(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
*NOTES:
To transfer the
the depreciable
depreciable asset, it should
should be in net amount.
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
of the partnership
partnership arises from the meeting of minds.
minds.
Quick Notes in AFAR


I. PARTNER
PARTNER SHIP

PARTNERSHIP FORMATION

VALUATION:
1. Cash – Face Value
2. Land, Depreciable
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
Investment/Withdrawal Method
Partnership by Estoppel – legally binding the partnership but no formal
agreement
Limited Partnership – two or m ore general partners and one or more limited
partners
Particular Partnership – single transaction
PARTNERSHIP OPERATION
1. Salaries
This could
could be fractional year
Given, regardless
regardless of the result of operation


2. Interest
This could
could be in
in fractional
fractional year
Given, regardless
regardless whether
whether there is profit or
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.)

BONUS METHOD

(*The problem is silent)
1. There would be a transfer of capital.
2. There is no recognition
recognition of goodwill.
3. The total asset and capital will remain unchanged.
3. Bonus
INVESTMENT/WITHDRAWAL

1. Agreed Capital is more than Unadjusted
Unadjusted Capital
Capital = Investment
2. Agreed Capital is less than Unadjusted
Unadjusted Capital
Capital = Withdrawal
ADJUSTING ENTRIES
(*Use contra-asset)
contra-asset)
1. Building – Carrying Value: ₱10M, Agreed Value: ₱15M
Accumulated Depreciation
Depreciation
₱5M
Capital

This is given ifif there is a profit only
Bonus is not always
always given
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
Accounts
₱1000
B=
B=
 

 




 

B = ₱56, 347.83
  
 
(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=
B=
B=
   
  




 
 
TCC
 

TAC
Bonus
*TAC=TCC
/
0
UVA
/
*TAC>TCC
OVA
*TAC<TCC
+
−
 
Purchase Price
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.
PROFIT RATIO
Profit Ratio, Loss Ratio

Profit Ratio, Profit Ratio

Original Capital Ratio, Loss ratio
x
Original Capital Ratio, Original Capital Ratio
x
1.
2.
3.
4.
2. Admission by
by Purchase
Purchase with Revaluation
Two Steps to be followed:
 Determined the asset
asset revaluation
buying partner
 Distribute the interest to the buying
LOSS RATIO
 _
x _
 _
x _
Divided by: New Interest of New Partner
Adjusted Capital
Capital
Add: Unadjusted
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 =
1500 × 3/12 =
200
375
₱1075
2. ₱500 × 12/12 = ₱500
100 × 9/12 =
(200) × 3/12 =
75
(50)
₱525
*NOTE:



P/L = Silent  Original Capital
Interest = Silent  Average Capital
Net income after interest
interest and salary
salary but before
before bonus
bonus
Formula: Net Income – Total Interest – Total Salary = Bonus
PARTNERSHIP DISSOLUTION
- Change in numbers of partners.
1. Admission by Purchase without
without Revaluation
Revaluation
 Silent
 Personal transactions
asset and capital
capital will remain
remain unchanged
unchanged
 Total asset
 Purchase price is ignored
RETIREMENT
1. Compute the capital balance
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
partnership liability/receivable
liability/receivable of your
your debtor
2. Settlement is more than Capital Interest
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
Liquidation – single distribution
2. Installment Liquidation
Liquidation – “piece meal”
(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
Cash beginning
₱xx
xx
xx Total
xx Total
₱xx

₱xx
xx
Unpaid
₱xx
CASH PRIORITY PROGRAM
*(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
When to use Cash Priority Program?
-
G
J
Total
₱30000
-015000
21300
₱36300
₱ 30000
₱
10000
14200
₱54200
Capital Beginning
Gain/Loss
Maximum Possible Loss
Elimination Deficiency
Condonation
25000
71000
₱126000
₱xx
+/+/-
Cash Distribution
xx
xx
xx
xx
₱xx
II. CORPOR ATE LIQUIDATION

Maximum Possible Loss (MPL):
1. Unsold Non- cash Asset
2. Anticipated Liquidation Expense (future LE)
A
-0-035500
₱35500
₱
SAFE PAYMENTS
1. Determine the capital interest
2. Deduct the Maximum Possible
Loss
3. Absorb deficiency
4. Distribute
INSTALLMENT LIQUIDATION
Add: Proceed
Minus: Liabilities
Liquidation Expense
Distribution
Priority 1
Priority 2
NPP
When the problem says, what amount should be distributed to the partners
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):
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



