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Lecture Notes
PARTNERSHIP ACCOUNTING
unlimited liability
easy to form
FORMATION OF PARTNERSHIP
Cash contribution of the partners recorded @ face value
Non-cash assets recorded @ agreed value, usually the fair value
o Bonus Method
1. No recording of unidentifiable assets pertaining to goodwill
2. Total Agreed Capital (TAC) = Total Contributed Capital (TCC)
3. There would only be a transfer of capital from one partner to another
o Cash Invested/Withdrawn
1. If adjusted capital is more than the unadjusted capital
ADDITIONAL INVESTMENT
2. If adjusted capital is less than the unadjusted capital
WITHDRAWAL
OPERATIONS
o Profit and Loss Agreement
Scenario Profit Loss Result
1. Both profit and loss agreement Follow the agreement
are given.
2. There is a profit agreement but Follow profit agreement
no loss agreement
3. No profit agreement but there is For profit, use original capital
a loss agreement ratio
For loss, follow the agreement
4. Both profit and loss agreement For both, use original capital
ratio.
o Bonus it should only be given if there is profit and bases depends on partners
agreement
MODADV1 Handout
Dr. Rodiel C. Ferrer
Statement of Changes in Partners Capital
Beginning Capital P xxx
Add: Additional Investment xxx
Less: Irregular or Permanent Withdrawal (xxx)
Balance Before Net Income P xxx
Add: Share In Net Income xxx
Less: Regular Drawings (xxx)
CAPITAL, END P xxx
DISSOLUTION
1. Admission by purchase without revaluation
Purchase price is to be ignored.
Transaction between new partner and the partner who is selling shares is
considered as PERSONAL TRANSACTION.
The total agreed capital would still be equal to the total contributed capital
* Amount of revaluation increases the amount of capital of the old partner and so is
distributed among P& L ratio
3. Admission by investment
Bonus method is to be applied if the problem is silent.
Revaluation method should also be applied if the problem says so.
TAC = TCC
Pro-forma:
o Bonus to old partner
Cash xxx
Capital, old partner xxx
Capital, old partner xxx
Capital, new partner xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
4.
TCC TAC BONUS
K- Old Partner 1 P xxx P xxx P xxx
T Old Partner 2 xxx xxx xxx
Total P xxx P xxx P xxx
R New Partner 1 xxx xxx xxx
TOTAL P xxx P xxx 0
RETIREMENT
1. Computation of Total Interest
Capital P xxx
+/- Share in Net Income/Loss xxx
+/- Revaluation xxx
+/- Loan Balance xxx
TOTAL INTEREST P xxx
LIQUIDATION
1. Lump-sum liquidation
2. Installment liquidation or piecemeal
o Lump-sum Liquidation
1. Assets realization
2. Liabilities payment
3. Capital distribution
MODADV1 Handout
Dr. Rodiel C. Ferrer
4. Marshalling of asssets
o Partnership Assets
Who do you prioritize first?
i. Partnership creditors
ii. Personal creditors
iii. Partners
o Personal assets
Who do you prioritize first?
i. Personal creditors
ii. Partnership creditors
iii. Partners
o Installment Liquidation
o Cash Priority Program (CPP)
1. Determine the total interest
2. Compute loss absorption balance (LAB)
LAB =Total Interest
P & L ratio
3. Equalize loss absorption balance from the highest to the second highest
until equal to determine priority of payment
4. Distribution to partners (difference in LAB x P&L ratio)
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION OF CASH DISTRIBUTION:
Cash, beginning P xxx
+ Proceeds from sale of Non Cash Assets xxx
- Total Liabilities recorded & unrecorded (xxx)
- Liquidation expenses (xxx)
CASH DISTRIBUTION P xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT II: CORPORATE LIQUIDATION
Lecture Notes
CORPORATE LIQUIDATION
1) Assets should be recorded at Fair Value (FV) or Net Realizable Value (NRV)
2) Intangible assets and pre-payments are DERECOGNIZED upon Corporate Liquidation
o Statement of Affairs initial report that shows the available asset values and debts of
the debtor corporation
o Statement of Realization and Liquidation periodic report of the reviewer shows how
the receiver managed the assets of the debtor corporation on behalf of the creditors
NUMERATOR DENOMINATOR
1) Excess of APTFSC over FSC: 4) Excess of PSC over APTPSC:
APTFSC P xxx PSC P xxx
FSC ( xxx) P xxx APTPSC ( xxx) P xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION FOR TOTAL PAYMENT TO ALL CREDITORS:
Fully Secured Creditors P xxx
Partially Secured Creditors:
Assets Pledged to Partially Secured Creditors (P xxx * 100%) P xxx
Excess of PSC over APTPSC ( P xxx * % of recovery) xxx xxx
Liability with Priority xxx
Liability without Priority ( P xxx * % of recovery) xxx
TOTAL PAYMENT TO ALL CREDITORS P xxx
OR
A = L+E
Cash Liabilities not SHE ITEMS
Assets not
liquidated
realized
Equity P xxx
Liabilities NOT liquidated xxx
Less: Assets NOT realized xxx
ENDING CASH BALANCE P xxx
NOTE: If Retained Earnings balance is ending, it already includes net income or net loss. If not,
then add or deduct the net income or net loss.
