INTRODUCTION TO ACCOUNTING AND PREFACE TO PFRS

Property of @ARdalmatian (NOT FOR SALE)

Accounting is a process of identifying, measuring, and communicating economic information to

permit informed judgment and decision by users of the information exchange/reciprocal transfer
External Events non-reciprocal transfer
events other than transfer that change resources and obligations
Identifying determining which transaction Accountable Events - recognized
(Analytical) or event should be recognized Internal Events production
casualties

Non-accountable Events - disclosed if relevant

Measuring assigning amounts to items recognized

(Technical)

Communicating preparing and distributing accounting reports to potential users

-

(Formal)

• sets out recognition, measurement, presentation and disclosure

Defintion requirements in dealing with transactions and events
• principle-based rather than-rule based PFRS are GAAP
The Philippine Financial
Reporting Standards (PFRS)

Scope • applies to all profit-oriented entities preparing General-purpose FS

• does not include:
a. Non-profit oriented entities
b. Special purpose reports of profit-oriented entities

Standard-Setting Bodies

Pronouncemets Creator NOTES:

Financial Sustainability and Reporting • Phil. Interpretations are not standards but pronouncements to provide interpretation of
PFRS PRC thru BOA the PFRS in accounting issues that are likely to receive divergent treatment with a view
Standards Council (FSRSC)
to reach consensus as to the appropriate accounting treatment.
Local Accounting Standards Council (ASC) PAS PICPA
• PFRS is collectively known for PFRS, PAS, and Philippine Interpretations.
• ASC is the old standard setting body in the Philippines. However, some of its
pronouncements are still followed to date which are the PAS because there are still no
Philippine Interpretations Committee(PIC) counterpart in PFRS.
Phil. Interpretations FSRSC

Pronouncements Creator NOTES:

International Accounting • IFRS Interpretations are not standards but pronouncements to provide interpretation of
IFRS IFRS Foundation
Standards Board (IASB) IFRS in accounting issues that are likely to receive divergent treatment with a view to
reach consensus as to the appropriate accounting treatment.
International International Accounting Accounting Bodies from • IFRS is collectively known for IFRS, IAS, and IFRS Interpretations.
IAS
Standards Council (IASC) different countries • IASC is the old standard setting body internationally. However, some of its standards
are still followed to date which are the IAS because there is still no counterpart in
IFRS Interpretation Committee IFRS Interpretations IFRS Foundation IFRS.

Monitoring Board
approve and oversee trustee
appoints
reports to
advises
IFRS Foundation
appoint, oversee, raise funds

IASB IFRS Interpretation Committee

set technical agenda, approve standards, issue interpretations on the application of
exposure drafts, and interpretations IFRS and develop other minor amendments

IFRS Advisory Council Accounting Standards Advisory Forum (ASAF)

Advise on agenda and priorities Provide standard setter input into technical projects

Working Groups
for major agenda projects
Standard-Setting Process

STEP1: Consideration of STEP4: Consideration of all comments received STEP5: Approval of a standard
Pronouncements of the IASB within the comment period and, when appropriate, or an interpretation by a
preparing a comment letter to IASB. majority of the FRSC members

STEP2: Formation of task force, STEP3: Issuing for comment an exposure draft
when deemed necessary, to approved by a majority of the FRSC members.
give advice to FRSC Comment period will be at least 60 days (not less
than 30days) is considered appropriate by the FRSC.
 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
Property of @ARdalmatian (NOT FOR SALE)

Introduction to Conceptual Framework

Purpose Underlying Assumptions
1. To assist
Going Concern entity is viewed as continuing operating indefinitely
• In developing future PFRSS and reviewing existing PFRSs. (the only assumption recognized in the framework)
FRSC Accrual basis income is recognized when earned and expense when incurred
• In promoting harmonization of regulations, accounting
standards and procedures relating to the presentation of FS Accounting entity concept entity is viewed separately from its owners
Preparers of FS Time period assumption the life of the entity is divided into series of reporting period
In applying PFRSs
Monetary unit principle accounting information should be in a common measurement basis to be useful
Users of FS In interpreting the information in financial statements
Auditors purchasing power of a currency is regarded as constant
In forming an opinion as to whether the financial
statements conforms with PFRS
2. To provide information to those who are interested with the work of FRSC. Authoritative Status of Conceptual Framework : Inferior to PFRS
• Nothing in Conceptual Framework overrides PFRS
• In case of conflict, PFRS shall prevail
The General-Purpose Financial Report
Objective of Financial Reporting Users of Financial Information Limitations of Financial Report
(the framework’s foundation)
General purpose financial reports
Overall Objective Primary Users those that provide/may provide a. do not and cannot provide all of the information
• to provide financial information about the reporting entity that capital resources to entity users may specifically need
is useful to existing and potential investors and creditors in includes Investors and Creditors b. are not designed to show the value of an entity
making decisions about providing resources to the entity Other Users include employees, c. are based on estimate and judgment
customer, govt and public
Specific Objectives
a. To provide information useful in making decisions about providing resources to the entity.
b. To provide information useful in assessing the prospects of future net cash flows to the entity.
c. To provide information about entity resources, claims and changes in resources and claims.

Qualitative Characteristics of Useful Financial Information

Predictive Value information can help users increase the chance • Materiality is not an ingredient of relevance
Fundamental Characteristics Relevance of correctly predicting outcome of events. but rather an aspect of relevance.
• Makes information useful the capacity of information to make a Confirmatory Value the information enables users confirm • All material items are relevant but not all
• Addresses the contents or difference in a decision made by users. or correct earlier expectations. relevant items are material
substance of the information.
Faithful Representation Completeness all information necessary for • Substance over form and conservatism are
Information provides a true, correct, and users to understand is provided specific aspect only of faithful representation.
complete depiction of the economic Neutrality without bias • Measurement uncertainty does not prevent
phenomena that it purports to represent. information from being useful.
Free from error no errors or omissions

Enhancing Characteristics (VCUT)

Verifiability Comparability Understandability Timeliness
• Enhances the usefulness
different observers could reach helps users compare and contrast between different information must be comprehensible information is available on
• Addresses the form or presentation
consensus that a particular depiction sets of information. though, users are required to have time to influence decision.
of the information.
is a faithful representation. a. Intra-comparability - single entity, different periods. reasonable knowledge of business
b. Inter-comparability - different entities, same period. activities
Comparability is not the same with Consistency. Comparability is
Elements of the General-purpose Financial Statements the goal while Consistency is the means of achieving the goal.
The Financial Statements

Asset • economic resource controlled by entity Equity • the residual interest in the assets Objective - to provide financial information about entity’s
• result of a past transaction or event after deducting liabilities financial performance and position that is useful in assessing:
• provides future economic benefits • also know as “Net Assets” a. entity prospectus for future net cash inflows
• can be reliably measured b. management’s stewardship over economic resources
Income • inflow of future economic benefit that increases
Liability • present obligation of entity equity other than owner’s own contribution Reporting period - FS are prepared for a specified period of
• arises from past transaction or event • encompasses both Revenue and Gains time and must provide comparative information for at least one
• settlement of which requires outflow of economic preceding period.
-

resource embodying economic benefits Revenue Gain

Arises from ordinary course incidental operations Reporting Entity - NOT necessarily a legal entity.
Presentation at gross amount at net amount As a result, there are few types of FS:
Consolidated - a parent and subsidiaries report as a single
reporting entity
Expense • outflow of economic benefit that decreases equity
Unconsolidated/Individual - a parent alone provides reports
Recognition and Derecognition Criteria and other than distribution to equity participants
Combined - two or more entities not linked by
Bases of Measurement for Elements of FS parent-subsidiary relationship

Recognition and Derecognition Measurement the process of determining the monetary amounts at which the elements
of the financial statements are to be recognized and reported.
Recognition process of reporting an item in the financial statement The Conceptual Framework identifies
an item is recognized when it meets the definition of the element of several bases for measurement, including:
financial statement (asset, liability, equity, income or expense), recognizing
Historical Cost based on the transaction price at
it would provide useful information and it satisfies the following criteria:
time of recognition of the element
a. Probability of inflow or outflow of future economic benefit
b. Can be measured reliably measures the element updated to reflect
Current Value
the conditions at the measurement date

