AST ACTG 30A | CHAPTER 1 BONUS METHOD:

Partnership Formation - Ito ‘yung kapag the amount credited to

the capital account of a partner is
Partnership greater than the actual fair value of
- Unincorporated association of two or more his/her contribution, then ‘yung
individuals to carry on, as co-owners, a business, difference will be debited or deducted
with the intention of dividing the profits among sa capital ng other partners.
themselves.
- However, despite the difference, ang
- Owned by two or more individuals
recorded pa rin as a debit to the asset
- Created by mere agreement or meeting of contributed must still be the fair value
minds. of the contribution. ‘Yung difference to
the amounts will be treated as an
CHARACTERISTICS adjustment only.
1. Ease of formation - lack of regulation from
government.
2. Separate Legal Personality
3. Mutual Agency - each partner being an agent of
the partnership has the ability or rights to enter
the partnership formed in any business contract
long as it’s aligned with the partnership’s
operations.
4. Co-ownership of Property
5. Co-ownership of Profits - any stipulation
excluding one or more partners from any SHARE
IN THE PROFITS or LOSSES IS VOID.
6. Limited Life
7. Transfer of Ownership - requires approval of
remaining partners.
8. Unlimited Liability

ACCOUNTING IN PARTNERSHIP [EQUITY]:

[capital contribution/partners’ interests]

Major Considerations in the Accounting for the Equity in

Partnerships:
1. Formation
2. Operations
3. Dissolution
4. Liquidation

1. Formation
[an inventory of a contributed immovable
property has to be made, signed, and attached
to the public instrument that certifies the
creation of partnership.]

2. Valuation of contributions
[valued @ FV]

PARTNERS’ LEDGER ACCOUNTS:

a. Capital Account
b. Drawing Account
c. Receivable From / Payable to a Partner
AST ACTG 30A | CHAPTER 2 - [the months outstanding is from the date the
Partnership Operations the movement happened up to end of period]

- [only the interest of the WAB is included in the

DIVISION OF PROFIT & LOSSES:
allocation of profit computation.]
- Generally: According to their agreement.
- Share in profits are also share in losses.
- w/o stipulation: according to their contribution.
- The designation of profits and losses cannot be
entrusted to one of the partners.

ALLOCATION:
- Salaries, Bonuses, and Interest on Capital
Contributions are paid first and, if there’s any
remaining then, it will be divided proportionately
according to their profit or loss ratio.
1. INTEREST ON CAPITAL
- Only compute for the WABC
BONUS COMPUTATION:
2. INTEREST ON CAPITAL AND BONUS
[As per Valix, BONUS & TAX CORRELATION]
- Find the gross amount of profit before
1. Income before bonus & after tax
salary and interest but after bonus
- B = B% (Income before B & T - T)
- Multiply the gross amount to bonus
[T = T% (Income before B & T - B)]
percentage
B = B% [(Income before B & T - T%
(Income before B & T - B)] 3. INTEREST ON CAPITAL - PARTIAL YEAR
- Compute the WABC, only this time the
2. Income before bonus & before tax
transaction does not start on JANUARY
- (Income before Tax)(Bonus percentage)
but rather anytime along the year.
3. Income after bonus but before tax - Still use the 12/12 monthly counting to
- B = B% (Income before B & T - B) avoid confusion.

4. Income after bonus & after tax 4. INTEREST ON CAPITAL W/ LIMIT

- B = B% (Income before B & T - B - T) - The excess or deficiency in the agreed
[T = T% (Income before B & T - B)] limit of contribution shall earn or incur
B = B% [(Income before B & T - B - T% respective interests.
(Income before B & T - B)]
NOTE: Bonus and Interest are usually computed only AT
[As per MILLAN, BONUS W/ BONUS EFFECT] YEAR-END.
1. Bonus After Bonus (w/ PROFIT)
- B = P - (P / 1 + B%)

2. W/ Loss
- No bonus

3. Bonus w/ LIMIT
- Analyze carefully: who will receive first
and who will benefit from the remaining
part of the profit to acquire bonus.

