ABSTRACT

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS GUIDE---It is a

booklet that will help students to easily understand the Philippine
Accounting Standards and Philippine Financial Reporting Standards.

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

SUBMITTED BY: REX MARTIN B. GUCE/BSA12KB1
SUBMITTED TO: FERLIN GATAN CPA, MBA

CFAS GUIDE
SY 2018-2019
 TABLE OF CONTENTS NO. TOPIC ISSUE PAGE NO.
DATE
COVER PAGE i IAS Related Party Disclosures 2009* 37
24
TABLE OF CONTENTS 1 IAS Accounting for Investments
DEDICATION 2 25 Superseded by IAS 39 and IAS 40 effective 2001
IAS Accounting and Reporting by Retirement Benefit Plans 1987
NO. TOPIC ISSUE PAGE NO. 26
DATE IAS Separate Financial Statements (2011) 2011
THE ACCOUNTANCY PROFESSION 3 27
THE CONCEPTUAL FRAMEWORK 10 IAS Consolidated and Separate Financial Statements 2003
27 Superseded by IFRS 10, IFRS 12 and IAS 27 (2011) effective 1
PHILIPPINE ACCOUNTING STANDARDS January 2013
IAS 1 Presentation of Financial Statements 2007* 16 IAS Investments in Associates and Joint Ventures (2011) 2011 39
IAS 2 Inventories 2005* 19 28
IAS 3 Consolidated Financial Statements 1976 IAS Investments in Associates 2003 39
Superseded in 1989 by IAS 27 and IAS 28 28 Superseded by IAS 28 (2011) and IFRS 12 effective 1 January 2013
IAS 4 Depreciation Accounting IAS Financial Reporting in Hyperinflationary Economies 1989 41
Withdrawn in 1999 29
IAS 5 Information to Be Disclosed in Financial Statements 1976 IAS Disclosures in the Financial Statements of Banks and Similar 1990
Superseded by IAS 1 effective 1 July 1998 30 Financial Institutions
IAS 6 Accounting Responses to Changing Prices Superseded by IFRS 7 effective 1 January 2007
Superseded by IAS 15, which was withdrawn December 2003 IAS Interests in Joint Ventures 2003*
IAS 7 Statement of Cash Flows 1992 21 31 Superseded by IFRS 11 and IFRS 12 effective 1 January 2013
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 2003 23 IAS Financial Instruments: Presentation 2003* 43
IAS 9 Accounting for Research and Development Activities 32
Superseded by IAS 38 effective 1 July 1999 IAS Earnings Per Share 2003* 45
IAS Events After the Reporting Period 2003 25 33
10 IAS Interim Financial Reporting 1998 47
IAS Construction Contracts 1993 34
11 Will be superseded by IFRS 15 as of 1 January 2017 IAS Discontinuing Operations 1998
IAS Income Taxes 1996* 25 35 Superseded by IFRS 5 effective 1 January 2005
12 IAS Impairment of Assets 2004* 49
IAS Presentation of Current Assets and Current Liabilities 36
13 Superseded by IAS 1 effective 1 July 1998 IAS Provisions, Contingent Liabilities and Contingent Assets 1998 51
IAS Segment Reporting 1997 37
14 Superseded by IFRS 8 effective 1 January 2009 IAS Intangible Assets 2004* 52
IAS Information Reflecting the Effects of Changing Prices 2003 38
15 Withdrawn December 2003 IAS Financial Instruments: Recognition and Measurement 2003*
IAS Property, Plant and Equipment 2003* 27 39 Superseded by IFRS 9 where IFRS 9 is applied
16 IAS Investment Property 2003* 54
IAS Leases 2003* 40
17 IAS Agriculture 2001 55
IAS Revenue 1993* 41
18 Will be superseded by IFRS 15 as of 1 January 2017
IAS Employee Benefits (1998) 1998
19 Superseded by IAS 19 (2011) effective 1 January 2013 PHILIPPINE FINANCIAL REPORTING STANDARDS
IAS Employee Benefits (2011) 2011* 29
Title  Date Effective PAGE NO.
19
issued  Date 
IAS Accounting for Government Grants and Disclosure of Government As- 1983 31
IFRS 1 — First-time Adoption of International Financial Reporting 24 Nov 01 Jul 2009 56
20 sistance
Standards 2008
IAS The Effects of Changes in Foreign Exchange Rates 2003* 33
21 IFRS 2 — Share-based Payment 19 Feb 01 Jan 2005 57
IAS Business Combinations 1998* 2004
22 Superseded by IFRS 3 effective 31 March 2004 IFRS 3 — Business Combinations 10 Jan 01 Jul 2009
IAS Borrowing Costs 2007* 35 2008
23 IFRS 4 — Insurance Contracts 31 Mar 01 Jan 2005
2004

2
 Title Date Effective PAGE NO.
issued Date
IFRS 5 — Non-current Assets Held for Sale and Discontinued Opera- 31 Mar 01 Jan 2005 58
tions 2004
IFRS 6 — Exploration for and Evaluation of Mineral Resources 09 Dec
2004
01 Jan 2006 59
Acknowledgement and Dedication
IFRS 7 — Financial Instruments: Disclosures 18 Aug 01 Jan 2007
2005
IFRS 8 — Operating Segments 30 Nov 01 Jan 2009 60
2006
IFRS 9 — Financial Instruments
IFRS 10 — Consolidated Financial Statements
24 Jul 2014
12 May
01 Jan 2018
01 Jan 2013
62
This humble piece of work would not be possible
IFRS 11 — Joint Arrangements
2011
12 May 01 Jan 2013 63 without the help of those persons who motivates the
author through his entire journey.
2011
IFRS 12 — Disclosure of Interests in Other Entities 12 May 01 Jan 2013 65
2011
IFRS 13 — Fair Value Measurement 12 May 01 Jan 2013 68

IFRS 14 — Regulatory Deferral Accounts

2011
30 Jan 01 Jan 2016 70
Furthermore, I want to dedicate this to the following:
2014
IFRS 15 — Revenue from Contracts with Customers 28 May 01 Jan 2018 71
2014
IFRS 16 — Leases 13 Jan 01 Jan 2019 73

IFRS 17 — Insurance Contracts

2016
18 May 01 Jan 2021 To my loving parents…
2017
IFRIC INTERPRETATIONS 74
To my siblings….
To my colleagues….
To my Professors….
Lastly to Our Almighty Father….

“MOVE FORWARD”
RMG-07

3
THE ACCOUNTING PROFESSION Components of Accounting

IDENTIFYING
Part 1
 Analyzing by recognition and non-recognition of business activities
NATURE as accountable events.

_________________________________________________ Two types of Events

The Accounting function is to provide quantitative information, primarily EXTERNAL EVENTS – events that involve an entity and another
financial in nature, about economic entities, that is intended to be useful in
making economic decision EXCHANGE IN NON RECIPROCAL OTHER TRANSFER
RECIPROCAL TRANSFER
(Accounting Standard Council) TRANSFER

Accounting is the art of recording, classifying and summarizing in a Giving and receiving One way transaction Changes in economic
significant manner and in terms of money, transactions and events which of economic resources or
are in part at least of financial character and interpreting the results resources obligations of an
thereof. entity
(American Institute of Certified Public Accountants) Discharging Party giving Cause by external
Accounting is the process of identifying measuring and communicating Economic Obligations something does not party or source but
economic information to permit informed judgment and decision by users receive anything does not involve
else transfer of resources
of the information
and obligations
(American Accounting Association)

______________________________________________________________

Important Points in definition:

Accounting is: EXAMPLES:

Purchases of goods Taxes, Distribution Changes in FV
 Quantitative information
of Profits
 Financial in nature Payment of Liabilities Donation, gifts, theft Obsolescence
 Useful in decision making
INTERNAL EVENTS - events that do not involve an external party. It’s the
entity only.

PRODUCTION CASUALTY
4
 Process of transformation to Sudden anticipated loss from fire Not for profit entity – whose activities are not for profit but for the good of
products flood or earthquake the society as a whole.

Business entity – primarily operates for profit.

MEASURING
 The process of assigning of peso amounts to the accountable
events.
 Expressed in terms of a common financial denominator
 Historical Cost, Present Value, Current cost, Fair Value
 Historical cost is the most common measure of transactions
COMMUNICATING
 Preparing and
 Distributing accounting reports to potential users of accounting
information.
Implicit to the communication process:
1. Recording – Journalizing (Journal Entry)
2. Classifying – Posting in the Ledger (sorting)
3. Summarizing – Preparation of Financial Statements and Reports
ACCOUNTING
AS AN INFORMATION SYSTEM
 Measures business activities
 Processes information to reports
 Communicates the reports to decision makers.
 Key product of information system is the set of financial
statements
*Financial reports tells the financial performance and condition of an entity.
______________________________________________________________
Classification of accounting information as to user’s
needs
General Purpose
 Meet the common needs of most statement users.
 Info is provided under financial accounting
 Governed by GAAP represented by the PFRS.

______________________________________________________________ Special Purpose

Overall objective of accounting  Designed to meet the specific needs of particular statement
users.
 Supply financial information
 Info is provided by other types of accounting ex. Tax accounting
 That would aid statement users to make informed judgment
and Managerial Accounting
and better decisions
 Essence of accounting is “decision usefulness”

THE ACCOUNTING PROFESSION

Types of economic entities
Part 2
5
 NATURE  Refers to the profession or practice of accounting
 Broad Classification:
_________________________________________________ Public Practice – does not involve an employer
Private Practice – accountant is an employee
ACCOUNTING CONCEPTS
BOARD OF ACCOUNTANCY
 Principles upon which the process of accounting is based. Used
interchangeable with the following terms:  Body authorized by Law to promulgate rules and regulations
affecting the practice of Accountancy profession in the Philippines.
ACCOUNTING ASSUMPTIONS
 Body responsible for preparing and grading the CPA Licensure
 Fundamental concepts or principles that provide the foundation of
Examination which is a computerized examination offered twice a
accounting process
year (May & Oct.) all over the country.
ACCOUNTING THEORY
PRACTICE OF PUBLIC ACCOUNTANCY
 Logical reasoning in the form of a set of broad principles.
 Registered CPAs’ in the Philippines
 Organized set of concepts and related principles that guide the
 With a Certificate of Accreditation from BOA and approved by PRC
accountant’s actions in IMC accounting information.
that the registrant has a minimum gainful experience of 3 years in
 Comprises the Conceptual Framework and the Phil. Financial
any area of public practice including taxation.
Reporting Standards (PFRS)
 Accreditation is valid for 3 years and renewable every 3 years upon
______________________________________________________________ payment of required fees.

THE ACCOUNTING PROFESSION CPA’S generally practice their profession in three main areas:

 R.A. 9298 – law regulating the practice of Accountancy known as the  Public accounting
“Philippine Accountancy Act of 2004”  Private accounting
 Status equivalent to law or medicine  Government Accounting

QUALIFICATIONS ______________________________________________________________
TO PRACTICE ACCOUNTANCY

 Graduate of Bachelor of Science in Accountancy

SECTORS IN THE PRACTICE OF ACCOUNTANCY
 Passed the CPA Licensure Examination given by the Board of
PUBLIC ACCOUNTANCY
Accountancy
 Rendering of audit, taxation, management accounting services to
more than one (1) client for a fee basis.
ACCOUNTANCY
PRIVATE ACCOUNTING
6
  Is to assist management in planning and controlling the entity’s  services to clients with regards to many other phases of business
operation. conduct and operations
 Controller is the highest position
COST ACCOUNTING
COMMERCE OR INDUSTRY
 systematic recording and analysis of the cost of materials, labor
 Employment in the private sector requiring positions for CPAs in and overhead incident to production
various capacities.
AUDITING
EDUCATION OR ACADEME
 process of evaluating the financial statements based on established
 employment in an educational institution which involves teaching of criteria and expressing an opinion thereof
accounting, auditing, business law and other technically related
TAX ACCOUNTING
subjects
 Preparation of tax returns and rendering of tax advice and
GOVERNMENT
determination of tax consequences.
 Analyzing, classifying and summarizing receipts and disposition of
GOVERNMENT ACCOUNTING
gov’t funds and property.
 Employment in the government to a position in an accounting  accounting for government and its instrumentalities for the custody
professional group where eligibility as a CPA is required. and administration of public funds
______________________________________________________________ FIDUCIARY ACCOUNTING
BRANCHES OF ACCOUNTING  Handling of accounts managed by a person entrusted with the
custody and management of property for the benefit of another.
FINANCIAL ACCOUNTING
ESTATE ACCOUNTING
 Focus is on the preparation of General purpose financial statements
that cater to the needs of External users –users who have interest  Handling of accounts for fiduciaries who wind up the affairs of a
on the company but do not have authority to demand reports deceased person.
tailored to their needs.
 Governed by PFRS SOCIAL RESPONSIBILITY ACCOUNTING

MANAGEMENT ACCOUTING  process of communicating the social and environmental effects of

an entity’s economic actions to the society
 Focus is on the preparation of financial reports that cater to the
INSTITUTIONAL ACCOUNTING
needs of internal users or management.

“Management Advisory Services”  accounting for non-profit entities other than the government

7
ACCOUNTING SYSTEM Ceases when the FS has been Begins when the work of an
made accountant ends
 Installation of accounting procedures for the accumulation of
financial data and designing of accounting forms to be used in data Auditor – one who ascertain if
gathering. the FS are in conformity to GAAP
ACCOUNTING RESEARCH

 Pertains to the careful analysis of economic events and other Accounting Bookkeeping
variables to understand their impact on decisions. Conceptual concern to the Procedural, concerned on
reason or justification for an maintenance of accounting
______________________________________________________________ action adopted records
CONTINUING PROFESSIONAL DEVELOPMENT (CPD) Why? The how of accounting
 R.A. 10912 – law mandating the CPD program for all regulated
professions
Accounting Accountancy
 Promulgated by the BOA, subject to the approval of PRC and Particular field of accountancy Profession of accounting
accredited organization for CPAs’ or educational institutions. such as public accounting and practice
such
 It raises and enhances the technical skill of the CPA

 Inculcation and acquisition of knowledge

Financial Accounting Managerial Accounting
 CPD credit units requirements ( 3 years)
Focus on general purpose Accumulation and preparation
2017 80 credit units reports of financial reports
2018 100 credit units
External and internal user Internal use only
2019 120 credit units
______________________________________________________________
 Mandatory for CPAs’ since it is a requirement for license renewal*
and accreditation to practice accountancy.
Generally Accepted Accounting Principles
*(excluding CPAs’ 65 years old and up)
 Represents the accounting rules, procedures, practice and
Accounting Auditing standards followed in the preparation and presentation of
Constructive Analytical financial statements.
 represented by the Philippine Financial Reporting Standards (PFRS)

8
PFRS (PHILIPPINE FINANCIAL REPORTING STANDARD) PHIL. INTERPRETATIONS COMMITTEE

 Standards and interpretations adopted by the Financial Reporting
Standards Council (FRSC). Comprised of:
 PFRS*
 Philippine Accounting Standards (PAS)
 Interpretations
*accompanied by a guidance which states if a requirement is an
BOARD OF ACCOUNTANCY (BOA)
“integral part” (mandatory)
ACCOUNTING STANDARDS
 Purpose: Identify proper accounting practices for the preparation
and presentation of financial statements regarding measurement of
Assets and Liabilities
 To ensure comparability and uniformity in the presentation of
financial statements based on the same financial information.
PROFESSIONAL REGULATIONS COMMISSION (PRC)
______________________________________________________________
ACCOUNTING STANDARD SETTING BODIES
 Committee formed by the FRSC replacing the Interpretations
Committee formed by the ASC)
 Role is to review the interpretations of the International Financial
Interpretations Committee (IFRIC) for approval and adoption by the
FRSC
 Professional regulatory board created under RA 9298 to supervise
the registration and licensure Practice of accountancy in the Phils.
 Consists of a Chairperson and 6 members appointed by the
President of the Philippines.
 The Board shall elect among its members a Vice-Chairman for a
term of 1 year.
 Government body in charge of regulating and licensing the practice
of professions.