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)


EXAMPLE:
Capital Interest
P/L %
LAB
Priority 1
Priority 2

A
G
J
₱100000
₱ 80000
₱ 75000
÷
÷
50%
20%
÷
30%
₱200000
₱400000
₱250000
_______
₱200000
_______
₱200000
150000
₱250000
50000
₱200000
_______
₱250000
50000
₱200000

Percentage of Recovery (POR) =
  
    
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
3. OWNER’S EQUITY DEFICIENCY / CAPITAL
Capital
A

NET FREE ASSETS
(NFA)
1. Excess of APTFSL
₱xx
over PSL
xx
2. Free Asset
TFA
3. Loss UL with Priority
Net Free Asset

TOTAL UNSECURED CREDITORS
WITHOUT PRIORITY (TULi-w/o)
1. Excess of PSL
₱xx
over APTPSL
xx
₱xx
2. UL w/o Priority
xx
₱xx
TULi w/o
₱xx
xx
xx
xx
₱xx
=
Cash, end
ANR
L

+
LNL
C

SHE, beginning
SHE, end
TYPES OF SALES
1. REGULAR SALES
Cash Sales
Credit Sales
ED:

ED = TULi w/o × (1 – POR)
or
A
=
SHE beginning
Estimated net loss
Accrued interest
Liquidation expense
EED
L
+
C
₱xx
(xx)
(xx)
(xx)
₱ xx
 +/−
*NOTE: Statement of Realization  no cash
STATEMENT OF REALIZATION AND LIQUIDATION
1. Assets to be realized (ATBR)
Noncash Assets, beginning
2. Assets acquired (AA) / ↑ on Asset
Interest Receivable
Accounts Receivable
7. Liabilities liquidated (LL)
8. Liabilities not liquidated (LNL)
Ending balance of the liabilities
9. Supplementary charges / Expenses
Cost of Sales
Accrued Expenses






11. NET INCOME / GAIN
3. Assets realized (AR)
PPE – net proceeds
Receivables – collection
Inventory – cost of sales
4. Assets not realized (ANR)
Noncash Asset, ending
5. Liabilities to be liquidated (LTBL)
6. Liabilities assumed (LA) / ↑ in Liabilities
Accrued Expenses
Accounts Payable
10. Supplementary credits / Revenue
Sales
Accrued Interest Income
12. NET LOSS / LOSS

xx
III. INSTALLMENT SALE S
2. INSTALLMENT SALES
Cost Recovery
Gross Profit Realization
Installment Method


ED = TULi – NFA
₱xx
₱xx
Estate Equity


ESTIMATED DEFICIENCY (ED):
Net (loss) / Profit
Use the accrual
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)
₱xx
xx
xx
xx
xx
₱xx
(xx)
₱xx
NET INCOME 2017



*Sales
Less: Cost of Sales:
Fair Value of Repossessed Merchandise
Reconditioning Cost
GP from Sale of Repossessed Merchandise
₱ xx
₱xx
xx
(xx)
₱ xx




