Practical Accounting Two.pdf
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COST ACCTG. STANDARDS 1. IMA 2. SMA 3. CASB (legally binding)
COST OBJECT TMC = DM+DL+FOH PC = DM+DL Abnormal data points = outliers METHODS OF SEPARATING SEMI-VARIABLE COST INTO THEIR FIXED & VARIABLE ELEMENT
A. HIGH-LOW METHOD ℎ = ℎ
C. METHOD OF LEAST SQUARE S QUARE METHOD
=
=
− ()( ()() ) 2 − () ()2
= − = − = + ( ) ) = + ()
= + ( )
B. SCATTERGRAPH (SCATTERPLOT) METHOD =
− = + ( )
1
Cost Acctg.
Acctg. 7
Job order Process Costing Joint & By Products Activity Based Costing Backflush Costing
COST ACCOUNTING: ACCOUNTING:
Acctg.11
Installment Sales Franchise Acctg. Construction Contract Home Office & Branch FOREX Derivative Corporate Liquidation
Business Combination Joint Venture NPO
(MANUFACTURING (COST))
Applied FOH ℎ ℎ =
.
= ×
Activity Level to Use: 1. 2. 3. 4.
Direct Costing = or Variable Costing Absorption Costing = or Conventional or Full Costing Responsibility Accounting:
Normal Capacity Expected Capacity Practical Capacity Theoretical Capacity
Plant Wide/Blanket Rate= (Only one rate) Departmentalized Rates= (Many rates)
JOB ORDER COSTING SYSTEM
Accounting for Production Losses in a Job Order Cost System
Accounting for “Scrap Sales” 1. Scrap Sale or Other Income 2. Cost of Goods Sold (credited) 3. FOH Control (credited) 4. WIP-materials (credited) -if traceable to the job.
Accounting for Spoiled Goods Estimated Loss
xxx 2
Cost Acctg.
Acctg. 7
Job order Process Costing Joint & By Products Activity Based Costing Backflush Costing
COST ACCOUNTING: ACCOUNTING:
Acctg.11
Installment Sales Franchise Acctg. Construction Contract Home Office & Branch FOREX Derivative Corporate Liquidation
Business Combination Joint Venture NPO
(MANUFACTURING (COST))
Applied FOH ℎ ℎ =
.
= ×
Activity Level to Use: 1. 2. 3. 4.
Direct Costing = or Variable Costing Absorption Costing = or Conventional or Full Costing Responsibility Accounting:
Normal Capacity Expected Capacity Practical Capacity Theoretical Capacity
Plant Wide/Blanket Rate= (Only one rate) Departmentalized Rates= (Many rates)
JOB ORDER COSTING SYSTEM
Accounting for Production Losses in a Job Order Cost System
Accounting for “Scrap Sales” 1. Scrap Sale or Other Income 2. Cost of Goods Sold (credited) 3. FOH Control (credited) 4. WIP-materials (credited) -if traceable to the job.
Accounting for Spoiled Goods Estimated Loss
xxx 2
Recoverable Cost(x10)
(xxx)
Unrecoverable Cost
xxx
Fault of Customer
Fault of Management
FG xxx Spoiled Good Invty. X10 WIP # xxx
“Cash inflow”
FOH Control xxx Spoiled Goods Invty. x10 WIP # Loss on Spoilage xxx Spoiled Goods Invty. x10 WIP #
Recoverable
xxx
xxx
Accounting for Rework
Fault of the Customer WIP #
xxx Materials Accrued Payroll Applied FOH
FG
Fault of Management FOH Control xxx Materials Accrued Payroll Applied FOH
xxx xxx xxx
xxx WIP #
FG xxx
xxx xxx xxx
xxx WIP
xxx
NOTE: When it is fault of the customer it is chargeable to WIP, if not it is chargeable chargeable to FOH Control. Control.
3
PROCESS COSTING SYSTEM
P- Physical Units: E- Equivalent Units of Production: C- Cost to Account for: U- Unit Cost: A- Assign Cost to:
Assign Cost to:
Units started & completed & Ending Inventory Normal Spoilage Abnormal Spoilage
Accounting for Production Losses & or Spoilages
CONTINUOUS
0
0
DISCRETE
If only normal loss is present, it will be absorbed by the remaining units by using the “Method of Neglect ”.
