Intermediate Accounting 2 (Midterms Coverage

h a n g e Pro h a n g e Pro
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Intermediate
Accounting 2
(Midterms Coverage)
MARK ANECITO R. PERLAS
Investment in
Equity Securities
Mark Anecito R. Perlas
Equity security vs Debt security
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PFRS 5:
NONCURRENT ASSETS HELD
FOR SALE AND
DISCONTINUED
OPERATIONS
MARK ANECITO R. PERLAS
50
NON-CURRENT ASSETS
• Non-current assets are assets that do not

meet the definition of a current asset.
• A current asset is an asset that satisfies any
of the following criteria
• it is expected to be realized in, or is intended for sale or
consumption in, the entity’s normal operating cycle
• it is held primarily for the purpose of being traded
51
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CORE PRINCIPLE
• A noncurrent asset is presented in the classified

statement of financial position as current asset only when
it qualifies to be classified as “held for sale” in accordance
with PFRS 5.
52
SCOPE
• PFRS 5 applies to the following non-current assets:

1. Property, plant and equipment
2. Investment property measured under the Cost
model
3. Investments in associate or subsidiary or joint
venture
4. Intangible assets
53
CONDITIONS FOR CLASSIFICATION AS

HELD FOR SALE
• A non-current asset (or disposal group) is classified as “held for sale” if
all of the following conditions are met:
1. The asset or disposal group is available for immediate sale in its
present condition subject only to terms that are usual and
customary; and
2. The sale is highly probable (i.e., significantly more likely than not).
i. Management is committed to a plan to sell the asset;
ii. An active program to locate a buyer has been initiated;
iii. The sale price is reasonable in relation to its current fair value;
iv. The sale is expected to be completed within one year; and
v. It is unlikely that the plan of sale will be withdrawn.
54
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EXCEPTION TO THE ONE-YEAR

REQUIREMENT
• An extension of the period required to complete a

sale does not preclude an asset (or disposal group)
from being classified as held for sale if:
1. the delay is attributable to events or
circumstances beyond the entity’s control; and
2. there is sufficient evidence that the entity
remains committed to its plan to sell the asset (or
disposal group)
55
EVENT AFTER REPORTING PERIOD
• If the criteria for classification as held for sale are met after the
reporting period, an entity shall not classify a non-current asset (or
disposal group) as held for sale in those financial statements when
issued.
56
NON-CURRENT ASSETS THAT ARE TO BE

ABANDONED
• An entity shall not classify as held for sale a non-current asset (or
disposal group) that is to be abandoned since the asset’s carrying
amount will be recovered through continuing use rather than
principally through a sale.
• An entity shall not account for a non-current asset that has been
temporarily taken out of use as if it had been abandoned.
57
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INITIAL AND SUBSEQUENT

MEASUREMENT
• Lower of carrying amount and fair value less cost to
sell.
• A write-down to fair value less cost to sell, and related
reversal thereof, is recognized in profit or loss.
• Reversal of impairment is recognized as gain to the
extent of cumulative impairment loss that has been
recognized.
• Depreciation (amortization) ceases during the period
an asset is classified as held for sale.
58
CHANGES TO A PLAN OF SALE
• A non-current asset that ceases to be classified as held

for sale shall be measured at the lower of the asset’s:
1. Carrying amount before it was classified as held
for sale, adjusted for any depreciation,
amortization or revaluation that would have been
recognized had the asset not been classified as
held for sale, and
2. Recoverable amount at the date of subsequent
decision not to sell.
59
FS PRESENTATION
• Non-current assets held for sale and assets and liabilities of

disposal groups are presented as current assets (current liabilities)
but separately from the other assets and liabilities in the statement
of financial position.
• An entity shall not offset the assets and liabilities of a disposal
group.
60
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PAS 40: Investment Property

6
1
Mark Anecito R. Perlas
61
OBJECTIVE & SCOPE

Recognition,
measurement &
disclosure Matters excluded
Investment property Classification of leases

Lease income from
Investment property investment property
under finance lease in Operating leases in lessee’s
financial statements
lesee’s FS
Finance lease in lessor’s FS
Investment property Sale and leaseback
under operating lease in transactions
6 lessor’s FS Disclosure of finance and
2 operating leases
Biological assets
Mineral rights and reserves
62
PAS 40 – INVESTMENT PROPERTY
 Investment property (IP): property (land or buildings - or part

of a building) held (by the owner or by the lessee under a
finance lease) to earn rentals or for capital appreciation or both
rather than for:
 Use in the production or supply of goods or services or for
administrative purposes; or
 Sale in the ordinary course of business
 Does not include assets