I
Derecognition Derecognition is the process of removing an item from the financial Fair value the price that would be received to sell an asset or paid to
statements when it no longer meets the criteria for recognition. transfer a liability in an orderly transaction between market
participants.
Presentation and Disclosure Value in use the present value of the cash flows
Information about the elements is communicated through presentation and disclosure. expected to be derived from an asset.
Effective communication makes information more useful. Current Cost the cost of an equivalent asset or liability at the
Effective communication requires measurement date considering any direct transaction cost.
a. Focusing on presentation and disclosure objectives and principles rather than on rules Amortized Cost cost-based measurement that adjusts the historical cost
b. Classifying information by grouping similar item and separating dissimilar items for amortization and impairment.
c. Aggregating information in a manner that it is not obscured either by excessive detail or
excessive summarization

Capital and Capital Maintenance Concept

Capital Concept Capital Maintenance Approach
Financial Capital (Adopting Financial Capital Concept)
Net changes in equity xx
• invested money • net income occurs when financial or nominal amounts of the assets Less: Addtl Investment (xx)
• measured at historical cost at the end of the year exceeds financial or nominal amount of the Add: Withdrawals and Distributions xx
• adopted by most entites nets assets at the beginning of the period, after excluding Comprehensive Income xx
Physical Capital distribution to and contribution by owners during the period. Less: Other comprehensive income xx
• productive capacity of the entity Add: Other comprehensive loss xx
• measured at current cost Net Income (Loss) xx
• not adopted by most entities
CASH AND CASH EQUIVALENTS

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Property of @ARdalmatian (NOT FOR SALE)

CCE
Cash money and any other negotiable instrument that is
payable in money and acceptable by the bank for Fraudulent Activities in Cash
deposit and immediate credit Lapping misappropriating a collection from one customer and
concealing such with collection from another customer
Window dressing misleading financial position and performance by opening the
Recognition books of accounts beyond the close of the accounting period.
must be unrestricted
Kiting drawing check from one bank and deposit the same to
Cash in local currency @face value another bank to cover shortage
Measurement
Cash in foreign currency @face value in Php the delay of reflection of checks drawn at
Cash in closed bank or @esti. realizable value the end of the month is taken advantage of
banks under bankruptcy

Composition Cash on hand undeposited cash collections and other cash awaiting deposit
(e.g. customer’s, cashier’s, manager’s or and Accounting for Cash Shortage and Overage
traveler’s check, bank drafts and money orders)
Note: Postdated, undelivered, and stale checks drawn Shortage Overage
by the entity are reverted back to cash
a. upon discovery cash short/over xx cash on hand xx
cash on hand xx cash short/over xx
Cash in Bank deposits which are unrestricted for withdrawal
(e.g. demand deposit, checking account and savings deposit) b. upon investigation due from cashier xx cash short/over xx
(cashier is accountable) cash short/over xx due to cashier xx
Compensating informal/unrestricted cash
Balance restricted current/non-current asset
c. upon investigation loss from shortage xx cash on hand xx
Bank (can’t trace anymore) cash on hand xx miscellaneous xx
GR: current liability
Overdrafts XPN: if there are other accounts
in same bank, offset
if overdraft is immaterial, offset
against other bank accounts Accounting for Petty Cash Fund

Imprest Fund System Fluctuating Fund System

Cash Fund funds set aside for current purposes
(e.g. petty cash fund, payroll fund, dividend fund) a. Establishment Petty Cash Fund xx Petty Cash Fund xx
Cash in bank xx Cash in bank xx
Cash Equivalent short-term and highly liquid investments that are readily convertible into cash
and so near their maturity that they present insignificant risk of value change b. Payment of expenses Memo Entry Expenses xx
from changes in interest rates Petty cash fund xx
c. Replenishment Expenses xx Petty cash fund xx
Recognition debt instruments acquired within 3 Cash in bank xx Cash in bank xx
months or less before their maturity date
note: equity securities cannot qualify as cash equivalent d. A.E for Expenses xx No entry
because they do not have maturity date, except redeemable unreplenished fund Petty cash fund xx
preference share with mandatory redemption period
Composition e. fund increase Petty cash fund xx Petty cash fund xx
Cash in bank xx Cash in bank xx
includes but not limited to: NOTE:
a. Time deposits a. if an item does not qualify as cash equivalent due
b. Money market instruments to cut-off time, it is presented as short-term or d. fund decrease Cash in bank xx Cash in bank xx
c. Treasury bills long-term investments. Petty cash fund xx Petty cash fund xx
d. Commercial papers b. if the items enumerated are silent as to the time
duration they are invested, they are classified as
cash equivalents.

Bank Reconciliation is a statement which brings into agreement the

cash balance per book and cash balance per bank
Bank Statement - the source document in bank reconciliation

Forms of Bank Reconciliation

Adjusted Balance Method book and bank balance are brought Template for Adjustment Balance Method
to a correct cash balance that must Unadjusted book balance xx Unadjusted bank balance xx
appear in the balance sheet Add: Credit Memos xx Add: Deposits in transit xx
Book to Bank Method the book balance is reconciled with Less: Debit Memos (xx) Less: Outstanding checks (xx)
the bank balance +/- Errors xx +/- Errors xx
the bank balance is reconciled with Adjust book balance xx Adjust book balance xx
Bank to Book Method
the book balance

*book to bank or bank to book method can be squeezed from the template
 RECEIVABLES
Property of @ARdalmatian (NOT FOR SALE)

Receivables in General
Trade Receivables claims arising from sale of goods or service
w/i 12 mos or operating cycle whichever is longer
Classification presented as “Trade and other receivables (current asset)”
Non-trade Receivables other than trade receivables Short-term
Long-term presented as non-current asset
Measurement
Accounting Cash Discounts
Initial Measurement -

Fair Value xx FV is the face amount or the invoice price (for short-term rec.) Gross Method
Transaction Cost xx Invoice Price = List Price - Trade Discounts To record sales AR xx
Initial AR xx Sales xx
Trade discounts Discounts given for bulk orders. Deducted in the List Price to get Invoice Price. To record sales return Sales xx
Cash discounts discounts given to encourage prompt payments AR xx
Sales discount - for seller expressed in terms (means 5% discount if paid within To record collection Cash xx
Purchase discount - for buyer like 5/10, n/30 10days from the invoice date, and within discount period Sales Discount xx
due date is 30days from invoice date) AR xx
To record collection Cash xx
Subsequent Measurement AR Gross Balance xx beyond discount period AR xx
less: Allowances (xx)
NRV xx
Net Method
To record sales AR xx
a. Allowance for sales discounts Sales (Net of discount) xx
estimates are recorded based on past experiences at the end of the period
b. Allowance for sales returns To record sales return Sales (Net of discount) xx
AJE Sales Discount xx ASD/ASR AR xx
Allowance for sd xx Actual Beg. Bal To record collection Cash xx
AJE Sales Returns xx AJE (Estimate) within discount period AR xx
Allowance for sr xx End. Bal Cash xx
To record collection Sales discount forfeited xx
(these entries may be reversed at the beginning of the next period beyond discount period AR xx
to normally charge discounts taken to sales discount account)

Freight Terms Buyer Seller

c. Allowance for freight charges Reduction of AR
FOB Destination Freight Collect Reduction of AP
Freight Prepaid No effect No effect No effect means the one who should pay the freight
FOB Shipping Point Freight Collect No effect No effect based on freight terms is the one who actually paid
Freight Prepaid Addition to AP Addition to A/R

d. Allowance for doubtful accounts

Estimation of Doubtful as percentage of credit sales result is the required Bad Debts in the period Allowance for DA (ADA)
as percentage of AR Write Off xx Beg. Balance xx
Account Methods result is the required ADA balance
thru aging of AR Recoveries xx
as of the period
Bad debts expense xx
End. Balance xx
doubt on collectibility write-off recovery
Accounting Direct write-off no entry Bad debts exp Cash
Methods AR BDE/Gain NOTE: Doubtful account expense presentation
Allow. method Allow. for DA Cash • Generally, part of Administrative Expense
Doubtful Account Exp
Allow. for DA Ar ADA • Exceptionally, if charged to sales manager,
part of distribution cost

