CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
Step 2 = Research conducted and Discussion Memorandum issued.
IFRS Foundation - not-for-profit international organization
responsible for overseeing (supervise) the work of the International
Accounting Standards Board (IASB), the structure and strategy.
-to develop, in the public interest, a single set of high quality,
understandable, enforceable and globally accepted financial
reporting standards based on clearly articulated principles.
Monitoring Board - group of capital market authorities and
provides formal link between the Trustees and public authorities in
order to enhance the public accountability of the IFRS Foundation.
-oversees, participates, and approves
International Accounting Standards Board - independent
standard-setting body of IFRS Foundation responsible for the
development and publication of International Financial Reporting
Standards (IFRS) and for approving interpretations of IFRS as
developed by the IFRS Interpretations Committee.
-formed in 2001, to replace the International Accounting Standards
Council.
-14 board members (1 Chair & 1 Vice Chair)
IFRS Interpretations Committee - interpretative body of the
International Accounting Standards Board, which reviews the
implementation issues.
IFRS Advisory Council - provides advice and counsel to the Trustees
and the Board.
Accounting Standards Advisory Forum (ASAF) – provides an
advisory forum in which members can constructively contribute
towards the achievement of the IASB’s goal of developing globally
accepted high-quality accounting standards
Capital Market Authorities – responsible for ensuring observance of
its laws as well as the integrity of the capital markets.
-Corporations, Institutions (“Buy Side” Fund Managers), Investment
Banks (“Sell Side”), Public Accounting Firms
*Public Accounting Firms – New York Stock Exchange, American
Stock Exchange, London Stock Exchange, and NASDAW. Securities
can also be traded “over the counter”, rather than on an organized
exchange
DEVELOPMENT OF ACCOUNTING STANDARD
Due Process Handbook (August 2010) – provides the full
processes which helps the IASB and IFRS Interpretation Committee
to follow a thorough, transparent and participatory due process
issuances of IFRS standards and interpretations.
-three principles: transparency, full and fair consultation and
accountability
FASB relies on two basic premises:
(1) Responsive to the entire community
(2) Operate in full view of the public
Step 1 = Topic placed on agenda
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Step 3 = Public Hearing
Step 4 = Board evaluates research, public response and issues
Exposure Draft.
Step 5 = Board evaluates responses and issues final Statement of
Financial Accounting Standard
Basic Steps in developing Accounting Standard
Step 1: Agenda Consultation
-seek formal public input on the strategic direction and balance of
the IASB’s work program, including the criteria for assessing projects
that may be added to the IASB’s standards level program
-undertake public consultation on its work program every five years
by way of a public Request for Information
-minimum of 120 days to comment on that work program.
Step 2: Research Program
Main Purpose - analyze possible financial reporting problems by
collecting evidence on the nature
Main Output – Discussion Paper and Research Paper. It is a
comprehensive review of the issue, possible approaches to address
the issue, the preliminary views of its authors or the IASB and an
invitation to comment. IASB normally allows at least 120 days for
comment on a Discussion Paper, a research paper and a Request for
Information. For other request of information it allows for 60 days
for comment.
Step 3: Standard Setting Program
Step 4: Maintenance Program
-process includes consulting on the implementation of a new or
amended Standard to identify any implementation problems that
may need to addressed.
Supermajority - requires 8 IASB members (by ballot) in favor of the
publication of a document if it has 13, or fewer appointed members.
However, If the IASB has 14 appointed members, the requirement
for supermajority is 9 members (by ballot). Abstaining is equivalent
to voting against a proposal.
Mandatory parts of an Accounting Standard:
• The principles and the related application guidance
• The defined terms
• The effective date and transition paragraph
Conceptual Framework
-an ideal or theoretical structure that should be in a financial report
Purpose of the IASB Conceptual Framework
-to assist in development of IFRS/IAS
-to provide a basis for reducing alternatives
-to assist national standard-setters in developing national standards
-to assist preparers of financial statements in applying international
standards
-to assist auditors in forming an opinion as to whether international
standards have been complied with.
-to assist users in interpreting financial statements
Limitations of the Conceptual Framework
-the Conceptual framework is applicable for preparation and
presentation of financial statements under MFRS or FRS framework
-the framework is not accounting standards and does not override
MFRS/FRS
-in the case of conflict bet. Framework and MFRS/FRS, the standards
requirements prevail. Over time the development of new stds and
review of existing stds will narrow the conflict.
General Purpose Financial Statements
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