0
If only normal loss is present, it should be absorbed by the remaining units, if or for the condition that the units
However when normal & abnormal spoilage existed in the process that were recognized, we have to put an EUP to the whole numberof units considered as abnormal in order for us to separate cost to this product. (-FOH)
remaining are good units. If the ending are not, the cost should be allocated to the units started & completed & transferred to the next department. Method of Neglect also can be used in this scenario.
NOTE: Good Units are goods considered as good quantity & passed the inspection point. 4
Methods of Accounting Joint Cost
ACCOUNTING for JOINT PRODUCT COST & BY PRODUCTS
1. Market or Sales Value Method A. 1. Sales Value at Split-Off - Note: to use this method, all joint product must be marketable @ split-off point.
A. 2. Hypothetical Market Value – Approximate Net Realizable Value at split-off point. Hypothetical MV is equal to selling price minus cost to complete and cost to sell. 2. Average Unit Cost Method (Uniform [more or less])
Average Unit Cost =
Joint Cost Total Units
Allocated Joint Cost = average Unit Cost x Units
3. Predetermined Index of Production Method (differ in terms of manufacturing requirement) Units Produce Product X Product Y Product Z
# Points Per Unit
Weighted Units
xxx
∗
xx
=
xxx
xxx
∗
xx
=
xxx
xxx
∗
xx
=
Ratio x Joint Cost
Allocated JC =
xxx
xxx
=
xxx
xxx
___
=
xxx
xxx
xxx
xxx
4. Quantitative Method S U N Product X K
Units Produce ∗
Pounds Per Unit xx
xxx
Product Y C Product Z O S T
Total Pounds =
xxx
xxx
xxx
∗
xx
=
xxx
xxx
xxx
∗
xx
=
xxx xxx
5
Ratio x JC
______
=
Allocated JC
xxx
xxx
xxx
SUNK & JOINT COST ACCOUNTING FOR BY-PRODUCTS
A. Methods that do not allocate joint cost to by-products Method 1: Revenue from by-products is treated as: A. B. C. D.
Other Income Additional Sale Revenue Deduction from CGS of the Main Product Deduction from the total production cost of Main Product
Method 2: Revenue from sales reduced by additional processing cost & cost to sell is shown on the as indicated in method 1 above. “Net Revenue Method” Method 3: Replacement Cost Method B. Methods that allocates joint cost to by-products Method 4: Market Value or Reversal Cost Method Sales Further Process Cost Est. Cost to Sell Est. Profit
xxx (xxx) (xxx) (xxx)
Allocated Joint Cost
xxx
ACTIVITY BASED-COSTING (ABC)
Cost Allocation Rate for Activity = Estimated total Indirect Cost of Activity Estimated total Quantity of Cost Alloc. Base Allocated Activity Cost = Cost Allocation Rate for Activity
6
X
ACTUAL quantity of Cost Allocation based used by cost object
RIP (to FG)
BACKFLUSH COSTING
u CGS
beg.
end.
Material
amount backflushed from xxx
from suppliers
RIP to FG
FG
u RIP & CC Accts
Note: Raw Materials Cost “ Backflush” from RIP to Finished Goods & from FG to Cost of Goods Sold.
FG (to CGS) end.
beg.
Common Journal Entries: Purchase of Raw Materials RIP xxx A/P xxx Record Closed of Indirect Material FOH Control xxx Supplies xxx Factory OH Cost FOH Control xxx Cash xxx Acc. Dep. xxx Direct and Indirect Labor CGS xxx FOH Control xxx Accrued Payroll xxx OH to CGS CGS xxx FOH Control xxx Material Cost from RIP to FG FG xxx RIP xxx
material backflush from RIP
Amount backflush from FG to CGS
CGS RM [Backflush] xxx Direct Labor
xxx
FOH Control
xxx
xxx
Indirect Labor
FOH Control xxx
Conversion Cost by and Changes RIP xxx xxx F/G xxx xxx
RIP xxx CGS xxx
FG xxx CGS xxx CGS xxx FG xxx 7
Installment Sales-Revenue Recognition Record Installment Sales
Cash
xxx
Installment Contract Receivable Installment Sales
xxx xxx
Record the Cost of Installment Sales COS – IS*
xxx
Merchandise Inventory
xxx
Collection of Installment Contract Receivable Cash
xxx
Installment Contract Receivable
xxx
Interest Income
xxx
Adjusting Entry Accrued Interest Receivable
xxx
Interest Income
xxx
Installment Sales
xxx
Cost of Installment Sales
xxx
Realized Gross Profit Deferred Gross Profit
xxx
Realized Gross Profit
xxx
Realized Gross Profit
xxx
Income and Expense Summary
8
xxx
Formula: Installment Sales
xxx
Less: COS
xxx
Gross Profit
xxx
Installment Accounts Receivable
Deferred Gross Profit
Beg.
xxx
Ending
xxx
Ending
xxx
Beg.
xxx
Sales
xxx
Collection
xxx
Write-off
xxx
DGP
xxx
Repossession
xxx
Repossessions: (Defaults) Unrecorded Cost = (NRV or MV) w hichever is lower.
