AFAR Notes by Dr Ferrer - Summary BS Accountancy PDF

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Warning: TT: undefined function: 22Quick Notes in AFARI. PARTNERSHIPPARTNERSHIP FORMATIONVALUATION: 1. Cash – Face Value 2. Land, Depreciable Asset, & NCA a. Agreed Value b. Fair Value c. Appraised Value d. Carrying Value/Book Value 3. Liabilities – are considered assumed if the problem is s...

Description

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

*NOTES:  To transfer the depreciable asset, it should be in net amount.  To transfer the accounts receivable to the new book, it should not be in net amount.  ₱3000  PURPOSE: To engage other party  The juridical personality of the partnership arises from the meeting of minds.

Quick Notes in AFAR I. PARTNERSHIP PARTNERSHIP FORMATION VALUATION: 1. Cash – Face Value 2. Land, Depreciable Asset, & NCA a. Agreed Value b. Fair Value c. Appraised Value d. Carrying Value/Book Value 3. Liabilities – are considered assumed if the problem is silent 4. Inventory – Lower of Cost and Net Realizable Value (LCNRV) 5. Capital 5.1. Bonus Method 5.2. Investment/Withdrawal Method BONUS METHOD (*The problem is silent) 1. There would be a transfer of capital. 2. There is no recognition of goodwill. 3. The total asset and capital will remain unchanged. INVESTMENT/WITHDRAWAL 1. Agreed Capital is more than Unadjusted Capital = Investment 2. Agreed Capital is less than Unadjusted Capital = Withdrawal ADJUSTING ENTRIES (*Use contra-asset) 1. Building – Carrying Value: ₱10M, Agreed Value: ₱15M Accumulated Depreciation ₱5M Capital

PARTNERSHIP OPERATION 1. Salaries  This could be fractional year  Given, regardless of the result of operation 2. Interest  This could be in fractional year  Given, regardless whether there is profit or loss (*Use the salary/interest ratio if the problem states that the amount to be distributed to the partners is up to the extent of profit only or the profit is distributed based on the priority.) 3. Bonus  This is given if there is a profit only  Bonus is not always given if there is profit CASE 1: Net Income of ₱500000 before salaries of ₱55000, interest of ₱13000, and bonus of 15%

B= ₱5M

2. Accounts Receivable – Cost: ₱10000, NRV: ₱9000 Capital ₱1000 Allowance for Doubtful Accounts ₱1000

Page | 1

Partnership by Estoppel – legally binding the partnership but no formal agreement Limited Partnership – two or more general partners and one or more limited partners Particular Partnership – single transaction

B= B= B = ₱56, 347.83

CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

CASE 2: Net Income of ₱100000 before salaries of ₱5000, interest of ₱3000, and bonus of 10%

B=

2. Admission by Purchase with Revaluation Two Steps to be followed:  Determined the asset revaluation  Distribute the interest to the buying partner TCC

B=

TAC

Bonus *TAC=TCC 0

/

UVA / *TAC>TCC +

OVA *TAC FV of Repossessed Merchandise)

₱70

₱100 (20)

(80) ₱(10)

ENTRIES: 1. Reposs. Mdse. – FV ₱70 DGP 20 Loss 10 IAR ₱100

3. Cash

₱___ IAR

4. DGP

₱___

Beginning

End

AIS

End Page | 5

₱80 20 ₱200

(20%) IAR 2016 ₱100 Collection RA WO ₱ 15

Down payment – Cash Down payment – FV of Trade-in Collection, net of interest Collection Multiply: Gross Profit Ratio Realized Gross Profit Gross Profit from Sale of Repossessed Merchandise Total Realized Gross Profit Loss (FV of Reposs. Mdse. – Unrecovered Cost) NET INCOME

₱xx xx xx ₱xx xx ₱xx xx ₱xx (xx) ₱xx

₱___ RGP

2. Expenses DGP (20%) IAR write-off

TRADE-IN & SALE OF REPOSSESSED MERCHANDISE:

₱___

*Gain/Loss  P/L **DGP  Contra receivable account

₱50 RGP 30 DGP on RA 5 DGP on WO

DGP 2016 ₱10 Beginning 6 1 End

IAR 2017 DGP 2017 ₱___ Collection ₱___ RGP ₱__ Beginning RA ___ DGP on RA __ WO ___ DGP on WO __ ₱___ End

