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Different sole proprietors decided to form a partnership. Each partner contributes their

inventory and equipment to be used in the business. How should the partnership record these

contributed assets?

When partners contribute assets to form a partnership, these are recorded at the values agreed

upon by the partners, regardless of the assets’ book values or original costs. This ensures

fairness and reflects the partners’ consensus on contribution values.

HIERARCHY: Agreed-value, Fair value, and Book value.

If there is no specific agreement on profit sharing in the partnership, how should an industrial

partner’s share of the profits be determined?

Under the Civil Code of the Philippines (Art. 1797), if there is no agreement, an industrial

partner (who contributes only services) shall receive such just and equitable share as may be

agreed upon by the partners or determined by the court.

HIERARCHY:

Characteristics of a partnership?

A partnership is easier to form than a corporation. It does not require SEC incorporation (unless

with capital > ₱3,000,000). A corporation, on the other hand, needs formal registration, board,

and bylaws.

Also:

(1) Each partner is generally personally liable for the debts of the partnership, and both

business and personal assets may be used to settle partnership obligations. (2) A partnership

has a legal personality separate and distinct from its partners. (3) Any modification in the

partners’ agreement ends the partnership contract.

During the liquidation of a general partnership, which liquidating partner settle first?

The correct order of settlement in partnership liquidation is:

(1) Outside creditors (2) Partner loans/advances (3) Partners’ capital contributions (4)

Distribution of profits or remaining assets.

The partner’s loss absorption potential is computed by:

Loss absorption potential = Capital balance ÷ Profit-and-loss ratio

This measures how much loss each partner can absorb before their capital is exhausted.

Unsecured liabilities without priority have neither legal priority nor a security interest in

specific property.

• Unsecured non-priority creditors have no claim to specific property and no priority.

In corporate liquidation, notes payable is always classified as unsecured non-priority

liabilities.

• Notes payable may be secured (if supported by collateral) or unsecured, not always non-

priority.

In corporate liquidation, what is the main purpose of preparing a statement of affairs?

The Statement of Affairs shows the estimated realizable value of assets and expected

payments to liabilities, helping stakeholders understand how much each creditor or shareholder

might receive.

And also : DIC — DEATH, INSOLVENCY, CIVIL INTERDICTION

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Different sole proprietors decided to form a partnership. Each partner contributes their inventory and equipment to be used in the business. How should the partnership record these contributed assets? When partners contribute assets to form a partnership, these are recorded at the values agreed upon by the partners , regardless of the assets’ book values or original costs. This ensures fairness and reflects the partners’ consensus on contribution values. HIERARCHY: Agreed-value, Fair value, and Book value. If there is no specific agreement on profit sharing in the partnership, how should an industrial partner’s share of the profits be determined? Under the Civil Code of the Philippines (Art. 1797), if there is no agreement, an industrial partner (who contributes only services) shall receive such just and equitable share as may be agreed upon by the partners or determined by the court. HIERARCHY: Characteristics of a partnership? A partnership is easier to form than a corporation. It does not require SEC incorporation (unless with capital > ₱3,000,000). A corporation, on the other hand, needs formal registration, board, and bylaws. Also : (1) Each partner is generally personally liable for the debts of the partnership, and both business and personal assets may be used to settle partnership obligations. (2) A partnership has a legal personality separate and distinct from its partners. (3) Any modification in the partners’ agreement ends the partnership contract. During the liquidation of a general partnership, which liquidating partner settle first? The correct order of settlement in partnership liquidation is: (1) Outside creditors (2) Partner loans/advances (3) Partners’ capital contributions (4) Distribution of profits or remaining assets. The partner’s loss absorption potential is computed by: Loss absorption potential = Capital balance ÷ Profit-and-loss ratio This measures how much loss each partner can absorb before their capital is exhausted. Unsecured liabilities without priority have neither legal priority nor a security interest in specific property.

Unsecured non-priority creditors have no claim to specific property and no priority. In corporate liquidation, notes payable is always classified as unsecured non-priority liabilities.
Notes payable may be secured (if supported by collateral) or unsecured , not always non- priority. In corporate liquidation, what is the main purpose of preparing a statement of affairs? The Statement of Affairs shows the estimated realizable value of assets and expected payments to liabilities , helping stakeholders understand how much each creditor or shareholder might receive.

Under PFRS 11 , a joint operation exists when parties have rights to the assets and obligations for the liabilities of the arrangement.

