PARTNERSHIP XY Partnership

Civil Code (Art. 1767) Partnership Law JE: Land 5,000,000 Cash 1,000,000
Y, Capital 5,000,000 X, Capital 1,000,000
Contract Partnership agreement (oral or written) Y, Capital 2,000,000
2 or more persons  Partners = owners M/P 2,000,000
Contribute [money(cash), property(NCA), industry(services)] Y, Capital X, Capital
Divide profits 5,000,000
2,000,000 1,000,000
IFRS/PFRS 3,000,000

Stages: A=L+C
1. Formation  Creation A – L = C  FMV
2. Operations  Allocation of Net Income/Loss
3. Dissolution  Admission & Withdrawal FMV
4. Liquidation  Lump-sum & Installment
Equipment
Depreciation  If understated
FORMATION Carrying Value  This is overstated
Cash  Face Value
Agreed value Normally A - L=C  Direct Relationship
Valuation NCA FMV Equal A - L=C  Inverse Relationship
CV
Liabilities  Present Value (FV) of remaining cash flows *Inventory is measured at LCNRV
PARTNERSHIP OPERATIONS Beginning Bal.
Net Income
Generate revenues Dec. 31 Net Income Net Loss Investment
Incur Expenses or Loss Withdrawal
Ending Bal.
Rule: Allocate  Partnership Agreement (Articles of Partnership) 12/31
Profit & Loss Ratio Regular X, Drawing X, Capital
Drawings Cash X, Drawing
Cash Permanent X, Capital
Capitalist Cash
Types NCA
Industrial Services/Skills
Typical Terms: Distribution of Partnership Income:
1. Salaries  Inustrial partner  If no specific priority of allocation, you can adjust for the remainder.
2. Bonuses  Managing partner  If there’s specific priority of allocation, you can’t exceed with the net
Percentage of Net Income income, no adjustment or remainder. Use proration in the remaining
If net loss, NO BONUS amount.
3. Interest  Capitalist Partner
Based on partners’ capital account balances
 Original capital contribution (formation)
 Beginning Account Balance
 Ending Account Balance
 Average Account Balance (simple or weighted)
*All these three are not Partnership Expenses

Civil Code Art. 1767 P&L Ratio RULES:

1. PARTNERSHIP AGREEMENT
2. In the absence of PA, based on ORIGINAL CAPITAL CONTRIBUTION.
3. If PROFITS are only agreed upon, LOSSES shall be in the same manner as
profits.
4. If LOSSES are only agreed upon, PROFITS shall be based on ORIGINAL
CAPITAL CONTRIBUTION.

Capital Account
PARTNERHSIP DISSOLUTION
- Admission
- Withdrawal/Retirement
- Incorporation

Admission
1. Purchase of Interest  Personal/Private Transaction
 From one partner Recorded only transfer of capital within equity
 From all partners No changes in Partnership Capital

2. Investment in the Partnership

 Additional investment in the partnership
 Change in Partnership Capital
 Capital Increases; Asset Increases
 Recorded in the Partnership Books the Investment

Withdrawal/Retirement (same with admission)

1. Purchase of Interest  Personal/Private Transaction
2. Investment in the Partnership  Partnership Transactions

Incorporation
 Transferring of partners’ capital balances into share capital.

REMEMBER!

- Before admission, withdrawal, and incorporation, CAPITAL BALANCES should

be updated into FMV from BV.

1. Updating capital balances for Net Income or Net Loss

2. Revaluation of Assets and Liabilities
PARTNERSHIP LIQUIDATION Maximum Possible Loss
- Always present in installment for the first cash distribution to partners.
- Termination phase of partnership’s activities. - First cash distribution followed the priority/safe payment, then the
- Due to insolvency/Inability to pay debts succeeding distributions is through P&L ratio.
- Liquidation Process (trustees/receivership/liquidator) Composition of MPL
- Estimated Liquidation Expenses
1. Sell all NCA at NRV (convert NCA to Cash) - Amount of Cash withheld
2. Pay the creditors - Remaining BV of NCA
3. Distribution of remaining cash to the partners, if any
 Capital Deficit is allocated to the partners who have credit/positive
Order of priority (Partnership Assets) capital balance. (assumed personal insolvency)
1. Partnership creditors
2. Inside creditors (Partner’s loan) Cash Priority Program
3. Partner’s capital balance - Ranking of Partner’s vulnerability level measured through the Loss
(Marshalling of Assets) Absorption Ability/Potential
- Loss Absorption Ability = Balance of Partner’s Capital/Partner’s P&L ratio
Order of priority (Partner’s personal asset) - Balance of Partner’s Capital = Capital Balance +/- Loans from/to the partners
1. Personal Creditors - Usually used when certain NCA are sold with no given BV
2. Partnership Creditors

2 types of Partnership Liquidation

1. Lump-sum liquidation
 All assets are converted into cash within a short period of time,
creditors are paid, and a single, lump-sum payment is made to the
partners for their capital interests.
2. Installment Liquidation
 Realize some asset, creditors are paid, and the remaining cash, if any
is given to partners, realization of additional assets, and making
additional cash payment to partners.
 Prolonged liquidation process

