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EXECUTIVE SUMMARY

The knowledge gained from within the bounds of a four-walled classroom may be enough to sustain a students survival in a school setting. However, not all things could be learned from lessons in school hence this study is conducted to evaluate the differences in the accounting methods and principles used by different entities from the theories and illustrations shown in the book, specifically the differences and similarities of recording transactions by different entities in terms of profit and expense recognition. In this connection, this study was conducted to five business entities which were chosen by the proponents which are as follows: Sion Travel and Tours (Partnership Liquidation), Quality Appliance Plaza-Valencia (Installment Sales), Da Dailo Architect (Long-Term Construction Contract), Bukidnon Investment and Finance Corporation (Home Office and Branch Accounting), and GTY Trading-Malaybalay (Consignment). The data were gathered through personal interview addressed to respective personnel in each of the entities and interview through phone calls were also used to acquire additional data. From the study, the proponents concluded that there were no great deviations with respect to the methods employed in the actual environment and what are illustrated in the book. Almost all standards were followed except in the recording of expenses and revenue as in the case of consignment and installment sales since it is not applicable and the entities are not allowed to take account for it. This study was of great help to the proponents; it made them aware and know the things happening in the real practice

CHAPTER I INTRODUCTION

Background of the Study Accounting plays an important role in every business entity. Accounting information is critical in planning and decision-making processes that are made by the firms management for the business thrive over the long run. Hence, the accounting information provided must be accurate, relevant and faithfully presented given the weight of its influence over every business decision. Entities avail the services of accountants in handling transactions and every economic event with honesty, diligence and with their full capabilities as professionals to the business advantage. From this, the value of an accountants talent and responsibility in every business entity as well as to the economy as a whole can be deduced. Before the accountants became the professionals that they are, they were made to go through rigid training in school to acquire a degree in accounting and pass the competent CPA Board Examination to become eligible licensed professionals. Knowledge about the basic and core concepts, principles, from fundamentals to every specialized accounting area, as well as an understanding of the most basic treatment of an account to its many specificities and details, recording transactions and preparing financial reports is being taught to every undergraduate accountancy student in school. However, there are deviations between the actual circumstances involving the

work of an accountant from the theoretical exemplifications written in textbooks. Reasons can be enumerated for such differences as uniqueness of transactions, convenience, automation, and outdated knowledge regarding the treatment of an economic transaction or lack of knowledge even. Not to mention that accounting standards are constantly being changed to address the needs of the entity as businesses evolve with complexities. It is to the advantage of the students to be able to look into these differences and understand why such departures from the theoretical models are made and understand why such departures from the theoretical models are made and be able to have a glimpse of what really happens in the environment outside. As soon-to-be professionals in the accounting parlance, the students will need all the knowledge they can acquire to prepare themselves for their future. The thrust behind this research is for compliance of the requirement under Accy55 entitled Advanced Accounting II. The subject introduced topics of which some were already known to the students. The topics include partnership liquidation, installment sales, long-term construction contract, home-branch accounting and consignment accounting which are the focus of this study as given by the subject instructor. Five topics are given instead of only one so that the knowledge of the students may not be concentrated only on one particular topic which will be an advantage to their part. This study will serve as an immersion of the students to the actual business environment to which they will eventually be headed for. An experience in the real environment of a firm will be a form of strategy in gaining a better understanding of the

theoretical concepts and its practical applications in actual as well as further knowledge that may not be written in books. Statement of the Problem In general, this study seeks to assess and evaluate the accounting methods used in every entity in actual practice from the theoretical methods as illustrated in the book. Specifically this study seeks to answer the following questions: 1. What is the demographic profile of each entity under study? 2. How do the following entities record transactions in terms of: A. Partnership a) liquidation process? B. Installment Sales a) cash sales and installment credit sales? b) recognition of gross profit? c) repossessed merchandise? d) trade-ins? C. Long Term Construction Contracts a) contract costs incurred in progress? b) subcontractor costs? c) purchase of materials in advance? d) progress billings to the customers? e) revenue recognition?

D. Home Office and Branch Accounting a) normal operating transactions between Home office and its Branches? b) revenue recognition? E. Consignment a) receipt of merchandise to be consigned? b) distribution of inventory to consignees? c) remittances from the consignees? d) profit recognition? Assumptions of the Study The proponents of the study are assuming that all of the prospective entities to be chosen follow the procedures as illustrated through the textbooks: Partnership Liquidation: Assets are sold either on a lump-sum or on an installment basis There is either a gain or loss on the realization of the non-cash assets There are liabilities that must be paid to outside creditors There are liquidation expenses incurred Home Office and Branch Accounting The Home Office and the Branch maintains their own books of accounts The recording procedures for transactions are similar to the procedures as per illustration from the book

The Investment in Branch account and the Home Office account are assumed to have the same balance at the end of the period The balance in the Income Summary account is closed to the Home Office account Consignment The law of agency governs the determination of rights and obligations of the parties There is a written contract prepared expressing the nature of the relationship and covering matters such as payment terms of the sales price that are to be granted by the consignee to buyers, expenses made by the consignee that are to be reimbursed by the consignor The transactions are recorded on the books of the consignee and consignor Whether the entity is a consignor or consignee, in the determination of profits, the entity uses either the following: o Separately determined o Not separately determined

Significance of the Study Without an On-the-Job Training provided for in the current curriculum enrolled in by the students, they are placed at the disadvantage of not being able to see the actuality of the accounting practice outside the walls of the institution. Given the circumstances, the students are likely alienated from the practical applications of their field of study and tend to be too attached to school taught matters. It is important for the students to be exposed to the actual work environment, even if only through a research study, to acquaint themselves to the applications of the concepts illustrated in textbooks. This will help them adjust the knowledge they have acquired within the classroom setting to its several departures in the reality of the circumstances in actual practice. Thus, this research will more likely be an equivalent of an OJT for the students. This study will be a valuable contribution for the students preparations in becoming future professionals in the competent world of business. Thus, this study is specifically significant to the students studying accounting for their better understanding and to expose them to the actuality of the work outside the school.

