JOURNAL: CFAS Types of Information Provided by Accounting

Overview of Accounting [Link] Information – numbers, quantities or units

Accounting – the process of identifying, measuring, and communicating economic information to permit [Link] Information – words or description form; usually found in notes
informed judgments and decisions by users of the information. (AAA) [Link] Information – money
Three (3) Important activities included in the definition of accounting.
[Link] - the process of analyzing events and transactions to determine whether or not they will be Types of Accounting Information Classified to User’s Need
recognized. [Link] Purpose Accounting Information – common need of most statement users
*Recognition – the process of including the effects of an accountable even in the statement of financial [Link] Purpose Accounting Information – specific needs of particular users
position or the statement of comprehensive income through a JOURNAL ENTRY.
*Accountable events (economic entity)– are recognized; affects the assets, liabilities, equity, The practice of accounting requires the exercise of:
*Creative Thinking - using imagination and insight; identifies alternative solutions
income, expenses of an entity, the subject matter of accounting.
*Critical Thinking - logical analysis; evaluates alternative solutions
*Non-Accountable events – are not recognized but disclosed only in the notes. An NA that
has accounting relevance may be recorded through a memorandum entry.
ACCOUNTING CONCEPTS - principles upon which the accounting process is based (accounting
Type of Events or Transactions
assumptions or accounting theory)
• External Events – involve external party
• Double-entry system – debit and credit
i. Exchange (reciprocal transfer) – give and receive
• Going Concern Assumption – assumes continual operation and not expect to end
ii. Non-reciprocal transfer – give but not receive (e.g., donation, tax)
• Separate Entity – owners9 personal transactions are separated from the business
iii. External event other than transfer- changes in economic resources or obligations but no transfer
• Stable Monetary Unit – accountable events are expressed in terms of common unit
happened (e.g., price levels, technological changes)
- purchasing power is considered stable regardless of instability
• Internal Events – do not involve external party
• Time Period – life of reporting period of entity, usually 12 months
i. Production - resources are transformed into finished goods
*Calendar Year –starts at January 1
ii. Casualty – unanticipated loss
*Fiscal Year – starts on a date other than January 1
2. Measuring – assigning numbers in monetary terms
• Materiality Concept – a judgment that is based on its size and nature
FS are prepared using mixture of costs and values.
• Cost-benefit – cost must equal benefit
-FS are mixture of fact and opinion
• Accrual Basis – the effects of transactions are recognized when they occur and not as cash is received
• Valued by Opinion – measurement affected by estimates
or paid
• Valued by Fact – measurement not affected by estimates
• Historical Cost Concept (Cost Principle) – the asset value is based on the acquisition cost
3. Communicating – transferring economic data into useful accounting information for dissemination
• Concept of Articulation – all the components of a complete set of financial statements are interrelated
and interpretation
• Full Disclosure Principle – including enough details to make information understandable
Three Aspects of Communicating Process in Accounting: • Consistency Concept – using the same accounting principle of different periods
1. Recording – writing the accountable events through journal entry • Matching – costs are recognized as expenses when the related revenue is recognized
2. Classifying – grouping of similar items into their respective classes through posting • Entity Theory – proper income determination (A=L+C) – income statement
3. Summarizing – expressing in condensed form which includes preparations of accounting reports • Propriety Theory – proper valuation of assets (A-L=C) – balance sheet
NOTE: Interpreting the processed information is computing of financial statement ratios. • Residual Equity Theory – applicable when there are two classes of shares issued (ordinary and
preferred (A-L-Preferred Shareholder’s Equity=Ordinary Shareholders Equity)
BASIC PURPOSE OF ACCOUNTING • Fund Theory – custody and administration of funds (cash inflows - cash outflows=funds)
•To provide information useful in making economic decisions • Realization – converting non-cash assets into cash or claims for cash
•Economic entity – combination of people and property that uses economic resources to achieve certain • Prudence (Conservatism) – use of caution when making estimates; does not allow deliberate assets9
goals. Types of economic entity: understatement or liabilities9 overstatement (e.g., cookie jar reserve); choosing least effect on equity
*Not-for-profit entity
*Business entity EXPENSE RECOGNITION PRINCIPLES
Economic activities are activities that affect the economic resources, obligations and the equity of an • Matching Concept (Direct Association of Costs and Revenues) – cost that are directly related to the
economic entity. Economic activities involve: revenue are recognized as expenses in the same period
[Link] 3. Consumption 5. Savings • Systematic and Rational Allocation – cost that are not directly related to the revenue are recognized
[Link] 4. Income Distribution 6. Investments are assets first and are recognized as expenses when consumed using some method of allocation (e.g.,
depreciation, amortization)
• Immediate Recognition – cost that do not meet or ceases to meet the definition of assets are expensed Reporting standards is necessary to become comparable, avoid fraudulent reporting, and right economic
immediately (e.g., casualty and impairment losses) decisions.

COMMON BRANCHES OF ACCOUNTING Selection of appropriate accounting policies is the entity’s management responsibility. However, the
• Financial Accounting – focuses on general purpose financial statements proper application of accounting principles is the accountant9s responsibility.
*Financial Statement (FS) – entity’s financial position and results of its operations and are
communicated to users ACCOUNTING STANDARD SETTING BODIES AND OTHER RELEVANT ORGANIZATION
*Financial Report – FS plus other information to help in making efficient economic decisions 1. Financial Reporting Standard Council (FRSC) – official accounting standard setting body of the
and is useful to external users. Objectives of financial reporting is to provide information: Philippine created under RA 9298
1. Entity’s economic resources, claims and changes 2. Philippine Interpretations Committee (PIC) – predecessor of FRSC which reviews the interpretations of
2. Useful in assessing the entity9s management stewardship International Financial Reporting Interpretations Committee (IFRIS) for approval and adoption by the
• Management Accounting – communication of information for use by internal users FRSC
• Cost Accounting – systematic recording and analysis of cost of materials, labor and overhead incident 3. Board of Accountancy (BOA) – supervise the registration, licensure and practice of accountancy in the
to production Philippines
• Auditing – evaluating with established criteria and express opinion to ensure fairness and reliability 4. Securities and Exchange Commission (SEC) – regulates corporations and partnership, capital and
• Tax Accounting – preparations of tax returns and rendering of tax advice investment marks, and the investing public
• Government Accounting – custody of public funds, its purpose, and the responsibility and 5. Bureau of Internal Revenue (BIR) – administers the provisions of the National Internal Revenue Code
accountability of entrusted individual 6. Cooperative Development Authority (CDA) – influences the selection and application of accounting
• Fiduciary Accounting – handling accounts managed by a person for the benefit of other policies by cooperatives
• Estate Accounting – handling accounts for fiduciaries who wind up the affairs of deceased person NOTE: Accounting policies prescribes by a regulatory body are sometimes referred to as regulatory
• Social Accounting - communicating the social and environmental effects of an entity9s economic accounting principles.
actions to the society
• Institutional Accounting – for non-profit entities other than government International Accounting Standards Board (IASB) – standard setting body of the IFRS Foundation with
• Accounting Systems – installation of accounting procedures for the accumulation of financial data and the main objectives of developing and promoting global accounting standards. Standards issued:
designing of accounting forms for data gathering. • International Financial Reporting Standards (IFRS)
• Accounting Research – careful analysis of economic events and other variables to understand their • International Accounting Standards (IASs)
impact of decisions • Interpretations

Bookkeeping and Accounting The move to IFRS was primarily brought by the increasing acceptance of IFRSs world-wide and increasing
Bookkeeping – recording the account or transaction of an entity internalization of business thereby increasing the need for a common financial reporting standards that
-ends with the preparation of trial balance minimize, if not eliminate, inconsistencies of financial reporting among nations
-does not require interpretation
Accountancy – profession or practice of accounting either public or private practice Norwalk Agreement – a memorandum of FASB (USA) and IASB to produce a single set of global
accounting standards, in which they agree to make financial reporting standards that are:
PHILIPPINE ACCOUNTANCY ACT OF 2004 (R.A. 9298) a. Fully compatible; and
Sectors in the Practice of Accountancy b. Coordinate future work programs
1. Practice in Public Accountancy – rendering service to more than one client on fee basis
2. Practice in Commerce and Industry – employment in private sector Changes to reporting standards are primarily made in response to users9 needs and continually provide
3. Practice in Education/Academe – employment in educational institutions useful information.
4. Practice in Government – employment in government or controlled corporations NOTE: 2 and 4 are
considered private practice. Conceptual Framework for Financial Reporting
ACCOUNTING STANDARDS USED IN THE PHILIPPINES Prescribes the concept for general purpose financial reporting to assist IASB in developing standards,
• Philippine Financial Reporting Standards (PFRS) – Philippines GAAP is based on IFRS PFRS is comprised assist prepares in developing consistent accounting policies when no standard applies to a transaction
of: and assist all parties in understanding and interpreting standards.
a. Philippine Financial Reporting Standards (PFRS)
b. Philippine Accounting Standard (PAS) CONCEPTUAL FRAMEWORK
c. Interpretations
• Provide foundation for the development of standards that promote transparency, strengthen * Quantitative factors – size of impact and can be assessed in relation to another amount percentage or
accountability, and contribute to economics efficiency a threshold amount
• Do not provide requirements for specific transactions or events - CF and the standard do not specify a quantitative threshold since it is a judgment
• Conceptual framework is not a standard. Any conflict between the two, standard will prevail. * Qualitative factors – characteristic of item or context; (i) entity specific and (ii) external qualitative
• Use the hierarchy of standard for guidance in authoritative status. (See PAS 2 for reference) factors
• This can be revised but not automatically result to change of Standards not until the IASB due process No hierarchy among factors, but an entity normally assesses an item first in quantitative factors:
•Scope of Conceptual Framework: *If it is quantitatively material, no need to reassess qualitative factors.
*If not quantitatively material, needs to reassess qualitative factors
Objective Of Financial Reporting 3. Maximizes understandability to users by organizing FS draft
• Foundation of the Conceptual Framework 4. Reviewing the draft allows overview. An item might be immaterial on its own, but might be material in
• Provide financial information that is useful to primary users in making decisions about providing conjunction with other FS information.
resources to the entity. b. Faithful Representation – true, correct and complete depiction (when an economic phenomenon9s
Primary users – existing and potential investors; lenders and creditors – Cannot demand substance differs from its legal form (i.e., substance over form), it requires depiction)
specific information. Entity only provides the common needed data of most primary users * Completeness – must provide all information needed in understanding
• Decisions of primary users are based on assessment of an entity’s prospect for future net inflows and * Neutrality – not manipulated or without bias
management stewardship. Hence, users need information of entity’s financial position, financial * Free from Error – accurate but not precise; supported by prudence (use of caution when making
performance, and other changes in financial position, and assets’ utilization. judgment)
2. Enhancing Qualitative Characteristics – enhance usefulness of information
General Purpose Financial Reporting a. Comparability – to identify similarities and differences of different information through intra-
-Caters most of the common need of most primary users. comparability or inter-comparability
-Do not directly show the value of entity but only information that help users estimates entity value. b. Verifiability – different users should reach a general agreement
Providing information requires estimates and judgment i. Direct verification – can be observe directly (e.g., counting of cash)
1. Financial Position – information on resources (assets) and claims (liabilities and equity) ii. Indirect verification – redo the methodology used by the entity
This can help users in assessing entity’s: c. Timeliness – available to users on time
• Liquidity and solvency – able to pay short and long-term obligations, respectively d. Understandability – presented in clear and concise manner but does not mean excluding complex
• Needs for additional financing matter.
• Management’s stewardship
2. Changes in economic resources and claims – information on financial performance and other events Applying Qualitative Characteristics
or transaction that led to the said change *Information must be both relevant and faithfully represented
*Enhancing qualitative information cannot make irrelevant information useful
Qualitative Characteristics *One enhancing qualitative characteristic may be sacrificed to maximize another
Identifies the most useful information to primary users in making decisions using entity9s financial report *Cost constraint – pervasive constraint; providing information has cost; cost must equal benefits
Applicable to information in FS and to financial information provided in other ways
1. Fundamental Qualitative Characteristics – information useful to users FINANCIAL STATEMENTS AND THE REPORTING ENTITY
a. Relevance – can make a difference in the decision of users • The objective of general purpose financial statements is to provide financial information about the
• Predictive Value – making predictions using past info reporting entity’s financial position, financial performance, and other statements and notes
• Confirmatory Value – confirming previous decisions • Reporting Period
Materiality • Information must be comparative, forward-looking, and entity’s perspective
• MATTER OF JUDGEMENT; Information is material if omitting or misstating it could influence primary • Going concern assumption – an underlying assumption that is based on management9s decision
users’ decision • Reporting Entity – can be single or group or combination of two or more entities An entity controls
• Entity-specific another entity:
• IFRS Practice Statement 2 Making Materiality Judgments provide non-mandatory guidance called 1. Parent – controlling entity
materiality process. Below are the four steps: 2. Subsidiary – controlled entity
1. Cost-Benefit Principle. However, cost is not a factor when making materiality judgment. * Consolidated Financial Statement – combined report of parent and subsidiary
2. Assess whether step 1 information could influence the user’s decisions by: * Unconsolidated Financial Statement – report from parent only
a. Items nature or size or both * Individual Financial Statement – report from subsidiary only
b. Quantitative and qualitative factors * Combined Financial Statement – report of two or more entities not linked by parent-subsidiary
Elements Of Financial Statements Unit of Account is <the right or the group of rights, the obligation or the group of obligations, or the
• Assets – present economic resource controlled by the entity as a result of past events. An economic group of rights and obligations, to which recognition criteria and measurement concept are applied9
resource is a right that has the potential to produce economic benefits.
- ability to prevent others from accessing the benefits of controlled resources Measurement
- control normally stems from legally enforceable rights (e.g., ownership or legal title). • Measurement basis is needed since recognition requires quantifying item in monetary terms.
• Liability – present obligation of the entity to transfer an economic resource as a result of past events • Standards prescribe specific measurement bases for different types of assets, liabilities, income and
- transfer of economic benefits need not be certain expenses.
a. Legal obligation – result from contact, legislation, or other law of operation Measurement bases describe by Conceptual Framework
b. Constructive obligation – result from entity9s action (e.g., warranty, environmental damages) 1. Historical Cost – acquired (incurred) cost of assets (liability) plus (minus) transaction costs
Executory Contract – a contract that is equally unperformed by both parties or have partially fulfilled - do not reflect changes in value but may need to be updated (e.g., depreciation, amortization cost) so,
with equal extent; combined right or obligation the value can be changed
Executed Contract – fulfilled by other party 2. Current Value – reflect changes in value at the measurement date
• Equity – residual interest after deducting assets from liabilities • Fair Value – price that would be received to sell (paid) an asset (liability) that reflects the perspective of
Reserves - amount set aside to protect the entity9s creditors or shareholders from losses market participants at the measurement date
• Income – revenue; increase in assets or decrease in liabilities that result in increase in equity • Value in use of assets and fulfillment value of liability – reflect entity’s assumption
• Expenses – costs; decrease in assets or increase in liabilities that result in decrease in equity *Value in Use - present value of economic benefits from the use or ultimate disposal of asset
NOTE: The new conceptual framework removes the notion of 8expected9 and 8probability9 of economic *Fulfillment Value - present value of economic resources to transfer or fulfilling liability
flow, and reliable measurement9 Both do not include transaction cost from acquiring or incurring, but include transaction cost of disposal
Financial Position – balance sheet; assets, liabilities and equity or fulfillment.
Financial Performance – income statement; income and expenses • Current Cost – cost at the measurement date plus (minus) transaction cost at that date

Recognition Entry Values Exit Values

• Items are recognized if it meets the two criteria: Historical cost and current cost Fair value, value in use and fulfillment value
*Meets the definition of financial element; and Reflect prices in acquiring assets or incurring Reflect prices in selling or using an asset or
liability transferring or fulfilling a liability
*Provides useful information (relevance and faithfully represented information)
• An asset (liability) can exist even if producing (transferring) benefits has low probability, but can affect
Considerations when selecting a measurement basis:
the recognition, how it is measured, what and how information is provided
a. The nature of information provided by a particular measurement basis
• Unresolve dispute of asset or liability will mostly affect the recognition
b. Considerations of other factors rather than only a single isolated factor. Example:
• Existence uncertainty and low probability of an inflow or outflow of economic benefits may result in but
• Faithful representation. If measurement of uncertainty is high to a particular measurement basis,
does not automatically lead to the non-recognition of asset or liability. Other factors should be
consider other measurement basis
considered.
• Comparability. Using the same measurement basis consistently is important for comparability, but a
• Measurement uncertainty
change is appropriate if it result to a more relevant information
*Exist if the asset or liability needs to be estimated
• Understandability. The more different measurement bases are used, the more complex.
*High level of measurement uncertainty does not necessarily lead to non-recognition if it provides
relevant information and is clearly and accurately described and explained PRESENTATION AND DISCLOSURE
*However, it can lead to non-recognition if making estimate is exceptionally difficult or subjective (can Objectives are specified in standards that strive for a balance between:
affect faithful representation) or especially if one or more of the circumstances exist: a. Giving entities the flexibility to provide relevant and faithfully represented information; and
*Exceptionally wide range of possible outcome and is difficult to estimate b. Requiring information that has both intra-comparability and inter-comparability Principles for
-Highly sensitive to small changes effective communication considers:
-Exceptionally subjective allocations of cash flows that do not relate solely to the asset or liability being a. Entity-specific information is more useful than standardized description, also known as
measured ‘boilerplate’; and
b. Duplication of information is usually unnecessary at it can make financial statement less
Derecognition understandable
• Removal of previously recognized asset or liability when the item no longer meets its definition
• Derecognizes asset or liability that have expired, consumed, collected, fulfilled or transferred and Definition Example
continues to recognize any assets or liabilities that have retained after derecognizing Classification *Sorting elements of FS with Accounts receivable
similar nature, function and
measurement basis
 Offsetting *When asset and liability with Accounts receivable and Financial Statements
separate units of accounts are accounts payable are netted • Structured presentation of an entity9s financial position and result of its operation
combined and only the net and presented in net amount • Pertain only to the entity not the industry
amount is presented • General purpose financial statements – cater most of the common needs of a wide range of external
* Combines dissimilar items,
users (cannot demand specific reports for their own needs)
hence not an appropriate
practice Purpose of Financial Statements
• To provide useful information useful to a wide range of users in making economic decision
Aggregation *Adding together of FS All receivables (e.g., accounts • To show result of management stewardship over the entity9s resources
elements that share receivable, interest receivables) Complete Set of General Purpose Financial Reporting Statement
characteristics and are included are aggregated and presented 1. Statement of Financial Position (or Balance Sheet)
in the same classification under 2. Statement of Profit or loss and other comprehensive income (not the same as income statement)
*Summarizes large volume of “Trade and other receivables” 3. Statement of Changes in Equity
detail
4. Statement of Cash Flows
5. Notes – qualitative info to explain the quantitative info 1-4
Capital And Capital Maintenance
- comparative information in respect of the preceding period
6. Additional statement of financial position - required under certain instances
FINANCIAL PHYSICAL
General Features of Financial Statements
Capital Concept Invested money or investment Entity’s productive capacity Management is responsible for preparation and the fair presentation of entity’s FS in accordance to
purchasing price PFRS
1. Fair presentation and compliance with the PFRS
Concept used for users with the maintenance of To the entity’s operating • Make an explicit and unreserved statement
concerned nominal invested capital of capability
• Application of PFRS with additional disclosure when necessary
purchasing power of the • If management concludes that PFRS requirement compliance is misleading, PAS 1 permits departure
invested capital from it if relevant regulatory framework (prescribed by a government regulatory body) requires or allows
such departure
Capital Maintenance Profit is earned if net assets at Profit is earned only if entity’s
the end period exceeds the productive capacity at the end • If it departs, the entity shall disclose which PFRS it departs, why, and the effect of departure
beginning period period exceeds the beginning • Compliance or departure is written in the note section
period 2. Going Concern
Measurement Basis Current Cost Does not require particular • If there are uncertainties of going concern, it shall be disclosed
measurement basis • If entity is not a going concern, it shall be disclosed and the reason why, and FS shall be prepared using
another basis
 Both capital maintenances exclude the distributions to, contributions from owners during the Not a going concern if as of the reporting period date or the authorization of FS issuance,
period. management either:
a. Intends to liquidate the entity to cease trading
 Capital Maintenance is essential in distinguishing between return on capital and return of
b. Has no realistic alternative but to do so (e.g., bankruptcy)
capital.
3. Accrual Basis of Account
• All FS shall use this except cash flow statement, which uses cash basis to know the amount of cash the
Capital Maintenance Adjustments – the revaluation or restatement of assets and liabilities results in an
company has because it is easier to liquidate (ability to pay short-term obligation)
increase or decrease in equity. Although these increases or decreases meet the definition of income or
4. Materiality and Aggregation
expense, they are not recognized in profit or loss under certain concepts of capital maintenance.
• Each material class of similar item (line item) is presented separately.
Accordingly, these items are included in equity as capital maintenance adjustments or revaluation
• Immaterial items can be aggregated
reserves.
5. Offsetting
PAS 1 Presentation of Financial Statements • Not offsetting if it measure asset net valuation allowance, for example, allowances for obsolete
It prescribes the basis for the presentation of general-purpose financial statements, its structure inventories and of doubtful accounts on receivables, and accumulated PPE depreciation
guidelines and content’s minimum requirements to ensure comparability (inter-comparability and intra- • Shall not use it unless permitted by PFRS
comparability). The terminology of PAS 1 is suitable for profit-oriented entities. • Only permitted when it reflects substance of the transaction
• Example of offsetting: Using two bank accounts in the same bank (not the same is prohibited). If the *Ex. Non-trade Receivables
other has negative balance and the other is positive, therefore offsetting is okay.
6. Frequency of reporting
• Prepared at least annually Currently Maturing Long-Term Liabilities
• Changes in reporting period shall disclose the period covered, the reason for changing, and • Must be presented as current liabilities
the fact that amount presented are not entirely comparable • Example: A 10-year loan payable acquired 10 years ago must be fulfilled within this year. Hence, it must
7. Comparative Information be presented current liabilities
• Minimum requirement for comparison is two different statements and related notes • Exception is refinancing agreement (defer settlement of currently maturing long-term liability) when:
• PAS 1 permits addition to the minimum requirement *Refinancing agreement is fully completed on or before balance-sheet date; or
• Additional Statement of Financial Position – instances to add are: *Refinancing agreement after balance sheet date but before FS are authorized for issue
1. Application of accounting policy retrospectively
2. Makes a retrospective restatement on items in its financial position, or Breach of Loan Contract
3. Reclassifies items in its FS • A liability that is payable on demand is a current liability
These instances have a material effect on the information of statement of financial position at the • Exception is if a lender provides on or before balance sheet date a grace period ending at least 12
beginning of the preceding period. months after the balance sheet date to rectify the breach
8. Consistency of Presentation
• Retainment of one method from one to next period unless change is needed for a more relevant Presentation of Deferred Taxes
• Presented as non-current in a classified presentation, irrespective of their expected date of reversal
information

