PFRS 1 Financial Statement

 First PFRS financial Statements are the first annual financial statements in which an entity
adopts PFRSs by an explicit and unreserved of compliance with PFRSs.
PFRS Financial statements include:
1. At least one-year comparative information.
2. An opening PFRS statement of financial position at the date of transition to PFRSs.

 The date to transition to PFRSs is the beginning of the earliest period for which an entity
presents full comparative information under PFRSs in its first PFRSs starts on this date.

 The first time adopter selects accounting policies from the latest versions of PFRSs and
applies them to all financial statements presented together with the first PFRS financial
statements.

PFRS 1 requires the retrospective application of the accounting policies chosen. However, PFRS
1 grants certain exemptions from retrospective application if;
a) The cost exceeds the benefits
b) Retrospective application requires management judgement about past conditions after the
outcome of a particular transaction is already known.

 Estimates as the date of transition under the previous GAAP are deemed consistent with
PFRSs, unless there are differences in accounting policies or errors. Changes in estimates
are accounted for prospectively as non-adjusting events after the reporting period.

 The first time adopter shall explain how the transition to PFRSs affected its financial
statements by providing reconciliations of equity and comprehensive income and providing
other disclosures that are relevant to users in understanding the impact of the PFRSs to the
entity’s financial Statement.
PFRS 2 Share Based Payment

 A share based payment transaction is either;

a) Equity settled
b) Cash-settled
c) Provide a choice of settlement between (a) and (b)

 A share based transaction with a non-employee is measured using the following order of
priority:

a) Fair value of the goods or services received

b) Fair value of the equity instrument granted

 A share based payment transaction with an employee or others providing similar services
is measured using the following oreder of priority:

a) Fair value of the equity instrument granted

b) Intrinsic Value

 Measurement date is the date at which the fair value of the equity instruments granted is
measured:

a) For transaction with non-employees, the measurement date is the date the goods or services
are obtained.
b) For transactions with employees and others providing similar services, the measurement
date is the grant date.

 The compensation expense on share based payment compensation plans (employees share
options and SARs) are recognize:

a) in full at grant date if they vest immediately; or

b) over the vesting period if there are vesting conditions.

 Share based payment transactions with a choice of settlement are accounted as follows:

a) Counterparty has the right of choice- the components of the compound instrument are
accounted for separately as equity-settled and cash-settled, respectively.
b) Entity has the right of choice- the transaction is accounted for as either equity settled or
cash-settled depending on whether the entity has a present obligation to pay cash.
 PFRS 3 Business Combinations

Introduction

A business combination occurs when one company acquires another or when two
or more companies merged into one. After the combination, one company gains control
over the other.

The company that obtains control over the other referred to as the parent or acquirer.
The other company that is controlled is the subsidiary or acquire.

PFRS 3 applies to business combinations. Its objective is to enhance the relevance,

reliability and comparability of an acquirer’s financial reporting by establishing the
recognition and measurement principles and disclosure requirements for a business
combination.

a) A business Combination is one which an acquirer obtain control of one or more business.

b) Control is presumed to exist when an investor holds more than 50% interest in the
acquiree’s voting rights.

c) Business combinations are accounted for using the acquisition method.

d) The acquirer (parent) is the entity that obtains control after the business combinations. The
controlled entity is the acquire (subsidiary).

e) The acquisition is the date on which the acquirer obtain control of the acquire (e.g., the
closing date).

Goodwill is computed using the following formula:

Consideration transferred xx
Non-controlling interest in the acquire xx
Previously held equity interest in the acquire xx
Total
Less: Fair value of net identifiable assets acquired (xx)
Goodwill / (gain on a bargain purchase) xx

f) A “gain on a bargain purchase” is recognized in profit or loss in the year of acquisition

only after reassessment of the assets acquired and liabilities assumed in the business
combination.

g) Only identifiable assts acquired are recognized. Unidentifiable assets are not recognized.

h) Acquisition-related cost are expensed, except costs of issuing equity and debt instruments.
Acquisition-related costs do not affect the measurement of goodwill.
 PFRS 5 Non-Current assets held for Sale and Discontinued Operations

Introduction

Assets classified as non-current in accordance with PAS 1 are classified as current

only if they meet the criteria to be classified as held for sale under PFRS 5.

