UNIT I: ACCOUNTING FOR A PARTNERSHIP
Lecture Notes
PARTNERSHIP ACCOUNTING
– unlimited liability
– easy to form
 FORMATION OF PARTNERSHIP
– Cash contribution of the partners
recorded @ face value
– Non-cash assets
recorded @ agreed value, usually the fair value
o
Bonus Method
1. No recording of unidentifiable assets
pertaining to goodwill
2. Total Agreed Capital (TAC) = Total Contributed Capital (TCC)
3. There would only be a transfer of capital from one partner to another
o Cash Invested/Withdrawn
1. If adjusted capital is more than the unadjusted capital
ADDITIONAL INVESTMENT
2. If adjusted capital is less than the unadjusted capital
WITHDRAWAL
 OPERATIONS
o
Profit and Loss Agreement
Scenario
1. Both profit and loss agreement
are given.
2. There is a profit agreement but
no loss agreement
3. No profit agreement but there is
a loss agreement
4. Both profit and loss agreement
o
Profit

Loss

Result
Follow the agreement


Follow profit agreement




For profit, use original capital
ratio
For loss, follow the agreement
For both, use original capital
ratio.
Salaries and Interest
1. Salaries & interest should be recorded as provided regardless of the result of the
operations.
2. This could be fractional year.
* Payments of salaries, interest & bonus are not treated as part of expense
o
Bonus – it should only be given if there is profit and bases depends on partners
agreement
MODADV1 Handout
Dr. Rodiel C. Ferrer
 Statement of Changes in Partner’s Capital
Beginning Capital
Add: Additional Investment
Less: Irregular or Permanent Withdrawal
Balance Before Net Income
Add: Share In Net Income
Less: Regular Drawings
CAPITAL, END
P
xxx
xxx
(xxx)
xxx
xxx
(xxx)
xxx
P
P
* If withdrawal is SILENT to permanent or regular, it will be considered as permanent
withdrawal.
 DISSOLUTION
1. Admission by purchase without revaluation

Purchase price is to be ignored.

Transaction between new partner and the partner who is selling shares is
considered as PERSONAL TRANSACTION.

The total agreed capital would still be equal to the total contributed capital
2. Admission by purchase with revaluation

Purchase price is used to determine the amount of revaluation
example: purchase price
= Total Agreed Capital
% of interest
Less: Total Contributed Capital
REVALUATION
* Amount of revaluation increases the amount of capital of the old partner and so is
distributed among P& L ratio
3. Admission by investment

Bonus method is to be applied if the problem is silent.

Revaluation method should also be applied if the problem says so.

TAC = TCC
Pro-forma:
o Bonus to old partner
Cash
Capital, old partner
Capital, old partner
Capital, new partner
o
Bonus to new partner
Cash
Capital, old partner
Capital, old partner
Capital, new partner
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
4.
K- Old Partner 1
T – Old Partner 2
Total
R – New Partner 1
TOTAL
P
P
P
TCC
xxx
xxx
xxx
xxx
xxx
TAC
xxx
xxx
P
xxx
xxx
P
xxx
BONUS
P
xxx
xxx
P
xxx
xxx
0
TAC
BONUS
P
5. Admission by purchase and admission by investment
UNADJUSTED
K- Old Partner 1
T – Old Partner 2
Total
R – New Partner 1
TOTAL
P
P
P
xxx
xxx
xxx
xxx
xxx
ADJUSTED
TCC
P
P
P
xxx
xxx
xxx
xxx
xxx
 RETIREMENT
1. Computation of Total Interest
Capital
+/- Share in Net Income/Loss
+/- Revaluation
+/- Loan Balance
TOTAL INTEREST
o Classification of Loan Balances
ADDED TO CAPITAL (LIABILITY)
– Loan FROM partner
– Due TO partner
– Loan payable TO partner
P
P
P
xxx
xxx
xxx
xxx
xxx
P
P
P
P
xxx
xxx
xxx
xxx
0
xxx
xxx
xxx
xxx
xxx
DEDUCTED FROM CAPITAL(ASSET)
– Loan TO partner
– Due FROM partner
– Loan payable FROM partner
2. Total interest is more than settlement of its retiring partners
Bonus to REMAINING PARTNERS
3. Total interest is less than settlement of the retiring partner
Bonus to RETIRING PARTNER
 LIQUIDATION
1. Lump-sum liquidation
2. Installment liquidation or piecemeal
o
Lump-sum Liquidation
1. Assets – realization
2. Liabilities – payment
3. Capital – distribution
MODADV1 Handout
Dr. Rodiel C. Ferrer
4. Marshalling of asssets
o Partnership Assets
 Who do you prioritize first?
i. Partnership creditors
ii. Personal creditors
iii. Partners
o Personal assets

