAD
FOH – Actual XX
Rework cost and loss on spoilage Various Payables XX
1. if customer fault/specific job – charged (AR x AQ)
to FG, add to cost
WIP XX
FOH – Applied XX
(SR x SQ)
 A. SV @ split-off/Relative SV
FOH-Applied XX = SP@splitoff x units produced
Budg. Variance XX
Vol. Variance XX B. Actual NRV @ Split-off
FOH-Actual XX = SV@splitoff – cost to sell/disposal

C. Estimated/Approximated NRV @ Split-

off/Adjusted MV
= Final SP – further processing cost –
JOINT COST ALLOCATION disposal costs

Allocation of Joint/Common Cost

1. By-product first; then
2. Main products

By-product recognition
1. Upon Sale

Cash XX
Other Income XX

2. Upon production

By-product inventory XX
Joint Cost/WIP XX

AMOUNT:
a. NRV (assumed)
Est. selling price – Cost to Complete – Cost
to Sell

b. Reversal Cost
Est. Sales Value – Gross Profit – Selling and
Admin Cost

OR

Total mfg. cost – further processing cost

Remaining Joint Cost:

Approaches:
1. Physical Method
There is physical measure (litres, kg), or by
units produced, or by weighted average of units
produced

# of units produced x assigned weights

2. Monetary Method
 FOREX

TERMINOLOGIES Example:
 Exchange rate – rate at which foreign BUYER SELLER
currencies are translated Transaction Inventory 46 A/R 46
 Spot rate - exchange rate NOW Date, 1:46 A/P 46 Sales 46
 Closing rate – spot rate at balance sheet Balance Sheet Forex Loss 4 A/R 4
date Date, 1:50 A/P 4 Forex Gain 4
 Functional currency – currency of primary Settlement A/P 2 Forex Loss 2
economic environment in which an entity Date, 1:48 Forex Gain 2 A/R 2
operates
 Foreign currency – currency other than the A/P 48 Cash 48
functional currency Cash 48 A/R 48
 Presentation currency – currency in which
financial statements are presented Foreign Exchange Translation
 Exchange difference - difference from -converting the FS of subsidiaries/associates/joint
converting one currency another at different ventures/branch to the entity’s reporting currency
exchange rate; forex gain or loss
 What rate to use?
Foreign Currency Transactions o Asset and Liabilities – closing rate
-transactions entered into by entities in foreign o Income statement – actual spot rate/
currency weighted average rate
o Equity
 What rate to use – spot rate, direct quotation  Cap. Stock/APIC – actual/spot/historical
o Direct quotation (1 FC = P )  Retained Earnings
o Seller – buying spot/BID  Beginning – Roll Forward
o Buyer – selling spot/ASK  Net Income – Weighted Ave.
 Dividends – Spot Rate
 Monetary versus nonmonetary
o Monetary – Cash, AR, AP, NP, LP
 These must be restated/updated to Computing for translation adjustment
SPOT RATE Net Assets –end @ closing rate XX
 Gives rise to forex gain or loss
o Nonmonetary – Inventory,PPE,I/S accounts Net Assets- beg @ closing rate XX
 No update needed - HISTORICAL Additional Investment @ spot XX
 except for those items that are Net Income @ WAR XX
measured at FV/NRV Dividends @spot (XX)
 Net Assets-end (historical) XX
 How to know if gain or loss? Translation Adjustment for the period XX
o Buyer’s perspective
 If translated A/P increases, Loss
NOTE:
 If translated A/P decreases, Gain
 The amount above goes to OCI and will be
o Seller’s perspective
transferred to P&L only upon disposal.
 If translated A/R increases, Gain
 NA @ closing > NA@ historical  Gain
 If translated A/R decreases, Loss
 NA @ closing < NA@ historical  Loss