Fair Value of Repossessed Merchandise
Reconditioning Cost
Net Purchases
₱xx
Estimated Selling Price
(*If silent, after)
₱xx
xx
xx
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
Installment Sales
Cost of Sales
₱xx
(xx)
₱xx
Deferred Gross Profit
Installment Accounts Receivable
Unsecured Cost
₱xx
Deferred Gross Profit
₱xx
xx
Beginning Inventory
Net Purchases
Freight-in
Repossessed Merchandise
Reconditioning Cost
TGAS
Ending Inventory (New + Unsold RM + RC)
₱xx
Cost of Sales (Regular/Installment/Repossessed Merchandise)
₱xx
xx
xx
xx
xx
₱xx
xx
EXAMPLE:
Fair Value of Repossessed Merchandise*
Less: Unrecovered Cost:
IAR/Repossessed Account
(Receivable Defaulted/Unpaid Balance)
Less: Deferred Gross Profit
₱70
₱100
(20)
LOSS (UC > FV of R eposs ess ed Merchandise)
(80)
₱(10)
ENTRIES:
1. Reposs. Mdse. – FV ₱70
DGP
Loss
IAR
3. Cash
20
10
₱___
IAR
₱100
₱___
4. DGP
₱___
₱80
DGP (20%)
IAR
20
₱200
*Gain/Loss  P/L
**DGP  Contra receivable account
write-off
(20%) IAR 2016
Beginning
₱100 Collection
RA
WO
₱ 15
End
₱50
30
5
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)
xx
xx
₱xx
xx
₱xx
xx
₱xx
(xx)
NET INCOME
₱xx
RGP
DGP on RA
DGP on WO
DGP 2016
₱10 Beginning
₱20
6
1
End
₱3
TRADE-IN:
Installment Sales
Fair Value of Trade-in
Trade-in Allowance
Adjusted Installment Sales
Cost of Sales
₱xx
GROSS PROFIT
₱xx
Adjusted Installment Sales
Down payment – Cash
Fair Value of Trade-in
₱xx
CV of Receivable
AIS
IAR 2017
₱___ Collection ₱___ RGP
RA
WO
End
₱___
₱xx
₱___
RGP
2. Expenses
TRADE-IN & SALE OF REPOSSESSED MERCHANDISE:
___ DGP on RA
___ DGP on WO
DGP 2017
₱__ Beginning
₱__
__
__
End
₱ _
xx
(xx)
₱xx
(xx)
(xx)
(xx)
₱xx
Installment Sales
Trade-in Allowance
₱xx
Collectibles
₱xx
(xx)
(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
IV. LONG TE RM 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
₱xx
xx
xx
xx
xx
xx
₱xx
ADJUSTED PRICE BILLING (CP = APB)
1.2. OUTPUT MEASURE
Total Units Prod. ÷ Total Units Expected Prod.
2. COST RECOVERY METHOD
- outcome cannot be estimated reliably
CITD
+ PTD-LTD
CIP
− APB
CONTRACT RETENTION
receivables
does not the an income element
reduces collection

(Due to)/Due from
↓
↓
Liability Asset


 PRO-FORMA ENTRY:
Cash

Contract Retention
Accounts Receivable
UPON COMPLETION OF PROJECT:
Cash
Contract Retention
xx
YEAR 3
₱xx
xx
₱xx
xx
₱xx
= 0 → CIP @
the end of the
year of contract.
CONSTRUCTION IN PROGRESS:
₱xx
(1) If Profit: Contract Price × Percentage of Completion = CIP
(2) If Loss: [(C P × PO C ) – LTD × (1 − POC)] = CIP
(3) [(T C × PO C ) – LTD] = CIP
₱xx
₱xx
ENTRIES:

 PRO-FORMA ENTRY:
₱xx
Advances from Customers
₱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
YEAR 2
₱xx
xx
₱xx
xx
₱xx
₱xx
MOBILIZATION FEE
no income element
Cash
YEAR 1
₱xx
xx
₱xx
xx
₱xx
₱xx
xx
xx
xx
xx
xx
xx
xx
xx
₱xx
1.) Construction in Progress
Various Accounts
₱xx
2.) Accounts Receivable
Progress Billings
₱xx
3.) Cash
Accounts Receivable
₱xx
4.) COC
Construction in Progress
Construction Revenue
₱xx
5.) Accounts Receivable
Progress Billings
₱xx
6.) Progress Billings
Construction in Progress
₱xx
₱xx
₱xx
₱xx
xx
₱xx
₱xx
₱xx
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
COMPUTATION OF ADJUSTED CONTRACT PRICE:
COMPUTATION OF DUE FROM / (DUE TO) CUSTOMER – Y2:
Contract Price
₱xx
Variable Price
Bonus
xx
xx
₱xx
Adjusted Contract Price
COMPUTATION OF CIP:
Cost Incurred to Date
Realized Gross Profit – to date
₱xx
Construction in Progress
₱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 %)]
₱xx
Due from / (Due to) Customers – Y2
₱xx
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
2ND YEAR
₱xx
₱xx
xx
xx
(₱xx)
₱xx
(₱xx)
₱xx
(xx)
(xx)
V. IAS 18 – REVENUE
COMPUTATION OF REALIZED GROSS PROFIT – CURRENT YEAR:
1ST YEAR
₱xx
₱xx
xx
(xx)
CRITERIA TO RECOGNIZE REVENUE:
LAST YEAR
₱xx
₱xx
1. Receivables (*silent)
- reasonably assured
xx
2. Cash as Down Payment (*silent)
- nonrefundable
(₱xx)
₱xx
%
%
%
₱xx
₱xx
₱xx
xx
xx
xx
₱xx
₱xx
₱xx
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
₱xx
Progress Billings (PY + CY)
X
-_
₱-0₱xx
(xx)
Construction in Progress, net of PB
₱+/−
RECOGNITION OF REVENUE
 over time
 at a point in time
₱xx
(₱xx)
₱xx
(₱xx)
100%
100%
(₱xx)
₱xx
(₱xx)
₱xx
(xx)
(xx)
₱-0-
₱+/−
CASE 1
CASE 2
R
C
F
CASE 3
x
x
IFF = Revenue
IFF = Deferred
Revenue
Cash
₱xx
NR
xx
Discount
₱xx
Franchise Revenue
Deferred Revenue
EXCEPTION TO THE RULE:

