Practical Accounting 2 Lesson Summary

P

Partnership

Formation

Operations

Dissolution

Liquidation

Cost Accounting

Basic Cost Accounting

Job Order Costing -Lost

Jobs

Process Costing & its

Lost Units

Joint & By Products and

JIT Accounting

Business Combination

Merger and Stock

Acquisition

Conso F/S Subsequent

to Acquisition

AND

Intercompany Sale of

Plant Assets & Invty

Merger and Stock

Acquisition IFRS3 (2008)

Practical Accounting Problems II Review Lessons by: Romeo P. Arejola, Jr.

P2 Review Home

Special Revenue

Recognition

Long Term Construction

Contract

Installment Sales

Franchising

Conso F/S Subsequent

Others

Corporate Liquidation

HO & Branch Acctg

(Special Problems)

International

Accounting

Joint Venture

Review Sched and Tips

Jokes Test Banks

)

PARTNERSHIP FORMATION

Partneship Formation is basically the same with Sole Proprietorship. ASSETS are DEBITED at FMV contributed to the Business, LIABILITIES assumed by the business are CREDITED at FMV also. Instead of CREDITING one CAPITAL account only, TWO or more CAPITAL accounts are CREDITED for their individual net contribution. Then, CAPITAL accounts are just adjusted to conform with their agreement in allocating capital to partners.

Instructions: Populate the table with the figures given in the problem. Then, based from which method is to be used (Exact,Bonus,GW, combined Bonus & GW), work your way to compute for the missing figures using Soduko Style, by following the characteristics of each Method. Then, when the table is populated, all you need to do is journalized the datas from Column "Initial CC" upto "Agreed Capital".

Allocated Capital To Partners

Irrelevant Capital Interest

1. "Net Investment Method"

2. Eeach Partner's CC=Each Partner's AC

3. No Bonus; No Goodwill

4.No Additional Investment or Withdrawal of

Assets

1. Each Partner's AC= Total AC x Capital Interest Ratio

2. If silent, Capital Interest Ratio is not equal to P&L%

Agreed Capital Not Given

1. Method Given or Implied

Exact Method

1. Total CC=Total AC

2. Each Partner's AC=Each Partner's CC

3. No Bonus; No Goodwill

4. Additional Investment or Withdrawal of

Assets

Bonus Method "If Silent"

1. Total CC=Total AC

2. Some Partner's CC > Their AC

3. Yes Bonus; No Goodwill

4. No Additional Investment or Withdrawal of

Assets

1. Total CC<Total AC

2. Each Partner's CC <= Their AC

3. No Bonus; Yes Goodwill

4. No Additional Investment or Withdrawal of

Assets

5. Goodwill=Total AC

P2 Review Home

Sample1:

I

On June 1, 2007, JVC and GBX decided to pool their assets and form a partnership.

After the formation the partners will participate in the profits and loss ratio of 60% and

40% for JVC and GBX, respectively. The balance sheet on June 1 before the

adjustments were as follows:

JVC

GBX

Cash

P198,000

P316,800

Accounts receivable

1,296,000

1,440,000

Allowance for doubtful accounts

( 32,400)

( 36,000)

Notes receivable

360,000

-

Merchandise inventory

115,200

108,000

Prepaid rent

-

36,000

Building

720,000

Accumulated depreciation

( 72,000)

Equipment

576,000

Accumulated depreciation

__________

( 43,200)

Total assets

P2,584,800

P2,397,600

Accounts payable

P 36,000

P 43,200

Note payable

360,000

Capital

2,548,800

1,994,400

P2,584,800

P2,397,600

The firm is to take over business assets and assume business liabilities. Capitals are to

be based on net assets transferred after the following adjustments:

a. 4% of the accounts receivable of JVC may prove to be uncollectible while the

accounts receivable of GBX is estimated to be 98% realizable

b. Interest at 15% on notes receivable amounting to P200,000 dated April 1, 2007

should be accrued and interest at 12% on the balance of the notes dated February

1, 2007. (use exact days)

c. The inventory of JVC should be valued at P120,000, while P18,000 of the inventory

of GBX is considered worthless.

d. 4/5 of the prepaid rent has expired.

e. The building is over depreciated by P12,000.

f. The equipment is to be valued at P515,000.

g. Interest at 10% on notes payable dated May 1, 2007 should be accrued. (use exact

days)

h. GBX has office supplies on hand which have been charged to expense amounting to

P8,000. These are still to be used by the partnership.

i. Accrued expense of P6,000 is to be recognized in the books of JVC.

After formation, the new capital of the partnership is based on the adjusted capital

balance of JVC, so that GBX may either withdraw or invest additional cash to make the

partners’ capital balance in proportionate to their profits and losses ratio.

All in Black Ink are Given in the Problem.

All those in Red Ink were computed using Soduko Style of solving either by Squeeze or by working backwards or by merely following the logic of the Concepts/Notes

NET Investment Method Capital Interest Partners Unadjusted CC Final CC Bonus JVC 2,551,485 2,551,485 0 GBX 1,941,943 1,941,943 0 Total _{4,493,428 4,493,428 0}

1. Irrelevant Capital Interest, so remove Capital Interest % 2. Eeach Partner's CC=Each Partner's AC

3. No Bonus; No Goodwill

4.No Additional Investment or Withdrawal of Assets

Net Assets 4,493,428

JVC, Capital 2,551,485

GBX, Capital 1,941,943

# Agreed Capital Given at P4,500,000

Capital Interest Partners Unadjusted CC Final CC Bonus 60% JVC 2,551,485 2,551,485 141,943 40% GBX 1,941,943 1,941,943 (141,943) 100% Total _{4,493,428 4,493,428 0}

Bonus and Goodwill Combined 1. Total CC<Total AC

2. Some Partner's CC >Their AC 3. Yes Bonus; Yes Goodwill

4. No Additional Investment or Withdrawal of Assets 5. Goodwill=Total AC-Total CC Net Assets 4,493,428 JVC, Capital 2,551,485 GBX, Capital 1,941,943 # GBX, Capital 141,943 JVC, Capital 141,943 # Goodwill 6,572 JVC, Capital 6,572 #

Agreed Capital Not Given, Exact Method Capital Interest Partners Unadjusted CC Final CC Bonus 60% JVC 2,551,485 2,551,485 0 40% GBX 1,941,943 (240,953.00) 1,700,990 0 0

Add'l Inv't/ Withdrawal 0

0 0

Add'l Inv't/ Withdrawal 0

Add'l Inv't/ Withdrawal 0

I

On June 1, 2007, JVC and GBX decided to pool their assets and form a partnership.