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

STRUCTURE AND CONTENT OF FINANCIAL STATEMENT
Income and expenses may be presented either:
1. Name of the reporting entity
EX: a. Single statement of profit or loss and other comprehensive income, called statement of
2. For whom the statements (individual or group entity)
ABC Group comprehensive income
3. Date (end or covered period)
Statement of Financial Position PAS 1 requires entity to present information on the following:
4. Presentation currency
As of December 31, 20x4 a. Profit or loss
5. Rounding level used (e.g., thousands, millions)
(in thousands of PH Peso) b. Other comprehensive income; and
c. Comprehensive income
STATEMENT OF FINANCIAL POSITION
Presenting only an income statement is prohibited.
Presentation of Statement of Financial Position
CLASSIFIED PRESENTATION UNCLASSIFIED PRESENTATION b. Two statements:
1. statement of profit or loss (income statement)
*shows distinction between current and non- *shows no distinction between current and 2. statement presenting comprehensive income
current assets or liabilities noncurrent
*most commonly used *based on liquidity
Profit or Loss
* highlights working capital and facilitates the
computation of liquidity and solvency ratios • Income minus expenses, excluding the components of comprehensive income
*Wo𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 - 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 • Not included in determining profit or loss
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 1. Correction of prior period error
2. Change in accounting policy
PAS 1 does not prescribe the order or format in which an entity presents items, 3. Other comprehensive income
PAS 1 permits mixed presentation especially if the entity’s operation is diverse. 4. Transactions with owner/s

Current and Non-Current Assets or Liabilities Presentation of Expense

CURRENT NON-CURRENT NATURE OF EXPENSE METHOD FUNCTION OF EXPENSE METHOD

*Used for trading during the entity’s normal *Used more than 1 year *According to their nature *According to their function
operating cycle (12 months) *Cash and cash equivalents restricted for *Ex. Transportation cost, advertising cost, *Ex. Cost of sales, distribution costs,
*Cash or cash equivalents restricted from being exchange (e.g., maintaining balance of bank purchase of materials administrative expense
*Includes accruals account)
*Ex. Trade Receivables *Includes deferrals
NOTE: If an entity classifies expenses by function, it shall disclose additional information on the nature of Determination of costs to recognize as asset to expense is the primary issue in accounting inventories.
expenses Hence, PAS 2 provides guidance in the determination of costs of inventories, including use of cost
formulas, and their subsequent measurement and recognition as asset then expense.
OTHER COMPREHENSIVE INCOME (OCI)
• May presented in net tax or gross of tax PAS 2 applies to all inventories except:
• Comprises items of income and expense (including reclassification adjustments) that are not recognized • Assets accounted for under other standards
in profit or loss as required or permitted by other PFRS a. Financial instruments (PAS 32 and PFRS 9)
• Amounts in OCI are usually accumulated as separate components of equity b. Biological assets and agricultural produce at the point of harvest (PAS 41)
Reclassification of adjustments – amounts from OCI reclassified to profit or loss
a. Gain is deduction to OCI and addition to profit or loss Measurement Of Inventories
b. Loss is addition to OCI and deduction to profit or loss Inventory is not always valued at its <cost= price. Exception to the measurement:
Presentation of OCI – shall group items into reclassification adjustment is allowed and not allowed a. Producers of agricultural, forest products, minerals and mineral products measured at NRV of the
practices in those industries
Types of OCI Reclassification adjustment b. Commodity if dealers and brokers measured at fair value less costs of sell
a. Changes in revaluation surplus Not allowed
b. Remeasurement of the net defined benefit Not allowed
liability (asset) (e.g., employee benefit) Measurement of Inventories
c. Fair Value changes in FVOCI
- Equity instrument (election) Not Allowed
- Debt instrument (mandatory) Allowed
Lower of Cost Net Realizable Value
d. Translation difference in foreign operations Allowed
e. Effective portion of cash flows Allowed
LCNRV
Total Comprehensive Income COST FORMULAS
•The sum of profit or loss and OCI • Deal with the computation of cost of sales or cost of goods sold and the ending inventory.
•Presented here is also the change in non-owner9s equity during a periods; owner9s is excluded • Applies matching concept
• Considered cost flow assumptions. Therefore, not necessarily the actual flow of inventory.
STATEMENT OF CHANGES IN EQUITY
• Owner/s only Excluded in Cost
• Shows the following: • Abnormal waste
a. Effect of change in accounting policy and correction of error retrospectively • Storage cost (but include those necessary in the production process)
b. Total comprehensive income for the period • Administrative overheads
c. For each component of equity, a reconciliation between the carrying amount at the beginning and end
of period, showing separately changes resulting from profit or loss, other comprehensive income, and When a purchase transaction effectively contains a financing element, such as when payment of the
transaction with owners purchase price is deferred, the difference between the purchase price for normal credit terms and the
amount paid is recognized as interest expense over the period of financing.
STATEMENT OF CASH FLOWS (Refer to PAS 7)
NOTES Are the inventories not interchangeable?
• Provides qualitative information to the other FS, therefore other FS should be cross-refenced to the Are the goods or services produces and segregated for specific project?
notes
• Integral part of a complete FS yes no

• PAS 1 requires entity to present the notes in system manner. It is structured as follows:
Specific cost First-In-First-Out (FIFO) Weighted Average
1. General information on the reporting entity periodic basis or moving average

2. Statement of compliance with the PFRS and Basis of preparation of FS Formula:

3. Summary of significant accounting policies Ă𝐴 𝐶𝑜𝑠𝑡 =
𝑇𝐺𝐴𝑆 𝑖𝑛 𝑝𝑒𝑠𝑜𝑠
4. Disaggregation (breakdowns) of line items in the other FS and other supporting information 𝑇𝐺𝐴𝑆 𝑖𝑛 𝑢𝑛𝑖𝑡𝑠
5. Other disclosure required by PFRS NOTE:
6. Other disclosure not required y PFRS but is relevant in understanding *Use the same cost formula for inventories with similar nature and use, unless it9s different.
*Last-In-First-Out not permitted.
PAS 2 Inventories
*TGAS – Total Goods Available on Sale Classification of Cash Flows
Operating Activities Investing Activities Financing Activities
NET REALIZABLE VALUE (NRV) acquisition and disposal of
revenue-producing activities that affect the equity capital and
• Estimated selling price – estimated cost of completion – estimated selling cost noncurrent assets and other
affect profit or loss borrowing structure of entity
investment
• Not equal to fair value – costs of sales
 Making and collecting loans  Include obtaining resources
• Different from fair value  income and operating
 Acquiring and disposing (sale) from owners and creditors
expenses from the ordinary
• Inventories in FS must not be stated above NRV of investment debt or equity  Cash flows on non-operating
operation
securities or non-trade liabilities
• If NRV < costs, write-down  changes in current assets and
 Obtaining and selling of PPE  Changes in equity and
liabilities
• If NRV > costs, need not to write-down and other productive assets noncurrent liabilities

Presented either:
Write-down 1. Direct Method – classifying
gross cash receipts and gross Presented in gross amount, Presented in gross amount,
• Residual from deducting costs from NRV, when cost > NRV cash payments unless they qualify for net unless they qualify for net
presentation: presentation:
• Written in an item-by-item basis; some circumstances may be appropriate to group similar item 2. Indirect Method – accrual
 On behalf of customers  On behalf of customers
method of P/L before tax is
• Not appropriate on classification basis adjusted for the effects of  Quick turnover, large  Quick turnover, large
amounts, short maturity amounts, short maturity
• If NRV subsequently increases, the previous write down is reversed. non-cash items and operating
assets and liabilities changes
• Reversal of write-down shall not exceed original write-down. Therefore, the inventory shown in FS is
cost plus original write-down
PAS 7 does not require any particular method. But it encourages direct method because it provides
information that may be useful in estimating cash flows. In practice, indirect method is commonly used
INVENTORIES AS EXPENSE
because it is easier to apply.
* Sold Inventories
*Write down or loss
INDIRECT METHOD

*The amount of any reversal of any write-down of inventories shall be recognized as reduction in the Asset other than cash Liabilities
 Increase Asset  Deduct  Increase Liabilities  Add
amount of inventories recognized as expense in the period in which the reversal  Decrease Asset  Add  Decrease Liabilities  Deduct
*Inventories that are used in the construction of another asset are not expensed rather capitalized as
cost of the constructed asset.
Changes in ownership interest in business
Note: Total inventory shown in FS must be the lowest cost (lower of cost or NRV)
Acquisition and disposals of subsidiaries or other business units:
PAS 7 Statement Of Cash Flows • Investing Activities - resulting to loss or obtaining of control
Statement of cash flows and it provides information about: • Financing Activities – do not result to loss or obtaining control
*the sources and utilization (i.e., historical changes) of cash and cash equivalents
*quality of earnings Entities except financial institutions may classify Interest and Dividends as follows:
*enhances inter-comparability • Only those were received or paid are included.
• Only option 1 is for financial institutions
Presented in cash basis – income (expense) is recognized only when collected (paid). Hence, only • In CPABE, when problem is silent, use option 1
transaction that affected cash and cash equivalent are reported; non-cash are excluded. PAS 8 Accounting Policies, Changes In Accounting Estimates And
Cash – either cash on hand or cash on bank Errors
Cash Equivalents – short term, highly liquid investments that are acquired within 3 months or less PAS 8 prescribes criteria for selecting, applying, and changing accounting policies and the accounting
before maturity date and disclosure of changes in accounting policies, changes in accounting estimates, and correction of prior
Cash Flows – inflows (sources) and outflows (uses) of cash and cash equivalents period errors. Intended to enhance relevance, reliability and comparability of FS.
 Retrospective Prospective a. Differ in substance, from those previously occurring
Adjusting the opening balance of the prior period Recognizing the effects of change in profit or b. Did not occur previously or were immaterial
that is used for comparison to the current period as loss in the period of change and/or future
if new accounting policy has always been applied period; not the beginning balance
Only from this day onward and does not
Going back to prior periods to restate FS
restate the previous FS
Errors
An FS do not comply to PFRS if they contain either material (can cause FS misstated) or immaterial errors
 Retrospective application – applying new policy  Prospective application – applying new
to prior period policy in current made intentionally to achieve a particular presentation. This is considered fraud. Errors can be:
 Retrospective restatement – correcting error of  Prospective restatement – correcting error in
prior period current
• Errors of commission – doing something wrong
It is impracticable if the prior period effects: • Errors of omission – not doing something that should have been done Type of errors according to
 Cannot be determined in the current period period occurrence
 Requires significant estimates and
assumptions • Current period errors – errors of current period; corrected by correcting entries
• Prior period errors – errors of one or more prior period; corrected by retrospective restatement, if
impracticable, prospective application is allowed
Both are discovered either during the current period or after but before FS are authorized for issue.

PAS 10 Events After The Reporting Period

PAS 10 prescribes the accounting for, and disclosures of, events after the reporting period, including
disclosures regarding the date when the FS were authorized for issue.

Events after the Reporting Period

• Those events, favorable and unfavorable, that occur between the end of the reporting period and the
date when the FS are authorized for issue
• Events after the reporting period until FS are authorized for issue
• Date of authorization is when the management authorizes the FS for issue regardless of whether such
authorization is for further approval or final issuance to users
Two Types of Events After the Reporting Period
Adjusting Events Non-adjusting events
 existed at the end of the reporting period
 Arose after the reporting period
 happened within the reporting period but after
 If a change is difficult to distinguish between accounting policies and accounting estimates, the the reporting period was known or confirmed
 Do not require adjustments
 If material, disclosure is needed
change is treated as change in an accounting estimate.  requires adjustments and disclosures

 Voluntary change in accounting policy is accounted for retrospective application. An early

application of PFRS is not a voluntary change in accounting policy. PAS 12 Income Taxes
Not all income is liable for tax, only those that are taxable profit (taxable loss). Hence, the government
don’t base taxes on accounting profit (loss). Income taxes refers to taxes that are based on taxable profits.
Accounting Policies
PAS 8 requires consistent selecting and application of accounting policies. When selecting and applying,
Accounting Profit (Loss) Taxable Profit (Taxable Loss)
an entity shall refer to hierarchy of reporting standards
 Computed using PFRSs  Computed using tax laws
Hierarchy of reporting standards  Income less expenses, excluding tax expense  Taxable income less tax-deductible expense
1. PFRSs  Other terms:  Other term:
2. Judgment Pretax income Taxable Income
When making the judgment the management shall consider: Financial Income
Accounting Income
a. Requirements in other PFRSs dealing with similar transactions
b. Conceptual Framework
Income tax expense – total amount included to determine P/L; computed using PFRS also called tax
may consider:
expense or tax income
a. Pronouncement issued by other standard-setting bodies
Current tax expense – payable (recoverable) taxes to BIR based on taxable profit; computed using tax
b. Other accounting literature and industry practices
laws; also called current tax
Not changes in accounting policies if:
Varying treatment of economic activities between PFRS and tax laws result to:
1. Permanent differences – arise when income and expenses enter in the computation of either Presentation in Statement of Comprehensive Income
accounting profit or taxable profit but not both; do not have future tax consequences Tax consequences are accounted for the same way as the related transactions or events. Thus,
2. Temporary differences – difference between the carrying amount of an asset or liability in the *If transaction is recognized in profit or loss, as well as its tax effect
statement of financial position and its tax base; have future tax consequences; either *If transaction is recognized outside profit or loss (e.g., OCI and equity), as well as its tax effect.
Tax effect recognized directly in equity is accounted for as direct adjustment to related component of
Taxable Temporary Differences Deductible Temporary Differences equity.
 Future taxable amounts  Future deductible amounts
 Arise when:  Arise when:
Pas 16 Property, Plant, and Equipment
 Assets9 carrying amount > tax base; or  Assets9 carrying amount < tax base; or
 Financial Income > Taxable income  Financial Income < Taxable Income
If multiplied to tax rate, results to deferred If multiplied to tax rate, results to deferred PAS 16 applies to all items of PPE EXCEPT:
tax liability tax asset a. Held for sale
b. Biological assets other than bearer plants but not produce on bearer plants
c. Exploration and evaluation assets
 Deferred tax is the difference of assets (income) and tax base (income tax). PAS 12 requires use d. Mineral rights and mineral reserves (non-renewable resources)
of asset-liability method
 Deferred taxes are presented separately as non-current in a classified FS.
 PAS 12 prohibits the discounting of deferred taxes.
 Temporary differences include timing differences – the timing or period of income and expenses Recognition
recognition differs between financial reporting and taxation 1. Future economic benefits will flow to the entity; and
2. Cost can be measured reliably
If DT liability > DT assets, their difference is deferred tax expense. • Spare-parts, stand-by equipment and servicing equipment are PPE if it meets its definition. If not, then
If DT liability < DT assets, their difference is deferred tax income recognized as inventory.
• Safety and environmental equipment are PPE. It does not increase the future benefits, but it is
• Tax base – amount of asset or liability that is taxable necessary in obtaining future benefits of other assets.

