CHAPTER 10

INVESTMENT PROPERTY, EXPLORATION FOR AND EVALUATION OF MINERAL

RESOURCES ASSETS; NON-CURRENT ASSETS HELD FOR SALE

INVESTMENT PROPERTY
- PAS 40 prescribes the accounting treatment for Investment Property and related disclosure requirements.
- Is property (land or a building- or part of a building – or both) Held (by the owner or bt the lessee under a
finance lease) to earn rentals or for capital appreciation or both, rather than for:
A. Use in the production or supply of goods or services or for administrative purposes
B. Sale in the ordinary course of business.
- Sometimes referred to as a being “passive” investment is capable of generating cash flows independently of
other assets held by the enterprise.

Owner-occupied property
a. Held for use in the production or supply of goods or services or for administrative purposes.
b. Generates cash flows in conjunction with the other assets held by an entity.
c. May include assets other than land and building
Investment property items examples
a. Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.
b. Land held for a currently undetermined future use.
c. A building owned by the entity (or held by the entity under a finance lease) and leased out under one or more
operating leases.
d. A building that is vacant but is held to be leased out under one or more operating leases.
e. Property that is being constructed or developed for future use as investment property.

Not investment property items examples

a. Property intended for sale in the ordinary course of business or property acquired exclusively with a view to
subsequent disposal in the near future or for development and resale.
b. Property being constructed or developed on behalf of third parties (PFRS 15 Revenue from Contracts with
Customers).
c. Owner-occupied property and owner-occupied property awaiting disposal.
d. Property that is leased to another entity under a finance lease.

Recognition
An owned Investment property shall be recognized as an asset when, and only when:
a. It is probable that the future economic benefits that are associated with the investment property will flow to the
entity; and
b. The cost of the investment property can be measured reliably.
 An entity evaluates under this recognition principle all its investment property costs at the time they are incurred

Measurement
An investment property shall be measured initially at its cost
- Transaction costs

- Cost of a purchased investment property comprises; purchase price and any directly attributable
expenditure.
Exclusions from Capitalized Cost
The following do not constitute part of capitalized cost of an investment property:
a. Start-up costs (unless they are necessary to bring the property to the condition necessary for it to be capable of
operating in the manner intended by management)
b. Operating losses incurred before the investment property achieves the planned level of occupancy
c. Abnormal amounts of wasted material, labor or other resources incurred in constructing or developing the
property
Measurement Subsequent to Initial Recognition
- PAS 40 allows an entity to choose as its accounting policy either the fair value model or the cost model
An entity may:
a. Choose either the fair value model of the cost model for all investment property backing liabilities that pay a
return linked directly to the fair value of, or returns from, specified assets including that investment property;
and
b. Choose either the fair value model or the cost method for all other investment property, regardless of the
choice made in (a).
Fair Value
- Measured at fair value, which is the amount for which the property could be exchanged between
knowledgeable, willing parties in an arm’s length transaction.
- Gains or losses (arising from changes in the FV) – included in net profit or loss

- Transaction costs related to sale or other disposal are not deducted in arriving at FV.
Cost Model
- After initial recognition, an entity that chooses the cost model shall measure all of its investment property
at cost less any accumulated depreciation and impairment losses in accordance with PAS 16 Property,
plant, and equipment.
Disposable of Investment
a. An investment property shall be derecognized (eliminated from the SFP) on disposal or when the
investment property is permanently withdrawn from use and no future economic benefits are expected
from its disposal.
b. Gains or losses arising from the retirement or disposal of investment property shall be determined as the
between the net disposal proceeds and the carrying amount of the asset and shall be recognized in profit or
loss in the period of the retirement or disposal.
c. Compensation from third parties for investment property that was impaired, lost or given up shall be
recognized in profit or loss when the compensation becomes receivable.
Exploration for and Evaluation of Mineral Resources Assets
PFRS 6 Exploration for and Evaluation of Mineral Resources
- Specifies the financial reporting for the exploration for and evaluation of mineral resources that an entity
incurs.
- The standard does not apply to the following expenditures incurred:
1. Before the exploration for and evaluation of mineral resources such as expenditures incurred before
the entity has obtained the legal right to explore the specific area; and
2. After the technical feasibility and commercial viability of extracting a mineral resource are
demonstrable.
Measurement at Initial recognition
- Exploration and evaluation assets shall be measured at cost
Elements of cost of Exploration and Evaluation Assets
The following are examples of expenditures that might be included in the initial measurement of
exploration and evaluation of assets.
a. Acquisition of right to explore
b. Topographical, geological, geochemical and geophysical studies
c. Exploratory drilling
d. Trenching
e. Sampling and
f. Activities in relation to evaluating the technical feasibility and commercial viability of extracting
mineral resource.