After the formation the partners will participate in the profits and loss ratio of 60% and

40% for JVC and GBX, respectively. The balance sheet on June 1 before the

adjustments were as follows:

JVC

GBX

Cash

P198,000

P316,800

Accounts receivable

1,296,000

1,440,000

Allowance for doubtful accounts

( 32,400)

( 36,000)

Notes receivable

360,000

-

Merchandise inventory

115,200

108,000

Prepaid rent

-

36,000

Building

720,000

Accumulated depreciation

( 72,000)

Equipment

576,000

Accumulated depreciation

__________

( 43,200)

Total assets

P2,584,800

P2,397,600

Accounts payable

P 36,000

P 43,200

Note payable

360,000

Capital

2,548,800

1,994,400

P2,584,800

P2,397,600

The firm is to take over business assets and assume business liabilities. Capitals are to

be based on net assets transferred after the following adjustments:

a. 4% of the accounts receivable of JVC may prove to be uncollectible while the

accounts receivable of GBX is estimated to be 98% realizable

b. Interest at 15% on notes receivable amounting to P200,000 dated April 1, 2007

should be accrued and interest at 12% on the balance of the notes dated February

1, 2007. (use exact days)

c. The inventory of JVC should be valued at P120,000, while P18,000 of the inventory

of GBX is considered worthless.

d. 4/5 of the prepaid rent has expired.

e. The building is over depreciated by P12,000.

f. The equipment is to be valued at P515,000.

g. Interest at 10% on notes payable dated May 1, 2007 should be accrued. (use exact

days)

h. GBX has office supplies on hand which have been charged to expense amounting to

P8,000. These are still to be used by the partnership.

i. Accrued expense of P6,000 is to be recognized in the books of JVC.

After formation, the new capital of the partnership is based on the adjusted capital

balance of JVC, so that GBX may either withdraw or invest additional cash to make the

partners’ capital balance in proportionate to their profits and losses ratio.

100% Total _{4,493,428 4,252,475 0} 1. Total CC=Total AC

2. Each Partner's AC=Each Partner's CC 3. No Bonus; No Goodwill

4. Additional Investment or Withdrawal of Assets

Net Assets 4,493,428 JVC, Capital 2,551,485 GBX, Capital 1,941,943 # GBX, Capital 240,953 Net Assets 240,953 #

Agreed Capital Not Given, Bonus Method Capital Interest Partners Unadjusted CC Final CC Bonus 60% JVC 2,551,485 2,551,485 144,572 40% GBX 1,941,943 1,941,943 (144,572) 100% Total _{4,493,428 4,493,428 0} 1. Total CC=Total AC

2. Some Partner's CC > Their AC 3. Yes Bonus; No Goodwill

4. No Additional Investment or Withdrawal of Assets

Net Assets 4,493,428 JVC, Capital 2,551,485 GBX, Capital 1,941,943 # GBX, Capital 144,572 JVC, Capital 144,572 #

Agreed Capital Not Given, Goodwill Method Capital Interest Partners Unadjusted CC Final CC Bonus 60% JVC 2,551,485 2,551,485 0 40% GBX 1,941,943 1,941,943 0 100% Total _{4,493,428 4,493,428 0} 1. Total CC<Total AC

2. Each Partner's CC <= Their AC 3. No Bonus; Yes Goodwill

4. No Additional Investment or Withdrawal of Assets 5. Goodwill=Total AC-Total CC Net Assets 4,493,428 JVC, Capital 2,551,485 GBX, Capital 1,941,943 # Goodwill 361,430 JVC, Capital 361,430 0 0 0 0

Add'l Inv't/ Withdrawal 0

0

(240,953.00)

Partneship Formation is basically the same with Sole Proprietorship. ASSETS are DEBITED at FMV contributed to the Business, LIABILITIES assumed by the business are CREDITED at FMV also. Instead of CREDITING one CAPITAL account only, TWO or more CAPITAL accounts are CREDITED for their individual net contribution. Then, CAPITAL accounts are just adjusted to conform with their

Instructions: Populate the table with the figures given in the problem. Then, based from which method is to be used (Exact,Bonus,GW, combined Bonus & GW), work your way to compute for the missing figures using Soduko Style, by following the characteristics of each Method. Then, when the table is populated, all you need to do is journalized the datas from Column "Initial CC" upto "Agreed Capital".

Relevant Capital Interest

. Each Partner's AC= Total AC x Capital Interest Ratio

. If silent, Capital Interest Ratio is not equal to P&L%

Agreed Capital Not Given

. Method Given or Implied

Agreed Capital Given

Exact Method

Bonus Method

Goodwill Method

Goodwill Method "trial and error"

1. Total CC<Total AC

2. Each Partner's CC <= Their AC

3. No Bonus; Yes Goodwill

4. No Additional Investment or Withdrawal of

Assets

5. Goodwill=Total AC-Total CC

Combined Bonus & Goodwill Method

1. Total CC<Total AC

2. Some Partner's CC >Their AC

3. Yes Bonus; Yes Goodwill

4. No Additional Investment or Withdrawal of

Assets

5. Goodwill=Total AC-Total CC

Review Home

I

On June 1, 2007, JVC and GBX decided to pool their assets and form a partnership.

After the formation the partners will participate in the profits and loss ratio of 60% and

40% for JVC and GBX, respectively. The balance sheet on June 1 before the

adjustments were as follows:

JVC

GBX

Cash

P198,000

P316,800

Accounts receivable

1,296,000

1,440,000

Allowance for doubtful accounts

( 32,400)

( 36,000)

Notes receivable

360,000

-

Merchandise inventory

115,200

108,000

Prepaid rent

-

36,000

Building

720,000

Accumulated depreciation

( 72,000)

Equipment

576,000

Accumulated depreciation

__________

( 43,200)

Total assets

P2,584,800

P2,397,600

Accounts payable

P 36,000

P 43,200

Note payable

360,000

Capital

2,548,800

1,994,400

P2,584,800

P2,397,600

The firm is to take over business assets and assume business liabilities. Capitals are to

be based on net assets transferred after the following adjustments:

a. 4% of the accounts receivable of JVC may prove to be uncollectible while the

accounts receivable of GBX is estimated to be 98% realizable

b. Interest at 15% on notes receivable amounting to P200,000 dated April 1, 2007

should be accrued and interest at 12% on the balance of the notes dated February

1, 2007. (use exact days)

c. The inventory of JVC should be valued at P120,000, while P18,000 of the inventory

of GBX is considered worthless.

d. 4/5 of the prepaid rent has expired.

e. The building is over depreciated by P12,000.

f. The equipment is to be valued at P515,000.

g. Interest at 10% on notes payable dated May 1, 2007 should be accrued. (use exact

days)

h. GBX has office supplies on hand which have been charged to expense amounting to

P8,000. These are still to be used by the partnership.

i. Accrued expense of P6,000 is to be recognized in the books of JVC.

After formation, the new capital of the partnership is based on the adjusted capital

balance of JVC, so that GBX may either withdraw or invest additional cash to make the

partners’ capital balance in proportionate to their profits and losses ratio.

All those in Red Ink were computed using Soduko Style of solving either by Squeeze or by working backwards or by merely following the logic of the Concepts/Notes 0 2,551,485 0 1,700,990 0 1,800,000 Goodwill AC 6,572.00 4,500,000 6,572.00 2,700,000 0 4,493,428 AC Goodwill 0 1,941,943 Goodwill AC 0 2,551,485

I

On June 1, 2007, JVC and GBX decided to pool their assets and form a partnership.

