1

PRELIMS - Board of Accountancy –

authorized to promulgate rules and
Accounting – provide quantitative
regulations affecting the practice
information, financial in nature and useful in
of accountancy profession.
making decision.
- Responsible for preparing and
- Process of identifying, grading CPALE.
measuring, and communicating
CPD – Continuing Professional
financial information.
Development.
Identifying – recognition or nonrecognition
- 120 CPD credit for renewal of
of business activities.
accreditation, 15 for license
Internal events – Production & Casualty - Exemption: 65 years old.
External Events – involves another party 4 Sectors in the Practice of Accountancy
(Borrowing money, sales, payments).
- Public – financial services to the
Measuring – assigning peso amounts. public.
- Private – employed in business
- Measurement bases are historical
entities.
cost and current value.
- Government – practice in
- Historical Cost – original
government.
acquisition cost, common measure
- Academe – practice in education.
of financial transactions.
- Current Value – includes fair Common Branches of Accounting
value, value in use, fulfillment
Financial Accounting – cater the needs of
value and current cost.
external users.
Communicating – preparing and
Management Accounting - Accumulation
distributing accounting reports to potential
and communication of information used by
users of accounting information.
internal users
- Recording – maintaining record of
Estate Accounting – handling of accounts
all economic business transactions.
for fiduciaries who wind up the affairs of a
- Classifying – sorting or grouping
dead person.
of similar economic transactions.
Posting to ledger. Cost Accounting – systematic recording
- Summarizing – preparation of and analysis of cost.
financial statements (Financial
Auditing – examination of financial
position, income statement,
statements.
comprehensive income, cash
flows, changes in equity) Tax Accounting – preparation of tax returns
and rendering tax advice
Republic Act No. 9298 – law regulating
practice of accountancy profession. Government Accounting – emphasis on
custody of public funds.
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Fiduciary Accounting – handling of Expense Recognition Principle

accounts managed by a person entrusted
- Matching Principle - direct
with custody of the property.
association of costs and revenues
ACCOUNTING CONCEPTS (e.g cost of sales, freight out, sales
commissions)
1. Double entry system – two parts dr.
- Systematic and rational
and cr.
allocation - cost not directly
2. Going concern assumption – related to the earnings are initially
indefinite period of time recognized as asset and recognized
as expense over a period of time
3. Separate entity – view separately
(e.g depreciation expense,
from its owner
amortization, expensing of
4. Stable monetary unit – stated in prepayments and effective interest
terms of a common unit of measure method.)

5. Time period – divided into series of

reporting periods
Hierarchy of Reporting Standards
6. Materiality concepts – professional
1. PFRS
judgment
2. Management judgment
7. Cost benefit – benefit received - Requirement by PFRS dealing
should be higher with-it equivalent with similar and related issues.
cost. - Conceptual framework
- may also consider other standard
8. Accrual Basis – income recognized setting bodies, accounting
when earned/expense when incurred literature and accepted industry
9. Historical cost concept – practice
acquisition cost Conceptual Framework – summary of
10. Concept of Articulation – terms and concepts that underlie the
components of FS are interrelated preparation and presentation of financial
statements for external users.
11. Full disclosure principle –
sufficient detail to disclose matters - Not a standard, standard will
keeping in mind the cost prevail over conceptual
framework.
12. Consistency concept – accounting - It contributes to transparency,
principles are consistently applied strengthen comparability, and
from one period to another. contribute to economic efficiency.
13. Matching Principles – cost is Purpose of Conceptual Framework
recognized when related revenue is
recognized. - Assist the IASB in developing
standards.
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- Assist the preparers in developing Qualitative Characteristics

consistent accounting policies
1. Fundamental qualitative
- Assist all parties in understanding and interpreting
characteristics
standards.
- Relevance – capacity of the
Objective of Financial Reporting information to influence a
decision.
- the objective of general-purpose
a. Predictive value – making
financial reporting is to provide
predictions
financial information about the
b. Confirmatory value –
reporting entity that is useful to its
feedback value, help
primary users”
confirming their previous
Users of Financial Information predictions.
- Faithful Representation – true,
- Primary users – include existing correct, and complete
and potential investors, lenders, a. Completeness – all
and other creditors. information is provided.
- Other users – include employees, b. Neutrality – without bias
customers, governments and their c. Free from error – no error in
agencies, and the public. description and process.
Specific objectives of financial reporting 2. Enhancing qualitative
characteristics
To provide information useful in; - Comparability – helps user
a. Making decisions about providing identify similarities and
resources to the entity. differences
b. Assessing cash flow prospects of - Verifiability – users can reach a
the entity general agreement as to what the
- Present value of future cash information purports to represent
flows - the measurement basis - Timeliness – available to users in
most often used to report a long- time
term payable representing a - Understandability – presented in
commitment to pay money at a clear and concise manner.
determinable future date
c. Entity resources, claims, and Materiality – no need to follow GAAP if
changes in resources and claims. the item is not significant enough.
- Liquidity – ability to pay short - Also known as Doctrine of
term obligation Convenience
- Solvency – ability to pay long - Materiality of an item depends on
term obligation relative size rather than absolute
- Needs for additional financing size.
- Management stewardship – how
the company utilized is economic
resources
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Reporting Period -Right to benefit from an obligation