PFRS 5 prescribed the accounting for assets held for sale including disposal groups,
and the presentation and disclosure of discontinued operations.

Non-Current Asset within the scope of PFRS 5:

a. Property, plant and equipment

b. Investment property measured under the cost method
c. Investment in associate, subsidiary, or joint venture
d. Intangible asset

Held for sale classification is permitted when the noncurrent asset or disposal group
is;
a. Available for immediate sale in its present condition
b. The sale is highly probable

 If the criteria for classification as held for sale are met after the authorized for issue, that
events is treated as a non-adjusting event after reporting period.

 Held for sale are not depreciated.

 Held for sale assets are measured at the lower of carrying amount and fair value less costs
to sell.

 Gains and losses on remeasurement of held for sale assets are recognized in profit or loss.

 Gains on impairment reversal is recognized only to the extent of cumulative impairment

losses previously recognized.

 A disposal group may qualify as discontinued operation if it is a component of an entity

and meets the other requirements under PFRS 5.

 The results of discontinued operations are presented separately in the statement of

comprehensive income as a post-tax single amount.

 The assets and liabilities of a disposal group are presented separately on the face of the
statement of financial position. Offseting is prohibited.
PFRS 6 Exploration for and Evaluation of Mineral Resources

Introduction

PFRS 6 applies to expenditures incurred after the entity has obtained legal rights to explore
in a specific area (it is illegal to explore for mineral resources without obtaining first an
authorization from the government) but before the existence of miniral reserves is in fact
established and the technical feasibility and commercial viability of extracting mineral resources
are demonstrable. Expenditures incurred after technical feasibility and commercial viability are
demonstrable are called development costs.

 PFRS 6 permits entities to develop their own results in relevant and reliable information
based entirely on management’s judgement and need to consider the hierarchy of
standards in PAS 8.

 An entity may recognized exploration and evaluation as expense or assets depending on

its chosen accounting policy.

 Exploration and Evaluation assets are initially measured at cost.

 Exploration and Evaluation assets are subsequently measured using either the cost model
or the revaluation model.

 An entity may change its accounting policy for exploration and evaluation expenditures
if the change results in more relevant and no less reliable and no less relevant,
information. The entity judges relevance and reliability using the criteria in PAS 8.

 Exploration and Evaluation assets are treated as a separate class of asset and classified as
tangible depending on the nature of the assets.

 When the technical feasibility and commercial viability of extracting a mineral resource
are demonstrable, the exploration and evaluation assets are reclassified in accordance with
other relevant standards.

 Exploration and evaluation are assessed for impairment when indication exist that their
carrying amount exceeds recoverable amount.
 PFRS 7 Financial Instruments: Disclosures

Introduction

PFRS 7 prescribes the disclosure requirements for financial instruments. The

disclosures are broadly classified into the following categories:

a. Significance of financial instruments to the entity’s financial position and

performance.
b. The nature and extent of risks arising from financial instruments to which the
entity is exposed, and how the entity manages those risks.

 If an entity designates a financial asset to be measured at FVPL, it shall disclose the

financial assets exposure to credit risks and the change in fair value attributable to changes
in credit risks.

 If an entity designates a financial liability to be measured at FVPL, it shall disclose the

change in fair value that is attributable to credit risk.

 If an entity elected to measure investments in equity securities at FVOCI, it shall disclose

those investments, the reason for the election, any dividends recognized during the period,
and any transfers of cumulative gain or loss within equity.

 If an entity reclassified financial assets, it shall disclose the date of reclassification, an

explanation of the change in business model, and the amount between categories.

 If an entity has offset financial assets and financial liabilities, shall disclose the gross
amount of those assets and liabilities, the amount that were set off, the net amount presented
in the statement of financial position.

 An entity shall disclose the carrying amounts of financial asset pledged as collateral for
liabilities, including the terms and condition of the pledge.

 The carrying amount of financial asset that is mandatorily measured at FVOCI is not
reduced by a loss allowance. However, the loss allowance is disclosed on the notes.

 The entity shall disclose any defaults and breaches relating to loans payable, including the
carrying amount of those loans payable, the principal, interest, sinking fund or redemption
terms.

