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AFAR-Notes-by-Dr-Ferrer

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(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
Quick Notes in AFAR
*NOTES:
 To transfer the depreciable asset, it should be in net amount.
 To transfer the accounts receivable to the new book, it should not be in net
amount.
 ₱3000  PURPOSE: To engage other party
 The juridical personality of the partnership arises from the meeting of minds.
I. PARTNERSHIP
PARTNERSHIP FORMATION
VALUATION:
1. Cash – Face Value
2. Land, Depreciable Asset, & NCA
a. Agreed Value
b. Fair Value
c. Appraised Value
d. Carrying Value/Book Value
3. Liabilities – are considered assumed if the problem is silent
4. Inventory – Lower of Cost and Net Realizable Value (LCNRV)
5. Capital
5.1.
Bonus Method
5.2.
Investment/Withdrawal Method
BONUS METHOD
(*The problem is silent)
1. There would be a transfer of capital.
2. There is no recognition of goodwill.
3. The total asset and capital will remain unchanged.
INVESTMENT/WITHDRAWAL
1. Agreed Capital is more than Unadjusted Capital = Investment
2. Agreed Capital is less than Unadjusted Capital = Withdrawal
ADJUSTING ENTRIES
(*Use contra-asset)
1. Building – Carrying Value: ₱10M, Agreed Value: ₱15M
Accumulated Depreciation
₱5M
Capital
PARTNERSHIP OPERATION
1. Salaries
 This could be fractional year
 Given, regardless of the result of operation
2. Interest
 This could be in fractional year
 Given, regardless whether there is profit or loss
(*Use the salary/interest ratio if the problem states that the amount to be
distributed to the partners is up to the extent of profit only or the profit is
distributed based on the priority.)
3. Bonus
 This is given if there is a profit only
 Bonus is not always given if there is profit
CASE 1: Net Income of ₱500000 before salaries of ₱55000, interest of
₱13000, and bonus of 15%
B=
₱5M
2. Accounts Receivable – Cost: ₱10000, NRV: ₱9000
Capital
₱1000
Allowance for Doubtful Accounts
₱1000
Page | 1
Partnership by Estoppel – legally binding the partnership but no formal
agreement
Limited Partnership – two or more general partners and one or more limited
partners
Particular Partnership – single transaction
B=
B=
B = ₱56, 347.83
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
CASE 2: Net Income of ₱100000 before salaries of ₱5000, interest of ₱3000, and
bonus of 10%
B=
2. Admission by Purchase with Revaluation
Two Steps to be followed:
 Determined the asset revaluation
 Distribute the interest to the buying partner
TCC
B=
TAC
Bonus
*TAC=TCC
0
/
UVA
/
*TAC>TCC
+
OVA
*TAC<TCC
−
B=
B = ₱12,000
*NOTES: Advances made by the partnership to a partner are included in capital
interest but shall not affect the capital balance of a partner.
1.
2.
3.
4.
PROFIT RATIO
Profit Ratio, Loss Ratio

Profit Ratio, Profit Ratio

Original Capital Ratio, Loss ratio
x
Original Capital Ratio, Original Capital Ratio
x
LOSS RATIO
 _
x _
 _
x _
Purchase Price
Divided by: New Interest of New Partner
Adjusted Capital
Add: Unadjusted
Undervalued Asset (UVA)
Multiply: Percentage
Add: Capital
Multiply: (100% - New Partner %)
₱xx
xx
xx
xx
xx
%
xx
xx
xx
xx
₱xx
EXAMPLE ON HOW TO COMPUTE THE AVERAGE CAPITAL:
1. 1/1
7/1
10/1
₱1000 × 6/12 = ₱ 500
800 × 3/12 =
200
1500 × 3/12 =
375
₱1075
2. ₱500 × 12/12 = ₱500
100 × 9/12 =
75
(200) × 3/12 = (50)
₱525
*NOTE:
 P/L = Silent  Original Capital
 Interest = Silent  Average Capital
 Net income after interest and salary but before bonus
Formula: Net Income – Total Interest – Total Salary = Bonus
PARTNERSHIP DISSOLUTION
-
Change in numbers of partners.
1. Admission by Purchase without Revaluation
 Silent
 Personal transactions
 Total asset and capital will remain unchanged
 Purchase price is ignored
Page | 2
RETIREMENT
1. Compute the capital balance before retirement
a. Capital balance
b. Share in net income/net loss
c. Drawings
d. Additional investment
e. Revaluation of UVA
f. Revaluation of OVA
g. Condonation of the partnership liability/receivable of your debtor
2. Settlement is more than Capital Interest = Bonus to the retiring partner
If the Settlement is less than Capital Interest = Bonus to the remaining
partner
PARTNERSHIP LIQUIDATION
1. Lump-sum Liquidation – single distribution
2. Installment Liquidation – “piece meal”
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
 If A received ₱35500, how much was given to J?
STEPS IN LUMP SUM LIQUIDATION
1. Realization of Non-cash Asset (Profit/Loss)
2. Payment of liabilities and liquidation expense
Liability
Cash
₱xx
₱xx
Capital
Cash
₱xx
₱xx
3. Elimination of deficiencies
4. Distribution
Priority 1
Priority 2
NPP
A
₱ -0-035500
₱35500
G
₱30000
10000
14200
₱54200
Cash beginning
Add: Proceed
Minus: Liabilities
Liquidation Expense
Distribution
₱xx
xx
xx Total
xx Total
₱xx
Maximum Possible Loss (MPL):
1. Unsold Non-cash Asset
2. Anticipated Liquidation Expense (future LE)
₱xx
xx Unpaid
₱xx
CASH PRIORITY PROGRAM
₱ -015000
21300
₱36300
Capital Beginning
Gain/Loss
Maximum Possible Loss
Elimination Deficiency
Condonation
Cash Distribution
SAFE PAYMENTS
INSTALLMENT LIQUIDATION
J
1. Determine the capital interest
2. Deduct the Maximum Possible
Loss
3. Absorb deficiency
4. Distribute
 Three (3) years to liquidate
 The extinguishment of juridical personality happens in dissolution
VALUATION:
1. Asset – Fair Value
2. Liabilities – Maturity Value (Principal + Interest)
CLASSIFICATION (Statement of Affairs):
When to use Cash Priority Program?