 Held for administrative or productive use by owner; or
 Held for sale
 Generates cash flows largely independent of other assets
63
63
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Definitions
• Property held for rent or

Investment capital appreciation
property • Not for sale or use in
production
Owner • Property held for

production, supply of goods
6
4 occupied & services or administrative
property services (PAS 16)
64
Examples of investment property

Not
Investment investment
Property
property
6
5
65
Examples
• Land held for long-term capital appreciation

• Land held for undetermined future use
• Building leased under one or more operating
leases
• Vacant building held to be leased
• Building under construction or development
as investment property
66
66
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Combinations and ancillary services

• Insignificant portion
used for
Investment production/admin
Property • Insignificant ancillary
services e.g.
maintenance & security
• Significant portion used

for production
Owner
Occupied /sales/admin
Property • Significant ancillary
services e.g. owner
managed hotel
6
7 • Investment and owner-
occupied portion can be
Separate sold separately
portions
• Account for them
separately
67
Recognition
Expense as
Probable future Exclude costs of
repairs and
economic benefit daily servicing
maintenance
Costs to add or Derecognised

Cost can be replace parts of carrying value of
measured reliably
property parts replaced
Recognise
Recognise Costs to acquire replacement parts
investment
property as part of asset
property asset when incurred
68
68
Measurement at recognition
Purchase
price
Property Direct
transfer
taxes Measure at expenditure
cost
including
transaction Deferred
Legal fees
costs cash price
equivalent
(interest
expensed)
Costs when
construction
complete
69
69
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Exclude from cost at recognition
Start
up costs
Operating losses
before planned
level of occupancy
Abnormal waste or
development expenditure
70
70
Investment property held under a lease
Lower of FV and PV of minimum

lease payments
Asset Liability
Include premium Exclude premium

paid for lease paid for lease
71
71
Measurement after recognition: Accounting Policy
Recognise gain or loss

in P&L of each period
Fair Value Model
Change from FV to cost

model not appropriate
Choose and apply to all

investment property
Disclose FV
(professional valuation
recommended)
Cost Model
Rebuttable presumption
that FV can be
measured or residual
value must be zero
72
72
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Subsequent Measurement
• Select either fair value or cost model

• Fair value model: changes in fair value are
recognized in the income statement
• Cost model: but fair value must be disclosed
• Rebuttable presumption: Fair value can be
determined reliably on a continuing basis
• Valuation by a certified independent appraiser
with relevant experience is encouraged but not
required
73
73
Fair Value
Price between
Include rental
knowledgeable
income and
willing parties
similar
in arms length
outflows
transaction
Reflect market Exclude

conditions at special
balance sheet financing
date terms
Include
disposal costs
74
74
Investment Property - Fair Value
• Price at which the property could be exchanged

in an arms-length transaction
• FV is time specific, dependent upon market
conditions at the reporting date
• Best measure of fair value is the current price in
an active market for similar property (same
location & condition)
• FV excludes synergies between the property and
other properties
75
75
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Consistency of Measurement
• If fair value previously used, must continue

until there is a change in use:
• Owner-occupied, or
• Development for sale begins
• If fair value is policy, an individual property
can be carried at cost if its fair value cannot
be reliably measured
• Identify at initial recognition
76
76
Fair Value Model

Measure all investment properties at fair value
Investment under operating lease may not be measured at cost after
initial recognition; it must be measured at fair value
Recognise gains and losses from changes in fair value in the profit
and loss account until disposal
Once held for sale, measure investment property according to
PFRS 5
Fair value must reflect market conditions at the balance sheet date
Current prices in active market for similar property in same location and
condition under similar lease or other contract
Current/recent prices adjusted to reflect differences
If reasonable estimate of fair value not available for a particular
property, use PAS 16 cost model in exceptional cases
Residual value must be zero
Apply PAS 16 cost model until disposal
77
77
78
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Disposals
Derecognise from balance sheet when no future
economic benefit expected
Net disposal proceeds – carrying amount =
profit/loss in period of disposal
Recognize compensation for impairment or loss in
profit & loss when receivable
79
79
Disclosure: Fair Value Model & Cost Model
• Whether fair value or cost model applied

