cOMPREHENSIVE

REVIEW IN
ADVANCED
FINANCIAL
ACCOUNTING

Perbielyn Basinillo
Andrei Nicole Bitara

August 28, 2022 I 9am-12nn

TOPICS

Cost Accounting

Cost Concepts and Classifications

Job Order Costing
Process Costing
Standard Costing
 TOPICS
Accounting for Special Transactions

Partnership Formation
Partnership Operation
Partnership Dissolution
Partnership Liquidation
Corporate Liquidation
Accounting for Home Office, Branch, &
Agency Transactions
Revenue from Contracts with Customers
 cost
accounting
COST ACCOUNTING
a system that records, summarizes,
analyzes, and interprets the details of the
costs of materials, labor, and overhead
necessary to produce and sell an article

serves as a gap in financial and

management accounting
purpose of cost
accounting

to know how much it costs to

construct, manufacture or sell goods,
or render various services

useful also in estimating, bidding,

planning, budgeting, and control
classifications
of
costs
1. BY FUNCTION
1.1 Manufacturing costs
1.1.1 Materials
1.1.2 Labor
1.1.3 Overhead

1.2 Nonmanufacturing costs

1.2.1 General and administrative costs
1.2.2 Selling / Marketing / Distribution costs
2. BY TIMING
2.1 Product costs
2.2 Period costs

3. BY nature of
traceability to
costs object
3.1 Direct costs
3.2 Indirect costs
4. By nature of
production or
operation process

4.1 Joint costs

4.2 Contract costs
4.3 Batch costs
4.4 Operation costs
4.5 Process costs
5. By decision
making
purposes
5.1 Controllable costs
5.2 Noncontrollable costs
5.3 Opportunity costs
5.4 Sunk costs/ past costs
5.5 Relevant costs
5.6 Incremental costs
5.7 Avoidable
5.8 Unavoidable
6. By nature of
behavior
6.1 Fixed costs
6.2 Variable costs
6.3 Mixed costs

7. According to
planning & control
7.1 Budgeted costs
7.2 Standard costs
HIGH LOW METHOD:
SEPARATING MIXED COSTS
 SUGGESTED SOLUTION

note:
Determining factors as to the
highest and lowest points are
always the hours or other
measures, not the costs.
HIGH LOW METHOD:
SEPARATING MIXED COSTS
 manufacturing
costs

Direct Materials Direct Labor Overhead

materials
used in the manufacturing
process that becomes a
significant part of the
finished goods.

classified either direct or

indirect materials
 periodic perpetual
inventory inventory
system system
maintains stock cards
no need to maintain for each type of
stock cards for raw materials to show the
materials inflow, outflow and
balance in quantity
there is a physical and peso amount
count made
periodically to there is a physical
determine units on count made at least
hand once a year
 source:
termscompared.com

fifo method (first-in, first-out)

 moving average

source: asprova
Araw-Araw Company uses a periodic inventory system. During the month of July
2022, the company's beginning balance and purchases made are as follows:

July 1: Beginning inventory, 600 units @ P22 per unit.

July 4: Inventory purchased, 900 units @ P20 per unit
July 5: Sold to customers, 650 units
July 9: Sold to customers, 450 units
July 19: Inventory purchased, 750 units @ P24 per unit
July 25: Sold to customers, 650 units

Compute inventory on July 31, 2022 and cost of goods sold for the month of July using the
following:
First in, First Out Method
Moving Average Method

SAMPLE PROBLEM: FIFO AND

MOVING AVE
 Date Purchase Sales Balance

Unit
Qty Unit price Total Qty Total Qty Unit price Total
price
Araw-Araw Company uses
a periodic inventory July 1, beg. 600.00 22.00 13,200.00

