CHAPTER 9: PAS 8
ACCOUNTING POLICIES, ESTIMATE AND ERRORS
ACCOUNTING POLICIES
- specific principles, bases, conventions, rules and practice applied by
an entity in preparing and presenting financial statements
- entity shall select and apply the same accounting policies each period
in order to achieve comparability of financial statements or to identify
trends.
Change in accounting policy
- made only when:
o Required by PFRS
o change will result in providing more reliable and relevant
information about the entity’s financial position financial
performance and cash flows
- Reported either:
o If required by PFRS, reported in accordance with the transitional
provisions therein
o If PFRS contains no transitional provisions or if an accounting
policy is changed voluntarily, the change shall be reported
retrospectively
Retrospective (Retroactive) application
- applying a new accounting policy to transactions, other events and
conditions as if the policy had always been applied
- resulting adjustments are reported on the opening balance of Retained
earnings, amount net of tax
- Prior period financial statement restated accordingly when presenting
comparative information
- Limitation of retrospective application:
o Impracticable to determine the cumulative effect of the change
o Effects are not determinable
o Requires assumptions about management’s intentions at the time
o Requires significant estimate and impossible to distinguish
objectively information
Examples of change in accounting policy
- Change in method of inventory pricing
- Change in method of accounting long term construction contract
- Initial adoption of policy to carry assets at revalued amount
- Change from cost model to fair value model for measuring investment
property and PPE
- Change to a new policy as a result of new PFRS
- Change in measurement basis
Absence of accounting standard
- PAS 8: management shall use judgement in selecting and applying an
accounting policy that results in information that is relevant to the
decision making needs and is faithfully represented
- Hierarchy of guidance under PAS 8:
o Requirements of current standards dealing with similar matters
o Reference to the Conceptual Framework for Financial Reporting
o Most recent pronouncements of other standard-setting bodies
(other accounting literature and accepted industry practices)
ACCOUNTING ESTIMATE
- Approximation of the amounts to be recorded on items for which no
precise means of measurement are available.
- Estimates are based on the information that best reflects the
circumstances prevailing at the date of estimation and are subjective
in nature
- involves judgement based on the latest available and reliable
information.
Change in accounting estimate
- correction or adjustment on 1) carrying values of assets and liabilities,
or 2) amount of periodic consumption
- a correction or adjustment based on assessment of the present status,
circumstances, new information, more experience or subsequent
development and expected future benefit and obligation associated
with the asset and liability
- Reported: Currently and prospectively
- Not a correction of an error
Prospective application
- Change is applied to transactions, other events and conditions
occurring after the date at which there is changed
- Effects of change reported in the income or loss for the current and
future period if it affects both
Examples of accounting estimate CHAPTER 10: PAS 10
- doubtful accounts EVENTS AFTER THE REPORTING DATE
- inventory obsolescence
- Useful life, residual value and expected pattern of consumption of Events after reporting period
depreciable asset - events, favorable and unfavorable, that occur between the end of the
- Warranty cost reporting period and the date when the financial statements are
- Fair value of asset and liability authorized for issue
- also known as “Subsequent Events”
 When it is difficult to distinguish a change in an accounting policy from - Reporting requirement:
a change in an accounting estimate, the change is treated as change o Adjustment or
in accounting estimate with appropriate disclosure o Disclosure

PRIOR PERIOD ERRORS  FINANCIAL statements are said to be authorized for issue when the
- Omissions and misstatements in the financial statements for one or management (board of directors) reviews the financial statements and
more periods arising from a failure to use or misuse of reliable authorizes them for issue
information
- Examples of errors: Types of events after the reporting period
o Mathematical mistakes - Adjusting events and
o Mistakes in applying accounting policies o those that provide evidence of conditions that existed at the end
o Misinterpretation of facts of the reporting period
o Fraud or oversight - Nonadjusting events
- Reported: Retrospectively o those that provide evidence of conditions that arise after the end
o Adjustment on the opening balances of retained earnings, affected of reporting period
assets and liabilities o disclosure only
o If reporting comparative information: retrospective restatement
- Disclosure requirements:
o Nature or prior period error CHAPTER 16: PAS 24
o Amount of correction for each prior period presented to the extent RELATED PARTY DISCLOSURES
practicable:
 For each financial line item affected Related Party
 For basic and diluted earnings per share - parties are considered related, if one party directly or indirectly
o Amount of correction at the beginning of the earliest prior period through one or more intermediaries:
presented o Controls, is controlled by or is under common control with the
o If retrospective restatement is impracticable, the circumstance entity
that led to the existence of the condition and how and from when o Has an interest in the entity that gives it significant influence
the error has occurred. over the entity
o Has joint control over the entity
- Disclosure requirements, relationships between parents and Related party transaction
subsidiaries shall be disclosed regardless of whether there have been - A transfer of resources or obligations between related parties,
transactions between those related parties. Minimum disclosure regardless of whether a price is charged.
