Quick Notes on Joint Venture:

 3 types of Joint Venture:

1. Jointly controlled operations- use of assets and other resources
2. Jointly controlled assets
3. Jointly controlled entities
 JV acct- like income and expense summary account
 If JV is uncompleted (there are still unsold merchandise), the P/L is squeezed figure between the balance
of JV account and the profit distribution and the cost of unsold merchandise (the required debit balance of the JV
acct after P/L distribution)
 Cash settlement: credit balance, participants will receive cash equal to his credit balance; if debit, he will
pay.
 JV and the respective accounts of venturers are reciprocals

JV

Sales ret. And discount sales

Beg. invty purchase ret and allow/discount

Purchases ending invty

Freight-in other income

expense,incl commissions

net loss xx xx net income

 For problems showing only balances of the venturers, note that in the leftmost column, it means the
books of the venturers, and that in the succeeding columns, those are the ledger balances of the respective
venturers (common sense, kaya nga may debit-credit sya kc extracted from the T-Account or ledger ang mga yun,
k!)

Quick Notes on Installment Sales:

 complete sale – cash
 virtually complete – on account
 highly uncertain – cost recovery
 not so uncertain – installment sales (if silent)
 deferred is cumulative
 deferred/unearned/future/ or prepaid
 in valuing, however, reconditioning is included ( or, market value + recon)

inventoriable cost
 entries:
a. set up cost of Installment Sales:
CIS xx
Shipments on installment sales xx

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b. to defer GP:
Installment Sales xx
CIS xx
DGP xx
c. adj. DGP:
DGP xx
RGP xx
 Time of sale/ pt. of delivery – no deferral
 Def. adj – means net of default assuming everything is properly recorded. So, adjust for the realized
portion of DGP.
Regular sales (cash or on account)
 RGP

Installment sales

Even if there is no word “realized,” gross profit alone is understood to be realized

 Types of sales: 1) regular (cash or on account); 2) IS

 Gain on repossession – give the amount. But, if asked gain to be recorded: 0 (not recognized until sold)
 In case of differing MV given, choose that which is more profitable.
 Total realized gross profit includes regular sales
 If there is Shipments on IS – this is the CIS
 Collection for trade-in is its MV. Entry for eventual recording of its recon cost- Dr: trade-in, Cr: cash
 Check DGP balance to get GP% if not given. Consider AR, defaults, collections, etc. made during the period
 Unrecognized int. income- used only in cost recovery.
 All payments (they may be pertaining to principal and interest) are all applied to cost first.
 Overallow in trade-in is deducted from sales to arrive at correct GP%.
 In computing Net Income, consider all- the loss from repossession, the loss due to defaulted accounts
(thus, defaults x cost% is the loss), addtl income if there’s interest income, ok. Account all na pwede to arrive in NI,
ok.

Quick Notes on Corporate Liquidation:

 Corpo will still exist for 3 years to finish winding up
 General creditors- presumed to be unsecured creditors without priority. Hence, partially secured
creditors’ balance is excluded from here.
 Unsecured creditors with priority- taxes, admin exp/liquidation exp, unpaid sal and wages, accruals and
def. revenues
 Net free assets- total free assets less unsecured creditors with priority
 If silent: prepaid exp, intangible, GW – have no value
 To get gain/loss on realization of assets with contra accounts, always compare Book Value vs Selling Price
 To get estimated net loss for liquidation: net G/L on asset realization is added with unrecorded liab
 In the event of liquidation, let the govt suffer the loss. So, prioritize admin/liquidation exp, next are
accruals, deferrals and last taxes. Hence, prefer third parties first before the government.
 Expected recovery % of unsecured creditors: net free/ total unsecured without priority
 Deficiency = net free – unsecured without priority

