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VALUATION A B TOTAL
1. Cash at FACE VALUE (if foregin currency at current 1. Interest xxx xxx xxx
exchange rate) 2. Salaries xxx xxx xxx
2. Inventory at LCNRV or Fair Value 3. Bonus to MP xxx xxx xxx
3. Other Non-Cash Assets (Order of Priority) Remainder as agreed xxx xxx xxx
a. Agreed Value Total Share in PL xxx xxx PL
b. Fair Value
c. Appraised Value 1. INTEREST (on beginning/ending/average/original
d. Carrying Value capital)
4. Liabilities are considered ASSUMED unless otherwise - would be a fractional year
stated to the contrary - given REGARDLESS of the result of operation (whether
5. Capital Accounts are accounted using 2 methods: NI or NL)
a. BONUS METHOD - Interest is NOT AN EXPENSE
- No goodwill recognition - If the base is not specified, use AVERAGE Capital
- Total Assets & Total Liabilities remain - must be specifically agreed upon by partners
unchanged NOTE: In averaging of capital, only the following is
- Total Contributed Capital (TCC) = Total considered:
Agreed Capital (TAC) a. Additional Investment
b. Permanent Withdrawals
- Partner’s Contribution NOT EQUAL to
Partner’s Capital If based on Capital, interest is ADDED to partner’s share
- There’s only a transfer of capital among in NI
partners If based on Drawings, interest is DEDUCTED from
partner’s share in NI
b. INVESTMENT (WITHDRAWAL) METHOD
- If Adjusted Capital > Unadjusted Capital (Investment) 2. SALARIES
- If Adjusted Capital < Unadjusted Capital (Withdrawal) - would be a fractional year
- Total Contributed Capital (TCC) >< Total - given REGARDLESS of the result of operation (whether
Agreed Capital (TAC) NI or NL)
- Partner’s Contribution = Partner’s Capital - Interest is NOT AN EXPENSE
- Results to Additional Contribution or - must be specifically agreed upon by partners
Withdrawal
Special note:
6. Adjusting entries for Depreciable Assets (& Other
- If there’s an agreement that the amount to be distributed
Assets) require adjustment to their CONTRA
among the partners is limited up to the extent of profit
ACCOUNTS with the capital balance.
only or based on the following priority, USE the SALARY
Ex. Capital Account xxx
RATIO/INTEREST RATIO, whichever is applicable
Accumulated Depreciation xxx
(to record decrease in PPE)
3. BONUS TO MANAGING PARTNER
7. To transfer Depreciable Assets to the new book of
- provided if there’s a PROFIT ONLY
partnership, these shall be recorded at NET AMOUNT
- if based on NI before bonus, it is not an expense
8. To transfer accounts receivables to the new book of
- if based on NI after bonus, it is considered as EXPENSE
partnership, these shall be recorded at GROSS
AMOUNT (can still be recorded eventually)
FORMULA:
9. PL ratio is IRRELEVANT in this stage.
a. Bonus is at NI AFTER BONUS and/or others (S/I)
𝑁𝐼 𝑙𝑒𝑠𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑑𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑠 (𝑆/𝐼)
𝐵𝑜𝑛𝑢𝑠 = 𝑋𝐵𝑅
(1 + 𝐵𝑜𝑛𝑢𝑠 𝑅𝑎𝑡𝑒)
NOTE: If asset revaluation is the appropriate method, but
PARTNERSHIP DISSOLUTION the amount of over/under valuation (or adjustment in
1. ADMISSION OF NEW PARTNERS assets) is not given, TOTAL AGREED CAPITAL is computed
2. RETIREMENT/WITHDRAWAL OF EXISTING PARTNER as follows: [New Partner Payment / Acquired Interest (%) in
3. DEATH OF EXISTING PARTNER the firm].
4. INCORPORATION OF PARTNERSHIP
B. BY INVESTMENT
ADMISSION OF NEW PARTNER DETERMINATION OF NEW PARTNER’S AGREED CAPITAL
A. BY PURCHASE Old Partners’ Contributed Capital xxx
WITHOUT REVALUATION (If Silent) (Payment = Interest New Partner’s Contributed Capital xxx [A]
acquired) Under-Valuation of assets (if any) xxx
Personal-transaction between old and new partners Over-Valuation of assets (if any) (xxx)
NO goodwill recognition TOTAL CONTRIBUTIONS xxx
Total assets and total capital remains unchanged (x) Interest acquired %
The purchase transaction is not recorded in partnership’s AGREED CAPITAL OF NEW PARTNER xxx [B]
book. What shall be recorded is only the transfer of
interest from old to new partner A=B NO revaluation or bonus or goodwill
Old A Old B New C Total A>B UNDER-valuation or Bonus to OLD partners
Contribution xxx xxx xxx A<B OVER-valuation or Bonus to NEW partner
Transfer of Interest (xxx) xxx -
Agreed Capital xxx xxx xxx xxx METHOD 1: BONUS METHOD (if silent)
Total Contributed Capital (TCC) = Total Agreed Capital
WITH REVALUATION (Indicator: Payment >< Interest (TAC)
acquired) Partner’s Contributed Capital (before admission) NOT
2 Steps to determine the balance of old partners AFTER EQUAL their Agreed Capital (after admission)
ADMISSION The change between partners’ capital account before
1. Determine the revaluation (over/under) AND and after admission is either BONUS from old partner to
distribute to old partners using their PL ratio new partner or vice versa.
