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CASE 2: Net Income of ₱100000 before salaries of ₱5000, interest of ₱3000, and 2. Admission by Purchase with Revaluation
bonus of 10% Two Steps to be followed:
Determined the asset revaluation
B= Distribute the interest to the buying partner
STEPS IN LUMP SUM LIQUIDATION If A received ₱35500, how much was given to J?
1. Realization of Non-cash Asset (Profit/Loss)
2. Payment of liabilities and liquidation expense A G J Total
Priority 1 ₱ -0- ₱30000 ₱ -0- ₱ 30000
Liability ₱xx Capital ₱xx Priority 2 -0- 10000 15000 25000
Cash ₱xx Cash ₱xx NPP 35500 14200 21300 71000
₱35500 ₱54200 ₱36300 ₱126000
3. Elimination of deficiencies
4. Distribution
SAFE PAYMENTS Capital Beginning ₱xx
1. Determine the capital interest Gain/Loss +/- xx
INSTALLMENT LIQUIDATION Maximum Possible Loss - xx
2. Deduct the Maximum Possible
Cash beginning ₱xx Loss Elimination Deficiency - xx
Add: Proceed xx 3. Absorb deficiency Condonation +/- xx
Minus: Liabilities xx Total 4. Distribute Cash Distribution ₱xx
Liquidation Expense xx Total
Distribution ₱xx
II. CORPORATE LIQUIDATION
Maximum Possible Loss (MPL): Three (3) years to liquidate
The extinguishment of juridical personality happens in dissolution
1. Unsold Non-cash Asset ₱xx
2. Anticipated Liquidation Expense (future LE) xx Unpaid
VALUATION:
₱xx
1. Asset – Fair Value
2. Liabilities – Maturity Value (Principal + Interest)
CASH PRIORITY PROGRAM
*(Receive cash-given)
CLASSIFICATION (Statement of Affairs):
1. Determine the capital interest 1. ASSETS
2. Compute loss absorption balance (LAB): Capital Interest ÷ P/L Ratio Assets Pledge with Fully Secured Creditors
3. Equalize the LAB – deduct the second highest from the highest until equal Assets Pledge with Partially Secured Creditors
4. Distribution: Difference in LAB × P/L Ratio Free Assets assets that are not originally pledge to any liabilities
When to use Cash Priority Program? 2. LIABILITIES
- When the problem says, what amount should be distributed to the partners Fully Secured Liabilities
Partially Secured Liabilities
EXAMPLE: Unsecured Liabilities with Priority
* Salaries
A G J * Taxes
Capital Interest ₱100000 ₱ 80000 ₱ 75000 * Administrative Expense (Liquidation Expense)
P/L % ÷ 50% ÷ 20% ÷ 30% * Customer Deposit
LAB ₱200000 ₱400000 ₱250000 Unsecured Liabilities without Priority (no collateral)
Priority 1 _______ 150000 _______
₱200000 ₱250000 ₱250000
Priority 2 _______ 50000 50000 Percentage of Recovery (POR) =
₱200000 ₱200000 ₱200000
IV. LONG TERM CONSTRUCTION CONTRACTS (IAS 11) COMPUTATION OF ADJUSTED PRICE BILLING (APB):
Contract Price ₱xx
1. PERCENTAGE OF COMPLETION METHOD + EC (↑ in certain cost) xx
- outcome can be estimated reliably − DC (↓ in certain cost) xx
- if the problem is silent − Penalty Clause (due to late turnover) xx
1.1. INPUT MEASURE (Cost to Cost) + IP (due to early turnover) xx
Cost Incurred To Date ÷ Total Cost +/− Modification / Change Order / Variation xx
1.2. OUTPUT MEASURE ADJUSTED PRICE BILLING (CP = APB) ₱xx
Total Units Prod. ÷ Total Units Expected Prod.
2. COST RECOVERY METHOD YEAR 1 YEAR 2 YEAR 3
- outcome cannot be estimated reliably CITD ₱xx ₱xx ₱xx
+ PTD-LTD xx xx xx
CONTRACT RETENTION CIP ₱xx ₱xx ₱xx
receivables − APB xx xx xx
does not the an income element (Due to)/Due from ₱xx ₱xx ₱xx = 0 → CIP @
reduces collection ↓ ↓ the end of the
PRO-FORMA ENTRY: Liability Asset year of contract.
