SVFC BS Accountancy1

SAINT VINCENT DE FERRER COLLEGE DECEMBER 2019
BS ACCOUNTANCY (2nd semester SY 2019-2020) Part 1

ONLINE RESOURCES by Prof. Hector Santos Jr.
AUDITING PROBLEMS
I. Topic(s):
AUDIT OF REVENUE
II. Learning Objective(s):

To learn how to obtain sufficient competent evidence about each significant financial assertion
that pertains to the revenue cycle and related transactions and balances.
III. Rundown
Assertion Transactions Balances
Existence/  Recorded sales are valid Recorded accounts receivable
Occurrence and represent goods exist at the balance sheet
actually shipped or date.
services actually rendered.
 Recorded cash receipts
represent cash collected
during the period.
 Recorded sales
adjustments represent
authorized discounts,
returns or uncollectible
amounts.
Completeness All sales, cash collection, and sales Accounts receivable includes
adjustments are recorded. all amounts due from
customers.
Obligations/ Rights The entity has the rights to collect Accounts receivable represent
recorded receivables. legal enforceable claims.
Valuation Sales revenues, receivables, cash  Accounts receivable

collections, and adjustments are are properly valued as
correctly journalized, summaries, recorded in the
posted and properly valued. customer ledger.
 The Allowance for
Doubtful Accounts
represents a
reasonable estimate
of uncollectible
accounts.

Report: Presentation Sales, cash receipts and sales  Accounts receivable
and Disclosure adjustments are properly are properly classified
presented, classified and disclosed at the balance sheet.
in financial statements.  Accounts receivable

assigned or pledged
have been properly
disclosed in the
financial statements.
Audit Procedures
Testing Controls: Sales and Receivables
Department Control Procedures Sample Test of Control

Procedures
Order & Credit  Prepare pre-numbered  Inquire about credit
sales order. procedure for new
 Perform credit check customers (valuation).
(authorization).  From a population of
 Approve for credit for approved sales orders
returns. (and returns), select a
 Initiate write-offs, which sample and examine
should be approved by documents for evidence of
the treasurer. credit check (valuation).
 Follow-up on old or past-
due accounts.
Warehouse & Shipping  Receive approved sales  Observe warehouse

orders from credit personnel filing sales
department (must have orders (existence).
approved sales order
before release of goods
from warehouse).
 Pull inventory from  Observe physical controls
warehouse and release to over inventory.
shipping.  Observe evidence of
 Perform independent independent checks
check of goods received (existence).
from warehouse and
approved sales orders in
shipping department.  Inspect a sample of pre-
 Prepare pre-numbered numbered shipping
bill of lading. documents and:
- Agree to sales order
(existence).
- Accounts for pre-
numbering
(completeness).
Billing/ Accounts  Match shipping  Vouch a sample of sales

Receivable documents and sales invoices ( select approved
orders before preparing sales orders from the
invoice. sales journal) to shipping
 Periodically account for documents and approved

all pre-numbered shipping sales orders (existence).
documents.  Trace a sample of
 Perform independent shipping documents
check of sales order (selection from pre-
pricing. numbered shipping
 Prepare pre-numbered documents) to sales
sales invoices. invoice and sales journal
 Batch and total invoices. and A/R master file
 Update A/R master file. (completeness)
Agree input to invoice  Observe procedure. Test
batch totals. a sample period (re-
 Print sales summary. performance)
Agree to invoice batch (completeness).
totals (independent  Re-perform pricing
check). checks: From a sample of
 Mail monthly customers sales invoices check
statements. pricing with master
pricelist (valuation).
 Observe procedure and
re-perform (valuation).
Accounting  Receive sales summary.

 Perform independent  Observe the re-perform
check of invoice batch (valuation, existence,
totals and sales completeness)
summary.  Observe the re-perform
 Review sales account (report presentation).
classifications.  Inspect customer
 Post to G/L. exception file and
 Follow-up customer disposition (existence,
exceptions (independent completeness, valuation).
check).
Tests of Controls Related to Cash Receipts
Department Control Procedure Sample Test of Control

Procedure
Cashier  Receive checks and  Observe preparation of
prepare deposit. cash summary
 Prepare daily cash (existence,
summary (copy to A/R completeness,
and accounting) valuation).
 Deliver checks to bank.  Inspect deposit slip and
 File validated deposit slip. compare to cash
summary (existence,
completeness,
valuation).
Accounts Receivable  Match remittance advices  Observe procedure
and check deposit (completeness).
summary.
 Update A/R master file.
 Print CR journal/ Updated

