AFAR Reviewer- Dr. Ferrer PDF

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(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD(REVIEWER: Dr. Rodiel C. Ferrer, CPA, MBA, DBA, PhD CAR, CMA) CAR, CMA)Quick Notes in AFARQuick Notes in AFARI. P A R T NI. P A R T NE RE RS H I PS H I PPARTNERSHIP FORMATIONPARTNERSHIP FORMATIONVALUATION:VALUATION: Cash1. Cash – – Fa...

Description

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

* NO TE S: To transfer th thee depreciable asset, it should be in net amount. To To transfer transfer the the accounts accountsreceivable to the new book, book, itit should should not notbe in net amount. 3000 PURPOSE: PURPOSE: To To engage engage other other party party  ₱ The juridical personality ooff the partnership arises from the meeting of minds.

Quick Notes in AFAR

 

I. PARTNER PARTNER SHIP



PARTNERSHIP FORMATION



– legally Partnership Partnership by by Estoppel Estoppel– legallybinding bindingthe thepartnership partnershipbut butno noformal formal

VALUATION: 1. Cash – Face Value 2. Land, Depr Depreciable eciable Asset, & NCA a. Agreed Value b. Fair Value c. Appraised Value d. Carrying Value/Book Value 3. Liabilities –are are considered considered assumed assumed ifif the the problem is silent 4. Inventory –Lower Lower of of Cost Cost and and Net Net Realizable Realizable Value Value (LCNRV) (LCNRV) 5. Capital 5.1. Bonus Method 5.2. Investment/Withdra Investment/Withdrawal wal Method

wo or m ore oregeneral generalpartners partnersand andone one or ormore morelimited limited single transaction

PARTNERSHIP OPERATION 1. Salaries This co could uld be fractional year Given, rega regardless rdless of the result of operation  

2. Interest This could be iin n fraction fractional al year Given, rega regardless rdless whe whether ther there is profit or loss (*Use (*Usethe thesalary/interest salary/interestratio ratioififthe theproblem problemstates statesthat thatthe theamount amounttotobe be distributed distributedto tothe thepartners partnersis is up upto to the the extent extent of of profit profit only only or orthe the profit is distributed distributedbased basedon onthe thepriority.) priority.) 

BONUS METHOD



(*The (*The problem problem is is silent) silent) 1. There would be a transfer transfer of of capital. capital. 2. There is no recognitio recognition n of goodwill. 3. 3. The The total total asset asset and and capital capital will will remain remain unchanged. unchanged.

3. Bonus

INVESTMENT/WITHDRAWAL



1. Agreed Capital is more than U Unadjusted nadjusted Capital = Investment 2. Agreed Capital is less than U Unadjusted nadjusted Capital = Withdrawal ADJUSTING ENTRIES (*Use contra-asset) Carrying Value: Value: ₱10M, ₱10M, Agreed Agreed Value: Value: ₱15M ₱15M 1. Building – Carrying ₱5M Accumulated Depreciation Capital



This is given if there is a profit only Bonus isnot alw always ays giv given en if there is profit

₱500000before beforesalaries salariesof of₱55000, ₱55000,interest interestof of CASE 1 : Net Income of ₱500000 

₱5M

2. AccountsReceivable – Cost: ₱10000, NRV: ₱ 9000 ₱1000 Capital ₱1000 Allowance for Doubtful Ac Accounts counts

  



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

NetIncome Incomeof of₱100000 ₱100000before beforesalaries salariesof of₱ ₱5000, 5000, interest interest of of ₱3000, ₱3000, and and CASE 2: Net bonus of 10%

B=

   

   

B= B=

 

/

   

C

UVA *TAC>TCC

/

OVA *TAC FV of R eposs ess ed Mercha ndise)

(80) )

ENTRIES: 1. Reposs. Mdse.– FV ₱70

DGP Loss IAR

20 10 ₱100

3. Cash IAR

₱___

4. DGP

₱___

₱___

RGP

DGP (20%) IAR

₱200

write-off

(20%) IAR 2016

)

TRADE-IN:

₱___

*Gain/Loss P/L **DGP  Contra receivable account

20

xx xx

NET INCOME

₱80

2. Expenses

₱xx

DGP 2016

Installment Sales Fair Value of Trade-in Trade-in Allowance Adjusted Installment Sales Cost of Sales