Who do you prioritize first? 
i. Personal creditors
ii. Partnership creditors
iii. Partners
o
Installment Liquidation
o Cash Priority Program (CPP)
1. Determine the total interest
2. Compute loss absorption balance (LAB)
LAB =Total Interest
P & L ratio
3. Equalize loss absorption balance from the highest to the second highest
until equal to determine priority of payment
4. Distribution to partners (difference in LAB x P&L ratio)
Partner A
Total Interest
Divided by P&L ratio
Loss Absorption Balance
Priority I
Priority II
Priority III
CASH DISTRIBUTION
P
P
xxx
xxx
xxx
Partner B
P
P
xxx
xxx
xxx
Partner C
P
P
P
P
P
P
xxx
xxx
P
xxx
xxx
xxx
P
TOTAL
xxx
xxx
xxx
P
xxx
xxx
xxx
xxx
P
P
P
xxx
xxx
xxx
xxx
xxx
xxx
xxx
 When to use CPP?
– If there is no deficiency in the partners capital
– When the problem gives payment to any of the partners
ex. If partner A receives P xxx, how much will partner B receive?
3. If there is no additional investment
o Schedule of Safe Payment
1. Determine the total interest
2. Compute the maximum possible loss
2.1. Unsold non cash assets @ book value; plus
2.2. Liquidation expenses or cash withheld
3. Distributed deficit
4. Distribution to partners
* Under the statement of liquidation, partners are assumed to be solvent.
* Under the schedule of safe payment, partners are assumed to be insolvent
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION OF CASH DISTRIBUTION:
Cash, beginning
+ Proceeds from sale of Non Cash Assets
- Total Liabilities recorded & unrecorded
- Liquidation expenses
CASH DISTRIBUTION
P xxx
xxx
(xxx)
(xxx)
P xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT II: CORPORATE LIQUIDATION
Lecture Notes
CORPORATE LIQUIDATION
1) Assets should be recorded at Fair Value (FV) or Net Realizable Value (NRV)
2) Intangible assets and pre-payments are DERECOGNIZED upon Corporate Liquidation
o
o
Statement of Affairs – initial report that shows the available asset values and debts of
the debtor corporation
Statement of Realization and Liquidation – periodic report of the reviewer shows how
the receiver managed the assets of the debtor corporation on behalf of the creditors
 Assets are classified into three (3) categories:
1. Assets pledged to FULLY secured creditors (APTFSC)
FV of asset >Liability
2. Assets pledged to PARTIALLY secured creditors (APTPSC)
FV of asset < Liability
3. Free assets – assets not pledged as security for any liability
– includes value of APTFSC in excess of liability
 Liabilities are classified into four (4) categories:
1. Unsecured liability with priority
a. Administrative expenses – trustees expenses
b. Salaries and wages
c. Taxes
2. Fully secured creditors (FSC)
3. Partially secured creditors (PSC)
4. Unsecured creditors
NUMERATOR
1) Excess of APTFSC over FSC:
APTFSC
P xxx
FSC
( xxx)
P
xxx
DENOMINATOR
4) Excess of PSC over APTPSC:
PSC
P xxx
APTPSC
( xxx)
2) Free Assets
TOTAL FREE ASSETS
P
xxx
xxx
5) Liability w/o priority
TOTAL UNSECURED LIAB P
3) Less: Liabilities w/ priority
a. Administrative exp.
P xxx
b. Salaries
xxx
c. Taxes
xxx
NET FREE ASSETS
P
% of recovery =
P
xxx
xxx
xxx
( xxx)
xxx
NET FREE ASSETS
TOTAL UNSECURED LIABILITY
Estimated deficiency = Net Free Assets – Total Unsecured Liability
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION FOR TOTAL PAYMENT TO ALL CREDITORS:
Fully Secured Creditors
Partially Secured Creditors:
Assets Pledged to Partially Secured Creditors (P xxx * 100%)
Excess of PSC over APTPSC ( P xxx * % of recovery)
Liability with Priority
Liability without Priority ( P xxx * % of recovery)
TOTAL PAYMENT TO ALL CREDITORS
P
P
xxx
P
xxx
xxx
xxx
xxx
xxx
xxx
