PARTNERSHIP Measurement:

Valuations:
1. Cash……………………………………………………………………………………….. Face Value
2. Non-cash……………………………………………………………………………….. Agreed Value
3. Liabilities (assumed if silent)………………………………………………. Face Value
4. Capital
4.1. If silent
*No recording of Unidentifiable Asset
*Total Agreed Capital = Total Contributed Capital
*Only a Transfer of Capital will happen
4.2. Goodwill Method
*Total Agreed Capital > Total Contributed Capital

If Adjusted Capital > Unadjusted Capital = Additional Investment

If Adjusted Capital < Unadjusted Capital = Withdrawal

Rules on Dues/Loan in arriving at Partner's Total Interest

1. Receivable of Partnership = Due From/Loan To (Deduction on Partner's Capital)
2. Payable of Partnership = Due To/Loan From (Addition on Partner's Capital)

Rules on Division of Profit/Loss

Profit Loss
1 / / Agreement
2 / x If Profit Ratio only is available, use as Loss Ratio
3 x / If Loss Ratio only, use Original Capital Ratio
4 x x Original Capital Ratio

Salaries
*Provided regardless of P/L Ratio
*Check if given is per Month/ Annual

Interest
*Rate is per annum (if silent)
*Based on Capital Balance (depends on the given)

**If problem states "only to the extent of earnings" and remaining balance is
not enough, pro-rate the amount/remaining balance using Salaries/Interest Ratio
depending on which must be provided first.

Bonus (only applies if there is a Profit but Not to Loss)

*If silent, Net Income is before Interest &/or Salaries and Bonus
Bonus = (Net Income (before I/S/B) - I/S/B)
x Bonus Rate
1 + Bonus Rate
*If given in Net Income after I &/or S and Bonus but needed Bonus is before deductions:
Bonus = (Net Income (before I/S/B) + I/S/B)
x Bonus Rate
1 - Bonus Rate
*If there is a Tax, above computation isn't applicable, use traditional
formula in computing the Bonus:
 Bonus = Bonus Rate (Net Income before Bonus - I/S/B - Tax Rate)

What transactions affect Partners' Capital Balances?

Additions (Credit) Deductions (Debit)
1. Beginning Balance/Initial Inv. 1. Permanent Withdrawals
2. Additional Investment 2. Share in Net Loss
3. Share in Net Income 3. Debit balance of Drawing Account

Dissolution
1. Admission
1.1. By Purchase
*If silent, Without Revaluation (No changes in Total Capital of All Partners,
only Partners' Capital Balances)
*With Revaluation
Amount Paid by New Partner
Divide by: New Partner's Agreed Interest %
Adjusted Capital of Old Partners
Deduct: Unadjusted Capital of Old Partners
Under (Over) valuation of Partnership Asset
**to be distributed using P/L to Old Partners
**to get the Capital Balance, End:
#Old Interest x (1 - New Partner's Interest)

Journal Entry
Revaluation of Net Assets
Dr. Cash/Asset xx
Cr. Old Partners' Capital xx
Cr. New Partners' Capital xx
Admission of New Partner
Dr. Old Partners' Capital xx
Cr. New Partners' Capital xx

1.2. Investment - IGNORE LOAN BALANCES

CAT Table
Contributed Agreed
Interest % P/L
Capital Capital
Old Partners 1. (Usually given)* (usually (usually
(Either is given)
2. (Usually given) given) given)
Total Sum of given (1-new int) Sum of given
(usually [Total * (new part's
New Partner (Squeeze)
given) int/(1-new part's int))]
Total+New partner's Total+New partner's
Grand Total
Contributed Capital Agreed Capital
*Adjust first if problem states so
**Bonus if grand total on the last column is = to -0-, therefore Contributed=Agreed Capital
**Undervaluation if grand total of Agreed Capital is > Contributed Capital
**Overvaluation if grand total of Agreed Capital is < Contributed Capital
Steps:
 1. Fill in the table the given data, adjust old partners' contributed capital if problem states so.
2. Squeeze the rest

2. Retirement/Withdrawal
*Update Capital, Loan Balances, Share in Net Income/Loss
*Bonus method only (no changes in total Capital), no more Goodwill method

Liquidation (watch out for the dates, misleading)

1. Lumpsum (Total Distribution)
Steps:
a. Non-cash asset realization (Gain/Loss absorbed through P/L)
b. Payment of Liquidation Expenses & Liabilities (Priority payment)
c. Distribution of Cash to partners
*Check for Capital Deficiency -
1. Right of Offset (Loan Balance)
2. Additional Investment (if Personally solvent)
3. Absorption by remaining partners (use P/L ratio for solvent partners)
#Common mistakes - treatment of Liquidation Expenses and
Revaluation of Non-cash Assets (NCA)
#Martialling/Priority:
Partnership Assets Personal Assets
1. Partnership Creditors 1. Personal Creditors
2. Personal Creditors 2. Partnership Creditors
3. Other Creditors 3. Other Creditors

Cash Distribution Table:

Cash Beginning (usually for the month) xx
add: Proceeds on Sale of NCA* xx
minus: TOTAL Liabilities
Paid xx
Unpaid/Cash Withheld xx xx
Liquidation Exp
Paid xx
Unpaid/Cash Withheld xx xx
Total Cash Distributed to Partners** xx

*either Total depending on the required months in the problem

*if not given, squeeze. Proceeds = Book value of NCA + Gain or - Loss on Sale
**From Cash Priority Program
**SHORTCUT = simply multiply by Share in P/L % to get each partner's share

Cash Priority Program*

1. Total Interest of Each Partners (Capital +/- Loan Bal +/- Under(Over)valuation+/- NI/Loss)
2. Loss Absorption Balance (LAB)
>Total Interest divided by respective P/L ratio ***if capital is deficient, do not include
3. Equalize LAB (Highest minus Second Highest, repeat until all capital bals are equal)
4. Distribution to Partners (Differences is LAB x P/L ratio)
*CPP is used when question is an "If question/scenario (e.g. Partner A is to receive P10K)
 AND problem doesn't require Additional Investment.