Initial Measurement
Measured at cost
a. Purchase price
b. Direct costs of bringing the asset to the location and condition
c. Initial estimate of dismantlement, removal and site restoration costs

Except cost of opening new facility, introducing new product or service, new business location or new
• Current tax liability – unpaid current taxes
class customers, and administration and general overheads.
• Current tax asset – excess tax payments over the current tax due
Current Income Tax Deferred Income Tax • Recognition of initial cost stops when the item is in the location and condition necessary
 Actual amount payable to tax office  An accounting measure to measure tax • Cost of PPE is the cash equivalent at the recognition date. If deferred payment (installment), the excess
 Payable in respect on current period effect to accounting
amount is interest.
𝑡𝑎ą𝑎𝑏𝑙𝑒 𝑝𝑟𝑜𝑓𝑖𝑡 (𝑙𝑜𝑠𝑠) × 𝑡𝑎ą 𝑟𝑎𝑡𝑒 (%) = 𝐶𝐼𝑇  Settled or recovered in future period
𝑡𝑒𝑚𝑝𝑜𝑟𝑎𝑟𝑦 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 ×𝑡𝑎ą 𝑟𝑎𝑡𝑒 = 𝐷𝐼𝑇 • Acquisition through exchange

PAS 12 permits offsetting of deferred tax assets and liabilities only if, Additional Cost
*Legally enforceable right to offset current tax and liability; and 1. Replacement Cost
*Levied by the same taxation authority *Replaced parts carrying amount is derecognized as loss
*If replaced part cannot be determined, replacement part is used as indication
PAS 12 permits offsetting of current tax assets and liabilities only if: 2. Major Inspections
*Legally enforceable right; *Major inspection cost is capitalized while previous inspection cost is derecognized
*Intention to realize in net basis
If it has commercial substance, cost is measured using: Subsequent accounting for revaluation surplus
1. Fair value of asset given up *Non-depreciable revalued asset, transferred directly to retained earning when derecognized
2. Fair value of asset received, if 1 can’t be determined *If depreciable, a portion is transferred periodically to retained earning when used
3. Carrying amount of asset given up; if 2 can’t be determined
If exchange lacks commercial use, use number 3. If the asset derecognized is revalued, any balance in the related revaluation surplus is transferred directly
to retained earnings and will not affect the amount of gain or loss recognized in profit or loss.
Subsequent Measurement
a. Cost Model
PAS 19 Employee Benefits
b. Revaluation Model
Entity can choose either the two, or then applies the accounting policy to an entire class of PPE. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by
employees.
COST MODEL - cost less any accumulated depreciation and any accumulated impairment losses
Depreciation Recognition
• Each significant part of item of PPE is depreciated separately. * Expense, when employees have rendered service unless it forms part of an asset
• Depreciation is recognized as expense, unless it is included in the cost of producing another asset. * Liabilities, if unpaid
• Depreciation starts when used. * Asset, if payment exceeds the benefits
• Depreciation stops when:
a. Derecognized (sold or disposed); or SHORT-TERM EMPLOYEE BENEFITS
b. Classified as held for sale; or • Due to be settled within 12 months after reporting period
c. Fully depreciated; however, if the residual value decreases below the carrying amount, the decrease is • Recognized as expense, liability, or asset in an undiscounted amount
recognized as an additional depreciation • Short-term compensated absences:
• Carrying amount (Book Value) – recognized asset amount after deducting accumulated depreciation a. Accumulating – unused entitlement in the current period can be claimed in the future period
and impairment loss i. Vesting – all unused entitlements are monetized
• Depreciation does not cease when the asset becomes idle or is retired from active use. ii. Non-vesting – unused entitlements are not monetized
• Land and building are accounted for separately. Land is not depreciated while building is depreciated. b. Non-accumulating – for current period only

* Does not prescribe any method. It depends on the management’s judgment, but the choice must be POST-EMPLOYEE BENEFITS
the method that best reflects the expected pattern of consumption. • Payable after the completion of employment (e.g., retirement plans and pension plans)
* Prohibits the use of depreciation based on revenue
* Requires annual review of depreciation method, useful life and residual value. Any changes are treated Contributory Non-contributory
as changes in accounting estimates. Both employee and employer contribute Only the employer contributes
Funded Non-funded
REVALUATION MODEL fund is transferred to a trustee to No fund is transferred to a trustee thus,
• Fair value less any subsequent accumulated depreciation and impairment losses manage the fund and obliged to pay the the employer has obligations of paying
• Frequency of revaluation: benefits; have third-party the benefits
* If fair value fluctuates significantly, annually
* If fair value does not fluctuate significantly, every 3-5 years.
Classification of Post-Employee Benefits
• Revaluation applied to entire class of PPE
Defined Contribution Plan Defined Benefit Plan
• Revalued simultaneously. If not possible, use rolling basis (i.e., one asset after another)  Based on the total contribution  Based on a definite amount
 Contribute to fund to save for retirement  Specified payment amount of retirement
Accounting for Revaluations  Insufficiency rest with the employee  Insufficiency rest with the employer
 Straightforward computation  Requires actuarial assumption
An increase or decrease in the carrying amount of PPE resulting from revaluation is recognized in OCI  Undiscounted amount  Discounted amount
and equity under <Revaluation Surplus= account. Except:
a. Impairment gain – increase to carrying amount; reversal of previous impairment loss Defined Benefit Plan Accounting Procedure
b. Impairment loss – below carrying amount; excess credit balance in the Revaluation Surplus Both are Step 1. Determine the deficit or surplus
recognized in P/L. 𝐹𝑉𝑃𝐴 - 𝑃𝑉 𝑜𝑓 𝐷𝐵𝑂 = (𝐷𝑒𝑓𝑖𝑐𝑖𝑡)𝑆𝑢𝑟𝑝𝑙𝑢𝑠
Revaluation Surplus – excess from carrying amount. * If FVPA < PV of DBO, the difference is deficit
* If FVPA > PV of DBO, the difference is surplus
Step 2. Determine the Net Defined Benefit Liability (Asset)
* If deficit, then net defined benefit liability
* If surplus, then net defined benefit asset is the lower of the surplus and asset ceiling Presented in
statement of financial position under non-current item. Types of government grants according to attached condition
Step 3. Determine the Benefit Cost 1. Grants related to assets – primary condition is to acquire or construct long-term assets
2. Grants related to income – grants other than those related to assets
Definition of Terms Measurement
1. Current Service Cost – increase in the PV of DBO resulting from employee service in current period Monetary Grants Non-monetary Grants
2. Past Service Cost – change in the PV of DBO resulting from a plan amendment or curtailment  Amount of cash received; or  Fair value of the non-monetary asset
 Fair value of amount receivable received
3. Gain or loss on settlement – difference between PV of DBO and the settlement price
 Alternatively, at nominal amount
4. Interest cost on the defined benefit liability (asset) – change in the net defined benefit liability (asset)
during the period that arises from the passage of time
5. Actuarial gain or loss – changes in PV of DBO resulting from changes in actuarial assumptions Actuarial
 Forgivable loan measured the carrying amount of the loan forgiven

Assumption – give value or best estimate of the variables that will determine the ultimate cost of  Loan at below-market rate of interest or zero interest measured at the discounted amount
providing post-employment benefits
* Demographic assumptions – e.g., mortality, health condition Accounting
* Financial assumptions – i.e., discount rate and future salary levels  PAS 20 uses income approach in which grant is recognized in P/L.
Discount rate used to discount post-employment benefits obligation is based on high quality
corporate bonds. If no deep market, use government bonds.
 Not automatically that when you received the grant, it is recognized in P/L.
6. Return on plan of assets – investment income earned by the plan assets during the year after  Uses matching concept
deducting the cost of managing the fund
* Recognized in P/L in systematic basis as related condition expenses are recognized. Analyze the
Multi-employer plan – unrelated employers contribute to common fund recognition of income in the following cases:
State Plan - established by law and operated by gov9t; absence of one definition is not a state plan a. Grants related to depreciable assets
Insurance Plan – employer pays insurance premium to fund a post-employee benefit b. Grants related to non-depreciable assets
c. Grants received as financial aid for expenses or losses
OTHER LONG-TERM EMPLOYEE BENEFITS The depreciation method used for computing related must also be the same for computing grants.
• Due to be settled beyond 12 months after the end of the reporting period other than post-employment
and termination benefits Repayment of Grants
• Accounted similar to defined benefit plan. However, all the components are recognized in profit or loss. Treated as change in accounting estimate
There are government assistances that are not recognized as government grants. These are whose:
TERMINATION BENEFITS 1. Value cannot be reasonably measured; or
• Employer’s act of terminating an employee as a result, either: 2. Cannot be distinguished from the entity9s normal trading transactions
*Entity’s decision to terminate an employee before the normal retirement date; or Examples are:
*Employee’s decision to accept the benefits in exchange of termination a. Tax benefits
b. Free technical or marketing advice
• Employee’s request for termination, is considered post-employee benefits c. Provision of guarantees
• Termination benefits are accounted: d. Government procurement policy that is responsible for a portion of the entity9s sales
* If payable within 12 months, same as short-term employee benefits If significant, only disclosed.
* If payable beyond 12 months, same as long-term employee benefits
* If are in substance, enhancement to post-employee benefits, same as post-employee benefits
PAS 21 The Effects Of Changes In Foreign Exchange Rates

Two ways of conducting foreign activities

PAS 20 Accounting For Government Grants And Disclosure Of 1. Foreign currency transactions
Government Assistance 2. Foreign operations

Government grants are assistance received from the government in the form of transfers of resources in Functional Currency
exchange for compliance with certain conditions.
• The currency of the primary economic environment in which the entity operates. 2. Finance charge on finance leases
• The currency that is mostly used by the entity9s operation and not necessary the country9s currency 3. Exchange differences on borrowings in foreign currencies Other borrowing cost not used for qualifying
• Factors to consider: asset is expense.
*Currency of sales and cost
*Currency of cash flows from financing and operating activities Capitalization starts when it meets all the conditions:
• Cannot be changed once determined, unless necessary. The changes are then treated prospectively. a. Incurs expenditures for the asset;
• All currencies other than the entity9s functional currency are foreign currencies. b. Incurs borrowing cost; and
Presentation Currency – currency used in presenting FS c. Activities necessary to prepare the asset for its intended use or sale are being undertaken Interest
incurred during the suspended period are not capitalized, instead expense.
FOREIGN CURRENCY TRANSACTIONS Capitalization ceases when qualifying asset is substantially complete or shall no longer incur borrowing
A transaction that is denominated or requires settlement in a foreign currency. cost, whichever comes first.
Initial
using spot exchange rate at the date of transaction
Recognition ACCOUNTING FOR BORROWING COST
 Monetary items – retranslated using closing rate Specific borrowing – funds borrowed only for the qualifying asset
 Nonmonetary items measured at historical cost – exchange rate at the date of
Subsequent transaction
Recognition  Nonmonetary items at fair value – exchange rate at the date when the fair value
was determined PAS 24 Related Parties
Hence, nonmonetary items do not need translation at the end of the reporting period.

Related parties have the ability to affect the financial and operating decision of the other party through
Monetary items - amount received or paid in fixed or determinable (e.g., cash, receivables, payables)
control, significant influence or joint control.
Non-monetary items - do not give rise to monetary items (e.g., inventories, prepaid assets, PPEs)

Importance of disclosures of related parties

Exchange Differences – the difference of translating one currency into another currency at different
* Its transactions or existence can affect an entity9s financial position and performance
exchange rates
* To help users better assess the risks and opportunities surrounding the entity
Recognition of exchange difference:
* For transparency because there might be a conflict of interest
a. Monetary items – recognized in P/L
b. Nonmonetary items – recognition of exchange component is the same as how gain or loss are
DISCLOSURES
identified, whether in OCI or P/L
• When foreign currency transaction occurred in one period and settles in another:  Close Family Member
*Exchange difference between the transaction date and end of reporting period  Parent-subsidiary relationship
*Then, exchange difference between the previous reporting period and settlement date.
 Subsidiary
FOREIGN OPERATIONS discloses the parent name, even if no transaction happened in the period.
A subsidiary, associated, joint venture or branch that is based in foreign country and using foreign  Key management personnel – CEO, CFO, COO
currency. Discloses his compensation by breaking down respectively into: short-term, post-employment, other
Before financial statements of the branch is incorporated to the FS of main branch or other necessary long-term, termination; and share-based payment
translations (e.g., gov’t requirements), it is translated using the procedures below.
 Related party transaction
Discloses:
Translation of Financial Statements
a. Nature or related party relationship
a. Assets and liabilities are translated using closing rate at the date of balance sheet
b. Nature terms and amount of the transaction and outstanding balances
b. Income and expense are translated, using spot exchange rates
c. Doubtful debts on the outstanding balances
c. All resulting exchange differences are recognized in OCI.
Outstanding balances are disclosed in individual FS, and eliminated in consolidated FS.
Average rate for the period may be used, except when exchange rates fluctuate significantly.
 Government-related entities – entity that is controlled, jointly controlled or significantly
PAS 23 Borrowing Cost influenced by a government
Discloses if there is related party transaction
Borrowing cost is capitalized to qualifying asset – long term to get ready for use or sale Types of a. Name of the gov’t and the nature of the relationship
borrowing cost: b. Nature and amount of each individually significant transaction
1. Interest expense
c. Other transactions that are collectively significant but are individually insignificant.
Entity shall apply the same accounting for each category of investment.
Questions: The measurement used for investment in separate FS is the same to non-separate FS.
1. What makes parties related and not related?
2. Elaborate significance of related parties9 disclosures.
PAS 28 Investment In Associates And Joint Venture
Nature of relationship
PAS 26 Accouting And Reporting Retirement Benefits Plans Type of Investment Percentage of ownership interest
with investee
Financial asset at FV <20% Regular investor
*Preparation of FS of retirement benefits plans to account and report all participants of the plan, instead Investment in associate 20% - 50% Significant influence
of individual. Hence, PAS 26 views retirement benefits plan as a reporting entity. Investment in subsidiary 51% - 100% Control
Investment in joint venture Contractually agreed sharing of control Joint control
*Applies to all retirement benefits plan, except gov9t social security type arrangements and employee
benefits other than retirement benefits.
Associate is an entity, which the investor has significant influence.
*Hybrid plans are considered defined benefit plans.
Significant influence
- Power to participate in financial and decision but has no control or joint control
FS of Defined Contribution Plan contains the ff.:
- Exist if investor holds 20% ≤ 50% voting power
a. a statement of net asset available for benefits
- Investor may have significant influence if <20% or may not have significant influence even if
b. a statement of changes in net asset available for benefits; and
>20%, unless it provides any of the ff. evidences:
c. accompanying notes to the FS
a. Representation on the governing body of the investee
b. Participation in policy-making process
FS of Defined Benefit Plan contains either of the ff.: (actuarial report is needed)
1. a. net asset available for benefits c. Material transactions between the entity and its investee
b. actuarial PV of promised retirement benefits, distinguishing vested and non-vested; and d. Interchange of managerial personnel; or
c. resulting excess or deficit e. Provision of essential technical information
2. statement of net asset available for benefits including either:
ACCOUNTING FOR INVESTMENTS IN ASSOCIATES
a. note disclosing the APV of PRV, distinguishing vested or non-vested benefits; or
Using equity method
b. a reference to this information in an accompanying actuarial report Plan assets are measured at fair
- Initial recognition – cost
value.
- Subsequent adjustment – share in the investee’s changes in equity (e.g. P/L, dividends, OCI)
Share in associate’s Effect on investment in associate Effect on investment income
Questions:  Increase for share in profit  Increase for share in profit
1. Why defined contribution plan contains that info in FS, as well as the defined benefit plan? P/L
 Decrease for share in loss  Decrease for share in loss
2. What makes defined benefit plan FS different from defined contribution plan FS? Dividends Decrease No effect
 Increase for share in gain No effect; the share in OCI is
PAS 27 Separate Financial Statements OCI
 Decrease for share in loss included in the investor9s OCI