OR
Net Realizable Value of Assets = Total Payment to Creditors
STATEMENT OF REALIZATION AND LIQUIDATION
Assets to be realized
Assets acquired
Liabilities liquidated
Liabilities not liquidated
Supplementary charges
Net Income
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Assets realized
Assets not realized
Liabilities to be liquidated
Liabilities assumed
Supplementary credits
Net Loss
COMPUTATION FOR ENDING CASH BALANCE:
A =
Cash
L+E
Assets not
realized
Equity
Liabilities NOT liquidated
Less: Assets NOT realized
ENDING CASH BALANCE
Liabilities not
liquidated
SHE ITEMS
P
P
xxx
xxx
xxx
xxx
NOTE: If Retained Earnings balance is ending, it already includes net income or net loss. If not,
then add or deduct the net income or net loss.
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT III: INSTALLMENT SALES
Lecture Notes
INSTALLMENT SALES
1) If collectability of the note is REASONABLY ASSURED, ACCRUAL METHODshould be
applied. In this topic the entire amount of GP becomes part of the net income.
2) If the collectability of the note is NOT REASONABLY ASSURED, INSTALLMENT
METHOD should be applied
COMPUTATION OF NET INCOME:
Gross Profit (GP) on Regular Sales
Realized Gross Profit (RGP) on Installment Sales
TOTAL RGP
Less: Expenses
1) Selling Expenses
2) Loss on Repossession
3) Loss on Write-off
NET INCOME
*GP on Regular Sales
Sales
Less: Cost of Regular Sales
GP ON REGULAR SALES
P
(
P
3) Installment Accounts Receivable
IAR, beginning (prior year)
or
Installment sales
(current year)
xxx
xxx)
xxx
P
P
P
xxx
xxx
xxx
(
P
*RGP on Installment Sales
Collection
Multiplied by GP rate
RGP ON INSTALLMENT SALES
xxx xxx
xxx
xxx
IAR, ending
xxx
xxx
xxx
P
(
P
xxx)
xxx
xxx
xxx)
xxx
Collections
Repossessed accounts
or IAR defaulted
Write-off
xxx
4) Gain or Loss on Repossession
COMPUTATION OF FV OF REPOSSESSED MERCHANDISE:
Estimated Selling Price
Reconditioning cost
Normal Profit
Cost to sell
FV OF REPOSSESSED MERCHANDISE AFTER RECONDITIONING
COST
P
(
(
(
xxx
xxx)
xxx)
xxx)
P
xxx
* If it is BEFORE reconditioning cost, IGNORE the amount of reconditioning cost.
* If the problem is SILENT if the estimated selling price is before or after recondition cost,
deduct the reconditioning cost
* If the problem says ESTIMATED WHOLESALE VALUE or APPRAISED VALUE, the
normal profit should not be deducted anymore.
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION OF GAIN (LOSS) ON REPOSSESSION:
FV of Repossessed Merchandise
Less: Unrecovered cost
1) IAR-defaulted
Less: DGP related to receivables
or
2) IAR x cost ratio
GAIN (LOSS) ON REPOSSESSION
P
(
P
xxx
(
P
xxx)
xxx
xxx
xxx )
xxx
* If Unrecovered Cost > FV or Repossessed Merchandise = LOSS ON REPOSSESSION
* If Unrecovered Cost < FV of Repossessed Merchandise = GAIN ON REPOSSESSION
Journal entry:
Repossessed Merchandise @ FV
DGP
Loss on Repossession
IAR – defaulted
Gain on Respossession (if any)
xxx
xxx
xxx
xxx
xxx
4) Write-off
Journal entry:
 Regular Sales
Allowance on Doubtful accounts
Accounts Receivable
xxx
xxx
 Installement Sales
DGP
Loss on Write-off
IAR
xxx
xxx
xxx
5) Deferred Gross Profit
COMPUTATION OF DEFERRED GROSS PROFIT:
Installment Sales
Cost of Installment Sales
DGP
RGP (Collection x GP rate)
DGP on Repossessed Merchandise
DGP on Write-off
P
(
P
DGP
xxx xxx
xxx
xxx
xxx
xxx
xxx)
xxx
DGP, beginning
DGP, ending
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTE GP RATE FOR INSTALLMENT SALES:
IS – prior year
IS – current year
DGP
IAR
DGP
IS
6) Trade-In
Downpayment – Cash
Downpayment – FV of merchandise traded in
Collection – Interest
TOTAL COLLECTION
X GP Rate
RGP
COMPUTE FOR GP RATE OF MERCHANDISE TRADED IN:
Installments Sales
Less: Over allowance
Add: Under allowance (if any)
ADJUSTED SALES
Less: Cost of Sales
GP
Gross Profit
Adjusted Sales
P
P
*
P
P
(xxx)
xxx
P
(xxx)
P
xxx
xxx
xxx
xxx
%
xxx
xxx
xxx
xxx
= GP Rate
* Trade in value of merchandise > FV of merchandise traded in = OVERALLOWANCE
* Trade in value of merchandise < FV of merchandise traded in = UNDERALLOWANCE
NOTE: If the trade in allowance is deducted from the invoice price before computing the
amount of down payment if the problem says that the trade-in is part of the down
payment.
or
[(Adjusted sales – FV of RM) x % of DP] = Amount of Downpayment
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT IV: LONG TERM CONSTRUCTION CONTRACTS
Lecture Notes
Long-term Construction Contracts
1) Contract Price = Progress Billings
2) Contract Price + Escalation Clause – Penalty Clause = Progress Billings
3) Two Methods:
 Percentage of Completion Method
– With dependable estimates are available
– a.k.a. cost to cost model
a)
b)
c)
d)
e)
f)
a)
b)
c)
d)
Contract Price
Cost Incurred (to date)
Estimated costs to complete
Total Estimated costs (a + b)
Total Estimated Gross Profit (a – d)
Multiply by Percentage of Completion
(b/d)
Gross Profit to date (e x f)
Gross Profit (previous year)
Gross Profit (current year)
Cost Incurred (to date)
Gross Profit (to date)
Construction In Progress
Progress Billings (to date)
DUE FROM/DUE TO
20x2
P
xxx
P
xxx
xxx
xxx
P
xxx
20x3
P
xxx
P
xxx
xxx
xxx
P
xxx
x
P
x
P
(
P
%
xxx
-
P
xxx
20x4
P
xxx
P
xxx
xxx
xxx
P
xxx
% x
xxx P
xxx ) (
xxx P
20x2
20x3
P
xxx P
xxx
xxx
xxx
P
xxx P
xxx
xxx
xxx
P
xxx P
xxx
%
xxx
xxx )
xxx
20x4
P
xxx
xxx
P
xxx
xxx
P
xxx
NOTE: Due From (Current Asset), Due To (Current Liability)
MODADV1 Handout
Dr. Rodiel C. Ferrer
–
 Zero Profit Method
No dependable estimates are available
a)
b)
c)
d)
e)
f)
Contract Price
Cost Incurred (to date)
Estimated costs to complete
Total Estimated costs (a + b)
Total Estimated Gross Profit (a – d)
Multiply by: 100% or 0%
Gross Profit to date (e x f)
Gross Profit (previous year)
Gross Profit (current year)
20x2
P
xxx
P
xxx
xxx
xxx
P
xxx
20x3
P
xxx
P
xxx
xxx
xxx
P
xxx
20x4
P
xxx
P
xxx
xxx
xxx
P
xxx
x
P
x
P
(
P
x
P
(
P
%
xxx
-
P
xxx
%
xxx
xxx )
xxx
%
xxx
xxx )
xxx
NOTE: No profit is recognized until the construction contract is completed.
: When it is probable that total estimated costs will exceed the contract price,
the expected loss shall be treated as an expense immediately.
4) Contract Retention may be part of billing but not paid to contractor
– Does not have an income element
Journal entry:
Cash
Contract Retention
Accounts Receivable
xxx
xxx
Upon Completion:
Cash
Contract Retention
xxx
xxx
xxx
5) Mobilization fee
– Deducted from the bills of contractors in equal installments covering the project
period
– Does not have income element
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT V: FRANCHISE ACCOUNTING
Lecture Notes
FRANCHISE ACCOUNTING
1) CRS – Criteria in recognizing initial franchise fee as revenue:
(1) Cash or the down payment must be NON-REFUNDABLE.
All the conditions
(2) Notes Receivables must be REASONABLY ASSURED.
MUST BE met
(3) Services must be SUBSTANTIALLY PERFORMED.
If the problem is silent, the best indicator of the criterion is when the
company commences operation
* If any of the conditions is not followed, the entire amount of IFF becomes an unearned
revenue, except when:
a) The down payment is non-refundable; and
b) The down payment represents the fair measure of the services performed.
Under the two conditions, the amount of down payment becomes revenue, however,
the remaining balance is considered unearned revenue.