-provides financial information useful for decision making for a  Seller – but not applicable to
number of different users merchandising like grocery store
-general urpose financial statements is general, and is available for or department store and the like
internal and external use
-financial statements “only”, may be used for internal use only
Recognition?
-general purpose financial statements is more credible and reliable
than financial statements because it is already audited. ASSET
Information about:  When the present economic resource
-the entity’s economic resources controlled by the entity at the date of the
-claims to them balance sheet
 The entity as a legal title or ownership at
-changes in those resources and claims
the end of the accounting period
Information that help users in evaluating:
-Liquidating EXPENSE
-Solvency  When sold
-Financial Needs  When written down to net realizable value
and all losses of inventories
-Company and management performance
 Allocated to other asset accounts wherein
the expenses are recognized during the
PAS 2 – Inventories
useful life of the asset

Inventories not within PAS 2 Ownership of Goods? In Transit

1. Financial Instrument – PAS 32 and PAS 9
2. Biological assets related to PAS 41 –
Agriculture
Inventories not within PAS 2 –Measurement
1. Inventories held by producers of
agricultural and forest products, agricultural
produce after harvest, and minerals and
mineral products.
2. Inventory held by commodity broker who
measure their inventories at fair value less
costs to sell
Commodity Broker
 A commodity broker is a firm or an
individual who executes orders to buy or sell
commodity contracts on behalf of the clients
and charges them a commission.
Inventories held by them who measures
their inventories at FV less cost to sell are
not within PAS 2 –measurement.
FOB – free on board/freight on board
Destination – seller – while the goods is still
in transit, paid for the shipment – Accounts
Receivable
Buyer – Upon receipt of goods
Shipping point – buyer – upon shipment or
when the carrier takes possession, paid the
shipment
FAS – Free Alongside
Buyer – when the carrier takes possession
of the goods, bears the cost of loading and
shipment
Buyer – when the carrier takes possession
of the goods, paid the cost of loading and
shipment although the seller paid the expenses
and risk in delivering the goods to the vessel
CIF – cost, insurance, freight.
Buyer – paid the cost of CIF

Inventories Ex-ship –buyer – after unloaded the goods

Seller- carrier possession until unloaded,
 Raw Materials – materials and supplies
bears expenses and risk
to be used directly in the production
process Principle
 Work in Process – in process of
production
 Finished Goods – held for sale in the
ordinary course of business
Consignment
 Is an agreement in which goods are left in
possession of an authorized third party
 Who are the parties in consignment?
 Consignor-the owner of the
goods
 Consignee-authorized agent to Treatment of Freight Costs
sell the goods Treatment Classification ENTITY
 Who is the owner of consigned goods? Freight- Capitalized Cost of Goods PURCHASER
 Consignor-who has he legal in into Sold
inventory
title, regardless of location
Freight- Expressed Selling SELLER
 Who is the owner of goods with unusual
out when expenses
right of return?