₱xx

xx (xx)

GROSS PROFIT

Adjusted Installment Sales Down payment – Cash Fair Value of Trade-in CV of Receivable IAR 2017

DGP 2017

_ _ _



Installment Sales Trade-in Allowance Collectibles

_

)

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

IV. LONG TE RM CONSTRUCTION CONTRACTS (IAS 11)

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

1. PERCENTAGE OF COMPLETION METHOD - outcome can be estimated reliably - if the problemis silent 1.1. INPUT MEASURE (Cost to Cost) Cost Incurred To Date ÷ Total Cost

₱xx

xx xx xx xx xx ₱xx

ADJUSTED PRICE BILLING (CP = APB)

1.2. OUTPUT MEASURE Total Units Prod. ÷ Total Units Expected Prod.

2. COST RECOVERY METHOD - outcome cannot be estimated reliably

CITD + PTD-LTD CIP −APB

CONTRACT RETENTION  receivables does not the an income element reduces collection 

(Due to)/Due from ↓ ↓ Liability Asset

 

 PRO-FORMA ENTRY:

Cash



Contract Retention Accounts Receivable UPON COMPLETION OF PROJECT: Cash Contract Retention

xx

YEAR 3 ₱xx xx ₱xx xx ₱xx

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

CONSTRUCTION IN PROGRESS:

₱xx

(1) If Profit: Contract Price × Percentage of Completion = CIP (2) If Loss:[(C P × PO C )– LTD × (1 − POC)] = CIP (3) [(TC × PO C)– LTD] = CIP

₱xx ₱xx

ENTRIES:



 PRO-FORMA ENTRY:

₱xx

Advances from Customers

₱xx

COMPUTATION OF COST INCURRRED TO DATE (CITD): (1.) Direct Materials

+ (2.) DirectLabor + (3.) Overhead + (4.) Depreciation of Construction Equipment (*Idle = Expense) + (5.) Anyreimbursable Cost + (6.) + (7.) Borrowing Cost (Qualifying Asset) *Specific = IE –II; **General = (AI × C) × CR + (8.) Unused Supplies/ Materials without Alternative Use + (9.) IncidentalIncome from Sale excess over Scrap Materials COST INCURRED TO DATE

YEAR 2 ₱xx xx ₱xx xx ₱xx

₱xx

MOBILIZATION FEE no income element Cash

YEAR 1 ₱ 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

5.) Accounts Receivable Progress Billings

₱xx

6.) Progress Billings Construction in Progress

₱xx

₱ xx ₱ xx ₱ xx

xx ₱ xx ₱ xx ₱ xx

(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

₱xx

Variable Price Bonus

xx xx x

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 %)]

COMPUTATION OF CIP: ₱xx

Cost Incurred to Date Realized Gross Profit – to date

Due from / (Due to) Customers –Y2

xx

V. IAS 18–REVENUE : AR

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 (+/−)

CRITERIA TO RECOGNIZE REVENUE:

AR

1. Receivables (*silent) d

)

(*silent)

2.

)

3.

-

Realized Gross Profit –Current Year

substantial performance

NOTE:  

These conditions shallmeet to recognize revenue. IFRS 15 Contingent Franchise Fee = IAS18 Continuing Franchise Fee

COMPUTATION OF CIP, net of PB (ZPM/CRM):

)

RECOGNITION OF REVENUE  over time  at a point in time DP represents fair measure of services already rendered.

₱xx

xx (xx) (xx) (xx)

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

R C F



–Interest Bearing (Accrual Method)

R x – Non-interest Bearing C  F 

 

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)

₱xx

(xx)

)

NET INCOME

₱xx

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

xx

)

NET INCOME

R C F

x

–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

₱ xx

xx

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

₱xx

xx xx xx x

*REVENUE = IFF

)

NET INCOME

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

₱xx

xx xx

VI. HOME OFFICE A ND BR ANCH AC COUNTING 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

BP

 

₱ 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

−

₱xx xx SFHO xx xx

) )

Cost ₱ xx xx STB xx xx

= ₱xx xx -_

(GPR-PY) (GPR-CY)

) )

