Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
AUDITING PROBLEMS
I. Topic(s):
AUDIT OF ASSETS
III. Rundown
Please watch and read the following
https://cpahalltalk.com/auditing-cash/
https://www.youtube.com/watch?v=DZKDAHgJlOg
https://smallbusiness.chron.com/complete-audit-cash-accounts-receivable-34527.html
https://www.youtube.com/watch?v=ea0dfHaObqA
http://www.summaryplanet.com/industrial-economics/Audit-of-Non-Current-Assets.html
TAXATION
I. Topic(s):
Income Taxation
VII. Rundown
Please read and download
https://philippinecpareview.blogspot.com/p/business-law-and-taxation.html
PRACTICAL ACCOUNTING 1
I. Topic(s):
Inventory, Investments, Property Plant and Equipment, Intangible Assets
III. Rundown
Watch below link
Financial Accounting for inventories and cost of goods sold
https://www.youtube.com/watch?v=HhfbPHN5j4M
https://www.youtube.com/watch?v=MeRusrAouA4
https://www.youtube.com/watch?v=-YdXrFUl_3k
Financial Accounting for Inventory Costing
https://www.youtube.com/watch?v=F387vC3jmmY
Financial Accounting for investments
https://www.youtube.com/watch?v=NGVgVirlhI8
Financial Accounting for property, plant and equipment (depreciation methods), and intangible assets
https://www.youtube.com/watch?v=VgP1kakxmB4
https://www.youtube.com/watch?v=lX6brQgxiMI
https://www.youtube.com/watch?v=q3DRIMb1rkM
https://www.youtube.com/watch?v=_hptGKCLWSY
https://www.youtube.com/watch?v=gCq33F0nzms
https://www.youtube.com/watch?v=oNXxrADGIGQ
PRACTICAL ACCOUNTING 2
I. Topic(s):
Corporate Liquidation
Joint Venture Accounting
Installment Sales
Construction Accounting
Franchise Accounting
Home Office and Branch Accounting
onstruction Accounting
III. Rundown
Corporate Liquidation
https://www.youtube.com/watch?v=-oW4M3vpuRM
I. Introduction
When the financial position of the debtor is such that it cannot resolve its financial difficulties it will have to resort
to liquidation. This process may be started by the debtor filing a voluntary petition or by creditor filing an
involuntary petition which entails the process of an orderly realization of the debtors assets and payment of the
debtor’s liabilities.
The basic focus of accounting for liquidation is that a “quitting concern” rather than a “going concern” which is
usual assumption in accounting. The statement of affairs is a statement that has been devised to address the issue of
liquidation. And in the process of liquidation, the trustee in bankruptcy must report periodically to those interested
parties regarding the progress of the liquidation process, and for this objective, a statement of realization and
liquidation must be prepared.
3. Free Assets. These are assets not pledge to specific secured liabilities or pledged assets with a
realizable value in excess of the amount needed to satisfy claims at secured creditors.
4. Unsecured Liabilities with Priority. These are liabilities that must, by statue, be paid off before any
secured debts can be satisfied.
5. Fully Secured Creditors. These are liabilities covered by a pledge of specific assets of a realizable
value equal to or in excess of such liabilities.
6. Partially Secured Creditors. These are liabilities covered by a pledge of specific assets of a
realizable value that less than to such liabilities.
7. Unsecured Liabilities without Priority. These liabilities have no legal priority or a security interest
in specific property. They are paid off (pro-rated when there is an asset deficiency) after all priority
and secured liabilities have been satisfied.
8. Stockholder‟s Equity. The balances of the stockholders‟ equity accounts depend on the amount of
free assets available. If there is a deficiency of assets to satisfy unsecured creditors, all claims of
equity holders are extinguished. Only if there are free assets in excess of unsecured liabilities can
stockholders share in any distributions.
Joint Venture
https://www.youtube.com/watch?v=2KKB7Y1ksIc
https://www.youtube.com/watch?v=svMXneg_Dec
https://www.youtube.com/watch?v=MsKd2uTII3c
https://www.youtube.com/watch?v=Uiel697RR5c
https://www.youtube.com/watch?v=g5mrC7LjhhI
https://www.youtube.com/watch?v=-FznX2TgDdY
https://www.youtube.com/watch?v=wrAnV_bQh6Y
I. Introduction
Accounting for joint venture is regulated by PAS No. 31 Financial Reporting of Interest in Joint Venture.
This section deals with all aspects other than those relating to the inclusion of joint ventures in
consolidated financial statements, which is covered in Chapter 9.