Schedule of Safe Payments

1. Compute Total Interest
2. Determine the Maximum Possible Loss (Unsold part of NCA + Cash Withheld/Unpaid Liab/Liq Ex
3. Distribution of Deficit (No additional investment will be recognized)
4. Distribution to partners

Corporate Liquidation
1. Asset Pledged - Fully Secured 1. Liability - Fully Secured
2. Asset Pledged - Partially Secured 2. Liability - Partially Secured
3. Free Assets 3. Liability - with Priority
4. Liability - without Priority

Asset Measurement (@ Fair Value)

Liability " (@ Maturity Value = Principal + Accrued Interest)

#In General, GOODWILL, Other Intangible assets and Prepayments are DERECOGNIZED unless
stated otherwise in the problem.

Liabilities with Priority (CATS)

1. Customers' Deposits
2. Administrative Expenses (e.g. Liquidation Expenses)
3. Taxes
4. Salaries Expenses

Statement of Affairs
Percentage of Recovery = Net Free Assets (NFA)*
Total Unsecured Liabilities (TULI)**
*NFA
a. Excess of Total Asset Pledged - full/partially sec over Total Liab - fully/partially sec
add: b. Free Assets a+b=TOTAL FREE ASSETS
minus: c. Liabilities with Priority

**TULI
a. Excess of Total Liab - fully/partially sec over Total Asset Pledged - full/partially sec
add: b. Liabilities without Priority

Estimated Deficiency = TULI - NFA or [TULI x (1 - % of Recovery)]

Payment
1. Fully Secured Liabilities x 100% xx
2. Partially " " Full x100 % xx
Excess x % of reovery xx ---
3. Liability w/ Priority x100 % xx common question in Board Exam
4. Liability w/o Priority x % of reovery xx ---
Total Payment to Creditors* xx
*Shortcut to computing Total Payments to Creditors
 > FV of NCA to be Realized + Cash Bal. Beg.

Statement of Realization
1. Assets to be Realized (exclude cash) 3. Assets Realized (proceeds of sale/collecti
2. Assets Acquired (Interest/Dividend Rec'l 4. Assets Not Realized
Credit Sales)

7. Liabilities Liquidated 5. Liabilities To Be Liquidated

8. Liabilities Not Liquidated 6. Liabilities Incurred/Assumed

9. Supplementary Debit (PEGC) 10. Supplementary Credit (SOL)

(Purchases, Expenses, Gain on Sale, COS/COGS) (Sales, Other/Interest Income, Loss on Sale)

Net Assets End

Net Assets, Beg xx
+ Gains/Loss on change in FV @ Beg xx
- Liquidation Expenses xx
- Interest Expense xx
Net Assets End xx

Installment Sales - patterned w/ US GAAP *Installment Accounts/Contracts Rec'l = Always Current

Recognition Criteria - point of Sale/Single recog. *Contract revenue may be affected by de-escalation clau
Accrual Method - point of collections *Periodic inventory, trade-ins are recorded to a separate n
> Cost recovery and then added to purchases
> Profit method
> Installment method (preferred if prob is silent)

Total RGP
Regular Gross Profit (Reg Sales - Reg COS) xx
Installment collections for the year
Prior year (Collections x GPR that year) xx
Current year (Coll'ns x GPR this year) xx xx xx
add: Interest Income xx
less: Operating Expenses (Admin + Selling) xx
Loss on Repossession** xx
Loss on write-off (amount written-off x cost ratio) xx xx
Net Income xx

** FV of Merchandise Repossessed (if Silent, deduct)

(if AFTER, deduct Recoditioning Cost, Normal Profit* & cost to sell/dispose)
*Normal Profit = Estimated Selling Price x NP rate
(if BEFORE or says APPRAISED/WHOLESALE value don't deduct Recoditioning Cost &
Normal Profit, ONLY cost to sell/dispose)
less: Unrecovered Cost
Repossessed Account xx
less: Deferred GP xx
Gain/Loss on Repossession
 Pro-forma Entries:

Installment Sales
Dr. Inst Accounts Rec'l xx
Cr. Cost of IS xx
Cr. DGP xx

C Collection
Dr. Cash xx
Cr. IAR xx
Dr. DGP xx
Cr. Realized GP xx

R Repossession Loss
Dr. Repo Mdse (@FV) xx
Dr. Repo Loss xx
Dr. DGP (remaining bal) xx
Cr. IAR xx

W Write-down
Dr. Loss on Write-down xx
Dr. DGP xx
Cr. IAR xx

Installment payments computation:

Unadjusted Sales
less: Trade-in Allowance (based on unadjusted sales amount)
less: Downpayment (based on unadjusted sales amount)
Remaining Balance of Adjusted IS

Collections = FV of asset traded in

or Remaining Bal of Adj IS LESS FV of asset
1. FV of Mdse received/traded-in
2. Downpayment (Cash)
3. Collections of PRINCIPAL**
**carefully analyse the problem if collection includes accrued interest

IAR - Prior Year IAR - Current Year

Beg Bal C - Collections Adjusted IS** C - Collections
R - Repossessed Account R - Repo Account
W - Write-off W - Write-off
End End

DGP - Prior Year DGP - Prior Year

Realized GP Beg Bal Realized GP Beg Bal
DGP on Repo DGP on Repo
DGP Write-off DGP Write-off
End End
 **Adjusted IS
= Unadjusted Sales
less: Trade-in Allowance (based on unadjusted sales amount)
add: FV of Mdse received

Long-term Construction Contracts (LTCC - IAS11)