includes: - Requires separate disclosure in the financial statements of a parent,
o Name of the entity’s parent and if different, the ultimate subsidiary, associate or venture but not in a consolidated financial
controlling party. statements of the group.
o Name of the most senior parent that produces financial - Disclosure requirements:
statements for public use if entity or controlling party does not o The amount of transaction
o The amount of outstanding balance, terms, and conditions
Control whether secured or unsecured, and nature and consideration to
- the power over the investee or the power to govern the financial and be provided in settlement.
operating policies o The allowance for doubtful accounts related to the outstanding
- ownership directly or indirectly through subsidiaries of more than half balance.
of the voting power of an entity o The doubtful accounts expenses recognized during the period in
respect of amount due form related parties.
Significant Influence - Key management personnel compensation
- power to participate in the financial and operating policy decision of o Required to disclose in total and for each of the categories:
an entity, but not control on those policies  Short-term employee benefits
- share ownership of 20% or more  Postemployment benefits
- evidence by the following factors:  Other long-term benefits
o representation in the BOD  Termination benefits
o participation in policy making process  Share based payment transactions
o material transactions between the investor and investee
o Interchange of managerial personnel
o Provision of essential technical information CHAPTER 13: PAS 19
EMPLOYEE BENEFITS
Joint Control
- The contractually agreed sharing of control over an economic activity Employee Benefits
- All forms of consideration given by an entity in exchange for services
Examples of related parties rendered by employees or for a termination of employment.
- Affiliates: parent, subsidiary and fellow subsidiaries - Employees include: Directors and other management personnel
- Associates: existence of significant influence - Benefits include:
- Venturer in a joint venture o Short-term employee benefits
- Key management personnel o Postemployment benefits
- Close family members of an individual o Other long-term employee benefits
o Spouse and children o Termination benefits
o Children of the individual’s spouse
o Dependents of the individual or the individual’s spouse
- Individuals owning directly or indirectly an interest in an entity that
gives him significant influence and the close family members of such
individuals
- Postemployment benefit plans for the benefit of employees
Short-term employee benefits - Benefits that are not expected to be settled wholly within twelve
- Expected to be settled wholly within twelve months after the end of months after the end of annual reporting period.
annual reporting period in which services were rendered. - Examples:
- Includes the following o Long-term paid absences such as long service or sabbatical leave
o Salaries, wages and social security contributions o Jubilee or other long service benefit
o Short-term compensated or paid absences o Long-term disability benefits
o Profit sharing and bonuses payable within twelve months o Profit sharing and bonuses
o Nonmonetary benefits, such as medical care, housing, car and free o Deferred compensation
or subsidized goods
- Recognition and measurement Postemployment benefits
o Measured on an undiscounted basis - Payable after completion of employment
o Accrued expense, Unpaid short-term benefits at the end of - Usually formal arrangements between an employer and employee,
accounting period established as part of the remuneration package of the employee.