Schedule of Safe Payment

- How much cash will be safe to distribute to partners?
- Determine the amount of safe-payment, prevent excessive payment to
partners
- Provide possible loss (unpaid liabilities and potential liquidation expenses)
CORPORATE LIQUIDATION Free Assets
- Not pledged and are available to satisfy claims of creditors w/ priority,
- Termination phase of the corporation. partially secured creditor and unsecured creditors.
- All assets are sold, creditors are paid, distributions of any remaining funds to
shareholders, and closing down as a legal entity. Liability
- Due to Bankruptcy. Entity doesn’t have sufficient fund to pay its creditors.
- The sum of its debts are greater than the fair value of all assets. Fully Secured Creditors
- Collateralized; expected to be paid in full.
Process to liquidate
Partially Secured Creditors
1. Selling all assets into cash at NRV. (convert BV to NRV) - Collateralized; the proceeds of which are not sufficient to satisfy the debt.
2. Payment to creditors. (FSC, PSC, Liability w/ Priority and w/out Priority)
3. Solve for Recovery Percentage. Unsecured Creditors w/ Priority
- No collateral but has priority under the law – taxes, liquidation expenses,
NRV salaries and wages. [ Wages, Admin, Taxes –WAT]
(FSC)
PSC) Unsecured Creditors w/out Priority
(Liab. w/ priority) - No collateral related to the loan.
Net Free Assets
Owners’ Equity
Recovery = Net free Assets
Percentage Total Unsecured Creditors - Deficiency

STATEMENT OF AFFAIRS STATEMENT OF REALIZATION AND LIQUIDATION

- Financial condition prepared for a corporation entering the stage of - Activity statement about the progress of the liquidation.
liquidation. - Shows actual transaction transpired during the period.
- Balance sheet equivalent - Net income / Net Loss during the period

Assets DEBIT CREDIT

To be realized – To be sold Realized – Actual Proceeds
Assets pledged with Fully Secured Creditors as of Jan. 1 (BV) Received.
ASSETS
- Expected to be realized in an AMOUNT SUFFICIENT to satisfy the debt. Acquired – Additional Not Realized – Remaining
Assets. (interest receivable) Assets at the end of the
Assets pledged with Partially Secured Creditors period. Jan. 31
- Expected to be realized in an AMOUNT below the related debt.
 Liquidated – Actual To be liquidated – to be
payment of liability. settled/paid as of Jan 1. (BV)
LIABILITIES
Not Liquidated – Unsettled Assumed/Incurred –
liabilities at the end of the Additional Liability. (interest
period. Jan. 31 payable)
Supplementary Debit – Supplementary Credit – Other
Additional Expenses Income
P xx,xxx.xx P xx,xxx.xx

Dr. > Cr. = Loss

Dr. < Cr. = Gain

CASH BALANCE FORMULA

Beg. Balance
Assets Realized Liabilities Paid
Other Income (Supplementary Credit) Additional Expense (Supplementary Debit)
End. Balance

OR
Assets = Liabilities + Equity
2.3M NCA (Assets unrealized) 2.7M (Liab unliquidated) 1M
1.4M Cash (3.7M – 2.3M) Balancing Figure

PRO-RATA PAYMENT TO STOCKHOLDERS

(Gains + Add. Assets) – (Losses + Add. Liabilities) – (Equity)

Equity
HOME OFFICE AND BRANCH ACCOUNT

 Established to decentralized operation and expand to new markets.

 Regulated autonomy to operate as an independent entity.
 Has a complete set of accounting records, all its transactions including those
with the HO are recorded in the books.
 Has a complete set of financial statements – Separate Financial Statements
 HO and Branch has two different accounting system but only one accounting
and reporting entity.
 All entries in the accounting records of the branch are also recorded, at least
in summary form, in the accounting records of the HO.
 Reciprocal Accounts
 Investment in Branch (Asset Account) – HO Books
 Home Office Current (Equity Account) – Branch Books
 Reciprocal Accounts have always the same balances, however, they often
have been different due to errors and items in transit.

Billing Rate = Shipment from HO / Shipment to Branch

Mark-Up Rate = Mark-up / Cost
Cost = Mark-Up / Mark-Up Rate
Allowance for overvaluation, beg. – Realized Allowance @ GAS

Outside COGS HO COGS

Beg. Inventory Beg. Inventory
Purchases Purchases
CGAS (Shipment to Branch)
End. Inventory CGAS
COGS End. Inventory Branch and HO Transactions
COGS
Net Income Formula
Sales
(COGS)
GP
(OPEX)
Net Income
Pricing Method  Net Income of Branch – Use COGS at billed price from HO and COGS at cost
 Billed at Cost – Merchandise is transferred at cost when the branch sells the from outsider to arrive at Net Income.
merchandise; the entire amount of gross margin is included in the net branch  Net Income in the Combined FS – Use COGS at cost from HO and COGS at cost
income. from outside to arrive at Net Income and HO Net Income: or
 Billed at Cost pus Mark-Up – The merchandise is transferred at an amount  Net Income (branch COGS@billed) + Net Income of HO + Realized
between cost and the selling price. The intermediate pricing method allocates Allowance/Allowance for overvaluation (end period)
part of gross margin to the branch and the remainder to the HO.  True Income = True/Correct Cost

Working Paper and Eliminating Entries (WPEEs)

 All reciprocal accounts are eliminated.
 All non-reciprocal accounts are combined together into Combined Financial
Statements.
 Adjust some items in the COGS section of the branch net income statement to
reflect true cost as a consequence of the billing policy not equal to cost.

