CFAS
entity caused by an external party or
• Overview of Accounting
Learning Objectives
• Define accounting and state its basic purpose.
• Explain the basic concepts applied
accounting.
• State the branches of accounting and the
sectors in the practice of accountancy.
• Explain the importance of a uniform set of
financial reporting standards.
• Definition of Accounting
• Accounting is “the process of identifying,
measuring, and communicating economic
information to permit informed judgment and
decisions by users of information.”
(American Association of Accountants)
• Three important activities
1. Identifying - the process of analyzing events
and transactions to determine whether or not
they will be recognized. Only accountable
events are recognized.
2. Measuring - involves assigning numbers,
normally in monetary terms, to the economic
transactions and events.
3. Communicating - the process of transforming
economic data into useful accounting
information, such as financial statements and
other accounting reports, for dissemination to
users.
• Types of Events
1. External events – events that involve an
external party.
a. Exchange (reciprocal transfer)
reciprocal giving and receiving
b. Non-reciprocal transfer – “one way”
transaction
c. External event other than transfer – an
event that involves changes in the
economic resources or obligations of an
external source but does not involve
transfers of resources or obligations.
2. Internal events – events that do not involve an
external party.
a. Production – the process by which
in resources are transformed into finished
goods.  
b. Casualty – an unanticipated loss from
disasters or other similar events.
• Measurement
• The several measurement bases used in
accounting include, but not limited to, the
following:
1. historical cost,
2. fair value,
3. present value,
4. realizable value,
5. current cost, and
6. sometimes inflation-adjusted costs.
• The most commonly used is historical cost. This
is usually combined with the other
measurement bases. Accordingly, financial
statements are said to be prepared using a
mixture of costs and values.
• Valuation by fact or opinion
• When measurement is affected by estimates,
the items measured are said to be valued by
opinion. 
• When measurement is unaffected by estimates,
the items measured are said to be valued by
fact.
• Basic purpose of accounting
–
• The basic purpose of accounting is to provide
information about economic activities intended
to be useful in making economic decisions.
• Types of accounting information classified as
to users’ needs
• General purpose accounting information -
designed to meet the common needs of most
statement users. This information is governed
by the Philippine Financial Reporting Standards
(PFRSs).
• Special purpose accounting information -
designed to meet the specific needs of
particular statement users. This information is
provided by other types of accounting, e.g.,
managerial accounting, tax basis accounting,
etc.
• Basic Accounting Concepts
• Double-entry system – each accountable event
is recorded in two parts – debit and credit.
• Going concern - the entity is assumed to carry
on its operations for an indefinite period of
time.
• Separate entity – the entity is treated
separately from its owners.
• Stable monetary unit - amounts in the financial
statements are stated in terms of a common
unit of measure; changes in purchasing power
are ignored.
• Time Period – the life of the business is divided
into series of reporting periods.
• Materiality concept – information is material if
its omission or misstatement could influence
economic decisions.
• Cost-benefit – the cost of processing and
communicating information should not exceed
the benefits to be derived from it.  •
• Basic Accounting Concepts - Continuation
• Accrual Basis of accounting – effects of
transactions are recognized when they occur
(and not as cash is received or paid) and they
are recognized in the accounting periods to
which they relate.
•  Historical cost concept – the value of an asset
is determined on the basis of acquisition cost.
• Concept of Articulation – all of the components
of a complete set of financial statements are
interrelated.
• Full disclosure principle – financial statements
provide sufficient detail to disclose matters that
make a difference to users, yet sufficient
condensation to make the information
understandable, keeping in mind the costs of
preparing and using it.
• Consistency concept – financial statements are
prepared on the basis of accounting policies
which are applied consistently from one period
to the next.
• Basic Accounting Concepts - Continuation
• Matching – costs are recognized as expenses
when the related revenue is recognized.
• Residual equity theory – this theory is
applicable where there are two classes of
shares issued, ordinary and preferred. The
equation is “Assets – Liabilities – Preferred
Shareholders’ Equity = Ordinary Shareholders’
Equity.”
• Fund theory – the accounting objective is the
custody and administration of funds.
• Realization – the process of converting non-
cash assets into cash or claims for cash.
• Prudence (Conservatism) – the inclusion of a
degree of caution in the exercise of the
judgments needed in making the estimates
required under conditions of uncertainty , such
that assets or income are not overstated and
liabilities or expenses are not understated.
• Common branches of accounting
Financial accounting - focuses on general
purpose financial statements.
• Management accounting – focuses on special
purpose financial reports for use by an entity’s
management.
• Cost accounting - the systematic recording and
analysis of the costs of materials, labor, and
overhead incident to production.
• Auditing - the process of evaluating the
correspondence of certain assertions with
established criteria and expressing an opinion
thereon.
• Tax accounting - the preparation of tax returns
and rendering of tax advice, such as the
determination of tax consequences of certain
proposed business endeavors.
• Government accounting - refers to the
accounting for the government and its
instrumentalities, placing emphasis on the
custody of public funds, the purposes for which
those funds are committed, and the
responsibility and accountability of the
individuals entrusted with those funds.
• Four sectors in the practice of accountancy
1. Practice of Public Accountancy - involves the
rendering of audit or accounting related
services to more than one client on a fee basis.
2. Practice in Commerce and Industry - refers to
employment in the private sector in a position
which involves decision making requiring
professional knowledge in the science of
accounting and such position requires that the
holder thereof must be a CPA.
3. Practice in Education/Academe – employment
in an educational institution which involves
teaching of accounting, auditing, management
advisory services, finance, business law,
taxation, and other technically related subjects.
4. Practice in the Government – employment or
appointment to a position in an accounting
professional group in the government or in a
government–owned and/or controlled
corporation where decision making requires
professional knowledge in the science of
accounting, or where civil service eligibility as a
CPA is a prerequisite.
• Accounting standards in the Philippines
• Philippine Financial Reporting Standards
(PFRSs) are Standards and Interpretations
adopted by the Financial Reporting Standards
Council (FRSC). They comprise:
1. Philippine Financial Reporting
Standards (PFRSs);
2. Philippine Accounting Standards
(PASs); and
3. Interpretations
• The need for reporting standards
• Entities should follow a uniform set of generally
acceptable reporting standards when preparing
and presenting financial statements; otherwise,
financial statements would be misleading.
• The term “generally acceptable” means that
either:
1. the standard has been established by
an authoritative accounting rule-making
body; or
2. the principle has gained general
acceptance due to practice over time
and has been proven to be most useful.
• The process of establishing financial accounting
standards is a democratic process in that a
majority of practicing accountants must agree
with a standard before it becomes
implemented.
(2)
• Conceptual Framework for Financial Reporting
Learning Objectives
• State the basic purpose, authoritative status,
and scope of the Conceptual Framework.
• State the objective of financial reporting.
• Identify the primary users of financial
statements.
• Explain briefly the qualitative characteristics of
useful information and how they are applied in
financial reporting.
• Define the elements of financial statements and
state their recognition criteria.
• Conceptual Framework for Financial Reporting
• The Conceptual Framework sets out the
concepts that underlie the preparation and
presentation of financial statements for
external users.
• Authoritative Status and Applicability
 • The Conceptual Framework is not a PFRS. When
there is a conflict between the Conceptual
Framework and a PFRS, the PFRS will prevail.
• In the absence of a standard, management shall
consider the Conceptual Framework in making
its judgment in developing and applying an
accounting policy that results in information
that is relevant and reliable.
• The Conceptual Framework is concerned with
general-purpose financial statements.
• Objective of general purpose financial
reporting
• The objective of general purpose financial
reporting is to provide financial information
about the reporting entity that is useful to
existing and potential investors, lenders and
other creditors in making decisions about
providing resources to the entity. A secondary
objective of financial statements is to show the
results of the stewardship of management.
• The objective of general purpose financial
reporting forms the foundation of the
Conceptual Framework. Other aspects of the
Conceptual Framework flow logically from the
objective.
• Users and their Needs
• Primary users – those to whom general
purpose financial reports are directed:
(a) Existing and potential investors
(b) Lenders and other creditors.
• Only the common needs of primary users are
met by the financial statements.
• Qualitative Characteristics
I. Fundamental qualitative characteristics
(1) Relevance
(a) Predictive value
(b) Feedback value
 Materiality – entity-specific aspect of
relevance
(2) Faithful representation
(a) Completeness
(b) Neutrality
(c) Free from error
II. Enhancing qualitative characteristics
(3) Comparability
(4) Verifiability
(5) Timeliness
(6) Understandability
• Elements of Financial Statements
Financial Position
1. Asset - resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the
entity
2. Liability - present obligation of the entity arising
from past events, the settlement of which is
expected to result in an outflow from the entity
of resources embodying economic benefits.
3. Equity – assets less liabilities
Performance
1. Income – encompasses both (a) revenues and
(b) gains
2. Expense – encompasses both (b) expenses and
(losses)
• Recognition
• Recognition –the process of incorporating in
the balance sheet or income statement an item
that meets the definition of an element and
satisfies the recognition criteria.
• An item is recognized if all of the following are
satisfied:
a. The item meets the definition of an
element;
b. It is probable that any future economic
benefit associated with the item will
flow to or from the entity; and
 c. The item has a cost or value that can be
measured with reliability.

• Expense Recognition Principles

1. Direct association or matching

2. Systematic and rational allocation

3. Immediate recognition

• Measurement bases

a. Historical cost

b. Current cost

c. Realizable value (Settlement value)

d. Present value

• Concepts of Capital and Capital Maintenance

• Financial concept of capital – capital is

regarded as the invested money or invested
purchasing power. Capital is synonymous with
equity or net assets.

• Physical concept of capital – capital is regarded

as the entity’s productive capacity, e.g., units of
output per day.

(PAS)
• PAS 1 Presentation of Financial Statements
Learning Objectives
• Enumerate and describe the general features of
financial statement presentation.
• Enumerate and describe the components of a
complete set of financial statements.
• State the acceptable methods of presenting
items of income and expenses.
• Differentiate between the statement of profit
or loss and other comprehensive income and
the statement of changes in equity.
• State the relationship of the notes with the
other components of a complete set of financial
statements.
• Objective of PAS 1
PAS 1 prescribes the basis for presentation of general
purpose financial statements to improve comparability
both with the entity's financial statements of previous
periods (intra-comparability) and with the financial
statements of other entities (inter-comparability).
• General purpose financial statements are those
intended to serve users who do not have the
authority to demand financial reports tailored
for their own needs. General purpose financial
statements cater to most of the common needs
of a wide range of external users. General
purpose financial statements are the subject
matter of the Conceptual Framework and the
PFRSs.
• Complete set of financial statements
1. Statement of financial position
2. Statement of profit or loss and other
comprehensive income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes
(5a) comparative information in respect of the
preceding period; and
6. Additional statement of financial position
(required only when certain instances occur)
• General features
1. Fair Presentation and Compliance with PFRSs - The
application of PFRSs, with additional disclosure when
necessary, is presumed to result in financial statements
that achieve a fair presentation.
2. Going concern - An entity is not a going concern if, as
of the financial reporting date or prior to the date of
authorization of the financial statements for issue,
management either:
a. Intends to liquidate the entity or to cease trading,
or
b. Has no realistic alternative but to do so.
• The assessment of going concern is at least 12
months.
• General features (Continuation)
3. Accrual Basis of Accounting - An entity shall prepare
its financial statements, except for cash flow
information, using the accrual basis of accounting.
4. Materiality & Aggregation - Each material class of
similar items must be presented separately in the
financial statements.
5. Offsetting - Assets and liabilities, and income and
expenses, shall not be offset unless required or
permitted by a PFRS.
• Measuring assets net of valuation allowances,
for example, obsolescence allowances on
inventories, allowances for doubtful accounts
on receivables, and accumulated depreciation
on property, plant, and equipment are not
offsetting.
• General features (Continuation)
6. Frequency of reporting – An entity shall present a …..and the effect of the event to the statement of
complete set of financial statements (including financial position as at the beginning of the preceding
comparative information) at least annually. period is material.

