Afar Summary Notes 613p3y

PARTNERSHIP FORMATION VALUATION 1. Cash at FACE VALUE (if foregin currency at current exchange rate) 2. Inventory at LCNRV or Fair Value 3. Other Non-Cash Assets (Order of Priority) a. Agreed Value b. Fair Value c. Appraised Value d. Carrying Value 4. Liabilities are considered ASSUMED unless otherwise stated to the contrary 5. Capital s are ed using 2 methods: a. BONUS METHOD - No goodwill recognition - Total Assets & Total Liabilities remain unchanged - Total Contributed Capital (TCC) = Total Agreed Capital (TAC) - Partner’s Contribution NOT EQUAL to Partner’s Capital - There’s only a transfer of capital among partners

PARTNERSHIP OPERATIONS 1. Interest 2. Salaries 3. Bonus to MP Remainder as agreed Total Share in PL

A xxx xxx xxx xxx xxx

B xxx xxx xxx xxx xxx

TOTAL xxx xxx xxx xxx PL

1. INTEREST (on beginning/ending/average/original capital) - would be a fractional year - given REGARDLESS of the result of operation (whether NI or NL) - Interest is NOT AN EXPENSE - If the base is not specified, use AVERAGE Capital - must be specifically agreed upon by partners NOTE: In averaging of capital, only the following is considered: a. Additional Investment b. Permanent Withdrawals  If based on Capital, interest is ADDED to partner’s share in NI  If based on Drawings, interest is DEDUCTED from partner’s share in NI

b. INVESTMENT (WITHDRAWAL) METHOD - If Adjusted Capital > Unadjusted Capital (Investment) - If Adjusted Capital < Unadjusted Capital (Withdrawal)

- Total Contributed Capital (TCC) >< Total Agreed Capital (TAC) - Partner’s Contribution = Partner’s Capital - Results to Additional Contribution or Withdrawal 6. Adjusting entries for Depreciable Assets (& Other Assets) require adjustment to their CONTRA S with the capital balance. Ex. Capital xxx Accumulated Depreciation xxx (to record decrease in PPE) 7. To transfer Depreciable Assets to the new book of partnership, these shall be recorded at NET AMOUNT 8. To transfer s receivables to the new book of partnership, these shall be recorded at GROSS AMOUNT (can still be recorded eventually) 9. PL ratio is IRRELEVANT in this stage.

2. SALARIES - would be a fractional year - given REGARDLESS of the result of operation (whether NI or NL) - Interest is NOT AN EXPENSE - must be specifically agreed upon by partners Special note: - If there’s an agreement that the amount to be distributed among the partners is limited up to the extent of profit only or based on the following priority, USE the SALARY RATIO/INTEREST RATIO, whichever is applicable 3. BONUS TO MANAGING PARTNER - provided if there’s a PROFIT ONLY - if based on NI before bonus, it is not an expense - if based on NI after bonus, it is considered as EXPENSE FORMULA: a. Bonus is at NI AFTER BONUS and/or others (S/I) 𝑁𝐼 𝑙𝑒𝑠𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑑𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑠 (𝑆/𝐼) 𝐵𝑜𝑛𝑢𝑠 = 𝑋𝐵𝑅 (1 + 𝐵𝑜𝑛𝑢𝑠 𝑅𝑎𝑡𝑒)

PARTNERSHIP DISSOLUTION 1. 2. 3. 4.

ISSION OF NEW PARTNERS RETIREMENT/WITHDRAWAL OF EXISTING PARTNER DEATH OF EXISTING PARTNER INCORPORATION OF PARTNERSHIP

ISSION OF NEW PARTNER A. BY PURCHASE WITHOUT REVALUATION (If Silent) (Payment = Interest acquired)  Personal-transaction between old and new partners  NO goodwill recognition  Total assets and total capital remains unchanged  The purchase transaction is not recorded in partnership’s book. What shall be recorded is only the transfer of interest from old to new partner Old A Old B New C Total Contribution xxx xxx xxx Transfer of Interest (xxx) xxx Agreed Capital xxx xxx xxx xxx WITH REVALUATION (Indicator: Payment >< Interest acquired)  2 Steps to determine the balance of old partners AFTER ISSION 1. Determine the revaluation (over/under) AND distribute to old partners using their PL ratio 2. Transfer Capital to the new partner

Contribution Revaluation Balance Transfer of Interest Agreed Capital

Old A xxx xxx

Old B xxx xxx

New C

Total xxx xxx

xxx

(xxx) xxx

xxx xxx

xxx

NOTE: If asset revaluation is the appropriate method, but the amount of over/under valuation (or adjustment in assets) is not given. The BALANCE AFTER REVALUATION OF THE SELLING PARTNER is computed as follows: [New Partner Payment / Acquired Interest (%) from selling partner]. The, SQUEEZED. SPECIAL CASE: ASSET REVALUATION AND BONUS COMBINED  Total Contributed Capital (TCC) NOT EQUAL Total Agreed Capital (TAC)  Partners’ contributed capital (before ission) NOT EQUAL their agreed capital (after ission)  Old partners s are adjusted twice, (1) for asset revaluation (2) for bonus  New partner is adjusted ONLY by Bonus

