Abnormal data points = outliers Abnormal data points = outliers
METHODS OF SEPARATING SEMI-VARIABLE COST INTO THEIR FIXED & VARIABLE METHODS OF SEPARATING SEMI-VARIABLE COST INTO THEIR FIXED & VARIABLE
ELEMENT ELEMENT A.
A. HIGH-LOW METHODHIGH-LOW METHOD == ℎ ℎ ℎ ℎ == == −− == ++ (( )) == ++ (()) B.
B. SCATTERGRAPH (SCATTERPLOT)SCATTERGRAPH (SCATTERPLOT) METHOD METHOD == −− == ++ (()) C.
C. METHOD OF LEAST SMETHOD OF LEAST SQUAREQUARE METHOD METHOD == −− (()()()) 22− (−())22 = = − − == ++ (()) COST ACCTG. COST ACCTG. STANDARDS STANDARDS 1. 1. IMAIMA 2. 2. SMASMA 3.
3. CASB (legallyCASB (legally binding) binding) COST OBJECT COST OBJECT TMC = DM+DL+FOH TMC = DM+DL+FOH PC = DM+DL PC = DM+DL
Cost Acctg. Cost Acctg.
Job orderJob order
Process CostingProcess Costing
Joint & By ProductsJoint & By Products
Activity Based CostingActivity Based Costing
Backflush CostingBackflush Costing
Acctg. 7 Acctg. 7
Installment SalesInstallment Sales
Franchise Acctg.Franchise Acctg.
Construction ContractConstruction Contract
Home Office & BranchHome Office & Branch
FOREXFOREX
DerivativeDerivative
Corporate LiquidationCorporate Liquidation
Acctg.11 Acctg.11
Business CombinationBusiness Combination
Joint VentureJoint Venture
NPO NPO
COST
COST ACCOUNTINGACCOUNTING: : (MANUFACTURING (MANUFACTURING (COST))(COST))
Applied FOH Applied FOH ℎ ℎ == . . == ××
Activity Level to Use: Activity Level to Use:
1.
1. Normal Capacity Normal Capacity 2.
2. Expected CapacityExpected Capacity 3.
3. Practical CapacityPractical Capacity 4.
4. Theoretical CapacityTheoretical Capacity
Direct Costing = or Variable CostingDirect Costing = or Variable Costing
Absorption Costing = or Absorption Costing = or Conventional orConventional or Full Costing
Full Costing
Responsibility Accounting:Responsibility Accounting:
Plant Wide/Blanket Rate= (OnlyPlant Wide/Blanket Rate= (Only one rate)
one rate)
Departmentalized Rates= (ManyDepartmentalized Rates= (Many rates)
rates)
JOB ORDER COSTING SYSTEM JOB ORDER COSTING SYSTEM
Accounting for Production Losses in a Job Order
Accounting for Production Losses in a Job Order Cost SystemCost System
Accounting for “Scrap Sales”Accounting for “Scrap Sales” 1.
1. Scrap Sale or Other IncomeScrap Sale or Other Income 2.
2. Cost of Goods Sold (credited)Cost of Goods Sold (credited) 3.
3. FOH Control (credited)FOH Control (credited) 4.
4. WIP-materials (credited)WIP-materials (credited) -if traceable to the job. -if traceable to the job.
Accounting for Spoiled GoodsAccounting for Spoiled Goods Estimated
Cost Acctg. Cost Acctg.
Job orderJob order
Process CostingProcess Costing
Joint & By ProductsJoint & By Products
Activity Based CostingActivity Based Costing
Backflush CostingBackflush Costing
Acctg. 7 Acctg. 7
Installment SalesInstallment Sales
Franchise Acctg.Franchise Acctg.
Construction ContractConstruction Contract
Home Office & BranchHome Office & Branch
FOREXFOREX
DerivativeDerivative
Corporate LiquidationCorporate Liquidation
Acctg.11 Acctg.11
Business CombinationBusiness Combination
Joint VentureJoint Venture
NPO NPO
COST
COST ACCOUNTINGACCOUNTING: : (MANUFACTURING (MANUFACTURING (COST))(COST))
Applied FOH Applied FOH ℎ ℎ == . . == ××
Activity Level to Use: Activity Level to Use:
1.
1. Normal Capacity Normal Capacity 2.
2. Expected CapacityExpected Capacity 3.
3. Practical CapacityPractical Capacity 4.
4. Theoretical CapacityTheoretical Capacity
Direct Costing = or Variable CostingDirect Costing = or Variable Costing
Absorption Costing = or Absorption Costing = or Conventional orConventional or Full Costing
Full Costing
Responsibility Accounting:Responsibility Accounting:
Plant Wide/Blanket Rate= (OnlyPlant Wide/Blanket Rate= (Only one rate)
one rate)
Departmentalized Rates= (ManyDepartmentalized Rates= (Many rates)
rates)
JOB ORDER COSTING SYSTEM JOB ORDER COSTING SYSTEM
Accounting for Production Losses in a Job Order
Accounting for Production Losses in a Job Order Cost SystemCost System
Accounting for “Scrap Sales”Accounting for “Scrap Sales” 1.