Subsequent Measurement
- After recognition, Entity shall apply either the cost model or the revaluation model.

- if the revaluation model is applied it shall be consistent with the classification of the assets.

Accounting Methods in the Oil and Gas Industry

a. Full-cost method
- all costs are capitalized and amortized
- costs are capitalized even the cost center was a failure
b. Successful efforts method
- many costs are capitalized and amortized
- costs of unsuccessful acquisition and exploration activities are charged to expense
- costs whose outcome is unknown are either expensed or capitalized
Changes in Accounting Policies
-An entity may change its accounting policies for exploration and evaluation expenditures if the change
makes the financial statements more relevant to the economic decision- making needs of users and no less
reliable, or more reliable and no less relevant to those needs. An entity shall judge relevance and
reliability using criteria in PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
 An entity shall change an accounting policy only if the change:
a. Is required by PFRS; or
b. Results in the financial statements providing reliable and more relevant information about the effects
of transactions, other events or conditions on the entity’s financial position, financial performance or
cash flows.

Financial Statement Presentation

Classification of Exploration and Evaluation Assets
-an entity shall classify exploration and evaluation assets as tangible or intangible according to the nature of
the assets acquired and apply the classification consistently.

Reclassification of Exploration and Evaluation Assets

-shall no longer be classified as such when the technical feasibility and commercial viability of extracting a
mineral resource are demonstrable.
- shall be assessed for impairment, and any impairment loss recognized, before reclassification.

Impairment
- Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest
that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount
- PFRS 6 modifies req. of PAS 36

Facts or circumstances that may indicate that impairment testing is required include:
a. The period for which the entity has the right to explore in the specific area has expired or is expected
to expire in the near future, unless the right is expected to be renewed;
b. Substantive expenditure on further exploration and evaluation activities in the specific area is neither
budgeted nor planned;
c. Exploration and evaluation activities in the specific area have not led to the discovery of commercially
viable quantities of mineral resources, and the entity has decided to discontinue such activities in the
specific area; and
d. although a development in the specific area is likely to proceed, there is sufficient data to indicate that
the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from
successful development or by sale.
The entity shall perform an impairment test in accordance with PAS 36.
Impairment loss is recognized as an expense in accordance w/ PAS 36
Non-Current Assets Held for Sale and Discontinued Operations (PFRS 5)
- Prescribes the accounting for assets held for sale, and the presentation and disclosure of discontinued
operations.
- Requires:
a. Assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount
and fair value less cost to sell, and depreciation on such assets to cease; and
 b. Assets that meet the criteria to be classified as held for sale to be presented separately in the SFP and the
results of discontinued operations to be presented separately in the SCI.
Definition of Key Terms
Noncurrent Assets
- Include amounts expected to be recovered more than 12 months after the reporting period
Held for Sale
- Carrying amount of a NCA which is expected to be recovered mainly through selling the asset rather than
through usage.
Disposal group
- Group of assets and possibly some liabilities that an entity intends to dispose of in a single transaction.

Classification of NC Assets as Held for Sale or Held for Distribution to Owners

- Entity shall classify
a. NCA or DG to be classified as Held For Sale
-available for immediate sale (usual and customary)- highly probable
- delay (still committed to selling the asset)
b. NCA or DG is classified as Held For Distribution to owners
-committed to distribute the asset
- immediate distribution – highly probable
c. NCA exclusively with a view to disposal
-held for sale at the date of acquisition within 1 year (highly probable)
d. NCA as Held For Sale after the statement of F/P date
-NCA should not be shown as a held for sale
- after reporting period but before the authorization- disclosure of information
e. NCA not classify as Held For sale that is to be abandoned
-abandonment (NCA will be used to the end of its economic life or the NCA will be closed rather than
sold.
- carrying amount (principally recovered- continued use)

Measurement
Held for Sale
- Lower of its carrying amount and fair value less costs to sell
Held for Distribution
- Lower of its carrying amount and fair value less costs to distribute
Occurred beyond 1 year – present value
- Increase in PV – P/L as a financing cost
Recognition of Impairment Losses and Reversals
- P/L (initial or subsequent write-down of DG to FV less cost to sell)
 - Subsequent increase in FV less cost to sell (P/L – not in excess of the cumulative impairment loss
(recognized with PFRS 5 or PAS 36)
- Impairment of loss (DG)-PAS 36

