Installment Sales Realized Gross Profit - 3 methods, if problem is si/ent, use INSTALLMENT Method. Collection x Gross Profit Rate OR DGP,end - DGP,beg Net Income: (Current Year= 20x3) Gross Profit on Regular Sales Realized Gross Profit on Installment Sales 20x1 (DGP to RGP) 20x2 (Collection-20x3 x GPR-20x2) 20x3 (Collection-20x3 x GPR-20x3) Total Realized Gross Profit Less: Expenses General and Administrative Selling Loss on Repossession Bad Debts Net Income - 20%3 Dr. Deferred Gross Profit xx Cr. Realized Gross Profit xx Loss on Repossession FV of Repossessed Merch, * (Est. SP after RC - RC - NP ~ CTS) «x Unrecovered Cost Installment AR Related DGP Loss on Repossession *Note: if before RC, ignore if after RC, deduct if silent, deduct RC. Proforma Entries: 1. Writeoff Dr. Loss on Writeoff xx Deferred Gross Profit xx Cr. Installment A/R. xx 2. Adjustment for Realized Gross Profit Dr. Deferred Gross Profit xx Cr. Realized Gross Profit xx 3. Collection Dr. Cash 0 Cr. Installment A/R. x x (a) God) 2 For Board Exam Purposes: Gain on Repossession is part of P/L like trading securities. (Guerrero) x xx xx Xx XX x xx pred x ed EE Journal Entry: Dr. Repossessed Merch, DGP-related Loss on Repossession Cr. Installment A/R-related Take Note! For FV of Traded-in or Repossessed Merch.: If Wholesale Value is given, the Normal Profit is IGNORED. If Appraised Values given, that is the Fair Value of the Merch.T-Accounts Installment A/R — 20x1 Installment A/R — 20x2 Beginning | Collections — 20x2 ‘Adjusted Installment | Collections = 20x2 Repossessed Accts. Sales, net of | Repossessed Accts. = 20x2 overallowance or | - 20x2 Writeoffs - 20x2, underallowance | Write-offs — 20x2, rel. 20x41 rel, 20x2 Ending Deferred Gross Profit — 20x1 Ending Deferred Gross Profit - 20x2 Beginning Beginning DGP-Repossessed Realized Gross Profit oS DGP-Repossessed Wei Nehe DGP-Writeoffs DGP-Writeoffs Unadjusted Bal. Ending Realized Gross Profit ‘Trade-in Installment Sales Overallowance OR = Underallowance Adjusted Installment Sales Cost of Sales Gross Profit Ex EExR Technique: Installment Sales Fair Value of Traded-in Merch. Trade-in Allowance Adjusted Installment Sales Cost of Sales Gross Profit BEXEXs i Downpayment ~ Cash Downpayment — FV of Traded-in Collections, net of Interest Total Collections Gross Profit Rate Realized Gross Profit Profit on Sale of Repossessed Merch. Total Realized Gross Profit, Loss on Repossession Net Income de Adjusted Bal. } Gross Profit Rate (%) Take Note!! If there is a given allowance and gross profit rate, RECOMPUTE GPR!! +» Gross Profit Rate (%) Cost of Sales Beginning Inventory Net Purchases Freight-in Repossessed Merch. @ FV Total Goods Available for Sale Ending Inventory (New + Repossessed) Total Cost of Sales COS-Installment: COS-Regular \y EX BR EXLong-term Construction Contracts (1) Contract Price = Contract Billings (2) Contract Price + Escalation Cost (Increase in Materials) — De-escalation Cost (Decrease in Materials) — Penalty Cost (Late Turnover) + Incentive Payment (Early Turnover) +/- Change Orders/Variations i (3) Proforma Entries a. Cost Incurred (Actual) Dr. Construction in Progress Cr. Cash b. To record Progress Billings Dr. Accounts Receivable Cr. Progress Billings c. To record Collections Dr. Cash Cr. Accounts Receivable d. Recognition of Profit or Loss Dr. Cost of Construction (Eal. Fig.) Construction in Progress (Profit) Cr. Cash Contract Price Cost Incurred - to Date