Contribution Revaluation Balance Transfer of Interest Agreed Capital

Old A xxx xxx

Old B xxx xxx

New C

Total xxx xxx

xxx

(xxx) xxx

xxx xxx

xxx

NOTE: If asset revaluation is the appropriate method, but the amount of over/under valuation (or adjustment in assets) is not given, TOTAL AGREED CAPITAL is computed as follows: [New Partner Payment / Acquired Interest (%) in the firm]. B. BY INVESTMENT DETERMINATION OF NEW PARTNER’S AGREED CAPITAL Old Partners’ Contributed Capital xxx New Partner’s Contributed Capital xxx [A] Under-Valuation of assets (if any) xxx Over-Valuation of assets (if any) (xxx) TOTAL CONTRIBUTIONS xxx (x) Interest acquired % AGREED CAPITAL OF NEW PARTNER xxx [B] A=B NO revaluation or bonus or goodwill A>B UNDER-valuation or Bonus to OLD partners A
Contribution Bonus Agreed Capital

Old A xxx xxx xxx

Old B xxx (xxx) xxx

New C xxx xxx xxx

Total xxx xxx

METHOD 2: ASSET REVALUATION METHOD (not implied)  Total Contributed Capital (TCC) NOT EQUAL Total Agreed Capital (TAC)  Old partners’ contributed capital (before ission) NOT EQUAL their agreed capital (after ission)  New partners’ contributed capital = agreed capital  Over/Under Valuation is distributed to OLD PARTNERS using their PL RATIO

Contribution Bonus Agreed Capital

Old A xxx xxx xxx

Old B xxx (xxx) xxx

New C xxx xxx

Total xxx xxx xxx

NOTE: If asset revaluation is the appropriate method, but the amount of over/under valuation (or adjustment in assets) is not given. TOTAL AGREED CAPITAL is computed as follows: [New Partner Contribution / Acquired Interest (%) in the firm]. RETIREMENT/WITHDRAWAL OF OLD PARTNER  At date of retirement, partners’ capital s shall be adjusted for: o Their share in profit or loss as of the date of retirement

o

Their share in asset revaluation (not implied, thus must be indicated) o Loan Balances  The Adjusted Capital of the retiring partner may be recovered thru: 1. Sales to Outsider – mere transfer of interest (same with ission by purchase) 2. Sale to remaining partners – mere transfer of interest between partners 3. Payment of his share by the partnership: Settlement Price = Adjusted Capital Settlement Price > Adjusted Capital Settlement Price < Adjusted Capital

NO BONUS Bonus to RETIRING partner Bonus to REMAINING partner

INCORPORATION Step 1: Adjust capital s Step 2: Close Adjusted capital s into Share Capital and APIC if any. DEATH OF PARTNER  Settlement is EITHER. Option 1 BEG OF THE YEAR

DATE OF DEATH

1. In determining the Capital s of partners before liquidation: 2. Gain or loss is distributed to capital s based on partners’ PL ratio 3. Liabilities should be paid in full OR cash sufficient to ensure payment of all liabilities and future expense must be withheld. 4. After payment of all liabilities, partners loan s must be paid with right of offset, 5. Cash distribution to partners should be made with the objective of systematically bringing the ratio of capital s in agreement with partners PL ratio. Thus, in the end, PL RATIO = CAPITAL RATIO.

DETERMINATION OF CASH DISTRIBUTION (TWO ALTERNATIVE METHODS) SAFE PAYMENT -done every cash payment to partners A B Capital Balance xxx xxx (-) Maximum Loss (xxx) (xxx) note 1 Free Interest xxx xxx (+/-) Absorption (xxx) xxx note 2 SETTLEMENT To be Distributed xxx xxx

Pro-rata2 share plus for the WHOLE InterestYEAR on Capital Option Shareininprofits the Profit

PARTNERSHIP LIQUIDATION 2 Methods: 1. LUMP SUM LIQUIDATION 2. LIQUIDATION BY INSTALLMENT LUMP SUM LIQUIDATION – one time payment LIQUIDATION PROCESS STEP 1: Sale of Non-Cash Assets and Distribution of Gain or Loss to partners (Realization of NCA) STEP 2: Payment of Liabilities (does not affect capital balances) STEP 3: Elimination of Deficiency (order of priority) A. Right of Offset (If DP has loans receivable from the partnership) B. Additional Investment (If DP is solvent; up to extent of his solvency) C. Absorption of others with adequate balance (If DP is insolvent allocate based on remaining PL ratio) STEP 4: Payment to partners (order of priority) A. Loan s B. Capital s

Note 1: Maximum Loss is composed of: 1. Unrealized Non-Cash Assets 2. Cash Withheld Other Components 3. Unrealized Loss 4. Liabilities Note 2: In case, there is a deficient partner during safe payment, deficiency shall be ABSORBED ONLY by other partners, as they are all considered insolvent under safe payment. If no deficiency, free interest = distributable cash. CASH DISTRIBUTION PROGRAM -determines partner to be paid first A B Capital Balance xxx xxx (+/-) Loans (xxx) (xxx) Adjusted Capital Balance xxx xxx (+) Corresponding PL ratio % % note 2 Loss Absorption Ability xxx xxx Note: whatever has the HIGHEST LAA shall be the FIRST PRIORITY in cash distribution, so on and so forth.