Other Considerations
1. Depreciation Changes
- NCA as held for sale should not be depreciated
2.Changes to a Plan or Sale
a.Criteria for an Asset as held for sale (no longer met)- ceases to be held for sale
b.Valued at the lower carrying amount (before)- recoverable amount
c.SFP
Discontinued Operations: Presentation and Disclosure
a. Cumulative income or expense (equity)- disclosed (held for sale)
b. Discontinued operation – disposed of or as held for sale
c. Income statement (Total after-tax P/L of the discontinued operation and after-tax gain or loss- FV
less cost to sell)- single figure
d. PFRS 5 (disclosure of revenue, expenses, pretax profits, or loss and income tax expense- income
statement)
e. The net cash flows attributable to the operating, investing, and financing activities of the
discontinued operations- separately shown in income statement or disclosed in the notes
f. Adjustments made in the current accounting period to amounts (previously disclosed) – separate
disclosure
CHAPTER 11
LIABILITIES
LIABILITY
- A present obligation of the entity to transfer economic resource as a result of past events
- An Obligation- is a duty or responsibility that the entity has no practical ability to avoid.

Characteristics of A Liability
1. The entity has a present obligation.
2. The liability results from past transactions or other past events.
3. The settlement of a present obligation involves the entity transferring an economic resource in order to
satisfy the claim of the other party.
4. The entity has no practical ability to avoid the obligation.
- “No practical ability to avoid.”
a. If a duty or responsibility arises from the entity’s customary practices, published policies or specific
statements- the entity has an obligation if it has no practical ability to act in a manner inconsistent with
those practices, policies or statements.
b. If a duty or responsibility is conditional on a particular future action that the entity itself may take- the
entity has an obligation if it has no practical ability to avoid taking that action.

Recognition
- The settlement of a present obligation and the amount at which the settlement will take place can be
measured reliably.
- Recognition Principle:
a. Unconditional payables are recognized as liabilities when the entity becomes a party to the contract, as
a consequence has a legal obligation to pay cash.
b. Liabilities to be incurred as a result of a firm commitment to purchase goods or services are generally
not recognized until at least one of the parties has performed its obligation under the agreement
 c. A forward contract is within the scope of PFRS 9 is recognized as a liability on the commitment date
rather than on the date on which settlement takes place.
d. Planned future transactions regardless of how likely they will occur are not liabilities because the
entity has not become a contracting party.

Measurement Bases
a. Historical Cost
- Liabilities are recorded at the same amount of proceeds received in exchange for the obligation at the
amounts of cash or CE to be paid to satisfy the liability in the normal business

b. Current Cost
- Liabilities are carried at the undiscounted amount of cash or CE that would be required to settle the
obligation currently
c. Realizable (settlement) Value
- Liabilities are carried at their settlements values, that is the UD amount of cash or CE expected to be paid
to satisfy the liability in the normal business
d. Present Value
- Liabilities are carried at the present discounted value of the future cash outflows that are expected to be
required to settle the liabilities in the normal course of the business.

Classification of Liabilities
- Liabilities can be classified as Financial or non- financial
Financial Liability
a. A contractual obligation:
1. To deliver cash or another financial asset to another; or
2. To exchange financial assets of financial liabilities with another entity under conditions that are
potentially unfavourable to the entity; or
b. A contract that will or may be settled in the entity’s own equity instrumental and is:
1.A non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s
own equity instruments; or
1. A derivative that will or may be settled other than by the exchange of a fixed amount of cash or
another financial asset for a fixed number of the entity’s own equity instruments.