Estimated Cost to Complete Total Cost Estimated Gross Profit Percentage of Completion x Realized Gross Profit ~ to Date Realized Gross Profit - Prior Years Realized Gross Profil — Current Year BExkeme sek vx EBxhxomnnk (4) CPx POC = CIP, if Profit Note: Construction in Progress (CIP) offset Progress Billings under PASI & 11 CIP account - Inventory PB account ~ Liability x 4 |b Percentage of Completion Note: If Estimated Gross Profits NEGATIVE, recognize it 100%. ix nw BExBxbexne x Under Zero / Cost Recovery Method, Percentage(%) to be used should be either 0% or 100% (5) (CP x POC) = LTD(1-POC) = CIP, if Loss (6) TCx POC-LTD = CIP, if Loss Cost Incurred ~ to Date Total Cost OR —Construction in Progress _ Contract Price ® poc = TAKE NOTE of this FORMULAI! Cost Incurred — to Date + 1 Construction in Progress — to Date ient Due from (Dt Current Assct ~ Current Liability Duc from Client Due to ClientComponents of Cost Incurred — to Date + Materials + Labor + Overhead + Depreciation of Construction Equipment + Reimbursable Cost + Materials/Supplies that are not yet used end do not have alternative use — Incidental income related to the Construction Cost shou! ce Notel! Iso include estimated warranty costs. Proforma Entry to Record Contract Retention Dr. Cash xX Contract Retention x Cr. Accounts Receivable xx Contract Retention does not have an income element. Upon Completion, Dr. Cash x Cr. Contract Retention xx Mobilization Fee — is a fee that does not have an income element. reduces billings since there is a cash advance by the contractor part of collection deduction to Progress BillingsFranchising Note! ALL criteria should be met. wv 1. Receivable must be reasonably assured. if SILENT, reasonably assured. w 2. Cash as downpayment must be non-refundable. if SILENT, non-refundable. ~~ 3. Franchise Services, there should be substantial performance. \ Except: The Downpayment could be considered as Franchise Revenue | if the 2 conditions are met: (2) If the DP, represents fair measure of the services already rendered. t (1) IF the DP, is non-refundable: AND |—» business started/commenced L__-» amount of sales If this is the scenario in the criteria, v “ww x Revenue = Downpayment; Unearned Revenue = Present Value -> Non-interest Bearing Notes Receivable 1. Not Reasonably Assured - Installment Method, Collection x GPR = RGP 2. Reasonably Assured - Accrual Method, Revenue —COS = Gross Profit Case 1: Reasonably Assured, Interest Bearing Revenue (IFF, 3 conditions are met) - _COS (DC for Initial Services) = OP + CFF + Int, Income IDC for Initial Services = Expenses DC for Continuing Services IDC for Continuing Services. Net Income Case 2: Not Reasonably Assured, Interest Bearing Downpayment Collections during the Year Total Collections Gross Profit Rate Realized Gross Profit CFF Int. Income Expenses (Same in Case 1) = _Net Income bt tuxns Total REVENUE OF THE FRANCHISOR: 1. Downpayment 2. Present Value of NR 3. Continuing Franchise Fee 4. Interest Income Case 3: Reasonably Assured, Non-Interest Bearing > Present Value > FC-PV = Discount > Interest = PV x Interest Rate Revenue (DP + PV of NR) cos GP CFE Int, Income Expenses (Same in Case 1) Net Income bet Case 4: Not Reasonably Assured, Non-Interest Bearing Downpayment + _Collections (net of Interest Income) = Total Collections’ x _Gross Profit Rate [GP/Revenue (case 3)] = “Realized Gross Profit + CFF + Int. Income Expenses (Same in Case 1) Net Income ‘Total FRANCHISE REVENUE: =: 1. Downpayment. 