CHAPTER II REVIEW OF RELATED LITERATURE

PARTNERSHIP LIQUIDATION Definition and Characteristics of Partnership Liquidation Article 1767 of the partnership law states that, By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Liquidation of a partnership means winding up the business usually by selling the assets, paying the liabilities, and distributing the remaining cash to the partners. A business is in the process of realization, the process of converting its assets into cash; and making settlement with creditors is said to be in liquidation. There are certain rules that should be followed in the liquidation of partnership, namely: 1. Always allocate and close gain or losses to the partners capital account prior to distributing any cash to the partners. 2. When the business is liquidated, the partner is entitled to an amount depending upon his capital contribution, his drawing, his share in the net income or loss from operations before liquidation, gains and losses on realization, and the balance of his loan account, if any.

As a general rule the order of payment of partnership liabilities are as follows: a. Those owing to creditors other than partners. b. Those owing to the partners other that for capital and profits. c. Those owing the partners in respect of capital. d. Those owing to partners in respect of profits. Methods of Partnership Liquidation LUMP-SUM METHOD is one which all assets are converted into cash within a very short time, outside creditors are paid, and a single, lump-sum payment is made to the partners for their total interest. INSTALLMENT METHOD is one in which the realization of non-cash assets is accomplished over an extended period. When cash is available, creditors may be partially or fully paid. Any excess may be distributed to the partners in accordance with the program of safe payment or cash priority program, whichever method of distributing excess cash is employed by. This process persists until all the non-cash assets are sold. INSTALLMENT SALES Definition and Characteristics of Installment Sales An Installment Sale is the exchange of an asset for a series of payments that occurs over a specific period of time. It is generally a disposition of property where at least one payment is to be received after the close of the taxable year in which the disposition occurs. Installment Sales are valuable tool to help sellers defer tax. As with

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any other seller financing, however, the seller is generally at risk with respect to the buyers creditworthiness or ability to manage the asset. The seller may often retain a lien against the property to secure payment of the installment obligation, which itself may or may not be evidenced by note. Revenue Recognition for Installment Sales There are different methods governing revenue recognition under installment sales it could be installment sales method, cost recovery method or deposit method. The installment method was developed to account for sales contracts allowing buyers to make payments over several years. As the payment period becomes longer, the risk of loss resulting from uncollectible accounts increase; consequently, circumstances surrounding a receivable may lead to considerable uncertainty as to whether payments will actually be received. Under these circumstances, the uncertainty of cash collections dictates that revenue recognition should be deferred until the actual receipt of cash. The installment method can be used in sales transactions for which payment is to be made through periodic installments over an extended period of time and the collectability of the sales price cannot be reasonably estimated. Installment method revenue recognition is not in accordance with the accrual accounting because revenue recognition is not normally based upon cash collection. When a seller uses the installment method, both revenue and cost of sales are recognized at the point of sale, but the related gross margin is deferred to those periods during which cash will be collected. As receivables are collected, a portion of the

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deferred gross profit equal to the gross profit rate times the cash collected is recognized as income. When this method is used, the seller must compute each years gross profit rate and also must maintain records of installment accounts receivables and deferred revenue that are separately indentified by the year of sale. The Cost-recovery method is used when the uncertainty of collection of the sales price is so great that even is of the installment method cannot be justified. It is the most conservative of all revenue recognition methods. Under the cost recovery method, both revenues and cost of all sales are recognized at the point of sale, but the related gross profit is deferred until all costs of sales have been recovered. Each installment must also be divided between principal and interest, but unlike the installment method where a portion of the principal recovers the costs of sales and the remainder is recognized as gross profit, all of the principal is first applied to recover the cost of the assets sold. After all costs of sales have been recovered, any subsequent cash receipts are realized as gross profit. Under the Deposit Method, seller reports the cash received from the buyer as a deposit on the contract and classifies it on the balance sheet as a liability. The seller does not recognize revenue or income until the sale is complete. LONG-TERM CONSTRUCTION CONTRACT Definition and Characteristics of Long-term Construction Contracts PAS 11 defines construction contract as contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of design, technology or their ultimate purpose or use.

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There are two classifications of construction contract, the fixed price contract and the cost-plus contract. Fixed price contract is a construction contract in which the contactor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses and cost-plus contract is a construction contract in which the contractor reimburse for allowable or otherwise defined cost, plus a percentage of this cost or a fixed fee. Contract cost are cost that relate directly to the specific contract; are attributable to contract activity in general and can be allocated to the contract; and are specifically chargeable to the customer under terms of the contract. It can be broken down into cost incurred to date and estimated cost to complete. Cost incurred to date includes pre-contract cost and cost incurred after contract acceptance. Estimated costs to complete are anticipated cost of materials, labor, subcontracting cost, and indirect cost required to complete a project at a scheduled time. Subcontractor cost is the amount billed to the principal contractor for work done by the subcontractor. For accounting purposes, contracts are combined or segmented. A group of contracts may be combined if they are closely related that they are, in substance, part of a single project with an overall profit margin. Segmenting a contract is a process of breaking up a larger unit into smaller units. There are different methods governing revenue recognition under long-term construction contract it could be percentage-of-completion method or zero profit method.