o Prepayment, any short-term benefits paid in advance - May also be informal, company practice and/or required by law (SSS
contributions)
- Includes the following
o Retirement benefits, such as pensions and lump sum payments on
retirement
- Short-term paid absences o Postemployment life insurance
o Accumulating o Postemployment medical care
 Carried forward and can be used in future periods if not used - Kinds
in full o Defined contribution plan
 Kinds: o Defined benefit plan
 Vesting, entitled to cash payment and not conditional on
future employment Defined contribution plan
 Nonvesting, not entitled to a cash payment for unused - Entity pays fixed contributions into a separate entity known as the
entitlement on leaving the entity fund.
o Nonaccumulating - Entity will have no legal or constructive obligation to pay further
 Not carried forward contributions if the fund does not hold sufficient assets to pay all
 Benefits lapse if not used in the current period and do not employee benefits relating to employee service in the current and prior
entitle cash payment for unused entitlement on leaving the periods.
entity - The contribution is definite but the benefit is indefinite.
- Employee bears the investment risk
Termination benefits - Accounting procedures
- Benefits provided in exchange for the termination of an employee’s o Measured on an undiscounted basis, except when they are not
employment as a result of either: expected to be settled wholly within twelve months after the end
o Entity’s decision to terminate of the period.
o Employee’s decision to accept an offer o No actuarial gains and losses
o Expense, in the period it is payable
Other long-term employee benefits o Accrued expense, any unpaid contribution at the end of the period
- All other benefits other than short-term benefits, post-employment o Prepaid expense, any excess contribution
and termination benefits; a residual definition.
Defined benefit plan
- Postemployment plan other than a defined contribution plan, where an
entity’s obligation is to provide the agreed (guaranteed specific or
definite amount) benefits to employees.
- The benefit is definite but the contribution is indefinite.
- Entity assumes the investment risk
- Accounting procedures
o Measured on a discounted basis
o Complex because actuarial assumptions are required to measure
the obligation and the expense.
o Expense recognized is not necessarily the amount of contribution
for the period.
o Kinds: Unfunded, Fully funded or Partly funded
Components of defined benefit cost
- Defined benefit cost, equal to the amount to be funded by the
contribution from the employer
1. Service cost
- included in profit or loss component of employee benefit
expense
a. Current service cost
b. Past service cost
c. Any gain or loss on plan settlement
2. Net interest
- included in profit or loss component of employee benefit
expense
3. Remeasurements
- Fully recognized through other comprehensive income and
subsequently reclassified to retained earnings
- Comprise of:
a. Remeasurement of plan assets
b. Remeasurement of defined benefit obligation
c. Remeasurement of the effect of asset ceiling
Components of employee benefit expense
1. Current service cost
- Increase in present value of defined benefit obligation resulting
from employee service in the current period
- Increase in expense and defined benefit obligation
2. Past service cost
- Change in the present value of defined benefit obligation for
employee service in prior periods resulting from plan
amendment or curtailment
- Plan amendment, introduction of defined benefit plan or
changes to an existing defined benefit plan
- Curtailment may arise from:
o Closing of a plant
o Discontinuance of an operation
o Termination or suspension of a plan
- Expense, upon the occurrence of plan amendment or
curtailment, whether vested or unvested
3. Net interest
- Change in defined benefit obligation, plan assets and asset
ceiling as a result of the passage of time
- Elements
o Interest expense on deferred benefit obligation (Defined
benefit obligation, beg. X Discount rate)
o Interest income on plan assets (Plan Assets Fair Value,
beg. X Discount rate)
o Interest expense on effect of asset ceiling (Effect of Asset
Ceiling, beg. X discount rate)
4. Gain on plan settlement as a deduction
5. Loss on plan settlement as an addition
Plan assets
- Comprise assets held by long-term benefit fund and qualifying
insurance policy
- Conditions:
o Assets (fund) held is legally separate from the reporting entity
o Assets held to pay only employee benefits
o Assets are not available to entity’s creditors even in bankruptcy
o Assets cannot be returned to the reporting entity or can be
returned IF 1) remaining assets of the fund are sufficient to meet
all employee benefit obligations OR 2) assets are returned to
reimburse it for employee benefits already paid.