Down payment still considered as revenue if the DP is nonrefundable and
DP represents fair measure of services already rendered.
xx
xx
(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
Down Payment
Collection, net of interest income
Total Collection
Multiply: Gross Profit Ratio (GP ÷ Revenue) *REVENUE = DP + PV
Realized Gross Profit
Continuing Franchise Fee
Interest Income (PV × IR × ?/12)
Expenses
₱xx
xx
₱xx
%
₱xx
xx
xx
(xx)
₱xx
NET INCOME
R x
C 
F 
– Non-interest Bearing (Installment Method)
Down Payment – Cash
Collection during the period
Total Collection
Multiply: Gross Profit Ratio (GP ÷ Revenue) *REVENUE = IFF
Realized Gross Profit
Continuing Franchise Fee
Interest Income
Expenses
NET INCOME
₱xx
xx
₱xx
TOTAL REVENUE OF THE FRANCHISOR
Down payment
Collection
CFF
Interest Income
TR-F
₱xx
xx
xx
xx
₱xx
%
₱xx
xx
xx
(xx)
₱xx
TOTAL REVENUE FROM F.F.
Down payment
Collection
CFF
TR from FF
₱xx
xx
xx
₱xx
VI. HOME OFFICE A ND BR ANCH AC COUNTING
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
– 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
(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
₱10
Branch 1 to Branch 2
Home Office to Branch 2
(Excess Freight) Expenses
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
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
₱xx
EXAMPLE
₱ 87
(xx)
(xx)
₱xx
xx
₱xx
(5)
(2)
₱ 80
20
₱100
Gross Profit
*ENTRIES
#11
#12
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
BP (Reported)
₱xx
Sales
Cost of Goods Sales
Gross Profit
Expenses
Cost (True/Correct)
₱xx
(xx)
(xx)
₱xx
₱xx
(xx)
(xx)
₱xx
Net Income
AFOBI
RGP
₱xx
HO
1. 100 – 80 = 20
2. 100 × 20% = 20
3. 100 × 25/125 = 20
4. 80 × 25% = 20
Beginning
Shipment
End
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
COST METHOD – CV
Purchase Price
Transaction Cost
Impairment Loss
CV of Investment
xx
(xx)
₱xx
FAIR VALUE METHOD – CV
Purchase Price
Unrealized Gain
Unrealized Loss
CV of Investment
METHOD
Cost / Equity / Fair Value
Equity
Cost / FV
P/L
₱xx
Impairment Loss
Dividend Income
P/L
₱(−)
+
₱xx
P/L
₱xx
xx
(xx)
₱xx
Unrealized Gain
Unrealized Loss
Dividend Income
Transaction Co
P/L
P/L
₱xx
xx
xx
xx
(xx)
₱xx
Investment Income
Impairment Loss
P/L
₱+
( −)
₱xx
TYPES OF BUSINESS COMBINATION
BUSINESS COMBINATION
OWNERSHIP
51% to 100%
20% to 50%
1% to 19%
Purchase Price
Transaction Cost
Investment Income
Dividend
Impairment Loss
CV of Investment
*NOTE: The fair value method is applicable only for trading securities.
VII. BUSINESS COMBINATION (IFRS 3) & CONSOLIDATED
F.S. (IFR S 10)