A/R master file.
 Print CR summary (copy
to accounting).
Accounting  Independent check:  Inspect evidence of
Compare the cash independent check
summary (cashier), the (existence,
prelisting of checks completeness,
(mailroom), and the CR valuation).
summary (A/R).  Re-perform independent
 Post G/L. check for selected date
 Prepare bank (existence,
reconciliation. completeness,
valuation).
 Inspect bank
reconciliation (existence,
completeness,
valuation).
I. Recommended Reference(s):
1. Local auditing books like Cabrera etc.
2. AASC website
3. Internet
TAXATION
II. Topic(s):
Fundamentals of Taxation
III. Learning Objective(s)

(after studying the topic, you should be able to):
To learn about the fundamentals of taxations
IV. Rundown
Please read below links to know and understand the topic

http://www.slideshare.net/pearlzep/taxation-16460547
http://www.slideshare.net/BongRetonel/blt-134-chapter-1
http://www.ntrc.gov.ph/files/Chapter-I-Income-Taxes.pdf
V. Recommended Reference(s):
4. Local taxation books authored by Reyes, Tamayo, Litonjua etc.
5. BIR Website
6. Internet
PRACTICAL ACCOUNTING 1
I. Topic(s):
Cash and Receivables
II. Learning Objectives:

To learn about the practical accounting of cash and receivables
III. Rundown
A. Cash and receivables represent two of the most liquid of assets. Liquidity is an indication of
an enterprise’s ability to meet its obligations as they come due.
1. Includes coin, currency, bank deposits including checking and savings accounts, and
negotiable instruments such as money orders, cashiers’ checks, personal checks, and
bank drafts.
2. Postdated checks and I.O.U.s should be reported as receivables. Travel advances to

employees should be reported as receivables or as prepaid expenses. Postage stamps
on hand should be reported as office supplies or as prepaid expenses. Petty cash
funds and change funds should be included in cash.
B. Reporting cash and related items.
1. Cash equivalents.
a. This category includes items that are both (1) readily convertible to known amounts
of cash, and (2) so near their maturity that they present insignificant risk of changes
in interest rates (generally 3 months or less).
b. Money market funds, money market savings certificates, certificates of deposit,

and similar types of deposits are nearly “equivalent to cash” in terms of liquidity.
However, these securities usually contain restrictions or penalties on their conversion
to cash.
2. Restricted cash.
a. Cash restricted for some special purpose (such as the retirement of bonds) is
reported separately in either the current asset section or the noncurrent asset
section of the balance sheet, depending on the date of availability or disbursement.
b. Legally restricted deposits held as compensating balances against borrowing

arrangements be reported separately in either the current asset section or the
noncurrent asset section, depending on whether the borrowing arrangement is
short-term or long-term.
3. Bank overdrafts should be reported as current liabilities. They are not offset against
the cash account unless there is available cash in another account at the same bank.
C. Receivables: Claims held against customers and others for money, goods, or services.
Classified as either trade or nontrade.
1. Accounts receivable are oral promises of the purchaser to pay for goods and services
sold.
2. Notes receivable are written promises to pay a certain sum of money on a specified
future date.
3. Nontrade receivables includes advances to employees or subsidiaries and dividends
and interest receivable.
D. Accounts Receivable—Recognition Issues. These involve the concepts of timing and

measurement. Measurement is complicated by:
1. Trade Discounts. These reductions from the list price are not recognized in the
accounting records; customers are billed net of trade discounts.
2. Cash Discounts (Sales Discounts). These are inducements for prompt payment.
Discuss the gross and net methods of recording receivables.
a. Gross Method (more practical than the net method). Sales and receivables are
recorded at the gross amount. Sales discounts taken by customers are debited
to the Sales Discounts account which is reported in the income statement as
a reduction of sales.
b. Net Method. Sales and receivables are recorded at the net amount. Sales
discounts not taken by customers are credited to the Sales Discounts Forfeited
account, which is reported in the other expense and revenue section of the income
statement.
3. Interest Element. Theoretically, receivables should be measured at their present value
but the accounting profession has chosen to ignore the implicit interest element in
receivables which are due within one year.
E. Accounts Receivable—Valuation Issues. Companies value and report receivables at cash

realizable value (the net amount they expect to receive in cash).
1. Methods of accounting for uncollectible accounts:

a. Direct write-off method—When a specific account is determined to be

uncollectible (which may not occur in the period of sale), Bad Debt Expense is
debited and Accounts Receivable is credited. This method is theoretically
undesirable because it:
(1) makes no attempt to match revenues and expenses.
(2) does not result in receivables being stated at net realizable value in the
balance sheet.
b. Allowance method—At the end of each accounting period an estimate is made of

expected losses from uncollectible accounts. This estimate is debited to Bad Debt Expense and
credited to the Allowance for Doubtful Accounts. This method is justified because a company
has experienced a loss the moment customers receive goods or services that they will never pay
for. This is true even if the specific identity of such customers will not be known for some time.
Methods of estimating bad debt expense under the allowance method.
(a) Percentage-of-Sales (Income Statement Approach). Bad debt expense

is estimated directly by multiplying a percentage times credit sales.
(b) Percentage-of-Receivables (Statement of Financial Position

