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Year 1 Jan-01 Installment Sales Dec-31 Bal Installment COGS Realized Profit Earned Profit Sales COGS 1st Installment Rec 300000 200000 100000
Record sale of the land Installment Sales Rec Inventory Deferred GP Record cash collection Cash Installment Sales Rec Profit on cash collection Deferred GP Realized GP
Points to consider The amount of deferred gross profit relating to installment AR collections 12 months beyond the balance sheet date should Recognized revenue = Receivable collection + Interest revenue if any For financial statement purposes, the installment method of accounting may be used if the ultimate amount collectible is ind
Y2 40000
Y3 25000
Record sale of the land Cost Recovery Rece land Def. gross profit Record Y1 collection Cash Cost Recovery Rece Record Y2 collection Cash Cost Recovery Rece Deferred GP Realized GP Record Y3 collection Cash Cost Recovery Rece Deferred GP Realized GP
ond the balance sheet date should be reported in the current asset section as a contra account.
ultimate amount collectible is indeterminate. Otherwise, the installment method of recognizing revenue is not acceptable for GAAP, and
e is not acceptable for GAAP, and the entire gain is recognized in the year of sale.
Acctg For Nonmonetary Excahnge Exchange of non-monetary assets be categorized into one of two groups: Those that have commercial Substance When exchange has commercial substance: If the future cash flows change as a result of exchange transaction The change can either be in the area of: Risk, timing ND mount of future of cash flows In other word, economic position of the two parties change as a result of exchabge FAIR VALUE APPROACH IS USED DR CR N New Asset (FV) O Old Asset (historical cost) A Acc. Dep old asset C Cash given C Cash Received G Gain L Loss General Rule: In exchange that have commercial substance, all gains and losses are always recognized. Its computed as difference between [FV BV "of asset given not received"] Foxy exchange car for building. Car Cost 102000 Acc Dep 62000 BV or CV 40000 FV 45000 Cash Paid 20000 Calculate Gain N A C L
Those that l
When exchange lack commercia If projected cash flow are not exp The following accounting method when FV is inderteminable General Rule: Loss should be recognized Not Recognized If No boot (Cash) received Boot (cash) paid
FV -BV Gain
Example 1 Excahnge Machine A with B Machine A (BV=10,000) (FV=12,0 Machine B (FV= indeterminable) Cr
Bulding FV 45000 Cash 20000 Acc Dep Cash Received Loss O Car C Cash Paid G Note FV Equal FV+Cash Received 38000 FV
Dr 65000 62000
127000
Example 2 Excahnge Machine A & 2,500 wit Machine A (BV=10,000) (FV=12,0 Machine B (FV= 14,500)
38000
-BV Loss
N A C L
Bulding FV 38000 Cash 20000 Acc Dep Cash Received Loss O Car C Cash Paid G Gain
Example 4 Excahnge Machine A with B & 6,0 Machine A (BV=10,000) (FV=12,0 Machine B (FV= 6,000)
Example 5 Excahnge Machine A with B Machine A (BV=10,000) (FV=8,00 Machine B (FV= 8,000)
Those that lack commercial Substance When exchange lack commercial substance: If projected cash flow are not expected to change significantly The following accounting method must be used also the acctg method is used when FV is inderteminable General Rule: Loss should be recognized Gain as folllow: Not Recognized If No boot (Cash) received Boot (cash) paid Recognized If Boot (cash) Received Equal or exceeds than 25% -> of the consideration received Less than 25% of the -> of the consideration received Step 1 Step 2 All gain recognized Types of invluntary: 1. Fire loss 2. Theft 3. Condemnation
Invo
Example: Company A received a condema A company's building. At that tim 75,000. Calculate gain/ loss and prepare Condenmantion BV of building Gain Cash Building Gain on involuntary conversion
FV Old Asset - CV Old Asset = Gain (A) Boot Received / FV of old Assets (B) Gain Recognized= (A) * (B) No boot, then no gain is recognized Gain = 12000 - 10000 = 2000 not recognized Dr Cr Machine B 10,000 Machine A 10,000 boot paid, then no gain is recognized Gain = 12000 - 10000 = 2000 not recognized Dr Cr Machine B 12,500 Machine A 10,000 Cash 2,500