2) If the notes receivable is REASONABLY ASSURED, the ACCRUAL METHOD is used,
however, if it is NOT REASONABLY ASSURED, use INSTALLMENT METHOD.
Franchise Cost
DIRECT COST
Direct Cost
Expense
IFF
CFF
INDIRECT COST
Expense
Expense
3) If the problem is silent, the notes receivable is considered reasonably assured.
Case 1
– Interest bearing
– NR - reasonably assured
Revenue (IFF)
- Cost of Sales
Gross Profit
+ CFF (Sales x %)
+ Interest Income
- Expense
NET INCOME
Case 2
– Interest bearing
– NR - not reasonably assured
Downpayment
+ Collection
Total Collection
x
GP%
RGP
+ CFF (Sales x %)
+ Interest Income
- Expense
NET INCOME
Common Question for Case 3:
How much is the revenue from franchise?
1) Revenue (DP + PV)
2) CFF
TOTAL REVENUE FROM FRANCHISE
Case 3
Case 4
– Non -Interest bearing
– NR - reasonably assured
– Non - Interest bearing
– NR –not reasonably assured
Revenue (DP + PV)
- Cost of Sales
Gross Profit
+ CFF (Sales x %)
+ Interest Income
- Expense
NET INCOME
Downpayment
+ Collection
- Interest
Total Collection
x
GP%
RGP
+ CFF (Sales x %)
+ Interest Income
- Expense
NET INCOME
P
P
xxx
xxx
xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT VI: INTEREST ON JOINT VENTURES
Lecture Notes
JOINT VENTURES
 IFRS 11 (Jan 1, 2013)
IAS 31
(1)
(2)
jointly controlled entity
jointly contributed
assets
(3)
jointly controlled
operations
IFRS 11 (1)jointly controlled entity
- Contractual
- Establishes joint control
- Equity method
- SNI: Investment – Joint Venture xxx
Investment Income
xxx
- Dividends: Cash
xxx
Inv. Income
xxx
(2)
jointly controlled operations
- Sharing of control
- Unanimous consent in operating &
financial decisions
1-19% financial asset @ FV through P&L
@ FV through OCI
cost method or FV method
20-49% investment in associate
equity method
50 % joint control
equity method
51-100% investment in subsidiary
cost method
Expenses
Joint Venture - P/L
Purchases
Sales
CR - unadjusted
Cash
Unsold merchandise
CAPITAL
LWoisth
sdraw
PIrnovfiet sted
Merchandise
Merchandise
 Section No. 15: Joint Ventures for SMEs
1) Equity Method
2) Cost Method
3) FV Model
Loss
Profit
DR
CR
Due from
Due to managing
operations
COMPUTATION OF CARRYING VALUE OF INVESTMENT:
EQUITY METHOD
Purchase Price
+ Transaction Cost
+ Share in Net Income
- Dividends
- Amortization of UVA
+ Amortization of OVA
- Impairment Loss
CV OF INVESTMENT
Cash
COST METHOD
Purchase Price
+ Transaction Cost
- Impairment Loss
CV OF INVESTMENT
FV MODEL
Purchase Price
+ Unrealized Gain
- Unrealized Loss
CV OF INVESTMENT
* Share in net income – fractional year
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION OF PROFIT (LOSS):
EQUITY METHOD
+ Share in Net Income
+/- Gain (Loss) on Sale
+ Amortization of UVA
- Amortization of OVA
- Impairment Loss
PROFIT (LOSS)
COST METHOD
Dividends
+/- Gain (Loss) on Sale
- Impairment Loss
PROFIT (LOSS)
FV MODEL
Dividends
+ Unrealized Gain
- Unrealized Loss
- Transaction Cost
+/- Gain (Loss) on Sale
PROFIT (LOSS)
COMPUTATION OF HOW MUCH THE SETTLEMENT TO VENTURERS:
Investment in terms of cash or merchandise
+ Share in Net Income
- Withdrawal of cash or merchandise
- Unsold merchandise given to venturers
FINAL SETTLEMENT
P
(
(
P
xxx
xxx
xxx)
xxx)
xxx
P
xxx
COMPUTATION OF TOTAL INTEREST:
Joint venture –cash
+/- Settlement to (A) venture
[ A, Capital + SNI – unsold merchandise given to (A) ]
Settlement to (B)
+ Unsold merchandise given to (B)
TOTAL INTEREST
 SME’s
Methods used
Cost Model
xxx
xxx
xxx
xxx
P
P
Change to
Public price quotation
(public offering)
FV Model
FV cannot be determined
reliably without undue effort
Cost Model
FV Model

