NOTES (AFAR)

PARTNERSHIP  Industrial partner

 Net income
VALUATION OF CONTRIBUTION
1. Profit sharing
1. Agreed value (Art. 1787) 2. Just & equitable
2. FV (Art. 1787 and PFRS 2)  Net loss
1. Loss sharing
RE-ALIGNMENT OF CAPITAL
2. Exempt
1. TCC = TAC  Capitalist-industrial partner
a. Bonus method w/ c/s  Net Income
b. Bonus method w/o c/s  Net Loss
2. TCC > TAC SALARIES
a. Withdrawal  Given as a compensation for SERVICES
b. Revaluation downwards  Time proportioned
3. TCC < TAC  Theories
a. Addt’l investment  Proprietary theory (not an expense) *if silent
b. Revaluation upwards  Entity theory (expense)
c. Goodwill/unidentifiable INTEREST
 Given as a compensation for CAPITAL
Q: In the new set of partnership books is there an accum. dep and
 Time proportioned
allow. for bad debts?
 Interest = C x R x T
AD- none/0
 Can be based on diff. capital base
ABD- yes
 Average: Simple vs. Weighted
ALLOCATION OF P/L
Simple Ave.
1. Profit
= (Beg. + End. B4 Closing) x ½
a. Profit sharing ratio
Weighted Ave. * if silent
b. Original Capital
– need the # of times outstanding
2. Loss
Included?
a. Loss sharing ratio
Beg. Capital xx
b. Profit sharing ratio
Addt’l investment xx
c. Original Capital
Withdrawal xx
Addt’l issues:
Drawings xx ? - it depends
 No P/L sharing, no original capital?
 NOTES (AFAR)

Incapacity of a Partner
BONUS  Same acctng. w/ retirement/withdrawal
 Given as a compensation for GOOD PERFORMANCE Death of a Partner
 Given if: Net income AND base is positive Before After
 Not time proportioned Who? Partner Creditor
DISSOLUTION What? Capital Liability
Admission of New Partner Interest: Not an expense Expense
1. By Purchase New vs. Old Incorporation of a Partnership
a. BV Method/no adjustment *if silent Before After
b. Revaluation Method Who? Partner Incorporator
2. By investment New vs P’ship What? Capital Share Capital
1. TCC = TAC LIQUIDATION
a. Bonus method w/ c/s  Winding up of the affairs of the business
O or N
b. Bonus method w/o c/s Methods
2. TCC > TAC 1. Lump-sum
a. Withdrawal O and/or N 2. Installment
b. Revaluation downwards O Net proceeds xx
3. TCC < TAC Less: CA of all NCA, whether sold or not xx
a. Addt’l investment O and/or N Total Loss xx
b. Revaluation upwards O a. SPS: Assumed Loss → NCA
c. Goodwill/unidentifiable O or new → Contingent Expense
Retirement of Partner b. CPP: Loss Absorption Power → Ranking → Vulnerability
1. Sold to 3rd parties → Priority
2. Sold to other partners Lump-sum Installment
3. Sold to the partnership 1. NCA to Cash All Some
a. PP = BV 2. Sale of NCA Total G/L is allocated to CA of unsold NCA
b. PP > BV Bonus to Retiring the capital based on P/L is considered as a
Revaluation Upwards (All or Specific) ratios loss. This is
Goodwill (All or Specific) allocated to the
c. PP < BV Bonus to Retiring capital based on
Revaluation Downwards (All or Specific) P/L ratios
 NOTES (AFAR)
3. Liquidation Actual are allocated to Actual and Partnership Assets (Limited Partnership)
expense the capital based on P/L estimated future 1. Those owing to creditors other than partners.
ratios LE are allocated to 2. Those owing to other than for capital and profits
the capital based 3. Those owing to partners in respect of profits
on P/L ratios 4. Those owing to partners in respect of capital
4. Liab. to Fully settled Partially or fully Personal Asset of General Partner
outside settled 1. Those owing to separate creditors;
creditors
2. Those owing to partnership creditors;
5. Liab. to inside Fully settled Partially or fully
3. Those owing to partners by way of contribution
creditors settled but only
after the full Note: if silent, the general partner is insolvent
settlement of the Capital xx
liab. to outside Add: Payable xx
creditors Less: Receivable xx
6. Remaining Distributed to the If both the liab. to Equity/Interest xx
cash owners in full outside and inside Receivable Payable
settlement of their creditors are fully Loan: To From
interest. settled, any Advances: To From Partner
remaining cash Due: From To
less cash set aside Loan: From To
for future LE is Advances: From To Partnership
distributed to the
Due: To From
owners as partial
settlement of their
Cash w/held Unpaid Liability
interest
Contingent Expense – can considered assumed loss

Partnership Assets (General Partnership) CORPORATE LIQUIDATION & REORGANIZATION

1. Those owing to creditors other than partners. Measurement Basis of Liquidating entities
2. Those owing to other than for capital and profits - Do not apply the measurement prescribed in the PFRS
3. Those owing to partners in respect of capital For assets: realizable value (estimated SP – disposal costs)
4. Those owing to partners in respect of profits Liabilities: expected net settlement amount
 NOTES (AFAR)
Notes: Debit > Credit = Net Loss
 The difference b/in the restated assets and liabilities Debit < Credit = Net Income
represents the estimated deficiency in the settlement of Balancing Figure: Loss – Dr.
