AFAR Notes by Dr. Ferrer.pdf

March 9, 2019 | Author: jex | Category: Revenue, Partnership, Book Value, Interest, Expense
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(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 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 GROSS PROFIT

 Adjusted Installment Sales Down payment – Cash Fair Value of Trade-in 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

(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  – Non-interest Bearing C  F  ₱xx

(xx) ₱xx xx xx (xx) ₱xx

CASE 2

₱xx

xx ₱xx

% ₱xx

xx xx (xx) ₱xx

NET INCOME

R x  – Non-interest Bearing (Installment Method) C  F  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

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

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

₱70 Cash  Acc. Dep. 27 ₱90 Equipment Gain 7 ₱9 Dep. Exp. ₱9  Acc. Dep.

Equipment Cash

W.P.E.E.

₱70 ₱70

Gain Equipment

₱7

20

 Acc. Dep.

₱27

Dep. Exp. ₱10  Acc. Dep. ₱1  Acc. Dep. ₱10 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 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 

RECIPROCAL METHOD Quality Control Maintenance

TRIGGER POINTS:   Purchase    Production   Completion    Sale 

QC

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 QC

Maintenance

Machining

Assembly

350000 (421053) 71053 -0-

200000 84211 (284211) -0-

400000 252632 127894 780527

300000 84211 85263 469474

 Purchase

Raw and In Process  Accounts Payable

₱xx

Conversion Cost Various Accounts

₱xx

₱xx ₱xx

 Completion

Finished Goods Raw and In Process Conversion Cost

₱xx ₱xx

xx

 Sales

Cost of Sales Finished Goods

₱xx

Cost of Sales Raw and In Process Conversion Cost

₱xx

 75%

₱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

FCR Forex Gain

₱xx

₱xx

₱xx

Forex Loss FCR

₱xx

₱xx

FCP (fixed) Cash FCR

₱xx

₱xx

 Accounts Payable Forex Gain

₱xx

 Accounts Payable Cash

₱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 (2) Cash Flow Hedge - Hedges of probable forecasted transactions or the variability in the cash flow of a recognized asset or liability

 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

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

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