Learning Module 3

Program: Bachelor of Science in Accountancy Topic: PAS 20, 21, 23, 24, 26 & 27

Course: Conceptual Framework & Instructor: Mr. Usop M. Kasan

Accounting Standards
Code ACCT08 Module #: 3 Week #: 5-6 # of Page:

I. Preliminaries
Introduction to Discussion of the PAS 20, 21, 23, 24, 26 & 27
the Module
Objective

Section Topics Learning Outcomes Assessment/ Modality

Evaluation

Topic 12
PAS 20 ACCOUNTING FOR Ability to explain the Accounting for
GOVERNMENT GRANTS & government grants.
On line, thru
DISCLOSURE OF GOVERNMENT canvas
ASSISTANCE
Assignment
a. Accounting for government Seat work LMS
grants Quiz
Self- Face to Face
Topic 13 assessment
PAS 21 EFFECTS OF CHANGES if permissible
Instrument
IN FOREIGN EXCHNAGE RATES Ability to recognize the functional
a. Functional currency currency.
b. Foreign currency transactions Ability to distinguish the FX transactions
c. Foreign operations and foreign operations.

Topic 14
PAS 23 BORROWING COSTS
a. Capitalization of borrowing Ability to learn the capitalization of
costs borrowing costs and types of borrowing
b. Specific and General costs as to specific or general. .
borrowing

Topic 15
PAS 24 RELATED PARTY
DISCLOSURES
a. Related parties and Ability to identify the related parties and
disclosures disclosures.
Topic 16
PAS 26 ACCOUNTING AND
REPORTING BY RETIREMENT Ability to distinguish the concepts,
BENEFIT PLANS comparison of defined and benefit
a. Defined contribution and plans. .
benefit plans

Topic 17
PAS 27 SEPARATE FINANCIAL Ability to elaborate the separate
STATEMENTS financial statements
a. Preparation of financial
statements : consolidated and
separate Financial Statements.

II. Instructions
Keywords and concepts
 Content Lecture/ Discussion

Topic 12
PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS & DISCLOSURE OF GOVERNMENT
ASSISTANCE

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
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 inter

• 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.

Topic 13
PAS 21 EFFECTS OF CHANGES IN FOREIGN EXCHNAGE RATES

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
• 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:
a. The exchange difference between the transaction date and the end of reporting period is recognized in the
period of transaction, while
b. 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 operation
 • 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.

Topic 14

PAS 23 BORROWING COSTS

Core principle
• “Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form
part of the cost of that asset. Other borrowing costs are recognized as an expense.” (PAS 23.1)

Borrowing costs
Borrowing costs are interest and other costs incurred by an entity in connection with the borrowing of funds. Borrowing
costs may include:
1. interest expense on financial liabilities or lease liabilities computed using the effective interest method
2. Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an
adjustment to interest costs.

Qualifying asset
• Qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use
or sale. Depending on the circumstances, any of the following may be qualifying assets:
a. Inventories
b. Manufacturing plants
c. Power generation facilities
d. Intangible assets
e. Investment properties measured under cost model

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 qualifying assets.
c. Assets that are routinely manufactured or otherwise produced in large quantities on a repetitive basis.
d. assets measured at fair value.

Commencement of capitalization
• The capitalization of borrowing costs as part of the cost of a qualifying asset commences on the date when all of
the following conditions are met:
a. The entity incurs expenditures for the asset;
b. The entity incurs borrowing costs; and
c. It undertakes activities that are necessary to prepare the asset for its intended use or sale.

Suspension of capitalization
• Capitalization of borrowing costs shall be suspended during extended periods of suspension of active
development of a qualifying asset.

Cessation of capitalization
• An entity shall cease capitalizing borrowing costs when substantially all the activities necessary to prepare the
qualifying asset for its intended use or sale are complete.

Determining borrowing costs eligible for capitalization

1. Qualifying assets financed through Specific borrowing

Interest expense on specific borrowing ₱ xx

Less: Investment income earned on specific borrowing xx
Borrowing cost eligible for capitalization ₱ xx
Determining borrowing costs eligible for capitalization
2. Qualifying assets financed through General borrowing
Total interest expense on general borrowings ₱ xx
Divide by: Total general borrowings xx
Capitalization rate %

Average expenditure on the asset ₱ xx

Multiply by: Capitalization rate %
Borrowing cost that may be eligible for capitalization ₱ xx

The amount computed in the formula above shall be 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.

Topic 15
PAS 24 RELATED PARTY DISCLOSURES

Objective and Scope

• PAS 24 prescribes the necessary disclosures regarding related party relationships and transactions, outstanding
balances and commitments between an entity and its related parties.

Core principle
• The financial position and profit or loss of an entity may be affected by a related party 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.
• 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;
b. children of the individual’s domestic partner; and
c. dependents of the individual or the individual’s domestic partner.
• 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.

Topic 16
PAS 26 ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS

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.

Topic 17
PAS 27 SEPARATE FINANCIAL STATEMENTS

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

Viable and vibrant Activities

Description of the Learning Activities

Individual/ group assignment and seatwork/homework will be provided on line or hard copy .

Quiz/zes involve problem solving taken from the text book/s.

Problem case from the Professor.

a. Opportunity to reflect and articulate students’ acquired knowledge.

Purpose of the activity
Application of accounting, accounting concepts, principles, basic equation and major accounts.