• When an entity changes the end of its reporting • Statement of financial position
period and presents financial statements for a
• A statement of financial position may be
period longer or shorter than one year, an
presented as either
entity shall disclose the following:
• Classified – showing distinctions
1. The period covered by the financial
between current and noncurrent assets
statements,
and liabilities, or
2. The reason for using a longer or shorter
• Unclassified (based on liquidity) –
period, and
showing no distinction between current
3. The fact that amounts presented in the and noncurrent items
financial statements are not entirely
• Current Assets
comparable.
• An entity shall classify an asset as current when:
• General features (Continuation)
• it expects to realize the asset or intends
7. Comparative Information
to sell or consume it, in its normal
An entity shall present comparative information in operating cycle;
respect of the preceding period for all amounts
• it holds the asset primarily for the
reported in the current period’s financial statements,
purpose of trading;
unless other standards permit or require otherwise.
• it expects to realize the asset within
8. Consistency of presentation - An entity shall retain
twelve months after the reporting
the presentation and classification of items in the
period; or
financial statements from one period to the next unless:
• the asset is cash or a cash equivalent
a. it is apparent that another presentation
unless the asset is restricted from being
or classification would be more
exchanged or used to settle a liability
appropriate following a significant
for at least twelve months after the
change in the nature of the entity’s
reporting period.
operations or a review of its financial
statements; or • Current Liabilities
b. a PFRS requires a change in • An entity shall classify a liability as current
presentation. when:
• Additional Statement of financial position • it expects to settle the liability in its
normal operating cycle;
• An additional statement of financial position is
presented as at the beginning of the preceding • it holds the liability primarily for the
period when an entity: purpose of trading;
1. Applies an accounting policy • the liability is due to be settled within
retrospectively, or twelve months after the reporting
period; or
2. Makes a retrospective restatement of
items in its financial statements, or • the entity does not have an
unconditional right to defer settlement
3. reclassifies items in its financial
statements.
 of the liability for at least twelve
months after the reporting period.
• Currently maturing long-term liabilities
• General rule: Currently maturing long term
liabilities are presented as current liabilities.
• Exceptions:
• Refinancing agreement is fully
completed on or before the balance
sheet date – non-current liability
• Refinancing agreement after the
balance sheet date but before the
financial statements are authorized for
issue – noncurrent liability if the entity
expects, and has the discretion, to
refinance it on a long-term basis under
an existing loan facility.
• Breach of loan agreement
• General rule: A liability that is payable on
demand is a current liability.
• Exception: It is presented as non-current
liability if the lender provides the entity, on or
before the balance sheet date, a grace period
ending at least 12 months after the balance
sheet date to rectify a breach of loan covenant.
• Presentation of Deferred taxes
• Deferred tax liabilities (assets) are presented as
noncurrent items in a classified statement of
financial position, irrespective of their expected
dates of reversal.
• Minimum line items in the statement of
financial position
a. Property, plant and equipment;
b. Investment property;
c. Intangible assets;
d. Financial assets (excluding amounts shown
under (e), (h) and (i));
e. Investments accounted for using the equity
method;
f. Biological assets;
g. Inventories;
h. Trade and other receivables;
i. Cash and cash equivalents;
j. Assets (or disposal groups) classified as held for
sale in accordance with PFRS 5;
• Minimum line items (Continuation)
k. Trade and other payables;
l. Provisions;
m. Financial liabilities (excluding amounts shown
under (k) and (l));
n. Liabilities and assets for current tax, as defined
in PAS 12 Income Taxes;
o. Deferred tax liabilities and deferred tax assets,
as defined in PAS 12;
p. Liabilities included in disposal groups classified
as held for sale in accordance with PFRS 5;
q. Non-controlling interests, presented within
equity; and
r. Issued capital and reserves attributable to
owners of the parent
• Order/ Format of Presentation
• PAS 1 does not prescribe the order or format in
which an entity presents items.
• Statement of profit or loss and other
comprehensive income
• An entity shall present all items of income and
expense recognized in a period:
1. in a single statement of profit or loss
and other comprehensive income; or
2. in two statements: (1) a statement
displaying the profit or loss section only
(separate ‘statement of profit or loss’ or
‘income statement’) and (2) a second
statement beginning with profit or loss
and displaying components of other
comprehensive income.
• Extraordinary items
• PAS 1 prohibits the presentation of any items of 2. Function of expense method
income or expense as extraordinary items in the
• If an entity classifies expenses by function, it
statement(s) presenting profit or loss and other
shall disclose additional information on the
comprehensive income or in the notes.
nature of expenses
• Other comprehensive income for the period
• Disclosure of dividends
a. Changes in revaluation surplus
• Dividends declared by an entity are disclosed
b. Unrealized gains and losses on investments in either in the (a) notes or (b) statement of
FVOCI securities changes in equity.

c. Remeasurements of the net defined benefit • Order of presentation of disclosures in the

liability (asset) Notes

d. Gains and losses arising from translating the 1. Statement of compliance with PFRSs;
financial statements of a foreign operation
2. Summary of significant accounting policies
e. Effective portion of gains and losses on hedging applied;
instruments in a cash flow hedge
3. Supporting information for items presented in
• OCI may be presented either (a) net of tax or (b) the other financial statements; and
gross of tax.
4. Other disclosures.
• Reclassification adjustments
• APPLICATION OF CONCEPTS
 

END

• PAS 2 Inventories

Learning Objectives

• Define inventories.

• Measure inventories and apply the cost

formulas.
• Reclassification adjustments are amounts
reclassified to profit or loss in the current • State the accounting for inventory write-down
period that were recognized in other and the reversal thereof.
comprehensive income in the current or
• Inventories
previous periods.
Inventories are assets:

a. Held for sale in the ordinary course of business

• Total comprehensive income
(Finished Goods);
• Total comprehensive income comprises all
b. In the process of production for such sale (Work
components of
In Process); or
1. Profit or loss; and
c. In the form of materials or supplies to be
2. Other comprehensive income. consumed in the production process or in the
rendering of services (Raw materials and
• Presentation of Expenses manufacturing supplies).
1. Nature of expense method • Financial statement presentation
• All items that meet the definition of inventory 2. FIFO – cost of sales is based on the cost of
are presented on the statement of financial inventories that were purchased first.
position as one line item under the caption Consequently, ending inventory represents the
“Inventories.” The breakdown of this line item cost of the latest purchases.
(as finished goods, WIP and Raw materials) is
3. Weighted Average Cost – cost of sales is based
disclosed in the notes.
on the average cost of all inventories purchased
• Inventories are normally presented in a during the period.
classified statement of financial position as
 Wtd. Ave. Cost = (TGAS in pesos ÷
current assets.
TGAS in units)
• Measurement
• Write down of inventories
• Inventories are measured at the lower of cost
• Inventories are usually written down to net
and net realizable value (NRV).
realizable value on an item by item basis.
• The cost of inventories comprise all costs of
• If the cost of an inventory exceeds its NRV, the
purchase, costs of conversion and other costs
inventory is written down to NRV, the lower
incurred in bringing the inventories to their
amount. The excess of cost over NRV represents
present location and condition.
the amount of write-down.
• Net realizable value (NRV) is the estimated
• Reversal of write-downs
selling price in the ordinary course of business
less the estimated costs of completion and the • The amount of reversal to be recognized should
estimated costs necessary to make the sale. not exceed the amount of the original write-
down previously recognized.
• Costs that are EXPENSED when incurred
• Recognition as an expense
1. Abnormal amounts of wasted materials, labor
or other production costs. • The carrying amount of an inventory that is sold
is charged as expense (i.e., cost of sales) in the
2. Selling costs, for example, advertising and
period in which the related revenue is
promotion costs and delivery expense or freight
recognized. Likewise, the write-down of
out.
inventories to NRV and all losses of inventories
3. Administrative overheads that do not are recognized as expense in the period the
contribute to bringing inventories to their write-down or loss occurs.
present location and condition.
• APPLICATION OF CONCEPTS
4. Storage costs, unless those costs are necessary  
in the production process before a further
END
production stage, (e.g., the storage costs of
partly finished goods may be capitalized as cost • PAS 7 Statement of Cash Flows
of inventory, but the storage costs of completed
finished goods are expensed). Learning Objectives

• Cost Formulas • Describe the statement of cash flows.

1. Specific identification - shall be used for • Differentiate between the following: (1)
inventories that are not ordinarily Operating activities, (2) Investing activities, and
interchangeable (i.e., used for inventories that (3) Financing activities.
are unique). Cost of sales is the cost of the • State the classifications of the following in a
specific inventory that was sold. statement of cash flows: (a) dividends received,
 (b) dividends paid, (c) interest paid and (d) b. cash receipts and cash payments in the
interest received. acquisition and sale of equity or debt
instruments of other entities (other than those
• Statement of Cash Flows
that are classified as cash equivalents or held
• The statement of cash flows provides for trading)
information about the sources and utilization
c. cash receipts and cash payments on derivative
(i.e., historical changes) of cash and cash
assets and liabilities (other than those that are
equivalents during the period. The statement of
held for trading or classified as financing
cash flows presents cash flows according to the
activities)
following classifications:
d. loans to other parties and collections thereof
1. Operating activities
(other than loans made by a financial
2. Investing activities institution)

3. Financing activities • Examples of cash flows from Financing

• Activities
1. Operating activities include transactions that
enter into the determination of profit or loss.
These transactions normally affect income
statement accounts.
2. Investing activities include transactions that
affect long-term assets and other non-operating
assets.
3. Financing activities include transactions that
affect equity and non-operating liabilities.
Activities
a. cash receipts from issuing shares or other
equity instruments and cash payments to
redeem them
b. cash receipts from issuing notes, loans, bonds
and mortgage payable and other short-term or
long-term borrowings, and their repayments
c. cash payments by a lessee for the reduction of
the outstanding liability relating to a lease.

• Examples of cash flows from Operating

Activities

a. cash receipts from the sale of goods, rendering

• Core principle
of services, or other forms of income

b. cash payments for purchases of goods and

services

c. cash payments for operating expenses, such as

employee benefits, insurance, and the like, and
payments or refunds of income taxes

d. cash receipts and payments from contracts held • Interests and Dividends
for dealing or trading purposes

• Examples of cash flows from Investing

Activities

a. cash receipts and cash payments in the

acquisition and disposal of property, plant and
equipment, investment property, intangible
assets and other noncurrent assets
 the Financial Reporting Standards Council
(FRSC). They comprise the following:

1. Philippine Financial Reporting Standards

• Reporting cash flows from operating activities
(PFRSs);
1. Direct method - shows each major class of
2. Philippine Accounting Standards (PASs);
gross cash receipts and gross cash payments.
and
2. Indirect method - adjusts accrual basis profit or
3. Interpretations
loss for the effects of changes in operating
assets and liabilities and effects of non-cash
items.