2. Transfer Capital to the new partner
Old A Old B New C Total
Old A Old B New C Total Contribution xxx xxx xxx xxx
Contribution xxx xxx xxx Bonus xxx (xxx) xxx -
Revaluation xxx xxx xxx Agreed Capital xxx xxx xxx xxx
Balance
Transfer of Interest (xxx) xxx -
METHOD 2: ASSET REVALUATION METHOD (not implied)
Agreed Capital xxx xxx xxx xxx
Total Contributed Capital (TCC) NOT EQUAL Total Agreed
Capital (TAC)
NOTE: If asset revaluation is the appropriate method, but
Old partners’ contributed capital (before admission) NOT
the amount of over/under valuation (or adjustment in
EQUAL their agreed capital (after admission)
assets) is not given. The BALANCE AFTER REVALUATION OF
THE SELLING PARTNER is computed as follows: [New New partners’ contributed capital = agreed capital
Partner Payment / Acquired Interest (%) from selling Over/Under Valuation is distributed to OLD PARTNERS
partner]. The, SQUEEZED. using their PL RATIO
SPECIAL CASE: ASSET REVALUATION AND BONUS Old A Old B New C Total
Contribution xxx xxx xxx xxx
COMBINED
Bonus xxx (xxx) xxx
Total Contributed Capital (TCC) NOT EQUAL Total Agreed
Agreed Capital xxx xxx xxx xxx
Capital (TAC)
Partners’ contributed capital (before admission) NOT NOTE: If asset revaluation is the appropriate method, but
EQUAL their agreed capital (after admission) the amount of over/under valuation (or adjustment in
Old partners accounts are adjusted twice, (1) for asset assets) is not given. TOTAL AGREED CAPITAL is computed
revaluation (2) for bonus as follows: [New Partner Contribution / Acquired Interest
New partner account is adjusted ONLY by Bonus (%) in the firm].
Pro-rata2 share
Option Shareininprofits plus for the WHOLE
the Profit InterestYEAR
on Capital Note 1: Maximum Loss is composed of:
1. Unrealized Non-Cash Assets
2. Cash Withheld
Other Components
PARTNERSHIP LIQUIDATION 3. Unrealized Loss
4. Liabilities
2 Methods:
1. LUMP SUM LIQUIDATION Note 2: In case, there is a deficient partner during safe
2. LIQUIDATION BY INSTALLMENT payment, deficiency shall be ABSORBED ONLY by
other partners, as they are all considered insolvent
LUMP SUM LIQUIDATION – one time payment under safe payment. If no deficiency, free interest
LIQUIDATION PROCESS = distributable cash.
STEP 1: Sale of Non-Cash Assets and Distribution of Gain or
Loss to partners (Realization of NCA) CASH DISTRIBUTION PROGRAM
STEP 2: Payment of Liabilities (does not affect capital -determines partner to be paid first
balances)
STEP 3: Elimination of Deficiency (order of priority) A B
A. Right of Offset (If DP has loans receivable from Capital Balance xxx xxx
the partnership) (+/-) Loans (xxx) (xxx)
B. Additional Investment (If DP is solvent; up to Adjusted Capital Balance xxx xxx
extent of his solvency) (+) Corresponding PL ratio % % note 2
C. Absorption of others with adequate balance (If Loss Absorption Ability xxx xxx
DP is insolvent allocate based on remaining PL Note: whatever has the HIGHEST LAA shall be the FIRST
ratio) PRIORITY in cash distribution, so on and so forth.
