V1 CHAPTER 22: Investment Property (PFRS 16)

Investment Property Types of Lease

➔ Property (land or building or part of a building or Operating Lease
both) - Substance and form same
➔ held by an owner or by the lessee under a Finance Lease
finance lease - Substance and form are not the same
➔ to earn rentals or for capital appreciation or both - Substance/Contract: upahan; Form: Sale
- Naa transfer of ownership (?)
Not Investment Property - Example: rent to own
➔ Movable property cannot qualify as investment
property Criteria for Finance Lease (POV of Lessor) any:
➔ For use in production or supply of goods or - Transfer of title
services or for administrative purposes - Purchase option
➔ For sale in the ordinary course of business - Majority of life (useful life 15 yrs but naa sa
lessee for 14 yrs; lessee is the owner – 75%)
Owner Occupied - Majority of cost (cost: 1M nya payment ni
➔ Property lessee: 980k – 90%)
➔ Held by owner or by the lessee TN: kahit ikaw yung label pero hindi ikaw
➔ For use in the production or supply of goods or nakikinabang therefore hindi ikaw may ari
services or for administrative purposes

INVESTMENT PROPERTY OWNER OCCUPIED PROPERTY OTHER

- land held for long-term capital - property held for use in the Inventories
appreciation rather than for short-term production or supply of g/s or - Property held for sale in the
sale in the ordinary course of for administrative purposes ordinary course of business
business. - property held for future use as - Property held in process of
- land held for a currently undetermined owner occupied property construction for sale
future use. - property held for future - Constructed a condotel plan to
- a building owned by the entity (or held development and subsequent sell every room and manage it
by the entity under a finance lease) use as owner occupied like a hotel administered by the
and leased out under one or more property buyers
operating leases. - property occupied by the
- a building that is vacant but is held to employees whether or not the None
be leased out under one or more employees pay rent at market - Building leased as operating
operating leases. rate lease and leased out under
- property that is being constructed or - property held for sale in the operating lease
developed for future use as ordinary course of business or - Building leased under operating
investment property. in the process of construction lease and leased out as finance
- Land held for undetermined use or development for such sale lease
- Land leased as finance lease and - owner occupied property - Land leased as finance lease
leased out under operating lease awaiting disposal leased out under finance lease
- Constructed a hotel building but to be - property being constructed or - Owner occupied awaiting for
managed by others (company will developed in behalf of third disposal
provide laundry service) parties
- Provides ancillary services that are an - property that is leased to
insignificant component of the another entity under a finance
arrangement lease
- Property leased to an affiliate from the
perspective of individual entity

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 Initial Measurement ➔ Carried at Fair Value
➔ At Cost = cash price equivalent ➔ Any changes in fair value are included in the net
➔ Recognize a right of use asset and a lease income or loss of the period in which they arise
liability and shown in the income statement.
Include the following: ➔ No depreciation is recorded.
➔ The present value of the lease payment ➔ Excludes prepaid or accrued operating lease
➔ Lease payment made to the lessor at or incomes
before commencement date less any lease ➔ Net gains and losses from fair value
incentive adjustments shall be disclosed
➔ Initial direct cost incurred by the lessee
➔ Estimate of cost of dismantling and restoring Cost Model
the underlying asset for which the lessee has ➔ Carried at cost less any accumulated
a present obligation depreciation and accumulated impairment
Cost shall comprise: losses.
- Purchase price ➔ Any change in fair value is not recognized
- Directly attributable expenditures (i.e. ➔ Fair Value of the investment property shall be
professional fees for legal services, property disclosed at every year end.
taxes, and other transaction costs)
Cost shall exclude: Transfer to and From Investment Property
- Start-up costs, unless necessary in bringing A. Transfers under the Cost Model:
the property to its working condition - Accounted for at Carrying Amount.
- Initial operating losses before the investment
property achieves the planned level of B. Transfers under the Fair Value Model:
Transfers from Investment Property:
occupancy
Investment property → Owner Occupied Property/
- Abnormal amounts of wasted material, labor,
Inventory.
and other resources incurred in constructing,
- Accounted for at Fair Value (Deemed Cost for
or developing the product
subsequent accounting)
Inability to determine fair value reliably
➔ Usually happens when an entity first acquires Transfers to Investment Property:
an investment property or when an existing Owner Occupied Property → Investment Property
property becomes investment property due The difference between the fair value and the
to a change of use carrying amount shall be accounted for as
➔ Measure using cost method until disposal revaluation of PPE.
➔ Residual value assumed to be ZERO
Inventory → Investment Property
Subsequent Measurement The remeasurement to fair value shall be included in
➔ If a lessee applies the fair value model in profit or loss.
measuring investment property, the lessee shall When an Investment Property under construction is
also apply the fair value model to the right of completed
use The difference between the fair value and the
carrying amount shall be included in profit or loss.
Fair Value Model