RG P

(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

FR EI GHT P R E P AI D

FR EI GHT COLL EC T

EXAMPLE: Freight Charges Home Office to Branch 1

₱10

Branch 1 to Branch 2 Home Office to Branch 2 (Excess Freight)Expenses

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

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

₱ xx

EXAMPLE ₱ 87

(xx) (xx) ₱ xx xx ₱ xx

(5) (2) ₱ 80 20 ₱100

Profit

*ENTRIES

#11 #12

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

Cost (True/Correct)

Sales Cost of Goods Sales Gross Profit Expenses Net Income AFOBI

BUSINESS COMBINATION

ins control over the net assets of

Purchase Price Transactio n Cost Impairment Loss

METHOD / Equity / Fair Value Equity Cost / FV L

₱xx

xx (xx)

Impairment Loss Dividend Income P/L

Unrealized Ga Unrealized Los Dividend Incom Transaction Co P/L

P/L ₱xx

xx xx xx (xx) x

Investment Income Impairment Loss P/L

₱+ ( −)

TYPES OF BUSINESS COMBINATION

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

COST METHOD– CV

Purchase Price Transaction Cost Investment Income Dividend Impairment Loss CV of Investment

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

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

iary ate CI

EQUITY METHOD– CV

₱( −) +

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 )

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

FORMULAS

EXAMPLE: Share Premium from issuance

₱ 50

Share Premium from original issuance CTIR

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 

EXAMPLE: Purchase Price NA@BV (SHE) Excess OVA UVA Goodwill Purchase Price NA@FV (squeezed) Goodwill

₱1000

(700) ₱ 300

(50) (100) ₱  250 ₱1000

(750) ₱250

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

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

₱xx

(xx) xx ₱ xx

If the fair value is unknown compute the implied fair value FORMULA :   

    

 

2. Proportionate Share / Relevant Share / Interest in the Net Asset of Subsidiary

(INAS) FORMULA :

FV of Net Assets × NCI% = INAS

NA@BV –BC UVA OVA NA@FV

₱700

100 (50) ₱ 750

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

CTIR Keywords:    

SEC Stock Share Documentary Stamp Tax

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 toparent − Goodwill is subject to amortization (10 years)

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

Case 4 [CP of ₱300000 is included]

EXAMPLE: Case 1

(100%)

(80%)

(20%)

TOTAL

Purchase Price

NCI FV

Fair Value of Subsidiary Net Assets @ FV Goodwill

)

)

FV

NCI

)

vs.

vs.

    

 Case 5

INAS

₱400000

(100%)

(80%)

(20%)

TOTAL

Purchase Price

NCI

Fair Value of Subsidiary Net Assets @ FV Goodwill

       

Case 2 [CP = ₱300000]

)

NOTE: Gain is never allocated. I

(100%)

(80%)

TOTAL

Purchase Price

(20%) NCI

Fair Value of Subsidiary Net Assets @ FV Goodwill

12/31/17

)

vs.

Purchase Price Net Assets @ Fair Value Goodwill

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

Case 3

(100%)

(80%)

(20%)

TOTAL

Purchase Price

NCI

)

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

    



TOTAL ASSETS:

Fair Value of Subsidiary Net Assets @ FV Goodwill ₱ 200000

(20%)

Purchase Price

2/7)

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

₱ 200000

(80%)

TOTAL

Fair Value of Subsidiary Net Assets @ FV Goodwill ₱ 200000

Impairment Loss

(100%)

)

v



    

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)

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

2. SUBSIDIARY– SHE Ordinary Share – Subsidiary Share Premium– Subsidiary Retained Earnings – Subsidiary

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

*If, unpaid

Total Liabilities

₱xx

xx xx xx xx xx xx x

*Paid/ Unpaid

   

   

  

xx xx ₱xx

xx ₱xx

Operating Expense PPE, net

xx ) ) )

₱xx ₱xx

Impairment Loss Goodwill

₱xx ₱xx

Cost of Sales Inventory

₱xx

5.INTERCOMPANY SALES & PURCHASES

Additional investment Part of purchase price Affects goodwill/(gain) Ignored in computingNCI

₱xx

Sales Cost of Sales

₱xx

6. UPEI ₱xx

Cost of Sales Inventory

PURCHASE PRICE 

₱xx