system. During the month July 4 900.00 20.00 18,000.00 600.00 22.00 13,200.00
of July 2022, the 900.00 20.00 18,000.00
company's beginning 600 @
July 5 650.00 13,200.00 600.00 22.00 13,200.00
balance and purchases 22
made are as follows:
1,000.00 900.00 20.00 18,000.00
50 @20
July 1: Beginning inventory, 600
units @ P22 per unit. 14,200.00 850.00 20.00 17,000.00
July 4: Inventory purchased, 450
July 9 450.00 9,000.00 20.00 17,000.00
900 units @ P20 per unit @20 850.00
July 5: Sold to customers, 650
400.00 20.00 8,000.00
units
July 9: Sold to customers, 450 July 19 750.00 24.00 18,000.00 400.00 20.00 8,000.00
units 750.00 24.00 18,000.00
July 19: Inventory purchased,
400
750 units @ P24 per unit July 25 650.00 8,000.00 400.00 20.00 8,000.00
@20
July 25: Sold to customers, 650
units 250
6,000.00 750.00 24.00 18,000.00
@24

Total/Balance 14,000.00 500.00 24.00 12,000.00

SAMPLE PROBLEM: FIFO Method

 Date Purchase Sales Balance

Unit
Qty Unit price Total Qty Total Qty Unit price Total
price
Araw-Araw Company uses
a periodic inventory July 1, beg. 600.00 22.00 13,200.00

system. During the month July 4 900.00 20.00 18,000.00 600.00 22.00 13,200.00
of July 2022, the 900.00 20.00 18,000.00
company's beginning 600 @
July 5 650.00 13,200.00 600.00 22.00 13,200.00
balance and purchases 22
made are as follows:
1,000.00 900.00 20.00 18,000.00
50 @20
July 1: Beginning inventory, 600
units @ P22 per unit. 14,200.00 850.00 20.00 17,000.00
July 4: Inventory purchased, 450
July 9 450.00 9,000.00 20.00 17,000.00
900 units @ P20 per unit @20 850.00
July 5: Sold to customers, 650
400.00 20.00 8,000.00
units
July 9: Sold to customers, 450 July 19 750.00 24.00 18,000.00 400.00 20.00 8,000.00
units 750.00 24.00 18,000.00
July 19: Inventory purchased,
400
750 units @ P24 per unit July 25 650.00 8,000.00 400.00 20.00 8,000.00
@20
July 25: Sold to customers, 650
units 250
6,000.00 750.00 24.00 18,000.00
@24

Total/Balance 14,000.00 500.00 24.00 12,000.00

SAMPLE PROBLEM: FIFO Method

 Date Purchase Sales Balance

Unit
Qty Unit price Total Qty Total Qty Unit price Total
price
Araw-Araw Company uses
a periodic inventory July 1, beg. 600.00 22.00 13,200.00

system. During the month July 4 900.00 20.00 18,000.00 600.00 22.00 13,200.00
of July 2022, the 900.00 20.00 18,000.00
company's beginning 600 @
July 5 650.00 13,200.00 600.00 22.00 13,200.00
balance and purchases 22
made are as follows:
1,000.00 900.00 20.00 18,000.00
50 @20
July 1: Beginning inventory, 600
units @ P22 per unit. 14,200.00 850.00 20.00 17,000.00
July 4: Inventory purchased, 450
July 9 450.00 9,000.00 20.00 17,000.00
900 units @ P20 per unit @20 850.00
July 5: Sold to customers, 650
400.00 20.00 8,000.00
units
July 9: Sold to customers, 450 July 19 750.00 24.00 18,000.00 400.00 20.00 8,000.00
units 750.00 24.00 18,000.00
July 19: Inventory purchased,
400
750 units @ P24 per unit July 25 650.00 8,000.00 400.00 20.00 8,000.00
@20
July 25: Sold to customers, 650
units 250
6,000.00 750.00 24.00 18,000.00
@24