- When the problem says, what amount should be distributed to the partners
2. LIABILITIES
 Fully Secured Liabilities
 Partially Secured Liabilities
 Unsecured Liabilities with Priority
* Salaries
* Taxes
* Administrative Expense (Liquidation Expense)
* Customer Deposit
 Unsecured Liabilities without Priority (no collateral)
Capital Interest
P/L %
LAB
Priority 1
Priority 2
Page | 3
A
₱100000
÷ 50%
₱200000
_______
₱200000
_______
₱200000
G
₱ 80000
÷
20%
₱400000
150000
₱250000
50000
₱200000
J
₱ 75000
÷ 30%
₱250000
_______
₱250000
50000
₱200000
₱xx
+/- xx
- xx
- xx
+/- xx
₱xx
II. CORPORATE LIQUIDATION
*(Receive cash-given)
1. Determine the capital interest
2. Compute loss absorption balance (LAB): Capital Interest ÷ P/L Ratio
3. Equalize the LAB – deduct the second highest from the highest until equal
4. Distribution: Difference in LAB × P/L Ratio
EXAMPLE:
Total
₱ 30000
25000
71000
₱126000
1. ASSETS
 Assets Pledge with Fully Secured Creditors
 Assets Pledge with Partially Secured Creditors
 Free Assets  assets that are not originally pledge to any liabilities
Percentage of Recovery (POR) =
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
3. OWNER’S EQUITY DEFICIENCY / CAPITAL
 Capital
NET FREE ASSETS
(NFA)
1. Excess of APTFSL
₱xx
over PSL
xx
2. Free Asset
TFA
3. Loss UL with Priority
Net Free Asset
A
TOTAL UNSECURED CREDITORS
WITHOUT PRIORITY (TULi-w/o)
1. Excess of PSL
₱xx
over APTPSL
xx
₱xx
2. UL w/o Priority
xx
TULi w/o
₱xx
₱xx
xx
xx
xx
₱xx
ESTIMATED DEFICIENCY (ED):
ED = TULi – NFA
ED:
ED = TULi w/o × (1 – POR)
or
A
=
SHE beginning
Estimated net loss
Accrued interest
Liquidation expense
EED
L
+
₱xx
(xx)
(xx)
(xx)
₱ xx  +/−
C
*NOTE: Statement of Realization  no cash
STATEMENT OF REALIZATION AND LIQUIDATION
1. Assets to be realized (ATBR)
3. Assets realized (AR)
 Noncash Assets, beginning
 PPE – net proceeds
 Receivables – collection
2. Assets acquired (AA) / ↑ on Asset
 Inventory – cost of sales
 Interest Receivable
4. Assets not realized (ANR)
 Accounts Receivable
 Noncash Asset, ending
7. Liabilities liquidated (LL)
5. Liabilities to be liquidated (LTBL)
8. Liabilities not liquidated (LNL)
 Ending balance of the liabilities 6. Liabilities assumed (LA) / ↑ in Liabilities
 Accrued Expenses
9. Supplementary charges / Expenses
 Accounts Payable
 Cost of Sales
10. Supplementary credits / Revenue
 Accrued Expenses
 Sales
11. NET INCOME / GAIN
 Accrued Interest Income
12. NET LOSS / LOSS
Page | 4
 Cash, end
 ANR
=
L
+
 LNL
C
 SHE, end
SHE, beginning
Net (loss) / Profit
Estate Equity
₱xx
xx
₱xx
III. INSTALLMENT SALES
TYPES OF SALES
1. REGULAR SALES
 Cash Sales
 Credit Sales
 Use the accrual
method
2. INSTALLMENT SALES
 Cost Recovery
 Gross Profit Realization
 Installment Method
*all are prescribed by the standard
GP from Sale of Repossessed Merchandise*
GP on Regular Sales (Regular Sales – Cost of Regular Sales)
RGP on Installment Sales:
2017 2017
2015 DGP to RGP
2017
2016
2016 (Collection × GPR)
2017 (Collection × GPR)
Total RGP
Less: Expenses (Loss on Repossession and
Loss/Expense from write-off)
NET INCOME 2017
₱xx
xx
*Sales
Less: Cost of Sales:
Fair Value of Repossessed Merchandise
Reconditioning Cost
GP from Sale of Repossessed Merchandise
₱ xx
Fair Value of Repossessed Merchandise
Reconditioning Cost
Net Purchases
Estimated Selling Price
(*If silent, after)
₱xx
xx
xx
xx
xx
₱xx
(xx)
₱xx
(xx)
₱ xx
₱xx
xx
xx
₱xx
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
Installment Sales
Cost of Sales
Deferred Gross Profit
₱xx
(xx)
₱xx
Installment Accounts Receivable
Unsecured Cost
Deferred Gross Profit
₱xx
xx
₱xx
Beginning Inventory
Net Purchases
Freight-in
Repossessed Merchandise
Reconditioning Cost
TGAS
Ending Inventory (New + Unsold RM + RC)
Cost of Sales (Regular/Installment/Repossessed Merchandise)
₱xx
xx
xx
xx
xx
₱xx
xx
₱xx
EXAMPLE:
₱70
Fair Value of Repossessed Merchandise*
Less: Unrecovered Cost:
IAR/Repossessed Account
(Receivable Defaulted/Unpaid Balance)
Less: Deferred Gross Profit
LOSS (UC > FV of Repossessed Merchandise)
₱100
(20)
(80)
₱(10)
ENTRIES:
1. Reposs. Mdse. – FV ₱70
DGP
20
Loss
10
IAR
₱100
3. Cash
IAR
₱___
4. DGP
₱___
₱___
RGP
2. Expenses
DGP (20%)
IAR
write-off
Beginning
End
AIS
End
Page | 5
₱80
20
₱200
(20%) IAR 2016
₱100 Collection
RA
WO
₱ 15
₱50
30
5
₱___
*Gain/Loss  P/L
**DGP  Contra receivable account
RGP
DGP on RA
DGP on WO
DGP 2016
₱10 Beginning
6
1
End
IAR 2017
DGP 2017
₱___ Collection ₱___ RGP
₱__ Beginning
RA
___ DGP on RA
__
WO
___ DGP on WO __
₱___
End
₱20
₱3
₱__
₱ _
TRADE-IN & SALE OF REPOSSESSED MERCHANDISE:
Down payment – Cash
Down payment – FV of Trade-in
Collection, net of interest
Collection
Multiply: Gross Profit Ratio
Realized Gross Profit
Gross Profit from Sale of Repossessed Merchandise
Total Realized Gross Profit
Loss (FV of Reposs. Mdse. – Unrecovered Cost)
NET INCOME
₱xx
xx
xx
₱xx
xx
₱xx
xx
₱xx
(xx)
₱xx
TRADE-IN:
Installment Sales
Fair Value of Trade-in
Trade-in Allowance
Adjusted Installment Sales
Cost of Sales
GROSS PROFIT
₱xx
xx
(xx)
₱xx
(xx)
₱xx
Adjusted Installment Sales
Down payment – Cash
Fair Value of Trade-in
CV of Receivable
₱xx
(xx)
(xx)
₱xx
Installment Sales
Trade-in Allowance
Collectibles
₱xx
(xx)
₱xx
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
COMPUTATION OF ADJUSTED PRICE BILLING (APB):
Contract Price
+ EC (↑ in certain cost)
− DC (↓ in certain cost)
− Penalty Clause (due to late turnover)
+ IP (due to early turnover)
+/− Modification / Change Order / Variation
ADJUSTED PRICE BILLING (CP = APB)
IV. LONG TERM CONSTRUCTION CONTRACTS (IAS 11)
1. PERCENTAGE OF COMPLETION METHOD
- outcome can be estimated reliably
- if the problem is silent
1.1. INPUT MEASURE (Cost to Cost)
Cost Incurred To Date ÷ Total Cost
1.2. OUTPUT MEASURE
Total Units Prod. ÷ Total Units Expected Prod.