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Percentage-of-completion method is to be used when the outcome of the construction contract can be estimated reliably, that is, the estimate of cost to complete and the extent of progress toward the completion of long term contracts are reasonably dependable. Under this method, gross profit is recognized as construction progresses. Zero profit method recognizes revenue in an amount exactly equal to cost incurred until reasonable objective estimates of the completion are available. This method indicates to financial statement users the volume of the companys business while deferring the recognition of gross profit until more reliable estimates if the degreeof-completion can be made. HOME-BRANCH ACCOUNTING Definition and Characteristics of Home-Branch Accounting Companies may increase sales volume through the establishment of sales outlet in various areas. Such sales outlets may be a branch or an agency. In our study, we only focused on the home and the branch. When a company operates a branch, it must maintain accounting records to facilitate its reporting responsibility to the home office. (Guerrero, 2009) Uses of the Reciprocal Accounts Transactions between the home office and a branch are recorded in intracompany accounts. These accounts are reciprocal accounts between the home office and the branch. In recording inter-office transactions, two reciprocal accounts are used, namely, the Investment in Branch or Branch Current account used by the home

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office which is classified as an asset; and the Home Office or Home Office Current account used by the branch which is classified as liability. Establishing of Branch When establishing a branch, the transfer of assets to the branch is recorded by the home office in the Investment in Branch account, and the branch records the transfer with an entry to Home Office account. (Guerrero, 2009) Branch Income or Loss Definition Each branch computed income periodically. Home office and branches are separate legal entities, so they computed income taxes for the company as a whole. Branches revenue and expenses accounts are closed to its Income Summary account. Income Summary accounts balance is closed to home Office account. When the branch reported its income or loss to the home office, an entry is made on the book of home office. Merchandise Shipments to Branch Home office may ship merchandise inventory to be sold by its branch. The branch may also purchase merchandise from outside suppliers. Merchandise transferred from home office to branch should be recorded by both home and branch. Apportionment of Expenses Home office may allocate expenses to a branch. Expenses might be of several types such as when expenses incurred by the branch paid by the home office,

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expenses that are incurred by the home office on behalf of the branch and allocation of expenses incurred by the home office. (Guerrero, et. al., 2011) Preparation of Combined Financial Statements The Statement of Financial Position and Income Statement of the home office and the branch must be combined for some external purposes. Reciprocal or intercompany account balances must be eliminated. Working papers usually prepare to eliminate accounts affected in recording intercompany transactions. Working paper elimination procedures are as follows: 1. Eliminate reciprocal accounts. 2. Eliminate intercompany transfer accounts. a. Shipments to branch from Home Office accounts. b. Allowance for Overvaluation of Branch Inventory. 3. Eliminate the overvaluation in branch beginning inventory. 4. Eliminate the overvaluation in branch ending inventory. Combined Statement of Financial Position The reciprocal accounts Investment in Branch and Home Office accounts are not presented as well as the Allowance for Overvaluation accounts. Combined Income Statement The merchandise inventories, beginning and ending inventories are presented at cost. The Shipment to Branch and Shipment from Home Office are not presented. (Guerrero, 2009).

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CHAPTER III METHODOLOGY

PARTNERSHIP LIQUIDATION ACCOUNTING Place and Time The interview was conducted in Poblacion, Banisilan, North Cotabato on September 1, 2012. About the Entity The entitys name is Sion Travel and Tours, owned by Annalie Lagat and Min Ju Choi. It was established on November 2007 and was liquidated on May 2009. The entity is a service concern business that offers domestic and international ticketing, hotel accommodation, day tours and immigration assistance. Their major markets are Korean businesspersons, tourists and students. Gathering of Data Data for this certain topic was gathered through an interview. The interviewee was one of partners of the entity. Phone call interview was also done for additional information. The questions asked during the interview were as follows: 1. What is the name of the liquidated partnership and who are the partners? 2. Was the partnership registered to SEC? 3. What is the nature of the business?

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4. How does it operate? 5. Who are your major markets? 6. How much is your contributed capital? 7. How did you divide the profit or loss? 8. What are the reasons for liquidation? 9. What have you done to the non-cash assets? 10. What was the liquidation expenses paid? 11. Are there any loan payables or receivables to/from partners? 12. Did you follow the Article of partnership in regards to liquidation? 13. Is there any action to inform the SEC that the partnership was liquidated? INSTALLMENT SALES ACCOUNTING Place and Time The interview was conducted at Quality Appliance located in Valencia City on September 14 and 21, 2011. About the Entity The entitys name is Quality Appliance, a sole proprietorship owned by Mr. Tomas Yap. Quality Appliance is a merchandising business which derives its revenues from the sale of various home appliances. The entity has already 29 branches all over the Philippine with its main office located in Cagayan de Oro City.