1. Scrap Sale or Other IncomeScrap Sale or Other Income 2.
2. Cost of Goods Sold (credited)Cost of Goods Sold (credited) 3.
3. FOH Control (credited)FOH Control (credited) 4.
4. WIP-materials (credited)WIP-materials (credited) -if traceable to the job. -if traceable to the job.
Recoverable
Recoverable Cost(x10) Cost(x10) (xxx)(xxx) Unrecoverable Cost
Unrecoverable Cost xxxxxx
Fault
Fault of of Customer Customer Fault Fault of of ManagementManagement FG
FG xxx xxx FOH FOH Control Control xxxxxx Spoiled
Spoiled Good Good Invty. Invty. X10 X10 Spoiled Spoiled Goods Goods Invty. Invty. x10x10 WIP
WIP # # xxx xxx WIP WIP # # xxxxxx Loss
Loss on on Spoilage Spoilage xxxxxx Spoiled
Spoiled Goods Goods Invty. Invty. x10x10 WIP
WIP # # xxxxxx
Accounting for ReworkAccounting for Rework
Fault
Fault of of the the Customer Customer Fault Fault of of ManagementManagement WIP
WIP # # xxx xxx FOH FOH Control Control xxxxxx Materials
Materials xxx xxx Materials Materials xxxxxx Accrued
Accrued Payroll Payroll xxx xxx Accrued Accrued Payroll Payroll xxxxxx Applied
Applied FOH FOH xxx xxx Applied Applied FOH FOH xxxxxx FG
FG xxx xxx FG FG xxxxxx
WIP
WIP # # xxx xxx WIP WIP xxxxxx
NOTE:
NOTE: When When it it is is fault fault of of thethe customer it is chargeable to WIP, if customer it is chargeable to WIP, if not it
not it is chargis chargeable to eable to FOH ConFOH Control.trol. Recoverable Recoverable
“Cash inflow” “Cash inflow”
PROCESS COSTING SYSTEM
P- Physical Units:
E- Equivalent Units of Production: C- Cost to Account for:
U- Unit Cost: A- Assign Cost to:
Assign Cost to: Units started & completed & Ending Inventory Normal Spoilage
Abnormal Spoilage
Accounting for Production Losses & or Spoilages
0 If only normal loss is present, it will be absorbed by the remaining units by using the “Method of Neglect”. 0 However when normal & abnormal
spoilage existed in the process that were recognized, we have to put an EUP to the whole numberof units considered as abnormal in order for us to separate cost to this product. (-FOH)
NOTE: Good Units are goods
considered as good quantity & passed
CONTINUOUS DISCRETE
0 If only normal loss is present, it should be absorbed by the remaining units, if or for the condition that the units remaining are good units. If the ending are not, the cost should be allocated to the units started & completed & transferred to the next department.
Method of Neglect also can be used in this scenario.
Methods of Accounting Joint Cost ACCOUNTING for JOINT PRODUCT COST & BY PRODUCTS
1. Market or Sales Value Method
A. 1. Sales Value at Split-Off - Note: to use this method, all joint product must be marketable @ split-off point.
A. 2. Hypothetical Market Value – Approximate Net Realizable Value at split-off point. Hypothetical MV is equal to selling
price minus cost to complete and cost to sell. 2. Average Unit Cost Method (Uniform [more or less])
Average Unit Cost = Joint Cost
Total Units
Allocated Joint Cost = average Unit Cost x Units 3. Predetermined Index of Production Method
(differ in terms of manufacturing requirement) Units Produce # Points Per Unit Weighted Units Ratio x Joint Cost Allocated JC Product X xxx ∗ xx = xxx = xxx Product Y xxx ∗ xx = xxx xxx = xxx Product Z xxx ∗ xx = xxx xxx ___ xxx = xxx xxx 4. Quantitative Method S U N K C O S T Units Produce Pounds Per Unit Total Pounds Ratio x JC = Allocated JC Product X xxx ∗ xx = xxx xxx Product Y xxx ∗ xx = xxx xxx Product Z xxx ∗ xx = xxx xxx ______ xxx xxx
xxx
SUNK & JOINT COST
ACCOUNTING FOR BY-PRODUCTS
A. Methods that do not allocate joint cost to by-products Method 1: Revenue from by-products is treated as:
A. Other Income
B. Additional Sale Revenue
C. Deduction from CGS of the Main Product
D. Deduction from the total production cost of Main Product
Method 2: Revenue from sales reduced by additional processing cost & cost to sell is shown on the as indicated in method 1 above. “Net Revenue Method”
Method 3: Replacement Cost Method
B. Methods that allocates joint cost to by-products
Method 4: Market Value or Reversal Cost Method
Sales xxx
Further Process Cost (xxx) Est. Cost to Sell (xxx) Est. Profit (xxx) Allocated Joint Cost xxx
ACTIVITY BASED-COSTING (ABC)
Cost Allocation Rate for Activity = Estimated total Indirect Cost of Activity Estimated total Quantity of Cost Alloc. Base Allocated Activity Cost = Cost Allocation Rate X ACTUAL quantity of
for Activity Cost Allocation based used by cost object
BACKFLUSH COSTING
u CGS FG
u RIP & CC Accts
Note: Raw Materials Cost “ Backflush” from RIP to Finished Goods & from FG to Cost of Goods Sold.