Notes Receivable
Initial Measurement Subsequent Measurement

Short-term Notes FACE VALUE NRV

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Interest or Non-interest Bearing because their stated interest is the same Initial Measurement xx Computation of Present Value
Long-term Notes with the effective interest (Hence, their Principal Repayment (xx)
Interest bearing, Reasonable rate Face Value is the Fair Value of the Note) for Interest Bearing, Unreasonable Rate
Impairment (xx)
NRV xx
PV of Principal using EIR xx
PV of Interest using EIR xx
PRESENT VALUE AMORTIZED COST Present Value xx
Long-Term Notes Because their stated interest is not the
Interest Bearing, Unreasonable Rate same with the market interest rate, their Initial Measurement xx PV of Principal and Interest depends if the Principal
Long-Term Notes Face Value is not the Fair Value of the note. Principal Repayment (xx) and Interest are paid lump-sum or installment
Non-interest Bearing Hence, Present Value using the Maket Impairment (xx) Lump-sum - Use PV of 1 Factor
Interest Rate is their true Fair Value. Amortization (xx) Installment - Use PV of OA if first installment start at the
Amortized Cost (xx) beginning of next period
- Use PV of AD if first installment starts immediately
Loans Receivable for banks and other financial institutions
for Non-Interest Bearing
PV = Face Value x PV factor
Non-interest bearing note actually have interest but it
Initial Measurement is included in the face amount of the note. Hence, the
difference of the FV of note and the PV or actual price
Face Value xx of the subject matter is the interest.
Measurment Direct origination cost xx
Origination fees (xx) costs that are paid by the borrower FV of note xx
Present value xx interest income
Initial Carrying Value xx
Book Value xx gain on sale

Subsequent Measurement Amortized cost using effective interest method

(less any impairment)

Impairment of Loans

Carrying amount of loan xx the amortized cost

Accrued interest xx the accrued interest is not included if the problem stated that the interest will be paid.
PV of future cash flows (xx)
Impairment loss xx PV of expected future cash flows:
Date Total
end of Cash flow PV of 1
(CF x PV)
Year 1 xx xx xx
Year 2 xx xx xx
Year n xx xx xx
Total PV of future CF xx
 RECEIVABLE FINANCING
Property of @ARdalmatian (NOT FOR SALE)

Pledging also called Hypothecating of Receivable or General Assignment Net Proceeds Computation
borrowing of money in which receivables in general FV of Loan xx
are used as collateral or security for a loan Less: Direct charges (xx)
Discount on Loan (xx) If amortization of interest is deducted in advance
Net Proceeds xx (Portion of discount on loan account is subsequently
closed to interest expense realized for the period)

Assignment formal borrowing arrangement in which specific

receivables are identified and used as a security

Non-notification Basis buyer is not informed of the assignment and will Pledging Assignment
continue to remit payment to the assignor (seller) Transfer of Ownership No No
Notification Basis buyer is informed about the assignment and will Serves as collateral Yes Yes
remit payment directly to assignee (e.g bank) Receivable collateralized General Specific
Transfer of right to collect No Yes
Net Proceeds Computation Formality No Yes (requires reclassification entry)
FV of Loan xx Accounts Receivable - Assigned xx
Less: Direct charges (xx) Accounts Receivable xx
Discounts on Loan (xx) only if the loan term is to deduct
Net Proceeds xx amortization of interest in advance
(Portion of discount on loan account is subsequently Key Takeaways:
closed to interest expense realized for the period) • Pledging of Accounts Receivable is accounted similarly with that of a
Equity of Assigned AR Normal Loan and Receivable Pledged are not affected in accounting sene.
• Assignment on the other hand is accounted similarly with that of a
CA of AR Assigned xx
Normal Loan but its Accounts Receivable assigned is reclassified to “AR-
Less: CA of AP (xx)
Assigned” and the right to collect therewith is transferred to the
Equity of Assigned AR xx
assignee. However, risk of non-collectibility is retained to the assignor.

Factoring involves the sale of receivables to a finance company which is called the factor
Proceeds from Factoring (w/ or w/o recourse)
w/o recourse transferor is not liable in case debtor fails to pay
since risk and reward is transferred, it is a sale transaction in substance and form Gross Amount of AR xx
accounted as an outright sale Less: Direct Charges (xx)
Factors Holdback - also called Receivable from Factor
Net Selling Price xx is a portion withheld by factor for
w/ recourse Less: Factor’s Holdback (xx) possible any associated risk attached in
transferor guarantees payment in the event the debtor fails to pay
Proceeds xx the AR factored such as returns
since risk is not transferred, it is a sale transaction in form
only, but in substance, it is a borrowing transaction.

Gain(Loss) on Factoring (w/o recourse only) there is no gain/loss in factoring w/ recourse

Discounting of NR Net Selling Price xx

BV of AR (xx)
Gain (Loss) xx

w/o recourse the holder is not held liable in the case the maker fails to pay
accounted as an outright sale, NR is derecognized
NOTE: There is no gain/loss if with recourse both in factoring and discounting as
it’s not a sale transaction in substance. In discounting however, conditional sale is
a sale transaction even if it is with recourse since the recourse action is only
Conditional Sale no derecognition of note receivable but a
contingent. Secured borrowing is a borrowing transaction in substance.
contra asset account is created
w/ recourse no recognition of liability (disclosure only)

Secured Borrowing no derecognition of receivable

there is recognition of actual liability

Proceeds from Discounting (w/ or w/o recourse)

Summary of Entries on Discounting Maturity Value xx

Without Recourse Cash xx Less: Discount (MV x Discount Rate x Discount Period) xx
Loss on Discounting xx Net Proceeds from Discounting xx
NR xx
Gain on Discounting xx a. Maturity Value (MV) is the amount due on the note at
Interest Income xx the date of maturity
b. Discount Period is the unexpired term of the note
Conditional Sale
Cash xx Gain or Loss on Discounting
Loss on Discounting xx Selling Price (net proceeds) xx
NR Discounted xx Less: CA of NR (including accrued interest) (xx)
Gain on Discounting xx Gain or Loss on Discounting xx
Interest Income xx

Secured Borrowing Cash xx

Interest Expense xx this interest expense is the suppose loss on discounting
there is no gain or loss on discounting in a secured
Liab. for Notes Discounted xx
borrowing basis because it is not a sale transaction
Interest Income xx this interest income is the suppose gain on discounting
Interest Income xx this interest income refers to the interest income from notes
attributable to the entity before the notes were discounted

Summary Kind of Transaction Frequently Asked Questions

Pledging A borrowing transaction What is the net proceeds
Assignment A borrowing transaction What is the net proceeds
What is the Equity of Assigned AR
Factoring
without recourse A sale transaction What is the net proceeds
What is the gain (loss)
with recourse A borrowing transaction What is the net proceeds
Discounting
w/o recourse A sale transaction What is the net proceeds
What is the gain(loss)
conditional sale A sale transaction What is the proceeds
What is the gain (loss)
secured borrow. A borrowing transaction What is the net proceeds
 INVENTORIES
Property of @ARdalmatian (NOT FOR SALE)

held for sale in ordinary course of business MI and FG Standard Measurement

Definition in the process of production for sale WIP GR: PAS2 GR: LCNRV
in the form of materials or supplies Raw Mat and XPN: Inv. of Agri and Mineral Products SP-CTS (NRV)
XPN: Financial Instruments PFRS9
to be consumed in production process Factory Supplies Inv. of commodity brokers/traders FV-CTS
Biological Assets
PAS 41
Agri produce @POH

GR: The one who has POSSESSION has LEGAL TITLE

Recognition

↓I
XPN: Point of transfer Owner of Goods
Goods in Transit of ownership Consignment seller capitalized cost: freight cost and handling cost
a. FAS Dock Inventory Financing Agreement if goods were returned, freight
b. CIF Upon loading a. Sales w/ repurchase borrower cost capitalized are also removed
c. FOB SP Shipping point b. pledge of inv borrower
d. Ex-ship Upon unloading c. loan of inv buyer
e. FOB Dest. Buyer’s loc. Installment sale buyer
Lay-away sale seller
arranged chronologically as to Sale or return buyer
point of ownership transfer
Sale on trial seller
Special order sale buyer(@completion)

Measurement
cost of purchase
Initial @cost cost of conversion Note: in WIP, cost of conversion to complete is not yet part of the cost of the inventory.
other costs Hence, cost of conversion to complete is deducted in determining NRV of a WIP.