FINANCIAL REPORTING STANDARDS COUNCIL SECURITIES AND EXCHANGE COMM. (SEC)

 Official accounting standard setting body in the Philippines created  Government agency tasked in regulating corporations, partnerships,
under the Philippine Accountancy Act of 2004 or (RA 9298) capital and investment markets and the investing public.
 replaced the Accounting Standards Council (ASC)
 SEC rulings affect the accounting requirements of entities and the
 Composed of 15 members with a Chairman who acted as the senior
adoption and application of accounting policies
AREAS NUMBERS OF REP. BU. OF INTERNAL REVENUE (BIR)
BOA 1
SEC 1  Administers the provisions of the Internal Revenue Code
BSP 1  Influence at times the choice of accounting methods and
BIR 1
procedures
COA 1
FINEX 1 BANGKO SENTRAL NG PILIPINAS (BSP)
PUBLIC PRACTICE 2
COMMERCE AND INDUSTRY 2  Influences the selection and application of accounting policies by
ACADEME 2 banks and other entities performing banking functions
GOVERNMENT 2 9
TOTAL 14
  prepares interpretations of how specific issues should be accounted
for under the application of the IFRS
COOPERATIVE DEVELOPMENT AUTHORITY

 Influences the selection and application of accounting policies by

Cooperatives

______________________________________________________________

INTERNATIONAL SETTING BODIES

IASB (INTERNATIONAL ACCOUNTING STANDARDS BOARD)

 The standard-setting body of the IFRS Foundation with the main

objective of developing and promoting global accounting standards.
Based in London.

 It was renamed International Financial reporting Standards

Foundation or IFRS Foundation.

STANDARDS ISSUED BY THE IASB

 International Financial Reporting Standards composed of: IFRS, IAS,

Interpretations

______________________________________________________________

PHIL. FINANCIAL REPORTING STANDARDS COUNCIL

The FRSC issues standards in a series of pronouncements called PFRS.

The PFRS collectively includes the ff.:

 PFRS which corresponds to the IFRS (numbered the same)

 PAS which corresponds to the IAS (numbered the same)

Conceptual Framework
 Phil. Interpretations which corresponds to the interpretations of the
IFRIC and the SIC NATURE
INTERNATIONAL FINANCIAL REPORTING INTERPRETATIONS COMMITTEE
_________________________________________________
(IFRIC)

10
Conceptual Framework
 Summary of the terms and concepts that underlie the preparation
and presentation of financial statements for external users.
 promulgated by the IASB
 theoretical foundation for accounting
 Concerned with general purpose financial statements (excluding
special financial reports)
 The standards or interpretation overrides the Conceptual
Framework.
 The CF does not define any standard for any particular
measurement or disclosure issue.
 If there is a conflict between the CF and the PFRS, the PFRS will
prevail
 In the absence of a PFRS, management shall consider the
application of the CF

______________________________________________________________
Purposes of Conceptual Framework
Users of Financial Information
 assist FRSC in developing accounting standards and reviewing Primary Users
existing accounting standards
 Parties to whom the general financial reports are primarily directed
 assists preparers of FS in applying accounting standards and
dealing with issues not yet covered by GAAP Other users

 assist FRSC in the review and adoption of IFRS  Other than the existing and potential investors, lenders and
creditors
 Assist users of FS in interpreting the info in the FS

 assist auditors in forming an opinion as to whether FS conforms PRIMARY USERS

with GAAP
Existing and Potential Investors
 provide information to those interested in the work of FRSC in the
formulation of the PFRS  concerned with the risk and the return provided by their investment
 help them determine whether they should buy, hold or sell their
______________________________________________________________ shares
 help them asses the ability of the entity to pay dividends

Authoritative Status of the

Conceptual framework

 The CF is not a PFRS Lenders and Other Creditors

11
  enables them to determine whether their loans and interest and a. Objective of Financial Reporting
other amounts owing to them will be paid when due
b. Qualitative Characteristics

c. Definition, Recognition and Measurement of the elements

OTHER USERS
d. Concepts of capital and capital maintenance
Employees

 enables them to assess the ability of the entity to provide

OBJECTIVE OF FINANCIAL REPORTING
 remuneration
OVERALL OBJECTIVE:
 retirement benefits and
To provide financial information about the reporting entity that is useful to:
 employment opportunities
 Existing and potential investors, lenders and other creditors in
CUSTOMERS making decisions about providing resources to the entity

 Interested on the continuity of the entity wherein they have loyalty SPECIFIC OBJECTIVE:
and dependence.
 to provide information that is
GOVERNMENT AGENCIES
 That is useful in making economic decisions about providing
 interested in the activities of the entity for resources to the entity (buy, sell or hold investments; provide or
settle loans)
 regulation
 That is useful in assessing the cash flow prospects of the entity
 taxation (returns; principal and interest payments)
 National income and similar statistics  About entity economic resources, claims and changes in resources
PUBLIC and claims. (financial position)

 Entities provide jobs and local supplier patronage ______________________________________________________________

 Provide information about the trend and range of their activities FINANCIAL POSITION OF AN ENTITY
______________________________________________________________  Economic resources – Assets

 Claims – Liabilities and Equity

SCOPE OF CONCEPTUAL FRAMEWORK  Liabilities –obligation s of the entity to :
(OQDRMC)

12
 Lenders, creditors, investors ACCRUAL ACCOUNTING

 Equity- claims of the owners after satisfying the liabilities  Income is recognized when earned regardless when received, and
expense is recognized when it is incurred
*It shows information about the liquidity, solvency and need for additional
financing. ______________________________________________________________

 Liquidity – availability of cash to cover currently maturing LIMITATIONS OF

obligations FINANCIAL REPORTING

 Solvency – availability of cash to meet long term obligations when Gen. Purpose Financial reports
they fall due represented by the Statement of Financial Position
 Cannot provide all the information needed by its primary users
(Balance Sheet)
 Not designed to show the true value of the entity (only estimated
FINANCIAL PERFORMANCE
value)
 Changes in resources and claims
 Provides common information to users ( cannot accommodate
Composed of: request for information)

a. Revenues  Based on estimate and judgment rather exact depiction.

b. Expenses ______________________________________________________________

c. Net Income or Loss ACCOUNTING ASSUMPTIONS

- Level of income earned by the entity through the efficient and  Basic notions or fundamental premises where the accounting
effective used of its resources. process is based (foundation)

-also known as the results of its operation  Also called postulates

-represented by the Statement of Financial Performance (Income GOING CONCERN ASSUMPTION

statement) or the Statement of Comprehensive Income.
______________________________________________________________
USEFULNESS OF THE FIANANCIAL PERFORMANCE
 Past Financial performance helps in predicting future returns on the
entity’s economic resources
 Financial Performance for the period helps to assess the ability of
the entity to generate future cash inflow from operations ACCOUNTING ENTITY ASSUMPTIONS
 that the entity will continue in operation indefinitely
 assets are normally recorded at cost ( as a rule: market values are
ignored)
 This rule is abandoned if the entity has to be terminated due to
large and pertinent loses.
 The only assumption explicitly mentioned in the Conceptual
Framework
13
  that the entity is separate from its owners
 Personal transactions are not merged with business transactions
 Business is an independent accounting entity

Specific business organization

 Single proprietorship

 Partnership

 Corporation

TIME PERIOD ASSUMPTIONS

 The entity is subdivided into accounting periods which are usually

equal in length for the purpose of preparing financial reports on
financial position, performance and cash flow
 Accounting period or fiscal period – period of 12 months
 Calendar year –ends in Dec. 31
 Natural business year –ends at any month when the business is at
its lowest or slack season

MONETARY UNIT ASSUMPTIONS

 Quantifiability - Assets , Liabilities, Equity and income should be

stated in terms of a unit of measure (Peso)

 Stability of the peso- purchasing power of the peso is stable or

constant.( instability is insignificant and maybe ignored)

 However, if there is significant gap between historical and current

replacement cost. Entity may choose the revaluation model as an
accounting policy. CONCEPTUAL FRAMEWORK (QUALITATIVE
CHARACTERISTICS)

NATURE
14
_________________________________________________  size or amount of the item (threshold)
 nature of the item
Qualitative Characteristics  structure of the business
 are the qualities or attributes that make financial accounting FAITHFUL REPRESENTATION
information useful to users
 Financial reports must depict what really happened during the year.
 objective is to ensure that the information is useful to the users in
making economic decisions  Characteristics:

FUNDAMENTAL QUALITATIVE ENHANCING QUALITATIVE CHARACTERISTICS DEFINITION

CHARACTERISTICS CHARACETRISTICS Completeness All information must have been
taken into account so as not to be
Relevance Comparability misleading. (DISCLOSURE)
Faithful representation Understandability Neutrality Principle of fairness” Information
should be useful to all users. It is
Verifiability free from bias.
Timeliness
Free from error No errors or omissions in the
description.
RELEVANCE

 Capacity of the information to influence a user to make a

meaningful decision. It must reflect: SUBSTANCE OVER FORM
Confirmatory value (feedback value) confirms or corrects previous  Substance or economic reality should always prevail over legal form.
predictions (shows past performance of the business)
PRUDENCE
Predictive value – forecast outcome of events (what might happen in the
future)  Accountant should exercise caution when using estimates or
information marked with uncertainty
MATERIALITY
 No overstatement of assets /revenues
 Also known as the “Doctrine of Convenience.”
 No understatement of liabilities/expenses
 Information is material if its omission or misstatement could
influence the economic decision of the user.

 Materiality is a matter of professional judgment based on the ENHANCING QUALITATIVE CHARACTERISTICS

following Factors:  Relates to the presentation or form of the financial information

15
  Intended to increase the usefulness of the financial information that
is relevant and faithfully represented.

CHARACTERISTICS DEFINITION
COMPARABILITY Enables users to understand
similarities between one information
to another information.

UNDERSTANDABILITY Financial information must be

comprehensible to be useful
 Terminologies must be clear
 Presentation of the reports
must be orderly
Users must have reasonable
knowledge of business and economic
activities to come up with a good
judgment
VERIFIABILITY The financial information is supported
by evidence such as invoices or
receipts to show that the transaction
really transpired.

TIMELINESS Information is available within the

period of time that it is needed to
form judgment or decisions so as not
to lose its usefulness.

Cost Constraint

 The benefit derived from the information should exceed the cost
incurred in obtaining the information.

16
PAS 1 ELEMENTS OF FINANCIAL
STATEMENTS ASSET

NATURE  Resource controlled by the entity

 Result of a past event
______________________________________________________________  From which future economic benefits are expected to flow.
Conditions for recognition
FINANCIAL STATEMENTS
 Probable flow of future economic benefits (more likely to happen
 Portray the financial effects of transactions and other events by
than not)
grouping them into broad classes according to their economic
 Cost or value can be measured reliably
characteristics referred to as the Elements of FS.
Future economic benefit
CLASSIFICATIONS OF THE ELEMENTS
 Refers to the potential to contribute directly or indirectly to the flow
SFP Asset
of cash and cash equivalents
Liability
Equity Cost principle
INCOME STATEMENT Income
Expenses  Assets should be recorded initially at original cost.

______________________________________________________________ DETERMINATION OF COST OF AN ASSET

RECOGNITION Cash transaction – cash payment
 Means the reporting of an asset, liability, income and expenses on Exchange transaction:
the face of the Financial Statements of an entity
 Fair value of asset given or
MAIN RECOGNITION PRINCIPLES
 Fair value of the asset received
a. Asset recognition principles
 Carrying amount of the asset given (in the absence of a fair value)
b. Liability recognition principle
______________________________________________________________
c. Income recognition principle
LIABILITY
d. Expense recognition principle
 Present obligation arising from a past event

17
  The settlement of which is expected to result in an outflow of GAINS other items that meet the
resources embodying economic benefits from the entity definition of income but do not
arise in the regular ordinary
2 Conditions for the Recognition of the Liability course of business
 Probability of an outflow for the settlement

 Amount of obligation can be measured

Condition for the recognition of an income
Legal Legally enforceable as a consequence
of a binding contract. a) Probable that future economic benefits will flow to the entity as a result
of:
Constructive Arise from normal business practice, -an increase in an asset or
custom or desire to maintain good
business relations or act in an -a decrease in liability
equitable manner.
b) Economic benefits can be measured reliably

______________________________________________________________ INSTALLMENT METHOD revenue recognized at the point of

INCOME collection (Collections x Gross
Profit rate)
 an increase in economic benefit during the accounting period

In the form of: SUNK COST METHOD revenue recognized at the point of
Collection
1) An inflow or increase in asset or

2) Decrease in liability PERCENTAGE COMPLETION Revenue from contracts (recognize

METHOD as revenue while Contract Cost
 Results in an increase in equity , other than contributions from (recognized as expenses
equity participants

 Recognized when it was earned

PRODUCTION METHOD recognized at the point of
KINDS DEFINITION production
REVENUE arises in the course of ordinary
regular business activities/
operations

18
OTHER INCOME RECOGNITION 2 Condition of recognition of an expense

Interest revenue Time proportion basis a) Probable that a decrease of future benefits has occurred as a result of:
Royalties recognized in an accrual basis
- Decrease in an asset or
Dividends recognized upon declaration of the
dividend - Increase in liability
Installment fees Recognized over the installment
period b) Decrease in economic benefits can be measured reliabl
Recognized on a straight line basis
Matching Principle
Subscription revenue over the subscription period.
 Expense Recognition Principle is the application of the “matching
Admission fees Recognized when the event takes principle” (matching of cost with revenue)
place.
Tuition fees recognized over the period in which KINDS DEFINITIONS
tuition is provided Cause and Effect Association expense is recognized when the
revenue is already recognized

______________________________________________________________
Systematic Rational Allocation Some costs are expensed by
EXPENSE allocation over the periods
benefited.
 decrease in economic benefit during the accounting period Immediate Recognition Cost incurred is expensed outright
In the form of:

1) Outflow or decrease in asset ______________________________________________________________

2) Increase in liability MEASUREMENT
 Results in a decrease in equity , other than distributions to equity Measurement Definition
participants Historical Cost  Amount of cash or cash
equivalent paid
 Shall be recognized when incurred
 Fair value of the
EXPENSES arises in the course of ordinary consideration given at the
regular business activities time of acquisition
LOSSES arise from disasters (fire, flood,
storm) Current Cost current purchase exchange price
Disposal of an asset. Realizable Value current sale exchange price
Present Value future exchange price

19
PAS 2 INVENTORIES EXCLUDED FROM
COST OF INVENTORIES
NATURE  Abnormal amounts of wasted materials, labor and other production
_________________________________________________  storage costs (not necessary in the production process)
INVENTORIES  Administrative overhead
 are assets  Distribution or selling cost

