INTPRAB Notes from Brian Lim HDV/DNG

Inside the partnership, the entry is:

A, Capital 25,000
PARTNERSHIP
B, Capital 25,000

FORMATION Outside the partnership, B pays A 25,000.

• In terms of legal and taxability aspect, it is
more advantageous for businessmen in the 3. Capital Investment
Philippines • TCC ≠ TAC
• Relatively easier to form • Total contributed capital will increase
• Unlimited liability, limited life
Contribution AGREED ratio
Valuation of Contribution A 100,000 60/100
B 50,000 40/100
Cash Face Value
Total 150,000
Non-Cash Assets i. Agreed Value
ii. Fair Value/Appraised
First step is to find out who and how much will
iii. Carrying Value
have to be invested
• It is incorrect to use B as a basis because
• Only consider the assets invested and liabilities
assumed by the partnership. TCC will decrease
• Accounts Receivable – can have an allowance for o TCC= 50,000/40% = 125,000.
doubtful account but deduct those deemed • If we use A as a basis
uncollectible o TCC = 100,000/60% = 166,667.
• PPE- don’t include accumulated depreciation; o Hence, B’s investment should be 66,667
consider under/over depreciation if any. (166,667 x 40%). He should invest an
additional 16,667. Since A is already the
Methods of Accounting for Capital Investment basis, he doesn’t need to invest
additional capital.
1. Bonus Method (assumed if silent)
• Agreed Capital = Contributed Capital NOTE: If there are 3 or more partners, choose the
• No recording of goodwill; there is only partner that will yield the highest total contributed
transfer of capital capital. (If problem is silent.)
• TAC=TCC
N 4. Capital Withdrawal
TCC TAC (based on agreed • TCC ≠ TAC
ratio of 50-50) • Total Agreed Capital should decrease
A 100,000 75,000
B 50,000 75,000 Contribution AGREED ratio
TCC 150,000 150,000 A 100,000 60/100
B 50,000 40/100
2. Direct Settlement Total 150,000
• Agreed Capital = Contributed Capital
• Similar to bonus method but there’s • Using B as a basis, agreed capital will
cash settlement between partners that decrease
are not recorded in the books o TCC=125,000 (50,000/40%).
• TAC=TCC o Hence, A will have to withdraw 25,000
(150,000-125,000)
TCC TAC (based on
agreed ratio of 50-50)
NOTE: Choose the partner with lowest contributed
A 100,000 75,000 capital as a basis.
B 50,000 75,000
TCC 150,000 150,000
INTPRAB Notes from Brian Lim HDV/DNG
OPERATIONS

ISSUE: How to allocate partnership profits/losses? Example:

Scenario P L Result
Both P&L Salary – 50,000
agreement are ✓ ✓ Follow Agreement Interest – 30,000
given Net Income – 200,000
There’s profit Follow profit Bonus rate – 20%
agreement but agreement for
✓ 
no loss BOTH profit and Scenarios:
agreement loss 1. Before salary, interest, and bonus:
For profit, use
There’s loss original capital B = 200,000 x 20% = 40,000
agreement but contribution ratio B=NI X BR
 ✓
no profit
agreement For loss, follow 2. Before salary and interest, and after bonus
loss ratio
There’s no profit Follow original B = 200,000 / (1.2) x 20% = 33,333
or loss   capital contribution 𝐍𝐈 𝐗 𝐁𝐑
𝐁=
agreement ratio for both 𝟏 + 𝐁𝐑

Methods of allocating capital balance (in order) 3. After salary and interest, but before bonus
1. Weighted Average Capital
2. Simple Average Capital B = (200,000-50,000-30,000) x 20% = 24,000
B=(NI – S – I) X BR
3. Beginning Capital
4. Ending Capital
5. Original Capital (Use if there’s an agreement 4. After salary, interest, and bonus
but unsure as to which method to use)
B = (200000-50,000-30,000)/1.2 x 20% = 20,000
(𝐍𝐈 − 𝐒 − 𝐈) 𝐗 𝐁𝐑
Accounting for Salaries, Interest, and Bonus 𝐁=
1. Before salary, interest, bonus (assumed if 𝟏 + 𝐁𝐑
silent)
*After allocating these items, any remaining profit
2. Before salary and interest, but after bonus
is allocated based on the stipulated profit or loss
3. After salary and interest, but before bonus
ratio
4. After salary, interest, and bonus
Statement of Changes in Partner’s Capital
Salaries and interest
o They are regardless whether there’s profit or
Beginning Balance P XX
loss, EXCEPT when the problem states that
Additional Investment XX
there’s an “order of priority” or “only up to
Less: Permanent Withdrawals (XX)
extend of earning”
Balance P XX
o This could for a fractional year only. Annual or
Net Income Share XX
monthly amount is usually given for salaries.
Less: Temporary Withdrawals (XX)
o Interest is based on capital balance (weighted,
Ending Capital P XX
simple, beg, end, orig)
o These are NOT treated as expense.
• Permanent: irregular drawings in excess of
Bonus
capital (direct debit to capital)
o it should only be given if there is profit and the
• Temporary: regular drawings in anticipation
basis (positive value) depends on partners
of future salaries
agreement
• If withdrawal is silent as to permanent or
regular, it will be considered as
PERMANENT withdrawal.
INTPRAB Notes from Brian Lim HDV/DNG
DISSOLUTION
Example:
Methods: C invests 100,000 for 30% share.
1. Admission Basis of new capital is the NEW PARTNER’S
a. Purchase of Interest PAYMENT. Hence, if this is the case,
i. With revaluation
ii. No revaluation (if silent) TAC = 100,000 / 30% = 333,333
b. Direct Investment TCC = 300,000
2. Retirement Revaluation = 333,333 – 300,000 = 33,333
a. Bought by partner
i. With revaluation This amount of revaluation pertains to one of the
ii. No revaluation partnership’s assets (e.g. Land), and is allocated
b. Bought by partnership (assumed) according to P&L ratio.