*Contract Price = Progress Billings on the Last Year of Construction

Contract Price xx Direct Cost* xx

less: Penalty Clause xx Indirect Cost xx
add: Incentive Payments xx Reimbursable Costs xx
add: Escaclation Clause xx Total Cost of Cons xx
add/ *include unutilized materials if part of contract
Change Orders/Variations xx
less: *proceeds of sale to be deducted from cost
Prog Billings/Total Cons Rev xx **add Selling and Admin if part of contract
(Liability Account)

*Expensed, NOT capitalized Contract Price = actual costs + mark-up

1. Dep'n of Idle PPE Bid Pricee = Costs to complete + mark-up
2. General & Admin Exp
3. Research & Dev't
4. Selling Exp

% of Completion Contract Retention Fee & Mobilization Fee should

1. Costs incurred to date be disregarded in Income Computation, only in Cash Collection
Total Costs to complete the project
2. Cons In Prog
(if no Loss)
Contract Price
3. Cons Rev
Total Cons Rev

if CIP>PB = Current Asset

if CIP<PB = Current Liability

Journal Entries
**Same under Zero Profit and % of Completion
1. Cost Incurred
CIP xx
Cash xx

2. Progress Billings
AR xx
PB xx

3. Billings Collection
Cash xx
 AR xx

*Revenue Recognition
CIP xx
Construction Cost xx
Construction Revenue xx

*Main difference, under ZP recognize GP only @ Final year of completion

Final Year
Same entries above

*Elimination of Inventory
PB xx
CIP xx

CIP computation if there is a Loss:

1. (Contract price x % of Comp) - Loss to Date (1-% of Comp)
2. (Total Cost to Complete x % of Comp) - Loss to Date

Gross Profit Table 20xa 20xb 20xc

Contract Price (CP) xx xx xx
Cost Incurred to date xx xx xx
Est. Costs to complete xx xx xx
Total Est. Costs (TEC) xx xx xx
Expected Gross Profit (CP-TEC) xx xx xx
x % of Completion % % %
Realized Gross Profit to date xx xx xx
less: Gross Profit last yr. xx xx xx
GP(Loss) this yr. xx xx xx

*Total estimated cost may exceed Total Revenue from contract in which case,
report Loss in its entirety Immediately when first anticipated whether ZPM or POC

CA/L Table
CI to date xx xx xx
add: Profit (Loss) to date xx xx xx
CIP xx xx xx
less: PB to date xx xx xx
Current Asset(Liability xx xx 0 > last yr always -0-

*Check if Progress Billings is cumulative or not (most likely Not cumulative)

*Assume cumulative if it says To date (e.g. Cost incurred to date)
*CIP = cost of construction to date + RGP to date - Loss
*Cost of construction = (Change in % of completion x contract price) - RGP for the yr + Loss for the yr

Franchise Accounting (Franchisor's Book)

 Recognition of Revenue
1 Receivable - check if Reasonably Assured (if Silent, YES)
2 Cash downpayment - Nonrefundable? (if represents Fair Measure, Revenue)
3 Future Services - Substantial Performance (when business started/commences/sales
is being recognized and Not when Costs are incurred)
**If all 3 are checked, consider as Initial Franchise Fee (IFF)
*if only nonrefundable downpayment is checked, may be recognized as IFF regardless
of the other criteria.

*Collectibility of Note - Reasonably Assured (Accrual Method) **Accrual - no need to compute

Not Reasonably Assured (Installment) for RGP

4 Cases
1. Notes Receivable (Interest Bearing) - Reasonably Assured
Sales (entire IFF) xx
less: Cost of Sales (Direct Cost for Intial Services only) xx
Gross Profit xx
add: Continuing Franchise Fee (stated % x Sales) xx
Total Franchise Revenue xx
add: Interest Income (check if fractional year) xx
less: Expenses (indirect costs for Initial serv, direct & indirect - continuing) xx
Net Income xx

2. Notes Receivable (Interest Bearing) - Not Reasonably Assured

Downpayment xx
add: Collections for the year (remove interest income if included) xx
Total Collections xx
x GPR [(Sales - Cost of Sales)/Sales] %
Realized Gross Profit xx
add: Continuing Franchise Fee (stated % x Sales) xx
Total Franchise Revenue xx
add: Interest Income (check if fractional year) xx
less: Expenses (indirect costs for Initial serv, direct & indirect - continuing) xx
Net Income xx

3. Notes Receivable (Non-Interest Bearing) - Reasonably Assured

Sales (Downpayment + PV of Note only) xx
less: Cost of Sales (Direct Cost for Intial Services only) xx
Gross Profit xx
add: Continuing Franchise Fee (stated % x Sales) xx
Total Franchise Revenue xx
add: Interest Income (check if fractional year) xx
less: Expenses (indirect costs for Initial serv, direct & indirect - continuing) xx
Net Income xx

4. Notes Receivable (Non-Interest Bearing) - Not Reasonably Assured

Downpayment xx
add: Collections for the year (remove interest income if included) xx
 Total Collections xx
x GPR [(Sales - Cost of Sales)/Sales] %
Realized Gross Profit xx
add: Continuing Franchise Fee (stated % x Sales) xx
Total Franchise Revenue xx
add: Interest Income (check if fractional year, based on PV of Note) xx
less: Expenses (indirect costs for Initial serv, direct & indirect - continuing) xx
Net Income xx

*interest runs from the signing of contract)

Reminders:
1. Read the problem carefully. Beware of dates, check substantial performance,
2. Count the days of refundability.
3. Collections include principal only, don't add interest income.

