SUMMARY NOTES IN FAR/AUDPROB

Non-Current Assets Held for Sale and Discontinued Operation

 Criteria to be classified as NCAHS
o Available for sale in present condition
o Sale is highly probable
 Management is committed to a PLAN to sell the asset
 An active program to locate buyer has been initiated
 Asset is actively marketed at a reasonable price
 Asset is expected to be sold within ONE YEAR FROM CLASSIFICATION as
NCAHS
 If not sold, reclassify to its original account except if (1) due to
circumstances beyond management control, (2) actions required to
complete the plan indicate that it is UNLIKELY that significant changes
to the plan will be made, and (3) there is sufficient evidence that entity
remains committed to the plan.
 Measurement of NCAHS
o Carrying Value @ Classification (update) vs Fair value less cost to sell whichever is
lower (WEL)
 Impairment loss and Recovery
o Need not be at year end to test for impairment
o Impairment loss is recognized on classification date
o IL = CV – FV-CTS
o Gain = FV-CTS – CV; but not greater than IL recognized
 Reclassification to original account
o Asset shall be measured at: CV had there been no reclassification to NCAHS (HTBNR)
vs Recoverable Amount at date of reclassification whichever is LOWER (WEL)
 Presentation
o NCAHS – current asset
o Disposal group
 Assets shall be separate from liabilities (NOT OFFSET)

Operating Segment Reporting (PFRS 8)

 Requirements of the Standard
o Report separately information about segments meeting the ff thresholds:
 10% of Combined Total Revenue
 Total Revenue = External revenue + Intersegment Sales (internal)
 Excludes Other Non-operating income in the threshold (e.g. Interest)
 10% of the combined profit of segments not incurring a net loss vs combined
absolute value of losses by segments reporting a net loss whichever is higher
(WEH)
 10% of Combined Total Assets
o The combined total EXTERNAL revenue of reportable segments identified through the
threshold should constitute 75% or more of the entity’s total external revenue
  If not met, criteria for voluntary disclosure shall be the basis for additional
disclosures in order to meet the 75% requirement
o Information about major customers
 Major customer if Revenue contributed = 10% of EXTERNAL revenue
 Voluntary Disclosure Criteria
o Management believes that information about the segment is USEFUL to its users
o Combine two or more operating segments that individually do not meet the quantitative
thresholds to produce a reportable segment
 Should:
 Have similar economic characteristics
 Share a MAJORITY of the aggregation criteria
o Nature of products and services
o Nature of production processes
o Type/class of customers
o Methods of Distribution/Delivery of products/Services
o Regulatory Environment

Cash & Cash Equivalents

 Measurement:
o General rule: Face amount
o Foreign Currency – Convert using the current exchange rate at FS date
o Cash in bank having financial difficulty or in bankruptcy – estimated
realizable/recoverable value
 Compensating balance
o Legally restricted (assumed if silent)
 Held against short term borrowing arrangements – Current asset (not cash)
 Held against long term borrowing arrangements – Non-current asset
o Unrestricted
 Considered as cash
 Cash fund
o Set aside for Settlement of Noncurrent Liability (e.g. Sinking fund)
 GR: Long term investment
 Once it turns current, it may be considered as Cash
o Set aside for construction/purchase of PPE
 Non-current even if expected within 1 year
 Time deposit, money market, commercial papers, treasury bills
o Cash equivalents if PURCHASED 3 months before maturity
o Short term Investment if date of purchase to maturity is > 3months but 1 yr or less
o Long term investment if date of purchase to maturity is > 1year
 Petty Cash fund and Undeposited collections
o Items treated as Cash under PCF
 Bills and Coins
 Replenishment check
 Encashable accommodated Checks
 o Items treated as cash under undeposited collections
 Bills and coins
 Money orders
 Bank Drafts
o Accounted for – Accountability = Overage (Shortage)
 Accountability
 PCF: Imprest Balance
 Undeposited Collections: Total Undeposited Collections recorded +
Unrecorded Collections
 Cash that doesn’t belong to the fund but was mixed in the cash on hand
(Collections for charity, gift, etc. & Return of expense advance) (not
included if separated from company cash – “in tact”)
 Accounted for
 PCF: Items Treated as Cash + Unreplenished vouchers + Employees
IOUs + Postdated or NSF Checks
 Undeposited Collections: Items treated as cash + Depositable customer
collection checks as of count date + unreplenished vouchers with
evidence + Unused postage stamps
 Bank reconciliation and Proof of cash
o Certified checks are no longer outstanding checks
o Adjusted balance per bank is the correct cash balance
o Net adjustment to cash is equal to the difference between the adjusted balance to bank
and unadjusted balance per book
o Special items under proof of cash
 NSF check received and redeposited in the same period but was unrecorded: Add
to receipts and disbursements per BOOKS
 NSF check received and redeposited in the same period and was recorded: No
further adjustments
 NSF check recorded as reduction against the receipts for the period: Add to
receipts and disbursements per BOOKS
 Error in the current month corrected in the current month:
 In overstatement of receipts, assume correction was made by adding to
the disbursements
 To correct, deduct to both receipts and disbursements
 Error in the prior month not corrected in the current month
 Assuming an overstatement in prior month receipts, correction shall be
made by deducting prior month cash balance and deducting current
month cash balance (no adjustments to receipts and disbursements)

Accounts Receivable
 Measurement (applies to all receivables)
o Initial Measurement: Fair Value
o Subsequent Measurement: Net realizable value (Amortized Cost)
 NRV = AR,gross – ADA,end
  Credit balance in accounts receivable (added to AR per books and advances from customer)
 In case of conflict, subsidiary ledger, rather than general, shows the correct AR balance
 AR,end = AR,beg + Net Credit Sales – Net collections – Accounts Written off

Allowance for Doubtful Accounts

 ADA,end = ADA,beg + DA Expense – written-off accounts + recovery of accounts written off
 Methods
o % of AR = ADA,end
o Aging = ADA, end
o % of Net Sales = DA Expense
 % of Net sales based on historical data = (Total write off – Total
recoveries)/Total Credit Sales

Loans Receivable
 Initial Measurement: FMV = Net initial investment = Net cash given up
o FMV = Principal + Origination COSTS – Origination FEES
 Origination Costs: broker’s fees & professional fees
 Origination Fees: costs chargeable to debtor per agreement
 Subsequent measurement: Amortized Cost = Present Value net of impairment
o Impairment loss = Carrying value including accrued interest – Present Value

Pledging/Hypothecation
 Continue to recognize receivable with appropriate disclosure
 Recognize proceeds as liability rather than income
 Charge interest on CV of liability
 Any transaction cost is a finance cost

Assignment of Accounts Receivable

 There is a change in account title from AR to AR-assigned
 Recognizes a liability from the proceeds and any service charge incurred from the transaction
 Equity of the assignor in assigned accounts = AR-assigned,end – Liability,end

Factoring of Accounts Receivable

 Forms
o Casual Factoring/Hybrid Method/With recourse (Loan)
 Seller retains significant risks relating to the receivable
 Recognize expenses as loss on factoring
 Loss on factoring if fully collected = Face Value – (Net proceeds + Factor’s
Holdback) or Loss = Service charge + Interest Expense
 Loss on factoring if not yet fully collected (initially recognized) = Loss when
fully collected + loss from recourse obligation
o Factoring as a continuing agreement/Without recourse (Sale)
 Used if silent
 All benefits and risks have been disposed of
  Treat expenses as finance cost
 Finance cost = Face Value – (Net proceeds + Factor’s Holdback) or Loss =
Service charge + Interest expense
Discounting of Notes Receivable
 With recourse (Loan)
o Used if silent
o Loss on discounting
 Conditional sale = Net Proceeds – CV (inclusive of accrued interest)
 Secured borrowing = 0 (Loss is classified as interest expense which may be
netted against interest income)
o Treatment of Note discounted
 Conditional sale: Notes Receivable discounted (contra-asset)
 Secured borrowing: Liability for NRD (Liability)
o Carrying Value of Receivable = Face value
 Without recourse (Sale)
o loss on discounting = Net Proceeds – CV (inclusive of accrued interest)
o Carrying Value of Receivable = 0
o Liability/Contra Asset = 0

