PARTNERSHIP JOINT ARRANGEMENTS

When asset is sold right after formation, it constitutes Assets

the fair value during the formation. Use that value.  Joint Operation Liabilites
 Joint Venture Net assets [Equity method]
Operations
Profits Losses Separate Vehicle
Agreement Agreement ✓ - Joint Venture OR Joint Operation
Equally Profit agreement
× - Joint Operation
Capital [OBEA] Capital [OBEA]
Temporary withdrawals – no effect for computing average cap
No Separate Vehicle With Separate Vehicle
Liquidation
SHORTCUT: Safe Payments [Final cash distribution] Joint Operation Investment in Joint Op
Expenses Revenue Investment Income
Contra Revenue Contra Expense Expenses Drawings
Cash, beginning Payments of liability Unsold amount Share in profit Share in loss

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Proceeds of sale of NCA Liquidation expense Loss Gain
Future liquidation expense1
___________ Unpaid liabilities1 Final Settlement P/L in Arrangement
Investment in JO Purchases Sales
XX (XX)
Share in gain Freight-in

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Freight-out End
Partner 1 Partner 2 TOTAL Payable to JO Profit Loss
Capital Interest 20,000 40,000 60,000
L: Deductions (pro-rata) (30,000) (20,000) (50,000)2
PFRS 15

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Partners ending balance (10,000) 20,000 10,000
Addt’l investment (if solvent) 10,000 . 10,000
Cash distribution - 20,000 20,000 LONG-TERM CONSTRUCTION CONTRACTS
1Only if installment 2Squeeze

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Reliable → POC/Over-time/Cost-to-cost
SHORTCUT: CPP [Distribution of Priority-Installment] Consume simult. (customer)
LE H Estimates if atleast one: Controls asset (customer)
No altv use (seller)
Period 1 Period 2 Period 3
Not reliable → Zero-profit/Cost Recovery
Cash, beginning - 4,800 1,800
Sale of Non-Cash Asset 72,000 21,600 19,200
L: Liquidation expense (1,200) (1,320) (1,440) % ToDate PrevYr CurrYr
SA by
Payment of liabilities (66,000) (18,000) - Revenue (7,440) 30% 2,232 1,500 732
Remaining liabilities (18,000) - - Cost . (7,100) 30% (2,130) (1,450) (680)
Cash withheld (4,800) (1,800) (1,200) GP 30% 102 50 52
Cash available 01 5,280 18,360
1Nocash will be distributed if negative amount
YEAR 1 YEAR 2
NOTE: Fulfill period 2 first before allocating period 3
Contract Price xx xx
FAQ: Most vulnerable: LOWEST Maximum absorption
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CI xx CI xx
PY - PY xx
CORPORATION LIQUIDATION Tot xx (est. cost) Tot xx (est. cost)

CTC xx (xx) CTC xx (xx)

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Statement of Affairs Gross Profit xx xx

 Assets at realizable values, liabilities at settlement Completion % % %
 Summary of ESTIMATED results GP To-date xx xx
RGP – Prior Yr (-) ( xx )
Fully pledged assets Partially secured liabilities Profit – CurYr xx xx
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(Fully secured liabilities) (Partially pledged assets)

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Excess free assets Unsecured portion CIP Progress Billings

Free assets Cost Y1
Total Free Assets Profit Y1 Billings
(UnSec. liabilities with prio) UnSec. liabilities w/o prio CIP, Y1
Net Free Assets Total UnSec Liabs w/o Prio Cost Y2
N st

NFA ÷ TULWoP = Expected Recovery Percentage Profit Y2 Billings

CIP, end* ↑Asset vs. Liability↑ Billings
Statement of Realization and Liquidation [SoRaL]
*
also the cost-to-date
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 Reports of ACTUAL liquidation results [ongoing]

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Total progress billings = CONTRACT PRICE

Assets to be Realized: Assets Realized:
CIP ÷ Contract Price = Completion %
Non-cash assets, beginning Proceeds of sale of NCA
Assets Aquired: Assets not Realized1:
FRANCHISES
New assets (AR, Int Recv) Non-cash assets, ending
 Initial Franchise Fees [Initial services]
Liabs Liquidated: Liabs to be Liquidated:
o Normally Point in Time
Cash payments for liabilites Liabilities, beginning
 XPN: Maintain value → Over-time
Liabs not Liquidated2: Liabs Assumed:
Liabilities, ending New liabilities ↳ Interest Bearing → Face Amount + Interest
Supplementary DRs: Supplementary CRs: ↳ Non-interest Bearing → Present Value + Interest
Expenses (excl loss, write off) Revenues (excl. gain on realization)
NET LOSS NET GAIN  Continuing Franchise Fees [Trainings, ads, etc.]
o Usually based on franchise sales
 Sales on account: Asset acquired, Supp credits o Recognized when EARNED and RECEIVABLE
 Purchase on account: Liabs assumed, Supp debits o Normally Over-Time
 XPN: Bldg. maintenance → Point in Time
Computation of Cash
ASSETS LIABILITIES2 EQUITY D of Signing D of Opening Year-end REVENUE
↙ ↘ ↓ ↙ ↘ IFF Liability Revenue xx
Cash (Squeeze) NCA1 Liabs, end RE* Share Cap CFF Liability Revenue xx
*Don’t forget to include income, gains/losses pro-rata xx
 LICENSES Notes on Entries:
 Inventories:
 Customer uses seller’s Intellectual Property  The recipient of inventories will record the shipment
and freight. (or who possesses the inventory)
Promise to Grant License  Credit cash, for that who paid the freight
DISTINCT NOT DISTINCT  PPE:
 Separate PO  Single PO (interrelated)  PPE is recognized by that - who will keep the asset, as
 Specific Principles*  General Principles well as the accumulated depreciation.
↳ Right to Access [OT] ↳ C, C, N  The depreciation expense is recognized by that –
↳ Right to Use [PT] ↳ if atleast one: OT who used the asset.
 Payables and Receivables:
Right to Access Right to Use  That who pays the liability will credit cash, while that
 Customer have no direct  If has direct use or who has the liability will debit.
use to remaining benefits obtain benefits  That who collects the liability will debit cash, while
 IP CHANGES  IP does not change that who has the right will credit.
↳ entity still involved  Income and Expenses:

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with IP  That who incurred the expense will debit, while that
↳ entity activities who paid will credit cash.
significantly affects IP  Reverse the expense using the reciprocal accounts if
↳ evidenced by sales- the HO charges the branch for an expense.