Home Office & Branch

*Investment in Branch = Noncurrent Investment
*Allowance on Overvalued Branch Inventory = Contra Investment Account
*Home office = Equity of Branch
Pro-forma Entries Home Office Branch
1. Shipment Dr. Inv. in Branch Dr. Ship from HO
Cr. Ship to Br Cr. HO
Cr. All on Br Inv
2. Return of Mdse (Simply reverse the entry above)
**3. Purchase by HO, recorded Dr. IIB Dr. PPE
by Branch Cr. Cash Cr. HO

Dr. Dep'n
Cr. AD - PPE

Purchase by Branch , No JE Dr. PPE

recorded by Branch Cr. Cash

Dr. Dep'n
Cr. AD - PPE

Purchase by HO for branch, Dr. PPE - branch No JE

recorded by HO Cr. Cash

Dr. IIB Dr. Dep'n

Cr. AD - PPE Cr. Dep'n
**Dep'n Expense - recorded by the one using the Asset
**Accum Dep'n - recorded by the one who has the record of the Asset

4. AR of HO collected Dr. IIB Dr. Cash

by branch w/ disc Dr. Sales Disc Cr. HO
Cr. AR
 AR of Branch collected Dr. Cash Dr. HO
by HO w/ disc Cr. IIB Dr. Sales Disc
Cr. AR

5. Allocation of Expenses by Dr. IIB Dr. Expenses

HO to Branch Cr. Expenses Cr. HO

6. Remittances (Branch to HO) Dr. Cash Dr. Cash

Cr. IIB Cr. HO

7. Transfer of Funds (HO to Br) Dr. IIB Dr. Cash

Cr. Cash Cr. HO

8. Recording of Branch Income Dr. IIB Dr. Income Summary

Cr. Branch Income Cr. HO
#Common mistakes = unrecorded Dep'n, allocation of expenses,
computation of sample expenses, ratios (based on Cost or sales?)

True Net Income Computation

NI reported by Branch xx
less: Unrecored Expenses (dep'n + unallocated exp) xx
NI should have been reported xx
add: RGP (AOBI) xx
True Net Income xx

COGS Table Billed Price Cost

(100%+mark-up) (100%)
Beg. Inv HO xx
Outside xx (same) xx
add: Net Purchases xx (same) xx
Net Shipments xx xx
Shipments in transit xx xx
Freight In xx (same) xx
Total Goods Avail. For Sale xx xx
less: Ending Inv HO xx xx
Outside xx (same) xx
Shipments in transit xx xx
Goods on consg't (from outside) xx (same) xx
*Freight In (portion of End Inv) xx (same) xx
*includes freight on consigned goods
COGS xx xx

Interbranch Transactions Home Office Branch 1

1. Interbranch Transfer of Cash Dr. IIB - 1 Dr. Cash

Cr. IIB - 2 Cr. HO
 2. Interbranch Trans of Shipments Dr. IIB - 2 Dr. HO*****
Dr. Freight Expense Cr. SFHO*
Cr. IIB - 1 Cr. Freight In**
Cr. Cash***

*SFHO - same amount in both branch

**Freight In credited by branch 1 should be prorated base
the shipped merchandise to another branch
***Cash - either Freight Prepaid (branch 1) or
Freight Collect (branch 2)
****Freight In debited by branch 2 must be the SHOULD b
amount of freight, the freight as if mdse came from H
*****HO - same amount in both branch
(balancing figure in the entry)

Job-Order Costing
*Predetermined Standard OH Rate = Budgeted MOH
Budgeted/Estimated OH Rate Base
*If variances are MATERIAL, prorate to the different goods that have been worked during
the year (WIP, FG and COGS only)

*if IMMATERIAL, COGS only

If Actual>Applied, Underapplied MOH/Unfavorable (DR.) ADDED to COGS

If Actual<Applied, Overapplied MOH/Favorable (CR.) DEDUCTED from COGS

Recording Applied MOH: MOH

Dr. WIP
Actual Applied
Cr. Applied MOH
Dr. Actual MOH Underapplied Overapplied
Cr. Cash/AP (Actual>Applied) (Actual<Applied)

Recording Variances: MATERIAL IMMATERIAL

1. Underapplied Dr. WIP Dr. COGS
Dr. FG Cr. Underapplied OH
Dr. COGS
Cr. Underapplied OH

2. Overapplied Dr. Overapplied OH Dr. Overapplied OH

Cr. WIP Cr. COGS
Cr. FG
Cr. COGS

Volume/Capacity Variance = Actual Fixed OH differs from Applied Fixed OH

= Budgeted Fixed OH - Standard Fixed OH

4-way Variance
Units Hours
Actual Actual
Variable Spending
Actual Std.
Variable Efficiency
*Std. Std. Spending Controllable
Variance Variance
Fixed OH

Actual Fixed Spending

Budgeted
Volume/Uncontrollable/
**Standard Capacity

*Actual units x standard hours x standard rate

**Actual units x standard Fixed OH rate

#Job-order cost sheets can serve as a subsidiary ledger info for both WIP &FG

Departmentalization
Methods of distributing/reallocating Service Dept's costs to Prodcing Dept's
1. Direct method - % based on a certain allocation base (simplest method)
*No allocation between service dept's, allocate immediately to producing dept's.
2. Step method
a. Rearrange Service Dept's according to priority:
1st - # of producing dept's served
2nd - highest cost to lowest
b. Allocate cost of priority using allocation base. A service dept may allocate its
cost to another service dept's according to priority.
c. Repeat until all service dept's costs are allocated fully to the producing dept's.
3. Reciprocal method
*when there exist a relationship between service departments, their costs should
adjusted first using an algebraic expression.
example:
Service dept A = P200k + 10% of B
Service dept B = P140k + 15% of A
Service dept C = P100k + 5% of A + 9% of B

Almost the same, Main difference = no priority and a service dept may still allocate
back to another service dept until balance equals zero for reciprocal method.