Model • Reasons for classifying property under operating lease as
investment property
• Criteria to distinguish owner-occupied from investment

property
Value • Methods and assumptions to calculate fair value
• Market evidence to support fair value
• Whether or not a professional valuation was obtained
• Restrictions on realisability (existence and amounts)

Obligations • Contractual obligations to develop, repair, maintain or
enhance investment property
80
80
Disclosure: Fair Value Model and Cost Model
• Rental income
Amounts in • Direct operating expenses relating to rental income
• Direct operating expenses not related to rental income
profit or loss • Cumulative change in fair value from sale of asset at cost
to fair value pools
Fair value • Reconciliation between carrying amounts at beginning and

end of period
model • Reconciliation between valuation obtained and valuation

included in financial statements (if adjusted)
• Description of investment property

• Reason why fair value cannot be determined
Cost model • Range of estimates in which fair value is likely to fall
• Disposal of investment property not carried at fair value
(carrying amount and recognised gain or loss)
81
81
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Cost model: Additional disclosure

Depreciation methods used
Useful lives
Gross carrying amount
Accumulated depreciation and impairment loss at beginning and end of period
Reconciliation of carrying amount at beginning and end of period
Additions
From subsequent expenditure
From acquisitions
Assets classified as held for sale
Depreciation
Impairment loss recognised and reversed
Net exchange differences on translation
Transfers to and from inventories and owner-occupied property
Fair value of investment property or
Description of property
Reason why fair value cannot be determined
Range of estimates in which fair value is likely to lie
82
82
Fair value model: Additional disclosure

Reconciliation between carrying amount at beginning
and end of period
Additions
From acquisition
From subsequent expenditure
From acquisitions through business combinations
Assets classified as held for sale
Net gain or loss from fair value adjustments
Net exchange difference on translation
Transfer to and from inventories and owner-occupied
property
Other changes
83
83
PAS-38
INTANGIBLE ASSETS
84
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Scope of PAS 38
Definition of intangible asset
Recognition & Derecognition as an asset
Determine carrying amount
Determination and treatment of impairment losses
Disclosure requirement
85
86
87
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Intangible Assets -
Having future economic benefits,
No physical substance,
With high degree of uncertainty concerning the future benefit
 Arises from contractual and other legal rights
 Clearly distinguishable and controllable
88
89
90
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Cost of Intangible Asset
Cost comprises:
 Purchase price
 Any directly attributable costs of preparing asset for
intended use.
 cost of getting asset to working condition
 legal fees etc.
91
Methods of Acquisition
1.Cash Purchase (including Lump-sum Purchase)

2.Purchase on Account
3.Installment/Deferred payment Plan basis
4.Issuance of Securities
5.Donation/Government grant
6.Exchange of non-monetary assets
7.As part of business combination
8.Internally generated intangibles
92
Cash Purchase, Purchase on Account,

Installment/Deferred Payment plan
• The cost is the CASH EQUIVALENT PRICE.
• Any cash discount available on a credit purchase, whether

taken or not, is a deduction from the asset’s invoice price.
• Lump-sum purchase/ “Basket” Purchase
• Alternative to Cash Equivalent Price if not determinable under

Deferred Payment plan, the future cash payments shall be
discounted at prevailing interest rate to arrive at present
value.
93
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Internally Generated Intangible Assets
Two Phases:
Research Phase: No intangible assets arising from the research phase
may be recognized.
 t h e r e is insufficient certainty that it will generate future
economic benefits
Development Phase: Intangible assets arising from the development

phase are recognized when the entity meets those six recognition
criteria.
96
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Costs cannot be capitalized…
The costs relating to many internally generated intangible

items cannot be capitalized and are expensed as incurred-
Research cost
Start up cost
Training cost
Advertising & Promotion etc.
99
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101
Cost Model
The carrying amount of an intangible asset is its Cost less

Accumulated Amortization and Impairment Losses
Assets classified as held for sale are shown at the lower of ‘Fair
Value less Costs to sell and carrying amount’
102
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Revaluation Model
Assets are carried at fair value at the date of revaluation, less any
subsequent accumulated amortization and less any subsequent
accumulated impairment losses.
The asset value should be reviewed regularly

The revaluation model is only available if an active market exists for
that intangible asset.
Such active markets are expected to be uncommon for intangible
assets.
103
Useful life of Intangible asset
Useful life of an intangible assets can be applied in 2 ways-