Cash ₱xx
Contract Retention xx CONSTRUCTION IN PROGRESS:
Accounts Receivable ₱xx (1) If Profit: Contract Price × Percentage of Completion = CIP
UPON COMPLETION OF PROJECT: (2) If Loss: [(CP × POC) – LTD × (1 − POC)] = CIP
Cash ₱xx (3) [(TC × POC) – LTD] = CIP
Contract Retention ₱xx
MOBILIZATION FEE ENTRIES:
no income element 1.) Construction in Progress ₱xx
PRO-FORMA ENTRY: Various Accounts ₱xx
Cash ₱xx
Advances from Customers ₱xx 2.) Accounts Receivable ₱xx
Progress Billings ₱xx
COMPUTATION OF COST INCURRRED TO DATE (CITD):
(1.) Direct Materials ₱xx 3.) Cash ₱xx
+ (2.) Direct Labor xx Accounts Receivable ₱xx
+ (3.) Overhead xx 4.) COC ₱xx
+ (4.) Depreciation of Construction Equipment (*Idle = Expense) xx Construction in Progress xx
+ (5.) Any reimbursable Cost xx Construction Revenue ₱xx
+ (6.) xx
+ (7.) Borrowing Cost (Qualifying Asset) xx 5.) Accounts Receivable ₱xx
*Specific = IE – II; **General = (AI × C) × CR Progress Billings ₱xx
+ (8.) Unused Supplies / Materials without Alternative Use xx 6.) Progress Billings ₱xx
+ (9.) Incidental Income from Sale excess over Scrap Materials xx Construction in Progress ₱xx
COST INCURRED TO DATE ₱xx
COMPUTATION OF ADJUSTED CONTRACT PRICE: COMPUTATION OF DUE FROM / (DUE TO) CUSTOMER – Y2:
Contract Price ₱xx Year 1 Billings ₱xx
Variable Price xx Year 2 Billings xx
Bonus xx Mobilization Fee (xx)
Adjusted Contract Price ₱xx Year 1 Collection [(Y1B × customer payment % of amount billed) ×
(100% - Retention Fee %)] (xx)
COMPUTATION OF CIP: Year 2 Collection [(Y2B × customer payment % of amount billed) ×
(100% - Retention Fee %)] (xx)
Cost Incurred to Date ₱xx Due from / (Due to) Customers – Y2 ₱xx
Realized Gross Profit – to date xx
Construction in Progress ₱xx
V. IAS 18 – REVENUE
COMPUTATION OF REALIZED GROSS PROFIT – CURRENT YEAR: CRITERIA TO RECOGNIZE REVENUE:
ST ND
1 YEAR 2 YEAR LAST YEAR 1. Receivables (*silent)
Contract Price ₱xx ₱xx ₱xx - reasonably assured
CITD (Prior Year + Current Year) ₱xx ₱xx ₱xx
Estimated Costs xx xx xx 2. Cash as Down Payment (*silent)
Total Costs (₱xx) (₱xx) (₱xx) - nonrefundable
Total Estimated Gross Profit ₱xx ₱xx ₱xx
Multiply: Percentage of Completion % % % 3. Franchise Revenue
Total Realized Gross Profit – To Date ₱xx ₱xx ₱xx - substantial performance
Realized Gross Profit – Prior Year (+/−) xx xx xx
Realized Gross Profit – Current Year ₱xx ₱xx ₱xx NOTE:
These conditions shall meet to recognize revenue.
IFRS 15 Contingent Franchise Fee = IAS 18 Continuing Franchise Fee
COMPUTATION OF CIP, net of PB (ZPM/CRM):
CASE 1 CASE 2 CASE 3
Cost Incurred To Date ₱xx ₱xx ₱xx
R x
Total Estimated Gross Profit X (₱xx) (₱xx)
C x
Multiply: Percentage of Completion -_ 100% 100%
F
Total Realized Gross Profit – To Date ₱-0- (₱xx) (₱xx)
₱xx ₱xx ₱xx
IFF = Revenue IFF = Deferred Cash ₱xx
Progress Billings (PY + CY) (xx) (xx) (xx)
Revenue NR xx
Construction in Progress, net of PB ₱+/− ₱+/− ₱-0-
Discount ₱xx
Franchise Revenue xx
Deferred Revenue xx
RECOGNITION OF REVENUE
over time EXCEPTION TO THE RULE:
at a point in time Down payment still considered as revenue if the DP is nonrefundable and
DP represents fair measure of services already rendered.
