INVESTMENT IN ASSOCIATE

• 20%-50% of the voting power of the investee, presumably an investor

has significant influence, unless otherwise.

• Power to participate in the financial and operating policy decisions of

the investee but not control nor joint control over those policies.

• Investment must be in ordinary shares

• Beyond the mere 20% threshold, examples of indicators of significant

influence are:

> representation in the board of directors

> Material transactions between investor and investee

 EQUITY METHOD & ACCTG ENTRIES
• Investor and associate are viewed as a “single economic entity”

• Purchase of the investment Investment in associate xx

Cash xx

• Share in the net income Investment in associate xx

Investment income xx

• Share in the net loss Investment loss xx

Investment in associate xx

• Share in OCI of associate Investment in associate xx

Revaluation surplus-ee xx

• Dividend received Cash xx

Investment in associate xx

Share dividend (same class) – memo entry only

 EQUITY METHOD & ACCTG ENTRIES

• Amortization of excess cost Investment income/ loss xx

Investment in Associate xx

• Excess fair value (gain on purchase) Investment in associate xx

Investment income/ loss xx

INTERCOMPANY TRANSACTIONS

• Profit and losses resulting from upstream and downstream transactions are

recognized in the investor’s financial statements only to the extent of the unrelated

investor’s interest in associate

• Upstream- investee sold assets to the investor

• Downstream- investor sold assets to the investee

INVESTEE WITH HEAVY LOSSES

• If an investor’s share of losses of an associate equals or exceeds the carrying amount

of an investment, the investor discontinues recognizing its share of further losses.

• The investment is reported at zero value

• The carrying amount of the investment in associate includes:

> investment in ordinary shares of the associate

 Investment in preference shares of the associate

 long-term receivables, loans and advances to the associate

• Trade receivables and secured loan receivables are NOT included in the carrying

amount
INVESTEE WITH HEAVY LOSSES

• Losses recognized using the equity method in excess of the investment in associate

(investment in ordinary shares), are applied to the other long-term interests in the

associate in reverse order of their seniority or priority in liquidation

> Investment in preference shares of the associate

> Loans and advances to the associate

• Additional losses are provided for or a liability is recognized, to the extent that the

investor has incurred legal or constructive obligations or made payments on behalf

of the associate
ASSOCIATE HAS PREFERENCE SHARE CAPITAL

• When an associate has outstanding preference shares, the basis for the investor’s

share in the profit or loss is the profit or loss attributable to ordinary shareholders

> Deduct the preference dividends from profit or loss whether declared or not,

if the preference shares are cumulative

> Deduct the preference dividends from profit or loss only when declared, if

preference shares are noncumulative.

INVESTEE WITH HEAVY LOSSES

• If the associate subsequently reports income, the investor resumes including its

share of such income, after its share of the income equals the share of the losses not

recognized. The investor allocates its share of the associate’s income to each

interest in the order of seniority or priority in liquidation.

> Loans and advances to the associate

 Investment in preference shares of the associate

 Investment in associate (ordinary shares)

• The investor limits the allocation of income to the investment in preference shares

and loans and advances to the amount of share of losses previously allocated to

such interests.
INVESTMENT IN ASSOCIATE ACHIEVED IN STAGES

• From passive interest to significant influence

• The existing interest is remeasured at fair value and any change is included in profit

or loss

• If the existing interest is measured at FVOCI, any cumulative unrealized gain or loss

in OCI is reclassified to retained earnings

• The fair value of the existing interest plus the cost of the additional interest is the

initial cost of the investment in associate under the equity method

• Determine if the acquisition will result in goodwill or excess fair value

BOND INVESTMENT
Measurement of debt investments is based on:

• Business model of managing the financial asset

> Held for trading

> Realizing fair value changes

> Collecting contractual cash flows

> Collecting contractual cash flows and sell the asset

• Cash flow characteristics

> Interest

> Principal
HELD FOR TRADING OR REALIZING FAIR VALUE CHANGES

• This debt investment is measured at fair value through fair value through profit/loss

• Initial measurement- Fair Value or Purchase price

• Transaction cost- expensed outright

• Subsequent measurement- At Fair value, with changes recognized in profit or loss

• Interest income- face amount x nominal interest rate

• On derecognition or disposal, the difference between net proceeds and carrying

amount on disposal date is recognized as gain or loss on sale in profit or loss

 HELD FOR COLLECTING CONTRACTUAL CASH FLOWS THAT ARE COMPOSED
OF INTEREST & PRINCIPAL

• This debt investment is measured at amortized cost

• Initial measurement- Fair value or purchase price, plus transaction cost

• Subsequent measurement- Amortized cost is equal to the initial measurement plus discount

amortization or minus premium amortization and minus impairment loss

• Effective interest method

Interest income= (Carrying amount, beg x effective interest rate) xx

Interest received= ( Face amount x nominal interest rate) xx

Discount (premium) amortization xx

HELD FOR COLLECTING CONTRACTUAL CASH FLOWS THAT ARE COMPOSED
OF INTEREST & PRINCIPAL

• The investment can also be measured at fair value through profit or loss (FVPL) even

if the Amortized Cost measurement is satisfied.

• The entity may elect to use Fair Value option on initial purchase of this investment

• Such election is irrevocable and therefore cannot be reclassified out into another

category

• Recognition and measurement rules are same as “Held for Trading” or “Realizing Fair

Value Changes”
HELD FOR COLLECTING CONTRACTUAL CASH FLOWS & SELL THE FINANCIAL
ASSET. CASH FLOWS ARE COMPOSED OF INTEREST & PRINCIPAL

• This debt investment is measured at Fair Value through OCI (FVOCI)

• Initial measurement- Fair value or purchase price, plus transaction cost

• Subsequent measurement – At Fair value, and changes in fair value after considering

any impairment loss are recognized in OCI. Any impairment loss is recognized in

profit or loss.

