Page 1 of 4 | AFAR Key Pointers
AFAR KEY POINTERS
BAGAYAO, CRUZ, MARASIGAN, NGINA & TANG
REO.CPA.ACADEMICS.F2.02.01
AFAR KEY POINTERS
BAGAYAO, CRUZ, MARASIGAN, NGINA & TANG
The student should have mastery or at least a working knowledge on the identified key concepts before attending the
face-to-face classes.
1. Partnership Accounting
• Difference of single proprietorship, partnership and corporation accounting
• Concepts, principles, rules, practices, and procedures application to partnership
• Valuation of initial capital contribution
• Re-alignment of capital contribution and agreed capital: Bonus and/or revaluation method
• Distribution of profit or loss: capitalist vs. industrial partner
• Accounting for bonus, salaries and interest to partners and non-partners
• Computation of ending capital after incorporating changes in the capital accounts
• Admission of a new partner: by purchase of interest vs. by investment
• Withdrawal, retirement, or death of a partner: Bonus and/or revaluation method
• Incorporation of a partnership
• Liquidation of partnerships using lump-sum and installment method
• Safe payments schedule vs. cash priority program
• Accounting for capital deficit in a partnership liquidation
2. Corporate Liquidation
• Different financial reports: statement of affairs, statement of deficiency and statement of realization and liquidation
• Order of priority of claimants of company assets subject to liquidation
• Estimated recovery percentage of unsecured creditors without priority
• Estimated payment to fully secured creditors, partially secured creditors, unsecured creditors with and without
priority
• Classification and measurement of assets and liabilities in the statement of affairs and statement of realization
and liquidation.
• T-account of statement of realization and liquidation
3. Joint Arrangements
• Nature and scope of joint arrangements
• Difference of joint arrangement and business combination
• Classification of joint arrangements: joint operation vs. joint venture
• Accounting for joint operations and joint venture
• Equity method in accounting for joint venture
• Accounting of Joint Venture under PFRS for SMEs
4. Revenue Recognition
• Five-steps model framework
• Other revenue recognition issues
o Right of return
o Principal-agent relationships
o Non-refundable upfront fees
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BAGAYAO, CRUZ, MARASIGAN, NGINA & TANG
AFAR KEY POINTERS
REO.CPA.ACADEMICS.F2.02.01
o Licensing / royalties: Right to use vs. right to access
o Repurchase arrangements
o Gift cards
o Consignment arrangements: net income, remittance and ending inventory computation
o Bill-and-hold arrangements
o Long–term construction contracts
▪ Percentage of completion method: input vs. output method
o Franchise Operations – Franchisor’s point of view
▪ Journal entries and determination of revenue, cost, and gross profit
▪ Accounting for initial franchise fee and continuing franchise fee
• Financial Statement Presentation
o Contract assets, accounts receivable and contract liability
5. Home Office, Branch and Agency Transactions
• Transactions on the books of the home office and the branch
o General procedure
o Special procedure (inter-branch transfer of cash and merchandise at billed price)
• Reconciliation of reciprocal accounts
• Preparation of individual and combined financial statements
• Accounting for agency transactions: journal entries and computation of net income
6. Business Combination (PFRS 3)
• Nature, scope, and characteristics
• Acquisition of net assets vs. acquisition of stocks
• Statutory merger and consolidation/acquisition of assets and liabilities (acquisition method)
o Determination of consideration transferred
o Recognition of acquired assets and liabilities
o Recognition and measurement of goodwill and gain from a bargain purchase
o Journal entries
• Combined financial statement presentation
7. Separate Financial Statements (PAS 27)
• Accounting for Investment in Subsidiaries, Associates and Joint Ventures
o At cost
o At fair value in accordance with PFRS 9
o Equity method in accordance with PAS 28
• Accounting for dividends and related disclosure requirements
8. Consolidated Financial Statements (PFRS 10)
• Consolidation procedures
• Preparation of consolidated FS accounting for the following:
o Net income, dividends, amortization, and impairment of goodwill
o With intercompany transactions (inventories, land, and depreciable assets)
• Determination of consolidated/group:
o Net Income/ Other Comprehensive Income/ Equity
▪ Attributable to Equity Holders of Parent/ Controlling or Parent’s Interest