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 The branch closes the home office account (credit) to
based royalty agrmt
income summary.
REVENUE FROM CUSTOMERS
COST OF GOODS SOLD

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Step 1: Total Goods Available for Sale
Five Steps: COPAS Consideration
 Beginning Inventory @ billed price
Approval
 Shipments from Home Office
Contracts with customer Rights

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 Purchases [Outsiders]
Obligations [Separate] Terms of payment
Step 2: Cost of Goods Sold
Price Substance [commercial]
LE H At selling price At cost
Allocation of price OT – C, C, N
Outsiders xx
Satisfying obligation PT – transfer
Net Sales Home office xx
 Physical possession
COGS
 Acceptance
 Risk and rewards assumed
SA by
EXCESS FREIGHT
 Obligation to pay
 LOWER of Actual vs ‘Should be’ freight.
 Legal title
 Savings/Gain is not recognized in FS.
OTHER ISSUES

 Right of return – NOT a PO

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 Bill-and-Hold – GR: No revenue until delivery

 Principal-Agent P: recognize gross price
BUSINESS COMBINATIONS
A: recognize commission
Acquisition Date
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 Warranties Quality assurance – NOT a PO ×

Extended – a PO ✓ GR: Closing date [FAQ]
 Repurchase Lease - Rep₱ < S₱ XPN: Agreement – date before closing
Finance agreement - Rep₱ > S₱
Acquisition Method [FAQ: Four-step]
difference = interest ↲
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1. Identifying the acquirer

 Gift cards deferred revenue when sold 2. Determining the acquisition date
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Revenue if “remote likelihood” 3. Recognize and measure identifiable assets acquired,

liabilities assumed, and non-controlling interest
CONSIGNMENT 4. Recognize and measure goodwill or gain from BP

Costs [All are deducted from cash]

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SOLD UNSOLD RETURNED  DACs → related to combination

Sales ↳ Professional fees
(Cost) Consignor’s charges ↳ Brokerage
(Freight)[allocate]  iDACs [indirect] EXPENSED
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[becomes OpEx]
↳ Maintenance (reduction to RE)
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xx END
(Commission) ↳ Depreciation, etc.
(Advertising)  Share/Debt Issuance Cost → Charge to APIC
(Deliver & Install) Consignee’s charges [OpEx] ↳ Underwriters (share premium) [debit]
(Freight/Cartage) [allocate]
Classifications
PROFIT XX
 Horizontal - previous competitor (similar industry)
Note: Sales – Consignee’s charges = Remittance  Vertical - supplier and customer (similar industry)
 Conglomerate - unrelated/dissimilar industry
HOME OFFICE AND BRANCH  Circular - expansion

Methods
Billed Price Cost Allo  100% of Merger - Balance sheet
Beg, HO xx xx xx Acquiree Consolidation - Balance sheet
Beg, Outs - xx -
Purchases - xx - Statutory Merger/Consolidation [Balance Sheet]
SFHO 120% . 100% 20% Acquirer Acquiree
TGAS xx xx xx Before Adj. Assets Book Value Fair Value
(End, HO) (xx) (xx) (xx) Liabilities Book Value PV or Fair Value
(End, Out) - . (xx). - . After Adj. SHE ✔ ✖
COGS xx xx XX RGP*
*Overvaluation of Cost
 Other Notes Deconsolidation and Disposal of Subsidiary
 Remeasurement Period Sample Problem: Loss of Control
↳ GR: up to 1 year from acquisition date Investor owns 80%, sells 70% for P 490,000
 Adjust goodwill [within remeasurement period] Consolidated net assets 600,000
 Provision; Gain or Loss [beyond remeasurement period] Fair value of the remaining 10% 70,000
 Contracts Present ✔ include Proceeds 490,000 Journal entry:
Future ✖ exclude FV Retained 70,000 Cash 490,000
 Intangibles [at Fair Value] NCI 120,0001 Investment 70,000 (remeasure)
↳ Present and Measurable ✔ include TOTAL 680,000 NCI 120,000 (equity item)
↳ Future and No Control ✖ exclude FVINA 600,000 Net Assets 600,000
↳ If not identified on acq. date ✖ not recognized even if it Gain 80,0002 Gain 80,000
1
Proportionate: 600,000 ✖ 20% = 120,000 has to be deconsolidated
is measurable on subsequent period 2
Either FVPL (P/L); or FVOCI (OCI - RE)
Goodwill or Gain on Bargain Purchase
Consideration Transferred Sample Problem: No Loss of Control
A: Contingent Consideration [Expected Value] Investor owns 80%, sells 10% for P 70,000
Total Consideration Consolidated net assets 600,000
L: Fair Value of Identifiable Net Assets  It did not result to loss of Journal entry:

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Goodwill (Gain on Bargain Purchase) control [still owns 70%]
 NCI becomes 30% Cash 70,000
Contingent Asset - Included to CT based on expected value NCI 60,0001
1
Contingent Liability – Additional liability Additional NCI [10% sold]
2
No gain/loss. Just SP or RE SPremium 10,0002

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Subsequent Date
Reverse Acquisition
Non-Controlling Interest - only for stock acquisition ↳ The security issuer is the acquiree
FAQ: presented as separate equity line item in financial position
↳ When a private entity enlists shares without going IPO, it

