AFAR FORMULAS

HOBA
COMPUTATION FOR COGS, ENDING INVENTORY, ALLOWANCE, COGAS
RETAIL COST Allowance
SFHO P xx Net of Markup Retail - Cost
Outside Purchase xx Just copy amount n/a
COGAS P xx P xx P xx
End. Inventory
SHFO ( xx ) Net of Markup Retail - Cost
Outside Purchase ( xx ) Just copy amount n/a
COGS P xx P xx P xx.

COST OF SFHO:

If based on Cost: Cost =

SFHO @retailed amount
1+ mark −up rate
If Based on Sales: Cost = SFHO - (SFHO x Markup Rate)

NET INCOME
Home Office Branch
Sales P xx Sales P xx
COGS ( xx ) COGS ( xx )
Gross Profit P xx Gross Profit P xx
OpEx ( xx ) OpEx ( xx )
Net Income P xx Unrecorded Expenses ( xx )
Net Income P xx
Realized portion of Allowance xx
True Income P xx

 It is the NET INCOME that is reflected in the FS of the brand and HO, and not the true income.

COST OF SALES OF HOME OFFICE

Beginning Inventory P xx
Purchases xx
Less: Shipment to Branch ( xx )
Ending Inventory ( xx )
COGS P xx
LONG-TERM CONSTRUCTION CONTRACT
GENERAL FORMULA:
% of COMPLETION ZERO PROFIT
Contract Price P xx P xx
Less: TEC
Cumulative Cost Incurred to Date P xx P xx
Est. Cost to Complete xx xx
TEC P xx xx P xx xx
Est. Gross Profit/(Loss) P xx P xx/(xx)
Multiply by: % of Completion x%
Gross Profit/(loss) to Date P xx P(xx)
Less: PY Gross P/L to Date xx xx
Realized Gross P/L for the Year P xx P xx

COMPUTATION OF % OF COMPLETION:

% of Completion =
CumulativeCost Inccured “Est.
TEC
Cost AT completion” = TEC

Alternative Formula: % of Completion =

Construction∈Progress
Contract Price
applies only if there’s NO LOSS

OTHER FORMULAS:
Contract Price P xx
Multiply by: % of Completion x%
REVENUE TO DATE P xx
Less: Cost incurred to Date ( xx )
Gross Profit/(Loss) to Date P xx

Revenue to Date (Current Year) P xx

Revenue to Date (Prior Year) ( xx )
Revenue for the year P xx
Construction cost of Sales (Squeezed) ( xx )
Gross Profit/(Loss) for the Year P xx

CONSTRUCTION IN PROGRESS
CONSTRUCTION IN PROGRESS
Cost incurred to date P xx
Gross Profit for the year xx
P xx Loss for the Year
CIP, Balance P xx

CIP > Progress Billing = ASSET

CIP < Progress Billing = LIABILITY
FRANCHISE
REVENUE RECOGNITION
STAND ALONE PRICE FRACTION * INITIAL F.FEE = ALLOCATION * Used portion =
Revenue
Trade-Name P xx xx/xx P xx xx/xx P xx
Franchise Stall xx xx/xx P xxx xx Finished xx
Deliveries xx xx/xx xx xx/xx xx
Others… xx xx/xx xx xx/xx xx
P xx P xx

COLLECTION IS REASONABLY ASSURED

Down Payment P xx
PV of the Balance xx
Less: Direct Cost ( xx )
Gross Profit P xx
CFF xx
Interest Income xx
Indirect Cost ( xx )
Net Income P xx

 If the down payment is REFUNDABLE, recognized total Initial Franchise Fee (IFF) as
unearned revenue.

COLLECTION IS NOT REASONABLE ASSURED

Down Payment P xx
Collection (at PV) xx
Total Collection P xx
Multiply by: Gross Profit Ratio x%
REALIZED GROSS PROFIT P xx
CFF xx
Interest Income xx
Indirect Cost ( xx )
NET INCOME P xx

Gross Profit Ratio =

Down payment + PV of tℎe Balance − Direct Cost

Down Payment + PV of tℎe Balance
REVENUE FROM FRANCHISE FEE = IFF + CFF
NO SUBSTANTIAL PERFORMANCE
CFF P xx
Interest Income xx
Indirect Cost ( xx )
NET INCOME P xx

CONSIGNMENT
Net Sales P xx
Cost of Sales ( xx )
Gross Profit P xx
OpEx ( xx )
Commission Expense ( xx )
Freight-out ( xx )
Bad debt Expense ( xx )
Samples Consumed ( xx )
NET INCOME P xx

Cash/Collection from credit sales P xx

Less: Payment made by consignee in behalf of the consignor ( xx )
Sales Commission ( xx )
NET REMITTANCE P xx

Cost of Consigned goods * (units sold/total units) P xx

Freight In * (units sold/total units) xx
Cartage Cost * (units sold/total units) xx
COST OF SALES P xx

PART OF COST OF SALES

1. Freight from consignor to Consignee
2. Cartage cost

PART OF EXPENSE
1. Commission of Consignee
2. Freight from Consignee to third person
3. Freight from Consignee to consignor
GOVERNMENT ACCOUNTING
JOURNAL ENTRIES:
1. Receipts of the Notice of Cash Collection (NCA) from Department of Budget and
Management (DBM).
Cash-MDS, Regular P xx
Subsidy Income National Government P xx

2. Reversion of UNUTILIZED NCA

Subsidy Income National Government P xx
Cash-MDS, Regular P xx

3. To record acquisition of equipment acquired on account

Equipment P xx
Accounts Payable P xx

4. To record payment of Accounts Payable

Accounts Payable P xx
Due to BIR P xx
Cash-MDS, Regular xx

5. To record the remittance of the tax withheld

Due to BIR P xx
Cash-Tax Remittance Advice P xx

6. Establishment of Petty Cash Fund

Petty Cash Fund P xx
Cash-MDS, Regular P xx

7. Replenishment of Petty Cash Fund

Various Expenses P xx
Cash-MDS, Regular P xx

8. To record unused Petty Cash Fund

Cash-Collecting Office P xx
Petty Cash Fund P xx

9. To record liabilities to officers and employees

Salaries & wages, Regular P xx
PERA xx
Due to BIR P xx
Due to GSIS xx
Due to Pag-ibig xx
 Due to Philhealth xx
Due to Officers & Employees xx

10. To record Cash Advance for the payroll

Advances for Payroll P xx
Cash-MDS, Regular P xx
11. To record the liquidation of the payroll
Due to Officers & Employees P xx
Advances for Payroll P xx

12. To record remittances of GSIS, Pag-ibig, and Philhealth

Due to GSIS P xx
Due to Pag-ibig xx
Due to Philhealth xx
Cash-MDS, Regular P xx

13. To record cash advance

Advances to Officers & Employees P xx
Cash-MDS, Regular P xx

14. To record liquidation of cash advance

Expense P xx
Advances to Officers & Employees P xx

15. To record the refund of the unused cash advance

Cash-collecting Officer P xx
Advances to officers & Employees P xx

16. To record the receipt of notes receivable

Notes Receivable P xx
Revenue P xx

17. Receipt of payment from notes receivable

Cash-collecting Officer P xx
Notes Receivable P xx
Interest Income xx

18. To record the net income of the agency

Sales Revenue P xx
Other Income xx
Revenue & Expense Summary P xx

Revenue & Expense Summary P xx

Acc. Surplus / (Deficit) P xx

19. To record loan payable

Cash in Bank - Local/Foreign Currency P xx
Loan Payable - Local/Foreign Currency P xx

20. To record the loss from Loan payable under foreign currency
Loss on Foreign Currency P xx
 Loan payable - Foreign Currency P xx

21. To record the gain from loan payable under foreign currency
Loan payable - Foreign Currency P xx
Gain on Foreign Exchange P xx

22. Settlement of Loan Payable

Loan Payable - Foreign/Local Currency P xx
Cash in bank - Foreign/Local Currency P xx