2. COST RECOVERY METHOD
- outcome cannot be estimated reliably
CONTRACT RETENTION
 receivables
 does not the an income element
 reduces collection
 PRO-FORMA ENTRY:
Cash
Contract Retention
Accounts Receivable
 UPON COMPLETION OF PROJECT:
Cash
Contract Retention
MOBILIZATION FEE
 no income element
 PRO-FORMA ENTRY:
Cash
Advances from Customers
CITD
+ PTD-LTD
CIP
− APB
(Due to)/Due from
↓
↓
Liability Asset
₱xx
xx
YEAR 2
₱xx
xx
₱xx
xx
₱xx
YEAR 3
₱xx
xx
₱xx
xx
₱xx
= 0 → CIP @
the end of the
year of contract.
CONSTRUCTION IN PROGRESS:
(1) If Profit: Contract Price × Percentage of Completion = CIP
(2) If Loss: [(CP × POC) – LTD × (1 − POC)] = CIP
(3) [(TC × POC) – LTD] = CIP
₱xx
₱xx
₱xx
ENTRIES:
1.) Construction in Progress
Various Accounts
₱xx
2.) Accounts Receivable
Progress Billings
₱xx
₱xx
xx
xx
xx
xx
xx
xx
3.) Cash
Accounts Receivable
₱xx
4.) COC
Construction in Progress
Construction Revenue
₱xx
xx
5.) Accounts Receivable
Progress Billings
₱xx
xx
xx
₱xx
6.) Progress Billings
Construction in Progress
₱xx
₱xx
₱xx
COMPUTATION OF COST INCURRRED TO DATE (CITD):
(1.) Direct Materials
+ (2.) Direct Labor
+ (3.) Overhead
+ (4.) Depreciation of Construction Equipment (*Idle = Expense)
+ (5.) Any reimbursable Cost
+ (6.)
+ (7.) Borrowing Cost (Qualifying Asset)
*Specific = IE – II; **General = (AI × C) × CR
+ (8.) Unused Supplies / Materials without Alternative Use
+ (9.) Incidental Income from Sale excess over Scrap Materials
COST INCURRED TO DATE
Page | 6
YEAR 1
₱xx
xx
₱xx
xx
₱xx
₱xx
xx
xx
xx
xx
xx
₱xx
₱xx
₱xx
₱xx
₱xx
₱xx
₱xx
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
COMPUTATION OF DUE FROM / (DUE TO) CUSTOMER – Y2:
COMPUTATION OF ADJUSTED CONTRACT PRICE:
Contract Price
Variable Price
Bonus
Adjusted Contract Price
₱xx
xx
xx
₱xx
Year 1 Billings
Year 2 Billings
Mobilization Fee
Year 1 Collection [(Y1B × customer payment % of amount billed) ×
(100% - Retention Fee %)]
Year 2 Collection [(Y2B × customer payment % of amount billed) ×
(100% - Retention Fee %)]
Due from / (Due to) Customers – Y2
COMPUTATION OF CIP:
₱xx
xx
₱xx
Cost Incurred to Date
Realized Gross Profit – to date
Construction in Progress
1
Contract Price
CITD (Prior Year + Current Year)
Estimated Costs
Total Costs
Total Estimated Gross Profit
Multiply: Percentage of Completion
Total Realized Gross Profit – To Date
Realized Gross Profit – Prior Year (+/−)
Realized Gross Profit – Current Year
YEAR
₱xx
₱xx
xx
(₱xx)
₱xx
%
₱xx
xx
₱xx
ND
2
YEAR
₱xx
₱xx
xx
(₱xx)
₱xx
%
₱xx
xx
₱xx
(xx)
(xx)
₱xx
V. IAS 18 – REVENUE
COMPUTATION OF REALIZED GROSS PROFIT – CURRENT YEAR:
ST
₱xx
xx
(xx)
CRITERIA TO RECOGNIZE REVENUE:
LAST YEAR
₱xx
₱xx
xx
(₱xx)
₱xx
%
₱xx
xx
₱xx
1. Receivables (*silent)
- reasonably assured
2. Cash as Down Payment (*silent)
- nonrefundable
3. Franchise Revenue
- substantial performance
NOTE:
 These conditions shall meet to recognize revenue.
 IFRS 15 Contingent Franchise Fee = IAS 18 Continuing Franchise Fee
COMPUTATION OF CIP, net of PB (ZPM/CRM):
Cost Incurred To Date
Total Estimated Gross Profit
Multiply: Percentage of Completion
Total Realized Gross Profit – To Date
Progress Billings (PY + CY)
Construction in Progress, net of PB
RECOGNITION OF REVENUE
 over time
 at a point in time
Page | 7
₱xx
X
-_
₱-0₱xx
(xx)
₱+/−
₱xx
(₱xx)
100%
(₱xx)
₱xx
(xx)
₱+/−
₱xx
(₱xx)
100%
(₱xx)
₱xx
(xx)
₱-0-
R
C
F
CASE 1



CASE 2

x

IFF = Revenue
IFF = Deferred
Revenue
CASE 3
x
 

Cash
₱xx
NR
xx
Discount
Franchise Revenue
Deferred Revenue
₱xx
xx
xx
EXCEPTION TO THE RULE:
 Down payment still considered as revenue if the DP is nonrefundable and
DP represents fair measure of services already rendered.
