PARTNERSHIP FORMATION PARTNERSHIP OPERATIONS

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].

Old A Old B New C Total RETIREMENT/WITHDRAWAL OF OLD PARTNER

Contribution xxx xxx xxx
 At date of retirement, partners’ capital accounts shall be
Revaluation xxx xxx xxx
adjusted for:
Balance
Transfer of Interest (xxx) xxx - o Their share in profit or loss as of the date of
Agreed Capital xxx xxx xxx xxx retirement
 o Their share in asset revaluation (not implied, thus
must be indicated) 1. In determining the Capital Accounts of partners
o Loan Balances before liquidation:
 The Adjusted Capital of the retiring partner may be 2. Gain or loss is distributed to capital accounts based
recovered thru: on partners’ PL ratio
1. Sales to Outsider – mere transfer of interest (same 3. Liabilities should be paid in full OR cash sufficient
with admission by purchase) to ensure payment of all liabilities and future
2. Sale to remaining partners – mere transfer of expense must be withheld.
interest between partners 4. After payment of all liabilities, partners loan
3. Payment of his share by the partnership: accounts must be paid with right of offset,
Settlement Price = Adjusted Capital NO BONUS 5. Cash distribution to partners should be made with
Settlement Price > Adjusted Capital Bonus to RETIRING partner the objective of systematically bringing the ratio of
Settlement Price < Adjusted Capital Bonus to REMAINING partner capital accounts in agreement with partners PL
ratio. Thus, in the end, PL RATIO = CAPITAL RATIO.
INCORPORATION
Step 1: Adjust capital accounts DETERMINATION OF CASH DISTRIBUTION (TWO
Step 2: Close Adjusted capital accounts into Share Capital ALTERNATIVE METHODS)
and APIC if any. SAFE PAYMENT
-done every cash payment to partners
DEATH OF PARTNER A B
 Settlement is EITHER. Capital Balance xxx xxx
Option 1 (-) Maximum Loss (xxx) (xxx) note 1
Free Interest xxx xxx
BEG OF THE YEAR DATE OF DEATH SETTLEMENT (+/-) Absorption (xxx) xxx note 2
To be Distributed xxx xxx

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

STATEMENT OF AFFAIRS (Initially prepared by

Supplementary Accounts
Corporation before Liquidation process – Estimated
Expenses and Losses Revenue and Gains
Amounts only) xxx xxx

TOTAL ASSETS (at NRV or FMV) Notes:

 ASSETS PLEDGED TO FULLY SECURED xx  The receiver normally open NEW accounting books for
CREDITORS
the liquidating corporation and RECORDS assets and
 ASSETS PLEDGED TO PARTIALLY SECURED xx
liabilities at their BOOK VALUES
CREDITORS
 The DIFFERENCE of corporation’s assets and liabilities is
 FREE ASSETS xx xx
(a) Assets not pledged CLOSED to ESTATE EQUITY account.
(b) Excess of Assets pledged to fully secured  During liquidation process, the following are DIRECTLY
creditors CLOSED to ESTATE EQUITY account:
TOTAL LIABILITIES (at required amount to xx 1. Unrecorded assets and liabilities arises (new)
settle or BV) 2. Expenses and Revenue during liquidation
 UNSECURED DEBTS WITH PRIORITY xx 3. Gains and Losses upon realization of assets
a) Administrative Expenses of Receiver
b) Unpaid Employee’s salaries, wages, Special Notes:
and benefit plans - Insolvency means sum of debts > sum of assets of
c) Corporate Crimes corporation at FV
d) Taxes (National, Provincial, - In times of insolvency, corporation has 3 alternatives:
City/Municipality)
1. Liquidation – operation ceases (voluntary)
e) Corporate Torts
2. Debt restructuring – operation continues (if
f) Notarized Debts/Judgement Debts
 FULLY SECURED DEBTS xx accepted by the parties)
 PARTIALLY SECURED DEBTS – SECURED xx (x) 3. Reorganization – operation continues (if accepted
PORTION by the parties)
Cash Available for Unsecured Liabilities (Or xx - Statements to be prepared:
Net Free Assets) [A]  By the liquidating corporation:
 UNSECURED DEBTS WITHOUT PRIORITY (x) o Statement of Affairs – prepared by
(a) Partially Secured Liabilities – Unsecured corporation before liquidation
Portion - not a going concern statement, thus
(b) Purely Unsecured Liabilities historical costs are IRRELEVANT
Estimated Deficiency [B] xx  By the receiver/trustee assigned by the SEC:
1. Statement of Cash Receipts and Disbursement
RECOVERY RATE = A/B 2. Statement of Estate Equity (Deficit)
3. Statement of Realization and Liquidation
RECOVERABLE AMOUNT OF CREDITORS:
(A) Unsecured Debts with priority 100%
(B) Fully Secured Debts 100%
(C) Partially Secured Debts NRV of Asset
pledge +
Balance at
Recovery Rate
(D) Unsecured Debts without priority Balance at
Recovery Rate
 * INSTALLMENT SALES WITH TRADE INS
INSTALLMENT SALES Journal Entry:
*Revenue Recognition at the Point in Time Traded in Item (at NRV) xxx
Over-allowance (plug*) xxx
A. SALE OF MERCHANDISE INVENTORY Installment Acct. Receivables (excess) xxx
Installment Sales (at Gross) xxx
INSTALLMENT SALES DEFERRED GROSS PROFIT
RECEIVABLE (plug*)
Installment Acct IAR, Beg X GPR Trade in Allow (actual) xxx
Receivables, Beg xxx xxx (-) True MV/NRV of item (xxx)
(-) Repossessions (xxx) IAR, Repo. Bal X GPR (xxx) Over (Under) Allowance xxx
(-) Write Offs (xxx) IAR, W/O Bal X GPR (xxx)
(-) Collections Note:
(excluding Installment Sales xxx
interests) (xxx) IAR Collections X GPR (xxx) (-) Over-allowance or (xxx)
Installment Acct (+) Under-allowance xxx
Receivables, End xxx IAR, End X GPR xxx Adjusted Sales xxx