1st Priority LAA xxx (-) 2nd Priority LAA (xxx) Excess xxx (x) corresponding PL ratio % NOTE: Before Liquidation, All Balances MUST BE st To be distributed – 1 Priority xxx ADJUSTED, specifically capital s of partners * Any EXCESS CASH after paying all the priorities for cash distribution shall be distributed to all partners based on LIQUIDATION BY INSTALLMENT – series of payment -SAME liquidation process as lump sum liquidation, but it is their PL RATIO. done by installment

SHORTCUT SOLUTION Cash, Beginning Balance proceeds from sale of NCA Liquidation Expense Liabilities paid Distributable Cash Cash withheld Distributable Cash

xxx xxx (xxx) (xxx) xxx (xxx) xxx

STATEMENT OF REALIZATION AND LIQUIDATION (periodically prepared by Receiver/Trustee – Actual Amounts) Total Assets (EXCEPT CASH) Assets To Be Liquidated Assets Liquidated Assets Acquired - new Assets not Liquidated xxx xxx

Lump Sum Installment

Total Liabilities Liabilities Liquidated Liabilities To Be Liquidated Liabilities not Liquidated Liabilities Incurred - new

CORPORATE LIQUIDATION

xxx

STATEMENT OF AFFAIRS (Initially prepared by Corporation before Liquidation process – Estimated Amounts only) TOTAL ASSETS (at NRV or FMV)  ASSETS PLEDGED TO FULLY SECURED CREDITORS  ASSETS PLEDGED TO PARTIALLY SECURED CREDITORS  FREE ASSETS (a) Assets not pledged (b) Excess of Assets pledged to fully secured creditors TOTAL LIABILITIES (at required amount to settle or BV)  UNSECURED DEBTS WITH PRIORITY a) istrative Expenses of Receiver b) Unpaid Employee’s salaries, wages, and benefit plans c) Corporate Crimes d) Taxes (National, Provincial, City/Municipality) e) Corporate Torts f) Notarized Debts/Judgement Debts  FULLY SECURED DEBTS  PARTIALLY SECURED DEBTS – SECURED PORTION Cash Available for Unsecured Liabilities (Or Net Free Assets) [A]  UNSECURED DEBTS WITHOUT PRIORITY (a) Partially Secured Liabilities – Unsecured Portion (b) Purely Unsecured Liabilities Estimated Deficiency [B]

xx xx xx

xx

xx xx

xx xx

(x) xx (x)

xx

RECOVERY RATE = A/B RECOVERABLE AMOUNT OF CREDITORS: (A) Unsecured Debts with priority 100% (B) Fully Secured Debts 100% (C) Partially Secured Debts NRV of Asset pledge + Balance at Recovery Rate (D) Unsecured Debts without priority Balance at Recovery Rate

xxx

Supplementary s Expenses and Losses Revenue and Gains xxx xxx Notes:  The receiver normally open NEW ing books for the liquidating corporation and RECORDS assets and liabilities at their BOOK VALUES  The DIFFERENCE of corporation’s assets and liabilities is CLOSED to ESTATE EQUITY .  During liquidation process, the following are DIRECTLY CLOSED to ESTATE EQUITY : 1. Unrecorded assets and liabilities arises (new) 2. Expenses and Revenue during liquidation 3. Gains and Losses upon realization of assets Special Notes: - Insolvency means sum of debts > sum of assets of corporation at FV - In times of insolvency, corporation has 3 alternatives: 1. Liquidation – operation ceases (voluntary) 2. Debt restructuring – operation continues (if accepted by the parties) 3. Reorganization – operation continues (if accepted by the parties) - Statements to be prepared:  By the liquidating corporation: o Statement of Affairs – prepared by corporation before liquidation - not a going concern statement, thus historical costs are IRRELEVANT  By the receiver/trustee assigned by the SEC: 1. Statement of Cash Receipts and Disbursement 2. Statement of Estate Equity (Deficit) 3. Statement of Realization and Liquidation

INSTALLMENT SALES *Revenue Recognition at the Point in Time A. SALE OF MERCHANDISE INVENTORY INSTALLMENT SALES RECEIVABLE Installment Acct Receivables, Beg xxx (-) Repossessions (xxx) (-) Write Offs (xxx) (-) Collections (excluding interests) (xxx) Installment Acct Receivables, End xxx