Subsequent @LCNRV
Cost NRV
measured using cost formulas FG/MI Est. SP - Est. CTS Est. CTC in Finished Goods is already part of the cost
FIFO WIP Est. SP - Est. CTS - Est. CTC
LIFO (not allowed in PFRS) RM and FS Current Replacement Cost
Note: For Raw Mat, an inv writedown
Average Weighted Ave. (periodic)
is only recognized if relative finished
Moving Ave. (perpetual) if NRV>Cost there is INVENTORY WRITEDOWN
good is also written down

Direct Method writedown is buried to COGS

Purchase commitment to purchase goods in the future at a fixed pirce at fixed quantity Allow. Method allowance for inv. writedown is established
COGS xx
Commitments recognized loss if price decreases, and gain if price increases (only to the extent of loss recognized)
Loss on inv. writedown xx
Gain on reversal (xx)
Note: for purposes of Adjusted COGS xx
Gross Profit Method COGS is computed as: Net sales x Cost Ratio (GP is based on sales)
Inventory Net sales / Cost Ratio (GP is based on cost) computing net sales as basis,
only sales return is deducted
Estimation
Retail Method
Cost
Cost Ratio Retail TGAS Computation
TGAS xx xx% xx Cost Retail
EI xx xx% xx (squeeze) Note: COGS@Retail is just BI xx xx
COGS xx xx the Net Sales@Retail Purchase xx xx
Freight in xx
Average TGAS@Cost Discount
↑ xx
Cost Ratio TGAS@Retail Returns (xx) (xx)
Conservative TGAS@Cost Transfer in xx xx
TGAS@Retail+Net MD Transfer out (xx) (xx)
FIFO TGAS@Cost - BI Abnormal loss (xx) (xx)
TGAS@Retail - BI Net Mark-up xx
Net Mark-down (xx)

BIOLOGICAL ASSETS TGAS xx xx

Biological Asset Consumable animals/plants - PAS 41

Bearer animal - PAS41
plants - PAS16 Capability to Change
Must Relate to
Scope Agricultural Produce @point of harvest - PAS41 Agriculutural Activity to Management of Change
processed - PAS2(default) or PAS16 be accounted in PAS41
Measurement of Change
Government Grant those related to biological assets - PAS41
related to PPE - PAS20

Biological Asset Initial FVCTS or Cost (if FV is not measurable)

Subseq. FVCTS if 2 or more active market:
Measurement How to measure Fair Value? PFRS 13
1. Price in Active Market for identical asset a. Principal market
Agricultural Produce Initial FVCTS 2. Price for similar assets in active market or b. Most advantageous market if
Subseq. PPE (PAS16) identical assets in an active market no principal market
Inv. (PAS2) 3. using existing entity’s data NOTE: FV = Market Price - Transport Cost

on Initial
Biological Assets Agri Produce
Recognition
Cost > FVCTS = LOSS from Bearer BA Inventory xx (NO LOSS)
Cost < FVCTS = GAIN Gain xx
Gains and
from Consumable BA Inventory xx Inventory xx
Losses Gain xx Loss xx
Change in FV Price Change (x-FVCTS,beg) x Qty Biological Asset xx Biological Asset xx
Physical Change (FVCTS,end-x) x Qty + FVCTS of new born

Govt. Grant unconditional gain when the grant becomes receivable

conditional gain upon compliance of condition
conditional but gain recognized on straight-line basis
portion is retained
Presentation
Presentation Disclosures
and Disclosures Biological Assets - NCA Biological Asset - consumables and bearers encouraged only, not
Agri Produce Inv - CA Biological Asset - mature and immature required disclosures
PPE - NCA Gain/Loss in change in FV - price change and physical change
PROPERTY, PLANT AND EQUIPMENT (PPE)
Property of @ARdalmatian (NOT FOR SALE)

tangible GR: PAS16

Definition used in business XPN: a. PPE Held for sale - PAS2/PFRS5 under PAS 40, other term of PPE
long-term b. Biological assets (except bearer plants) - PAS41 is Owner-Occupied Property
c. Exploration and revaluation - PFRS6
d. Mineral reserves and rights - PFRS6/PAS38

a. Spare Parts GR: Inventory unless expected to be used more than 1 period (PPE)
Probable XPN: Major Tools/Spare Parts (PPE)
Recognition Measurable
issues:

b. Environmental and Safety Equipment - PPE

Cost of Acquisition
Measurement Means of Acquisition Cost
Cash Basis Invoice price
Initial @Cost Cost of purchase • Acquisition cost Excludes: On Account Invoice price - discount (taken or not)
• Import duties • trade discounts Deferred Settlement a. Cash price equivalent
• Irrecoverable taxes • rebates b. PV of future cash flows
• Freight cost • cash discounts Issuance of Shares a. FV of asset received
• Insurance cost of (whether taken or not) b. FV of shares issued
asset in transit c. Par value of share issued
Issuance of Bonds a. FV of bonds issued
b. FV of asset received
DACs TIPSIE (general dacs) c. Face value of bond
Testing cost (net of proceeds from samples) Lump-sum/Basket Purchase allocated based on relative FV
Initial handling and delivery cost Donation FV of asset received
Professional fees Govt. Grant FV of asset received
Initial Est. cost of dismantling Site preparation cost Construction construction cost + borrowing cost
only if required by law/contract Installation and assembly Exchange w/commercial substance
Employee Benefits a. FV of asset given +/- BOOT
cost = PV credited to Liability
b. FV of asset received
Subsequent c. CA of asset given +/- BOOT
w/o commercial substance
Cost Model Orig Cost - Accumulated Depreciation- Accumulated Impairment Loss
a. CA of asset given +/- BOOT
Trade-in a. FV of old asset + BOOT
Depreciation Methods b. Trade-in value of old asset + BOOT

Fixed Charge Straight Line DE= Depreciable Amount/Useful Life

Group/Composite DE= (Cost x Composite Rate) Composite = Total Straight Line Dep
Rate Total Cost
Variable Charge Units of Production
DE = Depreciable x Actual Units/Hours
Working Hours Amount Total Units/Hours

Accelerated SYD DE= Depreciable Amount x Decreasing Year/SYD

Declining Balance DE = Carrying Amount x Declining Rate Double Declining DR = SLR x 2
150% Declining DR = SLR x 1.5
Other Methods Retirement DE = Original cost retired tools - Proceeds record depreciation upon retirement
(used for tools/spare parts) Replacement DE = Replacement cost of retired tools - Proceeds record depreciation upon replacement
Inventory DE = Inv, end - (Inv, beg + Purchases - Disposal) record depreciation upon inv. count

Revaluation Model Revalued Amount - Subsequent Accumulated Depreciation - Subsequent Impairment Loss