If the transactions involve; (1) th Gain will be recognized in incom Carrying amount of property con
Excahnge Machine A & 2,500 with B Machine A (BV=10,000) (FV=12,000) Machine B (FV= 14,500)
boot received less than 25%, % gain recognized Gain 12000 10000 2000 Ratio 2,500 12,000 0.21 less than 25%
Gain Recog
0.21 Cr
420
10,420
Excahnge Machine A with B & 6,000 Machine A (BV=10,000) (FV=12,000) Machine B (FV= 6,000)
boot received less than 25%, % gain recognized Gain 12000 10000 2000 Ratio 6,000 12,000 0.50 less than 25% Gain Recog 2000 1 2000 Dr 6,000 6,000 Cr
12,000 Excahnge Machine A with B Machine A (BV=10,000) (FV=8,000) Machine B (FV= 8,000) Loss Full Recognize 8000
Cr
10,000 10,000
3. Condemnation Whenever nonmonetary assets are involuntary converted into cash, full gains or losses are recognized for financial accounting purposes
Company A received a condemantion award of 100,000 for the forced sales of A company's building. At that time, A company's building had a book value of 75,000. Calculate gain/ loss and prepare the JE. Condenmantion BV of building 100,000 75,000 25,000 100,000 75,000 Gain on involuntary conversion 25,000 Gain will be recorded in income from continuing operation
Cost of Removal and clan up cost should be added to carrying value not fair value of the assets and charged against condemination recei
If the transactions involve; (1) the condemnation and (2) the replacement. Gain will be recognized in income from continuing operation proceeds - carryin amount Carrying amount of property condemned = Replacement cost > Condemination carrying amount excess is carrying amount 50000 > 30000 then carrying amount of condemned proper
Accounting for Partnership Admission of Partner 1. Purchase of Sale of existing partnership interest. No JE 2. Formation of Partner FV of Assets Contributed PV of Liabilities Assumed Partner Capital Account 3. Creation of new partnership interest with additional Investment Capital 1. Total partnership capital does change 2. Purchase price can be more, equal,or less than book value More Bonus to exist Equal No Good will or Bonus (Exact) Less Bonus to new Exact Method: T.Equity of Existing Partner / No. of Existing Partner Partner A B C Capital 20,000 30,000 50,000 A.B. & C decided to Admit D for 25% interest in the new partnership IF D pays BV, how much should D contribute in order to have 25% interest? a 20000 b 30000 c 50000 solution 100000 3 33333.33
Bonus Method: Partner A B Capital 30000 10000 Share % 0.6 0.4 C invest 35000 one third No goodwill Solution: A B Total C Total 30000 0.6 10000 0.4 40000 35,000 0.3333333 75000 25000 75000*.33333 35,000 25,000 10,000 6000 4000
Interest less than amount contributed Bonus to Existing New Partner Pays More than VBV
Invest Pays Actual Interest Bonus to exist To A 0.6 To B 0.4 Bonus Method: Partner A B
Dr 35,000
A B Total C Total
30000 0.6 10000 0.4 40000 14,000 0.3333333 54000 18000 75000*.33333 14,000 18,000 -4,000 -2400 -1600 Cash Capital A Capital B Capital C Dr 14,000 2400 1600 Cr
Invest Pays Actual Interest Bonus to C From A 0.6 From B 0.4 Goodwill Method Partner A Capital 30000
18,000
B 10000
Admit C for 35,000 for one third interest Implied Value (35,000 * 3) T.Partnet Capital AC (30000+10000+35000) Goodwill Recognized A 0.6 B 0.4 105000 75000 30000 18000 12000
Dr 35000 30000
Cr
65000
Profit & Loss Distribution Income & loss in partnership are distributed in accordance with their agreement, and in the absence of the agreement the profir and loss are shared equally irrspective of what their capital reflect or amount of time each partners spent in partnership. Unless the partnership agreement specified otherwise, interest on capital, salaries, and bonuses are deducted prior to any distribution of profit. Such payment are provided in full, even in a loss situation.