After the formation the partners will participate in the profits and loss ratio of 60% and

40% for JVC and GBX, respectively. The balance sheet on June 1 before the

adjustments were as follows:

JVC

GBX

Cash

P198,000

P316,800

Accounts receivable

1,296,000

1,440,000

Allowance for doubtful accounts

( 32,400)

( 36,000)

Notes receivable

360,000

-

Merchandise inventory

115,200

108,000

Prepaid rent

-

36,000

Building

720,000

Accumulated depreciation

( 72,000)

Equipment

576,000

Accumulated depreciation

__________

( 43,200)

Total assets

P2,584,800

P2,397,600

Accounts payable

P 36,000

P 43,200

Note payable

360,000

Capital

2,548,800

1,994,400

P2,584,800

P2,397,600

The firm is to take over business assets and assume business liabilities. Capitals are to

be based on net assets transferred after the following adjustments:

a. 4% of the accounts receivable of JVC may prove to be uncollectible while the

accounts receivable of GBX is estimated to be 98% realizable

b. Interest at 15% on notes receivable amounting to P200,000 dated April 1, 2007

should be accrued and interest at 12% on the balance of the notes dated February

1, 2007. (use exact days)

c. The inventory of JVC should be valued at P120,000, while P18,000 of the inventory

of GBX is considered worthless.

d. 4/5 of the prepaid rent has expired.

e. The building is over depreciated by P12,000.

f. The equipment is to be valued at P515,000.

g. Interest at 10% on notes payable dated May 1, 2007 should be accrued. (use exact

days)

h. GBX has office supplies on hand which have been charged to expense amounting to

P8,000. These are still to be used by the partnership.

i. Accrued expense of P6,000 is to be recognized in the books of JVC.

After formation, the new capital of the partnership is based on the adjusted capital

balance of JVC, so that GBX may either withdraw or invest additional cash to make the

partners’ capital balance in proportionate to their profits and losses ratio.

361,429.50 4,854,858 361,429.50 2,912,915 - 1,941,943 0 4,493,428 Goodwill AC 0 2,696,057 0 1,797,371 0 4,252,475 Goodwill AC

Given

Goodwill Method

Combined Bonus & GW

Method

Partnership Operations

Instructions: Follow the graph. Populate the table with the figures given in the problem. Then, work your way to the answer using Soduko Style by following the Concepts given in the Notes.

PL% PL% PL%

P1 P2 P3

Salaries + + +

% Interest + + +

Bonus + + +

Remainder Squeeze x P1PL% Squeeze x P2PL% Squeeze x P3PL%

Total P1 NI (NL) P2 NI (NL) P3 NI (NL)

NOTE: Salaries, Interest on Capital, and Bonus are not expenses of the Partnership, rather it's just an allocation of Net Income. So, if silent, Partnership Net Income means Income before Salaries, Interest and Bonus.

Profit

There's Agreement as to Profit Allocation

(Follow Agreement)

1. Salaries (if silent as to whether salaries is

annual or mthly, don't multiply or divide by

mths anymore)

2. Interest (if silent based on Original Capital

Contribution [ or 2Beg Cap, or 3End Cap, or

4Ave Cap]; must be proportionate to the

period invested)

3. Bonus (no negative Bonus, EVER)

4. Remainder (if silent based on Original

Capital Contribution [or 2Beg Cap, or 3End

Cap, or 4Ave Cap] even if there's Loss Ratio);

5. In US (If silent as to remainder, Equally,

even if there's Loss Ratio)

No Agreement as to Profit Allocation

1. Based on Original Capital Contribution (or

2Beg Cap, or 3End Cap, or 4Ave Cap) even if

there's Loss Ratio

Instructions: Follow the graph. Populate the table with the figures given in the problem. Then, work your way to the answer using Soduko Style by following the Concepts given in the Notes. 100% Total Total Salaries Total Interest Total Bonus Squeeze NI or (NL) Salaries, Interest on Capital, and Bonus are not expenses of the Partnership, rather

Profit and Loss Allocation

Loss

No Agreement as to Profit Allocation

. Based on Original Capital Contribution (or

Ave Cap) even if

. in US, Equally, even if there Loss Ratio

No Agreement as to Loss Allocation

1. Follow Profit Ratio

2. If no Profit Ratio, based on Original Capital

Contribution (or

4Ave Cap)

3. in US, Follow Proft Ratio. If no Profit Ratio,

Equally.

There's Agreement as to Loss Allocation

(Follow Agreement)

1. Salaries (if silent as to whether salaries is

annual or mthly, don't multiply or divide by

mths anymore)

2. Interest (if silent based on Original Capital

Contribution [ or 2Beg Cap, or 3End Cap, or

4Ave Cap]; must be proportionate to the

period invested)

3. No Bonus (no negative Bonus, EVER)

4. Remainder (if silent, follow Profit ratio. If

no Profit Ratio, based on Original Capital

Contribution [or 2Beg Cap, or 3End Cap, or

4Ave Cap])

5. In US (If silent as to remainder, Follow

Profit Ratio. If no Profit Ratio, Equally)

P2 Review Home

No Agreement as to Loss Allocation

. Follow Profit Ratio

. If no Profit Ratio, based on Original Capital

Contribution (or 2Beg Cap, or 3End Cap, or

Partnership Dissolution

Instructions: Follow the graph. Populate the table with the figures given in the problem. Then, work your way to the answer using Soduko Style by following the Concepts given in the Notes.

Admission of a New Partner

New Partner Purchase Interest from Old

Partners

No Implied Goodwill

1. Transfer of Capital Only

OP, Cap PI purch

NP, Cap PI purch

#

2. Ignore Difference between

Amount Paid & Capital

Transferred (PI purch)

Implied Goodwill or Stated

Increase in Assets

1. First, recognize increase in

Assets or Goodwill

GW/Assets Amt

OP1, Cap Amtx%

OP2, Cap Amtx%

OP3, Cap Amtx%

#

GW=Amt Paid-PI Purchased

PL%

Inc. Assets=Amt Paid-PI Purch

PL%

2. Then, Amt Paid=PI Purch

3.Transfer of Capital

OP, Cap Amt Paid

NP, Cap Amt Paid

#

LEGENDS:

OP = Old Partners

NP = New Partner

PI Purch = Amount of Partners Interest Purchased

GW = Goodwill

CC = Contributed Capital

TCC = Total Contributed Capital

AC = Agreed Capital

TAC = Total Agreed Capital

PGW = Partial Goodwill Method

PWDA = Partial Write Down of Assets Method

TGW = Total Goodwill Method

Instructions: Follow the graph. Populate the table with the figures given in the problem. Then, work your way to the answer using Soduko Style by following the Concepts given in the Notes.

Partnership Dissolution

Admission of a New Partner

New Partner Invest in

Partnership

Same with Partnership

Formation

Retiring Partner Sold Interest to

New or Remaining Partner

Same with Purchase of Interest

from a Partner

Retirement/Death of a Partner

Retiring Partner Withdraw

Assets from Partnership

Partnership Liquidation

Instructions: Populate the table with the figures given in the problem. Then, work your way to the answer using Soduko Style by following the Concepts given in the Notes.

Cash + Non-Cash = Liabilities +

Balance B4 Closing I/S Debit Bal Debit Bal = Credit Bal

Inc/Dec in Assets/Liabilities Value + (-) = (-) +

Sale of Assets Gain/(Loss) + (-) =

Liquidating Expenses (-) =

Restricted Cash (for future liq. Exp) (-) =

Distribution of Net Income/(Net Loss) =

Pay Creditors (-) = (-)

Balance B4 Settlement Debit Bal 0 = 0

Absorb Insolv't Prtnr w/ Dr Bal =

Balance Debit Bal 0 = 0

Addt'l Invstmnt by Solvnt Prtnr w/ Dr Bal + =

Balance Debit Bal 0 = 0

Settlement (-) =

Zero 0 0 = 0

Note1: Increases/Decreases in Assets/Liabilities are closed first to Income Summary account, if any. Otherwise, it may be charged direclty to Partner's Capital accounts according to their PL%. Note2: Gain/Loss on Sale of Non-Cash Assets are closed first to Income Summary account, if any. Otherwise, it may be charged direclty to Partner's Capital accounts according to their PL%.

