Chapter 9: PAS 38 - Intangible Assets Q37 - Q45

Amortization of Intangible Assets

Purpose

This note provides guidance on the amortization of intangible assets under PAS 38.

Background

Intangible assets are non-monetary assets that do not have a physical substance.
Examples of intangible assets include trademarks, patents, and copyrights. Intangible
assets are amortized if they have a finite useful life.

Useful Life

The useful life of an intangible asset is the period over which the asset is expected to
generate net cash inflows for the entity. If the useful life of an intangible asset is
indefinite, the asset is not amortized.

Methods of Amortization

The amortization method used should reflect the pattern in which the asset's future
economic benefits are expected to be consumed by the entity. The most common
methods of amortization are:

 Straight-line method: This method amortizes the intangible asset evenly over its
useful life.
 Diminishing balance method: This method amortizes the intangible asset at a
decreasing rate over its useful life.
 Units-of-production method: This method amortizes the intangible asset based
on the number of units produced or other similar measure of activity.

Amortization in the Financial Statements

Amortization is usually recognized in profit or loss, unless the costs are absorbed in
producing other assets. For example, amortization of an intangible asset used in the
production process is included in the carrying amount of inventories.

Disclosure
The entity shall disclose the following information about intangible assets:

 A description of each class of intangible asset

 The amortization method used
 The useful life or the factors that determine the useful life
 The carrying amount of each class of intangible asset at the beginning and end
of the reporting period
 The amount of amortization expense recognized during the reporting period

Conclusion

The amortization of intangible assets is an important part of financial reporting.

Companies should carefully consider the assumptions and methods used to determine
the useful life of intangible assets and should disclose sufficient information about these
assets to enable users of financial statements to understand their potential impact.

Chapter 10: PAS 40 - Investment Property Q24 - Q30

Investment Property under PAS 40

Purpose

This note provides guidance on the measurement, disclosure, and presentation of

investment property under PAS 40.

Background

Investment property is property held by an entity to generate rental income or capital

appreciation. PAS 40 requires entities to classify investment property as either held at
fair value or held at cost.

Fair Value Model

Under the fair value model, investment property is measured at its fair value, which is
the price that would be received to sell the property in an orderly transaction between
market participants at the measurement date. Entities must use a valuation technique
that is consistent with the fair value definition and that is appropriate for the
circumstances of the property.

Cost Model

Under the cost model, investment property is measured at its cost less accumulated
depreciation and any impairment losses. Cost includes the initial purchase price of the
property, plus any subsequent costs incurred in acquiring and preparing the property for
its intended use.

Change in Measurement

Once an entity has chosen a measurement method for an investment property, it must
continue to use that method until the property is disposed of or its use changes. If there
is a change in use, the entity must adjust the carrying amount of the property to its fair
value at the date of the change in use.

Derecognition

Investment property is derecognized when it is disposed of or when it is permanently

withdrawn from use and no future economic benefits are expected from its disposal.

Gains and Losses

Gains and losses arising from the disposal of investment property are recognized in
profit or loss. The gain or loss is the difference between the net disposal proceeds and
the carrying amount of the property.

Disclosure

Entities must disclose sufficient information about investment property to enable users
of the financial statements to understand the potential impact of those investments on
the entity's financial position and performance.

Conclusion

The accounting for investment property is an important part of financial reporting.

Entities should carefully consider the measurement method that is most appropriate for
their investment properties and should disclose sufficient information about those
properties to enable users of the financial statements to understand their potential
impact.

Chapter 11: PAS 36 – Impairment Q16 - Q19

Impairment Loss
Purpose
This note provides guidance on the recognition and reversal of impairment losses under
PAS 36.
Background
An impairment loss is recognized when the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount of an asset is the higher of its fair value
less costs to sell and its value in use.
Indication of Impairment
An entity shall assess at the end of each reporting period whether there is any indication
that an asset may be impaired. If any such indication exists, the entity shall estimate the
recoverable amount of the asset.
Reversal of Impairment Loss
An entity shall assess whether there is any indication that an impairment loss
recognized in prior periods for an asset or CGU may no longer exist or may have
decreased. If an indication of possible reversal is identified, the entity shall estimate the
recoverable amount of that asset.
Accounting for Reversal of Impairment Loss
The reversal of an impairment loss is recognized in profit or loss, unless that asset is
carried at revalued amount. Any reversal of an impairment loss of a revalued amount
shall be treated as a revaluation increase in accordance with the other IFRS.
Cash Generating Unit
A cash generating unit (CGU) is the smallest identifiable group of assets that generates
cash largely independent of the cash inflows from other assets or group of assets.
Impairment Loss of CGU
The impairment loss of a CGU is recognized when the recoverable amount of the CGU
is less than the carrying amount of the CGU. The recoverable amount of a CGU is
determined as described in the previous section.
Conclusion
The recognition and reversal of impairment losses is an important part of financial
reporting. Entities should carefully consider the factors that may indicate impairment
and should disclose sufficient information about impairment losses to enable users of
the financial statements to understand their potential impact.