Inventory (PAS 2)
 Initial Measurement: Historical Cost
o Cost of Purchase
 Purchase Price + Direct Costs
 Direct Costs: Import duties + Nonrecoverable taxes + Transport and
Handling Costs + Freight insurance net of discounts and rebates +
Unloading Costs
o If inventory is harvested from Biological assets: FV-ECTS at point of harvest
o Abnormal losses are excluded from inventory cost
 Subsequent Measurement: Lower of Cost or Net Realizable Value (LCNRV)
o NRV = Net Selling Price – Est. Cost to Sell – Est. Cost to Complete
o Materials and other supplies held for production cannot be recognized at an amount
lower than cost if the finished goods inventory associated therewith has cost greater than
NRV
o NRV of materials = replacement cost
 Write-down of Inventories
o Allowance Method (Loss Method)
 Allowance for Inventory Write-down: Deduction to Inventory balance
 Increase (Decrease) to allowance is Debited (Credited) to COGS.
 COGS, adjusted = COGS, beg + Increase in AID – Decrease in AID
o Direct method (COGS Method)
 Dr Inventory @ LCNRV
CR Income Summary
 Loss is buried in the COGS
 No shortage/overage is recorded under periodic system but it may be recorded under perpetual
system
 Purchase discount lost under net method is treated as an expense rather than an asset. Therefore,
Purchases under net method is lower than that under gross method by an amount equal to the
purchase discount lost.
 Freight seller has an effect similar to Freight Shipping point (Freight buyer: Freight Destination
point)
 Special Contracts
o Product financing/Sale with buyback agreement/Park sale/Sale with right to repurchase
– inventory of seller until expiration of right
o Sale but buyer is given the right to return
 Seller has reliable estimate on future return of goods – inventory of buyer
 Seller has NO reliable estimate on future return of goods – inventory of seller
o Loan/borrowing of inventory – owned by buyer (intention is to sell borrowed inventory)
o Installment sales – owned buy buyer
o Bill and Hold – inventory of buyer until he gives his signal
o Lay away Sales – inventory of seller until last installment payment is collected
o Segregated goods
 General rule: Inventory of seller
 Special order: Exclude under seller’s inventory
 Goods on consignment
o Cost = COGC + Freight, handling, and other incidental costs + Repairs + Storage
o Commissions are expensed outright
 Purchase commitment
o If total purchase price and replacement cost is given, the excess over RC shall be
recorded as the loss on PC
o If the PC is on an annual basis (e.g 3 year PC of 1000 units annually) and annual
quantity, price per unit, scrap per unit, and number of years were provided, the formula
to be used is as follows: Loss = Annual Qty x (Price – scrap) x REMAINING number of
years till purchase (future purchases)
o Any gain shall be recorded up to the extent of loss on PC
o Purchases = Market price VS Fixed price whichever is lower
o Payment = Fixed price
 Estimating ending inventory
o Gross Profit method
 In determining inventory loss, remove goods in transit and consigned goods from
inventory balance because these were not lost
 Ignore sales discount and sales allowances because there is no effect on the
physical volume of inventory (Purchase discount and allowances are still
included in computing for TGAS)
 If GPR is based on sales: EI = TGAS – ((Sales – Sales return) x cost ratio
 If GPR is based on cost: EI = TGAS – ((Sales – sales return) / sales ratio)
 Shortage = EI – EI from physical count – Est. NRV of partially damaged goods
– goods on consignment and transit
 o Retail Inventory Method
 EI @ Cost = EI @ retail x cost ratio
 EI @ retail = TGAS @ retail – Adjusted Sales
o TGAS @ Retail = B + NP + F-in + Net markup – Net markdown
+ Dept Transfer in – Dept transfer out – Abnormal losses
o Adjusted Sales = Sales – Sales return + employee discount +
Normal losses
 Cost ratio
o Average (used if silent) = TGAS@Cost/TGAS@Retail
o FIFO = (TGAS@Cost – BI@Cost)/(TGAS@Retail – BI@retail)
o Conservative/Conventional = TGAS@Cost / (TGAS@retail – net
markDOWN)

Government Grant (PAS 20)

 Recognition Criteria for Grants
o There is reasonable assurance that
 Entity will comply with conditions of the grant
 The grants will be received
 Types of grants:
o Grants related to income
 Condition is an act, grant is in other forms
 If grant is subsidy/immediate financial support, recognize the difference between
the grant allocation for the year (grant income) and the actual expense in the
P&L. The unused grant shall be recognized as deferred income
 If grant is in form of a loan at below market rate of interest, recognize the
difference between initial CV of loan (Fair value) and the proceeds as the benefit
from the grant. Interest income shall be recognized, and the remainder shall be
the deferred income. (borrowing cost = effective interest)
 If grant is a non-monetary asset, the asset and the grant should be measured at
fair value or nominal value (choice of the company)
o Grants related to asset
 Condition is to acquire long-term assets
 Grant is allocated to profit or loss over the period of the asset’s depreciation
 Grant is presented in the SFP either by:
 Setting grant as deferred income; or
 Deducting grant from the CV of asset
 Grants that become repayable due to nonfulfillment of condition
o Repayment of grant shall be treated as a change in estimate (prospective)
o Grants related to income
 Apply repayment to any unamortized or deferred revenue. Any balance shall be
charged to P&L
o Grants related to asset
 Using deferred method
  Apply repayment to any unamortized/deferred revenue. Any balance
shall be considered as loss.
 CV and Depreciation does not change
 Using Deduction from asset approach
 Increase the carrying amount of asset
o Recognize the amount deducted from the asset initially
o Recognize an additional depreciation expense for the total
decrease in prior years’ depreciation

Biological Asset and Agricultural Produce (PAS 41)

 Initial and Subsequent measurement
o Fair Value less estimated cost to sell
 Estimated cost to sell = Commission to brokers and dealers + Levies by
regulatory agencies + transfer taxes and duties
 Transport and other costs to get the assets to the market are not included
because such costs are already included in the Fair value
o Newborn animals from owned bearer animals results to a gain in biological asset.
 Animals related to recreational activities (zoos) and bearer plants are treated as PPE
 Gain from FV change = gain from physical change + gain from price change

Bearer Plants
 Treat as PPE (PAS 16)
 Does not include:
o Plants cultivated for wood/timber (Consumable biological plants)
o Short-term bearer plants
 Agricultural produce of these bearer plants are still accounted for under PAS 41
 Immature plants (Not yet capable of bearing fruits)
o Measurement: Accumulated Cost
 Includes:
 Land preparation (irrigation, drainage development, construction of
bunds and fences)
 Planting materials such as seedlings and cover crops
 Fertilizers and chemicals used
 Direct labor and plantation overhead
 Capitalized borrowing costs
 Mature plants
o Measure under Cost or revaluation method (as if PPE)
o Check indicators for impairment annually