 When company has more than one branches, each branches has a separate
investment in branch account and allowance for overvaluation account.
Likewise, separate worksheet adjustment is made for each branch.
 Interbranch transfers of assets, the HO accounts are used in every transaction.
The transferring branch reverse the entry to record the transfer, while the
receiving branch records as if it came from the HO.
JOB ORDER COSTING
 Company assigns cost to EACH job or to each batch of goods. 4. OH-Control
 Small Volume [Unique/Distinct]; Heterogenous Dep Exp Actual
Utilities Exp Overhead
Cost Accounting System – Measuring, recording, and reporting of product costs. From Rent Exp
the data accumulated, companies determine the product total cost and the unit cost.
5. WIP Std. Cost
Job Order Cost Flow OH-Applied [SRxSH]
 The flow of costs [DM, DL, OH] parallels the physical flow of the materials as
they are converted into FG. 6. 12/31
 Two (2) major steps in the flow of costs: OH-A
1. Accumulating the manufacturing costs incurred; [3 accounts] OH-C Immaterial - COGS
 Raw Materials Inventory Diff WIP
 Direct Labor Materials FG
 Manufacturing Overhead COGS
 Assigning the accumulated costs to WIP and eventually to FG and COGS. UNIT COST:
WIP
Journal Entries: # of Good Units
1. RM Invty upon
A/P purchase COGM/COGS:
DM used
WIP upon DL
RM Invty usage OH applied
Total Manufacturing Cost
2. Sal Exp DL WIP, Beg
Sal Pay [AHxAR] (WIP, End)
Cost of Goods Manufactured
WIP FG, Beg
Sal Exp (FG, End)
Cost of Goods Sold
3. Dep Exp
Utilities Exp
Rent Exp Actual
Acc Dep Overhead
Utilities Pay
Rent Pay
Spoiled Units
 Cannot be sold at original price
 No longer good unit
Unit Cost
Specific [WIP] Inc.
- due to exacting specification
Normal [w/in expectation] - Charged to Customer
Common [OH-Control] Same
- internal failure
- charged to all units
Spoilage
Abnormal [Loss]

Defective Units
 Can still be sold at original price
 Still good unit
 Rework Cost

Specific [WIP] Inc.

- due to exacting specification
Normal [w/in expectation] - Charged to Customer
Common [OH-Control] Same
- internal failure
- charged to all units
Spoilage
Abnormal [Loss]
PROCESS COSTING
 Large/ High Volume Production Normal – WIP [Unit Cost - Increase]
 Ideal for Mass production Spoilage
 Similar/Identical Abnormal – Loss

Cost of Production Report (CPR) Discrete

1. Units to Account for [UTAF]  Definite Inspection point
2. Units Accounted for [UAF] Normal Spoilage
3. Equivalent Unit of Production [EUP] Continuous
4. Cost per EUP  No definite inspection point
5. Cost Accounted for  Method of neglect [neglecting normal spoilage]
 As if the spoiled units did not occur
Journal Entries:  Normal spoilage – always 0%
1. WIP  Abnormal spoilage – always 100%
Various Accounts
Notes:
2. FG  If two departments. The second department will have an ‘Transferred-in’
WIP account. [always 100%]

3. COGS
FG

Methods:
1. Weighted-Average [WAVE]
 Production is retrospective
 Production is back to zero (0)
 WIP, Beg and Units Started are combined; applied 100% Materials &
Conversion Cost
 WIP, End – [Materials added at beg. 100%]; [CC Completed %]

2. First In-First Out [FIFO]

 Production is prospective
 WIP, beg and Units started are separated to prioritize WIP, beg
 WIP, beg as to materials [0% if added @ beg]; CC [the remaining %]
 WIP, end - [100% materials added @ beg]; [CC completed %]
JOINT AND BY-PRODUCT
Recognized @ Split-off Point Point of Sale
 When two or more different products are manufactured in the same Significant Point of Production By-product Invty Cash
production process it is called joint production process [Inventory] WIP BP Invty
 Joint Costs are costs incurred in a simultaneous manufacturing of two or more
products. Insignificant Point of Sale - Cash
 Joint Costs are common to all products [DM, DL, OH] Other Income
 A product yield in a joint production process with a relatively small value is
called a By-Product.
 Split-off –point is the point when products become identifiable, thus, their
production cost can be measured separately.
 All costs incurred beyond the split-off point are called separable costs

Methods of Allocation: Allocates JC based on

1. Units of Production Method – The number of units produced.
2. Weighted-Average Method – The weight, units or other measure.
3. Sales Value at Split-off point –Relative sales value at the split-off point.
4. NRV at Split-off point – The basis of estimated realizable value at split-off
point.
5. Approximated NRV – Relative estimated NRV [Final Sales value – Expected
separable cost]

Accounting for By-Product [Alwasys measured @ NRV]

 Used if the value of by-product is significant
 NRV of the by-product is treated as a reduction from the joint costs of the main
product. [Inventoriable – transfer of cost from WIP to BP Invty]
 Any Loss of the by-product or crap as added to the cost of the main product.