2. Present Value of NR 3. Continuing Franchise FeeCorporate Liquidation Assets. 1. Asset Pledged to Fully Secured Liabilities/Creditors [FV of Asset > Liab (Pr.+Int.)] 2. Asset Pledged to Partially Secured Liabilities/Creditors [FV of Asset < Liab (Pr.+Int.)] 3. Free Assets -> assets that are not originally pledged to any liability. 1. Fully Secured Liabilities (100% or FULL) 2. Partially Secured Liabilities (100% x Asset Fledged + Percentage of Recovery x Unsecured Portion) 3. Liabilities with Priority (100%) (ex. Admin. Exp, Taxes, Liquidation Exp,, Salaries, Customer Deposit) 4, Liabilities without Priority (Percentage of Recovery) Percentage of _ NFA _ Recovery ~ Tull Net Free Assets (NFA) Total Un: LI 1. Excess of AFSL xx 1, Excess of PSL xx over FSL xX xX over APSL BS KX 2. Free Assets x 2, Unsecured Liabilities x Total Free Assets xx Total Unsec. Liab. (TuLI) xxx 3. Liab. w/ Priority (od), Net Free Assets mK *Prepayments and Goodwill has ZERO Value. Estimated Deficiency = TuLI — NFA Total Free Assets > assets that are available for the > assets that are available for payment of secured and unsecured unsecured. liabilities Note: Gain or Loss on Realization: FV of Assets vs BS of Assets does not include cash. Shareholders Equity, beg wx Net (Loss) Gain 2X), Accrued Interest, net (x) Liquidation Expenses (x) Taxes God Estimated Deficiency or Estate Deficit 2x Realization Assets TO BE Realized Assets Realized Assets Acquired Assets NOT Realized Liabilities Liquidated Liabilities TO BE Liquidated Liabilities NOT Liquidated Liabilities Incurred Supplementary Charges Supplementary Credits Net Income Net LossAssets TO BE Realized: Assets Acquired: Assets Realized: Assets NOT Realized: Liabilities TO BE Liquidated: Liabilities NOT Liquidated: Supplementary Charges: ‘Supplementary Credits: Total Assets, beg - Cash or Non-Cash Assets, beg like Sales on Account or Accrued Interest if Notes Receivable & Accounts Receivable -> Collection if Non-Cash Assets -> Proceeds if Inventory -> Cost of Sales Non-Cash Asse's, end + Cash Beginning Balance Ending Balance Expenses + Cost of Sales in the Realized Inventory Revenue and Other IncomeBusiness Combinations IFRS 3 - FV Approach IFRS 10 — Consolidation Business Combination is a transaction where control is obtained. ‘Ownership Asset Method 51-100 Investment in Subsidiary Cost or Equity 20-50, Investment in Associate Equity Trading Securities ~ . FA@EV to P/L F 1-19 Availabe for Sele = Fair Value or Cost FA@FV to OCI Types of Business Combinations a. Asset Acquisition (100%) (Acquirer & Acquiree) a1. Statutory Merger (A + B = Aor B) a.2. Statutory Consolidation (A + B = C) b. Stock Acquisition bil. Fully-Owned Subsidiary b.?. Partially-Qwned Subsidiary *Pooling of Interest is PROHIBITED Accounting Method — Acquisition Method 1. Determine the Acquirer. 2. Determine the Acquisition Date. « Acquisition Date -> Measurement Date «The assets can be adjusted to Fair Value within 1 year from the acquisition date. 3. Determine and measure Identifiable Assets and Non-controlling Interest (NCI) 4. Measure and record Goodwill* or Gain**. *Goodwill is presented as Non-current Asset. The pre-existing goodwill of the PARENT is INCLUDED in the Consolidated Financial Statements while the pre-existing goodwill of the SUBSIDIARY is IGNORED. **Gain is recorded in the Net Income only in the year of acquisition; it does not affect the Net Income next year. Goodwill/Gain c: . ‘Complex Method: Total Purchase Price: FV of Prev. Held Int. [(Add’l PP / Add’ Contri. Int.) x PHI%] FV of Add’! Consideration Given FV of Contingent Consideration (Payable) FV of NCI FV of Subsidiary FV of Subsidiary Net Assets Goodwill (Gain) Bebe bef Purchase Price Net Assets @ Fair Value.