Equity Investments with no control or significant influence (less than 20% ownership) (PFRS 9)
 Trading Securities (FVPL)
o Initial recognition: Fair value (Excluding transaction costs and accrued dividends)
o Unrealized gain or loss to P&L = FV – CV
o Disposal: Gain or loss in P&L = Proceeds – CV
  Available for sale (FVOCI)
o Initial recognition: Fair value + Transaction costs (Excluding accrued dividends)
o Unrealized gain or loss in SHE = FV – Cost
o Unrealized gain or loss in OCI (SCI) = FV – CV
o Disposal
 Remeasure investment to its fair value so that SP=FV=CV
 Gain or loss in OCI = 0
 UGL in SHE shall be transferred to Retained earnings
 Entity may make an irrevocable election to present equity investments at FVOCI.
 Dividends received are recognized in P&L
 Share assessments are capitalized

Investment in Associates (PFRS 9)

 Equity investments with significant influence (20% - 50% ownership)
 Initial Measurement = Cost + Transaction costs
 Subsequent Measurement = Initial + Share in NI(NL) + Share in OCI(OCL) – Share in
Dividends
o Share in NI(NL) = NI of associate + gain on acquisition – share (%) in realization of
undervaluation in assets
 Gain on acquisition = Purchase Price – (FV of Net assets x % owned)
 FV of net assets = CV of net assets + Undervaluation of assets
 UG/L is not part of NI in periods other than acquisition date
 If Share in FVNA > PP, there is a goodwill. (no effect on NI)
 Realization of undervaluation in assets
 General rule: realized through sale/disposition/impairment
 Exception: Depreciable assets may be realized (even when unsold)
through depreciation

Cessation
 Disposal of shares to the extent that company loses significant influence
 Total gain or loss = Proceeds (net of transaction cost) + FMV of remaining shares – CV of
investment in associate before cessation + Recycling of OCI
o Total G/L = Unrealized G/L + Realized G/L
 Unrealized G/L = FMV of remaining shares – allocation of CV of investment in
associate prior to cessation (retained portion) + allocation in recycling of OCI
(retained portion)
 Realized G/L = Proceeds (net of TC) – allocation of CV of investment in
associate prior to cessation (portion sold) + allocation in recycling of OCI
(portion sold)
o Investment income before cessation shall be recognized prior to disposal such that the
portion of share in NI for the period prior to cessation is reported in the company’s
income statement

Deemed Sale/Dilution
  Decrease in Investment in Associate due to nonparticipation in a company’s new stock issuance
(did not exercise pre-emptive right)
 Dilution G/L = Deemed share from increase in net assets due to issuance – CV of the
investment deemed sold + Allocation in recycling of OCI
o Deemed share from increase in net assets due to issuance = Proceeds from issue of new
shares x % owned after dilution
o CV of investment deemed sold = CV x (% decrease in interest / % original interest)
o Allocation in recycling of OCI = Share in OCI x (% decrease in interest / % original
interest)

Step-Acquisition of Investment in Associate

 Acquisition of additional stocks resulting to acquisition of significant influence
 Fair Value Approach (PFRS 3)
o Remeasure Existing interest to Fair Value (Use purchase of new shares as basis if silent)
o Close UG/L-OCI to RE if previously under FVOCI
o Initial Investment = FV of original investment + cost of new investment
o Investor will recognize a gain equal to the excess of FV of existing interest over CV

Debt Investments (PFRS 9)

 Trading Securities (FVPL)
o Used if business model is holding the security for SHORT-TERM PROFITS
o Initial recognition: FV of asset given up (exclude transaction costs and accrued interest)
o UG/L-P&L = FV – CV
o Gain or loss from disposal = Proceeds, net of transaction costs and accrued interest –
CV – accrued interest
o Interest income shall be based on the NOMINAL/STATED rather than effective rate
 Available for Sale (FVOCI)
o Used if business model is holding the security to COLLECT CONTRACTUAL CASH
FLOWS AND TAKE ADVANTAGE OF BUSINESS OPPORTUNITIES
o Initial recognition: FV of asset given up including transaction costs (excluding accrued
interest)
o UG/L in SHE = FV – Amortized Cost
o UG/L in OCI (SCI) = FV – Carrying Value
o Gain or loss from disposal = Proceeds, net of transaction costs and accrued interest –
amortized cost
 Held to maturity (Investment in Amortized Cost)
o Used if business model is holding the security primarily to COLLECT
CONTRACTUAL CASH FLOWS
o Initial recognition: Fair value of bonds including transaction costs (excluding accrued
interest)
o Gain or loss from disposal = Proceeds, net of transaction costs and accrued interest –
amortized cost
 Entity may make an irrevocable election to present debt investments at FVPL
Cash flow hedge
 Used in offsetting variable cash flows
 Derivative or hedging instrument is measured at fair value
 Hedged item is not adjusted to conform with FV
 Change in FV is recognized as OCI to the extent that the hedge is effective
 Ineffective portion is recognized in P/L

Fair Value hedge

 Used in offsetting changes in FV of asset/liability
 Derivative or hedging instrument is measured at fair value
 Hedged item is measured at FV
 Entire change in FV is recognized in profit or loss

Interest rate swap

 Receive variable, pay fixed
o Treated as cash flow hedge
o Derivative (hedging instrument) = FV = PV of the net cash settlement receipts
 Net cash settlement = Variable interest to be received – Fixed interest to be paid
o Loan Payable (hedged item) = Face value (not adjusted for FV change)
o Hedge is assumed to be effective. Change in FV is recognized in OCI
o Interest expense = Face x fixed rate (constant due to hedging)
 Receive fixed, pay variable
o Treated as FV hedge
o Derivative (hedging instrument) = FV = PV of the net cash settlement receipts
 Net cash settlement = Fixed interest to be received – Variable interest to be paid
o Payable (hedged item) = Fair Value (adjusted for FV change)
o Entire change in FV is recognized in P&L
o Interest expense = FV x variable rate (not constant, variable interest is paid)

Forward contract & Futures contract

 Derivative (hedging instrument) = FV = PV of the excess (deficient) market price of the highly
probable forecast purchase (if 1 year or less, no need to PV)
 Unrealized gain (loss) = change in FV
 Unrealized gain can be credited directly to purchases on the date of purchase

Option contract
 Derivative (hedging instrument)
o Initial recognition: Option premium
 Option premium is the initial payment made for the protection against
unfavorable movement in price
o Subsequent measurement: excess market price of highly probable forecast purchase
 If market price is lower than exercise price, option is not exercised. Option
premium is recognized as loss in P/L
 Unrealized gain = FV of call option – Option premium
  Unrealized gain can be credited directly to purchases on the date of purchase

Investment Property (PAS 40)

 Only land and building can be classified as investment property.
 Intention must either be (1) Undecided, (2) for capital appreciation, or (3) for leasing.
 Items not classified as investment property
o Inventories – held for sale in the ordinary course of business
o PPE – Owner occupied property, property occupied by employees, and property
awaiting disposal
 Properties partly used as investment property and partly as owner-occupied property
o If portions could be sold/leased out separately, account the portions separately
o If portions could not be sold/leased out separately
 Classify as Investment property only if
 Only an insignificant portion is held for manufacturing/administrative
purposes
 Ancillary services provided by the entity are a relatively insignificant
component of the arrangement (e.g. services as hotel)
 If the above conditions are not satisfied, classify as PPE
 Property leased to an affiliate
o To the owner’s separate financial statements, considered as investment property
o In the consolidated financial statements, considered as PPE
 Initial measurement: Cost = FV + Directly attributable costs
 Subsequent measurement: An entity has the right to choose between:
o Fair value model
 Property is measured at fair value
 Gains from changes in fair value is recorded in P&L
 Irrevocable unless FV cannot be reliably measured (even if less readily
available)
o Cost model
 Property is measured at CV (cost – accumulated depreciation – accumulated
impairment losses)
 Assume that residual value is ZERO
 Automatically used if FV cannot be reliably measured
 Change in use of property (Changing classification of property)
o From/To investment property under Cost model
 Measurement after classification is the same as the CV before classification
o From investment property at FV to PPE or Inventory
 Use Fair Value as the measurement of the property
o From PPE to investment property at FV
 Use Fair Value as the measurement of the property
 Account for any difference over the carrying value as revaluation
o From Inventory to investment property at FV
 Use Fair value as the measurement of the property
 Account for any difference over the carrying value in the P/L
 o Completion of property being constructed for use as an investment property
 Use Fair value as the measurement of the property
 Account for any difference over carrying amount in the P/L
 Investment property sold without development – still classified as investment property until
disposal (not reclassified to Inventory)
 Investment property being developed for continued use as an investment property – still
classified as investment property
 Disposal of investment property
o Gain(loss) on disposal recognized in P/L = Net proceeds – CV of the asset
 Compensation from third parties for an investment property that was impaired shall be
recognized in the P&L when the compensation becomes receivable

