'NTERMEDIATE \CCOUNTING Ye Ia | 2019 edition | ( BASED ON PHILIPPINE FINANCIAL REPORTING STANDARDS(PFRSs) fon.INTERMEDIATE ACCOUNTING 1A 2019 Edition BASED ON PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRSs) ‘Nation's Foremost CPA Review Inc. (NCPAR) 4F Pelizloy Centrum, Lower Session Road, Baguio City 2600, Philippines Mobile Number: (0917) 870 6962 2 Like us on Facebook Nation's Foremost CPAR Scanned with CamScannerALL RIGHTS RESERVED 2019 No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means - electronic or mechanical, — including photocopying — without the written permission of the author. ISBN 978-621-8029-16-3 Any copy of this book not bearing the signature of the author shall be considered as proceeding from an illegal source. fu. ——— Published by: ( ) BANDOLIN ENTERPRISE BP (Publishing and Printing) #21 PARAMOUNT VILL., STO. TOMAS, BAGUIO CITY CONTACT NOS. SMART (0928) 374 7571; GLOBE (0917) 813 6037; AUTHOR: (0917) 870 6962 Scanned with CamScanneriii Dear Reader, This book is intended for students taking up the CHED- required subject “Intermediate Accounting.” This book is a part of the following series of textbooks: _Noncurrent assets al ilities & Stockholders’ equity | tation & PFRS for SMEs This book is based on current Philippine Financial Reporting Standards (PFRSs). It is a labor of love and it is dedicated to you, my reader. I have written this book with the following goals in mind: completeness, conciseness, simplicity, fun to learn and practical application. Complex accounting concepts are not eliminated simply because they are too difficult to comprehend but rather they are simplified to the highest possible extent. Your thoughts about this book are important to me. If later on you have queries, comments, or suggestions on how I can improve my work, I would be glad if you inform me. Here are my contact details: zeusvernonmillan@gmail.com and (0917) 870 6962. Good luck in your learning and best wishes in your journey through life......thank you for making me a part of it.!© Sincerely, Zeus Vernon B. Millaw Scanned with CamScannerAcknowledgementy I would like to extend my sincere gratitude to my family and relatives for their support all throughout the writing of this book; to my wife Eureka, my son Devin Joshua, and my daughter Athena for their sacrifices; to my Dad and Mom for the source of inspiration; to my in-laws Engr. John L. Socalo, Sr. and Dominga S. Socalo* for the assistance and trust; to my sister Donna Pamela for the extra help; to my college instructors who have taught me most of the techniques I have incorporated in this book; to Mr. Darrell Joe Asuncion, Dean Renante D. Balocating, Mr. Rex B. Banggawan, Mr. Christopher U. Ismael, Mr. John Carlo G. Bandolin, and Mr. Einroul Aljohnza A. Bandolin for the much needed encouragement and support; to my fellow instructors at NCPAR; colleagues in the profession; previous clients; previous students; to the staff of the Bandolin Enterprise; and friends who in one way or another have contributed, directly or indirectly, to the completion of this book. OPP DOES PES? OPP So PONS About the Author The author is a 6 Placer in the October 2006 CPA board examinations. He is a co-founder of, and a CPA reviewer at, Nation’s Foremost CPA Review Inc. (NCPAR), a teacher, and an entrepreneur. Scanned with CamScannerTips ow using thi book To get the most out of this book, I strongly suggest you do the following: 1. Re-solve the illustrations independently. After reading a chapter, re-solve the _ illustrations independently by covering the suggested solutions with a piece of paper. 2. Read and reread the chapter summaries Be sure to read the summary after reading each chapter. This will reinforce what you have just learned. It is also advisable to reread the chapter summaries from time to time to ensure that you are not forgetting the concepts you have learned as you learn additional concepts. Long-term memory is invaluable in passing the board exams (as well as making professional judgments in the exercise of the profession). However, the human memory is not without limit. The human brain tends to forget information as * new information is learned. To avoid this, one will need to recall information previously learned repeatedly as many times as needed. Studies show that when one forgets. information previously learned, he will need to spend the same effort in learning that information again! 