Cost before reval - Replacement Cost = Appreciation

Revaluation Surplus Revaluation Decrease
New Cost (Acc Depreciation) - (Acc. Depreciation) = (Acc. Dep.) (net of tax) • charged to existing reval surplus
(fresh start) Carrying Amount - Sound Value = Revaluation Surplus • charged to impairment loss
Initially presented in OCI Revaluation Increase
should apply to entire class of PPE and accumulated in Equity • charged to existing impairment loss
Q: if simultaneous reval is not applicable? NET OF TAX • charged to reval surplus
A: use Rolling Basis, provided should completed within
1-year, otherwise, Revaluation Model is not applicable Subsequently, if asset is Depreciable Piece-Meal transfer
transferred to RE if asset is Non-depreciable Lump-sum transfer

Property Land
Land Improvements if acquired in note: except those costs that are
Acquisition Cost is prorated
Non-depreciable capitalized as land
ex. cost of surveying, grading and leveling lump-sum? according to Relative FV applicable to land or bldg only
Classes Depreciable
ex. fences, side-walks, landscaping, drainage
of PPE Rules in Basket Purchase of Land and Building
part of orig blue print capitalized to Building

·
not part of orig blue print land improvement Treatment of Purchase Price Net Demolition Cost
Old bldg is usable but
Plant Building demolished immediately allocated to land and old bldg
Building Improvements no new building old bldg is recog as loss capitalized to land
Movable capitalized as F&F new building constructed
Immovable capitalized to Building accounted as PPE old bldg is recog as loss capitalized as PPE
Equipment accounted as Inv. Property old bldg is recog as loss capitalized as IP
accounted as Inventory old bldg is capitalized as Inv capitalized as Inv

Notes: Old bldg is unusable and capitalized to land,

purchase price is capitalized to land
1. Insurance demolished right away or new bldg if
taken during construction - capitalized as cost of bldg there’s new bldg
not taken and there’s claim for damage - expensed Old bldg is usable and Purchase price is allocated to land and
2. Savings or loss on construction - not capitalized used for the mean time old bldg and measured according to use
3. Real Property Tax - GR: expensed
XPN: Real property tax accruing as of date of subsequently demolished Carrying Amount of old building is capitalized to
acquisition - Capitalized when assumed to make room for new bldg recognized as loss in the period new bldg

Derecognition when disposed

when no future economic benefit could be obtained

Subsequent Cost GR: Capitalizing cost should stop when the Asset is
brought already to its intended use/purpose
examples:
a. addition/expansion
XPN: Capital Expenditures Probable increases asset capacity b. betterment/improvement
Measure increases asset efficiency c. replacement
expenditures that benefit more increases asset safety d. repairs & inspection (if major/extraordinary/irregular)
than 1 period as opposed to to e. reinstallation (if increases efficiency)
revenue expenditures
 GOVERNMENT GRANT
Property of @ARdalmatian (NOT FOR SALE)

assistance by government exclusion:

Definition and
transfer of resource to entity a. govt. grant related to biological assets
Scope as return of past or future compliance b. govt. grant under hyperinflationary economy
c. tax benefits

Recognition and
Measurement Recognition Measurement
↑

reasonable the entity will comply monetary cash face value

assurance the grant will be received receivable fair value
forgivable loan CA of loan
loan payable discount on LP

nonmonetary fair value

recognized as income when conditions are met past compliance recognized as income immediately
Accounting
-

repaid if conditions are not met future compliance recognized as income in proportion
to meeting the condition

Presentation Presentation Disclosures

and Disclosures Initial Subsequent (assuming conditions are met)
Grant related gross deferred income grant income a. Accounting policy adopted, including method of presentation
to Income net deferred income offset to expense b. Nature and extent of Govt. Grant recognized and other
Grant related gross form of Gov.t Assistance the entity has benefited.
deferred income grant income
to Asset net c. Unfulfilled conditions
offset to asset none
Disclosure of the Govt. Agency that gave the grant is not required
Repayment Grant related to Income gross
net Approach 1 Approach 1 Approach 2
Grant related to Asset gross Apply repayment to: 1.Increase the CA of asset
net Approach 2 a. Balance of DIGG as a result of repayment
b. Excess as Loss 2. Recognize additional
cumulative depreciation

BORROWING COST
Property of @ARdalmatian (NOT FOR SALE)

Definition borrowing and other costs incurred

and Scope in relation to qualifying assets assets that takes a substantial period Qualifying Assets Not Qualifying Assets
of time to get ready for intended use a. Inventories a. Assets measure at FV
-long period of time to produce b. Financial assets
Recognition Capitalized -special order c. Inventories routinely produced
there is expenditure b. PPE d. Assets ready for intended use
Commencement there is borrowing cost all must be present to -takes longer period to construct
there is activity commence capitalizing c. Intangible Assets
Capitalization -takes longer period to construct
Period Suspension major delay - stop capitalization -must be internally developed
minor delay - capitalization continues d. Investment Property
-under cost model
Cessation substantially complete

Accounting
Specific General Mixed

Actual Interest xx Cap. Borrowing Cost: Traditional Contemporary

Investment Income (xx) • Actual Interest
whichever is lower
Cap. Borrowing Cost xx • Maximum CBC ave. expenditure xx total borrowings xx
average expenditures xx less: specific borrowing (xx) less: specific borrowing xx
x capitalization rate xx general borrowing xx general borrowings xx
maximum cap. borrowing cost xx x capitalization rate xx%
Max. Cap Borrowing Cost xx average expenditure xx
• amount of borrowing cost capitalized
Disclosures (based on general borrowing)
• the capitalization rate used
Cap. BC from general borrowing xx x capitalization rate xx%
add: BC from specific borrowing xx Maximum Cap. Borrowing Cost xx
Total Cap. Borrowing Cost xx

DEPLETION will be reclassified as:

Property of @ARdalmatian (NOT FOR SALE)

reclassified only after technical

Exploration and exploration and evaluation expenditures Tangible E&E Asset PPE feasibility and commercial viability
Evaluation Asset capitalized according to entity’s policy Intangible E&E Asset Cost of Wasting Asset of extracting mineral resources

Wasting Assets assets produced by nature Physically consumed

(natural resources) Irreplaceable

COST Acquisition Cost

Exploration Cost full cost all costs related to exploration are capitalized
successful cost only costs related to successful exploration are capitalized

Development Cost tangible movable treated as PPE, depreciated using own Useful Life
immovable treated as PPE, depreciated using own Useful Life whichever is lower
intangible capitalized as cost of wasting asset Useful Life of Wasting Asset NOTE: if Useful Life of Wasting Asset is lower,
Restoration Cost the PPE is depreciated using Output Method

Depletion Depletion Period commencement when extraction stars

Depreciation During Shutdown
shutdown - no depletion depreciation continues
Movable Tangible Dev. Cost
cessation when mineral resources fully consumed Immovable Tangible Dev. Cost
(depletion rate) UL used is own UL depreciation continues
Depletion Method Output Method Depletable Amount Actual UL used is UL of WA depreciating using output method discontinued
x depreciate using SL (or other applicable) method
Total No. of Reserves Extraction

Presentation of Depletion Cost of Inventory (Direct Material)

Wasting Asset & applies to wasting asset corp Retained Earnings xx

an exception to Trust Fund Doctrine add: Realized Depletion xx Accumulated Depletion xx
Doctrine
less: Capital Liquidated (xx) Less: Depletion in Ending Inv. (xx) EI in units x Depletion Rate
Maximum Dividend xx Realized Depletion xx
 INTANGIBLE ASSETS
Definition an identifiable, nonmonetary asset without physical substance
and Scope
exclusions
Identifiability separable a. Goodwill - PFRS3
Criteria arises from legal or contractual right b. Financial Asset - PFRS9
Control power to obtain future economic benefits c. Rights arising from E&E - PFRS6
power to restrict access of the economic benefits d. Dev. and Extraction expenditures - PFRS 6
future economic benefits revenue or cost savings