Approach):
(i) First the required ending balance in the Allowance for Doubtful
Accounts is estimated by multiplying a percentage (a single
composite rate or an aging schedule) times the ending outstanding
receivables.
(ii) Then bad debt expense is equal to the difference between the required
ending balance and the existing balance in the Allowance account.
F. Notes Receivable—Recognition Issues. The present value of the future cash flows is the
proper amount to record for notes.
a. Face value—The principal amount due that is stated on the face of the note. The
debit balance of the Notes Receivable account is always equal to the face amount.
b. Stated interest rate—The rate that is stated on the face of the note. This rate is
used to determine the amount of periodic interest payments. A note may be non-
interest-bearing (i.e. have a stated rate of zero).
c. Effective (market) rate of interest—This is the rate that is used to look up

present value factors in order to account for the note at the date of issuance.
d. Present value—At the date of issuance, a note is valued at the present value of
the future principal and interest cash flows, discounted at the market rate of
interest. Changes in the market rate of interest are ignored throughout the
remainder of the life of the note.
e. Discount on notes receivable—At the date of issuance, this represents the excess of
the face value of the note over the present value. A discount arises because
the market rate is greater than the stated interest rate. The Discount on Notes
Receivable account is a valuation (contra-asset) account with a credit balance.
f. Premium on notes receivable—At the date of issuance, this represents the excess
of the present value of the note over the face value. A premium arises because the
market rate is less than the stated rate. The Premium on Notes Receivable account
has a debit balance.
g. Net carrying amount of the note—This is the amount at which notes are
reported on the statement of financial position. It is equal to the face value of the
note less the unamortized discount or plus the unamortized premium.
h. Amortization—The process of writing off the discount or premium over the life
of the note. The effective interest method of amortization should be used.
i. Effective-interest method—Amortization method which determines periodic

interest revenue by applying a constant interest rate to the net carrying amount of
the note. The dollar amount of interest revenue changes each period as the net
carrying amount of the note changes.
2. Notes Bearing Interest Equal to the Effective Rate—The interest element is ignored
for short-term notes and therefore they are carried at face value. However, long-term
notes are recorded at the present value of the cash expected to be collected.
3. Zero Interest or Unreasonable Interest-Bearing Notes—An appropriate rate of interest

must be determined in order to compute the present value of the note.
a. The present value of the note can be determined by measuring the fair market
value of the cash or other property, goods, and services exchanged for the note.
b. If the fair market value of the note or other property is not determinable, an interest
rate may be imputed on the basis of the issuer’s credit standing, collateral, etc.
G. Valuation of Notes Receivable.
1. Recording bad debt expense and the related allowance for short-term notes receivable
parallels that for trade accounts receivable.
2. Companies use percentage-of-sales or percentage-of-receivables as a way to measure

possible impairments.
3. Long-term notes receivable measure impairment as the difference between the carrying
value of the note at the note’s present value, discounted at its original effective interest
rate.
(1) The borrower and lender agree as to the specific accounts that serve as
security. The assignor (borrower) typically makes collections on the assigned
accounts and remits the collections plus a finance charge (interest cost) to the
lender.
(2) The borrower also recognizes all discounts, returns and allowances, and bad
debts.
H. Sale (Factoring). These transfers of accounts and notes receivable may be without recourse
or with recourse.
I. Accounts receivable turnover ratio: measures the number of times, on average, receivables
are collected during the period.
Net Sales
a. A/R Turnover =
Average Trade Receivables (net)
365
b. Days to Collect =
A/R Turnover
J. Cash Controls.
1. Imprest Petty Cash System.
a. Imprest bank accounts are used to make a specific amount of cash available for
a limited purpose.
b. Review the accounting procedures for a petty cash system:
(1) The Petty Cash account is debited or credited only when the fund is first
established or is changed in size.
(2) Each disbursement from the fund should be evidenced by a signed receipt
indicating the recipient and the purpose of the expenditure.
(3) Reimbursements of the petty cash fund are recorded by debiting the expenses,
assets, or liabilities involved and crediting the Cash account.
(4) The Cash Over and Short account is used as a plug (miscellaneous expense
or miscellaneous revenue) when the petty cash fund fails to prove out.
2. Bank Reconciliations.
a. Two forms of bank reconciliations may be prepared:
(1) Reconciliation from the bank statement balance to the book balance or vice
versa.
(2) Reconciliation of bank and book balances to the corrected cash balance. This
form consists of two separate sections:
(a) “Balance per bank statement” section.