unsecured creditors w/o priority. If deficiency exists, the Income – Cr.
claims of unsecured creditors w/o priority will not be paid Cash, beg. xx
I full. Add: ATBR xx
Estimated recovery % of unsecured creditors w/o priority Total assets, beg. xx
Net free assets Less: LTBR xx
¿
w SHE, beg. xx
Total unsecured liab . priority
o
¿ Total free assets−Total unsecured Cash, end. xx
liab . with priotities Add: ANR xx
Total assets, end. xx
Statement of Estate Deficit Less: LNR xx
 Initial report SHE, end. xx
Loss on realization xx
Less: asset on realization xx CITD
Net Loss (Gain) on realization xx % of completion=
CITD + ECTC
Add: Admin. Expense xx
Add: Unrecorded liab. xx (Contract Price – Estimated
Net Loss (Gain) on Liquidation xx Completion Cost)
Less: Loss absorbed by SHE xx
Loss absorbed by USC xx RGPTD = % of completion x Estimated GP
Statement of Realization & Liquidation
 Assets (non-cash), liab., supplementary dr. and cr. Realized GP to date xx
Non-cash Assets Liabilities Less: RGP, prior yr. (xx)
 Assets to be realized  Liabilities to be RGP, this yr. xx
(ATBR) liquidated (LTBL) PFRS 15
 Assets acquired (AA)  Liabilities incurred (LI) PO satisfied overtime
 Assets realized (AR)  Liabilities liquidated (LL) PO satisfied at a point in time
 Assets not realized  Liabilities not liquidated Core principle:
(ANR) (LNL)
 NOTES (AFAR)
 An entity recognize revenue to depict the transfer of promised b. The amount of consideration to be paid in 1 contract depends on
goods or services to customers in an amount that reflects the the price or performance of the other contract; or
consideration to w/c the entity expects to be entitled in exchange c. The goods/services promised in the contracts (or some
for those goods/services goods/services promised in each of the contracts) are a single PO
5 STEPS MODEL FRAMEWORK 2. Identify the PO’s
 A PO is a promised to transfer to the customer either:
Identify the contract/s w/ a customer
1  distinct good/service
 A series of distinct goods/services that are substantially the
Identify the PO in the contract same and have the same pattern of transfer
2
No transfer = No PO
Separate utility to the customer and
Determine the TP
3 Separately *Not integrated w/ other G/S in the contract; or
identifiable
Allocate the TP
4 *Does not modify or customize another G/S in
the contract; or
Recognize revenue when or as a PO is satisfied *Does not depend on or relate to other G/S
5
promised in the contract
Attributes of contract ILLUSTRATATION: On Jan. 1 20x1, Oliver Construction Company signed
1. Approval a contract to build a custom garage for a customer and received 100k in
2. Rights & obligation identified advance for the job. The new garage will be built on the customer’s
3. Commercial substance land. To complete this project, Oliver must first build a concrete floor,
4. Payment terms identified construct wooden pillars and walls, and finally install a roof. Oliver
5. Collectability normally charges stand-alone prices of 30k, 40k, and 50k, respectively,
1. Combination of contracts for each of these 3 smaller tasks if done separately.
 An entity shall combine two or more contracts entered into How many PO exist in this contract? → 1
at or near the same time w/ the same customer (or related CUSTOMER OPTIONS FOR ADDITIONAL G/S
parties of the customer) and account for the contracts as a single 1. Material right – means you will not receive that option w/o
contract if 1 or more of the ff. criteria are met: entering into that contract → separate PO
a. The contracts are negotiated as a package w/ a single commercial 2. Not material right
objective;
 NOTES (AFAR)