DEFERRED GROSS PROFIT IAR, Beg X GPR IAR, Repo. Bal X GPR IAR, W/O Bal X GPR

IAR Collections X GPR IAR, End X GPR

xxx (xxx) (xxx)

(xxx) xxx

* TRUE MARKET VALUE/NRV: Estimated Selling Price xxx (-) Cost to Sell (xxx) (-) Reconditioning Costs (xxx) (-) Normal Profit Margin (at GPR of the year of repossession) (xxx) True Market Value/NRV xxx NOTE: Use of the formula above ONLY, when the FAIR VALUE IS NOT GIVEN * GROSS PROFIT RATE Installment Sales (-) Over Allowance for TMV (+) Under Allowance for TMV Adjusted Installment Sales Cost of Installments Sales Deferred Gross Profit

xxx (xxx) (xxx) xxx xxx xxx

Note 1 REPOSSESSIONS Journal Entry: Repossessed Item (at NRV) Deferred Gross Profit (at GPR) Loss on Repossession (plug*) Installment Acct. Rec. (at Gross) (plug*) True MV/ NRV of Repo Item (-) Unrecovered Cost: (ISR (at Gross) X Cost Ratio) Gain (Loss) on repossessions

xxx xxx xxx xxx

xxx xxx xxx

(plug*) Trade in Allow (actual) (-) True MV/NRV of item Over (Under) Allowance

xxx (xxx) xxx

Note: Installment Sales (-) Over-allowance or (+) Under-allowance Adjusted Sales

xxx (xxx) xxx xxx

xxx xxx

B. SALE OF REAL PROPERTY * CASUAL SALE Sales Price (-) Book Value: Cost xxx Acc. Dep, if any xxx Deferred GP

xxx

xxx xxx

* AS A REAL ESTATE (INVENTORY) Sales Price xxx (-) Cost of Sales (xxx) Deferred GP xxx * RGP IN INSTALLMENT SALES Probability of Collection Method Used Reasonable Accrual Basis Remote Cost Recovery Method Neither of the two Installment Method

* Measurement of Sales Revenue in Installment Sales (IAS 18) 1. Cash (at Face Value) 2. Traded Inventory (True Market Value/FMV) 3. Notes Receivable (at either Present Value or Face Value, whichever is appropriate) *Deferred Gross Profit (DGP) is a CONTRA-IAR

NOTE: Gains on Repossession is NOT RECOGNIZED Note 2 WRITE OFF Journal Entry: Deferred Gross Profit (at GPR) Operating Expenses (at Cost Ratio) Installment Acct. Rec. (at Gross)

* INSTALLMENT SALES WITH TRADE INS Journal Entry: Traded in Item (at NRV) xxx Over-allowance (plug*) xxx Installment Acct. Receivables (excess) Installment Sales (at Gross)

xxx xxx xxx

NOTE: Loss on Repossessions and Impairment of IAR in case of write off, shall be presented in PROFIT/LOSS. Note 3 COLLECTIONS - Collections EXCLUDE interests collected, nut INCLUDES down payment and Traded in items at its NRV - Base on REALIZED GP, which is a YEAR END ADJUSTMENT

LONG-TERM CONSTRUCTION CONTRACTS Revenue Recognition Over Time Under IFRS 15, following are methods in computing for the percentage of completion: 1. Cost to Cost Method 2. Survey Method 3. Input Method 4. Output Method A. PERCENTAGE OF COMPLETION (COST TO COST) - used if the outcome of the contract can be measured reliably If Expected GP Total Contract Price: Initial Contract Price Variations (ex. bonus) (-)Total Estimated Cost: Cost incurred to date Estimated cost to complete Expected Gross Profit (Loss) (x) % of Completion rate Cumulative Gross Profit (Loss) (-) Cumulative GP(L), prior yrs Realized GP(L), current yr

xxx xxx xxx xxx

xxx

If Expected GL

xxx xxx xxx (xxx) xxx xxx % 100% xxx xxx (xxx) (xxx) xxx xxx

Cost incurred TO DATE Total Estimated Cost

- In BOTH method, expected Gross Loss shall be recognized immediately at its FULL AMOUNT. Thus, EXPECTED GROSS LOSS = CUM. GROSS LOSS - Variations is included in the contract price IF: a. It is probable that it will result to revenue b. It can be measured reliably *PRESENTATION IN INCOME STATEMENT Construction Revenue Cost of Construction Realized Gross PROFIT

Construction Revenue Cost of Construction

xxx (xxx) xxx

xxx (xxx)

Realized Gross LOSS (xxx)

* Beginning Balance *Cost Incurred during the yr *Realized GP during the yr

(Contract Price X %) Cost incurred during the year taken from solution table above