(b) “Balance per books” section.
(3) The latter form is illustrated in the text. It is useful because it facilitates com-
putation of the correct cash balance, which is the amount that should be
reported on the balance sheet.
b. Describe the preparation of a two-section bank reconciliation.
(1) “Balance per bank statement” section.
(a) The “balance per bank statement” is the amount shown on the most
recent bank statement as of the bank’s closing date for the month.
(b) Add deposits recorded in the company’s books but not yet credited by
the bank (e.g., deposits in transit).
(c) Deduct charges recorded in the company’s books but not yet recorded
by the bank (e.g., outstanding checks).
(2) “Balance per books” section.
(a) The “balance per books” is the amount shown in the company’s Cash
or Cash in Checking Account general ledger account as of the desired
reconciliation date (i.e., as of the balance sheet date, the month-end
date, or whatever date for which it is desired to compute the correct
cash balance).
(b) Add deposits credited by the bank but not yet recorded by the company
(e.g., collection of notes, interest earned on interest-bearing checking
accounts, etc.).
(c) Deduct charges recorded by the bank but not yet recorded by the
company (e.g., service charges, NSF checks, etc.).
(3) Both sections end with the correct cash balance, which is the amount that
should be reported on the balance sheet.
(4) Every reconciling item that appears in the “balance per books” section
requires an adjusting entry to bring the books to the correct cash balance.
K. Impairments.
1. An impaired loan receivable exists when it is probable that the company will be unable
to collect all amounts due (principal and interest) according to terms of the note.
2. Impairment loss is the difference between the carrying amount of the note principle
plus account interest and the present value of the future cash flows discounted at the
note’s historical effective interest rate.
ILLUSTRATION
METHODS OF ESTIMATING THE YEAR-END ADJUSTING
ENTRY FOR BAD DEBT EXPENSE
ILLUSTRATION
ESTIMATING BAD DEBT EXPENSE
ILLUSTRATION
INTEREST BEARING AND ZERO-INTEREST-BEARING
NOTES RECEIVABLE
ILLUSTRATION (continued)
ILLUSTRATION
ACCOUNTING FOR TRANSFERS OF RECEIVABLES
Au: Is this figure correct? Pls confirm.

ILLUSTRATION
PETTY CASH
ILLUSTRATION
BANK RECONCILIATION
SAINT VINCENT DE FERRER COLLEGE December 2019
ONLINE RESOURCES by Prof. Hector Santos Jr., CPA, MBA
IV. Recommended Reference(s):

Latest Edition - Financial Accounting 1 by Conrado Valix
Philippine Accounting Standards
Internet
20
Copyright of Prof. Hector U. Santos Jr., CPA, MBA
This online resource is intended solely to whom it is authorized to receive it. If you are not the intended recipient you are hereby notified that
any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be
unlawful.
PRACTICAL ACCOUNTING 2
I. Topic(s):
Partnership
II. Learning Objective(s):

To learn about partnership’s practical accounting.
III. Rundown
I. Introduction
A partnership is defined as an association of two or more persons who contributes

money, property or industry to a common fund with the intention of dividing the
profits among themselves. Accounting for partnerships should comply with legal
requirements as set forth by the Partnership Law as well as complying with the
partnership agreement itself.
II. Partnership Formulation and Capital Accounts
All assets contributed to the partnership are recorded by the partnership of their
agreed values (or fair market values, in the absence of the agreed values). Thus, if a
partner contributes a noncash assets to the partnership (e.g., land or equipment)
subject to mortgage, the contributing partner’s capital account is credited for the
agreed value (or fair values) of the noncash assets less the mortgage assumed by
the partnership.
The capital account is an equity account similar to the shareholder’s equity

accounts in a corporation. It is used to account for permanent withdrawals and
additional contributions. Other important accounts include a drawing account and
loans to or from partners. The drawing account is used to account for net income
or loss and personal or normal withdrawals. i.e., share against income. It is closed at
the end of the period into the capital account. Loan accounts are sets for amounts
intended as loans, rather than as additional capital investments. In liquidation
proceedings, a loan to or from the a partner is in essence treated as an increase or
decrease in a partner’s capital account.
III. Division of Profits and Losses
As rule profits and losses are allocated based on an agreement.
Methods- Various methods exist for the division of partnership profits and
losses, including the following:
1. Equally,
2. Arbitrary ratio,
3. Capital contribution ratio:
a. Original Capital or initial investment
b. Beginning Capital each year
c. Ending Capital of each year
4. Interest on Capital balance and/ or loans balances and the balance on

agreed ratio,
5. Salaries to partners and balance on agreed ratio,
6. Bonus to partners and balance on agreed ratio,
a. Bonus as an “expense” in the computing the bonus amount. Here, bonus
is computed based on net income after bonus.
b. Bonus as contribution as profit. Here, the bonus is computed based on
net income before deducting the bonus.
21
unlawful.
7. Interest on capitals and/or loan balances, salaries to partners, the bonus to