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
incurred
Accounting system: Measurement: Periodic
and Perpetual System
Periodic
 requires a periodic physical count of goods
at the end of the accounting period
Perpetual
 inventory quantities are updated after each
transaction
 We know exactly how many items were sold
 We know exactly how many items are left
 requires the maintenance of record (stock
card) and monitors the balance of inventory
on hand. Physical count is only necessary to
verify the perpetual record if correct.
 Beginning inventory + purchases – ending
inventory (based on the actual physical
count) = Cost of Goods Sold (COGS)
Recording and Measuring of Inventory
TYPES OF INVENTORY
Merchandise Manufacturing
Inventory Inventory
 Goods acquired  Raw Materials
for resale  Work-in-Process
 Finished Goods
Inventory General Measurement: lower of cost
and net realizable value
Cost of purchase- purchase price, import duties
and irrecoverable taxes, transport, handling and
other costs directly attributable to the acquisition
of finished goods, materials and services
1. Trade Discount, rebates and other similar
items are deducted from the costs of
purchase.
Cost of conversion – cost associated in converting
raw materials into finished goods. It includes
direct materials, direct labor, indirectly related
factory overhead
1. Fixed factory overhead – indirect cost of
production that remains fixed regardless of
the volume of production (depreciation,
maintenance, management and
administration related to factory cost)
MEASURMENT OF INVENTORIES
 Inventories should be valued at lower of cost
and NRV.
 Major points for valuation of inventories:
Determination of cost of inventories ->
Determination of NRV -> Comparing cost &
NRV
Variable Factory Overhead – indirect costs of
production that vary directly with the volume of
production such as indirect materials and indirect
labor.
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Costs excluded from the costs of inventory
Must be expense in the period in which they
are incurred
1. Abnormal amount of wasted materials, labor
or other production cost
2. Storage costs, unless necessary before a
further production stage
3. Administrative overhead not for factory
4. Selling costs
5. Interest expense
6. Foreign currency difference
Techniques for measurement of cost: Standard
and retail cost method
Standard cost method – costing method that
takes into account the normal levels of materials
and supplies, labor efficiency and capacity
utilization
*from low to high
 Establishing standards
 Determination of Actual Costs
 Comparison of Actual Costs and Standard
Cost
 Determination of Causes
 Disposition of Variances
Formula used in the computation of costs:
specific identification, FIFO, Weighted
average)
Specific identification method
 use for inventory that are not ordinarily
interchangeable and goods or services
produced and segregated for specific
projects, whether they are bought or
produced
 car dealerships, jewelry stores, art galleries,
furniture stores
Specific Identification Method
FIFO
 Assume that the inventory that were
purchased or produces first are sold first,
thus the inventories are those most recently
purchased or produced goods with
expiration restriction – such as?
Weighted Average
 Determined from the weighted average cost
of similar items at thebeginning and during
the period
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
 Chemical manufacturing, agriculture
business, oil companies
Difference between NRV and FV
NRV
 It is the net amount that an entity expects
to realize from the sale of inventory in the
ordinary course of business (based on the
most reliable evidence available at the time
the estimates are made)
 It is an entity-specific value
Fair Value
 It is the price at which an orderly
transaction to sell the same inventory in the
principal market for the inventory would
take place between market participants at
the measurement date
 It is not entity-specific value
Net Realizable Value
 estimated selling in the ordinary course of
business – estimated costs of completion –
estimated costs necessary to make a sale
Steps:
1. Determine market value of asset
2. List all cost associated with process of
selling asset
3. Calculate net realizable value = Market
value of asset – Selling cost of asset
Reason of written down the inventory to NRV
 Inventory are damaged
 Inventory is wholly or patially obsolete
 Selling price of the inventory decline
 Estimated cost of completion increased
Presentation of inventory in financial statement
 Current asset
 One line item in the balance sheet or
statement of financial position
 Details shall be disclosed in the notes of
financial statements
Necessary disclosures
 Accounting policy in measuring inventory
and cost formula use
 Total carrying amount of inventories and the
carrying amount in classification appropriate
to the entity
 Carrying amount carried at fair value less
cost to sell
 Amount of inventory recognize as an
expense during the period
 Amount of any write down
 Circumstances that led to the reversal of a
write down
 Carrying amount of inventory pledged as
security for liability
 Inventory from consignment
 Inventory out for consignment
PAS 7 – Statement of Cash Flows
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 Objective is to require the provision of
information about the historical changes in
cash and cash equivalents of an entity by
means of a statement of cash flows
 Governs the preparation of a statement of
cash flows
What makes a statement of cash flows valuable and
useful?
- It is useful in providing users of financial
statements with a basis to assess the ability
of the entity to generate cash and cash
equivalents and the needs of the entity to
utilise those cash flows
- Economic decisions require an evaluation of
the ability of an entity to generate cash
- Users are interested in how the entity
generates and uses cash and cash
equivalents
What information does a statement of cash flows
provide?
- It provides information that enables users to
evaluate the changes in net assets of an
entity, its financial structure (including its
liquidity and solvency) and its ability to
affect the amounts and timing of cash flow
in order to adapt to changing circumstances
and opportunities.
Advantages of Cash Flows
1. Show Changes
2. Looks at Growth Potential
3. Helps to make Cash Forecast
4. Ascertaining Liquidity and Profitability
Positions
5. Performance Appraisal
Cash Flows
 Means the amount of cash flowing in and
out of the company. In order to keep a
record of the cash flows, organizations
prepare a cash flow statement. Cash flow
statement provides cash based information,
whereas an income statement provides
accrual-based information
Benefits of Statement of Cash Flows
 Useful in assessing the ability of the entity
to generate cash and cash equivalents
 Enables users to develop models to assess
and compare the present value of the future
cash flows of different entities.
 Eliminates the effects of using different
accounting treatments for the same
transactions and events
Historical Cash Flow Information
 often used as an indicator of the amount,
timing and certainty of future cash flows.
 useful in checking the accuracy of past
assessments of future cash flows
 examine the relationship between
profitability and net cash flow and the
impact of changing prices
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