Purchase of Interest Without Revaluation Land 33,000

• Purchase price is to be ignored. A, Capital (60%) 20,000
• Transaction between new partner and the B, Capital (40%) 13,000
partner who is selling shares is considered as
PERSONAL TRANSACTION.
• The total agreed capital would still be equal to A, Capital 36,000
the total contributed capital TCC = TAC B, Capital 64,000
C, Capital 100,000
Example:
C invests 100,000 for 30% share. *(100K+20K)X30%=36K
A’s capital is 100,000 *(200K+13K)X30%=64K
B’s capital is 200,000
Direct Investment
Journal entry to record purchase of interest: • Bonus method is to be applied if the problem is
silent. Revaluation method should also be
A, Capital 30,000 applied if the problem says so.
B, Capital 60,000 • Do purchase of purchase of interest first before
C, Capital 90,000 direct investment
• Simply compare new investment against new
Payment outside the partnership: agreed capital after revaluation. The difference
Transferred Gain Payment between the two is considered bonus.
Capital(∆ in Cap) Allocation
A 30,000 6,000 36,000 investment > agreed cap bonus to existing
TCC>TAC partners
B 60,000 4,000 64,000
Total 90,000 10,000* 100,000 investment < agreed cap bonus to new
TCC < TAC partner
*Allocated using P&L ratio of partners
Bonus to old partner
Purchase of Interest with Revaluation
Cash xxx
• Purchase price is used to determine the Capital, old partner xxx
amount of revaluation Capital, old partner xxx
• The revaluation increases the amount of Capital, new partner xxx
capital of the old partner and so is distributed
among P& L ratio TCC ≠ TAC Bonus to new partner
Cash xxx
purchase price
= Total Agreed Capital Capital, old partner xxx
% of interest Capital, old partner xxx
Less: Total Contributed Capital Capital, new partner xxx
Revaluation
INTPRAB Notes from Brian Lim HDV/DNG
Example:
C invests 100,000 for 30% share. Total Retirement of Partner Bought by Partnership
contributed capital of old partners is 300,000. Formula:
Total interest (after revaluation)* P XX
Investment 100,000 Less: Payment to Partner (XX)
Agreed new capital 120,000 (400k*30%) Bonus P XX
Bonus to new partner 20,000 Capital Balance P xxx
+/- Share in Net Income/Loss xxx
Entry: +/- Revaluation xxx
Cash 100,000 +Payable/Due to Partner xxx
A, Capital 12,000 -Receivable/Due from Partner (xxx)
B, Capital 8,000 Total Interest PXXX
C, Capital 120,000

Retirement of Partner Bought by Partner BONUS

with Revaluation Total interest > payment bonus to remaining
partners
Example: Total interest < payment bonus to retiring
A, Capital – 100,000 partner
B, Capital – 200,000
C Capital – 120,000 Example
120,000 is C’s Capital
B buys C’s capital for 150,000. 150,000 is given by the partnership
P&L ratio: A-50%, B-25%, C-25% P&L ratio: C-50%, A-30%, B-20%

Given 150,000 Journal entry is:

Capital (120,000)
Revaluation 30,000 C, Capital 120,000
/ P&L Ratio 0.25 A, Capital 18,000
Revaluation 120,000 B, Capital 12,000
Cash 150,000
Journal entries:
Land 120,000
A, Capital 60,000
B, Capital 30,000
C, Capital 30,000

C, Capital 150,000
B, Capital 150,000

Retirement of Partner Bought by Partner

without Revaluation

Example:
A, Capital – 100,000
B, Capital – 200,000
C, Capital – 120,000

If B buys C, journal entry is:

C, Capital 120,000
B, Capital 120,000
INTPRAB Notes from Brian Lim HDV/DNG
LIQUIDATION
Safe Payment Schedule
Process:
1. Lump-sum/total 1. Compute total interest net of gain/loss on
2. Installment/piecemeal realization condonation, liquidation expense, and
contribution to parties
General steps: 2. Compute maximum possible loss
1. Sell noncurrent assets 3. If there is capital deficiency  loss absorption
2. Pay creditors (in priority) 4. Distribute to partners
3. Distribute excess to partners
NOTE:
Marshalling of Assets/Hierarchy of Claims • Max Possible Loss =BV of asset unsold +Cash
Personal Assets Partnership Assets withheld for future expenses
1 Personal Creditors Partnership creditors • Total interest after distribution = Max. Possible Loss
2 Partnership creditors Personal creditors • Total interest of partner after distribution =
3 Other parties Other parties Max Possible Loss share + Loss Absorption

NOTE: • Under the statement of liquidation, partners are

• If silent, assume INSOLVENT. assumed to be solvent.
• If partner has capital deficiency, • Under the schedule of safe payment, partners are
1. If solvent (A>L), contribute assumed to be insolvent
2. If insolvent (A<L), loss absorption by
other partners (except those who are Cash Priority Program (CPP)
deficient and insolvent)
1. Determine the total interest
Installment Liquidation 2. Compute loss absorption balance or Maximum
Formula: Loss (ML)
3. Equalize maximum loss from the highest to the
Proceeds P xx
second highest until equal to determine priority
BV sold (xx)
of payment
G/L on revaluation P xx
4. Distribution to partners (difference in ML x P&L
ratio)
EQUITY SIDE Partner A Partner B Partner C TOTAL
Total Interest XX Total Interest P xxx P xxx P xxx P xxx
Contribution XX Divided by
xxx xxx xxx xxx
+/- Gain or Loss on Realization XX P&L ratio
Condonation of Debt XX Max Loss P xxx P xxx P xxx P xxx
Liquidation Expenses (XX) Priority I P xxx P xxx
Maximum Possible Loss: Priority II P xxx xxx xxx xxx
BV of asset unsold (XX) Priority III P xxx xxx xxx xxx
Cash Withheld for future expenses (XX) Cash
P xxx P xxx P xxx P xxx
Distribution
Total Distribution to Partners XX
When to use CPP?
ASSET-LIAB SIDE
• If there is no deficiency in the partners’ capital
Cash on Hand XX
Proceeds from Sale XX • When the problem gives payment to any of the
partners
Contribution (must be stated) XX
o ex. If partner A receives P xxx, how
Liquidation Expenses (XX)
much will partner B receive?
Payment of Liabilities(paid/unpaid) (XX)
• If there is no additional investment
Cash Withheld for future expenses (XX)
Total Distribution to Partners XX
INTPRAB Notes from Brian Lim HDV/DNG