Recognition probable it is probable that economic benefits will arise

measurable economic benefit is measurable

Measurement
Initial at cost Subsequent

a. Separate Acquisition Purchase Price + DACs - Discounts/Rebates GR: Cost Model cost - amortization - impairment loss
b. Deferred Settlement Cash Price Equivalent XPN: Revaluation Mode cost - subs. amortization - subs. impairment
c. Through BusCom Fair Value if active market is available
d. Through Govt Grant Fair Value entity opted for Reval
Zero (if no FV)
e. Through Exchange w/ commercial substance Amortization Factors Amortizable Amount Cost - Residual Value
FV of Asset Given +/- BOOT Residual Value GR: Presumed to be Zero
FV of Asset Received XPN: at the end of life of IA:
CA of Asset Given +/- BOOT there is 3rd party
w/o commercial substance committed to buy
CA of Asset Given +/- BOOT there is active market
f. Internally Generated Cost to produce + DACs Useful Life Finite amortized
Research Phase all costs are expensed Idefinite no amortization
Development Phase GR: all costs are expensed Method Generally, Straight Line Method
XPN: Capitalized as IA
development costs incurred Impairment IA with Finite Life tested for impairment when there is indicator
after commercial production
IA with Indefinite Life tested for impairment annually and
NOTE: whenever there is indicator
a. if development cannot be
distinguished from research phase treated as incurred in Research Phase
b. acquired R&D in process capitalized as Intagible Asset
Treatment of Subsequent Expenditures
c. Use of PPE and IA in R&D Phase
with alternative use expensed upon consumption GR: Expensed Outright
without alternative use expensed outright XPN: Capitalized probable and measurable
d. Internally generated Brand,
Mastheads, Publishing Titles, most subsequent costs only maintain the Intangible
Goodwill and Customer Lists expensed outright, not IA Asset rather than increasing its life, hence expensed.
Example: Litigation Cost (successful or not)

INTANGIBLE ASSETS MAJOR CATEGORIES (US GAAP)

Property of @ARdalmatian (NOT FOR SALE)

IA? Cost
Marketing Related Trademark purchased separately Yes Purchase Cost + DACs Trademark Legal Life is 10 years but it is
internally generated Yes Production Cost + DACs + Filing Cost renewable, hence its life is considered
Mastheads purchased separately Yes Purchase Cost + DACs Indefinite and not subject to amortization.
internally generated No
Website Dev Cost for internal use Yes Production Cost + DACs
for external use
customers can place order Yes Production Cost + DACs
customers can’t place order No
Customer List purchased separately Yes Purchase Cost + DACs
Customer Related
internally generated No Although Copy Right has legal life of Lifetime + 50 years, it is
Artistic Related Copyright Yes Production Cost + DACs + Filing Cost amortized over its useful life. If useful life is undeterminable,
it is expensed against revenue of first printing.
Contract Related & Franchise Yes Initial Franchise Fee + DACs note: legal life = useful life
& Leasehold Right Yes Acquisition Cost + DACs

Patent purchased separately Yes Purchase Cost + DACs patent has a legal life of 20 years, it is amortized
Technology Related internally generated Yes Licensing Cost + DACs over legal life or useful life whichever is shorter
Computer Software generally Yes Production Cost + DACs
integral part of computer No (PPE) (after technical feasibility) Rules on Acquisition/Generation of Related Patent
for sale No (Inv) If New Patent Extends Life of Old Patent
• the related patent together with the old patent should be
amortized over the extended life.
Others Goodwill GR: Not Intangible Asset - it is unidentifiable
If New Patent does not Extend Life of Old Patent
XPN: Acquired thru Business Combination • New patent should be amortized over its own life and old
patent on its remaining life
Cost Residual Approach Goodwill = Purchase Price - FV of Net Assets

Direct Approach Cost of Goodwill Average Earnings xx

a. Purchase of excess earnings Excess Earnings x No. of years Normal Earnings (xx)
b. Capitalization of excess earnings Excess Earnings/Capitalization Rate Excess Earnings xx
c. PV of excess earnings Excess Earnings x PVOA
d. Capitalization of average earnings (Ave. Earnings/Cap. Rate) - FV of Net Assets
IMPAIRMENT OF ASSETS
Property of @ARdalmatian (NOT FOR SALE)

Concept -
there is impairment if: Recoverable Amount < Carrying Amount

and scope • No asset shall be carried above its Recoverable Amount PAS 36 applies to
NCA using cost model
NCA using reval model
• Recoverable Amount becomes the New Carrying Amount NCA using equity model
Cash Generating Units

Identification of GR: No impairment indicators, no impairment testing Impairment Indicators

Impaired Assets XPN: Annual impairment testing for:
a. Intangible Assets w/ indefinite life • obsolescence
Internal
b. Goodwill • worst economic performance
c. PPE not yet ready for intended purpose • decrease in market value
• change in technological, market, or
External economic environment
• increase in market interest rate
• market capitalization > CA of net assets

Measurement of Recoverable Amount

FV-CTS
Recoverable if there is binding sale agreement use the agreement FV less CTS
Whichever is higher
Amount FV less Cost to Sell if there is active market use the market price less CTS
Value in Use (net selling price)
if there is no active market use the best estimate of assets SP less CTS

Note: Upon measurement of either FVCTS or VIU, if at one of Value in Use Guidelines in Computing VIU VIU does not include
them is greater than the CA, no need to compute for the other • disc ount rate to be used must be pre-tax • Cashflows from restructuring
because it already means that the Asset is not impaired PV of Net Cash Flows xx • Cashflow is reasonable • Cashflows from investing activities
PV of Residual Value xx • Most recent forecast is used (usually up to 5yrs) • Cashflows to enhance the asset
Value in Use xx • If cashflow used is beyond 5 years, extrapolation is used • Income tax

Impairment -

Recognition Reversal

Individual Asset Individual Asset

Recoverable Amount
if no revaluation surplus Impairment is presented as loss (P/L) Revaluation Surplus (recognized if revaluation model is used)
if there is revaluation surplus Impairment is offset against Revaluation Surplus (OCI) Maximum RA
Excess impairment is presented as loss (P/L) Gain on Reversal
Carrying Amount
Note: Impairment Loss is credited to Accumulated
Depreciation if asset is depreciable. Otherwise,
• Maximum RA is the CA of the asset had there no impairment
Cash Generating Unit (CGU) Accumulated Impairment account is established

Cash Generating Unit (CGU)

a. Allocate to Goodwill Note: other assets only includes
b. Excess is allocated to other assets pro-rata assets in the unit that are a. Allocate gain on reversal to asset (pro-rata)
if a certain asset after allocation results to within the scope of PAS36, allocation must not go beyond the asset’s own
a lower amount than its recoverable hence inventories and other Recoverable Amount or Maximum RA
amount, the excess impairment should current assets are not included b. No reversal for impaired Goodwill
redistributed to other assets pro-rata

SUMMARY
Impairment Reversal
Cost Model Carrying Amount xx FV or CA had no impairment xx
Less: Recoverable Amount (xx) (whichever is lower)

Impairment Loss xx Less: Actual Book Value (xx)

Reversal of Impairment xx

Revaluation Model Carrying Amount xx FV or CA had no impairment xx

Less: Recoverable Amount (xx) (whichever is lower)
Revaluation Decrease xx Less: Actual Book Value (xx)
Reversal of Impairment xx
Charged in the ff order:
1. Revaluation Surplus balance
if FV > CA had no impairment, the
2. Any excess, to Impairment Loss
difference is Revaluation Surplus

Cash-generating unit Carrying Amount xx Reversal is allowed to assets in

Less: Recoverable Amount (xx) the unit except goodwill
Impairment Loss xx

Charged in the ff order:

1. to Goodwill
2. excess, prorated to other assets of the
unit according to their Carrying Amount
(allocation must not go beyond the asset’s own
Recoverable Amount or Maximum RA)
 INVESTMENT IN ASSOCIATES
Property of @ARdalmatian (NOT FOR SALE)