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Cash Surrender Value Problem Solving Tips
➔ Amount which the insurance firm will pay upon ➔ “Operating lease” - PPE
the surrenderer and cancelation of the life ➔ FV of investment property excludes prepaid or
insurance policy operating lease income
➔ Legally commences to accrue at the end of the ➔ How to compute for Future Value
third year ➔ Cost Model:
➔ Classified as noncurrent investment ◆ (if P/L): Depreciation expense
➔ DO NOT DEDUCT LOAN ◆ (if Gain or Loss): zero but if disposed, Sale
Accounting Price - CA
a. Beneficiary is officer or any other person ➔ FV Model: Gain or Loss
◆ No accounting problem because ◆ If ang gi pangayo depre exp. FV Model: 0
payment of the premium is simply ◆ If gi pangayo G/L cost model: 0
charged to insurance expense ➔ Review ang pag determine if IP, PPE, NONE
b. Beneficiary is the entity
◆ Accounting problem arises Common Questions:
Requisites 1. How much is CA?
a. Life policy FV: FV; CM: Cost - AD - AIL
b. Premiums for 3 years have been paid 2. How much is P/L?
c. Policy is surrendered at the end of the third FV: G/L change in FV;
year or anytime thereafter CM: No G/L; if asked how much i.record sa
P/L, just depre exp.; if sold, SP - CA

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V1 CHAPTER 31: Revaluation
Revaluation Other terms:
➔ Fair value at the date of revaluation less any Carrying amount = historical cost – accumulated
subsequent accumulated depreciation and depreciation
subsequent accumulated impairment loss Appreciation or Revaluation Increase = replacement
➔ Revaluation Surplus (OCI) - is an equity account cost - historical cost
coming from the unrealized gain or loss from Revaluation surplus = fair value or depreciated
the change in FV of PPE; temporary account replacement cost or sound value - carrying amount of
TN: assumption: Peso is stable PPE
Take Note:
Frequency of Revaluation - Revaluation surplus is also known as
➔ Depends upon the changes in fair value revaluation increment
➔ If significant and volatile: annual - Historical cost and related accumulated
➔ If insignificant changes: 3-5 years depreciation shall be disclosed in the notes

Classes of PPEs Approaches in Recording Revaluation

- Land
Proportional Approach
- Land and building ➔ Preferable method because it preserves the
- Machinery gross and net amounts after revaluation
- Ships ➔ Proportional in a sense na hindi ra ang asset
- Aircrafts account ang nagkakaroon ng revaluation but
- Motor vehicles rather in proportion to its accu depre account
- Furniture and fixtures ➔ Accumulated depreciation at the date of
- Office equipment revaluation restated proportionately with change
TN: Dili pwede na i.mix ang cost model ug revaluation in the gross carrying amount of the asset
model sa usa ka class of PPE and revaluation must ➔ so that the carrying amount of the asset after
always be done simultaneously (consistency) revaluation equals the revalued amount
Building x
Basis of Revaluation Accu. Depre. x
Fair Value
Revaluation Surplus
➔ Determined by appraisal normally undertaken by
professional qualified valuers Elimination Approach
➔ Price that would be received in an orderly ➔ Accumulated depreciation is eliminated or
transaction between market participants at offset against the gross CA of the machinery
measurement date ➔ Eliminate the accumulated depreciation against
➔ price in an active market (if not available hire an the gross carrying amount of the asset and the
appraiser); value of asset at that specific period net amount restated to the revalued amount of
of time the asset
Depreciated Replacement Cost/Sound Value ➔ Normal behavior is pa taas ang valuation pero
➔ Used when market value not available sometimes mo naog sha but for the sake of
➔ Current purchase price of the asset minus the simplicity, pa taas lang
corresponding accumulated depreciation - We assume na ang asset kay depreciable
➔ you look for a similar asset na bag.o then u asset so we need to tanggal the pag wala sa
compute estimated depreciation for that time pagbaba ng value sa asset
factor ➔ In this approach imo gi tanggal ang contra-asset
account
TN: appraiser looks at the value of the asset sa pag ➔ Accumulated depreciation = 0
revalue niya NOT sa pag purchase niya