EQUITY METHOD – CV
₱+
( −)
+
( −)
₱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
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
EXAMPLE:
FORMULAS
Share Premium from issuance
₱ 50
Share Premium from original issuance
CTIR
30
100
ENTRY:
Share Premium
Share Premium
SIC
Cash/Payable
₱50
30
20
₱100
PRESENTATION OF NCI
*
 
   
× PHI% = ₱xx
1. FV of NCI / Full Goodwill

EXAMPLE:
Purchase Price
NA@BV (SHE)
Excess
OVA
UVA
Goodwill
Purchase Price
NA@FV (squeezed)
Goodwill
₱1000
(700)
₱ 300
(50)
(100)
₱ 250
₱1000
(750)
₱ 250
ACQUISITION RELATED COST
1. Direct Cost  expense
2. Indirect Cost  expense
3. Cost to Issue or Register (CTIR)
B ased on priority:
3.1. Share Premium from
issuance;
3.2. Share Premium from
original issuance;
3.3. Debit to Stock Issuance
Cost
NA@BV – 12/31
Net Income
Dividend
NA@BV – BC
₱xx
(xx)
xx
₱xx
If the fair value is unknown compute the implied fair value
FORMULA:
  
    
 
 
2. Proportionate Share / Relevant Share / Interest in the Net Asset of Subsidiary
(INAS)
FORMULA:
FV of Net Assets × NCI% = INAS
NA@BV – BC
UVA
OVA
NA@FV
₱700
100
(50)
₱750
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
CTIR Keywords:




SEC
Stock
Share
Documentary Stamp Tax
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)
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
EXAMPLE:
Case 4 [CP of ₱300000 is included]
Case 1
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(100%)
(80%)
(20%)
TOTAL
₱1700000
Purchase Price
₱1300000
NCI
₱ 400000 FV
(1000000)
(800000)
(200000)
₱ 700000
₱ 500000
₱ 200000
₱50000
₱35714 (5/7)
₱14286 (2/7)
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
₱200000
Impairment Loss
*If the problem is silent, use the F V.
The FV of NCI should not lower of INAS.
INAS
vs.


   
Case 2 [CP = ₱300000]
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
₱200000
vs.
₱200000
(20%)
NCI
₱ 200000
(1000000)
(800000)
₱ 200000
₱ 200000
  

₱
(200000)
-0-
   
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(100%)
(80%)
(20%)
TOTAL
₱ 900000
Purchase Price
₱ 700000
NCI
₱ 250000
(1000000)
(800000)
₱(100000)
₱ (100000)
(200000)
-0-
₱
NOTE: Gain is never allocated. It goes to Parent.
(100%)
(80%)
(20%)
TOTAL
₱1550000
Purchase Price
₱1300000
NCI
₱ 250000
(1000000)
(800000)
₱ 550000
₱ 500000
  

(200000)
₱ 50000
(100%)
(80%)
(20%)
TOTAL
₱1250000
Purchase Price
₱1000000
NCI
₱ 250000
(1000000)
(800000)
₱ 250000
vs.
₱ 200000


Purchase Price
Net Assets @ Fair Value
Goodwill
12/31/17
₱1000000
(700000)
₱ 300000
(800000)
₱ 200000
CONSOLIDATED FINANCIAL STATEMENT (*At the date of business
combination)
TOTAL ASSETS:
(200000)
₱ 50000
   
01/01/17
₱1000000
Goodwill on December 31, 2017 = ₱200000
Goodwill on January 1, 2017 = ₱200000
   