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Gathering of Data Data for this particular topic was gathered through the means of an interview with Quality Appliance-Valencia Branchs Branch Accounting Supervisor, Mrs. Marites Masongsong. The questions asked during the interview were as follows: 1. Who is the proprietor of the entity? 2. Where does the major portion of sales come from? Is it from cash sales or installment sales? 3. What is the required percentage for down payments in case of sales on credit or installment? 4. How long do you require your customers to pay off their account balances? 5. How do you value repossessions? 6. What are the grounds for repossession? 7. What are the expenses related to reconditioning repossessed inventory? 8. Do you allow trade-ins? 9. How do you realize gross profit? 10. How often do you realize gross profit? 11. What are the entries for the following transactions? a. Sales b. Repossession c. Deferral and realization of Gross Profit d. Installment payments 12. Can you give us an example of an amortization table even with just assumed amounts?

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LONG-TERM CONSTRUCTION CONTRACTS ACCOUNTING Place and Time The interview was conducted in DA Dailo Architect, Valencia City on September 14 and 25, 2012. About the Entity The name of the entity is DA Dailo Architect owned and managed by Cris Rommel S. Dailo, uap. The nature of the entity is a service concern engaged in planning, designing and construction. Gathering of Data Data was gathered through interview method. The interviewee was the owner of the entity. Questions were prepared as follows: 1. How do you determine the price of the contract? 2. How do you determine the cost incurred by the contract? 3. Is there any instance that you hired a subcontractor? 4. Did you purchase materials in advance of their use? 5. Is there any instance that you segmented or combined some of your projects? 6. How do you recognize revenue? 7. How does the entity measure the progress of the construction? 8. When do you issue the progress billing to your customers?

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9. Have you encountered any losses? If any, how did you treat it? 10. Is there any contract retention? Have you encountered paying any damages due to delays or having an incentive for the early completion of the contract? HOME OFFICE AND BRANCH ACCOUNTING Place and Time The home office is located at Valencia City, Bukidnon. Its branches are located at Don Carlos, Bukidnon and Cagayan de Oro City. For discussion purposes, it is assumed that transactions illustrated are in between the Home Office and Don Carlos branch. About the Entity The trade and legal name of the entity is Bukidnon Investment and Finance Corporation. It was incorporated on June 30, 1989. The nature of the business is service concern through financing. Gathering of Data The method employed in the gathering and accumulation of data was through interview. The interviewee was the accountant in the person of Ms. Cyndi Rose P. Miranda. Questions were prepared for the interview. The questions were as follows: 1. Are there separate books maintained by the home office and branch? 2. Does the main office prepare consolidated financial statements?

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3. How does the home office and the branch record initial transfer of cash? 4. How does the home office and the branch record when loans are granted by the branch but through the home office and the related payment to home office? 5. What are the entries in both books when cash is remitted from the branch to the home office? 6. Does the home office allocate certain expenses to the branch? What are the entries in both books to record such allocations? 7. Does the branch report Income/Loss to the home office? If so, what are the necessary entries? 8. Is there an elimination of intracompany accounts when preparing combined financial statements at the end of the reporting period? 9. Does the home office and branch compute income taxes separately?

CONSIGNMENT ACCOUNTING Place and Time of the Study The study was conducted at GTY Trading, Malaybalay City on September 14, 2011. About the Entity GTY Trading (Consignor) is a business entity engaged in merchandising goods through consignment. GTY Trading is owned by a Chinese entrepreneur Gertrudes Tejones Yngente. GTY Trading Malaybalay Branch was formed on December 15, 2008.

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Gathering of Data The method used in conducting this study is through interview. The interviewee is in the person of Mrs. Liza C. Meniolas, the GTY Malaybalay Branch-OIC. The questions addressed to the consignor during the interview were as follows: 1. Where did you acquire the goods to be consigned? 2. How frequent is the delivery of goods by the supplier? 3. Is there any written agreement between you and the consignee in the distribution of goods? 4. What is the allowable rate of commission given to the consignee? 5. What are the policies and regulations that should be followed by the consignee? 6. What is your treatment in recording consignment sales? 7. How do you account expenses related to the consignment? 8. What will be your treatment for any unsold merchandise returned by the consignee? 9. How frequent do the consignees make their remittances? 10. How do you take account or recognized profit& loss for the period?

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CHAPTER IV PRESENTATION AND ANALYSIS OF DATA

PARTNERSHIP LIQUIDATION ACCOUNTING Business Model Type of business: Service Concern Trade name: Sion Travel and Tours Entity address: 2nd floor Strata 2000 building, Ortigas Avenue, Pasig City Product or Services: Domestic and international ticketing, hotel accommodation, day tours and immigration assistance Key Accounts: Korean businesspersons, tourists and students Background of the Entity The liquidated partnership is Sion Travel and Tours, and the partners are Annalie Lagat, a managing partner;and Min Ju Choi, a capitalist partner. The partnership was formed on the month of November of the year 2007 and liquidated on the month of May of the year 2009.