Unrecovered Cost = equal to defaulted amount of Accounts Receivable multiplied by the cost percentage
Defaulted Accounts Receivable
Market Value (NRV) Estimated resale price Less: Reconditioning Cost
xxx xxx
MV or NRV(date of repossession)
xxx
DGP
xxx
Loss on Repossession
xxx
Installment Accounts Receivable
xxx
xxx
TRADE – IN:
(NRV) Market Value is greater then Allowed Trade-In
Under allowance in Trade – In & Added to SP (Selling Price) Over allowance of the MV & Deducted to SP (Selling Price) – if MV is lesser than Allow. Trade-In
9
xx% xxx
(xxx)
Unrecovered Cost Market Value of Asset Recovered Loss on Repossession
Journal Entry MI- repossessions
X Cost ratio Unrecovered Cost
xxx
Cost to sell
xxx
xxx xxx xxx
Notes: Trade In – should be recorded at their “Market Value”
a) Instalment Receivable Mdse. Inventory Trade In Instalment Sales
xxx xxx
b) Mdse. Inventory – Trade In Cash
xxx
xxx
Allowed Trade In Value
xxx
MV or NRV of Trade In
(xxx)
xxx
Unde allowance or Overallowance
xxx
FRANCHISE ACCOUNTING
Note: It is assumed that substantial performance occur when the franchisee actually commence the operation of the Franchise. Note:
Down Payment - Non Refundable is recognized as revenue. Direct Cost is deferred. Indirect is outright expense.
10
“Methods of Accounting of Initial Franchise Fee”
ACCRUAL (Reasonably Assured)
INSTALMENT (uncertain w/ regards to Collectability)
1. Cash xxx Cash NR xxx Deferred Franchise Fee Revenue xxx NR
xxx xxx
Deferred Franchise Fee Revenue
xxx
2. Direct Cost and Indirect Deferred Cost of Franchise Fee xxx Franchise Expense xxx Cash xxx
Deferred Cost of Franchise Fee
xxx
Franchise Expense
xxx
Cash
3. Upon Substantial Performance DC Deferred Franchise Fee Revenue xxx Franchise Fee Revenue xxx Collection Cash N/R
xxx xxx
4. Direct Cost of Franchise Fee Cost of Franchise Fee Cash
xxx xxx
11
xxx
ADJUSTING ENTRY – INSTALLMENT METHOD [Close Revenue, Cost of Revenue, & Set up DGP]
Franchise Fee Revenue xxx Cost of Franchise Fee Revenue Deferred Gross Profit
xxx xxx
Deferred Gross Profit Realized Gross Profit
xxx
xxx
COMPUTATIONS: DP Add: Collection Total Collection Multiplied by GP Restricted RGP
Cash
xxx xxx xxx % xxx xxx
Deferred FF Rev. Equipment/Assets
Deferred FFC Gain on Sale
xxx xxx xxx xxx
Tangible Assets Included in the Initial Franchise Fee Note: The portion of Initial Franchise Fee must be allocated to such property (Income right away) at its Fair Market Value. Recognized as revenue when title to such property passes to the franchisee even though substantial performance has not occurred. Options to Purchase: [present] Note: Initial Franchise Fee is not taken up as revenue but is deferred (until the property is purchased – Investment) upon the exercise of the option it is treated as the reduction in the Franchisor Investment in the acquired outlet. Bargain Purchase: Note: The portion of Initial Franchise Fee should be deferred and accounted for as an adjustment of selling price of the equipment/supplies. Amount to be deferred is equal to:
The difference between the SP to other customer and the bargain price granted to customer (franchise) Regular Price/MP Less: Bargain Purchase Price Deferred Amount
xxx xxx xxx
12
CONSTRUCTION CONTRACT (PAS 11)
1. Cost Recovery 2. Percentage of Completion Method a. Different Ways of Determining the Stage of Completion i. Cost to Cost Method Accountant ii. Efforts Expended Method Engineer iii. Output Measures Accountant Note:
1. CR - Contract Revenue for the year/CP – Contract Price is equal to percentage of completion current year 2. Contract Cost Incurred to Date Total Estimated Contract Cost Account Title: CIP – Construction in Progress
Construction Cost
xxx
Income Recognized
xxx Accounts Receivable for Progress Billings
Debited
Periodic Billings to Customers Progress Billings
Credited
Contract Retention
Journal Entries
1. Cost Incurred: CIP (Construction In Progress) Cash (Materials, FOH, Payroll, etc.) 2. Record Billings A/R from PB Progress Billings 3. Collections Cash A/R from PB 13
xxx xxx xxx xxx xxx xxx
4. GP Earned xxx CIP (Construction In Progress – GP earned) Construction Cost (Actual Cost) xxx Contract Revenue (Percentage of Completion x CP) 5. Anticipated Loss xxx Construction Cost (Actual Cost) CIP (Construction In Progress – Loss Total) Contract Revenue (% Completed x CP)
xxx
xxx xxx
Note: This Journal Entry is prepared upon completion of the product.