Common Journal Entries:
Purchase of Raw Materials RIP xxx
A/P xxx
Record Closed of Indirect Material FOH Control xxx Supplies xxx Factory OH Cost FOH Control xxx Cash xxx Acc. Dep. xxx Direct and Indirect Labor
CGS xxx FOH Control xxx Accrued Payroll xxx OH to CGS CGS xxx FOH Control xxx Material Cost from RIP to FG
FG xxx RIP xxx
RIP (to FG)
FG (to CGS) beg.
material backflush from RIP
end.
Amount backflush from FG to CGS CGS RM [Backflush] xxx Direct Labor xxx FOH Control xxx xxx FOH Control Indirect Labor xxx
Conversion Cost by and Changes RIP xxx xxx F/G xxx xxx RIP xxx CGS xxx FG xxx CGS xxx CGS xxx FG xxx beg. Material from suppliers end.
amount backflushed from xxx RIP to FG
Installment Sales-Revenue Recognition
Record Installment Sales
Cash
xxxInstallment Contract Receivable
xxxInstallment Sales
xxxRecord the Cost of Installment Sales
COS
–IS*
xxxMerchandise Inventory
xxxCollection of Installment Contract Receivable
Cash
xxxInstallment Contract Receivable
xxxInterest Income
xxxAdjusting Entry
Accrued Interest Receivable
xxxInterest Income
xxxInstallment Sales
xxxCost of Installment Sales
xxxRealized Gross Profit
Deferred Gross Profit
xxxRealized Gross Profit
xxxRealized Gross Profit
xxxFormula:
Installment Sales
xxxLess: COS
xxxGross Profit
xxxInstallment Accounts Receivable Deferred Gross Profit Beg. xxx Sales xxx Ending xxx Collection xxx Repossession xxx Repossessions: (Defaults)
Unrecorded Cost = (NRV or MV) w hichever is lower.
Unrecovered Cost = equal to defaulted amount of Accounts Receivable multiplied by the
cost percentage
Market Value (NRV)
Estimated resale price xxx Less: Reconditioning Cost xxx
Cost to sell xxx (xxx) MV or NRV(date of repossession) xxx
Journal Entry
MI- repossessions
xxx
DGP
xxx
Loss on Repossession
xxx
Installment Accounts Receivable
xxx
TRADE – IN:
(NRV) Market Value is greater then Allowed Trade-In
Under allowance in Trade – In & Added to SP (Selling Price)
Over allowance of the MV & Deducted to SP (Selling Price) – if MV is lesser than Allow. Trade-In Ending xxx Write-off xxx Beg. xxx DGP xxx Unrecovered Cost xxx Market Value of Asset Recovered xxx Loss on Repossession xxx
Defaulted Accounts Receivable xxx
X
Cost ratio xx%Notes: Trade In – should be recorded at their “Market Value”
a) Instalment Receivable xxx Mdse. Inventory Trade In xxx
Instalment Sales xxx b) Mdse. Inventory – Trade In xxx
Cash xxx
Allowed Trade In Value xxx MV or NRV of Trade In (xxx) Unde allowance or
Overallowance xxx
FRANCHISE ACCOUNTING
Note: It is assumed that substantial performance occur when the franchisee actually commence the operation of the Franchise.
Note: Down Payment - Non Refundable is recognized as revenue. Direct Cost is deferred.