of another party
▪ prepared for a specified period of
2. Rights that do not corresponds to
time
an obligation of another party
▪ FS provide comparative information - Right over physical object
for at least 1 preceding reporting - Right to use intellectual
period property
▪ FS are designed to provide Potential to produce economic benefits
information about past events.
▪ sold, leased, transferred or
▪ Information about possible future exchanged for other asset
transactions and other events is
▪ used singly or in combination with
included if it relates to past
other asset to produce goods or
information
service
Reporting entity
▪ use to enhance the value of other
▪ is one the is required, chooses or assets
prepare the financial statement
▪ used to promote efficiency and cost
▪ controlling entity is called the parent savings
▪ controlled entity is called a ▪ used to settle liabilities
subsidiary
Control
▪ consolidated financial statements
▪ means the entity has the exclusive
▪ combined financial statements (no right over the benefits of an asset and
parent-subsidiary relationship) the ability to prevent others from
accessing those benefits
Asset - a present economic resource
controlled by the entity as a result of past ▪ control normally stems from legally
events. An economic resource is a right that enforceable rights however
has the potential to produce economic ownership is not always necessary
benefits. for control to exists.
- has three aspects right, potential LIABILITY - present obligation of the
to produce economic benefits entity to transfer economic resource as a
and control result of past events.
Rights includes: Obligation
1. Right that corresponds to an a. Legal Obligation - An obligation
obligation of another party that results from a contract
- Right to receive cash, goods and legislation or other operation of law
resources b. Constructive Obligation - An
- Right to exchange on favorable obligation that results from an
terms entity’s action that create a valid
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expectation on others that the entity - Revenue – arises in a course

will accept and discharge certain of the ordinary regular
responsibilities. activities.
- Gains – other items the meet
Transfer of economic benefits
the definition of income and
▪ pay cash, deliver goods, or render do not arise in a course of the
services ordinary regular activities.
▪ exchange assets with another party Expenses - decreases in economic benefits
on unfavorable terms during the accounting period in the form of
outflows or depletion of assets or incurrence
▪ transfer assets if a specified
of liabilities.
uncertain future event occurs
- Arise from natural course of
▪ issue a financial instrument that
business.
obliges the entity to transfer
- Loss – do not arise from
economic resources
natural course of business.
Present obligation as a result of past
Recognition – process of capturing for
events
inclusion in the financial statements an item
▪ already obtained economic benefits that meets the definition of an assets,
or taken action. liabilities, equity, income, or expense.

▪ the entity will or may have to Aggregation – adding assets, liabilities,

transfer an economic resource that it equity, income and expense that have
would not otherwise have had similar or shared characteristics and are
transfer. included in the same classification.

Executory contracts - contract that is Concept of Capital and Capital

equally unperformed neither party has Maintenance
fulfilled any of its obligations, or both
▪ Financial Concept of Capital –
parties have partially fulfilled their
capital is regarded as the invested
obligations to an equal extent.
money or invested purchasing
Equity - residual interest in the assets of the power. Equity or net assets
entity after deducting the liabilities. May
▪ Physical Concept of Capital –
refer to amounts set aside by the entity as
capital is regarded as the entity’s
protection for its creditors or stakeholders
productive capacity
from losses.
▪ Financial Capital Maintenance –
Income - increases in economic benefits
profit is earned if net assets at the
during the accounting period in the form of
end of the period exceeds the net
inflows or enhancements of assets or
assets at the beginning of the period
decreases in liabilities.
after excluding any distributions to
and contributions from owners
during the period.
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▪ Physical Capital Maintenance – STRUCTURE AND CONTENT OF

profit is earned only if the entity’s FINANCIAL STATEMENTS
productive capacity at the end of the
1. HEADINGS OF FINANCIAL
period exceeds the productive
STATEMENTS
capacity at the beginning of the
period after excluding any 2. MANAGEMENT
distributions to and contributions RESPONSIBILITY
from owners during the period.
3. STATEMENT OF FINANCIAL
PAS 1 Presentation of Financial POSITION
Statements
Statement of FINANCIAL POSITION
PAS 1 prescribes the basis for presentation
of general-purpose financial statements, Assets
guidelines for their structure and the - Current
minimum requirement to ensure - Noncurrent
comparability.
Liabilities
Types of comparability
- Current
• Intra comparability (horizontal or - Noncurrent
inter period) – comparison of same
entity but 1 period to another SHE

• Inter comparability (dimensional) – - Share Capital

comparison between different - Share Premium
entities. - RE
- OCI
General Features of Financial Statements
Refinancing Agreement
1. Fair Presentation – faithful
representation of financial ▪ long term obligation maturing within
statements. 12 months after reporting date is
2. Going Concern – business will run classified as current
for indefinite period. ▪ if the entity has the discretion to
3. Accrual basis refinance on a long-term basis under
4. Materiality and Aggregation an existing loan facility it is
5. Offsetting noncurrent
6. Frequency of reporting period
7. Comparative information ▪ if the refinancing is not at the
8. Consistency of Presentation discretion of the entity the liability is
current.
Liabilities payable on demand
▪ current
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▪ long term obligation can be payable 17. Non-controlling interest

on demand as a result of breach of
18. Share capital and reserves
contract
Statement of Comprehensive Income
▪ noncurrent if the lender provides by
the end of the reporting period a “An income statement is a formal statement
grace period ending at least 12 showing the financial performance of an
months after the reporting period entity for a given period of time”
Forms of Financial Position Comprehensive income is the change in
equity during the period resulting from
- Report form (vertical)
transactions and other events, other than
- Account form (horizontal)
changes resulting from transactions with
Line Items in Statement of Financial owners in their capacity as owners (Profit
Position or Loss & Other Comprehensive Income)
1. Cash and cash equivalents OTHER COMPREHENSIVE INCOME
2. Financial Assets • Changes in revaluation surplus
3. Trade and other receivables • Remeasurement of the net defined
benefit liability
4. Inventories
• gains and losses on investment
5. Property Plant and Equipment
designated at FVOCI
6. Investment in associate accounted
• gains and losses on translation of a
for by the equity method
foreign operation
7. Intangible assets
• changes in fv of financial liability
8. Investment property designated at FVPL that are
attributable to changes in credit risk
9. Biological Assets
• changes in time value of option
10. Total assets classified as held for sale
and assets included in disposal group • changes in the value of forward
classified as held for sale elements