 FV/Full Method → Gross up
If FV is available
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makes a public entity acquire the private ones.
↳ Requisites:
No FV (Implied FV)
► Must meet the definition of business combination
► One entity is listed, one is not

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CT CT - P + D
✖ NCI% ✖ NCI% ► Swap of shares happens (shares vs. shares)
Control % Control%
LE H Control Premium; Control Discount ► Newly issued shares establish control

 Proportional/Partial → no goodwill to NCI Point of View PUBLIC ENTITY PRIVATE ENTITY

Legal Parent/Acquirer Subsidiary/Acquiree
↳ FVINA ✖ NCI%
Accounting/Economic Subsidiary/Acquiree Parent/Acquirer

Sample Problem: Determining NCI

SA by
Sample Illustration
Consideration Transferred [60%] P 6,300,000
B Co. [Public] issues 15M shs
Fair value of Non-Controlling Interest [40%] 4,000,000
A Co. [Private] shs acquired by B Co. 6M shs
Control premium of NCI 300,000
B Co. shares after acquisition 25,000 shs
FV – Identifiable Net Assets 7,000,000
Quoted market price of shares A: P6 B: P2
Fair Value/Full Partial
FVINA A: 30M B: 18M
[60%] CT 6,300,000 6,300,000 B Co. A Co. 1
15M ÷ 25M
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[40%] NCI . 4,000,0002 2,800,0001 Existing shs 40% 10M2 6M 60%3 2

Squeezed [25M-15M]
TOTAL 10,300,000 9,100,000 New shs 60%1 15M 4M4 3
Should match (shs vs. shs)
L: FVINA . (7,000,000) (7,000,000) 25M 10M 4
Squeezed
GW(GBP) 3,300,0003 2,100,0003
1
FVINA ✖ NCI% = 7,000,000 ✖ 40% CT [A, accounting parent] 24M [4M P6]
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✖
2
Can be also computed if no FV (using Implied Fair Value) FVINA [B, legal parent] (18M)
[(CT + Discount - Premium) ÷ Controlling %] ✖ NCI% Goodwill 6M
3
Goodwill attributable to NCI: 3,300 – 2,100 = 1,200,000
NOTE: NCI on FV method should not be lower than NCI in Implied FV
CONSOLIDATED FS
Sample Problem: GW Allocation [In Fair Value]
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Con-Int [P] NCI TOTAL

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CT 6,300,000 4,000,000 10,300,000 Consolidated Balance Sheet

FVINA (4,200,000) (2,800,000) (7,000,000)
GW 2,100,000 1,200,000 3,300,000 Wholly and Partially Owned [Consolidated Balance Sheet]
Ratio 64% 36%  Consider FV adjustments
64:36 is the basis for allocating Goodwill to Parent and NCI,  Eliminate investment account → Parent
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not their Controlling Interest (60:40)  Eliminate Common shares

APIC Subsidiary
Previously Held Equity Interest – remeasured at Fair Value RE [Revenues, Exp]
Fair value ↑  Recognize Goodwill
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Book value FVPL - P/L ↳ Acquisition of Net Assets – recognized immediately

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Gain ↑ FVOCI - OCI → RE

↳ Acquisition of Stock – will only appear on CFS after EE’s
 Stock issuance - deduct from APIC/SPremiun
Sample Illustration  Costs (brokerage, professional fees, etc.) – deduct from
Book value of previously held 15% P 500,000 cash as expenses [reduction to RE]
Another purchase 60% 2,160,000
Fair value of NCI 900,000 Undervaluation – Should be added to reflect FV adjustment
FV – Identifiable Net Assets 3,200,000
↳ Its amortization is deducted to reflect the correct income
Fair Value/Full Partial Overvaluation works otherwise
[60%] CT 2,160,000 2,160,000
[15%] FVPHEI1 540,000 540,000 Consolidated Net Income
[25%]NCI . 900,000 800,0002
TOTAL 3,600,000 3,500,000  Adjustments [Over/Undervaluation and Imp of Goodwill]
L: FVINA . (3,200,000) (3,200,000) Land Gains/losses (if sold) ✖% = OV (UV)
GW(GBP) 400,000 300,000 Depreciables Depreciation expense OV (UV)
1 ✖% =
(CT ÷ 60%) ✖ 15% = 540,000 (implied FV of PHEI, cuz no FV given)
2 Goodwill Amortization ✖% = OV (UV)
FVINA ✖ 25% = 800,000 (NCI portion as a result of addtl 60%)
Inventory COGS (if sold) ✖% = OV (UV)
FAQs ↳ *undervaluation overstates net income, that’s why it
Investment in subsidiary [2,700,000] = 2,160 + 540
should be deducted to adjust net income
Gain [40,000] = FV 540 – BV 500 (has to be remeasured, remember?)
↳ If the 15% is under FVPL = Gain (Profit or Loss) of 40,000 Fair Value Partial
↳ If the 15% is under FVOCI = Gain (OCI); then transfer to RE [not P/L] Goodwill Parent and NCI Parent
Gain on BP Parent only, and on year of bus com only
  Intercompany Dividends SUBSEQUENT TO SALE
↳ Cost Method – be mindful of parent’s separate net income Downstream Upstream
► Net Income [Separate FS] – remove dividend income Remove Overstatement of Investment [RE] and NCI
► Net Income [Own operations] – nothing to deduct Equipment Equipment
↳ Equity Method – no issue on dividends, it uses investment RE, Beginning [100%] RE, Beginning [80%]
► Remove share in net income of the investee Acc Depreciation NCI [20%]
Acc Depreciation
 Intercompany Transactions
UPSTREAM DOWNSTREAM Realize Gain to reduce Acc Dep overstatement
Accumulated Depreciation Accumulated Depreciation
Parent [Buyer] Parent [Seller] Depreciation Expense Depreciation Expense
↑ ↓ *No accumulated depreciation involved for non-depreciables
Subsidiary [Seller] Subsidiary [Buyer]
SUMMARY OF CONSOLIDATED NET INCOME – Assume 80:20
Inventories CNI-P CNI-NCI CNI
80% 20% TOT
↳ If unpaid, AP and AR are overstated
Parent’s NI / Net income from separate FS xx xx
↳ Sales and Purchases are overstated Dividend income from subsidiary (declared or paid) (xx) (xx)