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Treatment of Revaluation Surplus
Depreciable A x x x
1. Full Realization
➔ If the asset that pertains to the increase of the Accu. Depre. (x) (x) RC - C
revaluation surplus has already been sold all the
amount of RS will be transferred to retained CA/SV/RS CA SV RS
earnings because na realize na 1. Use this table if daghan ang PPE
➔ Credit to Revaluation Surplus: Any difference of
the book value after eliminating the CA SV RS
accumulated depreciation going to the sound Land x x SV - CA
value is debited to the asset account
➔ Component of other comprehensive income Building x x SV - CA
➔ May be transferred directly to retained earnings
when the surplus is realized Total x x TOTAL

Accumulated depreciation x - Use new residual value for cost

Building x Take Note
Building x ➔ Proportion (cost (%)) = AD / DA
Revaluation Surplus x ➔ Proportion (cost (%)) = expired yrs/useful life
➔ Use old residual value to compute the %
Reversal of Revaluation Surplus ➔ AD (RC) = Building (RC) * Proportion
➔ Revaluation decrease shall be charged directly ➔ Compare fair value with cost to get appreciation
against any revaluation surplus to the extent (usually positive)
that the decrease is a reversal of a previous ➔ “Compute the CA of PPE on date of revaluation”
revaluation → Sound Value
➔ balance is charged to expense
Revaluation surplus, Jan. 1 x
2. Piecemeal Realization Annual realization (x/RUL) (x)
➔ If the asset resulting to a RS, dili ibaligya, a Revaluation surplus, Dec. 31 x
portion every year of the RS will be transferred
to retained earnings % of accu. depre. = (AD / Cost)
➔ = Revaluation surplus/Remaining useful life Useful Life = (years expired / % of accu. depre.)
Revaluation Surplus x
Retained Earnings x Annual Depre. Subsequent to revaluation
= Replacement Cost/RUL
Problem Solving Tips
Accumulated depreciation x Common Questions:
Age of machinery (given) x (divide) a. CA of PPE on date of Revaluation
Annual depreciation x b. Revaluation Surplus on the date of
Revaluation
Machinery at cost x c. Depreciation Expense one year after
Annual depreciation (on cost) x (divide) revaluation
Original Useful Life x d. CA of PPE one yr after revaluation
i. CA = SV - DE one yr after
PROPORTIONAL APPROACH e. Retained earnings one year after revaluation
i. Either full or piecemeal (check if gi
Cost Replace- Apprecia-
ment Cost tion baligya or naur)
ii. Piecemeal = RS/remaining UL (new)
Building x x RC - C f. Balance of Revaluation Surplus
= RS - Piecemeal
Residual Val. (x) RC RV (x) – If sold: ZERO
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V1 CHAPTER 30: Impairment of Assets
Impairment 2. Value in Use
➔ A fall in the market value of an asset so that the - Measured as the present value or
recoverable amount is now less than the discounted value of future net cash
carrying amount in the statement of financial flows (inflows minus outflows)
position expected to be derived from asset
➔ Established principle that an asset shall not be TN: cash flows are pretax cash flows and pretax
carried at above the recoverable amount discount rate is applied in determining the PV
➔ Entity shall write down the CA to the recoverable
amount if the CA is not recoverable in full Value in Use
➔ CA>RA = impairment loss The following should be considered:
Carrying amount a. Based on reasonable and supportable
➔ Amount at which an asset is recognized in the assumptions
statement of financial position after deducting b. Most recent budgets (5 years max unless
accumulated depreciation and accumulated longer period can be justified)
impairment loss c. Beyond 5-year period: estimated by
extrapolating the 5-year projections using a
Accounting for Impairment steady or declining growth rate each
Indication of possible impairment subsequent year, unless an increasing rate
➔ Entity shall assess at each reporting date can be justified
➔ Bisag naay indication or wala, entity shall test an
intangible asset with an indefinite useful life or Recognition of Impairment Loss
an intangible asset not yet available for use for
impairment annually by comparing CA with RA Composition of Estimates of Future Cash Flows
Estimates of future cash flows include:
External source a. Projections of cash inflows from the
➔ Source of impairment di nimo ma control continuing use of the asset
➔ Significant decline in the market value of the b. Projections of cash outflows necessarily
asset as a result of passage of time or normal incurred to generate the cash inflows from
use or new competitor entering the market the continuing use of the asset
➔ Significant change in the technological, market, c. Net cash flows received on the disposal of
legal or economic environment of the business the asset at the end of the useful life in an
in which the asset is employed arm’s length transaction
➔ Increase in the interest rate or market rate of
return on investment which affects discount rate Estimates of future cash flows DO NOT INCLUDE:
➔ Carrying amount of net assets is more than the a. Future cash flows relating to restructuring to
“market capitalization” (CA>FV) which the entity is not yet committed
b. Future costs of improving or enhancing the
Internal source asset’s performance
➔ Evidence of obsolescence or physical damage c. Cash inflows or outflows from financing
of an asset activities
➔ Significant change in the manner or extent in d. Income tax
which the asset is used with an adverse effect
on the entity (part of restructuring, held for sale, Problem Solving Tips
or idle) - CA>RA = impairment loss
➔ Evidence that the economic performance of an - Impairment Loss = CA - RA (must be positive)
asset will be worse than expected - Ignore undiscounted cash flows; to make it
Measurement of Recoverable Amount discounted multiply PV
1. Fair Value Less Cost of Disposal
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 - If daghan options for FV choose whichever is flows (inflows minus outflows)
higher expected to be derived from asset
Measurement of Recoverable Amount Common Questions:
1. Fair Value Less Cost of Disposal 1. Compute Impairment Loss
2. Value in Use 2. CA of PPE after Impairment
- Measured as the present value or 3. DE after Impairment
discounted value of future net cash 4. CA of PPE after Impairment