Salary Bonus
B 60000 0.08 0 0
C 90000 0.08 0
.15 of profit
Profit Share
0.2
200000 0.3 A
0.5 B 4800 0 0 4800 43680 48480 C 7200 0 30000 37200 72800 110000 200000 -14400 -10000 -30000 145600
Liquidation of A Parnter A 0.5 15000 10000 B 0.3 0 20000 C 0.2 5000 20000
Advance Capital
Cash Noncash
Liab. Creditor
125000
65000
Advance cash Noncash 20000 75000 125000 -75000 145000 0 -25000 120000 0 -20000 0 100000 0 -100000 0 0 0 cash Noncash 20000 75000 65000 -75000 85000 0 -25000 0 60000 0 -20000 0 40000 0 -40000 0 0 0 cash Noncash 20000 75000 15000 -75000 35000 0 -25000 0 Liab 25000 0 25000 -25000 0 0 0 0 0 Liab 25000 0 25000 -25000 0 0 0 0 0 Liab 25000 0 25000 -25000 A 15000 0 15000 15000 -15000 0 0 0 A 15000 0 15000 0 15000 -15000 0 0 0 A 15000 0 15000 0 C 5000 0 5000 5000 -5000 0 0 0 C 5000 0 5000 0 5000 -5000 0 0 0 C 5000 0 5000 0 A 10000 25000 35000 35000 0 35000 -35000 0 A 10000 -5000 5000 0 5000 0 5000 -5000 0 A 10000 -30000 -20000 0
Capital B 20000 15000 35000 35000 0 35000 -35000 0 B 20000 -3000 17000 0 17000 0 17000 -17000 0 B 20000 -18000 2000 0
Pay partner
Pay Capital
Pay creditor
Pay Advance
Distribute to cash
Pay creditor
Advance to A
Divisionof A deficiency
Divisionof B deficiency
0 0 0 0 0 0 0
0 0 0 0 0 0 0
15000 -15000 0 0 0 0 0
When the solvent partners are dissolved, and assets are reduced to cash, the cash must be used to pay partnershi first the creditors, including partnership creditor, must be paid before non-creditor partners. Then partners' capita right to offset between partner loan to and from partnership and thatpersons' capital exists in liquidation.
Losses must be provided for liquidation before any distribution made to partners. Losses in partnership are charge against partners' capital in accordance with partnership agreement, in absence of partnership agreement, the loss are shared equally.
The general procedure in liquidation is that all noncash assets converted to cash, all liabilities are paid, the remain any, are distributed to the partners.
Liquidation of partnership assets results in gain or loss realized and loss realized resulting in capital deficiency. A c deficiency is debit balance in partners capital account. If partners with capital deficiency has a loan, the partnersh legal right to offset and may use loan to satisfy capital deficiency. If deficiency still exists, the remaining partners m absorb the deficiency according to their profit and los share.
unt contributed
mount contributed
15000
Capital C 20000 10000 30000 30000 0 30000 -30000 0 C 20000 -2000 18000 0 18000 0 18000 -18000 0 C 20000 -12000 8000 0
ust be used to pay partnership's artners. Then partners' capital, exists in liquidation.