Note2: Any UNSOLD assets are all considered LOSS until SOLD, unless a partner is willing to accept something Non-Cash instead of CASH in settlement of his/her account. In this case, Debit the Partners capital account instead of CASH. Note3: Liquidating Expenses are closed first to Income Summary account, if any. Otherwise, it may be charged direclty to Partner's Capital accounts according to their PL%.

Note3a: Restricted Cash are cash reserves for future liquidating expenses. This means that the available cash of the Partnership will not entirely be distributed to the partners. Problems involving restricted cash should give the amount of cash for distribution to partners.

Note4: The Total Balance of Income Summary account is allocated to Partner's capital accounts according on their PL%.

Note5: When the problem is silent, partners are assumed Insolvent. However, be careful when the problem implies that the partner is solvent. (e.g. When a partner with debit balance is not absorbed by the remaining partners means that the partner with debit balance invested, so solvent.) Note5: Assuming P1-Credit Balance, P2-Debit Balance-Solvent, P3-Debit Balance-Insolvent

Note6: The Debit Balance in the Capital account of an Insolvent Partner will be absorbed by the remaining partners according to the remaining partner's PL%

Note7: The Solvent Partner with Debit Balance will invest cash for the amount of his/her deficiency.(unless the other remaining partner is willing to accept Non-cash in settlement of his account). Note8: The remaining cash (Non-cash if the remaining partner accepts) will be used to settle the capital balances of the remaining partners.

Note9: Loans from/to Partners are not Liabilities. Instead, they are offset to to the Capital Accounts of Partners.

Sample 1:

Capital Accounts B4 Settlement

Repeat Steps 1 to 2 until there are no more

Partner with a debit balance

Credit Balance

Step3. Settle the remaining Cash to the

partner with credit balance.

Insolvent

Step1. The debit balance in the capital

account of the insolvent partner must be

absorbed by the remaining partners

according to the remaining partner's PL%.

QQ, RR and SS decided to dissolve the partnership on July 31, 2007. Their capital

balances and profit ratio on this date follow:

Capital Balances

Profit Ratio

QQ P280,000 25%

RR 360,000 30%

SS 160,000 45%

The net loss from January 1 to July 31, 2007 is P60,000. Also, on this date, cash and

liabilities are P170,000 and P290,000 respectively. Which of the following is

inconsistent with the result of the partnership liquidation if RR received P309,000 in full

settlement of his interest in the firm

All in Black Ink are Given in the Problem.

All those in Red Ink were computed using Soduko Style of solving either by Squeeze or by working backwards or by merely following the logic of the Concepts/Notes

Cash + Non-Cash = Liabilities +

Balance befor closing I/S 170,000 860,000 = 290,000 Sale of Assets (Loss) 750,000 (860,000) =

Distribution of Net Loss =

Pay Creditors (290,000) = (290,000)

Balance B4 Settlement 630,000 0 = 0

Absorb Insolv't Prtnr w/ Dr Bal =

Balance 630,000 0 = 0

Addt'l Invstmnt by Solvnt Prtnr w/ Dr Bal + =

Balance 630,000 0 = 0

Settlement (630,000) =

Zero - 0 = 0

QQ, RR and SS decided to dissolve the partnership on July 31, 2007. Their capital

balances and profit ratio on this date follow:

Capital Balances

Profit Ratio

QQ P280,000 25%

RR 360,000 30%

SS 160,000 45%

The net loss from January 1 to July 31, 2007 is P60,000. Also, on this date, cash and

liabilities are P170,000 and P290,000 respectively. Which of the following is

inconsistent with the result of the partnership liquidation if RR received P309,000 in full

settlement of his interest in the firm

Instructions: Populate the table with the figures given in the problem. Then, work your way to the answer using Soduko Style by following the Concepts given in the Notes.

PL% PL% PL%

P1 P2 P3 + I/S

Credit Bal Credit Bal Credit Bal Credit Bal

+ (-) Note1

+ (-) Note2

(-) Note3

(-) Note 3a

+ (-) + (-) + (-) (-) + Note4

Credit Bal Debit Bal Debit Bal 0 Note5

(-) (-) + Note6

Credit Bal Debit Bal 0 0

+ Note7

Credit Bal 0 0 0

(-) Note8

0 0 0 0

Note1: Increases/Decreases in Assets/Liabilities are closed first to Income Summary account, if any. Otherwise, it may be charged direclty to Partner's Capital accounts according to their PL%. Note2: Gain/Loss on Sale of Non-Cash Assets are closed first to Income Summary account, if any. Otherwise, it may be charged direclty to Partner's Capital accounts according to their PL%.

Note2: Any UNSOLD assets are all considered LOSS until SOLD, unless a partner is willing to accept something Non-Cash instead of CASH in settlement of his/her account. In this case, Debit the Partners capital account instead of CASH. Note3: Liquidating Expenses are closed first to Income Summary account, if any. Otherwise, it may be charged direclty to Partner's Capital accounts according to their PL%.

Note3a: Restricted Cash are cash reserves for future liquidating expenses. This means that the available cash of the Partnership will not entirely be distributed to the partners. Problems involving restricted cash Note4: The Total Balance of Income Summary account is allocated to Partner's capital accounts according on their PL%.

Note5: When the problem is silent, partners are assumed Insolvent. However, be careful when the problem implies that the partner is solvent. (e.g. When a partner with debit balance is not absorbed by the remaining partners means that the partner with debit balance invested, so solvent.) Note6: The Debit Balance in the Capital account of an Insolvent Partner will be absorbed by the remaining partners according to the remaining partner's PL%

Note7: The Solvent Partner with Debit Balance will invest cash for the amount of his/her deficiency.(unless the other remaining partner is willing to accept Non-cash in settlement of his account). Note8: The remaining cash (Non-cash if the remaining partner accepts) will be used to settle the capital balances of the remaining partners.

Note9: Loans from/to Partners are not Liabilities. Instead, they are offset to to the Capital Accounts of Partners.

Debit Balance

Solvent

Step2. A solvent partner with debit balance

must invest additional cash for his/her

deficiency (non-cash if the other remaining

partner is willing to accept non-cash in

settlement of his account)

QQ, RR and SS decided to dissolve the partnership on July 31, 2007. Their capital

balances and profit ratio on this date follow:

Capital Balances

Profit Ratio

QQ P280,000 25%

RR 360,000 30%

SS 160,000 45%

The net loss from January 1 to July 31, 2007 is P60,000. Also, on this date, cash and

liabilities are P170,000 and P290,000 respectively. Which of the following is

inconsistent with the result of the partnership liquidation if RR received P309,000 in full

settlement of his interest in the firm

All those in Red Ink were computed using Soduko Style of solving either by Squeeze or by working backwards or by merely following the logic of the Concepts/Notes 25% 30% 45% QQ RR SS + I/S 280,000 360,000 160,000 (60,000) (110,000) Squeeze (19,125) (51,000) (76,500) (170,000) work backwards 260,875

309,000 83,500 0 All credit Balance, so just settle with cash

(-) (-) + 260,875 309,000 83,500 0 + 260,875 309,000 83,500 0 (260,875) (309,000) (83,500) - - 0

QQ, RR and SS decided to dissolve the partnership on July 31, 2007. Their capital

balances and profit ratio on this date follow:

Capital Balances

Profit Ratio

QQ P280,000 25%

RR 360,000 30%

SS 160,000 45%

The net loss from January 1 to July 31, 2007 is P60,000. Also, on this date, cash and

liabilities are P170,000 and P290,000 respectively. Which of the following is

inconsistent with the result of the partnership liquidation if RR received P309,000 in full

settlement of his interest in the firm

Note2: Any UNSOLD assets are all considered LOSS until SOLD, unless a partner is willing to accept something Non-Cash instead of CASH in settlement of his/her account. In this case, Debit the Partners capital account instead of CASH.