Funds and other long-term investments

 Measurement: Cash + Cost of the securities adjusted for any premium or discount + other assets
in the fund
 Any income or expense related to the fund is charged/recognized directly to the corresponding
fund
 Sinking Fund
o Measurement: Sinking fund cash + Sinking fund Securities + Accrued interest (if any)
 Sinking fund cash = Total cash transfers – Cash invested in securities + Interest
collected from securities +/- other cash flows related to the fund
o If under administration of trustee, transactions are recorded upon report of the trustee
o Annual sinking fund contribution = Fund to be accumulated / Future Value factor of OA
o One time sinking fund contribution = Fund to be accumulated / FV of 1
 Cash surrender value
o Amount to be paid by life insurance company upon surrender/cancellation of life
insurance policy
o Life insurance expense = Premium paid – Dividends – Increase in CSV (assuming past
LIE is consumed)
 Recognized upon payment of the insurance premium but adjusted for any
unexpired portion at the end of the accounting period (if accounting period is not
the same as the policy period)
 Reduced by any dividend received on the life policy (instead of recognizing
income)
 If dividend is applied to cash surrender value, LIE = Premium paid –
Increase in CSV
 Life insurance expense recognized during the current year is derecognized
(credit to insurance expense) to the extent of cash surrender value recognized if
prior year life insurance expense is insufficient (credit to retained earnings)
o Cash surrender value
 Initially recognized at the end of the third year of the life policy
 Revalued at its adjusted balance at every year-end subsequent to the third year
and on the date of death of the insured
 Derecognized at the time of death of the insured
 o Gain on life insurance settlement = Face value of policy – CSV at time of death–
unexpired premium
 CSV at time of death = CSV,beg – ((CSV,end of year – CSV,beg) x number of
months before death/12)
 Unexpired premium = Premium paid for the year x (months after death / 12)

Initial Measurement of Property, Plant, and Equipment

 PPE is initially measured at Cost
o Cost = Purchase price (net of discounts and rebates) + directly attributable costs + Asset
retirement obligation
 PPE acquired from third party
o PPE acquired for cash = Purchase price,net + DACs = Cash price equivalent
 DACs = Site preparation costs + Delivery and transport + Installation and
commissioning + Professional fees + other DACs
 Special items
 Start-up and pre-production costs – Generally expensed. Capitalized if
necessary to bring asset to working condition
 Relocation costs and forex – Expensed
o PPE acquired from exchange with commercial substance = FV of asset received (which
is equal to the FV of asset given up + cash paid – cash received)
o PPE acquired from exchange with commercial substance = BV of asset given up + cash
paid – cash received
o PPE acquired in an installment basis = Cash price equivalent = PV of deferred payment
 If no discount rate is given and the term of installment ends within a year, the
difference between the cash price equivalent and the total payments made is
recognized as interest income.
o PPE acquired from a donor = Fair value (ignore transfer costs)
o PPE acquired by issuance of shares/bonds = Quoted price of PPE (MV of shares if QP
of PPE is not clearly determinable)
 Costs capitalizable to land
o Expenses necessary to acquire a clean title
o Broker/Agent commission
o Escrow fees
o Survey costs
o Cost of clearing, grading, leveling, and landfill
o Cost of option directly attributable to acquired land
o Land improvements not subject to depreciation
o Special assessments (public improvements)
 Costs capitalizable to building purchased
o Legal fees connected to the purchase
o Renovating costs incurred to put building to its intended use (lighting installations,
partitions, and repairs)
 Costs capitalizable to building constructed
o Materials, labor, overhead
 o Building permit or license
o Architect and superintendent fee
o Excavation costs
o Cost of temporary buildings
o Interest on construction loans and insurance
o Cost of equipment and fixtures made a permanent part of the building
o Cost of construction and removal of temporary fence around construction site
o Safety inspection fee
 Costs capitalizable to land improvements
o Permanent fences, water systems, drainage systems, sidewalks, pavements, and costs of
trees, shrubs, and other landscaping
 Special items
o Payments to tenants to vacate land in order to prepare such for its intended use
 GR: capitalized to land
 Exception: If intended use is for construction of new building, capitalized to
building
o Sidewalks, pavements, parking lot, and driveways
 GR: Land improvements
 Exception: If part of blueprint, capitalize to building
o Building fixtures
 Movable: Furniture and fixtures
 Immovable: Building
 Acquisition of land and building at a single cost
o Do not include appraisal costs in the single cost of building and land
o If building is usable, cost is allocated based on their relative fair values
o If building is unusable, cost is capitalized to land
o If building is demolished for the construction of a new building
 Allocated CV of old building is recognized as:
 Expense – if new building is PPE/IP
 Capitalized to property – if new building is Inventory
 Demolition cost minus salvage value is capitalized as cost of new building
o If building is demolished for a purpose other than construction of a new building,
capitalize as land
o If building is used in prior periods but demolished in the current period to construct a
new building, CV of old building is considered as loss regardless of new building’s
classification
 Costs capitalizable to Machinery
o Freight, handling, and storage costs related to acquisition
o Insurance while in transit
o Installation cost, site preparation, and assembling
 When moved to another location, old installation costs are derecognized, and
new installation costs are capitalized
 Cost of removing old machine prior to installation of new machine is not
capitalized to new machine
 o Rearrangement/relocation/reinstallation costs that increase asset’s level of performance
o Testing costs necessary in preparing machinery for its intended use
o Asset retirement obligation
o Consultant’s fee for advice on acquisition of machinery
o Cost of safety rail and platform surrounding machine
o Cost of water device to keep machine cool
 Containers in big units are considered as PPE only if they are returnable.
 Containers in small units are classified separately as noncurrent assets
 Accounting for major replacement
o If separate identification is practicable, recognize new part as asset, derecognize old
parts removed and recognize the remaining CV as loss
o If separate identification is not practicable, assume that the cost of the part to be
derecognized is equal to the discounted value of the replacement cost

