Week 5-6

• PAS 23 Borrowing Costs

• PAS 24 Related Party Disclosures
• PAS 26 Accounting and Reporting by Retirement Benefit Plans
• PAS 27 Separate Financial Statements
• PAS 28 Investment in Associates and Joint Ventures

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 23 Borrowing Costs
Borrowing costs (interest or finance costs) are costs incurred in relation to the
borrowing of funds.
Example: (1)interest expense on financial liabilities or lease liabilities computed using the effective interest
method
(2) exchange differences on foreign borrowings that are regarded as an adjustment to interest cost

Borrowing costs directly attributable to the acquisition, construction or production

of qualifying asset are capitalized as cost of that asset. Other borrowing cost are
expensed when incurred.
 Qualifying asset- is “an asset that necessarily takes substantial period of time to get ready for its
intended use or sale.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 23 Borrowing Costs
NOT qualifying assets:
 Financial Assets
 Inventories that are routinely produced over a short period of time or are mass-produced
on repetitive basis.
 Assets that are readily available for use or sale when acquired
 Assets measure at Fair Value.
Capitalization of Borrowing Costs (BC)
 BC are capitalized if they are avoidable, meaning they would not have been incurred if
the expenditure on the qualifying asset had not been made.
Prepared by: Miss Ivy Beatrice A. Alias, CPA
 PAS 23 Borrowing Costs
Capitalization of BC starts when all of the following conditions are met:
a. expenditures for the asset are being incurred;
b. borrowing costs are being incurred; and
c. activities necessary to prepare the asset for its intended use or sale are being undertaken.
Capitalization is suspended during extended periods in which active development is
interrupted. BC during these period are expensed.
Capitalization, however, is not suspended if substantial technical and administrative work
is being performed or temporary delay is necessary part of the development process.
Capitalization of BC ceases when the qualifying asset is substantially complete.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 23 Borrowing Costs
Specific Borrowing
 It refers to funds borrowed specifically for the purpose of obtaining a qualifying asset.
Capitalizable BC= Actual Borrowing costs- Investment Income

General Borrowing
 This is obtained for more than one purpose, e.g., the acquisition or construction of a qualifying asset
and some other purposes.
Capitalizable BC= Average Expenditure x Capitalization Rate

 Borrowing cost to be capitalized is the lower of the amount computed using the formula above and
the actual BC.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 23 Borrowing Costs
Capitalization Rate= Total interest expense on general borrowings
Total general borrowings
Disclosure
a. The amount of borrowing costs capitalized during the period.
b. The capitalization rate used to determine the capitalizable borrowing costs.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 24 Related Party Disclosures
Related Parties- they are related if one party has the ability to affect the financial and
operating decisions of the other party through, control, significant influence or joint control.
 Take note of listed examples of related parties
 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 family member- is one who may be expected to influence, or be influenced by, the person in
his/her dealings with the reporting entity. It includes the person’s spouse, their children and their
dependents.
 Take note of the listed examples of NOT considered related parties.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 24 Related Party Disclosures
DISCLOSURE
 Relationships between parents and subsidiaries
 Parent-subsidiary relationship is disclosed even if there have been no transactions between them
during the period.
 Subsidiary discloses the name of its parent, and if different, the name of the ultimate parent.
 If both subsidiary and parent does not prepare consolidated FS for public use, the subsidiary
discloses the name of the next most senior parent that does so.
 Key management personnel compensation
 Short-term employee benefits; Post-employment benefits; other long-term benefits; termination
benefits; share-based payment