11. Trade and other payables Items not included on profit or loss

12. Current tax liability • Correction of prior period error -

direct adjustment to the balance of
13. Deferred tax assets and liability Retained Earnings
14. Provisions • Change in accounting policy - same
15. Financial Liabilities treatment as correction of prior
period error
16. Liabilities included in disposal group
classified as held for sale • Other comprehensive income
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- Changes – other 6. A single amount comprising

comprehensive income discounted operations.
- Cumulative balance –
7. Profit or loss for the period
statement of financial
position 8. Total other comprehensive income
• Transactions with owners - 9. Comprehensive income for the
Recognized directly in equity. period being the total of profit or loss
and other comprehensive income.
Statement of Comprehensive Income
PRESENTATION of Expenses
- Single statement
- Two statements Function of Expense method – classifies
expenses according to function.
PRESENTATION OF
COMPREHENSIVE INCOME Nature of Expense Method – expenses are
aggregated according to their nature.
- Source of Income
1. Sale of merchandise to customers Statement of Changes in Equity
2. Rendering of services
▪ effect of change in accounting policy
3. Use of entity resources
4. Disposal of resources other than ▪ total comprehensive income for the
product period
- Components of Expense
▪ a reconciliation between the
1. Cost of goods sold or cost of sales.
beginning balance and ending
2. Distribution costs or selling
balance of profit or loss, other
expenses.
comprehensive income and
3. Administrative expenses
transaction with owners
4. Other expenses
5. Income tax expense Notes to Financial Statements
Line Items in Statement of ▪ General information on the reporting
Comprehensive Income entity
1. Revenue ▪ Statement of compliance with the
PFRS and basis for preparation
2. Gain and loss from the derecognition
of financial asset measured at ▪ Summary of Significant Accounting
amortized cost as required by PFRS Policies
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▪ Disaggregation/Breakdown of the
3. Finance cost line items
4. Share in income or loss of associate ▪ Other disclosures as required by
and joint venture accounted for using PFRS
the equity method
▪ Other disclosure not required by
5. Income tax expense PFRS but the management deemed it
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relevant to the understanding of the 2. Interest expense paid - can be

FS classified as operating or financing
activity.
3. Dividend income received - can be
Statement of Cash Flow (PAS 7) classified as operating or investing
activity.
PAS 7 prescribes the requirements in the 4. Dividends paid to owners - can be
presentation of statement of cash flow. classified as financing or operating
The statement of cash flows provides activity.
information about the sources and utilization
of cash and cash equivalents during the Note: if the problem is silent, it is
period presumed that the entity uses option 1

Operating Activities - primarily derived Presentation

from the principal revenue producing
• Direct method – shows each major
activities of the entity. Usually includes
class of gross cash receipts and gross
cash inflow and outflow on items of
cash payments.
income and expenses.
• Indirect method – profit or loss is
Special items included in operating
adjusted for the effects of non-cash
activities.
items and changes in operating assets
▪ cash flow from buying and selling of and liabilities.
held for trading securities.
DISCLOSURE
▪ cash flows from the acquisition,
• Components of cash and cash
rentals and subsequent sale of assets
equivalents and a reconciliation of
that are held for sale previously
amounts in the statement of cash
acquire as PPE.
flows with the equivalent items in
▪ loan transactions of financial the statement of financial position
institution
• Significant cash and cash equivalent
Investing Activities - involve the held by the entity that are not
acquisition and disposal of noncurrent available for use by the group,
assets and other investment. together with a management
commentary.
Financing Activities - are those that affect
the entity’s equity capital and borrowing PAS 8 ACCOUNTING POLICIES,
structure. CHANGES IN ACCOUNTING
ESTIMATE AND ERRORS
Interest and Dividends
PAS 8 prescribes the criteria for selecting,
1. Interest income received – can be applying and changing accounting
classified as operating or investing policies and disclosure of change in
activity. accounting policies, changes in accounting
estimates and correction of prior period
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errors. These are intended to enhance the ▪ Change in the method of recognizing
relevance, reliability and comparability of revenue from long term construction
the entity’s Financial Statements. contracts
Accounting Policies ▪ Change to a new policy resulting
from the requirement of new PFRS
▪ specific principles, bases,
conventions, rules and practices ▪ Change in financial reporting
applied by an entity in preparing and framework, such as from PFRS for
presenting Financial Statements. SMEs to full PFRS
▪ in hierarchy of reporting standards, NOT changes in accounting policies
refer to PFRS first, in its absence
▪ The application of an accounting
management uses its judgment in
policy for transactions, other events
developing and applying accounting
or conditions that differ in substance
policy
from those previously occurring
Changes in Accounting Policies
▪ The application of a new accounting
▪ PAS 8 requires the consistent policy for transactions other events
selection and application of or conditions that did not occur
accounting policies previously or were immaterial
▪ PAS permits a change if it is Changes in accounting policies are
required by PFRS or results in accounted for using the following order of
reliable and more relevant priority
information
1. Transitional provision in a PFRS
Examples of changes in accounting 2. Retrospective application
policies 3. Prospective application
▪ Change from FIFO to the Weighted
Average cost formula ✓ A voluntary change in accounting
policy is accounted for by
▪ Change from the cost model to the
retrospective application
FV model of measuring investment
property ✓ An early application of a PFRS is
not a voluntary change in accounting
▪ Change from cost model to the FV
policy
model of measuring investment
property Accounting Estimates
▪ Change from cost model to the ▪ items that cannot be measured with
revaluation model of measuring PPE precision because of uncertainties is
measured through estimation
▪ Change in business model for
classifying financial assets ▪ estimates do not undermine the
reliability of financial reports
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ex. Net realizable value of inventories, TYPES OF ERRORS