Realizable Value Approach

 By-products are accounted during sale
 Value of By-Product is immaterial/insignificant
 The realized value of the by-product is reported as other income/sales revenue
JUST-IN-TIME/BACKFLUSH COSTING
 Inventory Management System 3-Trigger Points
 Eliminate waste and excess by acquiring resources only as needed 1. MIP upon
 Inventory buffers [evil] – Hide defective parts, production bottlenecks, etc. A/P purchase
 Simplified Accounting
 Reduces inventory storage costs & obsolescence 2. FG upon
MIP completion
Backflush Costing CC-App
 Simplified cost accumulation methods used by company that adopt JIT
systems. 3. COGS upon
 Most system that include backflush method are periodic inventory systems FG sale
 Materials and CC are directly charged to COGS
 So-called back flushed costs are usually based on budgeted or standard costs 2-Trigger Points
per unit 1. MIP upon FG upon
 Raw Material and WIP are combined – Raw and in-process/ Material in Process A/P purchase A/P Completion
 Direct Labor and OH are combined – Conversion Costs CC-Applied
2. COGS upon
Traditional: MIP sale COGS upon
1. RM upon CC-App FG sale
A/P purchase
1-Trigger Point [Ultimate JIT]
2. WIP upon 1. COGS upon
VA production A/P sale
CC-Applied
3. FG upon
WIP completion 12/31
CC-Applied
4. COGS upon CC-Control
FG sale Diff – COGS
BUSINESS COMBINATION A. Consideration Transferred
o Goodwill – Unidentifiable Asset - Cash
- NCA
MERGER  A + B = A OR B [A – Acquirer; B – Acquiree] - Equity
TYPES / X - Debt
Surviving Entity - Contingent Consideration
CONSOLIDATION  A + B = C – New Entity EXCLUDES:
Grab Uber GU Corp. - Acquisition related costs
/ / /  Finder’s Fee
- Grab acquire 51% of OS of Uber; Grab – Parent, Uber – Subsidiary  Professional Fee EXPENSE
 Deligince Fee (Legal, Advisory Fees)
Accomplished through:  General Admin. Cost
Merger  1 set of FS  Cost of registering and issuing
- Asset Acquisition Stocks  APIC/SP; if insufficient RE(bal) [Stocks issuance cost]
 Assets Acquired Bonds  Discount/Premium [Bonds issuance cost]
 Assumed Liabilities
Consolidation  3 sets of FS B. NCI
- Buying of shares P S
- More than 50% 80%
- There’s consolidation when there’s CONTROL [>50%] 80% - Parent [CI]
S
Acquisition Method 20% - Subsidiary [NCI]
1. Identify the Acquirer Measurement:
- The entity that obtains control over the acquire 1. FV [Must not be lower than proportionate share] - compare
2. Determine the Acquisition date 2. Proportionate share of the acquired net assets
- The date on which the acquirer obtains control [signed agreement]
- Measures the FV of A & L (Acquiree) C. Previously Held Interest
3. Recognize and Measure Goodwill or Gain on Bargain Purchase - Business Combination achieved in stages
Formula: Yr 1 – 15% interest [FVPL, FVOCI, AC]
FV of Consideration Transferred (CT) Yr 2 – 40% interest [Control]
Non-Controlling Interest (NCI) 55%
Previously Held Equity Interest
Total D. FVNIA
(FV of Net Identifiable Assets Acquired (FVNIA) - Assets – Liabilties @FV
Goodwill (+) B/S; GBP (-) P/L - Not BV
- Excludes GW of Acquiree
Consolidation: A + B = C
A (Separate FS) + B (Separate FS) + WPEEs = CONSO FS 4. Dividend Income
NCI Eliminate intercompany dividends
Discussion: R/E
1. Acquisition Date  Income Statement account in Conso FS are 100%
2. Subsequent to Date of Acquisition  Operating Income – excluding div [no need to deduct div income of
3. Intercompany Transactions parent]
 NCI = R/E
Measurement Period:
- Within 12 months from the acquisition date [1/1/2021 – 1/1/2022] 5. Gain or Land
- Use of the provisional amounts Land Loss
- Allowed to change amounts as long as within a year. More than a year disregard.
6. Equip or Gain
WPEEs: P ---[80%] ---> S = [S – 20%; P – 80%] Loss Equip
DE AD
1. C/S [old] AD DE
APIC Eliminate the pre-acquisition equity
R/E of subsidiary 7. Sale
[old] IIS [80%] Cogs
NCI [20%] Invty
Intercompany Transactions
FV > BV [Only of Subsidiary] - Must be eliminated
2. Inventory P – 100%
Equipment Recognize excess of FV over Downstream [P-S] No Allocation
N/P BV [FVNIA] NCI – 0%
IIS
NCI P – 80%
Upstream [S-P] With Allocation
3. Goodwill NCI – 20%
IIS
NCI Recognize GW or GBP 1. Sale of Land [non-depreciable]
Or P S
IIS Cash 100 Land 100
GBP [100% - P] Land 80 Cash 100
Gain 20
 Gain
Land