ADDITIONAL INFORMATION
 The receipt of allotment from the DBM shall be recorded in Registry of Allotments,
Obligations and Disbursements.
 To record the incurrence of the obligation it shall be posted in the Obligation Request
Status (ORS), RAOD Capital Outlay
 Government Accounting Manual (GAM) took effect on January 1, 2016
 Government Accounting encompasses the process of analyzing, recording, classifying,
summarizing and communicating all transactions involving the receipt and disposition of
government funds and property, and interpreting the results thereof.
 COVERAGE OF GAM
1. Basic accounting policies and principles in accordance with the Philippine
Public Sector Accounting Standards (PPSAS) adopted through COA
Resolution No. 2014-003
2. Revised Chart of Accounts (RCA) prescribed under COA Circular No. 2013-
002
3. The accounting procedures, books, registries, records, forms, reports, and
financial statements and illustrative accounting entries.
 Government Budget is the financial plan of the government for a given period, usually for a
fiscal year, which shows what resources are, and how they will be generated and used over the
fiscal period.
 Responsibility Accounting provides access to cost and revenue information under the
supervision of a manager having a direct responsibility for its performance. It is also a system
that measures the plans and actions of each responsibility center
 OBJECTIVE OF RESPONSIBILITY ACCOUNTING
1. Ensure that all costs and revenues are properly charged/credited to the correct
responsibility center so that deviations from the budget can be readily attributed to
managers accountable thereof.
2. Provide a basis for making decisions for future operations
3. Facilitate review activities, monitoring the performance of each responsibility center
and evaluation of the effectiveness of agency’s operations.
 Services of the Government Agency shall be recognized as revenue when:
a. The services are rendered
b. If not practicable, when fees are collected upon issuance of the respective permits,
certificates of registration plates, stickers, clearance, certification franchises, and
licenses
 Statement of Financial Position, Statement of Comparison of Budget & Actual Amounts, and
Statement of cash flows are included in the complete set of General Purpose FS.
 Regular Agency Fund, Foreign Assisted Project Fund, and Trust receipts are different fund
cluster.

BUSINESS COMBINATION - STOCK ACQUISITION

STEP ACQUISITION
 If the FV of the previously acquired shares (without controlling interest) is not given at the
time there’s new acquisition that makes it to have controlling interest, use this formula:

FV of Previously =

Value of of Newly Acquired Sℎares +Control Premium

% of tℎe newly acquired sℎares
x % of Previously Acquired Shares
Acquired Shares

FULL GOODWILL METHOD IS USE

 Always compare the FV of the NCI to the proportionate share of the NCI.
 If Proportionate share is greater than the FV, then use the proportionate share of NCI.

FV OF NCI =

Consideration − Inclusive Control Premium

x % of
% of Controlling Interest
NCI

Total Assets (Not including unidentifiable assets) P xx

Less: Total Liabilities ( xx )
FAIR VALUE OF NET ASSETS P xx
Less: Overvaluation of Assets ( xx )
Add: Undervaluation of Assets xx
ADJUSTED FVNA P xx
Multiply by: % of NCI x%
Proportionate Share of NCI P xx

FVNA P xx
Less: Consideration
% controlling Interest ( xx )
% of NCI ( xx )
BARGAIN/(GOODWILL) P xx

 For the consolidated TOTAL ASSETS; Parent - BOOK VALUE ; SUBSIDIARY - FV

 Don’t include unidentifiable intangible assets of SUBSIDIARY
CONSOLIDATION SUBSEQUENT TO THE DATE OF
ACQUISITION
CONSOLIDATED NET INCOME
PARENT -CI SUBSIDIARY - NCI
Net Income of Parent P xx
Net Income of Subsidiary xx P xx
Amortization of Excess xx/(xx) xx/(xx)
Impairment Loss ( xx ) ( xx )
Intercompany Dividend ( xx )
Gain on Acquisition xx
P xx P xx

σ Amortization of Excess - this shall be allocated properly to years when it will be

realize. The amortization of excess is computed according to its effect to the
EXPENSES.
a) If OVERVALUATION of Expenses - ADD Back to Income
b) If UNDERVALUATION of Expenses - DEDUCTED from Income
σ Impairment Loss
a) FULL GOODWILL - if the result is GOODWILL, this shall be subject for
impairment loss. The amount of impairment loss shall be divided to both
parent & the subsidiary according to goodwill allocated to each.
b) PARTIAL GOODWIL - if the result is GOODWILL, this shall be subject for
impairment loss and ONLY the parent shall bear the loss.

Distribution shall be base on the Goodwill Allocated for CI and NCI

σ Intercompany Dividend
Intercompany Dividend = Dividend declared by Subsidiary x % of CI
This amount shall be DEDUCTED from the income of PARENT only

CI NCI Total
Consideration P xx P xx P xx
FVNA xx xx xx
GOODWILL P xx P xx P xx

NON-CONTROLLING INTEREST
NCI - Beginning P xx
NCI - NI xx
Dividend Declared by Subsidiary (%of NCI) ( xx )
NCI, Ending P xx
WORKING PAPERS ON THE DATE OF ACQUISITION
1. Adjustment to SUBSIDIARY Assets (Assume there is Overvaluation in assets of the subsidiary
and there is goodwill in its assets)
Investment in Subsidiary (Controlling Interest %) P xx
Non-Controlling Interest xx
Over-valuated Assets P xx
Goodwill xx
2. Adjustment to Subsidiary's EQUITY
Share Capital P xx
Share Premium xx
Retained Earnings xx
Investment in Subsidiary (Controlling Interest) P xx
Non-Controlling Interest xx
3. Adjustment to GOODWILL computed
Goodwill P xx
Investment in Subsidiary (Controlling Interest) P xx
Non-Controlling Interest xx
4. GAIN ON ACQUISITION
Investment in Subsidiary P xx
Gain on Acquisition P xx

CONSOLIDATED RETAINED EARNINGS

Consolidated R/E, Beginning P xx
CI - Net Income of Parent xx
Dividend Declared by Parent ( xx )
CONSOLIDATED R/E, Ending P xx

CONSOLIDATED SHE
Share Capital - Parent P xx
Share Premium - Parent xx
Consolidated R/E xx
NCI, Ending (SHE of subsidiary in CONSO FS) xx
CONSOLIDATED SHE P xx
SALE OF FIX ASSET (UPSTREAM & DOWNSTREAM)
CONSOLIDATED DEPRECIATION EXPENSE
Depreciation Expense - Parent P xx
Depreciation Expense - Subsidiary xx
Amortized portion of Under/(Over) Valued FA xx/(xx)
Amortized portion of (URP)/URL of FA (xx)/xx
CONSOLIDATED DEPRECIATION EXPENSE P xx

UNREALIZED PROFIT/(LOSS) =
Gross Profit x % of
Estimated Useful Life
Unrealized Portion

REALIZED PROFIT/(LOSS) =
Gross Profit x % of Realized
Estimated Useful Life
Portion

CONSOLIDATED NET INCOME

PARENT - CI SUBSIDIARY - NCI
Net Income - Parent P xx
Net Income - Subsidiary xx P xx
Realized URP/(URL) from PY - if Down xx/(xx)
Realized URP/(URL) from PY - if UpS xx/(xx) xx/(xx)
(URP)/URL - if DownS (xx)/xx
(URP)/URL - if UpS (xx)/xx (xx)/xx
Amortization Excess xx/(xx) xx/(xx)
Intercompany Dividends (xx)
Gain on Acquisition xx
P xx P xx

CONSOLIDATED FIXED ASSETS

Fixed Assets - Parent P xx
Fixed Assets - Subsidiary xx
(Over)/Under Valuation of FA (xx)/xx
Amortized portion of Over/(Under) valued FA xx/(xx)
URP/(URL) on sale of FA xx/(xx)
(RP)/RL on sale of FA (xx)/xx
CONSOLIDATED FIXED ASSETS P xx

 If the fixed asset is a LAND, no amortization needed, recognized the whole amount.
SALE OF MERCHANDISE (UPSTREAM & DOWNSTREAM)
CONSOLIDATED SALES REVENUE
Sales Revenue - Parent P xx
Sales Revenue - Subsidiary xx
Less: Intercompany Sales ( xx )
CONSOLIDATED SALES REVENUE P xx

CONSOLIDATED COST OF GOODS SOLD

COGS - Parent P xx
COGS - Subsidiary xx
Less: Intercompany Sales ( xx )
Realized (Profit)/Loss from PY (xx)/xx
Unrealized Profit/(Loss) xx/(xx)
CONSOLIDATED COGS P xx

CONSOLIDATED NET INCOME

PARENT - CI SUBSIDIARY - NCI
Net Income - Parent P xx
Net Income - Subsidiary xx P xx
Realized URP/(URL) from PY - if Down xx/(xx)
Realized URP/(URL) from PY - if UpS xx/(xx) xx/(xx)
(URP)/URL - if DownS (xx)/xx
(URP)/URL - if UpS (xx)/xx (xx)/xx
Amortization Excess xx/(xx) xx/(xx)
Intercompany Dividends (xx)
Gain on Acquisition xx
P xx P xx