Cash comprises cash on hand and demand

deposits An entity shall disclose…

 Demand deposits Concerning cash and cash equivalents:

o is an account with a bank or other -disclose the components of cash and cash
financial institution that allows the equivalents and shall present a reconciliation of
depositor to withdraw his or her funds the amounts in its statement of cash flows with
from the account without warning or with the equivalent items reported in the SFP
less than seven days’ notice. -disclose the policy which it adopts in
o can be on a checking or a savings determining the composition of cash and cash
account, and withdrawals can be made equivalents
either from an ATM or from the bank’s
cashier
PRESENTATION OF A STATEMENT
 Cash equivalents
o are short-term, highly liquid investments OF CASH FLOWS
that are readily convertible to known
amounts of cash and which are subject PAS 16 - PROPERTY, PLANT, & EQUIPMENT
to an insignificant risk of changes in
 Held by an entity
value.
 Production, rental, and administration
o are held for the purpose of meeting
 Long-term assets used in the course in
short-term cash commitments rather
business
than for investments or other purposes
 Tangible assets
Investments as Cash Equivalents
Recognize the cost of PPE as an asset:
For an investment to qualify as a cash
 It is probable that future economic
equivalent….
benefits associated with the item will flow
-must be readily convertible to a known to the entity
amount of cash and be subject to an insignificant  The cost can be measured reliably
risk of changes in value
The following are not considered as PPE:
-when it has a short maturity of, say, three
 PPE held for sales – PFRS 5
months or less from the date of acquisition
 Biological assets, other than bearer
Do equity investments qualify as cash
plant – PAS 41
equivalents?....
 Recognition and measurement of
-equity investments are excluded from cash exploration and evaluation – PFRS 6
equivalents  Mineral rights and mineral reserves
-having no maturity, equity investments
Spare parts & Servicing Equipment
generally are not considered as short-term
investment and are readily convertible to a known IAS 2 Inventories IAS 16 Property,
Plant, and
amount of cash and are subject to an insignificant
Equipment
risk of changes in value
Held for: Held:
-some equity investments are actually cash  resale(merchandise)  For operation
equivalents in substance and should be classifies  consumption in the in connection
as such (e.g preferred shares acquired within a production with an item
short period of their maturity and with a specified  rendering services of PPE
redemption date).  Less than 1 period  As PPE itself
 Small tools, moulds,  More than 1
Bank Overdrafts pallets or containers period
 Overdraft is an extension of credit from a used for more than 1  Critical spares
lending institution that is granted when an period and standby
account reaches zero equipment
 Back up
 Allows account holder to continue
turbine
withdrawing money even when the account  Capital spares
is 0 or no sufficient balance  Spare
 Not result in cash flowing into a business motor
 Represents bank borrowing