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT III: INSTALLMENT SALES
Lecture Notes
INSTALLMENT SALES
1) If collectability of the note is REASONABLY ASSURED, ACCRUAL METHODshould be
applied. In this topic the entire amount of GP becomes part of the net income.
2) If the collectability of the note is NOT REASONABLY ASSURED, INSTALLMENT
METHOD should be applied
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION OF GAIN (LOSS) ON REPOSSESSION:
FV of Repossessed Merchandise P xxx
Less: Unrecovered cost
1) IAR-defaulted P xxx
Less: DGP related to receivables ( xxx )
or
2) IAR x cost ratio xxx ( xxx)
GAIN (LOSS) ON REPOSSESSION P xxx
Journal entry:
Repossessed Merchandise @ FV xxx
DGP xxx
Loss on Repossession xxx
IAR defaulted xxx
Gain on Respossession (if any) xxx
4) Write-off
Journal entry:
Regular Sales
Allowance on Doubtful accounts xxx
Accounts Receivable xxx
Installement Sales
DGP xxx
Loss on Write-off xxx
IAR xxx
DGP
RGP (Collection x GP rate) xxx xxx DGP, beginning
DGP on Repossessed Merchandise xxx
DGP on Write-off xxx
xxx DGP, ending
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTE GP RATE FOR INSTALLMENT SALES:
IS prior year IS current year
DGP DGP
IAR IS
6) Trade-In
1)
Downpayment Cash P xxx
2)
Downpayment FV of merchandise traded in xxx
3)
Collection Interest xxx
TOTAL COLLECTION P xxx
X GP Rate * %
RGP P xxx
Gross Profit
= GP Rate
Adjusted Sales
NOTE: If the trade in allowance is deducted from the invoice price before computing the
amount of down payment if the problem says that the trade-in is part of the down
payment.
or
[(Adjusted sales FV of RM) x % of DP] = Amount of Downpayment
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT IV: LONG TERM CONSTRUCTION CONTRACTS
Lecture Notes
3) Two Methods:
Percentage of Completion Method
With dependable estimates are available
a.k.a. cost to cost model
20x2 20x3 20x4
a) Contract Price P xxx P xxx P xxx
b) Cost Incurred (to date) P xxx P xxx P xxx
c) Estimated costs to complete xxx xxx xxx
d) Total Estimated costs (a + b) xxx xxx xxx
e) Total Estimated Gross Profit (a d) P xxx P xxx P xxx
f) Multiply by Percentage of Completion
(b/d) x % x % x %
Gross Profit to date (e x f) P xxx P xxx P xxx
Gross Profit (previous year) - ( xxx ) ( xxx )
Gross Profit (current year) P xxx P xxx P xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
Zero Profit Method
No dependable estimates are available
Journal entry:
Cash xxx
Contract Retention xxx
Accounts Receivable xxx
Upon Completion:
Cash xxx
Contract Retention xxx
5) Mobilization fee
Deducted from the bills of contractors in equal installments covering the project
period
Does not have income element
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT V: FRANCHISE ACCOUNTING
Lecture Notes
FRANCHISE ACCOUNTING
1) CRS Criteria in recognizing initial franchise fee as revenue:
(1) Cash or the down payment must be NON-REFUNDABLE.