CONSOLIDATED GROSS PROFIT

Gross Profit - Parent P xx
Gross Profit - Subsidiary xx
Realized URP/(URL) from PY xx/(xx)
(URP)/URL (xx)/xx
CONSOLIDATED GROSS PROFIT P xx

CONSOLIDATED ENDING INVENTORIES

Ending Inventory - Parent P xx
Ending Inventory - Subsidiary xx
(URP)/URL (xx)/xx
CONSOLIDATED ENDING INVENTORY P xx
ENTRY UPON SALE:
PARENT/SUBSIDIARY: Accounts Receivable P xx
Sales P xx

PARENT/SUBSIDIARY: Merchandise Inventory P xx

Accounts Payable P xx
WORKING PAPER ENTRIES:
1. To eliminate INTERCOMPANY SALES
Sales P xx
Cost of Goods Sold P xx
2. To eliminated RECEIVABLE and PAYABLE
Accounts Payable P xx
Accounts Receivable P xx
3. To eliminate REALIZED UNREALIZED PROFIT/(LOSS) of ENDING INVENTORY from
PY
URP: Cost of Goods Sold P xx
Merchandise Inventory P xx

URL: Merchandise Inventory P xx

Cost of Goods Sold P xx
4. To eliminated REALIZED URP/URL from RETAINED EARNINGS from PY
Realized URP: Retained Earnings P xx
Cost of Goods Sold P xx

Realized URL: Cost of Goods Sold P xx

Retained Earnings P xx

 Both the REALIZED and UNREALIZED PROFIT/(LOSS) were already included in the
reported net income of each party. That’s why, only the UNREALIZED PROFIT/(LOSS)is
DEDUCTED/ADDED from the net income because it should not yet form part of the net
income of the entity.
BUSINESS COMBINATION - MERGER
TOTAL ASSETS OF MERGED CORPORATION
Book Value of the Assets of ACQUIRER P xx
FV of the Assets of ACQUIREE xx
Cash Consideration Paid ( xx )
Acquisition Related Cost Paid ( xx )
Goodwill from Acquisition ( xx )
TOTAL ASSETS OF THE MERGED CORPORATION P xx

TOTAL LIABILITIES OF MERGED CORPORATION

BV of the Liabilities of ACQUIRER P xx
FV of the Liabilities of ACQUIREE xx
Bonds issued by the ACQUIRER xx
Premium/(Discount) of Bonds Issued xx/(xx)
Bond Issue Cost ( xx )
Contingent Liability (at FV) xx
TOTAL LIABILITIES OF THE MERGED CORPORATION P xx

SHARE PREMIUM OF MERGED CORPORATION

Share Premium - ACQUIRER P xx
Share Premium - Contingent Consideration xx
Share Premium from the issuance (consideration) xx
Share Issuance Cost ( xx )
TOTAL SHARE PREMIUM OF THE MERGED CORPORATION P xx

SHARE CAPITAL OF MERGED CORPORATION

Share Capital - ACQUIRER P xx
Share Capital from Issuance (consideration) xx
Share Capital -Contingent Consideration xx
TOTAL SHARE CAPITAL OF THE MERGED CORPORATION P xx

RETAINED EARNINGS OF THE MERGED CORPORATION

Retained Earnings - ACQUIRER P xx
Acquisition Related Expense ( xx )
Gain from Acquisition xx
Excess of Share Issue Cost from Share Issuance ( xx )
TOTAL RETAINED EARNINGS OF THE MERGED CORPORATION P xx
FOREIGN TRANSACTIONS
INITIAL MEASUREMENT:
 Initially it is measured at SPOT RATE at transaction date.
 Transaction date will defer depending on the FOB terms use by the transaction. If no
FOB term is provided, transaction date shall be the INVOICE date.

- If you are a BUYER of goods, the spot rate @ transaction date that you should consider
must be the SELLING RATE.
- If you are a SELLER of goods, the spot rate @ transaction date that you should consider
must be the BUYING RATE.

- If the problem gives you a BUYING or SELLING RATE as ratio : P1:$0.0250, just
divide the P1 by $0.0250 which is equal to P40.00

INTEREST INCOME = (Face Amount in dollar x Nominal Rate x Period) * Spot Rate
Interest Receivable P xx
Interest Income P xx
 Remeasure interest income subsequently at FS date and Settlement date
 Any INCREASE/(DECREASE) will be recognized as GAIN/(LOSS)

Monetary value should be measured subsequently at FS date and Settlement date.

 Any foreign gain/(loss) shall be recognized in the income statement.
 If in the FS date or Settlement Date, the selling rate increases, a LOSS shall be
recognized. This is because as the selling rate increases so as the accounts payable.
Foreign Exchange Loss P xx
Accounts Payable P xx
 If in the FS date or settlement date, the selling rate decreases, a GAIN shall be
recognized. This is because as the selling rate deceases so as the account payable.
Accounts Payable P xx
Foreign Exchange Gain P xx
 If in the FS date or Settlement Date, the buying rate increases, a GAIN shall be
recognized. This is because as the selling rate increases so as the accounts receivable.
Accounts Receivable P xx
Foreign Exchange Gain P xx
 If in the FS date or settlement date, the buying rate decreases, a LOSS shall be
recognized. This is because as the selling rate deceases so as the account receivable.
Foreign Exchange Loss P xx
- Accounts Receivable P xx
CORPORATE LIQUIDATION
FREE ASSETS UNSECURED LIABILITIES
PORTION OF ALREADY
LIABILITIES SECURED
CASH P xx
Receivable (assuming If there’s excess (FV of
pledged to FSL) ASSETS - FSL) P xx
Leave it blank if NO excess

Inventory (assuming
pledged to PSL)
Unsecured Liabilities P xx
P xx
w/o Priority

xx
FREE ASSETS P xx
Less: Unsecured
Liabilities w/ Priority
Liquidating Exp.
Salaries Payable
Taxes ( xx )
( xx )
( xx )
NET FREE ASSETS; P xx
Unsecured Liabilities
P xx

% OF RECOVERY =
Free Assets
Unsecured Liabilitier
Free Assets P xx
Less: Unsecured Liabilities with Priority ( xx )
Net Free Assets P xx
Less: Total unsecured Liabilities without Priority ( xx )
Estimated Deficiency P xx

ESTIMATED PAYMENT TO PARTIALLY SECURED CREDITOR = Amount Secured +

(Unsecured Portion * % of Recovery)

ESTIMATED PAYMENT TO UNSECURED CREDITORS w/O PRIORITY = Total Unsecured

Liabilities w/o Priority * % of Recovery

 In COMPUTATING THE ESTIMATED LOSS ON ASSET REALIZATION, ADD all the lost
and NEVER deduct the realized gain against the realized loss.
STATEMENT OF REALIZATION AND
LIQUIDATION
 It shows how the receiver or trustee managed the assets of the debtor corporation on
behalf of the creditors.

ASSETS TO BE REALIZED ASSETS REALIZED

 Non-cash assets to be collected or sold  Non-cash assets collected or sold for the
for the given period. given period
 BV of all recorded non-cash assets

INCREASE IN ASSETS
 Unrecorded non-cash assets
 Example: Accrued Interest Receivable
ASSETS NOT REALIZED
 Non-cash assets not collected or sold for
the given period
LIABILITIES LIQUIDATED LIABILITIES TO BE LIQUIDATED
 Liabilities paid during the given period  Book value of the recorded liabilities to
be paid in the given period

INCREASE IN LIABILITIES
LIABILITIES NOT LIQUIDATED  Unrecorded Liabilities
 Liabilities not paid at the end of the  Liabilities Assumed
period  Example: Accrued Interest Payable
 Liability to be Liquidated + Increase in
Liability - Liabilities Liquidated = 
Liabilities not liquidated
SUPPLEMENTARY DEBITS/CHARGES SUPPLEMENTARY CREDITS
 Expenses and Losses  Income, profits, sales and gains
 If the DEBIT side is GREATER than credit side, there’s a LOSS.
 Under perpetual Inventory system, any inventory sold is DEBITED to the GOGS
(Dr. COGS; Cr. INVENTORIES)
 Realized asset are recorded at Realizable amount
 Asset to be realized does NOT include cash. So any cash earned and paid is NOT
recorded in the above table.
 Assets to be Realized and Liabilities to be Liquidates serve as BEGINNING
balances; whereas Asset not Realized and Liabilities not liquidated serve as
ENDING balances.