4. W/ Choice of profit sharing scheme

- Compute for the PROFIT AFTER S BUT
BEFORE B first
- Then. apply the formula in #1 to find the
bonus amount.

WEIGHTED AVERAGE BALANCE OF CAPITAL

- [first, acquire the movement of that partner’s
capital througout the period]

- [once obtained, do the figure computation]

AST ACTG 30A | CHAPTER 7 5. Recognition of revenue
Construction Contracts a. If satisfied over time:
- Recognizes revenue through
These contracts are those entered into by an entity to the measurement of its
build an asset or to restructure an asset for a customer. progress: INPUT & OUTPUT
- The primary issue here is when do we record it
as revenue or costs. INPUT METHOD
- These are generally long-term 1. Cost-to-cost Method

REVENUE RECOGNITION (PFRS 15)

1. Identify the contract with the customer

a. Parties approved (meeting of minds) 2. Efforts-expended Method
and committed
b. Identifiable rights to the goods or
services to be transferred
c. Identifiable rights to the payment
d. Has commercial substance [then, multiply the computed percentage to the contract
e. Payment is probable of collection price]

[all of this must be met]

[if one of the above criteria is not met, the

contract will only be accounted for as a CONTRACT COST
LIABILITY (UNEARNED REVENUE) until it is a. Incremental cost of obtaining a contract
considered extinguished] [if the entity expects a recovery of these costs
then, recognize it as ASSET]
2. Identify whether the said performance
obligations are DISTINCT or SERIES OF b. Costs to fulfill a contract
DISTINCT. [recognized as asset if:]
i. Directly related to the fulfillment of the
[distinct if:] obligation
a. Customer can benefit from it on its own ii. Generate or enhance resources used in
or with the help of other readily satisfying the obligation
available resources. iii. Expected to be recovered
b. The promise is separately identifiable
from other promises [if they are recognized as asset, they are amortized]

SATISFACTION OF PERFORMANCE OBLIGATION: [these costs drive the calculation of the revenue]
a. Over time
i. Customer simultaneously
receives and consumes the
benefit as the entity performs PRESENTATION:
the obligation 1. Contract Liability
ii. Work in progress a. Cancellable
iii. No alternative use and has i. No entry at the inception of the
enforceable rights to payment contract
ii. No entry when the requirement
b. At a point in time
for the advance payment has
been given for the entity does
3. Determine the transaction price
not have an unconditional right
a. Fixed price contract
to the consideration.
b. Cost plus contract
iii. Once received, record a debit
i. Cost-plus-variable-fee contract
to cash and credit to the
ii. Cost-plus-fixed-fee contract
contract liability.
iv. Once the obligation is done,
4. Allocation of transaction price to the
derecognize the contract
performance obligation
liability and recognize revenue.
 b. Non-cancellable NOTES: Sa computation ng cost incurred to date when
i. No entry at the inception of the finding the PROFIT/REVENUE FOR THE YEAR, magsimula
contract ka sa cost incurred to date ng earliest year tapos less mo
ii. At the date requirement for ang cost incurred to date in the prior years.
advance payment of
consideration, recognize
receivable and contract
liability. VARIABLE CONSIDERATION
iii. Once received, record a debit - “Constraining estimates of variable
to cash and credit to the consideration” Principle: [basically, this principle
receivable. tells that the variable consideration should only
iv. Once the obligation is done, be included if it’s highly probable that this
derecognize the contract inclusion will not be reversed or adjusted after
liability and recognize revenue. some time]