Measurement at Recognition
Bank Borrowing
 An item of PPE shall be measured initially at
 generally considered to be financing cost, which is to compromise:
activities and do not form part of cash  Purchase price (including non-refundable
and cash equivalents duties/taxes, after deducting discounts);
 in some countries, in which they are  Any costs directly attributed to bringing the
repayable on demand form an integral asset to the location and condition
part of the entity’s cash management necessary for it to be capable of operating

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

on the manner intended by management –  If not measured at fair value, carrying

for example, costs of delivery and amount of the asset given up becomes
installation; and the new cost
 An estimate of the costs of dismantling and 
removing an item, and restoring the site on Asset acquired in an exchange with commercial
which it is located substance
 Instead of debiting these costs to an expense  fair value of asset given plus cash payment
account, they are debited to an asset account – on the part of the payor
- that is, these costs are capitalised.  fair value of asset given up minus cash
received - on the part of the recipient
INITIAL MEASUREMENT = at COST Asset acquired in an exchange with lacks commercial
Elements of Cost Directly Attributable substance
 Purchase price, Cost  carrying amount of asset given plus cash
including import  Cost of employee payment on the part of the payor
duties and non- benefits arising from  carrying amount of asset given minus cash
refundable purchase construction or received on the part of the recipient
taxes, after deducting acquisition of PPE
trade discounts and  Cost of site NO GAIN OR LOSS IS RECOGNIZED WHEN THE
rebates preparation EXCHANGE LACKS COMMERCIAL
 Any cost directly  Initial delivery and SUBSTANCE
attributable to handling costs
bringing the asset to  Installation and
the location and assembly costs Commercial Substance
condition necessary  Cost of testing
for it capable of  Professional fees
 as the event or transaction causing the cash
operating in the flows of the entity to change significantly by
manner intended by reason of the exchange
management  When the cash flows of the asset received
 Estimated costs of differ significantly from the cash flows of the
dismantling and asset transferred
removing the item
and restoring the site
Income earned from incidental operations before an
Manner of Acquisition Excluded as part of
Cost of Asset
asset is put to use
 Cash Basis – refer
above  Costs of opening a new  is recognized in profit or loss together with
 On Account – cash facility the related expenses during the period such
price equivalent  Cost of introducing a incidental items arose. These incidental
 Exchange for non- new product or service operations may occur before or during the
monetary assets  Costs of conducting
 Fair Value business in a new construction or development activities
 Carrying amount- location or with a new  For example, income may be earned by the
in the absence of class of customer temporary using a building site as a car
FV or the exchange  Administration and park until construction starts. Incidental
lacks commercial other general cost
substance  Cost incurred before operations are not necessary in bringing the
PPE is used intended asset to the location and condition
by the management necessary for it to be capable of operating
(incidental costs) in the manner intended by the
 Initial operating losses
 Cost of relocating or management. Thus, income and expenses
reorganizing part or all incurred from such operations should be
of an entity’s operation recognized in profit or loss immediately

6 Measurement subsequent to initial

Cost of PPE acquired in exchange of Another
Asset
 Cost of exchanged asset is measured at fair
value unless
 Exchange transaction lacks commercial
substance, or
 Fair value of neither asset received nor
given up can be measured reliably
Cost of PPE acquired in exchange of Another
asset:
 Fair value of asset given up is used,
unless fair value of asset received is
more clearly evident
Or
recognition
 IAS 16 sets out two models for measuring
PPE subsequent to its initial recognition as
an asset. These are the ‘cost model’ and
the ‘revaluation model’
COST
 Cost less any accumulated depreciation and
any accumulated impairment losses.
Revaluation
 Revalued amount, being fair value less
accumulated depreciation and impairment
losses
 IAS 16 defines fair value as the ‘amount for
which an asset could be exchanged between