FV Model
– Use FV model, if there is a published price quotation given, if cost method is used.
– Under this model, SNI is not considered in computing net income however the
dividend is treated as income
Cash
xxx
Dividend Income
xxx
– Any cost to sell is ignored. The FV of investment should only be considered.
– The CV is of how much is the FV at the end of the year

Cost Model
– Same with FV, the entity will record dividend income
Cash
xxx
Dividend Income
xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer

Equity Model
– Equity model is always equity model unless there is a change in ownership.
– If the company loses joint control, there would be a shift to cost model or fair model.
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT VII: DEBT RESTRUCTURING
Lecture Notes
DEBT RESTRUCTURING
- Debt restructuring is a situation where the creditor for economic or legal reasons related
to the debtor’s financial difficulties, grants to the debtor concession that would not be
granted in a normal business relationship.
 Types of Debt Restructuring:
1. Asset Swap
2. Equity Swap
3. Modification of terms
 ASSET SWAP
- Under PFRS 9 , asset swap is treated as a derecognition of a financial liability or
extinguishment of an obligation
- The difference between the carrying amount of the financial liability and the
consideration given shall be recognized in profit or loss
Carrying Value of Liability
Less: Carrying Value of Asset
GAIN ON EXTINGUISHMENT OF DEBT
-
-
P
(
P
xxx
xxx)
xxx
Under USA GAAP, asset swap is recorded as if two transactions have taken
place, namely, the sale of the asset and the extinguishment of the liability.
FMV of property given
Less: CV of property given
GAIN ON EXCHANGE
P
(
P
xxx
xxx)
xxx
Carrying Value of Liability
Less: FMW of Asset
GAIN ON EXTINGUISHMENT OF DEBT
P
(
P
xxx
xxx)
xxx
PFRS 9 should be followed as this in conformity with international accounting
standard
 EQUITY SWAP
- Issuance of share capital by the debtor to the creditor in full or partial payment of
an obligation
Carrying Value of Liability
Less: FMV of Stock *
GAIN ON EXTINGUISHMENT OF DEBT
P
(
P
xxx
xxx)
xxx
* FMV of stock includes Ordinary Shares and Share Premium
MODADV1 Handout
Dr. Rodiel C. Ferrer
-
If the fair value of the equity instruments issued cannot be reliably measured, the
equity instruments issued to extinguish a financial liability shall be measured at
the following amounts in order of priority:
a. Fair value of equity instruments issued
b. Fair value of liability extinguished
c. Carrying amount of liability extinguished
 MODIFICATION OF TERMS
-
-
PFRS 9 provides that a substantial modification of terms of an existing financial
liability shall be accounted for as an extinguishment of the old financial liability
and recognition of a new financial liability
There is substantial modification of terms, if the amount of gain on existing of
debt is AT LEAST 10% of the carrying amount of the old liability
Carrying Value of Liability
Present Value of Restructured Liability*
GAIN ON EXTINGUISHMENT OF DEBT
P
(
P
xxx
xxx)
xxx
* PV of new or restructured liability which is discounted using the old effective
rate
-
Premium is recognized if the new carrying value of the old liability is greater than
the new liability when there is modification
MODADV1 Handout
Dr. Rodiel C. Ferrer