= | Goodwill (Gain) Purchase Price Net Assets @ Book Value Excess Undervaluation “UVA” Overvaluation “OVA” Goodwill (Gain) ules Purchase Price Non-controlling Interest FV of Subsidiary EV of Net Assets Goodwill (Gain) wfafu |e Net Assets @ Book Value Undervaluation SUVA” Overvaluation “OVA” = | Net Assets @ Fair Value + Horizontal Approach Purchase | Non-Controlling Total Price | Interest (NCI) Fair Value of Subsidiary xx xX xX, = | Net Assets @ Fair Value xx XX xx = | Goodwill (Gain) xx(%X) x00), x00) *Gain is NEVER allocated. It belongs to the Parent. "The amount of impairment loss is allocated using the Goodwill Ration between the parent and subsidiary. Measurement of NCI (Optional) 1. Fair Value of NCI + Ifthe amount of FV of NCI is NOT Given, Compute for the Implied Fair Value. Purchase Price—Control Premium © fomtey Control Interest xNCI(%) 2. Proportionate Share/Interest on Net Assets of Subsidiary (INAS) * Formula: _ FV of Net Assets of Subsdiary xT INAs / Pr, Sh, /Relevant share Note: if the problem is SILENT, use Fair Value. Floor Test > The amount of NCI should not be lower than INAs. > Pick-up whichever is Aigher between the INAs and the Fair Value of the NCI. DATE OF BUSINE! IMBINATI. ted Total AssetsAssets — Parent @ BV Assets — Subs. @ FV Goodwill = | Purchase Price (Cash & NCA) = | Direct Costs envi = [indirect Costs only if = [cr PAID = | Total Assets CTIR (Cost to Issue and Register): “SEC” “Stock” “Share” “Documentary Stamp Tax” CTIR is deducted to: (in order of Priority) 1. SP=new 2. SP = original 3. Retained Earnings 4. Expense Liabilities — Parent @ BV Liabilities = Subs. @ FV Contingent Consi. Payable Purchase Price (Wiote Payable or Bonds) +/- Premium of Di +]+]+ + | Direct Costs ‘ADD only, + | Indirect Costs if if NOT. + [CrIR PAID Consolidated Total Liabilities Consolidated Total SHE SHE — Parent @ BV + | NCL + | Gain® + _| Purchase Price (Stocks @ FV) = | Direct Costs DEDUCT = [indi whether Indirect Costs woe - [cm UNPAID. = | Consolidated Total SHE Note: SHE of Subsidiary is IGNORED. *Gain composes: (1) Gain arising from Business Combinations (2) Gain or Loss on Previously Held Interest (PHI) (3) Gain or Loss on Contingent Consideration Payable (CCP)** **CCP -> Info. Existed @ the date of acquisition, the effect is on Goodwill. -> Info. NOT Existed @ the date of acquisition, the effect is on P/L. -> Inc, (Dec.) -> ex. Market Price (Future) (If, What If)RE — Parent. +/- | Gain / Loss* includes Gain in SHE = | Direct Costs = [Indirect Costs = [cm = | Consolidated RE Note: Excess/Goodwill/Gain will be separately computed for each subsidiary. Business Combinations for SME: 1. Direct Costs are CAPITALIZABLE. 2. Goodwill is subject to amortization over 20 years. 3. Partial Goodwill Method — used to measure goodwill. * NCLis simply the value of INAS. If there is Tax Rate, compute for DTA/DTL: DTAsset if CA of Asset < Tax Base lity if CA of Asset > Tax Base CA of Liability > Tax Base CA of Liability < Tax Base For SMEs: Purchase Price xX Direct Cost x Total xx NA@FV 00) Goodwill(Gain) x0.