Corporate Liquidation

Step 1: Adjust the Assets and Liabilities to FMV (Note: If Silent, The FMV of GW and PREPAYMENTS are Zero (0))

Step 2: Identify whether the Corporation is insolvent (Assets FMV<Liab FMV). If no, don't proceed anymore. If yes, check whether it will ReOrg/Restructure/Liquidate. Step 3: If it will Liquidate, Classify the Assets and Liabilities according to "as shown below".

Step 4: Populate the table. Compute for Estimated Deficiency, Estimated Recovery Rate, and the Estimated amount to be paid to the Creditors.

Classification of Assets

Matched Assets and Liabilities (Assets that are pledged to Laibilities or Liabilities that are Secured by Assets) A>L Assets = Assets pledged to Fully Secured Creditors (APFSC); Liabilities = Fully Secured Creditors (FSC) A<L Assets = Assets pledged to Partially Secured Creditors (APPSC); Liabilities = Partially Secured Creditors (PSC) Unmatched Assets and Liabilities

Assets = Unpledged Assets

Liabilities = Unsecured Creditors or Priority Creditors

Assets @ FMV Liab @ FMV

Free Assets = Unsecured Credits + Priority Credits +

APFSC-FSC PSC-APPSC

Unpledged Assets Unsecured Creditors

Priority Creditors

Amt = Amt + Amt +

Recovery Rate = Available Assets / Unsecured Credits Available Assets = Free Portion - Priority Credits Note1: Alternative Computation of Deficiency

SHE BV

Inc/Dec in Assets/Liabilities + (-) Deficiency

Note2: Priority Creditors = Salaries and Wages Payable, Taxes Payable, Deferred Revenue, Accrued Liquidating Exp. Note3: Liquidating Expense = Add to Priority Creditors if still unpaid or Deduct to cash/unpledged assets if paid Note4: Interest Follow Principal Concept

Note5: Amount Paid to Creditors

Fully Secured Creditors = 100% of Amount owed to them

Priority Creditors = 100% of Amount owed to them (Provided there is sufficient Free Assets/Free Portion) Partially Secured Creditors = 100% of APPSC + ((PSC-APPSC) x Recovery Rate)

Unsecured Creditors = Unsecured Creditors x Recovery Rate

Note6: What is shown above are just ESTIMATES. When actual Liquidation occurs, the following Entries will be made by Trustee to Compute for ESTATE EQUITY (DEFICIT) Trustee Assume Possession of Assets and Liab of Corporation

Assets BV

Liabilites BV

Estate Equity (instead of SHE) Balancing Figure #

Convert Assets to Cash

Insolvent Corporation

Assets FMV < Liabilities FMV

Reorg/Debt Restructure

Prac 1

Corporate Liquidation

P2

Cash Amt Estate Equity Balancing Figure

Assets BV

# Pay Creditors

Liabilities BV

Estate Equity Balancing Figure

Cash Amt

#

Step 1: Adjust the Assets and Liabilities to FMV (Note: If Silent, The FMV of GW and PREPAYMENTS are Zero (0))

Step 2: Identify whether the Corporation is insolvent (Assets FMV<Liab FMV). If no, don't proceed anymore. If yes, check whether it will ReOrg/Restructure/Liquidate. Step 4: Populate the table. Compute for Estimated Deficiency, Estimated Recovery Rate, and the Estimated amount to be paid to the Creditors.

Assets = Assets pledged to Fully Secured Creditors (APFSC); Liabilities = Fully Secured Creditors (FSC) Assets = Assets pledged to Partially Secured Creditors (APPSC); Liabilities = Partially Secured Creditors (PSC)

SHE (Deficiency)

Squeeze

Note2: Priority Creditors = Salaries and Wages Payable, Taxes Payable, Deferred Revenue, Accrued Liquidating Exp.

Priority Creditors = 100% of Amount owed to them (Provided there is sufficient Free Assets/Free Portion)

Note6: What is shown above are just ESTIMATES. When actual Liquidation occurs, the following Entries will be made by Trustee to Compute for ESTATE EQUITY (DEFICIT)

Corporate Liquidation

Prac 2

P2 Review Home

Long Term Construction Contracts

Construction Costs Incurred

CIP Amt

Cash Amt

#

Allocate Cost & Revenue to Period (Systematic Allocation Principle)

CIP RGP Current Year

Cost of Construction Amt

Construction Revenue Balancing Figure

# Close I/S accounts

Construction Revenue Amt

Cost of Construction Amt

Construction Gross Profit Balancing Figure #

Billing to Customers

A/R Amt

Progress Billing Amt

# Collection of A/R

Cash Amt

A/R Amt

#

When Construction is completed and Inventory Turned over to Customer

Progress Billing Amt

CIP Amt

#

Debit

Beginning Prior Year Cost Incurred to Date + PY RGP to Date

Squeeze Current Year Cost Incurred + CY RGP

Ending Current Year Cost Incurred to Date + CY RGP to Date

CIP

Contract Price > Estimated Total Cost

(if Silent) Percentage of Completion

Method

Note: RGP to Date, ETC, and % of Completion should be recomputed each year on the Principle of Change in Estimate

(if Silent) Percentage of Completion

Method

RGP to Date = %Completion x (CP-ETC)

%Completion=Cost Incurred to Date

ETC

%Completion=CIP to Date

CP

%Completion=Const'n Revenue to date

CP

ETC = Cost Incurred to Date +Estimated Cost

to Complete

RGP to Date = 0, until completed

RGP to Date = 100% when completed

LEGENDS:

CIP = Costruction In Progress

RGP = Realized Gross Profit

PB = Progress Billing

PY = Prior Year

CY = Current Year

ETC = Estimated Total Cost

CP Contract Price

"Change In Estimate Principle"

Current Year RGP to Date - Prior Year RGP to Date

CIP>PB Current Asset Shown as Net of CIP

CIP<PB Current Liability

Credit Prior Year Cost Incurred to Date + PY RGP to Date

Current Year Cost Incurred + CY RGP Current Year Cost Incurred to Date + CY RGP to Date

CIP

RGP to Date

Contact Price < Estimated Total Cost

RGP to Date=CP-ETC

) Profit Method

Note: RGP to Date, ETC, and % of Completion should be recomputed each year on the Principle of Change in Estimate

, until completed

Installment Sales - deferring of realization of gross profit until collection

Installment Sales - After Point of Sale but Collection of Receivables are not reasonably assured

1/1/2008 ABC Company Sold merchandise on account for P105,000, with cost of P80,000. Trade-In was accepted with allowance of 15,000 and NRV of 10,000

Regular Sales Installment Sales

A/R 105,000 A/R-Installment 08

Sales 105,000 Sales -Installment 08

#

Inventory-Trade In 10,000 Inventory-Trade In

Sales Discount 5,000 Sales -Installment 08

A/R 15,000 A/R-Installment 08

#

COS 80,000 COS -Installment 08

Invt'y 80,000 Invt'y

#

Sales 100,000 Sales -Installment 08

COS 80,000 COS -Installment 08

GP 20,000 DGP -Installment 08

#

Note: Gross Profit is deferred until collection of Installment Receivable

6/6/2008 Collected 40,000 of the receivable.