 PFRS 7 requires the disclosure of the following risks:

1. Credit risk
2. Liquidity risk
3. Market risk
4. Other price risk
PFRS 8 Operating Segments
Introduction
The business environment is constantly changing – the needs of need of consumers change,
business regulations change, the demand for products and services, and consequently the supply
thereof, may decline or end. Entities need to adapt to these changes in order to stay in business.
 PFRS 8 uses a “management approach” to identifying reportable segments.

 A reportable Operating segment is one which management uses in making

decisions about operating matters or results from the aggregation of two or more
segments and qualifies under any of the quantitative threshold.

The quantitative threshold are:

a) At least 10% of total revenues (external and internal).

b) At least 10% of the higher of total profits of segments with profits and total
losses of segments with losses.
c) At least 10% of total assets (inclusive of intersegments receivables).

 The total external revenues of reportable segments should be at least 75% of the
total external revenue. If the 75% limit is not met, additional segments are
included as reportable segments, even if they do not meet the quantitative
threshold, until the 75% limit is met.

 Disclosures for major consumer are required if revenues from a single external
customer amount to 10% or more of the entity’s external revenues.
PFRS 9 Financial Instruments

Introduction
PFRS 9 applies to all financial instruments except those that are dealt with under other
standards, such as interests in subsidiaries, associates and joint ventures (PAS 28), those arising
from employee benefit plans (PAS 9) , leases and share based payment transactions (PFRS 2),
those that are required to be classified equity instruments (PAS 32), and those arising from
contracts with customers that are specifically accounted for under PFRS 15 Revenue from
contracts with Customers).

 Financial assets are classified on the basis of both;

a) The entity’s business model for managing the financial assets.

b) The contractual cash flow characteristics of the financial asset.

 The classifications of financial asset are;

a) Fair Value through Profit/Loss

b) Fair Value through Other Comprehensive Income (election)
c) Fair Value through Other Comprehensive Income (mandatory)
d) Amortized cost

 A financial asset is classified as;

a) Amortized cost if it is held under a “hold to collect” business model and qualifies
under the “SPPI” test.
b) FVOCI (mandatory) if it is held under a “hold to collect and sell’ business model
and qualifies under the “SPPI” test.
c) FVPL for all other financial assets.

 Exceptions;
1. Option to designate financial assets to be measured at FVPL if doing so
significantly reduces or eliminates “accounting mismatch”.
2. Election to measure investment in equity securities that are not held for trading at
FVOCI.

 Reclassification date is the first day of the first reporting period following the change in
business model.

 Only debt type financial assets can be reclassified. Equity instruments cannot be
reclassified,

 The impairment requirements of PFRS 9 apply only to financial assets measured at

amortized cost of FVOCI (mandatory), i.e., debt type financial asset only.

 Financial liabilities are generally classified to be subsequently measured at amortized

cost.

 Reclassification of financial liabilities is prohibited.

PFRS 10 Consolidated Financial Statements

PFRS 10 prescribes the principles for the preparation and presentartion of consolidated
financial statements.

 Consolidated Financial Statements- “the financial statements of a group in which

the assets, liabilities, equity, income, expenses and cash flows of the parent and its
subsidiaries are presented as those of as single economic entity.”

 Group- “ a parent and its subsidiaries.”

 Parent- “ an entity that controls one or more entities.”

 Subsidiary- “an entity that is controlled by another entity.”

 A parent entity is required to consolidate its subsidiaries except when;

a. The parent is also a subsidiary and its owners do not object to non-
presentation of consolidated financial statements.
b. The parent is not publicly listed or in the process of enlisting.
c. The parent’s parent produces consolidated PFRS Financial Statements.

 The basis for consolidation is control. Consolidation begins when control is

obtained and ceases when control is lost.

 Control has the following elements;

a. Power
b. Exposure, or rights to variable returns
c. Ability to affect returns

 Consolidated Financial statements are prepared using uniform accounting

policies.

 NCI in the subsidiary’s net assets is presented within equity but separate from
the equity of the owners of the parent.

 Consolidation involves; eliminating the investment in subsidiary account,

measuring the subsidiary’s assets and liabilities at their acquisition date fair
values, recognizing goodwill, replacing the subsidiary’s pre-combination equity
accounts with NCI in net assets and adding, line by line, similar items of assets
and liabilities of the parent and subsidiary.

 Profit or loss and comprehensive income are attributed to the;

a. Owners of the parent

b. NCI