Intangible asset with a Finite useful life (economic
and/or legal life) is amortized on asystematic basis over
the best estimate of its useful life
Intangible asset with an Infinite should be tested for

impairment annually but not amortized
104
105
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Amortization of Intangibles
The impairment test needed only when events indicate that

the book value may not be recoverable.
Amortization Method: Straight-line method.
Other method can be applied if it is more appropriate than the
S-L method like diminishing balance method.
Residual value: Usually zero.
106
Intangibles Assets with Infinite lives
 Trademarks, goodwill, in-process R&D.
 The costs are not subject to amortization.
 Impairment test is required at least annually.
107
Useful life of Intangible asset- Examples
108
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Impairment of Intangible Assets
 All principles (IAS 36) apply to impairments of long-lived

assets also apply to intangible assets.
 Thus, when changes in circumstances indicate that the book

value of the intangibles may not be reconcilable (i.e., fair value
of intangible < carrying amount), a write-down should be
performed to recognize the loss.
109
Presentation and Disclosures
This segment includes-

Specific accounting Policies
Statement of Comprehensive income and notes
Statement of Financial Position and notes
Additional Disclosure
110
Specific accounting Policies
Measurement basis
Amortization method (IAS 36)
Useful lives and amortization rates
111
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Statement of Comprehensive income and notes
Amortization charge for each class of asset including the

Line Item
Total amount of research and development cost recognized

as an Expense
112
Statement of Financial Position and notes
Book Value less Accumulated Amortization for each class

of assets
Comparatives are not required
Carrying amount of intangible Pledged as Security
Carrying amount of Intangible whose title is restricted
Capital commitments for the acquisition of intangible
assets
Description, carrying amount and remaining amortization
period of any intangible asset
113
Additional Disclosure
Effective date of revaluation

Carrying amount of each class of intangibles
Details of reconciliation & revaluation in some cases
Any restriction on distribution of surplus
114
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Komawo!
115
39

Intermediate Accounting 2 (Midterms Coverage

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Intermediate Accounting 2 (Midterms Coverage

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h a n g e Pro h a n g e Pro

Equity security vs Debt security

MARK ANECITO R. PERLAS

• Non-current assets are assets that do not

• A noncurrent asset is presented in the classified

• PFRS 5 applies to the following non-current assets:

CONDITIONS FOR CLASSIFICATION AS

EXCEPTION TO THE ONE-YEAR

• An extension of the period required to complete a

EVENT AFTER REPORTING PERIOD

NON-CURRENT ASSETS THAT ARE TO BE

INITIAL AND SUBSEQUENT

CHANGES TO A PLAN OF SALE

• A non-current asset that ceases to be classified as held

• Non-current assets held for sale and assets and liabilities of

PAS 40: Investment Property

OBJECTIVE & SCOPE

Investment property Classification of leases

PAS 40 – INVESTMENT PROPERTY

 Investment property (IP): property (land or buildings - or part

 Does not include assets

 Generates cash flows largely independent of other assets

• Property held for rent or

Owner • Property held for

Examples of investment property

• Land held for long-term capital appreciation

Combinations and ancillary services

• Significant portion used

Costs to add or Derecognised

Exclude from cost at recognition

Investment property held under a lease

Lower of FV and PV of minimum

Include premium Exclude premium

Measurement after recognition: Accounting Policy

Recognise gain or loss

Fair Value Model

Change from FV to cost

Choose and apply to all

• Select either fair value or cost model

Reflect market Exclude

Investment Property - Fair Value

• Price at which the property could be exchanged

• If fair value previously used, must continue

Fair Value Model

Disclosure: Fair Value Model & Cost Model

• Whether fair value or cost model applied

• Criteria to distinguish owner-occupied from investment

• Restrictions on realisability (existence and amounts)

Disclosure: Fair Value Model and Cost Model

Fair value • Reconciliation between carrying amounts at beginning and

model • Reconciliation between valuation obtained and valuation

• Description of investment property

Cost model: Additional disclosure

Fair value model: Additional disclosure

Definition of intangible asset

Recognition & Derecognition as an asset

Determine carrying amount

Determination and treatment of impairment losses

Having future economic benefits,

No physical substance,

With high degree of uncertainty concerning the future benefit

 Arises from contractual and other legal rights

 Clearly distinguishable and controllable