All the conditions
(2) Notes Receivables must be REASONABLY ASSURED.
MUST BE met (3) Services must be SUBSTANTIALLY PERFORMED.
If the problem is silent, the best indicator of the criterion is when the
company commences operation
* If any of the conditions is not followed, the entire amount of IFF becomes an unearned
revenue, except when:
a) The down payment is non-refundable; and
b) The down payment represents the fair measure of the services performed.
Under the two conditions, the amount of down payment becomes revenue, however,
the remaining balance is considered unearned revenue.
Franchise Cost
DIRECT COST INDIRECT COST
IFF Direct Cost Expense
CFF Expense Expense
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT VI: INTEREST ON JOINT VENTURES
Lecture Notes
JOINT VENTURES
IFRS 11 (Jan 1, 2013)
(1) (2) (3)
IAS 31 jointly controlled entity jointly contributed jointly controlled
assets operations
MODADV1 Handout
Dr. Rodiel C. Ferrer
COMPUTATION OF PROFIT (LOSS):
EQUITY METHOD COST METHOD FV MODEL
+ Share in Net Income Dividends Dividends
+/- Gain (Loss) on Sale +/- Gain (Loss) on Sale + Unrealized Gain
+ Amortization of UVA - Impairment Loss - Unrealized Loss
- Amortization of OVA PROFIT (LOSS) - Transaction Cost
- Impairment Loss +/- Gain (Loss) on Sale
PROFIT (LOSS) PROFIT (LOSS)
SMEs
Methods used Change to
Cost Model
Public price quotation FV Model
(public offering)
FV Model
FV cannot be determined Cost Model
reliably without undue effort
FV Model
Use FV model, if there is a published price quotation given, if cost method is used.
Under this model, SNI is not considered in computing net income however the
dividend is treated as income
Cash xxx
Dividend Income xxx
Any cost to sell is ignored. The FV of investment should only be considered.
The CV is of how much is the FV at the end of the year
Cost Model
Same with FV, the entity will record dividend income
Cash xxx
Dividend Income xxx
MODADV1 Handout
Dr. Rodiel C. Ferrer
Equity Model
Equity model is always equity model unless there is a change in ownership.
If the company loses joint control, there would be a shift to cost model or fair model.
MODADV1 Handout
Dr. Rodiel C. Ferrer
UNIT VII: DEBT RESTRUCTURING
Lecture Notes
DEBT RESTRUCTURING
- Debt restructuring is a situation where the creditor for economic or legal reasons related
to the debtors financial difficulties, grants to the debtor concession that would not be
granted in a normal business relationship.
ASSET SWAP
- Under PFRS 9 , asset swap is treated as a derecognition of a financial liability or
extinguishment of an obligation
- The difference between the carrying amount of the financial liability and the
consideration given shall be recognized in profit or loss
- Under USA GAAP, asset swap is recorded as if two transactions have taken
place, namely, the sale of the asset and the extinguishment of the liability.
FMV of property given P xxx
Less: CV of property given ( xxx)
GAIN ON EXCHANGE P xxx
EQUITY SWAP
- Issuance of share capital by the debtor to the creditor in full or partial payment of
an obligation
Carrying Value of Liability P xxx
Less: FMV of Stock * ( xxx)
GAIN ON EXTINGUISHMENT OF DEBT P xxx
* FMV of stock includes Ordinary Shares and Share Premium
MODADV1 Handout
Dr. Rodiel C. Ferrer
- If the fair value of the equity instruments issued cannot be reliably measured, the
equity instruments issued to extinguish a financial liability shall be measured at
the following amounts in order of priority:
a. Fair value of equity instruments issued
b. Fair value of liability extinguished
c. Carrying amount of liability extinguished
MODIFICATION OF TERMS
- PFRS 9 provides that a substantial modification of terms of an existing financial
liability shall be accounted for as an extinguishment of the old financial liability
and recognition of a new financial liability
- There is substantial modification of terms, if the amount of gain on existing of
debt is AT LEAST 10% of the carrying amount of the old liability
MODADV1 Handout
Dr. Rodiel C. Ferrer