Spoilages - Normal (inventoriable)

-may be attributable to a specific job if it is a Customer Specification
Dr. Materials (Net disposal value)
 Cr. WIP
or to all jobs if caused by Internal Control Failure
Dr. Materials (Net disposal value)
Dr. MOH (Excess of NDP over Cost assigned)
Cr. WIP
- Abnormal
Dr. Materials (Net disposal value)
Dr. Loss Account (Excess of NDP over Cost assigned)
Cr. WIP

Rework - correcting defective units to bring them into salable conditions

Journal Entries Unit Cost
1. Charged to Specific Job
Dr. WIP Add ALL costs/units produced
Cr. Materials (including those reworked)
Cr. Wages Pay'l
Cr. Applied MOH

2. Internal Failure
Dr. MOH *no change in unit cost
Cr. Materials
Cr. Wages Pay'l
Cr. Applied MOH

2. Abnormal
Dr. Loss Account *no change in unit cost
Cr. Materials
Cr. Wages Pay'l
Cr. Applied MOH

Process Costing
>accumulating costs of production by department/cost centers (mass production)
>commonly used by companies with large number of similar products
(e.g. oil refining, chemical/food & drinks processing)

FIFO - if problem states, materials are added:

Beginning End
1. At the beginning 0% 100%
2. 2/5 @ the beginning 3/5 2/5
3. In the end 100% 0%
4. 2/5 in the end 5-Feb 5-Mar

*above data is not applicable to Average

*The problem is a DISCRETE if there is a Point of Inspection. If none, it is called
the METHOD OF NEGLECT aka CONTINUOUS
Discrete Continuous
Normal Loss follow the rules 0%
Abnormal Loss in FIFO above 100%
 (always 0% & 100% regdless of completion)
FIFO (5-1=4 Rule)
5 = 1. Beginning Balance xx (% incomplete) 1 = Cost/Unit
2. Started & Completed xx 1. Current Cumulative Cost
3. WIP End xx (% complete) (Transferred In + Placed in Process)
4. Normal Loss xx EUP (FIFO)
5. Abnormal Loss xx
EUP (FIFO) xx

4= 1. Beginning Cost xx
2. Additional Cost from Beg. WIP xx
3. Started & Completed xx
4. Normal Loss xx
Total Cost Transferred/
Total Manufacturing Cost xx

AVERAGE (4-2 = 2)
4 = 1. Completed & Transferred xx (100% regardless of Beg % of completion)
(Beginning Balance +
Started & Completed) 2 = Cost/Unit
2. WIP End xx (% complete) 1. Beginning Cost
3. Normal Loss xx 2. Current Cumulative Cost
4. Abnormal Loss xx (Transferred In + Placed in Process)
EUP (Average) xx EUP (Average)

2= 1. Cost of Completed & Transferred xx

2. Normal Loss xx
Total Cost Transferred/
Total Manufacturing Cost xx
*beginning cost not included since it is already added to Average Cost

*Abnormal Losses although used in EUP computation is treated as Period Cost (Expensed)
*Adjusted Cost = Cost Transferred out (including Normal Loss)
Units Transferred Out
*Transferred out = Beg. Bal WIP (% incomplete)
*Additional cost in Beg WIP incomplete = (WIP Beg. x % incomplete x Cost/EUP)
*Started & Completed [Transferred out (units)- Beg inv WIP (units)] x Total EUP (mat + conv cost + trans In, if a
*POCIDA = if Point Of Completion comes first than Inspection, Don't Allocate normal loss
e.g. % of completion = 50%;
% of inspection = 60%
**if it comes later, Allocate to Cost Transferred Out and Ending Inventory
**Normal spoilage units resulting from a Continous Process result in a higher unit cost for the
units produced.
*Regarding EUP for Transferred In, it is always Beg Inv = 0% and End Inv = 100%

*Comparison of Costing Methods (Process Costing)

 Average FIFO
Overview >No Distinction for completed >Separate Reporting
(WIP Beg & Units Produced) units (Beg->WIPB & Current ->Units started) of WIPB & Units Started

Cost of Prod Report

1. Quantities >Same >Same
2. EUP >All units completed (100%) >WIP Beg include only % inco
>Disregard stage of completion beg plus Transferred out (100%
3. Costs to Be >WIP Beg is disregarded in
>WIPBeg + Current costs
accounted for computing unit cost.
4. Costs Accounted For >Completed units x One unit cost >Cost of completed units
WIP Beg (another unit cost
Current Production (anoth
*Differences
Job-order Process
>only 1 WIP account >multiple WIP (per dept)
>total cost is computed when job >total cost is determined at the end of the
is completed month (units may still be in process)
>unit cost = total cost per job >unit cost = total manufacturing cost/cost transferred
units produced units produced (for the period)
*Production report - shows # of units started during the month, transferred out, still in process
and percentage of completion
*Cost of production report - a document used by management to understand & evaluate operations
of department.
> summarizes costs incurred, average cost/unit, total costs completed,
transferred out & costs related to ending inventory.
*Equivalent Units of Production (EUP) - a measure of work done during the month.

Joint & By-products

Treatment of By-product
1. Upon Sale/Realization - other income (NRV of by-product, Immaterial)
2. Upon Production (Inventoriable)
2.1. NRV Method = Joint Cost - (Est. Selling Price - Further Processing Cost -Cost of Disposal)
*It serves as a deduction & may also be deducted from the Further Processing Cost
where that by-product came from
2.2. Reversal Method
>Operating Income = Sales Value of Production - All Expenses
>Joint Cost = Manufacturing Cost - Further Processing Cost

Allocation of Remaining Joint Cost = Total Manufacturing Cost - NRV of by-product

1. Physical Measure
a. Physical
b. Units produced
c. Weighted ave of units produced
2. Monetary
a. Sales value @ split-off aka Relative Market Value method
(# of units produced x SP/unit @ split-off)
 b. NRV @ split-off (used if problem is SILENT)
(Sales value @ split-off - Cost of disposal)
c. Approximated/Estimated NRV (Adjusted Market Value)
(Final Sales Value - Further Processing Cost - Cosst of Disposal)
*also used in computing /assessing CORRECT production process

Main Product = Joint Cost share + Traceable/Separable Cost

*If Simple, variance is MATERIAL (prorated using Applied OH)

*If problem states that by-product is inventoried or says "recognized at first production",
deduct it first from Joint Cost before allocating it to the Joint products.