* TRUE MARKET VALUE/NRV: B. SALE OF REAL PROPERTY

Estimated Selling Price xxx
(-) Cost to Sell (xxx) * CASUAL SALE
(-) Reconditioning Costs (xxx) Sales Price xxx
(-) Normal Profit Margin (at GPR of the year of (-) Book Value:
repossession) (xxx) Cost xxx
True Market Value/NRV xxx Acc. Dep, if any xxx xxx
NOTE: Use of the formula above ONLY, when the FAIR Deferred GP xxx
VALUE IS NOT GIVEN
* AS A REAL ESTATE (INVENTORY)
* GROSS PROFIT RATE Sales Price xxx
Installment Sales xxx (-) Cost of Sales (xxx)
(-) Over Allowance for TMV (xxx) Deferred GP xxx
(+) Under Allowance for TMV (xxx)
Adjusted Installment Sales xxx * RGP IN INSTALLMENT SALES
Cost of Installments Sales xxx Probability of Collection Method Used
Deferred Gross Profit xxx Reasonable Accrual Basis
Remote Cost Recovery Method
Note 1 REPOSSESSIONS Neither of the two Installment Method
Journal Entry:
Repossessed Item (at NRV) xxx
Deferred Gross Profit (at GPR) xxx * Measurement of Sales Revenue in Installment Sales (IAS
Loss on Repossession (plug*) xxx 18)
Installment Acct. Rec. (at Gross) xxx 1. Cash (at Face Value)
2. Traded Inventory (True Market Value/FMV)
(plug*) 3. Notes Receivable (at either Present Value or Face
True MV/ NRV of Repo Item xxx Value, whichever is appropriate)
(-) Unrecovered Cost:
(ISR (at Gross) X Cost Ratio) xxx *Deferred Gross Profit (DGP) is a CONTRA-IAR ACCOUNT
Gain (Loss) on repossessions xxx

NOTE: Gains on Repossession is NOT RECOGNIZED

Note 2 WRITE OFF

Journal Entry:
Deferred Gross Profit (at GPR) xxx
Operating Expenses (at Cost Ratio) xxx
Installment Acct. Rec. (at Gross) xxx

NOTE: Loss on Repossessions and Impairment of IAR in case

of write off, shall be presented in PROFIT/LOSS.