• APPLICATION OF CONCEPTS
 

END

PAS 8 Accounting Policies, Changes in

Accounting Estimates and Errors

Learning Objectives

• Define the following and give examples: (1)

Change in accounting policy, (2) Change in
accounting estimate, and (3) Error.

• Differentiate between the accounting

treatments of the following: change in
accounting policy, change in accounting
estimate, and correction of prior period error.

• Objective and Scope

• PAS 8 prescribes the criteria for selecting,

applying, and changing accounting policies and
the accounting and disclosure of changes in
accounting policies, changes in accounting
• When it is difficult to distinguish a change in
estimates and correction of prior period errors.
accounting policy from a change in accounting
• Accounting policies estimate, the change is treated as a change in
an accounting estimate.
• Accounting policies are “the specific principles,
bases, conventions, rules and practices applied • An entity shall change an accounting policy only
by an entity in preparing and presenting if the change:
financial statements.” (PAS 8.5)
1. is required by a PFRS; or
• Accounting policies are the relevant PFRSs
2. results to a more relevant and reliable
adopted by an entity in preparing and
information about an entity’s financial
presenting its financial statements
position, performance, and cash flows.
• PFRSs
• Examples of changes in accounting policy
• Philippine Financial Reporting Standards (PFRSs)
1. Change from FIFO cost formula for inventories
are Standards and Interpretations adopted by
to the Average cost formula.
 2. Change in the method of recognizing revenue
from long-term construction contracts.
3. Change to a new policy resulting from the
requirement of a new PFRS.
4. Change in financial reporting framework, such
as from PFRS for SMEs to full PFRSs.
5. Initial adoption of the revaluation model for
property, plant, and equipment and intangible
assets.
6. Change from the cost model to the fair value
model of measuring investment property.
7. Change in business model for classifying
financial assets resulting to reclassification
between financial asset categories.
• Examples of changes in accounting estimate
1. Change in depreciation or amortization
methods
2. Change in estimated useful lives of depreciable
assets
3. Change in estimated residual values
depreciable assets
4. Change in required allowances for impairment
losses and uncollectible accounts
5. Changes in fair values less cost to sell of non-
current assets held for sale and biological
assets
• Errors
• Errors include the effects of:
1. Mathematical mistakes
2. Mistakes in applying accounting policies
3. Oversights or misinterpretations of
facts; and
4. Fraud
• APPLICATION OF CONCEPTS
 
END
• PAS 10 Events after the Reporting Period
Learning Objectives
• Define events after the reporting period.
• State the accounting requirements for events
after the reporting period.
• Events after the Reporting Period
• Events after the reporting period are “those
events, favorable or unfavorable, that occur
between the end of the reporting period and
the date that the financial statements are
authorized for issue.” (PAS 10)
• Two types of events after the reporting period
1. Adjusting events after the reporting period – are
those that provide evidence of conditions that
existed at the end of the reporting period.
2. Non-adjusting events after the reporting period
– those that are indicative of conditions that
arose after the reporting period
• Date of authorization of the financial
statements
• This date is the date when management
authorizes the financial statements for issue
of
regardless of whether such authorization for
issue is for further approval or for final issuance
to users.
• Examples of adjusting events:
1. The settlement after the reporting period of a
court case that confirms that the entity has a
present obligation at the end of reporting
period.
2. The receipt of information after the reporting
period indicating that an asset was impaired at
the end of reporting period. For example:
i. The bankruptcy of a customer that
occurs after the reporting period may
indicate that the carrying amount of a
trade receivable at the end of reporting
period is impaired.
ii. The sale of inventories after the
reporting period may give evidence to
their net realizable value at the end of
reporting period
3. The determination after the reporting period of
the cost of asset purchased, or the proceeds
 from asset sold, before the end of reporting
period.
4. The discovery of fraud or errors that indicate
that the financial statements are incorrect.
• Examples of non-adjusting events normally
requiring disclosures:
1. Changes in fair values, foreign exchange rates,
interest rates or market prices after the
reporting period.
2. Casualty losses (e.g., fire, storm, or earthquake)
occurring after the reporting period but before
the financial statements were authorized for
issue.
3. Litigation arising solely from events occurring
after the reporting period.
4. Major ordinary share transactions and potential
ordinary share transactions after the reporting
period.
5. Major business combination after the reporting
period.
6. Announcing a plan to discontinue an operation
after the reporting period.
7. Declaration of dividends after the reporting
period
• Disclosures
• Date of authorization for issue
• Adjusting events
• Material Non-adjusting events
• APPLICATION OF CONCEPTS
END
PAS 12 Income Taxes
Learning Objectives
• Understand the scope and the fundamental
principle of PAS 12.
• Interpret the terminology used in the
accounting for current and deferred taxes.
• State the recognition, measurement and
presentation of current and deferred taxes.
• Accounting profit vs. Taxable profit
• The varying treatments of economic activities
between the PFRSs and tax laws result to
permanent and temporary differences.
• Permanent differences
• Permanent differences are those that do not
have future tax consequences.
• Examples:
a. Interest income on government bonds
and treasury bills
b. Interest income on bank deposits
c. Dividend income
d. Fines, surcharges, and penalties arising
from violation of law
e. Life insurance premium on employees
where the entity is the irrevocable
beneficiary
• Temporary differences
• Temporary differences are those that have
future tax consequences. Temporary
differences are either:
a. Taxable temporary differences – arise,
for example, when financial income is
greater than taxable income or the
carrying amount of an asset is greater
than its tax base.
b. Deductible temporary differences arise
in case of the opposites of the
foregoing.
• Taxable temporary differences result to
deferred tax liabilities while deductible
 temporary differences result to deferred tax
assets.
• Deferred taxes
• If the increase in deferred tax liability exceeds
the increase in deferred tax asset, the
difference is deferred tax expense. If it is the
opposite, the difference is deferred tax income
or benefit.
• A deferred tax asset is recognized only to the
extent that it is realizable.
• Deferred taxes are measured using enacted or
substantially enacted tax rates that are
applicable to the periods of their expected
reversals.
• Deferred tax assets and liabilities are not
discounted.
• Deferred tax asset and liabilities are presented
as non-current.
• APPLICATION OF CONCEPTS
END
PAS 16 Property, Plant and Equipment 
Learning Competencies
• State the recognition criteria, initial
measurement, and subsequent measurement
of PPE.
• Apply the principles of PAS 16 in basic
computations of a PPE’s cost, depreciation,
carrying amount, and revaluation surplus as
well as the gain or loss on its disposal.
• Characteristics of PPE
a. Tangible assets – items of PPE have physical
substance
b. Used in normal operations – items of PPE are
used in the production or supply of goods or
services, for rental, or for administrative
purposes
c. Long-term in nature – items of PPE are expected
to be used from more than a year
• Examples of items of PPE
a. Land used in business
b. Land held for future plant site
c. Building used in business
d. Equipment used in the production of goods
e. Equipment held for environmental and safety
reasons
f. Equipment held for rentals
g. Major spare parts and long-lived stand-by
equipment
h. Furniture and fixture
i. Bearer plants
• Recognition
The cost of an item of property, plant and equipment
shall be recognized as an asset only if:
a. it is probable that future economic benefits
associated with the item will flow to the entity;
and
b. the cost of the item can be measured reliably.
• Initial measurement
• An item of PPE is initially measured at its cost.
Elements of Cost
1. Purchase price, including non-refundable
purchase taxes, after deducting trade discounts
and rebates.
2. Costs directly attributable to bringing the asset
to the location and condition necessary for it to
be capable of operating in the manner intended
by the management.
3. Present value of decommissioning and
restoration costs to the extent that they are
recognized as obligation
• Examples of directly attributable costs
• Costs of employee benefits arising directly from
the construction or acquisition of PPE;
• Costs of site preparation;
• Initial delivery and handling costs (e.g., freight
costs);
 • Installation and assembly costs; • After recognition, an item of PPE is measured at
its cost less any accumulated depreciation and
• Testing costs, net of disposal proceeds of
any accumulated impairment losses.
samples generated during testing; and
• Depreciation
• Professional fees.
• Depreciation is the systematic allocation of the
• Cessation of capitalizing costs to PPE
depreciable amount of an asset over its
• Recognition of costs in the carrying amount of estimated useful life.
an item of PPE ceases when the item is in the
• When computing for depreciation, each part of
location and condition necessary for it to be
an item of PPE with a cost that is significant in
capable of operating in the manner intended by
relation to the total cost of the item shall be
management.
depreciated separately.
• Measurement of Cost
• Depreciation - continuation
• The cost of an item of PPE is the cash price
• Depreciation begins when the asset is available
equivalent at the recognition date. If payment is
for use, i.e., when it is in the location and
deferred beyond normal credit terms, the
condition necessary for it to be capable of
difference between the cash price equivalent
operating in the manner intended by
and the total payment is recognized as interest
management.
over the period of credit unless such interest is
capitalized in accordance with PAS 23 • Depreciation ceases when the asset is
Borrowing Costs. derecognized or when it is classified as “held for
sale” under PFRS 5, whichever comes earlier.
• Acquisition through exchange
• Selection of depreciation method
• If the exchange has commercial substance, the
asset received from the exchange is measured • There are various methods of depreciation. The
using the following order of priority: entity shall select the method that most closely
reflects the expected pattern of consumption
a. Fair value of asset Given up
of the future economic benefits embodied in
b. Fair value of asset Received the asset.

c. Carrying amount of asset Given up • However, a depreciation method that is based

on revenue that is generated by an activity that
• If the exchange lacks commercial substance, the includes the use of an asset is not appropriate.
asset received from the exchange is measured
at (c) above. • The Straight-line method of Depreciation

• Subsequent measurement Straight line method – depreciation is recognized

evenly over the life of the asset by dividing the
• Subsequent to initial recognition, an entity shall depreciable amount by the estimated useful life.
choose either:
Depreciation = (Historical cost – Residual value) ÷
(a) the cost model or
Estimated useful life
(b) the revaluation model
• Changes in depreciation method, useful life,
as its accounting policy and shall apply that policy to an and residual value
entire class of PPE.
• A change in depreciation method, useful life, or
• Cost Model residual value is a change in accounting
estimate accounted for prospectively.
 • Prospective accounting means the change
affects only the current period and/or future
periods. The change does not affect past
periods.
• Revaluation Model
• After recognition as an asset, an item of PPE
whose fair value can be measured reliably shall
be carried at a revalued amount, being its fair
value at the date of the revaluation less any
subsequent accumulated depreciation and
subsequent accumulated impairment losses.
• Revaluation surplus
Fair value*
xx
Less: Carrying amount (xx)
Revaluation surplus – gross of tax xx
*The fair value is determined using an appropriate
valuation technique, taking into account the principles
set forth under PFRS 13.
• Frequency of revaluation
• For items with significant and volatile changes
in fair value, annual revaluation is necessary.
For items with insignificant changes in fair
value, revaluation may be made every 3 or 5
years.
• Revaluation applied to all assets in a class
• If an item of PPE is revalued, the entire class of
PPE to which that asset belongs shall be
revalued.
• The items within a class of PPE are revalued
simultaneously to avoid selective revaluation of
assets and the reporting of amounts in the
financial statements that are a mixture of costs
and values as at different dates.
 
