ACCOUNTING FOR TRANSACTIONS

CHAPTER 1: PARTNERSHIP FORMATION
– is unincorporated association of two

or more individuals to carry on, as co-owners, a
General Partnership – all partners are
business with the intentions of dividing the
individually liable
profits among themselves.
Limited Partnership - only one partner is
- Partnership owned by 2 or more
personally liable, include one general
persons and sole owned by only one
partner and other are limited partners. Limit
individual.
their liability up to the extent of their
- A partnership created by agreement of
contribution. It usually has LLP in its name.
parties while corporation formed by
operation of law. Advantage Disadvantage
- A partnership formed by a business Ease of Formation Limited life/ easily
undertaking, continually nature while dissolved
joint venture when its goals achieved. Shared of responsibility Unlimited liability
of running the business
CHARACTERISTICS OF PARTNERSHIP Greater capital Conflict among
1. Ease of Formation – requires less compared to sole partners
formality in formation Lack of regulation by Lesser capital
the government compared to corp.
2. Separate Legal Personality – has
Flexibility in decision Taxed like a corp.
juridical personality and can transact
making
with partnership name
3. Mutual Agency – all partners are agent
of the partnership, they may bind an MAJOR CONSIDERATIONS
agreement within the business’s
a. Formation – accounting for initial
operations
investments to the partnership
4. Co-ownership of Property – has an
b. Operations – Division of profits or losses
equal right to posses the partnership
c. Dissolution – admission of a new
property for partnership purposes.
partner’s and withdrawal, retirement or
5. Co-ownership of Profits – each partner
death of a partners
is entitled to his share in the
d. Liquidation – winding-up of affairs
partnership profit.
6. Limited Life – easily to dissolved
through the will of a partner, FORMATION
termination, unlawful act, and
insolvency. - Partnership is consensual and created
7. Transfer of Ownership –transferring by agreement (oral or written)
requires the approval of all parties - Article 1771 and 1772 partnership
8. Unlimited Liability- All partners are should be made in public instrument
liable in partnership liability. In case of and registered with SEC.
Insolvent partners, the solvent partner - Immovable property or real rights are
is the one who shoulders contributed (a) and signed by the
parties otherwise the partnership is
deemed void
- The partnership has a capital of 3,000 or d. When the contract price involves a fixed
more (b) price per unit of output, contract
revenue increases as the number of
CHAPTER 9: CONSTRUCTION CONTRACTS
units is increased.
CONSTRUCTION CONTRACT – as contract
Construction revenue may also include incentive
specifically negotiated for the construction of an
payments to the contractor for early completion
asset or a combination of assets that are closely
of the contract when the contract is sufficiently
interrelated or interdependent in terms of their
advanced that it is probable that the specified
design, technology or their ultimate purpose or
performance standards will be met or exceeds,
use.
contract revenue increases as the number of
Construction contract may be classified into: units is increased.
a. Fixed Price Contract – This is a CONTRACT COSTS – are costs that relate directly
construction in which the contractor to the specific contract, are attributable to
agrees to be a fixed contract price, or a contract activity in general and can be allocated
fixed rate per unit of output, which in to the contract; and are specifically chargeable
some cases is subject to cost escalation to the customer under the terms of the
clauses. contract. Examples of contract costs are:
b. Cost Plus Contract – This is a
a. Site labor costs, including site
construction contract in which the
supervision
contractor is reimbursed for allowance
b. Costs of materials used in construction
or otherwise defined costs, plus a
c. Depreciation of plant and equipment
percentage of these costs or a fixed fee.
used on the contract
CONTRACT REVENUE – revenue from long-term d. Costs of moving plant, equipment and
construction contracts is measured at the fair materials to and from the contract site.
value of the consideration received or e. Costs of hiring plant and equipment
receivable. This includes the initial amount of f. Costs of design and technical assistance
revenue agreed in the contract. The amount g. The estimated costs of rectification and
may increase or decrease from one period to guarantee work, including expected
the next. For example: warranty costs.
h. Claim from third parties
a. A contract and a customer may agree to i. Insurance
change the scope of the work to be j. Construction overheads
performed under the contract. Such as, k. General administrative costs and
changes in the specification design of development costs for which
the asset and changes in the duration of reimbursement is specified in the terms
the contract. of the contract.
b. The amount of revenue agreed may
increase as a result of cost scalation Types of Contract Costs
clauses.
Contract costs can be broken down into two
c. The amount of contract revenue may
categories: costs incurred to date and estimated
decrease as a result of penalties arising
costs to complete.
from delayed caused by the contract in
the completion of the contract, or
COST INCURRED TO DATE – These include Accounting for contract costs is similar to
precontract costs and costs incurred after accounting for inventory. Costs are incurred
contract acceptance. Pre contract cost are costs would be recorded in the Construction in
incurred before a contract has been entered Progress Account. Construction in Progress
into, with the expectation that the contract will Account would include both direct and indirect
be accepted and these costs will thereby be costs but would usually not include general and
recoverable through billings. The criteria for administrative expenses or selling expenses
recognition of such costs are: since they are not normally identifiable with a
particular contract and should therefore be
1. They are capable of being identified
expensed.
separately
2. They can be measured reliably
3. It is probable that the contract will be
obtained
PRECONTRACT COSTS – include costs of

architectural design, costs of securing the
contract, and any other costs that are expected
to be recovered if the contract is accepted.
Contract cost incurred after the acceptance of
the contract are costs incurred toward the
completion of the project and are also
capitalized in the Construction Progress (CIP)
Account. The contract does not have to be
identified before the capitalization; it is only
necessary that there be an expectation of the
recovery of the costs. Once the contract has
been accepted, the precontract costs become
contract costs incurred to date. However, if the
precontract costs are already recognized as an
expense in the period which they are incurred,
they are not included in contract costs when the
contract is obtained in a subsequent period.
ESTIMATED COSTS TO COMPLETE – These are

the anticipated cost of materials, labor,
subcontracting costs, and indirect costs
(overhead) required to complete a project at a
scheduled time. They are composed of the same
elements as the original total estimated
contract sold costs and would be based on
prices expected to be in effect when the costs
are incurred. The latest estimates should be
used to determine the progress toward
completion.

ACCOUNTING FOR TRANSACTIONS

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ACCOUNTING FOR TRANSACTIONS

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CHAPTER 1: PARTNERSHIP FORMATION

– is unincorporated association of two

PRECONTRACT COSTS – include costs of

ESTIMATED COSTS TO COMPLETE – These are

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