For the Students

1. Share diverse perspectives
2 Pool knowledge and skills
3. Hold one another (and be held) accountable.
4. Receive social support and encouragement to take risks

Evaluations Criteria
Rubrics
Points Scoring criteria
40- 50 The students answer the question correctly. (correctly and complete)
26- 39 The student does not use proper data from lecture notes to answer the question. (partially correct)
11- 25 The student does not use any data from lecture notes to answer the question. (incorrect answer)
0 - 10 The student does not know how to answer the question.

Summary and Reflection

[This section required student to fill up a learning journal]

b. Textbooks and other References

Text book:
COnceptual Frameworks and accounting standards F.V. b. Millan. Bandolin. Baguio . 2019 edition

Other references:
Conceptual Framework and Accounting Standards. Aduana, N. L. C & E Publishing, Inc. Manila 2019
edition
 The TCC Learning Module Component Details

Each course module shall independently design from students’ available resource to ensure
that students will learn from the designed teaching and learning materials. Further, it is intentionally
designed containing components with acronym PIVOT which is the same acronym of the City
Government and the College Core Values (Professionalism, Integrity, Value for Excellence, Open
for Innovation, Teamwork) to instill amongst TCCians the spirit of these core values exceptionally in
the midst of crisis.

P
reliminaries. An introduction to the module objectives, contents, its rationale or purpose, list
of assignments, activities, lecture notes, test/quizzes, and due dates. This is a place to
provide a rationale and highlight the module’s relevance by describing how it fits into the
course, and may provide a brief overview of new material. It is also a place to remind students what
they have already learned and how this new information will build on their previous knowledge.

 Introduction: A general statement about the nature of the module and its relation to the
course as a whole. The introduction should not only introduce the topic of the module, but
should also forecast the content and organization of the module itself.
 Module Learning Objectives: These objectives should be the specific outcomes that relate
to each individual module, not the objectives that relate to the entire course. Students should
be explicitly and clearly told what they are expected to learn in each module. It is very
important to make sure that the module outcomes align properly with the assessments in the
same module.
 Learning outcomes are direct statements that describe the knowledge, skills, and attitudes
that students are expected to reliably demonstrate in successfully completing a course. They
describe learning that is significant and durable– learning that really matters in the long term.
Learning Outcomes should be observable, assessable in some way, and both rigorous and
flexible (rigorous in that they specify the complexity of learning expected and flexible in that
the learning may be demonstrated in a variety of ways).

I
nstructions. This part of the module discourses the subject matter. It contains lectures and
instructions supported by any reading or visual material like instructor prepared text, PowerPoint
slides, Web sites, articles, graphic organizers, or other media and material. This would also be
the place to link discussion boards, audio files, video conferencing, and chat room discussions that
are serve as the means of interaction between students and faculty for this module period and help
students meet the objectives associated with this period of time in the course.
  Key Words and Concepts: A list of keywords with definitions, perhaps listed for emphasis
so that the student will be on the alert for an explanation or definition later in the module.
 Content Lectures/Discussions: This can be a very broad area to cover and may include
multiple topics separated into sections. Therefore, you may want to link your discussion to
your presentation related to the module.

V
iable and vibrant Activities. This is where faculty would list assignments/activities related
to this specific course module. This section contains activities that ways for students to
engage with each other in discussion and with the information and concepts. This section
actively engages students with the course material and explicitly practice or review, apply, analyze
or synthesize through discussion, exercises, laboratories, problem solving, case studies, role plays,
test, quiz, essay, journal or portfolio entry, peer evaluation, or self-evaluation and other methods.

 Collaborative and interactive activities that will facilitate communication between and
among students, including group projects, discussion questions, or other types of
communication and collaboration.
 Assignments. While the assignments were listed in the preliminaries, here is a chance to
describe the assignments in detail and to provide students with the needed information and
resources, including the due dates. If there are more than one type of assignment the module
may have a page for each.

pportunity to reflect and articulate students’ acquired knowledge. This section provides

O clear and explicit details on how students will evaluate/ assess their work/performance. This
section encourages students to fill up the college Standard Learning Journal (SLJ), it further,
explained how the faculty will give feedback to students regarding their learning and
accomplishment of the module objectives.

 Evaluations. All assessments should contain detailed explanations of their purpose, with full
descriptions of how students are to complete and submit them. Assessment and Evaluation
tools are specified under this section.
 Summary and Reflection. This section provides a way to engage the student in a dialogue
about what they have learned by completing the module. This dialogue might take place in
an online or classroom discussion, in a small-group activity, or through a writing assignment.
It might also contribute to a student’s grade for participation.
 Standard Learning Journal. A standardized form use to record the collection of notes,
observations, thoughts and other relevant materials built up over a period of time and maybe
a result of a period of study, learning and/or working experience. Its purpose is to enhance
student’s learning through the process of writing and thinking about your learning
experiences. Student learning journal is personal to them and will reflect their personality,
preferences and experiences. (With Attached copies of Learning Journal Guidelines and SLJ
Form).

T
extbooks and other References. This part contains textbook and reference used in the
module. It also covers possibly additional resources supplemental or complementary
materials relevant to the module essential for students to extend their learning through
enriching activities and evaluation. Be certain to clearly and explicitly designate a note for optional
materials or required materials. Specify a time period within the duration of the module for student
to browse the required materials.