3. Determine the TP  PO is satisfied when the promised G/S is transferred to a customer.
 The TP is the amount of consideration in a contract to w/c
an entity expects to be entitled in exchange for transferring the customer simultaneosly
promised goods or services to a customer receives/consumes the benefits provided
Yes
 Maybe fixed, variables or both
No

POINT IN TIME
 Variable consideration (discounts, rebates, refunds, credits,

OVERTIME
price concessions, incentives, performance bonus, penalties or created or enhances an asset that the
other similar items) → only included if highly probable it will not Yes customer controls
result to a reversal in the future
 Expected value No
 Most likely amount No
 Non-cash consideration = FV created asset has no alternative use + the
entity has an enforceable right to payment
 Time Value of money Yes for performance completed to date
 Significant financing component → separate to TP
 Insignificant financing component → no need to separate Costs incurred in satisfying the PO + reasonable profit margin
 Practical expedient (par 63) → the contract is ≤ 12 mos., it is Note: Any of the 3 indicators is an overtime, but in the absence of
ok not to separate all of the 3 it will be a point in time. If silent, PIT.
 Consideration payable to a customer (i.e., coupon or G/S Control Customer
voucher) Indicators of control
 If in exchange for a distinct G/S → recorded as part of revenue → Present right to payment
 Not in exchange for a distinct G/S → reduction to a TP → Legal title
4. Allocate the TP to the PO → Significant risks and rewards of ownership
→ Customer acceptance
Directly observable
ILLUSTRATION: Wil Construction Company entered into a contract w/
Stand-alone SP Alodia Hotel for bldng. highly sophisticated, customized conference
Not directly observable room to be completed for a fixed price of 400k. Non-refundable
Estimated cost + margin approach progress payments are made on a monthly basis for work completed
Adjusted market assessment approach during the month. Legal title to the conference room equipment is held
Using a residual technique Wil until the end of the construction project, but if the contract is
How much it is if you sell it separately terminated before the conference room is finished, Alodia Hotel retains
5. Recognize Revenue the partially completed job and must pay for any work completed to
 When PO is satisfied date.
 NOTES (AFAR)
Q: When should revenue be recognized? → A: OVERTIME Contract Modification/Change order/ Variation
ILLUSTRATION: Moira Construction Company entered into a contract Change in Change in
w/ Jason Hotel for constructing and installing a standard designed gym scope Price
for a fixed price of 400k. Nonrefundable progress payments are made
on a monthly basis for work completed during the month. Legal title to Distinct? SASP?
the gym passes to Jason Hotel upon completion of the bldng. process. If   Separate = Orig. + Modification
Jason cancels the contract before the gym construction is completed,
Moira Construction removes all the installed equipment and Jason   Not Separate= Orig.→ New
Hotel must compensate Moira for any loss of profit on sale of the gym
  Not Separate = Orig. →Modified
to another customer.
Q: When should revenue be recognized? → POINT IN TIME Contract Cost
NOTE: Any consideration received from the contract is recog. as a 1. Incremental Cost to obtain contract –> ex. Sales Commission
liability and recog. as revenue only when either of the ff. has occurred:  Capitalized and amortized
a. The entity has no remaining obligation to transfer goods or  Such costs are recog. as asset if the entity expects to
services to the customer and all, or substantially all, of the recover them
consideration has been received and is non-refundable; or  Costs that would have been incurred regardless of whether
b. The contract has been terminated and the consideration the contract was obtained are recognized as expense, unless
received is non-refundable those costs are explicitly chargeable to the customer
FS PRESENTATION  Practical expedient – recog. as expense when incurred if the
Contract asset expected amortization period of the asset is ≤ 1 yr.
 Before payment or before payment is due 2. Cost to fulfill a contract
 PO already satisfied  Covered by other standard
Receivable  Not covered by other standard→ PFRS 15
 Entity’s right to consideration is unconditional  Generates or enhances resources
 PO already satisfied  Cost expected to be recovered
Contract liability  Directly related
 Customer pays a consideration or entity has right to amount of 1. DM
consideration that is conditional 2. DL
 Before satisfaction of PO 3. Allocation of costs that relate directly to the contract or to
contract activities;
Ex:
i. Insurance
 NOTES (AFAR)
ii. Depreciation of plant and equipment used on the contract 6. Costs for w/c an entity cannot distinguish whether the
iii. costs of design and technical assistance that are not directly costs relate to unsatisfied PO or to satisfied PO (or
related to a specific contract partially satisfied PO)
iv. costs of contract management and supervision Note: Any incidental income derived from the construction that is not
v. borrowing costs capitalized in accordance w/ PAS 23 included in contract revenue is accounted for as reduction of contract
vi. other construction overheads costs. Ex: income from the sale of excess/scrap materials.