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

B. COST RECOVERY METHOD (ZERO PROFIT)

Construction Revenue xxx (Contract Price X %) If If
Cost of Construction SQUEEZED (Revenue + Expected Expected
(xxx) RGLoss) GP GL
Realized Gross LOSS taken from solution table Total Contract Price:
(xxx) above Initial Contract Price xxx xxx
Variations (ex. bonus) xxx xxx xxx xxx
Note: POC rate to be used in getting the Construction (-)Total Estimated Cost:
Revenue, current year to be presented in the Income Cost incurred to date xxx xxx
Statement: Estimated cost to complete xxx xxx xxx (xxx)
Cum. POC rate, DURING the year % Expected Gross Profit (Loss) xxx xxx
(-)Cum. POC rate, LAST year (%) (x) % of Completion rate 0% 100%
POC rate, CURRENT YEAR % Cumulative Gross Profit ZERO xxx
(Loss)
(-) Cumulative GP(L), prior yrs ZERO (xxx)
Realized GP(L), current yr ZERO xxx

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

Note: POC rate to be used in getting the Construction

* ACCOUNTING THE BALANCE OF IFF
Revenue, current year to be presented in the Income
Type of Note Measurement Interest Revenue
Statement:
* If interest FACE VALUE Face Value X NR
Cum. POC rate, DURING the year %
bearing
(-)Cum. POC rate, LAST year (%)
* If non-interest PRESENT CA X NR
POC rate, CURRENT YEAR %
bearing VALUE
NOTE: TOTAL ESTIMATED COST INCLUDES ALL COSTS that
STEP 1: Determine if IFF shall be recognized
are SPECIFICALLY CHARGEABLE TO & ARE REIMBURSEABLE
STEP 2: If IFF is to be recognized, determine the method in
BY CUSTOMER, regardless of cost function (Ex.
recognizing GP
General/Admin Expense)
STEP 3: Determine the period asked

FRANCHISE ACCOUNTING ACCRUAL BASIS

Cash (for Down Payment) xxx
* REVENUE RECOGNITION (+) Notes Receivables (for Balance) xxx (see table)
REVENUES US GAAP (POINT IFRS 15 (OVER Initial Franchise Fee xxx
IN TIME) TIME) (-) Direct Cost – Initial Service (xxx)
INITIAL  REQUISITES:  REQUISITES: GROSS PROFIT xxx
FRANCHISE FEE 1. With 1. Satisfaction of (+) Contingent Franchise Fee xxx
REVENUE (IFF) Substantial (at Performance (+) Interest Revenue xxx (see table)
least 90%) Obligation Total Franchise Revenue xxx
Performance (-) Indirect Cost – Initial Service (xxx)
of services (-) All Cost – Continuing Service (xxx)
2. Non- NET INCOME OF FRANCHISOR xxx
refundable
3. Period of INSTALLMENT METHOD
return has Cash (for Down Payment) xxx
expired (+) Notes Receivables (for Balance) xxx (see table)
CONTINGENT  REQUISITES:  REQUISITES: Initial Franchise Fee xxx
FRANCHISE FEE 1. With 1. Satisfaction of (-) Direct Cost – Initial Service (xxx)
REVENUE (CFF) Substantial Performance DEFERRED GROSS PROFIT xxx (DGP %)
(at least Obligation
90%) 2. Sale of Cash (for Down Payment), year of sale xxx
Performance Franchise occurs Principal Collection of NR xxx
of services Total Collection xxx
2. Non- (x) DGP rate (xxx)
refundable REALIZED GROSS PROFIT xxx
3. Period of (+) Contingent Franchise Fee xxx
return has (+) Interest Revenue xxx (see table)
expired Total Franchise Revenue xxx
4. Sale of (-) Indirect Cost – Initial Service (xxx)
Franchise (-) All Cost – Continuing Service (xxx)
occurs NET INCOME OF FRANCHISOR xxx
  Its Provisional Amount must be obtained from those
BUSINESS COMBINATION facts and circumstances EXISTING on acquisition date.
Otherwise, CHANGE IN VALUE within or beyond the
 IFRS 3 defines Business Combination as “Acquirer measurement period shall reflect to PROFIT or LOSS,
(parent) obtains CONTROL over the acquire thus, NO EFFECT to GW (GBP)
(subsidiary)”
 Use ACQUISITION METHOD ONLY IF ASSET IF EQUITY
 Steps to consider under acquisition method:  On Acquisition Date  On Acquisition Date
1. Identify the ACQUIRER - recognize CONTINGENT - Contingent Liability is
2. Determine the ACQUISITION DATE LIABILITY (FIN. LIAB.) NOT RECOGNIZED
3. Determine the CONSIDERATION whether probable or
4. Recognize & measure the identiable assets possible
acquired, liabilities assumed, any NCI in the
acquire
 Change in value WITHIN  Change in value WITHIN
5. Recognize & measure any resulting Goodwill or
the measurement the measurement
Gain on Bargain Purchase on business
period: period:
combination
- adjust GW (GBP) - DOES NOT affect GW
 FV of consideration & net assets acquired shall be (GBP)
measured at their ACQUISITION DATE FAIR VALUES
 Change in value BEYOND - record only additional
 Such fair values are subject to ONE (1) – YR the measurement shares issuance. Thus,
MEASUREMENT PERIOD from Acquisition Date. period: original amount NOT
Changes in Values within that period are called - adjust contingent remeasured
MEASUREMENT PERIOD ADJUSTMENTS affecting GW consideration to profit or Entry: APIC xxx
(GBP). Thus, generally, shall be accounted for loss SC xxx
RETROSPECTIVELY.