Business Combination (True Mergers/Mergers of effects) - PFRS3

Theory
Who's the acquirer?
>in a bus. comb. where there are more than 2 entities involved, determine which
of the entities Initiated tne combination as well as their relative sizes (e.g. voting rights
percent of interest, ability to select management team etc.)

Acquisition Date/Closing Date (the former may come before the latter)
>date when Control is obtained/legal transfer of consideration/written agreement

Contingent Consideration
>either a Liability (remeasured and recognized in P/L)
or Equity/Final Settlement (not remeasured)

Step Acquisition/Achieved by date

>Previously Held Interest (PHI) is Remeasured and difference goes to P/L

Acqui. related costs

>Finder's fee, Advisory, Legal, Prof fee, Gen & Admin, CITR
>Allocated based on FV:
a. Cost of Issuing Debt (part of Liabilities)
b. Cost of Issuing Equity Securities (share issuance cost)/
Cost To Issue & Register (CITR) - order of priority:
1. Debited to Share Premium (Original Issuance)
2. Debited as CTIR contra-acc against Share Premium
3. Debited as CTIR contra-acc against Retained Earnings
(with appropriate disclosure)
>Direct and Indirect Costs = Expensed

Roll up Transactions
>all combining entities transfer their net assets to a newly formed entity

*Acquirer only recognizes the acqui date Fair Value of Contingent Consideration Pay'l
& Contingent Liability of the acquired entity But Not its Contingent Assets

"Top of a Bull" market

 >won't result to a Gain/Negative Goodwill
(reassess recognition & measurement, recognize to P/L)

Group
>a parent & all subsidiaries (Not excluded in Consolidation even if dissimilar from
other entities)

Statutory Merger (A+B = A/B)

Statutory Consolidation (A+B = C)

*Asset Acquisition = No Subsidiary

*Stock Acquisition = Acquisition Method (Purchase method before)
*Pooling of Interest = not allowed anymore

Ownership Account Model

1-19% Trading Sec/AFS Cost/FV
20-50% Investment in Assoc Equity
51-100% Investment in Sub Equity

NCI Measurement (optimal for the Corp.)

Priority: 1. FV (given) if unknown, compute the implied FV = NCI % x Purch Price - Control Premium
Controlling Interest
2. Proportionate share (aka Relevant Share/Interest in Net Assets of Sub (INAS))
(FV of Sub x NCI %)

Basic Equation Total Parent NCI

FV of Subsidiary xx xx** xx***
less: FV of Net Assets (Sub) xx xx xx
Goodwill*/(Gain) xx xx xx
*Goodwill impairment should be adjusted based on Goodwill Ratio
**Purchase Price:
a. FV of PHI = [add'l consid (peso) /add'l ownership (%) ] x PHI
b. + FV of additional consideration
c. + FV of CCP (adjusted only if info related to CCP existed @ date of
Bus Combi usually w/in 1 yr from combination)
*even if payment is not probable
d. + Deferred Consideration (PV of Cost of Capital)
***Floor test (w/ever is Higher between Give or Implied FV of Net Assets)

Goodwill ratio = GW of parent/total GW & GW of NCI/total GW

if combination resulted to a Gain, NCI should Not recognize any gain.
if NCI is measured @ Proportionate Basis/INAS/Relevant Share, its GW
is Zero. Disregard FV given even if it is Higher.
if NCI is under FV method, use the given FV and no need to compute for
implied value even if it will be higher.

Control Premium
>should be included in GW computation, excluded in NCI computation
Computations of Consolidated Assets, Liabilities & SHE in Date of Business Combination:
ASSETS LIABILITIES SHAREHOLDERS' E
1. Book Value of Parent's Assets 1. BV of Parent's Liab 1. SHE @ BV of parent
2. + FV of Sub's Assets 2. + FV of Sub's Liab 2. + NCI (FV) first row**
3. - Purch Price (Cash/NCA) 3. + Purch Price 3. + Purchase Price
*can be ignored if assets of parent (discounted BP/NP) (FV of stocks issued w/ S
*includes PHI @ adjusted
Carrying Amt
4. + Goodwill 4. + Contingent Consid Pay'l (CCP) 4. + Gains:
*GW of parent only, disregard *adjusted only if Existed @ Bus Com a. on Bargain Purch Opti
pre-existing GW of Sub *if involves words like: a. on CCP
"target profit, market price, b. on PHI
milestone on R&D project", adjust to
P/L (expensed)

5. - Direct Cost 5. + Direct Cost 5. - Direct Costs

Indirect Cost Indirect Cost Indirect Costs
CTIR CTIR CTIR
*paid portion only *unpaid portion only *paid/unpaid

