Professional Documents
Culture Documents
40. Pro-Forma Adjusting Entries for Deferred 51. Basic Financial Statements
Income
a. Statement of Financial Position (Balance
a. Liability method – Dr. Unearned income Sheet)
(earned portion); Cr. Income b. Statement of Comprehensive Income
b. Income method – Dr. Income (unearned (Income Statement)
portion); Cr. Unearned income c. Statement of Changes in Equity
d. Statement of Cash Flows
41. Accrued Expense e. Notes and Disclosures.
It occurs in a transaction where expense has
already been incurred but not yet paid for in cash. 52. Closing Entries
These are recorded and posted for the
42. Pro-Forma Adjusting Entry for Accrued Expense purpose of closing all nominal or temporary
Dr. Expense; Cr. Liability (i.e., payable) accounts to the income summary account and the
resulting net income or loss is afterwards closed to
43. Accrued Income the capital or retained earnings account.
It occurs in a transaction where income has
been already earned but not yet collected in cash. 53. Reversing Entries
These are made at the beginning of the new
44. Pro-Forma Adjusting Entry for Accrued Income accounting period to reverse certain adjusting
Dr. Asset (i.e., receivable); Cr. Income entries from the preceding accounting period.
143. Money Order 150. Fund Held for Future Plant Expansion
It is a paper document, similar to a check, It is a noncash item always presented as a
used for making payments. it is prepaid, so it is only noncurrent asset.
169. Formal Compensating Balance a. Initial entry – Dr. Cash short or over; Cr.
It refers to one that is legally restricted and Cash)
shall be classified as current or noncurrent asset b. If the cashier or cash custodian is held
depending on the terms of the related loan. responsible for the cash shortage – Dr.
*** Due from cashier; Cr. Cash short or over
c. If reasonable efforts fail to disclose the
170. Unreleased or Undelivered Checks cause of the shortage – Dr. Loss from
It is a check that is merely drawn and cash shortage; Cr. Cash short or over
recorded but not given to the payee before the end
of reporting period. 178. Journal Entries for Cash Overage
171. Adjustment Required for Undelivered or a. Initial entry – Dr. Cash; Cr. Cash short or
Unreleased Checks over
Dr. Cash in bank; Cr. Expense or liability – b. If there is no claim on the overage – Dr.
The entry made upon issuance of said check should Cash short or over; Cr. Miscellaneous
be reversed because in essence, no payment has income
really been made. c. If the cash overage is properly found to
be the money of the cashier – Dr. Cash
172. Postdated Check Delivered short or over; Cr. Payable to cashier
It is a check drawn, recorded and already
given to the payee but it bears a date subsequent to 179. Imprest System
the end of reporting period. It is a system of control of cash which
requires that all cash receipts should be deposited
173. Adjustment Required for Postdated Checks intact and all cash disbursements should be made
Delivered by means of check.
Dr. Cash in bank; Cr. Expense or liability –
The entry made upon issuance of said check should Methods of Handling the Petty Cash Fund
be reversed because in essence, no payment has
really been made. 181. Imprest Fund System
174. Stale Check or Check Long Outstanding a. A memorandum entry is simply prepared
It is a check not encashed by the payee in the petty cash journal for each
within a relatively long period of time. disbursement.
b. Replenishment of the fund is usually
175. Prescriptive Period for Checks equal to the petty cash disbursements.
In banking practice, a check becomes stale c. Replenishment should only be by means
if not encashed within 6 months from the time of of drawing checks and not from
issuance. undeposited collections.
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185. Fluctuating Fund System 192. Journal Entry Used by the Bank to Record
Withdrawals or Disbursements of Cash by the
a. Establishment of the fund – Dr. Petty Reporting Entity
cash fund; Cr. Cash in bank Dr. Bank account of reporting entity; Cr.
b. Payment of expenses out of the petty Cash
cash fund – Dr. Expenses; Cr. Petty cash
fund 193. Bank Reconciliation
c. Replenishment or increase of the fund – It is a statement which brings into
Dr. Petty cash fund; Cr. Cash in bank agreement the cash balance per book and cash
d. Adjusting entry if no replenishment is balance per bank.
made at year-end – no entry required
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323. Treatment for Interest-Bearing Note 331. Initial Measurement of Loan Receivable
Receivable with Nominal Rate Equal to the Effective It is initially measured at fair value plus
Interest Rate transaction costs that are directly attributable to
It is recorded at face value (which is equal to the acquisition of the financial asset (transaction
its present value upon issuance). price + direct origination costs - origination fee).