Examples:
o Accounts payable
o Notes payable (secured or unsecured)
o Loans payable
o Bonds payable
 o Other debt instruments issued by the entity
o Accrued expenses payable
o Derivative financial liabilities
Non- financial Liabilities
- Did not qualify as financial liabilities
Examples:
o Deferred revenue
o Warranty liability
o Current and deferred tax liabilities
o Constructive obligation

Principal Categories of Financial Liabilities

a. Financial Liabilities at FVTPL
- Incurred for trading purpose
- Elected to classify or designate into this category
1. Held for Trading
2. Designated
Liabilities designated as FVTPL
1. Changes in the credit risk of that liability shall be presented in OCI and
2. Change in the fair value of the liability shall be presented in profit or loss

b. Financial Liabilities Measured at Amortized Cost (FL@AC)

- FL that do not meet the definition of FL@FVTPL
Examples:
- Accounts Payable
- Notes payable
- Bonds Payable
- Deposits from customers

Measurement
Initial Measurement
- Fair value plus or minus transaction costs
Transaction costs are expensed immediately for financial liabilities measured at FVTPL because the payment of
transaction costs do not result in any increase in future economic benefits of the entity.
Subsequent Measurement of FL
- Measured at amortized cost
 Reclassification of FL
- An entity shall not reclassify any financial liability

Derecognition of FL
- An entity shall remove a FL from statement of F/P when and only when, it is extinguished.

Current/Non-Current Distinction
PAS 1,par, 69 classify a liability as current when :
a. It expects to settle the liability in its normal operating cycle
b. It holds the liability primarily for the purpose of trading
c. The liability is due to be settled w/in 12 months after the reporting period
d. It does not have an unconditional right to defer settlement of the liability for at least 12 months after
the reporting period
An entity shall classify all other liabilities as non-current

Operating Cycle
- Is the elapsing between the acquisition of goods and services involved in the manufacturing process and
the final cash realization resulting from sales and subsequent collections

Examples of Current FL
-current FL having contractual amounts include:
1. AP
2.NP
3. Commercial Paper
4. Derivative FL
5. Accrued expenses Payable
6. Dividends Payable
7. Returnable Deposits
8. Current maturities of Long term debt

Accounts Payable
Recognition
- AP or Trades AP represent balances owed to other for goods, services or supplies purchased on open
account because of the time lag between the receipt of services or acquisition of title to assets and the
payment for them
Measurement
- The invoice received from the creditor specifies the due date and the exact outlay in money that is needed
to settle the account
Notes Payable
- Written promises to pay a certain sum of money on specified future dates
Short term Notes Payable
- A trade note is customarily and reported at its face amount or full maturity which is also considered FV
and Present Value at the initial recognition date.
Commercial Paper
- Refers to unsecured notes sold in diff. denominations with short-term investment
- Refers to the fact that a paper certificate traditionally is issued to the lender to signify the obligation
Derivative FL
- A financial instrument that requires the issuer to repurchase its own issued equity instruments for cash or
other FA, there is a FL for the present value of a repurchase price
Accrued Expenses Payable

- An expense incurred but for which cash has not been paid is referred to as accrued expense and usually
recorded at year end.
Dividends Payable

- Is an amount owed by a corporation to its SH as a result of board of directors authorization.

Deposits

- May also be made as guarantees in case of noncollection or for possible damage to property
- Should be reported as current or long term liabilities depending on the time involved between the date of
deposit and the expected termination of the relationship
Current Maturities of Long Term Debt

- Long term obligations usually are reclassified and reported as current liabilities when they become payable
w/in the upcoming year

Example of Current NFL

1.Advances/ Deposits from Customers

- When cash is collected from a customer as an advance payment for products or services or as a deposit
which is refundable, the firm is obliged to transfer goods, to render services, or to return the deposits to the
customer under certain conditions.
2.Short-term Unearned Revenue
- When cash is collected in advance of the delivery of a good or service, a liability is created and it does not
qualify for recognition revenue
3.Agency Liabilities or Collection for 3rd Parties
- Amounts so collected represent liabilities until remitted
a. Income Tax Payable
b. Value-added Taxes Payable
c. Withholding Taxes Payable
d. SSS Premium and PhilHealth Medical Contributions Withheld
e. Property Taxes

Non-Financial Liabilites whose Amounts are to be Estimated

1. Product Warranties Payable
2. Unlawful Environment Damage or Impairment
The measure of the liability should consider
a.relevant laws and regulations
b.technology to be used in the remediation effort
c. an estimate of the cost of the effort at the time the work will be performed
3. Onerous Contracts
4. Remote Contingement Losses

Liabilities Requiring Amounts to be Estimated

PAS 37
-this standard provides a comprehensive guideline in the recognition of a provision or an estimated liability
Paragraph 14 ot PAS 37 provides that- “A provision should be recognized when”:
a.an entity has a present obligation as a result of a past event
b.it is probable that a transfer of economic resource will be required to settle the obligation
c. a reliable estimate can be made of the amount of the obligation
d. the entity has no practical ability to avoid the obligation
If these conditions are not met, no provision should be recognized