Chapter 12: PFRS 5 - Non-Current Assets Held for Sale and Discontinued
Operations Q14 - Q17
Presentation and Disclosure of Non-Current Assets Held for Sale and
Discontinued Operations
Purpose:
This note provides comprehensive guidance on the presentation and disclosure
requirements for non-current assets held for sale and discontinued operations under
PFRS 5.
Presentation of Non-Current Assets Held for Sale (PFRS 5, Q14):
PFRS 5 dictates that non-current assets classified as held-for-sale and the assets of
disposal groups classified as held-for-sale must be presented separately from other
assets in the statement of financial position. Correspondingly, the liabilities of a disposal
group classified as held-for-sale are also presented separately from other liabilities in
the statement of financial position.
Minimum Disclosures for Non-Current Assets Held for Sale (PFRS 5, Q15):
In the period when a non-current asset (or disposal group) is classified as held for sale
or sold, an entity is required to disclose the following information in the notes:
a.) A description of the non-current asset (or disposal group).
b.) A description of the facts and circumstances surrounding the sale, or leading to the
expected disposal, including the expected manner and timing of that disposal.
c.) The gain or loss recognized in accordance with paragraphs 20-22 of PFRS 5 and, if
not separately presented in the statement of comprehensive income, the caption in the
statement of comprehensive income that includes that gain or loss.
d.) If applicable, the reportable segment in which the non-current asset (or disposal
group) is presented in accordance with PFRS 8 Operating Segments.
Discontinued Operations (PFRS 5, Q16-Q17):
16. Definition of Discontinued Operation (PFRS 5):
A discontinued operation, under PFRS 5, is a component of an entity that either has
been disposed of or is classified as held for sale and: a.) Represents a separate major
line of business or geographical area of operations. b.) Is part of a single coordinated
plan to dispose of a separate major line of business or geographical area of operations.
c.) Is a subsidiary acquired exclusively with a view to resale.
17. Presentation of Discontinued Operation (PFRS 5):
In the statement of comprehensive income, an entity should present a single amount
comprising the total of: a.) The after-tax profit or loss of discontinued operations. b.) The
after-tax gain or loss recognized on the measurement to fair value less cost to sell (or
on the disposal) of the assets or disposal groups classified as discontinued operations.
Conclusion:
Adherence to the presentation and disclosure requirements outlined in PFRS 5 is
crucial for transparent and comprehensive financial reporting. Entities should diligently
provide the necessary information to enable users of the financial statements to assess
the impact of non-current assets held for sale and discontinued operations on the
financial position and performance of the entity.

Chapter 13: PAS 31 – Agriculture Q18 - Q21

Recognition, Measurement, and Presentation of Biological Assets under PAS 41 –
Agriculture
Purpose:
This note provides comprehensive guidance on the recognition, measurement, and
presentation of biological assets under PAS 41 – Agriculture
Recognition of Gain/Loss on Biological Asset (PAS 41, Q18):
Gain or loss on a biological asset is recognized both initially and subsequently, reported
in the profit or loss for the period in which it arises. Loss on initial recognition occurs
when the cost to sell is greater than the fair value, and a gain on initial recognition is
recognized in the presence of a newborn animal. Subsequent recognition of gain/loss
arises due to changes in fair value less cost to sell, resulting from growth or
degeneration, whether from physical or price changes.
Gain/Loss on Initial Recognition of Agricultural Produce (PAS 41, Q19):
Yes, there can be a gain/loss on the initial recognition of agricultural produce, arising
from harvesting. The amount will be reported in the profit or loss for the period in which
it arises.
Measurement of Government Grants Related to Biological Asset (PAS 41, Q20):
Government grants related to biological assets under PAS 41 will be measured at fair
value less cost to sell in profit or loss. If the biological asset is measured at cost less
any accumulated depreciation and accumulated impairment losses, PAS 20 is applied.
Unconditional government grants will be recognized when receivable, while conditional
grants will be recognized only when the conditions are met.
Presentation of Biological Asset and Agricultural Produce (PAS 41, Q21):
Biological assets' carrying amount must be presented separately on the face of the
financial position, not included with other non-biological assets. Biological assets
typically fall under non-current assets, including agricultural produce to be harvested
more than 12 months from the reporting date, livestock held for more than 12 months,
and trees cultivated for lumber and fruit. Bearer plants are part of property, plant, and
equipment. However, biological assets, including produce to be harvested within 12
months, livestock to be slaughtered within 12 months, and annual crops like wheat and
maize, are reported under current assets.
Conclusion:
PAS 41 outlines specific guidelines for the recognition, measurement, and presentation
of biological assets. Entities engaging in agricultural activities should diligently adhere to
these principles to ensure accurate and transparent financial reporting, reflecting the
unique nature of biological assets in their financial statements.