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341. Incurred Loss Model (IAS 39 – Old) 348. Lifetime Expected Credit Loss (Stages 2 and 3)
It assumes that all loans will be repaid until It is the expected credit loss that results
evidence to the contrary (known as a loss or trigger from all possible default events over the expected
event) is identified. Only at that point is the impaired life of the financial instrument. It applies when a
loan (or portfolio of loans) written down to a lower significant increase in credit risk has occurred on an
value. individual or collective basis
***
342. Expected Credit Loss Model (IFRS 9 – New)
It allows entities to take into account 349. Loss Given Default
expectations of future credit losses. It results in the It is the amount of money a bank or other
earlier recognition of credit losses as it will no financial institution loses when a borrower defaults
longer be appropriate for entities to wait for an on a loan.
incurred loss event to have occurred before credit
losses are recognized.
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353. Computation of Impairment Loss Under the 359. Journal Entries Related to the Pledge of
Stage 3 of General Approach Accounts Receivable
Carrying amount, reporting date
- Present value of expected cash flows a. Commencement of loan in which the
= Lifetime expected credit loss accounts receivable have been pledged
- Expected credit loss allowance, previous – Dr. Cash, Discount on note payable (if
year discounted); Cr. Note payable
= Impairment loss b. Amortization of discount on note
payable at the end of reporting period or
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a. FOB destination - the seller is the owner 427. Statement Presentation of Inventory
while the goods are still in transit.
b. FOB shipping - the buyer becomes the a. Current asset
owner of the goods at the moment the b. As one line item in the statement of
goods are shipped. financial position but the details of the
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474. Biological Asset Attached to Land 478. Classification of Mature Bearer Plants
An entity may use information regarding the These are classified as property, plant and
combined assets (e.g., trees in a plantation forest equipment measured either using the cost model or
and land sold as a package) to determine the fair revaluation model.
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a. Cultivated for bearing agricultural 486. Journal Entries for Changes in Fair Value of
produce; and Biological Assets
b. Are being sold either as a living plant or
agricultural produce. a. At birth – Dr. Biological assets; Cr. Gain
on change in fair value
480. Classification of Plants with Dual Use b. Net increase in fair value – Dr. Biological
These are classified as biological assets. assets; Cr. Gain on change in fair value
c. Net decrease in fair value – Dr. Loss on
481. Classification of Bearer Animals change in fair value; Cr. Biological assets
These are classified as biological assets.
Methods of Estimating Inventory Valuation
482. Classification of Animals Related to
Recreational Activities 488. Gross Profit Method
These are classified as property, plant and It is based on the assumption that the rate
equipment. of gross profit remains approximately the same
from period to period and therefore the ratio of cost
Types of Changes in Fair Value of Biological of goods sold to net sales is relatively constant from
Assets period to period.
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Reclassification Procedures
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a. When the entity uses the cost model, 679. Funds Held for Noncurrent Purposes
transfers between investment property, Classified as long-term investments
owner-occupied property, and inventory (noncurrent assets).
shall be made at carrying amount.
b. A transfer from investment property a. Sinking fund
carried at fair value to owner-occupied b. Preference share redemption fund
property shall be accounted for at fair c. Plant expansion fund
value which becomes the deemed cost d. Contingency fund
for subsequent accounting. e. Insurance fund
c. If owner-occupied property is
transferred to investment property that Funds held for the purpose of liquidating
is to be carried at fair value, the liabilities are classified as current assets when the
difference between the fair value and the related liability becomes due within twelve (12)
carrying amount of the property shall be months after the end of the reporting period
accounted for as revaluation of property, (parallel classification).
plant, and equipment.
d. If an inventory is transferred to 680. Measurement of Fund
investment property that is to be carried Long term fund shall be carried at the
at fair value, the remeasurement to fair amount of cash plus the cost of securities adjusted
value shall be included in profit or loss. from discount or premium amortization, and other
e. When an investment property under assets in the fund.
construction is completed and to be
carried at fair value, the difference 681. Sinking Fund
between fair value and carrying amount It is a fund set aside for the liquidation of
shall be included in profit or loss. long-term debt, more particularly long-term bonds
payable.
676. Derecognition of Investment Property
a. On disposal
b. When investment property is
permanently withdrawn from use
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Journal Entries Related to Interest Rate Swap Agreement (Cash Flow Hedge)
719. Receive Variable, Pay Fix Interest Receive Fix, Pay Variable Interest
Rate Swap Rate Swap
Commencement of loan Dr. Cash (principal and notional Dr. Cash (principal and notional
amount); Cr. Loan payable amount); Cr. Loan payable
Interest payment to creditor Dr. Interest expense (principal Dr. Interest expense (principal *
amount * underlying [variable] amount underlying [fixed] interest
interest rate); Cr. Cash rate); Cr. Cash
Variable rate Fixed rate: Entry at No entry required because the fair No entry required because the fair
the beginning of interest period value of derivative is zero (0). value of derivative is zero (0).