Case 3
Fair Value of Subsidiary
Net Assets @ FV
Goodwill
(80%)
Purchase Price
₱1000000
Case 5
FV
₱400000
vs.
(100%)
TOTAL
₱1200000
*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
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
TOTAL LIABILITIES:
Total Liabilities of Parent @ BV
Total Liabilities of Subsidiary @ FV
CPP
Purchase Price (Liabilities)
Direct Cost
Indirect Cost
CTIR
*If, unpaid
Total Liabilities
₱xx
xx
xx
xx
xx
xx
xx
₱xx
TOTAL SHAREHOLDER’S EQUITY :
SHE of Parent @ BV
NCI
on BPO
Gain  on PHI
on CCP
Purchase Price (Stocks @FV)
Direct Cost
Indirect Cost
CTIR
*Paid/
Unpaid
₱xx
xx
₱xx
xx
xx
Total Assets
xx
xx
(xx)
(xx)
(xx)
₱xx
CONTROL PREMIUM







₱xx
xx
xx
Investment in Subsidiary
NCI
₱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
Impairment Loss
Goodwill
₱xx
Cost of Sales
Inventory
₱xx
₱xx
₱xx
₱xx
5. INTERCOMPANY SALES & PURCHASES
Additional investment
Part of purchase price
Affects goodwill/(gain)
Ignored in computing NCI
Sales
Cost of Sales
₱xx
₱xx
6. UPEI
Cost of Sales
Inventory
PURCHASE PRICE

2. SUBSIDIARY – SHE
Ordinary Share – Subsidiary
Share Premium – Subsidiary
Retained Earnings – Subsidiary
Cash
Noncash
Liability
Stock
₱xx
₱xx
7. RPBI
Retained Earnings – Parent
NCI (up)
Cost of Sales
₱xx
xx
₱xx
WORKING PAPER ELIMINATING ENTRIES
*Ending Inventory
Multiply: GPR of Seller
UPEI – 20x6
RPBI – 20x7
1. DIVIDEND RECEIVED
Dividend Income
NCI (partially)
Dividend Declare – Subsidiary
₱xx
xx
₱xx
₱xx
%
₱xx
₱xx
NOTE:
CONSO
UPEI
RPBI
COS
NI
INVENTORY
+
−
−
+
Ignored
−
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
EXAMPLE: Intercompany Sale of Equipment
Sales
₱ 70
CV [₱90-(₱90/10) ×3)]
(63)
Gain
₱ 7
SELLER
BUYER
W.P.E.E.
₱70
Cash
Acc. Dep.
27
₱90
Equipment
Gain
7
Equipment
Cash
₱9
Dep. Exp.
₱9
Acc. Dep.
Dep. Exp.
₱10
Acc. Dep.
₱10
Acc. Dep.
₱1
Dep. Exp.
₱1
*(₱70/7=₱10)
*(RG thru amortization:
₱7/7=₱1)
₱70
₱70
Gain
Equipment
₱7
20
Acc. Dep.
₱27
UNREALIZED GAIN
Gain
Equipment
*(it depends upon the Selling Price)
Unrealized
Gain
EXAMPLE: Intercompany Sale of Inventory
Ending Inventory (1000 ×50%)
Sales
₱1000
Cost of Sales
Gross Profit
Ending Inventory %
UPEI
(700)
₱500
₱300
GPR
UPEI (12/31/16)
× 30%
₱150
× 50%
₱150
RPBI (01/01/17)
₱150
Realized
Gain
UPEI:
COS
Inventory
RPBI:
RE, beg.
COS
COS
₱xx
₱xx
₱xx
Inventory
RE, beg.
₱xx
NCI
₱xx
₱xx
xx
COS
₱xx
₱2
₱1
1
YEAR 3
NO ENTRY
RE
Dep. Exp.
Gain
₱5
₱1
4
Land (selling price) - ₱100
CL
- 80
Sale to third party - 150
UP
₱xx
Acc. Dep.
Dep. Exp.
RE
₱7
EXAMPLE: Intercompany Sale of Land
Working Paper Eliminating Entries
DOWN
YEAR 2
₱7
RE
₱7
Equipment
₱7
UG
RG
YEAR 1
₱(20)
-0-
YEAR 2
-0-0-
YEAR 3
-0₱20
Recorded – Subsidiary
Not yet recorded
₱50
20
₱70
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
FORMULAS:
Non-controlling Interest, beginning
Non-controlling Interest – Net Income
Dividend Share
Non-controlling Interest, end
Retained Earnings – Parent
Consolidated Net Income – Parent
Dividend – Parent
Consolidated Retained Earnings
Ordinary Share – Parent
Share Premium – Parent
Consolidated Retained Earnings
Non-controlling Interest
₱xx
xx
(xx)
₱xx
₱xx
xx
(xx)
₱xx
₱xx
Consolidated Shareholder’s Equity
xx
xx
xx
₱xx
Shareholder’s Equity, end
₱xx
Net Income of Subsidiary
Dividend of Subsidiary
(xx)
xx
₱xx
(xx)
xx
₱xx
Shareholder’s Equity at book value
Overvalued Assets (OVA)
Undervalued Assets (UVA)
Net Assets at fair value
Sales – Parent
Sales – Subsidiary
Intercompany Sales & Purchases at Selling Price
Consolidated Sales
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
Consolidated Sales
Consolidated Cost of Sales
Consolidated Gross Profit
₱xx
xx
(xx)
₱xx
₱xx
xx
(xx)
xx
(xx)
xx
(xx)
₱xx
₱xx
(xx)
₱xx
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
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
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
xx
xx
(xx)
xx
xx
(xx)
₱xx
₱xx
xx
xx
(xx)
(xx)
xx
(xx)
₱xx
Consolidated Net Income attributable to Parent
Non-controlling Interest in Net Income
₱xx
Consolidated Net Income
₱xx
xx
VIII. J OB 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)
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
IX. JUST IN TIME
ALLOCATION OF COST