Consolidated Net Income computation

Conso NI - parent
1. Parent's Net Income xx
*always in Full year regardless
of date of bus combination
2. - dividend received from Subsidiary (xx)
(div declared x controlling %)
Income From Own Operation (IFOOP) xx
3. +/- Share in Net Inc/Loss xx
*If silent, income is earned evenly throughout the year/ (xx)
NI/NL x 6/12
4. - Amort of Undervalued Assets (xx)
5. + Amort of Overvalue Assets xx
6. Gain on Bargain Purch Opt xx
*only recognized in year of bus comb
7. - Impairment Loss (xx)
*always depends on GW ratio regardless of ownership
8. + Realized Profit on Beg. Inv (RPBI) xx
>Downstream
9. - Unrealized Profit on End Inv. (UPEI) (xx)
10. + Realized Profit on Beg. Inv (RPBI) xx
>Upstream
11. - Unrealized Profit on End Inv. (UPEI) (xx)
*Eliminating entries:
Effect on NI Downstream Upstream
1. RPBI Incrrease dr. RE dr. RE
cr. COGS dr. NCI
cr. COGS
2. UPEI* Decrease dr. COGS dr. COGS
 cr. Inventory cr. Inventory
*same entry regardless of what type of inter-co. transaction
*All unrealized Gain/Loss on Intercompany trans (Land & Bldg) are recognized only
on the year it happened/sale. Interco. sale of Inventory uses FIFO.
(12 -19 Intercompany sale of Depreciable Asset)
12. - Unrealized Gain (xx)
>Downstream
13. + Realized Gain xx
14. - Unrealized Gain (xx)
>Upstream
15. + Realized Gain xx
16. + Unrealized Loss xx
>Downstream
17. - Realized Loss (xx)
18. + Unrealized Loss xx
>Upstream
19. - Realized Loss (xx)
*Eliminating entries on Depreciable Assets
1. Selling Price> Cost of Dep'l Asset 1. Selling Price> Cost of Dep'l Asset
dr. Gain dr. Gain
dr. Dep'l Asset cr. Dep'l Asset
cr. Accum Dep'n cr. Accum Dep'n

or simply: a. dr. Gain

>Unrealized Gain
cr. Dep'l Asset (net of Accum Dep'n)

b. dr. Accum Dep'n

>Realized Gain
cr. Retained Earnings

(20 - 27 Intercompany sale of Land - almost same with int. co sale of dep'l asset)
*Main Difference - realized portion
>Land - realized only when sold to 3rd party but up to the difference of Sellling Price (SP)
over Carrying amt only. Excess of SP to 3rd party over the interco SP is income of
Subsidiary.
>Dep'l Asset - unrealized portion is amortized over its remaining life & if sold to 3rd
party, recognize in that year the remaining balance of the unrealized
portion. Same rule applies on the excess of SP to 3rd over interco SP.
20. - Unrealized Gain (xx)
>Downstream
21. + Realized Gain xx
22. - Unrealized Gain (xx)
>Upstream
23. + Realized Gain xx
24. + Unrealized Loss xx
>Downstream
25. - Realized Loss (xx)
26. + Unrealized Loss xx
>Upstream
27. - Realized Loss (xx)
Consolidated Net Income xx

*Sale of Dep'l Asset

20xa 20xb 20xc
Unrealized Gain 1. (xx)
(only recognized in the
year of sale)
Realized Gain
(UG / remaining life of DA
x fractional year, if any)
*Sale of Land
Unrealized Gain
Realized Gain --
*No amortization of unrealized Gain/Loss
Consolidated Sales (3 components)
1. Sales of Parent
2. + Sales of Subsidiary
3. - Interco Sales (@ Selling Price)
Conso Gross Profit (6)
Conso Sales - Conso COS
or
1. GP - parent
2. + GP - subsidiary
3. - Amort of Underv. Invv.
4. - UPEI (up/downstream)
5. + Amort of Overv. Inv.
6. + RPBI (up/downstream)
Conso Inventory (7)
1. Inventory - parent (Book Value)
2. + Inv - subsidiary (BV)
3. + Undervaluation
4. - Overvaluation
5. - Amort of underv. Inv
6. + Amort of overv. Inv
7. - UPEI
NCI (5)
1. NCI Beg. (FV, 1st column)
2. + NCI - NI (yr. 1)
3. - Dividend share (yr. 1)
NCI - end (yr. 1)
4. NCI - NI (yr. 2)
5. - Div. share (yr. 2)
NCI, end (yr. 2)
*Lose of Control - legal/contractual
>Effect = derecognize Assets & Liab @ Carrying Amount from Conso Stat. of Fin'l Pos
>Consideration received - CA of Investment = Gain/Loss (P/L)
2. xx 3. xx -
1 - (2 + 3) = when sold to 3rd party,
unamortized portion
will be recognized.
(xx)
xx *same amount
Conso Cost of Sales (7)
1. COS - parent
2. + COS - subsidiary
3. - Interco COS (@SP)
4. + Amort of Undervalued inv
5. + UPEI (up/downstream)
6. - Amort of Overvalued inv
7. - RPBI (up/downstream)
Conso Expense (9)
1. Expense - parent
2. + Expenses - subsidiary
3. + Amort of UVAsset
4. - Amort of OVAsset
5. + Realized Loss - Amort
6. - Realized Gain - Amort
7. + Impairment Loss
8. + Acqui. Related cost (direct/indirect)
9. + Losses (PHI, CCP that didn't exist @
date of bus. combi.)
Conso RE (3)
1. RE - parent
2. + Conso NI parent
3. - Div declared - parent
>Retained Investment shall be remeasured @ Fair Value

Foreign Exchange
Theories:
Monetary Items = money held & assets to be received
or liabilities to be paid
Exchange difference = difference resulting from reporting the same number
of units of one currency to another
(goes to P/L during the period it arised)
Currencies:
a. Functional - primary economic environment where entity normally operates
*Normal Operation = either a) Primary driver is its Sales Price
b) Competitive forces, financing & oper activities
c) Foreign activities are an extension
(remits income and don't accumulate)
b. Presentation - used in FS, free choice but translated to Functional curr
(management's judgment to use it)
c. Foreign - other than functional

Foreign Activities:
1. Foreign currency transaction (Rec'l/Pay'l in Foreign Currency, goes to P/L)
a. Buy/Sell of goods/services denominated in FC.
b. Borrowing/Lending funds denominated in FC.
c. Acquires/Diposes Assets or Incurs/Settles Liability denom in FC.
2. Foreign operations (Branch/Divisions/Subsid./Assoc. based on another country)
*FS must be translated. If Net investment is disposed, from OCI it goes to P/L