partner and the balance on agreed ratio.
The method of division to be used in any situation is generally the method specified
in partnership agreement. This agreement must always be consulted first, since it is
legally binding on the partners. If no profit and loss sharing arrangement is specified
in the partnership agreement, the partnership requires that the profits and losses be
shared according to capital contribution. Capital contribution should be interpreted to
be original capital/ beginning capital of each year in the absence of original capital;
similarly, if the agreement specifies how profits are to be shared but is silent as to
losses, losses are to be shared in the same manner as profit. Notice that the profit
and loss sharing ratio is totally independent of the partner’s ownership interests.
Thus, two partners may haveownership interest of 70% and 30% but share profits
and losses equally.
IV. Dissolution
A. Admission of a New Partner
A new partner may be admitted to the partnership by purchasing the interest of one
or more of the existing partners or contributing cash or other assets (i.e., investment
of additional capital). These two situations are discussed below:
1. Purchase of interest- when a new partner enters the partnership by purchasing

the interest of an existing partner, the price paid for the interest is irrelevant to the
partnership accounting records because it is a private or personal transaction
between the buyer and seller. The assets and liabilities of the partnership are not
affected. The capital account of the new partner is recorded by merely
reclassifying the capital account of the old partner.
2. Admission by investment of Additional assets- A new partner may be granted

an interest in the partnership in exchange for contributed assets and/or goodwill
(e.g., business expertise, an established clientele, etc.) the admission of the
partner and contribution of assets may be recorded on the basis of the bonus
method.
Bonus method- This method is based upon the historical cost principle.
Admittance of a new partner involves debiting cash or other assets for the FMV
of the assets contributed and crediting the new partner’s capital for the agreed
(i.e., purchased) percentage of total capital. Total capital equals the book value
of the net assets prior to admittance of the new partner, plus the FMV of the
assets contributed and the interest granted to the new partner results in the
recognition of a bonus.
a. No bonus recognized- When an incoming partner’s capital account

(ownership interest) is to be equal to his purchase price, the partnership
books merely debit cash or other assets and credit capital.
b. Bonus granted to the old partner- when the FMV of the assets contributed
by an incoming partner exceeds the amount of ownership interest to be
credited to his capital account, the old partner recognize a bonus equal to his
excess. This bonus is allocated on the basis of the same ratio used for
income allocation (unless otherwise specified in the partnership agreement).
Recording involves crediting the old partner’s capital accounts by the
allocated amount.
c. Bonus granted to the new partner- an incoming partner may contribute

assets having a FMV smaller than the partnership interest granted to that
new partner. Similarly, the new partner may not contribute any assets at all.
The incoming partner is therefore presumed to contribute an intangible asset,
such as managerial expertise or personal business reputation. In this case, a
22
unlawful.
bonus is granted to the new partner, and the capital accounts of the old
partners are reduced on the basic of their profit and loss ratio.
Goodwill method. In PFRS No. 3, Goodwill represents the excess of the cost of
the business combination over the fair value of the identifiable net assets
obtained. Therefore, the standard provides that goodwill attaches only to a
business as a whole and is recognized only when a business is requires.
This provision of PFRS No. 3 outlawed the use of the goodwill method in
partnership accounting particularly admission and retirement of a partner
because there is no business involved. The term “business” is defined in the
Appendix A of the PFRS No. 3 as:
An integrated set of activities and assets conducted and managed for the
purpose of providing:
(a) A return to investor; or

(b) Lower cost or other economic benefits directly and proportionately to
policyholders or participants.
A business generally consists of inputs, processes applied to those

inputs, and resulting outputs that are, or will be, used to generate
revenues. If goodwill is present in a transferred set of activities and
assets, the transferred set shall be presumed to be as business.
B. Withdrawal of a Partner
Admission of a new partner is not the only manner by which a partnership can
undergo a change in composition. Over the life of any partnership, partner may leave
the organization. Thus, some method of establishing an equitable settlement of the
withdrawing partner’s interest in the business properly is necessary.
For a partner to withdraw or retire from the partnership, the total interest of a partner
should be properly determined which includes the following;
1. Share in the profit and loss of the partnership.

2. Adjustment in assets and liabilities to reflect fair market values.
3. Loans to and from partnership.
4. Drawing accounts, and
5. Capital interest/ accounts.
Withdrawal or retirement from the partnership may either be:
1. Selling of an interest to an outsider. This is similar to admission by purchase.