• Subsequent accounting for revaluation surplus
• Revaluation is initially recognized in other
comprehensive income unless the revaluation
represents impairment loss or reversal of
impairment loss, in which case it is recognized
in profit or loss.
• Subsequently, the revaluation surplus is
accounted for as follows:
1. If the revalued asset is non-
depreciable, the revaluation surplus
accumulated in equity is transferred
directly to retained earnings when the
asset is derecognized.
2. If the revalued asset is depreciable, a
portion of the revaluation surplus may
be transferred periodically to retained
earnings as the asset is being used.
• Derecognition
• The carrying amount of an item or PPE shall be
derecognized:
1. on disposal; or
2. when no future economic benefits are
expected from its use or disposal
3. APPLICATION OF CONCEPTS
 
END
• PAS 19 Employee Benefits
Learning Competencies
• Differentiate between the four classifications of
employee benefits under PAS 19.
• State the timing of the recognition of employee
benefits.
• Differentiate between a defined contribution
plan and a defined benefit plan.
• State the accounting procedures for defined
benefit plans.
• Employee benefits
• Employee benefits are “all forms of
consideration given by an entity in exchange for
service rendered by employees.” (PAS 19.8)
• Four categories of employee benefits under
PAS 19
1. Short-term employee benefits
 2. Post-employment benefits
3. Other long-term employee benefits
4. Termination benefits.
• Short-term employee benefits
• Short-term employee benefits are employee
benefits (other than termination benefits) that
are due to be settled within 12 months after the
end of the period in which the employees
render the related service.
• Recognition and measurement
When an employee has rendered service to an entity
during an accounting period, the entity shall recognize
the undiscounted amount of short-term employee
benefits expected to be paid in exchange for that
service:
1. as a liability (accrued expense), after deducting
any amount already paid.
2. as an asset (prepaid expense) if the amount
paid is in excess of the undiscounted amount of
the benefits incurred; provided, the
prepayment will lead to a reduction in future
payments or a cash refund; and
3. as an expense, unless the employee benefit
forms part of the cost of an asset, e.g., as part
of the cost of inventories or property, plant and
equipment.
• Short-term compensated absences
• Accumulating compensated absences are those
that are carried forward and can be used in
future periods if the current period’s
entitlement is not used in full. Accumulating
compensated absences may either be
1. Vesting – wherein employees are
entitled to a cash payment for unused
entitlement on leaving the entity ; or
2. Non-vesting - wherein employees are
not entitled to a cash payment for
unused entitlement on leaving the
entity
• Non-accumulating compensated absences are
those that are not carried forward. No liability
or expense is recognized until the absences
occur, because employee service does not
increase the amount of the benefit.
• Post-employment benefits
• Post-employment benefits are employee
benefits (other than termination benefits) that
are payable after the completion of
employment. Post-employment benefit plans
are classified as either:
1. Defined contribution plans
2. Defined benefit plans
• Defined contribution vs. Defined benefit
• Other relevant terms
• Accounting for defined contribution plan
• The accounting for defined contribution plans is
straightforward because the reporting entity’s
obligation for each period is determined by the
amounts to be contributed for that period.
Consequently, no actuarial assumptions are
required to measure the obligation or the
expense and there is no possibility of any
actuarial gain or loss.
• Accounting for Defined benefit plan
• The accounting for defined benefit plans is
complex because actuarial assumptions are
required to measure the obligation and the
expense and there is a possibility of actuarial
gains and losses.
• Obligations are measured on a discounted
basis.
• Accounting procedures for defined benefit
plans
Step #1: Determine the deficit or surplus
(Deficit) Surplus = FVPA – PV of DBO
Step #2: Determine the Net defined benefit liability
(asset)
 If there is a deficit, the deficit is the Net defined
benefit liability.
 If there is a surplus, the Net defined benefit
asset is the lower of the surplus and the asset
ceiling.
The asset ceiling is the present value of any economic
benefits available in the form of refunds from the plan
or reductions in future contributions to the plan.
Step #3: Determine the defined benefit cost
• Definition of terms
1. Current service cost - is the increase in the present
value of a defined benefit obligation resulting from
employee service in the current period.
2. Past service cost - is the change in the present value
of the defined benefit obligation resulting from a plan
amendment or curtailment.
3. Gain or loss on settlement – the difference between
the present value of the defined benefit obligation and
the settlement price.
• Definition of terms (Continuation)
4. Interest cost on the defined benefit obligation – is
the increase during a period in the present value of a
defined benefit obligation which arises because the
benefits are one period closer to settlement.
5. Actuarial gains and losses – are changes in the
present value of the defined benefit obligation resulting
from experience adjustments and the effects of changes
in actuarial assumptions.
• Actuarial assumptions
• Actuarial assumptions are an entity’s best
estimates of the variables that will determine
the ultimate cost of providing post-employment
benefits.
1. Demographic assumptions about the future
characteristics of employees who are eligible for
benefits. Demographic assumptions deal with matters
such as:
a. mortality, both during and after
employment
b. rates of employee turnover, disability
and early retirement
c. the proportion of plan members with
dependents who will be eligible for
benefits
d. claim rates under medical plans
2. Financial assumptions, dealing with items such as:
a. the discount rate
b. future salary and benefit levels
c. future medical costs, if any, including
cost of administering claims and
payments
d. the expected rate of return on plan
assets
• Actuarial assumption – Discount rate
• The rate used to discount post-employment
benefit obligations shall be determined by
reference to market yields at the end of the
reporting period on high quality corporate
bonds.
• In countries where there is no deep market in
such bonds, the market yields at the end of the
reporting period on government bonds shall be
used.
• Other long-term employee benefits
• Other long-term employee benefits are
employee benefits (other than post-
employment benefits and termination benefits)
that are due to be settled beyond 12 months
after the end of the period in which the
employees render the related service.
• Other long-term employee benefits are
accounted for using the procedures applicable
for a defined benefit plan. However, all of the
components of the net benefit cost are
recognized in profit or loss.
• Termination benefits
Termination benefits are employee benefits provided in
exchange for the termination of an employee’s
employment as a result of either:
1. an entity’s decision to terminate an employee’s
employment before the normal retirement
date; or
2. an employee’s decision to accept an entity’s
offer of benefits in exchange for the
termination of employment.
• Measurement
Termination benefits are initially and subsequently
recognized in accordance with the nature of the
employee benefit.
a. If the termination benefits are payable within
12 months, the entity shall account for the
termination benefits similarly with short-term
employee benefits.
b. If the termination benefits are payable beyond
12 months, the entity shall account for the
termination benefits similarly with other long-
term benefits.
c. If the termination benefits are, in substance,
enhancement to post-employment benefits, the
entity shall account for the benefits as post-
employment benefits.
• APPLICATION OF CONCEPTS
 
END
• PAS 20 Accounting for Government Grants and
Disclosure of Government Assistance
 
Learning Competencies
• Explain the recognition and measurement of
government grants.
• Explain the presentation of government grants
in the financial statements.
• Definition
• Government grants are assistance received
from the government in the form of transfers of
resources in exchange for compliance with
certain conditions.
• Government grants exclude government
assistance whose value cannot be reasonably
measured or cannot be distinguished from the
entity’s normal trading transactions.
• Examples of Government Grants
a. Receipt of cash, land, or other non-cash assets
from the government subject to compliance
with certain conditions
b. Receipt of financial aid in case of loss from a
calamity
c. Forgiveness of an existing loan from the
government
d. Benefit of a government loan with below-
market rate of interest
• The following are not government grants:
a. Tax benefits,
b. Free technical or marketing advice,
c. Provision of guarantees,
d. Government procurement policy that is
responsible for a portion of the entity’s
sales, and
e. Public improvements that benefit the
entire community.
• Recognition
• Government grants are recognized if there is
reasonable assurance that:
a. the attached conditions will be
complied with; and
b. the grants will be received
• Classifications of government grants according
to attached condition
a. Grants related to assets – grants whose
primary condition is that an entity qualifying for
them should purchase, construct or otherwise
acquire long-term assets.
b. Grants related to income – grants other than
those related to assets.
• Initial measurement
• Monetary grants are measured at the
a. amount of cash received; or
b. the fair value of amount receivable; or
 c. carrying amount of loan payable to
government for which repayment is
forgiven; or
d. discount on loan payable to
government at a below-market rate of
interest.
 
• Non-monetary grants (e.g., land and other
resources) are measured at the
a. fair value of non-monetary asset
received.
b. alternatively, at nominal amount or
zero, plus direct costs incurred in
preparing the asset for its intended use.
• Accounting for Gov’t. Grants
• The main concept in accounting for gov’t. grants
is the MATCHING CONCEPT.
• This means that the gov’t. grant is recognized as
income as the entity recognizes as expense the
related cost for which the grant is intended to
compensate.
• Presentation of Government grants related to
assets
• Government grants related to assets are
presented in the statement of financial position
either by:
a. Gross presentation –the grant is
presented as deferred income (liability);
or
b. Net presentation – the grant is
deducted when computing for the
carrying amount of the asset
• Presentation of Government grants related to
income
• Grants related to income are sometimes
presented in the income statement either by:
a. Gross presentation – the grant is
presented separately or under a general
heading such as “Other income”, or
b. Net presentation – the grant is
deducted in reporting the related
expense
• Repayment of Gov’t. Grants
• A government grant that becomes repayable is
accounted for as a change in accounting
estimate that is treated prospectively under
PAS 8.
• APPLICATION OF CONCEPTS
END
• PAS 21 The Effects of Changes in Foreign
Exchange Rates 
Learning Objectives
• Differentiate between the two ways of
conducting foreign activities.
• State the initial and subsequent measurements
of foreign currency transactions.
• Describe the procedures in translating financial
statements into a presentation currency.
• Two ways of conducting foreign activities
1. Foreign currency transactions – individual
entities often enter into transactions in a
foreign currency.
2. Foreign operations – groups often include
overseas entities.
• Two main accounting issues
• Exchange rates are constantly changing.
Therefore, the principal issues in accounting for
foreign activities are determining:
1. Which exchange rate(s) to use; and
2. How to report the effects of changes in
exchange rates in the financial
statements.
• Functional currency
• When preparing financial statements, a
reporting entity must identify its functional
currency.
 • Functional currency is the currency of the
primary economic environment in which the
entity operates.
• The primary economic environment in which an
entity operates is normally the one in which it
primarily generates and expends cash.
• Factors in determining functional currency
Primary factors
An entity’s functional currency is:
1. The currency that mainly influences:
o Sales prices
o Cost of goods sold / Cost of services
provided
Secondary factors
2. The currency in which funds from financing
activities are generated.
3. The currency in which receipts from operating
activities are usually retained.
• Foreign currency transactions
• Initial recognition :
The foreign currency amount is translated at the
spot exchange
rate at the date of the transaction.
• Subsequent recognition: At the end of each
reporting period:
1. Foreign currency monetary items are
re-translated using the closing rate;
2. Non-monetary items that are measured
at historical cost in a foreign currency
shall be translated using the exchange
rate at the date of the transaction; and
3. Non-monetary items that are measured
at fair value in a foreign currency shall
be translated using the exchange rates
at the date when the fair value was
determined.
• Monetary items
END
• Monetary items – are units of currency held and
assets and liabilities to be received or paid in a
fixed or determinable number of units of
currency.
• Recognition of exchange differences
• When a foreign currency transaction occurred
in one period and settled in another period:
1. The exchange difference between the
transaction date and the end of
reporting period is recognized in the
period of transaction, while
2. The exchange difference between the
end of the previous reporting period
and the date of settlement is
recognized in the period of settlement.
• When a foreign currency transaction occurred
and settled in the same period, all the exchange
difference is recognized in that period.
• Foreign operations
• A foreign operation is an entity that is a
subsidiary, associate, joint venture or branch of
a reporting entity, the activities of which are
based or conducted in a country or currency
other than those of the reporting entity.
• Translation to the presentation currency
1. Assets and liabilities are translated at the
closing rate at the date of the statement of
financial position.
2. Income and expenses, including other
comprehensive income, are translated at spot
exchange rates at the dates of the transactions.
For practical reasons, average rates for a period
may be used, if they provide a reasonable
approximation of the spot rates when the
transactions took place. However, if exchange
rates fluctuate significantly, the use of the
average rate is inappropriate.
3. The resulting exchange difference is recognized
in other comprehensive income.
• APPLICATION OF CONCEPTS
 
 • PAS 23 BORROWING COSTS • The following are not qualifying assets

a. Financial assets, and inventories that

are manufactured, or otherwise
produced, over a short period of time.
  b. Assets that are ready for their intended
use or sale when acquired are not
Learning Competencies
qualifying assets.
• State the core principle under PAS 23.
c. Assets that are routinely manufactured
• Compute for borrowing costs that are eligible or otherwise produced in large
for capitalization. quantities on a repetitive basis.