Total/Balance 14,000.00 500.00 24.00 12,000.00

SAMPLE PROBLEM: FIFO Method

 Date Purchase Sales Balance

Unit
Qty Unit price Total Qty Total Qty Unit price Total
price
Araw-Araw Company uses
a periodic inventory July 1, beg. 600.00 22.00 13,200.00

system. During the month July 4 900.00 20.00 18,000.00 600.00 22.00 13,200.00
of July 2022, the 900.00 20.00 18,000.00
company's beginning 600 @
July 5 650.00 13,200.00 600.00 22.00 13,200.00
balance and purchases 22
made are as follows:
1,000.00 900.00 20.00 18,000.00
50 @20
July 1: Beginning inventory, 600
units @ P22 per unit. 14,200.00 850.00 20.00 17,000.00
July 4: Inventory purchased, 450
July 9 450.00 9,000.00 20.00 17,000.00
900 units @ P20 per unit @20 850.00
July 5: Sold to customers, 650
400.00 20.00 8,000.00
units
July 9: Sold to customers, 450 July 19 750.00 24.00 18,000.00 400.00 20.00 8,000.00
units 750.00 24.00 18,000.00
July 19: Inventory purchased,
400
750 units @ P24 per unit July 25 650.00 8,000.00 400.00 20.00 8,000.00
@20
July 25: Sold to customers, 650
units 250
6,000.00 750.00 24.00 18,000.00
@24

Total/Balance 14,000.00 500.00 24.00 12,000.00

SAMPLE PROBLEM: FIFO Method

 Date Purchase Sales Balance

Unit
Qty Unit price Total Qty Total Qty Unit price Total
price
Araw-Araw Company uses
a periodic inventory July 1, beg. 600.00 22.00 13,200.00

system. During the month July 4 900.00 20.00 18,000.00 600.00 22.00 13,200.00
of July 2022, the 900.00 20.00 18,000.00
company's beginning 600 @
July 5 650.00 13,200.00 600.00 22.00 13,200.00
balance and purchases 22
made are as follows:
1,000.00 900.00 20.00 18,000.00
50 @20
July 1: Beginning inventory, 600
units @ P22 per unit. 14,200.00 850.00 20.00 17,000.00
July 4: Inventory purchased, 450
July 9 450.00 9,000.00 20.00 17,000.00
900 units @ P20 per unit @20 850.00
July 5: Sold to customers, 650
400.00 20.00 8,000.00
units
July 9: Sold to customers, 450 July 19 750.00 24.00 18,000.00 400.00 20.00 8,000.00
units 750.00 24.00 18,000.00
July 19: Inventory purchased,
400
750 units @ P24 per unit July 25 650.00 8,000.00 400.00 20.00 8,000.00
@20
July 25: Sold to customers, 650
units 250
6,000.00 750.00 24.00 18,000.00
@24

Total/Balance 14,000.00 500.00 24.00 12,000.00

SAMPLE PROBLEM: FIFO Method

 Date Purchase Sales Balance

Unit
Qty Unit price Total Qty Total Qty Unit price Total
price
Araw-Araw Company uses
a periodic inventory July 1, beg. 600.00 22.00 13,200.00

system. During the month July 4 900.00 20.00 18,000.00 600.00 22.00 13,200.00
of July 2022, the 900.00 20.00 18,000.00
company's beginning 600 @
July 5 650.00 13,200.00 600.00 22.00 13,200.00
balance and purchases 22
made are as follows:
1,000.00 900.00 20.00 18,000.00
50 @20
July 1: Beginning inventory, 600
units @ P22 per unit. 14,200.00 850.00 20.00 17,000.00
July 4: Inventory purchased, 450
July 9 450.00 9,000.00 20.00 17,000.00
900 units @ P20 per unit @20 850.00
July 5: Sold to customers, 650
400.00 20.00 8,000.00
units
July 9: Sold to customers, 450 July 19 750.00 24.00 18,000.00 400.00 20.00 8,000.00
units 750.00 24.00 18,000.00
July 19: Inventory purchased,
400
750 units @ P24 per unit July 25 650.00 8,000.00 400.00 20.00 8,000.00
@20
July 25: Sold to customers, 650
units 250
6,000.00 750.00 24.00 18,000.00
@24

Total/Balance 14,000.00 500.00 24.00 12,000.00

SAMPLE PROBLEM: FIFO Method

 Date Purchase Sales Balance

Qty Unit price Total Qty Unit price Total Qty Unit price Total

Araw-Araw Company uses July 1, beg. 600.00 22.00 13,200.00

a periodic inventory July 4 900.00 20.00 18,000.00 600.00 22.00 13,200.00
system. During the month
900.00 20.00 18,000.00
of July 2022, the
company's beginning July 5 650.00 600 @ 22 13,200.00 600.00 22.00 13,200.00
balance and purchases
made are as follows: 50 @20
1,000.00 900.00 20.00 18,000.00