4. Costs that are explicitly chargeable to the customer under Expected Loss (PFRS for SME)
the contract; and  When it is probable that total contract costs will exceed total
5. Other costs that are incurred only because an entity entered contract revenue on a contract, the expected loss shall be
into the contract. recognized as an expense immediately, w/ a corresponding
Ex: provision for an onerous contract.
i. payment to sub-contractor PFRS 15
ii. costs of moving plant, equipment and materials to and from 101. An entity shall recognize an impairment loss in P/L to the
the contract site extent that the CA of an asset recognized in accordance w/ CTO
iii. costs of hiring plant and equipment or CTF exceeds
iv. costs of design and technical assistance that are directly a. The remaining amount of consideration that the entity
related to the contract expects to receive in exchange for the G/S to w/c the asset
Costs that are Expensed: relates; less
1. Gen. and admin. costs, unless explicitly chargeable to the b. The costs that relate directly to providing those G/S and that
customer; have not been recognized as an expenses
2. Costs of wasted materials, labor or other resources to  For the purpose of applying paragraph 101 to determine the
fulfill the contract that were not reflected in the price of amount of consideration that an entity expects to receive, an entity
the contract; shall use the principles for determining the TP (except for the
3. R&D costs for w/c reimbursement is not specified in the requirements in paragraphs 56-58 on constraining estimates of
contract; variable consideration) and adjust that amount to reflect the effects
4. Depreciation of idle plant and equipment that is not used of the customer’s credit risk.
on a particular contract Note: CA vs. Remaining Gross Profit
5. Costs that relate to satisfied PO (or partially satisfied PO) > - impaired
in the contract (i.e., costs that relate to past < - not impaired
performance), and
 NOTES (AFAR)
RIGHT OF RETURN 4. Patents, trademarks and copyrights
 An arrangement in w/c an entity transfers control of a product to a
Distinct from Separate PO
customer and also grants the customer the right to return the other promised (Special:RTU
product for various reasons (such as dissatisfaction w/ the product) Promise to G/S or RTA)
and receive any combination of the ff: grant
 A full or partial refund of any consideration paid; license Not distinct from
other promised Single PO
 A credit that can be applied against amounts owed, or that will G/S
be owed, to the entity; and
 Another product in exchange Right to Access (RTA)
Not expected to be returned – recog. revenue  Customer cannot control
Expected to be returned – revenue not recog.  May be evidenced by sales-based or usage-based royalty
PRINCIPAL-AGENT RELATIONSHIP
 Recognized revenue when (as) the later of the ff.
Principal events occur
transfer G/S to a. The subsequent sale or usage occurs; &
agent Agent b. The PO to w/c some or all of the sales-based or
usage-based royalty has been allocated has been
Transfer G/S to Customer
end customer satisfied (or partially satisfied)
Ex: Continuing franchise fee
 Primary responsible for G/S  Recognized OVERTIME
 Inventory risk  The contract requires, or the customer reasonably expects, that
 Establishing prices the entity will undertake activities that significantly affect the IP to
 Customer credit risk w/c the customer has rights
LICENSING  The rights granted by the license directly expose the customer to
 A license establishes a customer’s rights to the Intellectual any positive or negative effects of the entity’s activities; and
Property of an entity  Those activities do not result in the transfer of a good or a service
 Is a work or invention that is the result of creativity to the customer as those activities occur
 Licenses of IP may include, but are not limited to the ff: Right to Use (RTU)
1. Software and technology  Customer can control
2. Motion, pictures, music and other forms of media and  Recognized at a POINT IN TIME
entertainment;
3. Franchises; and
 NOTES (AFAR)
FRANCHISE (Business in a Box)  Agency transactions
 Involves the grant from the business owner (franchisor) to the  Fees from the development of customized software
applicant (franchisee), the legal rights to obtain the trade name,  Collection of the balance is subject to significant uncertainty
market the G/S and operate the business w/ an equivalent of a one- - If the collectability of an amount already recognized as contract
time fee revenue is no longer probable, the entity shall recognize the
Initial Franchise Fee uncollectible amount as an expense instead of as an adjustment
 It refers to the contractual consideration for the franchise and of the amount of contract revenue.
