PHILIPPINE FINANCIAL REPORTING STANDARDS

 PFRS 5: NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED

OPERATIONS (July 1, 2005)
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations outlines
how to account for non-current assets held for sale (or for distribution to
owners). In general terms, assets (or disposal groups) held for sale are not
depreciated, are measured at the lower of carrying amount and fair value less
costs to sell, and are presented separately in the statement of financial position.
Specific disclosures are also required for discontinued operations and disposals
of non-current assets.

This Standard prescribes the accounting for assets held for sale, and the
presentation and disclosure of discontinued operations. In particular, the PFRS
requires:
a) assets that meet the criteria to be classified as held for sale to be
measured at the lower of carrying amount and fair value less costs to sell, and
depreciation on such assets to cease; and
b) assets that meet the criteria to be classified as held for sale to be
presented separately in the statement of financial position and the results of
discontinued operations to be presented separately in the statement of
comprehensive income.

 DISCONTINUED OPERATION
Under Appendix A of PFRS 5, a discontinued operation is defined as a
component of an entity that either has been disposed of or is classified as held
for sale and:
 Represents a separate, major line of business or geographical area of
operations.
 Is part of a single coordinated plan to dispose of a separate major line of
business or geographical area of operations.
 Is a subsidiary acquired exclusively with a view to resale.
 COMPONENT OF AN ENTITY
Operations   and   cash   flows   that   can   be   clearly   distinguished,
operationally and for financial reporting purposes, from the rest of the entity. A
discontinued operation is a component of an entity that has been disposed of or
is classified as held for sale, and:
 Represents a separate major line of business or geographical area of
operations,
 Is part of a plan to dispose of, or
 Is a subsidiary acquired solely with a view to resale.

 COMPONENT CLASSIFIED AS HELD FOR SALE

The discontinued operation is accounted for as a “disposal group classified as
held for sale”. The entity’s component of an entity must be available for
immediate sale in the present condition and the sale must be highly
probable. 

 TIMING OF REPORTING
At the following date, a component of an entity is classified as discontinued
operation:
 When the entity has actually disposed of the operation.
 When the operation meets the criteria to be classified as held for sale. 
PFRS 5, paragraph 12, When the discontinued criteria are met after the end of
the reporting period, the retroactive classification as a discontinued operation is
prohibited. Stated otherwise, if the discontinued criteria are met after the end of
reporting period, an entity shall not classify the discontinued operation as held for
sale in the current financial statements.

 PRESENTATION OF DISCONTINUED OPERATION

Income statement presentation
 Disclose a single amount (income or loss from discontinued operation)
  Comprises of: 
A. After tax profit or loss of discontinued operation and,
B. After tax gain or loss on measurement to FVLCTS (impairment loss)

 BALANCE SHEET PRESENTATION

 Disclose to a separate account
1. Asset - NCAHFS = Current asset
2. Liabilities = Current liabilities
Note: Assets cannot be offset against liabilities.

 ABANDONED DISCONTINUED OPERATION

An entity shall not classify as held for sale a non-current asset that is to be
abandoned. This is because it carrying amount will be recovered principally
through continuing use. Where the disposal group to be abandoned meets the
criteria for identification of a discontinued operation the entity shall present the
results and cash flows of the disposal group as discontinued operations at the
date on which it ceases to be used.

 CHANGE IN ACCOUNTING ESTIMATE

 An accounting change is a change in accounting principle, accounting
estimate, or the reporting entity. These changes can trigger modifications in
the reported profits or other financial aspects of a business. They are covered
in more detail below. An accounting change may require discussion in the
notes accompanying the financial statements. This is needed so that the
users of the statements can ascertain the extent to which an accounting
change triggered a variation in the financial statements.
 PAS 8, paragraph 5, defines a change in accounting estimate as an
adjustment of the carrying amount of an asset or a liability, or the amount of
the periodic consumption of an asset that results from the assessment of the
present status and expected future benefit and obligation associated with the
asset and liability.
  The use of reasonable estimates is an essential part of the preparation of
financial statements and does not undermine their reliability.
 An estimate may need revision if changes occur regarding the circumstance
on which the estimate was based or as a result of new information, more
experience or subsequent development. 
 By very nature, the revision of the estimate does not relate to prior periods
and is not a correction of error.
 A change in measurement basis is a change in accounting policy and not a
change in accounting estimate.
 Sometimes it is difficult to distinguish a change in accounting estimates and a
change in accounting policy.

 EXAMPLES OF ACCOUNTING ESTIMATE

 Estimation involves judgment based on the latest available and reliable
information. Estimate may be required for the following:
A. Doubtful accounts
B. Inventory obsolescence
C. Useful life, residual value, and expected pattern of consumption of the
benefit of depreciable assets.
D. Warranty cost 
E. Fair value of financial assets and financial liabilities.

 HOW TO REPORT CHANGE IN ACCOUNTING

 The effect of a change in accounting estimate shall be recognized currently
and prospectively by including in income or loss of:
A. The period of change if the change affects that period only.
B. The period of change and future periods if the change affects both.
 To the extent that a change in accounting estimate gives rise to changes in
assets and liabilities, or relates to item of equity. it shall be recognized by
adjusting the carrying amount of related asset liability or equity in the period
of change.
  A change in accounting estimate shall not be accounted for by restating
amounts reported in financial statements of prior periods.
 Changes in accounting estimates are to be handled currently and
prospectively, if necessary.
 Prospective recognition of the effect of a change in accounting estimate
means that the change is applied to transactions, other events and conditions
from the date of change in estimate.