depreciation, bad debts, fair value of
▪ CURRENT PERIOD – corrected by
financial assets and liabilities, and
correcting entries
provisions.
▪ PRIOR PERIOD – corrected by
Change in Accounting Policy vs. Change
retrospective restatement
in Accounting Estimate
• Change in accounting policy
normally results in change in RETROSPECTIVEE RESTATEMENT
measurement basis
▪ restating the comparative amounts
• Change in accounting estimates for the period presented in which the
normally results from changes on error occurred or
how the expected inflows and
outflows of economic benefits are ▪ if the error occurred before the
realized from assets or incurred on earliest prior period presented restate
liabilities. the opening balances of asset
liabilities and equity for the earliest
Note: If a change is difficult to distinguish prior period presented
between these two the change is treated as
a change in an accounting estimate. PAS 10 EVENTS AFTER THE
REPORTING PERIOD
Accounting for changes in accounting
estimates PAS 10 prescribes the accounting for and
disclosures of events after the reporting
• prospective application period, including disclosures regarding the
date when the financial statements were
• recognizing in the profit or loss
authorized for issue.
either in the period of change or the
period of change and future periods Events after the Reporting period
if both are affected
- those events favorable and
ERRORS unfavorable that occur between the
end of the reporting period and the
▪ it includes misapplication of
date when the financial statement
accounting policies
are authorized for issue.
▪ mathematical mistakes
Two Types of events after the reporting
▪ misinterpretation of facts period
COMMISSION – doing something wrong - ADJUSTING EVENTS AFTER
THE REPORTING PERIOD
OMMISSION – not doing something that
- NON-ADJUSTING EVENTS
should have been done.
AFTER THE REPORTING
PERIOD
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Examples of ADJUSTING EVENTS ▪ Change in tax rate

▪ The settlement after the reporting ▪ Declaration of dividends
period of a court case that confirms
Note: PAS 10 prohibits the preparation of
that the entity has the obligation at
FS on a going concern basis if management
the end of the reporting period
determines after the reporting period either
▪ Receipt of information that an asset that it intends to liquidate the entity or to
was impaired cease trading, or that it has no realistic
alternative to do so.
▪ Determination after the reporting
period of the cost of the asset MIDTERMS
purchased or the proceeds from asset
PFRS 13 – FAIR VALUE
sold
MEASUREMENT
▪ Determination after the reporting
Fair value of an asset – price that would
period of the amount of profit
be received to sell an asset in an orderly
sharing or bonus payment
transaction.
▪ The discovery of fraud or errors that
Fair value of liability – price that would
indicate that the FS is incorrect
be paid to transfer a liability in an orderly
Examples of NON-ADJUSTING transaction.
EVENTS
Note: Fair value refers to
▪ Changes in fair values, foreign
❖ an exit price/market price.
exchange rates, interest rates or
- Exit price/market price – price in
market prices after the reporting
an orderly transaction.
period
- Orderly transaction –
▪ Casualty losses (fire, storm or transaction that allows for a
earthquake) normal marketing activity that
are usual and customary.
▪ Litigation arising solely from events
❖ price agreed upon by the market
occurring after the reporting period
participants.
▪ Significant commitments or
Market Participants – buyers and sellers in
contingent liabilities entered after the
the principal market who are:
reporting period
a. Independent
▪ Major ordinary share transaction
b. Knowledgeable
▪ Major business combination c. Willing or motivated
▪ Announcing or commencing the Active Market – transactions where asset
implementation of a major or liability take place with sufficient
restructuring regularity and volume to provide pricing
information on an ongoing basis.
▪ Announcing a plan to discontinue an
operations
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Principal market – market with the either on a stand-alone basis or as

greatest volume and level of activity for a group.
the asset/liability.
Valuation method
- In absence, entity should consider
a. Market approach – identical and
the most advantageous market.
comparable
Most advantageous market – market that b. Income approach – discounted
maximize the amount that would be cash flows
received in sell of asset and minimize the c. Cost approach – current
amount that could be paid in a transfer of replacement cost.
liability.
Fair value hierarchy
Valuation premise – entity may refer to
- Best evidence of FV
information that is directly observable or
- Divided into 3 categories
readily available.
Level 1 inputs – quoted prices for identical
- They can also use valuation
assets or liabilities in active market.
method.
- Fair value should not be adjusted - Provides the most reliable
for transaction cost. evidence for the FV and shall be
- It shall be adjusted for transport used w/o adjustments.
cost (incurred during the transport
Level 2 inputs – observable either directly
of an asset from its current
or indirectly.
location to principal/most
advantageous market). - Quoted prices for similar
- Formula: Fair value = Market asset/liabilities in an
price – transaction cost. active/inactive market.
Highest and Best use - Quoted prices for identical assets
or liability in an inactive market.
- Use for measuring nonfinancial
Level 3 inputs – unobservable inputs for
asset.
the asset or liability.
- Define as the use of nonfinancial
asset by market participants that - Developed by the entity using the
would maximize the value of asset. best available information from
- Should possess the ff: their own data.
a. Physically possible – physical - Include the present value of the
characteristics. estimated cash flows.
b. Legally permissible – reflects
legal restriction.
c. Financially feasible – generate
sufficient income/cash flows.
- Highest and best use of the asset
might provide the minimum value
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PAS 24: RELATED PARTY Examples:

DISCLOSURES
1. Purchase and sale of goods, property,
Related party – parties are considered to be and other asset.
related if one party has: 2. Rendering/receiving services
3. Leases
a. Control – own 50%, has business
4. Transfer of research and
combination (51 – 100).
development
b. Exercise significance influence –
5. License agreement
owns 20% or more (20 – 50).
6. Finance arrangements, including
c. Joint control – contractually agreed
loans and equity cont. in cash or any
sharing of control over an economic
kind.
activity.
7. Guarantee and collateral
Examples of related parties 8. Settlement of liabilities on behalf of
the entity or by the entity on behalf
1. Affiliates – the parent, subsidiary, of another party.
and fellow subsidiaries.
- If the investor owns >50%, he is Related party disclosures – requires to
known as the subsidiary. disclosures of related party relationships
- Subsidiary and parent are related where control exists irrespective of whether
& fellow subsidiaries of one parent there have been transactions between the
are also related. related parties.
2. Associates – entities over which one
- Relationship between parent &
party exercise significant influence.
subsidiaries/investee and
- Investee owning 20%.
associates shall be disclosed.
3. Venturers – has joint control.
- Fellow venturers are not related to Disclosure of related party transaction
each other.
Minimum disclosures for related
Other related parties transactions
1. Key management personnel 1. Amount of:
2. Close family members of the key - Transaction
management personnel. - Outstanding balance, terms and
3. Individuals/shareholders owning at conditions whether secured &
least 20% of the reporting entity. unsecured, and nature of
4. Post-employment benefit plan. consideration to be provided in the
settlement.
Related party transactions – transfer of
2. Allowance for doubtful accounts
resources or obligations between related
related to the outstanding balance.
parties, regardless of whether a price is
3. Doubtful account expense
charged.
recognized during the period in
respect of the amount due from the
related parties.
 15

4. Key management personnel - Note: Financial asset held for

compensation should also be trading or if measured at fair value
disclosed: through profit and loss, transaction
a. Short term employee benefits cost is expense outright.
b. Other long term employee
Subsequent measurement
benefits
c. Postemployment benefits a. Fair value through profit and loss
d. Termination benefits (FVPL).
e. Share based payment b. Fair value through other
transactions comprehensive income (FVOCI).
c. Amortized cost
Note: Related party disclosures are not
required in intragroup related party Basis of classification
transactions & outstanding balances are
eliminated in the preparation of consolidated - Business model – fair value
financial statements. changes
- Contractual cash flow
Unrelated Parties characteristics
1. Two entities who have same director Equity and Debt investments
or key management personnel.
2. Providers of finance, banks, trade Equity security/investments – represents
unions, public utilities and ownership shares and right warrants/options.
government agencies in the course of Debt security/investments – security that
their normal dealings with reporting represents creditor relationship with an
entity. entity.
3. Customers and suppliers by the
virtue of their normal dealings with - Has maturity date and maturity
reporting entity. value.
4. Fellow venturers are unrelated to Business Model – how entity manages FA
each other, but the venturers are in order to generate cash flows.
related to joint venture.
- Hold to collect or hold to collect &
PFRS 9: MEASUREMENT OF sell.
FINANCIAL ASSETS
Measurement of equity investments
- Provides that at initial recognition,
an entity shall measure a financial 1. Held for trading – FVPL
asset at fair value. - Debt and equity securities with an
- Transaction costs – directly intent of selling them in the near
attributable to the acquisition of future or very soon.
the financial asset at fair value 2. Not held for trading – as a rule, at
through other comprehensive FVPL which means that any changes
income and shall be capitalized as in FV are shown in income
a cost of financial assets. statement.
 16

3. Not held for trading – FVOCI by are always included in profit or

irrevocable election. loss or reported in income
4. Investments in quoted equity statement.
instruments – FVPL - Note: Financial asset measured at
5. Unquoted equity investments – at FVOCI shall be recognized
cost initially at fair value plus
6. Investments at 20% to 50% - transaction cost directly
equity method. attributable to the acquisition.
- Financial asset – FVOCI are
Measurement of debt investments
normally classified as non-current
1. Held for trading – FVPL asset.
2. Held for collection of contractual
Sale of equity investments – FVOCI
cash flows – at amortized cost.
3. Held for collection of contractual - Gain or loss on disposal of equity
cash flows – FVPL by irrevocable investments measured at FVOCI is
designation or fair value option. recognized directly in retained
4. Held to collect and trading of earnings.
financial asset – FVOCI
Debt investments at amortized cost
5. Held to collect and trading – FVPL
by irrevocable designation or fair a. Hold to collect
value option. b. SPPI (solely payment of principal
and interest)
Unrealized gain and loss (Trading
securities) Debt investments at FVOCI
- Classified in the income statement a. Hold to collect and sell
as other income. b. SPPI
- In this case interest income is
FVOCI by irrevocable election
recognized using the effective
- Equity investments not held for interest method.
trading. - On derecognition, the cumulative
- Irrevocable method – impose for gain and loss recognize for debt
nontrading equity investments. investment at FVOCI shall be
- Note: amount recognized in other reclassified to profit or loss.
comprehensive income is not
PAS 32: FINANCIAL INSTRUMENTS –
reclassified to profit or loss under
PRESENTATION
any circumstances. On
derecognition, amount may be Financial instrument – contract that give
transferred to retained earnings. rise to both financial asset and financial
- Held for trading (equity), not liability or equity instruments of another
allowed for election to present gain entity.
and loss in OCI is not allowed.
- Held for trading (equity),
subsequent changes in fair value
 17