Liabilities to be Liquidated P xx
 Add: Increase in Liabilities xx
Less: Liabilities Liquidated ( xx )
Liabilities not Liquidated P xx

OTHER WAY TO COMPUTE FOR THE PROFIT/(LOSS) OF THE TRUSTEE

Cash P xx
Add: Assets Not Realized xx
Total Assets P xx Total Assets P xx
Less: Liabilities not Liquidated ( xx ) Less: NCA Not Liquidates ( xx )
SHE ( xx ) CASH P xx
Deficit ( xx )
Profit/(Loss) P xx

Asset to be Realized P xx
Increase in Asset xx
Less: Asset Not Realized ( xx )
Book Value of the Asset Sold P xx
Less: Asset Realized ( xx )
Loss on Realized Asset P xx
Add: Total Supplementary Charges xx
Less: Total Supplementary Credit ( xx )
(Gain)/Loss on Realization & Liquidation P xx
PARTNERSHIP DISSOLUTION
ADMISSION
PURCHASE OF INTEREST
If the problem is SILENT
 There’s only a simple transfer of capital
 Thus, TCC = TAC
TCC TAC Agreed Capital of New Partner
A P xx P xx = TAC x New Partner %
B xx xx Capital Balance of Old Partners
C xx = Capital - % transferred to NP
P xx = P xx

REVALUATION is assumed
 The amount paid by the new partner is the amount to be credited to his account
 TCC ≠ TAC

TCC TAC
A P xx P xx
B xx xx
C xx
P xx ≠ P xx
TAC = NP contribution / New Partner %

Old Partner New Capital Balance

= (Capital of OP –/+ Share in Difference between TCC & TAC) x (100% - NP%)

WAYS TO COMPUTE FOR NEW PROFIT and LOSS RATIO

OP new Capital Ratio = % of OP x (100% - New Partner %)

INVESTMENT
The problem is SILENT
 The amount invested by the new partner in added to TCC
 Thus, TCC = TAC
 From TAC compute the equivalent capital of the new partner

BONUS METHOD Agreed Capital of New Partner

TCC TAC = TAC x New Partner %
A P xx P xx Share of OP from Bonus
B xx xx = (CC of NP – AC of NP) x OP%
C xx xx
P xx = P xx
 GOODWILL METHOD
Compute for the Agreed Capital that will result to Goodwill
 TAC = investment of NP / NP% ; or whichever of the two produces
 TAC = Capital of OP / (100% - NP%) Goodwill
 Negative Goodwill is NOT applicable

REVALUATION is assumed
 The amount invested by the NP is the amount to be credited in his capital
 The amount invested is also added to the TCC
 TCC ≠ TAC
 Difference between TCC and TAC is then distributed to OP
TCC TAC
A P xx P xx TAC = NP investment / NP%
B xx xx
C xx xx
P xx ≠ P xx

RETIREMENT
- Interest paid to retiring partner
- If problem is SILENT, use Bonus Method
- Note: Any LOAN balances is only applied to retiring partners

Unadjusted Capital Balances of Partners P xx

(Loan to)/Loan From – Applicable only to retiring partner (xx)/xx
Gain/(loss) in the revaluation of asset xx/(xx)
Net Income/(Loss) share in Partnership operation xx/(xx)
Payment made to retiring partner (xx)
CREDIT BALANCE P xx

If there is difference between the RETIRING partner capital balance and

the amount paid to him, it shall be distributed to REMAINING partners
proportionately.

ASSET REVALUATION is assumed

 The difference between the RETIRING partner capital balance and the
amount paid to him is divided by its % and distributed proportionately to
ALL partners.

Capital of Retiring Partner - Payment to Retiring Partner

Retiring Partner %
PARTNERSHIP LIQUIDATION
COMPUTATION FOR TOTAL CASH PAID TO PARTNERS
Total adjusted Capital Balances of Partner P xx
Share in Gain/(Loss) on Realization of NCA xx/(xx)
Share in Liquidating Expenses ( xx )
Share in Maximum Possible Loss (MPL) ( xx )
Share on Gain on Condoned Liability xx
TOTAL CASH PAID TO PARTNERS P xx

Book Value of the Unrealized NCA P xx

Cash Withheld for Future Liquidating Expenses xx
MAXIMUM POSSIBLE LOSS (MPL) P xx

Compute for the Total Cash Paid to ALL partners to determine if there is
deficiency.

IF THERE’S DEFICIENCY
 Partner/s legally SOLVENT - deficient partner will continue additional cash to the
partnership to fix the deficiency
 Partner/s legally INSOLVENT - deficiency of the deficient partner shall be absorb
by remaining partners with NO deficiency.

COMPUTATION OF INTEREST FOR NEXT INSTALLMENT

 Applies to installment ONLY
 Assume first installment was made

Total Adjusted Capital Balances of Partner/s P xx

Gain/(Loss) on Realization of NCA xx/(xx)
Liquidating Expenses ( xx )
Gain on Condoned Liability xx
Cash Paid to the Partner/s ( xx )
INTEREST FOR NEXT INSTALLMENT P xx

COMPUTATION FOR TOTAL CASH WITHHELD

Future Liquidating Expenses P xx
Unpaid Liabilities to third persons xx
TOTAL CASH WITHHELD P xx
BY-PRODUCT: AT THE POINT OF SALE
 NO joint cost is allocated to the by-product

JOINT COST PER UNIT =

Total Joint Cost Price of BY-PRODUCT

should be net of disposal

¿ pf Main Products Produced cost, or at Net realizable

Value

BY-PRODUCT IS TREATED AS ADDITIONAL SALES REVENUE

COGS = Joint cost per unit * # of Main Product Sold

Sales - Main Product P xx

Sales - By-product xx
TOTAL SALES P xx
COGS ( xx )
GROSS INCOME P xx
OpEx ( xx )
NET INCOME P xx

BY-PRODUCT IS TREATED AS OTHER INCOME

COGS = Joint cost per unit * # of Main Product Sold

Sales - Main Product P xx

COGS ( xx )
GROSS INCOME P xx
Sales-By-product xx
OpEx ( xx )
NET INCOME P xx

BY-PRODUCT IS TREATED AS DEDUCTION FROM COGS

COGS = (Joint cost per unit * # of Main Product Sold) - Sales of By-product

Sales - Main Product P xx

COGS ( xx )
GROSS INCOME P xx
OpEx ( xx )
NET INCOME P xx

BY-PRODUCT IS TREATED AS DEDUCTION OF TOTAL MANUFACTURING COST

JOINT COST PER UNIT =

Total Joint Cost − Sales of By − product

¿ pf Main Products Produced
COGS = Joint cost per unit * # of Main Product Sold

Sales - Main Product P xx

 COGS ( xx )
GROSS INCOME P xx
OpEx ( xx )
NET INCOME P xx

BY-PRODUCT AT TIME OF PRODUCTION

 IGNORE sales of By-product

NRV METHOD
Joint Cost P xx
# of By-product produced * SP at NRV ( xx )
ADJUSTED JOINT COST P xx

COGS/unit =
Adjusted Joint Cost
¿ pf Units Produced
Sales - Main Product P xx
COGS ( xx )
GROSS INCOME P xx
OpEx ( xx )
NET INCOME P xx

REVERSAL COST METHOD

Selling Price of By-Product P xx
Less: Disposal Cost ( xx )
Normal Profit (given %) ( xx )
Additional Cost/unit ( xx )
JOINT COST/UNIT of By-Product P xx
.

