ADVANCES TO OFFICERS price, which is called the Bargain Purchase
Option. If mahal, cannot be considered as finance
 They are recorded at present value and recognize
interest income.
 Amortization table for the amount advanced,
debit advances to officers, credit interest income.
(Using the effective interest method)
 Prepaid compensation expense is amortized in a
straight line basis. Just divide the amount by the
term. As we amortize it, debit Compensation
Expense, credit Prepaid Compensation Expense.
The Compensation Expense will contra the
Interest Income.
 Alternative entry: debit Advances to Officers-
2M, ang contra niya para maging 1271000
Discount on Officer’s Advances. As we
amortize, we debit Discount on Officer’s
Advances and credit Interest Income.
 We may amortize every end of the accounting
period or if it is on installment basis, every
payment.
INVESTMENT PROPERTY
 If not main line of business, and we rent it out to
earn additional income and we just don’t want the
land or space to be idle, it is an investment
property.
 If the space is divided into two, the half is being
used by the owner for the company purpose and
the other half is being rented out, the presentation
is divided. The part used is presented as PPE and
the part rented out is Investment Property.
 If only ¼ is used by the company, or if the part
used is not material, consider the whole property
as Investment Property.
 If the part used by the business is bigger than
what is rented out, consider the property as PPE.
 If half talaga, hati ang presentation.
 If nasa main line ng business, inventory.
 If we bought it nang walang purpose, Investment
Property.
 Types of leases: operating and finance.
 Operating lease – pay and pay but the ownership
is and will not be transferred.
 Finance lease – lease to own. It’s like buying in
installments. At the end of the term, there will be
an option for the buyer to purchase it for a small
lease. Pag binenta nang hindi magbebenta and
tinaasan price, not classified as finance lease.
 Substance over form – form is that the lessee will
only use the property for a period but in effect,
there will be a transfer of ownership. Yung form
niya is nagrerent lang but in substance, kanya na
yun.
 Lessor – for them, there are only two
classifications of lease. The first is dealer. He
really sells but dahil sa sobrang mahal ng benta
niya, you cannot pay it ng buo, kaya installments
na lang. So mukhang finance lease rin.
 If the finance lessee leases out to others,
operating lease yung classification ng sublease
niya to others. It is qualified to be classified as
Investment Property because the ownership will
be transferred at the end of the term. But kung
operating lessee lang tayo and we lease out to
others, it cannot be classified as Investment
Property because we do not own the property.
 How do we measure Investment Property? Just
like PPE, we can choose whether to use the Cost
Model or the Fair Value Model.
 If we choose the Fair Value Model, all the
properties must be measured in this way.
 Fair Value Model – we compare the carrying
value and the fair value. Any difference will be
the Gain on Fair Value Increase.
 The Gain on Fair Value Increase will be other
income.
 If FV Model is used, any changes in value as a
result of the market changes will be reported as
part of the profit or loss.
 Reclassification from Investment Property to
PPE – if using the Cost Model, whatever the FV
becomes the cost. Debit PPE and credit
Investment Property. No depreciation yet.
 Reclassification from Inventory to PPE – we
value inventory at cost and fv less cost to sell,
whichever is lower. Debit Decline in Market
value for Inventory, credit Allowance for Decline
in Market Value.
 Reclassification from PPE to Assets Held for
Sale – Update CV first. Debit Acc Dep, debit FV
of PPE, credit CV of PPE. Any difference will be
 debited to Loss on Reclassification or credited to debit Prepaid Insurance, credit Insurance
Gain on Reclassification. Before reclassification, Expense.
we must be sure that there is a market for it. If  Kung magkano yung masisingil from the
reclassified, depreciation stops. insurance company, debit Receivable from the
 If the Assets Held for Sale are not sold ibabalik Insurance Company.
sa PPE. FV becomes cost. Compute depreciation  Close all related accounts. (the cash surrender
again. Any difference will be Gain or Loss. value of insurance)
 If there is any difference, Gain or Loss on
CASH SURRENDER VALUE OF LIFE
Settlement of Insurance.
INSURANCE POLICY
 Pag di namatay tapos natapos na yung 10 years,
 Cash surrender value – the amount to be given makukuha natin yung cash if we want. But if di
back by the insurance company if nothing natin kinuha, it’s as if nakadeposit siya.
happens to the insured person. This will only
apply to officers na ang beneficiary is the
company. Ang pambayad sa premium came from
the company. So insurance expense ng company.
But if the company paid for the officer’s
insurance and the beneficiary is not the company,
say for example, the family is the beneficiary, it
is not an insurance expense. It is also an expense
but benefit na lang ng officer. You cannot debit
insurance expense if the company is not the
beneficiary.
 Example. If the term of the insurance is 10 years,
tapos sa pangatlong taon, wala pa ring
nangyayari sa insured officer, the insurance
company will give a notice saying, “At this point,
the cash surrender value is Php 50, 000.” We will
record it as our asset. Debit Cash Surrender Value
of Life Insurance Policy, credit Insurance
Expense. To reduce the insurance expense.
 If we pay for the insurance, debit Insurance
Expense, credit Cash. In apportioning to the
remaining accounting period, we record an
adjusting entry.
 In another year, another cash surrender value
(increase). Irerecord yung dagdag lang, Debit
Cash Surrender Value of Life Insurance Policy,
credit Insurance Expense.
 If the company issued dividends, it is not our
income. It becomes a deduction from Insurance
Expense. Debit Cash Surrender Value, credit
Insurance Expense.
 If the 10 year period has not yet lapsed but the
insured officer died, update the insurance first. If
may natitira pa na di na mag-aapply in the future,