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↳ Ending inventory [unsold] is overstated (CGS understated) Income from its own operations xx xx
due to unrealized profit [UPEI] – deduct from income Share in NI of subsidiary (distribute) x x xx
► becomes BI next year
Amortization of undervaluation (distribute) (x) (x) (xx)
► if sold next year, CGS is overstated
Amortization of overvaluation (distribute) x x xx
due to realized profit [RPBI] – add to income

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Gain on BP (date of business combination only) xx xx
Working Paper Eliminating Entries - Inventories Impairment loss on Goodwill [FV] (based on GW ratio) (x) (x) (xx)
Downstream Upstream Impairment loss on Goodwill [Proportionate] (xx) (xx)
Eliminate Intercompany Sales Inventories

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Sales Sales RPBI – Downstream [sold by parent] xx xx
RPBI – Upstream [sold by subsidiary] x x xx
Purchases (CoGS) Purchases (CoGS)
UPEI – Downstream [sold by parent] (xx) (xx)
UPEI – Upstream [sold by subsidiary] (x) (x) (xx)
Recognize RPBI Fixed Assets

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Cost Method RE, Beginning [Parent] Unrealized Gain (Depreciable) – Downstream (xx) (xx)
RE, Beginning [Parent] Non-controlling interest Unrealized Gain (Depreciable) – Upstream (x) (x) (xx)
Inventory, Beginning
LE H Inventory, Beginning Realized Gain (thru overdepreciation) – Downstream xx
Realized Gain (thru overdepreciation) – Upstream x x xx
CNI-Parent, NCI, Consolidated NI XX XX XX
Equity Method Investment in Subsidiary
*RPBI is the UPEI last year
Investment in Subsidiary Non-controlling interest
Inventory, Beginning Inventory, Beginning *Unrealized gain is eliminated on year of sale
SA by
*Realization is done through depreciation and disposal
Eliminate UPEI *Non-depreciables are realized through disposal
Inventory, end [IS] Inventory, end [IS]
Inventory, end [BS] Inventory, end [BS] Investment Balance: Equity Method
Beginning Investment Adjusted: NI – subsidiary
Share in Subsidiary Net Income (loss) Amortization (UV) OV
Basic Formula [NI-S x %]
RPBI
(Dividend from subsidiary) [Dividend x %]
Sales, Parent AR/AP, Parent (UPEI) .
Ending Investment
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Sales, Subsidiary AR/AP, Subsidiary Adj. NI - Subsidiary

(Intercompany sales) [US or DS] (Intercompany AR/AP) [unpaid]

Consolidated Sales1 Consolidated AR or AP Owners require consolidation
Publicly listed shares
REQUIRED In process of listing shares to SEC
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CGS, Parent Ending Inventory, Parent

CGS, Subsidiary
(Intercompany sales) [US or DS]
(Realized Profit – Beg Inv)
Unrealized Profit – End Inv
UV of Inventory @ DoA
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Ending Inventory, Subsidiary Lolo entity does not consolidate
(Unrealized Profit – End Inv) ↳ Lolo – Parent – Subsidiary :)
Consolidated Ending Inv3
Excluded: Subsidiary acquired to be disposed w/in 12 months
1
Sales to outside parties only

(OV of Inventory @ DoA) 2

Sold portion at original cost FOREIGN CURRENCY
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Consolidated CGS2 3
Unsold portion at original cost
 Functional Currency – where entity operates
Fixed Assets ↳ INDICATOR: Revenue and expenses; operating cash inflows
[Assuming the selling price exceeds the book value] ↳ Some cases: PH-based but operates outside, FC is outside
 Year of sale  Presentation Currency – in which FS is presented
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↳ Date of sale ↳ In case of consolidation: Parent company is the PC

► Book value is overstated
[represented by the selling price as the new book value]  Direct Quotation: magkano in peso $1 = ₱ 50
ex.

► Net income is overstated – due to unrealized gain  Indirect Quotation: magkano ang peso ₱1 = $ 0.20
ex.
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↳ Balance sheet date

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► Net income is still overstated – due to unrealized gain  Spot rate – immediate delivery; today
► Net income is understated [overstated depreciation]  Forward rate – future rate
 Subsequent Year  Historical rate – past date
↳ Book value (beg) – overstated due to unrealized gain  Average rate – only for practical reasons
↳ The overstatement of depreciation diminishes the  Closing rate – balance sheet date [ex. spot rate of Dec 31]
overstatement [counter-balance in a sense]
↳ Retained earnings (beg) – overstated [unrealized gain] Initial Recognition
↳ Retained earnings (beg) – understated [over-depreciation] ↳ Ordering date → no entry yet
NOTE: ↳ At transaction date → Spot Rate
↳ Unrealized gain – overstates only the year of sale Approximate actual rate → Average Rate
↳ Equity method, the Investment account is overstated, not RE XPN: fluctuation
Subsequent [Translation]
Working Paper Eliminating Entries - Depreciables ↳ Balance sheet date Gain or Loss
YEAR OF SALE ► Monetary A/L → Closing Rate P/L
Eliminate Unrealized Gains ► Non-Monetary @ Cost → Historical Rate1 not revalued
Equipment [restore original cost] ► Non-Monetary @ FV → Closing Rate2 P/L or OCI
1 2
Gain on Sale [eliminate] at the date of transaction date when FV is determined
Acc. Dep [might overstate acc dep] ► Non-Monetary in Foreign Currency
Cost/CA [ex. HR] may have Imp Loss on
Recognize Realized Gain – through depreciation Compare NRV/Recov. [ex. CR] functional currency
Accumulated Depreciation [to correct annual ↳ Settlement date → Closing Rate
Depreciation Expense depreciation]
 Monetary Non-Monetary Holding a Monetary Asset during inflation – PP Loss
Cash Inventories Holding a Monetary Liability during inflation – PP Gain
AR and Allowance Biological Assets MA > ML = Net PP Loss [Net monetary asset position]
Lease Receivable/Payable PPE MA < ML = Net PP Gain [Net monetary liability position]
Loans Receivable/Payable Warranties ↳ FS at Current Cost – restate using GPI
Fin Asset at Amortized Cost Financial Asset at FVPL/FVOCI ► Statement of Financial Position – not restated
Prepaid Interest Prepaid Rent [other prepaids] ► SCI and SCF [Historical - theoretical] – Average