Subsequent measurement of PPE

 The subsequent measurement of PPE depends on the method used by the company
o Cost Method: Carrying Value = Cost- Acc. Depreciation – Acc. Impairment
o Revaluation/Appraisal Method: Fair market value
 Depreciation Methods
o Composite Method
 Depreciation = Depreciable cost/Useful life
 Composite life = Total depreciable amount / total annual depreciation
 Composite rate = Total annual depreciation of all depreciable assets / total costs
o Straight line method: Depreciation = Depreciable cost / Useful life
 Depreciable cost = Cost – salvage(scrap) value
o Declining balance: Depreciation = Cost x Declining balance rate
 If double declining, DBR = 2/Useful life
 Consider scrap value only on last year of depreciation
o Sum of Years Digits method = Depreciable cost x SYD rate
 SYD rate = remaining life at start of the year / SYD
 SYD = (UL (UL + 1))/2
o Working hours or Output method: Depreciation = (Depreciable cost/Life) x actual hours
used or actual output
o For tools:
 Inventory Method: Depreciation = Beg tools + Purchases – End – Proceeds from
disposal of used tools
 Replacement Method = (Tools disposed x Cost of LATEST purchases using
LIFO method) – Proceeds from disposal
 Retirement Method = (Tools disposed x Cost of EARLIER purchases using
FIFO method) - Proceeds from disposal
 In computing for depreciation where there are several transactions affecting PPE, list down the
items which became outstanding one time or another during the period
o Disposed assets (Depreciated from beginning of the year to date of disposal)
o Newly acquired assets (Depreciated from acquisition date to end of the year)
 o Already existing assets not disposed during the year (Depreciated for the entire year)
 Impairment loss
o Asset is impaired only if CV > Recoverable amount
 Recoverable amount is the higher between fair value less cost to sell (FV-CTS)
and value in use (VIU)
 FV-CTS = Est. SP – Est. CTS
 VIU = PV of future net cash flows using a PRE-TAX discount rate
o For a group of assets, impairment loss for the entire group is recognized only if
recoverable amount is less than the CV
 The impairment shall be allocated first to the entire goodwill.
 Any excess over goodwill is allocated pro-rata to the remaining assets based on
the CV of each asset
 In allocating the excess, the CV of each asset should not be reduced below the
highest of (1) FV-CTS, (2) VIU, and (3) Zero.
 The amount that would have been allocated to the asset shall be re-allocated pro
rata to the remaining assets
 Corporate assets which were not included to the CV of CGUs shall be allocated
to the units based on their carrying amount
 In reversal of impairment loss, the increased CV of the asset should not exceed the CV had
there been no impairment (HTBNI)
 In reversal of impairment loss of a group of assets, the recovery shall be allocated on a pro-rata
basis amongst the assets of the CGU except for Goodwill
o CV of each asset upon allocation shall not be increased above the lower between (1)
Recoverable amount, and (2) CV HTBNI
 Revaluation model
o Asset is subsequently measured at FMV
o The excess of FMV over CV is recognized as Revaluation Surplus after derecognizing
previously incurred Impairment losses if any
o The excess of CV over FMV is recognized as Impairment loss after derecognizing
previously recognized revaluation surplus
o If there is no active market, compute the FMV according to the formula:
 Replacement Cost – Replacement AD = Depreciated RC or FV or Sound value
 FV = RC x Condition %
o Condition % = remaining life/total life, original estimate; or
o Condition % = CV/Depreciable cost, original estimate
 Replacement cost and depreciable cost is computed after considering any change
in estimate of salvage value
o Revaluation surplus from depreciable assets is transferred to Retained earnings every
year on a piecemeal basis (Revaluation Surplus/remaining life of asset) and upon
disposal (Remaining Revaluation surplus associated with the asset)
o If income tax rate is given, Revaluation surplus should be after-tax.

Borrowing Costs (PAS 23)

 Capitalizable Specific Borrowing Costs (CSBC)
 o CSBC = Actual borrowing cost – Investment income
 Capitalizable General Borrowing Costs (CGBC)
o CGBC = (Weighted average expenditures – Amount related to specific borrowings) x
average interest rate
 If incurred evenly throughout the year, WA Expenditures = Expenses/2
 Amount related to specific borrowings = Principal amount of Specific borrowing
 Average interest rate (capitalization rate) = total annual interest from general
borrowings / total general borrowings outstanding
 Total CBC should not exceed actual interest incurred from both general borrowings and specific
borrowings
o Any excess interest over CBC shall be expensed
 Suspension of capitalization
o When active development is interrupted, borrowing costs shall cease to be capitalized
 Exceptions that allow BC to be capitalized:
 Substantial technical and administrative work is being carried out
 Temporary delay is a necessary part of the process
 Delay is caused by factors which are common during the construction
period in the geographical region involved

Exploration and evaluation Assets

 Initial measurement: Cost
 Capitalizable costs
o Acquisition Cost
o Exploration Cost
o Development Cost
o Restoration Cost
 Examples of costs that are capitalized
o Acquisition of rights to explore
o Topographical, geological, geochemical, and geophysical studies
o Exploratory drilling
o Trenching
o Sampling
o Activities related to evaluating the Technical feasibility and commercial viability of
extracting a mineral resource
 Subsequent measurement: Use cost or revaluation model (whichever is chosen must be applied
on a consistent basis
 Depletion
o Amortization of the wasting asset
o Adaptation of the output method of depreciation
 Total Depletion for the year = Depletion per unit x total tons extracted from the
mine
 Depletion per unit = Depletable Cost / Total Estimated tons to be
extracted
 o Depletable Cost = Total Cost – Salvage value – Accumulated
depletion at the beginning of the year
o Total estimated tons to be extracted = Tons extracted in Current
Year + Tons still remaining
 Total Depletion for the year = Depletion Expense + Depletion still in inventory
 Depletion Expense is also known as the depletion included in COGS
 Depletion Expense = Depletion per unit x tons sold
 Depletion in inventory = Depletion per unit x tons unsold
 Depreciation expense of equipment used in exploration and development activity
o If equipment will not be used after all the natural resource is exhausted
 It should be depreciated using the output method if the life of the natural
resource is shorter than the life of the equipment and straight-line method if
otherwise
 Life of the natural resource = annual tons extracted / Estimated tons to be
extracted
o If equipment will be used after all the natural resource is exhausted
 It should be depreciated over the life of the equipment