Additional Cost/Unit =
Total Additional Cost
¿ of By − product Produced
Joint Cost P xx
Joint Cost/unit of By-product * By-product Produced ( xx )
ADJUSTED JOINT COST P xx

COGS/unit =
Adjusted Joint Cost
¿ pf Units Produced
Sales - Main Product P xx
COGS ( xx )
 GROSS INCOME P xx
OpEx ( xx )
NET INCOME P xx

PROCESS COSTING - FIFO METHOD

MATERIAL PLACEMENT:
a) If place at the START/Beginning: 100% Complete
b) If place at the END : 0% Complete

WIP, Beginning xx units

Started xx
Total xx units DM CC
WIP, Beg. (Record the INCOMPLETE %) xx xx
Completed xx units Started & Completed (record 100%) xx xx
WIP, Ending xx WIP, End (Record the COMPLETE %) xx xx
Total xx EQUIVALENT UNITS OF PRODUCTION xx xx

 Allocate the “COMPLETED” to “WIP, Beginning”, first, then the remaining balance
to the “Started and Completed”.
 “Started & Completed” is always recorded at 100% to both DM and CC

UNIT COST
UNIT COST OF DM =

Current Cost ∨Cost Incurred duringTOTAL

Production
COST
UNIT

EUP of DM
UNIT COST OF DM =

Current Cost ∨Cost Incurred during Production

EUP of CC
Cost of Beginning WIP (DM + CC) P xx
Cost to Complete (WIP, Beg, the INCOMPLETE %)
DM: Incomplete Portion * DM unit cost xx
 CC: Incomplete Portion * CC unit cost xx
Started & Completed: 100% units * Total unit cost xx
COST OF INVENTORY TRANSFERRED OUT P xx
Cost of WIP, Ending
DM: Complete Portion * DM unit cost xx
CC: Complete Portion * CC unit cost xx
COST ACCOUNTED FOR P xx

 Cost of Inventory Transferred Out is considered as Transferred-IN in next

department.
 Cost of Ending WIP is considered as “remaining cost of WIP”

PROCESS COSTING - WEIGHTED AVERAGE

METHOD
MATERIAL PLACEMENT:
c) If place at the START/Beginning: 100% Complete
d) If place at the END : 0% Complete

WIP, Beginning xx units

Started xx
Total xx units
DM CC
Completed xx units xx xx 100% Complete
WIP, Ending xx xx xx Record the COMPLETE %
Total Units xx units xx xx Equivalent Units of Production (EUP)

UNIT COST
UNIT COST OF DM =

Beginning Cost of DM +Current Cost of DM

TOTAL UNIT
COST

EUP of DM
 UNIT COST OF DM =

Beginning Cost of CC +Current Cost of CC

EUP of CC
Completed: 100% Units * Total Unit Cost P xx
Cost of WIP, Ending
DM: Complete Portion * DM unit Cost xx
CC: Complete Portion * CC unit Cost xx
COST ACCOUNTED FOR P xx

 In the LAST department, the cost of COMPLETED units is considered as “ cost of

goods manufacture.”

PROCESS COSTING - IN CASE THERE ARE 2

DEPARTMENT
(WEIGHTED AVERAGE to FIFO METHOD)
ASSUME DEPARTMENT 1 USES WEIGHTED AVE., THEN DEPARTMENT 2 USES FIFO
METHOD
DEPARTMENT 1: WEIGHTED AVERAGE
WIP, Beginning xx units
Started xx
Total xx units
DM CC
Completed xx units xx xx 100% Complete
WIP, Ending xx xx xx Record the COMPLETE %
Total Units xx units xx xx Equivalent Units of Production (EUP)
UNIT COST
UNIT COST OF DM =

Beginning Cost of DM +Current Cost of DM

TOTAL UNIT
COST

EUP of DM
UNIT COST OF DM =

Beginning Cost of CC +Current Cost of CC

EUP of CC
Completed: 100% Units * Total Unit Cost P xx
Cost of WIP, Ending
DM: Complete Portion * DM unit Cost xx
CC: Complete Portion * CC unit Cost xx
COST ACCOUNTED FOR P xx

 Cost of “COMPLETED” units is considered as the AMOUNT TRANSFERRED-IN

in Department 2.
 “Cost of WIP, Ending” is considered the Remaining cost of WIP in Department 1

DEPARTMENT 2: FIFO
WIP, Beginning xx units
Started xx (Completed units in Department 1)
Total xx units Transferred-In DM CC
WIP, Beg. (INCOMPLETE %) - xx xx
Completed xx units Started & Completed (100%) xx xx xx
WIP, Ending xx WIP, End (COMPLETE %) xx xx xx
Total xx EUP xx xx xx

UNIT COST
UNIT COST OF DM =

Current Cost ∨Cost Incurred during Production

EUP of DM
TOTAL UNIT
UNIT COST OF DM
COST =

Current Cost ∨Cost Incurred during Production

EUP of CC
 UNIT COST OF TRANSFERRED-IN =

Amount Transferred −∈¿ Department 1

EUP of Transferred∈¿ ¿
Cost of Beginning WIP (DM + CC) P xx
Cost to Complete (WIP, Beg, the INCOMPLETE %)
DM: Incomplete Portion * DM unit cost xx
CC: Incomplete Portion * CC unit cost xx
Started & Completed: 100% units * Total unit cost xx
COST OF INVENTORY TRANSFERRED OUT P xx
Cost of WIP, Ending
TI: Complete Portion * TI unit cost xx
DM: Complete Portion * DM unit cost xx
CC: Complete Portion * CC unit cost xx
COST ACCOUNTED FOR P xx
PROCESS COSTING - IN CASE THERE ARE 2
DEPARTMENT
(FIFO to WEIGHTED AVERAGE)

ASSUME DEPARTMENT 1 USES FIFO METHOD., THEN DEPARTMENT 2 USES WEIGHTED

AVE.
DEPARTMENT 1
WIP, Beginning xx units
Started xx
Total xx units DM CC
WIP, Beg. (Record the INCOMPLETE %) xx xx
Completed xx units Started & Completed (record 100%) xx xx
WIP, Ending xx WIP, End (Record the COMPLETE %) xx xx
Total xx EQUIVALENT UNITS OF PRODUCTION xx xx

 The “COMPLETED” units are the one transferred-out to the next department and
became the “STARTED” units of the next department.

UNIT COST
UNIT COST OF DM =

Current Cost ∨Cost Incurred duringTOTAL

Production
COST
UNIT

EUP of DM
UNIT COST OF DM =

Current Cost ∨Cost Incurred during Production

EUP of CC
Cost of Beginning WIP (DM + CC) P xx
Cost to Complete (WIP, Beg, the INCOMPLETE %)
DM: Incomplete Portion * DM unit cost xx
CC: Incomplete Portion * CC unit cost xx
Started & Completed: 100% units * Total unit cost xx
COST OF INVENTORY TRANSFERRED OUT P xx
Cost of WIP, Ending
DM: Complete Portion * DM unit cost xx
CC: Complete Portion * CC unit cost xx
 COST ACCOUNTED FOR P xx

 Cost of Inventory Transferred Out is considered as Transferred-IN in next

department.
 Cost of Ending WIP is considered as “remaining cost of WIP”

DEPARTMENT 2
WIP, Beginning xx units
Started xx
Total xx units
Transferred-In DM CC
Completed xx units xx xx xx 100% Complete
WIP, Ending xx xx xx xx Record the COMPLETE %
Total Units xx units xx xx xx (EUP)

UNIT COST
UNIT COST OF DM =

Beginning Cost of DM +Current Cost of DM

EUP of DM
TOTAL UNIT
UNIT COST OF DM COST =

Beginning Cost of CC +Current Cost of CC

EUP of CC
UNIT COST OF TRANSFERRED-IN =

BeginningTI + Amountof TI ¿ Departmetn 1 ¿

EUP of Trans
Completed: 100% Units * Total Unit Cost P xx
Cost of WIP, Ending
TI: Complete Portion * TI unit cost xx
DM: Complete Portion * DM unit Cost xx
CC: Complete Portion * CC unit Cost xx
COST ACCOUNTED FOR P xx
PROCESS COSTING - IF THERE IS LOST UNITS
DISCRETE NORMAL or ABNORMAL
There is an INSPECTION point
 Inspection Point is in terms of CONVERSION Process
 No computation to get this (this is given in the problem)

DIRECT MATERIAL
a) If PLACEMENT FIRST - include only in the EUP schedule the portion place before
the inspection point.
 Example: A quarter of the total materials are added at the start of the process,
while the remaining 3 quarters are added at the end. Goods are inspected at
the halfway mark of the process.
b) If INSPECTION FIRST before placement - don’t account any normal or abnormal
lost units in the EUP schedule.

CONVERSION COST
 Lost Units x % of Inspection Point

 If LOST UNITS are within tolerable range, then NO need to recognize lost units.