• Accounting and disclosure requirements for investments in subsidiaries, associates and joint ventures, Application of the Equity Method
when entity prepares separate FS - Investor start using when it obtains significant influence; and
• No entity is mandated to produce - Stops when loses significant influence
• Applicable if entity chooses to prepare or is required by law
On acquisition, investment cost and share of net fair value of are accounted as follows:
Separate FS is an addition to: - If cost > FV, the excess is included in the carrying amount of the investment
a. consolidated FS; or - If cost < FV, deficiency is included in income
b. FS of entity with an investment in associates or joint ventures using equity method under PAS 28
If FS reporting period and accounting policies of the investee and investor do not coincide, investee
Preparation of Separate FS: adjust his accounting policies before investor uses, and prepare FS that coincide to the investor
Prepared in accordance to applicable PFRS, except/however that investment in subsidiaries, associates or reporting period (difference should not exceed 3 months).
joint ventures are accounted for either:
a. at cost; or Preference Share – priority dividends
b. in accordance of PFRS 9; or - Cumulative PS  deduct 1 yr. dividends, declared or not
c. using equity method under PAS 28 - PS computation is not based on latest share but to the past shares
 Question:
• In losses, investor discontinues sharing losses when his investment becomes 0. 1. Why is FS restated in hyperinflation economy? Understatement of assets and overstatement of income
• If the investee reports profit, resume recognition of shares only after its share in the profit equals share will happen and it can distort the comparison
of losses unrecognized. 2. How will you compute gain or loss on net monetary position?
• Investor is exempted using equity method if exempted in preparing consolidated FS
PAS 32 Financial Instruments: Presentation
• Investment in associate or joint venture with a portion of other PFRS or PAS, the remaining portion is
accounted using equity method.
Financial Instruments – any contract that give rise to a financial asset of one entity and a financial liability
• If investment in joint venture is in accordance to PAS 28 by referring to PFRS 11, then use the equity
or equity instrument of another entity
method.
PAS 32 complement PFRS 9 Financial Instruments and PFRS 7 Financial Instruments: Disclosure
Question:
Presentation
1. Why is investment in associate initially recognized as cost?
Classifies financial instrument based on the substance of the contract and not its legal form.
2. Explain the effect of P/L, dividends and OCI to investment in associate.
Classification of Financial Instruments
PAS 29 Financial Reporting In Hyperinflationary Economies Financial Assets Financial Liabilities Equity Instruments
potentially favorable potentially unfavorable potentially unfavorable; residual A-L
• Restatement applies if an entity’s functional currency is that of a hyperinflationary economy. Contractual right to receive Contractual obligation to pay No contractual obligation to pay
• No prescribe absolute rate to recognize hyperinflation. It is a matter of judgment. Indicators of cash/financial instruments on financial asset or exchange financial asset or exchange
favorable condition instrument instrument
hyperinflation: To receive: Requires delivery of:
a. General population keep its wealth in non-monetary assets or in a stable foreign currency  Variable number of EI for  Variable number of own EI Requires deliver of:
b. General population regards monetary amounts in terms of stable foreign currency a fixed amount of FA for a fixed amount of FA  Fixed number own EI for a fixed
 Fixed number of EI for a  Fixed number own EI for a amount of FA
[Link] and purchases on credit take place at expected loss of purchasing power of credit period variable amount FA variable amount of FA
d. Interest rates, wages and prices are linked to a price index; and Ex.: Redeemable preference
e. Cumulative inflation rate over 3 years is approaching, or >100% share – holder redeem
PPE, inventories, intangible Ex.: Callable preference share –
share at a set date
asset are not included issuer will only call holder
Unearned revenues, gov9t
Core principle obligations are not included
- Restate FS using the measuring unit current at the end of the period or General Price Index
(GPI) Compound Financial Instrument – contains both liability and equity; issuer’s perspective
- Restate also the comparative FS, whether monetary or non-monetary items Ex. Convertible bonds – bonds converted into issuer’s shares of stocks
- Prohibits the presentation of this information as a supplement to unrestated FS
Offsetting of financial asset and liability is permitted if:
Restatement of Statement of Financial Position a. Legal rights to offset; and
a. Monetary items - not restate b. Intention to offset
b. Non-monetary items at FV or NRV - not restated PAS 32 requires offsetting when it reflects entity9s future cash flows.
c. Non-monetary items at historical cost - restated
Statement of Comprehensive Income and Cash Flows - restate all amount OTHER
Puttable Instrument – holder9s right to return the instrument in exchange for financial asset or
automatically returned because of specified future event
Restatement Formula: - Classified as financial liabilities, except when it meets definition of equity instrument
𝐻𝑖𝑠𝑡𝑜𝑟𝑖𝑐𝑎𝑙 𝐶𝑜𝑠𝑡 × ( 𝐺𝑃𝐼 (𝑎𝑡 𝑒𝑛𝑑 𝑜𝑓 𝑟𝑒𝑝𝑜𝑟𝑡𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑)/𝐻𝑖𝑠𝑡𝑜𝑟𝑖𝑐𝑎𝑙 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 (𝑎𝑡 𝑎𝑐𝑞𝑢𝑖𝑠𝑡𝑖𝑜𝑛 𝑑𝑎𝑡𝑒)) Treasury Shares (Treasury Stocks) – entity’s own shares; reflect transactions to equity
Interest, Dividends, Losses and Gains that relate to:
NOTE: Average price index can be used if historical price index is undeterminable, such transactions - Financial liability are recognized as income or expenses in P/L
recurring very frequently - Equity instruments are recognized directly in equity
Transaction cost from issuing:
Gain or loss on the net monetary position due to restatement (historical amount – restated amount) is - Financial liability are included in financial liabilities and subsequently amortized as P/L
recognized in P/L. - Equity instrument are deduction from equity
Retained earnings – balancing figure after restatement PAS 33 Earnings Per Share
Publicly listed entities are required to present
Earnings Per Share – how much profit (loss) each ordinary shares (OS) earned
- Ordinary share – subordinate to all other equity instrument
- Preference share – prioritize over other classes of shares Condensed FS
Types of EPS • Minimum
Basic EPS Dilutive EPS • Focus on providing info on significant events and transactions occurred since the latest annual period
 Actual outstanding OS  Includes potential outstanding OS • Discloses compliance with PFRS, and other information that is relevant for the interim period
• If highly seasonal, discloses latest and comparatives 12-month period in addition to interim financial
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 2 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑆ℎ𝑎𝑟𝑒𝑠 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎ą 𝑜𝑛 𝐶𝐵
𝐵𝐸𝑃𝑆 = 𝐷𝐸𝑃𝑆 = report
W𝐴𝑁𝑂𝑆 W𝐴𝑁𝑂𝑆 + 𝑝𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠
• Presented in cumulative basis (year-to-end)
 Net Income is after tax Potential OS
1. Convertible Preference Share • Comparatives
 Preferred Shares
 Cumulative – deduct 1 yr., declared or not 2. Convertible Bonds Payable - Statement of financial position – latest annual financial report
 Non-cumulative – deduct declared 3. Options/Warrants
- Other FS – year-to-date period
 Ave. Outstanding OS 4. Contingent Ordinary Shares
1. Shares issued
Ex. Current Comparative
2. Subscribed shares Dilutive decreases EPS SFP June 30, 2021 Dec. 31, 2020
3. Treasury shares Dilutive included in DEPS computation
Antidilutive ignored
Other FS Sept. 30, 2021 Sept, 30, 2020
 Reacquired – deduct
 Reissued (sold) – add
Below are adjusted retrospectively until Test for Dilution: Materiality
issuance date: 1. PS/BP  convertible
𝐼𝑛𝑐𝑟𝑒𝑚𝑒𝑛𝑡𝑠 𝑜𝑓 𝑁𝐼−𝑃𝑆 Interim measurements may rely on estimates to greater extent than measurement of annual financial
4. Share-split – ex. 2-for-1 2. 𝑇𝑒𝑠𝑡 =
5. Bonus issue – or stock dividend
𝐼𝑛𝑐𝑟𝑒𝑚𝑒𝑛𝑡𝑠 𝑜𝑓 𝖶𝐴𝑁þ𝑆 data.
 BEPS > Test dilutive
6. Preemptive stock rights –or right issue  BEPS≤ Test anti-dilutive
- issuer is obliged to offer it to the existing Test for options/warrants Recognition and measurement
shareholder before offering it to the public  MV of shares>option pricedilutive
𝑀𝑉 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑟𝑖𝑔ℎ𝑡 𝑜𝑛 •Same accounting policies as annual, except if there is changes
𝐴𝑑j. 𝑓𝑎𝑐𝑡𝑜𝑟 =  MV of shares ≤ option price anti-
𝑀𝑉 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑒𝑥 2 𝑟𝑖𝑔ℎ𝑡 dilutive • Measurement is on year-to-date basis
3. Adding potential OS is based on the ranking: • Two views of interim period:
1. Integral view – a part of annual report is included
𝑀𝑉 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝑒𝑥. 𝑜𝑓𝑟𝑡𝑠 1. Options/Warrants 2. Discrete view – only for the period
+ 𝑝𝑟𝑜𝑐𝑒𝑒𝑑𝑠 𝑎𝑓𝑡𝑒𝑟 𝑒𝑥. 𝑜𝑓 𝑟𝑡𝑠 2. PS
𝑒𝑥𝑟𝑖𝑔ℎ𝑡 = 3. BP • Gains and losses are recognized immediately (discrete view) ex. write-downs, gov9t grants, dividends
𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑓𝑡𝑒𝑟 𝑒𝑥. 𝑜𝑓 𝑟𝑡𝑠
• Cost and expenses (income) needs allocation (integral view) ex. depreciation, taxes
Adj. factor is multiplied to Ave. outs. OS
PAS 36 Impairment Of Assets
Entity with dilutive potential shares presents DEPS in addition to BEPS. If no dilutive, a BEPS is okay. Applies to non-current assets:
a. PPE
PAS 34 Interim Financial Reporting
b. Investment property measured at cost model
• No entity are mandated for interim financial reporting
c. Investment in associates, joint ventures, and subsidiaries
• Applicable if entity choses to or required by gov’t
d. Intangible assets
• Securities and Exchange Commission (SEC) and Philippine Stock Exchange (PSE) quarterly and issued
e. Goodwill
within 45 days after end of interim period
Observation: Measured for impairment because they are measured at cost.
• Publicly listed entities are encouraged; at least semi-annual issued within 60 days after end of interim
period
CORE PRINCIPLE
• If CA of asset > recoverable amount, impaired
Interim Financial Report contains either:
Recoverable amount (higher of FVLCD or VIN)
- Complete FS; or
Less: Carrying Amount
- Condensed FS, compose of:
= Impairment Loss
1. Condensed Statement of Financial Position
• Assets are tested for impairment individually
2. Condensed Statement of P/L and OCI
3. Condensed Statement of Changes in Equity
Indications of Impairment
4. Condensed Statement of Cash Flows
• Assess at the end of each reporting period, whether there is indication of impairment
5. Selected explanatory notes
• Indications:
For lesser cost and to avoid repetition of information, PAS 34 is better than using PAS 1.
External sources:
1. Significant decline in asset value • Goodwill = Purchase price – net assets FV
2. Significant change factors that affect recoverable amount (ex. increase in market interest rates) • Does not generate cash flow but contributes to cash flows of multiple CGUs
3. CA of net asset > market capitalization • Hence, tested for impairment only once allocated to the CGU expected to benefit from combination
Internal sources: • Goodwill from business combination is allocated to each of the acquirer9s CGU
1. Obsolescence or physical damage for an asset
2. Significant change in use of assets that affect recoverable amount (ex. discontinuance) Impairment loss of CGUs
3. Evidence that asset9s economic performance is worse than expected • CGUs CA including goodwill > recoverable amount, impaired
• If there is indication, it signify to review and adjusted remaining useful life, depreciation or • Impairment loss of CGU is:
amortization method, or the residual value even if no impairment loss is recognized 1. Deducted to any goodwill included in the CGU; then
2. The excess is to the CGUs other assets carrying amount, pro rata
Required testing for impairment annually, whether there is indication or not:
a. Intangible asset with definite useful life Corporate Assets
b. Intangible asset not yet available for use • Assets other than goodwill contributing to future cash flows of both CGU under review and other CGU
c. Goodwill acquired in a business combination • Testing for impairment is same to goodwill

MEASURING RECOVERABLE AMOUNT REVERSAL OF IMPAIRMENT

• No need to measure both FVLCD and VIU if one exceeds CA • Recoverable amount of impaired asset > CA
• If FVLCD is undeterminable, use VIU • Indication of reversal is opposite of impairment
• If doubtful of VIU exceeding FVLCD, use FVLCD • Limitations of reversal:
1. Increase of CA shall not exceed to CA after regular depreciation
Fair Value less Cost of Disposal (FVLCD) 2. Never reserve impairment loss of goodwill
• FV is based in PFRS 13 Fair Value Measurement
PAS 37 Provisions, Contigent Liabilities And Contingent Assets
• Cost of disposal excludes recognized liabilities

Exemption:
Value in Use (VIU)
- Executory contracts, unless onerous
PV of the future cash flows expected to be derived from an asset/CGU Computation:
- Those covered by other standards
1. Estimate future cash flows expected from continuing the use of assets to its final disposal
- Included any residual value and disposal cost, but excludes cash flows from future
PROVISIONS
enhancement
• a liability of uncertain timing or amount
- Cash flow project cover max. of 5 yrs.
• Estimated
- Projects beyond 5 yrs. are extrapolated
• Ex. Warranty, restructuring cost, environmental damages (define restructuring)
2. Then, apply the appropriate discount rate
• Presented in balance sheet separately from other types of liabilities (trade payables, accruals,
- Discount rate - pre-tax rate that reflects current market assessment
contingent liabilities
• Reviewed at end of each reporting period
RECOGNIZING AND MEASURING IMPAIRMENT LOSS
• Recognition:
• Recognized in P/L
a. Present obligation-obligating event (legal or constructive)
• Unless, asset is carried at revalued amount, revaluation surplus is decrease first and any excess is
b. Probable (more likely than not) outflow of resources; and
recognized in P/L
c. Reliably estimated
• Subsequent depreciation uses new CA
 Do not recognize future operating cost
• Used also in reversal

CONTINGENT – do not meet all recognition criteria; not recognized

CASH-GENERATING UNIT (CGU)
• Contingent Liabilities – disclosed only, except the possibility of outflow is remote
• Smallest group of asset that generates cash inflows independent from cash inflows of other asset
• Contingent Assets – disclosed only, if the inflow is probable
• If impossible to calculate recoverable amount of individual asset, include it in CGU
• Consistency of included items is needed
• Recoverable amount is the higher of CGUs FVLCD and VIU

GOODWILL
 3. CA of asset given up
ii. Lacks commercial substance – use no. 3
e. Internally generated – classified into:
1. Research Phase – investigation to gain new knowledge; expensed
2. Developmental Phase – application on research findings; capitalized if:
a. Technical feasible;
b. Intention to complete;
c. Ability to use or sell;
d. Probable future economic benefits;
e. Availability of adequate resources; and
MEASUREMENT f. Reliable measurement of cost
Nature of the outflow Measurement Basis If not clear whether it is a research or developmental cost, treated as research cost
General rule Best estimate If both do not qualify for capitalization, expensed as <R&D Expense=
Involves a large population of items Expected value  probability weighted ave. NOTE:
Each possible outcome in a range is • Prohibits reinstatement of cost
Mid-point of the range
as likely as any other • Capitalization of cost stops when ready for its intended use
• Internally generated brands, mastheads, publishing titles, customer lists, goodwill and similar items are
RECORDING THE PROVISION not recognized as intangible assets
Provision is debited to expense and credit to estimated liability account. But sometimes, provision form
part of the asset’s cost SUBSEQUENT MEASUREMENT
Either cost model or revaluation model and applies to entire class of intangible assets
Changes in provisions - Prospective • Cost model – cost less accumulated amortization and impairment loss
Use of provision - only for expenditure it was originally intended for • Revaluation model – FV less subsequent accumulated depreciation and impairment loss
- Only used to intangible asset with active market
PAS 38 Intangible Assets
Intangible asset with:
Intangible assets – identifiable non-monetary assets without any substance
a. Finite useful life
1. Identifiable
- Amortized
2. Control
b. Infinite useful life
3. Future economic benefits
- Not amortized but tested for impairment at least annually
- If asset has both intangible and tangible elements, use judgment to asses which is more
- Useful life cannot be forecasted and doesn9t mean no end
significant
- No legal, contractual, and other restriction that limits the period
- If integral part to asset, PPE (ex. OS in computer); if not, intangible asset (ex. app software)
- If legal right can be renewed indefinitely
- Aggregately presented in balance sheet under <intangible assets=
AMORTIZATION
RECOGNITION
o Similar to depreciation of PPE, but uses the term amortization
a. Meets definition;
o If finite useful life, use shorter of its useful life or legal life, if any. (Patent max. life is 20 yrs.)
b. Probable future economic benefits; and
o Starts when available for use
c. Cost can be measured reliably
o Stops when sold, classified for sale under PFRS 5, or fully depreciated
o Do not stops when no longer used
INITIAL MEASUREMENT - at cost, but depends on how it is acquired:
o Recognized as expense
a. Separate acquisition – purchase price plus direct cost
- If deferred payment, cost is cash price equivalent; difference is interest exp.
AMORTIZATION METHODS
b. Acquisition as part of a business combination – FV at acquisition date
1. Straight-line method
c. Acquisition by way of gov’t grant – either FV or at nominal amount plus direct cost
2. Diminishing balance method
d. Exchange of assets
3. Units of production method
i. With commercial substance
1. FV of asset given up
- No prescribe method
2. FV of asset Received
 - Based on management’s judgment as long as it best reflects the expected pattern of c. Abnormal amount
consumption o Can be used in accounting self-constructed investment property
- If pattern is undeterminable, use straight-line method - Exchange of assets
- Prohibits revenue as basis O With commercial use
- Residual value is assumed zero, unless sold before the end of its economic life 1. FV of asset given up
2. FV of asset received
IMPAIRMENT 3. CA of asset given up
o CA > recoverable amount O If lack commercial use, use no. 3
o Tested using PAS 36
SUBSEQUENT MEASUREMENT - cost model or fair value model
DERECOGNITION • Applies to all investment property
1. Disposed; or • Requires to determine FV, whether cost or FV model is used
2. No future economic benefits • FV is used in FV model for measurement and disclosure; FV in cost model is for disclosure only
Fair Value Model
CA – Net Disposal = Gain or Loss in P/L - Changes in FV are recognized in P/L
- FV measured every end of reporting period
In general, accounting for intangible asset is similar to PPE. - Not depreciated
- If FV is undeterminable in initial measurement, use cost model
PAS 40 Investment Property
Cost Model
- Cost – less accu. depreciation and impairment loss (PAS 16)
Investment property – land and/or building held to earn rentals or for capital appreciation or both
- PFRS 5, if investment property is held for sale
Investment Property Owner-occupied Property
- PFRS 16, if investment is right-of-use asset resulting from a lease
For rental or capital appreciation
Purpose For operational
or both
Cash flow generation Independent In conjunction with other assets
Scope Land and building Include other than land and building
Standard PAS 40 PAS 16

Partly investment property and partly owner-occupied

O If can be sold separately, accounted separately
O If can’t be sold separately, either investment property or PPE, whichever is significant

Ancillary services to occupants

- Investment property if ancillary service is insignificant (ex. Warehouseutilities)
- PPE if significant (Ex. Hotelutilities) CHANGE IN ACCOUNTING POLICY
Property of leased between group members are PPE in consolidated FS  Prospective
 Cost model ->FV model, allowed
RECOGNITION:  FV model -> cost model, not allowed
1. Meets definition;
2. Probable future economic benefits TRANSFERS to or from investment property because of change in use
3. Reliable measurement of cost a. Commencement of owner-occupation
b. Commencement of development with a view to sale
INITIAL MEASUREMENT - at cost but depends on mode of acquisition c. End of owner-occupation
- Acquisition by purchase d. Commence of an operating lease to another party
O Purchase price + direct cost
O If deferred payment, cost is cash price equivalent; difference is interest expense • If uses cost model, transferred asset are accounted at CA
O Excluding in cost: • If uses fair value model, transferred asset are accounted for FV
a. Start-up cost, unless part of bringing asset to its intended use • On transfer date, start changing accounting to PAS 40 or other standards (ex. PAS 16 and PAS 2) that is
b. Operating losses before achieving planned level of occupancy appropriate for the change
 2. Expected to bear produce
SUBSEQUENT EXPENDITURES 3. Remote likelihood of being sold
 Expensed
 Unless, they meet recognition criteria are capitalized (ex. replacement of assets) *Plants that are to be harvested as agricultural produce are not bearer plants.
*Bearer plants that may be sold as scrap when no longer used are not necessarily precluded from being
IMPAIRMENT classified as bearer plants
 If using cost model -> PAS 36 *Annual crops and similar plants that die once their produce has been harvested are considered
 If using FV model -> no separate accounting policy consumable plants, and therefore classified as biological asset

DERECOGNITION Agricultural Produce - Harvested product of the entity’s biological assets

• Disposed; or - Agricultural produce refers to those that are in their natural state and are not yet processed
• No future economic benefits
CA – Net Disposal = Gain or Loss recognized in P/L Harvest - Detachment of produce from a biological asset or the cessation of a biological asset’s life
process
Vocabulary:
• Finance lease - risks and rewards have been fully transferred Agricultural Activity - Biological Assets and Agricultural Produce are accounted for under PAS 41 only
• Operating lease – opposite od finance lease; basically the same as landlord and renter contract when they relate to agricultural activity
PAS 41: Agriculture
Management by an entity of the biological transformation and harvest of biological assets for sale or
conversion into agricultural produce or into additional biological assets
PAS 41 prescribes the accounting and disclosure for agricultural and related activity
- Farming or the process of producing crops and raising livestock
Common Features of Agricultural Activities
PAS 41 applies to the following:
1. Capability to Change
1. Biological Assets, except bearer plants
2. Management of Change
2. Agricultural produce at the point of harvest
3. Measurement of Change
3. Unconditional government grants related to a biological asset measured at its fair value less costs to
sell
Biological Transformation
1. Growth
PAS 41 applies to agricultural produce only at the point of harvest. After harvest, PAS 2 Inventories or 2. Procreation
other applicable standard is applied 3. Degeneration

Biological Asset - Living animal or plant Recognition

Biological asset or agricultural produce is recognised when it meets the asset recognition criteria,
Types of Biological Asset including the reliable measurement of its fair value or cost
1. Consumable Biological Assets
2. Bearer Biological Assets Measurement
Biological assets are initially and subsequently measured at fair value less costs to sell
Living animals, whether consumable or bearer, are classified as biological assets if they relate to
agricultural activity. However, living plants are classified as biological assets only if they are consumable. Biological assets whose fair value cannot be reliably determined on initial recognition are initially
Bearer plants are classified as PPE. measured are cost and subsequently measured at cost less accumulated depreciation and accumulated
impairment losses. Once fair value becomes reliably measurable, the biological asset is measured at its
Consumable Biological Assets fair value less costs to sell.
To be harvested as agricultural produce or sold as biological assets
Agricultural produce is, in all cases, initially measured at fair value less costs to sell at the point of
Bearer Biological Assets - To bear produce
harvest. The gain or loss arising from the initial measurement is recognised in profit or loss
Bearer Plant
A living plant that is:
Entity uses PFRS 13 Fair Value Measurement when measuring the fair value of biological assets and
1. Used in production
agricultural produce.
 Have attained harvestable specifications (for consumable biological assets) or are able to regular harvests
Contract prices are not necessarily relevant when measure fair value (for bearer biological assets)
 Biological assets attached to lang may not have a separate market but an active market may PFRS 1 First-Time Adoptation Of Philippine Financial
exist for the combined assets as a package
Reporting Standards

Government Grants
I. NATURE
Government grants that are related to biological assets measured at fair value less costs to sell are
Objective:
accounted for under PAS 41
PFRS 1 – to ensure that an entity’s First PFRS Financial Statements, including interim financial reports
covered thereon, contain high quality information that is transparent to users, comparable, makes way
Under PAS 41, if the government grant is
for accounting in accordance with PFRSs, and can be prepared with cost efficiency. First PFRS financial
1. Unconditional
statements are “the first annual financial statements in which an entity adopts PFRSs, by an explicit and
2. Conditional
unreserved statement of compliance with
3. Conditional but the terms of the grant allow part of it to be retained according to the time that has
PFRSs”.
elapsed
PFRS 1 is applied only once, that is, when the entity first adopts PFRSs.
PFRS 1 does not apply when previous financial statements contained an explicit and unreserved
Government Grant (Unconditional)
statement of compliance with PFRSs, even if the auditors’ report has been qualified.
Profit or loss when it becomes a receivable
PFRS 1 does not apply when an entity that has been applying the PFRSs subsequently
Government Grant (Conditional)
changes its accounting policy in accordance with PAS 8 or specific transitional
Profit or loss when the attached conditions are met
provisions of other standards.