Intangibles
 Intangibles are measured initially and subsequently in a manner similar to that of PPE except
that:
o Intangibles may either have a finite life or an indefinite life
 Intangibles with finite life are amortized over their useful life or legal life (if
any)
 Intangibles with indefinite life are not amortized but are tested for impairment
(1) annually, and (2) when there is an indication of impairment
o Intangibles are presumed to have no residual value except
 When there is a third party committed to buy the intangible at the end of its
useful life
 When there is an active market so that the expected residual value can be
measured, and it is probable that there will be a market at the end of its useful
life
 Patent
o Cost should be amortized over its legal life or useful life whichever is shorter
 Legal life = 20 years
o If a competitive patent was acquired to protect an old patent, the competitive patent
should be amortized over the protection period extension granted (even if old patent is
considered to have an indefinite useful life
o If a related patent is acquired to extend the life of the old patent, the related patent and
any unamortized cost of the old patent should be amortized over the extended life of the
old patent
o Litigation fees for defending a patent is considered as expense
 o If new patent negates value of an old patent, company may choose to capitalize the
unamortized portion of the old patent to the new patent or to write off the unamortized
cost of the old patent
o Rules applicable to patent may also be applicable to other licenses/intangibles of similar
nature
 Copyright
o Generally amortized over the period it is expected to provide a revenue or its legal life
whichever is shorter
 Legal life = life of the author + 50 years after author’s death
o May be considered as an intangible with indefinite useful life if revenues are expected to
be received for an indefinite period and renewal is expected to be done with minimal
cost and effort
 Franchise
o Cost of Franchise = Initial Franchise Fee + DACs
 Continuing franchise fees are expensed outright
o If franchise is granted for a definite period, amortize over useful life or definite life
whichever is shorter
o If granted indefinitely/perpetually, not amortized but tested for impairment at least
annually
 Trademark/trade name/brand name
o Generally, it is considered as an intangible with indefinite useful life because its legal
life is 10 years which may be renewed for another ten years indefinitely.
o In testing for impairment, the value in use of an intangible with indefinite useful life
shall be computed by dividing the annual cash flow by the discount rate
 Goodwill
o Only recognized from business acquisitions/purchase
o The cost of goodwill shall be computed using the following formulas
 Residual approach: GW = Acquisition cost – FV of Net Assets (FVNA) acquired
 Direct Approach
 Purchase of average excess earnings: GW = Excess Earnings x number of
years
o Excess Earnings = Average earnings – Normal earnings
o If normal earnings are given in terms of actual historical earnings,
 Average earnings = [[Accumulated earnings +
nonoperating losses(gains)] / number of years] +
Incremental (decremental expenses)
 Normal earnings = FVNA x normal rate of return
 Capitalization of average excess earnings: GW = Excess Earnings /
capitalization rate
 Capitalization of average earnings: GW = NA w/ GW – NA w/o GW
o Net assets w/ goodwill = Average earnings/capitalization rate
 Present value method: GW = Excess earnings x PV factor
o Generally considered as an intangible with indefinite useful life
 Research and development
 o Research expenses – outright expense incurred before technological feasibility.
 Keywords: New knowledge, Searching, Possible product
o Development expenses – capitalized. Incurred after technological feasibility but before
commercial production
 Keywords: Design, construction, and testing, Pre-production
o If research and development costs cannot be reliably distinguished/separated, assume
entire R&D costs are research expenses
o Equipment used for R&D but has an alternate future use in the future is considered as
PPE but its depreciation can be considered as R&D expense
 Computer Software
o General rule: intangible asset
o If computer software is purchased as an integral part of a computer-controlled machine
tool that cannot operate without the specific software: PPE
 Web site development costs (SIC 32) – not intangible, expensed as incurred
 Internally generated intangibles
o If internally generated intangible is a patent, brand, masthead, publishing title, recipe,
formula, or customer list
 All R&D costs are outright EXPENSED.
 Only costs directly associated with acquiring legal right over intangible (such as
licensing and legal fees) are CAPITALIZED
o For internally generated intangibles not listed above (such as Computer Software)
 R&D before technical feasibility is expensed
 R&D after technical feasibility but before commercial use is capitalized
 Cost of coding and testing
 Cost to produce product masters
o For goodwill, all costs are charged outright as expense.

Service concession agreement (BOT: Build, operate, and transfer) (IFRIC 12)
 An arrangement between a private sector entity (the concession operator) and a public sector
entity (the grantor) whereby the private entity provides access to major economic and social
facilities to the private entity
 The concession operator shall recognize either a financial asset, an intangible asset, or both
o Asset recognized = Fair value of the consideration
o Amount due from the grantor
 Recognize financial asset (Used if there is a guaranteed contractual right to
receive cash over the life of the arrangement) using either FVPL or AC
 Recognize intangible (Used if operator has a license to charge users for the
public service and receivable is dependent on the use of the asset by the public)

Short-term liabilities
 Refinancing – a currently maturing obligation may be presented as a long-term liability if:
o Company has the unconditional right to refinance the liability on a long-term basis; OR
o Long-term refinancing agreement was completed before or at balance sheet date
 Breach of contract
 o General rule: Upon breach of contract, a long-term obligation becomes due and
demandable (classified as short-term liability)
o An obligation whose contract was breached may still be classified as long-term if:
 The creditor agreed to give the debtor a grace period of at least 1 year after
balance sheet date; AND
 Grace period was provided on or before balance sheet date
 Provisions
o It must be PROBABLE that an outflow of economic benefits will be required to settle
the obligation
o Expense is recognized once estimated is made.
o Expense = Total estimate of provision
o Liability/provision recognized = Total Expense – actual cost incurred to date
o Before accruing liability at year end, ensure that provision is still valid/unexpired
o Provisions are adjusted for risk adjustments (increase in provision)
 Adjustment may be made adjusting the estimates of future outflows; or
 Adjustment may be made by adjusting the rate to discount the future outflows to
the present value
 Estimated reimbursements on provisions to be settled (Same treatment as contingent asset)
o If it is virtually certain that the reimbursement would be made at some time after
payment of provision, accrue an asset (receivable) for the estimated reimbursement
o If it is not virtually certain that reimbursement would be made, do not recognize asset.
(disclosure only)
o In the income statement, provisions expense may be recognized net of expected
reimbursements
 Note Payable
o If interest is compounded annually, interest expense = (Principal + Interest incurred in
prior years) x interest rate

Deferred revenue - Customer loyalty program (IFRS 15)

 Amount of cash received (sales) contains a portion that is earned/recognized and a portion that
is initially deferred (points)
 Allocate the cash received in accordance with their relative selling price
o RSP of earned portion = cash received
o RSP of unearned portion = Total points granted x stand alone selling price of each point
 Total sales recognized on year of sale = Allocation to earned portion + Allocation to unearned
portion based on original estimate x points redeemed in the current year / Total estimated points
that would be redeemed
 Total sales recognized on years subsequent to year of sale = (Allocation to unearned portion
based on original estimate x (total points redeemed since sale/current year total estimated points
that would be redeemed)) – Allocation to unearned portion that was already recognized in prior
years

Debt restructuring
 Asset swap
 o IFRS
 Gain or loss on extinguishment of debt = CV of liab – CV of Asset
o US GAAP
 Gain or loss on restructuring = CV of liab – FV of asset
 Gain or loss on disposal/exchange/transfer = FV of asset – CV of asset
 Equity Swap
o Gain or loss on extinguishment = CV of liability – Measurement of Share Capital
 Measurement of SC may be at (1) FV of shares, (2) FV of liability, and (3) CV
of liability
 Modification of terms
o Gain or loss = CV of old liability – PV of new liability
 G/L on extinguishment if G/L is substantial (at least 10% of Liability)
 G/L on modification if G/L is not substantial

Bonds Payable
 Measured using the effective interest method
 Bond issue costs – deduction from net proceeds (Additional discount/Reduction to premium if
using amortized cost; expense if FVPL)
 Gain or loss on retirement of bonds = Retirement price – (AC on retirement date + accrued
interest)

Operating Lease (PFRS 16)

 A lessee may apply operating lease only if the lease is considered as a SHORT-TERM lease (12
months or less) or a LOW VALUE lease.
 For lessors, accounting for lease is the same as the prior standard, PAS 17. A lease is considered
as operating unless it meets the specific criteria of a finance lease.
 Periodic payments
o Recognized by lessee as rent expense (rent income of lessor) over the lease term on a
straight-line basis
o When the periodic rental is unequal and/or has a provision for a rent-free period,
compute the total rentals throughout the lease term and amortize on a straight-line basis
o Exclude executory costs in the periodic payments
 Lease bonus – amortized over the term of the lease and recognized as additional rent
income/expense
 Contingent rent – recognize as additional rent expense/income when condition/contingent event
occurs
 Lease inducement – reduction from the periodic rent income/expense on a straight-line basis
 Security deposit – considered as prepaid rent/unearned rent
 A manufacturer/dealer lessor does not recognize any selling profit upon entering into an
operating lease
 A lessor shall account for a modification to an operating lease as a new lease from the effective
date of the modification considering any prepaid/accrued lease payments relating to the original
lease as part of the lease payments for the new lease.
Finance Lease – Lessee (PFRS 16)
 A lessee shall apply finance lease unless it is considered as a short-term lease/low value lease.
 Initial measurement of Right of Use Asset (ROUA) = Cost
o Cost shall be composed of the following:
 Present Value of Minimum lease payments (PV of MLP) (Credit to lease
liability)
 MLP = Fixed Payments+ Variable Payments + certain purchase option
(CPO) or guaranteed residual value (GRV) + Additional payments upon
extension + Termination penalties
 The PV shall be based on the implicit rate (if known by the lessee) or the
incremental borrowing rate if otherwise.
 Lease payments before or at commencement date (lease bonus – lease
incentives) plus any Initial Direct Cost incurred by the lessee (Credit to cash)
 PV of Estimated Retirement cost (Credit to Asset Retirement Obligation)
 Subsequent measurement of ROUA under Cost model = Cost – Acc. Depreciation – Acc. IL)
 Depreciation Expense
o If there is transfer of ownership (Direct agreement/Certain Purchase option)
 Depreciation = (Cost – Estimated Residual Value)/Useful life
o If there is no transfer of ownership
 Depreciation = Depreciable Cost/Lease term
 Depreciable Cost = Cost – (GRV or Est. RV whichever is lower)
 Measurement of lease liability = PV of MLP or FMV of asset WEL