TRADE-IN: Installment Sales Fair Value of Trade-in Trade-in Allowance Adjusted Installment Sales Cost of Sales GROSS PROFIT

₱xx xx (xx) ₱xx (xx) ₱xx

Adjusted Installment Sales Down payment – Cash Fair Value of Trade-in CV of Receivable

₱xx (xx) (xx) ₱xx

Installment Sales Trade-in Allowance Collectibles

₱xx (xx) ₱xx

₱20

₱3

₱__

₱ _ CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

COMPUTATION OF ADJUSTED PRICE BILLING (APB): Contract Price + EC (↑ in certain cost) − DC (↓ in certain cost) − Penalty Clause (due to late turnover) + IP (due to early turnover) +/− Modification / Change Order / Variation ADJUSTED PRICE BILLING (CP = APB)

IV. LONG TERM CONSTRUCTION CONTRACTS (IAS 11) 1. PERCENTAGE OF COMPLETION METHOD - outcome can be estimated reliably - if the problem is silent 1.1. INPUT MEASURE (Cost to Cost) Cost Incurred To Date ÷ Total Cost 1.2. OUTPUT MEASURE Total Units Prod. ÷ Total Units Expected Prod. 2. COST RECOVERY METHOD - outcome cannot be estimated reliably CONTRACT RETENTION  receivables  does not the an income element  reduces collection  PRO-FORMA ENTRY: Cash Contract Retention Accounts Receivable  UPON COMPLETION OF PROJECT: Cash Contract Retention MOBILIZATION FEE  no income element  PRO-FORMA ENTRY: Cash Advances from Customers

CITD + PTD-LTD CIP − APB (Due to)/Due from ↓ ↓ Liability Asset ₱xx xx

YEAR 2 ₱xx xx ₱xx xx ₱xx

YEAR 3 ₱xx xx ₱xx xx ₱xx

= 0 → CIP @ the end of the year of contract.

CONSTRUCTION IN PROGRESS: (1) If Profit: Contract Price × Percentage of Completion = CIP (2) If Loss: [(CP × POC) – LTD × (1 − POC)] = CIP (3) [(TC × POC) – LTD] = CIP

₱xx ₱xx ₱xx

ENTRIES:

₱xx ₱xx

COMPUTATION OF COST INCURRRED TO DATE (CITD): (1.) Direct Materials + (2.) Direct Labor + (3.) Overhead + (4.) Depreciation of Construction Equipment (*Idle = Expense) + (5.) Any reimbursable Cost + (6.) + (7.) Borrowing Cost (Qualifying Asset) *Specific = IE – II; **General = (AI × C) × CR + (8.) Unused Supplies / Materials without Alternative Use + (9.) Incidental Income from Sale excess over Scrap Materials COST INCURRED TO DATE Page | 6

YEAR 1 ₱xx xx ₱xx xx ₱xx

₱xx xx xx xx xx xx ₱xx

₱xx xx xx xx xx xx xx xx xx ₱xx

1.) Construction in Progress Various Accounts

₱xx

2.) Accounts Receivable Progress Billings

₱xx

3.) Cash Accounts Receivable

₱xx

4.) COC Construction in Progress Construction Revenue

₱xx xx

5.) Accounts Receivable Progress Billings

₱xx

6.) Progress Billings Construction in Progress

₱xx

₱xx ₱xx ₱xx

₱xx ₱xx ₱xx

CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

COMPUTATION OF DUE FROM / (DUE TO) CUSTOMER – Y2:

COMPUTATION OF ADJUSTED CONTRACT PRICE: Contract Price Variable Price Bonus Adjusted Contract Price

Year 1 Billings Year 2 Billings Mobilization Fee Year 1 Collection [(Y1B × customer payment % of amount billed) × (100% - Retention Fee %)] Year 2 Collection [(Y2B × customer payment % of amount billed) × (100% - Retention Fee %)] Due from / (Due to) Customers – Y2

₱xx xx xx ₱xx

COMPUTATION OF CIP: Cost Incurred to Date Realized Gross Profit – to date Construction in Progress