• Core principle d. assets measured at fair value.

• “Borrowing costs that are directly attributable • Commencement of capitalization

to the acquisition, construction or production of
• The capitalization of borrowing costs as part of
a qualifying asset form part of the cost of that
the cost of a qualifying asset commences on the
asset. Other borrowing costs are recognized as
date when all of the following conditions are
an expense.” (PAS 23.1)
met:
• Borrowing costs
a. The entity incurs expenditures for the
Borrowing costs are interest and other costs incurred by asset;
an entity in connection with the borrowing of funds.
b. The entity incurs borrowing costs; and
Borrowing costs may include:
c. It undertakes activities that are
1. interest expense on financial liabilities or lease
necessary to prepare the asset for its
liabilities computed using the effective interest
intended use or sale.
method
• Suspension of capitalization
2. Exchange differences arising from foreign
currency borrowings to the extent that they are • Capitalization of borrowing costs shall be
regarded as an adjustment to interest costs. suspended during extended periods of
suspension of active development of a
• Qualifying asset
qualifying asset. 
• Qualifying asset is an asset that necessarily
• Cessation of capitalization
takes a substantial period of time to get ready
for its intended use or sale. Depending on the • An entity shall cease capitalizing borrowing
circumstances, any of the following may be costs when substantially all the activities
qualifying assets: necessary to prepare the qualifying asset for its
intended use or sale are complete.
a. Inventories
Determining borrowing costs eligible for
b. Manufacturing plants
capitalization
c. Power generation facilities
1. Qualifying assets financed through Specific
d. Intangible assets borrowing

e. Investment properties measured under Interest expense on specific borrowing

cost model ₱ xx

• Qualifying asset - continuation Less: Investment income earned on specific borrowing

xx
Borrowing cost eligible for capitalization The amount computed in the formula above shall be
₱ xx compared with the actual borrowing costs incurred
during the period. The amount to be capitalized is the
lower amount.

• Financial statement presentation

• Qualifying assets are not segregated from other

assets in the financial statements. They are
presented as regular assets under their normal
classification as provided under other
standards.

• APPLICATION OF CONCEPTS
 
• Determining borrowing costs eligible for
capitalization END

2. Qualifying assets financed through General • PAS 24 Related Party Disclosures

borrowing
Learning Objectives
Total interest expense on general borrowings
• Enumerate examples of related parties.
₱ xx
• Describe the disclosure requirements for
Divide by: Total general borrowings
related parties.
xx
• Objective and Scope
Capitalization rate
% • PAS 24 prescribes the necessary disclosures
regarding related party relationships and
 
transactions, outstanding balances and
Average expenditure on the asset commitments between an entity and its related
₱ xx parties.

Multiply by: Capitalization rate • Core principle

%
• The financial position and profit or loss of an
Borrowing cost that may be eligible for capitalization entity may be affected by a related party
₱ xx relationship even if related party transactions
do not occur. The mere existence of the
relationship may be sufficient to affect the
transactions of the entity with other parties.

• Necessary disclosures, therefore, should be

provided to draw users’ attention to the
possible effects of such relationships and
transactions on the financial statements
presented.

• Related parties

• A related party is “a person or entity that is

related to the reporting entity that is preparing
its financial statements.” (PAS 24)
 • Examples of related parties:
1. Investor and investee relationship
where control, joint control or
significant influence exists.
2. Key management personnel
3. Close family member
4. Post-employment benefit plan
• Definition of terms
• Control – an investor controls an investee when
the investor is exposed, or has rights, to
variable returns from its involvement with the
investee and has the ability to affect those
returns through its power over the investee..
• Significant influence is the power to participate
in the financial and operating policy decisions of
an entity, but is not control over those policies.
Significant influence may be gained by share
ownership, statute or agreement.
• Joint control is the contractually agreed sharing
of control over an economic activity.
• Definition of terms - continuation
• Key management personnel are those persons
having authority and responsibility for planning,
directing and controlling the activities of the
entity, directly or indirectly, including any
director (whether executive or otherwise) of
that entity.
• Close members of the family of an individual
a. the individual’s domestic partner and children;
END
b. children of the individual’s domestic partner; and
c. dependents of the individual or the individual’s
domestic partner.
Learning Objectives
• A related party transaction is a transfer of
resources, services or obligations between a
reporting entity and a related party, regardless
of whether a price is charged.
• Unrelated parties
• The following are not related parties:
1. Two entities simply because they have a
director in common.
2. Two venturers simply because they share joint
control over a joint venture.
3. Providers of finance, trade unions, public
utilities, and departments and agencies of a
government that does not control, jointly
control or significantly influence the reporting
entity, simply by virtue of their normal dealings
with an entity.
4. A customer, supplier, franchisor, distributor or
general agent with whom an entity transacts a
significant volume of business, simply by virtue
of the resulting economic dependence.
• Disclosure
1. Parent-subsidiary relationship regardless of
whether there have been transactions between
them.
2. Key management personnel compensation
broken down into the following categories
SPOTS and loans to key management
personnel.
3. Related party transactions – nature of
transaction and outstanding balances
• Disclosures that related party transactions were
made on terms equivalent to those that prevail
in arm’s length transactions are made only if
such terms can be substantiated.
• APPLICATION OF CONCEPTS
• PAS 26 Accounting and Reporting by
Retirement Benefit Plans
• State the applicability of PAS 26.
• Describe the accounting and reporting
requirements of PAS 26.
Applicability

Financial Statements of a Defined Contribution
Plan
• a statement of net assets available for benefits;
• a statement of changes in net assets available
for benefits; and
• accompanying notes to the financial statements
• Financial Statements of a Defined Benefit Plan
1. a statement that shows:
a. the net assets available for benefits;
b. the actuarial present value of promised
retirement benefits, distinguishing
between vested benefits and non-
vested benefits; and
c. the resulting excess or deficit (PAS
26.17)
or
2. a statement of net assets available for benefits
including either:
a. a note disclosing the actuarial present
value of promised retirement benefits,
distinguishing between vested benefits
and non-vested benefits; or
b. a reference to this information in an
accompanying actuarial report. (PAS
26.17)
• A statement of changes in net assets available
for benefits and accompanying notes are
provided in both (1) and (2) above.
• APPLICATION OF CONCEPTS
 
END
• PAS 27 Separate FS
Learning Objectives
• Describe the applicability of PAS 27.
• Describe the measurement bases allowed under
PAS 27.
• Scope
• PAS 27 does not mandate which entities should
produce separate financial statements.
• An entity shall apply PAS 27 in accounting for
investments in subsidiaries, joint ventures and
associates when it elects, or is required by local
regulations, to present separate financial
statements.
• Separate financial statements
• Separate financial statements are those
presented in addition to consolidated financial
statements or in addition to financial
statements in which investments in associates
or joint ventures are accounted for using the
equity method. Separate financial statements
need not be appended to, or accompany, those
statements.
• Preparation of separate financial statements
Separate financial statements shall be prepared in
accordance with all applicable PFRSs, except as follows:
• Investments in subsidiaries, associates and joint
ventures are accounted for in the separate
financial statements either:
1. at cost,
2. in accordance with PFRS 9 Financial
Instruments,
3. using the equity method
• The entity shall apply the same accounting for
each category of investments
END
• PAS 28 Investments in Associates and Joint
Ventures
 this method, the investment is initially
  recognized at cost and subsequently adjusted
for the investor’s share in the changes in the
Learning Objectives
EQUITY of the investee.
• Define an investment in associate.

• Describe the accounting requirements for

investments in associates and joint ventures.

• Definition of terms

• Associate – an entity, including an

unincorporated entity such as a partnership,
over which the investor has significant
influence.

• Significant influence – the power to participate

in the financial and operating policy decisions of
the investee but is not control or joint control
• Preference shares issued by an associate
over those policies.

(PAS 28)

• Significant influence

• Significant influence is presumed to exist if the

investor holds, directly or indirectly (e.g.
through subsidiaries), 20% or more of the
voting power of the investee, unless it can be
clearly demonstrated that this is not the case.

• Evidence of existence of significant influence If an associate has outstanding preference

by an investor
The following may provide evidence of significant
influence even if the percentage of ownership interest
is less than 20%.
a) Representation on the board of directors or
equivalent governing body of the investee;
b) Participation in policy-making processes,
including participation in decisions about
dividends or other distributions;
c) Material transactions between the investor and
the investee;
d) Interchange of managerial personnel; or
e) Provision of essential technical information.
• Equity method
• Investments in associates or joint ventures are
accounted for using the equity method. Under
shares that are held by parties other than the
investor, the investor computes its share of
profits or losses after making the following
adjustments.
• Discontinuance of the use of equity method
• An investor starts to apply the equity method
on the date it obtains significant influence and
ceases to apply the equity method on the date
it loses significant influence.
• On the loss of significant influence, the investor
shall measure at fair value any investment the
investor retains in the former associate. The
investor shall recognize in profit or loss any
difference between:
a. The fair value of any retained
investment and any proceeds
from disposing of the part
interest in the associate; and
 b. The carrying amount of the
investment at the date when
significant influence is lost.
• Classification of retained interest
Following the discontinuance of equity method, the
retained interest shall be classified as follows:
• Reclassification of cumulative OCI
• If an investor loses significant influence over an
associate, all amounts recognized in other
comprehensive income in relation to the
associate shall be accounted on the same basis
as would be required if the associate had
directly disposed of the related assets or
liabilities.
• Share in losses of associate
If an investor’s share of losses of an associate equals or
exceeds its interest in the associate, the investor
discontinues recognizing its share of further losses.
Interest in the associate includes the following:
1. Investment in associate measured under equity
method
2. Investment in preference shares of the associate
3. Unsecured long-term receivables or loans
 