2. Selling of an interest to an existing partner. The interest of the retiring partner will
be purchased with the personal assets of existing partners rather than with the
assets of the partnership.
3. Selling of an interest to the partnership/payment from partnership fund. Under
this approach, the withdrawal of a partner maybe treated as:
a. Payments at book value

b. Payments at less than the book value- bonus method
c. Payments at more than book value- bonus method
C. Incorporation of a Partner
For a variety of reasons, including legal and/or tax reasons, the partners Of a
partnership may choose to incorporate. Two approaches of opening the corporate
books are in general use. One is to retain the books of the partnership and to record
all assets and liabilities as fair market value concomitant with the closing of the
partner’s capital accounts and the opening of a Common Stock account. The other
approach is to close out the partnership books completely and to open a new set of
books for corporation. In this case, the fair market values are used as the basis for
23
unlawful.
recording all assets and liabilities with the balancing amount credited to Common
Stock. Occasionally, additional cash or assets may be invested in the corporation.
D. Liquidation
Liquidation is the process of converting partnership assets into cash and distributing
the cash to creditors and partners. Frequently, the sale of assets will provide
sufficient cash to pay both creditors and partners. The creditors have priority on any
distribution. The basic rule is that distribution is made to any partner until all possible
losses and liquidation expenses have been paid or provided for. An individual
prematurely distributing cash to a partner whose capital account later shows a deficit
maybe held personally liable if the insolvent partner is unable to repay such a
distribution. The proceed of a liquidation may be distributed in a lump sum after all
assets have been sold and all creditors satisfied., or the proceeds may be distributed
to partners in instalment as excess cash becomes available.
A. Lump Sum Distribution- The first steps in the liquidation process is to sell all
noncash assets and allocate the resulting gain and loss to the capital accounts of
the partners in accordance with their profit and loss sharing ratio. The second
step is to satisfy the liabilities owing the creditors other than partners. The third
step is to satisfy liabilities owing to partners other than capital and profits. The
final step is to distribute any cash remaining to the partners for capital and finally
profits. Any deficiency (i.e., debit balance) in a solvent partner’s capital will
require that partner to contribute any cash equal to the debit balance. If the
deficient partner is insolvent, the debit balance must be absorbed by the
remaining partner (usually in accordance with their profit and loss sharing ratio)
note, however, that in order to achieve an equitable distribution, a partner’s loan
to the partnership will first be used to offset a debit balance in his capital
account. Therefore, under this so-called right of offset doctrine, a partner’s loan
to the partnership will have distribution priority only to the extend it exceeds a
debit balance in the partner’s capital account.
B. Installment Distributions- the liquidation of a partnership may take place over a

period of a several months. Installment distributions may be made to partners on
the basis of a schedule of Safe Payment or Cash Priority Program, in conjunction
with a Liquidation Schedule similar to the one used for lump sum liquidations.
The schedule of Sale Payments takes a conservative approach to the distribution
by assuming that noncash assets are worthless: thus distribution may be made
to partners on the basis of the value of partnership assets, until the assets are
sold.
IV. Recommended Reference(s):

Local and foreign author books.
Internet
24
unlawful.
ONLINE ASSESSMENTS
Reminders:
1. Should be submitted on or before April 30, 2020 exclusively to
svfconlinebsa@yahoo.com
2. Answers should follow below format for easy checking
Online
Exam AT TOA MAS BL
1 a a b true
2 c a a a
3 PSA c c false
4 a d d c
5 a e a d
3. Failure to follow instruction 1 and 2 will automatically get zero score from this
edition of online assessment
4. Not all the answer in the online assessments can be found here, so it’s your
responsibility to read, read, read and read other resources such as text books etc.
25
unlawful.
QUESTIONS:
(Multiple Choice, Computation & Identification)
Auditing Problems
1. In general, companies recognize revenue

a. at completion of production.
b. at the point of sale.
c. when cash is received.
d. after all costs are recognized.
2. On July 1, 2011, Panther, Inc. sold goods to Smart Company for €1,800,000 in exchange
for a 4-year zero-interest-bearing note in the face amount of €2,832,326. The goods have
an inventory cost on Panther’s books of €1,180,000. Later in the month, Smart Company
expects to be able to re-sell the goods for €2,040,000. How much revenue should Panther,
Inc. recognize on its books on July 1, 2011?
a. €1,800,000.
b. €2,040,000.
c. €2,832,326.
d. €1,180,000.
3. On January 1, 2012, Hood Company sold specialized computers costing $760,000 to