KINDS OF INVENTORIES DEFINITIONS ______________________________________________________________

Finished Goods Held for sale in ordinary course of
COST FORMULAS
business
Work in Process In the production process  cost flow assumption
Raw Materials Materials and supplies to be
consumed in the production  deals with the computation of cost of inventories that are charges
as expense when the related revenue is recognized

COST FOMULAS DEFINITION

CLASSES OF INVENTORIES
Specific Identification used for inventories that are not
Inventories Definition ordinarily interchangeable (unique),
Trading concern Buy and sell goods FORMULA (inventory end * segregated for specific projects
Manufacturing concern Buy raw materials and process actual units costs)
them into finished goods

FIFO Inventories first purchased or

______________________________________________________________ produced are the first to be sold.
FORMULA: (Inventory end *
COST OF INVENTORIES recent purchase cost)
Cost of Conversion
Weighted Average Cost of Sales and ending inventory is
 cost necessary in converting raw materials to finished goods based on the weighted average cost of
 includes cost of direct labor and production overhead beg. inventory and total cost of
purchase
OTHER COST

 incurred in bringing inventories to their present location and

condition

20
 MEASUREMENT DISCLOSURE

Inventories are measured at the lower of cost and net realizable value PAS 2, p 36 requires disclosure of the
known as LCNRV
 amount of any inventory written down and;
NET REALIZABLE VALUE – estimated selling price in the ordinary cost of  The amount of reversal of the former if any.
business less:
Excluded from PAS 2
*estimated cost of completion
 Inventories for agricultural, forest and
*estimated cost of disposal  Mineral products measured at NRV
 Inventories of commodity broker traders measured at NRV.
***Inventories are usually written down to NRV on an item by item or
individual basis ______________________________________________________________
UNRECOVERABLE COST OF INVENTORIES PRESENTATION
 Inventory is damaged Inventory are presented in the current portion of the asset account
 inventory is obsolete
 inventory selling price has declined
 estimated cost of completion/disposal has increased

ACCOUNTING FOR WRITEDOWN

COST < NRV then Inv. = COST

COST > NRV then Inv. = NRV
Rules:
1) Compare item by item the Total Cost and NRV to get LCNRV
2) Get the total of Cost, NRV and LCNRV
3) Compare NRV and LCNRV to get Inventory write down

ACCOUNTING FOR WRITEDOWN

Allowance Method
Inventory end is recorded at cost
“Loss on inventory write down” is debited
“Allowance for inventory write down” is credited

21
PAS 7 STATEMENT OF CASH FLOWS  Ability of the entity to generate cash and cash equivalents

 Timing and certainty of the generation of cash flows

NATURE
 Needs of the entity to utilize those Cash Flows
_________________________________________________
STATEMENT OF CASH FLOWS
CLASSIFICATION OF CASH FLOWS
 provides information about the
 inflow and outflow of cash and cash equivalents during the period OPERATING ACTIVITIES
or sources and uses of funds or;  Derived from the revenue producing activities of the entity (revenue
 Cash receipts and cash payment & exp.)
 affect profit or loss
Includes:
TERMINOLOGIES DEFINITION  Cash receipts from customers
CASH Cash on hand and in bank  Cash payments to suppliers
CASH EQUIVALENTS short term highly liquid  Cash payments for operating expenses
investments that are readily  Cash receipts and payments for securities held for trading
convertible into cash
INVESTING ACTIVITIES
 Derived from the acquisition and disposal of long-term assets and
Examples of Cash Equivalents other investments not included in the equipment.
Includes:
 Three month BSP treasury Bill  Cash receipts from sale of PPE / Long term assets and intangibles
 Three year BSP Treasury bill purchased three months before  Cash payments to acquire PPE / Long term assets and intangibles
maturity.  Cash advances/loans to other parties
 Three month time deposits  Cash receipts from repayments of loans
 Three month money market instrument

_____________________________________________________________ FINANCING ACTIVITIES

 derived from equity capital and borrowings of the entity
CASH FLOWS Includes:
 Cash receipts or Cash Payments/Repayments for:
 includes inflows (sources) and outflows (uses) of cash and cash
**Equity financing –issuance of shares, redemption.
equivalents
**Debt financing – issuance of bonds, notes, loans, mortgage payables and
The Statement of Cash Flows helps to assess the: other short term or long term borrowings

22
 - Cash and Cash equivalent held by the entity that are not available
______________________________________________________________ for use of the group.
GENERAL CONCEPT –SCF
 Include only transactions that affect cash.
 Include only interest received and paid

Operating Activity:
 Interest income received & paid (PAS 7,p 33)
 Dividend income received
 Payment of Income Tax (separate disclosed)

Financing Activity:
 Dividends paid to owners (PAS 7,p34)

Investing Activity
Changes in Ownership interest in Subsidiaries
 arising from acquisition or
 disposal of subsidiaries
 Business units resulting to loss

***If not, then it is classified as Financing Activity

_____________________________________________________________

PRESENTATION OF THE CASH FLOWS

DIRECT METHOD – shows each major class of Gross Cash Receipts and Gross
cash payments. (Encourage by PAS – useful in estimating future Flow)
INDIRECT METHOD – profit or loss is adjusted for the effects of non-cash
items and changes in operating assets and liabilities
______________________________________________________________

DISCLOSURE
Components of Cash and Cash equivalent
- Reconciliation of amounts in the SCF with the equivalent items in
the SCF
23
PAS 8 ACCOUNTING POLICY AND
CHANGES IN ACCOUNTING POLICIES
ESTIMATE Change in measurement basis
 Change in Cost formula for Inventories
NATURE  Change from Cost Model to fair value model of measuring
_________________________________________________ investment property
 Change from Cost Model to Revaluation model of measuring PPE
ACCOUNTING POLICIES and Intangible Assets
 Change in business model for classifying assets
 Specific principles, bases, conventions, rules and practices
 Change in revenue recognition methods from long term to
applied by an entity in preparing and presenting the financial
construction contracts
statements.  Change to a new policy resulting from the requirement of a new
PFRS
According to hierarchy of Application  Change in Financial reporting Framework
 PFRS ______________________________________________________________
 Judgment – requirement in PFRS
 Conceptual Framework PRESENTATION
______________________________________________________________ 1. Change shall be applied in accordance with transitional provisions
2. If no transitional provisions (change is voluntary), change shall be
The entity shall apply the same accounting policies each period applied
 to achieve comparability of financial statements or RETROSPECTIVELY Effect of adjustment is on the beginning balance of
 Identify trends in the financial position, performance and cash flow retained earnings
of an entity
**A change in accounting policy shall be made only when required by the Amount of adjustment is determined on the year of
accounting standard change
**Change will result in a more relevant and faithfully represented
If comparative information is presented, FS of prior
information
period is restated

A change in accounting policy arises when an entity adopts a GAAP which is

Retrospective Application
different from the one previously used by
 applying a new accounting policy as if the policy had always been
 Involuntary Change in accounting policy If it is required by the IFRS
applied
 Voluntary Change in accounting policy If management assesses that
the FS will be more relevant to the user
______________________________________________________________

24
CHANGE IN ACCOUNTING ESTIMATE
 Normal recurring correction or adjustment of an asset or liability
(use of estimate)

Examples:
 Doubtful accounts
 Inventory obsolecense
 Useful life, residual value, expected pattern of consumption of
benefit of depreciable asset
 Warranty cost
 Fair value of asset and liability

***Effects of change is measured prospectively by including in the profit or

loss.
______________________________________________________________

ERRORS
 Includes misapplication of accounting policies, mathematical
mistakes, oversight or misinterpretations of facts, and fraud.

PRIOR PERIOD ERRORS

 Omissions or misstatement in the FS for one or more periods arising
from a failure to use or misuse of reliable information.
 Errors shall be corrected retrospectively, by opening the beginning
balance of RE and affected assets and liabilities.
 If comparative statement are presented, FS of prior periods shall be
restated, to reflect the retroactive application of the prior period
errors as retrospective restatement

CURRENT PERIOD ERRORS

 errors in the current period that were discovered during the
accounting period or after the accounting period but before the
authorized issuance of the FS
 Simply corrected by correcting entries.
25
PAS 10: EVENTS AFTER THE REPORTING PAS 12: INCOME TAXES
PERIOD
NATURE NATURE
______________________________________________________________ _________________________________________________

EVENTS AFTER THE REPORTING PERIOD Deferred Tax Accounting is applicable to all entities, whether public or
 Those events whether favorable or unfavorable, that occur between nonpublic entities.
the end of the reporting period and the date when the FS are
authorized to issue Public entity:
 Also known as subsequent events  Equity and Debt securities are traded in a Stock Exchange or over
 May require adjustment or disclosure the counter market
 Equity and Debt Securities are registered in SEC.
DATE OF AUTHORIZATION OF FS
 date when management authorizes the FS to issue (regardless if it is Accounting income – income before taxes
final or subject to approval) Taxable Income
______________________________________________________________  Income for the period determined in accordance with the rules
established by taxation authorities.
2 TYPES OF EVENTS AFTER THE REPORTING PERIOD  Income computed accordance to income tax laws
ADJUSTING EVENTS after the reporting period
 Provide evidence of conditions that exist after the reporting period DIFFEERENCES BETWEEN ACCOUNTING INCOME AND TAXABLE INCOME
 Required adjustments in the FS
Example: PERMANENT DIFFERENCE TEMPORARY DIFFERENCE
a) Settlement of a court case that the entity has a present obligation Revenue and expenses included in Revenue and expenses included in
b) Bankruptcy of a customer either accounting income or accounting income and taxable
c) Sale of inventories – evidence to the NRV taxable income but not both income
NON-ADJUSTING EVENTS after the reporting period Non-taxable revenue and non- Results in future taxable amount;
deductible expenses tax consequences
 indicative of conditions that arise after the end of the reporting
Do not give rise to deferred tax Give rise either to a deferred asset
period
asset and liability; no tax or liability
 needs no adjustment but require disclosure if material consequences
Examples:
FS on a going concern basis shall not be prepared if management Interest income
determines that after the reporting period the entity intends to: on deposits
 Liquidate the entity Dividend receive
 Cease trading Life insurance premium
26
Deferred Tax Liability
 Shall be recognized for all taxable temporary differences.
 Arises when accounting income is higher than taxable income
because of future taxable amount.
 Noncurrent liability
Deferred Tax Asset
 Shall be recognized for all deductible temporary differences and
operating loss carry forward when it is probable that taxable income
will be available against which the deferred tax asset can be used
 Arises when taxable income is higher than accounting income
because of future deductible amount.
 Non-current asset
Taxable temporary difference
 Temporary difference that will result in future taxable amount in
determining taxable income of future income.
______________________________________________________________
ACCOUNTING INCOME HIGHER THAN TAXABLE INCOME
*Revenues and gains that are included in accounting income but taxable in
future
*Expenses and losses deductible for tax purposes but deductible in future
periods
TIMING DIFFERENCES
 Differences between accounting income and taxable
income that originate in one period and reverse in
one of the subsequent periods.
 Items of income and expenses which included in both
accounting income and taxable income but as different
time periods
KINDS OF TEMPORARY DIFFERENCES
A. TAXABLE TEMPORARY DIFFERENCES
 Temporary differences that will result in future taxable
amount in determining taxable income of future
periods when the carrying amount of the asset or
liability is recovered or settled
B. DEDUCTIBLE TEMPORARY DIFF.
 Temporary difference that will result to future deductible
amount in determining taxable income of future periods
when the carrying amount of the asset or liability is
recovered or settled
____________________________________________________________________
TAXABLE INCOME HIGHER THAN ACCOUNTING INCOME
*Revenue and gains are included in taxable income of current period but
are included in accounting income of future periods.
*Expenses and losses are deducted from accounting income of current
period but are deductible for tax purposes in future periods
Current tax liability
 The current tax expenses or the amount of income tax actually
payable. This is a current liability
_____________________________________________________________
MEASUREMENT
 Deferred tax asset and liability shall be measured using tax rate that
has been enacted by the end of the reporting period and expected
to apply to the period when asset is realized or the liability is settled
 Deferred tax asset and liability are not discounted.
27
 Cost – the amount of cash or cash equivalent paid and the fair value of the
other consideration given to acquire an asset at the time of acquisition.
ELEMENTS OF COST
PAS 16: PROPERTY PLANT AND  Purchase price
 Cost of bringing the asset to its present location and condition
EQUIPMENT  Initial estimate of the
1. cost of dismantling
NATURE 2. Removing the item
______________________________________________________________ 3. Restoring the site on which it was located for which an entity has
a present obligation
PROPERTY, PLANT AND EQUIPMENT
 tangible assets (physical substance) Directly Attributable Costs
 Used in business (used in the production or supply of gods or 1. Cost of employee benefits arising from its construction
services, for rental or for administrative purposes) and 2. Cost of site preparation
 Long-term in nature (expected to be used for more than one period) 3. Initial delivery and handling cost
4. Installation and assembly cost
EXAMPLES OF PPE: 5. Professional fee
Land Motor Vehicle 6. Cost of testing (ensure functioning properly.
Land Improvements Furniture and Fixtures
Expensed rather Cost of PPE
Building Office Equipment  Cost of opening a new facility
Machinery Patterns Molds and Dies  Cost of introducing a new product or service
 Cost of conducting business in a new location
Ship Tools  Administration and general overhead cost
Aircraft Bearer Plants  Break-in of the PPE
 Initial operating loss
 Cost of operating/reorganizing entity’s operation
RECOGNITION
1. If it is probable that future economic benefits will flow to the entity MEASUREMENT AFTER RECOGNITION
2. Cost of the asset is measured reliably COST MODEL REVALUATION MODEL

______________________________________________________________ Cost of asset FV at revaluation

Less: Ac. Depreciation Less:
Impairment loss Subsq. Acc, dep.
MEASUREMENT
Subsq. Impairment loss
PPE shall be measured at cost
28
  Cost of property and the corresponding accumulated depreciation
shall be removed from the account
PPE are derecognized on:
MEASUREMENT OF COST  Disposal
Cash Basis  When no future economic benefits are expected from the use or
 cash price equivalent at recognition date. disposal
On Account Gain or Loss arising from the DE recognition
 Invoice price  Shall be included in profit or loss
Less: discount (taken or not)  Gains included as revenue under Other Income
Issuance of Share capital  Difference between the net disposal proceeds and the carrying
a) FV of Consideration received amount of the item
b) FV of the share capital
c) FV of stated value of the share capital Net disposal = Proceeds from sale less
Issuance of Bonds Payable Disposal cost or carrying amount.
 FV of bonds payable Carrying amount = Cost less accumulated
 2) FV of the asset received Depreciation
 Face amount of the bonds payable
Fully Depreciated property
EXCHANGE Carrying amount = Zero
 Fair Value of the asset plus any cash payment Cost = accumulated depreciation
 Carrying amount if exchange transaction lacks commercial Carrying amount = salvage /residual value
substance  If remaining in service shall not be removed from the accounts
(ordinarily) but if removed from accounts shall be disclosed as FDP
EXCHANGE HAS A COMMERCIAL SUBSTANCE (fully depreciated property)
 Event or transaction causing the cash flow of the entity to change _____________________________________________________________
significantly by reason of the exchange
 Cash flow of the asset received differ significantly from the asset Concept of Depreciation
transferred  Systematic allocation of the cost of the asset over its useful life.
 Construction –same as thru acquisition which includes  Objective is to have each period bear an equitable share of the asset
1. Direct Materials cost.
2. Direct labor  it is an expense
3. Indirect and incremental overhead  Begins when asset is available for use
______________________________________________________________  Ceases when asset is derecognized.