ting in capital deficiency. A capital ncy has a loan, the partnership has sts, the remaining partners must
Financial Reporting and Changes Prices Appreciation Cost Historical Current Inflation Dollar Nominal Constant
Historical Actual exchange value in $ at the time Current Cost incurred at present time - replacement cost Nominal unadjusted for changes in purchasing power Constant $ restated based on calculation f CPI Neither Inflation HC/ND HC/CD based on historical price without restatement for changes in purchasing power dollar - GAAP based on historical price adjusted for changes in purchasing power of dollar Uses general price index to adjust historical cost based on current cost without restatement for changes in purchasing power of dollar. based on current cost and adjusted for changes in purchasing power of dollar Uses specific price index or direct pricing to determine current cost, and Uses general price index to general purchasing power Holding during Inflation Purcahsing power loss Purchasing power gain Monetary Asset PP G/L Inflation No Yes No Yes Holding during Deflation Purchasing power gain Purchasing power loss Nonmonetary Assets PP G/L Appreciation No No Yes Yes
Assets Laib
Foreign Currency Accounting FC Transaction FC Translation Transaction with foreign entity donimated in foreign currency Conversion of FS of foreign entitiy into FS expressed in domestic currency
Exchange Rate Price of one unit of currency expressed in units of another currency Direct Method Domestic price of one unit of another currency Euro 1 = $0.55 Indirect Method Freign price of one unit of domestic currency Euro 1.8 buys $1 Current Exch. Rate Forward Exch. Rate Historical Exch. Rate W,Avg Exch, Rate Reporting currency Functional Currency FC Remeasurement FC Translation Foreign FS Translation Translation Method I/S Revenue WA Expenses WA NI Transfer to RE B/S Asset Liab CS/APIC RE Plug Exchange rate at the current date Exchange rate existing now for exhanging two currencies at specified future date Exchange in effect at the date of issuance stock Used for income statement translation Always US Dollar Local currency or US dollar
Restatement of FS denominated in Foreign currency to functional currency prior to transla Restatement of FS denominated in functional currency to currency of reporting entity
Current/Year end Current/Year end Historical Roll forward Accumulated Translation Adju
Remeasurement Method
IDEA
Functional Currency
Local currency qualifies as foreign entity functional currency - it must be the currency of primary economic enviro all of the following must exists: 1. Foreign ops self-contained within with country 2. Day to day ops don't depend on investor functional currency 3. Local economy of foreign entity is not highly inflationary FS of "K Corp" foreign Sub of "D Corp (US company)" are shown below. Assumptions 1. Parent organized sub on Dec 21, 20X0 2. Exchange Rate:
FS of "K Corp" foreign Sub of "D Corp (US company)" are shown below. Assumptions 1. Parent organized sub on Dec 21, 20X0 2. Exchange Rate: Dec 31, 20X0, Mar 31, 20X1 April 1, 20X1, Jun 30, 20X1 Jul 1, 20X1 - Sept 30,20X1 Oct 1, 20X1 - Dec 31, 20X1 Weighted Average
Sales Cost & Expenses COGS Dep Exp Sell Expense Other operationg Expense Income Taxes Expense Total costs and expenses Net Income Stmt of RE Retained Earning. Beg Net Income Retained Earning, End B/S - Assets Cash A/C Rec Inventory Fixed Assets Accumulated Dep Total Assets Liab & Stockholders Equity A/C Payable Long-term debt Common Stock, 10,000 shares Reatined Earnings Accumulated Bal of OCI Total Liab& Stockho;ders Equity
525,000 400,00022,00031,00011,00019,000483,00042,000
Translation 0.13 66,938 0.13 0.13 0.13 0.13 0.13 0.13 0.13 51,0002,8053,9531,4032,42361,5835,355
42,000 42,000
0.13 0.13
5,355 5,355
Foreign exchange transaction gain or loss will result if the exchange rate changes between the time of purchase o currency and the time of actual payment
Foreign exchange transaction gain or loss that is recognized in current net income must be computed at each bala recorded transaction of foreign currency that have not been settled at the balance sheet date. The difference bet used in recording the transaction and exchange rate at the balance shet date is an unrealized gain/loss on foreign
Assets and liabilities resulting from foreign exchange transactions should be recorded at the rate in effect at the d
12/1/Yr1 "O comp" purchased goods on credit for 100,000 pesos. "O comp" paid for goods on 2/1/Yr2. The excha 12/01/Yr1 12/31/Yr1 02/01/Y2 Goods A.c Payable 100000 A/C paybale FX gain FX loss A/C Payable Cash 0.02 0.1 0.08 0.09 10000 10000 2000 gain 2000 2000 1000 8000 9000 0.2 -> (0.1 - 0.09)
tic currency
Remeasurement 0.13 66,938 0.13 0.18 0.13 0.13 0.13 Plug 2 51,0003,9603,9531,4032,42362,7386,853 11,053
11,053 11,053
ust be computed at each balance sheet date on all heet date. The difference between exchange rate realized gain/loss on foreign currency ( IDEA).