3. Enjoy learning. Nothing is difficult if you have the passion in doingit. =~ Scanned with CamScannerTABLE OF CONTENTS CHAPTER 1 THE ACCOUNTING PROCESS THE ACCOUNTING CYCLE... ACCOUNTING RECORDS OF A BUSINESS ENTITY SYSTEMS OF RECORDING TRANSACTIONS JOURNAL ... Types of Journals .. Types of Journal entrie: LEDGER .. Kinds of Ledger .. ACCOUNT ... Types of Accounts. TRIAL BALANCE ... Types of Trial balanc Errors revealed by a trial balance... ADJUSTING ENTRIES Methods of initial recording of income and expenses .. WorKSHEET.. . Heading of the worksheet FINANCIAL STATEMENTS . Heading of the financial statements. CLOSING ENTRIES... POST-CLOSING TRIAL BALANCE gS ee eee a ARweoewmmyuVanuuaWwn = REVERSING ENTRIES... 24 CHAPTER 1: SUMMAR’ 28 PROBLEMS ......u CHAPTER 2 CASH AND CASH EQUIVALENTS. 089 DEFINITION OF CASH. POSTDATED CHECKS RECEIVED UNUSED CREDIT LINE .. UNRELEASED CHECKS DRAWN AND POSTDATED CHECKS DRAWN «. ‘STALE CHECKS, Scanned with CamScannervii CASH EQUIVALENTS . FINANCIAL STATEMENT PRESENTATION . MEASUREMENT OF CASH... DEPOSIT IN FOREIGN BANKS COMPENSATING BALANCE. BANK OVERDRAFT .... INTERNAL CONTROLS OVER CASH Voucher system... ACCOUNTING FOR CASH SHORTAGES AND OVERAGES. Concealment of cash shortages PETTY CASH FUND .... CHAPTER 2: SUMMARY PROBLEMS... CHAPTER 3 BANK RECONCILIATION.... BANK RECONCILIATION STATEMENT... PRO FORMA BANK RECONCILIATION STATEMENT... ~ COMPUTATION OF DEPOSITS IN TRANSIT & OUTSTANDING CHECKS PROOF OF CASH .. ‘ CHAPTER 3 SUMMAI PROBLEMS... CHAPTER 4 ACCOUNTS RECEIVABLE ..... TRADE AND NON-TRADE RECEIVABLES ....sssssess FINANCIAL STATEMENT PRESENTATION .. ABNORMAL BALANCES IN ACCOUNTS .. INITIAL MEASUREMENT .... RECOGNITION OF TRADE RECEIVABLES. Terms of sale contract Trade discounts and Cash discounts. SUBSEQUENT MEASUREMENT OF ACCOUNTS RECEIVABLE Accounting for bad debts .... Estimating doubtful accounts Scanned with CamScannerviii Percentage of credit sales (Single loss-rate approach). Percentage of receivable (Single loss-rate approach) Aging of receivables (Provision matrix) .... T-ACCOUNT.. RECEIVABLES DENOMINATED IN FOR CHAPTER 4: SUMMARY PROBLEMS... 172 174 CHAPTER 5 NOTES RECEIVABLE NOTES RECEIVABLE INITIAL MEASUREMENT CONCEPT OF TIME VALUE OF MONEY .. SUBSEQUENT MEASUREMENT.. Illustration 1: Simple interest Illustration 2: Compounded interest Illustration 3: Noninterest-bearing note — lump sum.. Illustration 4: Noninterest-bearing note — installments Current and noncurrent portions of a note receivable Illustration 258 : Noninterest-bearing note — installment in advance a 261 Illustration 6: Noninterest-bearing note — semiannual cash flows Illustration 7: Noninterest-bearing note — non-uniform cash flows.. Illustration 8: Receivable with cash price equivalent . Trial and error approach.. Illustration 9: Note with below-market interest (simple interest) - Principal due at maturity, interests due periodically z Illustration 10: Note with below-market interest (simple interest) - Principal due at maturity, interests due in semi- annual installments... " lustration 1: Note with below market interest (simple 6 interest) - Principal and interests collectible in installments .. 27 Mlustration 12: Note with below market interest (compound on interest) - Principal and interests due at maturity « = Scanned with CamScanneri% Mlustration 13: Total interest income over the life of a note ,, 281 DEFERRED ANNUITIES ., te PRE-ACQUISITION ACCRUED INTERES CHAPTER 5: SUMMARY PROBLEMS... CHAPTER 6 RECEIVABLES — ADDITIONAL CONCEPTS... LOANS RECEIVABLE...... ORIGINATION COSTS AND FEES . “DAY 1” DIFFERENCE IMPAIRMENT....... The expected credit loss model (ECL). General approach Credit-impaired financial asset: Changes in lifetime expected credit losses approach. Simplified approach... DERECOGNITION OF RECEIVABLES .. Transfer .seeesssssseees Evaluation of transfers Transfers that qualify for derecognition OFFSETTING A FINANCIAL ASSET AND A FINANCIAL LIABILITY.. RECEIVABLE FINANCING Pledge (hypothecation’ Assignment .... Factoring... Discounting of notes receivables. DISHONORED NOTE: DISCOUNTING OF “OWN” NOTE. CHAPTER 6: SUMMAR PROBLEMS... Scanned with CamScanner