initial services to be rendered by the franchisor Non-refundable Upfront Fees
 Initial services rendered by the franchisor prior to the opening (i.e., Recognize allocated
pre-opening) of the franchisee’s operations usually include the ff.: Account for as a consideration as
YES promised G/S revenue on transfer of
1. Assistance in site selection for the construction of the building. Does the
payment relate promised G/S
2. Architectural planning and design fees
to specific G/S
3. Building and leasehold improvements and other relevant site Account for as an Recognized as revenue
transferred to
works necessary customer? NO advanced when future G/S are
4. Provision of bookkeeping and advisory services payment for provided (may include
future G/S renewal)
5. Provision of employee and management training
6. Provision of quality control Total Franchise revenue = (Initial Franchise Fee + Continuing Franchise
7. Provision of advertising and promotion Fee)
Continuing Franchise Fee Total Revenue = (Initial Franchise Fee + Continuing Franchise Fee +
 Represents continues payment to the franchisor for providing Interest revenue)
specific future services, such as advertising, and for continued use Repurchase Agreement
of intangible rights by the franchisee Sells an asset
 Also known as sales-based or usage-based royalty Seller Customer
Franchise Cost
Buys or has the option to buy the same asset back at the later date
- Direct Cost
 Contract cost (cost to obtain or cost to fulfil)
Forward Contract Call Option Put Option
- Indirect cost
Obligation to right to repurchase obligation to repurchase if
 Expensed outright
repurchase requested by the customer
Franchise – Other Consideration
 Supplies of equipment and other intangible assets
customer does not obtain control customer may obtain control
 Supplies of initial and subsequent services
 Continuing franchise fees
 NOTES (AFAR)
Repurchase price > Original SP? Repurchase price < Original SP?  The entity has no obligation to use the product or to transfer it
Yes No Yes No to another customer
Financing Lease (PFRS 16) Does the customer Financing Note: If, all are met − Revenue from sale is recognized
have incentive to Arrangement CONSTRUCTION CONTRACTS
Yes exercise option? Classification:
No Sale w/ right of return  Fixed price contract
Note: No control is obtained if put option is not exercised  Cost plus contract
Deliver goods Sells goods FS Presentation
Seller Dealer Final Cutomers SFP SCI
 Contract asset  Revenue
Indicators:  AR  Cost
 Product controlled by the seller until specified event occurs  Contract liab.  Expenses*
 Unused supplies*
 The seller can require the return of the product or transfer to
 Asset (CTO+CTF) *
another party
 The customer (dealer) does not have an unconditional Yes - % of
obligation to pay for the product Completion
Can
Control over inventories transferred to dealer? Overtime
Revenue compute %? No - Cost
No Yes Recognition recovery/Zero
Point in time
 Inventories: seller’s FS  Inventories: dealer’s FS profit method
 Deposit = “other receivables”
Bill-and-hold Arrangements
Sells an asset
Seller Customer
Asset remains in the possession
of seller for specified period
When does the customer obtain control of the product?
Criteria:
 The reason for bill-and-hold is substantive
 The product is separately identified as belonging to the
customer
 The product is ready for physical transfer to the customer
 NOTES (AFAR)
Output methods
Include - CITD
Recognize revenue on the bases of direct measurements of the value tot Customized
Unused Exclude - ECTC
he customer of the G/S transferred to date relative to the remaining G/S
promised under the contract materials Not customized Exclude - CITD
Ex: surveys of performance completed to date, appraisal of results Include -
achieved, milestones reaches, time elapsed and units produced or units ECTC
delivered.
ADJUSTMENTS TO THE MEASURE OF PROGRESS
Input methods
Weakness of input methods: may not have direct relationship b/in the
Recognize revenue on the basis of the entity's efforts or inputs to the
satisfaction of a PO (for ex. resources consued, labor hrs. expended, costs inputs and transfer of control of the asset to the customer.
incurred, time elapsed or machine hrs. used) relative to the total expected Excluded when using cost-to-cost when measuring its progress on a
inputs to the satisfaction of that PO. contract:
If the entity's efforts or inputs are expended evenly throughout the a. Costs that do not contribute to the entity’s progress in satisfying
performance period, it may be appropriate for the entity to recognize
revenue on a straight-line basis. the PO
Cost-to-cost method - most common application of the input methods b. Costs incurred that are not proportionate to the progress in
Formula #1: satisfying the PO. Ex.:
Cumulative costs incurred from contract inception up to the current reporting date
CITD i. Advance payments to subcontractors for w/c the subcontracted
% of completion= work has not yet been started
TEC Forecasted total costs at completing the contract or CITD + ECTC
ii. Materials acquired but not yet used.
