Reviewer: Intermediate Accounting 1 Error - deposit for 28 but was 27 ( 1)

Dishonored notes (XX)

Topic 1: Cash and Cash Equivalents Debit memo: NSF check (XX)
Bank charges (XX)
Included in Cash and Cash Equivalents: Adj. book balance XX
1. Petty cash funds
2. Money orders Unad. bank balance XX
3. Certified checks Add:
4. Personal checks Error - not recorded XX
5. Cash equivalents Deposits in Transit XX
Total XX
What is the cash equivalent? Less:
● Highly liquid investments acquired three Outstanding checks (XX)
months before maturity. Adj. bank balance XX

Excluded from Cash and Cash Equivalents: Topic 3: Proof of Cash

1. Bank Overdraft (current liability)
2. Foreign Bank Account (restricted) if: legally Unadj. bal PV + Receipts - Disbursements = Current
restricted, it is part of cash
3. Postage Stamps Credit memo:
4. Employee’s/customer’s post dated checks PV XX (XX)
5. IOUs CM XX XX
6. Credit Memo Debit memo:
7. NSF Check PV (XX) (XX)
8. Sinking Fund - cash set aside CM XX (XX)

Petty Cash Fund Technique: Magkatabi - Opposite operation

Two Kinds: Magkalayo - Same Operation
1. Imprest - uses cash in bank and not petty cash,
directly withdraw from the bank Topic 4: Receivables
2. Fluctuating - uses petty cash
➢ Customer credit balances are current liability
Topic 2: Bank Reconciliation and are account receivables resulting from
overpayment or advances from customers.
Proforma:
Unadj. book balance XX Face Amount XX
Add: Less: Deductions (XX)
Error - check for 30 recorded as 45 15 Net Realizable Value XX
Credit memo: note collected XX
Total XX
Less:
Cash Discounts Accounts Receivable, end XX
Two kinds: Less: ADA, end XX
1. Gross - usual method Net Realizable Value XX
2. Net - theoretically correct and uses sales
discount forfeited if payment is made beyond ADA, end XX
discount period Add: Write off XX
Total XX
How to distinguish? Less: ADA, beg XX
● Gross do not deduct discount not until it is paid Recoveries XX
within the discount period. Doubtful expense XX
● Net deduct discount even before payment. In
short, it is netted. IF: NRV is given, deduct it from the AR, end to get the
AR before adjustments.
Accounting for Bad Debts
Two Kinds: ❖ T - Account
1. Allowance - make an allowance for useless AR
accounts AR, beg XX Collections XX
2. Direct write off - directly write off useless Sales XX Write-off XX
accounts Recoveries XX
Total XX Total XX
➢ Recoveries increase allowance for doubtful AR, end XX
accounts but not accounts receivable.
● Percentage of Sales
Estimation of Doubtful Accounts Sales XX
Three Kinds: Multiply by rate XX
1. Aging of AR - ending allowance Doubtful expense XX
2. Percentage of AR - ending allowance
3. Percentage of Sales - doubtful account expense Topic 5: Notes and Loans Receivable
➢ Notes receivables represent only claims arising
● Aging of AR from sale of merchandise or service in the
Balance XX ordinary course of business.
Multiply by experience rate XX
Required allowance XX Measurement:
Less: Allowance before adj. (XX) - Face amount except long term notes receivable
Doubtful expense XX without interest, initial; present value,
subsequent; amortized cost.
● Percentage of AR
Accounts Receivable, end XX Notes receivable (face amount) XX
Multiply by rate Present value/cash price
[(Beg. ADA/AR) x required %] XX (Annual installment X PV of ordinary annuity) XX
ADA XX Unearned interest income XX
Remember! Topic 6: Receivable Financing
● PV of 1 - Lump sum - Notes receivable discounted with recourse
● PV of ordinary annuity of 1 - Installment should be excluded in total receivables with
disclosure of contingent liability.
Notes receivable (face amount) XX
Unearned interest income (XX) - Factor’s holdback is a predetermined amount
Carrying amount XX withheld by a factor as a protection against
customer returns and etc.
Present Value X Interest Rate = Interest Income
What is a factor?
Subsequent: Amortization Table ➢ It is a finance entity that accepts accounts
Present Value XX receivable from an entity.
Principal (XX)
Carrying Amount XX Topic 7: Financial Assets at Fair Value
➢ Equity securities are instruments representing
➢ Loans receivable is a financial asset arising from ownership shares, rights to acquire ownership
a loan granted by a financial institution to a shares at a fixed price, such as ordinary and
borrower. preference shares; however it doesn’t include
shares that have maturity date.
Measurement: ➢ Debt securities are instruments that represent
- Fair value plus transaction cost a creditor relationship with an entity. These
kinds of instruments have maturity value and
Direct organization cost XX date.
Fees received from borrower XX
Transaction cost XX Classification of Financial Asset:
1. FVPL - for equity and debt
Principal XX 2. FVOCI - for equity and debt
Transaction Cost XX 3. Amortized - for debt only (Topic 10)
Carrying Amount XX
Initial Measurement:
❖ Indirect origination cost is expensed outright. - Fair value plus transaction cost