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Formation of Partnership The partnership was registered to the Securities and Exchange Commission with an initial cash investment of Php50,000 from both partners and non-cash assets worth Php80, 000 by Min Ju Choi. Operation and Reason of Liquidation The division of profit or loss was Php25,000 salary to Ms. Annalie Lagat and the remainder was basedon their contributed capital. The entity gained profit all throughout its existence. However, the partners reached a decision to liquidate as one of them have found operating the business tiring and decided to quit for other personal reasons. Process of Liquidation Prior to the liquidation, as usual the partnerswithdraw their profit for the period. The non-cash assets were not sold but merely taken back by the partner who invested the assets. Thus no gain or loss on realization was recognized since he takes it back at book value of the non-cash assets. In this caseall of the non-cash assets transferred to Mr. Min Ju Chois call center business. Thus when the partnership was liqui dated the partners only pulled out their investments from the firm, since there were no drawings, additional investments made by the partners and Liability to outside creditors. No other expenses were incurred relating to the partnerships liquidation. The only entries necessary when the partners liquidated were:
Choi, Capital Lagat, Capital Cash 130, 000 50, 000 115, 000

25 Non-cash Assets (net of depreciation) (All amounts reflected are assumed as given by the interviewee.) 65, 000

INSTALLMENT SALES ACCOUNTING Business Model Type of business: Merchandising Trade name: Quality Appliance Entity address: Valencia City Product or Services: Home appliances Key Accounts: General public Background of Sales Transaction: Revenue of Quality Appliance Valencia Branch may come in two forms it could be through a cash transaction or installment credit where majority of their sales comes from. Terms of payment could be 6 months, 12-18 months or 24 months depending upon the choice of the customer and type of inventory with 20% down payment. Interest rate applied may be 20%, 15% or 24% depending on brand and product. Failure to pay on time would include 5% penalty of interest which form part of their other income. Inventory System: The inventory system applied by the entity is Periodic Inventory system. Their costing system is specific identification.

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Repossession of Merchandise Inventory: Inventory sold through installment credit shall be repossessed from the customer upon the presence of any of the following circumstances: 1. Three (3) months overdue accounts 2. When such inventory with outstanding balance is pawned. 3. When the inventory is brought outside the purchasers town. Cost assigned to the repossessed merchandise is equal to half of its acquisition price. Any defects found shall be repaired and thus constitute its reconditioning expense. As part of the entitys policy, trade-in as a down payment is not allowed. Deferral and realization of gross profit: The responsibility of setting up deferrals and recognizing the realized gross profit base on sales is not laid upon its branches the duty resides upon the main branch. The authority given to the branches is bounded only to sales, repossession and collection of accounts. Table (Sample amortization table of a sale on installment with list price of 7679Php subject to 6 months installment payment with annual interest rate of 24%) 7679 x 20%= 1536Php (required down payment) 7679-1536= 6143 Php (balance in notes)

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Date

Payment

Interest

Amortization

Principal (6143Php)

1st collection 2nd collection 3rd collection 4th collection 5th collection 6th collection

1097Php 1097Php 1097Php 1097Php 1097Php 1097Php

123 103 84 63 43 24

974 994 1014 1034 1054 1073

5169 4175 3161 2127 1073 0

Recording of Transactions Transactions Sale of Cash Actual

1536 Cash Installment Receivable 7239 440 Inst.Sales Unearned Interest

Theoretical
1536 6143 7239 440

merchandise on credit

Installment Receivable 6143 InstallmetSales Unearned Interest

Cost of Installment Sales Inventory

5067 5067

Collection of First Cash Installment payment

Unearned Interest Interest Income

1097 1097

Cash Notes Receivable

1097 1097

Notes Receivable

123 123

Unearned Interest 123 Interest Income 123

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Deferral of Gross Profit ( 30%

Not Applicable

Installment Sales Deferred Gross Profit

7239 2172 5067

Cost of Installment Sales

above cost) Realization Gross Profit of

Not Applicable Deferred Gross Profit Realized Gross Profit 790 790

Repossession of merchandise Assuming (

Sales Installment Receivable

3161 3161

MdseInvty- Repo. Deferred Gross Profit

2533 948 3161 420

Installment Receivable

after

Gain on Repossession

payment of third installment)

LONG-TERM CONSTRUCTION CONTRACTS ACCOUNTING Business Model Type of Business: Service Concern Trade Name: DA Dailo Architect Product or Services: Planning, Designing, and Constructing Year of formation: 2003 The entity follows the fixed price contract. The price of the contract is determined by the following percentages:

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Design Build TOTAL COST 10% 90% 100% Build: Cost of Material and labor Overhead Contingency and miscellaneous Safety Factor Total cost Mark up CONTRACT PRICE 65% 35% 100% TOTAL COST TO BUILD 65% 25% 10% 100%

The entity compiled every paper evidences payments made for a specific project, this determine the cost incurred in a specific project. The owner/ customer is required to pay 50% of the total contract price as down payment upon signing the contract. The 50% down payment is used to purchase direct materials in advance of their use. This is to avoid the risk of any price increase in the future. The entity doesnt experience any instances wherein they hire another contractor or so called subcontractor. Also, the entity doesnt experience any segmented or combined projects because the projects entered are simple contracts to be handle by the entity. Revenue is recognized by using percentage of completion method output measure. The architect estimates the percentage of completion that was stimulated in the contract. After 50% of completion the mobilization fee will serve as payment. When the project is 90% completed, another progress billing is issued. Upon completion and transfer to the owner, a final progress billing will be issued. No retention fee is applied.