CASE 1 CASE 4
R – Interest Bearing (Accrual Method) R x – Non-interest Bearing
C C
F F
Revenue (IFF) ₱xx Down Payment ₱xx
Cost of Sales (Direct Cost for Initial Services) (xx) Collection, net of interest income xx
Gross Profit ₱xx Total Collection ₱xx
Continuing Franchise Fee (Sales × %) xx Multiply: Gross Profit Ratio (GP ÷ Revenue) *REVENUE = DP + PV %
Interest Income (Face Amount × Interest Rate × ?/12) xx Realized Gross Profit ₱xx
Expense (IC for IS + IC for CS + DC for SC) (xx) Continuing Franchise Fee xx
NET INCOME ₱xx Interest Income (PV × IR × ?/12) xx
Expenses (xx)
CASE 2 NET INCOME ₱xx
R x – Non-interest Bearing (Installment Method)
C TOTAL REVENUE OF THE FRANCHISOR
F Down payment ₱xx
Collection xx
Down Payment – Cash ₱xx CFF xx
Collection during the period xx Interest Income xx
Total Collection ₱xx TR-F ₱xx
Multiply: Gross Profit Ratio (GP ÷ Revenue) *REVENUE = IFF %
Realized Gross Profit ₱xx TOTAL REVENUE FROM F.F.
Continuing Franchise Fee xx Down payment ₱xx
Collection xx
Interest Income xx
CFF xx
Expenses (xx) TR from FF ₱xx
NET INCOME ₱xx
*NOTE:
Beginning Inventory – HO
(a) In transit – prior year
(b) Freight Charges
Ending Inventory – HO
(a) In transit – current year (SFHO is < its true amount)
(b) Freight Charges
FREIGHT FREIGHT
PREPAID COLLECT
EXAMPLE:
Freight Charges
Home Office to Branch 1 ₱10
Branch 1 to Branch 2 5
Home Office to Branch 2 (4)
(Excess Freight) Expenses ₱11
FORMULAS EXAMPLE:
Share Premium from issuance ₱ 50
Share Premium from original issuance 30
CTIR 100
ENTRY:
Share Premium ₱50
Share Premium 30
SIC 20
Cash/Payable ₱100
PRESENTATION OF NCI
* × PHI% = ₱xx 1. FV of NCI / Full Goodwill
If the fair value is unknown compute the implied fair value
FORMULA:
EXAMPLE:
Purchase Price ₱1000 NA@BV – 12/31 ₱xx
NA@BV (SHE) (700) Net Income (xx)
Excess ₱ 300 Dividend xx 2. Proportionate Share / Relevant Share / Interest in the Net Asset of Subsidiary
OVA (50) NA@BV – BC ₱xx (INAS)
UVA (100) FORMULA:
Goodwill ₱ 250 FV of Net Assets × NCI% = INAS
UNREALIZED GAIN
Gain ₱7
Equipment ₱7
*(it depends upon the Selling Price)
YEAR 2 YEAR 3
Unrealized RE ₱7
NO ENTRY
Gain Equipment ₱7
Realized Acc. Dep. ₱2 RE ₱5
EXAMPLE: Intercompany Sale of Inventory Gain Dep. Exp. ₱1 Dep. Exp. ₱1
Sales ₱1000 Ending Inventory (1000×50%) ₱500 RE 1 Gain 4
Cost of Sales (700) GPR × 30%
Gross Profit ₱300 UPEI (12/31/16) ₱150
Ending Inventory % × 50% EXAMPLE: Intercompany Sale of Land
UPEI ₱150 RPBI (01/01/17) ₱150 Land (selling price) - ₱100
CL - 80
Working Paper Eliminating Entries Sale to third party - 150
DOWN UP
UPEI: COS ₱xx COS ₱xx
Inventory ₱xx Inventory ₱xx YEAR 1 YEAR 2 YEAR 3 Recorded – Subsidiary ₱50
UG ₱(20) -0- -0- Not yet recorded 20
RPBI: RE, beg. ₱xx RE, beg. ₱xx RG -0- -0- ₱20 ₱70
COS ₱xx NCI xx
COS ₱xx
X. JOINT COSTING DL
AHAR
Joint Cost ₱xx Rate DLRV
Less: NRV of By-product (xx) if, inventoriable/ AHSR
Remaining Joint Cost ₱xx material
AHSR
TREATMENT OF BY-PRODUCT Efficiency DLEV
SHSR
1. Upon sale or realization
- recorded as other income, if the by-product is immaterial.