ANTICIPTED LOSS ON LONGTERM CONSTRUCTION CONTRACT
Cost Incurred to Date
xxx
Contract Revenue
xxx
Add: Est. Cost to Complete
xxx
Less: Contract Cost / Total
xxx
xxx
(Loss) Estimated Loss
xxx
Less: Prior Period Profit
xxx
Total Est. Cost
Total Loss to be Credited to CIP xxx
Cost Incurred to Date %
=
Total Estimated Cost
14
Contract Revenue
xxx
Less: Total Estimated Cost
xxx
Price during the Construction Period is
Gross Profit
xxx
treated as change in ” Accounting
Multiply: % of Completion
Note: Modification on the Original Contract
%
Gross Profit to Date
xxx
Less: Previous Profit End
xxx
Current EP End
xxx
Estimates” . (affect only the amount of future periods)
HOME OFFICE & BRANCH ACCOUNTING
Investment in branch
Shipments to branch (Merchandise)
Dr.
Cr.
Home Office Current
Shipments from Home Office
Cr.
Dr.
HOME OFFICE BOOK
Investment in Branch xxx Shipments to Branch At Cost
BRANCH BOOK
Shipments from Home Office Home Office Current
xxx
Investment in Branch xxx Shipment to Branch Allow. For Mark-up on BI Above Cost
Shipments from Home Office Home Office Current
xxx xxx
*To adjust the allowance to its correct ending balance: Allowance for Mark-up on BI Branch Net Proceeds
xxx xxx
15
xxx xxx
xxx xxx
*Balance of Allowance is deducted in “Investment in Branch” account in the Home Office Balance Sheet. 1. Branch Inventory Acquired from Home Office: Mdse. At billed price Divided by billing price Add: Invty. Acquired fr. Outsiders Branch Inventory at Cost 2. Computation of Current Branch Profit: Branch Profit (loss) as reported Add: Realized Mark-up on BI True Branch Profit (NI)
xxx %
xxx xxx xxx
Allow. For Mark-Up
xxx xxx xxx
INTERBRANCH TRANSFER OF MERCHANDISE
HOME OFFICE
ANOTHER BRANCH (TAC)
1.
Branch Current Tac
xxx
Shipments to Branch
xxx
Cash
xxx
Shipment fr. H.O.
xxx
Freight In
xxx
Home Office Current
16
xxx
BRANCH (CEBU)
Home Office Current
xxx
Shipments fr. H.O.
xxx
Freight In
xxx
Shipments fr. H.O.
xxx
Freight In
xxx
Home Office Current
xxx
Cash
xxx
Note:
1. Informed the H.O.
Other Expense: 1.Branch Current-Cebu xxx Excess of Freight in Shipment xxx Branch Current-Tac xxx
Expense on the part of the Home Office based on the concept of (logic) efficiency and effectiveness of administration since it is an obligation of an administration.
2.Shipment to Branch-Tac xxx Shipment to BranchCebu
xxx
FOREIGN EXCHANGE RATES (PAS 21)
Exchange Rate (Income Statement) – Difference 1. Direct Quotation ($1 = P?) 1 dollar to peso equivalent 2. Indirect Quotation ($? = P1) 1 peso to dollar equivalent FOREIGN CURRENCY FINANCIAL STATEMENTS TRANSLATION Method known as “Current Rate Method”, Net Investment Method or more popularly recognized
in IAS as “Closing Rate Method”.