Technique: Amortization IF: FVOCI, transaction cost is capitalized. FVPL,

Principal X Nominal rate = Interest Received expensed outright.
Carrying amount X Yield rate = Interest Income
Subsequent Measurement:
Initial CA > Principal, deducted from CA 1. FVPL
Initial CA < Principal, added to CA Cost 600
FV 900
Changes in fair value(gain/loss) 300
Recognized in income statement
Net proceeds from sale 1500 Kinds of Dividends:
Carrying amount of securities 900 1. Cash Dividends
Gain/Loss on Sale 600 - Dividends earned is considered as income
- Do not affect the investment account
Quoted Price !!
Equity - Shares multiply to quoted price When are dividends considered earned?
Debt - Percentage of the face amount ● On the date of declaration.
➔ The amount you will get is the market value if
the quoted price is given. 2. Property Dividends
- Considered as income.
2. FVOCI - Measured at fair value.
Cost 360
FV 300 3. Liquidating Dividends
Changes in fair value (gain/loss) (60) - Not income but rather considered as return of
Recognized in OCI and is also transferred in investment.
Retained Earnings - When the carrying amount is not fully
recovered, the balance is written off as loss.
Unrealized gain, 2X20 100
Unrealized loss, 2X21 (60) 4. Share Dividends
Cumulative unrealized (gain/loss) 40 - Not income.
- Transactions is a memo entry only.
❖ Cumulative means starts from the previous - Doesn’t affect the total cost of the investment
year, you will add or deduct the unrealized but reduces the cost of the investment per
gain/loss of the current year. share.
❖ If the question is only asking what unrealized
gain/loss shall be included in OCI for the 2X21, Shares Per Share Cost
the answer should be 60 only. Original 10000 120 120000
Additional 2000 - -
Sale price 520 Total 12000 100 120000
Historical cost 440
- (Purchase price + transaction cost) ❖ 120000 as total cost is not affected but rather
Gain/loss on sale 800 serves as a basis to get the cost per share by
Credited to retained earnings dividing to the new shares acquired which in
this case is 12000.
Topic 8: Equity Investments
Share received in lieu of cash dividends
Classification of equity investments: - Shares received multiply to fair value
1. FA @FVPL and FA @FVOCI Example: On January 27, received 20% stock dividend
2. Investment in Associate (Topic 9)
3. Investment in Subsidiary No. of shares as of Jan 09 - 20000 shares @100
➔ 20000 X 20% = 4000 is the shares received
Cash received in lieu of share dividends Two Methods:
- “As if” approach, share dividends are assumed 1. Fair Value
to be received and sold as well. - Cash dividends is income
-
Example: 2. Equity
Shares Per Share Cost - Cash dividends reduce the carrying amount of
Original 10000 110 110000 the investment and are considered as return of
“As if +” 1000 - - investment and not income.
Total 11000 100 110000 - Should be used when an investment enables
the investor to exercise significant influence
If shares are to be sold; over the investee.
Sale proceeds XX
Carrying amount (XX) FV of existing interest (old) XX
Gain/loss on sale XX Cost of new interest (new) XX
Total cost of investment XX
Gain on sale XX Carrying amount of net assets required (XX)
Cash dividend XX Excess of cost attributable to; XX
Income XX 1. Undervalued assets (If only) XX
Recognized in income statement 2. Goodwill XX

Share Split IF: Cost to equity - credited to investment in shares

Split Up: Multiply IF: FV to equity - credited to FA - FVOCI
- Outstanding shares increase, stated value - Debit investment in associate to decrease the
decreases. investment