(Contract Price X %) SQUEEZED (Revenue + RGLoss) taken from solution table above

Note: POC rate to be used in getting the Construction Revenue, current year to be presented in the Income Statement: Cum. POC rate, DURING the year % (-)Cum. POC rate, LAST year (%) POC rate, CURRENT YEAR %

*Realized GP during the yr *Ending Balance

* Instances where CIP in BOTH METHODS are equal: a. In the year of project completion, CIP=CONTRACT PRICE b. In the year there is expected gross loss. (rice
xxx xxx xxx

NOTE: Percentage of Completion rate

*RELATED BALANCES CONSTRUCTION IN PROGRESS (CIP) – Current Asset

xxx xxx xxx

Contract Price (x) % of completion CIP, Ending Balance

xxx xxx xxx

CASE 2. IF THERE IS EXPECTED GROSS LOSS Solution A Cost Incurred TO DATE (-) Cumulative Gross Loss CIP, Ending Balance

xxx xxx xxx

PROGRESS BILLINGS (PB) – Current Liability *Ending Balance * Beginning Balance *Billings during the year *At date of completion, PB = CONTRACT PRICE S RECEIVABLE * Beginning Balance *Billings during the year

*Mobilization Fee *Retention Fee *Collections *Ending Balance

NOTE: - Under the SAME CONTRACT, CIP and PB may be OFFSET for presentation purposes in the Balance Sheet. If CIP End balance > PB End balance:  Difference = Due FROM Customer (CA) If CIP End balance < PB End balance:  Difference = Due TO Customer (CL) B. COST RECOVERY METHOD (ZERO PROFIT) If Expected GP Total Contract Price: Initial Contract Price xxx Variations (ex. bonus) xxx xxx (-)Total Estimated Cost: Cost incurred to date xxx Estimated cost to complete xxx xxx Expected Gross Profit (Loss) xxx (x) % of Completion rate 0% Cumulative Gross Profit ZERO (Loss) (-) Cumulative GP(L), prior yrs ZERO Realized GP(L), current yr ZERO NOTE:

If Expected GL xxx xxx xxx xxx xxx (xxx) xxx 100% xxx (xxx) xxx

-Under Cost Recovery Method, Profit shall only be recognized at the DATE OF COMPLETION. However, Profit may be realized if it is a result of the RECOVERY of Gross Loss previously recognized. (Or as long as, GP is ZERO) - Same procedure for CIP and PB computations (T APPROACH) *PRESENTATION IN INCOME STATEMENT Construction Revenue Cost of Construction Realized Gross PROFIT

xxx (xxx)

Construction Revenue Cost of Construction

xxx

xxx

(xxx) Realized Gross LOSS (xxx)

(Contract Price X %) Cost incurred during the year taken from solution table above

(Contract Price X %) SQUEEZED (Revenue + RGLoss) taken from solution table above

Note: POC rate to be used in getting the Construction Revenue, current year to be presented in the Income Statement: Cum. POC rate, DURING the year % (-)Cum. POC rate, LAST year (%) POC rate, CURRENT YEAR % NOTE: TOTAL ESTIMATED COST INCLUDES ALL COSTS that are SPECIFICALLY CHARGEABLE TO & ARE REIMBURSEABLE BY CUSTOMER, regardless of cost function (Ex. General/ Expense)

FRANCHISE ING * REVENUE RECOGNITION REVENUES US GAAP (POINT IN TIME) INITIAL  REQUISITES: FRANCHISE FEE 1. With REVENUE (IFF) Substantial (at least 90%) Performance of services 2. Nonrefundable 3. Period of return has expired CONTINGENT  REQUISITES: FRANCHISE FEE 1. With REVENUE (CFF) Substantial (at least 90%) Performance of services 2. Nonrefundable 3. Period of return has expired 4. Sale of Franchise occurs

IFRS 15 (OVER TIME)  REQUISITES: 1. Satisfaction of Performance Obligation

 REQUISITES: 1. Satisfaction of Performance Obligation 2. Sale of Franchise occurs

INTEREST REVENUE

Based on age of time (under IAS 18)

NOTE: Initial Franchise Fee Contingent Franchise Fee Total Franchise FEE Revenue Interest Income Total Franchise Revenue

using effective interest method (under IAS 18) xxx xxx xxx xxx xxx

*RECOGNITION OF GROSS PROFIT IN FRANCHISE Collectability

Method

Treatment

Reasonably Assured

ACCRUAL BASIS

NOT Reasonably Assured

INSTALLMENT METHOD

Recognize GP at FULL AMOUNT GP is DEFERRED

* ING THE BALANCE OF IFF Type of Note Measurement * If interest FACE VALUE bearing * If non-interest PRESENT bearing VALUE