COMPUTATION OF LOST UNITS

WIP, Beginning xx units
Started xx
WIP, Ending (xx)
Correct Balance of Completed Units xx
 Recorded Completed Units (xx)
LOST UNITS xx units

The “LOST UNITS” are allocated to

a) NORMAL LOST = Started Units x % of Normal Lost
b) ABNORMAL lost = Remaining balance of “started units”

FIFO METHOD
WIP, Beginning xx units
Started xx
Xx DM CC
These are WIP, Beg. Xx xx
NOT Completed xx S&C xx xx
Balance WIP, Ending xx WIP, End xx xx
due to Xx Normal Lost xx xx
lost units Abnormal Lost xx xx
EUP xx xx

WEIGHTED AVERAGE
WIP, Beginning xx units
Started xx
Xx
These are DM CC
NOT Completed xx Completed xx xx
Balance WIP, Ending xx WIP, End xx xx
due to lost Xx Normal Lost xx xx
units Abnormal Lost xx xx
EUP xx xx

NORMAL LOST is allocated always to “Started and Completed”, and either between WIP, Beginning or
WIP, Ending, or both.
 Allocation shall be based in their EUP schedule (DM EUP and CC EUP)
 Allocation of NORMAL LOST depends on the % completed & the inspection point.
a) If the % completed reach the % of inspection point, then such WIP will be
included in the allocation.
 Take note that for “WIP, Beginning”, the % completed is where the BWIP
started in such department. Thus, the completed portion of BWIP has been
already performed in the previous department. So if the inspection point is
50% & BWIP is 80% completed, BWIP shall NOT be included in the
allocation.

ABNORMAL LOST is treated as PERIOD COST

FIFO
Cost of Beginning WIP (DM + CC) P xx
Cost to Complete (Beg. WIP, the INCOMPLETE %)
DM: Incomplete Portion x DM unit Cost xx
CC: Incomplete Portion x CC unit Cost xx
Started & Completed: 100% units x Total Unit Cost xx
Normal Lost Allocation xx
COST OF INVENTORY TRANSFERRED OUT P xx
Cost of Ending, WIP
Normal Loss Allocation, if there’s any xx
DM: Complete Portion x DM unit cost xx
CC: Complete Portion x CC unit cost xx
Abnormal Lost xx
COST ACCOUNTED FOR P xx

WEIGHTED AVERAGE
Completed: 100% units x Total Unit Cost P xx
Normal Lost Allocation xx
Cost of Inventory Transferred-out P xx
Cost of WIP, Ending
Normal Lost Allocation, if there’s any xx
DM: Complete Portion x DM unit cost xx
CC: Complete Portion x CC uni cost xx
Abnormal Lost xx
Cost Accounted For P xx
SALE or RETURN
A seller entity sends goods to a customer and gives them the option to either:
a) Approve and Retain the goods; or
b) Return then within an agreed period

ON THE DAY OF SALE, the seller recognized the payment of the seller.

JOURNAL ENTRIES:
1. For items SOLD: Cash or Accounts Receivable P xx
Sales P xx

COGS P xx
Inventory P xx

2. Items for POSSIBLE RETURN: Cash or Accounts Receivable P xx

Liability for Possible Return P xx

Asset for Possible Return P xx

Inventory P xx

3. Date of DELIVERY: Cash or Accounts Receivable P xx

Liability for Possible Return P xx
Sales xx

COGS P xx
Asset for Possible Return xx
Inventory P xx

4. Date or RETURN, BEFORE expiration date: Liability for Possible Return P xx

Cash or Accounts Receivable P xx

Inventory P xx
 Asset for Possible Return P xx

5. Date of Return, AFTER expiration Date: Liability for Possible Return P xx

Sales P xx

COGS P xx
Asset for Possible Return P xx
NOTE:
Revenue is RECOGNIZED when either
1. There is historical evidence or data present: Reliable Estimate
2. The customer acknowledged or accepted the item
3. The period of return lapsed, therefore deemed sold.

 If non of the above information was given in the problem, therefore the seller will NOT
recognize any revenue for that year.

INSTALLMENT SALES

GPR =
Total Installment Sale− Cost DEFERRED GROSS
Total Installment Sale
PROFIT = Installment Receivable * GPR

INSTALLMENT SALE =
Cost of Installment Sales
Cost Ratio
REALIZED GROSS PROFIT = Collection (excluding interest) * GPR

Installment Receivable, Beginning P xx

P xx Default portion of repurchase item

Xx Collection from repurchase items
Xx Collections
P xx Installment Receivable, Ending

REPOSSESED MERCHANDISE
FMV of the Repossessed Merchandise P xx
Less: URC (Defaulted Amount * Cost Ratio) ( xx )
Gain/(Loss) from Repossessed Merchandise P xx

FMV OF THE REPOSSESSED MERCHANDISE

Estimated Selling Price P xx
Less: Reconditioning Cost ( xx )
 Normal Profit (% based on the estimated SP) ( xx )
Cost to Sell ( xx )
FMV of the Repossessed Merchandise P xx

Once the Repossessed Merchandise is SOLD:

GPR =
Selling Price −Cost COST = FMV +
Selling Price
Reconditioning Cost

Realized Gross Profit P xx

Interest Income xx
Gain/(Loss) on Repossessed Item xx/(xx)
NET INCOME P xx

TRADE-IN TRANSACTIONS
FMV Trade-In P xx
Allowance for Trade-In ( xx )
Under/(Over) Allowance P xx

If UNDER-Allowance - ADDBACK to Installment Sales

If OVER-Allowance - DEDUCT from the Installment Sales

Installment Sales P xx
Under/(Over) Allowance xx
Adjusted Installment Sales P xx --> New basis in computing the GPR

COLLECTION
Down Payment P xx
FV of the Trade-in Item xx
Collection, net of Interest xx
TOTAL COLLECTION P xx.

Installment Sales Receivable

Original Installment Sale P xx

P xx Down Payment
Xx Trade-in Allowance
Xx Collections
JOB ORDER COSTING
OVERHEAD COSTS
Overhead is applied to jobs using a PREDETERMINED RATE.

Predetermine Rate =
Total Budgeted Overℎead
Allocation Base
Allocation based can be DLHrs., DL Cost, or MHrs.

APPLIED OVERHEAD = Actual Allocation Base x Predetermined Rate

MANUFACTURING OVERHEAD CONTROL ACCOUNT

 A temporary controlled account
 Actual Overhead Costs are recorded on the DEBIT side of the Manufacturing OH
control account.
 Applied Overhead Costs are recorded on the CREDIT side of the Manufacturing OH
control account.
MANUFACTURING OH ACCOUNT

Actual OH incurred Applied OH

End End
  If the ending balance is a DEBIT balance, it is UNDERAPPLIED
 ADDBACK to COGS
 If the ending balance is a CREDIT balance, it is OVERAPPLIED
 DEDUCT from COGS

Direct Materials Used P xx

Direct Labor xx
Applied Overhead xx
Total Manufacturing Cost P xx
WIP, Beginning xx
Total Goods Placed in Process P xx
WIP, Ending ( xx )
Total Goods Manufactured P xx
Finished Goods, Beginning xx
Total Goods Available for Sale P xx
Finished Goods, Ending ( xx )
Normal COGS P xx
Under/(Over) applied OH xx/(xx)
Actual COGS P xx

Actual Costing:
Total Net Sales P xx
Less: Actual COGS ( xx )
Gross Profit P xx
Less: OpEx ( xx )
Net Income P xx

Normal Costing:
Total Net Sales P xx
Less: Normal COGS ( xx )
Gross Profit P xx
Less: OpEx ( xx )
Net Income P xx
SPOILED GOODS
SPOILED GOODS CHARGED TO SPECIFIC JOB
 Spoilage due to customer
 Allowance for spoilage is NOT added to COGS
 Spoilage is charged to customer thus increasing the cost/unit of good units.