 Gain or Loss Presentation

o For F/S transaction, it goes to profit
and loss.
 Hedging – Forwards/Futures
TABLE 2: IN/OUT/AT THE MONEY
Hedged Item Hedging
Instrument Call option
RATE  If actual  Use FUTURE Strike VS Spot Intrinsic
transaction, use RATE Value
SPOT 48 < 50 2 In the
 If firm money
commitment, 48 > 46 0 Out of the
use FUTURE money
 If only highly 48 = 48 0 At the
probable money
forecasted
transaction, DO Put option
NOT Strike VS Spot Intrinsic
RECOGNIZE Value
G/L  Treated with  Treated with 48 < 50 0 Out of the
normal view (If opposite view money
seller, gain if (if buyer, 48 > 46 2 In the
increase. If gain if money
buyer, gain is increase. If 48 = 48 0 At the
decrease). seller, gain if money
decrease).
Prese-  FV Hedge –  FV Hedge – G/L Presentation
ntation goes to P&L goes to P&L 1. FV Hedge
(for actual/firm (for actual/firm a. Nonsplit/TV included
commitment) commitment) i. Change in FV – goes to P&L
 CF Hedge –  CF Hedge – b. Split/TV excluded
goes to OCI goes to OCI i. Changes in Intrinsic (aka
(for highly (for highly EFFECTIVE gain) – goes to
probable probable OCI
forecasted forecasted ii. Changes in Time Value (aka
trans) trans) INEFFECTIVE gain) – goes to
P&L
Hedging - Options
- Always favorable at the option holder’s side 2. CF Hedge
- has two kinds a. Nonsplit
1. Call – option to buy i. Change in FV – goes to OCI
2. Put – option to sell b. Split
i. Changes in Intrinsic (aka
General formula: EFFECTIVE gain) – goes to
Fair Value XX OCI
Intrinsic Value (XX) ii. Changes in Time Value (aka
Time Value XX INEFFECTIVE gain) – goes to
P&L
TWO IMPORTANT TABLES:
TABLE 1: G/L derived from: Speculation
Trans. BS Date Settlement - No hedge item, only hedging instrument
Date Date - Rate used – FUTURE rate.
FV Option Given FV=IV - Gain/Loss – use OPPOSITE view.
Premium - Gain/Loss presentation – goes to P&L
IV (Strike – Spot) x # of options
TV Difference between FV and IV
 - AFTER BUSINESS COMBINATION
BUSINESS COMBINATION
Computation of Goodwill

 IFRS3 FV of consideration transferred XX

 Transaction in which the acquirer obtains FV of Prev. Held Interest XX
control of one or more businesses Non-controlling Interest XX
 Not simply an asset but a group of assets FV of Identifiable Net Assets (XX)
 Assets + organized workforce Goodwill/BPO XX
+target customer
 FV approach- arm’s length transaction Total Assets Total Total Equity
Liabilities
 Excluded BV of Acquirer BV of Acquirer BV of Acquirer
o Formation of joint venture + FV of + FV of + FV of equity
o Acquisition of a group of assets that Acquiree Acquiree issued
does not constitute a business + Goodwill + FV of + Gain from
o Combination of entities under liability issued Acquisition
common control (same party controls - Assets Paid + CC Payable +/- Gain or loss
entities before & after acquisition) on Prev. Held
Intrest
Forms of Business Combination - ARC Paid + ARC unpaid +/- Gain or loss
1. Asset Acquisition on change in
 100% Acquisition contingent
 Merger  A+B=A consideration
 Consolidation  A+B=C + Non
2. Stock Acquisition Controlling
 Partial  A= 80% B + NCI Interest
 Whole  100% + ARC incurred
TOTAL TOTAL TOTAL
Acquisition Method ASSETS LIABILITIES EQUITY
1. Identify acquirer
2. Determine acquisition date (Valuation Date-
date you obtain control) CS APIC RE NCI
3. Use Goodwill Formula BV Acquirer XX XX XX
 Consideration transferred Equity Issued XX XX
 Non-controlling interest G/L from Acquisition XX
 Previously held interest G/L on PHI XX
 Identifiable assets and G/L on change in CC XX
payable
liabilities Goodwill Formula NCI XX
ARC Incurred (XX)
GENERAL IDEA:
i. SIC (XX)
Total Parent NCI
ii. Excess SIC (XX)
Bus XX XX XX
INA (XX) (XX) (XX)
Goodwill/Gain XX XX XX
Measurement Period Adjustments
- Within ONE YEAR from acquisition date
RULES:
whereby the acquirer can retrospectively
 NCI can never have negative value (only
adjust the provisional (estimate) amounts
goodwill). Hence, the minimum value that it
recognized in FS
can have is its proportionate share.
- Purpose: reflect new information about
existing events or conditions EXCEPT
CC
 Payable (EXCEPT IF IT’S AN ERROR like the
one in the exam ) 3. TOTAL EQUITY