Disclosure - General Disclosures:

II. RECOGNITION AND MEASUREMENT
1. Aggregate gain or loss arising on initial recognition from change in fair value less cost to sell
PFRS 1 requires an entity to prepare and present an opening PFRS statement of financial position at the
2. Description of each group
date of transition to PFRSs.
3. Description of the nature of activities involving each group
The date of transition to PFRSs is the beginning of the earliest period for which an entity presents full
4. Restrictions on titles
comparative information under PFRSs in its first PFRS financial statements. The application of the PFRSs
5. Commitments for the development
starts on this date.
6. Financial risk management strategies
7. Reconciliation
ACCOUNTING POLICIES:
The entity selects its accounting policies based on the latest versions of PFRS as at the current reporting
Encouraged Disclosures:
date.
1. Consumable and bearer biological assets
PFRS 1 prohibits the application of non-uniform accounting policies or earlier versions of PFRSs to the
2. Mature and immature biological assets
comparative periods as these undermine comparability.
3. Change in fair value less costs to sell during the period due to price change and due to physical change

RETROSPECTIVE APPLICATION:
Disclosures for Biological Assets Measured at Cost
PFRS 1 requires retrospective application of the accounting policies selected by the first-time adopter.
1. Description
PFRS 1 requires an entity to do the ff. in its opening PFRS statement of financial position:
2. Explanation of why fair value cannot be reliably measure
a. Recognize all assets and liabilities whose recognition is required by PFRSs;
3. Range within which fair value is highly likely to lie
b. Not recognize items as assets or liabilities if PFRS do not permit such recognition;
4. Depreciation method
c. Reclassify items recognized under previous GAAP that have different classifications under PFRSs; and
5. Reconciliation
d. Apply PFRSs in measuring all recognized assets and liabilities.
PFRS 1 clarifies that the transitional provisions in other PFRSs apply only to entities
Disclosures for Government Grants
that already use PFRSs.
1. Nature and extent
2. Unfulfilled conditions
III. TRANSACTION
3. Significant decreases expected
1. Impairment of assets and related compensation from third party are separate economic events. Hence,
they are accounted for separately under PFRSs.
Mature Biological Assets
2. If the deposits are repayable in cash at any time prior to the approval of the entity’s application for Goods and services received in share-based payment transactions are recognized when the goods are
increase in capitalization, the deposits are classified as liability. In the absence of such provision, the received or as the services are received. Goods or services received that do not qualify as assets are
deposits are classified as equity (ex. Contributed capital) recognized as expenses.
3. Liability for dividends is recognized when the dividends are appropriately authorized and is no longer
at the discretion of the entity. The entity shall recognize:
4. Dividends declared after the reporting period are non-adjusting events. • A corresponding increase in equity if the goods or services were received in an equity- settled share-
5. Preference shares with mandatory redemption are classified as debt instruments. based payment transaction, or
6. PFRS requires recognition of derivative assets and liabilities. • A liability if the goods or services were acquired in a cash-settled share-based payment transaction.
7. The ‘operator’ in a service concession arrangement recognizes an intangible asset if the ‘operator’ has
a contractual right to charge users of the public service. Equity-settled share-based payment transactions (REMEMBER PAS 16 MODES OF ACQUISITION OF PPE
8. Research and development costs are generally expensed when incurred. However, development costs THROUGH ISSUANCE OF SHARES IT IS AN EXAMPLE OF TRANSACTIONS WITH NON-EMPLOYEES)
may be capitalized in limited cases where all of the capitalization criteria under PAS 38 intangible assets
are met. Equity instrument granted is the right (conditional or unconditional) to an equity instrument of the entity
9. Noncurrent assets are classified as current only when all of the criteria under PFRS 5 non-current conferred by the entity on another party under a share-based payment arrangement.
assets held for sale and discontinued operations are met as of the end of the reporting period. If the
criteria are met after the end of the reporting period, it is treated as non-adjusting event. Measurement date is the date at which the fair value of the equity instruments granted is measured for
10.A liability is recognized if it is a “present obligation arising from past events” and meets the the purposes of PFRS 2.
recognition criteria of “probable” and “measured reliably” • For transactions with non-employees, the measurement date is the date when the entity receives the
good or service.
IV. PRESENTATION AND DISCLOSURE • For transactions with employees and others providing similar services, the measurement date is grant
 The first PFRS financial statements shall include at least one-year comparative information. date.
 If the entity presents non-PFRS comparative information and historical summaries for period before the
date of transition, it need not restate those summaries to PFRS. Grant date is the date at which the entity and the counterparty agree to a share-based payment
 The entity shall explain how the transition from previous GAAP to PFRSs affected its financial position, arrangement, being when the entity and the counterparty have a shared understanding of the terms and
financial performance and cash flows. This includes: conditions of the arrangement.
a. Reconciliations of equity reported under previous GAAP to equity under PFRS both (a) at the date of
transition to PFRS and (b) the end of the last annual period reported under the previous GAAP. • Intrinsic value is the difference between the fair value of the shares to which the counterparty has the
b. Reconciliation of total comprehensive income for the last annual period reported under the previous conditional or unconditional right to subscribe or the right to receive and the subscription price (if any)
GAAP to total comprehensive income under PFRSs for the same period. that the counterparty is required to pay for those shares.
Share-based compensation plans
PFRS 2 Share-based Payments • Share-based compensation plan is an arrangement whereby an employee is given compensation in
Scope of PFRS 2 return for services rendered in the form of the entity’s equity instruments or cash based on the fair value
1. Equity-settled share-based payment transaction – is a transaction whereby an entity acquires of the entity’s equity instruments or a choice of settlement between equity instrument and cash.
goods or services and instead of paying in cash the entity issues its own shares of stocks or Examples:
share options; or • Employee share options (equity-settled)
2. Cash-settled share-based payment transaction – is a transaction whereby an entity acquires • Employee share appreciation rights (cash settled)
goods or services and incurs an obligation to pay cash at an amount that is based on the fair • Compensation plans with a choice of settlement between (1) and (2) above
value of equity instruments; or
3. Choice between equity-settled and cash-settled Employee share option plans – equity settled
Equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting • Share option is a contract that gives the holder the right, but not the obligation, to subscribe to the
all of its liabilities. entity’s shares at a fixed or determinable price for a specified period of time. Some share options given to
employees may not require any subscription price, meaning shares will be issued to the employees in
Core principle consideration merely for services rendered.
An entity shall recognize in profit or loss and financial position the effects of share-based payment
transactions, including expenses associated with transactions in which share options are granted to Measurement of compensation
employees. Since employee share option plan is a transaction with an employee, the following order of priority shall
be used to measure the services received (salaries expense):
Recognition • Fair value of equity instruments granted at grant date
• Intrinsic value • If the fair values of the settlement alternatives differ, the fair value of the equity component will be
greater than zero, in which case, the fair value of the compound financial instrument will be greater than
Recognition of equity-settled share-based compensation plans the fair value of the debt component.
• If the share options granted vest immediately, salaries expense shall be recognized in full with a • If the entity has the right to choose settlement between cash (or other assets) or equity instruments,
corresponding increase in equity at grant date. the entity has not granted a compound instrument.
• If the share options granted do not vest until the employee completes a specified period of service, the • In such case, the entity shall determine whether it has a present obligation to settle in cash and shall
entity shall recognize the related compensation expense as the services are rendered by the employee account for the share-based payment transaction accordingly.
over the vesting period. • If the entity has a present obligation to settle in cash, it shall account for the transaction as a cash-
settled share-based payment transaction.
In the absence of evidence to the contrary, it shall be presumed that the share options vest immediately. • If the entity has no present obligation to settle in cash, it shall account for the transaction as an equity-
settled share-based payment transaction.
Cash-settled share-based payment transactions
• A cash-settled share based payment transaction is one whereby an entity acquires goods or services
PFRS 3 – Business Combination
Definition of terms
and incurs an obligation to pay cash at an amount that is based on the fair value of equity instruments.
Business Combination – A transaction or other event in which an acquirer obtains control of one or
• The goods or services acquired and the liability incurred on cash-settled share-based payment
more businesses. Transactions sometimes referred to as ‘true mergers’ or ‘mergers of equals’ are also
transactions are measured at the fair value of the liability
business combinations as that term is used in PFRS 3.
• At the end of each reporting period and even on settlement date, the liability shall be remeasured to
Business – An integrated set of activities and assets that is capable of being conducted and managed for
fair value. Changes in fair value are recognized in pro𝑓it or loss.
the purpose of providing goods or services to customers, generating investment income (such as
dividends or interest) or generating other income from ordinary activities.
Employee share appreciation rights (SARs) – cash-settled
Acquisition date – The date on which the acquirer obtains control of the acquiree
• A share appreciation right is a form of compensation given to an employee whereby the employee is
Acquirer – The entity that obtains control of the acquiree.
entitled to future cash payment (rather than an equity instrument), based on the increase in the entity’s
Acquiree – The business or businesses that the acquirer obtains control of in a business combination
share price from a specified level over a specified period of time.
Acquisition Method - This approach mandates a series of steps to record the acquisitions, which are:
Measure any tangible assets and liabilities that were acquired.
Measurement of compensation
Goodwill – an asset the represents the future economic benefits arising from other assets acquired in a
The liability for the future cash payment on share appreciation rights shall be measured, initially and at
business combination that are not individually identified and separately recognized.
the end of each reporting period until settled, at the fair value of the share appreciation rights. Changes
in fair value are recognized in pro𝑓it or loss.
Objective and Scope
 Improve the relevance, reliability, and comparability of information about a business
Recognition of cash-settled share-based compensation plans
combination and its effects.
• If the share appreciation rights granted vest immediately, the entity shall recognize the related
PFRS 3 establishes principles and requirements for how an acquirer in a business combination:
compensation expense on the services received in full with a corresponding increase in liability at grant
 recognizes and measures in its financial statements the assets and liabilities acquired, and any
date.
interest in the acquiree held by other parties;
• If the share options granted do not vest until the employee completes a specified period of service, the
 recognises and measures the goodwill acquired in the business combination or a gain from a
entity shall recognize the services received, and a liability to pay for them, as the employee renders
bargain purchase; and
service during that period.
 determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
Share-based payment transactions with cash alternatives
PFRS 3 must be applied when accounting for business combination, but does not apply to :
• If the counterparty has the right to choose settlement between cash (or other assets) or equity
instruments, the entity has granted a compound instrument.  The formation of Joint Arrangements.
• For transactions with non-employees, the equity component is computed as the difference between  The Acquisition of an asset or group of assets that is not a business, although general
the fair value of goods or services received and the fair value of the debt component at the date the guidance is provided on how such transactions should be accounted for
goods or services are received.  Combinations of entities or businesses under common control
• For transactions with employees and others providing similar services, the entity shall measure the fair  Acquisitions by an investment entity of a subsidiary that is required to measure at fair value
value of the compound instrument and its components as follows: through profit or loss
• If the fair value of one settlement alternative is the same as the other, the fair value of the equity
component is zero, and hence the fair value of the compound financial instrument is the same as the fair
value of the debt component.
Business Combination o The existence of any large minority interest if no other owner or group of owners has a
A business combination is a transaction or other event in which an acquirer obtains control of one or significant voting interest
more businesses. Transactions sometimes referred to as ‘true mergers’ or ‘mergers of equals’ are also o The composition of the governing body and senior management of the combined entity
business combinations as that term is used in PFRS 3. o The terms on which equity interests are exchanged.
There are times that it is not clear who is the acquirer. For example, in merger, there two companies
 The business combination can be achieved through stock acquisition or purchase of net merged together and in such a case we need to identify who acquires whom. In most cases, it will be the
assets larger companies or reverse acquisition when smaller company buys bigger company.
Assets and liabilities acquired needs to constitute a business otherwise it is not a business combination
and the investor needs to account a transaction in line with other applicable IFRS Standard Acquisition Date
The acquirer considers all pertinent facts and circumstances when determining the acquisition date, the
The business combination that achieved through stock acquisition over the acquire by purchasing date on which the acquirer obtains control of the acquiree. The acquisition date may be a date that is
majority (at least 50% + 1 share) common stock, with voting rights, of the acquire company. The business earlier or later than the closing date .
combination that achieved through a purchase of net assets in which the acquirer obtains the assets and - The closing date refers to the date when a company purchase and sale transaction is signed
assumes liabilities (depending upon the negotiation between acquirer and acquire) in exchange for cash, off and completed. This date may be different than the effective date, which is the date when
securities, or other means. the transaction is deemed to have occurred. Most of the time, the closing and effective date
of a transaction is the same day.
Business Acquired Assets and Liabilities
An integrated set of activities and assets that is capable of being conducted and managed for the Recognition Principle
purpose of providing goods or services to customers, generating investment income (such as dividends or Identifiable Assets Acquired, liabilities assumed, and non-controlling interest in the acquiree, are
interest) or generating other income from ordinary activities. recognized separately from goodwill.
Measurement Principle
3 basic elements to be a business such as inputs, processes, and outputs. All assets acquired and liabilities assumed in a business combination are measured at acquisition-date
Inputs – an economic resource (e.g non-current assets, intellectual property…) that creates outputs fair value.
when one or more processes are applied to it. Exceptions to the above principle, measurement and recognition
Process – A system, standard, protocol, convention or rule that when applied to an input or inputs, A. IAS 37 Provisions, Contingent liabilities, and Contingent Assets
creates outputs (e.g. production, workforce…) B. Income Taxes – the recognition and measurement of income taxes is in accordance with PAS 12
Outputs – The result of inputs and processes applied to those inputs (dividends, cost savings…) Income Taxes
 If all 3 elements are present, then an investor acquired a business and needs to apply PFRS 3 C. Employee Benefits – assets and liabilities arising from an acquiree’s employee benefits arrangement
Business Combinations otherwise investor might acquire just asset and applied own are recognised and measured in accordance with PAS 19 Employee Benefits
processes. In such case, investor does not need to apply PFRS 3 but in applicable IFRSs D. Imdemnification assets
standards. E. Reacquired rights
Acquisition Method F. Shared-based payment transaction – these are measured by reference to the method in IFRS 2 Share-
- shall be applied by an entity to account for each business combination. based Payment
Steps in applying Acquisition Method are: G. Assets Held for sale – PFRS 5 Non-current Assets Held for Sale and Discontinued Operations is
1. Identification of the ‘acquirer’ applied in measuring acquired non-current assets and disposal groups classified as held for sale at
2. Determination of the ‘acquisition date’ acquisition date.
3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non- H. Lease – it shall be measure in accordance with PFRS 16 Lease
controlling interest (NCI, formerly called minority interest) in the acquiree Acquired intangible assets must be measured at fair value in accordance with the principle if it is
4. Recognition and measurement of goodwill or gain from a bargain purchase separable or arises from contractual rights.
goodwill or gain from a bargain purchase
Identify an acquirer Goodwill is measured as the difference of (a) over (b) below
- The acquirer is the one that obtains the acquiree. a.) The aggregate of (i) the value of the consideration transferred(generally at fair value), (ii) the amount
- The acquirer is usually the entity that transfer cash or other assets where the business of any non-controlling interest (NCI), and (iii) in a business combination achieve in stages, the acquisition-
combination is effected in this manner date fair value of the acquirer’s previously-held equity interest in the acquiree, and
- The acquirer is usually, but not always, the entity issuing equity interest where the transaction b.) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed
is effected, however the entity also considers other facts and circumstances that shall be measured in accordance with the IFRS 3.
considered: To simply Illustrate:
o Relative voting rights in the combined entity after the business combination Goodwill = (Consideration transferred) + (Amount of non-controlling interest) + (Fair value of previous
equity interest) – (Net assets recognized). Imdemnification asset recognised at the acquisition date are subsequently measured on the same basis
1.) The Excess of (a) over (b) will result to Goodwill as imdemnified liability or asset. Imdemnification assets are only derecognized when collected, sold or
2.) If (a) is less than (b) will result to Bargain Purchase in profit or loss. when rights to it are lost.
Before any bargain purchase gain is recognised in profit or loss, the acquirer is required to undertake or Disclosures
reassess to ensure that it has correctly identified all of the assets acquired and all of the liabilities An acquirer is required to disclose information that enable users of its financial statements to evaluate
assumed and shall recognize any additional assets or liabilities that are identified in that review. the nature and financial effect of a business combination that occurs either during the current reporting
Choice of measuring the consideration transferred period
 Fair Value or after the end of the period but before the financial statements are authorized for issue.
 The NCI proportionate share of net assets of the acquire
Business Combination achieved in stages (Step Acquisitions)
PFRS 5 Non-Current Assets Held for Sale and Discontinued
The acquirer account its investment in the equity interest of an acquiree in accordance with the nature of Operations
the investment by applying the relevant standards: P F R S 5: N O N -C U R R E N T A SS E T S H EL D F O R SA L E A N D D ISC O N T IN U E D O P E R A TIO N S
 If <20% PFRS 9 Financial Instruments
A ss e t s c l a ss i fie d a s c o n c u r r e n t i n a c c o r d a n c e w it h P A S 1 a r e
 If 20%-50% PAS 28 Investment in Associates and Joint Venture
c l a ss i fie d a s c u r re n t a s s e ts o n l y i f t h e y m e e t t h e c rit e ria t o b e
 If Equal PFRS 11 Joint Arrangement
c l a ss i fie d a s h e l d f o r s a l e u n d e r P F R S 5
 If greater than 50% PFRS 3 Business Combination
P u r p os e of P F R S 5
For example on December 31, 2019, Entity A holds a 35 per cent non-controlling equity interest in Entity P F R S 5 p r e s c ri b e s th e a c c o u n t i n g f o r a s s e t s h e ld f o r s al e , in c l u d i n g
B, thus, an associate and the investment shall be measured in accordance to PAS 28 Investment in d i s p o sa l g r o u p s , a n d th e p r e s e n t at i o n a n d d i s cl o s u r e o f d is c o n t i n u e d
Associates and Joint Venture. On that date, Entity A purchases an additional 40 per cent interest in Entity o p e r a ti o n s
B. Now, Entity A has 75% interest in Entity B which now Entity A is now no longer an associate but now
G r o u p o f a s s e ts t o b e d i sp o s ed o f , b y s a l e o r o th er w i s e , to g eth e r a s a
obtains control of Entity B. Thus, the investment will now be measured in accordance to PFRS 3 Business
D i s p o s al G r o u p g ro u p in a s i n g l e t r an s a cti o n , a n d li a b iliti e s d i r e ctly a s s o ci at e d w ith
Combination. This PFRS refers to such a transaction as a business combination achieved in stages, th o s e a s s ets th at w ill t r an sf e rr e d in th e t r an s a cti o n
sometimes also called as Step Acquisitions.
N o n c u rr e n t a s s et o r d i s p o s al g r o u p i s c l as sifi e d a s h el d fo r s al e o r
C l a s s ifi c a ti o n a s H el d h e ld fo r d i strib u tio n to o w n er s if it s c a rr y in g am o u n t w ill b e
Contingent consideration
for Sale r e c o v er e d p ri n cip all y th ro u g h a s al e tr a n s a c tio n r ath e r th a n th ro u g h
Contingent consideration is an additional consideration in a specific condition occurs or happens. It must c o n tin u in g u s e
be measured at fair value at the time of the business combination is taken into account in the
N o n c u rr e n t a ss e t o r d i s p o s a l g r o u p i s c l a s s if i ed a s h e l d f o r s a le i f t h e
determination of goodwill.
b o t h o f th e f o ll o w i n g c o n d i ti o n s a r e m e t :
1. N o n c u r r e n t a s s e t o r d i s p o s a l g r o u p i s a v a i la b l e f o r i m m e d i a te s a l e
Acquisition-related cost
i n it s p r es e n t c o n d i t io n s u b j e c t o n ly t o t e rm s t h a t a r e u s u a l a n d
Cost includes finder’s fees; advisor, legal, accounting, valuation, and other professional or consulting fees; c ust om ar y a n d
and general administrative cost, including the cost of maintaining an internal acquisitions department. 2. S a l e i s h ig h l y p r o b a b l e, a s e v i d e n c e d b y th e e x i s te n c e o f a l l o f t h e
The cost of issuing shares, such as equity or debt instruments, are account for under PAS 32 Financial C o n d i t i o n s f o r
f o ll o w in g :
C l a s s ifi c a ti o n a s H e l d
Instruments: Presentation a . C o m m it t e d o n s e ll i n g t h e a s s et
for Sale
b . A ct i v e ly l o c a ti n g a b u y e r
Reacquired rights c . S a l e p r ic e i s r e a so n ab le
The intangible asset is subsequently amortised over the remaining contractual term excluding any d . S a l e i s e x p e c t ed t o b e c o m p le t e d w it h i n o n e y e a r
renewals. e . U n li k e ly t h a t t h e p l a n t o s e ll w il l b e w it h d ra w n