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
CASE 1
CASE 4
R 
C 
F 
– Interest Bearing (Accrual Method)
Revenue (IFF)
Cost of Sales (Direct Cost for Initial Services)
Gross Profit
Continuing Franchise Fee (Sales × %)
Interest Income (Face Amount × Interest Rate × ?/12)
Expense (IC for IS + IC for CS + DC for SC)
NET INCOME
R x
C 
F 
₱xx
(xx)
₱xx
xx
xx
(xx)
₱xx
CASE 2
R x
C 
F 
Down Payment
Collection, net of interest income
Total Collection
Multiply: Gross Profit Ratio (GP ÷ Revenue)
Realized Gross Profit
Continuing Franchise Fee
Interest Income (PV × IR × ?/12)
Expenses
NET INCOME
₱xx
xx
₱xx
%
₱xx
xx
xx
(xx)
₱xx
*REVENUE = DP + PV
– Non-interest Bearing (Installment Method)
Down Payment – Cash
Collection during the period
Total Collection
Multiply: Gross Profit Ratio (GP ÷ Revenue)
Realized Gross Profit
Continuing Franchise Fee
Interest Income
Expenses
NET INCOME
*REVENUE = IFF
₱xx
xx
₱xx
%
₱xx
xx
xx
(xx)
₱xx
TOTAL REVENUE OF THE FRANCHISOR
Down payment
Collection
CFF
Interest Income
TR-F
₱xx
xx
xx
xx
₱xx
TOTAL REVENUE FROM F.F.
Down payment
Collection
CFF
TR from FF
₱xx
xx
xx
₱xx
VI. HOME OFFICE AND BRANCH ACCOUNTING
CASE 3
R 
C 
F 
– Non-interest Bearing
Revenue (DP + PV)
Cost of Sales
Gross Profit
Continuing Franchise Fee
Interest Income (PV × IR × ?/12)
Expenses
NET INCOME
Page | 8
– Non-interest Bearing
BP
₱xx
(xx)
₱xx
xx
xx
(xx)
₱xx
Beginning Inventory:
Home Office*
Outsider
Shipment, net*
Purchases (NP)
Freight in
Total Goods Available for Sale
Ending Inventory:
Home Office*
Outsider
Cost of Goods Sold
−
Cost
=
AFOBI
₱xx
xx
SFHO
xx
xx
₱xx
₱xx
xx
STB
xx
xx
₱xx
₱xx
xx
-_
₱xx
(xx)
(xx)
₱xx
(xx)
(xx)
₱xx
(xx)
(xx)
₱xx
(GPR-PY)
(GPR-CY)
RGP
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
*NOTE:
 Beginning Inventory – HO
(a) In transit – prior year
(b) Freight Charges
 Ending Inventory – HO
(a) In transit – current year (SFHO is < its true amount)
(b) Freight Charges
FREIGHT
PREPAID
FREIGHT
COLLECT
EXAMPLE:
Freight Charges
Home Office to Branch 1
Branch 1 to Branch 2
Home Office to Branch 2
(Excess Freight) Expenses
₱10
5
(4)
₱11
 Net Income @ Billed Price  Reported Net Income (Branch)
 Net Income @ Cost  True Net Income (Home Office)
 COGS @ BP – COGS @ Cost + Net Income @ BP = Realized Gross Profit
Net Income reported by the branch
Unrecorded expenses of branch:
 Depreciation
 Allocation of expense
Net Income that should have reported
Realized Gross Profit
True Net Income
Page | 9
₱xx
EXAMPLE
₱ 87
(xx)
(xx)
₱xx
xx
₱xx
(5)
(2)
₱ 80
20
₱100
*ENTRIES
#11
#12
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
BP (Reported)
₱xx
(xx)
₱xx
(xx)
₱xx
Sales
Cost of Goods Sales
Gross Profit
Expenses
Net Income
RGP
AFOBI
Beginning
Shipment
End
Cost (True/Correct)
₱xx
(xx)
₱xx
(xx)
₱xx
HO
1. 100 – 80 = 20
2. 100 × 20% = 20
3. 100 × 25/125 = 20
4. 80 × 25% = 20
COST METHOD – CV
Purchase Price
Transaction Cost
Impairment Loss
CV of Investment
₱xx
xx
(xx)
₱xx
FAIR VALUE METHOD – CV
Purchase Price
₱xx
Unrealized Gain
xx
Unrealized Loss
(xx)
CV of Investment
₱xx
Page | 10
₱+
(−)
₱xx
TYPES OF BUSINESS COMBINATION
BUSINESS COMBINATION
 is a transaction where the acquirer obtains control over the net assets of
the acquiree.
ACCOUNT TITLE
Investment in Subsidiary
Investment in Associate
FA @ FVPL/FVOCI
₱xx
xx
xx
xx
(xx)
₱xx
P/L
Investment Income
Impairment Loss
P/L
*NOTE: The fair value method is applicable only for trading securities.
VII. BUSINESS COMBINATION (IFRS 3) & CONSOLIDATED
F.S. (IFRS 10)
OWNERSHIP
51% to 100%
20% to 50%
1% to 19%
EQUITY METHOD – CV
Purchase Price
Transaction Cost
Investment Income
Dividend
Impairment Loss
CV of Investment
METHOD
Cost / Equity / Fair Value
Equity
Cost / FV
P/L
Impairment Loss
Dividend Income
P/L
₱(−)
+
₱xx
P/L
Unrealized Gain
Unrealized Loss
Dividend Income
Transaction Co
P/L
₱+
(−)
+
(−)
₱xx
1. ASSET ACQUISITION (100% Ownership)
1.1. Statutory Merger  A + B = A/B
1.2. Statutory Consolidation  A + B = C
2. STOCK ACQUISITION  A + B = AB (Parent – Subsidiary)
2.1. Fully Owned
2.2. Partially Owned
ACCOUNTING METHOD
 IFRS 3 – Acquisition Method (*OLDPurchase Method)
Disclose the following:
1) Determine the acquirer
2) Determine the acquisition date
 The acquisition date is the measurement date, and you have within
1 year from the balance sheet date to adjust the fair value of those
assets and liabilities
 The net assets of the subsidiary can be adjusted within 1 year from
the acquisition date
3) Recognize and measure identifiable assets, identifiable liabilities, and
non-controlling interest (*The pre-existing goodwill of subsidiary is
ignored.)