Split Down: Divide Share in net income XX

- Outstanding shares decrease, stated value (new % with SI multiply to net income)
increases. Amortization of excess of cost attributable to (1) (XX)
(Excess of undervalued assets / no. of years)
Share Rights Net investment income XX
❖ Decreases the cost of investments in shares
thus decreases the cost per share. Only there is a remeasurement needed when there is a
changes in fair value;
Topic 9: Investment in Associate
● If the investor holds 20% or more shares, it is Fair value XX
presumed that it has significant influence. Historical cost XX
Remeasurement gain XX
What is the significant influence?
➢ The power to participate in the financial ★ Remeasurement gain is part of an income thus
and operating policy decisions of an it is added in net investment income to get the
entity. total income for the current year.
 Sale price XX
Upstream Approach (Sale from associate to investee) Carrying amount (XX)
Gain/loss on sale XX
Sale price XX
Carrying amount XX Sale price XX
Unrealized profit XX Accrued interest “as of date of sale” XX
Cash received XX
Net income, current year XX
(un)realized profit XX/(XX) Topic 11: Fund and Other Investments
Adj. net income XX
Divide by interest rate XX Face amount XX
Investor’s share XX Interest income XX
Less: realized interest (XX)
Topic 10: Investment in Debt Securities Initial carrying amount XX

★ Securities classified as financial assets Face amount XX

measured at amortized cost are reported at Multiply to nominal rate XX
acquisition cost plus amortization of a discount. Interest received XX
★ Debt securities that are classified at amortized
cost are initially measured at fair value plus Carrying amount XX
transaction cost. Multiply to yield rate XX
★ Securities are to be held solely to collect Interest income XX
contractual cash flows, it is measured at
amortized cost. Cost XX
Face value XX
Note! To be amortized! Premium/discount amortization XX/(XX)
Acquisition cost < Face amount = Premium Divide by the no. of months XX
Acquisition cost > Face amount = Discount (from acquisition to maturity date)
➔ Included in the carrying amount Monthly amortization XX

Yield rate > Nominal rate = Discount (gain) Cost

Yield rate < Nominal rate = Premium (loss) XX
Amortization for the current year XX
Purchase price XX Carrying amount XX
Add: Discount XX
Less: Premium (XX) Note!
Carrying amount XX ➔ Bear in mind the amortization table.
Date % received % income Carrying amount
 ❖ IASB permits fair value and amortized cost as Accounting for inventory
measurement for financial assets, based on; Two methods:
1. Business model 1. Perpetual - two entries, cogs entry is needed in
2. Contractual cash flows characteristics every sale
2. Periodic - record at the end of the period
Debt Investment - FVOCI
Fair value XX Purchase XX
Carrying amount per table XX Add: Freight In XX
Unrealized gain/loss XX/(XX) Less: Purchase returns (XX)
Net Purchase XX
● Recognized the changes in fair value which
cumulative gain previously recognized in OCI Beg. inventory XX
shall be reclassified to profit and loss. Add: Net Purchase XX
Goods available for sale XX
Topic 12: Inventories End. inventory XX
Cost of goods sold XX
● Purchase discount lost - invoice price less the
purchase discount allowable whether taken or Trade and cash discounts
not. List price 500, 000
1st trade discount (100, 000)
Included in inventories: (500 000 X 20%)
1. Goods located at the warehouse (physical 400, 000
count) 2nd trade discount
2. Goods located at the sales department (at cost) (400 000 X 10%) (40, 000)
3. Goods in transit purchased FOB shipping point Invoice price 360, 000
(included in the inventory of the buyer) Cash discount (5%) (18, 000)
Payment within discount period 342, 000
Excluded in inventories:
1. Goods in transit purchases FOB destination ❖ Trade discounts are not recorded.
2. Goods held on consignment from another
entity Topic 13: Inventory Cost Flow

Consignment Cost Formulas

➔ included in consignor’s inventory and not 1. First In First Out (FIFO)
consignee’s
Beg. inventory XX
Consignor - owner Add: Net Purchase XX
Consignee - sells on owner’s behalf Goods available for sale XX
End. inventory (at cost) XX
Cost of goods sold XX
 2. Weighted Average 2. Allowance method
➢ Inventory is recorded at cost
Beg. inventory XX ➢ Any loss on inventory writedown is accounted
Add: Net Purchase XX for separately
Goods available for sale XX
End. inventory at cost XX Cost XX
Cost of goods sold XX NRV (XX)
Required allowance, end XX
However, ending inventory is different because it is Allowance balance , beg (XX)
computed using a weighted average unit cost. Gain on reversal of inventory writedown (XX)
Only if it is a decrease
Goods available for sale XX
Divide by no. of units available XX Dr. Allowance for inventory writedown
Weighted average unit cost XX Cr. Gain on reversal of inventory writedown
Multiply by ending inventory XX
End. inventory at cost XX Topic 15: Gross Profit and Retail Inventory Method