“Methods of Accounting of Initial Franchise Fee”
ACCRUAL (Reasonably Assured) INSTALMENT (uncertain w/ regards to Collectability)
1. Cash xxx
NR xxx
Deferred Franchise Fee Revenue xxx
Cash xxx
NR xxx
Deferred Franchise Fee Revenue xxx
2. Direct Cost and Indirect
Deferred Cost of Franchise Fee xxx Franchise Expense xxx
Cash xxx Deferred Cost of Franchise Fee xxx Franchise Expense xxx
Cash xxx
3. Upon Substantial Performance DC Deferred Franchise Fee Revenue xxx
Franchise Fee Revenue xxx Collection
Cash xxx
N/R xxx
4. Direct Cost of Franchise Fee Cost of Franchise Fee xxx
ADJUSTING ENTRY – INSTALLMENT METHOD [Close Revenue, Cost of Revenue, & Set up DGP]
Franchise Fee Revenue xxx
Cost of Franchise Fee Revenue xxx Deferred Gross Profit xxx Deferred Gross Profit xxx
Realized Gross Profit xxx COMPUTATIONS: DP xxx Add: Collection xxx Total Collection xxx Multiplied by GP % Restricted RGP xxx Cash xxx Deferred FF Rev. xxx Equipment/Assets xxx Deferred FFC xxx Gain on Sale xxx
Tangible Assets Included in the Initial Franchise Fee
Note: The portion of Initial Franchise Fee must be allocated to such property (Income right away) at its Fair Market Value. Recognized as revenue when title to such property passes to the franchisee even though substantial performance has not occurred.
Options to Purchase: [present]
Note: Initial Franchise Fee is not taken up as revenue but is deferred (until the property is purchased – Investment) upon the exercise of the option it is treated as the reduction in the Franchisor Investment in the acquired outlet.
Bargain Purchase:
Note: The portion of Initial Franchise Fee should be deferred and accounted for as an adjustment of selling price of the equipment/supplies. Amount to be deferred is equal to:
The difference between the SP to other customer and the bargain price granted to customer (franchise)
Regular Price/MP xxx
Less: Bargain Purchase Price xxx
CONSTRUCTION CONTRACT (PAS 11) 1. Cost Recovery
2. Percentage of Completion Method
a. Different Ways of Determining the Stage of Completion i. Cost to Cost Method - Accountant ii. Efforts Expended Method - Engineer iii. Output Measures - Accountant Note:
1. CR - Contract Revenue for the year/CP – Contract Price is equal to percentage of completion current year
2. Contract Cost Incurred to Date Total Estimated Contract Cost Account Title:
CIP – Construction in Progress
Construction Cost xxx
Income Recognized xxx
Accounts Receivable for Progress Billings
Debited Periodic Billings to Customers
Progress Billings
Credited
Contract Retention
Journal Entries 1. Cost Incurred:
CIP (Construction In Progress) xxx
Cash (Materials, FOH, Payroll, etc.) xxx 2. Record Billings A/R from PB xxx Progress Billings xxx 3. Collections Cash xxx A/R from PB xxx
4. GP Earned
CIP (Construction In Progress – GP earned) xxx Construction Cost (Actual Cost) xxx
Contract Revenue (Percentage of Completion x CP) xxx 5. Anticipated Loss
Construction Cost (Actual Cost) xxx
CIP (Construction In Progress – Loss Total) xxx Contract Revenue (% Completed x CP) xxx Note: This Journal Entry is prepared upon completion of the product.
ANTICIPTED LOSS ON LONGTERM CONSTRUCTION CONTRACT
Cost Incurred to Date xxx Add: Est. Cost to Complete xxx
Total Est. Cost xxx
% =
Contract Revenue xxx Less: Contract Cost / Total xxx (Loss) Estimated Loss xxx Less: Prior Period Profit xxx Total Loss to be Credited to CIP xxx
Cost Incurred to Date Total Estimated Cost
Contract Revenue xxx Less: Total Estimated Cost xxx
Gross Profit xxx
Multiply: % of Completion % Gross Profit to Date xxx Less: Previous Profit End xxx
Current EP End xxx
Note: Modification on the Original Contract Price during the Construction Period is treated as change in” Accounting Estimates”. (affect only the amount of future periods)
HOME OFFICE & BRANCH ACCOUNTING
Investment in branch Shipments to branch (Merchandise)
Dr. Cr.
Home Office Current Shipments from Home Office
Cr. Dr.
HOME OFFICE BOOK BRANCH BOOK
*To adjust the allowance to its correct ending balance:
Investment in Branch xxx
Shipment to Branch xxx Allow. For Mark-up on BI xxx
Allowance for Mark-up on BI xxx Branch Net Proceeds xxx Investment in Branch xxx
Shipments to Branch xxx At Cost
Above Cost
Shipments from Home Office xxx Home Office Current xxx
Shipments from Home Office xxx Home Office Current xxx
*Balance of Allowance is deducted in
“Investment in Branch” account in the Home Office Balance Sheet.
1. Branch Inventory Acquired from Home Office: Mdse. At billed price xxx
Divided by billing price % xxx Allow. For Mark-Up Add: Invty. Acquired fr. Outsiders xxx
Branch Inventory at Cost xxx 2. Computation of Current Branch Profit:
Branch Profit (loss) as reported xxx Add: Realized Mark-up on BI xxx True Branch Profit (NI) xxx
INTERBRANCH TRANSFER OF MERCHANDISE
HOME OFFICE
1.
