Summary Notes

Topic: PAS 20- Government Grant

Name: Edmark R. Luspe

1. Government Grant
• Assistance of government in the form of transfer of resources to an entity in return for part or future
compliance with certain conditions relating to the operating activities of the entity (PAS20)
• Also called as subsidy, subvention or premium

2. Recognition and Measurement

• Government grant, including nonmonetary grant at fair value, shall be recognized when:
a. The entity will comply with the conditions attaching to the grant.
b. The grant will be received.

3. Classification and Presentation

a. Grant related to Asset
• Government grant whose primary condition is that an entity qualifying for the grant shall purchase,
construct or acquire long-term asset.
• Can be presented in the Financial Position as a deferred income or by deducting the grant in arriving
at the carrying amount of the asset

b. Grant related to Income

• By residual definition, all government grant other than grant related to asset
• Presented in the income statement under other income or deducted from related expense

4. Accounting for Government Grant (PAS20)

a. Grant in recognition of specific expenses
• Grant in recognition of expense shall be recognized as income over the period of the related expense.
b. Grant related to depreciable asset
• Grant related to depreciable asset shall be recognized as income over the periods and in proportion
to the depreciation of the related asset.

c. Grant related to nondepreciable asset

• Grant related to nondepreciable asset requiring fulfillment of certain conditions shall be recognized
as income over the periods which bear the cost of meeting the conditions.

d. Grant that becomes receivable

• Grant that becomes receivable as compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to the entity with no further related costs shall be
recognized as income of the period in which it become receivable.

5. Repayment of Government Grant

• A grant becomes repayable because of noncompliance with conditions shall be accounted for as
change in accounting estimate.

6. Grant of Interest Free loan

• A forgivable loan from government is treated as a government grant when there is reasonable
assurance that the entity will meet the terms for forgiveness of the loan.
7. Government Assistance
• Government assistance is action by the government designed to provide an economic benefit and no
value can reasonably placed upon it, therefore not a part of government grants.
Summary Notes
Topic: PAS 23- Borrowing Costs
Name: Edmark R. Luspe

Borrowing Cost
• Interest and other costs that an entity incurs in connection with borrowing of funds, this includes:
a. Interest expense calculated using the effective interest method
b. Finance charge with respect to a finance lease
c. Exchange difference arising from foreign currency borrowing to the extent that it is regarded as
an adjustment to interest cost.

2. Qualifying Asset
• An asset that necessarily takes a substantial period of time (more than a year) to get ready for the
intended use or sale. Examples;
a. Manufacturing plant
b. Power generation facility
c. Intangible asset
d. Investment property
3. Excluded from Capitalization
• PAS23 does not require capitalization of borrowing costs relating to the following
a. Assets measured at fair value, such as biological asset
b. Inventories that are manufactured or produced in large quantities on a repetitive basis, such as
maturing whisky, even if they take a substantial period of time to get ready for sale
c. Assets that are ready for intended use or sale when acquired.

4. Measurement of borrowing cost

• If the borrowing is directly attributable to the acquisition construction or production of a qualifying
asset, the borrowing cost is required to be capitalized as cost of the asset. In other words,
capitalization of borrowing cost is mandatory for a qualifying asset.
• If the borrowing is not directly attributable to a qualifying asset, the borrowing cost is expensed
immediately.

5. Accounting for Borrowing Cost

a. Specific Borrowing
• If the funds are borrowed specifically for the purpose of acquiring a qualifying asset the
amount of the capitalizable borrowing cost is the actual borrowing cost less any
investment income from the temporary investment of those borrowings.

b. General Borrowing
• If the funds are borrowed generally and used for acquiring a qualifying asset, the amount
of the capitalizable borrowing cost is equal to the average carrying amount of the asset
or average expenditure during the period multiplied by a capitalization rate or average
interest rate.
• The capitalization rate or average interest rate is equal to the total annual borrowing cost
divided by the total general borrowings outstanding during the period.
• The capitalizable borrowing cost shall not exceed the actual borrowing cost.
• No specific guidance for investment income from general borrowing

c. Both Specific and General Borrowing

• [ABC-specific – Interest Income=CBC-specific] + [(average expenditure – Specific Borrowing)
X (Capitalization rate) = CBC-general] = Total CBC

d. Specific borrowing used for General Purpose

• If the asset is financed by specific borrowing but a portion is used for other purposes then the
borrowing shall be treated as a general borrowing when determining the capitalizable
borrowing cost.
6. Capitalization
a. Commencement
• Capitalization of Borrowing Cost shall commence when the 3 conditions are present
1. When the entity incurs expenditures for the asset.
2. When the entity incurs borrowing cost.
3. When the entity undertakes activities that are necessary to prepare the asset for the
intended use or sale (not only the physical construction of the asset).

b. Suspension
• Capitalization of Borrowing Cost shall be suspended during extended periods in which active
development is interrupted.
 • Capitalization of Borrowing Cost is not normally suspended during a period when substantial
technical and administrative work is being carried out.
• Capitalization of Borrowing Cost is not suspended when an interruption/delay is a necessary
part of the process of getting an asset ready for its intended use or sale.

c. Cessation
• Capitalization of Borrowing Cost shall stop when substantially all the activities necessary to
prepare the qualifying asset for the intended use or sale are complete.
• Normally an asset is ready for the intended use when the physical construction of the asset is
complete even though routine administrative work might still continue
Summary Notes
Topic: PAS 24- Related Party Disclosures
Name: Edmark R. Luspe

1. Meaning
• Parties are related if one party has:
a. To control the other party
b. The ability to exercise significant influence over the other party. Significant influence is
the power to participate in financial and operating policy or evidenced by at least 20% of
the voting power
c. Joint control over the party

2. Examples
a. Subsidiaries
b. Affiliates
c. Parent Company
d. Associates and its subsidiaries
e. Joint Venturer and its subsidiaries
f. Key management personnel
g. Close family members of the key management personnel
h. Postemployment Benefit Plan

3. Unrelated Parties
a. Customer
b. Supplier
c. Franchisor
d. Agent or distributors
e. Two entities with the same directors or key management personnel
f. Provider of finance, trade unions public utilities or government agencies by virtue of their
normal dealing with the entity
g. Venturers simply because they share joint control over a joint venture
Summary Notes
Topic: PFRS 8- Operating Segment
Name: Edmark R. Luspe

Operating Segments

• IFRS 8 defines an operating segment as follows. An operating segment is a component of an

entity:

• that engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with other
components of the same entity)
• whose operating results are reviewed regularly by the entity's chief operating
decision maker to make decisions about resources to be allocated to the segment
and assess its performance and for
• which discrete financial information is available

• applies to the separate or individual financial statements of an entity (and to the consolidated
financial statements of a group with a parent):

A. whose debt or equity instruments are traded in a public market or

B. that files, or is in the process of filing, its (consolidated) financial statements with a
securities commission or other regulatory organisation for the purpose of issuing any
class of instruments in a public market [IFRS 8.2]

However, when both separate and consolidated financial statements for the parent are
presented in a single financial report, segment information need be presented only on the
basis of the consolidated financial statements