PAYMENT TO CREDITORS
CORPORATE LIQUIDATION
Fully Secured 100% of Liabilities
With Priority 100% of Liabilities
STATEMENT OF AFFAIRS Without Unsecured Claims
• initial report that shows the available asset Priority (Pxxx *% Recovery)
values and debts of the debtor corporation Partially - For asset pledged, use 100%
• Assets should be recorded at Net Realizable - For excess, apply
Value (NRV) Pxxx *% Recovery
• Intangible assets and pre-payments are Total Assets
DERECOGNIZED
Total Unsecured
Net Free
Free Assets – Liabilities with Priority Assets
Liabilities w/o
= priority
Liabilities w/o priority – Capital Deficiency Excess of fully secured XX
Excess of partially secured XX
Free assets XX
CLASSIFICATIONS OF BALANCE SHEET ACCOUNTS
Liabilities w/o priority XX
1. ASSETS
Total Free Assets XX
a. Assets pledged to fully secured creditors Liabilities with priority (XX)
 FV of Asset ≥ Liability XX XX
b. Assets pledged to partially secured
creditors Statement of Realization and Liquidation
 FV of Asset≤ Liability – periodic report of the reviewer shows how the
c. Free assets receiver managed the assets of the debtor
 assets not pledged as security for any corporation on behalf of the creditors
liability
 includes value of APTFSC in excess of
liability To be Liquidated (Beg) (Dec) Liquidated/realized
ASSET
2. LIABILITIES Acquired (Inc) (End) Not realized
a. Unsecured liabilities with priority LIAB
Liquidated (Dec) (Beg) To be liquidated
i. Administrative/trustee expenses Not liquidated (End) (Inc) Assumed
SUPPL supplementary debits supplementary credits
ii. Unpaid salaries and wages
EMENT net gain net loss
iii. Customer deposit ARY
iv. Unpaid taxes
b. Fully secured creditors If Dr > Cr, Net Loss
c. Partially secured creditors If Dr < Cr, Net Gain
d. Unsecured liabilities without priority
Statement of Financial Position
Free Liabilities Liabilities Capital
Assets With priority without Deficiency Cash + Non-Cash Asset =Liability +Total Equity
priority
unpledged administrative unsecured total asset –
asset trustee fee claims total liab Total Equity= Share Capital + Share Premium +
excess of unpaid excess of total equity – RE, end (RE beg +/- Net Income/Loss)
asset over salaries liability unrecorded
liability for + over liabilities Cash=Total Equity + Liab Not Liquidated – Assets
fully customer assets for +/- gain/loss Not Realized
secured deposits partially on liquidation
creditors + secured – liquidation
unpaid taxes asset. Expense
(1 - % of recovery) x without priority
net free assets
%Recovery =
liab without priority
INTPRAB Notes from Brian Lim HDV/DNG
NOTE: If silent, Ending DGP is unadjusted, before
reduction of RGP
INSTALLMENT SALES Composition of collections
1. Fair value of Trade In
Methods of recognition 2. Downpayment
1. Cost recovery method – collections are first 3. Amortization of installments (principal only)
treated as cost recovery; recognize profit
once collections exceed cost Gain or Loss Repossession
2. Gross profit realization – collections are first
treated as realization of gross profit Gained: FV of repossessed item/appraised value
3. Installment method – part of collections is Foregone: Unrecovered/Uncollected cost
treated as recovery of cost while part is (ICR-Repo DGP = ICR Repo X Cost Ratio)
gross profit realization
Estimated Selling Price after Recon P xxx
Example: Reconditioning cost ( xxx)
Sales = 1,000,000 Normal Profit ( xxx)
Y1 collection – 300,000
Y2 collection – 400,000 FV of Repossessed Item P xxx
Y3 collection – 300,000
GP rate – 40% FV of repo inventory P xxx
Unrecovered Cost (ICR X cost ratio) (xxx)
Y1 Y2 Y3 Gain(Loss) on Repossession P xxx
Cost Recovery
Journal entry:
Profit 100k 300k
Inventory @ FV XX
Cost 300k 300k
DGP Repo XX
GP Realization
Loss on Repo XX
Profit 300k 300k
ICR Repo XX
Cost 100k 300k Gain on Repo (if any) XX
Installment
Profit 120k 160k 120k NOTES:
Cost 180k 240k 180k • If ESP is BEFORE reconditioning cost, IGNORE
the amount of reconditioning cost.
Installment method: • If the problem is SILENT if the ESP before or
Basic concept: after recondition cost, deduct the recon cost
• Installment receivable x GPR = DGP • If the problem says APPRAISED VALUE or
• Collections x GPR = RGP estimated wholesale value, the normal profit and
reconditioning cost should not be deducted
Installment Receivable anymore.
Beginning xxx • If profit margin is silent, do not deduct anything
Installment sales xxx xxx ICR – Repossessions • Normal profit margin = based on SP AFTER
xxx ICR –Writeoff reconditioning cost
xxx Collections
Ending xxx Write-Off
Gained: None
Deferred Gross Profit Foregone: Unrecovered Loss
xxx Beginning
DGP-Repossessed xxx Journal Entry:
DGP-Writeoff xxx DGP – write-off XX
RGP xxx Loss – write-off XX
xxx Ending ICR – write-off XX

Trade-In
INTPRAB Notes from Brian Lim HDV/DNG
Gained: FV of trade-in or Appraised
Foregone: Trade-in Allowance

FV of Trade In
Estimated Selling Price after Recon P xxx
Reconditioning cost ( xxx) FORMULAS:
Normal Profit Margin ( xxx)
Compute GP Rate of Installment Sales
FV of Trade In P xxx
IS-prior year IS-current year
Underallowance(Overallowance) DGP beginning RGP DGP of Inst. Sales
=
FV of Trade in P xxx ICR, beginning Collections Installment Sales
Trade In allowance (given) (xxx)
Gain(Loss) on Trade In P xxx
Compute Cost of Sales
GP Rate of Trade In Beginning Inventory XX
Installment Sales P xxx Purchases XX
Gain (Loss) on Trade In xxx Repossessed Inventory XX
Adjusted Installment Sales P xxx Trade Inventory XX
Cost of Sales (xxx) Ending Inventory (XX)
Gross Profit (Compute GP rate) xxx Cost of Sales-Total XX
Cost of Sales-Regular (XX)
RGP of Trade In Cost of Sales-Installment (current yr) XX
Downpayment-Cash XX
Downpayment FV of Trade In XX **NOTE: If silent, assume repo and TI are included
Collections for the year XX in ending inventory
Total Collection XX
X GR Rate % Compute Total RGP
RGP of Trade In XX RGP – last year
XX
(Total collections x GP rate last year)
Journal entry: RGP – this year
XX
Inventory (@FV) XX (Total collections x GP rate this year)
Loss on trade-in XX Total RGP-Installment XX
ICR (@ trade-in) XX

RULES: Income Statement

• If FV is BEFORE reconditioning cost, IGNORE RGP – regular sales (Sales less COS) XX
the amount of reconditioning cost. RGP – Installment sales (Total) XX
• If the problem is SILENT if the ESP before or Total RGP XX
after recondition cost, deduct the Loss/Gain on Repo (XX)
reconditioning cost Operating Expenses (with writeoff) (XX)
• If the problem says ESTIMATED WHOLESALE Interest Income XX
VALUE or APPRAISED VALUE, the normal profit
Net Income XX
and reconditioning cost should not be
deducted anymore.
• If profit margin is silent, do not deduct
anything.
• Normal profit margin = based on SP AFTER
reconditioning cost
INTPRAB Notes from Brian Lim HDV/DNG

Continuing Franchise Fee(CFF)

FRANCHISE ACCOUNTING • Based on % of net sales as fixed payment

FRANCHISE REVENUE Franchise Cost Direct Cost Indirect Cost

A. Initial Franchise Fee IFF Matched w/ Expense
B. Continuing Franchise Fee Revenue
CFF Expense Expense
Initial Franchise Fee(IFF)
1. Is there substantial performance? PROFIT RECOGNITION-INSTALLMENT
• Yes, record revenue
• No, do not record revenue and 1. Computation of Gross Profit
recognize as unearned. Downpayment XX
Fair Value/PV of Note XX
Criteria (All MUST BE met) Initial Franchise Fee (IFF) XX
a. Initial services have been performed Direct Cost related to IFF (XX)
• If initial services are not required and
DGP-IFF XX
there is no constructive obligation,
recognize revenue.
2. Computation of GP Rate
• If problem is silent, best indicator is
DGP-IFF XX
when company commences operation
Divided by: IFF XX
b. Non-refundable payment (*if silent, nonrefun) GP Rate %

c. No adverse buyback/cancellation provision 3. Computation of RGP-IFF

Collections XX
**If any of the conditions is not followed, the entire Multiply: GP Rate %
amount of IFF becomes an unearned revenue, RGP-IFF XX
except when:
a) The down payment is non-refundable; and
b) The down payment represents the fair 4. Net Income
measure of the services performed. RGP-IFF XX
CFF XX
*Under the two conditions, the amount of down Total Franchise Revenue XX
payment becomes revenue, however, the Interest Income XX
remaining balance is considered unearned revenue Total Revenue XX
Franchise Cost (XX)
2. When do you recognize revenue?
Net Income XX
• If collection of note is likely, use accrual
(recognize 100%, reasonably assured)
• If collection of note is unlikely, use
installment method (% of Collections)