 ACCOUNTING POLICY
Accounting policies are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial statements.

 REQUIREMENT FOR CHANGE IN ACCOUNTING POLICY

A. Required by an accounting standard or interpretation of the standard
B. The change will result in more relevant and faithfully represented information
about the financial position, financial position performance and cash flows of
the entity.

 CHANGE IN REPORTING ENTITY

 A change in reporting entity is a change whereby entities change their nature
and report their operations in such a way that the FS are in effect those of a
different reporting entity.
 Example: accounting change may result from changing the specific
subsidiaries comprising the group of entities from which consolidated FS are
presented. 
 A change in reporting entity is actually a change in accounting policy and
therefore shall be treated retrospectively or retroactively to disclose what
the statement would have looked like if the current entity had been in
existence in the prior year.
 Meaning, the FS of all prior periods presented shall be restated to show
financial information for the new reporting entity. 
 ABSENCE OF ACCOUNTING STANDARD
 PAS 8, paragraph 10, provides that in the absence of an accounting
standard that specifically applies to transaction or event, management shall
use judgment in selecting and applying an accounting policy that results in
information that is relevant to the economic decision-making needs of users
and faithfully represented.
 Paragraphs 11 and 12 specify the following hierarchy of guidance which
management may use when selecting accounting policies in such
circumstances: 
A. Requirements of current standards dealing with similar matters.
B. Definition, recognition criteria and measurement concepts for assets,
liabilities, income and expenses in the Conceptual Framework for
Financial Reporting.
C. Most recent pronouncements of other standard-setting bodies that use a
similar Conceptual Framework, other accounting literature and accepted
industry practices.

 TREATMENT OF PRIOR PERIOD ERRORS

 Prior period errors are omissions and misstatements in the financial
statements for one or more periods arising from a failure to use or misuse of
reliable information that:
A. Was available when financial statements for those periods were
authorized for issue.
B. Could reasonably be expected to have been obtained and taken into
account in the preparation and presentation of those financial statements.

 HOW TO TREAT PRIOR PERIOD ERROS

 Prior period errors shall be corrected retrospectively by adjusting the opening
balances of retained earnings and affected assets and liabilities.
  If comparative statements are presented, the financial statements of the prior
period shall be restated so as to reflect the retroactive application of the prior
period errors as a retrospective restatement.
 Retrospective restatement means correcting the recognition, measurement
and disclosure of amounts of elements of financial statements as if a prior
period error had never occurred.
 If the error occurred before the earliest prior period presented, the opening
balances of assets, liabilities and equity for the earliest prior period presented
shall be restated.
 When it is impracticable to determine the cumulative effect at the beginning of
the current period of an error on all prior periods, the entity shall restate the
comparative information to correct the error prospectively from the earliest
date practicable.

 DISCLOSURE OF PERIOD ERRORS

An entity shall disclose the following:
A. The nature of the prior period error.
B. The amount of correction for each prior period presented, to the extent
practicable:

1. For each financial statement line item affected.

2. For basic and diluted earnings per share.

C. The amount of correction at the beginning of the earliest prior period

presented.
D. If retrospective restatement is impracticable for a particular prior period, the
circumstances that led to the existence of that condition and a description of
how and from when the error has been corrected.

 PFRS 6: EXPLORATION FOR AND EVALUATION OF MINERAL

RESOURCES (January 1, 2006)
IFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of
allowing entities adopting the standard for the first time to use accounting policies
for exploration and evaluation assets that were applied before adopting IFRSs. It
also modifies impairment testing of exploration and evaluation assets by
introducing different impairment indicators and allowing the carrying amount to
be tested at an aggregate level (not greater than a segment).

The Standard:
 permits an entity to develop an accounting policy for exploration and
evaluation assets without specifically considering the requirements of
paragraphs 11 and 12 of PAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors. Thus, an entity adopting PFRS 6 may
continue to use the accounting policies applied immediately before
adopting the PFRS. This includes continuing to use recognition and
measurement practices that are part of those accounting policies.
 requires entities recognizing exploration and evaluation assets to perform
an impairment test on those assets when facts and circumstances suggest
that the carrying amount of the assets may exceed their recoverable
amount.
 varies the recognition of impairment from that in PAS 36, Impairment of
Assets, but measures the impairment in accordance with that Standard
once the impairment is identified.
 requires disclosure of information that identifies and explains the amounts
recognized in its financial statements arising from the exploration for and
evaluation of mineral resources, including (a) its accounting policies for
exploration and evaluation expenditures including the recognition of
exploration and evaluation assets, and (b) the amounts of assets,
liabilities, income and expense and operating and investing cash flows
arising from the exploration for and evaluation of mineral resources.
REFERENCES:

Philippine Institute of Certified Public Accountant (PICPA)

Security Exchange and Commission (SEC)

Deloitte

Intermediate Accounting 3 by Valix

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