When Realized? Immediately

When there’s collection

Interest Revenue Face Value X NR CA X NR

STEP 1: Determine if IFF shall be recognized STEP 2: If IFF is to be recognized, determine the method in recognizing GP STEP 3: Determine the period asked ACCRUAL BASIS Cash (for Down Payment) (+) Notes Receivables (for Balance) Initial Franchise Fee (-) Direct Cost – Initial Service GROSS PROFIT (+) Contingent Franchise Fee (+) Interest Revenue Total Franchise Revenue (-) Indirect Cost – Initial Service (-) All Cost – Continuing Service NET INCOME OF FRANCHISOR

xxx xxx (see table) xxx (xxx) xxx xxx xxx (see table) xxx (xxx) (xxx) xxx

INSTALLMENT METHOD Cash (for Down Payment) (+) Notes Receivables (for Balance) Initial Franchise Fee (-) Direct Cost – Initial Service DEFERRED GROSS PROFIT

xxx xxx (see table) xxx (xxx) xxx (DGP %)

Cash (for Down Payment), year of sale Principal Collection of NR Total Collection (x) DGP rate REALIZED GROSS PROFIT (+) Contingent Franchise Fee (+) Interest Revenue Total Franchise Revenue (-) Indirect Cost – Initial Service (-) All Cost – Continuing Service NET INCOME OF FRANCHISOR

xxx xxx xxx (xxx) xxx xxx xxx (see table) xxx (xxx) (xxx) xxx

 Its Provisional Amount must be obtained from those facts and circumstances EXISTING on acquisition date. Otherwise, CHANGE IN VALUE within or beyond the IFRS 3 defines Business Combination as “Acquirer measurement period shall reflect to PROFIT or LOSS, (parent) obtains CONTROL over the acquire thus, NO EFFECT to GW (GBP) (subsidiary)” Use ACQUISITION METHOD ONLY IF ASSET IF EQUITY Steps to consider under acquisition method:  On Acquisition Date  On Acquisition Date 1. Identify the ACQUIRER - recognize CONTINGENT - Contingent Liability is 2. Determine the ACQUISITION DATE LIABILITY (FIN. LIAB.) NOT RECOGNIZED 3. Determine the CONSIDERATION whether probable or 4. Recognize & measure the identiable assets possible acquired, liabilities assumed, any NCI in the acquire  Change in value WITHIN  Change in value WITHIN 5. Recognize & measure any resulting Goodwill or the measurement the measurement Gain on Bargain Purchase on business period: period: combination - adjust GW (GBP) - DOES NOT affect GW FV of consideration & net assets acquired shall be (GBP) measured at their ACQUISITION DATE FAIR VALUES  Change in value BEYOND - record only additional Such fair values are subject to ONE (1) – YR shares issuance. Thus, the measurement MEASUREMENT PERIOD from Acquisition Date. original amount NOT period: Changes in Values within that period are called - adjust contingent remeasured MEASUREMENT PERIOD ADJUSTMENTS affecting GW consideration to profit or Entry: APIC xxx (GBP). Thus, generally, shall be ed for loss SC xxx RETROSPECTIVELY.

BUSINESS COMBINATION

  

 

BASIC FORMULA FV of Consideration Given Up (+) Non-Controlling Interest (NCI) (+) FV of Previously Held Interest Initial Carrying Amount (-) FV of Net Assets Acquired Goodwill (Gain on Barg. Purc.)

Additional Notes  Asset Acquisition  Stock Acquisition

NOTE 1

NOTE 2 xxx xxx xxx xxx (xxx) xxx

note 1 note 2 note 3

NON CONTROLLING INTEREST (NCI)

- arises in <100% interest acquisition but >50% interest of Sub’s Ordinary Shares (partially owned Subsidiary) INITIAL MEASUREMENT OF NCI FV of Net Assets Acquired xxx (x) NCI % % Proportionate Share of NCI xxx

note 4 note 5

FV of Consideration (EXCL. control ) xxx (see note) (x) NCI % / Acquired % % Implied Fair Value of NCI (unless given) xxx

(a) Merger: A + B = A or B (b) Consolidation: A + B = C

NOTE: FV of Consideration INCLUDES the following (IN CASE OF STEP ACQUISITION) (a) FV of consideration for NEWLY ACQUIRED INTEREST (b) FV of Previously Held Interest

(a) wholly owned (100%) (b) partially owned (<100% but > 50%)

FAIR VALUE OF CONSIDERATION PS on FVNAA > FV of NCI

1. Cash or Other Non-Cash Assets  DECREASES CONSO ASSET on Acquisition Date Consolidation  Journal Entry: Investment in Subsidiary Cash/Other Assets 2. Equity Interest  INCREASES CONSO EQUITY on Acquisition Date Consolidation  Journal Entry: Investment in Subsidiary Share Capital Share

OR;

FV of NCI > PS on FVNAA

xx xx

Excess Goodwill Gain on BP

xx xx xx

3. Contingent Consideration  At FAIR VALUE or if not measured reliably, at PRESENT VALUE

 Prop Share of NCI automatically  Fair Value of NCI  Prop Share of NCI (whichever is appropriate)

PS on FVNAA Partial Partial

OR;