2. Sale of PPE [depreciable]

P S
Cash 80 Equip 80
Loss 20 Cash 80
Equip 100 DE xx
AD xx
Equip xx
Loss xx
DE xx
AD xx

3. Sale of Inventory
P S
Cash Invty
Sale Cash
Cogs
Invty
Ending Invty Beg, Invty
Sale R/E, Beg
Cogs Cogs
Invty
-EI*GPR -BI*GPR

SMEs
1. Goodwill is amortize not exceeding 10 years
2. NCI is always measured at proportionate share
3. ARC are included in Cost of Business Combination
4. To compute for Goodwill/GBP – Purchase Method
FV of Consideration Given
ARC
Total
(Acquirer’s interest in the Net Asset)
GW or GBP
IFRS 15: REVENUE FROM CONTRACTS WITH CUSTOMERS
- Replaced IAS 18, IAS 11, SIC, 31, IFRIC 13,15,18 POC
1. Input Measures – Cost incurred [cost-to-cost method, Labor/Machine hours
5-Steps Model Framework spent.
1. Identify the CONTRACT with the customer 2. Output Measures – Estimate/Services, Achieved milestone
2. Identify the PERFORMANCE OBLIGATION in the contract
3. Determine TRANSACTION PRICE Contract Price DM, DL, OH
4. Allocate transaction price to the PO [stand-alone selling prices] (Cost of Building) – Directly Attributable to the Building Chargeable to client
5. Recognize REVENUE as the PO are fulfilled [overtime – over the life of the Gross Profit Reimbursable from client
contract or at a point in time – 100% recognized]
- Impacts industries that offer bundle of products and services. [telecom] *Sum of Progress Billings is equal to Contract Price.
* Variations are applied prospectively.
For Instance: Globe Postpaid [IPhone 13 with Data -2,500 monthly]
1. Postpaid Plan FRANCHISE
2. Deliver the IPhone 13 and Provide Data for 24 months - Under licensing topics
3. 2,500 x 24 = 60,000 - POV of franchisor
4. PO Standalone Allocation Franchise (License)
IPhone 50,000 40,540 at a point in time Jollibee (Franchisor) Mr. X (Franchisee)
Data 24,000 19,460 overtime Cash (FF)
74,000 60,000
Jan. 31 - Jollibee is giving right Mr. X to use Jollibee’s intellectual right.
40,540 + 811 [19,460/24] = 41,351
5 Steps Model:
AR 41,351 1. Franchise Contract
Revenue 41,351 2.
a. Initial Services [loc, crew train, const of store] – 10M 6M PIT
b. Deliver Equipment and Supplies – 15M 9M PIT
Long Term Construction Contract c. Use of tradename – 25M 15M PIT/OT
- Construction period is more than 1 year. 50M 30M
- POV [Contractor] 3. 30M – IFF; CFF base on % of sale [Royalty}
4. Allocate overtime
w/ reliable estimate  Percentage of Completion Method [POC] 5. Recognize Point-in-Time
Methods - overtime
w/out reliable estimate  Zero Profit Method [ZPM] * License is DISTINCT = Separate performance obligation
- at a point in time * License could be:
a. Right to access = Revenue is recognized OVERTIME
  The Intellectual Property changes throughout the license period Consignor [Principal] – Person who sends the goods to the agent to be sold by him on
 Microsoft 365 commission.
b. Right to Use = Revenue is recognized at Point in Time Consignee [Agent] – Person to whom goods are sent for sale on commission.
 The Intellectual Property does not change throughout the license period
 Jollibee INSTALLMENT SALES
- Not allowed under IFRS 15
CONSIGNMENT
Jan 1 Jan 1- 31 Types of Sales:
P&G  Products  7/Eleven  Customer 1. Cash
[Consignor] [Consignee] Cash 2. Credit
Notify the sale 3. Installment
Remittance
P&G can recognize revenue Toyota Fortuner: Installment every annual
 Risk of Uncollectibility
Consignee can Earn through  Thus, Installment Method is prescribed
1. Commission [% of sale]  Revenue is recognized in proportion to cash collection
2. Mark-up
JEs:
Consignor Consignee Date of Sale Date of Collection
Shipment of Consigned Invty on Consignment Memo Installment A/R Cash
Goods Inventory Sales IAR
Payment of Expenses by Invty on Con No Entry COGS DGP
consignor (freight, Cash Invty Realized GP equal to cash collection x GPR
insurance) Dec. 31
Payment of reimbursable Invty on Consignment Consignment Receivable Sales
expenses by consignee Consign Payable Cash COGS
Sale of Invty by consignee No Entry Cash Deferred Gross Profit [DGP] [Contra IAR]
Consignment Payable
Notification of sale to Consignment Payable Consignment Payable GPR
consignor and remittance Commission Expense Cash 1. Sales – Cogs = GP/Sales = GPR
Cash Consign Receivable 2. DGP/IAR = GPR
Consign Revenue Commission Income