DERECOGNITION
29
Factors of Depreciation PAS 19 EMPLOYEE BENEFITS
DEPRECIABLE AMOUNT Cost of asset less residual value
RESIDUAL VALUE Estimated net amount currently NATURE
obtainable at the end of its useful
_________________________________________________
life
USEFUL LIFE period over which the asset is
EMPLOYEE BENEFITS
expected to be available for use by
the entity All forms of consideration given up by an entity in exchange for services
rendered by the employee or for termination of employment
INCLUDES employees and management
Factors in determining useful Life
______________________________________________________________
 Expected usage of the asset
 Expected physical wear and tear
RECOGNITION
 Technical or commercial obsolescence
 recognized as an expense when employees have rendered service
 Legal limits for the use of the asset
 Recognized as liability if unpaid

DEPRECIATION METHODS
KIND OF EMPLOYEE BENEFITS
1) Straight line method – constant charge over useful life of an asset
1. Short Term employee benefits
2) Production method – cost / output or cost/ no. of hours work
2. Post-employment benefits
3) Diminishing balance or accelerated methods – decreasing depreciation
3. Other long term employee benefits
over the useful life (sum of yrs. or double declining)
4. Termination benefits

Short Term Employee Benefits

 Employee benefits (other than termination benefits) which are

expected to be settled within 12 mos after the end of the annual
reporting period.
EXAMPLES:
 salaries, wages, ss Contributions
30
  Short term compensated or paid absences  Accounting :
 profit sharing and bonuses payable within 12 months  Contribution – expense
 non-monetary benefits, medical, housing,car and free subsidized  Unpaid contribution- accrued
goods  Excess contribution - prepaid
Categories of Paid Absences
 Absences such as vacation, sickness, short term disability, Defined Benefit Plan
maternity, paternity etc.  entity has obligation to provide agreed benefits to the employee
ACCUMULATING can be carried to future periods  Employee is guaranteed a specific or definite amount of benefit
KINDS Vesting – employees entitled to based on salary and years of service
cash payment for unused  Entity assumes investment risk.
entitlement or leaving the entity  Accounting : requires actuarial valuation
Non-vesting– employees not
entitled to a cash payment for
unused entitlement on leaving the
OTHER LONG TERM BENEFITS
entity

NON-ACCUMULATING not carried forward to future  Employee benefits (other than post-employment and termination
periods if not used and no cash benefits)
payment upon leaving the entity  Due to be settled within 12 months after the end of reporting
period.
POST EMPLOYMENT BENEFITS  Accounting is similar to defined benefit plan, except the defined
 Employee benefits, (other than termination and short term benefit cost is recognized in profit and loss , including the re-
benefits) which are payable upon completion of employment. measurements of the net defined benefit liability
 Plans which are formal arrangement between employer and
employee and part of their remuneration package Examples:
 Retirement benefits  Long-term compensated absences
 Post-employment life insurance  Jubilee or other long service benefits
 Post-employment medical care  Long term disability benefits
 Profit sharing and bonus
CLASSIFICATION OF POST EMPLOYEMNET BENEFIT PLAN  Deferred compensation
Defined Contribution Plan
 Entity pays fixed contribution into a separate entity known as a
fund. TERMINATION BENEFITS
 Contribution is definite but the benefit is indefinite.  Result of entity’s decision to terminate the employee before normal
 Employee bears the risks. retirement date

31
  Employees decision to accept employer’s offer of benefits in
exchange for termination
 Recognized as liability and expense at the earlier of the following
dates:
 Entity can no longer withdraw the offer of those benefits
 Entity recognizes restructuring costs
MEASUREMENT OF TERMINATION BENEFITS PAS 20 GOVERNMENT GRANT
If termination benefits are:
NATURE
a. Payable within 12 mos., they are accounted for similar to other long term
benefits ________________________________________________
 accounting is similar to Short term employee benefits Government Grant - is an assistance made by the government in the form
b. Payable beyond 12 months of transfer of resources to an entity.
 Accounting similar to other long term benefits
Must meet a certain conditions, and in return for part of future compliance

Samples of GOV’T grant

 Receipt of cash, land or other non-cash assets from the government

subject to compliance with certain conditions
 Receipt of financial aid in case of loss from a calamity
 Forgiveness of an existing loan from the government
 Benefit of a government loan with below market rate of interest

Classification of Government Grant

Grant related to asset – government grant whose primary condition is to

purchase, construct or acquire long term assets.

Grant related to income – grant other than grant related to asset.

______________________________________________________________

RECOGNITION
The grant shall be recognized when there is a reasonable assurance that:

 Entity will comply with the conditions attaching to the grant

 The grant will be received
32
**Government grant shall not be recognized on cash basis as this is not
consistent to the generally accepted accounting practice.
Not recognized but disclose:
Gov’t assistance- action by gov’t to provide economic benefit specific to an
entity wherein no value can be placed upon it. (Cannot be reasonably
measured)
 Tax benefits
 Free technical or marketing advice
 Provision of guarantees
 Government procurement policy that is responsible for a
portion of the entity’s sales
Neither recognized nor disclose
 Public improvements that benefit the entire community like
infrastructures (transport and communications)
 Imposition of trading constraints on competitors
 Improved facilities or irrigations
(Indirect benefits or benefits not specific to an entity, does not qualify as
government assistance)
______________________________________________________________
MEASUREMENT
MONETARY GRANTS
 Amount of cash received
 Fair value of amount receivable
NON-MONETARY GRANTS
 Fair value of the non-monetary asset received
 Alternatively at no minimal amount
TRANSACTION
Accounting for the Gov’t grant:
It shall be recognized on systematic basis over period in which entity
recognizes expenses for which the grant is compensate.
IT USES A MATCHING CONCEPT
 Grant in recognition of specific expenses shall be recognized as
income over the period of the related expenses.
Ex. For safety and environmental expenses
(Income is allocated over the years in proportion to the cost
incurred)
 Grant related to depreciable assets shall be recognized as income
over the periods and in proportion to the depreciation of the
related assets.
Ex. Cash for Acquisition of a chemical facility
(Allocated over the periods and in proportion to depreciation of the
related asset –straight line method is used)
 Grant related to non-depreciable assets requiring fulfillment of
certain conditions shall be recognized as income over the periods
which bear the cost of meeting the conditions.
Ex. Grant of land for construction of a building.
(Allocated over the periods and in proportion to depreciation of the
constructed asset straight- line method is used)
 Grant that becomes a receivable as com
 pensation for expenses or losses already incurred for the purpose
giving immediate financial to the entity with no further related
33
 cost,shall be recognized as income of the period in which it
becomes a receivable.
Ex. Grant as compensation for calamities
(The grant is recognized immediately)
_______________________________________________________
PRESENTATION
 Gov’t grant related to asset shall be presented in the Statement of
Financial Position as:
a) Setting the grant as deferred income
b) Deducting the grant in arriving at the carrying amount of the asset.
 2) Gov’t grant related to income shall be presented in the in Income
statement as:
a) Presented in the I/S as” other Income”)
b) Grant is deducted from the related expense
______________________________________________________________
DISCLOSURES
 Accounting policy adopted for government grants
 Nature and extent of government grant recognized in the F/S and
other forms of government assistance from which the entity has
benefited.
 Unfulfilled conditions and other contingencies attaching to
government assistance that has been recognized.
(It is not required to disclose the name of the government agency and the
date when the cash is received)
PAS 21 EFFECTS OF CHANGES IN FOREX
NATURE
_______________________________________________
Foreign currency – currency other than the functional currency of the
entity.
Presentation currency – currency in which the financial statements are
presented
Spot Exchange rate – exchange rate for immediate delivery
______________________________________________________________
TWO WAYS OF CONDUCTING FOREIGN ACTIVITIES
Foreign currency transactions -import or export transactions that are to be
settled in a foreign currency. Transactions need to be translated in pesos
before they can be recorded in the books of accounts.
Foreign operations
 Branch in another country.
 Overseas branch maintain its accounting records prepare its F/s in a
foreign currency.
 F/s need to be translated to Philippine pesos before they can be
combined with the HO financial statements.
34
FUNCTIONAL CURRENCY Non- monetary items (fair value) Exchange rate at the date when fair
value was determined
 currency of the primary economic environment in which the entity
operates Closing rate is the – spot exchange rate at the reporting date.
 not necessarily the currency of the country where the entity is
based.

FOREIGN CURRENCY

 Currency other than the entity’s functional currency

FOREIGN CURRENCY TRANSACTION MONETARY ITEMS

 Transaction that is denominated or requires settlement in a foreign Currencies held and assets and liabilities received or paid in a fixed or
currency determinable amount or money.
 purchases or sale of goods , services or other assets at a price that NON-MONETARY ITEMS
is denominated in a foreign currency,
 Borrowing, lending or settling receivables or payables at amounts Those that do not give rise to receipt or payment of a fixed or determinable
that are denominated in a foreign currency. amount of money.

______________________________________________________________ ______________________________________________________________

RECOGNITION PRESENTATION

Foreign currency transaction is initially recognized by translating the foreign EXCHANGE DIFFERENCES
currency amount into the functional currency using the spot exchange rate Difference resulting from translating a given number of units of one
at the date of the transaction currency into another currency at different exchange rates.
(Spot exchange rate- the exchange rate for immediate delivery.) a) Monetary items – recognized in P/L in the period in which they
Date of the transaction – date on which the transaction first qualifies for arise.
recognition in accordance with PFRS” b) Non-monetary items – gain or loss is recognized in Other
_____________________________________________________________ Comprehensive Income, exchange component of the gain or loss is
also recognized in OCI
MEASUREMENT
Items Translated Using
Monetary items Closing rate TRANSLATION OF F/S
Non-monetary items (historical Exchange rate at the date of
cost) transaction
35
Assets and Liabilities –closing rate at the date of the Statement of Financial
Position

Income and Expenses- exchange rates the date of the transaction

*all resulting exchange differences are recognized in OCI

FOREIGN OPERATION

 subsidiary, associate, joint venture or branch that is based in a

foreign country and is using a foreign currency.

 The F/S of a foreign operation needs to be translated before they PAS 23: BORROWING COST
can be incorporated into the reporting entity’s F/S.
NATURE
 When a foreign operation is disposed of, the cumulative amount
recognized in the OCI is reclassified to profit or loss as a _________________________________________________
reclassification adjustment.
It is defined as the interest and other cost that an entity incurs in connection
______________________________________________________________ with borrowing funds.
DISCLOSURE Examples:
 Exchange differences recognized in profit or loss or OCI  Interest expense (using the effective interest method)
 Finance charge (finance lease)
 Fact or reason for using a presentation currency from the entity’s
functional currency  Exchange difference arising from a foreign currency borrowing
(adjustment to interest cost)
Fact or reason for change in functional currency.
Qualifying Asset - asset that necessarily takes a substantial period of time
to get ready for its intended use or sale

Examples:

 Inventories (takes a long time to produce ;

 PPE (takes a long time to construct)
 Intangible asset (takes a long time to develop)
 Investment property
 Power generation facility

36
  Manufacturing plant
Not Capitalized the borrowing cost from:
 Asset measured at Fair value - Biological Assets
 Inventory repetitively mass produced- wine
 Assets ready for their intended use or sale when acquired
_____________________________________________________________
RECOGNITION
BORROWING COST IS CAPITALIZED if:
 Directly attributable to the acquisition , construction or production
of a qualifying Asset
 It will result to a future economic benefit
 Cost can be measured reliably
**Thus, capitalization of borrowing cost in qualifying asset is mandatory.
BORROWING COST IS EXPENSED IMMEDIATELY
 If not directly attributable to a qualifying asset
______________________________________________________________
MEASUREMENT
ASSET FINANCING
 SPECIFIC BORROWING - funds borrowed specifically for acquiring a
qualifying asset
CAPITALIZABLE BORROWING COST = ACTUAL BORROWING COST
INCURRED DURING THE PERIOD LESS: ANY INVESTMENT INCOME
FROM THE TEMPORARY INVESTMENT
 GENERAL BORROWING - funds borrowed generally for acquiring a
qualifying asset.
*Investment income do not deduct to capitalizable borrowing cost
CAPITALIZABLE BORROWING COST =
AVE. CARRYING AMOUNT OF THE ASSET DURING THE PERIOD
(MULTIPLIED) **CAPITALIZATION RATE OR AVE. INTEREST RATE
**capitalization rate or ave. Interest rate = total annual borrowing cost /
total general borrowing outstanding
**The excess of actual borrowing cost to proper borrowing is charged to
interest expense
BOTH SPECIFIC AND GENRAL BORROWING FINANCED:
Partly general and specific borrowing made to finance the qualifying asset
CAPITALIZABLE BORRWING COST OF GENERAL BORROWING = AVE.
CARRYING AMOUNT OF ASSET – SPECIFIC BORROWING X CAPITALIZABLE
INTEREST
CAPITALIZABLE BORRWING COST FOR SPECIFIC = SPECIFIC BORROWING X
INTEREST
COMMENCEMENT OF CAPITALIZATION
 Entity incurs expenditures for the asset
 Entity incurs borrowing cost
 Entity undertakes activities that are necessary to prepare the asset
for its intended use
______________________________________________________________
TRANSACTION
Holding and asset without any associated development do not qualify for
capitalization
Ex. Borrowing cost incurred while land is under development are capitalized
during the period in which development activities are being undertaken.
37
But borrowing cost incurred while land acquired for building purpose is held
without any associated development activity do not qualify for capitalization

SUSPENSION OF CAPITALIZATION

 Shall be suspended during extended periods in which active

development is interrupted
 Does not included temporary delay which is a necessary part of the
process

END OF CAPITALIZATION
PAS 24 RELATED PARTY DISCLOSURE
 All the activities necessary to prepare the qualifying asset for its
intended use or sale is complete,
 Physical construction is complete even the routine of administrative
continues. NATURE
______________________________________________________________ _________________________________________________
PRESENTATION Related Party is considered related if one party has:

Statement of Financial Position  Ability to control the other party

 Ability to exercise significant influence over the other.
______________________________________________________________
 Joint Control over the reporting entity
DISCLOSURE
Control
 Amount of Borrowing Cost capitalized during the period
 is the power over the investee or power to govern financial
 Capitalization rate used to determine the amount of borrowing cost
operating policies of an entity so as to obtain benefits.
Excludes segregation of assets (not required to be disclosed)  Ownership directly or indirectly through subsidiaries of more than a
half of the voting power of an entity