▪ Attributable to non-controlling Interest
o Retained Earnings/ Common Share / Dividends
o Noncontrolling interest
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AFAR KEY POINTERS
REO.CPA.ACADEMICS.F2.02.01
9. Derivatives and Hedge Accounting (PFRS 9)
• Accounting for Derivatives
o Types of Derivatives
▪ Forwards and Futures
▪ Options
▪ Swaps
o Initial recognition, subsequent measurement, and derecognition
• Hedging Activities: Hedging Foreign Currency Exposures
o Foreign Currency Forward Contracts
▪ Hedges that do not require hedge accounting (undesignated hedges)
➢ Exposed Asset (Import) or Liability (Export) Position
➢ Speculation
▪ Hedges that require hedge accounting:
➢ Fair value hedge
o Hedge of a firm commitment (purchase or sale transaction)
➢ Cash flow hedge
o Hedge of a firm commitment (purchase or sale transaction)
o Hedge of a forecasted transaction (purchase or sale transaction)
o Hedge of a net investment in foreign entity
• Basics of
o Different currencies: functional, presentation and foreign currency
o Quotation of currency: direct vs. indirect
o Monetary vs. nonmonetary classification
o Accounting for foreign currency denominated transactions
10. Translation of Foreign Currency Financial Statements (PAS 21/ PAS 29)
• Translation from the Functional Currency into the Presentation Currency (Closing/ Current Rate Method)
• Translation into the Functional Currency (Remeasurement from a Foreign Currency Financial Statements to the
Functional Currency)
• Restatement of Financial Statements (Functional Currency of a Hyperinflationary Economy)
11. Not-for-Profit Organizations
• Characteristics of not-for-profit organizations
• Financial statements of not-for-profit organizations
• Classification of contribution/donation – with and without donor-imposed restrictions
• Fund accounting
12. Government Accounting – General Fund
• Basic Concepts in Government Accounting
• Budget Process
• Government Accounting Manual (GAM)
o Accounting responsibility
o Financial statements
o Books of accounts and registries
• Journal Entries – Books of National Government Agency
13. Cost Accounting
• System of Cost Accumulation or Costing System
o Comparison between Actual Costing, Normal Costing and Standard Costing
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BAGAYAO, CRUZ, MARASIGAN, NGINA & TANG
AFAR KEY POINTERS
REO.CPA.ACADEMICS.F2.02.01
• Job-order Costing System
o Journal Entries
o Preparation of Statement of Goods Manufactured and Sold
o Accounting for scrap, waste, spoilage, and rework
o Cost Accumulation Procedures – materials, labor and overhead
• Process Costing System
o Journal Entries
o Preparation of Cost of Production Report
▪ First-in, first-out method
▪ Average method
o Accounting for Lost Units
▪ Normal lost units – end of process
▪ Abnormal lost units
o Cost accumulation procedures – materials, labor and overhead
• Backflush Costing System (JIT System)
o Journal Entries
o Cost accumulation procedures – materials, labor and overhead
• Activity-Based Costing System (ABC System)
o Allocation of Costs: Traditional Costing versus ABC System
o Determination of Total Product Cost: Traditional Costing versus ABC System
o Activity levels (unit-level, batch-level, product-level, and facility level), cost pools and activity drivers
o Determination of cost pool rates and application of overhead costs
• Accounting for Joint and By-Products
o Methods of allocating joint costs to products
▪ Market (sales) value approaches
➢ Market value at split-off point approach
➢ Hypothetical market value approach or Approximated net realizable value approach or Net realizable
value method
▪ Benefits-received approaches
➢ Average units (production output) method
➢ Weighted average method
o Methods of allocating joint costs to by-products
▪ No joint costs allocated to by-products
▪ With joint costs allocated to by-products
• Service Cost Allocation
o Direct method
o Step-down method
o Reciprocal method
14. Other Special Topics (Basic Knowledge)
• Accounting for insurance contracts by insurers (PFRS 17)
o Types of Insurance Contracts
o Changes in Accounting Policies
o Recognition and measurement of insurance and reinsurance contracts
• Service Concession Arrangement – Accounting for Build, Operate & Transfer (PFRIC 12)
o Two Types of Service Concession Arrangement
▪ Financial Asset
▪ Intangible Asset
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REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience
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(074) 665 6774 0916 840 0661
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