July 1: Beginning inventory, 600 14,200.00 850.00 20.00 17,000.00

units @ P22 per unit.
July 4: Inventory purchased, July 9 450.00 450 @20 9,000.00 20.00 17,000.00
850.00
900 units @ P20 per unit
July 5: Sold to customers, 650 400.00 20.00 8,000.00
units July 19 750.00 24.00 18,000.00 400.00 20.00 8,000.00
July 9: Sold to customers, 450
750.00 24.00 18,000.00
units
July 19: Inventory purchased,
July 25 650.00 400 @20 8,000.00 400.00 20.00 8,000.00
750 units @ P24 per unit
July 25: Sold to customers, 650 250 @24 6,000.00 750.00 24.00 18,000.00
units
14,000.00 500.00 24.00 12,000.00

Total/Balance 37,200.00 500.00 24.00 12,000.00

SAMPLE PROBLEM: FIFO Method

 Date Purchase Sales Balance
Araw-Araw Company uses
Qty Unit price Total Qty Unit price Total Qty Unit price Total
a periodic inventory
system. During the month
July 1, beg. 600.00 22.00 13,200.00
of July 2022, the
company's beginning
July 4 900.00 20.00 18,000.00 1,500.00 20.80 31,200.00
balance and purchases
made are as follows: July 5 650.00 20.80 13,520.00 850.00 20.80 17,680.00

July 1: Beginning inventory, 600

units @ P22 per unit.
July 9 450.00 20.80 400.00 20.80 8,320.00
July 4: Inventory purchased, 9,360.00
900 units @ P20 per unit
July 5: Sold to customers, 650
July 19 750.00 24.00 18,000.00 1,150.00 22.89 26,320.00
units
July 9: Sold to customers, 450
units July 25 650.00 22.89 14,876.52 500.00 22.89 11,443.48
July 19: Inventory purchased,
750 units @ P24 per unit Total/Balance 500.00 22.89 11,443.48
July 25: Sold to customers, 650
units

SAMPLE PROBLEM: MOVING AVE.

 economic order
quantity formula
other formulas related to eoq

No. of orders = annual demand or requirement / EOQ

Time to order = days in a year / no. of orders

Total ordering costs = No. of orders per year x cost per order

Average inventory = EOQ/2

Carrying costs = Average inventory x carrying cost per unit

Total inventory costs = Carrying costs + ordering costs

 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

Find the:
1. Economic Order Quantity
2. Number of orders per year
3. Frequency of orders
4. Total ordering cost
5. Average Inventory
6. Carrying cost
7. Total ordering cost
 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

√
Find the: 2* annual demand * ordering cost
1. Economic Order Quantity EOQ =
carrying cost
2. Number of orders per year

√
3. Frequency of orders
4. Total ordering cost EOQ = (2*1250*210)
5. Average Inventory 160.50
1,070 x 15%
6. Carrying cost
EOQ = 57 units
7. Total ordering cost
 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

Find the:
1. Economic Order Quantity
2. Number of orders per year Number of orders per year = Annual
demand/EOQ
3. Frequency of orders
4. Total ordering cost Number of orders per year = 1,250/57
5. Average Inventory Number of orders per year = 22 orders
6. Carrying cost
7. Total ordering cost
 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

Find the:
1. Economic Order Quantity
2. Number of orders per year Frequency of orders = days in a year/ no. of
orders
3. Frequency of orders
4. Total ordering cost Frequency of orders = 365/22
5. Average Inventory Frequency of orders = 17 days
6. Carrying cost
7. Total ordering cost
 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

Find the:
1. Economic Order Quantity
2. Number of orders per year Total ordering cost = no. of order per per
year x cost per order
3. Frequency of orders
4. Total ordering cost Total ordering cost = 22 x 210
5. Average Inventory Total ordering cost = P4,620.00
6. Carrying cost
7. Total ordering cost
 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