₱xx xx ₱xx

₱xx xx (xx) (xx) (xx) ₱xx

V. IAS 18 – REVENUE COMPUTATION OF REALIZED GROSS PROFIT – CURRENT YEAR: Contract Price CITD (Prior Year + Current Year) Estimated Costs Total Costs Total Estimated Gross Profit Multiply: Percentage of Completion Total Realized Gross Profit – To Date Realized Gross Profit – Prior Year (+/−) Realized Gross Profit – Current Year

1ST YEAR ₱xx ₱xx xx (₱xx) ₱xx % ₱xx xx ₱xx

CRITERIA TO RECOGNIZE REVENUE:

2ND YEAR ₱xx ₱xx xx (₱xx) ₱xx % ₱xx xx ₱xx

LAST YEAR ₱xx ₱xx xx (₱xx) ₱xx % ₱xx xx ₱xx

₱xx (₱xx) 100% (₱xx) ₱xx (xx) ₱+/−

₱xx (₱xx) 100% (₱xx) ₱xx (xx) ₱-0-

1. Receivables (*silent) - reasonably assured 2. Cash as Down Payment (*silent) - nonrefundable 3. Franchise Revenue - substantial performance 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): Cost Incurred To Date Total Estimated Gross Profit Multiply: Percentage of Completion Total Realized Gross Profit – To Date Progress Billings (PY + CY) Construction in Progress, net of PB

RECOGNITION OF REVENUE  over time  at a point in time

Page | 7

₱xx X -_ ₱-0₱xx (xx) ₱+/−

R C F

CASE 1   

CASE 2  x 

IFF = Revenue

IFF = Deferred Revenue

CASE 3 x    Cash ₱xx NR xx Discount Franchise Revenue Deferred Revenue

₱xx xx xx

EXCEPTION TO THE RULE:  Down payment still considered as revenue if the DP is nonrefundable and DP represents fair measure of services already rendered. CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

CASE 1

CASE 4 R  C  F 

– Interest Bearing (Accrual Method)

Revenue (IFF) Cost of Sales (Direct Cost for Initial Services) Gross Profit Continuing Franchise Fee (Sales × %) Interest Income (Face Amount × Interest Rate × ?/12) Expense (IC for IS + IC for CS + DC for SC) NET INCOME

R x C  F  ₱xx (xx) ₱xx xx xx (xx) ₱xx

CASE 2 R x C  F 

Down Payment Collection, net of interest income Total Collection Multiply: Gross Profit Ratio (GP ÷ Revenue) Realized Gross Profit Continuing Franchise Fee Interest Income (PV × IR × ?/12) Expenses NET INCOME

₱xx xx ₱xx % ₱xx xx xx (xx) ₱xx

*REVENUE = DP + PV

– Non-interest Bearing (Installment Method)

Down Payment – Cash Collection during the period Total Collection Multiply: Gross Profit Ratio (GP ÷ Revenue) Realized Gross Profit Continuing Franchise Fee Interest Income Expenses NET INCOME

*REVENUE = IFF

₱xx xx ₱xx % ₱xx xx xx (xx) ₱xx

TOTAL REVENUE OF THE FRANCHISOR Down payment Collection CFF Interest Income TR-F

₱xx xx xx xx ₱xx

TOTAL REVENUE FROM F.F. Down payment Collection CFF TR from FF

₱xx xx xx ₱xx

VI. HOME OFFICE AND BRANCH ACCOUNTING

CASE 3 R  C  F 

– Non-interest Bearing

Revenue (DP + PV) Cost of Sales Gross Profit Continuing Franchise Fee Interest Income (PV × IR × ?/12) Expenses NET INCOME

Page | 8

– Non-interest Bearing

BP

₱xx (xx) ₱xx xx xx (xx) ₱xx

Beginning Inventory: Home Office* Outsider Shipment, net* Purchases (NP) Freight in Total Goods Available for Sale Ending Inventory: Home Office* Outsider Cost of Goods Sold

−

Cost

=

AFOBI

₱xx xx SFHO xx xx ₱xx

₱xx xx STB xx xx ₱xx

₱xx xx -_ ₱xx

(xx) (xx) ₱xx

(xx) (xx) ₱xx

(xx) (xx) ₱xx

(GPR-PY) (GPR-CY)