17
Assets and Liabilities – Closing Rate Income and Expenses - Exchange Rates at the date of transactions or “Average Exchange Rates” SHE – Historical Cost Note: Differences shall be recognized at a separate component of [entity] equity section. Foreign Currency Transaction – is a transaction that is denominated or requires ______________ foreign currency Foreign Transaction – transaction between countries or between enterprises in different countries
Notes: Transaction Date
B/S
Settlement Date
Spot Rate
Spot Rate
Spot Rate
FOREX Difference
FOREX Difference
(gain/loss)
(gain/loss)
Historical Cost HS (PAS 29) For Reporting Hyperinflationary Economy
1. Monetary Items – are not restated 2. Assets and Liabilities – linked by agreement to changes in prices should be adjusted in accordance with the agreement 3. Assets and Liabilities – NRV or MV Non-monetary Assets and Liabilities – restated
Derivative Instrument - (PAS 39) Financial Instrument Types of Derivatives
1. Option Based Derivatives (One-sided Expense) – “options” and “caps and flows” 2. Forward Based Derivatives (____________________) – Two-sided Expense Forward - produce or sell specific quality of a financial instrument, commodity, of foreign currency at a specified price determined at the outset, with the delivery or settlement at a specified (ratio) future date
18
Accounting for FOREIGN Currency Derivatives and Hedging Activities
Hedging Operations – Forward Contract (the usual way of avoiding risks) Hedging (Accounting) – designating a derivative forward instrument as an offset in the net profit a loss in whole or in part, to the change in Fair Value or cash flow of hedged item (__________________) – “hedge effectiveness”. Categories of Hedges
1. Fair Value Hedge (P & L) 2. Cash Flow Hedge (OCI) Measurement SWAPS
MEASUREMENT
1. Completion of Contract
=0
2. Reporting Date
= Difference in MR of Interest
Reported at Equity Component – “Other Revenue” Derivative Instrument - (PAS 39) Financial Instrument Types of Derivatives
3. Option Based Derivatives (One-sided Expense) – “options” and “caps and flows” 4. Forward Based Derivatives (____________________) – Two-sided Expense Forward - produce or sell specific quality of a financial instrument, commodity, of foreign currency at a specified price determined at the outset, with the delivery or settlement at a specified (ratio) future date Accounting for FOREIGN Currency Derivatives and Hedging Activities
Hedging Operations – Forward Contract (the usual way of avoiding risks) Hedging (Accounting) – designating a derivative forward instrument as an offset in the net profit a loss in whole or in part, to the change in Fair Value or cash flow of hedged item (__________________) – “hedge effectiveness”. Categories of Hedges
3. Fair Value Hedge (P & L) 4. Cash Flow Hedge (OCI)
19
Measurement SWAPS
MEASUREMENT
3. Completion of Contract
=0
4. Reporting Date
= Difference in MR of Interest
Reported at Equity Component – “Other Revenue” FORWARD CONTRACT
1. Completion or Date of Contract = - 0 2. On Financial Reporting Date = _____________ 3. On Settlement Date = Difference Reported in Profit/Loss “Options” Written – received/payment/consideration Purchase – payment to purchase
1. On Initial Recognition = FV of _____________ 2. Financial Reporting Date = ______________ @ FV (Differences Reported at Profit/Loss) 3. On Settlement Date = FV of Option – P/L
FORWARD CONTRACT
4. Completion or Date of Contract = - 0 5. On Financial Reporting Date = _____________ 6. On Settlement Date = Difference Reported in Profit/Loss “Options” Written – received/payment/consideration Purchase – payment to purchase
4. On Initial Recognition = FV of _____________ 5. Financial Reporting Date = ______________ @ FV (Differences Reported at Profit/Loss) 6. On Settlement Date = FV of Option – P/L
20
FORWARD CONTRACTS
Transaction
B/S
Settlement
Foreign Currency Transaction
Import Export
Spot
Spot
Spot The future sale or purchase of foreign currency at a specified rate
Transaction
B/S
(Transact – (B/S – Settlement Settlement Date) Date)
Settlement Forward Contracts
Spot Rate
(period of FC)
Forward Contracts are entered into for the following purposes: 1. To speculate in foreign currency exchange price movements. 2. To designate as a Fair Value Hedge a.
To hedge an expense foreign currency Asset or Liability.
b. To hedge an unrecognized firm commitment. c.