NOTE 2 NON CONTROLLING INTEREST (NCI)

BASIC FORMULA
FV of Consideration Given Up xxx note 1 - arises in <100% interest acquisition but >50% interest of
(+) Non-Controlling Interest (NCI) xxx note 2 Sub’s Ordinary Shares (partially owned Subsidiary)
(+) FV of Previously Held Interest xxx note 3
Initial Carrying Amount xxx INITIAL MEASUREMENT OF NCI
(-) FV of Net Assets Acquired (xxx) note 4 FV of Net Assets Acquired xxx
Goodwill (Gain on Barg. Purc.) xxx note 5 (x) NCI % %
Proportionate Share of NCI xxx OR;

Additional Notes FV of Consideration (EXCL. control premium) xxx (see note)

 Asset Acquisition (a) Merger: A + B = A or B (x) NCI % / Acquired % %
(b) Consolidation: A + B = C Implied Fair Value of NCI (unless given) xxx

 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

- Part of Total Consideration/Initial CA of Investment in ACQ DATE COSTS SME NON-SME

Subsidiary in case of ACHIEVED IN STAGES ACQUISITION  DIRECT COSTS Capitalized Expensed (PL)
(STEP ACQUISITION)  INDIRECT COSTS Expensed (PL) Expensed (PL)
- These costs are assumed paid in cash, thus, DECREASES
FV of Previous Investment * xxx CONSO ASSETS at Acquisition Date Consolidation
(-) CA of Previous Investment ** (xxx)
Gain or Loss on Remeasurement xxx  STOCK ISSUANCE COSTS (in case equity interest is part of
consideration)
* (Sub FV of NA at the time Control is achieved X Previous 1. Debit to SHARE PREMIUM FROM ORIGINAL
Interest (%) Held = FV of Previous Investment) ISSUANCE
** CA as of the date control is achieved 2. Credit/Debit to SIC ACCOUNT (contra equity
account of the ff:)
Entry: Investment in Subsidiary @ FV xxx a. Other SP – Other issuance
Loss on Remeasurement xxx b. Retained Earnings
Previous Investment@ CA xxx  Listing Fee – Expensed as Incurred (Profit or Loss)
Gain on Remeasurement xxx