Interest in the associate does not include the following:
1. Trade receivables and payables
2. Secured long-term receivables or loans
• Share in losses of associate - continuation
After the investor’s interest in the associate is reduced
to zero, additional losses are provided for, and a liability
is recognized, only to the extent that the investor has
incurred
a. Legal or constructive obligations or
b. Made payments on behalf of the associate.
• Any other losses are not recognized.
• If the associate subsequently reports profits,
the investor resumes recognizing its share of
those profits only after its share of the profits
equals the share of losses not recognized.
• APPLICATION OF CONCEPTS
END
• PAS 29 Financial Reporting in Hyperinflationary
Economies
Learning Objectives
• State the core principle under PAS 29.
• Describe the restatement procedures under
PAS 29.
• The Stable Monetary Assumption
• Under the stable monetary assumption, the
purchasing power of money is assumed to be
stable. Therefore, inflation is ignored.
• The exception to this concept is hyperinflation.
• Price level changes
• General price level changes and the purchasing
power of money have an inverse relationship.
 If the general price level increases, this
means that the purchasing power of
money has decreased – a condition
known as inflation.
 If the general price level decreases, this
means that the purchasing power of
money has increased – a condition
known as deflation.
 Hyperinflation
• Hyperinflation occurs when inflation is “very
high.”
 • PAS 29 does not establish an absolute rate at
which hyperinflation is deemed to arise. This is
a matter of judgment.
• Indicators of hyperinflation
1. The general population prefers to keep its
wealth in non-monetary assets or in a relatively  
stable foreign currency. Amounts of local
currency held are immediately invested to
maintain purchasing power;
2. The general population regards monetary
amounts not in terms of the local currency but
in terms of a relatively stable foreign currency.
Prices may be quoted in that currency;
3. Sales and purchases on credit take place at
prices that compensate for the expected loss of
purchasing power during the credit period, even
if the period is short;
4. Interest rates, wages and prices are linked to a
price index; and
5. The cumulative inflation rate over three years is
approaching, or exceeds, 100%.
• Core principle
• The financial statements of an entity whose
functional currency is the currency of a
hyperinflationary economy shall be stated in
terms of the measuring unit current at the end
of the reporting period.
• The comparative information for the previous
period shall also be stated in terms of the
measuring unit current at the end of the
reporting period.
• Presentation of information as a supplement to
unrestated financial statements is not
permitted.
• Separate presentation of the financial
statements before restatement is discouraged.
• Restatement of financial statements
Statement of financial position
• Only non-monetary items, statement of
financial position amounts not already
expressed in terms of the measuring unit
current at the end of the reporting period, are
restated when using the constant peso
accounting.
• Monetary items are not restated because they
are already expressed in terms of the monetary
unit current at the end of the reporting period.
• Monetary items are money held and items to
be received or paid in fixed or determinable
amount of money without reference to future
prices of specific goods or services. Monetary
items include monetary assets and monetary
liabilities.
• Examples of Monetary assets
1. Cash and cash equivalents
2. Loans and receivables and their related
allowances
3. Financial assets at amortized cost (debt
instruments)
4. Finance lease receivables
5. Cash surrender value
• Examples of Monetary liabilities
1. Financial liabilities at amortized cost (debt
instruments), e.g., accounts, notes, bonds, and
finance lease payables.
2. Accrued expenses payable in fixed and
determinable amounts of money.
3. Refundable deposits, e.g., security deposits on
leases to be returned to tenants at the end of
the lease term and deposits for returnable
containers.
4. Dividends payable
• All other items that cannot be classified as
monetary items are non-monetary items,
except of “retained earnings.” Retained
earnings is the a balancing figure after
restatement.
• Examples of Nonmonetary assets
1. Physical assets such as inventories, property,
plant, and equipment, and investment
 properties and their related accumulated
depreciation
2. Intangible assets
3. Financial assets measured at fair value
4. Advances and prepayments not collectible in
cash such as advances to suppliers, prepaid
insurance, prepaid rent, and the like.
• Examples of Nonmonetary liabilities
1. Financial liabilities measured at fair value
2. Unearned items not payable in cash such as
advances from customers, unearned rent,
deferred revenues, and the like.
3. Warranty obligations to be settled by future
delivery of services (e.g., free repair service) or
replacement with other non-monetary items
(e.g., free replacement of parts or replacement
of the good purchased).
• Equity items such as share capital and share
premium are also nonmonetary items and thus
restated.
• Non-monetary items carried at other than cost
• As a general guide, only non-monetary
measured at cost are restated. The following
non-monetary items need not be restated:
1. Non-monetary items measured at net realizable
value (NRV) or Fair value as at the end of
reporting period*.
2. Non-monetary items measured at revalued
amounts as at the end of reporting period*.
• * If the NRV, fair value or revalued amount is
determined at a date other than the end of
reporting period, the nonmonetary item is
nevertheless restated.
• Restatement of financial statements
• All items in the statement of profit or loss and
other comprehensive income are restated.
• Formula for restatement
• Gain or loss on net monetary position
The gain or loss on the net monetary position
(also called ‘purchasing power gain or loss’) is
recognized in profit or loss.
• APPLICATION OF CONCEPTS
END
• Financial Instruments
• Financial instrument – is “any contract that
gives rise to a financial asset of one entity and a
financial liability or equity instrument of
another entity.” (PAS 32.11)
• Financial assets
• Financial asset – is any asset that is:
a. Cash;
b. An equity instrument of another entity;
c. A contractual right to receive cash or
another financial asset from another
entity;
d. A contractual right to exchange
financial instruments with another
entity under conditions that are
potentially favorable; or
e. A contract that will or may be settled in
the entity’s own equity instruments and
is not classified as the entity’s own
equity instrument.
• Financial liabilities
• Financial liability – is any liability that is:
a. A contractual obligation to deliver cash
or another financial asset to another
entity;
b. A contractual obligation to exchange
financial assets or financial liabilities
with another entity under conditions
 that are potentially unfavorable to the
entity; or
c. A contract that will or may be settled in
the entity’s own equity instruments and
is not classified as the entity’s own
equity instrument.
• Equity instrument
• Equity instrument – is “any contract that
evidences a residual interest in the assets of an
entity after deducting all of its liabilities.” (PAS
32.11)
• Examples of financial assets
a. Cash and cash equivalents (e.g., cash on hand,
in banks, short-term money placements, and
cash funds)
b. Receivables such as accounts, notes, loans, and
finance lease receivables.
c. Investments in equity or debt instruments of
other entities such as held for trading securities,
investments in subsidiaries, associates, joint
ventures, investments in bonds, and derivative
assets
d. Sinking fund and other long-term funds
composed of cash and other financial assets.
• The following are not financial assets:
a. Physical assets, such as inventories,
biological assets, PPE and investment
property
b. Intangible assets
c. Prepaid expenses and advances to
suppliers
d. The entity’s own equity instrument
(e.g., treasury shares)
• Examples of financial liabilities
a. Payables such as accounts, notes, loans and
bonds payable.
b. Lease liabilities
c. Held for trading liabilities and derivative
liabilities
d. Redeemable preference shares issued.
e. Security deposits and other returnable deposits
• The following are not financial liabilities:
a. Unearned revenues and warranty obligations
that are to be settled by future delivery of
goods or provision of services.
b. Taxes, SSS, Philhealth, and Pag-IBIG payables
c. Constructive obligations
• Presentation
• Contracts settled through equity instruments
• Redeemable vs. Callable Preference shares
• Compound financial instruments
• A compound financial instrument is a financial
instrument that, from the issuer’s perspective,
contains both a liability and an equity
component. These components are classified
and accounted for separately, as follows:
a. The value assigned to the liability
component is its fair value without the
equity feature.
b. The value assigned to the equity
component is the residual amount after
deducting the value assigned to the
liability component from the total fair
value of the compound instrument.
• Treasury shares
• Treasury shares are an entity’s own shares that
were previously issued but were subsequently
reacquired but not retired.
• Treasury shares are treated as deduction from
equity.
• Treasury share transactions are recognized
directly in equity. Therefore, they do not result
to gains or losses.
• Interest, Dividends, Losses and Gains
 • Offsetting of financial assets & financial
liabilities
• A financial asset and a financial liability are
offset and only the net amount is presented in
the statement of financial position when the
entity has both:
a. a legal right of setoff and
b. an intention to settle the
amounts on a net basis or
simultaneously
• APPLICATION OF CONCEPTS
END
• PAS 33 Earnings Per Share
Learning Competencies
• Explain how basic earnings per share is
computed.
• Explain how diluted earnings per share is
computed.
• Definition
• Earnings per share (EPS) is a computation made
for ordinary shares. It is a form of profitability
ratio which represents how much was earned
by each ordinary share during the period. No
EPS is presented for preference shares because
these shares have a fixed return represented by
their dividend rates.
• Types of Earnings per share
1. Basic earnings per share
2. Diluted earnings per share
• Basic Earnings Per Share
• Considerations in computing “Profit or loss”
a. Profit or loss should be net of income tax
expense
b. Profit or loss should be adjusted for the after-
tax amounts of preference dividends,
differences arising on the settlement of
preference shares, and other similar effects of
preference shares classified as equity.
• Adjustments for preference dividends
a. If the preference shares are cumulative, one-
year dividend is deducted from profit or loss
whether declared or not.
b. If the preference shares are non-cumulative,
only the dividend declared is deducted from
profit or loss.
• Weighted average number of outstanding
ordinary shares
• Shares are usually time-weighted from the date
consideration is receivable (which is generally
the date of their issue). Thus:
a. Shares issued outright are averaged
from the issuance date.
b. Subscribed shares are averaged from
the subscription date.
c. Treasury shares are averaged
i. as reduction to the number of
outstanding shares from the
reacquisition date; or
ii. as addition to the number of
outstanding shares from the
reissuance date
• Restatement of EPS
• EPS in previous periods are adjusted
retrospectively when an entity issues any of the
following:
a. A capitalization or bonus issue (e.g.,
share dividend);
b. A bonus element in any other issue, for
example a bonus element in a rights
issue to existing shareholders (also
referred to as preemptive stock rights);
c. A share split (increase in number of
shares with corresponding decrease in
par value); and
 d. A reverse share split (consolidation of 1. The options or warrants are exercised and
shares or decrease in number of shares
2. The proceeds received from the exercise are
with corresponding increase in par
used to purchase treasury shares at the
value).
average market price.
• Rights issue
3. The difference between the treasury shares
assumed to have been purchased and the
option shares represents the incremental
shares.

• Treasury share method

• Diluted earnings per share

• Diluted earnings per share is the amount of

profit for the period per share, reflecting the
maximum dilutions that would have resulted
from conversions, exercises, and other
contingent issuances that individually would
have decreased earnings per share and in the
aggregate would have had a dilutive effect.

• Only basic earnings per share is presented if an

entity has no dilutive potential ordinary shares
(i.e., simple capital structure). 

• The computation of diluted earnings per share • Financial statement Presentation

is based on the assumption that the dilutive
potential ordinary shares were converted or
exercised. It is:
1. “As if” the convertible preference shares or
convertible bonds have been converted; or
2. “As if” the options or warrants have been
exercised.
• Basic and Diluted earnings per share are
computed on the following:
1. Profit or loss from continuing operations
2. Profit or loss from discontinued operations, if
the entity reports a discontinued operation.
3. Profit or loss for the year

• The conversion or exercise is assumed to have • EPS is not computed on other comprehensive
taken place on the date the potential ordinary income and total comprehensive income.
shares became outstanding, regardless of the
• Financial statement Presentation
date of actual conversion or exercise.
(Continuation)

• EPS computed on profit or loss from continuing

• Options, warrants and their equivalents
• When computing for diluted earnings per share,
the “treasury share method” shall be used in
computing for the incremental shares. This
method assumes that:
operations and profit or loss for the year are
presented on the face of the statement of profit
or loss and other comprehensive income. If the
entity uses a two-statement presentation, EPS is
presented only on the separate income
statement.
• APPLICATION OF CONCEPTS
 
END • Complete set of financial statements under
PAS 1
• PAS 34 Interim Financial Reporting
1. Statement of financial position;
Learning Objectives
2. Statement of profit or loss and other
• Define an interim financial report.
comprehensive income;
• State the scope and applicability of PAS 34.
3. Statement of changes in equity;
• Briefly describe the recognition and
4. Statement of cash flows;
measurement principles applied in interim
financial reporting. 5. Notes, comprising a summary of significant
accounting policies and other explanatory
• Definition of terms
information;
• Interim reporting pertains to the preparation
(5a) comparative information in respect of the
and presentation of interim financial report for
an interim period.