S a l e i n c lu d e s e x c h a n g e s t h a t h a v e c o m m e r c i a l s u b s ta n c e
Contingent Liabilities
Until a contingent liability is settled, cancelled, or expires, a contingent liability that was recognized is
measured at the higher of the amount the liability would be recognized under PAS 37 Provisions,
Contingent Liabilities and Contingent Assets, and the amount less cumulative amount of recognized in
accordance with the principles of PFRS 15 Revenue from Contracts with Customers

Imdemnification asset
 A s s e t t h at is n o t so l d w ith i n o n e y e a r fr o m th e d at e o f its S u b s e q u e n t c h a n g e s i n f ai r v a l u e l e s s c o s t s t o s e ll ar e r e c o g n i s e d i n
profit or loss as im pairm ent losses or gains on reversals of
c l a s sifi c atio n a s h el d fo r s a l e is r e cl as sifi e d b a c k t o its p r e v io u s
C ha nges in F air V alue i m p ai r m e nt
c l as sific atio n L ess C osts to Sell
A gain on reversal of im pairm ent is recognised only to the extent of
E xception to the O ne- cum ulative im pairm ent losses that have previously bee n reco gnised
T h e a s s e t is c o n t in u e d t o b cl as s i fi e d a s h e l d f o r s a le i f t h e f o ll o w in g
y e a r R e q u ir e m e n t
c o n d i ti o n s a re m e t: D e p r e ci atio n a n d H e l d fo r s a l e as s et s a r e n o t d e p r e ci at e d o r a m o rti s e d w h il e t h e y a r e
A m o r ti s ati o n c l a s sifi ed a s h el d f o r s al e
1. D el a y i s c a u s e b y e v e n t s b e y o n d e n t it y ’ s c o n t ro l an d
A n a s s e t t h a t c e a s e s t o b e c l a s s i fi e d a s h e l d f o r s a l e i s m e a s u r e d a t t h e
2. S u ffi ci e n t ev i d en c e th at th e e n tity r em ai n s c o m m itt e d o n s ellin g
C ha nges to a Plan of low er of asset’s
th e a s s et Sale 1. C a r r y i n g a m o u n t a n d
2. R eco verable am ount
N o n c u rr e n t a s s et th at i s a c q u i r ed e x c lu siv el y w it h a v i e w t o its
s u b s e q u en t d i sp o s al i s c l as sifi e d a s h el d fo r s al e a t t h e a c q u isiti o n C o m p o n e n t o f a n e n t i t y t h a t ei t h e r h a s b e e n d i s p o s e d o f o r i s c l a s s if i e s
E xc l u s i v e V i e w o f as held for sale and
d a t e if th e “ s a l e w it h in o n e -y e a r ” r eq u ir e m en t is m et a n d it i s h ig h ly
S u b s e q u e n t D is p o s al 1. R e p r e s e n t s a m a j o r li n e o f b u s i n e s s o r g e o g r a p h i c a l a r e a o f
p ro b ab l e t h at th e o t h er r e q u i r em e n ts w ill b e m et w ith i n a sh o rt D i s c o n t i n u e d
o p e r a ti o n s
O perations
p e rio d o f ti m e aft e r th e a c q u i sitio n 2. P a r t o f a s i n g l e c o o r d i n a t e d p l a n t o d i s p o s e o f a s e p a r a t e m a j o r
line of business
N o n c u rr e n t a s s e t s o r d is p o s a l g r o u p t h at m eet s t h e c rit er ia fo r 3. S u b s i d i a r y a c q u i r e d e x c l u s i v e l y w i t h a v i e w t o r e s a l e
E v e n t A ft er t h e
c l a ss i fic a tio n a s h e l d f o r s a le o n l y a f t er t h e r e p o r ti n g p e r io d is n o t O perations an d cash flow s that can be clearly distinguished,
R e p o rt i n g P e ri o d
c l a ss i fie d a s h e l d f o r s a l e i n t h e c u r r e n t p e r io d ’s fin a n c i a l sta t e m e n ts operationally and for financial reporting purposes, from the rest of
the entity
N o n c u r r e n t a s s e t s d e c la r e d a s p r o p e r t y d iv i d e n d s ar e c l a s s if i e d a s
h e l d f o r d i s tr i b u ti o n t o o w n e r s w h e n t h e y a r e a v a i la b l e f o r i m m e d i a t e A com po nent of an entity can be a cash-gen erating unit (C G U )
P r o p e r ty D iv i d e n d s
d i s tr i b u ti o n i n t h e ir p r e s e n t c o n d i t io n a n d th e d i s t ri b u t io n i s h i g h l y
D iscontinue d op erations occ urs w he n tw o things happen:
pro b able C o m p o n e n t o f a n E n t it y 1. C om pa ny elim inated the results of operations and cas h flow s of a
com p one nt of an entity from its ongoin g op erations
N o n c u rr e n t a s s e t o r d i s p o s a l g ro u p th a t i s t o b e a b a n d o n e d i s n o t
2. N o s i g n i f i c a n t c o n t i n u i n g i n v o l v e m e n t i n t h a t c o m p o n e n t a f t e r it s
N o n -c u r re n t A s s e ts t h at c l a ss i fie d a s h e l d f o r s a le b e c a u s e i ts c a r ryi n g a m o u n t w ill b e disposal
are to be A ba nd one d r e c o v e re d t h ro u g h c o n t in u i n g u s e r a th e r t h a n p r in c i p a l ly t h ro u g h
s ale D i s c o n t i n u e d o p e r a t i o n s o c c u r a t t h e e a rl i er date of the date the
com p one nt is actually disposed of a nd th e date the criteria for
H el d f r o s a le a s s e ts a r e i n it i a ll y a n d s u b s e q u e n t ly m e a su r e d a t t h e c l a s s i fi c a ti o n a s h e l d f o r s a l e a r e m e t
l o w e r o f c a rr y i n g r a m p a n t a n d fa i r v a l u e le s s c o s t t o se ll S m all e st id e n tifi a b l e g r o u p o f a s s et s th at g e n e r at e s c a s h in flo w s th at
C ash G enerating U nit
a r e l a rg el y in d ep e n d e n t o f t h e c a sh in flo w s fr o m o th er a s s et s o r
(C G U )
g ro u p s o f a s s et s
C o s t t o s e ll a r e d i s co u n te d t o t h e ir p r e s e n t v a l u e i f t h e s a le is
expe cted to occur b ey on d on e year
R esults of discontinue d o perations are prese nted in the statem ent of
profit or loss and other com prehe nsive incom e as single am ou nt
M e a s u re m e n t
A ss e t s c l a s s ifi e d a s h e l d fo r d i st rib u t i o n to o w n e rs a r e m e a s u r e a t t h e P r e s e n t a t i o n o f c o m p r i s i n g t h e t o t a l o f t h e f o ll o w i n g :
D i s c o n t i n u e d 1. P o s t - t a x p r o f i t o r l o s s o f d i s c o n t i n u e d o p e r a t i o n s a n d
l o w e r o f c a rr y i n g a m o u n t an d f a ir v a lu e l es s c o s ts to d i st rib u t e 2. P o s t - t a x g a i n o r l o s s r e c o g n i s e d o n t h e m e a s u r e m e n t t o f a ir v a l u e
O perations
l e s s c o s t s t o s e l l o r o n t h e d i s p o s a l o f t h e a s s e t s c o n s t i t u ti n g t h e
discontinued operation
H el d fo r s a le a s se t s t h a t a r e a cq u ir e d a s p a r t o f t h e b u si n e s s
If t h e a c t u a l d i s p o s a l o f a d i s c o n t i n u e d o p e r a t i o n o c c u r s i n t h e s a m e
c o m b in a t i o n a re m e a s u r e d a t f a i r v a l u e l es s c o s t s t o s ell , n o t a t f air p e r i o d t h a t t h e c o m p o n e n t i s cl a s s if i e d a s “ h e l d f o r s a l e ” t h e g a i n o r
v a l u e a s re q u i r e d b y P F R S 3 loss on dispos al of discontinued op erations is the actual gain or loss
on the dispos al

If t h e a c t u a l d i s p o s a l o f a d i s c o n t i n u e d o p e r a t i o n o c c u r s i n a
Gains or Losses on s u b s e q u e n t p e r i o d a f t e r t h e c o m p o n e n t i s c l a s si f i e d a s “ h e l d f o r s a l e ”
D i s p o s a l o f t h e e n t i t y r e c o g n i s e s e s t i m at e d l o s s o n d i s p o s a l
D i s c o n t i n u e d
O p er atio n s G ains or losses on disposal of disco ntinued operations, including
e s t i m at e d losses, are presented as part of the single am ou nt
r e p r e s e n t i n g t h e p o s t - t a x r e s u l t s o f d i s c o n ti n u e d o p e r a t i o n s

G a i n s o r l o s s e s o n h e l d f o r s a l e a s s e t s t h a t d o n o t m e e t t h e c r i t e ri a f o r
presentation as discontinue d o perations are presente d as part of
continuing operations

H e l d f o r s al e a s s et s ar e p r e s e n t ed i n t h e st at em e n t o f fi n a n ci al
P r e s e nt ati o n in the
p o si t i o n a s cu rr e n t a ss et s
Statem ent of Fina ncial
P o s i ti o n
O f fs etti n g is p r o h i b ite d
 PFRS 6 Exploration for and Evaluation of Mineral Resources DISCLOSURE
An entity discloses information that identifies and explains the amounts recognized in its financial
• An entity applies PFRS 6 to exploration and evaluation expenditures that it incurs
statements arising from the exploration for and evaluation of mineral resources.
• An entity does not apply PFRS 6 to expenditures incurred:
a) Before the exploration for and evaluation of mineral resources, such as expenditures incurred before
An entity discloses:
the entity has obtained the legal rights to explore a specific area
• Its accounting policies for exploration and evaluation expenditures and evaluation assets.
b) After the technical feasibility and commercial viability of
• The amounts of assets, liabilities, income and expense and operating and investing cash flows arising
extracting a mineral resource are demonstrable.
from the exploration for and evaluation of mineral resources.
Presentation
Note: Exploration and evaluation assets are disclosed as a separate class of assets in the disclosures
An entity classifies exploration and evaluation assets as tangible or intangible according to the nature of
required by PAS 16 Property, Plant and Equipment or PAS 38 Intangible Assets.
the assets acquired and applies the classification consistently.
PFRS 7 Financial Instruments: Disclosures
CHANGES IN ACCOUNTING POLICY OPTIONAL EXEMPTIONS
An entity may change its accounting policies for exploration and evaluation expenditures if the change Objectives of PFRS 7
makes the financial statements more relevant and no less reliable to the economic decision-making • PFRS 7 prescribes the disclosure requirements for financial instruments. The disclosures are broadly
needs of users, or more reliable and no less relevant to those needs. classified into the following two main categories:
• significance of financial instruments to the entity’s financial position and performance; and
ELEMENTS OF COST OF EXPLORATION AND EVALUATION ASSETS • the nature and extent of risks arising from financial instruments to which the entity is exposed, and
• An entity determines an accountingpolicy specifying which how the entity manages those risks. (PFRS 7.1)
expenditures are recognized as exploration and evaluation assets.
• The following are examples of expenditures that might be included in the initial measurement of Significance of financial instruments
exploration and evaluation assets: Statement of financial position
a) Acquisition of rights to explore • An entity is required to separately disclose the carrying amounts of each of the categories of financial
b) Topographical, geological, geochemical and geophysical studies assets and financial liabilities under PFRS 9.
c) Exploratory drilling • If an entity has reclassified financial assets, it shall disclose the date of reclassification, an explanation
d) Trenching of the change in business model, and the amount reclassified between categories.
e) Sampling • If an entity has offset financial assets and financial liabilities, it shall disclose the gross amounts of those
f) Activities in relation to evaluating the technical feasibility and commercial viability of extracting a assets and liabilities, the amounts that were set-off, the net amounts presented in the statement of
mineral resource. financial position and a description of the related legal right of set-off.

MEASUREMENT AFTER RECOGNITION Statement of profit or loss and other comprehensive income
After recognition, an entity applies either the cost model or the revaluation model to the exploration and • An entity is required to disclose separately the income, expense, gains or losses arising from the
evaluation assets. Refer to PAS 16 Property, Plant and Equipment and PAS 38 Intangible Assets for different classifications of financial instruments under PFRS 9.
guidance.
Other disclosures
IMPAIRMENT • The entity shall disclose the fair value of each class of financial assets and financial liabilities in a way
One or more of the following facts and circumstances indicate that an entity should test exploration and that the fair value can be compared with the carrying amount.
evaluation assets for impairment:
Nature and extent of risks arising from financial instruments
• The period for which the entity has the right to explore in the specific area has expired during the • CREDIT RISK – is “the risk that one party to a financial instrument will cause a financial loss for the
period or will expire in the near future, and is not expected to be renewed. other party by failing to discharge an obligation.” (PFRS [Link].A) Sample: “Your credit is good but I
• Substantive expenditure on further exploration for and evaluation of mineral resources in the specific need cash.”
area is neither budgeted nor planned. • Liquidity risk – is the risk that an entity will encounter difficulty in meeting obligations associated with
• Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of financial liabilities.
commercially viable quantities of mineral resources and the entity has decided to discontinue such • Market risk – is “the risk that the fair value or future cash flows of a financial instrument will fluctuate
activities in the specific area. because of changes in market prices.” Market risk comprises the following three types of risk:
• Currency risk – the risk associated with fluctuations in foreign exchange rates. Operating segments that do not meet any of the quantitative thresholds may be considered reportable,
• Interest rate risk –the risk associated with changes in market interest rates. and separately disclosed, if management believes that information about the segment would be useful to
• Other price risk – the risk associated with fluctuations in market prices other than those arising from users of the financial statements.
interest rate risk or currency risk.

Qualitative and Quantitative disclosures on risks OVERALL SIZE TEST

• The entity shall provide both qualitative and quantitative disclosures for each type of the risks required ➢ If total external revenue attributable to reportable segments identified using the 10% quantitative
by PFRS 7 to be disclosed. thresholds is less than 75% of the total consolidated or enterprise revenue (external revenue),
PRFS 8 Operating Segments additional segments should be identified as reportable segments, even if they do not meet the 10 %
requirement. Until at least 75% of total consolidated or enterprise revenue is included in reportable
Scope
segments.
PFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated
➢ In other words, the quantitative thresholds will not be necessary in determining additional reportable
financial statements of a group with a parent):
segments in order to meet the 75% requirement.
• Whose debt or equity instruments are traded in a public market
• That files, or is in the process of filing, its (consolidated) financial statements with a securities
DISCLOSURES REQUIRED FOR REPORTABLE SEGMENTS
commission or other regulatory organization for the purpose of issuing any class of instruments in a
An entity shall disclose information to enable users of its financial statements to evaluate the nature and
public market.
financial effects of the business activities in which it engages and the economic environments in which it
However, when both separate and consolidated financial statements for the parent are presented in a
operates. Disclosures will include
single financial report, segment information need be presented only on the basis of the consolidated
a) General information - Factors used to identify the entity’s reportable segments, including the basis of
financial statements.
organization and types of products and services from which each reportable segment derives its
Identifying an Operating Segment revenues.
b) Information about reported segment profit or loss
➢ An operating segment must be a component of an entity, meaning, its operations and cash flows that
c) Reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets,
can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the
segment liabilities and other material segment items to corresponding entity amounts
entity.
➢ It engages in business activities from which it may earn revenues and incur expenses (including
ENTITY WIDE DISCLOSURES:
revenues and expenses relating to transactions with other components of the same entity)
a) Information about products and services
➢ Whose operating results are regularly reviewed by the entity’s chief operating decision maker to
b) Information about geographical areas
make decisions about resources to be allocated to the segment and assess its performance
c) Information about major customers - If revenues from transactions with a single external customer
➢ For which discrete financial information is available.
amount to 10 per cent or more of an entity’s revenues, the entity shall disclose that fact and disclose the
An operating segment may engage in business activities for which it has yet to earn revenues, for
following:
example, start-up operations may be operating segments before earning revenues. The term ‘chief
a. The total amount of revenues from each such customer
operating
b. The identity of the segment or segments reporting the revenues.
decision maker’ identifies a function, not necessarily a manager with a specific title. That function is to
allocate resources to and assess the performance of the operating segments of an entity. PFRS 9: Financial Instruments
Objective
Reportable Segment – An operating Segment for which segment information is required to be disclosed Establish principles for the financial reporting of financial assets and financial liabilities that will present
relevant and useful information to users of financial statements for their assessment of the amounts,
QUANTITATIVE THRESHOLDS timing and uncertainty of an entity’s future cash flows.
An entity shall report separately information about an operating segment that meets any or at least one
of the following quantitative thresholds: Scope
a) Its reported revenue, including both sales to external customers and intersegment sales or transfers, is PFRS 9 shall be applied by all entities to all types of financial instruments except:
10 percent or more of the combined revenue, internal and external, of all operating segments.  Interests in subsidiaries, associates and joint ventures
b) The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute  Rights and obligations under leases
amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii)  Employers’ rights and obligations under employee benefit plans
the combined reported loss of all operating segments that reported a loss.  Financial instruments issued by the entity that meet the definition of an equity instrument in PAS 32
c) Its assets are 10 percent or more of the combined assets of all operating segments.  Insurance contract
 Forward contract under business combinations
 Loan commitments At fair value, plus for those financial assets and liabilities not classified at fair value through profit or
 Financial instruments, contracts and obligations under share-based payment loss, directly attributable transaction costs.
 Reimbursements classified as provisions  Fair value - is the price that would be received to sell an asset or paid to transfer a liability in an
 Rights and obligations rising from revenue from contracts with customers orderly transaction between market participants at the measurement date
 Directly attributable transaction costs - incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial asset or financial liability.
Definitions In other words transaction cost would immediately be recognized as an expense if the financial asset or
12-month expected credit losses: The portion of lifetime expected credit losses that represent the liability is classified at fair value through profit or loss.
expected credit losses that result from default events on a financial instrument that are possible within SUBSEQUENT CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
the 12 months after the reporting date.  Debt instruments shall be classified at Amortized Cost (AC), Fair Value through Other Comprehensive
Amortized cost of a financial asset or financial liability: The amount at which the financial asset or Income (FVOCI) or Fair Value through Profit or Loss (FVPL).
financial liability is measured at initial recognition minus the principal repayments, plus or minus the  Equity instruments shall be classified at Fair Value through Other Comprehensive Income (FVOCI) or
cumulative Fair Value through Profit or Loss (FVPL).
amortization using the effective interest method of any difference between that initial amount and the Note that PFRS 9 has eliminated the impairment loss category for equity instruments
maturity amount and, for financial assets, adjusted for any loss allowance.
Derecognition: The removal of a previously recognized financial asset or financial liability from RECLASSIFICATIONS OF DEBT INSTRUMENTS
an entity’s statement of financial position. Original category New category Accounting impact
Derivative: A financial instrument or other contract within the scope of PFRS 9 with all three
of the following characteristics.
a. its value changes in response to the change in a specified interest rate, financial Fair value is measured at
reclassification date.
instrument price, commodity price, foreign exchange rate, index of prices or rates, credit Amortized cost FVPL Difference from carrying
rating or credit index, or other variable, provided in the case of a non-financial variable amount should be recognized
in profit or loss.
that the variable is not specific to a party to the contract (sometimes called the
Fair value at the
‘underlying’).
FVPL Amortized Cost reclassification date becomes
b. it requires no initial net investment or an initial net investment that is smaller than its new gross carrying amount
would be required for other types of contracts that would be expected to have a similar Amortized cost FVOCI Fair value is measured at
response to changes in market factors. reclassification date.
c. it is settled at a future date. Difference from amortized cost
should be recognized in OCI.
Dividends: Distributions of profits to holders of equity instruments in proportion to their holdings of a Effective interest rate is not
particular class of capital. adjusted as a result of the
reclassification.
Effective interest method: The method that is used in the calculation of the amortised cost of a financial
asset or a financial liability and in the allocation and recognition of the interest revenue or interest Fair value at the
reclassification date becomes
expense in profit or loss over the relevant period. its new amortized cost carrying
Effective interest rate: The rate that exactly discounts estimated future cash payments or receipts FVOCI Amortized cost amount. Cumulative gain or
loss in OCI is adjusted against
through the expected life of the financial asset or financial liability to the gross carrying amount of a
the fair value of the financial
financial asset or to the amortized cost of a financial liability. asset at reclassification date.
Reclassification date: The first day of the first reporting period following the change in business model Fair value at reclassification
that results in an entity reclassifying financial assets. FVPL FVOCI date becomes its new carrying
amount.
Solely payments of principal and interest (SPPI): Returns consistent with a basic lending arrangement,
Fair value at reclassification
interest may include return not only for the time value of money and credit risk but also for other
date becomes carrying
components such as a return for liquidity risk, amounts to cover expenses and a profit margin. amount. Cumulative gain or
FVOCI FVPL
Transaction costs Incremental costs that is directly attributable to the acquisition, issue or disposal of a loss on OCI is reclassified to
profit or loss at reclassification
financial asset or financial liability. An incremental cost is one that would not have been incurred if the date
entity had not acquired, issued or disposed of the financial instrument.