PAS 32 applies to all types of financial instruments and is not classified as

instruments except the ff. which other the entity’s own equity instruments.
standards apply:
Examples of financial liabilities:
a. Investments in subsidiaries,
a. Accounts payable
associates, and joint ventures.
b. Notes payable
b. Employers’ rights and obligations
c. Loans payable
under employee benefit plans and
d. Bonds payable
share-based payments.
c. Insurance contracts. Non-financial liabilities
Financial Asset – any asset that is: a. Deferred revenue and warranty
obligations are not financial
a. Cash
liabilities because the outflow of
b. Contractual right to receive cash or
economic benefits is the delivery of
other financial asset from another
goods and services rather than a
entity.
contractual obligation to pay cash.
c. Contractual right to exchange
b. Income tax payable is not a financial
financial instruments with another
liability because it is imposed by law
entity under favorable conditions.
and not contractual.
d. An equity instruments of another
c. Constructive obligations are not
entity
financial liability because the
e. Contract that will or may be settled
obligation does not arise from
in the entity’s own equity
contract.
instruments and is not classified as
the entity’s own equity instruments. Equity instruments – any contract that
evidences a residual interest in the assets of
Non-financial asset:
an entity after deducting all liabilities.
a. Physical assets such as inventory and
- Assets – Liability = Equity
PPE
b. Intangible assets, such as potent and Equity instruments include:
trademark
c. Prepaid expenses a. Ordinary share capital
b. Preference share capital
Financial liability – any liability that is a c. Share options or share warrants
contractual obligation: - Convertible into ordinary shares.
a. To deliver cash or other financial Note: Redeemable preference shares is a
asset to another entity. liability.
b. To exchange financial instruments
with another entity under potentially
unfavorable conditions.
c. Contract that will or may be settled
in the entity’s own equity
 18

Presentation
- The issuer classifies a financial
instrument or its components parts,
as financial asset, a financial
liability or an equity instrument in Redeemable preference shares
accordance with the substance of
- Preferred stocks which the holder
the contract (rather than its legal
has the right to redeem at a set
form) and the definitions of the
date.
financial asset, financial liability
- Classified as financial liability
and an equity instrument.
because when the holder exercises
Ff. are guidelines when a contract its right to redeem, the issuer is
requires settlement in the entity’s own mandatory obligated to pay for the
equity instruments: redemption price.
Callable preference shares
- Preferred stocks which the issuer
has the right to call at a set date.
- Classified as equity instrument
because the right to call is at
discretion of the issuer and
therefore has no obligation to pay
unless it chooses to call on the
shares.

Puttable instrument – one that gives the

holder the right to return the instruments to
the issuer in exchange for cash or another
financial asset.
- Classified as financial liability
except when represents a residual
interest in the net asset of the
Note: Contract to receive (rather than to
issuing entity (classified as equity
deliver) is a financial asset.
instruments).
 19

Compound financial instruments – subsequent amortized to profit or

contains both liability and equity loss.
components. These components are - Transaction cost on issuing
classified and accounted separately. compound financial instruments is
allocated to the debt and equity
Example:
components based on their
Convertible bonds assigned values.
1. Debt instrument for bond Offsetting a financial asset and a financial
payable liability
2. Equity instrument for the
- These are offset and only the net
equity conversion feature.
amount presented in the statement
Note: liability component is first of financial position when entity
determined. has both:
a. Legal right of setoff &
- Residual amount is allocated to b. Intention to settle the amounts
equity component. on a net basis or
Treasury shares/treasury stocks – simultaneously.
previously issued but subsequently required.
Note: Both conditions above must be met
- Presented separately either in before offsetting is permitted.
statement of financial position or Offsetting is inappropriate for:
deduction from equity.
- No gain or loss arise. a. Financial or other assets that are
- Consideration is paid or received pledged as collateral for non-
from such transactions is recourse financial liabilities.
recognized directly in equity. b. Sinking fund and the related
financial liability for which the fund
Interest, dividends, losses, and gains is established.
relate to:
PAS 28: INVESTMENT IN
ASSOCIATES
Associate – simply defined as an entity over
which the investor has significant influence.
Significance influence – power to
Transaction costs – when using equity participate in the financial & operating
instruments, deduction from equity. policy decisions of the associate but not
- Transaction cost on issuing control or joint control over the policies.
financial liabilities (except - Has 20% or more of the voting
liabilities measured at FVPL) are power of the investee.
included in the carrying amount of
the financial liability and
 20

determining the investee’s profit or

loss in the period of acquisition.
Note: Goodwill is neither amortized
nor tested for impairment.
Measurement of investment in associate
- If excess is attributable to
- Investment in associate is undervaluation of depreciable
measured using the equity method asset, it is amortized over the
of accounting. remaining life of depreciable asset.

The accounting procedure under the Discontinuance of equity method

equity method are:
- When ceases to have significant
a. Investment is initially measure. influence over an associate.
b. Carrying amount is increased by the
Note: if significant influence is lost, the
investors share of the profit of the
investor shall measure any retained
investee and decreased by the
investment in associate at fair value.
investors share of the loss of the
investee. - Retained investment shall be
c. Dividends received from an equity included in profit or loss.
investee reduce the carrying amount
Equity method is not applicable:
of the investment.
d. Note that investment must be in a. The investor is a wholly owned
ordinary shares. subsidiary, or a partially owned
e. If the investor has significant subsidiary of another entity and the
influence over the investee is said to other owners do not object to the
be an associate. investor not applying equity method.
b. The investor’s debt and equity
Note: Under equity method, cash dividend
investments are not traded in the
is not an income but a reduction of
public market or over the counter
investment.
market.
Excess of the cost over carrying amount c. If is not in the process of filling FS
with the SEC.
- Investor pays more than carrying
d. Ultimate or intermediate parent of
amount of the net asset acquired.
the investor produces consolidated
a. Undervaluation of the
financial statement available for
investee’s asset (building, land,
public use that comply with PFRS.
and inventory).
b. Goodwill
- If the cost is > the FV of the
interest acquired, the excess is
goodwill.
- < FV of interest acquired,
deficiency is included as income in
 21