* Freight-in = Inventoriable
* Freight-out = Selling expense
Accounting Issues: Scenario 1: FMV = 600K Scenario 2: FMV = 400K
1. Repossession Cash 400K Cash 400K
Scenario: Buyer unable to pay on the 3rd year Invty 600K Invty 400K
IAR 1.1M [2M-400K-500K] IAR 1.1M
Seller [Toyota] Books: NRV/FMV Sales 2.1M Sales 1.9M
Repossessed Invty [@NRV] Resale Value
DGP COGS 1.4M COGS 1.4M
Loss Invty 1.4M Invty 1.4M
IAR GPR = 33% GPR = 26%
Gain
T-In < FMV = Under allowance [Add to Sales]; Otherwise, Over allowance [Deduct
Workback: from sales]
Resale Value
(Reconditioning Cost)
(Gross Profit Margin)
NRV

2. Trade-in

old car + cash

Mr. X [Buyer]  Toyota
new car

Computation for Cash:

Selling Price [new car]
(Trade-in value of old car)
Cash

Toyota
SP 2M
Cost 1.4M
Trade-in 500K
DP 20%
GPR 30%
FOREX [PAS 21] Subsequent Measurement
 Foreign Currency Transactions  Convert foreign currency to functional currency [remeasurement]
 Import/Export  Gains/Losses – P/L
 Foreign Currency Operations
 Branch/Subsidiary/Associate abroad Monetary  Closing Rate [Dec. 31 rate]
B/S
Issues: Non-monetary Historical Cost [Date of transaction]
What exchange rate to use? Temporal method
IAS 21 FV [Date when FV was determined]
How to report gains or losses from forex?
Date of Transaction [1]
Types of Currencies I/S
1. Functional Currency Average rate [2]
 Currency of the primary economic environment in which the entity
operates. Monetary vs Non-monetary
 Dominant currency the entity uses [Php] 1. Is there a right or obligation to deliver fixed or determinate amount of currency?
 Only 1  If yes, monetary [cash, receivable, payable, investment in debt sec.]
2. Foreign Currency  If no, non-monetary [invty, ppe, prepayments, intangible, investment in
 Currency other than functional currency. equity sec]
 More than 1
3. Presentation Currency  Convert functional currency to presentation currency [translation]
 Currency in which financial statements are presented [PHP, USD, SGD]  Closing/Current rate method
 At the entity’s option  Gains/Losses – OCI
 More than 1

Initial Recognition Asset/Liabilities Closing Rate [Dec. 31 Rate]

 Should be recorded at SPOT RATE [date that day]
B/S Equity [C/S, APIC] Date of transaction

R/E [NI, Div] NI = Ave. rate; Div = Date of transaction]

I/S Average

*Inventory
1. Quarter Rate
2. Date of Purchase
DERIVATIVES  Option Contracts
 A financial instrument that derives its value from an underlying  Gives the holder a right to purchase or sell an asset at a specified price within
 FVPL [Derivative Asset/Liability]; Marked to Market a given future time period.
 Underlying a. Call Option – Right to buy an asset – Intrinsic Value = Spot Price – Exercise/Strike
a. Stock Price Price[Fixed]
b. Interest Rate b. Put Option – Right to sell an asset – Intrinsic Value = Exercise/Strike Price – Spot
c. Exchange Rate Price
d. Commodity Price  Requires to pay an Option Premium [Jan] – for unfavorable changes in price
 Used in Hedging [Risk Management]; Reduce Risk/ Protection of Financing
Losses FV = Intrinsic Value + Time Value
Time Value = Balancing Figure [Always decreasing]
Hedging – Designation of one or more hedging instruments so that their change in FV Intrinsic Value = Effective Portion
is use to offset the changes in FV or CF of a hedged items. Time Value = Ineffective Portion

Types of Financial Risk Call Option

1. Price Risk – Uncertainty about future price of an asset Spot Price > Strike Price = In the money [Exercise]
2. Interest Rate Risk – Uncertainty about future interest rate, and their impact on cash Spot Price = Strike Price = At the money [Indifferent]
flow and the fair value of the FI. Spot Price < Strike Price = Out of the money [Not exercise]
3. Foreign Exchange Risk – Uncertainty about future PH peso cash flow stemming
from asset and liabilities denominated in foreign currency Put Option
4. Commodity Price Risk – Uncertainty as to prices of commodities [crude oil, gold, Spot Price < Strike Price = In the money [Exercise]
silver, copper] Spot Price = Strike Price = At the money [Indifferent]
Spot Price > Strike Price = Out of the money [Not e xercise]
Hedge Accounting [IFRS 9]
1. Hedging Instruments – Derivatives [Pinang-mamanage]
 Forward Contracts
 Obligation to purchase or sell a particular commodity at a designated future
date at a predetermined price.
 Typically, the counter party is the bank. [Private/Over-the-counter]