Initial Measurement @ Spot Rate: a) Bid/Buying Rate = Seller or b) Offer/Selling Rate = Buyer
Subsequent Measurement:
a. Foreign Currency Mone. Items (@ Closing Rate)
>Exchange Differences:
1. Separate FS = P/L
2. Conso FS = OCI (but goes to P/L when Foreign Ope is disposed)
b. NonMonetary (@Historical)
c. NonMonetary (@Fair Value)

PAS 21
1. Foreign Currency Transactions
2. Foreign Exchange Transactions
3. Hedging of For Ex Risk
4. Exposed Net Asset/Liabilitiy

Hedged Item Hedging Instrument Hedging Activity

Buyer of Merch from Buying of Foreign Currency (Net Amount)
Foreign Firm (Importation)

1. If Exch Rate goes up, 1. if Forward Rate goes up,

ForEx Loss* Forward Gain***
 (e.g from P45 to P47)

2. If Exch Rate goes down, 2. if Forward Rate goes up,

ForEx Gain** Forward Loss****

Journal Entries

a) Asset a) FC Rec'l
(@Spot rate) (@Forwad Rate)
AP FC Pay'l (Fixed Amt)

1. ForEx Loss* 1. FC Pay'l

AP Forward Gain***

2. AP 2. Forward Loss****
ForEx Gain** FC Rec'l

b) AP b) Cash (balancing figure)

Cash FC Pay'l In short, it is the difference betw.
FC Rec'l Spot Rate @ Settlement date and
or Forward Rate @Transaction date
FC Pay'l
FC Rec'l
Cash

Seller of Merch to a Seller of Foreign Currency (Net Amount)

Foreign Firm (Exportation)

3. If Exch Rate goes up, 3. if Forward Rate goes up,

ForEx Gain* Forward Loss***

4. If Exch Rate goes down, 4. if Forward Rate goes up,

ForEx Loss** Forward Gain****

Journal Entries

a) Acc Rec'l a) FC Rec'l (Fixed Amt)

(@Spot rate) (@Forwad Rate)
Sales FC Pay'l

3. AR 3. Forward Loss***
ForEx Gain** FC Rec'l

4. ForEx Loss* 4. FC Pay'l

AR Forward Gain***

b) Cash b) Cash (balancing figure)

AR FC Pay'l In short, it is the difference betw.
FC Rec'l Spot Rate @ Settlement date and
or Forward Rate @Transaction date
FC Pay'l
FC Rec'l
Cash
 Measurement:

Face Value
Agreed Value
Face Value

tions:
ers,
es)

Bonus/Undervaluation/
Overvaluation**
(Squeeze)
(Contributed - Agreed)
Sum of given
(Squeeze)
(Contributed - Agreed)

Capital
states so.

ent partners)

n Sale

hare

valuation+/- NI/Loss)

, do not include
bals are equal)

eceive P10K)
Withheld/Unpaid Liab/Liq Exp)

NIZED unless

ec

ec

uestion in Board Exam

d (proceeds of sale/collection, COS/COGS)
alized

e Liquidated
rred/Assumed

ry Credit (SOL)
erest Income, Loss on Sale)

acts Rec'l = Always Current

ected by de-escalation clause
are recorded to a separate nominal account

xx

st &

xx
xx
 Year
- Collections
- Repo Account
W - Write-off

Year
 part of contract
ted from cost
t of contract

ould
n Cash Collection
last yr always -0-

for the yr
ces/sales

less

ed to compute
sales?)

AOBI
(mark-up)
xx
-
-
xx
xx
-
xx
xx
-
xx
-
-

xx

Branch 2

Dr. HO
Cr. Cash
r. HO***** Dr. SFHO*
Cr. SFHO* Dr. F-in****
Cr. Freight In** Cr. HO*****
Cr. Cash*** Cr. Cash***

branch
h 1 should be prorated based on
nother branch
d (branch 1) or
anch 2)
ch 2 must be the SHOULD be
ght as if mdse came from HO
h branch
in the entry)

during

d OH
ontrollable

Overhead
Variance

t's.

its

t's.

ould

Unit Cost

[COGS (no allowance) -

 NDP]/# of goods remaining

same as before

[COGS w/ allowance -
spoiled goods @ TMC]/
# of goods produced

)
f completion)

Cumulative Cost
Placed in Process)
P (FIFO)

ative Cost
Placed in Process)
(Average)

xpensed)

at + conv cost + trans In, if any)

al loss

unit cost for the

 FIFO
Separate Reporting
of WIPB & Units Started

WIP Beg include only % incomplete

plus Transferred out (100%)
WIP Beg is disregarded in
computing unit cost.
Cost of completed units
WIP Beg (another unit cost)
Current Production (another unit cost)

end of the
ocess)
g cost/cost transferred
(for the period)
ill in process

aluate operations

al costs completed,
.

Cost of Disposal)
cessing Cost

ct
ction",

ights

ay'l
 - Control Premium
ontrolling Interest
ub (INAS))
 SHAREHOLDERS' EQUITY
. SHE @ BV of parent
. + NCI (FV) first row**
. + Purchase Price
(FV of stocks issued w/ SP)
*includes PHI @ adjusted
Carrying Amt
. + Gains:
a. on Bargain Purch Option
a. on CCP
b. on PHI

. - Direct Costs
Indirect Costs

*paid/unpaid

NCI
--

--

--
xx
(xx)

(xx)
xx
--

(xx)

--
--
xx
(xx)
 --
--
(xx)
xx
--
--
xx
(xx)

sset

--
--
(xx)
xx
--
--
xx
(xx)
xx
party,
ies

y)
L

yer
difference betw.
lement date and
Transaction date

difference betw.
lement date and
Transaction date