- EXAMPLES: Discounts, Penalties, Incentive

[the contract liability is recorded at the earlier of Payments, Cost Escalation
the date the receipt of advance payment and
the date entity acquired the unconditional right.] - Estimated through the following methods:
a. Expected Value
2. Contract Asset b. Most Likely Amount
[the timing of recognition depends whether the
entity’s right to consideration is conditional or - The entity will have to estimate first the variable
unconditional.] consideration then, proceed to determining
whether this should be included in the
[CONDITIONAL: Recognize Contract Asset] consideration or not.
[UNCONDITIONAL: Derecognize Contract Asset &
Recognize Receivable]

CONTRACT MODIFICATIONS
OUTPUT METHOD - Approved changes in the scope and/or price of
the contract.
1. Based on survey work - Could be in ANY form.
2. Based on physical proportion of the contract
work Accounted for as a separate contract if ALL of these are
met:
a. The additional goods or services are distinct.
b. The contract price increases by an amount that
[ZERO PROFIT METHOD: wherein total cost equals total reflects the stand-alone selling prices of the
revenue; used if the performance obligation cannot be additional goods or services
measured reliably; cost-recovery approach]
IF: Distinct but does not reflect the stand-alone selling
ONEROUS CONTRACT price then, the sum of the balance of the transaction
- Cost > benefit price and the consideration for the modification will be
- Recognize a PROVISION: the one allocated to the remaining performance
a. Has a present obligation obligations.
b. Probable
c. Reliable estimate IF: Not distinct then, treated as a prospective catch-up
- Loss is recognized in full due to conservatism adjustment to revenue.

SIGNIFICANT FINANCING COMPONENT

- Significant Advance Payment (customer finances
the contractor)
- Deferred Payment (contractor finances the
customer)
There is no significant financing component if: ADDITIONAL NOTES:
1. The advance payment and transfer of goods or Cost incurred TO DATE: the cumulative one.
services is at the DISCRETION of the CUSTOMER. Cost incurred PER YEAR: not cumulative; as is.
2. Consideration is variable and contingent to a
future event that is BEYOND the CONTROL of the [however, in the computation, what we use is cost
CUSTOMER/ENTITY. incurred to date, therefore the costs are cumulative; if,
3. The differences between the promised the given is already costs incurred to date then, no need
consideration and the cash selling price did not to aggregate; but, if the given is costs incurred per year,
arise from FINANCING REASONS. you need to aggregate.]

[cost of construction = costs incurred per year]

NON-CASH CONSIDERATION In preparation of financial statements under traditional

- @ FV accounting, the placement of construction in progress
- If FV is not available, @ SP and progress billings depends which exceeds the other:
- Only treated as a non-cash consideration and a. If PB > CIP then, LIABILITIES - Gross Amount due
therefore, included in the transaction price if the to customers
entity obtains control over them. b. If PB < CIP then, ASSETS - Gross Amount due
from customers

However, under PFRS 15, (a) is recognized as contract

JOURNAL ENTRIES: liability while (b) is recognized as contract asset.
1. Incurrence of Costs
2. Billings (based on total contract price)
3. Collections (based on progress billings)
4. Revenue

[Construction in Progress: this reflects both the costs

incurred and profit recognized; therefore, if the profit
exceeded the costs incurred, probably due to the
existence of profit margin, then, CIP account is increased
and recognized in journal entries for revenue
recognition.] ; Contract Costs under PFRS 15

[Progress Billings: these are invoices sent to the

customers that reflect the percentage of completion, and
these does not affect the computation of revenue, costs
of construction, and gross profit. It’s recorded as a
liability because this reflect the amount paid for
unperformed work of the entity; therefore, if the progress
billings exceeded the revenue, a liability remains.];
Contract Liability under PFRS 15

[Cost of Construction: represents the expenses of

physical work for the project; therefore, if the contract
costs are expensed, this account will increase]

[Contract Cost: these are capitalized costs or those that

are initially recognized as assets instead of immediate
expense for this costs represents the amount recoverable
from the customers that are eventually turned into a
revenue. Therefore, once revenue is recognized, contract
costs are credited and transferred to the income
statement as expenses.]