Finance Lease – Lessor

 A lessor shall apply finance lease if the following requirements are met:
o Transfer of ownership to lessee
o There is a Bargain Purchase Option (BPO)
o Lease term is at least 75% of the life of the asset
o PV of MLP is at least 90% of the FMV of the leased asset
o The leased asset is specialized in nature
 Sales type lease (Lessor is the manufacturer/dealer of the asset)
o Lessor shall recognize gross profit (GP = Sales – COS)
 Sales = PV of MLP vs FV WEL
 PV of MLP = PV of Periodic Payments + BPO or GRV
 COS = CV of asset + Initial Direct Cost – PV of Unguaranteed residual value
(URV)
 GP will be the same whether or not residual value is guaranteed
 Direct finance lease (Lessor is a mere financing company)
o Lease receivable = Net investment + Initial Direct Cost
 Gross investment = Periodic Payment x term + URV or GRV or BPO
 Net investment = PV of MLP + PV of URV
 PV of MLP + PV of URV = FV + Initial Direct Cost
 Used to compute for Net investment when PV factor or neither implicit
nor incremental borrowing rate is given
  Net investment = Gross investment – Unearned Interest Income or Total
Financial revenue
 Net Investment = PV of MLP + PV of URV
o Net investment = Cost + Initial direct cost
 Lease modifications
o Separate lease if:
 Modification increases the scope of the lease by adding right to use one or more
underlying assets
 Consideration increases by an amount commensurate with the stand-alone
selling price for the increase in scope
o If not met, apply IFRS 9

Sale and Leaseback

 Consider a portion of the CV as reacquired and another portion as sold
 If Sales price = FMV
o Gain/loss on sale and leaseback = Proceeds from Sale and Leaseback – PV of MLP –
Portion of the asset sold
o ROUA = Portion of the asset reacquired = (PV of MLP / FMV) x CV
o Portion of the asset sold = CV – Portion of the asset reacquired
 If Sales Price is not equal to FMV;
o excess of SP over FV is treated as additional financing automatically included in MLP
(thus, should be deducted to compute for the portion reacquired)
o excess of FV over SP is treated as prepayment of lease liability automatically deducted
from MLP (thus, should be added back to compute for the portion reacquired)
o Effect: Portion of the asset reacquired (ROUA) = (PV of MLP, adjusted / FMV) x CV
 PV of MLP, adjusted = PV of MLP + (FMV – SP)

Income taxes (PAS 12)

NIBT
+ Non-deductible expenses
– Non-taxable income
= Financial income before Temporary Difference X Tax rate = =Total income tax expense
+ Future deductible amounts X Tax rate = - Deferred tax asset (benefit)
– Future taxable amounts X Tax rate = +Deferred tax liability (exp)
= Taxable Income X Tax rate = +Current income tax expense 
 CV of asset – Tax base of asset = Future taxable (Future deductible)
 CV of liability – Tax base of liability = Future deductible (Future taxable)
 If tax rates are expected to change in the future years
o Use Current year tax rate in computing CITE
o Use future tax rate in computing deferred tax benefit & expense

Post-retirement benefits (PAS 19)

 Defined Contribution Plan
o Periodic contribution = pension expense = fixed amount agreed upon
 o Prepaid (Accrued) expense = Cumulative expense – Payments made
 Defined Benefit Plan
o Final amount to be received by employee in the future = % of final salary x number of
years in service
o Prepaid (Accrued) Expense, end = Prepaid (Accrued), beg +/- P&L +/- OCI +
Contributions made
 Prepaid(Accrued) = (FVPA-DBO) vs Asset Ceiling WEL
 Employee benefit expense: Pension expense (income) in P&L
 Service Component (CPA)
o Current Service Cost
o Past Service Cost
o Any (gain) or loss on settlement
 Interest Component (III)
o Interest expense on beginning Defined Benefit Obligation (DBO)
o (Interest income on beginning Fair value of plan assets (FVPA))
o Interest expense on beginning effect of asset ceiling
 Net remeasurement loss (gain): Pension expense (income) in OCI
 Actuarial (gain) or loss
o Actuarial gain = decrease in DBO
o Actuarial loss = increase in DBO
 (Actual return – Interest Income)
 Any change in the effect of Asset ceiling minus interest expense on
beginning effect of asset ceiling
 Defined benefit COST (not obligation) = P&L + OCI
o Asset ceiling is the Present value of future refunds and reductions in contribution

FAC B/GF; DISBAD

FVPA, beg – DBO, beg = Prepaid (Accrued), beg
Actual return Interest exp on DBO, beg
Contributions Service Costs (CSC + PSC)
(Benefits paid) (Benefits Paid)
Gain (loss) on settlement Actuarial (gain) or loss
= FVPA, end – = DBO, end = Prepaid (Accrued), end
 Benefits paid = Benefits paid to retirees + Advance payments

Total Contributed Capital

 Share Capital + Share Premium
 Share Capital = Issued + Subscribed + Share div distributable – Subscriptions receivable

Legal Capital
 Par value shares: Aggregate par of issued and subscribed shares
 No-par value shares: Total consideration (Issued + Subscribed + Share Premium)

Organization cost
  Legal fees and incorporation fees shall be expensed immediately
 Licensing and advertising fees are considered as operating expenses rather than organization
cost
 Share issuance costs shall be debited to the share premium-SIC arising therefrom. If share
premium is insufficient, debit the remaining against retained earnings.

Appropriation for Treasury Shares

 An amount equal to the cost of treasury shares held at year end should be appropriated in
accordance with law (Even if problem is silent)
o Effect: Reduction in R/E unappropriated; Increase in R/E appropriated; N/E in total R/E

Disposal of Treasury Shares

 Through reissuance
o Reissue price > Cost; Excess goes to Share Premium-T/S
o Reissue Price < Cost; Deficiency is absorbed by SP-T/S (if any) and R/E if SP-T/S is
not enough to cover the deficiency
 Through retirement
o Original Issue Price > Cost; Excess goes to Share Premium-retirement
o Original Issue Price < Cost; Deficiency is absorbed by SP-T/S (if any) and R/E if SP-
T/S is not enough to cover the deficiency

Conversion from one class of share to another

 CV of converted shares + Transaction Cost – Par value of shares issued = SP from issued shares

Retirement of Share Capital (not in T/S)

 Issue Price > Retirement Price; Excess goes to Share Premium-retirement
 Issue Price < Retirement Price; Deficiency is absorbed by R/E

Property Dividends (IFRIC 17)

 Measurement of Dividends Payable – Fair Value of Property (updated at year end and date of
distribution
 Measurement of Debit to Retained Earnings – Fair Value of Property (updated at year end and
date of distribution
 Measurement of Property to be distributed as dividends (Updated only at year end)
o Inventory – LCNRV
o Stocks of another corporation – Fair Value (assuming less than 20%)
o Property – Carrying Value or Fair Value less cost to distribute WEL
 Measurement of Gain or loss – Difference between Dividend Payable and Updated
Measurement of Property to be distributed
o Recognized only on date of DIVIDEND DISTRIBUTION
o Gain if dividend payable is bigger