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 24 Related Party Disclosures
DISCLOSURE
 Related party transactions(RPT)- is “a transfer of resources, services or obligations
between a reporting entity and a related party regardless of whether a price is charged.
 Take note of the examples of related party transactions to be disclosed
 The following are disclosed when there are related party transactions during the periods covered
by the financial statements: (a) nature of the related party relationship; (b) nature, terms and
amount of the transaction and outstanding balances; (c) doubtful debts recognized on the
outstanding balances
 Take notethat the RPT and their outstanding balances are disclosed in entity’s separate FS but
eliminated in the group’s consolidated FS.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 24 Related Party Disclosures
 DISCLOSURE
 Government-related entities- is “ an entity that is controlled, jointly controlled or
significantly influenced by a government.”
 The following informations should be disclosed if there have been RPT with the
gov’t.:
 name of the government and the nature of the relationship
 nature and amount of each individually significant transaction
 other transactions that are collectively significant but are individually insignificant.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 26 Accounting and Reporting by
Retirement Benefit Plans
This applies in the preparation of FS of retirement benefit plans(also called “pension
schemes,” “superannuation,” “or “retirement benefit schemes”)
PAS 26 views a retirement benefit plan as a reporting entity separate from the employers of
the participants in the plan.
PAS 19 PAS 26

Applied by an employer in(among others) Applied by, for example, a trustee, when preparing
determining the cost of providing retirement benefits. the financial statements of a retirement benefit plan.
PAS 26 complements PAS 19.

PAS 26 applies to all retirement benefit plans. However, it does not apply to government
social security type arrangements and other employee benefits

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 26 Accounting and Reporting by
Retirement Benefit Plans
Hybrid Plans (have characteristics of both defined contribution plan
and defined benefit plan) are considered defined benefit plans under
PAS 26.
Funding is “the transfer of assets to an entity (the fund) separate from
the employer’s entity to meet future obligations for the payment of
retirement benefits.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 26 Accounting and Reporting by
Retirement Benefit Plans
DEFINED CONTRIBUTION PLANS
 The employer’s obligation is usually discharged by making agreed contributions. The benefit to
be received by employees are dependent on the contributions and investment income of the fund.
 To address the foregoing needs the FS of a defined contribution plan shall contain the following:
 Statement of net assets available for benefits
 Statement of changes in net assets available for benefit
 accompanying notes to the FS
 Net assets available for benefits are “the asset of a plan less liabilities other than the
actuarial present value of promised benefits.:”

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 26 Accounting and Reporting by
Retirement Benefit Plans
DEFINED BENEFIT PLANS
 Benefits to be received by employees are definite amounts which can be determined
by reference to the plan formula.
 The employer’s obligation is not discharged simply by making contributions to a
fund, but rather by actually paying the promised benefits when they become due.
Therefore payment of benefit is dependent on the availability of earmarked funds &
employer’s ability to make good any deficiency in those funds.
 Plan participants(employees) are not only interested in information on the
earmarked funds but also on the oblilgation for which funds were set aside.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 26 Accounting and Reporting by
Retirement Benefit Plans
 The Financial Statement of a defined benefit plan contain either:
1) A statement that shows:
a. Net asset available for benefit (earmarked funds)
b. the actuarial present value of promised retirement benefits, distinguishing between vested
benefit and non-vested benefits (obligation)
c. resulting excess or deficit
2) A statement of net asset available for benefit 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

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 26 Accounting and Reporting by
Retirement Benefit Plans
Vested benefits- are “benefits, rights to which, under the conditions of a
retirement benefit plan, are not conditional on continued employment”
ACTUARIAL PRESENT VALUE OF PROMISED RETIREMENT
BENEFITS
 It is “the present value(PV) of the expected payments by a retirement plan to existing and past
employees, attributable to the service already rendered.”
 PV of the retirement benefits may be calculated using either current salary levels or projected
salary levels at the retirement dates.
 Actuarial valuations are frequently prepared every 3 years. If an actuarial valuation has not been
made prepared at the date of FS the latest actuarial valuation is used as basis. The valuation date is
disclosed.
Prepared by: Miss Ivy Beatrice A. Alias, CPA
 PAS 26 Accounting and Reporting by
Retirement Benefit Plans
VALUATION OF PLAN ASSETS
 Plan assets are measured at fair value or market value.
 Securities w/ fixed redemption values that have been acquired to match the
obligations of the plan may be measured at their final redemption values
 If an estimate of fair value is not possible, the reason for this is disclosed
DISCLOSURE
 Aside from FS, take note of other 11 information listed to be disclosed by
either a defined contribution plan or defined benefit plan.
Prepared by: Miss Ivy Beatrice A. Alias, CPA
 PAS 27 Separate Financial Statements
PAS 27 prescribes the accounting & disclosure requirements for investments in
subsidiaries, associates and joint ventures when entity prepares separate FS.
PAS 27 does not mandate which entity should produce separate FS, it is applied when
entity chooses, or required by law, to present separate FS that comply with PFRSs.
Separate Financial Statements are those presented in addition to:
 Consolidated Financial Statement
 Financial Statements of an entity w/ an investment in associate or joint venture that is accounted
for using equity method in accordace w/ PAS 28 Investments in Associates and Joint Ventures.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 27 Separate Financial Statements
Consolidated Financial Statements are “the financial statements of a group in
which the assets, liabilities, equity, income, expenses and cash flows of the parent
and its subsidiaries are presented as those of a single economic entity.
PREPARATION OF SEPARATE FINANCIAL STATEMENT
 It is prepared in accordance w/ all applicable PFRSs, except the investment in subsidiaries,
associates or joint ventures are accounted for either:
 at cost,
 in accordance w/ PFRS 9 Financial Instruments, or
 using the equity method under PFRS 28 Investments in Associates & Joint Ventures