Foreign Currency Exchange Transactions Use of Derivatives

Monetary Transactions [FAQ: AP and AR only are affected]
Same Period [settled within the year] Derivatives are measured at fair value = change in underlying
Transaction Date ex. change in forex rate = that’s the FV of derivatives
Gain or Loss [P/L]
Settlement Date
 Forward Contract – locked na ‘yung terms for future [agreed]
Different Periods [tumawid sa BS Date]  Option Contract – right to buy/sell; not an obligation
Transaction Date  Swap – exchange agreement; fixed or variable (floating)
Gain or Loss [P/L]
Balance sheet Date
Gain or Loss [P/L]
Settlement Date Hedging – minimize or offset risks of loss

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↳ Hedged Item – asset, liab, transaction, net investment in a
Purchase: use selling spot rate [cost of purchase yan eh] foreign operation that is (1) exposed to fair value or
Sale: use buying spot rate [yan yung binayad ni buyer] cash flow changes; (2) designated as hedged item
FAQ: Advanced payment, no changes. Use amounts at TD
↳ Hedging Instrument – derivative or non-derivative asset

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that is expected to offset FV and CF changes.
Foreign Currency Translation
Non-Hyperinflationary
Fair Value Hedge – changes in fair values
Functional Currency is not the currency in a hyperinflationary economy
(means your FC is not affected by inflation) Cash Flow Hedge – variabilities in cash flows

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Hedge of a Net Investment of a Foreign Operation – CFH
Translation to Presentation Currency [FS] (closing rate method)
↳ Foreign operations are independent; not integral to parent FV Hedge CF Hedge
↳ ex. PH – Parent: PHP Recognized Asset/Liability ✔ ✔

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↳ US – Subsidiary: USD Firm Commitment ✔ (if silent) ✔
Assets and Liabilities → Closing Rate [BS Date; year-end] Highly Probable Forecasted Transaction ✔
Contributed Capital
LE H → Historical Rate [acquisition date] Net Investment in Foreign Operation ✔
Retained Earnings Cash flow hedge does not recognize G/L on ∆ of a hedged item
↳ Beginning → Historical Rate [first year]
→ Carry-over [subsequent years] Fair Value Hedge Cash Flow Hedge
↳ Income/Expense → Spot Rate [Transaction date] Hedged Item ∆ → P/L PFRS
Hedge Instrument ∆ → P/L ∆ → OCI
SA by
Practical: Average Rate
↳ Dividends → Rate at date of declaration
Exchange differences – OCI, then P/L when foreign Sample Problem: Recognized [Exposed] Asset/Liability (FVH)
operation is disposed Purchase of Inventory of 1,000 under FCU
*use this method if silent [PAS 21] Date Spot Rate Forward Rate FWR at date of
TD 1/1/24 P1.116 P1.120 settlement is
BSD 12/31/24 P1.129 P1.126 also the Spot
Translation to Functional Currency (temporal method)
Rate [current
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↳ aka. remeasurement method; integral; dependent to parent SD 3/31/25 P1.138 ? rate na kasi]
↳ ex. PH – Parent: PHP
↳ US – Subsidiary: PHP Hedged Item Hedging Instrument
Monetary A and L → Closing Rate [BS Date; year-end] TD 1,116 TD 1,120
13 Fx L 6 G (Derivative Asset)
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Non-monetary at cost → Historical Rate [transaction date] BSD 1,129 BSD 1,126
Non-monetary at FV → Rate at FV determination [Spot] 9 Fx L 12 G (Derivative Asset)
SD 1,138 SD 1,138
Contributed Capital → Historical Rate [acquisition date] 22 Loss [P/L] 18 Gain [Balance of DA]
Retained Earnings
↳ Beginning → Historical Rate [first year] *
Amounts on the hedged item – AR and AP [balance]
*
→ Carry-over [subsequent years] Amounts on the hedge instrument – FC receivable(buy) payable(sell)
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*
The balance of the forward contract is the cumulative amount of the
↳ Dividends → Rate at date of declaration
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derivative asset/liability [G/L].