 Futures Contracts
 Obligation to purchase or sell a particular commodity at a designated future
date at a predetermined price.
 The other party is unknown
 Traded in future exchange
Interest Rate Swaps
 Plain Vanilla Swap
 Used to hedge interest rate risk in a contract of loan
 Fixed to Floating/Variable – interest rate is expected to decrease
 Floating to Fixed - interest rate is expected to increase

2. Hedge Items – Risk that we manage [Minamanage]

 Firm Commitment/Purchase Commitment
 Contracting to buy products at a future date for a specified price
 With commitment; Locked-in price at the beginning
 Highly probably Future Transaction
 No commitment; No locked-in price at the beginning
 Expected to buy products in the future
 Fixed Interest Rate
 10% Fixed Rate for 5 years
 Floating Interest Rate
 PDEX market rate + 3%

FV Hedge CF Hedge
Fixed CF Variable CF
Firm Commitment Highly Probable FT
Fixed IR Floating IR

FV Hedge CF Hedge
Hedging Instrument MTM – P/L MTM – OCI
[Gain]
Hedged Items MTM – P/L Normal Accounting
[Loss] Eg. Invty – IAS 2
Objective: Minimize the fluctuation in P/L or I/S

Hedge of a net investment in a foreign operation – Accounting is the same as casf-

flow hedge.
NON-PROFIT ORGANIZATION [NPOs] JEs:
 Non-stock, not-profit institution 1. Cash 40,000
 Operate for purposes other than profit Unrestricted Contribution Revenue [URCR] 40,000
 Red-Cross, UNICEF, Bantay-Bata, SM Foundation URCR 40,000
 No shareholders, no dividends URCR 40,000
 FASB 116, 117 + Applicable IFRS
2. Cash 30,000
FUNDS – from contribution or donations of the public TRCR 30,000
TRCR 30,000
Financial Statement TRNA 30,000
1. Statement of financial position [B/S]
 Assets – same accounting treatment 3. Cash 10,000
 Liabilities – same accounting treatment PRCR 10,000
 Net Assets PRCR 10,000
o Unrestricted NA* PRNA 10,000
o Temporarily Restricted NA**
o Permanently Restricted NA*** 4. Expenses* 30,000
Cash 30,00
Contribution/Donation URNA 30,000
*w/out restriction – available for immediate use Cash 30,000
** *Charge to URNA if silent
TIME – use fund a year after
Restricted TRNA as to time [after a year]
PURPOSE – use fund for medical purposes only 1. TRNA 20,000
***NPO cannot spend the principal; only the interest and dividends URNA 20,000

2. Statement of Activities [I/S & Changes in Equity] 3. Statement of Cash Flow

URNA TRNA PRNA Total  Operating – unrestricted contribution
Revenues 40,000 30,000 10,000 80,000  Investing – Purchase & Sale of PPE
Expenses (30,000) (30,000)  Financing – Restricted [Temporary/Permanent]
Reclaffication 20,000 (20,000)
∆ in NA 30,000 10,000 10,000 50,000 4. Notes to Financial Statement
Add: NA, beg 10,000 10,000 10,000 30,000
NA, end 40,000 20,000 20,000 80,000
FASB 116 & 117 Prescribes the ff:
1. Healthcare Organization – hospitals and clinic
I/S
Gross patient service revenue
Less: Contractual adjustment [PhilHealth]
Less: Employee discount
Net patient service revenue

Charity Care – disclosed in FS only

 Free check-up
 Free consultation
 Free operation

2. Private Non-profit Colleges and Universities

I/S
Gross Tuition Fees
Less: Scho larship Grants
Less: Refund and Withdrawals
Net Revenue from Tuition Fees

3. Voluntary Health and Welfare Organizations [UNICEF]

 Additional to Statement of Activities is Statement of Functional Expenses
 Classify expenses accordingly
Program – expenses related to program [medical mission]

Support – before the start of the mission [fund raising operation]