Find the:
1. Economic Order Quantity
2. Number of orders per year Average inventory = EOQ/2
3. Frequency of orders Average inventory = 57/2
4. Total ordering cost
5. Average Inventory Average inventory = 28.5
6. Carrying cost
7. Total ordering cost
 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

Find the:
1. Economic Order Quantity
2. Number of orders per year Carrying cost = Average inventory x Carrying
cost per unit
3. Frequency of orders
4. Total ordering cost Carrying cost = 29 x 160.5
5. Average Inventory Carrying cost = 4,654.5
6. Carrying cost
7. Total ordering cost
 SAMPLE PROBLEM: ECONOMIC
ORDER QUANTITY
PROBLEM: Upuan Company estimates its carrying cost at 15% of per unit cost of
their wooden chairs and its ordering cost at P210 per order. The estimated
annual requirement is 1,250 units at a price of P1,070 per unit.

Find the:
1. Economic Order Quantity
2. Number of orders per year Total inventory cost = ordering cost +
carrying cost
3. Frequency of orders
4. Total ordering cost Total inventory cost = 4,620.00 + 4,654.50
5. Average Inventory Total inventory cost = 9,274.50
6. Carrying cost
7. Total ordering cost
 backflush costing
Total Materials Conversion Costs
Raw and In Process, beg xxx xxx xxx
Purchases xxx xxx xxx
Conversion Costs xxx xxx xxx
Raw and In Process, end xxx xxx xxx
Goods manufactured (FG) xxx xxx xxx
Finished goods, beg xxx xxx xxx
Finished goods, end xxx xxx xxx
Cost of sales xxx xxx xxx
 Raw Materials, beg xxx
Add: Purchases xxx
dm Freight In xxx
Less: Purchase Discount xxx
used Raw Materials available for use xxx
formula Less: Raw Materials, end xxx
Indirect materials used xxx
Direct Materials Used xxx
factory
labor

Represents the wages of

workers in the factory which
includes regular basic pay,
COLA, 13th month, overtime
pay, excluding premium.

classified either direct or

indirect labor
 Overtime premium is included
in overhead but when a
take customer requests overtime
note: due to rush order, it is now a
part of direct labor.
overhead
all costs which are not
included in direct materials
or direct labor but are still
necessary to be incurred
are part of the
manufacturing overhead

other terms are: factory

overhead, manufacturing
expenses, factory burden
 manufacturing
overhead

actual applied
overhead overhead

xxx
overapplied
 manufacturing
overhead

actual applied
overhead overhead

xxx
underapplied
 disposition of under
or overapplied oh

INsignificant significant

charged to all
charged to COST accounts with
OF SALES overhead
elements (WIP,
FG, COS)
 3 METHODS OF
ALLOCATING
SERVICE COSTS
Direct Method
Step Method
Algebraic Method
allocating service costs
job order costing

accumulates costs applicable to each specified job

order or a lot of similar goods manufactured on a
specific order for stock or for a customer

small unique batches of products

formula
DM Used xxx
Direct Labor xxx
Manufacturing Overhead xxx
Total Manufacturing Costs xxx
Add: Work in Process, beg xxx
Cost of Goods Put into Process xxx
Less: Work in Process, end xxx
Cost of Goods Manufactured xxx
Add: Finished Goods, beg xxx
Cost of Goods Available for Sale xxx
Less: Finished Goods, end xxx
Cost of Goods Sold xxx
 manufacturing
costs

Direct Materials Direct Labor Overhead

Prime Costs Conversion Costs

PROCESS costing

Uses averaging technique to assign cost to all units

produced during the period.
For products produced for mass production
techniques or continuous processing.
Suitable when homogeneous products are
manufactured in a large volume.
pro-forma:

Production Costs
Unit Cost =
Production Quantity
pro-forma:

Production Costs
These are
Unit Cost =
Production Quantity
approximations of the
number of whole units
of output that could
have been produced
Equivalent during a period from the
units of actual resources
production expended during that
(eup) period.
 There is an assumed flow
There is no assumed flow
of manufacturing
of manufacturing
operations. It considered
operations. It involves the
those units that are first
merging of the
placed in the process. It is
departmental cost from
assumed that they are first
the beginning work to
completed and transferred
current period work.
out.

wa method fifo method

problem 1:
SUGGESTED
SOLUTION:
p
r
o
b
l
e
m

2
SUGGESTED SOLUTION:
 steps in process
costing
Calculate the Units to Account For and
Units Accounted For

Calculate the EUP

Calculate the Total Cost to Account For

Assign the Cost to Inventory Accounts

STANDARD costing
SYSTEM

A standard cost system uses standards that specifies

the expected costs and quantities needed to
manufacture a single unit of product or perform a
single service.
 Elements of
manufacturing
costs
1. Material
2. Labor
3. Overhead
material variance

(AP - SP) x AQ
= Material price Variance

(Aq - sq) x sp
= Material quantity
Variance
 (AP - SP) x AQ
= Material price Variance

( 2.80 - 3.00) x 30,000

= -6,000

D. The P 6,000 is favorable because the actual price

(AP) is less than the standard price (SP).
 (Aq - sq) x sp
= Material quantity
Variance

(2,300 - 2,100) x 6.25

= 1,250

A. The P1,250 is unfavorable because the actual usage

is greater than the standard allowed.
labor variance

(Ar - Sr) x Ah
= labor rate Variance

(Ah - sh) x sr
= labor effeciency
Variance
LRV= (Ar - Sr) x LEV= (AH - SH) x
Ah SR
LRV = (12 - 10) X LEV = (8,000 -
8,000 10,000) X 10

LRV = 16,000 LRV = - 20,000

ANSWER: LETTER B
 overhead variance
ACTUAL BAAH BASH APPLIED
Actual FOH FOH Rate x NC FOH Rate x NC FOH Rate x SH
Actual VOH VOH Rate x AH VOH Rate x SH VOH Rate x SH

FOH SPENDING
VARIANCE VOH EFFICIENCY VOLUME
VARIANCE VARIANCE
VOH SPENDING
VARIANCE
 VOH SPENDING VOH EFFICIENCY
VARIANCE VARIANCE

VOH SV = Actual VOH - (VOH Rate x AH) VOH EV = ( AH - SH) x VOH Rate
VOH SV = P 29, 950 - (2.50 x 8,000) VOH EV = (8,000 - 9,680) x P 2.50
VOH SV = P 29,950 - 20,000 VOH EV = -1,680 x P 2.50
VOH SV = P 9,950 (unfavorable) VOH EV = P 4,200 ( favorable)

FOH SPENDING VOLUME

VARIANCE VARIANCE

FOH SV = Actual FOH - (FOH Rate x NC) VV = (NC - SH) x FOH Rate
FOH SV = P 42, 300 - (P 3.00 X 11,990) VV = (11,990 - 9,680) x P 3.00
FOH SV = P 42,300 - P 35,970 VV = 2,310 x P 3.00
FOH SV = P 6,330 (unfavorable ) VV = P 6, 930 (unfavorable)
accounting for
special
transactions
 Partnership
formation
Partnership Can be formed by (Atleast):
One individual and one individual
One individual and one sole proprietorship
One sole proprietorship and one sole proprietorship
MOST "Agreement
IMPORTANT Always
RULE IN
PARTNERSHIP Prevails"
question
How will the partners record
the contributions of each
partners?
 HIERARCHY OF
MEASUREMENT
Agreement of the Partners

If there is no agreement:
1.Cash – Face Value
Foreign currency: FV at the date of Contribution
Bankruptcy: Recoverable Amount

2.Non-Cash - Fair Market Value

3.Service – Memorandum Entry
accounting for initial
investment

Net Investment Method

Partner's Capital is credited for the amount invested
Contribution Ratio = Agreed Ratio

Bonus Method
Partner's Capital is credited based on the agreed ratio
CR > AR or CR < AR = Bonus
 How much capital
is to be credited
to Ruby?