3. How much to recognize?

• Interest-bearing
 Downpayment + Face Amount of Note
• Noninterest-bearing
 Downpayment + PV of Note

NOTE: For % of completion, collection applied to

PRINCIPAL only. Hence, if the given note is
noninterest bearing, deduct the interest from the
collection.
INTPRAB Notes from Brian Lim
(Source: Ferrer Lecture Notes from ADV)
Application of PFRS 15
Identify Contract
Identify Performance Obligation
(PO)
Determine Transaction Price
Allocate Transaction Price to
Performance Obligations
Recognize Revenue when PO is
satisfied
HDV/DNG
Franchise Agreement
Initial Services, PPE, Intellectual Property
Amount of Franchise Fee
Allocate franchise fee based on relative standalone values or prices of
initial services, PPE and intellectual property
Initial Services – over time as work progresses
PPE – point in time, upon delivery
Finite Life – IP can be changed, “right to access”  over time
- Recognized over life of franchise
Finite Life – IP can’t be changed, “right to use”  point in time
IP - Upon substantial performance
Infinite Life – point in time, upon substantial performance
INTPRAB Notes from Brian Lim HDV/DNG
Total Costs Incurred to Date
POC =
Total Costs Incurred to Date
LONG-TERM CONSTRUCTION +Estimated Costs to Complete

Construction Revenue TWO ISSUES:

Fixed Price XX 1. Is the outcome profit or loss?
+ Variations XX • POC
+ Claims XX o If profit, use % of completion
+ Incentive Payments (early completion) XX o If loss, use 100%
- Penalty/Liq Damages(delays) (XX) • Zero-profit
TOTAL XX o Profit = 0
o Loss = 100%
Construction Costs Excluded
Directly attributable Selling cost 2. Data – per year or as of?
costs • Income statement – what you get first is as
of, so just deduct previous year to get
Indirectly General and administrative
current year values.
attributable costs cost
• Balance sheet – as of data
Reimbursable costs Depreciation of idle asset
R&D Costs
Balance Sheet Approach
Advances to subcontracted
(Receivable)
Construction in Progress
Materials delivered but not
Cost to Date Cumulative RGL
yet utilized except
Cumulative RGP
specialized materials

Methods of revenue recognition

Ending Balance
1. % of completion
2. zero-profit
Progress Billings
Beginning
ZERO-PROFIT
• No reliable estimate of costs or outcome of Additional Billings
contract
• No profit is recognized until construction
contract is completed. Ending Balance
• Revenue is recognized only to the extent of
contract costs incurred that it is probable will be Accounts Receivable
recoverable. (If POC is not yet 100%, CR=CC, Progress Billings to Collections
therefore RGP=0) Date
• Contract costs are recognized as an expense in
the period in which they incurred.
Ending Balance
PERCENTAGE OF COMPLETION
• If SILENT, use this method.
• With reliable estimate of costs Construction in Progress XX
• Input method: cost to cost method Progress Billings (XX)
• Output Method: Engineering estimate Net XX

Total Costs Incurred to Date If positive, current asset (Due from customer)
POC = If negative, current liability (Due to customer)
Estimated Total Contract Costs

NOTE: Upon completion, CIP=PB=TCR

INTPRAB Notes from Brian Lim HDV/DNG
Journal entries

1. Incurrence of cost

Construction in Progress XX 4. Profit Recognition

Cash XX
Const. in Progress (profit) XX
2. Progress Billings Construction Costs XX
Construction Revenue XX
Accounts Receivable XX
Progress Billings XX
5. Settlement
3. Collection on Progress Billings
Progress Billings XX
Cash XX Const. in Progress XX
Accounts Receivable X

CONTRACT RETENTION
-may be part of billing but not paid to contractor
– Does not have an income element

Cash XX
Contract Retention XX
Accounts Receivable XX

Cash XX
Contract Retention XX

MOBILIZATION FEE
– Deducted from the bills of contractors in equal installments covering the project period
– Does not have income element

REMEMBER:
Always If profit (CIP> CI) If loss (CIP<CI)
Construction POC x TCR CIP CIP + (1-POC) x Loss
revenue (as of)
Construction cost CR – RGP Cost to Date CI + (1 – POC) x Loss
(as of) (to date)

Percentage of Completion (Cost to Cost Method)

20X1 20X2 20X3
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 (b+c) xxx xxx xxx
e) Total Estimated Gross profit (a-d) P xxx P xxx P xxx
f) Multiply by POC x % x % x %
Gross Profit to date P xxx P xxx P xxx
Gross Profit - previous year (xxx) (xxx)
Gross Profit - current year P xxx P xxx P xxx
INTPRAB Notes from Brian Lim HDV/DNG

*IF Total Estimated Gross Profit is Positive*

20X1 20X2 20X3
Contract Price P xxx P xxx P xxx
Multiply by POC x % x % x %
Contract Revenue to Date (cum) P xxx P xxx P xxx
Contract Revenue –prior year (xxx) (xxx)
Contract Revenue- current year P xxx P xxx P xxx
Cost incurred–current year (xxx) (xxx) (xxx)
Gross Profit(loss)- current year P xxx P xxx P xxx

20X1 20X2 20X3

Cost incurred to date P xxx P xxx P xxx
Gross Profit to date xxx xxx xxx
Construction in Progress P xxx P xxx P xxx
Progress Billings to date (xxx) (xxx) (xxx)
Due from(Due to) P xxx P xxx P xxx

20X1 20X2 20X3

Contract Price P 1,000,000 P 1,000,000 P 1,000,000
Cost incurred to date P 200,000 P 825,000 P 950,000
Estimated costs to complete 600,000 275,000 -
Total Estimated Costs (b+c) 800,000 1,100,000 950,000
Total Estimated Gross profit (a-d) P 200,000 P (100,000) P 50,000
Multiply by POC x 25% x 100% x %
Gross Profit to date P 50,000 P(100,000) P 50,000
Gross Profit - previous year (50,000) 100,000
Gross Profit - current year P 50,000 P (150,000) P 150,000

20X1 20X2 20X3

Contract Price P 1,000,000 P 1,000,000 P 1,000,000
Multiply by POC x 25 % x 75 % x 100 %
Contract Revenue to Date (cum) P 250,000 P 750,000 P 1,000,000
Contract Revenue –prior year (250,000) (750,000)
Contract Revenue- current year P 250,000 P 500,000 P 250,000
Reversal of Provision 25,000
Total Income P 250,000 P 500,000 275,000
Cost incurred–current year (200,000) (625,000) (125,000)
Provision of full contract loss** (25,000)
Total Expenses (200,000) (650,000) (125,000)
Gross Profit(loss)- current year P 50,000 P (150,000) P150,000
INTPRAB Notes from Brian Lim HDV/DNG