FV OF NCI Total/full Partial

 If PARTIAL – affects CNI to PARENT (CONSO RE) only  If TOTAL – affects BOTH CNI to PARENT (CONSO RE) and NCINI (NCINAS) NOTE: NCI is presented SEPARATELY in CONSO EQUITY on Acquisition Date Consolidation

NOTE 3

PREVIOUSLY HELD INTEREST

- Part of Total Consideration/Initial CA of Investment in Subsidiary in case of ACHIEVED IN STAGES ACQUISITION (STEP ACQUISITION) FV of Previous Investment * (-) CA of Previous Investment ** Gain or Loss on Remeasurement

xxx (xxx) xxx

* (Sub FV of NA at the time Control is achieved X Previous Interest (%) Held = FV of Previous Investment) ** CA as of the date control is achieved Entry:

Investment in Subsidiary @ FV xxx Loss on Remeasurement xxx Previous Investment@ CA xxx Gain on Remeasurement xxx

NOTE: GL on Remeasurement is presented in PROFIT or LOSS. Thus, this AFFECTS CONSO EQUITY on Acquisition Date Consolidation

NOTE 6

SPECIAL NOTES TO

ACQ DATE COSTS SME NON-SME Capitalized Expensed (PL)  DIRECT COSTS Expensed (PL) Expensed (PL)  INDIRECT COSTS - These costs are assumed paid in cash, thus, DECREASES CONSO ASSETS at Acquisition Date Consolidation  STOCK ISSUANCE COSTS (in case equity interest is part of consideration) 1. Debit to SHARE FROM ORIGINAL ISSUANCE 2. Credit/Debit to SIC (contra equity of the ff:) a. Other SP – Other issuance b. Retained Earnings  Listing Fee – Expensed as Incurred (Profit or Loss)

CONSOLIDATION

AT THE TIME OF ACQUISITON  At the acquisition date ONLY the BALANCE SHEET shall NOTE 4 FAIR VALUE OF NET ASSETS ACQUIRED be consolidated. * Generally, at acquisition date, Sub’s Identiable Assets BS ELEMENTS Parent Subsidiary acquired and Liabilities assumed by the parent shall be Assets Book Value Fair Value adjusted to their ACQUISITION DATE FAIR VALUES Liabilities Book Value Fair Value Equity Book Value NCI * Exception: NCA Held for Sale of Sub shall be measured at the LOWER of Book Value & FV – COD CONSOLIDATED ASSETS Parent Total Assets at Acquisition date xxx * GOODWILL OF SUBSIDIARY shall be REDUCED TO ZERO (-) Consideration Given Up (Cash or NCA) (xxx) (0) (-) Payment to Acq Date Costs (xxx) xxx NOTE 5 GOODWILL (GAIN ON BARGAIN PURCHASE) (+) Goodwill on business combination Parents Adjusted TA @ Book Values xxx (+) Subs Adjusted TA @ Fair Values xxx * In case of ASSET ACQUISITION, GW (GBP) shall be CONSOLIDATED ASSETS at Acq Date xxx recognized at acquisition date since consolidation is Note: “Investment in Subsidiary” of Parent shall be AUTOMATIC ELIMINATED upon consolidation * In case of STOCK ACQUISITON, GW (GBP) shall be recognized upon CONSOLIDATION ONLY CONSOLIDATED LIABILITIES Parent Total Liabilities at Acquisition date xxx GOODWILL (+) Contingent Consideration (if asset) xxx - shall be presented as NON CURRENT ASSET @ Balance Parents Adjusted TL @ Book Values xxx Sheet (+) Subs Adjusted TL @ Fair Values xxx - INCREASES CONSO ASSETS at Acquisition Date CONSOLIDATED LIABILITIES at Acq Date xxx SME Amortized over 10 years (max) CONSOLIDATED EQUITY NONSME Not amortized but subject to impairment Parent Equity at Acquisition date xxx test at least annually (+) Shares Issued as Consideration at TFV xxx Equity (+) Gain on Bargain Purchase xxx PL GAIN ON BARGAIN PURCHASE (-) Acq Date Costs (xxx) PL - shall be presented as part of PROFIT OR LOSS @ Income (-) Stock Issuance Costs (xxx) Equity Statement (+/-) Remeasurement GL of Prev. Int. Held (xxx) PL - at Acquisition Date Consolidation, this AFFECTS CONSO (+/-) Others presented at P/L (xxx) PL RE thus, CONSO EQUITY Parents Adjusted Equity @ Book Values xxx xxx FLOW: PL – IE SUMMARY – CONSO RE – CONSO EQUITY (+) Non Controlling Interest of Sub CONSOLIDATED EQUITY at Acq Date xxx Note: “Equity s” of SUBSIDIARY shall be ELIMINATED upon consolidation

TWO COLUMN METHOD TOTAL

(-) Fair Value of Sub’s Net Assets Total Goodwill (Partial Gain on Barg Pur) Total Goodwill (partial Gain on Barg Pur)