On a personal statement of financial condition, estimated income taxes equals the difference between fair values liabilities. On personal financial statements, all items are reported at their fair market values (estimated current values).
Personal financial statements usually include a statement of financial condition (similar to a balance sheet) and a (similar to an income statement). A business interest that constitutes a large part of an individual's total assets should be presented in a personal st single amount equal to the estimated current value of the business interest. Net assets are presented at FMV rather than: A. Individual assets and liabilities at cost B. Total assets and liabilities at cost C. Proprietorship equity at cost Rule: Assets are reported at estimated fair value. Ink stock at buyout value (fair value) Jewelry at fair value Total 675,000 70,000 745,000
Note - Any tax liability due upon the sale of appreciated property would be disclosed separately as a ''deferred ta against the estimated fair value of the asset.
Statement of Cash Flow Purpose: Possible information about sources and uses of cash and cash equivalent
Cash & Cash Equivalent "Change in cash" SCF reconciles the cash and cash equivalent amount presented on the beginning B/S to amount presented on the
Actual cash Quickly convertible into cash and maturity of 3 months or less
Regardless of the method used, Investing and Financing activities are same. Only operating activities and required Direct Operating activities shows all major cash collection and disbursement Reconciliation of net income to CF from operating activities is required to be in different schedule
Indirect
Report operating activities indirectly, by adjusting net income to reconcile to net CF from operating ac
Sections of SCF
Operating activities Major classes of cash receipt and disbursement are presented in gross and totaled to arrive to CF from
Inflow "Receipt" Cash received Interest Received Dividend Received "if paid Financing" Other receipt "such insurance proceed & law suit settlement" Cash received from sales Trading Securities "AFS & HTM is investing" Cash collection Sales to customer + Decrease A/R Increase A/R + Increase Unearned Revenue Decrease Unearned Revenue
Direct Method Outflow "Disbursed" Cash paid to supplier Interest Paid "Principal Paid Cash paid for rent, utilties, e Income Tax paid " deferred o Cash paid to acquire Tading Cash Paid
+ + + +
Cash Sales
XXX
XXX XXX
Cash Paid
Add
NI Depriciation/ (Amortisation discount) Loss - Sale of PPE or Long term Investment Decrease in Assets Increase in Liabilities Amortisation Premium Gain -Sale of PPE or Long term Investment Increase in Assets Decrease in Liabilities
Indirect Method XXX XXX XXX XXX XXX (XXX) (XXX) (XXX) (XXX) less XXX
Subtract
(XXX)
Net Cash Flow Provided/Used From Operating Activities Provided if positive Used If negative
XXX (XXX)
Investing activities Inflows Disposals AFS & HTM Securities Disposals PPE Outflows Acquiring AFS & HTM Securities Acquiring PPE Making loan to other entities
Financing activities Inflows Issuing Stock Owner-Oriented Outflows Repurchase Stock Paying Dividend Creditor-Oriented Inflows Issuing bond, note & other borrowing
Information about material non-cash financing and investing activities should be presented in a separate disclousr Examples of non-cash investing and financing activities
Purchase of fixed assets by issuing stock Purchase of fixed assets through Capital lease Exchange non-cash assets to another non-cash assets Conversion of bond to equity - Each conversion should be disclosed separately Some useful formula to help solving question Bond Redeemption = Beg Bond Payable + Bond Issued during year - Ending Bond Payable
be in different schedule
ethod Outflow "Disbursed" Cash paid to supplier Interest Paid "Principal Paid is Financing" Cash paid for rent, utilties, etc. Income Tax paid " deferred or current" Cash paid to acquire Tading Securities "AFS & HTM is investing"
COGS Increase Inventory Decrease Inventory Increase Prepaid Increase Prepaid Decrease A/P Increase A/P Expenses
Beg Inventory + Purchases - End Inventory = COGS "Solve for Purchases" Cash Purchases XXX Plus A/P Beginning A/P XXX Purchases "step 1" Ending A/P XXX XXX XXX
Cash Paid
Method Asset Cost Accu. Dep NBV Selling Price less NBV Gain/Loss Investing operating