(NEP — CNI-NCI 1. PNT x = 2. _ Div. received from subs. (Div. of Sx %) (x) ~ Income from own operations / Separate Income of Parent x ~ Subsequent to 3. SNI xx xX Business 4. Amort. UVA (x) (0) Combination 5. Amort. OVA xx xe 6. Gain x - 7. Impairment Loss (Allocated) (xx) (0) 8. RPBI - down x - 9, UPEI - down (00) Intercompany 10. RPBI-up x 11. UPEI - up (0) UG - down. xX RG — down (00) UG - up xX RG —up (0) UL -down. xX RL - down (x) UL -up xx RL-up (x), UG - down > RG — down* (x) UG - up xX RG - up* (x) UL - down x RL - down* (x) UL-up ~~ RL - up* (xd Consolidated Income XXX *Realized only if sold to third parties. **UPEI = End. Inv., Buyingaffiliate x GPR(based on Sales), Seling affiliate For UPEI / RPBI: Sales Ending Inventory = Cost of Sales X_GPR of Seller Gross Profit, oR UPEL x__Ending Inventory (%) UPEL UPEI: Downstream Upstream Cost of Sales *x Cost of Sales x Inventory xx_| Inventory x RPBI: Downstream Upstream Retained Earnings — Parent, beg »x Retained Earnings - Parent, beg xx Cost of Sales xx | Non-controlling Interest x Cost of Sales xxSales = Parent x Sales = Subs. (God Intercompany Sales & Purch. @ Selling Price | (xx) Consolidated Sales xx Cost of Sales = Parent x Cost of Sales ~ Subs. x. Intercompany Sales & Purch. @ Selling Price | (xx) UPEI x RPBL (Go) ‘Amort. of UVA-Inventory (ox) ‘Amort. of OVA-Inventory. x Consolidated Cost of Sales xx Inventory ~ Parent x Inventory — Subs. xx UvA-Inventory x. ‘Amort. of UVA-Inventory (oq) OVA-Inventory (309) ‘Amort. of OVA-Inventory x UPEI (x) Consolidated Inventory XX NCI-beg x NCI-CL x Div. Share (DD-S x %) (00) Consolidated NCI xx Retained Eamings — Parent, beg x CNP x Dividends = Parent (= Consolidated Retained Eamings. xx Valix: Retained Eamings = Parent, end x CNI-P (excluding NI-P) xx Consolidated Retained Earnings x0Partnership Formation Valuation . Cash ~ Face Value NCA — Agreed Value . Liabilities — if SILENT, assumed. Capital a. Capital measured at Bonus Method, if SILENT b. Investment / Withdrawal Bonus Method 1. There is a capital transfer from one partner to another. 2. Total Assets, Total Liabilities, and Total Capital will NOT change. Investment / Withdrawal 1. Adjusted Cap. > Unadjusted Cap. — INVESTMENT 2. Adjusted Cap. < Unadjusted Cap. - WITHDRAWAL Bune Partnership Operation . If SILENT, Net Income is BEFORE Salaries, Interest, Bonus. .. Salaries could be Fractional Year. . Interest, it SILENT, is per annum and this could also be Fracuonal Year. .. Salaries and Interest should be given regardless whether Profit or Loss, .. Bonus is given only if there is PROFIT. . Example: TECHNIQUE Given: NI before B Queene @ less deductions required except Bons) ‘Bonus Rate 1+ Bonus Rate Given: NI after B Nladd deductions required except Bonus) Bonus Rate Bonus Rate Case Profit Ratio Loss Ratio 1 v v - based on Agreement 2 v X- based on Profit Ratio 3 x v - based on Original Capital Ratio 4 x x ~ based on Original Capital Ratio If Interest is based on Average Capital, 1. Weighted Average - FIRST PRIORITY 2. Simple Average Partnership Dissolution = Change in ownership —1. By Purchase without Revaluation. 1.1. Personal Transaction 1.2. No Total Change in Assets, Liabilities, and Capital 1.3. The Purchase price (PP) of the new partner is IGNORED. 2. By Purchase with Revaluation. 2.1. PP is considered to compute Undervaluation (UVA) or Overvaluation (OVA). 2.2. Any UVA/OVA should be allocated between and among the OLD partners using their P/L ratio. 