PAS 2: INVENTORIES storage cost on finished goods is

expensed.
Inventories are assets:
c. Administrative expense
- Held for sale in the ordinary d. Distribution or selling cost.
course of business.
Cost formulas
- In the process of production for
such sale (work in process). 1. Specific information – used for
- Form of materials or supplies to be inventories that not ordinarily
consumed in the production interchangeable.
process or in rendering of services - Cost of inventories is determined
(raw materials and manufacturing by multiplying the units on hand
supplies). by the actual unit cost.
2. First in, first out (FIFO)
Measurement
- First come, first sold.
- Lower of cost and net realizable - Inventory is expressed in terms of
value (LCNRV). recent new prices while the COGS
is representative of old prices.
Cost of inventories 3. Weighted average – computed by:
Cost of purchase – includes purchase price, - Total cost of goods available for
import duties and irrecoverable taxes, sale/total number of units available
freight, handling and other costs directly for sale.
attributable to the acquisition of finished Net Realizable value (NRV)
goods and materials.
- Estimated selling price in the
- Trade discounts, rebates, and other ordinary course of business less
similar items are deducted. the estimated cost of the
Cost of conversion – cost directly related to completion and the estimated cost
the units of production such as direct labor. of disposal.

- Include systematic allocation of Accounting for LCNRV

fixed and variable production Cost<NRV – no accounting problem
overhead. because the inventory is stated at cost and
Other Costs – necessary in bringing the the increase in value is not recognized.
inventories to their present location and NRV<cost – inventory is measured at NRV.
condition.
- Proper treatment is write-down of
Excluded from cost of inventories inventory to NRV using allowance
a. Abnormal amount of wasted method.
materials.
b. Storage cost, unless necessary in
production process prior to a further
production stage. Thus, storage cost
on goods in process is capitalized but
 22

Allowance Method/loss method – PAS 16: PROPERTY, PLANT AND

inventory is recorded at cost and any loss in EQUIPMENT
inventory write-down is accounted
PPE – tangible assets
separately.
- Used in business (production,
Journal Entry:
rental or administrative)
Debit: Loss on inventory write-down - Expected to be used in > 1 year.
Credit: Allowance for inventory write-down Examples of PPE
Recognition as an expense a. Land
b. Land improvements
- Carrying amount of an inventory
c. Building
that is sold is charged as expense
d. Machinery
in the period which related revenue
e. Ship
is recognized.
f. Aircraft
- Write-down of inventories to NRV
g. Motor vehicle
and all losses of inventories are
h. Furniture and fixtures
recognized as expense in the
i. Office equipment
period of the write-down or loss
j. Pattern, molds and dies
occurs.
k. Tools
Disclosures l. Bearer plants

a. Accounting policies adapted in Recognition

measuring inventories, including cost
a. Probable that future economic
formulas.
benefits associated w/ the item will
b. Total carrying amount of inventories
flow to the entity.
and the carrying amount in
b. Cost of the item can be measured
classifications appropriate to the
reliably.
entity.
c. Carrying amount of the inventories Initial measurement
carries at fair value less costs to sell.
- Measured @ cost.
d. Amount of inventories recognized as
expense during the period. Cost – amount of cash or cash equivalent
e. Amount of any write-down of paid and the FV of the other consideration
inventories recognized as expense given to acquire an asset at the time of
during the period. acquisition/construction.
f. Amount of any reversal write-down.
g. Circumstances that led to the Elements of cost
reversal of write-down. a. Purchase price, import duties and
h. Carrying amount of inventories nonrefundable taxes after deducting
pledged as security for liabilities. trade discounts and rebates.
 23

b. Cost directly attributable to bringing Acquisition on installment basis

the asset to the location and
- Asset is offered @ a cash price on
condition for the intended use.
installation.
c. Initial estimate of the cost of
dismantling and removing the item Note: Excess of installation price over cash
for which the entity has a present price is treated as an interest and amortized
obligation. over the credit period.
Directly attributable cost Issuance of share capital
a. Cost of site preparation - Measured at fair value of
b. Initial delivery and handling cost consideration received.
c. Installation and assembly cost - Also measured at order of priority:
d. Professional fee a. FV of property received
e. Cost of testing whether the asset is b. FV of the share capital
functioning properly. c. Par value or stated value of the
share capital.
Subsequent measurement
Issuance of bonds payable
- Entity shall choose either cost
model or revaluation model. - Measured in the ff. order:
a. FV of bonds payable
Cost model – carried at cost less any
b. FV of asset received
accumulated depreciation and any
c. Face amount of bonus payable.
accumulated impairment loss.
Exchange
Revaluation model – PPE is carried at
revalued carrying amount. - Measured at fair value plus any
cash payment.
Revalued carrying amount – fair value @
revaluation date less subsequent - Recognized @ carrying amount if
accumulated depreciation and impairment exchange transaction lacks
loss. commercial substance.