RGP

CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

*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 PREPAID

FREIGHT COLLECT

EXAMPLE: Freight Charges Home Office to Branch 1 Branch 1 to Branch 2 Home Office to Branch 2 (Excess Freight) Expenses

₱10 5 (4) ₱11

 Net Income @ Billed Price  Reported Net Income (Branch)  Net Income @ Cost  True Net Income (Home Office)  COGS @ BP – COGS @ Cost + Net Income @ BP = Realized Gross Profit Net Income reported by the branch Unrecorded expenses of branch:  Depreciation  Allocation of expense Net Income that should have reported Realized Gross Profit True Net Income Page | 9

₱xx

EXAMPLE ₱ 87

(xx) (xx) ₱xx xx ₱xx

(5) (2) ₱ 80 20 ₱100

*ENTRIES

#11 #12

CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

BP (Reported) ₱xx (xx) ₱xx (xx) ₱xx

Sales Cost of Goods Sales Gross Profit Expenses Net Income

RGP

AFOBI Beginning Shipment End

Cost (True/Correct) ₱xx (xx) ₱xx (xx) ₱xx

HO 1. 100 – 80 = 20 2. 100 × 20% = 20 3. 100 × 25/125 = 20 4. 80 × 25% = 20

COST METHOD – CV Purchase Price Transaction Cost Impairment Loss CV of Investment

₱xx xx (xx) ₱xx

FAIR VALUE METHOD – CV Purchase Price ₱xx Unrealized Gain xx Unrealized Loss (xx) CV of Investment ₱xx

Page | 10

P/L Investment Income Impairment Loss P/L

₱+ (−) ₱xx

TYPES OF BUSINESS COMBINATION

BUSINESS COMBINATION  is a transaction where the acquirer obtains control over the net assets of the acquiree. ACCOUNT TITLE Investment in Subsidiary Investment in Associate FA @ FVPL/FVOCI

₱xx xx xx xx (xx) ₱xx

*NOTE: The fair value method is applicable only for trading securities.

VII. BUSINESS COMBINATION (IFRS 3) & CONSOLIDATED F.S. (IFRS 10)

OWNERSHIP 51% to 100% 20% to 50% 1% to 19%

EQUITY METHOD – CV Purchase Price Transaction Cost Investment Income Dividend Impairment Loss CV of Investment

METHOD Cost / Equity / Fair Value Equity Cost / FV

P/L Impairment Loss Dividend Income P/L

₱(−) + ₱xx

P/L Unrealized Gain Unrealized Loss Dividend Income Transaction Co P/L

₱+ (−) + (−) ₱xx

1. ASSET ACQUISITION (100% Ownership) 1.1. Statutory Merger  A + B = A/B 1.2. Statutory Consolidation  A + B = C 2. STOCK ACQUISITION  A + B = AB (Parent – Subsidiary) 2.1. Fully Owned 2.2. Partially Owned

ACCOUNTING METHOD  IFRS 3 – Acquisition Method (*OLD Purchase Method) Disclose the following: 1) Determine the acquirer 2) Determine the acquisition date  The acquisition date is the measurement date, and you have within 1 year from the balance sheet date to adjust the fair value of those assets and liabilities  The net assets of the subsidiary can be adjusted within 1 year from the acquisition date 3) Recognize and measure identifiable assets, identifiable liabilities, and non-controlling interest (*The pre-existing goodwill of subsidiary is ignored.) 4) Measure and recognize goodwill or gain

CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

EXAMPLE: Share Premium from issuance Share Premium from original issuance CTIR

FORMULAS

₱ 50 30 100

ENTRY: Share Premium Share Premium SIC Cash/Payable

₱50 30 20 ₱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 NA@BV (SHE) Excess OVA UVA Goodwill

₱1000 (700) ₱ 300 (50) (100) ₱ 250

NA@BV – 12/31 Net Income Dividend NA@BV – BC

Purchase Price NA@FV (squeezed) Goodwill

₱1000 (750) ₱ 250

NA@BV – BC UVA OVA NA@FV

ACQUISITION RELATED COST 1. Direct Cost  expense 2. Indirect Cost  expense 3. Cost to Issue or Register (CTIR)  Based on priority: 3.1. Share Premium from issuance; 3.2. Share Premium from original issuance; 3.3. Debit to Stock Issuance Cost Page | 11