2.3. The Adjusted Capital of OLD partners including the allocated UVA/OVA would be reduced by the NEW interest of the NEW partner, 2.4, Formula UVA/OVA: PP = [ New interest ‘Adjusted Capital of OLD partners: = [Unadjusted Capital of OLD partners = [UVA (OVA) 3. By Investment Bonus if O UVA if + ICC TAC OvAif= | A x x x B x x x Total XX, xX XK Cc x x x Total OOK XK 0K Ending TAC = TCC -> BONUS TAC > TCC -> UVA TAC < TCC -> OVA if SILENT, BONUS METHOD ‘The Loan Balance is considered in computation in Retirement & Liquidation. Due from/Loan to/Advances to = Receivable, deducted'to Capital in computing Total Interest. Due to/Loan from/Advances from = Payable, added to Capital in computing Total Interest. Bonus If the problem says “up to the extent of profit” or “in the following priority” -> Prorate the remaining balance using the interest ratio. Partnership Liquidation 1. Lumpsum Liquidation (Total) 2. Installment Liquidation (Piece-meal) 1. Asset Realization 2. Payment of Liquidating Expenses & Liabilities 3. Cancellation of Deficiency 4. Distribution to Partners Installment Liquidation cash Priori c When to use?If itis an “if” question or scenario. Example: “If A received P##. What amount does B receive as xxx? Loss on Realization?” Steps in CPP ‘Capital + Loan from(to) + Undistributed Net Income(Loss) 1. Determine Total Interest- tm + + Additional Investment — Withdrawal + UVA— OVA 2. Compute LAB (Loss Absorption Balance) Total Interest P/L Ratio 3. Equalize the LAB (Deduct the 2nd Highest from the Highest until equal balances) 4, Distribution: Difference in LAB x ____P/L Ratio = 22000000 LAB = Technique: Cash, bea. = | Proceeds @ Salling Price ~ ; paid Total Liabilities. <<} unpaid ~ , paid Total Lia. EXP. tinpaidl /eash withheld = | Cash Distributed to Partners OR VALIX: Capital balances +/-| Gain (Loss) on Realization = [Liquidation expenses BV of unsold NCA Cash Withheld — | Max. Pos. Loss << + | Condonation of Debt Cash Distributed to Partners *In Liquidation, particularly in CPP, the amount of Net Income can be IGNORED to distribute the profit, UNLESS, Net Income is allocated using S,1,B,Rem. and not using P/L ratio only. Maximum Possible Loss (MPL): Unsold NCA Cash Withheld Maximum Possible Loss (MPL) +Joint Arrangements PAS 31-old PERS 11 - new 1. IC Entity ——+ 1. Joint Venture 2. JC Assets © ———=» 2. Jointly Controlled Operation 3. JC Operation —~ Joi Equity Method) Purchase Price Share in Net Income (fractional) + Transaction Costs a Amort. of UVA (fractional) + Investment Income (can be fractional) + Amort of OVA (fractional) = Dividend (Full Year) — UPEL = Impairment Loss + RPBI =_Investment in Joint Venture/Associate - UG +. RG (fractional) + UL = _RI (fractional = Total x__Ownership Interest (%) = Investment Income + Gain Total Investment Income. ~ same with Income Summary 3co Beg. Inv. Sales Purchases Other Income Freight-in Expenses. ICO, unadjusted End. Inv. Net Income/JCO credit/Adj. ICO creditOther Comprehensive Income (OCI) FERRER Technique Foreign exchange translation adjustment (PAS 21) Effective portion of Cash Flow Hedge (PAS 32-PFRS 7; PAS 39-PFRS 9) Revaluation Surplus (PAS 16) Remeasurement Gain (Loss) on Defined Benefit Plan (PAS 19R) Estimated Unrealized Gain (Loss) on Available-for-Sale securities or FA@FV thru OCI Risk — Gain(Loss) on Credit Risk for Financial Liability designated as FV thru P/L amazamn Reclassify to P/L FS-v¥ — FVOCI- X -> directly to RE amazamn KEK S