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No loss has been incurred since there is a safety allowance in every contract. There are no incentives for the early completion of the contract, however the contractor must pay an amount of Php10,000 every calendar day of delay of completion. Journal Entries: ACTUAL Contract signed: Cash Mobilization Fee xxx xxx Cash Mobilization Fee xxx xxx THEORITICAL

Cost Incurred: Construction in Progress xxx Cash xxx Construction in Progress xxx Cash xxx

50% Completion- Progress billings: Mobilization Fee Contract Billings xxx xxx Mobilization Fee Contract Billings xxx xxx

Revenue Recognition: Construction in Progress Cost of Construction Construction Revenue xxx xxx xxx Construction in Progress Cost of Construction Construction Revenue xxx xxx xxx

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90% completion- Progress Billings: Account Receivable Contract Billings xxx xxx Account Receivable Contract Billings xxx xxx

Billing Collection: Cash Account Receivable xxx xxx Cash Account Receivable xxx xxx

Revenue Recognition: Construction in Progress Cost of Construction Construction Revenue xxx xxx xxx Construction in Progress Cost of Construction Construction Revenue xxx xxx xxx

HOME OFFICE AND BRANCH ACCOUNTING Business Model Type of business: Service Concern Trade name: Bukidnon Investment and Finance Corporation Entity address: Valencia City, Bukidnon Product or Services: Financing Key Accounts: Businessmen and Farmers

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The stockholders of the entity decided to branch out for many reasons. Several of these are: (1) to increase and expand credit extension to stratified areas, (2) to establish a name and build a reputation in the industry, (3) to increase income such as interest levied on loans. The entity uses advanced technology for operations in both home office and branch. They employ computerized accounting to record all its business transactions. Here are the answers of the questions we prepared in our interview to our subject entity regarding their way of recording transactions: Question: 1. Are there separate books maintained by the home office and branch? 2. Does the main office prepare consolidated financial statements? Answers: The home office and the branch maintain separate books as if they were separate legal entities. They also make consolidated financial statements for purposes of computing income taxes. Transfer of Cash Question: How does the home office and the branch record initial transfer of cash? Answer:

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Due to the nature of business of the entity, instead of recording transfer of merchandise inventory, cash is transferred from the home office to the branch. The home office just deposit it through a bank account credited directly to the branchs bank account. They record it as follows:

(Head Office-Valencia) Due from Head Office-Don Carlos Cash on Hand 100,000 100,000

Theoretical: Investment in Branch Cash 100,000 100,000

(BIFC-Don Carlos)

Cash in Bank Due to Head Office-Don Carlos

100,000 100,000

Theoretical: Cash Home Office 100,000 100,000

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The account Due from Head Office-Don Carlos is used instead of Investment in Branch account and is to be presented as a receivable in the head offices Statement of Financial Position in the Noncurrent Asset section. While the account Due to Head Office-Don Carlos is used by the branch instead of Home Office account and this determines the extent of investment of the head office in the branch and the same shall be presented in the branchs Statement of Financial Position as a component of equity.

Granting of Loan by Branch but through Home Office Question: How does the home office and the branch record when loans are granted by the branch but through the home office and the related payment to home office? Answer: When loans are granted by either home office or branch, it is recorded in the usual manner such as a debit to the appropriate receivable account and a credit to cash. The problem arises with the granting of loan by the branch but through the main office and vice-versa, due to the convenience that is offered when doing so. In this case, the investment of the head office from the branch increases (Due from Head Office-Don Carlos), so as the equity of the head office in the branch (Due to Head Office-Don Carlos). When this occurs, they record it as follows: (Head Office-Valencia) Due from Head Office-Don Carlos 100,000

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Service Charge Cash in Bank

2,000 98,000

Theoretical: Investment in Branch Service Charge Cash in Bank 100,000 2,000 98,000

(BIFC-Don Carlos) Other Loans Receivable Due to Head Office-Don Carlos 100,000 100,000

Theoretical: Other Loans Receivable Home Office 100,000 100,000

Payment of Loan Upon payment of the loan, the payor has the option to whom shall he pay, it is either to the home office or to the branch, whichever will be convenient to him. For discussion purposes, it is assumed that the payment was made to the branch. (BIFC-Don Carlos)

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Cash Other Loans Receivable Interest Income

110,000 100,000 10,000

Theoretical: Cash Other Loans Receivable Interest Income 110,000 100,000 10,000

Remittance of Cash The remittance of cash by the branch to the home office depends upon the discretion of the management to do so. When there is a transfer of cash to the home office, this would constitute a decrease in the investment or receivable of the home office from the branch. Reciprocally, the equity of the home office in the branch decreases. The entries would be: (Head Office-Valencia) Cash on Hand Due from Head Office-Don Carlos 100,000 100,000

Theoretical: Cash Investment in Branch 100,000 100,000

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(BIFC-Don Carlos) Due to Head Office-Don Carlos Cash 100,000 100,000

Theoretical: Home Office Cash 100,000 100,000

Allocation of Expenses Question: Does the home office allocate certain expenses to the branch? What are the entries in both books to record such allocations? Answers: Expenses incurred and paid by the branch are recorded directly on the books of the branch in the usual manner. However, the home office may allocate expenses to a branch in accordance with the matching principle and to avoid overstatements and understatements of net income in both books, respectively. Assuming certain expenses was incurred by the Head Office in relation to the Advertising and Promotions of the entity as a whole: (Head Office-Valencia) Advertising Expense Cash 50,000 50,000

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Theoretical: Advertising Expense Cash 50,000 50,000

The head office may apportion part of the total Advertising Expense to its branch because the branch has benefited the said expenditure and it is proper to match revenue of the branch with its expenses for financial information to be faithfully represented and relevant to the decision of its users. (Head Office-Valencia) Due from Head Office-Don Carlos Advertising Expense 25,000 25,000

Theoretical: Investment in Branch Advertising Expenses 25,000 25,000

(BIFC-Don Carlos) Advertising Expense Due to Head Office-Don Carlos 25,000 25,000

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Theoretical: Advertising Expenses Home Office 25,000 25,000