V1 CHAPTER 24: Government Grants (PAS 20)

Government Grant 2. Grant related to non-depreciable asset
➔ Assistance by government in the form of requiring fulfillment of certain conditions
transfer of resources to an entity in return for - Recognized as income over the
part or future compliance with certain periods which bear the cost of
conditions relating to the operating activities of meeting the conditions
the entity - Receipt of Grant:
➔ aka subsidy, subvention, or premium Dr. Land; Cr. Deferred Income
Recognition - Fulfillment of Obligation:
When there is reasonable assurance that: Dr. Building; Cr. Cash
a. Entity will comply with the conditions Dr. Depre; Cr. Accu. Depre.
b. Grant will be received (entry of the condition)
➔ Can recognize even if wala pa ang actual receipt - Amortization of Grant:
of the grant because ang standard nag adhere Dr. Def Income; Cr. Income
sa accrual basis of accounting (when received 3. Grant in recognition of specific expenses
or receivable) - Allocate income over the period of
Measurement related expenses (develop fraction)
➔ Fair value (including non-monetary grant) - Receipt of Grant:
Dr. Cash; Cr. Deferred Income
Classification of Government Grant - Fulfillment of Obligation:
1. Grant Related to Asset Dr. Exp; Cr. Cash
Condition: purchase, construct, or otherwise - Amortization of Grant:
long-term asset Dr. Def Income; Cr. Income
2. Grant Related to Income 4. Grant becomes receivable as compensation
Residual definition: grant other than prev. for expenses or losses already incurred or for
giving financial support to the entity
Accounting - Recognized as income of the period
Deferred Income Approach in which it becomes a receivable
1. Grant related to depreciable asset - IMMEDIATELY
- Recognized as income over the - Example: there is a catastrophe,
period and in proportion to the tabangan ka sa government para
depreciation of the related asset maka ahon ka.. No condition
- Receipt of Grant: - Receipt of Grant:
Dr. Cash; Cr. Deferred Income Dr. Cash; Cr. Income
- Fulfillment of Obligation: TN: normally the government grant is a liability
Dr. Asset; Cr. Cash (deferred income) but once fulfilled — income
Dr. Depre; Cr. Accu. Depre.
- Amortization of Grant: Deduction to Asset Approach
Dr. Def Income; Cr. Income - Do not recognize deferred income