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

knowledgeable, willing parties in an arm’s  May increase to an amount equal to or

length transaction’. greater than carrying amount in which case
 Where an item is revalued, all other assets the depreciation charge is zero
 Shall be reviewed at least at each financial
in the same class should be revalued
year-end
 Revaluations should be carried out regularly
 Any change is accounted for as a change in
Carrying Amount estimate
 is at which an asset is recognized in the FS Service life – refers to the time an asset would be
(balance sheet) after deducting any used by an entity
accumulated depreciation and accumulated Physical life- refers to how long the asset would
impairment losses regardless of using cost last
or revaluation model Fully depreciated assets but still in use?
The Revaluation Model 1. Apply revaluation model
 Change in accounting policy
 Carry at fair value at date of revaluation 2. Review useful life
less subsequent accumulated depreciation  Change in accounting estimate
and impairment losses Factors that shorten the useful life of an asset:
 Fair value is usually market value as physical and economic factor
determined by professionally qualified 1. Wear and tear
valuers 2. Deterioration or decay through aging or
 Revaluations shall be made with sufficient passage of time
regularity such that the carrying amount 3. Obsolescence, suppression, inadequacy
does not differ materially from that which 4. Expected usage of the asset
would be determined using fair value at the
reporting date
Depreciation
 Must revalue ALL assets within class
 Revalued assets must continue to be  Is the process of allocating the cost of a
depreciated plant asset to expense in the accounting
periods benefiting from its use
Revaluation of Revalued PPE  Is the result of an allocation, not a valuation
First Time Second Time Accounting process
Treatment  Depreciation does not cease when it is idle
Surplus Surplus Recognized or is retired from active use unless it is
under Other already fully depreciated
Comprehensive
 The entity selects depreciation method that
Income and
Accumulated in is most closely reflects the expected pattern
Revaluation of consumption of the future economic
Reserve benefits embodied in the asset
Deficit Deficit Recognized as  The method should be applied consistently
an expense in from period to period, unless there is a
the Profit/ change in estimate
(loss)
FORMULAS
Surplus Deficit Reverse the
previously
recognized
Surplus. Any
excess over it,
Recognized as
an expense in
the Profit/
(loss)
Deficit Surplus Reverse the
previously
recognized Starts of depreciation of asset:
under Other  Available for use – asset is in the location
Comprehensive and condition necessary for it to be capable
Income and
of operating in the manner intended by
Accumulated in
management
Revaluation
Reserve. Ceases the depreciation of asset:
 Earlier date that the asset is classified as
Residual Value held for sale and the asset is derecognized

 Is the estimated amount that an entity Straight line depreciation assumption

would currently obtain from disposal of the
asset, after deducting the estimated cost of
disposal, where the asset is already of the
age and at end of its useful life
1. Service value declines as a function of time
rather than use
2. Ignores variation in the rate of asset use

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

3. It is not appropriate for the equipment on

which maintenance and repairs increase Qualifying assets
substantially with age -are assets that necessarily takes a substantial period
Units of Production Method of time to get ready for its intended use for sale

 Charge is based on the expected use or Excluding:

output -Qualifying assets in PAS 41

 If there is no output, the depreciation will -Inventories that are manufactured, others produced
be zero in large quantities on a repetitive basis
 Appropriate for manufacturers whose usage
of machinery varies by year because it Core Principles
matches the cost of the machinery to the -That are directly attributable to acquisition,
revenue that it creates construction or production of a qualifying asset form
 Appropriate for manufacturers whose usage part of the cost
of machinery varies by year because it
matches the cost of the machinery to the Capitalized borrowing costs
revenue that it creates -when it is directly attributable to the acquisition,
Diminishing Balance construction or production of a qualifying assets,
otherwise it will be expensed
 Reducing balance method
-it incurs expenditure for the asset
 Results in a decreasing charge over the
useful life -It incurs borrowing costs
 Assumes that the value of a depreciating -It undertakes activities that are necessary to
asset decreases more in the early years of prepare the asset for its intended use or sale
its effective life. (the depreciation is high on
early years)
 Repair charges increases as the asset
become old
 The value of asset can never be equals to
zero
Impairment Loss
 recognize the impairment loss when the
carrying amount of the asset is not
recoverable PAS 23 – BORROWING COST
PAS 36 – IMPAIRMENT OF ASSETS