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  In solving a problem, Read first addtl info. Identify full and partially secured creditors
 est. payment to creditors- easiest to solve. (just go straight to NRV of all assets)
 Version 1:
Estimated deficiency, beg.
Net loss/gain in realization net loss/gain in realization and liquidation
Liquidation exp
Estimated deficiency, end
 Version 2: Here, liquidation exp is assumed to be incurred/accrued and eventually paid (liquidated)
Statement of Realization & Liquidation
To be realized realized
Acquired not realized (to balance)
Liquidated to be liquidated
Not liquid (to bal) incurred
Gains (to bal) loss (to bal)
 Version 3:
 Here, if ending bal is debit, it is a loss on liquidation.
 Assumption in this method or version is that there is a continued business operation. Difference in
disposal of assets & liab is ignored.
Statement of Realization & Liquidation
To be R R
Acqd. Not R
L to be L
Not L incurred

Supplemental debits (liquidation exp) supplemental credits (sales, purchase ret., and discounts
Quick Notes on Long-Term Construction Contracts (PAS 11):
 2 types of contracts:
1. Fixed price – in some cases, to cost escalation clauses; contract price is increased enough to recover the
cost in case of modifications (current and prospective – Δ in estimate).
2. Cost – plus contract
 Methods of revenue recognition:
A. % of completion: if estimates are available, use this. Otherwise, cost recovery.
-measuring stage of completion:
1. input measures: cost to cost (based on costs); efforts expended (based on work performed)
2. output measures: proportional (preferable); actual cost
B. cost recovery – revenue up to costs incurred that are probable to be recoverable and costs should be
recognized as an expense in the period in which they are incurred.
 It should be noted that progress payments and advances from customers often do not reflect the % of
work performed.
 Recognition of expected/anticipated loss: when it is probable that total contract costs will exceed total
contract revenue, recognize an exp (loss) immediately, irrespective of:
1. Whether or not the work has commenced on the contract
2. Stage of completion of contract activity; or
3. Amount of profits expected to arise on other contracts which are treated as a single construction contract.

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 Usual Income Statement: CIP – sales; Costs of Construction – COGS
 Completed contract – completely eradicated already, but its accounting is end of contract, that is all CIP,
costs and GP are recognized @ end.
 Penalty, if any, is deducted in year of completion
 CIP is netted with progress billings: If CIP exceeds, current asset (a receivable account), otherwise, if PB
exceeds, current liab (a payable account)
 If the problem says use “output measure actual cost (revenue) approach,” multiply the engineering
estimates (if such is the case) to CIP. Otherwise, if “output measure actual cost (GP) approach, start from the GP.
 Proforma entries:
% of completion cost recovery
a. Dr: CIP xxx Cr: var credits xxx note: for cost recovery, same with % of
b. Dr: A/R xxx Cr: P/B xxx completion, except that GP cannot be determined
c. Dr: cash xxx Cr: A/R xxx until the completion of contract. Closing entries
d. Dr: cost of LTCC xxx; CIP (GP portion) xxx are the same with % of completion.
Cr: Construction Revenue xxx
e. To close CIP and PB (end of contract):
Dr: PB xxx Cr: CIP xxx (always note that CIP here is cost + GP recognized)

Quick notes on home office – branch accounting:

 First we learn about agency:
 it is a sales outlet only; no inventory. Operates @ a working fund maintained in HO (imprest). Informs HO
of the mdse. ordered and HO ships and collects; no accounting records (HO maintains the records,
preferably a separate account for the agency transactions)
 when HO opens a working fund for agency: Dr agency working fund, Cr cash. Since imprest system is used,
HO shall record expenses only upon replenishment, not by occurrence date of the expense (borrow
concepts from PCF lang gud!)
 only order filled up by HO shall be recorded as sales. Then, the freight corresponding to such COS is
presumed to be all in amount (no apportionment, unless stated); logic dictates that only orders filled are
sent, and thus are incurring the freight; consider the difference in amount of shipped samples to agency
(cost vs. the ending ivty. of such) as samples expense, not part of COGS.
 if only cash is given, but there are receivables and payables, prepayments and unearned revenues
presented as additional info, consider accrual way of computing net income.
 Home – branch:
 If silent, perpetual includes in transits (of course!) and periodic does not.
 Combined FS: eliminates 1) interco. Transactions 2) reciprocal accounts
 If you can’t see ABD in the given Trial Balance (ex: pre-closing trial balance), then it means that direct write
off was used.
 Read all paragraphs, don’t miss any fact. (see top to bottom and most especially right below the given
table of data, there may be some important statements that you may overlook).
 In case of errors (ex: transposition), if silent, go back to who initiates (branch or HO).
 In reconciling, do same thing like bank recon. Branch current (debit bal); HO current (credit bal); see for
amounts properly accounted in their separate T-accounts and look for reconciling items. Always use
appropriate judgment.
 In HO, if silent, mark up is based on cost.