Closing Entries Question: Does the branch report Income/Loss to the home office? If so, what are the necessary entries? Answers: No. The branchs Net Income/Loss is not forwarded to the head office and does not affect balance of the Intracompany accounts unlike in the theoretical practice. The branch only closes the balance in its Income and Expense Summary to its own Retained Earnings account. (BIFC-Don Carlos) Interest Income Operating Expenses Income and Expense Summary 50,000 20,000 30,000

Theoretical: Interest Income Operating Expenses Income and Expense Summary 50,000 20,000 30,000

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To close the balance in the Income and Expense Summary: (BIFC-Don Carlos) Income and Expense Summary Retained Earnings 30,000 30,000

Theoretical: Income and Expense Summary Home Office 30,000 30,000

Question: 1. Is there an elimination of intracompany accounts when preparing combined financial statements at the end of the reporting period? 2. Does the home office and branch compute income taxes separately? Answer: When preparing financial statements at the end of the month, there is no elimination of intracompany accounts of the entity. The accountant just combines all the financial statements of its branches for consolidation. No. The head office and the branch do not compute Income Taxes separately; the head office is the one computing income taxes for the entity as a whole. Therefore, no income taxes appear on the branchs financial statements.

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CONSIGNMENT ACCOUNTING Business Model Type of business: Merchandising Trade name: GTY Trading Entity address: San Isidro Street Valencia City Product or Services: Garments and RTW Key Accounts: General public Receipt of Merchandise from the Main Branch Consigned goods by GTY Trading were received from the Accounting Office located at Ilo-ilo according to the Main Office Managements decisions which are based on the sales reported weekly to them by this branch. Distribution of Goods through Written Agreement The goods are distributed by the consignor to several consignees through the execution of a written agreement. This written agreement is through signing of the Registration Form by the consignee provided that he can comply with the necessary requirements (Biodata and 2X2 picture). Upon the first distribution of goods to the consignee, he is only allowed to consign goods not exceeding Php. 2,500.00. Frequency of Remittance by the Consignee and Treatment of Overdue Balances

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Under the entitys old policy, the consignee ha s an allowable commission of 25% of their total sales. The remittance should be done weekly and every overdue balance is charged to 10% penalty. But under their new policy which is being adopted at present, the consignee is not anymore subjected to 25% allowable commission, instead they are authorized to put mark-up in every specific consigned goods which will serve as his commission. Overdue balances are not subjected to 10% penalty, instead as a consequence the consignees are being suspended for one month to acquire goods from the consignor. Treatment of expenses The consignor has no more obligation to reimburse expenses borne by the consignee. Consignors doesnt account for expenses related to the consignment like delivery expense, etc. since its the responsibility of the consignees to get the goods from the consignor.

Return of Unsold Merchandise Consignees are also allowed to return unsold goods to the consignor provided that the goods were good as new and it must not have been fitted. Policies and Regulations The entity imposed policies and regulations which should be followed by the consignee, enumerated as follows: 1. No Account Balances

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2. No Overdue 3. No Sponsoring of Stocks 4. Stock Charges 5. Stock Management 6. No Fitting of Stocks 7. Transactions of Exchanging Stocks are Not Accepted 8. Consignment Transactions will be done only personally by the consignee Recognition of Profit Profit is recognized every end of the month which is equal to the gross profit. Journal Entries (assumed amounts only) CONSIGNORS BOOK ACTUAL THEORETICAL

Receipt of merchandise from main office:

Inventory Due to Main Office

59,915.48 59,915.48

Inventory Due to Main Office

59,915.48 59,915.48

Release of merchandise to the consignee:

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Memo Entry

Memo Entry

Payment of Expenses:

Freight Out(Specific Expense Account)500 Cash 500

Not Applicable

Remittance by the Consignee:

Cash Cash Sales 14970 14970 Commission Expense Cartage Sales Cost of Goods Sold Inventory 11983 11983 11830 2990 150 14970

Merchandise on consignment

11330 11330

Income & Expense Summary

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CHAPTER V CONCLUSION AND RECOMMENDATIONS

Partnership Liquidation Accounting Sion Travel & Tours is a service concern type of business which engaged in domestic and international ticketing, hotel accommodation, day tours and immigration assistance. This entity was studied under partnership liquidation process. After considering all the information gathered, this entity used lump sum method in liquidating its entity which is in accordance with what is illustrated in the book. In details, in Sion Travel & Tours liquidation, there was no realization of non-cash assets happened but merely reacquisition of it by the one of the partners. And since no liability and change in capital took place, there was repayment of investment happened. Hence it can be said that the liquidation process of Sion Travel & Tours conforms what is in the accounting standards. The process is only too simplified in such a way that there was only mere return of partners investments as compared to the illustrations from the book. As from data gathered, the reacquisition of noncash assets at book value is justified, however if such assets were sold it would only be right and customary to consider fair value. It only shows that examples reflected in the books are limited in terms of illustrating treatments to be employed in cases such as that of Sion Travel & Tours.

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Installment Sales Accounting In studying installment sales accounting in real practice, the proponents chose Quality Appliance Plaza-Valencia Branch. This entity merchandised home appliances in cash sales or in installment credit sales in general public. After taking considerations upon the information gathered from Quality Appliance Plaza Valencia Branch, the inventory system used by the entity and the treatment of the repossessed inventories are in conformity with the standards which are written and illustrated in the book. In addition, the entity does not allow trade-ins as part of the down payment. But there are some methods that we cannot directly conclude that the said entity conformed or violated some provisions or methods written in the book, as in the case of recognition of gross profit wherein the entity is not authorized to take account for it, the recognition of gross profit is only accounted and shown in the books of the Main Branch. Moreover, Quality Appliance Plaza is currently using a computerized based accounting system in recording their transactions. This system is more convenient and advanced in accounting their sales. The researchers recommend that there should be a separate recognition of gross profit for each branch to measure their efficiency and to better match revenue and expenses.