Qualifying insurance policy
- Insurance policy issued by an insurer that is not a related party of the
reporting entity
- Proceeds used to pay only employee benefits
- Cannot be paid or returned to the entity unless refer to above plan
assets (Nos. 1 and 2)
Actual return on plan assets Basic accounting considerations
- Components include - Fair value of plan assets (FVPA), source of fund set aside in meeting
o Interest, dividend and other income derived from the plan assets future benefit payments
o Realized and unrealized gains and losses on the plan assets o Increased by:
 Contribution to the plan
Remeasurement of plan assets  Actual return on plan assets
- The difference between the actual return on plan assets and interest o Decreased by:
income on plan assets  Benefits paid to retirees
o Actual return > Interest income = Remeasurement Gain  Realized loss on plan assets, netted against actual return
o Actual return < Interest income = Remeasurement Loss - Projected benefit obligation (PBO), present value of expected future
payments to settle employee benefits resulting from current and prior
Remeasurement of defined benefit obligation period services rendered.
- The recognition of actuarial gain and actuarial loss o Increased by:
- Actuarial Gains and losses, changes in the present value of defined  Current service cost
benefit obligation resulting from experience adjustments (difference  Past service cost
between assumptions and actual occurrence) and effects of changes  Interest expense on PBO
in actuarial assumptions.  Actuarial loss
o Actual benefit obligation > estimated amount = Actuarial loss o Decreased by:
o Actual benefit obligation < estimated amount = Actuarial gain  Benefits paid to retirees
nents of defined benefit cost is recognised as fo llows : [IAS 19(20 11).120-130]
 Actuarial gain
Component Recognition
Service cost attributable to the current and past
Profit or loss
periods
Net interest on the net defined benefit liability or
asset, determined using the discount rate at the Profit or loss
beginning of the period
Remeasurements of the net defined benefit
liability or asset, comprising:
Other comprehensive
 actuarial gains and losses income
 return on plan assets (Not reclassified to profit or
 some changes in the effect of the asset loss in a subsequent period)
ceiling

Prepaid / Accrued benefit cost

- A balancing figure
- Classified as:
o Noncurrent asset: Prepaid benefit cost
o Noncurrent liability: Accrued benefit cost
CHAPTER 28: PFRS 2 Share appreciation right
- Employees shall receive cash equal to excess of the market value of
SHARE-BASED PAYMENT the entity’s shares over a predetermined price for a stated number of
shares on settlement or exercise date.
Share-based compensation - Recognize as liability
- Employees shall receive equity shares in exchange for their services - Measurement of compensation
or the entity incurs liabilities to the employees based on the price of o FV of the liability at the reporting date and remeasured at every
its shares. year end until finally settled.
- Usually tied to performance in a strategy that uses compensation to  FV of liability = MV of shares – predetermined price
motivate the recipients.  Any changes in FV = profit or loss statement
- Classification: - Recognition of compensation
o Equity settled, share options o Vests immediately = recognized immediately
o Cash settled, share appreciation rights o Do not vest =recognized over the vesting period

Share options Share Options Share Appreciation Right

- enables employees to acquire shares of the entity during a specified Presentation Equity Liability
period upon fulfillment of certain conditions at a specified price Measurement 1. FV of share options ~FV of Liability at reporting
- given in addition to a cash salary and other employment benefits 2. Intrinsic value of date
- Measurement of compensation share options ~remeasured every year
o Fair value method end
 Compensation is equal to FV of share options at the date of
grant Recognition 1. Vesting = SAME
immediately
o Intrinsic value method
2. Non-vesting = over
 Compensation is equal to share option’s intrinsic value (FV the vesting period
less option price) Not Exercised Credit back to Share NA
 Used only if FV of share option cannot be estimated reliably Premium
- Recognition of compensation FV equal to or NA >No appreciation or
o Vest immediately = Full recognition of expenses at the date of less than increase = no obligation
grant predetermined >Reverse any accrued
o Do not vest = Expense over the service period or vesting period price salaries recognized
(from date of grant to date on which option can be exercised)
 Share options outstanding account is reported as component
of share premium before exercise, credited back to share
premium when not used.