Significant influence

38
  Power to participate, in operating policies but not control over TRANSACTION
those policies
Related Party Transactions – is the transfer of resources or obligation
 Share ownership of 20% or more presumed unless it is clearly not
between related parties regardless the price is charged
the case.
Samples:
Factors of existence of significant influence
 Purchase and sale of goods
 Representation in the board of directors
 Purchase and sale of real property
 Participation in policy making process
 Rendering services
 Material transaction between investor and investee
 Leases
 Interchange of managerial personnel
 Transfer of research and development
 Provision of essential technical operation
 License agreement
Joint Control – contractually agreed sharing of control over an economic  Finance arrangements
entity.  Guarantee and collateral
Example of related Parties: PRESENTATION
Affiliates – parent, subsidiary, andfellow subsidiaries NOTES TO FINANCIAL STATEMENTS
Associates – entities over which one party exercise significant influence ______________________________________________________________
(subsidiaries of the associates)
DISCLOSURE
Venturer – in the joint venture
RELATED PARTY
Key Management Personnel – has the authority and responsibility in
planning directing and controlling  The related party relationship should be disclose irrespective of the
transaction
Close Family Members  The entity shall disclose the name of the parent and if different the
ultimate controlling entity
 The individual spouse and children
 If none produce FS the next most senior who have.
 Children of the individual spouse
 Dependents of individuals or individual spouse RELATED PARTY TRANSACTION
Individuals –owning directly or indirectly an interest has the significant  Disclose the nature of relationship
influence  Information about transactions
Post-employment benefit plan for the benefit of the employees  Outstanding Balances necessary to understand the FS

______________________________________________________________ Minimum disclosure:

39
  The amount of transaction
 Outstanding balance terms and conditions, secured or unsecured
and nature
 The allowance for doubtful account on the outstanding balance
 The doubtful expense during the period in respect to the amount
due to the related parties

KEY MANAGEMENT PERSONNEL COMPENSATION

 All FOUR employee benefits

 Compensation
 Share based payment transaction

PAS 28 INVESTMENT ASSOCIATES

NOT REQUIRED TO DISCLOSE

Intra group related party transaction and outstanding balance (Consolidated

NATURE
FS)
_________________________________________________
Unrelated Parties
Associate
 Two entities because of same KEY MANAGEMENT PERSONNEL
 An entity over which investor has significant influence.
 Provider of finance trade unions public utilities and government
agencies in normal dealings Significant influence is matter of judgment
 Customer, supplier and franchisor and gen agent
______________________________________________________________
 Two venturers because they share joint control over a joint venture
RECOGNITION
Guidance in the assessment:

 Holds in the subsidiaries 20% or more of the voting power of the

investee (presumed)unless clearly demonstrated
 20% lower presumed no significant influence (unless demonstrated)

**Majority ownership does not preclude to significant influence.

BEYOND 20% Threshold

40
  Representation in the board of directors
 Participation in policy making process
 Material transaction between investor and investee
 Interchange of managerial personnel
 Provision of essential technical operation
______________________________________________________________
MEASUREMENT
Investment associate is measured using equity method of accounting
(It is based on the economic relationship between investor and investee)
Investor and investee is one economic entity
Applicable if there is a significant influence between investor to investee.
ACCOUNTING PROCEDURES
 Investment initially recognized at cost
 The CA is increased by investor share in profit but decreased in loss
of the investee
 The investor share of profit or loss of the investee is recognized as
investment income.
 Dividend receive reduces the amount of investment
 Investment must be in ordinary shares or else equity method is not
applicable because preference share is non-voting
 The investee is an associate of the investor consequently
investment must be called investment in associate
 The investment associate shall be carried as non-current assets
______________________________________________________________
TRANSACTION
Excess over carrying amount
 If the investor pays more than the carrying amount of the asset
acquired the difference is excess over carrying amount
**Undervaluation of investees’ asset
**Goodwill
 If the investees asset is fair valued the excess cost over carrying
amount of the net asset is goodwill.
 If the excess is under depreciable asset it is amortized over the
useful life of asset
 If the excess is under non depreciable land (expensed when sold)
 Same with inventory expensed when sold
 The excess is attributable to goodwill is included in the carrying
amount of the investment and not amortized
 If the investee’s carrying amount of net asset when fair valued is
higher than the payment made by the investor it is an addition to
investors investment (investment in associate)
Impairment Loss
 Impairment in investment associate
 Recognized whenever the carrying amount is higher than
recoverable amount
 Recoverable amount measured higher between the fair value less
cost of disposal and value in use.
 Fair Value is the price that would be received to sell an asset in an
orderly transaction
 Value in use – total present value of future cash flows
Investee with Cumulative preference share
Investor compute earnings per share or losses after deducting the
preference dividends whether or not declared
Investee with non- cumulative preference share
Investor shall compute its earnings per share after deducting preference
dividends when declared.
Discontinuance of equity method
41
  From the date the investor ceases it significant influence over an  Non maketable investment at cost or investment unquoted equity
associate instrument

Consequently it is account as follows:

 Financial asset at fair value through profit or loss

 Financial asset at fair value through other comprehensive income
 Non maketable investment at cost or investment unquoted equity
instrument

MEASUREMENT AFTER LOSS OF SIGNIFICANT INFLUENCE

 Investor shall measure any retained investment in associates at fair

value
 Fair value at initial recognition of financial asset
 The difference between the carrying amount and retained
investment is regarded in profit or loss. If sold in OCI (gain or loss)
PAS 29 HYPER INFLATIONARY ECONOMY
______________________________________________________________

EQUITY METHOD NOT APPLICABLE NATURE

 If the investor is a parent that is exempt from preparing _________________________________________________

consolidated financial statements
The standard does not established an absolute rate when hyperinflationary
Or the following: deemed to arise

 The investor is wholly owned subsidiary It is a matter of judgment

 The debt and equity instrument is not traded in public market
Hyperinflationary is indicated by the ff characteristics but not limited:
 The investor did not file in SEC
 The ultimate parent parent of the investor produces Consolidated
FS that comply to PFRS.
In such way the investment is accounted as
 Financial asset at fair value through profit or loss
 Financial asset at fair value through other comprehensive income
 General populations prefer to keep its wealth in non-monetary
asset or in stable foreign currency
 Regards the monetary amounts in stable foreign currency
 Sales and purchase credit take place even the period is short.
 Interest rate wages and prices are linked to price index
 The cumulative rate over 3 years is approaching or exceeds 100%

Judgment can be used to when to restate the FS is required.

42
______________________________________________________________  Asset carried at fair value of NRV is not restated.

PRESENTATION
Entity that reports in the currency of hyperinflationary economy whether FORMULA IN RESTATEMENT
based on historical cost or current approach shall be stated in measuring
index number at the end of reporting period
unit current at the end of the reporting period x Historical cost
index number at acquisition date
Presentation of information required as a supplement to unrestated FS is not
permitted
General Price Index – the index number used in restatement constructed by
The restatement of FS in hyperinflationary economy is done through
Bangko Snetral ng Pilipinas
constant peso accounting
An increase in general price index means that the purchasing power of
______________________________________________________________
money decreased (inflation)

Decrease in general price index means the purchasing power increases

MEASUREMENT (deflation)

CONSTANT PESO ACCOUNTING GAIN OR LOSS ON PURCHASING POWER

(Price level or Purchasing power accounting)
Purchasing power means the good and services money can buy.
It is the restatement of historical FS in terms of current purchasing power
through the use of index number  Inflation ( purchasing power loss is incurred on monetary asset and
purchasing power gain is realized in monetary liabilities)
The traditional preparation in historical cost of FS is nominal peso
 Deflation (purchasing power gain is incurred on monetary asset and
accounting
purchasing power loss is realized in monetary liabilities)
Monetary Items

 Money held and asset and liabilities to be received or paid in fixed

or determinable amount of money
 Not restated because they are automatically stated in current
purchasing power.

Non-Monetary Items

 Items that cannot be classified as monetary

 Peso mounts in FS differ from the amount that are ultimately
realizable or payable
 Restated when preparing constant peso accounting.
43
 Characteristics of Financial Instrument

 There must be a contract

 There must be at least two parties in the contract
 The contract shall give rise to financial asset liability, equity
instrument

Examples of Financial Instrument

 Cash in the form of notes

 Cash in the form of checks
 Cash in bank
 Trade accounts
 Notes and loans
 Debt security
 Equity security

PAS 32 Samples of Financial assets

 Cash or currency –represent medium of exchange

FINANCIAL INSTRUMENT - PRESENTATION  Deposit of cash

NATURE **Gold bullion deposited in the bank is not financial asset because although
it is very precious the gold is a commodity.
_________________________________________________
Financial asset include:
Financial Instrument
 Trade accounts receivable
Any contract that give rise to financial asset of one entity and financial  Notes receivable
liability or equity instrument of another entity.  Loans receivable
 Bonds receivable
 Financial asset
 Financial liability ______________________________________________________________
 Equity instrument
TRANSACTION
______________________________________________________________

RECOGNITION
44
  When financial instrument is exchanged with another entity,
conditions is potentially favorable when such exchanges will result
to gain or additional cash inflow to the entity.
Ex (purchased of shares less than market price)
 Consequently unfavorable when such exchange will result to loss or
additional cash outflow.
 (Trading securities can be classified as financial asset)
It is any contract that evidence a residual interest in the asset of an entity
after deducting all liabilities. (ordinary and preference share, warranties and
options)
It is a equity instrument if the instrument do not give rise to contractual
obligation to deliver cash of financial liability
Redeemable Preference Share

Non-Financial asset  Mandatory redemption by the issuer for fixed or determinable

amount in future date (financial Liability
 Physical asset (inventory and PPE)
 Gives the holder the right to require the issuer to redeem
 Intangible asset (patent and trademark)
instrument at particular date for fixed and determinable amount
 Prepaid expenses
(Financial Liability)
 Right to used asset or leased asset
Dividends paid (interest expense)
Financial Liability – is any contractual liability
Mandatorily redeemable preference share shall (current or non-current
 To deliver cash or financial asset to other entity
liability)
 To exchange financial asset (potentially unfavorable)

Samples:

 Trade accounts payable

 Notes payable Compound Financial Instrument
 Loans payable Both financial liability and equity instrument the perspective of the issuer.
 Bonds payable
Examples:
Non-Financial Liability
 Bonds Payable issued with share warrants
 Deferred Revenue and warranty obligation  Convertible bonds payable
 Income tax payable (impose by law)
 Constructive obligation (not contract)

Equity Instrument PAS 32 provides that if the financial instrument contains both liability and
equity they should be account for separately (split accounting is the
accounting approach)

45
  Allocation of financial liability component to equity component
wherein fair value of financial liability were first determine and the
residual is to equity.
Bonds payable with share warrants
 The bondholder are given the right to acquire share at specified
time at future date.
 Detachable warrants – can be traded
 Non detachable share warrants – cannot be traded separately.
 Whether or not detachable it shall be accounted separately.
Convertible Bonds
 Give the holder the right to convert their bonds into share capital of
the issuing entity at specified period of time.
 This should be allocated between bonds payable and (conversion
privilege-equity account)
PAS 33 EARNINGS PER SHARE
NATURE
_________________________________________________
Earnings per Share
 Amount attributable to every ordinary share outstanding during the
period
 Its only about ordinary share
 Ordinary share – equity instrument that is subordinate to all other
classes of equity instrument.
Preference share has its definite return of share
TWO PRESENTATION
 Basic Earnings per Share
 Diluted earnings per share
The presentation of earnings per share is required for:
 Entities whose ordinary share is publicly held
 Process of issuing ordinary shares or potential ordinary shares in
public securities market.
Non-public are not required but encouraged
Uses of Earnings per Share
 Determinants of market price of ordinary share
 Measure of performance of management
 Basis of dividend policy
______________________________________________________________
PRESENTATION
 Shall present in the income statement (basic and diluted earnings
per share for income or loss of continuing operations)
 Discontinued Operation shall disclosed only on the face of I/S or
Notes to financial statement (Earnings per share)
 Even amount is loss it must be presented.
 When the entity presents both consolidated FS or separate FS
(disclosure is only in the basis of Consolidated Financial information)
______________________________________________________________
MEASUREMENT
46
BASIC EARNING PER SHARE
Net income
Ordinary share outsatnding
**the net income is amount after deducting dividends on preference share
***Cumulative preference share – current year only when or not declared
***Non-cumulative preference share – only current year when declared
only.
****When significant change happen in ordinary share the weighted ave. is
used.
When share dividends or share splits create in capital structure the increase
or decrease in number of share is measured retroactively
______________________________________________________________
OTHER ISSUES
When computing in Basic Loss per Share
Preference share dividend cumulative is added to net loss and divide to
outstanding share
Preference share dividend non-cumulative it is ignored because there is no
declaration since it’s non-cumulative
Diluted and Anti-diluted
Potential Ordinary share – financial instrument or other contract that may
entitle the holder to ordinary share.
Dilutions arises when inclusion of potential ordinary share decreases the
basic earnings per share or increases the basic loss per share. In this case
the potential ordinary share is dilutive securities.
Anti-dilutions arises when inclusion of potential ordinary share increases
the basic earnings per share or decrease the basic loss per share.
It is antidilutive and ignored in computation of diluted earnings per share.
Diluted Earnings per Share
 As if convertible bonds is converted to ordinary share
 As if Convertible preference share is converted to ordinary share
 A if share options and warrants are exercised.
It is an assumptions in computation
______________________________________________________________
CONVERTIBLE BONDS PAYABLE
It assumes that bonds payable is converted to ordinary share
Adjustments is made on ordinary share and net income
Net income add interest expense on bonds net of tax
CONVERTIBLE PREFERENCE SHARE
It also assumes that Preference share is converted to ordinary share
Accordingly, net income is not reduced anymore by the amount of
preference share dividend
The number of ordinary share outstanding is increased by the number of
ordinary share that would have been issued upon conversion of the
preference share.
______________________________________________________________
OPTIONS AND WARRANTS
Share options – granted to employee to acquire ordinary share of the entity
at specified price at definite time
47
Share warrants – granted to shareholder to acquire ordinary share at
specified price at definite period of time.

No cash but can obtain ordinary share lower than prevailing market rate of
interest.

Options and warrants is dilutive if the exercise price is lower than the
average market price of ordinary share.

______________________________________________________________

TREASURY SHARE METHOD

Options and warrants is included in EPS through treasury share method

Treasury method is used to simplify the computation of incremental

ordinary shares that are assumed to be issued for no consideration as a
result of options and warrants.

 Assumed to be exercised at the beg of the current year or date it is

issued
 The proceeds are assumed to be used to acquire treasury share at
average market price.
 The number of incremental ordinary share is equal to the options
share minus the assumed treasury shares acquired.