Crater, Inc. for $990,000. Hood Company’s technicians must complete the installation,
and Hood Company’s trainers present numerous training sessions for Crater’s employees
during the installation period. Carter made a 50% down payment, with the balance due
upon completion of installation. How much revenue should Hood Company recognize on
its books on January 1, 2012?
a. $-0-
b. $760,000.
c. $495,000.
d. $990,000.
4. Multnomah Publishing Co. publishes textbooks for colleges and universities across the
U.S. and Canada. Bookstores purchase books with terms f.o.b. shipping point and
payment is due 60 days after shipment. The bookstore may return 40% of each order (at
the bookstore’s expense). Multnomah’s experience indicates that the normal return rate is
10%, and the average collection period is 72 days. Multnomah shipped and invoiced
$300,000 of books during September 2012. The books were recorded on Multnomah’s
books for $120,000. Under IFRS, what amount of net sales revenue will Multnomah
record for the September 2012 sales?
a. $180,000.
b. $300,000.
c. $120,000.
d. $270,000.
5. Safe Skies Travel sells airplane tickets for Global Airways, Inc. Safe Skies collects the
full airfare from the client and remits this amount, less a commission, to Global Airways,
Inc. Safe Skies receives a commission of 6% of the total price. During June, 2012, Safe
Skies sold tickets worth €640,000 and remits €601,600 to Global Airways, Inc. For June
2012, what amount of revenue should Safe Skies Travel record?
a. €640,000
b. €601,600
c. €38,400
d. €36,096
26
unlawful.
Taxation
1. Palito Lippi, an American singer, engaged to sing for one week at the Sofitel Philippines
Plaza after which he returned to USA. For income tax purposes, Palito Lippi should be
classified as:
a. Resident alien.
b. Non-resident alien engaged in trade or business.
c. Non-resident alien not engaged I the trade or business.
d. Resident citizen.
2. Which of the following individual is taxed on income from sources within and without the
Philippines?
a. A citizen of the Philippines residing therein.
b. A non-resident citizen.
c. An individual citizen of the Philippines who is working and deriving income aboard as an
overseas worker.
d. An alien individual, whether a resident or not of the Philippines.
3. Which of the following shall not be subject to income tax under Section 24 (A) on their
income from Philippines sources?
a. Individual citizen of the Philippines residing therein.
b. Individual citizen of the Philippines residing outside the Philippines including overseas
contract workers.
c. Individual alien who is resident of the Philippines.
d. Individual alien who is not a resident of the Philippines.
4. Which of the following shall not be included in the term “trade, business or profession”?
a. Performance of the functions of a public office.
b. Performance of services to the general public for a fee.
c. Performance of services as an employee.
d. None of the choices.
5. Which of the following shall be the qualification of a parent for head of the family purposes?
I- Living with taxpayer
II- Dependent upon taxpayer for the chief support
a. Both I and II c. I only

b. Neither I nor II d. II only
27
unlawful.
Practical Accounting 1
1. On December 31, 2010, Green Company finished consultation services and accepted in
exchange a promissory note with a face value of $400,000, a due date of December 31,
2013, and a stated rate of 5%, with interest receivable at the end of each year. The fair
value of the services is not readily determinable and the note is not readily marketable.
Under the circumstances, the note is considered to have an appropriate imputed rate of
interest of 10%.
The following interest factors are provided:

Interest Rate
Table Factors For Three Periods 5% 10%
Future Value of 1 1.15763 1.33100
Present Value of 1 .86384 .75132
Future Value of Ordinary Annuity of 1 3.15250 3.31000
Present Value of Ordinary Annuity of 1 2.72325 2.48685
Determine the present value of the note.
Items 2 to 4
Benson Plastics Company deposits all receipts and makes all payments by check. The following
information is available from the cash records:
MARCH 31 BANK RECONCILIATION
Balance per bank $26,746

Add: Deposits in transit 2,100
Deduct: Outstanding checks (3,800)
Balance per books $25,046
Month of April Results

Per Bank Per Books
Balance April 30 $27,995 $28,855
April deposits 10,784 13,889
April checks 11,600 10,080
April note collected (not included in April deposits) 3,000 -0-
April bank service charge 35 -0-
April NSF check of a customer returned by the bank
(recorded by bank as a charge) 900 -0-
Instructions
Calculate the amount of the April 30:
2. Deposits in transit
3. Outstanding checks
4. Adjusted Cash Balance
5. Balance per Bank
28
unlawful.
Practical Accounting 2
1. On December 1, 2012, Sam and Fam formed a partnership, agreeing to share for profit and losses in the ration 2:3,
respectively. Sam invested a parcel of land that cost him P 25,000. Fam invested P30,000 cash. The land was sold for
P60,000 on the same date, three hours after formulation of the partnership.
How much should be the capital balance of Sam right after formulation?
a. P25,000 c. P60,000
b. 30,000 d. 50,000
2. The Partnership has the following accounting amounts:
(1) Sales = P70,000

(2) Cost of Goods sold = P61,000
(3) Operating Expenses = P10,000
(4) Salary allocations to partners = P13,000
(5) Interest paid to banks = P2,000
(6) Partners’ withdrawals = P8,000
The partnership net income (loss) is:
a. P20,000 c. P5,000
b. 18,000 d. (3,000)
3. The partnership agreement of Tico and Basa provides that interest at 11% per year is to be credited to each partner on
the basis of weighted-average capital balances. A summary of the capital account of Basa for the year ended December
31, 2012, is as follows:
Balance, January 1………………………………………………………………….. P420,000