₱xx (xx) xx ₱xx

₱700 100 (50) ₱750

CTIR Keywords:  SEC  Stock  Share  Documentary Stamp Tax

2. Proportionate Share / Relevant Share / Interest in the Net Asset of Subsidiary (INAS) FORMULA: FV of Net Assets × NCI% = INAS CONTROL PREMIUM (CP) 1. It must be included in the purchase price 2. Excluded in computing NCI 3. It affects goodwill or gain CONTINGENT CONSIDERATION PAYABLE (CCP) 1. If the information existed already as of the acquisition date, any adjustment to fair value would affect the goodwill or gain. 2. If the information is related to target profit or target market price, any adjustment goes to P/L and it does not affect the goodwill or gain. NOTE: Adjustment to goodwill should be applied retrospectively. *SME − Direct Cost is capitalized / capitalizable − NCI is measured using proportionate − Goodwill goes to parent − Goodwill is subject to amortization (10 years)

CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

EXAMPLE:

Case 4 [CP of ₱300000 is included]

Case 1 Fair Value of Subsidiary Net Assets @ FV Goodwill

(100%) TOTAL ₱1700000 (1000000) ₱ 700000

Impairment Loss

₱50000

(80%) Purchase Price ₱1300000 (800000) ₱ 500000

(20%) NCI ₱ 400000 FV (200000) ₱ 200000

₱35714 (5/7)

(80%) Purchase Price ₱1300000 (800000) ₱ 500000

(20%) NCI ₱ 250000 (200000) ₱ 50000

Purchase Price Net Assets @ Fair Value Goodwill

(20%) NCI ₱ 250000 (200000) ₱ -0-

(100%) TOTAL ₱1250000 (1000000) ₱ 250000

vs.

(80%) Purchase Price ₱1000000 (800000) ₱ 200000

01/01/17 ₱1000000 (700000) ₱ 300000

12/31/17 ₱1000000 (800000) ₱ 200000

(20%) NCI ₱ 250000 (200000) ₱ 50000

CONSOLIDATED FINANCIAL STATEMENT (*At the date of business combination) TOTAL ASSETS:

 *If, paid

Page | 12

(80%) Purchase Price ₱ 700000 (800000) ₱ (100000)

Goodwill on December 31, 2017 = ₱200000 Goodwill on January 1, 2017 = ₱200000



Case 3

₱200000

(100%) TOTAL ₱ 900000 (1000000) ₱(100000)

NOTE: Gain is never allocated. It goes to Parent.

(100%) TOTAL ₱1550000 (1000000) ₱ 550000

vs.

Fair Value of Subsidiary Net Assets @ FV Goodwill

(20%) NCI ₱ 200000 (200000) ₱ -0-

vs.

Fair Value of Subsidiary Net Assets @ FV Goodwill

vs.

Case 2 [CP = ₱300000]

₱200000

(80%) Purchase Price ₱1000000 (800000) ₱ 200000

Case 5 INAS

Fair Value of Subsidiary Net Assets @ FV Goodwill

₱200000 

₱14286 (2/7)

*If the problem is silent, use the FV. The FV of NCI should not lower of INAS.

FV ₱400000 

Fair Value of Subsidiary Net Assets @ FV Goodwill

(100%) TOTAL ₱1200000 (1000000) ₱ 200000

Total Assets of Parent @ BV Total Assets of Subsidiary @ FV Goodwill Purchase Price (Cash/NCA) Direct Cost Indirect Cost CTIR Total Assets

₱xx xx xx (xx) (xx) (xx) (xx) ₱xx

CPA Review School of the Philippines – Batch 82

(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA)

TOTAL LIABILITIES:

*If, unpaid

Total Liabilities of Parent @ BV Total Liabilities of Subsidiary @ FV CPP Purchase Price (Liabilities) Direct Cost Indirect Cost CTIR Total Liabilities

₱xx xx xx xx xx xx xx ₱xx

TOTAL SHAREHOLDER’S EQUITY:

*Paid/ Unpaid CONTROL PREMIUM     PURCHASE PRICE    

SHE of Parent @ BV NCI on BPO Gain  on PHI on CCP P...