If the entity has net loss the basic loss per share is the only computed and
PAS 34: INTERIM FINANCIAL REPORTING
reported while diluted is the same as Basic loss per share but not reported.
NATURE
Reason is that the potential ordinary share would always decrease loss per
share and therefore assumed antidilutive. _________________________________________________
Interim Financial Reporting is the preparation of financial statements for a
period of less than one year

 Minimum content on a complete condensed FS

 Quarterly, monthly or semi annual
 Quarterly is the most common

48
Publicly traded companies are encouraged to have At least semi-annually  It is superfluity to provide the same notes in the interim report that
and be available 60 days after the end of interim period appeared in annual FS

It does not mandate which entities are required to publish interim FS how Samples of disclosure in Interim FS
frequently or soon.
 Write-down, NRV and reversal of write-down
PHILIPPINE JURISDICTION  Impairment loss in PPE and intangibles and its reversal
 The reversal of any revision or restructuring
SEC AND PSE entities under REVISED SECURITY ACT are required to file
 Acquisition and disposal of PPE
quarterly financial reports within 45 days after the end of the interim period
 Commitments for purchase of PPE
Also in SEC the entities covered in Rules Commercial Papers and Financing  Litigation settlements
Act File  Correction of Prior period errors
 Changes in economic circumstances that affect the FV of financial
With conformity to PFRS
asset and liabilities
COMPONENTS OF INTERIM FINANCIAL REPORTS  Related party transaction
 Changes in classification of financial asset
 Condensed SFP
 Contingent asset and liabilities
 Condensed SCI
 Condensed IN STATEMENT IN EQUITY _____________________________________________________________
 Condensed SCF
 Selected explanatory notes
BASIC PRINCIPLES

Nothing prohibits the entity to published complete FS rather than
condensed
Thus, whether the two is acceptable
Condensed – headings and subtotals presented in entity’s most recent
annual FS is required but greater detail is not required
_____________________________________________________________
DISCLOSURE
 Disclose if the interim FS is in conformity to PFRS
 The entity shall apply same accounting principles in the interim FS
as compared to annual FS
 The measurement of interim financial reporting purposes shall be
made on a year to date basis.
 Revenues from product sold or services recognized for interim
reports
 Cost and expenses are recognized as incurred
 When the entity is seasonal in addition to interim reports a
disclosure (for the latest 12 mos, comparative information for the
prior comparable 12 month period)
 Preparation of interim reports requires greater use of estimation.

Selected Explanatory notes – explanation of significant event and INVENTORIES

transactions arising since the last annual FS
It shall be measured at lower cost or net realizable value

49
SEASONAL CYCLICAL OR OCCASIONAL REVENUE Interim income tax expense shall be reflect the same gen principles of
income tax accounting applicable to annual reporting.
It shall not be deferred as of an interim date if anticipation or deferral would
not be appropriate at the entity’s reporting period. It is accrued.

UNEVEN COST “The effective tax rate of a particular tax year is applied to the pretax year is
applied to the pre-tax income of the interim period in the same tax year.
Cost that are incurred unevenly during an entity’s financial year shall be
anticipated or deferred for interim purposes.

______________________________________________________________

RECOGNITION OF BONUS

It is anticipated if and only if:

 The bonus is a legal obligation or past practice would make it

constructive
 A reliable estimate of the obligation can be made

Irregular cost

Irregular cost that are not anticipated because they are not incurred
regularly

Depreciation and Amortization

It shall be based on the asset owned during the interim period

Asset planned to purchase will not take to account

Paid vacation and Holiday Leave PAS 36 IMPAIRMENT LOSS

Shall be accrued for interim purposes
NATURE
Gain and Loss
_________________________________________________
 Gain or loss in discontinued operation is not allocated over interim
periods Impairment
 The gain is reported when realized or incurred
 It is the fall in the market value of an asset so that recoverable
Income Tax amount is now less than the carrying amount in SFP

50
  Carrying amount – amount recognized in SFP after deducting
accumulated impairment loss and accumulated dep.
*Asset shall not be carried at above recoverable amount
Indication of Impairment
External Sources
 Significant decrease or decline in market value of asset as a result of
passage of time
 Significant change in the technological, market legal or economic
environment
 An increase in the interest rate or market rate of return
 The carrying amount of net asset is more than market capitalization.
(CA exceeds the fair value)
Market capitalization – fair value of net asset
Internal Source
 Obsolescence or physical damage
 Significant change due to restructuring of asset
 Economic performance of asset worse.
MEASUREMENT
MEASUREMENT OF RECOVERABLE AMOUNT
 Recoverable amount – fair value less cost of disposal or value in use
 Fair Value – price received to sell an asset
Cost of Disposal – incremental cost directly attributable to disposal of an
asset not (finance cost and tax
Value in Use – is measured as the present of net cash flow
Calculation of Value in Use
 Cash flow projection (reasonable and supportable assumptions
 Cash flow should be based on most recent budgets max 5 years
 Discount rate (Current pretax rate)
Composition of Estimates of Future Cash flow
 Projection of cash inflow from continuing use of asset
 Projection of cash outflow necessarily incurred to generate the cash
inflow
 Net cash flows received or paid on the disposal.
Not include the following
 Future cash flows relating to restructuring
 Future costs
 Cash flows in financing
 Income receipts and payments
______________________________________________________________
RECOGNITION
Recoverable amount is less than Carrying amount impairment incurred
The impairment is recognized in profit or loss
Recoverable amount higher
 Value in use
 Fair value less cost of disposal
______________________________________________________________
REVERSAL OF IMPAIRMENT OF LOSS
 Change in estimate in recoverable amount
51
It shall be recognized in the income statement (gain on reversal of
impairment loss
Impairment loss recognized for goodwill shall not be reversed
Cash Generating Unit
 Is the smallest identifiable group of asset that generate cash inflows
from continuing use that are largely independent of cash inflows
from other asset.
Segments of business that generates revenue independently.
The impairment loss is recognized for a cash generating unit
 Goodwill
 Non cash asset (pro rata will be used)
 Existing liabilities of uncertain timing or uncertain amount
 Uncertainty
 may be equivalent of an estimated liability or loss contingency that
is accrued cause it is both probable and recoverable
______________________________________________________________
RECOGNITION
 has a present obligation legal constructive as a result of past event
 Probable outflow of economic benefit
 Amount can be measured reliably
Present Obligation – may be legal or constructive due to past event.
Legal obligation – arising from contract, legislation or other operation of
law

Constructive Obligation – derived from entity’s action. Entity from

established pattern of practice or stated policy has created.

Past event that leads to present obligation “obligating event” – give rise to
constructive or legal obligation

 A provision cannot be created in anticipation of future event

The event must already have occurred that give rise to constructive or legal
obligations

The probability of outflow of an event is more than 50%

 Possible – 50% or less

PAS 37 PROVISION, CONTINGENT  Remote – 10% or less

LIABILITY AND ASSET Reliable Estimate

NATURE No reliable estimate no liability recognized

______________________________________________________________
_________________________________________________
MEASUREMENT
Provision
52
Best estimate – of the expenditure required to settle present obligation  Not recognized because it is not probable of outflow of economic
(sometimes weighted) benefit
 Cannot measured reliably
Measurement of Consideration
_____________________________________________________________
 Risk of uncertainty
 Present value of obligation DISCLOSURE REQUIRMENT
 Future event
 Brief description of nature
 Expected disposal
 An estimate of its financial effects
 Reimbursement
 An indication of the uncertainties’ that exist
 Change in provision
 Possibility or reimbursement
 Use of provision
 Future operating loss Contingent Asset
 Onerous contract
 Possible asset that arises from past event
Risk – variability of outcome (may increase the amount of liability when  Existence concurrence or non-concurrence of an event
measured)  Disclose when probable
 When remote or possible not disclose
Provision shall not be recognized as future operating loss

Onerous contract – contract in which the unavoidable cost of meeting the

obligation under the contract exceed

EXAMPLES OF PROVISION

 Warranties
 Environmental contamination
 Abandonment cost
 Court case
 Guarantee

Contingent liability
PAS 38: INTANGIBLE ASSETS
 Possible obligation that arises from past event
 Existence concurrence or non-concurrence of an event NATURE
When to disclose Contingent Liability
_________________________________________________
 Present obligation
Intangible Assets
53
  Identifiable non-monetary asset without physical substance  Only on disposal
 Controlled by an entity, result of past event, future cash flow  When no future economic benefits are expected from its use

Essential Criteria Research –is original and planned investigation undertaken with the
prospect of gaining scientific or technical knowledge and understanding?
 Identifiability
 Control Development – application on research findings or other knowledge or plan
 Future economic benefits or design

Identifiability – nonphysical items ______________________________________________________________

 Separable MEASUREMENT
 It arises from contractual or legal rights
Initially measured at cost
Control
The cost include:
 the power of the entity to obtain the future economic benefits
 Purchase price
flowing from the intangible asset
 Import duties and purchase tax
 able to enjoy future economic benefits
 Directly attributable cost
 Stem from legal rights
Recognized as Expensed
Future Economic Benefits
 Start-up cost
 Revenue from the sale of products
 Training cost
 Cost of savings or benefits resulting from the use of the asset.
 Advertising and Promotional cost
 Business relocation and reorganization cost

Measurement after recognition

Cost Model

 Shall be carried at cost less any accumulated amortization and any

accumulating impairment loss
RECOGNITION
Revaluation Model
 Probable economic benefits
 Cost can be measured reliably  Shall be carried at revalued amount less any subsequent
amortization and any subsequent accumulated impairment loss
______________________________________________________________

DERECOGNITION
54
AMORTIZATION – systematic allocation of the amortizable amount of
amount over their useful life.
 Finite life of Intangibles are amortized over their useful life
 Indefinite life are not amortized
Amortization shall cease when intangibles are derecognized
______________________________________________________________
INVESTMENT PROPERTY
 Land or building held to earn rentals or for capital appreciation or
both.
 It generates its own cash flows independently
INVESTMENT PROPERTY ARE NOT:
1. Owner-Occupied Property – held for use in the production or supply of
good and services,
2. Administrative purposes.
3. Not held for the sale in the ordinary course of business.
_________________________________________________________

RECOGNITION

INVESTMENT PROPERTY CAN BE RECOGNIZED WHEN:

 There’s an expected future economic benefits will flow to the entity.
 The cost can be measured reliably.
_________________________________________________________

MESUREMENT
COST= PURCHASE PRICE + DIRECT ATTRIBUTABLE COST
Cost- shall be measured at cash price equivalent, if deferred, discount it to
the present value.

FAIR VALUE MODEL

 It measured at fair value

 Investment property shall be re-measured at least at the end of
each reporting period.
 Any gain or loss from re-measurement, it should be recognized as
Profit or Loss in the statement.
PAS 40  No depreciation.
INVESTMENT PROPERTY
2. COST MODEL
 It measured at cost less accumulated depreciation less impairment
NATURE
loss.
_________________________________________________ _________________________________________________________

55

CHANGE IN USE
 Transfer to or from investment property are made only when there
is a change in use.
 Commencement of owner-occupation, for a transfer from
investment property to PPE
 End of owner-occupation, for a transfer from PPE to investment
property.
 Commencement of an operating lease to another party, for a
transfer from inventories to investment property
 Commencement of development with a view to sale, for a
transfer from investment property to inventories.
DERECOGNITION
 On disposal by sale or entering into finance lease
 No economic benefit expected or when permanently with drawn
from use.
GAIN OR LOSS = NET DISPOSAL PROCEEDS LESS CARRYING AMOUNT.
PAS 41
AGRICULTURE
Nature
__________________________________________
AGRICULURE
 Farming or the process of producing crops and raising livestock.
AGRICULTURAL ACTIVITY - The management of biological transformation
(such as biological growth) of a biological asset for the purpose of sakes of
that asset
 Biological asset, except bearer plants
 Agricultural produce at the point of harvest
 Unconditional government grants related to a biological asset.
BIOLOGICAL ASSET – Living plant and animals.
o Consumable – harvested as agricultural produce or sold as biological
asset.
o Bearer – held to bear produce.
BEARER PLANT - a living plant that:
 Used in the production or supply of agricultural produce
 Expected to bear produce for more than one period
 Remote likelihood of being sold as agricultural produce except for
incidental scrap sales.
AGRICULTURAL PRODUCE – harvested produced from biological asset,
natural state not yet processed.
AGRICULTURAL ACTIVITY – The management by an entity of the biological
transformation and harvest of biological asset for sale or for conversion into
agricultural produce or into additional biological asset.
RECOGNITION
 Entity controls the asset as a result of past events
 There is a probable future inflow of economic benefits
 Fair value or cost can be measured reliably.
MEASUREMENT
56

 Fair value less cost of sales.
 Gain or loss on initial recognition is presented in profit or loss.
 If fair value is not initially reliably measured, then biological
asset is measured at cost less accumulated depreciation and
impairment.
 COST LESS DEPRECIATION LESS IMPAIRMENT MODEL
 REVALUATION MODEL
PRESENTATION
Biological assets are presented separately from other non-current asset,
agricultural produce is presented in non-current asset, and agricultural
produce is presented in inventory.
GOVERNMENT GRANT
 Only government grant that are related to biological asset
measured at fair value less cost to sell are accounted for under PAS
41.
PFRS 1: FIRST TIME ADOPTION OF PFRS
NATURE
_________________________________________________
 First time adopter is an entity presents its FS in conformity with the
PFRS
First PFRS FS are the first annual statements in which an entity adopts PFRS
by an explicit and unreserved statement o compliance with PFRS
Conditions:
Previous FS are presented:
 Under GAAP inconsistent to PFRS
 Conformity with PFRS but did not contain explicit and unreserved
statement compliance to PFRS
 Explicit statement but not all
When an entity prepare FS under PFRS but for internal use only
FS conforms with PFRS but for consolidation and not complete set of FS
Entity did not present FS in previous period
Date Transition to PFRS – refers to the beginning of the earliest period for
which an entity presents full comparative information under PFRS in its first
PFRS FS
Depends to two Factors
 Date of adoption
 The number of years of comparative information
Opening PFRS statement of financial position – is the SFP prepared by the
first time adopter on the date of transactions to PFRS
RECOGNITION AND MEASUREMENT
 Recognize all asset liability required by PFRS
 Derecognize assets and liabilities not permitted by PFRS
 Reclassify items that recognized by GAAP but a different type in
PFRS
 Measure all recognized assets and liabilities under PFRS
Any adjustment is on retained earnings of equity
57
______________________________________________________________ Share based compensation plan is a compensation arrangement
established by an entity whereby the entity’s employee shall receive equity
PRESENTATION
shares in exchange for their services.
FIRST PFRS FINANCIAL STATEMENTS
Compensation plans – usually tied up with the performance in a strategy
1. Three SFP at the end of the current year at the end of the prior year that uses compensation to motivate the recipients
at date of transition
Classification
2. Two SCI prior and current
3. Two separate IS prior and current Equity Settled - uses entity’s equity instruments like share options
4. Two COI current and prior
5. Two SCF current and prior Cash Settled – entity incurs liability for services and liability is based on
6. Notes to FS comparative information. equity instruments (share appreciation rights)

Share Options – granted to employees of key officers to acquire shares of

entity in specified period of time

______________________________________________________________

MESUREMENT
Share options is measured using:

 Fair Value method – compensation is equal to the FV of the share

options on the date of grant
 Intrinsic Value method – excess of the market value of the share
over price

______________________________________________________________

RECOGNITION

PFRS 2 SHARE BASED PAYMENT  Share options is vest immediately (expense in full immediately)
 Share option do not vest immediately – (expense over the period or
NATURE vesting)

________________________________________________ ACCELERATION OF VESTING

When an entity cancels or settles a grant of share options during the vesting
period account as acceleration of vesting.