Recognition when there is significant influence

Quantitative Threshold
significant influence - investor has influence in
financial and operating policy decisions Criteria investor holds at least 20% of the directly % of investment in OS
voting power of the investee indirectly basis of significant influence
investments with
control - investor has control in financial potential voting rights
and operating policy decisions
(accounted in PFRS3-Business Combi) Qualitative Threshold
• representation in the BOD • interchange of managerial personnel
• participation in policy making process • provision of essential technical information
• material transactions between investor
and investee

Measurement (Equity Method)

acquisition Inv. in Associate
Initial purchase cost + transaction cost Cash
gain on BP Inv. in Assoc
Inv. Income
Cost (purchase + transaction) xx share in income Inv. in Assoc
Share in FV of Net Assets (FVNA): Note: The fv adjustments related to depreciable Inv. Income
Share in BVNA xx amounts are later amortized over its remaining life amortization of Inv. income
Share in FV adj xx (xx) if undervaluation
fv adjustment Inv. in Associate
Goodwill/(Gain on bargain purch) xx/(xx) goodwill part of the CA of Inv in associate Inv. in Assoc
(not accounted separately) if overvaluation
Inv. Income
gain on BP recognized as income dividend Dividends Rationale: when asset is
Subsequent Cost + Share in change of investee’s equity Inv. in Associate undervalued, depreciation
is undervalued. Hence, a
Investment in Associate share in P/L decrease in income.
beg bal dividend rec amort of FV adj
inv. income share in OCL intercompany trans. Intercompany Transactions
share in OCI impairment dividends in PS
ending bal Gain on BP Investor
inv. income Share in P/L xx
downstream upstream Unrealized profit (xx) upstream multiply to % share Rationale:
Realized profit xx downstream recognize fully In upstream, it is the
Inv. income xx associate’s unrealized
Associate profit which we share
only a portion of the
Profit is realized when: profit. Needless to say,
a. Sold to 3rd parties in downstream
b. amortized thru dep transaction, unrealized
profit is deducted fully
Investee with Heavy Losses
Investor’s share Investor’s Stop recognizing Loss. When income is subsequent reported, only recognize
in Losses Interest income again when the share of loss unrecognized were absorbed.

a. Inv. in associate This is the order in absorbing loss before the

b. Inv. in pref. shares investor stops recognizing share in loss.
c. Unsecured long-term rec Consequently, when income is subsequently
reported, the order is reversed as to which
account should absorb the share in income first.

Changes in Ownership Percentage

Increase Step Acquisition FV Approach FV of Original Inv + Cost of New Inv

Cost Approach w/o catch up adj Cost of orig inv + Cost of new inv
w/ catch up adj CA of original inv + Cost of new inv
(as if equity method)
adjustment is charged to retained earnings

Decrease Dilution not resulting to loss of Significant Influence Continue equity method Gain/Loss (Dilution)
Cessation resulting to loss of Significant Influence Discontinue equity method Net SP xx Deemed Sale Proceeds x New %
CA (xx) Actual Sale Actual SP
Gain/Loss xx
Portion of OCI/OCL xx
from Actual Sale due to actual sale of interest
recycled to P/L
from Deemed Sale due to not exercising preemptive right
Gain/Loss xx

Gain/Loss (Cessation) Realized Unrealized

Net SP xx xx FMV for unrealized
CA (xx) (xx)
Gain/Loss xx xx
Portion of OCI/OCL xx xx
recycled to P/L
Gain/Loss xx + xx = xx
INVESTMENT IN EQUITY SECURITIES
Property of @ARdalmatian (NOT FOR SALE)

Purpose of investments
1. To earn profit
Ownership Classification Standard Method 2. To serve operating and financial arrangements
Concepts Inv. in Equity Ordinary Shares less than 20% inv. in shares PFRS9 FV/Cost 3. To serve as protection for future possible losses
Securities 20-50% inv. in associates PAS28 Equity
(Inv. in Shares) more than 50% inv. in subsidiaries PFRS3 Acquisition
Preference Shares regardless inv. in shares PFRS9 FV/Cost Note:
1. FV excludes dividends when shares are acquired Dividend-on
Initial Subs. <in FV Presentation
Classification, Quoted Shares FVPL FV FV P/L Current Asset Date of declaration

Measurement (FV model) FVOCI FV+TC FV OCI GR: Non-Current Asset

XPN: Current if to be sold within 12 mos Date of record
shares are selling Dividend-on

and Presentation Unquoted Shares Cost Cost-Imp. N/A Current/Noncurrent shares are selling Ex-dividend
Date of payment
(Cost model)

Subsequent Transactions 2. Amount presented in OCI should always be net of tax

Disposal/Sale FVPL FVOCI

of Investment 1. Carrying amount of the shares sold is updated first at their FV
Net Selling Price xx 2. Any unrealized gain/loss from change in FV is recognized
Less: Carrying Amount (xx) 3. Since the carrying amount of the assets sold is now already at
Gain/Loss xx its fair value, hence, no gain or loss from sale is recognized in the
sale transaction of shares measured at FVOCI

Dividends
Dividend Income? Amount of Income
Out of Earnings Cash Dividend Yes at cost
Yes fv of property
Share Dividend No
of same class memo entry only
of different class allocate cost of investment based on fair value
Share in lieu of Cash Yes a. fair value of shares and then derecognize the portion of the original
b. cash dividend would shares replaced by the new class of share.
have been received

Cash in lieu of Shares No to avoid confusion, use “as if approach” - account the
dividends initially as share dividend and subsequently sell it
Out of Capital Liquidating Dividends No for cash. Hence a gain/loss on sale may still be recognized.

Share Split and

Special Assessment Share Splits Special Assessment

No. of Shares cost/sh total cost additional capital contribution

Split Up increase decrease same recorded as additional cost of investment
Split Down decrease increase same however, this does not increase the no. of shares.
In substance, it is a donation to the corporation
only memorandum entry is made on share-split transactions

Stock Rights a preemptive right Stocks selling dividend-on are also selling right-on
1 share = 1 stock right Stocks selling ex-dividend are also selling ex-right

Accounting
Accounted for Separately Not Accounted for Separately

Original Investment Inv. in shares xx Inv. in shares xx

Cash xx Cash xx

Receipt of Right Share rights xx

(memo entry)
Inv. in shares xx

Exercise of Right Inv. in shares xx Inv. in shares xx

Cash xx Cash xx

Inv. in shares xx
Share rights xx

Sale of Right Cash xx Cash xx

Share rights xx Inv of shares xx
Gain on sale xx

Expiration Loss on share rights xx (memo entry)

Share rights xx

Cost of Share Right

Residual Approach FV of shares Right-on xx

FV of shares Ex-right (xx)
Theoretical Value FV of share right xx

Direct Approach shares are selling right-on FV of share - Subscription Price

Value of one right =
No. share rights need to purchase 1 share + 1

shares are selling ex-right FV of share - Subscription Price

Value of one right =
No. share rights need to purchase 1 share
 INVESTMENT IN DEBT SECURITIES
Property of @ARdalmatian (NOT FOR SALE)

Bonds a formal unconditional promise, made under seal, to pay a specified sum of money at a Types of Bonds
determinable future date to make periodic interest payment at stated rate until principal is paid
Bond Certificate certificate of indebtedness issued by bond issuer which entitles As to Maturity
the bondholder to receive principal and interest payments Term Bonds bonds which matures on a single date
Serial Bonds bonds with a series of maturity dates
Bond Indenture unconditional contract between the bond issuer and
the bondholder that specified terms of the bond
As to attached security
Mortgage bonds bonds secured by a mortgage on real properties
Collateral trust bonds bonds secured by stocks and bonds of other corporation
Guaranteed bonds bonds guaranteed by another party
funds Debenture bonds bonds without any security or collateral
Debtor Creditor
bond issuer bond holder
bond certificate As to registration in the books of issuer
Registered bonds name of bondholder is registered in the books of issuer
Bond Indenture
Coupon/Bearer bonds issuer does not maintain any record to monitor bondholder
(the bond contract)
the holder of the bond certificate is the acknowledge holder
Other types
Convertible bonds bonds that entitle holder to convert bonds into shares
Classification, Measurement and Presentation Callable bonds
Junk bonds
bonds which may be redeemed prior to maturity
high risk, high yield bonds issued by heavily indebted entities
Intial Zero-interest bonds bonds whose principal and interest payments are made at the