Chapter 14: PFRS 9 – FINANCIAL INSTRUMENTS Q1- Q19

Objective and Scope

1. Objective of PFRS 9: The primary objective of PFRS 9 is to establish principles for

the financial reporting of financial assets and financial liabilities. The aim is to provide
relevant and useful information to users of financial statements for assessing an entity's
future cash flows, including amounts, timing, and uncertainty.

2. Relationship with Other Standards: There is no conflict between the objectives of

PFRS 9 and other standards such as PAS 32. While PAS 32 deals with presentation for
financial instruments, PFRS 9 focuses on recognition, measurement, impairment,
derecognition, and hedge accounting. PFRS 9 has replaced PAS 39 in its entirety.

3. Scope of Application: PFRS 9 applies to all entities for all types of financial
instruments, with exceptions. Exceptions include interests in subsidiaries, associates,
and joint ventures accounted for under specific standards, rights and obligations under
leases covered by PFRS 16, and certain financial instruments specified in the standard.

4. Exceptions to the Exceptions: There are instances where entities exempted from
PFRS 9's blanket applicability may still apply it. For example, certain interests in
subsidiaries, associates, and joint ventures may follow PFRS 9 based on their
respective standards. Also, while loan commitments are generally exempt, their
impairment is subject to PFRS 9.

5. Forward Contracts Conditions: For a forward contract not to be covered by PFRS 9,

its term should not exceed a reasonable period necessary for required approvals and
transaction completion.

6. Types of Loan Commitments Covered: Certain loan commitments fall under PFRS
9, including those designated as financial liabilities at fair value through profit or loss,
those settled net in cash or by issuing another financial instrument, and commitments
with below-market interest rates.

7. Share-Based Payment Transactions: Some share-based payment transactions fall

under PFRS 9 instead of PFRS 2, especially contracts settled net in cash or another
financial instrument, except those irrevocably designated as measured at fair value
through profit or loss.

Recognition and Classification

8. Initial Recognition: Entities recognize financial assets or liabilities in their statement

of financial position when they become a party to the contractual provisions of the
instrument. This includes unconditional receivables/payables, firm commitments, and
derivatives.

9. Classification of Financial Assets: Financial assets are classified as amortized

cost, fair value through other comprehensive income (FVOCI), or fair value through
profit or loss (FVPL) based on the entity's business model and contractual cash flow
characteristics.

10. Classification of Financial Liabilities: Financial liabilities are generally measured

at amortized cost, with exceptions. Irrevocable designations can classify them as fair
value through profit or loss in specific circumstances.

11. Exceptions to Amortized Cost for Financial Liabilities: Certain financial

liabilities, such as those irrevocably designated at fair value through profit or loss,
financial guarantee contracts, and commitments to provide loans at below-market rates,
are exceptions to amortized cost.

12. Irrevocable Election for Equity Instruments: Irrevocable elections at initial

recognition allow certain equity instruments to be measured at fair value through other
comprehensive income instead of fair value through profit or loss.

13. Designation at Fair Value through Profit or Loss: Financial liabilities may be
designated at fair value through profit or loss if it eliminates or significantly reduces a
measurement or recognition inconsistency and aligns with risk management strategies.

Embedded Derivatives

14. Embedded Derivatives: An embedded derivative is a component of a hybrid

contract that behaves like a stand-alone derivative, causing cash flows to be modified
based on specified variables. It may be transferable independently.