• Interest income is computed using effective interest method

• On disposal, the difference between net proceeds and carrying amount of the

investment on disposal date is recognized as gain or loss on sale in profit or loss. Any

cumulative amount in OCI is transferred to profit or loss (recycling to profit or loss)

 INVENTORIES
DEFINITION
• Held for sale in the ordinary course of business
• In the process of production for such sale; or
• In the form of materials / supplies to be
consumed in the production process / rendering With this, inventory recognized by the
of business entity includes:

 Goods owned & on hand

 Goods owned & on hand of salesmen,
distributing agents, dealers, or others for
resale (consignee)
RECOGNITION  Goods in transit & sold FOB destination
• As a rule, goods included as part of inventory are  Goods in transit & purchased FOB
items to which the entity has title, regardless of shipping point
location.
SPECIAL CASES FOR SALE
OF GOODS
GOODS SHIPPED SUBJECT TO
CONDITIONS
GOODS SHIPPED SUBJECT TO
CONDITIONS
GOODS SHIPPED SUBJECT TO
CONDITIONS
OTHER POSSIBLE ITEMS THAT MAY
RAISE ISSUE IN RECOGNITION OF
INVENTORIES
1. Damaged & unsalable goods
2. Inventories held & currently being used for window display PPE
3. Inventories held or sold with right of return
4. Segregated goods in the warehouse
 Special order goods- method to be used  Production method  Upon
completion, recognize as revenue
 Goods held awaiting shipping instructions  no revenue yet
 ACCOUNTING FOR
INVENTORIES
INVENTORY SYSTEMS
Entities may use either periodic or perpetual
inventory systems in accounting for its
inventories. COST FLOWS
In determining the cost of inventories, IAS 2
requires:
MEASUREMENT
a. Inventories that are ordinarily
 Inventories are initially measured at cost
interchangeable: Use either First-in First-
 Inventories are required to be stated at the lower
out (FIFO) or weighted average method.
of cost and net realizable value (LCNRV)
b. Inventories that are not ordinarily
 Inventories are usually written down to net
interchangeable: Use specific
realizable value item by item. In some
identification of their individual costs
circumstances, however it may be appropriate to
group similar or related items.
Inventory
cost -
All purchase price
-
conversion cost
location
bring asset to present
-
 MEASUREMENT
INITIAL- at COST SUBSEQUENT- LOWER of cost and net
realizable value (LCNRV)
The cost of inventories shall comprise of:
Net realizable value refers to the net amount
 All costs of purchase; that an entity expects to realize from the
 Cost of conversion; and sale of inventory in the ordinary course of
 Other costs incurred in bringing the business. It is determined as follows:
inventories to their present location and
Estimated selling price xx
condition.
Less: Estimated costs of completion (xx)
Estimated costs to sell (xx)
Net Realizable Value xxx
XL
subsequent- selling price
NR - Est cost of completion (xx) XX
-

Est-cost of MSposal (XX)

- NRS WIR

NRU of finish good

selling price
Est cost of disposal
SYSTEMS OF ACCOUNTING FOR INVENTORIES

DC
COGS
saies inventory

volume t
value value
volure
 INVENTORY COST FLOW AND LCNRV

5000
5000
-
-
7 16K > 225 < 14 , 000

(5000)

-
E2-TGAS
units
urtts Lost
ITK

to insomios us
llk
O ( 5K)
-

4K
4
--
4450, 00 I5K EllU
3 , 9000 M
185 7 *
I
- =
E
.

2/k 3 900
, ,
000

2 , 7 85 450
154 < 188 75 .
= .

10K zi5 2 , 250 , 08

O (7K) 225 [1 , 575 , 08P)

225 -25 008
TVOG ,
088
K
150
145
400
&1 300 000
0007
2 , ,

20k 145 1825,

Tasti
C 5K]

NRUTTM z . 3M

O
cost 1, 8M /1 57
0 M(18)
2 -

O 2022 2023
12/31 Cost CM 5 M
4
12/3/NRV 3 2
.
M . 4M
- -

Took 600K
1800k)
)
 25, 000 068
so
/

800 000)
( -,
- 200 , vo
24/

8 100 , 00 7 700 , 008

, ,

4 , 2000, 000 4 300 000

, ,

3 , 900, 000 000 00V

f - ↳
, 7, 5000
,

8 , 100 , 0oo
.

O 5 ,500 , 000 = 55 x100K

5 000 ,
000 =
50 &WOR
S
-
500 , 00
I
ros

5 , 000
=

, 000 50 X 100K

= 33 X100K
5300 , 000
#°
⑦

300 , 000
I Gam

Cash =
Locked m

purchases
=
affected sa it ng
market
O

Sales Price Fraction Allocated Cost

A 100 x 1 2 M
.

120 , 000 000

,
12/30 =
I42
,
000 ,
000

28 , 000
000
,

100
X 800K 80 000 000 8/30
B , ,

35 , 000 ,
000

500K to a
,000,000
100
200 x
T
c
000 000
, ,
ACCOUNTING FOR PURCHASE COMMITMENTS
• Purchase commitments are non-cancelable agreements to purchase goods sometime

in the future at a fixed price and fixed quantity

• When there is a reasonable certainty that inventories purchased under purchase

commitments become impaired, loss on purchase commitments should be recognized

in the period such impairment has been determined.

• Any recovery may be recognized as gain but such gain should be limited to the loss

recognized previously.
ACCOUNTING FOR PURCHASE COMMITMENTS