To hedge a net investment in Foreign Currency
To designate as a Cash Flow Hedge: to hedge foreign currency Forecasted Transaction
FORWARD CONTRACT FOR SPECULATION
1. Acquire premium or discount 2. Value the contract to market value 3. Foreign exchange gain/losses the income statement
21
Hedging Options
Transaction Date:
Forward contract receivable Forward Contract Payable
Budget Date: Forward Contract Receivable Foreign exchange gain Foreign Exchange Gain Forward Contract Payable
xxx xxx
xxx xxx xxx xxx
Settlement Date: Received of Cash: Cash($) xxx Forward Contract of Receivable xxx xxx Forward Contract Payable Cash (P) xxx Foreign Exchange Gain/loss xxx
DERIVATIVES
Is a contract
1. Forward- To buy or to sell Buy- LONG POSITION- Obligated to buy Sell- SHORT POSITION- Obligated to sell 2. Filters- Exchange Market (Stock exchange), liquidity 3. Option a. Call Option(Option Based Derivatives) -“Right to buy”, no obligation to buy -Option Price
b. Put Option(one sided expensed) -“Right to sell”, no obligation to sell 4. Swaps- Interest Rate Swap 22
SWAPS- INTEREST RATE SWAP
“ National Amount”
B
A
Variable Rate
Fixed Rate
Contract
5M
5M
A. Does no want to pay Variable Rate however want to pay fixed. B. Does not want to pay fixed rather wants to pay variable. “RECEIVE VARIABLE, PAY FIXED” IR% VR% Net Excess xxx% Multiply by FV xxx FV Amount of xxx Multiply by PV xxx% xxx%
- Fixed Rate - Current Rate - Advantage/Disadvantage - Disadvantage/Advantage - Derivative Asset/ Liability
fixed- IR CR Net Advantage/Disadvantage Multiply by Fair Value Multiply by Present Value Asset or Liability
xxx - the day or the current rate upon the contract of interest rate (xxx%) - rate for the year xxx xxx xxx% xxx -Derivative asset or liability for the period
DERIVATIVES “continuation” P1 & P2 INTEREST RATE SWAP AGREEMENT (Received variable, pay fixed) (Cash flow hedge)
Entity on Obligation on loan Cash xxx Loans Payable xxx 23
Payment of Interest Interest expense xxx Cash xxx Entity into Agreement of Interest Rate SWAP (Disclose/memo entry) First year UL ON IRS xxx IRS Payable xxx IRS Receivable xxx UG on IRS xxx Payment of interest Second Year Interest expense xxx Cash xxx Base on variable current rate Interest rate swap payable xxx IRS xxx Cash xxx Interest expense UL on IRS
xxx xxx
2 year
500
Company
Variable interest rate
Fixed rate
B1 5,000
B2
24
FUTURE CONTRACT
Strike Price xxx Market price (xxx) Advantage/disadvantage xxx Multiply by xxx Quantity to be purchased UL/UG on FC xxx
Entry: UL on FC xxx Accounts Payable xxx Accounts receivable UG on FC
xxx xxx
OPTIONS To buy option Call option xxx Cash xxx Call option xxx UG on Call option xxx
RISK (DERIVATIVES &HEDGING ACTIVITIES) Underlings Hedging Activities
Foreign currency Commodity interest
Financial instrument
Hedging Instrument
Exposed asset/Investment liabilityfor trading - Not a hedge account - IS Commitment
- hedge account
FC - IS CFA - OCI
Forecasted
- hedging activities – CFH- OCI
Speculation
- not a hedging activities - IS
AFS
-
Net Investment
- CFH – OCI
25
National amount
FORWARD CONTRACT TO EXPOSED ASSET OR LIABILITY
Foreign Currency Transaction
Forward Contract
T/S - ( Transaction Date)
T/S - (Transaction Date)
Purchases xxx A/R xxx xxx A/R Sales xxx
* Forward Contract Receivable xxx Forward Contract Payable xxx
B/S
B/S * Foreign exchange Rec. xxx Forward contract Rec. xxx
A/P xxx Foreign exchange Gain xxx
S/P
S/P * Cash xxx Forward contract Rec. xxx * Forward Contract Pay xxx Cash xxx
A/P xxx Cash xxx Foreign exchange Gain xxx
FORWARD CONTRACT TO HEDGE AN UNRECOGNIZED FIRM COMMITMENT
1.