Income and Expenses Where: 1/1/24 = 0; 12/31/24 = 6; and 3/31/25 = 18
Monetary-related → Spot Rate [Trans Date] *
Premium expense = 4
Practical: Average Rate Premium = FW > SR ; Discount = FW < SR
Non-monetary-related → Historical Rate or FV
Exchange differences Buyer Seller
N st

GR: Profit or Loss Premium expense Premium revenue

XPN: OCI if: (1) part of net investment of foreign operations (pay additional) (receive additional)
(2) initially OCI, then P/L on disposal Discount revenue Discount expense
Hyperinflationary (pay less) (receive less)
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Functional Currency is the currency in a hyperinflationary economy

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(Your currency is affected by inflation; RESTATE and TRANSLATE) Firm Commitment – recognize firm commitment instead of
AP or AR until actual delivery and payment [only in FV hedge]
Restatement – ALL items, restated at closing rate [no G/L]
↳ Inflation adjustment Forecasted Transaction – future transaction is uncertain
GPI Current [end of reporting period] unlike firm commitment; recognize sales/purchase
Item ✖
GPI Historical* [acquisition date] Cash flow hedge Effective portion ⇢ OCI
use Average for practical reasons (too many items); XPN: fluctuation Ineffective portion ⇢ P/L
↳ Inflation rate
GPI Current – GPI Base [prior] Speculation – no hedging, anticipation of F/UF outcome [FVH]
GPI Base
Hyperinflation rate usually exceeds 100% Option Contracts
 Call Option – to buy; Put Option – to sell
↳ FS at Historical Cost – restate using GPI  Option Premium – amount of money to obtain the right
► Monetary – not restated  Strike (Exercise Price) – fixed price agreed for the option
► Non-monetary at FV – not restated
► Non-monetary at Cost – GPI Historical  At the money – no gain or loss upon exercising option
► A and L under agreement – agreed GPI  In the money – obtain gain upon exercising option
► SCI and SCF [Historical - theoretical] – Average  Out of the money – obtain loss upon exercising option
► Revaluation surplus – Eliminated
Strike Price = Market Strike Price > Market Strike Price < Market
↳ Effect is carried at RE (balancing figure)
► G/L on net monetary position – Net income Call At the money Out of the money In the money
↳ aka Purchasing Power G/L Put At the money In the money Out of the money
 Job Order Costing Process Costing
Heterogeneous/dissimilar products
 Production Report  Cost of Production
Disposition of Factory Overhead [under/overapplied] ↳ In Process, Beginning ↳ Flow of Units
 Insignificant – close to CGS ↳ Transferred-out units ↳ Summary of Costs
 Significant – pro-rata [WiP, FG, CGS] ↳ In Process, Ending ↳ Journal Entries
↳ Percentage of Completion
AFOH
Spending Var.
BASH Normal Loss – Product cost
Capacity Var.
Applied OH ↳ Part of the cost of units in process or finished goods
Rush - DL ⇢ WiP Abnormal Loss – Period cost
Overtime premiums Not rush - FOH ↳ Not absorbed by good units

Scrap [can be sold] Discrete Loss – occurs at a specific point [inspection]

↳ At Time of Sale Continuous Loss – occurs evenly throughout production
Debit - immaterial ⇢ Income/Reduction to CGS Inspection Point Normal Loss Abnormal Loss

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Cash - attributable ⇢ WiP [specific] Start and During - -
or AR - common ⇢ FOH [all] End of Process 100% 100%
↳ At Time of Production IF SILENT -1 100%2
Debit - immaterial ⇢ Income/Reduction to CGS 1
Normal kasi, you are already expecting it. It’s a part of the process.
Scrap Inv - attributable ⇢ WiP [specific] 2
Sa end mo lang kasi malalaman, ‘di kasi s’ya part ng normal process.

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Cash/AR - common ⇢ FOH [all]
Which absorbs lost units? (Normal loss only)
Spoilage [cannot be corrected] Good units under: Inspection Point
FIFO Costing Start/During END

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Customer – specific [WiP] WiP, Beg, Finished, Transferred ✖1 ✔
Fault of Internal failure – all [FOH] Started, Finished, Transferred ✔ ✔
Wip, Ending ✔ ✖2
Predetermined FOH Rate Weighted Average

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Applied Factory Overhead . WiP, beg, Started, Fin and Trans ✔3 ✔
Basis [usually: Standard Labor Hours] WiP, ending ✔ ✖2
1
LE H FIFO kasi, beginning, galing sya sa naunang process. ‘La s’yang malay.
2
Defective [rework to make it saleable] Hindi s’ya inabutan ng lost units. ‘Di nga s’ya natapos eh. Safe pa s’ya.
3
Halo yung beginning at started kasi naka-average. So damay beginning
Additional Rework
Charge to ALL Charge to Specific
Equivalent Unit of Production [EUP]
FOH Control Work in Process
FIFO Method Weighted Average
SA by
Materials [DM] Materials [DM]
T-in M CC T-in M CC
Payroll [DL] Payroll [DL] Beg F&T BFT -1 -2a xx [remaining]
OH Applied [FOH] OH Applied [FOH] xx xx xx
Start SFT3 xx xx xx
T-in NL NL x x x check rules x x x
For Scrap, Spoilage, and Defective: AL AL x x x on lost units x x x
Charge to ALL Specific End End xx xx2b xx [done] xx xx2b xx
Unit Cost ⇢ SAME Different UTAF UAF* EUP xx xx xx xx xx xx
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Allowance for Defect ⇢ INCLUDE EXCLUDE 1

Always zero [FIFO] *Units to account for; Units accounted for
2a
Zero if added at the beginning 2bHas amount if added at the beginning
Charge to ALL Charge to Specific 3
Always has an amount [in excess after accounting the beginning]
FOH Control Work in Process Pro-forma for Costs [assume FIFO]
FO nu

Materials [DM] Materials [DM] T-in M CC

Payroll [DL] Payroll [DL] Beg F&T Beg, FT [AA] - mm cc
OH Applied [FOH] OH Applied [FOH] Start Started, FT xx xx xx
T-in NL Normal [NLU] ? ? ?
Job Cost Sheet AL Abnormal ? ? ?
Direct Materials, Beginning Materials available for use End End xx ? xx
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Net Purchases UTAF UAF* EUP xx xx xx

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(Direct Materials, Ending) ⇢ Zero if decrease in DM FIFO ÷ from Current Cost only
Direct Materials Used (otherwise, insert the WAve ÷ from Current + Beg Cost
Direct Labor amount here if increase) Cost per EUP tu mu cu
FOH – Applied .