2. Upon production or inventoriable XII. FOREIGN EXCHANGE (IAS)
- the NRV of by-product is deducted from the total joint cost
1. Foreign Currency Transaction
ALLOCATION OF REMAINING 2. Foreign Exchange Translation
1. PHYSICAL 3. Hedging of FOREX Risk
1.1. Physical measure such as gallon/kilogram
1.2. Units produce EXCHANGE RATE – This is the ratio of exchange between two currencies.
1.3. Weighted average units produce SPOT RATE – Rate for immediate delivery.
2. MONETARY CLOSING RATE – This is the spot rate at Balance Sheet date.
2.1. Sales value at split-off also known as relative market value FUNCTIONAL CURRENCY – Currency of primary economic environment
2.2. Net realizable value at split-off in which the entity operates.
2.3. Hypothetical/approximated/estimated at split-off also known as
What is the primary driver of functional currency? – SALES
adjusted market value
Assets & Liabilities Closing Rate
TWO TYPES OF COST FOR THE JOINT PRODUCT Shareholder’s Equity Historical Rate
1. Joint Cost Share or Allocated Joint Cost Revenue & Expenses Average [Computation: (B+E)/2 ]
2. Traceable Cost or Additional Processing Cost Spot Rate (Theory)
ENTRIES: A = L + C
$ 10M $ 8M $ 2M
BUYING OF INVENTORY BUYING OF F.C.
× ₱1 × ₱1 × ₱0.5
Purchases ₱xx FCR ₱xx ₱ 10M = ₱ 8M + ₱ 1M + ₱ 1M Translation Adjustment
Accounts Payable ₱xx FCP (fixed) ₱xx Credit
$ 10M $ 8M $ 2M
Forex Loss ₱xx FCR ₱xx
× ₱1 × ₱1 × ₱2
Accounts Payable ₱xx Forex Gain ₱xx
₱ 10M = ₱ 8M + ₱ 4M + ₱ 2M Translation Adjustment
Accounts Payable ₱xx Forex Loss ₱xx Debit
Forex Gain ₱xx FCR ₱xx
NA, ending @ CR > NA, ending @ RF = Translation Adjustment Credit
Accounts Payable ₱xx FCP (fixed) ₱xx NA, ending @ CR < NA, ending @ RF = Translation Adjustment Debit
Cash ₱xx Cash xx
FCR ₱xx NA, beg. OS × HR ₱xx
RE, beg. xx (translated amount)
SELLER OF MERCHANDISE SELLER OF F.C. Net Income @ Average xx
Accounts Receivable ₱xx FCR (fixed) ₱xx Dividend @ SR (xx)
Sales ₱xx FCR ₱xx NA, end @ RF ₱xx
Accounts Receivable ₱xx Forex Loss ₱xx QUOTATION:
Forex Gain ₱xx FCP ₱xx 1. DIRECT – Foreign Currency to Philippine Peso
2. INDIRECT – Philippine Peso to Foreign Currency
Forex Loss ₱xx FCP ₱xx
Accounts Receivable ₱xx Cash xx
SPOT RATE:
FCR (fixed) ₱xx
1. BUYER – Selling Spot Rate / Offer Rate / Asking
FOREX TRANSLATION 2. SELLER – Buying Spot Rate / Bid Rate
only reflected in consolidated FS
FIRM COMMITMENT
an Other Comprehensive Income component
(1) The hedge is perfect when the company acquired a forward contract for
OCI: the same amount of the same currency in which the firm commitment is
1. Forex Translation (IAS 21) (2) Under perfect hedging, the amount of forex gain from hedging instrument
2. Effective Portion of Cash Flow Hedge (IFRS 7/9) is equal to firm commitment as liability
3. Revaluation Surplus (IAS 16) (3) The amount of forex loss from hedging instrument is equal to firm
4. Remeasurement G/L related to employee benefit (IAS 19R) commitment as asset
5. Estimated Unrealized G/L on FA at FVTOCI (IFRS 7/9) (4) TYPES OF FIRM COMMITMENT
6. Risk G/L on credit risk for financial liability designated to P/L 4.1. Sales Commitment
4.2. Purchase Commitment
RECLASSIFIED TO P/L: (5) The asset sold or purchased is recorded at the date of settlement based
1. Forex Translation on the forward rate on the date of commitment
2. Effective portion of Cash Flow Hedge