A joint venture can be entered into individuals, partnership or companies. One common example of joint
venture in practise is when a Filipino company wants to start operations in an overseas country, rather
than build up a new company on its own from scratch, the Filipino company can enter into a joint venture
with a local company which is already operating in the overseas country. The local company should be
able to contribute local expertise to the venture to increase its chances of success.
II. Definition
A joint venture is contractual arrangement whereby two or more parties undertake an economic activity
which is subject to joint control. PAS No. 31. In practise, joint control means that none of the parties
alone can control the activity. All important decisions on financial and operating policy require each
venture‟s consent.
The term „joint venture‟ has two basic meanings. It can refer to a joint project or to an entity set up to
carry out the joint project. Hence a joint venture can be:
contractual arrangement whereby two or more parties undertake an economic activity which is
subject to joint control.
entity that, as a result of a contractual arrangement, is jointly controlled by the reporting entity and
other ventures.
In both cases, joint control is the determining factor.
In practise, joint control means that none of the parties alone can control the activity, but all together can
do so. Important decisions on financial and operating policy require each venture‟s consent. Control is the
power to govern the financial and operating policies of an economic activity (or an entity) so as to obtain
benefits from it.
The contract which establishes the joint venture usually deals with the following matters:
If the venture ceases to have joint controlled entity, then the use of proportionate consolidation should be
discontinued.
Proportionate consolidation means that the consolidated balance sheet of the venture includes its share
of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The
consolidated income statement of the venturer includes its share of the income and expenses of the jointly
controlled entity.
The use of the equity method is supported by those who agree that it is inappropriate to combine
controlled items with jointly controlled items and by those who believed that venturers have significant
influence, rather than joint control, in a jointly controlled entity. PAS No. 31 does not recommend the use
of the equity method because proportionate consolidation better reflects the substance and economic
reality of a venture‟s share of the future economic benefit.
A. Separate records
A full set of separate accounting records may be kept for the joint venture so that the venturers can assess
the performance of the venture (e.g. through regular management accounts).
Where the venture has a full set of accounting records, the transactions are recorded in exactly the same
way as for an ordinary business. A separate income statement can be extracted from which each venture
will be credited or debited with his agreed share of the profit or loss.
The venturers, may maintain separate records for transactions affecting them through Investment in Joint
Venture account.
The account is opened in the individual books of ventures and used as follows:
Debited for:
Original and additional investment
Services rendered to the venture or a compensatory basis
Share in joint venture profits.
Credited for:
Capital withdrawals from joint venture
Share in joint venture losses
Cash settlement
In the theory it is possible for jointly controlled operations to have a full set of records, but this is rare in
practice.
B. No separate records
Often (and certainly in examination questions), due to the short life time or size of the venture, it is not
considered worthwhile opening a new set of records for what may only be a few transactions. In this case
each venture will record transactions on behalf of the venture in his own records, alongside his other
business dealings.
An account called Joint Venture is maintained to take the place of all nominal accounts. The following
transactions that affect the account would be as follows:
Joint Venture
Merchandise contribution Merchandise withdrawals
Purchases Merchandise returns
Freight-in Purchase returns and allowances
Sales returns and allowances Purchase discounts
Sales discount sales
Expenses other income
If the Joint venture is completed, the balance of the Joint venture account represents the profit and loss.
If Joint Venture is uncompleted, meaning there are still unsold merchandise, profit or loss is a balancing
figure between the balance of the Joint Venture account before profit distribution and the cost of the
unsold merchandise (the required debit balance of the Joint Venture account after profit or loss
distribution.)
C. Cash Settlement
Cash settlement may also be represented by the venturer‟s account balance after recording investments,
withdrawals, and share in venture gain. A debit balance represents cash to be paid in final settlement
while a credit balance represents cash to be received. The recording of cash settlement on the books of
each ventures requires that:
Installment Sales
https://www.youtube.com/watch?v=CE7MK1gkvA4
https://www.youtube.com/watch?v=AiGNYcfLEb8
https://www.youtube.com/watch?v=Z_uRAFYiP6U
I. Introduction
Traditionally, under the Revenue Recognition Principle, revenue should be recognized when two
conditions exist:
1. The earning process is complete or virtually complete, and
2. An exchange has takes place.
These conditions was similarly indicated under PAS No. 18, wherein Revenue is recognized when:
1. It is probable that future economic benefits will flow to the enterprise, and
2. These benefits can be measured realiably.
Construction
https://www.youtube.com/watch?v=_gQP9T0K7co
https://www.youtube.com/watch?v=rAIiW5wo7zw
https://www.youtube.com/watch?v=i7b7chRhVDg
I. Introduction
The objective of PAS No.11 is to prescribe the accounting treatment of revenue and costs associated with
construction contracts. Because of the nature of the activity undertaken in construction contract, the date
at which the contract activity is entered into and the date when the activity is completed usually fall into
different accounting periods. Therefore, the primary issue in accounting for construction contract is the
allocation of contract revenue and contract costs to the accounting periods in which construction work is
performed. Further, PAS No. 11 establishes the standards for determining when contract revenue and
contract cost should be recognized as revenue and expenses in the income statement. It also provides
practical guidance on the application of these standards.