Net Investment = P 84,330

Bonus Method = P 56,220

 Similar in most respects to those of other forms of
organizations operating in the same line of business.

At the end of each fiscal year, when revenues and

expenses are closed out, some assignments must be made
of the resulting income figure.

Profit and loss allocation agreement.

partnership
operation
question

How will the partners divide

the profits or losses resulting
from the operation of the
partnership?
partnership
law
If the profit has been agreed upon, the share of each partner in the
losses shall be in the same proportion with the net income allocation.
It also provides that in the absence of agreement, the share is based
on what they have contributed, but the industrial partner will receive
such share as may be just and equitable.

PROBLEM: Law is unclear to what capital; balances will

be used. Presumption is to use the original capital, in
the absence of that, it should be the beginning capital.
 Bonus is based on Net Income
before bonus and before tax

shortcut Bonus rate x Net income before bonus and tax

formula:
computing
Bonus is based on Net Income
bonus after bonus but before tax
Bonus rate x Net Income

1 + Bonus rate
 Bonus is based on Net Income
after bonus and after tax

shortcut Bonus rate x Net income after tax

formula: 1 + Bonus rate after tax

computing
Bonus is based on Net Income
bonus before bonus but after tax
Bonus rate x Net income after tax

1 - ( Bonus rate x tax rate)

ways of
sharing p&l
1. Equally
2. Arbitrary Ratio
3. In the ratio of partner's capital account
balances and dividing the balance on the
agreed ratio:
a. Original capital- the initial
investment/capital at the time of
formation
b. Beginning capital of the period
c. Weighted average
ways of
sharing p&l
4. Interest on partner's capital accounts and
dividing the balance on the agreed ratio;
5. Salaries to partners and dividing the
balance on the agreed ratio;
6. Bonus to partners and dividing the
balance on agreed ratio; and
7. Interest on capital account balance,
salaries and bonus to partners and dividing
the balance on agreed ratio
 partnership
dissolution
It is defined as the change in the relationship of the partners
caused by any partner ceasing to be associated in the carrying
out of the business. It refers to the termination of the life of
the existing partnership.

The dissolution of the partnership may be followed by:

Formation of a new partnership; or
Liquidation
 REASONS FOR
DISSOLUTION
Admission of New Partner

Retirement or Withdrawal of a Partner

Death, incapacity or bankruptcy of a

partner

Incorporation of a Partnership
 ADMISSION OF A NEW
PARTNER
A new partner may be admitted in an existing partnership with the
consent of all the partners.

A new partner may be admitted into a partnership by:

Purchase – purchase of interest from one or more of the old
partners.
Investment – asset contribution to the partnership.
 Admission by
purchase
Personal Transaction between Buying and Selling Partner
Therefore OC = NC

The only entry required is the transfer of capital which is equal to the book
value of the interest sold.
The purchase price of the interest sold to a new partner may be:
Equal to the book value of the interest sold (no gain or loss)
Less than the book value of the interest sold (loss of the selling partner)
More than the book value of the interest sold (gain of the selling
partner)
Letter C. P 360,000
The loss of P 10,000 is a personal loss of
Mico, thus will not affect the partnership.
 Admission by
Investment
Transaction with the PARTNERSHIP
Thus, investment increases the assets of the partnership and its
total capital

The entry to record the admission of the new partner depends upon
the capital interest credited to the partner’s account. It can be
computed using:
Asset Revaluation Method
Bonus Method
Upon investment
CC AC If there is a
difference in each
capital account,
A, Capital A, Capital
BONUS TAKES
B, Capital B, Capital
PLACE.
C, Capital C, Capital
D, Investment D, Investment
Contributed Agreed
If there is a
Capital Capital
difference on the
total CC and AC, AR
TAKES PLACE.
technique
 If BONUS takes place,
Anne, Capital = P 283,333.33
there is no difference
Kath, Capital = P 295,000.00
with the contributed
Dan, Capital = P 266,666.67
capital as compared to
the agreed capital.
 If ASSET REVALUATION
Anne, Capital = P 256,250.00
takes place, there is a
Kath, Capital = P 118,750.00
difference with the
Dan, Capital = P 125,000.00
contributed capital to
agreed capital.
 partnership
liquidation
The winding phase of partnership which includes winding up the
affairs