However, adjust the input method to recog. revenue only to the extent
Pertain to anticipated addt’l costs required to of that cost incurred if all of the ff. conditions are met:
fully complete the contract 1. The good is not distinct;
2. The customer is expected to obtain control of the good
Formula #2: significantly before receiving services related to the good;
CITD 3. The cost of the transferred good is significant relative to the
% of completion=
CITD + ECTC total expected costs to completely satisfy the PO; and
Efforts-expended (labor hrs.) method 4. The entity procures the good from a 3 rd party and is not
% of completion=T .labor hrs . ¿ date ¿ significantly involved in designing and manufacturing the good
Est .T . contract labor hrs . (but the entity is acting as a principal)
PFRS 15 SME Sec.23
Contract Asset (CTO+CTF) xx CIP xx
cost Construction supplies xx Construction supplies xx
Cash/Various Cr. xx Cash/Various Cr. xx
Progress AR/Contract asset AR xx
 NOTES (AFAR)
billings Cons. Rev./Con. Liab Progress billings xx 4) It is probable that the economic benefits associated w/ the
Billing Cash xx Cash xx transaction will flow to the entity; and
Collections AR/ Con. Asset/CL xx AR xx
Recording of Operating exp. xx 5) The costs incurred or to be incurred in respect of the transaction
expense Cash xx can be measured reliably.
Revenue AR/Con. Asset/CL xx CIP →Gross Profit xx 2. The rendering of services;
Recognition Construction revenue xx Cost of Construction xx
 Outcome can be estimated reliably
Construction revenue xx
Amortization Construction cost xx 1) The amount of revenue can be measured reliably;
of contract Asset xx 2) It is probable that the economic benefits associated w/ the
cost transaction will flow to the entity;
Elimination PB xx
of PB and CIP xx
3) The stage of completion of the transaction at the of the reporting
CIP period can be measured reliably; and
Note: at the end of the transaction PB = CIP 4) The costs incurred for the transaction and the costs to complete
FS Presentation (SME) the transaction can be measured reliably.
Gross amount due from customers Gross amount due to customers  Use % of C
 CIP > PB  CIP < PB  Outcome cannot be estimated reliably
 Current assets  Current liability 1. Recognize revenue only to the extent of contract costs incurred
Others
that it is probable will be recoverable; and
 Pre-selling
2. Recognize contract costs as an expense in the period in w/c they
 Reservation
are incurred
 Contract to sell
 Use cost recovery method or zero-profit method
 Deed of Absolute Sale
USE BY OTHERS OF ENTITY’S ASSETS
Sec. 23: Scope
 An entity shall recognize revenue arising from the use by
Revenue from:
others of entity assets when
1. The sale of goods;
 It is probable that the economic benefits associated w/ the
 An entity shall recog. revenue from the sale of goods when ALL the
transaction will flow to the entity; and
ff. conditions are satisfied:
 The amount of the revenue can be measured reliably.
1) The entity has transferred to the buyer the significant risks and
 An entity shall recognize revenue on the ff. bases:
rewards of ownership of the goods
 Interest
2) The entity retains neither continuing managerial involvement to
 Royalties
the degree usually associated w/ ownership nor effective control
 Dividends
over the goods sold;
3) The amount of revenue can be measured reliably;
3. Construction contracts in w/c the entity is the contractor; and
 NOTES (AFAR)
 Same to the recognition of revenue in rendering services  Used when collections are for a period of time and no
4. The use by others of entity assets yielding interest, royalties or reasonable basis for estimating degree of collectability.
dividends. Cost recovery method (Sunk cost)
Measurement of Revenue  Used when the collection is very uncertain or highly
 An entity shall measure revenue at the FV of the consideration speculative
received or receivable  Used when the cash price is determined by future events
Consideration received Consideration Receivable Acceptability Under PFRs
 Cash  IB (w/ RR) 1. Accrual method  PIT
 Non-cash  IB (w/ UR) 2. Installment method GR: XPN: Micro entities 
 NIB Large entities – Full PFRS
CONTRACT REVENUE Medium entities – PFRS 4 SME
 Fixed price Small entities – PFRS 4 SE
 Penalty Micro-entities – either PFRS 4 SE or income tax basis
 Incentives 3. Cost recovery method
 Cost escalation T-Accounts
 Claims Installment A/R
 Change order Beg. xx xx Collections
Note: Unlike under PFRS 15, the variable consideration is the estimated Installment sls. xx xx Defaults/repossession
at the exception of the contract and will only be included if highly xx Write-offs
probable that it will not result to significant reversal xx EB
INSTALLMENT SALE (OLD US GAAP)
 A financing arrangement in w/c the seller allows the buyer to make Deferred GP (Installment AR x GP rate)
payments over an extended period of time Real. GP xx BB.
xx xx Installment sls.