INITIAL RECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

 When the entity becomes party to the contractual provisions of the instrument.
INITIAL MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
 IMPAIRMENT OF FINANCIAL ASSETS MEASUREMENT OF CREDIT LOSSES

Scope Credit losses are the present value of all cash shortfalls. Expected credit losses are an estimate of credit
losses over the life of the financial instrument.
A single set of an impairment model will be applied to:
Factors in measuring credit losses:
a. Financial assets measured at amortised cost including trade receivables
b. Financial assets measured at fair value through OCI a. The probability-weighted outcome: expected credit losses should represent neither a best or
c. Loan commitments and financial guarantees contracts where losses are currently accounted for worst-case scenario. Rather, the estimate should reflect the possibility that a credit loss occurs
under IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the possibility that no credit loss occurs.
b. The time value of money: expected credit losses should be discounted to the reporting date.
d. Lease receivables
c. Reasonable and supportable information that is available without undue cost or effort.
The impairment model follows a three-stage approach based on changes in expected credit losses of a
FINANCIAL LIABILITIES
financial instrument that determine
a. The recognition of impairment, and Classification Subsequent Measurement
b. The recognition of interest revenue
➢ Amortized Cost Amortized cost using the effective interest method of
THREE STAGE APPROACH TO IMPAIRMENT amortization
➢ FVPL for financial liabilities that are:
Stage 1 – Applied at initial recognition and subsequent measurement when there is no significant
a. Held for trading
increase in credit risk At fair value with all gains and losses recognized in
b. Derivative financial liabilities
profit or loss
c. Designated at initial recognition at
a. As soon as a financial instrument is originated or purchased, 12-month expected credit losses are
FV
recognised in profit or loss and a loss allowance is established.
b. Entities continue to recognise 12 month expected losses that are updated at each reporting date ➢ Financial guarantee contracts and Higher amount between the amount determined in
c. Effective interest is based on the gross carrying amount rather than the carrying amount net of ➢ Commitments to provide a loan at a accordance with IAS 37 and the amount initially
allowance for impairment. below market interest rate recognized minus cumulative amortization recognized.
➢ Financial liabilities resulting from Amortized cost of the rights and obligations retained of
Stage 2 – Applied at subsequent measurement when there is a significant increase in credit risk. the transfer of a financial asset the fair value of the rights and obligations retained by
the entity when measured on a stand alone basis.
a. If the credit risk increases significantly and the resulting credit quality is not considered to be low
credit risk, full lifetime expected credit losses are recognised.
b. Lifetime expected credit losses are only recognised if the credit risk increases significantly from DERECOGNITION
when the entity originates or purchases the financial instrument.
c. Effective interest is based on the gross carrying amount rather than the carrying amount net of
allowance for impairment. FINANCIAL LIABILITIES
Stage 3 – Applied at subsequent measurement when there is credit impairment
a. A financial liability is derecognised only when extinguished
a. If the credit risk of a financial asset increases to the point that it is considered credit-impaired, b. An exchange between an existing borrower and lender of debt instruments with substantially
interest revenue is calculated based on the net amortised cost different terms or substantial modification of the terms of an existing financial liability of part
b. Financial assets in this stage will generally be individually assessed. thereof is accounted for as an extinguishment
c. Lifetime expected credit losses are still recognized on the financial assets. c. The difference between the carrying amount of a financial liability extinguished or transferred to a
3rd party and the consideration paid is recognized in profit or loss.

FINANCIAL ASSETS

The following criteria should be met in order for an entity to derecognize a financial asset:

a. The rights to the cash flows from the asset has expired.
b. The entity has transferred its rights to receive the cash flows from the asset and transferred
substantially all the risk and rewards.
c. If the entity does not retain control of the asset

The recognition for the gains and losses from derecognition will depend if the financial asset is a debt
instrument or equity instrument and its classification as AC, FVOCI or FVPL.
 ➢ in accordance with PFRS 9 Financial Instruments; or
PFRS 10 Consolidated Financial Statements ➢ using the equity method.

Definition of terms (PFRS 10)

NCI in net assets of the subsidiary
➢ Parent – an entity that controls one or more entities. ❑ Non-controlling interests shall be presented in the consolidated statement of financial
➢ Subsidiary – an entity that is controlled by another entity or the parent company. position within equity, separately from the equity of the owners of the parent.
➢ Group – a parent and its subsidiaries. ❑ Non-controlling interest in the net assets consists of:
➢ Consolidated financial statements – the financial statements of a group in which the 1. The amount determined at the acquisition date using PFRS 3; and
parent and its subsidiaries' assets, liabilities, equity, income, expenses, and cash flows 2. The NCI’s share of changes in equity since the acquisition date.
are shown as those of a single economic unit.
NCI in profit or loss and comprehensive income
Preparation of Consolidated FS o The profit or loss and each component of other comprehensive income in the
- A parent entity is required to present consolidated financial statements, except when consolidated statement of profit or loss and other comprehensive income shall be
all of the following conditions are met: attributed to the following:
a) The parent is a subsidiary of another entity and all its other owners do not object to the 1. Owners of the parent
parent not presenting consolidated financial statements; 2. Non-controlling interests
b) The parent’s debt or equity instruments are not traded in a public market (or being Preparing the Consolidated financial statements
processed for such purpose); and - Line by line, equivalent components like assets, liabilities, equity, income, and expenses are
c) The parent’s ultimate or any intermediate parent produces consolidated financial added to the financial statements of the parent and its subsidiaries to create consolidated
statements that are available for public use and comply with PFRSs. financial statements.

Elements of Control Consolidation at date of acquisition

1. Eliminate the “Investment in subsidiary” account. This requires:
Control exists if the investor has all of the following: a. Measuring the identifiable assets acquired and liabilities assumed in the business
1. Power over the investee; combination at their acquisition-date fair values.
b. Recognizing the goodwill from the business combination.
2. Exposure, or rights, to variable returns from its involvement with the investee; and c. Eliminating the subsidiary’s pre-combination equity accounts and replacing them
3. The ability to use its power over the investee to affect the amount of the investor’s returns. with the non-controlling interest.
2. Add, line by line, similar items of assets and liabilities of the combining constituents.
Accounting requirements
- Consolidated financial statements shall be prepared using uniform accounting policies. Consolidation subsequent to date of acquisition
- The parent's and its subsidiaries' financial statements must have the same reporting Step 1: Analysis of effects of intercompany transaction
dates when they are utilized to create consolidated financial statements. (The maximum Step 2: Analysis of net assets
difference in reporting dates is 3 months.) Step 3: Goodwill computation
- Consolidation starts the day the investor gains control over the investee and ends the Step 4: NCI in net assets computation
day the investor loses control over the investeee Step 5: Consolidated retained earnings computation
Step 6: Consolidated profit or loss computation
Measurement Step 7: Computation for profit or loss attributable to the owners of the parent and to NCI
- Based on the quantities of the assets and liabilities recorded in the consolidated
financial statements at the acquisition date, the subsidiary's income and expenses are PFRS 11: Joint Arrangements
calculated.
- Investments in subsidiaries are accounted for in the parent’s separate financial
statements either:
➢ at cost;
  PFRS 11 prescribes the principles for financial reporting by parties to a joint arrangement  of those parties needs to share joint control
 PFRS 11 distinguishes between
Joint arrangement
 joint arrangement is “an arrangement of which two or more parties have joint control” o Parties that have joint control of a joint arrangement (joint operators or joint venturers)
 essential elements in the definition of joint arrangement o Parties that participate in but do not have joint control of a joint arrangement
o contractual arrangement  party to a joint arrangement is “an entity that participates in a joint arrangement, regardless of
o joint control whether that entity has joint control of the arrangement”
Contractual arrangement
 the existence of contractual agreement for sharing of joint control over an investee distinguishes Type of joint arrangement
interests in joint arrangements from other investments, such as investments from PFRS 9, PAS 28, PFRS  type of joint arrangements:
3, and PFRS
10 o joint operation
 is a “joint arrangement whereby the parties that have joint control of the
Evidence to contractual arrangement arrangement have rights to the assets and obligations for the liabilities, relating to
 contractual arrangement may be evidenced by a contract between the parties or minutes of discussions the arrangement, those parties are called joint operators
between the parties o joint venture
 the contractual arrangement is usually in joint writing and deals with matters such as:
 is “a joint arrangement whereby the parties have rights to the assets of the
o the activity, duration and reporting obligations of the joint arrangement
arrangement, those parties are called joint venturers
o the appointment of the board of directors or equivalent governing body of the joint
arrangement and the voting rights of the parties  an entity applies judgement when determining the type of joint arrangement in which it is involved
o capital contributions by the parties by
o and the sharing by the parties of the output, income, expenses or results of the joint o considering its rights and obligations arising from the arrangement
arrangement
o assessing its rights and obligations in relation to the
 the contractual arrangement establishes joint control over the joint arrangement
 no single party is in a position to control the activity unilaterally  structure and legal form of the arrangement
 terms of the contractual agreement
Joint control  other facts and circumstances
 joint control is “the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require the unanimous consent of the parties sharing control”
Rights and obligations arising from the arrangement
 if the contractual arrangement confers to the parties that have joint control rights to the assets and
 in contrast with significant influence and control, and investor obtains joint control over an
obligations for the liabilities of the joint arrangement, the joint arrangement is a joint operation
investee through a contractual agreement with fellow investors
o the parties that have joint control are referred to as joint operators
 financial and operating decisions relating to the joint arrangement’s activities require the consent
of each of the parties sharing joint control  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
 no single party obtains leverage over another in respect of voting rights over financial and
operating decisions o the parties that have joint control are referred to as joint venturers
 contrast joint control with the following
o significant influence Assessment of rights and obligations
 the power to participate in the financial and operating policy decisions of an  structure and legal form of the arrangement
investee but is not control or joint control over those policies o a joint arrangement that is not structured through a separate vehicle is a joint operation
o control o a joint arrangement in which the assets and liabilities relating to the arrangement are held
 is the power to govern the financial and operating policies of an investee so as to in a separate vehicle can be either a joint venture or a joint operation
obtain benefits from it  separate vehicle
 joint control exists when all the parties sharing joint control over the arrangement act collectively
(or together) in directing the activities that significantly affect the returns of the arrangement o a separately identifiable financial structure, including separate legal entities or entities
an arrangement is a joint arrangement even if not all of the parties have joint control, at least two recognized by statute, regardless od whether those entities have a legal personality
  remember o including the entity acquiring the interest in the joint operation, are under the common
o joint operation: rights to and obligations for assets and liabilities control of the same ultimate controlling party or parties both
o joint venture: rights to equity o before and after the acquisition and that control is not transitory
Joint ventures
Joint operations  an entity first applies PFRS 11 to determine the type of arrangement in which it is involved
 a joint operator recognizes its own assets, liabilities, income and expenses plus its share in the joint  if the entity determines that it has an interest in a joint venture, the entity recognizes that
operation’s assets, liabilities, income and expenses interest as an investment and account for it using the equity method under PAS 28 Investments
in Associates and Joint Ventures, unless the entity is exempted from applying the equity
 these items are accounting for under other PFRSs applicable to the particular assets, liabilities,
method as specified in that standard.
income and expenses
 Under the equity method, the investment is initially recognized at cost and subsequently
adjusted for the investor's share in the changes in the equity of the investee.
Interest in Joint Operations whose activity constitutes a business
 Such share includes the investor's share in the investee's
 when an entity acquires an interest in a joint operation whose activity constitutes a business, it
o (1) profit or loss,
shall account for its share as a business combination
o (2) dividends declared,
 “a business is an integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of dividends, lower costs or other o (3) results of discontinued operations, and
economic benefits directly to investors or other owners, members or participants." o (4) other comprehensive income.
 Accordingly, the entity shall apply the following principles of business combination:
o Measure identifiable assets and liabilities at fair value (other than items for which Presentation in statement of financial position
exceptions are given in PFRS 3 and other PFRSs)  Investments accounted for under the equity method (i.e., investment in associate or joint
o Recognize acquisition-related costs as expenses when they are incurred, (except costs to venture) are presented as non- current assets in the statement of financial position, except
issue debt or equity securities which are recognized in accordance with PAS 32 and PFRS 9, when they are classified as held for sale in accordance with PFRS 5.
respectively.) Participant to a joint arrangement with no joint control
o Recognize deferred tax assets, and deferred tax liabilities that arise from the initial  Participant to a Joint operation
recognition of assets or liabilities, (except for deferred tax liabilities that arise from the
o A party that participates in, but does not have joint control of, a joint operation shall
initial recognition of goodwill)
account for its interest in the arrangement
o Recognize goodwill as the excess of the consideration transferred over the net of the
 similarly with the procedures applicable to a joint operator if that party has
acquisition-date amounts of the identifiable assets acquired and the liabilities assumed; and
rights to the assets, and obligations for the liabilities, relating to the joint
o Test for impairment a cash- generating unit to which goodwill has been allocated at least operation.
annually, and whenever there is an indication that the unit may be impaired.
 in accordance with the PFRSs applicable to that interest if that party has no
 The foregoing applies to the following: rights to the assets, and obligations for the liabilities, relating to the joint
o Acquisition of both the initial interest and additional interests in a joint operation whose operation.
activity constitutes a business. If the acquisition of additional interest:  Participant to a Joint venture
 does not result to control (i.e., the party merely retains joint control), the previously A party that participates in, but does not have joint control of, a joint venture shall account for its interest in
held interest in the joint operation is not remeasured. the arrangement in accordance with PFRS 9, unless it has significant influence over the joint venture, in
 results to control, the transaction is accounted for as a business combination which case it shall apply PAS 28.
achieved in stages. Accordingly, the previously held interest in the joint operation is
remeasured in accordance with the principles of PFRS 2
o formation of a joint operation if an existing business is contributed to the joint operation on
its formation by one of the parties that participate in the joint operation on its formation by
one of the parties that participate in the joint operation
 however, the foregoing does not apply to the following
o formation of a joint operation if all of the parties that participate in the joint operation only
contribute assets or group of assets that do not constitute business
 PFRS 12: Disclosure of Interests in Other Entities  Interests in Subidiaries
I ntroduction o PFRS 12 requires the following disclosures for an entity's interest in a subsidiary:
 The objective of PFRS 12 is to prescribe the minimum disclosure requirements for an entity's interests in  The composition of the group.
other entities, particularly  Name of subsidiary, its principal place of business, and country of incorporation.
(a) the nature of, and risks associated with, those interests and (b) the effects of those interests on the  Interests or voting rights held by non-controlling interest (NCI).
entity's financial statements.
 Profit or loss allocated to NCI during the period.
 An entity considers the level of detail and emphasis placed on the disclosure requirements necessary to
meet the objective of PFRS 12 and provides additional information whenever the minimum disclosures  NCI in net assets as of the end of the period.
are insufficient to meet the objective.  Dividends paid to NCI.
 Interest in another entity  Summary of the subsidiary's assets, liabilities, profit or loss and cash flows.
o refers to involvement that exposes an entity to variability of returns from the performance of
 The nature and extent of significant restrictions on the entity's ability to access assets
another entity.
and settle liabilities of the group.
o It is evidenced by the holding of equity or debt instruments or other form of involvement,
such as the provision of funding, liquidity support, credit enhancement and guarantees.  The effects of changes in ownership interest that (i) do not result in a loss of control; and
o It includes the means by which an entity obtains control, joint control, or significant influence (ii) result in a loss of control.
over another entity.  If a subsidiary uses a different reporting period, the entity discloses that fact and the
o An entity does not necessarily have an interest in another entity solely because of a typical reason thereof.
customer- supplier relationship.  Interests in Joint Arrangements and Associates
 PFRS 12 applies to entities that have an interest in a(an): o PFRS 12 requires the following disclosures for an entity's interest in a joint arrangement or
o Subsidiary associate that is material:
o Joint arrangement (joint operation or Joint venture)
 Name of the joint arrangement or associate, its principal place of business, and country
o Associate or
of incorporation.
o Unconsolidated structured entity.
 PFRS 12 does not apply to an interest in another entity that is accounted for in accordance with  Nature of the entity's relationship with the joint arrangement or associate.
PFRS 9 Financial Instruments  ownership interest, participating share, or voting rights held by the entity.
 Measurement of the investment (equity method or fair value)
Summary of minimum disclosures under PFRS 12  If the equity method is used, the entity shall disclose the fair value of the investment, if there is a
 Significant judgements and assumptions quoted market price for the investment.
o PFRS 12 requires disclosure of information about significant judgements and assumptions
 Dividends received from the joint venture or associate,
(including changes thereto) that an entity has made in determining to following
 existence of control, joint control or significant influence over an investee.  Summarized financial information about the joint venture of associate which includes the following:
 The type of joint arrangement (joint operation or join venture) when the arrangement has  current and noncurrent assets
been structured through a separate vehicle.  current and noncurrent liabilities
 Investment entity status  revenue
o Investment entity – is an entity that:
 profit or loss from continuing operations
 obtains funds from one or more investors for the purpose of providing those investors) with
investment management services  post-tax profit or loss from discontinued operations
 commits to its investor(s) that its business purpose is to invest funds solely for returns from  other comprehensive income
capital appreciation, investment income, or both; and  total comprehensive income
 measures and evaluates the performance of substantially all of its investments on a fair value
 For a material joint venture, the entity discloses the amounts of the following:
basis.
 PFRS 12 requires the following disclosures for an investment entity:  cash and cash equivalents
o Significant judgments and assumptions that the entity has made in determining whether the entity  current and noncurrent financial liabilities (excluding trade and other payables and provisions)
is an investment entity.  depreciation and amortization
o Changes in the entity's status as an investment entity (becoming or ceasing as an investment entity).  interest income and interest expense
o An entity that becomes an investment entity discloses the following
 income tax expense or benefit
 the total fair value, as of the date of change of status, of the subsidiaries that cease to be
consolidated,  The entity discloses the following in aggregate and separately for all investments in joint ventures and
 the total gain or loss and the line item in which that gain or loss is recognized, if not associates that are not individually material:
presented separately.
  The carrying amount of all individually immaterial investments in joint ventures or c. Measurements that have some similarities to fair value but are not fair value, such as net realizable
associates that are accounted for using the equity method value in PAS 2 or value in use in PAS 36.
 profit or loss from continuing operations
 The disclosure requirements of PFRS 13 do not apply to plan assets measured at fair value in
 post-tax profit or loss from discontinued operations
accordance with PAS 19 and PAS 26, and assets for which recoverable amount is fair value less
 other comprehensive income
costs of disposal in accordance with PAS 36.
 total comprehensive income PFRS 13 applies to both initial and subsequent measurements at fair value.
 The nature and extent of any significant restrictions on the ability of joint ventures or
associates to transfer funds to the entity in the form of cash dividends, or to repay loans
Fair value is "the price that would be received to sell an asset or paid to transfer a liability in an orderly
or advances made by the entity.
transaction between market participants at the measurement date." (PFRS [Link] A)
 If a joint venture or associate uses a different reporting period, the entity discloses that
fact and the reason thereof.
The following underlies the definition of fair value:
 Unrecognized share of losses of a joint venture or associate.
 Fair value is a market-based measurement, not an entity- specific measurement (i.e., fair value
 Commitments relating to joint ventures. measurement does not depend on facts and circumstances surrounding a specific entity).
 Contingent liabilities relating to joint ventures and associates, unless the probability of  Fair value measurement requires the use of assumptions that market participants would
loss is remote.
undertake when pricing the asset or liability under current market condition, including
 Interests in unconsolidated structured entities assumptions about risk.
o A structured entity is an "entity that has been designed so that voting or similar  Fair value measurement presumes that the entity is a going concern without any intention or
rights are not the dominant factor in deciding who controls the entity, such as need to liquidate, to curtail materially the scale of its operations or to undertake a transaction
when any voting rights relate to administrative tasks only and the relevant
on adverse terms. Fair value is the price in an orderly transaction and is not, therefore, the
activities are directed by means of contractual arrangements."
amount that an entity would receive or pay in a forced transaction, involuntary liquidation or
o Examples of structured entities;
distress sale. However, fair value reflects the credit quality of the instrument. As a result, an
 Securitization vehicles. entity's intention to hold an asset or to settle or otherwise fulfill a liability is not relevant when
 Asset-backed financings. measuring fair value.
 Some investment funds. Measurement at fair value is also called "market-to- market" accounting.
o PERS 12 requires the following disclosures for an entity's interest in an unconsolidated
structured entity: PAS 14: Regulatory Deferral Accounts
 Qualitative and quantitative information about the interest in an unconsolidated Scope
structured entity, including the nature, purpose, size and activities of the • PFRS 14 specifies the financial reporting requirements for regulatory deferral account balances arising
structured entity and how the structured entity is financed. from the sale of goods or services that are subject to rate regulation.
 Summary of the following in a tabular format, unless another format is more • PFRS 14 is an optional standard that is available only to first-time adopters. Existing PFRS users are
appropriate: prohibited from using PFRS 14.
 Carrying amounts of the assets and liabilities recognized in the entity's
financial statements relating to its interests in unconsolidated structured Definition of Terms
entities. • Regulatory deferral account balance – “the balance of any expense (or income) account that would not
 The line items in the statement of financial position in which those assets be recognized as an asset or a liability in accordance with other Standards, but that qualifies for deferral
and liabilities are recognized. because it is included, or is expected to be included, by the rate regulator in establishing the rate(s) that
 The best estimate of the entity's maximum exposure to loss from its can be charged to customers.”
interests in unconsolidated structured entities, including how the
estimate is determined • RATE REGULATION – “A FRAMEWORK FOR ESTABLISHING THE PRICES THAT CAN BE CHARGED TO
CUSTOMERS FOR GOODS OR SERVICES AND THAT FRAMEWORK IS SUBJECT TO OVERSIGHT AND/OR
PAS 13: Fair Value Measurement APPROVAL BY A RATE REGULATOR.”
Introduction
PFRS 13 applies to the fair value measurement, and related disclosures, of an asset, liability or equity • Rate regulator – “an authorized body that is empowered by statute or regulation to establish the rate
when other PFRS require measurement at fair value or fair value less costs to sell. or a range of rates that bind an entity. The rate regulator may be a third-party body or a related party of
PFRS 13 does not apply to the following: the entity, including the entity’s own governing board, if that body is required by statute or regulation to
a. Share-based payment transactions (PFRS 2); set rates both in the interest of the customers and to ensure the overall financial viability of the entity.”
b. Leases (PFRS 16 Leases); and (PFRS [Link] A)
Principles under PFRS 14 PAS 15: Revenue from Contracts with Customers
• A first-time adopter continues to apply its previous GAAP to the recognition, measurement, impairment
and derecognition of regulatory deferral account balances, except for changes in accounting policies and OBJECTIVE of REVENUE RECOGNITION
the presentation of regulatory deferral accounts. The core principle of IFRS (PFRS) 15is that an entity will recognize revenue to depict the transfer of promised
• An entity is prohibited from changing its accounting policy in order to start recognizing regulatory goods or services to customers in an amount that reflects the consideration (payment) to which the entity
expects to be entitled in exchange for those goods or services.
deferral account balances.
PFRS 15 contains guidance for transactions not previously addressed (service revenue, contract
Presentation modifications)
STATEMENT OF FINANCIAL POSITION PFRS 15 improves guidance for multiple-element arrangements;PFRS 15 requires
• SEPARATE LINE ITEMS ARE PRESENTED FOR THE TOTALS OF: enhance disclosures about revenue.
• REGULATORY DEFERRAL ACCOUNT DEBIT BALANCES; AND
REVENUE FROM CONTRACTS WITH CUSTOMERS adopts an asset-liability approach.
• REGULATORY DEFERRAL ACCOUNT CREDIT BALANCES. Companies:
Account for revenue based on the asset or liability arising from contracts with customers.
• The regulatory deferral account balances are not presented as current or noncurrent. Instead, they are Are required to analyze contracts with customers
● Contracts indicate terms and measurement of consideration
presented separately from the sub-totals of assets and liabilities that are presented in accordance with
● Without contracts, companies cannot know whether promises will be met.
other Standards.