1
Subsequent Amortization FV changes Interest Income
end of the term of the bonds
FVPL FV FV x P/L Nominal
FVOCI FV+TC FV / OCI Effective Rate (BONDS will be discussed thoroughly in Liability)
FAAC FV+TC AC / x NA

Disposal of Investments FV does not include accrued interest when financial asset is acquired between interest date, its selling
price includes accrued interest. Hence, the accrued interest must
be deducted to reflect the Fair Value of Financial Interest
Net proceeds xx
Fair Value through Previous CA (xx) if FV is not available, FV is the PV of all future cash flows
Profit/Loss (FVPL) Gain/Loss xx
Acquistion Price > Face Value = Premium
if Acquisition Price is not equal to Face Value, effective rate is lower than nominal rate

Net proceeds xx the difference is premium or discount

Face Value > Acquisition Price = Discount
Fair Value through Other Amortized Cost (xx) effective rate is higher than nominal rate

Comprehensive Income (FVOCI) Gain/Loss xx

Unrealized Gain/Loss xx FV of Financial Asset xx
in FVOCI, unrealized gain in the
(from OCI to P/L) Amortized Cost (xx)
period is recorded in OCI
Total Gain/Loss xx Unrealized Gain xx

Financial Asset through Net proceeds xx

Amortized Cost (FAAC) Amortized Cost (xx)
Gain/Loss xx

Reclassification reclassification is only applicable in debt securities and allowed only when there is a change in business model
reclassification date first day of the reporting period following the change in business model

From FVPL From FVOCI From FAAC

to FVOCI FV at reclassification date is the new CA to FVPL FV at reclassification date is the new CA to FVPL FV at reclassification date is the new CA
Financial Asset continues to be measured at FV Financial Asset continues to be measured at FV Difference between the prev. CA and FV
New effective interest rate (EIR) must be Unrealized G/L in OCI is reclassified to P/L is recognized in P/L (reclassification G/L)
determined at reclassification date. to FAAC FV at reclassification date is the new CA to FVOCI FV at reclassification date is the new CA
to FAAC FV at reclassification date is the new CA Cumulative unrealized G/L in OCI is eliminated Difference between the prev. CA and FV
Difference between FV at reclassification date and Original effective rate is not adjusted is recognized in OCI (unrealized G/L)
Face Amount is amortized through P/L using EIR. Original EIR is not adjusted
New EIR must be determined at reclassification date

Key Takeaways:
Reclassification is accounted for prospectively
Difference between CA and Initial Measurement = Gain/Loss on reclassification
Transfer to FAAC and FVOCI EIR must be computed at date of reclassification
Transfer between FAAC and FVOCI no need to adjust EIR

Impairment impairment is only applicable to Investment in Debt Securities measured through FVOCI and
FAAC because in FVPL, the unrealized loss recorded in the P/L represent the Impairment already

Recognition FVOCI FAAC

Recoverable Amount (Fair Value) xx Recoverable Amount (PV of FCF) xx
Amortized Cost (xx) Amortized Cost (xx)
Impairment Loss xx Impairment Loss xx

FV @balance sheet date

unrealized gain (OCI) not recognized in FAAC
Reversal AC had there no impairment
Latest Amortized Cost (AC) reversal of impairment (P/L)
 INVESTMENT PROPERTY
Property of @ARdalmatian (NOT FOR SALE)

Recognition
Land, Building and/or part of Land or Bldg
Investment Property owned or leased in a finance lease Investment Property Owner-occupied Property
for capital appreciation or for rental to others Purpose for capital appreciation for production and supply
under operating lease for rental to others
CF generation Independent in conjunction with other assets
Items considered Investment Property Items not considered Investment Property
Land held for long-term capital appreciation Property held for use in the production/admin purpose Asset included Land and Bldg includes assets other than Land/Bldg
Land held for undetermined use Property held for future use as owner-occupied property
Building leased out under operating lease Property held for future development and subsequent use as OOP Standard PAS40 PAS 16 or other applicable standards
Building vacant held to leased out under Property occupied by employees
operating lease OOP awaiting disposal
Property that is being constructed or Property held for sale in the ordinary course of business
developed for future use as IP Property held under construction or development for sale
Property constructed or developed on behalf of 3rd parties
Property leased to another entity under finance lease
Other Issues
can be sold/leased IP portion - IP
Measurement Partly IP and out separately? OOP portion - OOP
Partly OOP
Initial Measurment Means of Acquisition Cost
Cash Basis Invoice price can’t be sold/leased IP portion significant - IP whole
On Account Invoice price - discount (taken or not) out separately? OOP portion significant - OOP whole
Acquisition Cost + Transaction Cost
Deferred Settlement a. Cash price equivalent
b. PV of future cash flows
construction cost + borrowing cost
Subsequent Measurement Construction
Ancillary Services
Insignificant/Incidental IP
Exchange w/commercial substance
Significant OOP
a. FV of asset given +/- BOOT
FV Model Cost Model b. FV of asset received
c. CA of asset given +/- BOOT
SFP Fair Value Cost-Dep-Impairment Individual FS IP
w/o commercial substance Intercompany Rental
Conso FS OOP
a. CA of asset given +/- BOOT
SCI Unrealized G/L Deprecation exp and
Impairment Loss PV of Leased Payments whichever
Finance Lease
FV of Assets is lower

IP cost does not include:

a. Start-up costs unless necessary to bring IP to intended use
b. Operating losses incurred before IP achieves planned lvl of occupancy
c. Abnormal losses during development of property

Transfer from/to Investment Property Under Cost Model transfer between IP, OOP and Inv are
shall be made only when there is change of use made at carrying amount

Evidence of Change of Use Measurement

commencement of owner occupation IP OOP of Transfer From IP New carrying amount is the FV
commencement of development w/ a view to sale IP Inventory
end of owner occupation OOP IP remeasurement to FV is
inception of operating lease to another entity OOP/Inv IP From Inv
Under FV Model recognized as G/L in P/L

to IP
remeasurement to FV is
From OOP
accounted as Revaluation

FUNDS AND OTHER INVESTMENTS Initial Recognition of

Property of @ARdalmatian (NOT FOR SALE)

CSV xx
CSV at end of 3rd year insurance exp xx portion applicable current year (1/3)
Cash Surrender Value the amount which insurance firm pay upon the
surrender or cancellation of the insurance policy
RE xx portion applicable previous years (2/3)

a. should be life insurance policy Subsequent CSV xx

b. premium for 3 full years must’ve been paid recognition of CSV insurance exp xx
c. policy is surrendered at the end of the 3rd year or anytime thereafter
d. entity must be the beneficiary Receipt of proceeds Cash xx Proceeds xx
CSV xx Less: CA of CSV (xx)
Insurance Expense xx Insurance (unexpired) (xx)
Gain on settlement xx Gain on Settlement xx
Bond Sinking Fund amount of funds set aside to settle bonds payable in the future
may be established mandatorily (required by contract) or voluntarily
-

Type of Bond Sinking Fund Investment Decision Recording Recognition of Interest Income
Administered by Entity made by entity Every transaction requires entry recognized when earned BSF, beg xx
Contribution xx
Administered by Trustee made by trustee Entity records only recognized upon receipt of Inv. Income xx
a. Additional contribution to fund statement of fund balance Expense/Losses (xx)
b. Increase/Decrease of fund balance BSF, end xx
c. Settlement of fund
Other Long-Term Funds Fund xx
Establishment
Cash xx
Preference shares redemption fund funds used to retire or redeem preference shares
Asset replacement and expansion fund funds established for asset replacement or expansion in the future
Income Recog Fund xx
Contingency Fund fund for the payment of unforeseen obligations
Inv. Income xx

Expense incurrence Expense xx

Fund xx