Capital Share –parent XX

APIC –Parent XX
CONSOLIDATION
Conso RE (XX)
Equity Parent XX
TABLE 1: Computation of share in NI Equity NCI XX
Conso Parent NCI
Total Equity XX
NI
NI-Parent XX XX
Dividends (XX)
NI-Subsidiary XX XX 4. PARENT’S RE
+/- FV Amortization XX XX
Goodwill Impairment (XX) (XX) RE @ year end – parent XX
Total Share in NI XX XX XX Add:
NI – sub XX
Dividend – sub XX
Amortization – sub XX
RULES:
Impairment – sub XX
1. Net Income of parent – always get full year
Total Sub. NI XX
regardless of when it was acquired
Share of Parent XX% XX
2. Dividend share – deduct unless stated that
Conso RE XX
it is still not included
3. Net income of subsidiary – add/deduct from
FOR INTERCOMPANY TRANSACTIONS
date of acquisition
4. FV Amortization – depends on the ff:
CNI PARENT NCI
a. Inventory – realized upon sale
US-UGP (XX) (XX)
(assume SOLD)
US-RGP XX XX
b. PPE and intangibles – realized
DS-UGP (XX) -
through usage (depreciation) (use
DS-RGP XX -
remaining useful life)
c. Land – realized upon sale (assume
not yet sold)
5. Allocation of impairment loss is based on:
a. Goodwill amount
b. % of ownership

EQUITY COMPUTATIONS

1. NONCONTROLLING INTEREST

Equity at Acquisition Date XX

CNI Share XX
Dividend Share (XX)
NCI XX

2. CONSOLIDATED RE
Dividend Paid (XX)
NCI XX
 UGP RGP
Inventory Buyer EI x Buyer BI x
Seller GP Seller GP
PPE/Intangibles Proceeds – UGP/Useful
BV = UGP Life
Land Proceeds – G/L on Sale
BV = UGP

Parent’s Retained Earnings XX

CNI Share XX
 JOINT ARRANGEMENTS

Joint Venture
- Jointly controlled entity
- Rights and Obligations: Net Assets

Joint Operations
- Jointly controlled assets
- Jointly controlled operation
- Rights and Obligations: Assets and
Liabilities

Accounting Method
Joint Venture Net Asset Method
Joint Operation Take up share in assets and
liabilities

SME Joint Venture

- Entity may choose between cost, FV,
or equity method

Cost Equity FV
Purchase Price   
Transaction   
Cost (expense)
Net Income   
(take up
share)
Dividend  (to  (to P&L) 
P&L) (deducti
on)
Change in FV   (to 
of Investment P&L)
Impairment  (to   (to
P&L) P&L)

NOTE:
 If you’re using cost method, and there EXISTS
a published price quotation, use FAIR VALUE
METHOD.
 If you’re using FV method, but there is NO
AVAILABLE FV (cannot be measured reliably
without undue cost or effort), use COST
method.
 If you’re using equity method, it’s always at cost.
 4. Maintenance and other expenses
(MOOE)
GOVERNMENT ACCOUNTING
4. Registry of Budget, Utilization, and
Governed by Government Accounting Manual Disbursements (RBOD)
 Used only for special funds
Budgetary Process  Same service as RAOD
I. Budget Preparation
1. Agencies submit budget needs to DBM
2. DBM submits to president proposal of
budget JOURNAL ENTRIES
3. President reviews and prepares budget 1. Receipt of Notice of Cash Allocation
4. President submits budget to legislation
Cash – Modified Disbursement System XX
II. Legislation Subsidy from National Gov. XX
1. Senate and House of Rep individually and Must be net of TRA.
collectively (through bi-cameral)
approves budget through General 2. Unused NCA (expiration of
Appropriations Bill regular NCA ever end of quarter)
2. Senate and House of Rep. submits
approved bill to President for final Subsidy from National Gov. XX
approval Cash – MDA XX
3. President approves bill to become law
3. Constructive Receipt of Tax
III. Execution Remittance Advice (for
1. Agencies, through DBM and BOT allotment, Withholding Tax)
use the funds
Cash – TRA XX
Registry Subsidy from Nat’l Govt XX
- Requires memo entry only
4. Constructive Remittance of TRA
1. Registry of Revenue and Other Receipts
(RROR) – for receipts Due to BIT XX
2. Registry of Appropriations and Allotment Cash – TRA XX
(RAPAL) – for disbursements
3. Registry of allotment, Obligations, and
Disbursement (RAOD) – contracts only CASH ACCOUNTS
Receipt/Debit Disbursement/Credit
1. Cash – Modified Disb. Funds from national In general expenses
Issue: System govt
 Allotment is based on appropriations a. Regular
Cash – MDS
b. Special
 Obligations (contracts signed) are based c. Trust Subs. From
Nat’l Govt
on allotment of funds 2. Cash – From other sources For remittance only
 Disbursements (payments) are based collecting officer than nat’l to agency account or
government to national
on contracts (obligations) government
3. Cash – Remittance of cash Upon closing
Treasury/Agency collected from other of books:
Subservices of RAOD: Deposit sources to national
1. Personnel services – for salaries and Regular government (if w/o Acc. Surplus/Deficit
Special authority to use) Cash–TA deposit
wages Trust
Cash –Treasury/
2. Financial expenses – for borrowing Agency
costs Cash –
Collecting Officer
3. Capital outlay – for capital 4. Cash in Bank – Local Remittance of cash Authorized expenses
expenditures Currency collected from other
Current/Savings sources to national Expenses
Account CIB
 government (if w/
authority to use)