* Forward Contract Rec. xxx Forward Contract Pay xxx
2. Forex Firm Commitment Forex Gain 3. Purchases Cash
xxx xxx
* Forex Loss xxx Forward Contract Receivable xxx
xxx
* Forward Contract Payable Cash
xxx
26
xxx xxx
Purchases xxx Forex Firm Commitment
* Cash ForEx Loss Forward Contract Rec.
xxx
xxx xxx xxx
Forward Contract to Hedge of Foreign Currency Denominated Forecasted Transaction (Cash Flow Hedge) Foreign Currency Transaction 1. -02. 12/31/201X
Forward Contract Forward Contract Receivable ($) xxx Forward Contract Payable xxx Deferred Forex Loss xxx Forward Contract Receivable ($) xxx
-0-
3. ( Actual Purchase Transaction Took Place) Purchases xxx Cash ($) xxx
Forward Contract Payable xxx Cash xxx Cash ($) xxx Deferred ForEx Loss xxx Forward Contract Receivable xxx
4. Cash/ Accounts Receivable xxx Sales xxx COS xxx Inventory xxx Deferred Forex Loss xxx
Change to CGS it to the related industry or equipment is sold or depreciated
Corporate Liquidation
1. Statements of Affairs Assets Asset Pledge with fully secured creditors o Asset Pledge with partly secured creditors o Free Assets o Liabilities Unsecured creditors with priority o Fully secured creditors o o Partly secured creditors 27
o
o
Unsecured creditors without priority SHE All the SHE Accounts
2. Statement of Realization and Liquidation Assets (Non-cash)
Liabilities
Revenue and Expenses
(Note: supporting Schedule of Cash and Owners Equity/SHE)
Cash
SHE
Forms of Business Combination
A. Acquisition of Net Assets ( Purchase Method) 1. Merger 2. Consolidation B. Stock Acquisition ( Cost Method or Equity Method)
Business Integration Forms 1. Horizontal 2. Vertical 3. Conglomerates Accounting Method
Ownership Interest
Amount Used
Fair Value / Cost Method
1%- 19%
-0-
28
Equity Method
20%-50%
Investments in Associates
Equity Method & Consolidation Procedures
50%-100%
Investment in Subsidiaries
Consolidated F/S
Subsequent to Date of Acquisition Equity Method
1. E, Income for Subsidiary Dividend – Subsidiary Investment in Subsidiary 2. E, O/S – Subsidiary Beg S/P - Sub. Beg R.E – Sub. Beg Investment in Subsidiary MINA
xxx xxx xxx xxx xxx xxx xxx xxx
3. Allocate the difference to the specific assets assets & liabilities of the subsidiary. (Unamortized balance) 4. Amortized the allocated difference. 5. Recognize the share of the minority or non-controlling interest in the net income or loss of subsidiary & dividends for the current year. 6. Eliminate other reciprocal accounts such as intercompany payables & receivables. 7. Combined non reciprocal accounts on a line by line basis. Cost Method
1. Adjust the carrying amount of investment account to the equity method balance a t the beginning of the current year. 2. E. Dividend Income xxx Dividend – Subsidiary xxx 3. E, O/S – Subsidiary Beg S/P - Sub. Beg R.E – Sub. Beg Investment in Subsidiary MINA
xxx xxx xxx xxx xxx
4. Allocate the difference to the specific assets & liabilities of the subsidiary. (Unamortized Balance). 29
5. Amortized the allocated difference. 6. Recognized the share of the minority interest on net income or loss of subsidiary & dividends for the current year. 7. Eliminate other reciprocal accounts such as intercompany payables & receivables. 8. Combined nonreciprocal accounts on a line by line basis.
Intercompany Sale of Inventory
Additional consolidation procedures are as follows: a.
Recognized the intercompany profit or beg. Inventory. Downstream 1. Investment in Subsidiary COS
xxx xxx
Upstream 1. Investment in Subsidiary MINA COS
xxx xxx xxx
b. Intercompany Sales & Purchases Sales xxx COS xxx c.