Measurement of Provisions

- The amount recognized as a provision be the best estimate of the expenditure required to settle the present
obligation at the statement of financial position date
Measurement of Non-current or Long-term Liabilities
3 General principles are followed in measuring and recording long-term liabilities and interest expense:
a. Long-term liabilities are recorded at the fair value of the goods or services obtained by incurring debt etc.
b. Periodic interest expense is based on the market interest rate on the date of debt issuance and the liability
balance at the beginning of the reporting period.
c. The Carrying value of the long-term debt in the statement of F/P date is the present value of all remaining
cash payments required, discounted at the market interest rate at issuance etc.
Nature of Non-current Liabilities

- Is an obligation that is not expected to be repaid w/in one year or the current operating cycle, whichever is
longer. NCL provide one or 3 major sources of long-term capital. The most common types of NCL are:
o Bonds Payable
o Long-term notes payable
o Lease Obligations
o Pension Obligations
o Deferred Income Taxes
o Other long-term deferrals

Bonds Payable
Nature of Bonds

- Bond is a debt security issued by companies and government units to obtain large amounts of capital on a
long-term basis. A bond payable obligates the issuing corporation to
 1.Repay stated sum, referred to as the face value at a definite maturity date
2.Make specified periodic cash interest payments, based on the face value of the bond and the stated interest
rate on the bond.
Classification of Bonds

- Investors have a wide variety of investment goals, preferences, and policies.

Bonds may be classified as follows:

1.Callable Bonds
2.Convertible Bonds
3.Coupon Bonds
4.Debenture Bonds
5.Mortgage Bonds
6.Registered Bonds
7.Serial Bonds
8.Subordinated Bonds
9.Zero-Coupon Bonds
Bond Prices
-once the company has set the terms of the bond issue, the selling price and therefore the effective yield or rate is
determined. Three Alternatives are possible:
1.If the bonds are sold at par or face value, the yield is equal to the contract rate; the purchasers of the bonds pay the
face value of the bonds.
2. If the bonds are sold at a discount, the yield is more than the contract rate; the purchasers of the bonds pay less than
the face value of the bonds.
3. If the bonds are sold at a premium, the yield is less than the nominal rate; the purchasers of the bonds pay more than
the face value of the bonds.

Accounting for Bond Interest

-when bonds are issued at a premium or discount,the market reacts to adjust the stated interest rate to a market or
effective interest rate
Effective Interest Method
-uses a uniform interest rate based on a changing load balance and provides for an increasing premium or
discount amortization each period
Constant Effective Rate
-the peso amount of interest is calculated by multiplying the effective rate to the beginning book value of the
bond.
CHAPTER 12
OWNER’S EQUITY; REVENUE AND EXPENSES

NATURE OF OWNER’S EQUITY

- O.E or Shareholder’s Equity for corporations refers to the diff. between the recorded assets and the recorded
liabilities of an entity
- Is a residual interest and has no existence without the presence of assets
- Not a claim on specific asset but rather a claim on total assets after liabilities are recognized (net assets)
 - O.E is the net contributions to the firm by the owners plus the firm cumulative earnings retained in the business
less any reacquisition of the company’s shares.
CONCEPTS OF CAPITAL
- selection of the appropriate concept of capital by an entity should be based on the needs of the users of its
financial statements
- the concept chosen indicates the goal to be attained in determining profit
The concepts of Capital are:
A. FINANCIAL CONCEPT
- Under financial concept, such as invested money or invested purchasing power, capital is synonymous with the
net assets or equity of the entity.
- Adopted by most entities in preparing their F/S
- Should be adopted if the user’s F/S are primarily concerned with the maintenance of nominal invested capital
or the purchasing power of invested capital.