The winding-up process includes the transactions necessary to

liquidate the partnership
1. Collection of receivables including from partners
2. Conversion of noncash assets to cash
3. Payment of partnership’s obligation
4. Distribution of any remaining net balance to partners
lump sum installment

Simple or total Distributions are

liquidation made to some or all
partners as cash
No distributions are becomes available.
made to the partners Thus cash
until the realization distributions are
process is completed made to partners
when the full before the full
amount of the amount of the
realization gain or realization gain or
loss is known loss is known
 cash available to
partners
Liabilities
Cash balance
Liquidation expenses
Proceeds from realization of NCA
Cash withheld for future expenses

xxx xxx

shortcut
/
CORPORATE
lIQUIDATION
CORPORATE
lIQUIDATION
Reason for Liquidation:
1. Bankruptcy
2. Court Decree

For liquidating entities:

The appropriate measurement basis is
the REALIZABLE VALUES of assets and
expected NET SETTLEMENT AMOUNTS of
the liabilities.
statement of affairs
ASSETS
1. Assets Pledged with Fully
Secured Creditors
2. Assets Pledged with
Partially Secured Creditors
3. Free or Unpledged Assets
LIABILITIES
1. Preferred Creditors
2. Fully Secured Creditors
3. Partially Secured Creditors
4. Unsecured Creditors
SIMPLEST
EXPLANATION
ON SOLVING
ESTIMATED
RECOVERY
PERCENTAGE
Accounts Receivable @ NRV 45,000
Free Assets Used to Pay the Unsecured
Creditors ( 15,000 x 80%) 12,000
Estimated Amount to be Paid to Partially
57,000
Secured Creditor
 accounting
for

Home Office Branch Agency

Accounting for
Branches

Although It operates as a separate business unit, it is subject

to control by the home office. The degree of self-management
to be exercised by a branch is determined by the home office.
 reciprocal
accounts

home investment
office in
current branch

capital account non current asset

Home Office Current account
(Books of branch)

Is CREDITED:
1. Cash, goods, or services received from the home office
2. For profits resulting from branch operations

Is DEBITED:
1. Remittances made by the branch to the home office
2. For losses from operations
 Branch Current or
Investment in Branch (Books
of Home Office)

Is DEBITED:
1. For cash, goods, or services transferred to branch
2. For branch income

Is CREDITED:
1. For remittance from the branch or other assets received
from the branch
2. For branch losses
 Billing Methods for
Merchandise Shipped to
Branch
3 alternative methods:

2
At billed price or a
percentage above
home office costs 3
1
(original cost plus
At home office cost At the branch’s retail
mark-up based on
(at original costs) selling price (mark-up
cost)
based on billed price)
Davao Branch’s records should treat the freight as inventoriable
cost (product cost) and it should be properly classified as
freight-in (periodic method, since problem is silent).
 REVENUE
RECOGNTION
IFRS 15 (REVENUE FROM CONTRACTS WITH CUSTOMERS)
FIVE STEP MODEL
Thank you!
We hope you learned something from us.
questions
tips

1. Practice integrity and honesty at all times.

2. Do not study on the day before the examination.
3. Take many practice tests but make sure that you know
each concept well.
4. Make a habit of reviewing notes and lectures week by
week.
5. Learn how to seek help.
god bless on your
comprehensive
examination.

rooting for all of

you!
references
Dayag, A.J. (2022). Advanced Financial Accounting: A Comprehensive,
Conceptual & Procedural Approach. Good Dreams Publishing.

Guerrero, P.P. (2018). Cost Accounting: Principles and Procedural

Application. GIC Enterprises & Co. Inc.

Rante, G.A. (2019). Cost Accounting and Control. Millenium Books, Inc.

Rante, G,A., Liz, M.D.M., Ruado, E.R., & Binaluyo, J.P. (2020). Accounting for
Special Transactions: A Comprehensive Approach. Millenium Books, Inc.