PARENT

XXX

XXX

XXX

(XXX)

(XXX)

(XXX)

XXX

XXX

XXX NCI (20%)

* PARENT ADJUSTED NET INCOME

CNI (100%)

PARENT (80%)

Reported Net Income (Cost Method) (+) Gain on Bargain Purchase (-) Acquisition Cost of BC (year of BC) (-) Dividend Income from Sub (+/-) Effects of Downstream Transactions

XXX

XXX

* SUBSIDIARY’S ADJUSTED NI Reported Net Income (Book Value) (+/-) Effects of Amortization Difference on BV & FV of Sub’s Assets and Liabilities (+/-) Effects of Upstream Transactions (+/-) Effects of Sub- Transactions (+/-) Effects of Downstream Transactions (-) Impairment Loss of Total Goodwill CONSOLIDATED COMPREHENSIVE INC

NCI

XXX

XXX

(XXX)

(XXX)

(XXX)

(XXX)

XXX

XXX

CNI (100%)

PARENT (80%)

NCI (20%)

XXX

XXX

XXX

(-) Unrealized GP (End Invty*GPR) Non-Depreciable Assets (-) Unrealized GL (year of intercompany sale) (+) Realized GL (when sold to outsider) Depreciable Assets (-) Unrealized GL (year of intercompany sale) (+) Realized GL (when sold to outsider) NET EFFECT

(xxx) (xxx) xxx (xxx) xxx XXX

NOTE: INTERCOMPANY TRANSACTION (GRANT LOAN) This results to INTEREST INCOME on the Grantor- & INTEREST EXPENSE on the Grantee-. Thus, upon consolidation, the effect of grant loan shall be ELIMINATED CONSOLIDATED SALES, COST OF SALES, GROSS PROFIT

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

(XXX)

(XXX)

(XXX)

XXX

XXX

XXX

Observation: Parent (1-5) affects CNI to Parent Only. Sub (1-4) affect BOTH CNI to Parent & NCINI NOTE: Use TWO COLUMN METHOD ONLY IF the following are PRESENT: 1. Control OR; 2. Express Fair Value for NCI

CONSOLIDATED SALES Reported Sales of Parent (+) Reported Sales of Sub Total Sales (-) Intercompany Sales related to INVENTORY (US & DS)

xxx xxx xxx (xxx)

CONSOLIDATED COST OF SALES Reported COS of Parent (+) Reported COS of Sub Total Cost of Sales (-) Intercompany COS related to INVENTORY (US & DS)

xxx xxx xxx (xxx)

CONSOLIDATED GROSS PROFIT

AFTER ACQUISITION DATE

xxx

xxx xxx

OR; CONSOLIDATED COMPREHENSIVE INCOME * PARENT’S ADJUSTED NET INCOME Reported Net Income (Cost Method) 1 (+) Gain on Bargain Purchase 2 (-) Acquisition Cost of BC (year of BC) 3 (-) Dividend Income from Sub 4 (-) Impairment Loss of Partial/Total GW 5 (+/-)Effects of Downstream Transactions

xxx xxx xxx (xxx) (xxx) (xxx)

* SUBSIDIARY’S ADJUSTED NET INCOME Reported Net Income (Book Value) 1 (+/-)Effects of Amortization Difference on

xxx xxx

BV & FV of Sub’s Assets and Liabilities 2 (+/-) Effects of Upstream Transactions 3 (+/-) Effects of Sub- Transactions

4 (-) Impairment Loss of Total GW CONSOLIDATED COMPREHENSIVE INCOME

xxx (xxx) (xxx)

xxx

xxx xxx xxx xxx (xxx) (xxx) xxx xxx

NOTE: INVENTORY BALANCES refers to those acquired through intercompany transaction and taken from record of the BUYING CONSOLIDATED RETAINED EARNINGS (PARENT) xxx xxx

CNI Attributable to Parent (squeezed) xxx CNI Attributable to NCI (Sub’s Adjusted NI x NCI %) xxx CONSOLIDATED COMPREHENSIVE INCOME xxx

* EFFECTS OF DOWNSTREAM & UPSTREAM TRANSATIONS

Inventories (+) Realized GP (Beg Invty * GPR)

Reported GP of Parent (+) Reported GP of Sub Total Gross Profit (+) Realized GP – Beg Invty (-) Unrealized GP – End Invty (-) Realized GL – Beg Invty (+) Unrealized GL – End Invty CONSOLIDATED GROSS PROFIT

xxx

Consolidated RE of Parent, Beginning (+) CNI Attributable to Parent Consolidated RE of Parent, Ending

xxx xxx xxx

NON-CONTROLLING INTEREST (NCI) Non-Controlling Interest, Beginning (+) CNI Attributable to NCI (NCINI) (-) Dividends Declared by Sub to NCI Non-Controlling Interest, Ending

xxx xxx (xxx) xxx