STEP 4: Payment to partners (order of priority)
A. Loan Accounts 1st Priority LAA xxx
B. Capital Accounts (-) 2nd Priority LAA (xxx)
Excess xxx
NOTE: Before Liquidation, All Account Balances MUST BE (x) corresponding PL ratio %
st
ADJUSTED, specifically capital accounts of partners To be distributed – 1 Priority xxx
* Any EXCESS CASH after paying all the priorities for cash
LIQUIDATION BY INSTALLMENT – series of payment distribution shall be distributed to all partners based on
-SAME liquidation process as lump sum liquidation, but it is their PL RATIO.
done by installment
SHORTCUT SOLUTION STATEMENT OF REALIZATION AND LIQUIDATION
Cash, Beginning Balance xxx (periodically prepared by Receiver/Trustee – Actual
proceeds from sale of NCA xxx Amounts)
Liquidation Expense (xxx)
Liabilities paid (xxx) Total Assets (EXCEPT CASH)
Distributable Cash xxx Lump Sum Assets To Be Liquidated Assets Liquidated
Cash withheld (xxx) Assets Acquired - new Assets not Liquidated
Distributable Cash xxx Installment xxx xxx
Total Liabilities
Liabilities Liquidated Liabilities To Be Liquidated
Liabilities not Liquidated Liabilities Incurred - new
CORPORATE LIQUIDATION xxx xxx
Note 3 COLLECTIONS
- Collections EXCLUDE interests collected, nut INCLUDES
down payment and Traded in items at its NRV
- Base on REALIZED GP, which is a YEAR END ADJUSTMENT
LONG-TERM CONSTRUCTION CONTRACTS *RELATED ACCOUNT BALANCES
CONSTRUCTION IN PROGRESS (CIP) – Current Asset
Revenue Recognition Over Time * Beginning Balance *Realized GP during the yr
Under IFRS 15, following are methods in computing for the *Cost Incurred during the yr *Ending Balance
*Realized GP during the yr
percentage of completion:
1. Cost to Cost Method
* Instances where CIP in BOTH METHODS are equal:
2. Survey Method
a. In the year of project completion, CIP=CONTRACT PRICE
3. Input Method
b. In the year there is expected gross loss. (CPrice<Total
4. Output Method
Cost)
A. PERCENTAGE OF COMPLETION (COST TO COST)
ALTERNATIVE SOLUTION FOR CIP
- used if the outcome of the contract can be measured
CASE 1. IF THERE IS EXPECTED GROSS PROFIT
reliably
Solution A Cost Incurred TO DATE xxx
(+) Cumulative Gross Profit xxx
If If
CIP, Ending Balance xxx
Expected Expected
GP GL
Solution B Contract Price xxx
Total Contract Price:
(x) % of completion xxx
Initial Contract Price xxx xxx
CIP, Ending Balance xxx
Variations (ex. bonus) xxx xxx xxx xxx
(-)Total Estimated Cost:
CASE 2. IF THERE IS EXPECTED GROSS LOSS
Cost incurred to date xxx xxx
Solution A Cost Incurred TO DATE xxx
Estimated cost to complete xxx xxx xxx (xxx)
(-) Cumulative Gross Loss xxx
Expected Gross Profit (Loss) xxx xxx
CIP, Ending Balance xxx
(x) % of Completion rate % 100%
Cumulative Gross Profit (Loss) xxx xxx
PROGRESS BILLINGS (PB) – Current Liability
(-) Cumulative GP(L), prior yrs (xxx) (xxx)
*Ending Balance * Beginning Balance
Realized GP(L), current yr xxx xxx
*Billings during the year
NOTE:
*At date of completion, PB = CONTRACT PRICE
Cost incurred TO DATE
Percentage of Completion rate
Total Estimated Cost
ACCOUNTS RECEIVABLE
* Beginning Balance *Mobilization Fee
- In BOTH method, expected Gross Loss shall be recognized *Billings during the year *Retention Fee
immediately at its FULL AMOUNT. Thus, EXPECTED GROSS *Collections
LOSS = CUM. GROSS LOSS *Ending Balance
- Variations is included in the contract price IF:
a. It is probable that it will result to revenue NOTE:
b. It can be measured reliably - Under the SAME CONTRACT, CIP and PB may be OFFSET
for presentation purposes in the Balance Sheet.
*PRESENTATION IN INCOME STATEMENT If CIP End balance > PB End balance:
Construction Revenue xxx (Contract Price X %) Difference = Due FROM Customer (CA)
Cost of Construction (xxx) Cost incurred during the year If CIP End balance < PB End balance:
Realized Gross taken from solution table
Difference = Due TO Customer (CL)
PROFIT xxx above
NOTE:
-Under Cost Recovery Method, Profit shall only be INTEREST Based on using effective
recognized at the DATE OF COMPLETION. However, Profit REVENUE passage of time interest method
may be realized if it is a result of the RECOVERY of Gross (under IAS 18) (under IAS 18)
Loss previously recognized. (Or as long as, GP is ZERO)
- Same procedure for CIP and PB computations (T- NOTE: Initial Franchise Fee xxx
ACCOUNT APPROACH) Contingent Franchise Fee xxx
Total Franchise FEE Revenue xxx
*PRESENTATION IN INCOME STATEMENT Interest Income xxx
Construction Revenue xxx (Contract Price X %) Total Franchise Revenue xxx
Cost of Construction (xxx) Cost incurred during the year
Realized Gross taken from solution table *RECOGNITION OF GROSS PROFIT IN FRANCHISE
PROFIT xxx above
Collectability Method Treatment When
Realized?