DIRECT METHOD
Service Provided
to
Machining
Assembly
262500
120000
382500
87500
80000
167500
by
Quality Control
Maintenance

GOALS:
1. Eliminating any production process that does not add value
STEP-DOWN
2.
*Benefit provided ranking table (Company Policy)
*Based on the service department which has the highest cost
QC
Maintenance
JOURNAL ENTRIES:
QC
Maintenance
Machining
Assembly
350000
(350000)
___-___
-0-
200000
70000
(270000)
-0-
400000
210000
162000
772000
300000
70000
108000
478000
*Once the OH cost of the service department becomes exhausted, do not
allocate other cost to the service department

TRIGGER POINTS:
 Purchase 
 Production
 Completion 
 Sale 
 Purchase
Quality Control
Maintenance
Maintenance
Machining
Assembly
25%
20%
-
60%
45%
20%
30%
Quality Control = 350000 + 0.25M
Substitute
Maintenance = 200000 + 0.20QC
QC = 350000 + 71053 = 421053
M = 200000 + 0.20(421053) = 284211
₱xx
Conversion Cost
Various Accounts
₱xx
Finished Goods
Raw and In Process
Conversion Cost

Sales
Cost of Sales
Finished Goods
Cost of Sales
Raw and In Process
Conversion Cost
QC
Maintenance
Machining
Assembly
350000
(421053)
71053
-0-
200000
84211
(284211)
-0-
400000
252632
127894
780527
300000
84211
85263
469474
₱xx
₱xx
 Completion
RECIPROCAL METHOD
QC
Raw and In Process
Accounts Payable
 75%
₱xx
₱xx
xx
₱xx
₱xx
₱xx
₱xx
xx
were sold
Cost of Sales
Finished Goods
Conversion Cost
Raw and In Process
₱xx
xx
₱xx
xx
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
X. J OINT C OS TING
DL
AHAR
Joint Cost
Less: NRV of By-product
Remaining Joint Cost
Rate
₱xx
(xx)
₱xx
DLRV
AHSR
 if, inventoriable/
material
AHSR
Efficiency
TREATMENT OF BY-PRODUCT
DLEV
SHSR
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. S TA ND AR D C OS TING
DM
DMPV
AQSP




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
Closing Rate
Historical Rate
Average [Computation: (B+E)/2 ]
Spot Rate (Theory)
BUYING OF INVENTORY
1. ER↑ = Forex Loss [100]
2. ER↓ = Forex Gain
(Hedging Instrument)
BUYING OF F.C.
[80] = [20]
3. FR↑ = Forex Gain
4. FR↓ = Forex Loss
FOREX TRANSACTION: Exportation
AQSP
DMUV
SQSP