Branch Current Tac xxx Shipments to Branch xxx
Cash xxx
ANOTHER BRANCH (TAC)
Shipment fr. H.O. xxx Freight In xxx
Home Office Current xxx
Home Office Current xxx Shipments fr. H.O. xxx
Freight In xxx
Shipments fr. H.O. xxx Freight In xxx
Home Office Current xxx
Cash xxx
1. Informed the H.O.
1.Branch Current-Cebu xxx Excess of Freight in Shipment xxx Branch Current-Tac xxx 2.Shipment to Branch-Tac xxx Shipment to Branch-Cebu xxx Note: Other Expense:
Expense on the part of the Home Office based on the concept of (logic) efficiency and effectiveness of
administration since it is an obligation of an administration.
FOREIGN EXCHANGE RATES (PAS 21)
Exchange Rate (Income Statement) – Difference
1. Direct Quotation ($1 = P?) 1 dollar to peso equivalent 2. Indirect Quotation ($? = P1) 1 peso to dollar equivalent
FOREIGN CURRENCY FINANCIAL STATEMENTS TRANSLATION
Method known as “Current Rate Method”, Net Investment Method or more popularly recognized in IAS as “Closing Rate Method”.
Assets and Liabilities – Closing Rate
Income and Expenses - Exchange Rates at the date of transactions or “Average Exchange Rates”
SHE – Historical Cost
Note: Differences shall be recognized at a separate component of [entity] equity section. Foreign Currency Transaction – is a transaction that is denominated or requires ______________ foreign currency
Foreign Transaction – transaction between countries or between enterprises in different countries
Notes:
Transaction Date B/S Settlement Date
Spot Rate Spot Rate Spot Rate
FOREX Difference FOREX Difference
(gain/loss) (gain/loss)
Historical Cost HS (PAS 29) For Reporting Hyperinflationary Economy 1. Monetary Items – are not restated
2. Assets and Liabilities – linked by agreement to changes in prices should be adjusted in accordance with the agreement
3. Assets and Liabilities – NRV or MV
Non-monetary Assets and Liabilities – restated
Derivative Instrument - (PAS 39) Financial Instrument Types of Derivatives
1. Option Based Derivatives (One-sided Expense) – “options” and “caps and flows” 2. Forward Based Derivatives (____________________) – Two-sided Expense
Forward - produce or sell specific quality of a financial instrument, commodity, of foreign currency at a specified price determined at the outset, with the delivery or settlement at a specified (ratio) future date
Accounting for FOREIGN Currency Derivatives and Hedging Activities Hedging Operations – Forward Contract (the usual way of avoiding risks)
Hedging (Accounting) – designating a derivative forward instrument as an offset in the net profit a loss in whole or in part, to the change in Fair Value or cash flow of hedged item (__________________) – “hedge effectiveness”.
Categories of Hedges
1. Fair Value Hedge (P & L) 2. Cash Flow Hedge (OCI) Measurement
SWAPS MEASUREMENT
1. Completion of Contract = 0
2. Reporting Date = Difference in MR of Interest
Reported at Equity Component – “Other Revenue”
Derivative Instrument - (PAS 39) Financial Instrument Types of Derivatives
3. Option Based Derivatives (One-sided Expense) – “options” and “caps and flows” 4. Forward Based Derivatives (____________________) – Two-sided Expense
Forward - produce or sell specific quality of a financial instrument, commodity, of foreign currency at a specified price determined at the outset, with the delivery or settlement at a specified (ratio) future date
Accounting for FOREIGN Currency Derivatives and Hedging Activities Hedging Operations – Forward Contract (the usual way of avoiding risks)
Hedging (Accounting) – designating a derivative forward instrument as an offset in the net profit a loss in whole or in part, to the change in Fair Value or cash flow of hedged item (__________________) – “hedge effectiveness”.
Categories of Hedges
3. Fair Value Hedge (P & L) 4. Cash Flow Hedge (OCI)
Measurement
SWAPS MEASUREMENT
3. Completion of Contract = 0
4. Reporting Date = Difference in MR of Interest
Reported at Equity Component – “Other Revenue” FORWARD CONTRACT
1. Completion or Date of Contract = 0
-2. On Financial Reporting Date = _____________ 3. On Settlement Date = Difference
Reported in Profit/Loss “Options”
Written – received/payment/consideration Purchase – payment to purchase
1. On Initial Recognition = FV of _____________
2. Financial Reporting Date = ______________ @ FV (Differences Reported at Profit/Loss) 3. On Settlement Date = FV of Option – P/L
FORWARD CONTRACT
4. Completion or Date of Contract = 0
-5. On Financial Reporting Date = _____________ 6. On Settlement Date = Difference
Reported in Profit/Loss “Options”
Written – received/payment/consideration Purchase – payment to purchase
4. On Initial Recognition = FV of _____________
5. Financial Reporting Date = ______________ @ FV (Differences Reported at Profit/Loss) 6. On Settlement Date = FV of Option – P/L
FORWARD CONTRACTS
Transaction B / S Settlement
Spot Spot Spot
Transaction B / S Settlement (Transact – Settlement Date) (period of FC) (B/S – Settlement
Date) Spot Rate
Forward Contracts are entered into for the following purposes:
1. To speculate in foreign currency exchange price movements. 2. To designate as a Fair Value Hedge
a. To hedge an expense foreign currency Asset or Liability. b. To hedge an unrecognized firm commitment.