CIB
Cash-CO
5. Cash – TRA Receipt of TRA Remittance of TRA to
BIR
6. Advances for Payroll Advances Upon liquidation
(salaries) Cash-MDS
Expenses
Advances for special Advances
disbursing officer
(special project-time
bound)

Advances for
operating expenses
(field/operating unit)

Advances to officers
and employees
(office travel)

Closing entries

1. Income/Subsidy from National Govt

Revenue and Exp. Summary

2. Revenue and Exp. Summary

Expenses
3. Revenue and Exp. Summary
Acc. Surplus/Deficit
4. Acc. Surplus/Deficit
Cash-Treasury/Agency Deposit

Assumptions
a. Inventory – use specific identification or
moving average
b. PPE – depreciate over life. Has a minimum
residual value of 15,000 php.
c. Infrastructure - depreciate
 Net Patient Service Revenue XX
NOT FOT PROFIT ACCOUNTING
SCHOOL
Tuition Fee Revenue XX
ISSUE: Statement Presentation Scholarship (XX)
 Assets and Liabilities – same with IFRS Gross Revenue XX
 Net assets Less: Discounts/Adjustments (XX)
o Has no CS, APIC, or RE Net Revenue XX
o Has the ff. accounts:
 Unrestricted NA (Quasi-endowment) NOTE: If with service requirement, it is treated as
- BOT restricted salary expense.
- No donor-imposed restriction
- Assumed if silent VALUATION OF DONATION
 Temporarily restricted NA (Term  Cash – at face value
endowment)  Noncash
- Purpose/time-bound o In kind – FV of item
- Reclassified once purpose is fulfilled o Service – FV of service
 Permanently restricted NA Note: This can only be recognized when:
(Regular endowment) 1 Gives rise to nonfinancial asset
- Indefinite/In perpetuity 2 It’s a specialized service performed by
- For endowment or legacy a professional

STATEMENT OF ACTIVITIES CONDITION vs. RESTRICTION

 Condition is unearned and gives rise
UR TR PR to liability
Donation/Public XX XX XX  Restriction is earned and recognized as
Support/Cont. revenue
Investment Inc. XX XX XX
Operations: PASS-THROUGH DONATION
Revenue XX  If principal, REVENUE (has no
Expenses specific beneficiary)
Program (XX)  If agent, LIABILITY (has
Support (XX) specific beneficiary)
Reclassification XX (XX) =
Increase/Decrease XX XX XX Liabilities (liab, end) + Total Equity (CS, APIC, RE,
in NA Beg +NI-NL)
Beginning Net XX XX XX
Asset Computation for ending cash balance
Ending Net Asset XX XX XX

STATEMENT OF CASH FLOWS

1. Operating – unrestricted
2. Financing – temporary and permanent
restrictions
3. Investing – acquisition/disposal of
investments and PPE
Beginning cash balance XX
Assets Realized XX
Liabilities Liquidated (XX)
Liquidation expenses paid (XX)
Ending Cash Balance XX

HOSPITAL
Gross Patient Service Rendered XX
Less: Charity Care (XX)
Gross Patient Service Revenue XX
Less: Discounts/Adjustments (XX)