Liquidating Dividends
 Wasting Asset Doctrine (Trust Fund Doctrine)
 o Maximum Dividend to declare = Retained Earnings + Accumulated Depletion – Capital
liquidated – Unrealized depletion in ending inventory
 Liquidating Dividend = Capital Liquidated = Amount declared in excess of R/E
Dr Retained Earnings
Dr Capital Liquidated (Contra SHE)
Cr Dividend Payable (Must be equal or less than Maximum Div)

Dividend on Redeemable preference Shares

 Treated as interest expense since RPS are treated as debt rather than equity

Items that affect Beginning Retained Earnings

 Prior Period Errors
 Change in Accounting POLICIES

Issuance of Stock rights

 No journal entry is made upon issuance and expiration
 Equity accounts are recorded upon exercise of stock rights

Issuance of compound instrument

 Common compound instruments
o Issuance of Ordinary and Preference Shares for a Basket Price
o Issuance of Preference Shares with warrants
o Issuance of Bonds with warrants
 If market value of both are known, allocate price/proceeds according to total market value (Sum
of each component’s MV per share*number of shares)
 If only one security has a known value (usually Debt/Preference share) deduct the market value
of such security from the price/proceeds. The excess is presumed to be the MV of the security
with an unknown MV.

Equity Settled Share Based Payment (Share Options)

 Measurement of Compensation & Share Options outstanding (in order of Priority)
o Fair Value of services received
o Fair Value of Equity Instrument/share option (usual given; most available data)
 Fixed at grant date
o Intrinsic Value = FMV of Share – Exercise Price
 Updated at each balance sheet date until exercise date (current and prospective)
 Change is charged to P&L
 Measurement of Share Premium upon exercise
o (Option price – par value) * # of share options exercised + Share options outstanding
 Share options outstanding is added because upon exercise, SOO is reclassified as
share premium-ordinary
 Early settlement of the award = Immediate vesting of options = Immediate recognition of
unrecorded compensation expense
 o Compensation expense to be recognized = Estimated total compensation at end of
original vesting period – Compensation expense already recognized in PY
 If share options are not exercised but payment to employees was made, the total
payment made should serve as the new basis for the total compensation
throughout the vesting period (Substitute Estimated total compensation with
Total payment)
 If options do not vest immediately
o Fixed – recognize compensation expense over the vesting period
o Market based Variable Option plan – same as Fixed (Market = not controllable)
o Nonmarket based Variable Option plan – recognize compensation expense in
accordance with the condition met (no condition met, no compensation)
 If life of option is greater than the vesting period, allocate the total compensation over the
vesting period.
o Example: Life = 4 years; Vest at the end of 3 years
 Year 1 total compensation *1/3 = Compensation expense
 Year 2 total compensation * 2/3 – PY CE = Compensation expense
 Year 3 total compensation * 3/3 – PY CE = Compensation expense
 Year 4 total compensation*3/3 – PY CE = Compensation expense

Cash Settled Share Based Payment (Share Appreciation Rights)

 Measurement of Compensation/Liability on SAR not yet exercised
o Fair Value of Liability = Market Value of Share – Predetermined price of shares
 Updated every year
 If Life > vesting period; update every year end until settlement
o Fair value of shares
 Updated every Year
 If Life > vesting period; update every year end until settlement
o Intrinsic Value of Shares
 Updated every year
 If Life > vesting period; update every year end until settlement
 Measurement of Compensation upon exercise
o Amount of cash paid (usually based on FV or IV of shares as decided by the company)
 Other concepts are same with share options

Book Value per share

 Computed for both ordinary and preference share
 Total SHE / number of shares outstanding
o Subscriptions receivable is not included in computing for SHE (added back from total
SHE from records)
o Any treasury shares are assumed to be retired
 Allocation of Total SHE to preference and ordinary
o If Preference share is non-participating
 Preference SHE = Par value of outstanding preferred shares + Liquidation
premium + total dividends due
  Liquidation premium = liquidation value – par value
 Ordinary SHE = Total SHE – Preference SHE
o If Preference share is participating
 Preference SHE = Par value + allocated excess
 Ordinary SHE = Par value + allocated excess
 Excess = Total SHE – Par value of ordinary – par value of preference
o If Preference share is cumulative
 Dividends due includes dividends in arrears and current year dividends whether
or not declared
o If Preference share is non-cumulative
 Dividends due shall not include dividends in arrears but shall include current
year dividends whether or not declared
o Preference share is “participating up to”
 Sets a maximum percentage for the amount to be received upon distribution
 Percentage is based on par value
o In case of deficiency (SHE < Total Par Value)
 If P/S has preference as to assets, P/S holders are entitled to dividend in arrears
 If P/S has preference as to dividends, P/S holders are not entitled to dividends if
there is a deficit

Basic earnings per share

 Basic EPS = Net income / Weighted average number of outstanding shares (WANOS)
o Items that affect net income
 Dividends on preference shares – deducted from NI
 If preference is cumulative, deduct current year whether declared or not
 If noncumulative, deduct current year only if declared
 If redeemable preference shares, ignore dividends
o Items that affect WANOS
 All changes in number of shares
 General rule, included upon issuance
 Exception:
o Share dividends & stock split are considered issued from the
beginning of the year (applied to all stocks on date of record)
 If declared after balance sheet date but before issuance of
FS, considered issued for EPS computation
o Mandatory convertible instrument are assumed converted on
contract date
 Stock rights
 All shares entitled to stock rights are multiplied by the adjustment factor
prior to its exercise in order to compute for the WANOS
o If exercised within the year:
 WANOS = Outstanding shares*Adj Factor*(months
unexercised/12) + Total Outstanding shares after
exercise*(months remaining after exercise/12)
  MV of share right-on = MV of share prior to exercise of rights
 MV ex right = MV right-on – Theoretical MV
o Theoretical MV of share right = (MV right on – subscription
price)/(number of rights to purchase one share +1)
 Or: MV ex right = (MV of ordinary shares outstanding + proceeds of
rights)/number of shares outstanding after exercise of rights
 Adjustment factor = MV right on/ MV ex right
 Basic Loss per share
o If preference share is cumulative, current year dividend is considered as an additional
loss before the final distribution to ordinary shareholders
o If preference share is noncumulative, no dividend is considered.

Diluted EPS
 Steps:
o Compute for Basic EPS
o Determine whether convertible securities, stock options, warrants, and rights are
potentially dilutive
 Stock options, warrants, and rights are potentially dilutive if: exercise price <
average market price
 Convertible securities are potentially dilutive if: Incremental EPS < BEPS
o Compute for Diluted EPS
 Stock options, warrants, or rights are assumed to be most dilutive
 Use treasury stock method
o Issued shares = Option shares – Assumed treasury shares
 Assumed Treasury Shares = Proceeds from the exercise of
option/Average market price
 Compute for the DEPS from the BEPS by adding the effect of potentially
dilutive shares one by one from most dilutive to least dilutive. If the computed
DEPS increases, all subsequent items are also assumed to be anti-dilutive.
 Diluted EPS assuming all are dilutive
 Adjusted NI/Adjusted NOS
 Adjusted NI = NI + interest exp from convertible bonds, net of tax +
Dividend from convertible preference shares (not affected by tax)
 Adjusted NOS = Actual issued shares + Potential issuance of shares
o Diluted Loss per share are always anti-dilutive. Diluted loss per share is always equal to
the Basic loss per share.