58
  The entity shall recognized immediately the compensation expense
that otherwise would have been recognized for services.
 The payment made to employee in settlement is recognized as
repurchase equity interest.
Any amount excess of the FV of the share options is expensed
______________________________________________________________
Share appreciation right
 Entitle to a cash payment which is equal to the excess of the market
value of the entity’s share over a predetermined price
 It creates a liability
Measurement of Compensation
The compensation is based on FV of the liability at the reporting date and
shall be measured at every year end until it is finally settled
Changes in FV is included in the profit or loss
FV liability is excess of market value of shares over a predetermined price
for a given number of shares over a definite vesting period.
______________________________________________________________
RECOGNITION
 Appreciation right is vest immediately it is expensed immediately
 Appreciation right is not vest compensation is recognized over the
vesting period
PFRS 5: NONCURRENT ASSET HELD FOR
SALE
NATURE
_________________________________________________
Non-current asset is an asset that does not meet the definition of a current
asset
Disposal group is a group of asset to be disposed of by sale otherwise,
together as a group in a single transaction
Conditions for Classification as held for sale
Non-current asset or disposal group is held for sale if the following
conditions are meet
 The asset or disposal group is available for immediate sale in
present condition
 The sale must high probable
Definition of High Probable
 Management must be committed to a plan to sell the asset or
disposal group
 An active program
 Expected to be sale in one year
 Sale price is reasonable
______________________________________________________________
MEASUREMENT
An entity shall measure a noncurrent asset or disposal group classified as
held for ale at the lower carrying amount or fair value less cost of disposal.
Write-down to fair value less cost of disposal
 Write-down is attributed to impairment loss
 If FV of asset is lower than carrying amount
Abandoned Non-current Asset
Entity shall not classify held for sale a non-current asset or disposal group
that is abandoned
59
This is because the CA will be recovered principally through continuing use
of the non-current asset to be used until the end of economic life.
Change in Classification
Entity shall measure the non-current asset that ceases to be classified as
held for sale at the lower between:
Mineral resources includes minerals, oil, natural gas and similar non-
regenerative resources
Exploration and evaluation of mineral resources
 the search for mineral resources after the entity has obtained
legal right to explore in a specific area

 Carrying amount of the asset on the basis that the asset had not
been classified as held for sale.
 Recoverable amount at the date of the subsequent decision not to
sell.
______________________________________________________________
PRESENTATION
PFRS 5 paragraph 3 provides that asset classified as non-current in
accordance with PAS 1 shall not be reclassified as current asset until they
meet the criteria to be classified as held for sale.
Exploration and evaluation expenditures
 expenditures incurred by an entity in connection with the
exploration and evaluation of mineral resources before the
technical feasibility and commercial viability of extracting a
mineral resource
 May qualify as exploration and evaluation asset
Exploration cost
 the cost incurred in an attempt to locate the natural resource
that can economically be extracted

Asset classified as held for sale shall be presented separately from the Exploration and evaluation expenditures do not include
current assets. expenditures incurred:
 Before an entity has obtained the legal right to explore a
PFRS 5 Paragraph 38 provides that if the non-current asset is a disposal specific area.
group classified as held for sale the assets and liabilities of the group shall  After the technical feasibility and commercial viability of
be presented separately and cannot be offset as a single amount
extracting a mineral resource are demonstrable.
Development cost
 the cost incurred to extract the natural resource that has been
located through successful exploration
Exploration and Evaluation Expenditures:
PFRS 6: EXPLORATION AND EVALUATION 1. Acquisition of rights to explore
2. Topographical, geological, geochemical and geophysical studies
OF MINERAL RESOURCES 3. Exploratory drilling
4. Trenching
NATURE 5. Sampling
_________________________________________________
60
6. Activities in relation to evaluating the technical feasibility and
commercial viability of extracting a mineral resource
7. General and administrative costs directly attributable to
exploration and evaluation activities
MEASUREMENT
Exploration and evaluation asset shall be measured initially at cost.
After initial recognition, an entity shall apply either the:
• Cost model
• Revaluation model
Classification
Exploration and evaluation asset is classified either as tangible asset
or intangible asset.
Two methods of accounting for exploration cost:
 Successful effort method – the exploration cost directly
related to the discovery of commercially producible natural
resource is capitalized as cost of the resource property (large
oil entities)
 Full cost method – all exploration cost successful or
unsuccessful are capitalized as cost of successful resource
discovery (small oil entities)
PFRS 8: OPERATING SEGMENTS
NATURE
Entity is required to disclose information to enable users of its financial
statements to evaluate the nature and financial effects of the business
activities in which it engages and the economic environments in which it
operates.
Segment reporting
 Disclosure of certain financial information about products and
services an entity produces and geographical area.
Scope
PFRS 8 It applies to the separate or individual financial statements
of an entity and to the consolidated financial statements of a group with a
parent:
a. Whose debt or equity instruments are traded in a public market; or
b. That files, or is in the process of filing, its financial statements with a
securities commission
If the financial report contains both, segment information is required
only in the consolidated financial statements
___________________________________________________________
Operating Segments
An operating segment is a component of an entity:
a. Engages in business activities from which it may earn revenues and
incur expenses
b. Whose operating results are regularly reviewed by the entity’s chief
operating decision maker
c. For which discrete financial information is available.
Operating Segment
 A distinguishable component of an entity that is engaged in
business activities which generate and incur expenses.
61
  The segment and its operating results shall be regularly reviewed
by a chief operating decision maker
Chief Operating Decision Maker
 Allocate resources to the segments and asses their performance
 May be CEO, or COO
______________________________________________________________
Identifying Operating Segment
 The management approach is used in identifying operating
segments.
 Management approach - means that the operating segments are
identified on the basis of internal reports about components of an
entity that are regularly reviewed by the CODM
 It is important for internal management reporting purposes
Reportable operating segments
QUANTITATIVE THRESHOLDS
 10% of all revenue in operating segments
 The absolute amount of its reported profit or loss is 10 percent or
more of the greater, in absolute amount, of:
 Its assets are 10% or more of the combined assets of all operating
segments.
Aggregation of Segments
Two or more operating segments may be aggregated if the segments are
similar in each of the following respects:
a) The nature of the products and services
b) The nature of the production processes
c) The type or class of customer for their products and services
d) The methods used to distribute their products or provide their
services
e) The nature of the regulatory environment.
___________________________________________________________
DISCLOSURE
Information to be disclosed for each segment
1. General information about the operating segment
2. Information about profit and loss, (measurement)
3. Information about segment assets and segment liabilities and the
basis of measurement
4. Reconciliations of the totals of segment, other material segment
items to corresponding items in the entity’s financial statements.
Disclosure about general information
An entity shall disclose the following general information about an
operating segment:
a. Factors used to identify the reportable segments
b. Types of products and services
Disclosure of profit or loss, assets and liabilities
An entity shall report a measure of profit or loss and total assets for
each reportable segment only if this information is regularly provided to
the CODM.
Entity Wide – Disclosure additional information not provided by
reportable segment information.
Shall disclose about the following:
a. Information about products and services
b. Information about geographical areas
62
 c. Information about major customers
Disclosure of Revenue from product and services
An entity shall disclose the revenue from external customers for
each product and service
Disclosure of major customer 10% of overall external
revenue.
Not required to disclose the identity of the major customer.
PFRS 9: FINANCIAL INSTRUMENTS
NATURE
Financial Instrument
 any contract that gives rise to a financial asset of one entity
and a financial liability or equity instrument of another entity
Equity Security
 encompasses any instrument representing ownership shares
and right, warrants or options to acquire or dispose of
ownership shares at a fixed or determinable price
 Represent ownership interest in an entity
Debt Security
 any security that represents a creditor relationship with an
entity
 Has maturity date and a maturity value
Financial Asset Held for Trading
 It is acquired principally for the purpose of selling or
repurchasing.
 On initial recognition it is part of identified financial asset
 It is a derivative
Financial Asset at FVOCI
 An entity may make an irrevocable election to present in the
OCI subsequent changes in FV of an investment in equity
securities that is not held for trading
 The amount is in OCI and are not reclassify to PnL
 The derecognition, the amount may be transferred to retained
earnings
 Irrevocable approach - designed to impose discipline in
accounting for non-trading equity investment
MEASUREMENT
Measurement of Financial Asset
63
Initial measurement
 at fair value plus, in the case of financial asset not at fair value
through profit or loss
**Transaction costs that are directly attributable to the acquisition
of the financial asset shall be capitalized as cost of financial asset
**Financial asset held for trading or if measured at fair value
through profit or loss, transaction costs are expensed outright
Subsequent measurement
1. Fair value through profit or loss
1. Fair value through other comprehensive income
2. Amortized cost
9. Held for collection of contractual cash flows - at amortized cost
10. Held for collection of contractual cash flows - at fair value through
profit or loss by irrevocable designation or fair value option
11. Held for collection of contractual cash flows and for sale of the
financial asset - at fair value through other comprehensive
income
12. Held for collection of contractual cash flows and for sale of the
financial asset - at fair value through profit or loss by irrevocable
designation or fair value option

Measurement of Equity Investments

1. Held for trading - at fair value through profit or loss

3. Not held for trading - as a rule, at fair value through profit or loss
4. Not held for trading - as a rule, at fair value through other
comprehensive income by irrevocable election
5. All other investments in quoted equity instruments - at fair value
through profit or loss
6. Investments in unquoted equity investments - at cost
7. Investments of 20% to 50% - equity method of accounting
8. Investments of more than 50% - consolidation method to be
taken up in an advanced accounting course
_________________________________________________________

Measurement of Debt Investments

1. Held for trading - at fair value through profit or loss PFRS 11: JOINT ARRANGEMENTS
64
 NATURE  Ensures that no single party is in a position to
control the activity unilaterally.
_________________________________________________
JOIN ARRANGEMENTS JOINT CONTROL
 It prescribes the principles for financial reporting by parties to  Is the contractually agreed sharing of control of an
a joint arrangement. arrangement, which exists only when decisions about the
 Is an arrangement which two or more parties have joint relevant activities require unanimous consent of the
control parties sharing control.
ESSENTIAL ELEMENTS  An investor obtains joint control over an investee through
a. Contractual arrangement a contractual arrangement with fellow investors.
b. Joint control  No single party obtains leverage over another in respect of
voting rights over financial and operating decisions.
CONTRACTUAL ARRANGEMENT  Exists when all the parties sharing joint control over the
arrangement act collectively (or together) in directing the
 sharing of joint control over an investee distinguishing activities that significantly affect the returns of the
interests in joint arrangements from other investments; arrangement.
 Investments in equity securities measured at fair value  It is sufficient that at least two of those parties share joint
 Investment in associate control.
 Investment in subsidiary
PFRS 11 DISTINGUISHES BETWEEN
Is usually in writing and deals with such matters as:
a. The activity, duration, and reporting obligations of the a. Parties that have joint control of a arrangement (referred to as
joint arrangement; joint operators or joint venturers)
b. The appointment of the board of directors or equivalent b. Parties that participate in, but do not have joint control of, a
governing body of the joint arrangement and the voting joint arrangement.
rights of the parties;
c. Capital contributions by the parties; and PARTY TO A JOINT ARRANGEMENT
d. The sharing by the parties of the output, income, expenses  It is an entity that participates in a joint arrangement,
or results of the joint arrangement. regardless of whether that entity has joint control of the
 Establishes joint control over the joint arrangement.
arrangement.  Judgment when determining the type of arrangement:

65
 a. Considering its rights and obligations arising from the parties that have joint control are referred to as joint
arrangement. ventures.
b. Assessing its rights and obligations in relation to the:
_________________________________________________________
i. Structure and legal form of the arrangement
ii. Terms of the contractual arrangement, and MEASUREMENT
iii. Other facts and circumstances
 Under joint ventures, if the entity determines that it has an
SEPARATE VEHICLE
interest in a joint venture, the entity recognizes that interest
 a separately identifiable financial structure, including separate as an investment and account for it using the equity method.
legal entities or entities recognized by statute, regardless of  Under the equity method, the investment is initially
whether those entities have a legal personality. recognized at cost and subsequently adjusted for the
investor’s share in the changes in the equity of the investee.
PARTICIPANT TO A JOINT OPERATION
_________________________________________________________
 a party that participates in, but does not have joint control of,
a joint operation shall account for its interest in the PRESENTATION IN THE FINANCIAL STATEMENT
arrangement.
 Joint operator recognizes its own assets, liabilities, income and
PARTICIPANT TO A JOINT VENTURE expenses plus its share in the joint operation’s assets,
liabilities, income and expenses. These items are accounted
 a party that participates in, but does not have joint control of,
for under other PFRSs applicable to the particular assets,
a joint venture shall account for its interest in the
liabilities, income and expenses.
arrangement in accordance with PFRS 9, unless it has
 investments accounted for under the equity method are
significant influence over the joint venture.
presented as noncurrent assets in the statement of financial
_________________________________________________________ position, except when they are classified as held for sale in
accordance with PFRS 5
RECOGNITION

 If the contractual arrangement confers to the parties that

have joint control rights to the assets and obligations for the
liabilities of the joint arrangement, the joint arrangement is a
joint operators.
 If the contractual arrangement confers to the parties that
have joint control rights to the net assets of the joint
arrangement, the joint arrangement is a joint venture. The
66
PFRS 12 Disclosure of Interest in Other Entities
NATURE
________________________________________________________
Interest in another entity
 It refers to involvement that exposes an entity to variability of
returns from the performance of another entity.
 Evidenced by the holding of equity or debt instruments or other
form of involvement.
 It includes the means by which an entity obtains control, joint
control, or significant influence over another entity.
PFRS 12 applies to entities that have an interest in a
a. Subsidiary;
b. Joint arrangement (i.e., Joint operation or Joint venture
c. Associate; or
d. Unconsolidated structured entity.
______________________________________________________________
DISCLOSURE
Significant judgments and assumption
a. Existence of control, joint control or significant influence over an
investee
b. The type of joint arrangement (i.e. joint operation or joint venture)
when the arrangement has been structure through a separate
vehicle.
Investment entity status
Investment entity
a. Obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management services;
b. Commits to its investor(s) that its business purpose is to invest
funds solely for returns from capital appreciation, investment
income, or both; and
c. Measures and evaluates the performance of substantially all of its
investments on a fair value basis.”
PFRS 12 requires the following disclosures for an investment entity:
a. Significant judgments and assumptions that the entity has made
determining whether the entity is an investment entity.
b. Changes in the entity's status as an investment entity
c. An entity that becomes an investment entity discloses the following:
i. the total fair value, as of the date of change of status, of the
subsidiaries that cease to be consolidated;
ii. The total gain or loss and the line item in which that gain or loss is
recognized, if not presented separately.
Interests in Subsidiaries
PFRS 12 requires the following disclosure in a subsidiary:
a. The composition of the group.
67
 i. Name of subsidiary, its principal place of business, and country of Summarized financial information about the joint venture or associate
incorporation. which includes the following:

ji Interests or voting rights held by non-controlling interest (NCI). i. current and non – current assets
ii. current and non – current liabilities
iii. Profit or loss allocated to NCI during the period
iii. revenue
iv. NCI in net assets as of the end of the period.
iv. profit or loss.
v. Dividends paid to NCI.
v. post-tax profit or loss from discontinued operations
vi. Summary of the subsidiary's assets, liabilities, profit or loss and cash
vi. other comprehensive income
flows.
vii. total comprehensive income
b. The nature and extent of significant restrictions on the entity's ability to
h. For material joint venture, the entity discloses the amounts of the
access assets and settle liabilities of the group.
following:
c. The effects of changes in ownership interest that (i) do not result in a loss
i. cash and cash equivalents
of control; and (ii) result in a loss of control.
ii. current and noncurrent financial liabilities (excluding trade and
d. If a subsidiary uses a different reporting period, the entity discloses that other payables and provisions)
fact and the reason thereof. iii. depreciation and amortization
iv. interest income and interest expense
_____________________________________________________________ income tax expense or benefit
Interests in Joint Arrangements and Associates
i. The entity discloses the following in aggregate and separately all
PFRS 12 requires the following disclosures for an entity in a joint investments in joint ventures and associates that are not
arrangement or associate that is material individually material:
a. Name of the joint arrangement or associate its principal place of i. The carrying amount of all individually immaterial investments in joint
business, and country of incorporation ventures or associates that are accounted for using the equity method
b. Nature of the entity's relationship with joint arrangement or associate. i. Profit or loss from discontinued operations
c. Ownership interest, participating share voting rights held by the entity. ii. Post-tax profit or loss from discontinued operation
iii. Other comprehensive income
d. Measurement of the investment. iv. Total comprehensive income
e. If the equity method is used, the entity shall disclose the FV of the j. The nature and extent of any significant ability of joint ventures or
investment, if there is a quoted market price for the investment associates to transfer funds to the entity in the form of cash dividend, or
repay loans or advances made by the entity.
f. Dividends received from the joint venture or associate

68
e. If a joint venture or associate uses a different reporting period, the entity
discloses that fact and the reason thereof.
f. Unrecognized share of losses of a joint ventures
g. Commitments relating to joint ventures.
h. Contingent liabilities relating to joint ventures and associate unless the
probability of loss is remote.
Interests in unconsolidated structured entities
A structured entity is an "entity that has been design so that voting or
similar rights are not the dominant factor forte who controls the entity,
such as when any voting rights relate administrative tasks only and the
relevant activities are di by means of contractual arrangements.”
Examples of structured entities:
iii. The best estimate of the entity's maximum exposure to loss from its
interests in unconsolidated structured entities including how the
estimate is determined. If the maximum exposure to loss cannot
quantified, that fact is disclosed including the reasons therefor
c. If during the reporting period the entity has, without having a
contractual obligation to do so, provided financial or other support
to an unconsolidated structured entity, the entity discloses:
i. the type and amount of support provided, including
situations in which the entity assisted the structured entity
in obtaining financial support; and
ii. the reasons for providing the support.
d. Any current intentions to provide financial or other support to an
unconsolidated structured entity, including intentions to assist the
structured entity in obtaining financial support.

a. Securitization vehicles.

b. Asset-backed financings.

c. Some investment funds.