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 Realized Def. Profit or Overallow. of CGS.
 Returns of mdse.: branch initiates this, so if silent, @ billed price. Correct first the errors, then eliminating
entries follow.
 If silent, FIFO sales is used.
 WP entries:
a. Dr: Allow. For overvaluation Cr: MI, beg.
b. Dr: STB; Allow. Cr: SFHO
c. Dr: MI, end (P/L) Cr: MI, end (B/S) --- this entry is for the overstatement due to allow.
d. Dr: HC Cr: BC
 In case there are savings in freight, don’t record since out of a related-party transaction. So, record actual
freight to avoid recording differences (disclose savings only). In case of excess freight = expense for HO. On
the part of the branch, freight actually paid shall be the one to be recorded.

Quick notes on Franchise Accounting:

 PAS 18 (revenue recognition) means two things in substantial performance: services and period of refund
 As a rule, prior to opening- no substantial yet. Opening date – presumed substantial. If no date,
affirmative. If silent, √ as to period of refund (also true when said period has expired, or when no period
is stated as in “none”--- okidowks!); √ means regular revenue. If not satisfied any, it is a liability, not a
revenue (hence, unearned franchise revenue).
 When cash is received, credit revenue if no more refund for it and work is substantially performed. But, if
note accompanying the payment is very uncertain as to collectability, then no recognition for N/R.
 Substantial performance if 90% or more if silent.
 If no given installment payments, divide by PVF to get it, same in installment probs, k. there maybe
payment by installments in franchise accounting man gud, so apply concepts na lang in installment sales
accounting.
 If collectability is not reasonably assured (NRA): installment (if silent) or cost recovery
 The initial services by the franchisor (not resulting to substantial performance) is debited to Def. Cost of
Franchise, credit is cash if it is a cash transaction.
 In installment accounting of franchise:
1. Set up cost:
a. Dr: cost of Franchise Cr: Def. cost of franchise
b. Dr: unearned FR Cr: cost of franchise; DGP on Franchise
2. Adj. to RGP on Franchise:
Dr: DGP Cr: RGP
 If silent, always affirmative (√): S, P, C (substance, Period of refund, Collectibility)---so full accrual method
 Note for: service obligations are substantial---so, no substantial performance yet, still obligated.
 When there are many franchise contracts, it must be a per franchise analysis
 If no revenue recognition yet, Dr: UFR Cr: ABD (credit to allow. For Bad debts, not to Bad Debts whenever
there are probable defaults)
 CFF (continuing franchise fee): portion shall be deferred, thus: UFR. This is for problems which say portion
in the CFF is reserved for some specified purpose. If purpose has been served, say for instance, then record
the related expense, ex: Dr: Advertising exp Cr: cash and to recognize the portion of revenue now earned as a
result of such realized purpose, entry is Dr: UFR Cr: FR
 Bargain purchases (also called commingled revenue. This arises when the IFF or initial franchise fee is with
BPO or bargain purchase option): defer only if exercise price is MV. Otherwise, the whole amount of
consideration received is revenue. Upon exercise: Dr cash; UFR – asset Cr Fr – sale of asset. Another
entry to journalize: Dr COS Cr invty.
 You record: revenue or loss from repossessed franchise in case of cancellation/repossession.
 If the franchise contract is with option to purchase the franchise outlet, every rendering of services is
debited to Def. cost of Franchise or Inventory in Franchise. If the option is exercised, entry is:

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Dr: Def. Franchise Option Liab Cr: invest.in Fr; Cash; Gain (if any)
 If franchise which NR’s collection is not reasonably assured, then installment method. Profit or net income
= collections including downpayment x GP% + interest income on notes (careful for fraction of months for
interest’s accurate running time) + CFF – indirect costs @ full, if any, ok.