Summary of Accounting for Special Transactions

Corporate Liquidation
Learning Objectives
Prepare Statement of Affairs with deficiency schedule
Journalize transfer of assets from financially distressed company to trustee
Prepare Statement of Realization and Liquidation
Statement of Affairs
A statement of financial position from a “quitting concern” point of view
Assets reported at estimated realizable value
Liabilities reported at balance sheet amounts listed in terms of their rank
Information Needed
1. Balance Sheet

2. Supplementary Information:
Estimates and Appraisals from reliable sources
Pledges of Assets
Obligations expected to emerge in the course of liquidation
Assets in the Statement of Affairs
3. Assets Pledged with Fully Secured Creditors

4. Assets Pledged with Partially Secured Creditors

5. Free or Unpledged Assets

Liabilities and Equity in the Statement of Affairs

6. Preferred Creditors

7. Fully Secured Creditors

8. Partially Secured Creditors

9. Unsecured Creditors
10. Contingent Liabilities

11. Capital

Deficiency Statement
Summarizes sources of deficiency:
 Losses on Realization
Additional liabilities and liquidation expenses
Losses to be borne by owners
Statement of Realization and Liquidation
Summary of the course of operations under the administration of a trustee

Partnership Liquidation
Types of Partnership Liquidation
1. Lump Sum Liquidation
Distribution of cash to partners after all non-cash assets are realized, total gain or loss on
realization is known, and all liabilities are paid
Procedures:
1. Compute the interest of each partner
2. Sale of Non-Cash Assets and allocation of gain or loss on realization

3. Payment of Liquidation Expenses

4. Distribution of remaining cash to partners

Learning Objectives
Record the incorporation of a partnership
Define and describe partnership liquidation
Identify and explain the causes of partnership liquidation
Understand the nature of lump-sum and installment liquidation
Understand and apply the concepts of marshalling of assets and right of offset
Journalize the realization of non-cash assets, payment of liabilities, and final settlement to partners
in lump sum and installment liquidation
Prepare statement of liquidation with supporting schedules of cash distribution
Installment Liquidation
Cash is distributed to partners even before fully realizing non-cash assets and determining total gain
or loss on realization
Restricted interest shall consist of:
Remaining unsold assets
Newly discovered unrecorded liabilities
Cash withheld for possible expenses
Debit balances in capital
 A schedule of safe payments or a cash priority program is prepared

Financial Statements
Consolidation Procedures
1. Combine like items of assets, liabilities, equity, revenues, and expenses of the home office and
branch
2. Eliminate inter-company transactions
Eliminate home office and branch account
Eliminate merchandise shipment accounts
Agency
Agencies display merchandise and take customers’ orders but do not stock merchandise to fill
orders or pass on customers’ credit
Agencies keep only records of sales and collections
Consignment Sales
Consignment is an arrangement where the owner (consignor) sends goods to an agent (consignee)
to sell on their behalf
The consignee sells the goods and remits the proceeds to the consignor after deducting a
commission and any expenses incurred
Learning Objectives
Understand the nature of consignment sales
Journalize the required entries in the books of the consignor and consignee
Compute remittance from the consignee, net income resulting from consignment transactions, and
value of merchandise in the hands of the consignee

Revenue Recognition
The Five-Step Model
1. Identify the Contract with a Customer
The contract can be oral, written, or implied by business practice
Criteria for a contract:
The parties have approved the contract
Each party’s rights in relation to the goods or services to be transferred can be identified
The payment terms can be identified
The contract has commercial substance
It is probable that the entity will collect the consideration
2. Identify the Performance Obligations in the Contract
A performance obligation is a promise to transfer a distinct good or service to the customer
3. Determine the Transaction Price
The transaction price is the amount of consideration the entity expects to be entitled to in
exchange for transferring goods or services
4. Allocate the Transaction Price to the Performance Obligations
Allocate the transaction price to each performance obligation based on the relative standalone
selling prices
5. Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation
Revenue is recognized when control of the goods or services is transferred to the customer

Methods to Measure Progress

Input Method: Recognizes revenue on the basis of the entity’s efforts or inputs to the satisfaction of
a performance obligation
Output Method: Recognizes revenue on the basis of direct measurements of the value to the
customer of the goods or services transferred to date

Problems and Exercises

Example Problems
1. AAA Company: Contract to build a building with initial revenue of P9,000,000 and initial contract
costs of P8,000,000
Determine the percentage of completion, contract revenue, contract costs, and profit for each
year
Record the necessary journal entries
2. BBB Company: Consigned 1,000 units of ordinary printer to SM Company
Determine the number of units sold, consignment income/loss, cost of ending inventory, and
record the transactions in both books
3. CCC Company: Shipped 150 ovens on consignment basis to SM Aura
Determine the net income/loss, cash remittance, ending inventory, and record the transactions in
both books

Tasks
Prepare Statement of Affairs with deficiency schedule
Journalize transfer of assets from financially distressed company to trustee
Prepare Statement of Realization and Liquidation
Record the incorporation of a partnership
Define and describe partnership liquidation
Identify and explain the causes of partnership liquidation
Understand the nature of lump-sum and installment liquidation
Understand and apply the concepts of marshalling of assets and right of offset
Journalize the realization of non-cash assets, payment of liabilities, and final settlement to partners
in lump sum and installment liquidation
Prepare statement of liquidation with supporting schedules of cash distribution
Understand the nature of consignment sales
Journalize the required entries in the books of the consignor and consignee
Compute remittance from the consignee, net income resulting from consignment transactions, and
value of merchandise in the hands of the consignee