Total Manufacturing Cost Placed into process TC per EUP

N st

Work in Process, Beginning

(Work in Process, Ending)
Cost of Goods Manufactured
Finished Goods, Beginning
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Adjustment for Normal Loss: cost of normal loss [NL]
⇢ Zero if decrease in WiP Inv
Normal Lost Units ✖ Total Cost Per EUP [TC]
TGAS [peyborit mo]
Cost of Units Transferred

(Finished Goods, Ending) ⇢ Zero if decrease in FG

FIFO
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Cost of Goods Sold

 Beginning, [Finished & Transf]
Under(Over)applied [UNderapplied=UNfavorable]
Beginning Cost xx depends if materials are added at
Adj. Cost of Goods Sold the beginning or ending
M added [mm ✖ mu] xx
CC. added [cc ✖ cu] xx
T-Accounts [Normal Costing]
xx
Raw Mats Work in Process
 Started, [Finished & Transfrd]
Beg Beg Cost of units transferred
SFT ✖ TC xx
Purch DM used Act DMU ÷ Units transferred = per unit
NL [NLU ✖ TC] xx
End FOH - Control Act DL . [F&T]
xx
Actual Applied App OH End .

Ind Mat TMC

Weighted Average
Ind Labor
Finished and Transferred ✖ TC
Actual OH Cost of units transferred
Normal Lost Units ✖ TC
⬆ UF UNDERapp OVERapp F ⬆
 Joint and By-Product Unconditional Promise to Give ✔ pledges are made
× cash collection
Basis of Joint Cost Allocation Conditional Gifts a liability
1) Physical / Average Unit Cost / Output Method has to be returned if condition is not met
↳ Units produced
 Donations
2) Weighted Average / Survey Method
↳ Cash - Face Value [kunyare ‘di mo alam]
↳ Total weight [Units ✖ Weight] ex. kilograms
3) Sales / Market Value at Split-off ↳ Deferred cash - Present Value
↳ Units ✖ Sales value at split-off ↳ Non-cash - Fair Value [‘eto pa]
4) NRV at Split-off ↳ Facilities/Usage - (Dr) Expense; (Cr) Revenue – a free use
↳ (Units ✖ SV at SO) – Cost at Split-off of facilities [ay sige ‘wag mo nang bayaran]
5) Estimated NRV / Hypothetical / Approximate ↳ Donated/Contributed Services – recognized if one is met:
↳ Final SV – (Cost @ SO + FPC) ► Create/enhance non-financial asset
► Service is typically purchased
By-Product ↳ Collection Items – painting ni Goma [art], hist. treasures
↳ Material – recognized when produced ⇢ allocate JC [NRV] ► NOT recognized if ALL:
↳ Immaterial – when sold deduction to COGS  Held for public exhibition, education, research

es
treated as income  Protected and preserved
 POLICY – that proceeds of sale will be used to
Reversal Method: Revenue is treated as reduction to JC purchase another collection item

Pro-forma Financial Statement of NPO

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Sales @ Final Price xx  Statement of Financial Position [A,L, NET ASSETS]
Less: Costs ↳ NET ASSETS Unrestricted
Share in Joint Cost x Temporarily Restricted
Further Processing Cost x (xx) Permanently Restricted

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Gross Profit XX
Less: Operating Expense (xx)  Statement of Activities
Profit xx ↳ Like Income Statement + Changes in Equity
↳ Includes Revenues and Expenses

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Gains and Losses
Other Costing Methods Reclassifications/Changes in Net Assets
LE H Revenue, gains, losses – UR, TR, PR
JIT / Backflush Costing Expenses – Unrestricted ONLY [decrease in UR Net Assets]
RIP Finished Goods ↳ Program Services
Backflushed to FG
Beg Transfr xx ► primary activities
Purch End xx ► distribution of goods/services to the beneficiaries
Conversion Cost Unadj COGS
SA by
↳ Supporting Services
Actual Applied UA (OA) ► Other than program [ex. fund raising]
xx xx Adj. COGS
F OVER UNDER UF  Statement of Operations for Hospitals
 Statement of Changes in Net Assets
ABC Costing  Statement of Functional Expense – for VHWOs [FAQ]
Cost allocation is based on Cost Drivers (Activities)  Statement of Cash Flows
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Activity Total Cost Driver Cost per Activity ↳ FINANCING – contributions with donor-imposed restrictions
Setup 300,000 30 setups = 10,000/setup  Notes to Financial Statements
Engineering 200,000 4 engr hours = 50,000/hour
Machine cost 100,000 1,000 mach hours = 100/hour Private Non-Profit Colleges and Universities
600,000 3,000 DL hours
FO nu

Ex. DL hours is the basis for OH allocation under traditional/conventional
600,000 ÷ 3,000 = 200 Predetermined rate
Service Cost Allocation
Direct Method – other dept only Step-down – include same dept
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 General Revenues – tuition, grants
 Auxiliary Revenues – dorms, canteen, facilities
 Endowment Funds
↳ Permanent (Pure) – invested indefinitely [PR]
► Its income may be expended [UR or TR]

Service Operations Service Operations

A B x y A B x y ↳ Term endowment – may be expended after time [UR or TR]
O M

400 600 400 600 ↳ Quasi endowment – controlled by BOD, always unrestricted
3:4 (400) 171.43 228.57 3:3:4 (400) 120 120 160  Loan funds – loans to students, teachers, staffs
7:1 (600) 525 75 7:1 (720) 630 90  Plant funds
696.43 303.57 750 250
↳ Unexpended – set aside for purchase of asset
↳ Renewal/Replacement – for repair and maintenance
N st

NON-FOR-PROFIT ORGANIZATIONS ↳ Retirement Indebtedness – retirement of long-term debt