If they take most of the output and are directly liable for debts, it’s a joint operation.
A joint venture , in contrast, gives rights to net assets through a separate entity. In consignment , control of goods remains with the consignor until the consignee makes a sale to the final buyer. → Revenue is recognized only when goods are sold to the end customer , not upon delivery to the consignee. Under PFRS/IFRS 15 , a performance obligation is distinct if: (1) The customer can benefit from it on its own, and (2) It is separately identifiable —not highly interrelated or modifying another good/service. Thus, independence from other promises = separately identifiable. FIVE STEP MODEL: CPOTA —REVENUE (1) Identify contracts with customers (2) Identify performance obligation (PO) (3) Determine the Transaction Price (4) Allocate transaction price to PO (5) Recognize Revenue Identify the contract with a customer : This involves finding the agreement between an entity and a customer that creates enforceable rights and obligations. Identify the performance obligations in the contract : This step involves identifying each distinct promise to transfer a good or service that the customer will receive. Determine the transaction price : This is the amount of consideration the entity expects to receive in exchange for transferring its promised goods or services. If the consideration is variable, the entity must estimate the amount, but it can only be recognized if a significant reversal is highly probable to not occur later. Allocate the transaction price to the performance obligations : The total transaction price is distributed to the individual performance obligations based on their standalone selling prices. Recognize revenue when (or as) the entity satisfies a performance obligation : Revenue is recognized as the entity satisfies its promise to the customer by transferring control of a good or service. Under IFRS 15, a contract liability represents an entity’s obligation to provide goods or services to a customer after receiving consideration in advance. A contract liability arises when the entity receives payment before providing goods/services. → Customer deposits and advance payments are contract liabilities until performance occurs. (Deferred Income). In the branch books , the Home Office account represents the equity of the head office.
When the branch remits cash , it reduces the home office’s receivable from the branch → will result to a credit Home Office. When the home office ships goods to the branch at billed price, It includes Shipments to (Cr.), from branch (Dr.) and investment in branch (Dr.) are recorded at billed price (includes markup).
But the Home Office Current account (reciprocal account) is shown at book value (cost). Thus, it’s the exception.

(1) The hedge must be expected to be highly effective in achieving offsetting between changes in fair value or cash flows. (2) The hedging relationship must consist only of eligible hedging instruments and eligible hedged items. (3) The hedging relationship must be formally designated and documented at inception. Under IFRS 9 , hedge accounting must be discontinued when:

The hedging instrument expires , is sold , terminated , or exercised ,
The hedge no longer qualifies for hedge accounting, or
The entity voluntarily revokes the designation. Translation differences in foreign subsidiary statements into the parent’s presentation currency should be: Why? When a foreign subsidiary’s financial statements are translated into the parent’s presentation currency , the resulting translation differences are recognized in Other Comprehensive Income (OCI) and accumulated in equity (foreign currency translation reserve). A non-profit university receives P2,000,000 from a donor to establish a scholarship fund, where only the investment income may be spent. Being designated by the donor as a scholarship fund, the investment income may only be spent for the purpose of covering scholarship grants. At year-end, the investments generated P100,000 in income, of which P80,000 was used for scholarships. How should the organization present this in its financial statements?
₱2,000,000 = permanently restricted (principal of endowment cannot be spent)
₱100,000 income = temporarily restricted for scholarships
₱80,000 used = released from restriction
Remaining ₱20,000 = still temporarily restricted A foundation receives a conditional promise of P1,000,000, contingent on government approval of its project. The approval is obtained in the next fiscal year. How should this be treated in the current year? Why? A conditional promise is not recognized until the condition (government approval) is substantially met. Until then, it’s only disclosed in the notes to the FS. RAOD-PS use (government accounting) **RAOD-PS (Registry of Allotments and Obligations
Personnel Services)** is used to record allotments and obligations for salaries, wages, and personnel benefits. National Government Agency collection of ₱900 from reviewee Why? Collections by collecting officers are first recorded in the RROR (Registry of Revenue and Other Receipts). → Debit Cash – Collecting Officers , Credit Examination Fees (income account). Abnormal spoilage in process costing
Normal spoilage → included in product cost
Abnormal spoilage → charged to loss (period expense), since it is not expected under efficient operations. Indirect materials used in production (Job Order Costing)
Direct materials → debited to Work in Process (WIP)
Indirect materials → debited to Factory Overhead Control account. Transfer of units between departments (Process Costing) In process costing, when units move from one department to another:
The costs are transferred out of the sending department’s Work in Process (WIP)

And become part of the receiving department’s WIP as transferred-in costs (treated like materials for that department). JIT manufacturing and low inventories are kept extremely low potential consequence In a Just-in-Time (JIT) system, inventories are minimized to reduce storage costs. However, this increases the risk of production stoppage if suppliers delay delivery—because there are no buffer inventories available. A company discovers that the joint process produces a significant quantity of scrap that can be sold. How should this scrap be accounted for in joint costing? When scrap from a joint process has minor value , the proceeds from sale are treated as a reduction (main product costs) of total joint costs —not allocated or recorded as a separate product Long-term life insurance — unearned profit element Under IFRS 17 , the Contractual Service Margin (CSM) represents the unearned profit the insurer expects to earn as it provides coverage over time.
Fulfillment cash flows = liability for future outflows
Risk adjustment = compensation for uncertainty
CSM = unearned profit → recognized as income over the coverage period. A company constructs a hospital under a service concession agreement and is paid by the government based on availability. How should the company classify the payment? ( Service concession — payment classification ) Under IFRIC 12 (Service Concession Arrangements):
If the grantor guarantees payment (independent of usage), classify as a financial asset.
If the operator is paid from user fees , classify as an intangible asset. Since payment is based on availability , it’s independent of usage → financial asset model applies.

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AFAR — QUICK NOTES