o Acceleration of vesting
 Cancels or settles a grant of share options during the vesting
period
 Recognize immediately the remainder
 Any payment made to employees, accounted as repurchase
of equity interest (deduction from equity)
 Payment > FV of share options = Expense
CHAPTER 17: PAS 28 Impairment Loss
INVESTMENT IN ASSOCIATES - Carrying amount exceeds recoverable amount
- Recoverable amount, higher between FV less cost of disposal and
Measurement of investment in associates value in use
- Equity method of accounting - Fair value, price to sell the asset
o Applicable when the investor has significant influence over the - Value in use, present value of estimated future cash flows expected
investee from the continued use of an asset and from disposal.
- Recoverable amount is assessed for each individual associate
Accounting procedures – Equity method (ordinary shares)
1. Initial recognition at cost Investee with preference shares
 Investment in associate XX - Cumulative, compute share of earnings after deducting the preference
Cash XX dividends whether or not dividends are declared.
2. Share in profits/losses +/- Carrying amount (CA) - Noncumulative, compute share of earnings after deducting the
a. Share in profits = Investment income, Increase in CA preference dividends only when declared
 Investment in associate XX
Investment income XX Discontinuance of equity method
b. Share in losses = Investment loss, Decrease in CA - Discontinued from the date investor ceases to have significant
 Investment loss XX influence over the investee/associate
Investment in associate XX - Accounted as follows:
3. Cash dividends received deduction from CA o Financial asset at fair value through profit or loss
 Cash XX o Financial asset at fair value through other comprehensive income
Investment in associate XX o Nonmarketable investment at cost or investment in unquoted
4. Presentation = Noncurrent asset equity instrument
- Measurement of investment:
Excess of cost over carrying amount o Fair value of the retained investment = fair value on initial
- Investor pays more or less for an investment than the carrying amount recognition of financial asset
of underlying net assets o Gain or loss = CA – FV, reported in the profit and loss statement
- Attributed to the following o Gain or loss = Proceeds from disposal – CA, reported in the profit
o Undervaluation of the investee’s assets and loss statement
o Goodwill
- Recognition Equity method not applicable
Assets fairly valued Goodwill, included in CA of investment and - Investor is a parent that is exempt from preparing consolidated
not amortized financial statements or ALL of the following apply:
Goodwill and Investment tested for 1. Investor is a wholly-owned or partially-owned subsidiary and
impairment at end of each reporting period owners do not object not applying equity method
Undervaluation of Amortized over the remaining life of the 2. Investor’s debt and equity instruments are not traded
asset depreciable asset 3. Investor did not file or it is not in the process of filing financial
Undervaluation of Amount is expensed when the land is sold statements with the SEC for purpose of issuing any class of
land instrument in a public market
Undervaluation of Amount is expensed when the inventory is 4. Ultimate or any intermediate parent of the investor produces
inventory sold consolidated financial statements available for public use and
complies with PFRS.
CHAPTER 21: PAS 34
INTERIM FINANCIAL REPORTING
Interim financial reporting
- Preparation and presentation of financial statements for a period less
than one year.