• Interim period is a financial reporting period

shorter than a full financial year.

• Interim financial report means a financial

report containing either:

a. a complete set of financial statements

(PAS 1); or

b. a set of condensed financial statements

(PAS 34)

………for an interim period.

• Scope
preceding period; and
• PAS 34 does not require entities to provide
interim financial reports.
• PAS 34 applies if an entity is (a) required by
government, securities regulators, stock
exchanges, and accountancy bodies or (b) the
entity elects or chooses to publish an interim
financial report in accordance with PFRSs.
6. A statement of financial position as at the
beginning of the preceding period (i.e., in cases
of retrospective application, retrospective
restatement or reclassification adjustment).
• Minimum content of an interim financial
report under PAS 34

• PAS 34 encourages publicly traded entities to 1. Condensed statement of financial position;

provide at least semi-annual interim financial
report and publish them not later than 60 days
after the end of the interim period.
• Content of an interim financial report
• An entity presenting an interim financial report
has the option of complying either with PAS 1
(complete set of FS) or PAS 34 (condensed set of
FS).
2. Condensed statement of profit or loss and other
comprehensive income, presented as either (a)
a condensed single statement; or (b) a
condensed separate income statement and a
condensed statement of comprehensive
income;
3. Condensed statement of changes in equity;
4. Condensed statement of cash flows; and
5. Selected explanatory notes.
• The term “condensed” means an entity needs
only to provide the minimum information
required under PAS 34.
• However, an entity is not prohibited from
publishing a complete set of financial
statements in accordance with PAS 1 in its
interim financial report.
• Furthermore, an entity is also not prohibited
from including in its condensed interim financial
statements information that is more than the
minimum line items or selected explanatory
notes set out under PAS 34.
• Additional concepts
• Relevance over Reliability – in the interest of
timeliness and cost considerations, less
information may be provided at interim dates.
• Materiality and Estimates – an entity may rely
on estimates to a greater extent when
END
preparing interim financial reports.
• Note disclosures – only selected explanatory
notes are provided in interim financial reports
to avoid repetition.
• Periods for which interim financial statements
are presented
Learning Competencies
• Semi-annual interim financial reporting
• Periods for which interim financial statements
are presented (continuation)
• Quarterly interim financial reporting (3rd qtr.)
• Business is highly seasonal
• If an entity's business is highly seasonal, PAS 34
encourages disclosure of financial information
for the latest 12 months and comparative
information for the prior 12-month period in
addition to the interim period financial
statements.
• Recognition and measurement
• Gains and losses arising in an interim period are
recognized immediately and are not deferred,
e.g., inventory write-downs & reversals; asset
impairment losses & reversals; discontinued
operations; and fair value changes on assets
measured at fair value.
• Costs and expenses (income) that benefit the
entire year or are incurred (earned) over the
year are spread out over the interim periods,
e.g., depreciation, amortization; property taxes;
insurance expense; interest expense (income);
13th month pay and other year-end bonuses.
• Recognition and measurement (continuation)
• Discretionary income are recognized
immediately in the period the income is earned,
e.g., dividend income.
• Income tax expense in the interim periods is
computed using the best estimate of the
weighted average annual income tax rate
expected for the full financial year.
• APPLICATION OF CONCEPTS
 
• PAS 36 Impairment of Assets
 
 • State the core principle of PAS 36. • If there is no indication that an asset may be
impaired, an entity is not required to estimate
• Account for the impairment of individual assets
the recoverable amount of the asset.
and cash-generating units.
• Indications of impairment
• Account for the reversal of impairment.
I. External sources of information
• Core Principle
a. Significant decline in the asset’s value more
• If the carrying amount of an asset is greater
than what is expected as a result of passage of
than its recoverable amount, the asset is
time of normal use.
impaired. The excess is impairment loss.
b. Significant changes in technological, market,
economic or legal environment in which the
• Computation of Impairment loss entity operates or in the market to which an
asset is dedicated.

c. Increase in market interest rates or other

market rates of return on investments which
are likely to affect discount rates used in
calculating asset’s value in use and decrease
asset’s recoverable amount materially.

d. Carrying amount of the net assets is more than

its market capitalization.

II. Internal sources of information

a. Evidence of obsolescence or physical damage

b. Significant change with adverse effect to the

entity has taken place or will take place, which
Recoverable amount xx
will affect expected use of asset, e.g.,
Less: Carrying amount (xx) discontinuance, disposal, restructuring plans.

Impairment loss xx c. Evidence is available from internal reporting

that indicates that the economic performance
• Recoverable amount is the amount to be of an asset is, or will be, worse than expected.
recovered through use or sale of an asset. It is
the higher of an asset’s: • Required testing for impairment

a. Fair value less costs of disposal, and • The following assets are required to be tested
for impairment at least annually, whether or
b. Value in use not there are indications for impairment:
Value in use is the present value of the future cash flows a. Intangible asset with indefinite useful
expected to be derived from an asset or cash- life
generating unit.
b. Intangible asset not yet available for
• Identifying an asset that may be impaired use
• An entity shall assess at the end of each c. Goodwill acquired in a business
reporting period whether there is any combination
indication that an asset may be impaired. If any
such indication exists, the entity shall estimate • Measuring recoverable amount
the recoverable amount of the asset.
• Recoverable amount is the higher of the asset’s
fair value less costs of disposal and value in use.
• However, if there is no reason to believe that
an asset’s value in use materially exceeds its fair
value less costs of disposal, the asset’s fair value
less costs of disposal may be used as its
recoverable amount. This will often be the case
for an asset that is held for disposal.
• Value in use
• Value in use is the present value of the future
cash flows expected to be derived from an asset
or cash-generating unit.
a. Any residual value of the asset and
disposal costs should be included in
estimating future cash inflows and
outflows.
b. Cash flow projections shall cover a
maximum period of 5 years.
c. Projections beyond 5 years are
extrapolated.
d. The discount rate to be used shall be a
pre-tax rate
• Value in use – continuation
• Recognizing and measuring an impairment loss
• Impairment loss is recognized in profit or loss,
unless the asset is carried at revalued amount,
in which case revaluation surplus is decreased
first and any excess is recognized in profit or
loss. The decrease in the revaluation surplus is
recognized in other comprehensive income.
• Depreciation after impairment
• After the recognition of an impairment loss, the
depreciation (amortization) charge for the asset
shall be adjusted in future periods to allocate
the asset’s revised carrying amount, less its
residual value (if any), on a systematic basis
over its remaining useful life.
• Cash-generating unit (CGU)
• Cash-generating unit (CGU) is the smallest
identifiable group of assets that generates cash
inflows that are largely independent of the cash
inflows from other assets or groups of assets.
• Impairment of individual assets included in a
CGU
• Assets whose recoverable amount can be
determined reliably are tested for impairment
individually.
• Assets whose recoverable amount cannot be
determined reliably (e.g., assets that do not
generate their own cash flows) are included in a
CGU. The CGU is the one tested for impairment.
• Allocating goodwill to CGU’s
• For purposes of impairment testing, goodwill
acquired in a business combination shall be
allocated to each of the acquirer’s CGU in the
year of business combination.
• Impairment loss for a CGU
• The impairment loss on a CGU shall be
allocated
1. First, to any goodwill allocated to the CGU
2.
Then,
to the
other
assets
of the
unit
pro
rata
on
the basis of the carrying amount of each asset in the provisions are reported separately.
unit.
• Provision vs. Contingent liability
• Reversal of Impairment loss

• Recognition of provisions

• A provision is recognized when all of the

following conditions are met:

1. The entity has a present obligation (legal or

constructive) as a result of a past event;

2. It is probable that an outflow of resources

• APPLICATION OF CONCEPTS
embodying economic benefits will be required
 
to settle the obligation; and
END
3. A reliable estimate can be made of the amount
• PAS 37 Provisions, Contingent Liabilities and of the obligation.
Contingent Assets

Learning Competencies

• State the recognition criteria for provisions.

• Differentiate the accounting requirements for a

provision, a contingent liability and a contingent
asset.

• Describe the measurement of a provision.

• Provisions

• A provision is a liability of uncertain timing or

amount.

• Provisions differ from other liabilities because

of the uncertainty about the timing or amount
of expenditure required in settlement. Unlike
for other liabilities, provisions must be
estimated. Although, some other liabilities are
also estimated, their uncertainty is generally
much less than for provisions.

• Present value

• Where the effect of the time value of money is

material, the amount of a provision shall be the
present value of the expenditures expected to
be required to settle the obligation.
 • Expected disposal of assets • Liability for premiums

• Gains from the expected disposal of assets shall
not be taken into account in measuring a
provision. Gains shall be recognized only when
the assets are actually disposed of.
• Reimbursements
• Where some or all of the expenditure required
in settling a provision is expected to be
reimbursed by another party, the
reimbursement is recognized only when it is
virtually certain that reimbursement will be
received if the entity settles the obligation.
• The reimbursement shall be treated as a
separate asset.
• In the statement of profit or loss and other
comprehensive income, the expense relating to
a provision may be presented net of the
amount recognized for a reimbursement.
• A customer option to acquire additional goods
or services for free or at a discount is accounted
for under PFRS 15 if the option provides the
customer a material right that the customer
would not receive without entering into that
contract.
• A customer option that does not provide the
customer with a material right is not accounted
for under PFRS 15; and therefore, accounted for
in accordance with PAS 37.
• Guarantee for indebtedness of others
• A provision for the guarantee for indebtedness
of others is recognized when it becomes
probable that the entity will be held liable for
the guarantee, such as when the original debtor
defaults on the loan.
• Contingent assets

• Changes in provisions

• Provisions shall be reviewed at the end of each

reporting period and adjusted to reflect the
current best estimate.

• If it is no longer probable that an outflow of

resources embodying economic benefits will be
required to settle the obligation, the provision
shall be reversed.

• Product warranties and guarantees • APPLICATION OF CONCEPTS

 
• If a customer has the option to purchase a
warranty separately (for example, because the END
warranty is priced or negotiated separately), • PAS 38 Intangible Assets
the warranty is accounted for in accordance
with PFRS 15 Revenue from Contracts with
Customers.