The FIVE-STEP process for REVENUE RECOGNITION

Statement of pro𝑓it or loss and other comprehensive income
1. Identify the contract with customers. PFRS 15 defines a contract as an agreement between two or more
• Separate line items are presented: parties that creates enforceable rights and obligations and sets out the criteria for every contract that
• in other comprehensive income for the net movement of regulatory deferral account balances that must be met.
relate to items recognized in OCI, showing distinctions between those that will be and will not be 2. Identify the separate performance obligations in the contract. A performance obligation is a promise in
reclassified to profit or loss; and a contract with a customer to transfer a good or service to the customer
3. Determine the transaction price. The transaction price is the amount of consideration (for example,
• in profit or loss for the remaining net movement of regulatory deferral account balances , excluding
payment) to which an entity expects to be entitled in exchange for transferring promised goods or
movements that are not reflected in profit or loss. services to a customer, excluding amounts collected on behalf of third parties.
4. Allocate the transaction price to the separate performance obligations. For a contract that has more
than one performance obligation, an entity should allocate the transaction price to each performance
obligation in an amount that depicts the amount of consideration to which the entity expects to be
entitled in exchange for satisfying each performance obligation.
5. Recognize revenue when each performance obligation is satisfied.

Collectability is only a gating question IFRS 15.

Under the revenue standard, the collectability criterion is included as a gating question designed to prevent
entities from applying the revenue model to problematic contracts and recognising revenue and a large
impairment loss at the same time. The collectability criteria are likely to be met for many routine customer
contracts.

Collectability is assessed based on the amount that the entity expects to receive in exchange for goods or
services
The collectability threshold is applied to the amount to which the entity expects to be entitled in exchange
for the goods and services that will be transferred to the customer, which may not be the stated contract
price. The assessment considers:
– the entity’s legal rights;
– past practice;
– how the entity intends to manage its exposure to credit risk throughout the contract; and
– the customer’s ability and intention to pay.

Judgement is required to differentiate between a collectability issue and a price concession IFRS 15.52, IE7–
IE13, BC45

PAS 16: Leases

With the new standard on Leases, the lessee will be required to recognize the majority of leases in its balance sheet.  fixed payments;
Lessor accounting will remain essentially unchanged. Lastly, disclosure requirements will increase significantly. o exercise price of a purchase option only if the lessee is reasonably certain to exercise;
I. Identifying a Lease
o amounts expected to be payable by the lessee under residual value guarantees;
Assessment of whether a contract contains a lease or not
o variable lease paymentsthat depend on an index or a rate; and
 payments of penalties for terminating the lease, if the lease term reflects the
All of the following criteria must be met for a contract to contain a lease. lessee exercising an option to terminate the lease.
a) There is an identified asset that the customer has the right to use.
 Subsequent Measurement
b) The lessee obtains substantially all the economic benefits.
c) The lessee has the right to direct the use of the asset.
Right-of-Use Asset
Determining Whether an Arrangement Contains a Lease Identified Asset
After the commencement date, a lessee shall measure the right-of-use asset applying a cost model, unless it
 The Lease Identified Asset must be explicitly or implicitly identified in the contract.
applies either of the other measurement models.
 There must be no substitution rights, meaning there is no practical ability to substitute the asset.
 The Leased Asset must be physically distinct.
Measurement models
Separating Components of a Contract into Lease and Non-Lease
a) Cost model
For a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as
Measure the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses
a lease separately from non-lease components of the contract.
and adjusted for any remeasurement of the lease liability.
b) Fair Value Model
Lessee
If a lessee applies the fair value model in PAS 40 Investment Property to its investment property, the lessee shall
Allocate the consideration in the contract to each lease component on the basis of the relative stand -alone price
also apply that fair value model to right-of-use assets that meet the definition of investment property in PAS 40.
of the lease component and the aggregate stand-alone price of the non-lease components.
c) Revaluation model
The relative stand-alone price of lease and non-lease components shall be determined on the basis of the price
If right-of-use assets relate to a class of property, plant and equipment to which the lessee applies the revaluation
the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If
model in PAS 16, a lessee may elect to apply that revaluation model to all of the right-of-use assets that relate to
not readily available, the lessee shall estimate the stand-alone price, maximizing the use of observable
that class of property, plant and equipment.
information.
Lease liability
Lessor After the commencement date, a lessee shall measure the lease liability by:
Allocate the consideration in the contract applying paragraphs 73–90 of PFRS 15. a) increasing the carrying amount to reflect interest on the lease liability;
b) reducing the carrying amount to reflect the lease payments made; and
II. Lease Term c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-
An entity shall determine the lease term by considering the following: substance fixed lease payments.
1. non-cancellable period of a lease;
2. periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that Presentation
option; and Right-of-use asset
3. periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise The Right-of-use asset can be presented in the Statement of Financial Position or disclose in the notes separately
that option. from other assets or under the same line item where it would be presented as if the asset is owned. Disclose in
III. Lessee Accounting which line items in the statement of financial position include those right-of-use assets or presented as investment
property if it meets the definition of an investment property
Recognition
At the commencement date, a lessee is required to recognize assets and liabilities for all leases with a term of Lease Liability
more than 12 months, unless the underlying asset is of low value. The lease liability can be presented as a separate line item or disclose on which line item in the liabilities section of
the Statement of Financial Position it is included.

Initial Measurement  Disclosure Requirements

Right of Use Asset A lessee shall disclose information about its leases for which it is a lessee in a single note or separate section in its
At the commencement date, a lessee shall measure the right-of-use asset at cost. financial statements.
The cost of the right-of-use asset shall comprise: The lessee shall disclose the following:
 initial measurement of Lease Liability; ü depreciation charge for right-of-use assets by class of underlying asset;
 any lease payments made at or before the commencement date, less any lease incentives received; ü interest expense on lease liabilities;
 any initial direct costs incurred by the lessee; and ü the expense relating to short-term leases accounted for applying paragraph 6. This expense need not include the
 estimated dismantling/restoration cost. expense relating to leases with a lease term of one month or less;
ü the expense relating to leases of low-value assets accounted for applying paragraph 6. This expense shall not
Lease liability include the expense relating to short-term leases of low-value assets
 Present value of lease payments that are not paid at that date (using interest rate implicit in the lease, or ü the expense relating to variable lease payments not included in the measurement of lease
if not readily determinable, lessee’s incremental borrowing rate) liabilities; ü income from subleasing right-of-use assets;
ü total cash outflow for leases;
Lease Payments that are not paid at the commencement date includes the following: ü additions to right-of-use assets;
ü gains or losses arising from sale and leaseback transactions; and Scope
ü the carrying amount of right-of-use assets at the end of the reporting period by class of underlying asset.
Impact on Financial Metrics
Most commonly used financial ratios and performance metrics will be impacted, such as debt to equity ratio, current PFRS 17 prescribes the principles for the recognition, measurement, presentation and
ratio, asset turnover, interest cover, EBIT, operating profit, net income. disclosure of insurance contracts by an insurer. PFRS 17 applies to:
• insurance and reinsurance contracts issued by an insurer;
Tax Implications • reinsurance contracts held by an insurer; and
The rules remain unchanged for tax purposes.
• investment contracts with discretionary participation features issued by an insurer.
 For income tax purposes, the lessee may deduct the amount of rent paid or accrued from gross income,
including all expenses under the lease agreement which the lessee is required to pay to or for the account Insurer (issuer of insurance contract) is the party that has an obligation under an insurance
of the lessor. The difference between the rent expense and the sum of depreciation expense and interest contract to compensate a policyholder if an insured event occurs (e.g., insurance company).
expense is treated as future deductible expense and a deferred tax asset is recognized.
Accounting Models
 For Value-Added Tax (VAT) purposes, the monthly payments to the lessor are reported monthly since this • PFRS 17 prescribes the following measurement models:
is subject to VAT upon payment, and not at the inception of the lease. • General model
• Premium allocation approach
 For withholding tax purposes, the transaction remains a lease, which is subject to a 5% withholding tax. • Modifications to the General model for:
Transition Accounting and Effective Date
The effective date of PFRS 16 Leases is 1 January 2019. Early application is permitted but it can’t be applied before
• Onerous contracts,
an entity that also adopts IFRS 15 Revenue from Contracts with Customers. • Reinsurance contracts held, and
There are two methods to adopt the new leases standard. A lessee may choose between full retrospective approach • Investment contracts with discretionary participation features.
or a modified retrospective approach. The selected approach has to be applied to the entire lease portfolio.
General model Recognition
Full Retrospective Approach
The transition accounting under the full retrospective approach requires entities to retrospectively apply the new • A group of insurance contracts is recognized from the earliest of the following: •
standard to each prior reporting period presented as required by PAS 8 Accounting Policies, Changes in Accounting the beginning of the coverage period of the group of contracts;
Estimates and Errors. Under this transition approach, entities need to adjust its equity at the beginning of the • the date when the first payment from a policyholder in the group becomes
earliest comparative period presented. due; and • for a group of onerous contracts, when the group becomes onerous.
Modified Retrospective Approach
Under this approach, a lessee does not restate comparative information. The date of initial application is the first day
(PFRS 17.25)
of the annual reporting period in which a lessee first applies the requirements of the new lease standard. At the date Initial Measurement
of initial application of the new lease standard, lessees recognize the cumulative effect of initial application as • A group of insurance contracts is initially measured at the total of
an adjustment to the opening balance of equity as of 1 January 2019. Comparative figures for the year ended • the fulfillment cash flows, and
December 31, 2018 are not restated to reflect the adoption of PFRS 16 but instead continue to reflect the lessee’s
• the contractual service margins
accounting policies under PAS 17 Leases.
Fulfillment cash flows
I. Lessor Accounting • Fulfillment cash flows comprise the following:
PFRS 16 substantially carries forward the lessor accounting requirements in PAS 17. Accordingly, a lessor • Estimates of future cash flows, which include all future cash flows within the
continues to classify its leases as operating leases or finance leases, and to account for those two types of boundary of each contract in the group. Estimates may be determined at a
leases differently.
II. Steps to consider in Transition to PFRS 16 higher level of aggregation and then allocated to individual groups of contracts.
At year-end or before the start of the audit, the following are the steps needed to be taken into consideration • Adjustment for time value of money and financial risks (if financial risks are not
to assess the impact of PFRS 16. included in the estimates of future cash flows).
1. Review all lease contracts entered into by the Company as of December 31, 2019 with lease term of
• Risk adjustment for non-financial risk.
more than twelve (12) months.
2. Assess whether the contract qualifies as a lease.
a. Compute for the right-of-use asset and lease liability to be recognized and provide CONTRACTUAL SERVICE MARGIN
amortization for the lease liability. • the contractual service margin is the unearned profit in a group of insurance
b. Calculate the deferred tax asset to be recognized at year-end. contracts that the entity recognizes as it provides services in the future.
1. Consider the pro-forma journal entries for the application of standard as well as for
the restatement of opening balances.
Subsequent Measurement
PAS 17: Insurance Contracts • The carrying amount of a group of insurance contracts at the end of each
reporting period is the sum of:
• the liability for remaining coverage comprising:
the fulfilment cash flows related to future service allocated to the group at that
 • date;
• the contractual service margin of the group at that date; and
• the liability for incurred claims, comprising the fulfilment cash flows related to
past service allocated to the group at that date.

Insurance contract
An insurance contract is “a contract under which one party (the issuer) accepts significant
insurance risk from another party (the policyholder) by agreeing to compensate the policyholder
if a specified uncertain future event (the insured event) adversely affects the policyholder.” (PFRS
17. Appendix A)
• Policyholder – “a party that has a right to compensation under an insurance contract if an
insured event occurs.”
• Insured event – “an uncertain future event that is covered by an insurance contract and creates
insurance risk.”

Essential elements in the definition of an insurance contract

• Transfer of significant insurance risk – there is a transfer of significant insurance risk from the
insured (policyholder) to the insurer (insurance provider).
• Payment from the insured (premium) – generally, the insured pays to a common fund from
which losses are paid. However, not all insurance contracts have explicit premiums (e.g.,
insurance cover bundled with some credit card contracts).
• Indemnification against loss – the insurer agrees to indemnify the insured or other beneficiaries
against loss or liability from specified events and circumstances (i.e., insured event) that may
occur or be discovered during a specified period.

Significant insurance risk (Uncertain future event)

• Risk (uncertainty) is an essential element of an insurance contract. Risk is the possibility of loss or
injury when an uncertain future event occurs.
• Insurance risk – is “risk, other than financial risk, transferred from the holder of a contract to the
issuer.” PURE RISK
• A contract that transfers only an insignificant insurance risk is not an insurance contract.
• A contract that exposes the issuer to financial risk is not an insurance contract, unless it also
exposes the issuer to significant insurance risk.

Types of insurance contracts

• Direct insurance contract – an insurance contract where the insurer directly
accepts risk from the insured and assumes the sole obligation to compensate the
insured in case of a loss event.
• Reinsurance contract – an insurance contract issued by one insurer (the
reinsurer) to compensate another insurer (the cedant) for losses on one or more
contracts issued by the cedant.
o Reinsurer – the party that has an obligation under a reinsurance contract to
compensate a cedant if an insured event occurs.
o Cedant – the policyholder under a reinsurance contract.