PFRS 12 requires the following disclosures for an entity’s interest in an

unconsolidated structured entity:

a. Qualitative and quantitative information about the interest in an

unconsolidated structured entity, including the nature, purpose, size and
activities of the structured entity and how the structured entity is financed.

b. Summary of the following in a tabular format, unless another format is

more appropriate:

i. Carrying amounts of the assets and liabilities recognized in the

entity’s financial statements relating to its interests in
unconsolidated structured entities.
ii. The line items in the statement of the financial position in which
those assets and liabilities are recognized.

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 Principal or most advantageous market

Active market- transactions for the asset or liability take place with
sufficient regularity and volume
PFRS 13 Fair Value Measurement
Principal market- market with the greatest volume and level of activity for
NATURE the asset or liability

_________________________________________________________ If there's no principal market, the most advantageous market should be

considered.
Fair value of an asset
Most advantageous market
 the price that would be received to sell an asset in an orderly
transaction between market participants  maximizes the amount that would be received to sell the asset
 minimizes the amount that could be paid to transfer the liability
Fair value of liability
General market that entity enters:
 the price that would be paid to transfer a liability in an orderly
transaction between market participants  Principal market
i. Fair value means an "exit price" or market price under current  Most advantageous market
market conditions at measurement date. ______________________________________________________________
ii. Fair value is the price in an orderly transaction.
Valuation premise
Orderly transaction
 to determine fair value, entity may refer to information that are
 Transaction that allows for normal marketing activities that are directly observable or readily available
usual and customary.  fair value can be estimated through valuation model
**Fair value is the price agreed upon by market participants.  fair value shall not be adjusted for transaction cost
 if location is a characteristic of an asset, fair value shall be adjusted
for transport cost
Market Participants - buyers and sellers in the principal market _____________________________________________________________
A. Independent or unrelated parties MEASUREMENT
B. Knowledgeable of the transaction Highest and best use
C. Willing or motivated to enter into the transaction  use of nonfinancial asset by market participants that would
minimize the value of asset
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  might provide maximum value either on a stand-alone basis , or as a
group in combination with other asset and liability
a) Physically possible - reflects the physical characteristics of an asset
b) Legal permissible - reflects any legal restrictions on the use of the
asset
c) Financially feasible - reflects whether the use would generate
sufficient income or cash flows
Valuation Method
a. Market approach - uses prices and relevant information for market
transaction for identical and comparable asset and liability
b. Income approach - focuses on converting future amounts into
discounted cash flows
c. Cost Approach - relies on the current replacement cost to replace the
asset with a comparable asset
_____________________________________________________________
Fair value hierarchy
1. Level 1 inputs - the quoted prices in an active market for identical asset
or liability
2. Level 2 inputs - inputs that are observable either directly or indirectly
- include quoted prices for similar asset or liability in an active
market and quoted prices for identical or similar asset or liability in
an active market
3. Level 3 inputs - are unobservable inputs for the asset or liability
- include the present value of estimated cash flows
Unobservable inputs - usually developed by the entity using the best
available information
PFRS 14
REGULATORY DEFFERAL ACCOUNTS
NATURE
________________________________________________
Rate regulation - A framework for establishing the prices that can be
charged to customers for goods and services and that framework is subject
to oversight and/or approval by a rate-regulator
Rate regulator - An authorized body that is empowered by statute or
regulation to establish the rate or range of rates that bind an entity. The
rate regulator may be a third-party body or a related party of the entity,
including the entity's own governing board, if that body is required by
statute or regulation to set rates both in the interest of customers and to
ensure the overall financial viability of the entity
Regulatory deferral account balance - The balance of any expense (or
income) account that would not be recognized as an asset or a liability in
accordance with other Standards, but that qualifies for deferral because it is
included, or is expected to be included, by the rate regulator in establishing
the rate(s) that can be charged to customers
______________________________________________________________
PRESENTATION
The impact of regulatory deferral account balances is separately
presented in an entity's financial statements. This requirement applies
regardless of the entity's previous presentation policies in respect of
regulatory deferral balance accounts under its previous GAAP. Accordingly:
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  Separate line items are presented in the statement of financial
position for the total of all regulatory deferral account debit
balances, and all regulatory deferral account credit balances
 Regulatory deferral account balances are not classified between
current and non-current, but are separately disclosed using
subtotals
 The net movement in regulatory deferral account balances are
separately presented in the statement of profit or loss and
PFRS 15 REVENUE FROM CONTRACTS
Other comprehensive income using subtotals WITH CUSTOMERS
The Illustrative examples accompanying PFRS 14 set out an illustrative
presentation of financial statements by an entity applying the Standard. NATURE

______________________________________________________________
DISCLOSURE
PFRS 14 sets out disclosure objectives to allow users to assess:
 the nature of, and risks associated with, the rate regulation that
establishes the price(s) the entity can charge customers for the
goods or services it provides - including information about the
entity's rate-regulated activities and the rate-setting process, the
identity of the rate regulator(s), and the impacts of risks and
uncertainties on the recovery or reversal of regulatory deferral
balance accounts
 the effects of rate regulation on the entity's financial statements -
including the basis on which regulatory deferral account balances
are recognised, how they are assessed for recovery, a reconciliation
of the carrying amount at the beginning and end of the reporting
period, discount rates applicable, income tax impacts and details of
balances that are no longer considered recoverable or reversible.
_________________________________________________
PFRS 15 is the new global framework for revenue recognition.
Revenue – is the income in the ordinary course of business activities.
Income – increase in economic benefit during the accounting period in the
form of an inflow or enhancement of asset or decrease in liability that
results in an increase in equity.
PFRS applies to all contracts with customers except:
a. Leases under PFRS 16
b. Insurance contracts under PFRS 17
c. Financial Instrument
Core Principle
1. An entity should recognize revenue in a manner that depicts the
pattern of transfer of goods or services to a customer.
2. Revenue should reflect the consideration to which the entity
expects to be entitled in exchange for goods or service.

______________________________________________________________

RECOGNITION
RECOGNITION OF REVENUE

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 a. At point in time  Adjusted for discount rebates and such
b. Over time
Factors affecting the transaction price
FIVE STEP MODEL
 Variable consideration
1. Identify the contract  Time value of money
2. Identify the performance obligation  Non cash consideration
3. Determine the transaction price  Consideration payable to a customer
4. Allocate the transaction price to the performance obligation
5. Recognize the revenue

Identifying the Contract Variable consideration – included in the transaction price when it is highly
probable that a significant reversal of revenue.
Contract
Time Value of Money
 An agreement between two or more parties that creates
enforceable rights and obligations in a contract.  If the contract has a significant financing component the
 Written, oral or implied consideration should be adjusted for time value of money

Contract Criteria: Noncash Consideration is measured at fair value

a. The parties approved the contract Consideration payable to customer

b. Rights and obligation can be identified  The entity needs to determine if consideration payable to customer
c. Payment terms can be identified may result in a reduction of the transaction
d. It has a commercial substance
e. Collection of consideration is probable Allocation of transaction price

**Generally, contracts should be accounted for separately. Stand-alone selling price – price that the entity would sell a promised good
or service separately to a customer
Identify the performance obligation
Determination of Stand-alone selling price:
Performance obligation
a. Adjusted market assessment approach
 Is a promise to deliver a good or service in a contract with customer. b. Expected cost plus margin approach
Determine the Transaction price c. Residual approach

Transaction Price Adjusted Market Assessment Approach

 Amount consideration in a contract to which an entity expects to be  Means an entity refer the prices the competitors for similar goods
entitled in exchange for transferring goods or service to a customer. adjusted to specific cost or margin

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Expected cost plus margin approach  It is a contract under which an entity bills a customer for a product
but the entity retains possession of the product.
 Entity forecast expected cost to satisfy the performance obligation
adjusted for an appropriate margin.

Residual Approach

 Used only when either the selling price of good or service is highly
variable or is uncertain.

Recognition of Revenue
PFRS 16 LEASES
 Recognize revenue when or as it satisfies a performance obligation.

RECOGNITION AT POINT IN TIME NATURE

_________________________________________________
a. Has right to receive payment
b. Has legal title to the asset  Interest rate implicit in the lease - The interest rate that yields a
c. Has transferred physical possession of the asset present value of
d. Customer has significant risk and rewards of ownership of the asset (a) The lease payments and
e. Customer accepted the asset (b) The unguaranteed residual value equal to the sum of
(i) The fair value of the underlying asset and
RECOGNITION OVER TIME (ii) Any initial direct costs of the lessor.
a. Customer simultaneously receives  Lease term - The non-cancellable period for which a lessee has the
b. Entity creates or enhances an asset that the customer controls right to use an underlying asset, plus:
a) Periods covered by an extension option if exercise of that
SALE OF GOODS option by the lessee is reasonably certain;
b) Periods covered by a termination option if the lessee is
**Goods are sold in the ordinary course of business, revenue is recognized reasonably certain not to exercise that option
unquestionably at the point of sale  Lessee’s incremental borrowing rate - The rate of interest that a
lessee would have to pay to borrow over a similar term, and with a
Consignment
similar security, the funds necessary to obtain an asset of a similar
 Method of marketing goods in which the entity (consignor) transfer value to the right-of-use asset in a similar economic environment.
physical possession of certain goods to (consignee) ______________________________________________________________
 Consignor shall not recognized revenue when the goods are
delivered to the consignee. RECOGNITION

Bill and Hold arrangement Sale and leaseback transactions

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  To determine whether the transfer of an asset is accounted for as a
sale an entity applies the requirements of PFRS 15 for determining
when a performance obligation is satisfied.
 If an asset transfer satisfies PFRS 15’s requirements to be accounted
for as a sale the seller measures the right-of-use asset at the
proportion of the previous carrying amount that relates to the right
of use retained. Accordingly, the seller only recognizes the amount
of gain or loss that relates to the rights transferred to the buyer.
 If the fair value of the sale consideration does not equal the asset’s
fair value, or if the lease payments are not market rates, the sales
proceeds are adjusted to fair value, either by accounting for
prepayments or additional financing.
______________________________________________________________
DISCLOSURE
The objective of PFRS 16’s disclosures is for information to be
provided in the notes that, together with information provided in the
statement of financial position, statement of profit or loss and statement of
cash flows, gives a basis for users to assess the effect that leases have.
Paragraphs 52 to 60 of PFRS 16 set out detailed requirements for lessees to
meet this objective and paragraphs 90 to 97 set out the detailed
requirements for lessors.

Identifying a lease
 A contract is, or contains, a lease if it conveys the right to control
the use of an identified asset for a period of time in exchange for
consideration.
 Control is conveyed where the customer has both the right to direct
the identified asset’s use and to obtain substantially all the
economic benefits from that use.
 An asset is typically identified by being explicitly specified in a
contract, but an asset can also be identified by being implicitly
specified at the time it is made available for use by the customer.
 However, where a supplier has a substantive right of substitution
throughout the period of use, a customer does not have a right to
use an identified asset. A supplier’s right of substitution is only
considered substantive if the supplier has both the practical ability
to substitute alternative assets throughout the period of use and
they would economically benefit from substitution.
 A capacity portion of an asset is still an identified asset if it is
physically distinct (e.g. a floor of a building). A capacity or other
portion of an asset that is not physically distinct (e.g. a capacity
portion of a fibre optic cable) is not an identified asset, unless it
represents substantially all the capacity such that the customer
obtains substantially all the economic benefits from using the asset.

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 b. If redemption is unconditionally prohibited by law, regulation or the
entity’s charter.

Distribution of noncash asset to owners- payment of property dividend to

shareholders

An entity shall measure liability to distribute noncash asset at the fair value
of the asset to be distributed.
IFRIC INTERPRETATIONS
Dividend payable- recognized at the fair value of the noncash on the date of
declaration

NATURE Increased or decreased as a result of the change in fair value at year-end

______________________________________________________________
Decommissioning liability
 It is an obligation to dismantle, remove and restore an item of PPE
as required by law or contract.
 It is capitalized as cost of the property and recognized at present
value
Change in decommissioning liability
a. A decrease in decommissioning liability is deducted from the cost of
the asset.
b. An increase in decommissioning liability is added to the cost of the
asset.
Members’ shares in cooperative entities- may be classified as equity or
liability
As equity- if the members did not have a right to request for redemption
a. If the entity has an unconditional right to refuse redemption of the
members’ shares.
and date of settlement
Offsetting- through equity or directly retained earnings
Settlement of dividend payable
 Difference between carrying amount of dividend payable and
carrying amount of asset distributed;
 shall be recognized as gain or loss on distribution of property
dividend
______________________________________________________________
Measurement of noncash asset distributed
At the lower of carrying amount and fair value less cost to distribute.
Fair value less cost to distribute is lower than the carrying amount at the
end of the reporting period.
The difference is accounted for as impairment loss.
Equity swap- issuance of share capital by the debtor to the creditor in full or
partial payment of an obligation
Measured in the order of priority
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a. Fair value of equity instrument issued
b. Fair value of liability extinguished
c. Carrying amount of liability extinguished

The difference between carrying amount of financial liability and initial

measurement of equity instrument shall be recognized as gain or loss
and shall be reported as a separate line item in income statement

77