Regular Sales Installment Sales

Cash 42,000 Cash

A/R 42,000 A/R-Installment 08

#

Cash 4,000 Cash

Interest Income 4,000 Interest Income

#

DGP -Installment 08 RGP -Installment 08

Note: Gross Profit is realized when Installment receivable is collected.

7/1/2008 Write-off 10,000 of the receivable

A 4 BD 10,500 DGP -Installment 08

A/R 10,500 Bad Debts

GPR = GP/Sales = GPR on Cost/(100%+GPR on Cost) = DGP/Accts

GPR should be computed after Trade-In Transaction

# A/R-Installment 08

Note: Since Installment Sales already anticipates the non-collection, there is no need to set up allowance. As accounts are written off, the receivable less with DGP is charged to Bad Debts

8/1/2008 Repossesed merchandise because of non-collection. Related receivable is 15,000. NRV of inventory is 5,000

Invty - Repossesed 5,000 Invty - Repossesed

Loss on Repossesion 10,750 DGP -Installment 08

A/R 15,750 Loss on Repossesion

# A/R-Installment 08

Net Realizable Value = Selling Price - MarkUp - Cost to Recondition

Reminders:

GPR should be computed after Trade-In Transactions

RGP & GPR should be computed separately each year, because mark-up percent varries each year

"Collection" are Cash Collections of Receivables, exc Interest ,PlusTrade-In Collections (NRV)

Interest income should be excluded from "Collection of Receivable" in the formula of RGP

SPECIAL PROBLEMS: P2 and P1 combined: Installment Sales with notes receivable issued with Stated Interest Rate less than the Market/Effective Interest Rate

Receivable = Face Value Int. Re'd = Int. Income

Int. Received = Face Value x SR Int. Inc. = Book Value x SR

Collection of Principal = Collection of Principal Collection of Interest = Collection of interest

Assuming Installment Sales Assuming Installment Sales

RGP = Collection of Principal x GPR RGP = Collection of Principal x GPR

Sales Down payment + FV of Receivble Sales

COS (xx) COS

DGP GPR DGP

e.g.

On 1/1/08 ABC sells on installment basis. It sold P1,100,000 worth of merchandise by accepting P100,000 cash and 2 yrs 12% note on the balance. The cost of the product was 700,000. First installment was at 12/31/08 when ABC Collected P500,000 excluding the downpayment and interest. Situation 1: Market Interest rate is 12% (SR=ER)

Cash 100,000 Downpayment

N/R -Installment 1,000,000 Face Value

Sales - Installment 1,100,000

#

COS -Intallment 700,000

Invty 700,000

#

When notes are accepted for Installment Sales, consideration for interest rate must be taken into account. If

the Stated interest rate is greater than or equal to market interest rate, there is no complex problem because

the collection for the principal and interest is separate. So, the Realized Gross Profit is simply computed by GPR

x Collection of Principal (remember, "collection" excludes interest). However, if the stated interest rate is zero or

less than market interest rate, a problem arises because the collection is combined for Principal and Interest. So,

to compute for Realized Gross Profit is computed by GPR x "Collection-interest income".

Note: to master this topic, you must study time value of money.

Valuation of Receivable

Sales - Installment 1,100,000

COS -Intallment 800,000

DGP -Installment 300,000

# GPR--- 27%

Cash - Principal 500,000

Cash -for interest 120,000 Face Value x SR or 1,000,000 x 12%

N/R -Installment 500,000

Interest Income 120,000 Face Value x SR or 1,000,000 x 12%

#

DGP -Installment 163,636

RGP -Installment 163,636 collection of principal x GPR or (500,000+100,000) x 27%

#

Situation 2: Market Interest rate is 10% (SR>ER) same as situation 1 (as in no difference, ever!)

Situation 3: Assuming the note is non interest bearing, SR = 0%, and Market Interest rate is 14% (SR<ER). PV factor 1.6467

Cash 100,000 Downpayment

N/R -Installment 823,350 Present Value or 500,000 x 1.6467

Sales - Installment 923,350 # COS -Intallment 700,000 Invty 700,000 # Sales - Installment 923,350 COS -Intallment 800,000 DGP -Installment 123,350 # GPR--- 13%

Cash - Principal 500,000 Given

Cash -for interest - 1,000,000 x 0%

N/R -Installment 384,731 Balancing Figure or Total Collection - interest income

Interest Income 115,269 Book VAlue x ER or 823,350 x 14%

#

DGP -Installment 64,755

RGP -Installment 64,755 Collection x GPR or ((100,000+384,731) x 13%)

#

Situation 4: Stated Rate is 12%. Market Interest rate is 14% (SR<ER).

Cash 100,000 Downpayment

N/R -Installment 974,784 Present Value of Principal and interest

Sales - Installment 1,074,784 # COS -Intallment 700,000 Invty 700,000 # Sales - Installment 1,074,784 COS -Intallment 800,000 DGP -Installment 274,784 # GPR--- 26%

Cash - Principal 500,000 Given

Cash -for interest 120,000 Face Value x SR or 1,000,000 x 12%

N/R -Installment 483,530 Balancing Figure or Total Collection - interest income

Interest Income 136,470 Book VAlue x ER or 974,784 x 14%

#

DGP -Installment 149,188

RGP -Installment 149,188 Collection x GPR or ((100,000+483,530) x 26%)

Installment Sales - deferring of realization of gross profit until collection

ABC Company Sold merchandise on account for P105,000, with cost of P80,000. Trade-In was accepted with allowance of 15,000 and NRV of 10,000 Installment Sales

A/R-Installment 08 105,000

Sales -Installment 08 105,000

#

Inventory-Trade In 10,000 NRV of Inventories received from Trade-In

Sales -Installment 08 5,000 Balancing Figure

A/R-Installment 08 15,000 Trade-In Allowance

# COS -Installment 08 80,000 80,000 # Sales -Installment 08 100,000 100% COS -Installment 08 80,000 80%

DGP -Installment 08 20,000 20% Gross Profit Rate

#

Gross Profit is deferred until collection of Installment Receivable

Installment Sales 40,000 A/R-Installment 08 40,000 # 4,000 Interest Income 4,000 # DGP -Installment 08 10,000

RGP -Installment 08 10,000 (Collection of Principal Receivable, exc Interest + NRV of Trade-In) x GPR #

Gross Profit is realized when Installment receivable is collected.