NOTE: GL on Remeasurement is presented in PROFIT or

LOSS. Thus, this AFFECTS CONSO EQUITY on Acquisition CONSOLIDATION
Date Consolidation
AT THE TIME OF ACQUISITON
NOTE 4 FAIR VALUE OF NET ASSETS ACQUIRED  At the acquisition date ONLY the BALANCE SHEET shall
be consolidated.
* Generally, at acquisition date, Sub’s Identiable Assets
acquired and Liabilities assumed by the parent shall be BS ELEMENTS Parent Subsidiary
adjusted to their ACQUISITION DATE FAIR VALUES Assets Book Value Fair Value
Liabilities Book Value Fair Value
* Exception: NCA Held for Sale of Sub shall be measured at Equity Book Value NCI
the LOWER of Book Value & FV – COD
CONSOLIDATED ASSETS
* GOODWILL OF SUBSIDIARY shall be REDUCED TO ZERO Parent Total Assets at Acquisition date xxx
(0) (-) Consideration Given Up (Cash or NCA) (xxx)
(-) Payment to Acq Date Costs (xxx)
NOTE 5 GOODWILL (GAIN ON BARGAIN PURCHASE) (+) Goodwill on business combination xxx
Parents Adjusted TA @ Book Values xxx
* In case of ASSET ACQUISITION, GW (GBP) shall be (+) Subs Adjusted TA @ Fair Values xxx
recognized at acquisition date since consolidation is CONSOLIDATED ASSETS at Acq Date xxx
AUTOMATIC Note: “Investment in Subsidiary” account of Parent shall be
* In case of STOCK ACQUISITON, GW (GBP) shall be ELIMINATED upon consolidation
recognized upon CONSOLIDATION ONLY
CONSOLIDATED LIABILITIES
GOODWILL Parent Total Liabilities at Acquisition date xxx
- shall be presented as NON CURRENT ASSET @ Balance (+) Contingent Consideration (if asset) xxx
Sheet Parents Adjusted TL @ Book Values xxx
- INCREASES CONSO ASSETS at Acquisition Date (+) Subs Adjusted TL @ Fair Values xxx
CONSOLIDATED LIABILITIES at Acq Date xxx
SME Amortized over 10 years (max)
NONSME Not amortized but subject to impairment CONSOLIDATED EQUITY
test at least annually Parent Equity at Acquisition date xxx
(+) Shares Issued as Consideration at TFV xxx Equity
GAIN ON BARGAIN PURCHASE (+) Gain on Bargain Purchase xxx PL
- shall be presented as part of PROFIT OR LOSS @ Income (-) Acq Date Costs (xxx) PL
Statement (-) Stock Issuance Costs (xxx) Equity
- at Acquisition Date Consolidation, this AFFECTS CONSO (+/-) Remeasurement GL of Prev. Int. Held (xxx) PL
RE thus, CONSO EQUITY (+/-) Others presented at P/L (xxx) PL
Parents Adjusted Equity @ Book Values xxx
FLOW: PL – IE SUMMARY – CONSO RE – CONSO EQUITY (+) Non Controlling Interest of Sub xxx
CONSOLIDATED EQUITY at Acq Date xxx
Note: “Equity Accounts” of SUBSIDIARY shall be
ELIMINATED upon consolidation
TWO COLUMN METHOD (-) Unrealized GP (End Invty*GPR) (xxx)
TOTAL PARENT NCI
Non-Depreciable Assets
(-) Fair Value of Sub’s Net Assets XXX XXX XXX (-) Unrealized GL (year of intercompany sale) (xxx)
Total Goodwill (Partial Gain on Barg Pur) (XXX) (XXX) (XXX) (+) Realized GL (when sold to outsider) xxx
Total Goodwill (partial Gain on Barg Pur) XXX XXX XXX Depreciable Assets
(-) Unrealized GL (year of intercompany sale) (xxx)
CNI PARENT NCI
* PARENT ADJUSTED NET INCOME (100%) (80%) (20%) (+) Realized GL (when sold to outsider) xxx
Reported Net Income (Cost Method) XXX XXX NET EFFECT XXX
(+) Gain on Bargain Purchase XXX XXX
(-) Acquisition Cost of BC (year of BC) (XXX) (XXX)
(-) Dividend Income from Sub (XXX) (XXX)
NOTE: INTERCOMPANY TRANSACTION (GRANT LOAN)
(+/-) Effects of Downstream
Transactions
This results to INTEREST INCOME on the Grantor-affiliate
XXX XXX
& INTEREST EXPENSE on the Grantee-affiliate. Thus,
* SUBSIDIARY’S ADJUSTED NI CNI PARENT NCI upon consolidation, the effect of grant loan shall be
(100%) (80%) (20%)
ELIMINATED
Reported Net Income (Book Value) XXX XXX XXX
(+/-) Effects of Amortization
Difference on BV & FV of Sub’s Assets
CONSOLIDATED SALES, COST OF SALES, GROSS PROFIT
and Liabilities XXX XXX XXX
(+/-) Effects of Upstream Transactions XXX XXX XXX CONSOLIDATED SALES
(+/-) Effects of Sub- Transactions XXX XXX XXX Reported Sales of Parent xxx
(+/-) Effects of Downstream (+) Reported Sales of Sub xxx
Transactions XXX XXX XXX Total Sales xxx
(-) Impairment Loss of Total Goodwill (XXX) (XXX) (XXX) (-) Intercompany Sales related to
CONSOLIDATED COMPREHENSIVE INC XXX XXX XXX INVENTORY (US & DS) (xxx) xxx

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

CNI Attributable to Parent (squeezed) xxx NON-CONTROLLING INTEREST (NCI)

CNI Attributable to NCI (Sub’s Adjusted NI x NCI %) xxx
CONSOLIDATED COMPREHENSIVE INCOME xxx Non-Controlling Interest, Beginning xxx
(+) CNI Attributable to NCI (NCINI) xxx
(-) Dividends Declared by Sub to NCI (xxx)
Non-Controlling Interest, Ending xxx
* EFFECTS OF DOWNSTREAM & UPSTREAM TRANSATIONS
Inventories
(+) Realized GP (Beg Invty * GPR) xxx