Endowment Funds
 Permanently restricted
Types
1. Regular – spend only interest and dividend [PR]
2. Term – can use a portion of the principal each period + I & D [TR]
3. Quasi – depend on the decision of BOD/BOT [UR]
GOVERNMENT ACCOUNTING  CUSTODY
 Provide information that is useful in making economic decision
 Provide emphasis on two (2) things 4. Government Agencies – each has its separate accounting department
o Sources and Uses of Gov’t Funds  EXECUTION
o Accountability of Gov’t Agencies a. National Gov’t Agencies
 Gov’t Fund – National Budget [2022 – 5 trillion]  Departments [Headed by Cabinet Members]
 Offices [OVP]
Sources of Funds [inflows]  Others – CHED, MMDA
1. Taxes – lifeblood of the government b. Local Gov’t Agencies
2. Tariffs and Duties – Bureau of Customs  Provinces, cities, municipalities, and barangays
3. Fees and Licenses – Business permits, Driver’s license c. GOCCs
4. Borrowings – Foreign loans  Functions are related to public needs
o LBP
Uses of Funds [outflows] – programs and projects of the gov’t o Lung Center of the PH
o Heart Center
DepEd & CHED – highest allocation o PDIC, PCSO, NFA, PNR
Fund [5T] DPWH – 2nd
DILG – 3rd Accounting Standard in Gov’t Accounting
DOTr, DSWD, DOH, DOLE, etc.  Government Accounting Manual for NGAs
 Based on International Public Sector Accounting Standard [IPSAS/PPSAS]
Involved in Gov’t Agencies  Decided by COA
1. Commission on Audit [COA]
 Audits gov’t agencies Budget Cycle
 Promulgates accounting & auditing rules and regulations to apply in gov’t Preparation
accounting  Budget Call
 Submits annual report to the president and congress o DBM issues budget call to Gas
 Keeps the general accounting of the gov’t o GAs prepare budget proposal
 RECORDING  Budget Hearing
o GAs need to defend/justify their proposals before DBM
2. Department of Budget and Management [DBM] o DBM will deliberate, recommendation, consolidate all proposals
 Formulation and Implementation of the national budget o DBM submits proposal to the president
 AUTHORIZATION  Presentation to the Office of the President
o President and Cabinet Members will review the budget proposals
3. Bureau of Treasury [BTr] o After review will come up with President’s Budget
 Cash custodian
 Under Department of Finance
Legislation – legalization process/Due process o Budget vs Actual
 House Deliberation  Audit – COA; prepares
Upper House - Senate o Audit reports to be submitted to the president and congress
Lower House – House of Representative*
Accounting/Recording Process
*Conduct hearings to scrutinize the PB
Prepares the General Appropriation Bill [GAB] – House version of the budget Journals – GJ, CRJ, CDJ, Check DJ
 Senate Deliberation Recording Ledgers – Subsidiary and General
o Conduct hearings Registries* – Use for monitoring purposes [logbooks]
o Senate version
 Bicameral Deliberation *Four (4) Types
o Bicameral Conference Committee 1. Registry of Revenue and Other Receipts [RROR]**
o Reconcile the difference between the house and senate versions 2. Registry of Appropriation and Allotment [RAPAL]**
o Final version  President 3. Registry of Allotments, Obligations, and Disbursement [RAOD]**
 President’s Enactment 4. Registry of Budgets, Utilization, and Disbursement [RBUD]**
o GAB will become General Appropriation Act [GAA]
**
Execution – allocation of funds to GAs Personnel Services [PS] –employee related
 DBM releases guidelines to GAs Maintenance and Other Operating Expenses [MOOE]
o GAs submit Budget Execution Documents [BED] Financial Expenses [FE] – interest expense
 Details, Plans, Timelines, Costing Capital Outlays [CO] – PPE related
 Allotment
o DBM formulate the Allotment Release Programs [ARP] Notes:
 Sets the limit for allotment [control] Appropriation – Authorization made by legislative body to allocate funds for purposes
 Incurrence of Obligation specified by the legislative or similar authority.
o Hire employees, enter contracts, order materials, etc. Allotment – Authorization issued by DBM top GAs to incur obligations for specified
 Disbursement – actual payment amounts. Referred to as Obligational Authority.
o DBM will issue Notice of Cash Allocation [NCA] – in a form of checks Obligation – Act that binds the gov’t to the immediate or eventual payment.
o NCA Modified Disbursement System Checks [NCA-MDS Checks] Commitment that encompasses possible future liabilities based on current
o Once the GA pays, it’ll be charge to BTr contractual agreement.
Disbursement –Actual amount paid out of the budgeted amount.
Accountability Obligation Request and Status [ORS] – Documents needed upon incurrence of
 Budget Accountability Reports obligation.
o GAs submit monthly and quarterly reports Notice of Cash Allocation – Maximum amount of cash that can be withdrawn.
 Performance Reviews Registry of A&NCA – Used to monitor the balance of NCA and determine the amount
o DBM and COA of allotment not covered by NCA.
*Allotment > Obligations > Disbursement
Tax Remittance Advice – used to recognize in the books of GAs the constructive
remittances of taxes to the BIR or customs duties withheld to the BOC, and the
constructive receipts of NCA for those taxes and customs duties.
DBM – design, prepare, and approve accounting system of GAs

Chart of Account [GAM]

Major Difference is Cash Account
1. Cash – Collecting Officer [CO]
 Used for collection
2. Cash in Bank – Local Currency [CO]
 Used whenever depositing in bank
3. Cash –Treasury/Agency, Deposit, Regular [T/A]
 Used whenever depositing in Treasury
 Through authorized agent banks [LBP, DBP, PNB]
4. Cash – MDS, Regular
 Receive NCA – Start of JE
5. Cash – Tax Remittance Advice [TRA]
 Whenever there’s a withholding of taxes