FOREX TRANSACTION: Importation
(Hedge Item)
AQAP
Used
1. Foreign Currency Transaction
2. Foreign Exchange Translation
3. Hedging of FOREX Risk
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
XII. F OR E IG N E XC HA NG E (I AS )
SELLER OF MERCHANDISE
5. ER↑ = Forex Gain
6. ER↓ = Forex Loss
SELLER OF F.C.
7. FR↑ = Forex Loss
8. FR↓ = Forex Gain
(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)
A
$ 10M
ENTRIES:
BUYING OF INVENTORY
Purchases
₱xx
Accounts Payable
₱xx
BUYING OF F.C.
FCR
₱xx
FCP (fixed)
₱xx
Forex Loss
Accounts Payable
₱xx
FCR
Forex Gain
₱xx
₱xx
₱xx
Accounts Payable
Forex Gain
₱xx
Forex Loss
FCR
₱xx
₱xx
Accounts Payable
Cash
₱xx
FCP (fixed)
Cash
FCR
₱xx
₱xx
₱xx
xx
₱xx
SELLER OF MERCHANDISE
Accounts Receivable
₱xx
Sales
₱xx
FCR (fixed)
FCR
₱xx
Accounts Receivable
Forex Gain
Forex Loss
FCP
₱xx
FCP
Cash
FCR (fixed)
₱xx
₱xx
₱xx
Forex Loss
Accounts Receivable
₱xx
₱xx
SELLER OF F.C.
₱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
× ₱1
₱ 10M
=
L
$ 8M
=
× ₱1
₱ 8M
$ 10M
× ₱1
₱ 10M
=
+
C
$ 2M
+
× ₱0.5
₱ 1M
$ 8M
$ 2M
× ₱1
₱ 8M
+
× ₱2
₱ 4M
+
₱ 1M
Translation Adjustment
Credit
+
₱ 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
(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
XIII. ACCOUNTING OF N PO (A IC PA)
COMPUTATION:
Gross Patient Service Revenue
Charity Care
Amount Charge / Billed to Customers
Contractual Adjustment (PHILHEALTH, MEDICARE)
Discount to Hospital Employees
(2) Cash Flow Hedge
- Hedges of probable forecasted transactions or the variability in the cash flow
of a recognized asset or liability
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
 AT THE MONEY
 IN THE MONEY (UG)
 OUT OF THE MONEY
PUT OPTION:
Market Price = Strike Price
Market Price > Strike Price
Market Price < Strike Price
 AT THE MONEY
 IN THE MONEY
 OUT OF THE MONEY
FVH
(xx)
(xx)
₱xx
STATEMENT OF ACTIVITIES


Shows contractual adjustment
This is collectible at third party payor
(contra-revenue account)
(1) For Hospitals
₱xx
Contractual Adjustment
₱xx
Accounts Receivable
(2) For Schools
Expenditure for student
Accounts Receivable
(contra-revenue account)
₱xx
₱xx
CONTRIBUTED MATERIALS, SERVICES, & FACILITIES
− Unrestricted funds
SPLIT ACCOUNTING
CFH
(xx)
₱xx
Net Patient Service Revenue
(3) Net Investment Hedge
- Hedges of the net investment in a foreign operation
CALL OPTION:
Market Price = Strike Price
Market Price > Strike Price
Market Price < Strike Price
₱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
Cash
NON-SPLIT ACCOUNTING
Other Operating Revenue*
CFH
Intrinsic Value – Unrealized Gain
OCI
FVH
Intrinsic Value – Unrealized Gain
P/L
*EXAMPLE OF OTHER OPERATING REVENUE


Proceeds from cafeteria
Proceeds from parking lots
₱xx
₱xx
₱xx
₱xx
₱xx
(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)
XIV. G OVE R NME NT A CCOUNTING
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
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
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
(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
PERA
Due to BIR
Due to GSIS
Due to Pag-IBIG
Due to PhilHealth
Due to Officers and Employees
₱xx
xx
₱xx
xx
xx
xx
xx
3. Remittance of Salary Deductions
Due to GSIS
Due to Pag-IBIG
Due to PhilHealth
Cash – MDS, Regular
Magandang buhay sa inyo mga ka-reviewee!
Ang notes na ito ay hango sa m ga 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 a ll! ^_^
Sincerely,
LFA
₱xx
xx
xx
₱xx
4. Liquidation of Advances for Payroll
Due to Officer and Employees
Advances for Payroll
MESSAGE TO THE READERS
₱xx
₱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