PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (PICPA)- BAHRAIN CHAPTER
CPA REVIEW SYLLABUS for July 2020 CPA exam
Advanced Financial Accounting and Reporting (AFAR)
Regular schedule: Every Friday, 9am to 12noon
TOPIC NO.1 – PARTNERSHIP FORMATION
Actual date:
Partnership – is an association of two or more persons who contribute money, property or industry to a common
fund with the intention of dividing the profits among themselves.
-is treated as juridical person, having a separate legal personality from that of its
members. A partnership with more than Php3,000 capital must register with the Securities and Exchange
Commission. The partnership is governed by partnership under civil code article 1767 to 1867 of the Philippines.
Types of partnership:
1.GENERAL PARTNERSHIP – each partner is personally liable to the partnership’s creditor if partnership assets
are not sufficient to pay such creditors.
- In general partnership, a partner can assign his interest. The one who becomes the
assignee don’t have the right in managing the affairs of the partnership but only limited in the allocation of P/L and
the right to receive the assignor’s interest in the event of dissolution.
-In general partnership, each partner can represent the partnership. However,
acts beyond the normal scope of business such as obtaining loan by a partner, generally does not bind the
partnership unless there is specific authority has been to that partner.
2.LIMITED PARTNERSHIP – only one partner needs to be a general partner and the remaining partner can be
limited, which means that their obligations to creditors are limited to their capital contributions.
Need to consider in Accounting for Partnership:
1. SHARING of P/L
2. Maintenance of the partner’s ledger accounts which includes Capital accounts, Drawing accounts, Accounts for
loans to and from partners.
*Noncash drawings should be valued at market values generally at the date of withdrawals. But sometimes partner’s
withdrawals shall be recorded as cost as an exception to the general rule.
*Partner’s Capital interest – is a claim against the net assets of the partnership as shown by the balance in the
partner’s capital accounts.
*Partner’s interest in P/L – determines how the partner’s capital interest will increase or decrease as a result of
subsequent operation.
Valuation of partnership real accounts:
1.Cash investment – valued at FACE VALUE
2.Cash under denominated currency – valued at CURRENT EXCHANGE RATE
3.Cash in bank under receivership – valued at ESTIMATED RECOVERABLE AMOUNT
4.Property other than cash -valued at FAIR VALUE (usually this is the agreed value of the partners)
*sometimes there’s FV and Agreed Value, the second one prevails.
5.Liabilities – valued at PRESENT VALUE.
6.Equity – partners must agree to the percentage of equity that each will have in the net assets of the partnerships.
Generally, the capital balance is determined by the proportionate share of each partner’s capital contribution.
2 METHODS in recognizing capital.
Bunos method – use when one or more partners recognize the other partner whom will bring something of value to
the firm other than tangible assets.
Goodwill(revaluation of asset method) use when one or more partners recognize the other partner whom will bring
something of value to the firm which is intangible , the goodwill.
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PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (PICPA)- BAHRAIN CHAPTER
CPA REVIEW SYLLABUS for July 2020 CPA exam
Numerous ways of FORMING A PARTNERSHIP:
1.individual vs individual
2.individual vs sole proprietorship – retain the old book or new set of books
3. sole proprietorship vs sole proprietorship - retain the old book or new set of books
1.Individual vs. Individual
The following are being invested to form XY Partner:
Investment of
Accounts
X
Y
Cash
25000
25000
Inventory
10000
Land
75000
Building
80000
Equipment
30000
Total
65000
180000
Loans on building assumed by the partnership
20000
Capital,X
Capital,Y
65000
160000
*each partner is to receive capital credit equal to the agreed values of
the net assets each partner invested.
Requirement:
a. Journal entry for each investment
2. individual vs sole proprietorship – retain the old book or new set of books
The below is the balance sheet of Calumpang on October 31,2018 before accepting
Bayabas as his partner to form partnership:
Calumpang
Balance sheet as of October 31,2018
Cash
Accounts receivable
less: Allowance for doubtful accts
100,000
40,000
2,500
37,500
Note receivable
50,000
Inventory
22,500
Equipment
less: Accumulated depreciation
total assets
60,000
5,000
55,000
265,000
Accounts payable
10,000
notes payable
50,000
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PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (PICPA)- BAHRAIN CHAPTER
CPA REVIEW SYLLABUS for July 2020 CPA exam
Calumpang, capital
205,000
total liabilities and capital
265,000
The following are adjustments on the above balance sheet of calumpang:
1.the accounts receivable is estimated to be 90 percent realizable
2.interest at 8 percent on notes receivable dated Feb 01,2018 is to be accrued.
3.the inventory is to be valued at 17,500
4.the equipment is under-depreciated by P4,000
5.prepaid expenses of P2,000 and accrued expenses of P6,000 are to be recognized.
Bayabas is to invest cash and to obtain a one third interest in the partnership.
Requirement:
1. Journal entry for the adjustments
2. How much is the investment of bayabas
3. Construct the balance sheet after all the adjustments made and investment.
4. What is the main difference of retain old book and new set of books?
3. sole proprietorship vs sole proprietorship – retain the old book or new set of books
On October 01,2018 , Aissa and Louie decided to pool their assets and
form a partnership. They allocate profit and loss in the ratio of 44:56
for them, respectively. The firm is to take over business assets and
assume business liabilities, and capital are to be based on net assets
transferred after the following
adjustments:
Balance sheet of Aissa and Louie on October 01,2018 before adjustments:
aissa
Cash
Accounts receivable
Allowance for doubtful accounts
75,000
45,000
180,000
150,000
(4,000)
(5,000)
notes receivable
merchandise inventory
office supplies
louie
50,000
160,000
120,000
27,000
equipment
100,000
accumulated depreciation-equipt
(45,000)
furnitures and fixtures
120,000
accumulated depreciation-F/F
(20,000)
total assets
493,000
460,000
Accounts payable
133,000
100,000
notes payable
capital
50,000
310,000
360,000
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PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (PICPA)- BAHRAIN CHAPTER
CPA REVIEW SYLLABUS for July 2020 CPA exam
total liabilities and capital
493,000
460,000
a.Aissa's inventory amounting to 10,000 is worthless, while louie's agreed
value of inventory amounted to 125,000.
b.Uncollectible accounts of 6,000 for Aissa is to be provided; a 5% allowance
is to be recognized in the books of louie.
c.Accrued rent income of 10,000 on Aissa, and accrued salaries of 8,000 on
louie should be recognized on the respective books.
d.interest at 16% on notes receivable dated august 17, 2018 should be accrued
e.the office supplies unused amounted to 20,000
f.the equipment's agreed value amounted to 50,000
g.furniture and fixtures has FMV of 90,000
h.interest at 12% on notes payable dated july 01,2018 should be accrued.
with a 360day basis for computation.
i.louie has an unrecorded patent amounting to 40,000 and is to invest the
additional cash necessary to have a 60 percent interest in the new firm.
Assuming the books of louie is to be retained by the new partnership.
Requirements:
a.journal entries
b.how much is the adjusted capital of each partner
C. how much is the additional investment of louie to obtain 60% interest in the partnership
-endNext shall be the quiz…
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