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 - Kung unsa imo nakuha from the government ➔ Measurement of benefit: Face amount – PV
automatically ma offset sa asset
- Condition: construct building Notes from IFRS
Dr. Building; Cr. Cash How to account for Government Grants:
- Maka tanggap ug grant: 1. Related to assets
Dr. Cash; Cr. Building a. Deferred income
- Effect: lesser ang depreciation compared to i. Grant receipt
deferred income approach; di na nimo ipa Dr. Cash; Cr. Deferred income
amortize ang income account kay ni net ii. Recognition in P/L
effect na shas depreciation Dr. Deferred Income; Cr. P/L
TN: Same ang amount na mo gawas sa diff approach b. Deduct from PPE/Asset
i. Grant receipt
Repayment of Government Grant Dr. Cash; Cr. PPE/Asset
➔ Ngano need mag repay? You have a condition to ii. Recognition
fulfill, so for noncompliance with conditions, it Reflect in depreciation
shall be accounted for as CHANGE IN 2. Related to expenditures
ACCOUNTING ESTIMATE (prospectively) a. Past Cost
➔ Grant Related to Income: applied first against i. Immediately in P/L
any unamortized deferred income and any b. Current/future costs
excess shall be recognized as expense (loss) i. In the period when costs are
➔ Grant Related to Asset: recorded by increasing recognized
the carrying amount of asset 1. Other income
2. Deduct expense
Grant of Interest-Free Loan
➔ Wala ka gi hatagan ug cash, gipa utang ra ka Problem Solving Tips
➔ Benefit of a government loan with a NIL or Grant Income = PV * interest %
below-market interest rate is treated as
government grant

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V1 CHAPTER 25: Borrowing Costs (PAS 23)
Borrowing Costs
➔ Interest and other costs that an entity incurs in Accounting for Borrowing Cost
connection with the borrowing of funds Specific Borrowing
➔ Specifically includes: ➔ Capitalizable amount = Actual borrowing cost —
◆ Interest expense calculated using the Investment Income
effective interest method
◆ Finance charge with respect to finance General Borrowing
lease ➔ Capitalizable Amount = (Average CA) * (Average
◆ Exchange difference arising from foreign Interest Rate or Capitalization Rate)
currency borrowing to the extent that it is ➔ Average Interest Rate or Capitalization Rate =
regarded as an adjustment to interest cost (total annual BC / total general borrowing
➔ Interest is necessary para maka construct ka, so outstanding)
it is capitalizable basta QA ➔ Can be capitalized if used for acquiring
➔ General treatment: Expense qualifying asset
➔ PAS 23 treatment: Capitalize ➔ Capitalizable BC must not exceed actual interest
➔ Capitalize if for acquisition, construction or incurred
production of QA ➔ Any investment income from general borrowing
is not deducted from capitalizable BC
Qualifying Asset
➔ An asset that necessarily takes a substantial Both financed by Specific and General Borrowing
period of time to get ready for the intended use Average Expenditures:
or sale (still being prepared) ➔ First: to Specific Borrowing
➔ Dili pa ready at the very moment ➔ Excess: to General Borrowing
➔ Manufacturing plant, power generation facility,
intangible asset, investment property TN: If originally SB sha but na use for other purposes
then it will be converted to GB
Excluded from Capitalization TN: capitalize interest ONLY if QA sha
➔ Assets measured at fair value (ie. agriculture)
➔ Inventory manufactured or produced in large Problem Solving Tips
quantities on a repetitive basis even if it takes Specific Borrowing
time (maturing whiskey) ➔ Capitalizable amount = (Actual borrowing cost *
➔ Assets ready for their intended use upon Interest Rate * Time) — Investment Income
acquisition General Borrowing
➔ Capitalizable Amount = (Average CA) * (Average
I. Commencement Interest Rate or Capitalization Rate)
a. Incurs expenditures ➔ Average Interest Rate or Capitalization Rate =
b. Incurs borrowing cost (interest expense) (total annual BC / total general borrowing
c. Undertakes activities necessary to prepare outstanding)
- Sapat na ang technical activities like ➔ Ignore investment income
andam sa plan or mga legal docs Specific and General Borrowing
Ave Exp - SBC = GBC
II. Suspension Common Questions:
a. If normal - capitalized 1. Capitalizable Amount
b. If not necessary - expense 2. Cost of Qualifying Asset
= Cost + Capitalizable Amt
III. Cessation 3. Interest Expense
a. When all the activities necessary to prepare = remaining amount
the QA for intended use or sale are complete
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