PREDETERMINED RATE =

Overℎead Cost , exclusive of allowance

Allocation Base
Total Units Manufactured xxx units
Less: Spoiled Units (xx)
Good Units xx units

Total Units Manufactured xxx units

Multiply by: Cost per Unit Px
Total Cost of Goods P xx
NRV of Spoiled Goods ( xx )
Cost Transferred to Finished Goods P xx
Divide by: Good Units xx units
 New Cost per unit P x/unit

SPOILED GOODS CHARGED TO COMPLETE / ALL JOBS

 Spoilage due to internal failure
 Allowance for spoilage is ADDED to COGS
 Allowance for spoilage is charged to Overhead as an additional cost

PREDETERMINED RATE =

Overℎead Cost , INCLUSIVE of allowance

Allocation Base
Total Units Manufactured xxx units
Less: Spoiled Units ( xx )
Goods Units xx units
Multiply by: Cost per unit P xx
Costs Transferred to Finished Goods P xxx
Divide by: Good units xx units
New Cost per unit P xx/unit

Cost of Spoiled Goods is DEDUCTED from WIP Account

Spoiled Goods at NRV P xx
Manufacturing OH (squeezed) xx
WIP Account P xx

REWORK
REWORK and SPOILAGE CHARGED TO SPECIFIC JOB
 Rework and Spoilage is due to customer
 Rework Cost and Spoilage Allowance is NOT added to COGS

PREDETERMINED RATE =

Overℎead Cost , exclusive of allowance

Allocation Base
Total Goods Manufactured xx units
Multiply by: Cost per unit Px
Total Cost of Goods P xx
Less: NRV of Spoiled Goods ( xx )
Add: Rework Cost xx
 Cost of Goods Transferred to Finished Goods P xx
Divide by: Good units xx units
New Cost per unit P xx

Total Rework Cost = Defective Units x Rework Cost per unit

REWORK and SPOILAGE CHARGED TO COMPLETE / ALL JOBS

 Spoilage and Rework is due to internal failure
 Allowance for spoilage is ADDED to COGS
 The rework cost is IGNORED because it is already part of the manufacturing costs.

PREDETERMINED RATE =

Overℎead Cost , INCLUSIVE of allowance

Allocation Base
Total Units Manufactured xxx units
Less: Spoiled Units ( xx )
Goods Units xx units
Multiply by: Cost per unit P xx
Costs Transferred to Finished Goods P xxx
Divide by: Good units xx units
New Cost per unit P xx/unit

Direct Material P xx
Direct Labor xx
OH, inclusive of allowance xx
Total Manufacturing Cost P xx
Divide by: Total Goods manufactured xx units
Cost per unit P x/unit

JUST-IN-TIME MANUFACTURING SYSTEM

 A production system
 Each component in a production line is produce immediately as needed by the next step in the
production process.
 Ideal Batch: ONE
 No place for error

BENEFITS:
1. Lowering the cost in inventory
2. Enhance product quality and delivery time
 3. Accounting procedures are simplified through backflush costing

DISADVANTAGE: Less margin of errors in the production process

GENERALLY: if SILENT, loss is normal, EXCEPT for JIT, it is considered abnormal

BACKFLUSH COSTING
 A product costing system usually used for JUST-IN-TIME production system
 It eliminates the detailed tracking of cost throughout the production system and only
prepares journal entries at the specified TRIGGER POINTS.
 Standard Costing is the most appropriate costing method when using backflush
costing in a JIT inventory system.

TRIGGER POINTS
3 TRIGGER POINTS 2 TRIGER POINTS
(Purchase and Sales)
PURCHASE Materials-in-Process P xx Materials-in-Process P xx
Cash P xx Cash P xx
CONVERSION COST Conversion Cost P xx Conversion Cost P xx
Payroll P xx Payroll P xx
Various Accounts xx Various Accounts xx
PRODUCTION Finished Goods P xx
Materials-in-Process P xx
Conversion Cost xx NO ENTRY
SALES COGS P xx COGS P xx
Finished Goods P xx Materials-in-Process P xx
Conversion Cost xx

Accounts Receivable P xx
Sales P xx Accounts Receivable P xx
Sales P xx

3 TRIGGER POINTS
 Upon purchase of materials and incurring conversion cost, a materials-in-
process and conversion cost are recognized, respectively.
 Once the goods are finished, both the materials-in-
process and conversion cost are credited.
 The amount of finished goods is then closed to COGS.
2 TRIGGER POINTS (Purchase and Sales)
 If the Trigger Points are PURCHASES and SALES
 PRODUCTION is ignored.
 The Materials-in-Process and Conversion cost are closed
to COGS.

2 TRIGGER POINTS 21TRIGER POINT

(Production and Sales (Sales)
PURCHASE

NO ENTRY NO ENTRY
CONVERSION COST Conversion Cost P xx Conversion Cost P xx
Payroll P xx Payroll P xx
Various Accounts xx Various Accounts xx
PRODUCTION Finished Goods P xx
Accounts Payable P xx
Conversion Cost xx NO ENTRY
SALES COGS P xx COGS P xx
Finished Goods P xx Accounts Payable P xx
Conversion Cost xx

Accounts Receivable P xx
 Sales P xx

2 TRIGGER POINTS (Production and Sales)

 If the Trigger Points are Production and SALES
 PURCHASE is ignored.
 Once the goods are FINISHED, accounts payable is
recognized.

JOINT COST
Common manufacturing costs from the START of production up to the SPLIT-OFF point.

PHYSICAL METHOD
Based of units produced

Products Units Ratio X Joint Cost Joint cost Allocation

AA xx xx/xxxxxx = P xx
BB xxx xxx/xxxxxx xx
CC xxxx xxxx/xxxxxx P xxxx xx
DD xxxxx xxxxx/xxxxxx xx
xxxxxx

WEIGHTED AVERAGE METHOD

Based on Production x Weight Factor
Products Units x Weight = Weighted Ratio X Joint Cost = Joint Cost Allocation
Factor Average______________________________________________
AA xx x.x xxx xxx/xxxx = P xx
BB xx x.x xxx xxx/xxxx P XXXX xx
CC xx x.x xxx xxx/xxxx xx
DD xx x.x xxx xxx/xxxx xx
Xxxx

SALES VALUE at SPLIT-OFF METHOD

Based on Production x SP per unit at split-off

Products Units x Sales Price = Sales Value Ratio X Joint Cost = Joint Cost
unit at SO at
SO_____________________________________Allocation
AA xx P x.x P xx Pxx/Pxxx = P xx
BB xx x.x xx xx/xxx P XXXX xx
CC xx x.x xx xx/xxx xx
DD xx x.x xX xx/xxx xx
P xxx

NRV at SPLIT-OFF METHOD

Based on (Production x SP per unit at SO) - Separate Cost at SO

Products Units x Sales Price - Separate = NRV Ratio X Joint Cost = Joint Cost
Unit at SO Cost at SO at SO ___________________________________
Allocation
AA xx P x.x P xx P xx Pxx/Pxxx = P xx
BB xx x.x xx xx xx/xxx P XXXX xx
Cc xx x.x xx xx xx/xxx xx
DD xx x.x xx xx xx/xxx xx
P xxx

APPROXIMATE NRV
 Based on (Production x Ultimate SP per unit) - Total Separate Cost after SO
 Total separate cost after SO is just the sum of the separate costs at SO and separate
cost after SO.
 More suitable for products that undergo further processing after the split-off point since it takes
into account the additional costs needed to further process and sell the joint products.

Products Units x Ultimate SP - Total Separate = Approximate Ratio X Joint Cost = Joint Cost
Per unit Cost after SO NRV _______________________________
Allocation
AA xx P x.x P xx P xx Pxx/Pxxx = P xx
BB xx x.x xx xx xx/xxx P XXXX xx
CC xx x.x xx xx xx/xxx xx
DD xx x.x xx xx xx/xxx xx
P xxx
SUPPORT ALLOCATION
PLEASE VIEW THE BIGGER NOTES

NON-PROFIT ORGANIZATION
STATEMENT OF FINANCIAL POSITION
ASSETS - LIABILITIES = NET ASSETS

NET ASSETS
Under SFAS 17
1. Unrestricted Contribution
2. Temporary Restricted Contribution
3. Permanent Restricted Contribution

UNDE ASU - 2016 - 14

 Unrestricted Contribution = Without Donor Restriction
 Temporary & Permanent R. Con. = With Donor Restriction

UNRESTRICTED CONTRIBUTION
JOURNAL ENTRY: If cash is received: Cash P xx
Contribution Revenue P xx
 If NCA is received: NCA P xx
Contribution Revenue P xx

Once NCA received is USED: NCA Expense P xx

NCA P xx

TEMPORARY RESTRICTED CONTRIBUTION

JOURNAL ENTRY: If cash is received: Cash P xx
Contribution Revenue - Temporary P xx

If the cash is to be used: Net Asset Released from Temp. Restriction P xx

Cash P xx

Then record it under the UNRESTRICTED as:

Cash P xx
Net Asset Released from Temp. Restriction P xx

PERMANENTLY RESTRICTED CONTRIBUTION

JOURNAL ENTRY: If cash is received: Cash P xx
Contribution Revenue - Permanent P xx

If the cash is to be used: Net Asset Released from Perm. Restriction P xx

Cash P xx

Then record it under the UNRESTRICTED as:

Cash P xx
Net Asset Released from Perm. Restriction P xx

If NCA is received: NCA P xx

Contribution Revenue - Permanent P xx

If Equity Security is received and only the investment income can be used by NPO.
UNDER UNRESTRICTED: Cash P xx
Dividend Income P xx

UNCONDITIONAL PLEDGE (PROMISE)

Upon Receipt of Promise: Pledge Receivable P xx
Contribution Revenue P xx

Cash P xx
Pledge Receivable P xx
 If there’s Doubtful Collection: Doubtful Account P xx
Allowance for Doubtful Account P xx

CONDITIONAL PLEDGE (PROMISE)

 The condition must be fulfilled first

SERVICES
 Measured at FV
 It is considered as SERVICES if:
a. It enhances or creates a non-financial asset
b. Required specialized skills which would have been purchased

UNDER UNRESTRICTED:
Expense/Asset P xx
Contribution Revenue P xx

NET INCREASE IN UNRESTRICTED ASSETS

Total Unrestricted Contribution P xx
Other Income: Dividend Income (other) xx
Less: Various Expense ( xx )
Add: Net Assets Released from Restriction xx
NET INCREASE IN UNRESTRICTED ASSETS P xx

FOREIGN EXCHANGE TRANSACTIONS and

DERIVATIVES
IF NO FORWARD CONTRACT IS ENTERED
1. PURCHASE OF ITEMS
Foreign Exchange Gain/Loss
AT REPORTING DATE: Selling Rate at reporting Period P xx
Selling Rate when ownership acquired ( xx )
Difference P xx
MULTIPLY BY: $ amount $ xx
Foreign exchange (Gain)/Loss P xx

AT SETTLEMENT DATE: Selling Rate at Settlement Date P xx

Selling Rate at reporting Period ( xx )
Difference P xx
MULTIPLY BY: $ amount $ xx
 Foreign exchange (Gain)/Loss P xx

JOURNAL ENTRY WHEN OWNERSHIP is acquired

Inventory P xx
Accounts Payable ($ amount * Selling Spot Rate) P xx

ᴥ Any Gain/Loss from foreign exchange will only affect the

ACCOUNTS PAYABLE. Thus, AP will either, increase or
decrease depending on the changes in the Selling Rate.
Foreign Exchange LossP xx
Accounts Payable P xx

Accounts Payable P xx
Foreign Exchange Gain P xx
ᴥ INVENTORY value will remain the same when recognized when
ownership was acquired.

INTEREST EXPENSE = $ Amount x Interest Rate x Period x Selling Rate

SUBSEQUENT YEAR: TOTAL FOREIGN EXCHANGE GAIN/LOSS)

Selling Rate at Settlement Date P xx
Selling Rate at reporting Period ( xx )
Difference P xx
MULTIPLY BY: $ amount $ xx
Foreign exchange (Gain)/Loss P xx

Interest Expense at Settlement Date P xx

Interest Expense at Reporting Date ( xx )
Foreign Exchange (Gain) / Loss P xx

2. SELL OF ITEMS
Foreign Exchange Gain/Loss
AT REPORTING DATE: Buying Rate at reporting Period P xx
Buying Rate when ownership acquired ( xx )
Difference P xx
MULTIPLY BY: $ amount $ xx
Foreign exchange Gain/(Loss) P xx

AT SETTLEMENT DATE: Buying Rate at Settlement Date P xx

Buying Rate at reporting Period ( xx )
Difference P xx
MULTIPLY BY: $ amount $ xx
Foreign exchange Gain/(Loss) P xx

INTEREST INCOME = $ Amount x Interest Rate x Period x Buying Rate

 SUBSEQUENT YEAR: TOTAL FOREIGN EXCHANGE GAIN/LOSS)
Buying Rate at Settlement Date P xx
Buying Rate at reporting Period ( xx )
Difference P xx
MULTIPLY BY: $ amount $ xx
Foreign exchange Gain/(Loss) P xx

Interest Income at Settlement Date P xx

Interest Income at Reporting Date ( xx )
Foreign Exchange Gain / (Loss) P xx

FOREIGN EXCHANGE TRANSACTIONS and

DERIVATIVES
IF FORWARD CONTRACT IS ENTERED
FORWARD CONTRACT TO SELL
 Same treatment with the foreign exchange transactions as if forward contract is NOT
entered.
 We will only consider here, the effects in the FORWARD CONTRACT

WHEN CONTRACT IS ENTERED

Forward Contract Receivable P xx
Forward Contract Payable ($ amount * Forward rate on the total days) P xx

ᴥ Any foreign exchange gain/loss will only affect ACCOUNTS PAYABLE

 FOREIGN EXCHANGE GAIN/(LOSS) from Forward Contract at reporting date
Forward Rate on the day nearest to settlement date P xx
Forward Rate on the total days of the forward contract ( xx )
Difference P xx
Multiply by: $ amount $ xx
Foreign Exchange (Gain)/Loss in forward contract P xx

 If GAIN, forward contract ASSET

 If LOSS, forward contract LIABILITY

FOREIGN EXCHANGE GAIN/(LOSS) from Forward Contract at settlement date

Spot Rate on the day of settlement P xx
Forward Rate on the day nearest to settlement date ( xx )
Difference P xx
Multiply by: $ amount $ xx
Foreign Exchange (Gain)/Loss in forward contract P xx

 If GAIN, forward contract ASSET

 If LOSS, forward contract LIABILITY

GAIN/LOSS FROM HEDGING ACTIVITY

Foreign Exchange Gain/Loss from Foreign Transaction P xx
Foreign Exchange Gain/(Loss) from forward contract xx
GAIN/(LOSS) FROM HEDGING ACTIVITY P xx

FORWARD CONTRACT TO BUY

 Same treatment with the foreign exchange transactions as if forward contract is NOT
entered.
 We will only consider here, the effects in the FORWARD CONTRACT

WHEN CONTRACT IS ENTERED

Forward Contract Receivable ($ amount * Forward rate on day entered FC) P xx
Forward Contract Payable P xx

ᴥ Any foreign exchange gain/loss will only affect ACCOUNTS

RECEIVABLE

FOREIGN EXCHANGE GAIN/(LOSS) from Forward Contract at reporting date

Forward Rate on reporting date P xx
Forward Rate when forward contract was entered ( xx )
Difference P xx
Multiply by: $ amount $ xx
 Foreign Exchange Gain/(Loss) in forward contract P xx

 If GAIN, forward contract ASSET

 If LOSS, forward contract LIABILITY

 If the question ash for foreign gain/loss of HEDGE ITEM, refer to the foreign
exchange gain/(loss) in foreign exchange transactions and NOT on the hedge
instrument.

FOREIGN EXCHANGE GAIN/(LOSS) from Forward Contract at settlement date

Forward Rate on the day of settlement P xx
Forward Rate on reporting date ( xx )
Difference P xx
Multiply by: $ amount $ xx
Foreign Exchange Gain/(Loss) in forward contract P xx

NET CASH PAID/RECEIVED ON SETTLEMENT DATE

Cash Payment made in Foreign Exchange Transaction P( xx )
Cash Received from Forward Contract xx
Cash Payment made in Forward Contract ( xx )
NET CASH PAID/RECEIVED ON SETTLEMENT DATE P xx

PURCHASE COMMITMENT
 Upon order to purchase, there is still NO transaction, thus no entry.
 The purchase is NON-CANCELLABLE and BINDING as to purchase price
 FORWARD RATE is the only relevant rate

CASH PAYMENT = Spot Rate at Delivery & Payment Day * $ amount

Inventory P xx
Cash P xx

INITIAL MEASUREMENT OF INVENTORY

Inventory (Spot Rate at Delivery & Payment Day * $ amount) P xx
± FX Gain/(Loss) in purchase commitment transaction xx
INITIAL MEASUREMENT OF
P xx

NET CASH PAID/RECEIVED ON SETTLEMENT DATE

Cash Payment made in Foreign Exchange Transaction P( xx )
Cash Received from Forward Contract xx
Cash Payment made in Forward Contract ( xx )
 NET CASH PAID/RECEIVED ON SETTLEMENT DATE P xx

 Same process of computation of foreign exchange gain or loss in foreign transactions

FORECASTED TRANSACTION and CALL OPTION

 HIGHLY PROBABLE purchase transaction (CASH FLOW HEDGE)
 by the time the company purchase the items, the entity will ONLY PAY the amount of
Call option purchased.
 The option has INTRINSIC VALUE if it is highly probable that it will be exercise