4) Measure and recognize goodwill or gain
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
EXAMPLE:
Share Premium from issuance
Share Premium from original issuance
CTIR
FORMULAS
₱ 50
30
100
ENTRY:
₱50
30
20
Share Premium
Share Premium
SIC
Cash/Payable
₱100
PRESENTATION OF NCI
× PHI% = ₱xx
*
1. FV of NCI / Full Goodwill
 If the fair value is unknown compute the implied fair value
FORMULA:
EXAMPLE:
Purchase Price
[email protected] (SHE)
Excess
OVA
UVA
Goodwill
₱1000
(700)
₱ 300
(50)
(100)
₱ 250
[email protected] – 12/31
Net Income
Dividend
[email protected] – BC
Purchase Price
[email protected] (squeezed)
Goodwill
₱1000
(750)
₱ 250
[email protected] – BC
UVA
OVA
[email protected]
ACQUISITION RELATED COST
1. Direct Cost  expense
2. Indirect Cost  expense
3. Cost to Issue or Register (CTIR)
 Based on priority:
3.1. Share Premium from
issuance;
3.2. Share Premium from
original issuance;
3.3. Debit to Stock Issuance
Cost
Page | 11
₱xx
(xx)
xx
₱xx
₱700
100
(50)
₱750
CTIR Keywords:
 SEC
 Stock
 Share
 Documentary Stamp Tax
2. Proportionate Share / Relevant Share / Interest in the Net Asset of Subsidiary
(INAS)
FORMULA:
FV of Net Assets × NCI% = INAS
CONTROL PREMIUM (CP)
1. It must be included in the purchase price
2. Excluded in computing NCI
3. It affects goodwill or gain
CONTINGENT CONSIDERATION PAYABLE (CCP)
1. If the information existed already as of the acquisition date, any adjustment to
fair value would affect the goodwill or gain.
2. If the information is related to target profit or target market price, any
adjustment goes to P/L and it does not affect the goodwill or gain.
NOTE: Adjustment to goodwill should be applied retrospectively.
*SME
− Direct Cost is capitalized / capitalizable
− NCI is measured using proportionate
− Goodwill goes to parent
− Goodwill is subject to amortization (10 years)
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
Case 4 [CP of ₱300000 is included]
EXAMPLE:
Case 1
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(100%)
TOTAL
₱1700000
(1000000)
₱ 700000
Impairment Loss
₱50000
(80%)
Purchase Price
₱1300000
(800000)
₱ 500000
₱35714 (5/7)
(20%)
NCI
₱ 400000 FV
(200000)
₱ 200000
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(80%)
Purchase Price
₱1300000
(800000)
₱ 500000
(20%)
NCI
₱ 250000
(200000)
₱ 50000
Page | 12
Purchase Price
Net Assets @ Fair Value
Goodwill
(80%)
Purchase Price
₱ 700000
(800000)
₱ (100000)
(20%)
NCI
₱ 250000
(200000)
₱
-0-
(100%)
TOTAL
₱1250000
(1000000)
₱ 250000
vs.
(80%)
Purchase Price
₱1000000
(800000)
₱ 200000
(20%)
NCI
₱ 250000
(200000)
₱ 50000

01/01/17
₱1000000
(700000)
₱ 300000
12/31/17
₱1000000
(800000)
₱ 200000
Goodwill on December 31, 2017 = ₱200000
Goodwill on January 1, 2017 = ₱200000

Case 3
₱200000
(100%)
TOTAL
₱ 900000
(1000000)
₱(100000)
NOTE: Gain is never allocated. It goes to Parent.
(100%)
TOTAL
₱1550000
(1000000)
₱ 550000
vs.
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(20%)
NCI
₱ 200000
(200000)
₱
-0-
vs.
INAS
vs.
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(80%)
Purchase Price
₱1000000
(800000)
₱ 200000
Case 5
Case 2 [CP = ₱300000]
₱200000
₱200000

₱14286 (2/7)
*If the problem is silent, use the FV.
The FV of NCI should not lower of INAS.
FV
₱400000

Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(100%)
TOTAL
₱1200000
(1000000)
₱ 200000
CONSOLIDATED FINANCIAL STATEMENT (*At the date of business
combination)
TOTAL ASSETS:
*If, paid
Total Assets of Parent @ BV
Total Assets of Subsidiary @ FV
Goodwill
Purchase Price (Cash/NCA)
Direct Cost
Indirect Cost
CTIR
Total Assets
₱xx
xx
xx
(xx)
(xx)
(xx)
(xx)
₱xx
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
TOTAL LIABILITIES:
*If, unpaid
Total Liabilities of Parent @ BV
Total Liabilities of Subsidiary @ FV
CPP
Purchase Price (Liabilities)
Direct Cost
Indirect Cost
CTIR
Total Liabilities
₱xx
xx
xx
xx
xx
xx
xx
₱xx
TOTAL SHAREHOLDER’S EQUITY:
*Paid/
Unpaid
CONTROL PREMIUM




PURCHASE PRICE




SHE of Parent @ BV
NCI
on BPO
Gain  on PHI
on CCP
Purchase Price (Stocks @FV)
Direct Cost
Indirect Cost
CTIR
Total Assets
₱xx
xx
₱xx
xx
xx
xx
xx
(xx)
(xx)
(xx)
₱xx
Additional investment
Part of purchase price
Affects goodwill/(gain)
Ignored in computing NCI
Cash
Noncash
Liability
Stock
2. SUBSIDIARY – SHE
Ordinary Share – Subsidiary
Share Premium – Subsidiary
Retained Earnings – Subsidiary
Investment in Subsidiary
NCI
₱xx
xx
xx
₱xx
xx
3. OVA, UVA, & GOODWILL
Equipment
Inventory
Goodwill
Investment in Subsidiary
NCI
₱xx
xx
xx
₱xx
xx
4. AMORTIZATION OF IMPAIRMENT LOSS
Operating Expense
PPE, net
₱xx
₱xx
Impairment Loss
Goodwill
₱xx
Cost of Sales
Inventory
₱xx
₱xx
₱xx
5. INTERCOMPANY SALES & PURCHASES
Sales
Cost of Sales
₱xx
6. UPEI
Cost of Sales
Inventory
₱xx
7. RPBI
Retained Earnings – Parent
NCI (up)
Cost of Sales
₱xx
xx
₱xx
₱xx
₱xx
WORKING PAPER ELIMINATING ENTRIES
1. DIVIDEND RECEIVED
Dividend Income
NCI (partially)
Dividend Declare – Subsidiary
Page | 13
₱xx
xx
₱xx
*Ending Inventory
Multiply: GPR of Seller
UPEI – 20x6
RPBI – 20x7
₱xx
%
₱xx
₱xx
NOTE:
CONSO
UPEI
RPBI
COS
+
−
NI
−
+
INVENTORY
−
Ignored
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
EXAMPLE: Intercompany Sale of Equipment
₱ 70
(63)
₱ 7
Sales
CV [₱90-(₱90/10) ×3)]
Gain
SELLER
BUYER
W.P.E.E.
Cash
₱70
Acc. Dep.
27
Equipment
₱90
Gain
7
Equipment
Cash
₱70
₱70
Gain
₱7
Equipment
20
Acc. Dep.
₱27
Dep. Exp.
₱9
Acc. Dep.
₱9
Dep. Exp.