Topic 14: Valuation of Inventories 1. Gross profit - based on sales 30%

Beginning inventory XX
Lower of cost and net realizable value is the Add: Net purchases XX
measurement for inventory. Goods available for sale XX
➔ Net realizable value is the estimated selling Less: COGS:
price less cost of completion and cost of Net Sales XX
disposal. Multiply by cost ratio 70%
Ending inventory XX
When;
Cost > NRV, no recognition of the increase is needed. Gross profit - based on cost 30%
Cost < NRV, an inventory writedown is required. Beginning inventory XX
Add: Net purchases XX
In short, when the net realizable value is greater than Goods available for sale XX
the cost an inventory writedown is needed. Less: COGS:
Net Sales XX
Inventory writedown Divide by sales ratio 130%
1. Direct method Ending inventory XX
➢ inventory is recorded at the lower of cost and
net realizable value
➢ is directly deducted and is not accounted for
separately.
 2. Retail Issuance of share capital
Beginning inventory XX 1. Fair value of property received
Add: Net purchases XX 2. Fair value of share capital
Goods available for sale XX 3. Par value of share capital
Less: Net sales (XX)
Ending inventory at retail price XX Issuance of bonds payable
Multiply by cost ratio XX 1. Fair value of bonds payable
Ending inventory at cost XX 2. Fair value of asset received
3. Face amount of bonds payable
To get the cost ratio; goods available for sale at cost
divided by goods available for sale at retail price. Exchange
With commercial substance
Topic 16: Property Plant and Equipment - Recipient: Fair value of asset given minus cash
received
❖ PPE is measured initially at cost. - Payor: Fair value of asset given plus cash
payment
Elements of Cost:
1. Purchase price What is a commercial substance?
2. Directly attributable cost ➔ A transaction that will cause significant changes
3. Initial estimate of the cost of dismantling and in the cast flow of an entity by the reason of
removing the asset the exchange.

Acquisition on account Topic 17: Government Grant and Borrowing Cost

❖ Cost is equal to the invoice price minus the
discount, regardless whether taken or not. ➢ Government grant shall be recognized when
❖ If discount is not taken, charge to purchase there is a reasonable assurance that
discount lost which is treated as other expense. 1. Entity will comply with the conditions
2. Grant will be received
Acquisition on Installment basis ➢ If borrowing cost is directly attributable to a
❖ PPE on long-term credit contracts should be qualifying asset, borrowing cost is required to
initially recognized at the present value of the be capitalized as a cost of the asset. And, if it is
future payments. not directly attributable to a qualifying asset,
❖ Excess of installment price over present value is borrowing cost shall be expensed outright.
treated as an interest expense to be amortized
over the credit period. Specific borrowing
❖ Interest expense is amortized by fraction since Actual borrowing cost XX
it is an installment. Investment income from investments (XX)
Capitalized borrowing cost XX
General borrowing ❖ Variable charge - Function of use
Average capital expenditures XX To get the depreciation per unit/hour;
(Expenditures X fraction) Depreciable Amount divided by total service hours
Multiply to capitalization rate XX by total output
Capitalized borrowing cost XX
Depreciation unit multiply to annual service hours
Borrowings XX to annual output
Divided by Principals XX
Capitalization rate X% ❖ Sum of years
➔ SYD = Life (Life + 1) / 2
Total interest expense XX ➔ The fraction:
Capitalizable expense XX Digit of the useful life
Interest expense XX SYD
➔ Annual depreciation = Fraction X Depreciable
❖ Cost of the asset is equal to the total amount
expenditures on construction plus capitalizable
borrowing cost. ❖ Declining balance
➔ Annual depreciation = Declining carrying
Topic 18: Depreciation and Depletion amount X fixed rate

Methods of Depreciation ❖ Double declining balance

❖ Straight Line ➔ Annual depreciation = Declining carrying
Annual depreciation is equal to the cost less residual amount X fixed rate (100% / useful life X 2)
value divided by the number of useful life.
❖ Inventory
Ex: Equipment less accumulated depreciation is equal ➔ Beginning balance XX
to carrying amount. Acquisition XX
Sale (XX)
❖ Composite and Group Ending balance (XX)
Composite Life = Total Depreciable Amount Depreciation XX
Total Annual Depreciation

Composite Rare = Total Annual Depreciation Topic 19: Revaluation and Impairment of Assets
Total Cost

Asset 1 XX
Asset 2 XX
Asset 3 XX
Total Cost XX
Accumulated depreciation (XX)