DGP -Installment 08 2,000 Amount Writen-Off x GPR

8,000

Balancing Figure

GPR = GP/Sales = GPR on Cost/(100%+GPR on Cost) = DGP/Accts Rec

In Transaction

In Inventories) x Gross Profit Rate

P2 Review Home

A/R-Installment 08 10,000 given #

Since Installment Sales already anticipates the non-collection, there is no need to set up allowance. As accounts are written off, the receivable less with DGP is charged to Bad Debts

Repossesed merchandise because of non-collection. Related receivable is 15,000. NRV of inventory is 5,000

Invty - Repossesed 5,000 NRV of Repossesed Inventories

DGP -Installment 08 3,000 Repossesed Receivable x GPR

Loss on Repossesion 7,000 Balancing Figure

A/R-Installment 08 15,000 Repossesed Receivable

#

Cost to Recondition - Cost to Sell

up percent varries each year

In Collections (NRV)

Interest income should be excluded from "Collection of Receivable" in the formula of RGP

SPECIAL PROBLEMS: P2 and P1 combined: Installment Sales with notes receivable issued with Stated Interest Rate less than the Market/Effective Interest Rate

Receivable = Present Value Int. Received is not = Int. Income Int. Received = Face Value x SR Int. Inc. = Book Value x ER

Collection of Principal = Total Collection - interest income or

Collection of Principal = Collection on Principal - (interest income-interest received) Assuming Installment Sales

RGP = Collection of Principal x GPR

Down payment + PV of Receivble Cash

(xx) Receivable GPR Sales #upon sale Cash Cash Int. Income Receivable #upon collection DGP RGP #upon collection On 1/1/08 ABC sells on installment basis. It sold P1,100,000 worth of merchandise by accepting P100,000 cash and 2 yrs 12% note on the balance.

The cost of the product was 700,000. First installment was at 12/31/08 when ABC Collected P500,000 excluding the downpayment and interest.

When notes are accepted for Installment Sales, consideration for interest rate must be taken into account. If

the Stated interest rate is greater than or equal to market interest rate, there is no complex problem because

the collection for the principal and interest is separate. So, the Realized Gross Profit is simply computed by GPR

x Collection of Principal (remember, "collection" excludes interest). However, if the stated interest rate is zero or

less than market interest rate, a problem arises because the collection is combined for Principal and Interest. So,

interest income".

Note: to master this topic, you must study time value of money.

Face Value x SR or 1,000,000 x 12% Face Value x SR or 1,000,000 x 12%

collection of principal x GPR or (500,000+100,000) x 27%

Situation 3: Assuming the note is non interest bearing, SR = 0%, and Market Interest rate is 14% (SR<ER). PV factor 1.6467 Present Value or 500,000 x 1.6467

1,000,000 x 0%

Balancing Figure or Total Collection - interest income Book VAlue x ER or 823,350 x 14%

Collection x GPR or ((100,000+384,731) x 13%)

Amount PV factor of 14%

Principal yr 1 500,000 0.8772

Present Value of Principal and interest Principal yr 2 500,000 0.7695

Interest yr 1 120,000 0.8772

Face Value x SR or 1,000,000 x 12%

Balancing Figure or Total Collection - interest income Book VAlue x ER or 974,784 x 14%

NRV of Inventories received from Trade-In

Down Payment PV of Receivable Balancing Figure Int. Received Amt'zn of Principal Int. Income Balancing Figure

(Down Payment+Collection on Receivable) x GPR

PV 438,600 384,750 105,264 46,170 974,784

Franchising

Note1 Continuing Franchise Fee are Recognized as Income when Earned Note2 Continuing Franchise Cost are Recognized as Expense when Incurred Note3 Indirect Franchise Cost are Recognized as Expense when Incurred

Note4 When there's Option to Purchase the Franchisee's Business Initial Franchise Fee is Deferred until the Franchisee's Franchise is repurchased back by the Franchisor. And during the repurchase, the Deferred Initial Franchise Fee is charged to Investment account. All other Franchise Fee and Cost still follows the original treatment.

Franchise Fee

No Substantial Performance Yet

Deferred Method of Accounting

Sales = Initial Franchise Fee

COS = (Direct Franchise Cost)

DGP = Deferred Gross Profit

GP = Zero

Other Inc. = Continuing Franchise Fee

OpEx = (Indirect Franchise Cost)

(Continuing Franchise Cost)

NI = Net Income

Normally, No Continuing Franchise Fee/Cost

and Indirect Franchise Cost yet because

Franchisee has not started operations yet

(If Silent)Collection Reasonably Assured

Accrual Method of Accounting

Sales = Initial Franchise Fee

COS = (Direct Franchise Cost)

GP = Gross Profit

Other Inc. = Continuing Franchise Fee

OpEx = (Indirect Franchise Cost)

(Continuing Franchise Cost)

NI = Net Income

When there's Option to Purchase the Franchisee's Business Initial Franchise Fee is Deferred until the Franchisee's Franchise is repurchased back by the Franchisor. And during the repurchase, the Deferred Initial Franchise Fee is charged to Investment account. All other Franchise Fee and Cost still follows the original treatment.

Franchise Fee

(If Silent) There's Substantial Performance

Already

Franchisee Started Operations already

(If Silent)Collection Reasonably Assured

Accrual Method of Accounting

Sales = Initial Franchise Fee

COS = (Direct Franchise Cost)

GP = Gross Profit

Other Inc. = Continuing Franchise Fee

OpEx = (Indirect Franchise Cost)

(Continuing Franchise Cost)

NI = Net Income

Collection Not Reasonably Assured

Installment Method of Accounting

Sales = Initial Franchise Fee

COS = (Direct Franchise Cost)

DGP = Deferred Gross Profit

GPR xCollection = Gross Profit

Other Inc. = Continuing Franchise Fee

OpEx = (Indirect Franchise Cost)

(Continuing Franchise Cost)

NI = Net Income

P2 Review Home

Cash Down Payment

Receivable (FV of Rec'ble) or (PV of Rec'ble)

Sales Bal. Figure

#

Cash Interest Received (FV of Rec'ble x SR)

Cash Amortization

Interest Income (FV of Rec'ble x SR) or (BV of Rec'ble x ER)

Receivable Bal. Figure Collection on Receivable excluding Interest

#

Valuation of Receivables

Effective Interest Rate <= Stated Interest Rate

Receivable = Face Value of Recivable

Int. Inc. = Int. Rec.

Int. Rec. = Face Value of Rec'ble x Stated Int. Rate

Int. Inc. = Book Value of Rec'ble x Effective Int. Rate

or = Face Value of Rec'ble x Stated Int. Rate

Effective Interest Rate > Stated Interest Rate

Receivable = Book Value of Receivable

Int. Inc. IS NOT = Int. Rec.

Int. Rec. = Face Value of Rec'ble x Stated Int. Rate

Int. Inc. = Book Value of Rec'ble x Effective Int. Rate

(FV of Rec'ble x SR) or (BV of Rec'ble x ER)

Collection on Receivable excluding Interest

Effective Interest Rate <= Stated Interest Rate

Receivable = Face Value of Recivable

Int. Rec. = Face Value of Rec'ble x Stated Int. Rate

Int. Inc. = Book Value of Rec'ble x Effective Int. Rate

or = Face Value of Rec'ble x Stated Int. Rate

Inventory Transfer by HO to Branch at Billed Price (Special Problems)

HO Books Branch Books

Branch 150K Invty/Shipments from HO

Invty/Shipments to Branch 100K Home Office

Unrealized Profit 50K # # Cash Sales # COS Invty #

Unrealized Profit 50K Sales

Realized Profit 50K COS

# Gross Profit

#

When inventories are transferred from HO to Branch at Billed Price, the COST of the inventories transferred by HO is deducted from its CGAS, while its BILLED PRICE is

added to CGAS of Branch. However, the GROSS PROFIT of the HO from this sale is unrealized until the inventories are sold to outsiders by the Branch. Once inventories are sold by the Branch to outsiders, the UNREALIZED GROSS PROFIT should now be recognized as REALIZED. The computation of REALIZED GROSS PROFIT is important to arrive at the TRUE BRANCH INCOME. I have prepared a template to compute for the REALIZED GROSS PROFIT of the Branch which should be added to the FALSE BRANCH INCOME to get the TRUE BRANCH INCOME.