₱10
Acc. Dep.
₱10
Acc. Dep.
₱1
Dep. Exp.
₱1
*(₱70/7=₱10)
*(RG thru amortization:
₱7/7=₱1)
UNREALIZED GAIN
Gain
Equipment
*(it depends upon the Selling Price)
Unrealized
Gain
EXAMPLE: Intercompany Sale of Inventory
Sales
₱1000
Ending Inventory (1000×50%)
Cost of Sales
(700)
GPR
Gross Profit
₱300
UPEI (12/31/16)
Ending Inventory %
× 50%
UPEI
₱150
RPBI (01/01/17)
UPEI:
RPBI:
Working Paper Eliminating Entries
DOWN
UP
COS
₱xx
COS
Inventory
₱xx
Inventory
RE, beg.
COS
Page | 14
₱xx
₱xx
RE, beg.
NCI
COS
₱500
× 30%
₱150
Realized
Gain
YEAR 3
NO ENTRY
₱2
₱1
1
RE
Dep. Exp.
Gain
₱5
₱1
4
Land (selling price) - ₱100
CL
- 80
Sale to third party - 150
₱xx
₱xx
xx
Acc. Dep.
Dep. Exp.
RE
₱7
EXAMPLE: Intercompany Sale of Land
₱150
₱xx
YEAR 2
RE
₱7
Equipment
₱7
₱7
UG
RG
YEAR 1
₱(20)
-0-
YEAR 2
-0-0-
YEAR 3
-0₱20
Recorded – Subsidiary
Not yet recorded
₱50
20
₱70
₱xx
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
FORMULAS:
Gross Profit – Parent
Gross Profit – Subsidiary
Unrealized Profit in Ending Inventory (UPEI)
Realized Profit in Beginning Inventory (RPBI)
Amortization of Undervalued Assets
Amortization of Overvalued Assets
Consolidated Gross Profit
₱xx
xx
(xx)
xx
(xx)
xx
₱xx
Operating Expense – Parent
Operating Expense – Subsidiary
Realized Loss (thru depreciation/amortization)
Realized Gain (thru depreciation/amortization)
Impairment Loss
Amortization of Undervalued Assets
Amortization of Overvalued Assets
Consolidated Operating Expense
₱xx
xx
xx
(xx)
xx
xx
(xx)
₱xx
Non-controlling Interest, beginning
Non-controlling Interest – Net Income
Dividend Share
Non-controlling Interest, end
₱xx
xx
(xx)
₱xx
Retained Earnings – Parent
Consolidated Net Income – Parent
Dividend – Parent
Consolidated Retained Earnings
₱xx
xx
(xx)
₱xx
Ordinary Share – Parent
Share Premium – Parent
Consolidated Retained Earnings
Non-controlling Interest
Consolidated Shareholder’s Equity
₱xx
xx
xx
xx
₱xx
Shareholder’s Equity, end
Net Income of Subsidiary
Dividend of Subsidiary
Shareholder’s Equity at book value
Overvalued Assets (OVA)
Undervalued Assets (UVA)
Net Assets at fair value
₱xx
(xx)
xx
₱xx
(xx)
xx
₱xx
Inventory – Parent @ BV
Inventory – Subsidiary @ BV
Undervalued Inventory
Overvalued Inventory
Amortization of Undervalued Assets – Inventory
Amortization of Overvalued Assets – Inventory
Unrealized Profit in Ending Inventory (UPEI)
Consolidated Inventory
₱xx
xx
xx
(xx)
(xx)
xx
(xx)
₱xx
Sales – Parent
Sales – Subsidiary
Intercompany Sales & Purchases at Selling Price
Consolidated Sales
₱xx
xx
(xx)
₱xx
Consolidated Net Income attributable to Parent
Non-controlling Interest in Net Income
Consolidated Net Income
₱xx
xx
₱xx
Cost of Sales – Parent
Cost of Sales – Subsidiary
Intercompany Sales & Purchases at Selling Price
Unrealized Profit in Ending Inventory (UPEI)
Realized Profit in Beginning Inventory (RPBI)
Amortization of Undervalued Assets
Amortization of Overvalued Assets
Consolidated Cost of Sales
₱xx
xx
(xx)
xx
(xx)
xx
(xx)
₱xx
Consolidated Sales
Consolidated Cost of Sales
Consolidated Gross Profit
₱xx
(xx)
₱xx
Page | 15
VIII. JOB ORDER COSTING
Predetermine OH Rate = Based on BUDGETED
Spoilage
no use
*Charged to all
- add allowance (unit cost)
*Charged to specific job
- deduct allowance
vs.
Defect
can be reworked
Loss – add – FOH control account
(actual)
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
ALLOCATION OF COST
IX. JUST IN TIME
 DIRECT METHOD
Service Provided
by
Quality Control
Maintenance
to
Machining
Assembly
262500
120000
382500
87500
80000
167500
 STEP-DOWN
*Benefit provided ranking table (Company Policy)
*Based on the service department which has the highest cost
QC
Maintenance
QC
350000
(350000)
___-___
-0-
Maintenance
200000
70000
(270000)
-0-
Machining
400000
210000
162000
772000
Assembly
300000
70000
108000
478000
*Once the OH cost of the service department becomes exhausted, do not
allocate other cost to the service department
 RECIPROCAL METHOD
Quality Control
Maintenance
QC
25%
Maintenance
20%
-
Machining
60%
45%
Assembly
20%
30%
Quality Control = 350000 + 0.25M
Substitute
Maintenance = 200000 + 0.20QC
QC = 350000 + 71053 = 421053
M = 200000 + 0.20(421053) = 284211
QC
350000
(421053)
71053
-0-
Page | 16
Maintenance
200000
84211
(284211)
-0-
Machining
400000
252632
127894
780527
TRIGGER POINTS:
 Purchase 
 Production
 Completion 
 Sale 
GOALS:
1. Eliminating any production process that does not add value
2.
JOURNAL ENTRIES:
 Purchase
Raw and In Process
Accounts Payable
Conversion Cost
Various Accounts
₱xx
₱xx
₱xx
 Completion
Finished Goods
Raw and In Process
Conversion Cost
₱xx
 Sales
Cost of Sales
Finished Goods
₱xx
Cost of Sales
Raw and In Process
Conversion Cost
Assembly
300000
84211
85263
469474
₱xx
 75% were sold
Cost of Sales
Finished Goods
Conversion Cost
Raw and In Process
₱xx
xx
₱xx
₱xx
₱xx
xx
₱xx
xx
₱xx
xx
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
DL
AHAR
X. JOINT COSTING
Joint Cost
Less: NRV of By-product
Remaining Joint Cost
₱xx
(xx)  if, inventoriable/
₱xx
material
Rate
DLRV
AHSR
AHSR
Efficiency
TREATMENT OF BY-PRODUCT
1. Upon sale or realization
- recorded as other income, if the by-product is immaterial.