Working Paper Eliminating Entry

HOME OFFICE AND BRANCH ACCTG
Home Office xx
Branch vs Agency Investment in Branch xx
Sales Agency Branch
Not a self-contained Self-contained business Shipments to Branch xx
businesses, acts only which acts Shipments from Home Office xx
on behalf of home independently, but
office subject to control of
home office Investment in Branch (HO Books)
Displays merchandise, Carries merchandise Asset transfers to Asset is received from
takes orders but has no used to fill customers’ branch branch
inventory/stocks orders
Customers’ orders are Grants credit, makes Profit of branch Loss of branch
sent to HO for warranties, fill orders,
approval. Customers and make collections Liabilities and expenses
remits payments on sales incurred or paid by
directly to HO home office on behalf
Holds revolving cash Has its own assets and of branch
fund from HO liabilities
Not a separate A separate accounting
accounting entity. It entity for internal Ending Balance*
only maintains a simple reporting.
record for cash receipts
and disbursements. For external reporting, Home Office (Branch’s Books)
its financial statements Asset transfers to Asset is received from
*Holds samples that are combined with HO. home office home office
are depreciated using
useful life* Loss Profit

Accounting for branch operations Liabilities and expenses

incurred or paid by
I. Eliminate Unique accounts/Reciprocal Accounts home office on behalf
-intercompany/inter-office accounts of branch

Home Office Branch Ending Balance*

Balance Investment in Home
Sheet Branch/Branch Office/HO
Current -Asset Current – HO Inv in Br
Equity
Income Shipment to Shipments Unadjusted P xxx P xxx
Statement Branch from Home Reconciling Items xxx xxx
(reduction in Office Adjusted (after closing NI) P xxx P xxx
TGAS) (addition to
TGAS)

II. Reconciliation of Inv in Branch and Home Office

• Debit in one account w/o corresponding credit
in the other account (and vice versa)
• Errors
INTPRAB Notes from Brian Lim HDV/DNG
COMMON TRANSACTIONS JOURNAL ENTRIES
Home Office Branch
Shipment of Merchandise Investment in Branch Shipments from HO
Shipment to Branch Home Office
Acquisition of PPE (purchased by Investment in Branch PPE
HO, recorded by BR) Cash Home Office
Acquisition of PPE (purchased by PPE Home Office
BR, recorded by HO) Investment Cash
Allocated expense Investment in Branch Expenses
Cash Home Office
Return of merchandise Shipment to Branch Home Office
Investment in Branch Shipment from HO
Cash remittance Cash Home Office
Investment in Branch Cash
Take up of branch income Investment in Branch P&L Summary
Investment Income Home Office
Transfer at billed price Investment in Branch Shipment from
Shipment to Branch (@cost) Home Office (@BP)
*DGP is realized upon sale to third DGP/Allowance (mark up)
parties.
*Branch income, unadj is Upon sale to third parties:
understated due to higher cost DGP
RGP/Br. Income

ACCOUNTING FOR INTERBRANCH TRANSFER

HO B1 B2
Merchandise Inv in Br1 XX Shipment from HO XX
transfer Shipment XX HO XX

Inv in Br2 XX HO XX Shipment from HO XX

Inv in Br1 XX Shipment from HO XX HO XX
If with freight, it follows the inventory.
Merchandise Inv in Br 1 10,000 Shipment from HO 9000
Transfer with Shipments to Br 1 9000 Freight in 1000
Freight Cash 1000 HO 10,000

Actual Freight fr B1
ro B2- 1500 (1000 Inv in Br2 10,300
+500) Expense 200 HO 10,500 Shipment from HO 9000
Inv in Br1 10,500 Shipment from HO 9000 Freight In 1300
Freight from HO to Freight In 1000 HO 10,300
B2- 1300 NOTE: freight is recorded Cash 500
at the LOWER of actal
*Excess cost is freight incurred AND
recorded as an direct freight (from HO
expense to the to Branch).
home office.
INTPRAB Notes from Brian Lim HDV/DNG
Billed Cost DGP/Allowance Purchases- Total
Price Outsiders
Beginning Inventories xxx6 xxx5 xxx4
Shipments xxx2 xxx1 xxx3
Returns (xxx) (xxx) ( xxx)
Total Goods Available for Sale (TGAS) xxx xxx xxx
End Inventory (xxx) (xxx) ( xxx)
Cost of Sales xxx xxx xxx

Notes:
• Check if End Inventory > Shipmnts
o It means part of ending inventory is
from beginning
o Mark up rate may be different last year
vs this year
• Assumption of silent- BRANCH view
o Inventory is @billed price unadjusted
• Stated in problem– HO View
o Combined FS, true cost, adjusted If
silent, branch inventory is TOTAL, from
HO and outsiders
• Combined NI = HO NI + Branch NI
o Branch Income must represent true or
ADJUSTED NET INCOME
o Branch Income = Unadjusted NI + RGP
INTPRAB Notes from Brian Lim HDV/DNG

PROCESS COSTING 2. Started and Completed

Format: • EUP is automatically 100%

Physical
DM DL FOH
Units 3. Normal Losses and Abnormal Losses
Beginning WIP xx xx xx xx
Started and • Compare application rate versus inspection
xx xx xx xx point
Completed
EWIP xx xx xx xx
Normal Loss xx xx xx xx Scenarios:
Abnormal Loss xx xx xx xx Application Inspection
EUP
Total xx Rate Point
Start < 30% 100%
NOTE: Transferred Out = BWIP + S&C 30% = 30% 0%
50% > 30% 0%
ISSUE 1: Method of Accounting Evenly 30% Inspection Point

1. FIFO ISSUE 3: Cost Allocation for Normal and

• Accounts only for this month’s units and costs Abnormal Losses
• Transferred-out units:
• Beginning WIP – EUP is only to the Normal Losses
extent of work done with this month • Recurring and unavoidable
• Started and completed – EUP is 100% • Treated as product costs and absorbed by good
automatically units (units that passed inspection point)
Cost this Month
Unit Cost =
EUP GOOD Units
1. Transferred Out
2. Weighted Average 2. Ending WIP
• Accounts for costs and units to date a. If POC > Inspection, Good Units
• Transferred-out units – automatically 100% b. If POC ≤ Inspection, Not good units
Cost last Month + Cost this Month
Unit Cost =
EUP RULES:
• If ending WIP are good units, allocate
ISSUE 2: EUP Calculation normal loss costs to beginning WIP, started
and completed, and ending WIP based on
RULES: EUP or actual costs.
1. Beginning and Ending WIP • If FIFO method is used, an inventory can
only absorb normal losses once. Hence, if
Compare application vs % of completion beginning WIP has already absorbed last
• Application rate: rate at which DM, DL, and month, do not allocated normal losses this
OH are applied month to BWIP.
• Percentage of completion: cutoff point when
WIP ended Abnormal losses
Scenarios: • Non recurring, avoidable
Application • Treated as period costs
POC EWIP BWIP
Rate
Start < 30% 100% 0%
50% > 30% 0% 100%
30% = 30% 100% 100%
Evenly 30% POC POC-TM
INTPRAB Notes from Brian Lim HDV/DNG