- Interim financial reports shall be published whenever the entity wishes
(monthly, quarterly or semiannually)
- Publicly traded entities are encouraged to provide interim financial
reports at least at the end of the half year and within 60 days at the
end of the interim period
- Interim financial reports should include as a minimum a condensed set
of financial statements and selected notes
o “Condensed”, each headings and subtotals presented in entity’s
most recent financial statements is required but no requirement
to include greater details unless specifically required.
 Condensed statement of financial position
 Condensed statement of comprehensive income
 Condensed statement of changes in equity
 Condensed statement of cash flows
 Selected explanatory notes
Disclosure of compliance with PFRS
- Disclosed in the notes when in compliance with all of the requirements
of each applicable PFRS.
Selected explanatory notes
- Explanation of significant events and transactions arising since the last
annual financial statements issued. (refer to book for examples)
Presentation of comparative interim statements P.457
Basic principles
- Apply same accounting policies in the interim financial statements as
applied in the annual financial statements
- Revenues from products sold or services rendered recognized on the
same basis as for annual period
- Costs and expenses recognized as incurred
o Expense directly associated with revenue
 Matched against revenue
o Expenses not associated with revenue
 Recognized as incurred or
 Allocated over the interim periods benefited
- If business is highly seasonal, entity is encouraged to disclose financial
information:
o For the latest 12 months
o Comparative information for the prior comparable 12-month
period
- Preparation requires greater use of estimation than annual financial
reports
Inventories
- Measured by the same principles as at financial year-end
o Ergo: measured at lower of cost or net realizable value even for
interim purposes
o Ergo: recognized loss on inventory write-down regardless of
temporary of non-temporary write-down
o Ergo: disclose any write-down and reverse write-down in later
interim period
- Full inventory and valuation procedures are not required at interim
date
Seasonal, cyclical or occasional revenue
- Shall not be anticipated or deferred as of an interim date
Uneven costs
- Shall be anticipated or deferred for interim purposes ONLY IF it is also
appropriate to anticipate or defer that type of cost at the end of the
financial year. (P.461)
Year-end bonuses
- Anticipated for interim purposes IF AND ONLY IF:
o Legal obligation or past practice would make the bonus a
constructive obligation for which company has no realistic
alternative but to make the payment
o A reliable estimate of obligation can be made
Irregular costs
- Such costs is discretionary (e.g. charitable contribution and employee
training cost) and even though planned shall not be anticipated as of
interim date
Depreciation and amortization
- Shall be based only on assets owned during that interim period
Paid vacation and holiday leave - Contract, has clear economic consequences that the parties have
- Accrued for interim purposes because these are enforceable legal little, if any, discretion to avoid, usually because the agreement is
commitments enforceable by law.
2. There must be at least two parties
Gain and loss 3. Financial asset to an entity
- Gain or loss from: 1) disposal of property, 2) discontinued operation 4. Financial liability or equity to another
3) other, shall not be allocated over the interim periods.
- Reported in the period when realized Financial asset
- Any asset that is:
Income tax o Cash (cash on hand and in bank)
- Accrued using the annual effective income tax rate applied to the o An equity instrument of another entity
pretax income of the interim period o A contractual right:
 To receive cash or another financial asset (AR, NR) or
Difference in financial reporting year and tax year  To exchange financial assets or financial liabilities with
- Income tax expense for interim periods of that financial year is another entity under conditions favorable to the entity (Loans,
measured using separate effective tax rates for each of the tax years Bonds, trading securities) or
applied to the portion of pretax income earned in each of those years o A contract that will or may be settled in entity’s own equity
instruments (Trading securities or Derivatives)
Change in accounting policy - Nonfinancial assets:
- Restate financial statements of prior interim periods of the current o Physical assets
year and the comparable interim periods of the prior financial year. o Intangible assets
o Prepaid expenses
o Right of use asset or leased asset
 The year-end financial statements’ compliance with PFRS is not o Current and deferred tax assets
affected if an entity does not prepare interim financial reports
Financial liability
- Any liability that is:
o A contractual obligation to
CHAPTER 20: PAS 33  Deliver cash or another financial asset to another entity
EARNINGS PER SHARE  Exchange financial assets or financial liabilities with another
entity under conditions that are unfavorable or
o A contract that will or may be settled in the entity’s own equity
CHAPTER 19: PAS 32 instruments
FINANCIAL INSTRUMENTS: PRESENTATION

Financial instrument - Nonfinancial Liabilities:

- a contract that gives rise to both a financial asset of one entity and a o Deferred revenue and warranty obligations
financial liability or equity instrument of another equity. o Current and deferred tax liabilities
- REQUIREMENTS to classify as Financial Instrument: o Constructive liabilities
1. There must be a CONTRACT
Equity instrument
- a contract that evidences a residual interest in the assets of an entity
after deducting the liabilities (E = A – L)
- include ordinary share capital, preference share capital (except
redeemable preference shares) and warrants or options
- An instrument that includes no contractual obligation to deliver cash
or another financial asset.