2. Upon production or inventoriable
- the NRV of by-product is deducted from the total joint cost
ALLOCATION OF REMAINING
1. PHYSICAL
1.1. Physical measure such as gallon/kilogram
1.2. Units produce
1.3. Weighted average units produce
2. MONETARY
2.1. Sales value at split-off also known as relative market value
2.2. Net realizable value at split-off
2.3. Hypothetical/approximated/estimated at split-off also known as
adjusted market value
XI. STANDARD COSTING
DM
AQAP
DMPV
AQSP
AQSP
Used
DMUV
SQSP
Page | 17
XII. FOREIGN EXCHANGE (IAS)
1. Foreign Currency Transaction
2. Foreign Exchange Translation
3. Hedging of FOREX Risk




EXCHANGE RATE – This is the ratio of exchange between two currencies.
SPOT RATE – Rate for immediate delivery.
CLOSING RATE – This is the spot rate at Balance Sheet date.
FUNCTIONAL CURRENCY – Currency of primary economic environment
in which the entity operates.
 What is the primary driver of functional currency? – SALES
Assets & Liabilities
Shareholder’s Equity
Revenue & Expenses
TWO TYPES OF COST FOR THE JOINT PRODUCT
1. Joint Cost Share or Allocated Joint Cost
2. Traceable Cost or Additional Processing Cost
Purchased
DLEV
SHSR
Closing Rate
Historical Rate
Average [Computation: (B+E)/2 ]
Spot Rate (Theory)
FOREX TRANSACTION: Importation
(Hedge Item)
BUYING OF INVENTORY
1. ER↑ = Forex Loss [100]
2. ER↓ = Forex Gain
(Hedging Instrument)
BUYING OF F.C.
3. FR↑ = Forex Gain [80] = [20]
4. FR↓ = Forex Loss
FOREX TRANSACTION: Exportation
SELLER OF MERCHANDISE
5. ER↑ = Forex Gain
6. ER↓ = Forex Loss
SELLER OF F.C.
7. FR↑ = Forex Loss
8. FR↓ = Forex Gain
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
ENTRIES:
BUYING OF INVENTORY
Purchases
₱xx
Accounts Payable
₱xx
Forex Loss
Accounts Payable
₱xx
Accounts Payable
Forex Gain
₱xx
Accounts Payable
Cash
₱xx
₱xx
₱xx
FCR
Forex Gain
Forex Loss
FCR
₱xx
₱xx
₱xx
FCP (fixed)
Cash
FCR
₱xx
xx
SELLER OF MERCHANDISE
Accounts Receivable
₱xx
Sales
₱xx
Accounts Receivable
Forex Gain
₱xx
Forex Loss
₱xx
Accounts Receivable
BUYING OF F.C.
FCR
₱xx
FCP (fixed)
₱xx
₱xx
₱xx
₱xx
SELLER OF F.C.
FCR (fixed)
₱xx
FCR
Forex Loss
FCP
₱xx
₱xx
₱xx
FCP
Cash
FCR (fixed)
₱xx
xx
₱xx
₱xx
₱xx
FOREX TRANSLATION
 only reflected in consolidated FS
 an Other Comprehensive Income component
OCI:
1.
2.
3.
4.
5.
6.
Forex Translation (IAS 21)
Effective Portion of Cash Flow Hedge (IFRS 7/9)
Revaluation Surplus (IAS 16)
Remeasurement G/L related to employee benefit (IAS 19R)
Estimated Unrealized G/L on FA at FVTOCI (IFRS 7/9)
Risk  G/L on credit risk for financial liability designated to P/L
RECLASSIFIED TO P/L:
1. Forex Translation
2. Effective portion of Cash Flow Hedge
Page | 18
A
$ 10M
× ₱1
₱ 10M
$ 10M
× ₱1
₱ 10M
=
=
L
$ 8M
× ₱1
₱ 8M
=
$ 8M
× ₱1
₱ 8M
+
+
C
$ 2M
× ₱0.5
₱ 1M
+
₱ 1M
Translation Adjustment
Credit
+
$ 2M
× ₱2
₱ 4M
+
₱ 2M
Translation Adjustment
Debit
NA, ending @ CR > NA, ending @ RF = Translation Adjustment Credit
NA, ending @ CR < NA, ending @ RF = Translation Adjustment Debit
NA, beg.
OS × HR
RE, beg.
Net Income @ Average
Dividend @ SR
NA, end @ RF
₱xx
xx
xx
(xx)
₱xx
(translated amount)
QUOTATION:
1. DIRECT – Foreign Currency to Philippine Peso
2. INDIRECT – Philippine Peso to Foreign Currency
SPOT RATE:
1. BUYER – Selling Spot Rate / Offer Rate / Asking
2. SELLER – Buying Spot Rate / Bid Rate
FIRM COMMITMENT
(1) The hedge is perfect when the company acquired a forward contract for
the same amount of the same currency in which the firm commitment is
(2) Under perfect hedging, the amount of forex gain from hedging instrument
is equal to firm commitment as liability
(3) The amount of forex loss from hedging instrument is equal to firm
commitment as asset
(4) TYPES OF FIRM COMMITMENT
4.1. Sales Commitment
4.2. Purchase Commitment
(5) The asset sold or purchased is recorded at the date of settlement based
on the forward rate on the date of commitment
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
THREE HEDGE RELATIONSHIP
(1) Fair Value Hedge
- Hedges of exposure to the changes in value of a recognized asset/liability or
unrecognized firm commitment
- If the problem is silent, use the FVH
(2) Cash Flow Hedge
- Hedges of probable forecasted transactions or the variability in the cash flow
of a recognized asset or liability
(3) Net Investment Hedge
- Hedges of the net investment in a foreign operation
OPTIONS
 Contracts that are right and not obligation to buy or sell commodities at a
certain price
 This is always favorable on the part of the holder
 If it is gain or in the money, exercise the option
 If it is out of the money, do not exercise the option
 Call option is on the part of the buyer
 Put option is on the part of the seller
CALL OPTION:
Market Price = Strike Price  AT THE MONEY
Market Price > Strike Price  IN THE MONEY (UG)
Market Price < Strike Price  OUT OF THE MONEY
SPLIT ACCOUNTING
FVH
₱xx
(xx)
₱xx
(xx)
(xx)
₱xx
Gross Patient Service Revenue
Charity Care
Amount Charge / Billed to Customers
Contractual Adjustment (PHILHEALTH, MEDICARE)
Discount to Hospital Employees
Net Patient Service Revenue
STATEMENT OF ACTIVITIES
 Shows contractual adjustment
 This is collectible at third party payor
(1) For Hospitals
(contra-revenue account)
Contractual Adjustment
₱xx
Accounts Receivable