HO HO BRANCH

SALES Amt

BI Amt Amt

PURCH +Amt +Amt

CGAS Amt Amt

Ship to Branch (@ Cost) +@ BP

EI (Amt) (Amt)

COS (Amt)

GP Amt

OPEX (Amt)

Net Income Amt

Realized Gross Profit

HO NET INCOME +

Amt Percent=BPamt/COSTamt Amt

BI from HO

-+Shipments from/to HO/Branch

-=CGAS from HO

-(-) EI from HO

-=COS from HO

-Billed Price Cost

Reciprocal Account

This template is flexible. First, you must understand the relationship among the columns. @BP represents the amount at which the inventories are billed to the Branch. The COST is the

cost of the inventories shipped to the branch. The MARK-UP is the difference between @BP and Cost of the inventories shipped from HO to Branch. The PERCENT is the percent as compared to the COST (ofcourse the cost is always 100% being the basis).

INSTRUCTIONS: When given a problem for this topic. All you have to do is fill up the template with the available datas given in the problem. Then, work your way around the template to arrive at the desired answer for the question in the problem (Suduko Style).

Sample 1:

All in Black Ink are Given in the Problem.

All those in Red Ink were computed using Soduko Style of solving either by Squeeze or by working backwards or by merely following the logic of the Concepts/Notes

Amt Percent Amt

BI from HO

Shipments from HO

59,000

CGAS from HO 59,000

EI from HO

(6,000)

COS from HO 53,000 125%

Note: Since what you need is only the Realized Gross Profit, there is no need to finish the entire template

Sales Discount

72,500

(1,470)

71,030

59,000

(6,000)

(16,500)

Branch Income as far as Branch is concerned 1,530 Realized Gross Profit 10,600

True Branch Income 12,130 Answer D Sample 2:

Billed Price Cost

Problem 4. The Rockwell Company of Makati opened a branch at Cebu on January 1,

2008 to expand the market of its product. Merchandise shipped during 2008 to the

Cebu branch totaled P59,000, and this included a profit of 25% based on cost. At the

end of the year, the inventory was P6,000 at billed price. Sales on account, P72,500;

expenses, P16,500, of which P1,200 were unpaid on December 31, 2008; cash

received from customers on account, P40,000, after allowing cash discounts of P1,470;

cash remitted to the home office during the year, P33,000. What is the income or loss

of the branch during 2008 insofar as the home office is concerned?

A.

P13,600

C. P1,530

B.

P 3,000

D. P12,130

Problem 11. A home office transfers inventory to its branch at a 40% markup. During

2008, shipments to branch account is P1,312,500. At year-end, the home office adjusted

its Allowance for Overvaluation account downward by P325,000. The branch's balance

sheet at the beginning of the year shows P428,750 of inventory acquired from the home

office. How much is the ending inventory per branch books?

A. P806,250

C. P2,266,250

Amt Percent Amt BI from HO

428,750

1,837,500

1,312,500

Note: Since what you need is only the Ending Inventory @BP, there is no need to finish the entire template

Billed Price Cost

Problem 11. A home office transfers inventory to its branch at a 40% markup. During

2008, shipments to branch account is P1,312,500. At year-end, the home office adjusted

its Allowance for Overvaluation account downward by P325,000. The branch's balance

sheet at the beginning of the year shows P428,750 of inventory acquired from the home

office. How much is the ending inventory per branch books?

A. P806,250

C. P2,266,250

Inventory Transfer by HO to Branch at Billed Price (Special Problems)

When inventories are transferred from HO to Branch at Billed Price, the COST of the inventories transferred by HO is deducted from its CGAS, while its BILLED PRICE is

added to CGAS of Branch. However, the GROSS PROFIT of the HO from this sale is unrealized until the inventories are sold to outsiders by the Branch. Once inventories are sold by the Branch to outsiders, the UNREALIZED GROSS PROFIT should now be recognized as REALIZED. The computation of REALIZED GROSS PROFIT is important to arrive at the TRUE BRANCH INCOME. I have prepared a template to compute for the REALIZED GROSS PROFIT of the Branch which should be added to the FALSE BRANCH INCOME to get

BRANCH Amt

(Amt) Amt (Amt)

False Branch Income Branch Income as far as Branch is concerned +Realized Gross Profit

True Branch Income = COMBINED NET INCOME

Percent=100% Amt Percent=MUPamt/COSTamt

= = =

= GPR current Yr (FIFO concept)

=

Cost Mark-Up

This template is flexible. First, you must understand the relationship among the columns. @BP represents the amount at which the inventories are billed to the Branch. The COST is the

cost of the inventories shipped to the branch. The MARK-UP is the difference between @BP and Cost of the inventories shipped from HO to Branch. The PERCENT is the percent as compared to INSTRUCTIONS: When given a problem for this topic. All you have to do is fill up the template with the available datas given in the problem. Then, work your way around the template

All those in Red Ink were computed using Soduko Style of solving either by Squeeze or by working backwards or by merely following the logic of the Concepts/Notes

Percent Amt Percent

100% 25%

10,600

Cost Mark-Up

Problem 4. The Rockwell Company of Makati opened a branch at Cebu on January 1,

2008 to expand the market of its product. Merchandise shipped during 2008 to the

Cebu branch totaled P59,000, and this included a profit of 25% based on cost. At the

end of the year, the inventory was P6,000 at billed price. Sales on account, P72,500;

expenses, P16,500, of which P1,200 were unpaid on December 31, 2008; cash

received from customers on account, P40,000, after allowing cash discounts of P1,470;

cash remitted to the home office during the year, P33,000. What is the income or loss

of the branch during 2008 insofar as the home office is concerned?

A.

P13,600

C. P1,530

B.

P 3,000

D. P12,130

Problem 11. A home office transfers inventory to its branch at a 40% markup. During

2008, shipments to branch account is P1,312,500. At year-end, the home office adjusted

its Allowance for Overvaluation account downward by P325,000. The branch's balance

sheet at the beginning of the year shows P428,750 of inventory acquired from the home

office. How much is the ending inventory per branch books?

A. P806,250

C. P2,266,250

Percent Amt Percent

100% 40%

100%

325,000

Cost Mark-Up

Problem 11. A home office transfers inventory to its branch at a 40% markup. During

2008, shipments to branch account is P1,312,500. At year-end, the home office adjusted

its Allowance for Overvaluation account downward by P325,000. The branch's balance

sheet at the beginning of the year shows P428,750 of inventory acquired from the home

office. How much is the ending inventory per branch books?

A. P806,250

C. P2,266,250

Bal of Unrealized Gross Profit b4 adjustment or Bal of Allowance account b4 adjustments Required End Bal of Unrealized Gross Profit or Adjusted Allowance Account