Chapter 15: PAS 32 –Financial Instruments Q35- Q43

Note on Compound Financial Instruments, Offset, and Net Settlement
This note provides a comprehensive overview of key points related to compound
financial instruments, offsetting financial assets and liabilities, and net settlement
criteria.
Compound Financial Instruments:
A compound financial instrument is a single instrument containing features of both a
liability and equity instrument.
The initial carrying amount is allocated between the liability and equity components
based on their respective fair values.
The liability component reflects the obligation to pay, while the equity component
represents the residual interest.
No gain or loss arises upon initial recognition of the separate components.
Conversion or Extinguishment of Convertible Instruments:
Conversion at maturity leads to derecognizing the liability component and recognizing it
as equity.
Early redemption or repurchase require allocating the consideration paid and any
transaction costs between the liability and equity components.
Gains or losses are recognized based on the nature of the component, with liability-
related gains/losses recognized in profit or loss and equity-related gains/losses
recognized in equity.
Modifications to the terms of a convertible instrument may result in a loss recognized in
profit or loss.
Offsetting Financial Assets and Liabilities:
Entities can offset financial assets and liabilities when it reflects their expected future
cash flows.
Two key conditions must be met for offsetting:
Legally enforceable right of set-off: this right must be unconditional and enforceable
under all circumstances.
Net settlement criteria: this means the entity intends to settle on a net basis or realize
the asset and settle the liability simultaneously.
Net Settlement Criteria:
To meet the net settlement criteria, an entity must intend to settle on a net basis or
simultaneously realize and settle.
Gross settlement systems can also comply with the net settlement criteria if they
meet specific characteristics, such as:
Simultaneous submission of eligible assets and liabilities for processing.
Commitment to fulfill the settlement obligation once submitted.
Fixed cash flows after submission (except for processing failures).
Collateralized assets and liabilities settled on a securities transfer system.
Retrial of failed transactions.
Single settlement institution.
Intraday credit facility for payment processing.
Offsetting vs. Derecognition:
Offsetting involves presenting the net amount of a recognized asset and liability, while
derecognition removes the instrument from the statement of financial position and may
involve recognizing a gain or loss.
The existence of an enforceable right to offset is not enough for offsetting; the intent to
settle net or realize and settle simultaneously is also crucial.
Chapter 22 : PAS 37 – Provisions, Contingent Liabilities and Assets Q9- Q12

Note on Obligating Events, Provisions, and Measurement

Obligating Events:
An obligating event is a past event that creates a present obligation with no realistic
alternative for settlement.
This obligation can be legally enforceable or a "constructive obligation" arising from
valid expectations created by the entity's actions.
An example of a constructive obligation is publicly accepting responsibility for
environmental damage, even if no legal obligation exists.
Provisions:
A provision is a liability of uncertain timing or amount resulting from a past obligating
event.
An outflow of resources or other event is considered "probable" if it is more likely than
not to occur.
If a present obligation is possible but not probable, it is disclosed as a contingent
liability.
If the occurrence is remote, neither recognition nor disclosure is required.
Measurement of Provisions:
The best estimate of the expenditure required to settle the present obligation at the end
of the reporting period is recognized as a provision.
This estimate considers what a rational entity would pay to settle or transfer the
obligation at that time.
Uncertainties surrounding the amount are addressed through different methods:
Expected value for large populations of items, weighting possible outcomes by their
probabilities.
Mid-point of the range for continuous ranges of equally likely outcomes.
Key Points:
Obligating events create present obligations for which provisions are recognized.
Provisions are measured at the best estimate of settlement costs.
Uncertainties in measurement are addressed through specific methods.

Chapter 33: PAS 10 – Events after the Reporting Period Q6- Q8

Note on Financial Statements Authorization and Adjusting Events

Financial Statements Authorization:
The process of authorizing financial statements for issue varies depending on the
entity's structure, regulations, and preparation procedures.
In some cases, shareholder approval is required after issuance, making the issue date
the authorization date.
In other cases, management approval to the supervisory board marks the authorization
date.
Adjusting Events After Reporting Period:
Adjusting events are those occurring after the reporting period but providing evidence of
conditions existing at the period end.
Examples of adjusting events include:
Settlement of court cases confirming obligations existing at period end.
Receiving information about asset impairment occurring before the period end.
Determining the cost of assets purchased or proceeds from assets sold before period
end.
Determining profit-sharing or bonus payments based on pre-period end events.
Discovering fraud or errors affecting the financial statements.
Non-Adjusting Events After Reporting Period:
Non-adjusting events are those occurring after the reporting period and reflecting
conditions arising after period end.
Examples of non-adjusting events include:
Decline in fair value of investments after period end.
Declaration of dividends after period end.
Key Points:
Authorization date depends on the entity's specific procedures and regulations.
Adjusting events provide evidence of conditions existing at the period end and require
adjustments to financial statements.
Non-adjusting events reflect conditions arising after the period end and are disclosed,
but not adjusted for.

CONCEPT MAP 13 AND 15