PAS 16 – FINANCIAL INSTRUMENTS
5449
Equity instrument –
A PREFERENCE SHARE can be classified as a LIABILITY under the following
conditions:
1. Mandatory redemption by issuer
2. Redeemable at the option of the holder
CHAPTER 33: PFRS 9
FINANCIAL INSTRUMENTS
PAS 39 – RECOGNITION AND MEASUREMENT
OF FINANCIAL INSTRUMENTS (5449)
FINANCIAL ASSETS at fair value through profit or loss include
1. Financial assets that are held for “trading”. – by requirement of the
standards
2. Financial assets that are “designated” on initial recognition as at
fair value through profit or loss. – by designation
A FINANCIAL ASSET is classified as held for trading if:
1. It is acquired principally for the purpose of selling or repurchasing
it in the near term.
2. On initial recognition, it is part of a portfolio of identified financial
assets that are managed together and for which there is evidence
of a recent actual pattern of short-term profit taking.
3. It is a derivative except for a derivative that is a financial guarantee
or a designated and an effective hedging instrument.
AVAILABLE FOR SALE FINANCIAL ASSETS are non-derivative financial
assets that:
1. Are designated as available for sale – by designation.
2. Are not classified as financial assets at fair value through profit or
loss, held to maturity investments and loans and receivable. – by
residual definition
Characteristics of financial assets classified as HELD TO MATURITY:
1. They have fixed or determinable payments and a fixed maturity
2. They are quoted in an active market
3. The holder has demonstrated positive intention and ability to hold
them to maturity
TRANSACTION costs directly attributable to the acquisition of financial
assets and issue of financial liabilities include:
1. Fees and commissions paid to agent
2. Levies by regulatory authorities
3. Transfer taxes and duties
 When an entity sells/reclassifies more than an insignificant amount
of held to maturity investments prior to maturity, such sales or
reclassifications will disqualify the entity from using the held to
maturity classification during the current year and in the next two
years.
Characteristics of a derivative:
1. The value changes in response to the change in a specified
underlying
2. It requires no initial investment or an initial small investment
3. It is settled at a future date
FORWARD contract – an agreement between two parties to exchange a
specified amount of commodity, security or foreign currency at a
specified date in the future with the price or exchange rate being
set now.
FUTURE contract – a contract traded on a n exchange that allows an entity
to buy a specified commodity or a financial security at a specified
price on a specified date
OPTION – contract giving the owner the right but not the obligation to buy
or sell an asset at a specified price any time during a specified
period in the future
EMBEDDED derivative – a component of a hybrid instrument that also
includes a non-derivative host contract

Embedded derivatives are “bifurcated” or accounted for separately when:

a. On a stand-alone basis, the embedded feature meets the definition
of a derivative
b. The combined contract is measure at fair value through other
comprehensive income
c. The economic characteristics and risks of the embedded derivative
and the host contract are not closely related