Variable rate > Fixed rate: Entry at Dr. Interest rate swap receivable Dr. Unrealized loss – interest rate
the beginning of interest period (notional amount * [underlying swap; Cr. Interest rate swap
rate – fixed rate] * PV factor at payable (notional amount *
underlying rate); Cr. Unrealized [variable rate – underlying rate] *
gain – interest rate swap PV factor at underlying rate)
Variable rate > Fixed rate: Swap Dr. Cash (notional amount * Dr. Interest rate swap payable
payment [underlying rate – fixed rate]); Cr. (amount recognized at the
Interest rate swap receivable beginning of interest period),
(amount recognized at the Unrealized loss – interest rate
beginning of interest period); swap (interest rate swap payable *
Unrealized gain – interest rate underlying rate); Cr. Cash (notional
swap (interest rate swap amount * [variable rate –
receivable * underlying rate) underlying rate])
Variable rate > Fixed rate: Dr. Unrealized gain – interest rate Dr. Interest expense; Cr.
Recognition of change in fair swap (cumulative balance); Cr. Unrealized loss – interest rate
value of derivative in profit or loss Interest expense swap (cumulative balance)
Fixed rate > Variable rate: Entry at Dr. Unrealized loss – interest rate Dr. Interest rate swap receivable
the beginning of interest period swap; Cr. Interest rate swap (notional amount * [underlying
payable (notional amount * rate – fixed rate] * PV factor at
[variable rate – underlying rate] * underlying rate); Cr. Unrealized
PV factor at underlying rate) gain – interest rate swap
Fixed rate > Variable rate: Swap Dr. Interest rate swap payable Dr. Cash (notional amount *
payment (amount recognized at the [underlying rate – fixed rate]); Cr.
beginning of interest period), Interest rate swap receivable
Unrealized loss – interest rate (amount recognized at the
swap (interest rate swap payable beginning of interest period);
* underlying rate); Cr. Cash Unrealized gain – interest rate
(notional amount * [variable rate swap (interest rate swap
– underlying rate]) receivable * underlying rate)
Fixed rate > Variable rate: Dr. Interest expense; Cr. Dr. Unrealized gain – interest rate
Reclassification of unrealized Unrealized loss – interest rate swap (cumulative balance); Cr.
gain or loss to profit or loss swap (cumulative balance) Interest expense
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a. Increase in intrinsic value – Dr. Call 737. Journal Entries Related to Foreign Currency
option; Cr. Gain on call option Forward Contract (Cash Flow Hedge)
b. Decrease in intrinsic value – Dr. Loss on
call option; Cr. Call option a. Increase in fair value of derivative
(Exchange rate > Underlying price) – Dr.
734. Time Value of Option Forward contract receivable; Cr.
It refers to the portion of option premium Unrealized gain – forward contract
that is attributable to the amount of time remaining b. Net settlement – Dr. Cash (currency at
until the expiration of the option contract. It is used current exchange rate – underlying
when an option contract is entered into for price); Cr. Forward contract receivable
speculation purposes only. c. Purchase of asset in foreign currency –
Formula: (Time value of option at Dr. Equipment (at current exchange
adjustment date – Time value of option at a rate); Cr. Cash
previous date) * Number of units = Increase d. Reclassification of OCI component – Dr.
(decrease) in time value Unrealized gain – forward contract; Cr.
Equipment
a. Increase in time value – Dr. Call option;
Cr. Gain on call option 738. Journal Entries Related to Foreign Currency
b. Decrease in time value – Dr. Loss on call Forward Contract (Fair Value Hedge)
option; Cr. Call option
a. Purchase of asset on account – Dr.
735. Settlement of Call Option for Speculation Equipment; Cr. Accounts payable
b. Remeasurement of hedged item – Dr.
a. The intrinsic value is the amount Loss on foreign exchange (increase in
collected from the speculator. cash settlement); Cr. Accounts payable
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740. Bifurcation
It is the process of separating an embedded
derivative from the host contract. It shall be done if
the following conditions are met:
a. A separate instrument with the same
terms as the embedded derivative would
meet the definition of a derivative.
b. The combined contract is not measured
at fair value.
c. The economic characteristics and risks
of the embedded feature are not closely
related to the economic characteristics
and risks of the host contract.
d. The host contract is outside the scope of
PFRS 9.
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