c. To hedge a net investment in Foreign Currency
To designate as a Cash Flow Hedge: to hedge foreign currency Forecasted Transaction
FORWARD CONTRACT FOR SPECULATION
1. Acquire premium or discount
2. Value the contract to market value
3. Foreign exchange gain/losses the income statement
Import Export Foreign Currency Transaction Forward Contracts Hedging Options The future sale or purchase of foreign currency at a specified
Transaction Date:
Forward contract receivable
xxx
Forward Contract Payable
xxx
Budget Date:
Forward Contract Receivable
xxx
Foreign exchange gain
xxx
Foreign Exchange Gain
xxx
Forward Contract Payable
xxx
Settlement Date:
Received of Cash:
Cash($)
xxx
Forward Contract of Receivable
xxx
Forward Contract Payable
xxx
Cash (P)
xxx
Foreign Exchange Gain/loss
xxx
DERIVATIVES
Is a contract
1. Forward- To buy or to sell
Buy- LONG POSITION- Obligated to buy
Sell- SHORT POSITION- Obligated to sell
2. Filters- Exchange Market (Stock exchange), liquidity
3. Option
a. Call Option(Option Based Derivatives)
-“Right to buy”, no obligation to buy
-Option Price
b. Put Option(one sided expensed)
-“Right to sell”, no obligation to sell
SWAPS- INTEREST RATE SWAP
“
National Amount”
Variable Rate
Fixed Rate
A. Does no want to pay Variable Rate however want to pay fixed.
B. Does not want to pay fixed rather wants to pay variable.
“RECEIVE VARIABLE, PAY FIXED”
IR%
- Fixed Rate
VR% - Current Rate
Net Excess
xxx% - Advantage/Disadvantage
Multiply by FV xxx
FV Amount of
xxx
- Disadvantage/Advantage
Multiply by PV xxx%
xxx% - Derivative Asset/ Liability
fixed- IR
xxx - the day or the current rate upon the contract of interest rate
CR
(xxx%) - rate for the year
Net Advantage/Disadvantage xxx
Multiply by Fair Value
xxx
Multiply by Present Value
xxx%
Asset or Liability
xxx -Derivative asset or liability for the period
DERIVATIVES “continuation” P1 & P2
INTEREST RATE SWAP AGREEMENT
(Received variable, pay fixed)
(Cash flow hedge)
Entity on Obligation on loan
Cash
xxx
Loans Payable xxx
5M A Contract B 5 MVariable interest rate
Payment of Interest
Interest expense xxx
Cash
xxx
Entity into Agreement of Interest Rate SWAP (Disclose/memo entry)
First year
UL ON IRS
xxx
IRS Payable xxx
IRS Receivable xxx
UG on IRS
xxx
Payment of interest
Second Year
Interest expense xxx
Cash
xxx
Base on variable current rate
Interest rate swap payable xxx
IRS
xxx
Cash
xxx
Interest expense
xxx
UL on IRS
xxx
500 Company B1 5,000 B2 2 year Fixed rateFUTURE CONTRACT
Strike Price
xxx
Market price
(xxx)
Advantage/disadvantage
xxx
Multiply by
xxx Quantity to be purchased
UL/UG on FC
xxx
Entry: UL on FC
xxx
Accounts Payable xxx
Accounts receivable
xxx
UG on FC
xxx
OPTIONS
To buy option
Call option
xxx
Cash
xxx
Call option
xxx
UG on Call option
xxx
RISK (DERIVATIVES &HEDGING ACTIVITIES)
Hedging Instrument
Exposed asset/ liability - Not a hedge account - IS
Commitment
- hedge account
Forecasted
- hedging activities – CFH- OCI
Speculation
- not a hedging activities - IS
AFS
- Net Investment
- CFH – OCI
Hedging Activities
Investment for trading
Financial instrument Underlings Foreign currency Commodity interest National amount FC - IS CFA - OCI
FORWARD CONTRACT TO EXPOSED ASSET OR LIABILITY
Foreign Currency Transaction
Forward Contract
T/S - ( Transaction Date)
T/S - (Transaction Date)
Purchases xxx
* Forward Contract Receivable xxx
A/R
xxx
Forward Contract Payable
xxx
A/R
xxx
Sales
xxx
B/S
B/S
A/P
xxx
* Foreign exchange Rec. xxx
Foreign exchange Gain
xxx
Forward contract Rec.
xxx
S/P
S/P
A/P
xxx
* Cash
xxx
Cash
xxx
Forward contract Rec.
xxx
Foreign exchange Gain
xxx
* Forward Contract Pay xxx
Cash
xxx
FORWARD CONTRACT TO HEDGE AN UNRECOGNIZED FIRM COMMITMENT
1.