ISSUE 4: DEPT 1 vs DEPT 2

Department 1 Department 2
DM DM
DL DL
OH OH
Transferred In
(From Dept 1)

EUP of transferred in
• If FIFO, 100% of this month’s units
• If Average, 100% of total units

FIFO Actual Transf

DM DL FOH
Units In
Beg WIP xx xx xx xx %
Started & 100%
xx xx xx xx
Completed
EWIP xx xx xx xx 100%
Normal Loss xx xx xx xx 100%
Abnormal Loss xx xx xx xx 100%
Total xx

AVERAGE Actual Transf

DM DL FOH
Units In
Transf Out 100%
(BWIP + xx xx xx xx
S&C)
EWIP xx xx xx xx 100%
Normal Loss xx xx xx xx 100%
Abnormal 100%
xx xx xx xx
Loss
Total xx

ISSUE 5: Discrete vs Continuous Losses

• Discrete Losses – with inspection point
• Continuous loss – without inspection point
o Assumption of EUP
o Normal loss: 0%
o Abnormal loss: 100%
INTPRAB Notes from Brian Lim HDV/DNG
2. if production/internal failure – charged to
actual OH, do not add to cost
JOB-ORDER COSTING
NOTE:
• if customer fault. specific job, deduct
ISSUE 1: COST FLOW allowance for loss (w/o allowance)
• if production/internal failure, do not deduct
Materials Labor allowance (w/ allowance)
Beginning Used Incurred Distributed
Purchases

Ending BACKFLUSH COSTING

Overhead WIP Same with job order, the difference is with WIP
Ind. Matls Used Beginning COGM because in backflush costing, there is no WIP.
Ind. Labor DM
Other OH DL DL, DM, FOH --> Finished Goods
Applied
OH Journal Entry:
Ending
Finished Goods XX
FG Direct Material XX
Beginning Sold Direct Labor XX
COGM Applied OH XX

Ending Journal Entries:

ISSUE 2: Over/Underapplied OH MATERIALS

• Overapplied – Favorable Variance Raw Materials (SP x AQ) XX
• Underapplied Materials Price Variance XX
o Immaterial: closed to COGS Accounts Payable (AP x AQ) XX
o Material: Allocate to WIP, FG, COGS
WIP (SP x SQ) XX
Applied FOH= Predetermine OH rate x Actual Driver Material Usage Variance XX
Raw Materials (SP x AQ) XX
Budgeted FOH
Predetermined OH Rate = LABOR
Budgeted Basis
Factory Payroll (SRxAQ) XX
ISSUE 3: COGS Labor rate variance XX
• deduct overapplied Salaries Payable(AR x AQ) XX
• add underapplied
WIP (SR x SQ) XX
ISSUE 4: Spoilage/Defective Goods Labor usage variance XX
Factory Payroll (SQ x AQ) XX
Treatment:
Again, Unit Cost = COST/GOOD UNITS, so deduct OVERHEAD
spoilage units from good units FOH – Actual XX
Various Payables XX
Rework cost and loss on spoilage (AR x AQ)
1. if customer fault/specific job – charged to
FG, add to cost WIP XX
FOH – Applied XX
(SR x SQ)
INTPRAB Notes from Brian Lim HDV/DNG
A. SV @ split-off/Relative SV
FOH-Applied XX = SP@splitoff x units produced
Budg. Variance XX
Vol. Variance XX B. Actual NRV @ Split-off
FOH-Actual XX = SV@splitoff – cost to sell/disposal

C. Estimated/Approximated NRV @ Split-

off/Adjusted MV
= Final SP – further processing cost –
JOINT COST ALLOCATION
disposal costs

Allocation of Joint/Common Cost

1. By-product first; then
2. Main products

By-product recognition
1. Upon Sale

Cash XX
Other Income XX

2. Upon production

By-product inventory XX
Joint Cost/WIP XX

AMOUNT:
a. NRV (assumed)
Est. selling price – Cost to Complete – Cost
to Sell

b. Reversal Cost
Est. Sales Value – Gross Profit – Selling and
Admin Cost

OR

Total mfg. cost – further processing cost

Remaining Joint Cost:

Approaches:
1. Physical Method
There is physical measure (litres, kg), or by
units produced, or by weighted average of units
produced

# of units produced x assigned weights

2. Monetary Method
INTPRAB Notes from Brian Lim HDV/DNG

FOREX
Example:
TERMINOLOGIES BUYER SELLER
• Exchange rate – rate at which foreign Transaction Inventory 46 A/R 46
currencies are translated Date, 1:46 A/P 46 Sales 46
• Spot rate - exchange rate NOW Balance Sheet Forex Loss 4 A/R 4
• Closing rate – spot rate at balance sheet Date, 1:50 A/P 4 Forex Gain 4
date Settlement A/P 2 Forex Loss 2
• Functional currency – currency of primary Date, 1:48 Forex Gain 2 A/R 2
economic environment in which an entity
operates A/P 48 Cash 48
• Foreign currency – currency other than the Cash 48 A/R 48
functional currency
• Presentation currency – currency in which Foreign Exchange Translation
financial statements are presented -converting the FS of subsidiaries/associates/joint
• Exchange difference - difference from ventures/branch to the entity’s reporting currency
converting one currency another at different
exchange rate; forex gain or loss • What rate to use?
o Asset and Liabilities – closing rate
Foreign Currency Transactions o Income statement – actual spot rate/
-transactions entered into by entities in foreign weighted average rate
currency o Equity
▪ Cap. Stock/APIC – actual/spot/historical
• What rate to use – spot rate, direct quotation ▪ Retained Earnings
o Direct quotation (1 FC = P __) • Beginning – Roll Forward
o Seller – buying spot/BID • Net Income – Weighted Ave.
o Buyer – selling spot/ASK • Dividends – Spot Rate

• Monetary versus nonmonetary

o Monetary – Cash, AR, AP, NP, LP Computing for translation adjustment
▪ These must be restated/updated to Net Assets –end @ closing rate XX
SPOT RATE
▪ Gives rise to forex gain or loss Net Assets- beg @ closing rate XX
o Nonmonetary – Inventory,PPE,I/S accounts Additional Investment @ spot XX
▪ No update needed - HISTORICAL Net Income @ WAR XX
▪ except for those items that are Dividends @spot (XX)
measured at FV/NRV
Net Assets-end (historical) XX
▪
Translation Adjustment for the period XX
• How to know if gain or loss?
o Buyer’s perspective
NOTE:
▪ If translated A/P increases, Loss
• The amount above goes to OCI and will be
▪ If translated A/P decreases, Gain
transferred to P&L only upon disposal.
o Seller’s perspective
• NA @ closing > NA@ historical  Gain
▪ If translated A/R increases, Gain
• NA @ closing < NA@ historical  Loss
▪ If translated A/R decreases, Loss