 The buyer receives the goods at the beg. of the installment period
Defaults .
and makes payments over the installment period. xx
Methods of Recognizing GP Write-offs
Accrual Method xx
 Used when collection of the balance is reasonably assured EB
Installment Method xx
 Used when collections of the balance are not reasonably Some important Formulas:
assured or the possibility of cancellation of the installment sales a. GP rates
contract. 1) CY = GPTY/Installment sls.
 NOTES (AFAR)
2) PY = DGP, beg/Installment AR, beg. HOME OFFICE BOOKS
b. Over (under) = Trade in value – FMV BRANCH BOOKS
c. FMV = Est. SP – reconditioning cost – normal profit resale – CTS Branch xx shipment to shipment from xx HO
d. G/L on repossession = FMV – Unrecovered cost Current branch HO xx
xx xx branch loading
e. Deferred GP = Installment A/R bal. x GP ratio
f. Realized GP = [GP rate x (Collections + FV of trade in)]
Trade in value = FV Allowance for over valuation or deferred GP – used
Trade in value > FV: over-allowance when shipments billed above cost
Trade in value < FV: under-allowance When is BC ↑?
ACCTNG. PROCEDURES FOR DEFAULTS AND REPOSSESSION 1. Invest
1. The installment account and the deferred GP are eliminated. 2. Exp. of the branch paid by the Home Office
2. The repossessed merchandise is recorded as used inventory at 3. Liability of branch paid by the Home Office
its NRV 4. Return on investment
3. BDE and a G/L on repossession are recognized When is BC ↓?
BRANCH AGENCY 1. Return of investment
Degree of Autonomy More Less 2. Exp./Liab. of Home Office that is by the branch.
Independence
3. Receivable of branch collected by Home Office – in substance it
Samples vs. stocks Stocks Samples
is like a remittance.
Credit Approval Branch Home office
COMBINED FS
Collection & pymt. Branch Home office
 FS of a reporting entity that comprises 2 or more entities that are
Books Single & Double entry Single entry
Acctng. Issues not all linked by a parent-subsidiary relationship.
 General procedures – shipments billed @ cost = Home Office FS + Branch FS ± Combination entries
 Special procedures – shipments billed above cost NOTE: Realized branch loading is always added to branch reported NI
 Special procedures – interbranch transfers of cash INTERBRANCH TRASNFERS
 Special procedures – interbranch transfers of merchandise CASH MERCHANDISE
 Reconciliation of reciprocal accounts Note: Transfer of HO to branch and branch to another branch is treated
as if the one they are transacting is the HO

UNIQUE ACCOUNT TITLES

 NOTES (AFAR)
JOINT ARRANGEMENT Separate vehicle Notes: 1 or more joint operators may act as manager who will oversee
to day-to-day operation. Managers usually paid a fee for such duties.
Rights Asset
w/ or w/o Management fees are treated as expense by the joint operators and as
1. J.O inc. by the manager.
Obligations Liab. 2. J.V @PAS28
FOREX AND HYPERINFLATION
2. J.V Rights Net assets w/ Functional Currency
Primary Indicators
Note: J.O, If the parties have the right to asset & obligation for liab.  Revenue and operating cash inflows
while JV, if the entity has the right to asset & obligation for liab.  OPEX and cash outflows
 It is possible to have joint control even you don’t have equal Secondary indicators
interest.  Financing activities
 Min. voting to have joint control is ≥ 75%  Retention of operating income
ACCTNG. Exchange Rate
1. J.O @PFRS11  The value of a country’s currency vs. that of another country or
(Traditional) economic zone
a) w/ separate books Quotation:
- J.O books (normal JE) 1. Direct – 1 unit of FCU is expresses in terms of the LCU
- joint operators-books Ex: $1: ₱50 $1k x ₱50 = ₱50k
b) w/o separate books – J.O is relatively short-lived 2. Indirect – 1 unit of LCU is expressed in terms of FCU
- J.O-no books Ex: ₱1: $.02 $1k / $.02 = ₱50k
- Joint operators – J.O transactions involving inc. & exp. are Trivial Q1
recorded in each of the indiv. books using the “JO” 1. The Great Britain Pound (GBP)/USD forex currency pair is also
> partial known as Cable (transatlantic telecommunications cable)
> full 2. In relation to the Phil. Peso, PHP is the currency code while ₱ is
JOINT OPERATION the currency symbol