Governmental or Non-Governmental ↳ Investment in Plant Asset – liabilities related to plant asset
Employment-type ➞ reduction from revenue
↳ PFRS and Conceptual Framework Scholarships No employment ➞ EXPENSE
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↳ Pronouncements
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► SFAS 116: Accounting for Contributions Received & Made Hospitals and Health Care Organizations
► SFAS 117: Financial Statements for NPO
↳ Revenues and Expenses ➾ ACCRUAL Patient Service Revenue – rooms, doctor/nurse services
Net of: Charity care services (free charge for poor)
Major Source of Revenue LESS: Courtesy allowance (discount kela doc/nurse)
Contractual Adjustments (sagot ng PhilHealth)
 Regular – UNRESTRICTED Net Patient Revenue
- School - Tuition fees
- Hospital - Service fees Subscription Revenue – recognized, used or unused
- Voluntary Health & Welfare Orgs - Dues, Program fees
 Contributions – UNRESTRICTED or RESTRICTED Voluntary Health and Welfare Organizations
- Non-reciprocal transactions
↳ Unrestricted immediate use Current Unrestricted Fund:
no donor-imposed restrictions ↳ Public Support – inflow from voluntary donors with no
direct benefit. [Contributions, legacies, bequest]
➞ still UNRESTRICTED if BoD/BoT made restriction (quasi-endowment) ↳ Revenues – charges in exchange of services
[Membership dues, program service fees, dividends]
↳ Restricted Temporary – expires, remove, fulfilled
[donor-imposed] Permanent – no expiry, cannot remove Custodian Fund – an agency fund, not belong to NPO. An
asset (as held) and a liability (to be given to whom it should
➞ Donor imposed condition – a liability, revenue upon happening belong). Pass-through lang.
 GOVERNMENT ACCOUNTING INSURANCE CONTRACTS
(Filtered) Updated every year
Disposition and utilization of government funds and property Direct Method
Reinsurance Retrocession
 Commission on Audit [COA] Policy holder Cedent/Cedant Retrodecent
↳ Uses Government Accounting Manual [GAM] ⇣ ⇣ ⇣
↳ Promulgate accounting and auditing rules and regulations Insurer Reinsurer Retrocessionaire
↳ Reports to President and Congress not later than last day
of September SERVICE CONCESSION (BOT)
 Department of Budget and Management [DBM] Government or Private ⇢ Private ⇢ Develop infrastructure
↳ Formulation and implementation of National Budget
↳ Efficient & sound utilization of government funds, revenues  GRANTOR Government (Public) ⇢ PPSAS 32
Private
 Bureau of Treasury [BTr] ↳ GORTOM – Grant or Right to Operate
↳ Keep national funds, management, control - disbursements ↳ FLM – Financial Liability Model
↳ Maintain accounts of financial transactions

↳ Registry of Notice of Cash Allocation [NCA]
► Maintain, replenish control and monitor
↳ Bank transfer – replenish Modified Disbursement
System [MDS] – to use checks for disbursements
es
 OPERATOR – private ⇢ IFRIC 12
↳ Intangible Asset Model – Right to charge for use [toll]
↳ Financial Asset Model – unconditional right to receive
cash [infrastructure asset – not a PPE]

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 Government Agencies Measured Revenue Borrowing Cost
↳ Maintain current accounts of agency IAM Fair Value PFRS 15 Capitalized
↳ Financial status and condition FLM Fair Value PFRS 15 EXPENSED

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The Government Budget
Income and Expenditures, Borrowings
INSTALLMENT SALES METHOD
Key instrument to achieve socio-economic objectives edi wow
Closing Collection

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Actual Collection
 Budget Preparation and Presentation President
Sales Cash
↳ Estimation, priorities, limits ⇣
LE H Cost of Goods Sold Installment AR
1. DBM ⇢ ‘budget call’ ⇢ specific guidelines Congress
2. Budget Call ⇢ secretaries ⇢ submit estimates Deferred Gross Profit
Collection x GP Rate
3. President and Cabinet – National Expenditure Plan [NEP] Deferred Gross Profit
4. Finalize ⇢ 30 days ⇢ Congress Realized Gross Profit
SA by
 Budget Legislation and Authorization FV or NRV Selling Price

*
1. House ⇢ Senate ⇢ Bicameral ✔ ✔
↳ General Appropriations Bill [GAB] Date of Sale Repossession Reconditioning Date of Resale
2. President ⇢ ratifications and enrollment
↳ Enactment ⇢ General Appropriations Act [GAA] Repossession Workback:

 Budget Execution or Operation

R te

Repossessed Inventory [FV] Resale value

1. Government agencies ⇢ Budget Execution Documents Deferred Gross Profit (Reconstruction cost)
[BEDs] – plans, targets Loss (Profit Margin) .

2. DBM ⇢ Allotment Release Program [ARP] – limits ⇢ NCA Installment AR FMV - Date of Repossession
FO nu

 Budget Accountability – simultaneous with Execution ~Nothing follows~

1. DBM ⇢ monitors utilization
2. Agencies ⇢ Budget Accountability Reports [BARs] “May He give you the desire of your heart
3. Budget Performance Assessment Review [BPAR] And make all your plans succeed.”
4. DBM will report to President
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5. Audit Certified Public Accountant 2023

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Journal Entries [FAQ]

a) Appropriation [RAPAL] – No entry
b) DBM Allotment – [RAPAL + RAOD] – No entry
c) Obligations – [ORS + RAOD] – No entry
N st

d) NCA – [RANCA]
Cash, MDS-Regular
Subsidy from National Government
La

e) Disbursement – [ORS + RAOD]

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Expense/Asset
Payable

Payable
Cash, MDS-Regular

f) Tax Remittance Advice – [ORS + RAOD]

Cash, Tax Remittance Advice
Subsidy from National Government

Due to BIR
Cash, Tax Remittance Advice

g) Remittance of Revenue – [CRReg]

Cash, Treasury/Agency Deposit-Regular
Cash – Collecting Officer

h) Reversion – for unused NCA [RANCA]

Subsidy from National Government
Cash, MDS-Regular