• Gain or Loss Presentation

o For F/S transaction, it goes to profit and
loss.
INTPRAB Notes from Brian Lim HDV/DNG
Hedging – Forwards/Futures
TABLE 2: IN/OUT/AT THE MONEY
Hedged Item Hedging
Instrument Call option
RATE • If actual • Use FUTURE Strike VS Spot Intrinsic
transaction, use RATE Value
SPOT 48 < 50 2 In the
• If firm money
commitment, 48 > 46 0 Out of the
use FUTURE money
• If only highly 48 = 48 0 At the
probable money
forecasted
transaction, DO Put option
NOT Strike VS Spot Intrinsic
RECOGNIZE Value
G/L • Treated with • Treated with 48 < 50 0 Out of the
normal view (If opposite view money
seller, gain if (if buyer, gain 48 > 46 2 In the
increase. If if increase. If money
buyer, gain is seller, gain if 48 = 48 0 At the
decrease). decrease). money
Prese- • FV Hedge – • FV Hedge –
ntation goes to P&L goes to P&L G/L Presentation
(for actual/firm (for actual/firm 1. FV Hedge
commitment) commitment) a. Nonsplit/TV included
• CF Hedge – • CF Hedge – i. Change in FV – goes to P&L
goes to OCI goes to OCI b. Split/TV excluded
(for highly (for highly i. Changes in Intrinsic (aka
probable probable EFFECTIVE gain) – goes to
forecasted forecasted OCI
trans) trans) ii. Changes in Time Value (aka
INEFFECTIVE gain) – goes to
Hedging - Options P&L
- Always favorable at the option holder’s side
- has two kinds 2. CF Hedge
1. Call – option to buy a. Nonsplit
2. Put – option to sell i. Change in FV – goes to OCI
b. Split
General formula: i. Changes in Intrinsic (aka
Fair Value XX EFFECTIVE gain) – goes to
Intrinsic Value (XX) OCI
Time Value XX ii. Changes in Time Value (aka
INEFFECTIVE gain) – goes to
TWO IMPORTANT TABLES: P&L
TABLE 1: G/L derived from:
Trans. BS Date Settlement Speculation
Date Date - No hedge item, only hedging instrument
FV Option Given FV=IV - Rate used – FUTURE rate.
Premium - Gain/Loss – use OPPOSITE view.
IV (Strike – Spot) x # of options - Gain/Loss presentation – goes to P&L
TV Difference between FV and IV
 INTPRAB Notes from Brian Lim HDV/DNG
- AFTER BUSINESS COMBINATION
BUSINESS COMBINATION Computation of Goodwill

• IFRS3 FV of consideration transferred XX

• Transaction in which the acquirer obtains FV of Prev. Held Interest XX
control of one or more businesses Non-controlling Interest XX
• Not simply an asset but a group of assets FV of Identifiable Net Assets (XX)
• Assets + organized workforce +target Goodwill/BPO XX
customer
• FV approach- arm’s length transaction Total Assets Total Total Equity
Liabilities
• Excluded BV of Acquirer BV of Acquirer BV of Acquirer
o Formation of joint venture + FV of + FV of + FV of equity
o Acquisition of a group of assets that Acquiree Acquiree issued
does not constitute a business + Goodwill + FV of + Gain from
o Combination of entities under common liability issued Acquisition
control (same party controls entities - Assets Paid + CC Payable +/- Gain or loss
before & after acquisition) on Prev. Held
Intrest
Forms of Business Combination - ARC Paid + ARC unpaid +/- Gain or loss
1. Asset Acquisition on change in
• 100% Acquisition contingent
• Merger  A+B=A consideration
• Consolidation  A+B=C + Non
2. Stock Acquisition Controlling
• Partial  A= 80% B + NCI Interest
• Whole  100% + ARC incurred
TOTAL TOTAL TOTAL
Acquisition Method ASSETS LIABILITIES EQUITY
1. Identify acquirer
2. Determine acquisition date (Valuation Date-
date you obtain control) CS APIC RE NCI
3. Use Goodwill Formula BV Acquirer XX XX XX
• Consideration transferred
Equity Issued XX XX
• Non-controlling interest
G/L from Acquisition XX
• Previously held interest
G/L on PHI XX
• Identifiable assets and liabilities
G/L on change in CC XX
payable
Goodwill Formula
NCI XX
GENERAL IDEA: ARC Incurred (XX)
i. SIC (XX)
Total Parent NCI
ii. Excess SIC (XX)
Bus XX XX XX
INA (XX) (XX) (XX)
Goodwill/Gain XX XX XX
Measurement Period Adjustments
- Within ONE YEAR from acquisition date
RULES:
whereby the acquirer can retrospectively
• NCI can never have negative value (only
adjust the provisional (estimate) amounts
goodwill). Hence, the minimum value that it can
recognized in FS
have is its proportionate share.
- Purpose: reflect new information about
existing events or conditions EXCEPT CC
INTPRAB Notes from Brian Lim HDV/DNG
Payable (EXCEPT IF IT’S AN ERROR like the Dividend Paid (XX)
one in the exam ) NCI XX

3. TOTAL EQUITY
CONSOLIDATION
Capital Share –parent XX
APIC –Parent XX
TABLE 1: Computation of share in NI
Conso RE (XX)
Conso Parent NCI
Equity Parent XX
NI
Equity NCI XX
NI-Parent XX XX
Dividends (XX) Total Equity XX
NI-Subsidiary XX XX
+/- FV Amortization XX XX
Goodwill Impairment (XX) (XX) 4. PARENT’S RE
Total Share in NI XX XX XX
RE @ year end – parent XX
Add:
RULES: NI – sub XX
1. Net Income of parent – always get full year Dividend – sub XX
regardless of when it was acquired Amortization – sub XX
2. Dividend share – deduct unless stated that Impairment – sub XX
it is still not included Total Sub. NI XX
3. Net income of subsidiary – add/deduct from Share of Parent XX% XX
date of acquisition Conso RE XX
4. FV Amortization – depends on the ff:
a. Inventory – realized upon sale FOR INTERCOMPANY TRANSACTIONS
(assume SOLD)
b. PPE and intangibles – realized CNI PARENT NCI
through usage (depreciation) (use US-UGP (XX) (XX)
remaining useful life) US-RGP XX XX
c. Land – realized upon sale (assume DS-UGP (XX) -
not yet sold) DS-RGP XX -
5. Allocation of impairment loss is based on:
a. Goodwill amount UGP RGP
b. % of ownership Inventory Buyer EI x Buyer BI x
Seller GP Seller GP
PPE/Intangibles Proceeds – UGP/Useful
BV = UGP Life
EQUITY COMPUTATIONS Land Proceeds – G/L on Sale
BV = UGP
1. NONCONTROLLING INTEREST