B. PHYSICAL CONCEPT
- Should be used if the main concern of users is w/ the operating capability of the entity
CONCEPTS OF CAPITAL MAINTENANCE
1. FINANCIAL CAPITAL MAINTENANCE
- Profit is earned only if the financial amount of the N.A at the end of the period exceeds the financial amount of
the N.A at the beginning of the period after excluding some aspects.
- Can be measured in either nominal monetary units or units constant purchasing power
2. PHYSICAL CAPITAL MAINTENANCE
- Profit is earned only if the physical productive capacity of the entity at the end of the period exceeds the
physical capacity at the beginning of the period after excluding some aspects.
- Requires adoption of the current cost basis of measurement.
FUNDAMENTALS OF CORPORATIVE ACCOUNTING
1. CONTRIBUTED CAPITAL OR PAID-IN CAPITAL
A. Share Capital- represents the amount invested by the SH when they purchase shares ordinary or preferred
at par value or stated value or other diagnostic value.
B. Additional paid in Capital- refers to capital contributions from SH to the corporation other than the par
value or stated value of shares. Additional paid-in capital can also come from other types of equity
transactions, such as:
1. Sale of shares previously issued and subsequently reacquired by the corporation known as treasury
shares
2. Retirement of previously outstanding shares
3. Share dividends where the market value of shares is used to record the shares distributed
4. Conversion of convertible bonds
5. Warrants that are detachable from bonds
6. Lapse pf share purchase warrants or forfeiture of of share subscriptions if the corporation retains the
partial payment originally made by the defaulting subscriber
7. Other gains on the corporation’s own shares, such as those arising from share option plans.

2. RETAINED EARNINGS/ ACCUMULATED PROFITS OR LOSSES

- Represents the accumulated net income earned from the inception of the corporation and not (yet) paid to SH
as dividends. Two subcategories of retained earnings are:
A. Unappropriated Retained Earnings
 B. Appropriated Retained Earnings and not available for dividend distribution

3. ACCUMULATED OTHER COMPREHENSIVE INCOME

- A possible third category of SH equity found in many F/S is this one. Examples of items reported in this
category are:
A. Unrealized holding gain (loss) on investments classified securities at FVTOCI.
B. Revaluation surplus arising from property appraisal. Based on PAS 16
C. Foreign currency translation adjustment. Based on PAS 21
D. Deferred gains (losses) on derivatives
E. Change in FV that is attributable to changes on the liability’s credit risk for particular liabilities designated as
at FVTPL
F. Remeasurements of defined benefit plans.
ACCOUNTING FOR SHARE ISSUANCE AND RELATED TRANSACTIONS
- Corporations may engage in a variety of transactions related to the issuance of share capital. When only one
class of share capital is issued, it is referred to as ordinary shares
ISSUANCE OF SHARE CAPITAL FOR CASH
- A corporation may issue share capital w/ a par value or as no par share w/ a stated value or no par share w/out
a stated value.
SHARE CAPITAL SOLD ON A SUBSCRIPTION BASIS
- During the start-up of a corporation, prospective SH may sign a contract to purchase specified number of share
on credit, w/ payment due at one or more specified future dates.
- A corporation may sell share capital on credit any time after incorporation.
- Such contractual agreements are known as share subscription and the share involved is called subscribed
share capital
- When a legal contract is involved, accounting recognition must be given to these transactions
ISSUANCE OF SHARE CAPITAL FOR NONCASH ASSETS
- In a certain instances, a corporation may issue share capital for assets other than cash, or for services
performed. This type of transaction is called nonmonetary exchange
- Shares might be given in payment for land or for equipment or for some other noncash asset.
- The Board of Directors must assign an appropriate value to the transaction subject to the approval of the
Securities and Exchange Commission so that it can record the exchange properly.
- Paragraph 10 of PFRS 2 Shared-Based Payment

Best evidence of FMV might be:

1. A quoted market price for the shares
2. A selling price established in a recent issue of shares for cash
3. The amount of cash that would have been paid in a cash purchase of the asset or service
4. An independent appraisal of the value of the asset received
ISSUANCE OF SHARE CAPITAL FOR SERVICES
- In compliance with both legal and PFRS 2 provisions, if shares are issued for the services already rendered, the
shares shall be recorded at the FV of such services or the FV of the shared issued whichever is reliably
determinable
SHARE ISSUE COST
 - Issues of share capital can entail substantial expenditures, they include items such as registration fees,
underwriter commissions, legal fees , accounting fees, share certificate cost, promotional costs and postage
these are called share issue costs
- When share issue costs incurred, additional paid in capital is reduce or debited
SHARES FORMALLY RETIRED
- When a corporation reacquires its own shares, those shares assume the same statues as authorized but unissued
shares, just the same as if they never had been issued.
- When shares are sold, both cash usually and SH equity are increased
DONATED TREASURY SHARES
- SH occasionally donate shares to the corporation to enable it to raise funds through their resale.
DONATED CAPITAL
- Can result from an outright gift to the corporation
ASSESMENTS ON SHAREHOLDERS
- When a corporation is experiencing major financial difficulties and onerous external borrowing could not be
availed of; one option that the SH could do to infuse the much needed additional capital is to assess themselves
a certain amount per share owned.
SHARE SPLITS
- Is a change in the number of shares outstanding accompanied by an offsetting change in the par or stated value
per share, implemented either by:
1. Calling in all the old shares and concurrently issuing the spilt shares
2. Issuing the additional split shares and notifying the shareholders of the change in par or stated value per
share of all shares.
In a pure share split, no accounting entry is needed. The only items changed are:
a. Par or stated value per share
b. Number of shares issued, outstanding in treasury and subscribed
REVERSE SHARE SPLIT
- Involves a proportional increase in the par or stated value per share and a reduction in number of shares issued
and outstanding.
RIGHT ISSUES/ WARRANTS
- Are often issued by corporations to give the specified number of shares of share capital under prescribed
conditions and w/in stated period
- Evidence of ownership issue is a certificate called a share warrant
RETAINED EARNINGS
NATURE OF RETAINED EARNINGS
- Also called reinvested earning or earned surplus, represent the firm accumulated net profit or loss less
accumulated cash dividends, property dividends, share dividend and other amounts transferred to the
contributed capital accounts
- Is the primary link between a corporation’s statement of F/P and income statement. The corporation’s assets
are financed by liabilities and SH equity.
ACCOUNTING FOR REVENUE
Measure of Performance
- Profit is frequently used as measure of performance or as the basis for other measures, such as return on
investment or earnings per share.
- The elements directly related to the measurement of profit are income and expenses and defined as follows:
A. Income is increases in economic benefits during the accounting period in the form of inflows or enhancements
of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions
from equity participants
B. Expenses are decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incurrences of liabilities that result in decreases in equity
REVENUE RECOGNITION PRINCIPLE
- Revenue and gains are recognized when 2 conditions are met.
- An item that meets the definition of an element should be recognized if:
A. It is probable that ny future economic benefit associated w/ the item will flow to or from the equity
B. The item has a cost or value that can be measured with reliability

- An Entity recognizes revenue in accordance w/ that core principle by applying the ff. steps:
1. Identify the contracts with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognize revenue when the entity satisfies a performance obligation
RECOGNITION
- Entity shall account for a contract w/ a customer that is w/in the scope of this standard only when all of the ff.
criteria are met:
1. The parties to the contract have approved the contract and are committed to perform their respective
obligation
2. The entity can identify each party’s right regarding the goods/services to be transferred
3. The entity can identify the payment terms for the goods or services to be transferred
4. The contract has commercial substance
5. It is probable that the entity will collect the consideration to which it will be entitled in exchange for the
goods/ services that will be transferred to the customer
SATISFACTION OF PERFORMANCE OBLIGATIONS
- Entity shall recognize revenue when the entity satisfies a performance obligation by transferring a promised
good or service to a customer
MEASUREMENT
- When a performance is satisfied, an entity shall recognize as revenue the amount of the transaction price that is
allocated to that performance obligation
DETERMINING THE TRANSACTION PRICE
- Entity shall consider the terms of the contract and its customary business practices to determine the transaction
price
Performance obligations satisfied at a point in time
1. The entity has a present right to payment for the asset
2. The customer has legal title to the asset
3. The entity has transferred physical possession of the asset
4. The customer has the significant risks and rewards of ownership of the asset
5. The customer has accepted the asset
Performance obligations satisfied over time
- Entity control of a good/service over time and, therefore satisfies a performance obligation and recognizes
revenue over time, if the one of the ff. criteria is met:
1. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the
entity performs
2. The entity’s performance creates/enhances an asset that the customer controls as the asset Is created or
enhanced
3. The entity’s performance does not create an asset with an alternative use to the entity and the entity has an
enforceable right to payment for performance completed date
ACCOUNTNG EXPENSES
- Are decreases in economic benefits during the accounting period in the form of outflows
RECOGNITION
- Expenses are recognized in the income statement when a decrease in future economic benefits related to a
decrease in an asset or an increase of a liability has arisen that can be measured reliably
- Recognized in the income statement on the basis of a direct association between costs incurred and the
earnings of specific items of income
- Also recognized in the income statement in those cases when a product warranty arises
MEASUREMENT
- Measurement basis most commonly adopted by the entities in preparing their F/S is historical cost