SCOPE OF PAS 36
IAS 36 Impairment of Assets
Does not apply to: Does apply to:
 Inventories(IAS 2)  Land, building,
 Financial assets(IFRS machinery(IAS 16)
9)  Investment property
 Deferred Tax(IAS at cost(IAS 40)
12)  Intangible assets(IAS
 Employee 38)
benefits(IAS 19)  Goodwill
 Construction  Subsidiaries,
The financial statements shall disclose foer each class contracts(IAS 11) associates, JV at cost
of PPE:  Investment property  Assets at revalued
at FV(IAS 40) amounts
 the measurement bases used for  Agricultural assets at
determining the gross carrying amount FV(IAS 41)
 the depreciation methods used; the useful  Insurance
lives or depreciation rates used; contracts(IFRS 4)
 Non-current assets
 the reconciliation of the carrying amount at held for sale(IFRS 5)
the beginning and end of the period
If PPE are stated at revaluated mounts the following
shall be disclosed:
The elements in the calculation of an
 the effective date of the revaluation;
 methods and significant assumptions
asset value in use:
used in estimating items at fair values; 1. An estimate of the future cash flows the entity
 the revaluation surplus indicating the expects to derive from the asset
change for the period 2. Expectations about possible variations in the
amount or timing of those future cash flows
PAS 23 – BORROWING COST 3. The time value of money, represented by the
current market risk-free rate of interest sum of

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

money is worth more now than the same sum Estimating future cash flows
will be at a future date.
The following bases can be used to
-based on the economic condition of the country
with all over economic conditions estimate the future cash flows:
4. The price for bearing the uncertainty inherent (a) base cash flow projections on
in the asset - difficulty of predicting reasonable and supportable assumptions
outcomes because of limited or inexact that represent management's best
knowledge.
estimate,
-not enough basis
(b) base cash flow projections on the
5. Other factors, such as illiquidity, that market
most recent financial budgets/forecasts
participants would reflect in pricing the future
approved by management,
cash flows the entity expects to derive from the
asset (c) estimate cash flow projections
-uncertainty of predicting future cash flows beyond the period covered by the most
recent budgets/forecasts by extrapolating
the projections based on the
Future cash flows included in estimation
budgets/forecasts using a steady or
1. Cash flows projections from the continuing
declining growth rate for subsequent years.
use of the asset
2. Cash flows projections necessarily incurred to Indications of Impairment
generate the cash inflows from the continuing EXTERNAL SOURCES INTERNAL SOURCES
use of the asset Decline in market value Obsolescence/ Physical
3. Net cash flows received on the disposal of the damage
asset at the end of the useful life in an arm's Increase in interest Significant changes
length transaction rate (restructuring,
discontinuing)
Estimated cash flows do not include: Carrying amount > Internal reporting
1. Future restructuring to which an entity is not Market capitalization evidence
yet committed Significant changes
2. Future costs of improving or enhancing the (Market, Technology,
Legal, economics)
asset's performance
3. Cash inflows or outflows from financing
 if the company has a strong implementation of
activities
repair & maintenance policy, the asset cannot be
4. Income tax repaired

Discount rate for the value in use:

1. Pre-tax rate that reflects current market
assessments of
A. time value of money
B. Risks specific to the asset for which the
future cash flow estimates have not been
adjusted

Fair value
 is the price that would be received to sell
the asset in an orderly transaction between
participants at the measurement date
-the company can choose 2 methods subsequently.
Costs to sell/dispose
PPE measurement methods:
 Costs of disposal, other than those that -initial recognition of PPE
have been recognised as liabilities, are
-subsequent recognition of PPE
deducted in determining fair value less
Costs to sell.
What is a Cash Generating Unit (CGU)?
Examples of such costs are:
 the smallest identifiable group of
 legal costs, stamp duty and similar
assets that generates cash inflows
transaction taxes, costs of removing the
that are largely independent of the
asset, and direct incremental costs to bring
an asset into condition for its sale. cash inflows from other assets or
groups of assets
Example:

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
Surya Tourism in a hill station
Travel agency
The have 2 CGU (BUS AND LICENSE)
Assets:
Bus:
-red bus
-green bus
-yellow bus
License:
-Operating license
-Read License
Instances when the individual recoverable
amounts cannot be determined
1. The asset's value in use cannot be
estimated to be close to its fair value
less costs of disposal
2. The asset does not generate cash
inflow that are largely independent of
those from other assets
Therefore, there is a need for the asset's
generating unit to estimate the recoverable
amount
Recoverable amount of the CGU
 Higher of the CGU's fair value less costs of
disposal and its value in use.
Carrying amount of the CGU
1. Includes the carying amount of those assets
that can be attributed directly, or allocated
on a reasonable and consistent basis to the
CGU and will generate the future cash
inflows used in determining- the value in use
2. It does not include any recognized liability,
unless the recoverable amount of the CGU
cannot be determined without consideration
of their liability
Corporate Asset
 Are assets other than goodwill that
contribute to the future cash flows of
both the CGU under review and other
CGU.
 Examples are building of a
headquarters or a division, EDP
equipment or research center. , EDP
 They do not generate cash inflows
independently of other assets or
group of assets this recoverable
amount of an individual asset cannot
be determined unless it will be
dispose of
When there is indication that the corporate
asset is impaired, the RA of CGU it
belongs will be Used.
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 The impairment loss shall be allocated to
reduce the carrying amount of the assets
Goodwill Then to other assets of the unit on
a prorate basis using the carrying amount of
each asset in the unit o In allocating the
impairment loss to the individual assets, the
entity shall not reduce the carrying amount of
the asset below the highest of Fair value less
cost of disposal Its value in use Zero
PAS 40 – INVESTMENT PROPERTY
Investment Property
-Land held for long term capital appreciation
-Land held for currently undetermined use
-Building owned by the entity and leased out under
operating lease
-A building that is vacant but held to be leased out
under operating lease
-Property that is being constructed or developed
for future use as investment property
-Limited to land/building, and the goal is to have
capital appreciation or earn rent income
-if sale of building/land, pas 2. If for rent, pas 40
-if rent to own, finance lease na
Investment property vs owner occupied property
Cash flow –
Mixed Use
 Portion used to earn rental = investment
property
 Other portion = owner occupied property
 Significant portion=rental=investment
property
 Significant portion=use in
production/administrative use=owner
occupied property
Ancillary Service
Insignificant = investment property (janitorial
services, maintenance services)
Significant=owner occupied property(entity
manages and own the hotel, services provided to
the guests)
*hotel is not considered as lease (kay minimum
12 months man) kay temporary accomodations
rmn naa. It is an owner occupied property
Property leased to, and occupied by its parent or
another subsidiary
Consolidated FS (financial statement) = Owner
occupied property
Separate FS of the entity who owns it =
investment property
-if whether or not nagbayad ang employee ug
rent, it is an OOP, not IP. This is in a situation if
the company provides a place to live in for the
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

employees, whether or not the employee pays the

rent, it is an OOP.

Fair value of investment property

-is the price that would be received to sell the
asset in an orderly transaction between market
participants at the measurement date
-Equipment such as lift or air conditioning is often
an integral part of a building and is GENERALLY
INCLUDED in the FV of the investment property
-If an office is leased on a furnished basis, the FV
of the office generally includes the FV of the
furniture because the rental income relates to---

Circumtances wherein the entity cannot use Fair

value model
-in the exceptional cases, the FV of the

VIDEO LEARNING
Accounting Standards definition
IFRS (IAS 38);: an identifiable non-monetary
asset without physical substance
US GAAP (ASC 350): an asset, other than a
financial asset, that lacks physical
substance
Intangible assets in annual reports
Intangible Assets:
Goodwill
Computer software
Patents

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