* Forward Contract Rec.
xxx
Forward Contract Pay
xxx
2. Forex Firm Commitment
xxx
* Forex Loss
xxx
Forex Gain
xxx
Forward Contract Receivable xxx
3. Purchases
xxx
* Forward Contract Payable
xxx
Purchases
xxx
* Cash
xxx
Forex Firm Commitment xxx
ForEx Loss
xxx
Forward Contract Rec.
xxx
Forward Contract to Hedge of Foreign Currency Denominated Forecasted Transaction
(Cash Flow Hedge)
Foreign Currency Transaction
Forward Contract
1.
-0-
Forward Contract Receivable ($)
xxx
Forward Contract Payable
xxx
2. 12/31/201X
-0-
Deferred Forex Loss
xxx
Forward Contract Receivable ($) xxx
3. ( Actual Purchase Transaction Took Place)
Purchases
xxx
Forward Contract Payable
xxx
Cash ($)
xxx
Cash
xxx
Cash ($)
xxx
Deferred ForEx Loss
xxx
Forward Contract Receivable
xxx
4. Cash/ Accounts Receivable xxx
Sales
xxx
COS
xxx
Inventory
xxx
Deferred Forex Loss
xxx
Corporate Liquidation
1. Statements of Affairs
Assets
o
Asset Pledge with fully secured creditors
oAsset Pledge with partly secured creditors
o
Free Assets
Liabilities
o
Unsecured creditors with priority
oFully secured creditors
o
Partly secured creditors
Change to CGS it to the related industry or equipment is sold or
o
Unsecured creditors without priority
SHE
o
All the SHE Accounts
2. Statement of Realization and Liquidation
Assets (Non-cash)
Liabilities
Revenue and Expenses
(Note: supporting Schedule of Cash and Owners Equity/SHE)
Cash
SHE
Forms of Business Combination
A. Acquisition of Net Assets ( Purchase Method) 1. Merger
2. Consolidation
B. Stock Acquisition ( Cost Method or Equity Method)
Business Integration Forms 1. Horizontal
2. Vertical
3. Conglomerates
Accounting Method Ownership Interest Amount Used
-0-Equity Method 20%-50% Investments in Associates
Equity Method & Consolidation Procedures
50%-100% Investment in Subsidiaries
Consolidated F/S
Subsequent to Date of Acquisition Equity Method
1. E, Income for Subsidiary xxx Dividend – Subsidiary xxx Investment in Subsidiary xxx 2. E, O/S – Subsidiary Beg xxx S/P - Sub. Beg xxx R.E – Sub. Beg xxx Investment in Subsidiary xxx MINA xxx
3. Allocate the difference to the specific assets
assets & liabilities of the subsidiary. (Unamortized balance) 4. Amortized the allocated difference.
5. Recognize the share of the minority or non-controlling interest in the net income or loss of subsidiary & dividends for the current year.
6. Eliminate other reciprocal accounts such as intercompany payables & receivables. 7. Combined non reciprocal accounts on a line by line basis.
Cost Method
1. Adjust the carrying amount of investment account to the equity method balance a t the beginning of the current year.
2. E. Dividend Income xxx Dividend – Subsidiary xxx 3. E, O/S – Subsidiary Beg xxx S/P - Sub. Beg xxx R.E – Sub. Beg xxx Investment in Subsidiary xxx MINA xxx
4. Allocate the difference to the specific assets & liabilities of the subsidiary. (Unamortized Balance).
5. Amortized the allocated difference.
6. Recognized the share of the minority interest on net income or loss of subsidiary & dividends for the current year.
7. Eliminate other reciprocal accounts such as intercompany payables & receivables. 8. Combined nonreciprocal accounts on a line by line basis.