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 27 Separate Financial Statements
PREPARATION OF SEPARATE FINANCIAL STATEMENT
 Entity applies the same accounting for each investment category
 If the investments are measured at FV through profit or loss in non-separate FS, the same
measurement is also used in the separate FS.
 Investments classified for as held for sale are accounted for in accordnce w/ PFRS 5 Non-current
Assets Held for Sale & Discotinued Operations.
DIVIDENDS
 It is recognized in profit or loss when the entity’s right to receive the dividends is established. Except
when the investment is accounted for using equity method, it is recognized as deduction to the
carrying amount of the investment.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 28 Investments in Associates and
Joint Ventures
Type of Investment Nature of Applicable Percentage of Ownership
relationship with Reporting Interest
Investee Standard
 Investment measured at Fair Value Regular Investor PFRS 9 Less than 20%

 Investment in Associate Significant Influence PAS 28 20% - 50%

 Investment in Subsidiary Control PFRS 3 & 51%-100%

PFRS 10
 Investment in Joint Venture Joint control PFRS 11 & Contractually agreed
PAS 28 sharing of control

**Take note that percentage of ownership interest is a mere presumption.**

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 28 Investments in Associates and
Joint Ventures
Investment in Associate is an entity over which an investor has significant influence.
 Significant influence is the power to particpate in the financial & operating policy decisions of the
investee but is not control or joint of those policies.
 Evidence of significant influence:
a. representation on the board of directors or equivalent governing body of the investee
b. participation in policy-making processes, including participation in decisions about dividends or other
distributions
c. material transactions between the entity & its investee
d. interchange of managerial personnel
e. provision of essential technical information

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 28 Investments in Associates and
Joint Ventures
Under the equity method,the investment in an associate or joint venture is initially
recognized at cost and subsequently adjusted for the investor’s share in the
investee’s changes in equity, such as profit or loss, dividends, and other
comprehensive income.
Investment in Associate or Joint Venture
Beg. xx
Share in profit xx xx Dividends
End xx

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 28 Investments in Associates and
Joint Ventures
When an associate has cumulative preference shares, the investor computes for its
share inprofit or loss after deducting one-year dividends on those shares, whether
declared or not.
The application of the equity method starts when significant influence or joint
control is obtained and stops when significant influence or joint control is lost.
Share in losses of associate or joint venture is recognized only up to the amount of
the “interest in the associate or joint venture.”
Investor uses PFRS 11 Joint Arrangements to determine whether its interest in joint
arrangement is an investment in joint venture.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 REFERENCE
• Ballada W & Ballada S (2020). Conceptual Framework and Accounting
Standards. Manila:Domdane Publishers
• Zeus Vernon Millan (2018). Conceptual Framework and Accounting
Standards. Baguio City: Bandolin Enterprise Publishing & Printing

Prepared by: Ivy Beatrice A. Alias, CPA

 REVIEW AS YOU GO :D

• STUDY THE CONCEPT

• SOLVE PROBLEMS
• DISCUSS WITH YOUR
GROUPMATE