Equity at Acquisition Date XX

CNI Share XX
Dividend Share (XX)
NCI XX

2. CONSOLIDATED RE

Parent’s Retained Earnings XX

CNI Share XX
 INTPRAB Notes from Brian Lim HDV/DNG

JOINT ARRANGEMENTS

Joint Venture
- Jointly controlled entity
- Rights and Obligations: Net Assets

Joint Operations
- Jointly controlled assets
- Jointly controlled operation
- Rights and Obligations: Assets and
Liabilities

Accounting Method
Joint Venture Net Asset Method
Joint Operation Take up share in assets and
liabilities

SME Joint Venture

- Entity may choose between cost, FV, or
equity method

Cost Equity FV
Purchase Price ✓ ✓ ✓
Transaction ✓  ✓
Cost (expense)
Net Income   ✓
(take up
share)
Dividend  (to  (to P&L) ✓
P&L) (deducti
on)
Change in FV  ✓ (to 
of Investment P&L)
Impairment ✓ (to  ✓ (to
P&L) P&L)

NOTE:
• If you’re using cost method, and there EXISTS a
published price quotation, use FAIR VALUE
METHOD.
• If you’re using FV method, but there is NO
AVAILABLE FV (cannot be measured reliably
without undue cost or effort), use COST method.
• If you’re using equity method, it’s always at cost.
INTPRAB Notes from Brian Lim HDV/DNG
4. Maintenance and other expenses
(MOOE)
GOVERNMENT ACCOUNTING
4. Registry of Budget, Utilization, and
Governed by Government Accounting Manual Disbursements (RBOD)
• Used only for special funds
Budgetary Process • Same service as RAOD
I. Budget Preparation
1. Agencies submit budget needs to DBM
2. DBM submits to president proposal of
budget JOURNAL ENTRIES
3. President reviews and prepares budget 1. Receipt of Notice of Cash Allocation
4. President submits budget to legislation
Cash – Modified Disbursement System XX
II. Legislation Subsidy from National Gov. XX
1. Senate and House of Rep individually and Must be net of TRA.
collectively (through bi-cameral) approves
budget through General Appropriations 2. Unused NCA (expiration of regular
Bill NCA ever end of quarter)
2. Senate and House of Rep. submits
approved bill to President for final Subsidy from National Gov. XX
approval Cash – MDA XX
3. President approves bill to become law
3. Constructive Receipt of Tax
III. Execution Remittance Advice (for Withholding
1. Agencies, through DBM and BOT allotment, Tax)
use the funds
Cash – TRA XX
Registry Subsidy from Nat’l Govt XX
- Requires memo entry only
4. Constructive Remittance of TRA
1. Registry of Revenue and Other Receipts
(RROR) – for receipts Due to BIT XX
2. Registry of Appropriations and Allotment Cash – TRA XX
(RAPAL) – for disbursements
3. Registry of allotment, Obligations, and
Disbursement (RAOD) – contracts only CASH ACCOUNTS
Receipt/Debit Disbursement/Credit
1. Cash – Modified Disb. Funds from national In general expenses
Issue: System govt
a. Regular
• Allotment is based on appropriations b. Special Cash – MDS
• Obligations (contracts signed) are based c. Trust Subs. From
Nat’l Govt
on allotment of funds 2. Cash – collecting From other sources For remittance only
• Disbursements (payments) are based on officer than nat’l to agency account or
government to national
contracts (obligations) government
3. Cash – Remittance of cash Upon closing of
Treasury/Agency collected from other books:
Subservices of RAOD: Deposit sources to national
1. Personnel services – for salaries and a.
b.
Regular
Special
government (if w/o
authority to use)
Acc. Surplus/Deficit
Cash–TA deposit
wages c. Trust
Cash –Treasury/
2. Financial expenses – for borrowing Agency
costs Cash –
Collecting Officer
3. Capital outlay – for capital 4. Cash in Bank – Local Remittance of cash Authorized expenses
expenditures Currency collected from other
Current/Savings sources to national Expenses
Account CIB
INTPRAB Notes from Brian Lim HDV/DNG
government (if w/
authority to use)

CIB
Cash-CO
5. Cash – TRA Receipt of TRA Remittance of TRA to
BIR
6. Advances for Payroll Advances Upon liquidation
(salaries) Cash-MDS
Expenses
Advances for special Advances
disbursing officer
(special project-time
bound)

Advances for
operating expenses
(field/operating unit)

Advances to officers
and employees
(office travel)

Closing entries

1. Income/Subsidy from National Govt

Revenue and Exp. Summary

2. Revenue and Exp. Summary

Expenses
3. Revenue and Exp. Summary
Acc. Surplus/Deficit
4. Acc. Surplus/Deficit
Cash-Treasury/Agency Deposit

Assumptions
a. Inventory – use specific identification or
moving average
b. PPE – depreciate over life. Has a minimum
residual value of 15,000 php.
c. Infrastructure - depreciate
INTPRAB Notes from Brian Lim HDV/DNG
Net Patient Service Revenue XX
NOT FOT PROFIT ACCOUNTING
SCHOOL
Tuition Fee Revenue XX
ISSUE: Statement Presentation Scholarship (XX)
• Assets and Liabilities – same with IFRS Gross Revenue XX
• Net assets Less: Discounts/Adjustments (XX)
o Has no CS, APIC, or RE Net Revenue XX
o Has the ff. accounts:
▪ Unrestricted NA (Quasi-endowment) NOTE: If with service requirement, it is treated as
- BOT restricted salary expense.
- No donor-imposed restriction
- Assumed if silent VALUATION OF DONATION
▪ Temporarily restricted NA (Term • Cash – at face value
endowment) • Noncash
- Purpose/time-bound o In kind – FV of item
- Reclassified once purpose is fulfilled o Service – FV of service
▪ Permanently restricted NA (Regular Note: This can only be recognized when:
endowment) 1 Gives rise to nonfinancial asset
- Indefinite/In perpetuity 2 It’s a specialized service performed by a
- For endowment or legacy professional

STATEMENT OF ACTIVITIES CONDITION vs. RESTRICTION

• Condition is unearned and gives rise to
UR TR PR liability
Donation/Public XX XX XX • Restriction is earned and recognized as
Support/Cont. revenue
Investment Inc. XX XX XX
Operations: PASS-THROUGH DONATION
Revenue XX • If principal, REVENUE (has no specific
Expenses beneficiary)
Program (XX) • If agent, LIABILITY (has specific
Support (XX) beneficiary)
Reclassification XX (XX) =
Increase/Decrease XX XX XX Liabilities (liab, end) + Total Equity (CS, APIC, RE,
in NA Beg +NI-NL)
Beginning Net XX XX XX
Asset Computation for ending cash balance
Ending Net Asset XX XX XX
Beginning cash balance XX
STATEMENT OF CASH FLOWS Assets Realized XX
1. Operating – unrestricted Liabilities Liquidated (XX)
2. Financing – temporary and permanent Liquidation expenses paid (XX)
restrictions Ending Cash Balance XX
3. Investing – acquisition/disposal of
investments and PPE

HOSPITAL
Gross Patient Service Rendered XX
Less: Charity Care (XX)
Gross Patient Service Revenue XX
Less: Discounts/Adjustments (XX)