Intercompany Sale of Inventory Additional consolidation procedures are as follows:
a. Recognized the intercompany profit or beg. Inventory. Downstream 1. Investment in Subsidiary xxx COS xxx Upstream 1. Investment in Subsidiary xxx MINA xxx COS xxx
b. Intercompany Sales & Purchases
Sales xxx
COS xxx
c. Eliminate unrealized profit in ending inventory
COS xxx
Inventories xxx
Downstream Sales
a. Net Income of Subsidiary xxx Amortization of Allocated Excess (xxx)
Adjusted Net Income xxx x %MI= MINI % of an Ownership Interest _%_
Share in NI of Subsidiary xxx Realized Profit on Beg. Invty. xxx
Unrealized Profit in Ending Invty (xxx) Income for Subsidiary xxx
b. SHE ( Unadjusted) end of the year xxx Unamortized balance of xxx
Adjusted SHE xxx
% Minority interest _%_
MINA, end of the year xxx
Upstream Sales
a. Net Income of Subsidiary xxx Amortization of Allocated Excess (xxx) Realized Profit in Beg. Invty. xxx Unrealized Profit in Ending Invty. (xxx)
Adjusted NI Subsidiary xxx % MI= MINI
% of Ownership _%__
Income from Subsidiary xxx b. SHE ( Unadjusted) end of the year xxx
Unamortized balance of xxx Unrealized profit on Ending (xxx)
Adjusted SHE xxx
% Minority interest _%_
MINA, end of the year xxx
Intercompany Sale of Non- Depreciable Assets 1. Year of Sale Gain on Sale xxx Land / Building xxx 2. Subsequent Year Downstream a. Investment in Sub. xxx Acc. Dep’n xxx Land / Building xxx b. Acc. Dep’n xxx Dep’n xxx Upstream a. Investment in Sub. xxx MINA xxx Acc. Dep’n xxx Land xxx b. Acc. Dep’n xxx Dep’n xxx
Additional Elimination
a. Refuse the carrying value of the asset to its original book value at the beginning of the gain & eliminate the unrealized gain or less in the sale of interest.
b. Recognize realized gain by reducing the depreciation expense & the realized accumulated depreciation to reflect the original book value of the asset.
Year & Subsequent Sale of PPE & Inventory Downstream
Net Income of Subsidiary xxx Amortization of allocated excess (xxx)
Adjusted NI xxx % MI = MINI
% Parents Ownership %
NI xxx
Realized Profit on Beg. Inventory xxx Unrealized Profit on Ending Inventory (xxx) Gain on Sale of Land & PPE (xxx) Piecemeal Realization of Gain on Sale PPE xxx
Income from Subsidiary xxx
Upstream
Net Income of Subsidiary xxx Amortization of allocated excess (xxx) Realized Profit in Beg. Inventory xxx Unrealized Profit in End. Inventory (xxx) Gain on Sale of PPE & Land (xxx) Piecemeal Realization of Gain on Sale of PPE xxx
Adjusted NI of Subsidiary xxx * MI% = MINI
Parents Ownership Interest %
Income from Subsidiary xxx
MINA
Shee of the Subsidiary, end of the year xxx (Unadjusted) Unamortized Balance of Undervalued Assets xxx
Adjusted SHE xxx
% Minority Interest Percentage %
MINA, end of the year xxx
She of the Subsidiary, end of the year xxx Unamortized Balance of Undervalued Assets xxx Unrealized Profit on End. Inventory (xxx)
Adjusted SHE xxx
% MINA, %
MINA, end of the year xxx
INTEREST AND JOINT VENTURE Forms of joint venture
1. Jointly Controlled Operations 2. Jointly Controlled Assets 3. Jointly Controlled Entities A. Separate Set of Books is Maintained for the Joint venture:
Investment Joint Venture
1 beg xxx xxx withdrawals 5. 2. additional investment xxx xxx share in losses 6. 3. services rendered xxx xxx end cash settlement 7. 4. share in JV profits xxx
B. JOINT VENTURE
1 Merchandise Contribution Merchandise withdrawals 8
2 Purchase Merchandise return 9
3 Freight-In Purchase return & allowances 10
4 Sales Return & Allowances Purchase Discount 11
5 Sales Discount Sales 12
6 Expenses Other Income 13
NL ? NI ?
Types of Derivatives
1. Option based derivatives Options contracts Interest rate
Interest rate floors 2. Forward base derivatives
Forward Future Swap
PAS 39 : Types of hedge Fair value hedge Cash flow hedge
Hedge of net investment Forward contracts
a. Hedge
Foreign currency transactions Unrecognized firm commitment 3. Foreign Currency Denominated
- Forecasted transaction (cash flow hedge) - Highly probable
4. Net investment in foreign operations (translation adjustment)
b. Speculation
Discount/premium – the difference between the two rates is referred to as a discount/premium if forward rate is less (greater then) the spot rate.
Options Contracts:
Option contract
Foreign Currency Option Contract
Contractual agreement giving the holder the right to buy or sell a given amount among at a specified price (the exercise price or strike price) for a period of time or a point in time.
Call (buy) SMP = ESP 5 = 5 At the money SMP > ESP 6 > 5 In the money SMP < ESP 5<6 Out the money Right
Seller Buyer