The stage of completion of a contract may be determined in a variety of ways. The enterprise uses the
method that measures reliably the work performed. Depending on the nature of the contract, the methods
may include:
1. Input Measures. Input measures are made in relation to the costs of efforts devoted to a contract. They
are based on an established or assumed relationship between a unit of input and productivity.
a. Cost-to-cost method – the proportion that contract costs incurred for work performed to date bear to the
estimated total contract costs;
b. Efforts-expended method - this is based on surveys of work performed.
2. Output Measures. - Output measures are made in terms of results achieved. This is based on the
completion of a physical proportion of the contract work. Architects and engineers are sometimes asked
to evaluate jobs and estimate what percentage of a job is complete.
Progress payments and advances received from customers often do not reflect the work performed.
B. Cost Recovery Method of Construction Accounting/Hybrid/Zero-Profit Approach
When it is probable that total contract costs will exceed total contract revenue, the expected loss should be
recognized as an expense immediately.
The amount of such a loss is determined irrespective of:
a. Whether or not work has commenced on the contract;
b. The stage of completion of contract activity; or
c. The amount of profits expected to arise on other contracts which are not treated as a single construction
contract.
The percentage of completion method is applied on a cumulative basis in each accounting period to the
current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate
of the outcome of a contract is accounted for as a change in accounting estimate (see PAS No. 8,
Accounting Changes). The changed estimates are used in the determination of the amount of revenue and
expenses recognized in the income statement in the period in which the change is made and in subsequent
periods.
Retentions are amounts of progress billings which are not paid until the satisfaction of conditions
specified in the contract for the payment of such amounts or until defects have been rectified. Progress
billings are amounts billed for work performed on a contract whether or not they have been paid by the
customer. Advances are amounts received by the contractor before the related work is performed.
a. The gross amount due from customers for contract work as an asset; and
b. The gross amount due to customers for contract work as a liability.
2. The gross amount due from customers for contract work is the net amount of:
3. The gross amount due to customers for contract work is the net amount of:
a. Cost incurred plus recognized profits; less
b. The sum of recognized losses and progress billings for all contracts in progress for which progress
billings exceed costs incurred plus recognized profits (less recognized losses).
Franchise
https://www.youtube.com/watch?v=eOMuadaodAU
https://www.youtube.com/watch?v=WedZsnzpCd0
https://www.youtube.com/watch?v=OM4yt9ZVJlU
https://www.youtube.com/watch?v=lnYne5OG6S8
https://www.youtube.com/watch?v=knknNQH7UYc
I. Introduction
Franchising is a system whereby one company grants business rights to another company or individual
through a contract to operate a franchised business for a specified period of time. The company granting
the business rights is called the franchisor, and the company receiving the business rights is called
franchisee.
Under PAS No. 18 it states that:
“Franchise fees may cover the supply of initial and subsequent services, equipment and other tangible
assets, and know-how. Accordingly, franchise fees are recognized as revenue on a basis that reflects the
purpose for which the fees were charged.”
2. Installment or cost recovery accounting methods may be used to account for franchise fee revenue only
when revenue is collectible over an extended period and no reasonable basis exists for estimating
collectability.
3. If it is probable that continuing franchise fees will not cover the cost of the continuing services to be
provided by the franchisor and also allow reasonable profit, then a portion of the original franchise fee
should be deferred and amortized over the life of the franchise. The deferred amount should be enough to
cover future costs and provide a reasonable profit on the continuing services.
A franchise agreement may give the franchisor an option to purchase the franchisee the franchisee‟s
business. As a matter of management policy, the franchisor may receive the right to purchase a profitable
outlet, or to purchase one that is in financial difficulty. If it is probable at the time the option is given that
the franchisor will ultimately purchase the outlet, then the initial franchise fee should not be recognized as
revenue but should be recorded as a liability. When the option is exercised, the liability would reduce the
franchisor‟s investment in the outlet.
The branches of enterprises are not separate legal entities, they are separate economic and accounting
entities whose special features necessitate accounting procedures tailored for those features, such as the
reciprocal accounts. On the other hand, the sales agency is also not a separate business entity.