₱xx
(2) For Schools
Expenditure for student
Accounts Receivable
(contra-revenue account)
₱xx
₱xx
(1) Inventory
Contribution Revenue
₱xx
(2) Salaries
Contribution Revenue
₱xx
₱xx
Intrinsic Value – Unrealized Gain
Time Value – Gain/Loss
OCI
P/L
(3) Rent Expense
Contribution Revenue
Intrinsic Value – Unrealized Gain
Time Value – Gain/Loss
P/L
P/L
OTHER OPERATING REVENUE
− Unrestricted funds
₱xx
₱xx
₱xx
₱xx
Cash
Other Operating Revenue*
NON-SPLIT ACCOUNTING
CFH
Intrinsic Value – Unrealized Gain
OCI
FVH
Intrinsic Value – Unrealized Gain
P/L
Page | 19
COMPUTATION:
CONTRIBUTED MATERIALS, SERVICES, & FACILITIES
− Unrestricted funds
PUT OPTION:
Market Price = Strike Price  AT THE MONEY
Market Price > Strike Price  IN THE MONEY
Market Price < Strike Price  OUT OF THE MONEY
CFH
XIII. ACCOUNTING OF NPO (AICPA)
₱xx
*EXAMPLE OF OTHER OPERATING REVENUE
 Proceeds from cafeteria
 Proceeds from parking lots
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
FINANCIAL STATEMENTS
(1) STATEMENT OF ACTIVITIES
 Amount of changes in each of the three classes of net assets
(a) Changes in Unrestricted Net Assets
(b) Changes in Temporary Restricted Net Assets
(c) Changes in Permanently Restricted Net Assets
(2) BALANCE SHEET
 Assets, Liabilities, Net Assets
 Three types of Net Assets:
(a) Unrestricted Net Assets
(b) Temporary Restricted Net Assets
(c) Permanently Restricted Net Assets
 The restricted cash and investment are prescribed separately
 All securities are valued at fair value
(3) STATEMENT OF CASH FLOW
 Restricted whether temporary/permanent (FINANCING)
 Quasi-endowment  unrestricted (OPERATING)
 Receipts of donation to purchase PPE (Inflow: INVESTING)
 Cash outflow to purchase PPE (FINANCING)
 Term endowment  Temporary (FINANCING)
 Pure endowment  Permanent (FINANCING)
(4) STATEMENT OF FUNCTIONAL EXPENDITURE
 Specifically for Voluntary Health and Welfare Organization (NGOs)
GOVERNMENT ACCOUNTING MANUAL (GAM)
 Under GAM, entity shall not maintain regular agency book and national
government book
 GAM supersedes NGAS effective January 1, 2016
implemented in 2002
 Commission on Audit has exclusive authority to define the scope of audit
COMPONENTS OF GENERAL PURPOSE FINANCIAL STATEMENTS
(1) Statement of Financial Position
(2) Statement of Financial Performance
(3) Statement of Changes in Net Assets / Equity
(4) Statement of Cash Flow
(5) Statement of Comparison of Budget and Actual Amounts
(6) Notes to the financial statements, comprising a summary of significant
accounting policies and other explanatory notes
BOOKS OF ACCOUNTS & REGISTRIES
1. JOURNALS
a. General Journal
b. Cash Receipts Journal
c. Cash Disbursement Journal
d. Check Disbursement Journal
2. LEDGERS
a. General Ledgers
b. Subsidiary Ledgers
XIV. GOVERNMENT ACCOUNTING
PHASES OF BUDGETARY PROCEDURE
1. PREPARATION AND PRESENTATION
− Submission of budget of the expenditure
2. BUDGET AUTHORIZATION
− Enactment by the congress of the General Appropriation Act
3. BUDGET EXECUTION AND OPERATION
− Release of revenue allotment
4. BUDGET ACCOUNTABILITY
− Liquidation of expenditure and audit conducted by Commission on Audit
Page | 20
REGISTRIES
(1) RROR – Registries of Revenue and Other Receipts
(2) RAPAL – Registry of Appropriation and Allotments
(3) RAOD – Registries of Allotments, Obligation and Disbursements
(4) RBUD – Registries of Budget, Utilization and Disbursements
CLASSIFICATION OF RAOD & RBUD
 PS – Personnel Services
 MOE – Maintenance and Other Operating Expenses
 FE – Financial Expenses
 CO – Capital Outlay
CPA Review School of the Philippines – Batch 82
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
NOTICE OF CASH ALLOCATION (NCA)
 Issued by Department of Budget and Management (DBM) to an agency
authorizing the latter to disburse by checks
(1) RECEIPT OF NCA
Cash – MDS, Regular
Subsidy from National Government
₱xx
₱xx
*Net of 5% final VAT and 1% creditable income tax
(2) UNUSED NCA
Subsidy from National Government
Cash – MDS, Regular
₱xx
₱xx
ACCOUNTING FOR DISBURSEMENTS
1. Net Payroll Advances to Disbursing Officer
Advances for Payroll
Cash – MDS, Regular
₱xx
₱xx
2. Payable to Officers and Employees and to set up salary deductions
Salaries and Wages – Regular
₱xx
PERA
xx
Due to BIR
₱xx
Due to GSIS
xx
Due to Pag-IBIG
xx
Due to PhilHealth
xx
Due to Officers and Employees
xx
3. Remittance of Salary Deductions
Due to GSIS
Due to Pag-IBIG
Due to PhilHealth
Cash – MDS, Regular
₱xx
xx
xx
4. Liquidation of Advances for Payroll
Due to Officer and Employees
Advances for Payroll
₱xx
Page | 21
MESSAGE TO THE READERS
Magandang buhay sa inyo mga ka-reviewee!
Ang notes na ito ay hango sa mga itinuro ni Sir Ferrer (*one of my fave
reviewer). Kung sakaling may mapansin man kayo na kulang o mali ay kayo
na lang ang magkusang magtama nito. Hindi naman perpekto ang pagkakatype nito, tulad ko (*ansabe!?).
Nawa ay makatulong ito sa inyong pag-aaral. Fighting! Ipaglaban natin
ang ating pangarap. May the odds be in our favor. God bless us all! ^_^
Sincerely,
LFA
₱xx
“For whatever is born of God overcomes the world.
And this is the victory that has overcome the world – our FAITH.”
1 JOHN 5:4
₱xx
CPA Review School of the Philippines – Batch 82
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