MERCHANDISE CONTRI. MERCHANDISE WITHDRAWAL RATES
PURCHASES & FREIGHT-IN PURCHASE RETURN & DISC. 1. Spot rate – exchange rate for immediate delivery
SLS. RETURN & DISC. SLS & OTHER INCOME
2. Current rate – exchange rate as of this very moment
EXPENSES UNSOLD MERCHANDISE, IF ANY
3. Historical rate – exchange rate from the past or exchange rate
CR. Bal represents PROFIT
yesterday
DR. Bal represents LOSS
4. Closing rate – rate on the BS date
 NOTES (AFAR)
5. Forward rate – used to forward contract, the pre-determined FA-M
rate for exchange or delivery in the future FA-NM Cash
6. Future rate – for future contract, the pre-determined rate for FA@FVTPL AR
exchange or delivery in the future FA@FVOCI ADA
7. Average rate – it can ave. for a day, week, quarter, month, yr… Inv't in assoc. FA@AC
8. Buying rate Determined from a POV of the foreign currency Derivatives* Prepaid
9. Selling rate broker Interest
Import/Borrowing – selling rate
Non-Financial & Non-Monetary Non-financial & Monetary
Export/Lending – buring rate
Bio asset SSS payable
PPE
Monetary Asset
Warranty
 Units of Currency Held
Prepaid rent
- Cash on Hand
Grey Area: DTL
- CIB
 Asset Receivables in Fixed/Determinable CU PAS 21 The Effect of Changes in FOREX Rates
- AR Foreign Currency denominated transaction
- ADA Foreign operation FS translation
- Lease receivable PAS 29 Financial Reporting in Hyperinflationary Economies
- Loan receivable
FS restatement
- Financial Asset@AC
FOREX transaction (4D’s)
Monetary Liab.
 Ordering date – IGNORED
 Liab. payable in Fixed/Determinable CU
 Transaction date – used exchange rate on this date
Ex: G/L (Historical rate)
- AP
 BS date – if Monetary asset/liab. → convert to/translate in
- Lease payable
Closing rate
- Loan payable
G/L -Non-monetary asset/liab.@Cost → Historical rate
- Financial Liab.@AC
-Non-monetary asset/liab.@FV → Closing rate
GR: Debt - monetary
 Settlement date → Current rate on the settlement date
Equity – non-monetary
IFRIC 22 Foreign Currency Transactions and Advance Consideration
@ FV – non-monetary
Date Description Amoun XR
t
 NOTES (AFAR)
22 Feb 20x1 Advance pymt. $1k $1: ₱50
1 Mar 20x1 Transfer of control to buyer $1k $1: ₱60 Characteristics:
Date JE: Seller Dr. Cr. 1. Its value changes in response to the change in an underlying
22 Feb 20x1 CIB 50k variable
Contract liab. (NML) – HR 50k 2. Requires smaller or no initial investment
1 Mar 20x1 Contract liab. 50k 50k 3. Settled at a future date
Revenue Ex: Forward-based 
Date JE: Seller Dr. Cr. Option-based ֎
22 Feb 20x1 Advances to supplier (NMA) – HR 50k  Forward contract – private contract 
CIB 50k
 Futures contract – generic traded 
1 Mar 20x1 Purchases/Inv. 50k
 Options – a right but not an obligation to buy or to sell at a
Advances to supplier 50k
fixed price/strike price (call & put) ֎
Note: Date of transaction is when the pymt. was received, exchange
 Interest rate swap 
rate when you received it is the one you should use. If there’s a series
 Interest rate Cap & Floor ֎
of pymt., every time you receive pymt. use the exchange rate on that
 Swaptions
date and the cumulative bal. will be the contract liab./revenue
Acctng.
Consensus
Initial Recognition – when the entity becomes a party to the contract
 The date of the transaction for the purpose of determining the
Initial Measurement: @ FV but at times you might don’t have initial
exchange rate to use on initial recog. of the related asset, exp., or
value especially if it is forward-based
income (or part of it) is the date on w/c an entity initially recognizes
Subsequent Meas.: @FV
the non-monetary asset or non-monetary liab. arising from the
EMBEDDED DERIVATIVES
payment or receipt of advance consideration
Hybrid Instrument = Non-derivative Host Contract + Embedded
 If there are multiple payments or receipts in advance, the entity
Derivatives
shall determine a date of the transaction for each payment or
receipt of advance consideration.
DERIVATIVES – derives its value from the value of underlying
PFRS 9 – Financial instrument
PFRS 7 – Financial instrument: disclosures
PAS 32 – Financial instrument: Presentation
PAS 39 – Financial instruments: recog. and measurement
PAS 21 – The effect of change in FOREX rates