In this type of business set-up, one location referred to as the home office is usually the base of operations
wherein branches and agencies are maintained on different business locations depending on the function
and mode of operation.
Branch is used to describe a business unit located at some distance from the home office. This unit carries
merchandise obtained from the home office, generates sales, approve customer‟s credit and makes
collections from its customers. They may also obtain merchandise from outside suppliers. The cash
receipts of the branch are often deposited in a bank account and branch expenses are paid from an imprest
cash fund.
An agency is an unincorporated entity in which orders are received and then transmitted to the home
office for processing, shipping and billing of merchandise. They do not have merchandise available for
sale, but they maintain samples inventory, they rarely collect cash from customers, since collections are
remitted by customers directly to the home office.
Ordinarily, the only accounting records required for sales agencies are for cash receipts and
disbursements, which are handled in essentially the same manner as a petty cash fund system.
ONLINE ASSESSMENTS
1. On September 30, 2011 Roxas, Silverio and Tan agreed on a joint venture to sell their common stocks
shares of the Golden Copper Mines. Gains and losses are to be shared in proportion to be contributed
shares.
Roxas contributes P6,000 shares, which had cost him P42 a share; Silverio gave 10,000 shares which had
cost P58 each and Tan 4,000 shares which had cost P62 per share.
The par value of the shares was P50 and when the venture began market value was P40 a share.
On October 20 he sold 4,500 for P44 a share and P3,000 expenses incurred. On November 1, Golden
Copper distributed a stock dividend of 20% Tan sold 5,000 shares, ex-stock dividend, on November 5for
P25 a share. On November 22, he sold 6,000 shares for P28. On December 20, the remainder of the shares
were sold for P35 a share. Tan‟s expenses were P4,700.
2. AJD Builder entered into a contract to construct an office building and plaza at a contract price of
P10,000,000. Gross profit is to be recognized using the percentage of completion method-output
measures as determined by estimates made by the architect. The data below summarize the activities on
the construction for the year 2010 through 2012:
3. On September 30, 2011, Criselda‟s, Inc. received from Ambo P550,000 representing franchise fee.
Franchise services were immediately started by Criselda‟s and these completed on October 31, 2011 at
cost amounting to P330,000. The franchise fee revenue to be reported by Criselda‟s in its October 31,
2011 income statements is:
a. P 0 c. P220,000
b. P137,500 d. P550,000
4. Charity, Inc. established its first branch on May 1, 2011. During the first month of operation, the home
office shipped merchandise to the branch worth P138,000 which included a mark-up of 15% on cost.
Sales for cash were P80,000 while sales on account were P250,000. At the month‟s end, the branch
reported operating expenses of P38,000 and a closing inventory of P23,000 at billed price. As far as the
home office is concerned, the true branch net income for May, 2011 is:
a. P82,000 c. P177,000
b. P147,000 d. P192,000
6. You were engaged to audit the books of accounts of A. Bonifacio Contractors which had a 3-year
construction contract in 2006 for P900,000. A. Bonifacio uses the percentage-of-cost-completion method
for financial statement purposes. Income to be recognized each year is based on the ratio of cost incurred
to total estimated cost to complete the contract. Data on this contract follows:
7. On an audit engagement for 2006 you handled the audit of fixed assets of A. Luna Copper Mines. This
company bought the exploration rights of Maharishi Mineral Exploration on June 30,2006 for
P7,290,000. Of this purchase price, P4,860,000 was allocated to copper ore which had remaining reserves
estimated at P1,620,000 tons. A. Luna Copper Mines expects to extract 15,000 tons of ore a month with
an estimated selling price of P50/ton. Production started immediately after some new machineries costing
P600,000 were bought on June 30, 2006. These new machineries had an estimated useful life of 5 yrs
with a scrap value of 10% of cost after the ore estimate has been extracted from the property, at which
time the machineries will already be useless. Among the operating expenses of A. Luna Copper Mines at
Dec. 31, 2006 were:
Depletion expense P 405,000
Depreciation, Machineries 40,000
Recorded depletion expense was:
a. Overstated by P90,000 c. overstated by P135,000
b. Understated by P90,000 d. understated by P135,000
9. The term means the excess of the losses from the sales or exchanges of capital assets over the gain
from such sales or exchanges.
a. Net capital gain c. Taxable net income
b. Net capital loss d. Net operating loss
10 ERA Corporation is engaged in the sale of goods and services with net sales/net revenue of P200,000
and P100,000 respectively. The total entertainment, amusement and recreation expense for the taxable
quarter is P3,000.
How much is the amount of the deductible entertainment, amusement and recreation expense?
a. P3,000 c. P1,500
b. P2,000 d. P1,000