Additional investment, July 1……………………………………………………… 120,000
Withdrawal, August 1………………………………………………………………. ( 45,000)
Balance, December 31…………………………………………………………….. 495,000
What amount of interest should be credited to Basa’s capital account for 2012?
a. P50,738 c. P46,125
b. 49,500 d. 51,750
4. On March 1, 2012, Mira and Ilano formed a partnership with each contributing the following assets:
Mira Ilano
Cash……………………………… P300,000 P 700,000
Machinery and equipment…….. 250,000 750,000
Building………………………….. ---- 2,250,000
Furniture and Fixtures…………. 3,150,000 ---
The building is subject to mortgage loan of P800,000, which is to be assumed by the partnership agreement provides
that Mira and Ilano share profits and losses 30% and 70% respectively. On March 1, 2012 the balance in Mira’s
capital account should be:
a. P3,700,000 c. P3,050,000
b. 3,140,000 d. 2,900,000
5. The same information in Number 4, except that mortgage loan is not assumed by the partnership, on March 1, 2012
the balance in Mira’s capital account should be:
a. P3,700,000 c. P3,050,00
a. 3,140,000 d. 2,900,000
29
unlawful.

SVFC BS Accountancy1

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SAINT VINCENT DE FERRER COLLEGE DECEMBER 2019

BS ACCOUNTANCY (2nd semester SY 2019-2020) Part 1

II. Learning Objective(s):

Valuation Sales revenues, receivables, cash  Accounts receivable

in financial statements.  Accounts receivable

Testing Controls: Sales and Receivables

Department Control Procedures Sample Test of Control

Warehouse & Shipping  Receive approved sales  Observe warehouse

Billing/ Accounts  Match shipping  Vouch a sample of sales

 Periodically account for documents and approved

Accounting  Receive sales summary.

Tests of Controls Related to Cash Receipts

Department Control Procedure Sample Test of Control

 Print CR journal/ Updated

III. Learning Objective(s)

Please read below links to know and understand the topic

II. Learning Objectives:

2. Postdated checks and I.O.U.s should be reported as receivables. Travel advances to

B. Reporting cash and related items.

b. Money market funds, money market savings certificates, certificates of deposit,

b. Legally restricted deposits held as compensating balances against borrowing

D. Accounts Receivable—Recognition Issues. These involve the concepts of timing and

E. Accounts Receivable—Valuation Issues. Companies value and report receivables at cash

1. Methods of accounting for uncollectible accounts:

a. Direct write-off method—When a specific account is determined to be

b. Allowance method—At the end of each accounting period an estimate is made of

Methods of estimating bad debt expense under the allowance method.

(a) Percentage-of-Sales (Income Statement Approach). Bad debt expense

(b) Percentage-of-Receivables (Statement of Financial Position

c. Effective (market) rate of interest—This is the rate that is used to look up

i. Effective-interest method—Amortization method which determines periodic

3. Zero Interest or Unreasonable Interest-Bearing Notes—An appropriate rate of interest

G. Valuation of Notes Receivable.

2. Companies use percentage-of-sales or percentage-of-receivables as a way to measure

1. Imprest Petty Cash System.

a. Two forms of bank reconciliations may be prepared:

(a) “Balance per bank statement” section.

b. Describe the preparation of a two-section bank reconciliation.

(1) “Balance per bank statement” section.

(2) “Balance per books” section.

Au: Is this figure correct? Pls confirm.

IV. Recommended Reference(s):

II. Learning Objective(s):

A partnership is defined as an association of two or more persons who contributes

II. Partnership Formulation and Capital Accounts

The capital account is an equity account similar to the shareholder’s equity

III. Division of Profits and Losses

As rule profits and losses are allocated based on an agreement.

4. Interest on Capital balance and/ or loans balances and the balance on

7. Interest on capitals and/or loan balances, salaries to partners, the bonus to

A. Admission of a New Partner

1. Purchase of interest- when a new partner enters the partnership by purchasing

2. Admission by investment of Additional assets- A new partner may be granted

a. No bonus recognized- When an incoming partner’s capital account

c. Bonus granted to the new partner- an incoming partner may contribute

(a) A return to investor; or

A business generally consists of inputs, processes applied to those

1. Share in the profit and loss of the partnership.

Withdrawal or retirement from the partnership may either be:

1. Selling of an interest to an outsider. This is similar to admission by purchase.

a. Payments at book value

B. Installment Distributions- the liquidation of a partnership may take place over a

IV. Recommended Reference(s):

2. Answers should follow below format for easy checking