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Long-term Construction Contracts Accounting Da Dailo Architect is a service concern type of business entity engaged in planning, designing and construction. This entity was studied to gather essential information about the accounting methods used in long term construction contracts. Based on the data gathered, DA Dailo Architect used the same actual recording of data of the costs incurred and revenue recognition with that of the theories illustrated and discussed in the book. The entity also followed fixed price contract which is determined through the use of predetermined percentages by the contractor. Upon the signing of the contract the owner/customer is required to have 50% down payment which is used for the advance purchase of direct material. Moreover, Da Dailo Architect does not account any subcontract cost and there were no project segmentation or aggregation since this entity handles construction efficiently. Progress billings are issued when the project is 90% completed and the final issuance of progress billings is upon the completion and transfer to the owner of the constructed building wherein no retention fee is applied. In the determination of revenue, the entity used percentage of completion method, based on output measures since it conforms to the matching principle. After considering all observations and information gathered, it can be concluded that Da Dailo Architects methods employed in accounting their transactions were in conformity with that of what is illustrated and discussed in the book.

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Home-Branch Accounting Bukidnon Investment and Finance Corporation (BIFC) is a service concern entity engaged in financing primarily businessmen and farmer. This entity is the Home Office located at Valencia City, Bukidnon with two branches located at Don Carlos, Bukidnon and Cagayan de Oro, City. BIFC was chosen by the proponents wherein they conducted their study in Home Office and Branch Accounting. Based on the data gathered, it can be inferred that Bukidnon Investment and Finance Corporation employs almost but not all of the principles learned and discussed in accounting books with respect to the recording of all business transactions in both home office and branch books. Aside from the difference in their usage of certain accounts title, the most apparent departure from the standards followed in the theoretical accounting for Home Office and Branch accounting are; (1) the treatment of a branchs Income/Loss. Concerning the reporting and forwarding of a branchs Income/Loss to the head office, the branch does not report Income/Loss to the head office and the same is closed in its own Retained Earnings account. Hence, the intracompany accounts are not affected whether the branch operated income or incurred losses in the duration of the entitys operations, which is contrary to what is discussed and learned in the books. And (2) is the elimination of intracompany accounts during preparing consolidated financial statements, which is according to the accountant of the entity, there is no elimination of intracompany accounts during consolidation. They just prepare and combine financial statements of its branches with the head office and compute Income Taxes as a whole, which is again a departure from the standards followed.

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Also, the entitys income and equity really prosper through the establishment of branches throughout the region for already 23 years. They also disclosed that they have never been into financial difficulty and they have no liabilities from outside creditors except from taxes. Presently, the entity is rapidly growing and is potentially to spread throughout the whole region and might as well in the whole country. We are thus encouraging them to branch out more in certain areas wherein financial institutions are scarce to increase more their return on investment. Thus, branching out is one of the most efficient ways to expand business operations. Consignment Accounting The entity studied under consignment was GTY Trading- Malaybalay Branch located at San Isidro St. Malaybalay City. This entity is a merchandise type of business, engaged in merchandising garments and RTWs through consignment. GTY Trading is a consignor entity which distributes goods to several consignees through the execution of a written agreement. Through this study, we were able to compare the accounting methods used in the actual scenario and what have been taught to us in classroom discussions regarding consignment. Results states that accounting employed in GTY Trading Malaybalay Branch is in accordance with PFRS regarding their sales transactions regarding to the receipt of merchandise, distribution of goods to the consignees, remittances made by the consignees and profit recognition. The provision of PFRS regarding Profit Not separately determined is hereby followed so far as revenue

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recognition is concerned. However the provision of PFRS regarding expense recognition and allocation to inventories couldnt be applied due to limited transactions of such entity. A written contract is therefore an integral document in this kind of entity. It contains all the policies and regulations regarding allowable commissions, treatment of overdue balances and remittances including the responsibilities of the consignees. Remittance by the consignee should be done weekly and every overdue balance will lead to the suspension of acquisition of goods by the consignee from the consignor. There were no allowable commission employed for the consignees but they are in the position to put mark-ups in every goods they consigned. Through the information weve gathered we recommend to the entity for wise selection of consignee to control and minimize overdue remittances and non-delivery of cash by the consignee. As much as possible their agents must be within some specified area close to the entitys domicile. As to the forthcoming researchers, we recommend that they should choose a main branch as the subject of their study to acquire more information and wider concept of accounting employed.

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REFERENCES Ballada, W. & Ballada, S. (2010). Partnership and Corporation Accounting. Dayag, A.J. (2011). Practical Accounting 2. Guerrero, P.P. & Peralta, J.F. (2011). Advanced Accounting. Vol. 1. Soriano, F.R. (2009). Partnership and Corporations Law and Applications.

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APPENDIX

GTY TRADING ( (A) Registration Form, (B) Record of the merchandise received from the Main Office, (C) Interviewee:Mrs Liza Meniolas, (D) Record of Consigned goods to the consignees)

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(A )Da Dailo Architect

(B) Proponents on their Immersion