Reasonably ACCRUAL Recognize Immediately
Construction Revenue xxx (Contract Price X %) Assured BASIS GP at FULL
Cost of Construction SQUEEZED (Revenue + AMOUNT
(xxx) RGLoss)
NOT INSTALLMENT GP is When there’s
Realized Gross LOSS taken from solution table Reasonably METHOD DEFERRED collection
(xxx) above Assured
Stock Acquisition (a) wholly owned (100%) NOTE: FV of Consideration INCLUDES the following (IN
(b) partially owned (<100% but > CASE OF STEP ACQUISITION)
50%) (a) FV of consideration for NEWLY ACQUIRED INTEREST
(b) FV of Previously Held Interest
NOTE 1 FAIR VALUE OF CONSIDERATION
PS on FVNAA > FV of NCI Prop Share of NCI
1. Cash or Other Non-Cash Assets automatically
DECREASES CONSO ASSET on Acquisition Date
Consolidation Fair Value of NCI OR;
FV of NCI > PS on FVNAA
Journal Entry: Investment in Subsidiary xx Prop Share of NCI
Cash/Other Assets xx (whichever is
appropriate)
2. Equity Interest
INCREASES CONSO EQUITY on Acquisition Date Excess PS on FVNAA FV OF NCI
Consolidation Goodwill Partial Total/full
Journal Entry: Investment in Subsidiary xx Gain on BP Partial Partial
Share Capital xx
Share Premium xx If PARTIAL – affects CNI to PARENT (CONSO RE) only
If TOTAL – affects BOTH CNI to PARENT (CONSO RE) and
3. Contingent Consideration NCINI (NCINAS)
At FAIR VALUE or if not measured reliably, at PRESENT
VALUE NOTE: NCI is presented SEPARATELY in CONSO EQUITY on
Acquisition Date Consolidation
NOTE 3 PREVIOUSLY HELD INTEREST NOTE 6 SPECIAL NOTES TO REMEMBER
Observation: Parent (1-5) affects CNI to Parent Only. Sub CONSOLIDATED COST OF SALES
(1-4) affect BOTH CNI to Parent & NCINI Reported COS of Parent xxx
(+) Reported COS of Sub xxx
NOTE: Use TWO COLUMN METHOD ONLY IF the Total Cost of Sales xxx
following are PRESENT: (-) Intercompany COS related to
1. Control Premium OR; INVENTORY (US & DS) (xxx) xxx
2. Express Fair Value for NCI
CONSOLIDATED GROSS PROFIT xxx
AFTER ACQUISITION DATE
OR;
CONSOLIDATED COMPREHENSIVE INCOME
Reported GP of Parent xxx
* PARENT’S ADJUSTED NET INCOME (+) Reported GP of Sub xxx
Reported Net Income (Cost Method) xxx Total Gross Profit xxx
1 (+) Gain on Bargain Purchase xxx (+) Realized GP – Beg Invty xxx
2 (-) Acquisition Cost of BC (year of BC) xxx (-) Unrealized GP – End Invty (xxx)
3 (-) Dividend Income from Sub (xxx) (-) Realized GL – Beg Invty (xxx)
4 (-) Impairment Loss of Partial/Total GW (xxx) (+) Unrealized GL – End Invty xxx
5 (+/-)Effects of Downstream Transactions (xxx) xxx CONSOLIDATED GROSS PROFIT xxx
* SUBSIDIARY’S ADJUSTED NET INCOME NOTE: INVENTORY BALANCES refers to those acquired
Reported Net Income (Book Value) xxx through intercompany transaction and taken from record
1 (+/-)Effects of Amortization Difference on xxx of the BUYING affiliate
BV & FV of Sub’s Assets and Liabilities
2 (+/-) Effects of Upstream Transactions xxx CONSOLIDATED RETAINED EARNINGS (PARENT)
3 (+/-) Effects of Sub- Transactions (xxx)
4 (-) Impairment Loss of Total GW (xxx) xxx Consolidated RE of Parent, Beginning xxx
(+) CNI Attributable to Parent xxx
CONSOLIDATED COMPREHENSIVE INCOME xxx Consolidated RE of Parent, Ending xxx