Eliminate unrealized profit in ending inventory COS xxx Inventories xxx
Downstream Sales a. Net Income of Subsidiary Amortization of Allocated Excess Adjusted Net Income % of an Ownership Interest Share in NI of Subsidiary Realized Profit on Beg. Invty. Unrealized Profit in Ending Invty Income for Subsidiary
xxx (xxx) xxx x %MI= MINI _%_ xxx xxx (xxx) xxx
30
b. SHE ( Unadjusted) end of the year Unamortized balance of Adjusted SHE % Minority interest MINA, end of the year
xxx xxx xxx _%_ xxx
Upstream Sales a. Net Income of Subsidiary Amortization of Allocated Excess Realized Profit in Beg. Invty. Unrealized Profit in Ending Invty. Adjusted NI Subsidiary % of Ownership Income from Subsidiary
xxx (xxx) xxx (xxx) xxx % MI= MINI _%__ xxx
b. SHE ( Unadjusted) end of the year Unamortized balance of Unrealized profit on Ending Adjusted SHE % Minority interest MINA, end of the year
xxx xxx (xxx) xxx _%_ xxx
Intercompany Sale of Non- Depreciable Assets
1. Year of Sale Gain on Sale xxx Land / Building 2. Subsequent Year Downstream a. Investment in Sub. xxx Acc. Dep’n Land / Building b. Acc. Dep’n Dep’n
xxx
xxx xxx
xxx xxx
Upstream a. Investment in Sub. xxx MINA xxx xxx Acc. Dep’n Land
xxx
b. Acc. Dep’n Dep’n
xxx
xxx
31
Additional Elimination a.
Refuse the carrying value of the asset to its original book value at the beginning of the gain & eliminate the unrealized gain or less in the sale of interest. b. Recognize realized gain by reducing the depreciation expense & the realized accumulated depreciation to reflect the original book value of the asset.
Year & Subsequent Sale of PPE & Inventory
Downstream Net Income of Subsidiary Amortization of allocated excess Adjusted NI % Parents Ownership NI Realized Profit on Beg. Inventory Unrealized Profit on Ending Inventory Gain on Sale of Land & PPE Piecemeal Realization of Gain on Sale PPE Income from Subsidiary
xxx (xxx) xxx % MI = MINI % xxx xxx (xxx) (xxx) xxx xxx
Upstream Net Income of Subsidiary Amortization of allocated excess Realized Profit in Beg. Inventory Unrealized Profit in End. Inventory Gain on Sale of PPE & Land Piecemeal Realization of Gain on Sale of PPE Adjusted NI of Subsidiary Parents Ownership Interest Income from Subsidiary
xxx (xxx) xxx (xxx) (xxx) xxx xxx % xxx
MINA Shee of the Subsidiary, end of the year Unamortized Balance of Undervalued Assets Adjusted SHE % Minority Interest Percentage MINA, end of the year
xxx (Unadjusted) xxx xxx % xxx
She of the Subsidiary, end of the year Unamortized Balance of Undervalued Assets Unrealized Profit on End. Inventory Unrealized gain on Sale of PPE
xxx xxx (xxx) (xxx) 32
* MI% = MINI
Adjusted SHE % MINA, MINA, end of the year
xxx % xxx INTEREST AND JOINT VENTURE Forms of joint venture 1. Jointly Controlled Operations 2. Jointly Controlled Assets 3. Jointly Controlled Entities
A.
Separate Set of Books is Maintained for the Joint venture: Investment Joint Venture 1 beg xxx 2. additional investment xxx 3. services rendered xxx 4. share in JV profits xxx
B.
xxx xxx xxx
withdrawals 5. share in losses 6. end cash settlement 7.
JOINT VENTURE 1 Merchandise Contribution Merchandise withdrawals 8 2 Purchase Merchandise return 9 3 Freight-In Purchase return & allowances 10 4 Sales Return & Allowances Purchase Discount 11 5 Sales Discount Sales 12 6 Expenses Other Income 13 NL ?
Types of Derivatives
1. Option based derivatives Options contracts Interest rate Interest rate floors 2. Forward base derivatives Forward Future Swap
Hedging – means of minimizing risks 33
NI ?
PAS 39 : Types of hedge
Fair value hedge Cash flow hedge Hedge of net investment Forward contracts a. Hedge Foreign currency transactions Unrecognized firm commitment
3. Foreign Currency Denominated Forecasted transaction (cash flow hedge) Highly probable 4. Net investment in foreign operations (translation adjustment)
b. Speculation
Discount/premium – the difference between the two rates is referred to as a discount/premium if forward rate is less (greater then) the spot rate.
Options Contracts: Right
Option contract Buyer
Seller
Foreign Currency Option Contract
Contractual agreement giving the holder the right to buy or sell a given amount among at a specified price (the exercise price or strike price) for a period of time or a point in time.
Call (buy)
SMP = ESP
SMP > ESP
SMP < ESP
5=5
6>5
5
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