• If a customer does not have the option to

purchase a warranty separately, the warranty is
accounted for in accordance with PAS 37  
Provisions, Contingent Liabilities and Contingent Learning Objectives
Assets unless the promised warranty provides
the customer with a service in addition to the • Define an intangible asset.
assurance that the product complies with
agreed-upon specifications.
 • State the initial measurement of intangible
assets that are (a) externally acquired and (b)
internally generated.
• State the subsequent measurement of
intangible assets that (a) have finite useful life
and (b) indefinite useful life.
• Intangible assets
• An intangible asset is an identifiable non-
monetary asset without physical substance.
• Goodwill acquired in a business combination is
outside the scope of PAS 38 because it is
unidentifiable. Goodwill is accounted for under
PFRS 3 Business Combinations and PAS 36
Impairment of Assets.
• Essential criteria in the definition of intangible
assets
1. Identifiability – separable or arises from
contractual rights
2. Control – power to obtain (or restrict others
from obtaining) the economic benefits from an
asset.
3. Future economic benefits – may include
revenue from the sale of products or services,
cost savings, or other benefits resulting from
the use of the asset by the entity.
• Recognition
An intangible asset shall be recognized if management
can demonstrate that:
1. The item meets the definition of intangible
asset;
2. It is probable that the expected future
economic benefits will flow to the entity; and
3. The cost of the asset can be measured reliably.
• Initial measurement
An intangible asset shall be measured initially at cost.
Measurement of cost depends on how the intangible
asset is acquired. Intangible assets may be acquired
through:
1. Separate acquisition
2. Acquisition as part of a business combination
3. Acquisition by way of a government grant
4. Exchanges of assets
5. Internal generation
• Separate acquisition
The cost of a separately acquired intangible asset
comprises:
1. Its purchase price, including import duties and
non-refundable purchase taxes, after deducting
trade discounts and rebates; and
2. Any directly attributable cost of preparing the
asset for its intended use.
• Acquisition as part of a business combination
• The cost of intangible asset acquired in a
business combination is its fair value at the
acquisition date.
• Acquisition by way of a government grant
Intangible assets acquired by way of government grant
may be recorded at either:
1. fair value
2. alternatively, at nominal amount or zero, plus
direct costs incurred in preparing the asset for
its intended use
• Exchanges of assets
• If the exchange has commercial substance, the
intangible asset is initially recognized using the
following order of priority:
a. Fair value of the asset Given up (Plus
cash Paid or minus cash received)
b. Fair value of the asset Received
c. Carrying amount of the asset Given up
(Plus cash Paid or minus cash received)
• If the exchange has lacks commercial substance,
the intangible asset is initially recognized using
(c) above.
• An exchange transaction has a commercial
substance if the expected future cash flows
from the asset received significantly differ from
those of the asset given up.
 • Internally generated intangible assets v. Engineering follow through in an early phase of
commercial production
The costs of self-creating an intangible asset are
classified into: vi. Quality control during commercial production

a. Research costs – include costs of searching new b. Advertising and other marketing expenses
knowledge and identifying and selecting
c. Training costs
possible alternatives.

b. Development costs – include costs of designing

from selected alternative and using knowledge (HINT: R&D expense relates to something that is still in
gained from research. the process of being invented. It does not relate to
periodic changes to an existing product . The following
• If an entity cannot identify in which phase a cost
terms generally indicate that a cost is not an R&D
is incurred, the cost is regarded as incurred in
expense: ‘commercial,’ ‘customer,’ ‘advertising’ and
research phase.
‘market’.)
 
• Items of PPE used in R&D activities
• R&D Costs
• If the item of PPE can be used in various R&D
1. Costs incurred in research phase are expensed activities or other purposes, the cost of the PPE
immediately. is capitalized and depreciated. The amount of
depreciation is included as R&D expense.
2. Costs incurred in development phase are
expensed immediately, unless they meet all of • If the item of PPE is can only be used on one
the following conditions for capitalization: specific R&D project, the cost of the PPE is
expensed immediately in its entirety as R&D
(1) Technical feasibility,
expense.
(2) Intention to complete,
• Items not recognized as intangible assets
(3) Ability to use or sell,
• The cost of internally generated brands,
(4) Probable economic benefits, mastheads, publishing titles, customer lists,
goodwill and items similar in substance are
(5) Availability of adequate resources, and expensed when incurred.
(6) Measured reliably. • Subsequent expenditure
• R&D Costs (continuation) • Subsequent expenditures on an intangible asset
The following are not R&D expenses but rather regular are generally recognized as expense.
expenses. • Reinstatement of costs in subsequent period
a. Costs incurred during commercial production: • Expenditure on an intangible item that was
i. Trouble-shooting during commercial initially recognized as an expense shall not be
production recognized as part of the cost of an intangible
asset at a later date.
ii. Periodic or routine design changes to existing
products • Measurement after recognition

iii. Modification of design for a specific customer • After initial recognition, an entity shall choose
as its accounting policy either the
iv. Design, construction and operation of plant
that is feasible for commercial production a. Cost model, or
 b. Revaluation model – applicable only if the • Investment property vs. PPE
intangible

asset has an active market.

• Amortization

• Intangible assets with finite useful life are

amortized over the shorter of the asset’s useful
life and legal life.

• Intangible assets with indefinite useful life are

not amortized but tested for impairment at
least annually.

• The default method of amortization is the

straight line method.

• APPLICATION OF CONCEPTS
 
• Examples of investment property
END
a. Land held for long-term capital appreciation
• PAS 40 Investment Property rather than for short-term sale in the ordinary
course of business.

b. Land held for a currently undetermined future

  use.

Learning Competencies c. A building owned by the entity (or held by the

• Define an investment property.
• State the initial and subsequent measurements
of investment property.
• Apply the fair value model of accounting for
investment property.
• Investment property
• Investment property is “property (land or a
building – or a part of a building – or both) held
(by the owner or by the lessee under 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; or
b. sale in the ordinary course of business.”
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.
• Examples of items that are not investment
property
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 (PAS 16) and owner-

occupied property awaiting disposal.

d. Property that is leased to another entity under

(PAS 40) a finance lease.
• Property that is partly investment property
and partly owner-occupied
• If the portions could be sold separately (or
leased out separately under a finance lease), an
entity accounts for the portions separately. The
portion being rented out under operating lease
is classified as investment property and the
portion used as owner-occupied is classified as
property, plant, and equipment.
• If the portions could not be sold separately, the
property is investment property only if an
insignificant portion is held for use in the
production or supply of goods or services or for
administrative purposes. If the owner-occupied
portion is significant, the entire property is
classified as property, plant, and equipment.  cases where the exemptions under PAS 40
• Ancillary services to occupants
• When ancillary services are provided to the
occupants of a property held, the property is
classified as investment property if the services
are insignificant to the arrangement as a whole.
• Measurement
• Initial: Cost
• Subsequent: Either the Cost model or Fair value
model
• The following are excluded from the cost of
investment property and are expensed
immediately:
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
• Change in accounting policy
• A change from the cost model to the fair value
is accounted for prospectively.
• A change from the fair value model to the cost
model is not permitted.
• Determining fair value
• PAS 40 requires all entities to determine the fair
value of investment property whether it uses
the cost model or fair value model. Fair values
determined are used for measurement and
disclosure purposes if the entity uses the fair
value model and for disclosure purposes only if
the entity uses the cost model.
• Fair value model
• After initial recognition, an entity that chooses
the fair value model shall measure all of its
investment property at fair value, except in
applies.
• Changes in fair values are recognized in profit
or loss.
• Depreciable assets classified as investment
property measured under fair value model are
not depreciated.
• If the fair value of an item of investment
property cannot be determined reliably on
initial recognition, such item is subsequently
measured under the cost model.
• 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.
• Transfers
• Transfers to, or from, investment property shall
be made when, and only when, there is a
change in use, evidenced by:
a. Commencement of owner-occupation,
for a transfer from investment property
to owner-occupied property;
b. Commencement of development with a
view to sale, for a transfer from
investment property to inventories;
 c. End of owner-occupation, for a transfer
from owner-occupied property to
investment property; or
d. Commencement of an operating lease
to another party, for a transfer from
inventories to investment property.
• APPLICATION OF CONCEPTS
END
• PAS 41 Agriculture
Learning Objectives
• Differentiate the following: biological assets,
bearer plants, agricultural produce and
inventory.
• State the initial and subsequent measurement
of biological assets and agricultural produce.
• State the accounting for government grants
that are within the scope of PAS 41.
• Scope
PAS 41 is applied to account for the following when
they relate to agricultural activity:
a. Biological assets, except for bearer plants.
b. Agricultural produce at the point of harvest;
and
c. Unconditional government grants related to a
biological asset measured at its fair value less
cost to sell
• Scope - continuation
PAS 41 does not apply to the following:
a. Land (PAS 16 PPE and PAS 40 Investment
Property)
b. Bearer plants related to agricultural activity
(PAS 16). However, PAS 41 applies to the
produce on those bearer plants.
c. Government grants related to bearer plants
(PAS 20 Acctg. for Gov’t. Grants and Disclosure
of Gov’t. Assistance).
d. Intangible assets (PAS 38 Intangible Assets).
• PAS 41 is applied to agricultural produce at the
point of harvest. After the point of harvest, PAS
2 Inventories or other applicable standard is
applied.
• Consumable vs. Bearer biological assets
Biological assets are either consumable or bearer.
a. Consumable - those that are to be harvested as
agricultural produce or sold as biological assets.
Ex. Timber
b. Bearer - those other than consumable biological
assets. Ex. Fruit tree
• PAS 41 applies to both consumable and bearer
animals. However, PAS 41  only to consumable
plants but not to bearer plants.
• Agricultural activity
• PAS 41 applies to biological assets, agricultural
produce and gov’t. grants only when they relate
to agricultural activity.
• Agricultural activity is the management by an
entity of the biological transformation of
biological assets for sale, into agricultural
produce, or into additional biological assets.
• Common features of agricultural activity
a. Capability to change – Living animals and plants
are capable of biological transformation.
 b. Management of change – Management
facilitates biological transformation by
enhancing, or at least stabilizing, conditions
necessary for the process to take place.
• Harvesting from unmanaged sources is not
agricultural activity.
c. Measurement of change – The change in quality or
quantity brought about by biological transformation is
measured and monitored as a routine management
function.
• Recognition
A biological asset or agricultural produce is recognized
when:
a. the entity controls the asset as a result of past
events;
b. it is probable that future economic benefits
associated with the asset will flow to the entity;
and
• Costs to sell are the incremental costs directly
attributable to the disposal of an asset,
excluding finance costs and income taxes (e.g.,
Commissions to brokers, Levies by regulatory
agencies and commodity exchanges, and
Transfer taxes and duties)
• Costs to sell do not include transport costs,
advertising costs, income taxes, and interest
expense.
• If location is a characteristic of the biological
asset, the price in the principal (or most
advantageous) market shall be adjusted for the
transport costs.
• Gains and losses
• A gain or loss arising on initial recognition of a
biological asset at fair value less costs to sell
and from a change in fair value less costs to sell
of a biological asset shall be included in profit
or loss for the period in which it arises.

c. the fair value or cost of the asset can be • Government Grants

measured reliably.

• Measurement

• A biological asset shall be measured on initial

recognition and at the end of each reporting
period at its fair value less costs to sell.

• Agricultural produce harvested from an entity’s

biological assets shall be measured at its fair
value less costs to sell at the point of harvest.
Such measurement is the cost at that date
when applying PAS 2 Inventories or another
applicable standard.

• Measurement - continuation

• A biological asset is measured at cost less

accumulated depreciation and accumulated • Encouraged disclosures
impairment loss if the fair value of the biological
asset cannot be measured reliably on initial Disclosure of the following information is encouraged
recognition. but not required:

• Definitions 1) Disclosure of consumable and bearer biological

assets.
• Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an 2) Disclosure of mature and immature biological assets.
orderly transaction between market
participants at the measurement date.
 a. Mature biological assets are those that
have attained harvestable specifications
or are able to sustain regular harvests.

b. Immature biological assets are those

that have not yet attained harvestable
specifications or are not yet able to
sustain regular harvests.

3) Disclosure of breakdown of total “Gain (loss) from

changes in FVLCS” during the period attributable to
price change and physical change

• APPLICATION OF CONCEPTS
 

END