Acquisition on cash basis Commercial substance

- Simply includes cash paid plus - Event causing the cash flows of
directly attributable cost such as the entity exchange significantly
freight, installation cost and other by the reason of exchange.
cost. Construction
Acquisition on account Self-constructed PPE includes:
- Invoice price minus the discount, 1. Direct cost of materials
regardless of the discount is taken 2. Direct cost of labor
or not. 3. Indirect cost and incremental cost
 24

Derecognition - Expressed a rate per hour of output

or per hour of use.
- Cost of PPE together w/
c. Diminishing balance/accelerated
accumulated depreciation shall be
method – decreasing depreciation
removed from statement of
charge over the useful life.
financial position.
- It includes sum of years digit
Note: Gain or loss shall be determined by method and double declining
the difference between the net disposal method.
proceeds and the carrying amount of item.
Disclosure
Depreciation – systematic allocation of the
a. Measurement bases used.
depreciate amount of an asset over the useful
b. Depreciation methods used.
life.
c. Useful lives or depreciation rates
Note: Depreciation ceases when asset is used.
derecognized. d. Gross carrying amount and
accumulated depreciation
Factors of depreciation (aggregated w/ accumulated
1. Depreciable amount – cost of an impairment losses) at the beginning
asset or other amount substituted for and the end of the period.
cost, less residual value. e. Reconciliation of the carrying
2. Residual value – estimated net amount at the beginning and end of
amount currently obtainable if asset the period showing: additions,
is at the end of the useful life. disposals, and other changes.
3. Useful life – period over w/ an asset PAS 20: GOVERNMENT GRANTS
is expected to be available.
- Defines government grant as
Factors determining useful life:
assistance by government in the
a. Expected usage of the asset. form of transfer resources in return
b. Expected physical wear and tear. for a part of future compliance w/
c. Technical/commercial obsolescence. certain conditions.
d. Legal limit
Examples of government grant
Depreciation method
a. Receipt of cash or non-cash assets
a. Straight line method – constant from government subject to
charge over the useful life of the compliance with certain conditions.
asset. b. Receipt of financial aid in case of
- Considers depreciation as a loss from calamity.
function of time rather than a c. Forgiveness of an existing loan from
function of usage. government.
b. Production method – assumes that d. Government loan with below market
depreciation is more a function of rate interest.
use rather than passage of time.
 25

Note: government grant excludes - Grant related to non-depreciable

government assistance whose value cannot asset requiring fulfillment of
be reasonably measured or cannot be certain conditions shall be
distinguished from the entity’s normal recognized as income over the
transaction. periods which bear the cost of
meeting the conditions.
Government assistance but not
government grant Presentation of government grant
a. Tax benefits 1. Government grant related to asset:
b. Free technical or marketing advice. a. By setting as deferred income.
c. Provision of guarantees b. By deducting the grant in
d. Government procurement policy that arriving at the carrying amount
is responsible for a portion of the of the asset
entity’s sales. 2. Gov. grant related to income:
- These are disclosed but not a. Gov. grant presented in the
recognized as government grant. income statement, either
separately or under general
Examples of not recognized as
heading “other income”.
government grant
b. Alternatively, grant is deducted
a. Public improvements from related expense.
b. Imposition of trading constraints on
Disclosures about government grant
competitors.
c. Infrastructures development areas. a. Accounting policy adapted for gov.
grant and method of presentation in
Recognition:
the financial statement.
a. Comply with the conditions of the b. Nature and extent of gov. grant
grant. recognized in the financial statement
b. Grants will be received. an indication of other form of gov.
assistance which entity benefited.
Notes: grant in recognition of specific c. Unfulfilled conditions and other
expenses shall be recognized as income over contingencies attaching to gov.
the period of the related expense. assistance.
- Government grant becomes - Name of the gov. agency is not
receivable as compensation when required to disclose.
already incurred for immediate PAS 23: BORROWING COST
financial report. Government grant
is recognized as income - Borrowing cost are defined as
immediately. costs incurred in relation of
- Grant related to depreciable asset borrowing funds.
shall be recognized as income over
the periods and in proportion to the
depreciation of the related asset.
 26

Example: c. Assets that are ready for their

intended use or sale when acquired.
a. Interest expense on financial
d. Assets measured at fair value.
liability/lease liability, computed
e. Biological asset
using effective interest method.
b. Exchange different on foreign Accounting for borrowing cost.
borrowings that are regarded as an
1. Capitalization of the borrowing cost
adjustment to interest cost.
is mandatory for qualifying asset.
c. Finance charge with respect to
2. All other borrowing cost shall be
finance lease.
expensed as incurred.
Note: Borrowing cost don’t include actual - If borrowing cost is not directly
or imputed cost of equity or capital. attributable to qualifying asset,
borrowing cost is expensed
Borrowing cost can be classified as:
immediately.
a. Specific borrowing – intended
Capitalization of Borrowing cost
specifically in acquiring qualifying
asset. - Starts when all of the ff. are met:
b. General borrowing – intended a. Expenditures for the asset are
partly in acquiring a qualifying asset being incurred.
and partly for general or working b. Borrowing cost are being
capital purposes. incurred.
c. Activities necessary to prepare
Qualifying asset – an asset that necessarily
the asset for its intended use or
takes a substantial period of time to get
sale are being undertaken.
ready for intended use or sale.
- Capitalization is suspended during
Examples: extended periods in which active
development is interrupted.
a. Manufacturing plant
Borrowing cost during these are
b. Power generation facility
expensed.
c. Intangible assets
- It is not suspended if temporarily
d. Investment property
delay is necessary part of
Note: Borrowing cost incurred in development process (delay
connection with acquisition of qualifying because of calamity ex. Typhoon).
asset should be capitalized as cost of the - Capitalization of borrowing cost
qualifying asset. ceases when the qualifying asset is
substantially complete.
Excluded from the capitalization:
• Ready for intended use or
a. Financial assets sale.
b. Inventories that are routinely • Its is complete when
produce over a short period of time physical construction of the
or mass produced on a repetitive asset is done.
basis.
 27

Asset finance by specific borrowing:

Capitalizable BC = Actual BC – Investment 1. It is identifiable if:
income a. It is separable.
b. Arises from contractual or other
Asset financed by general borrowing:
legal rights.
Capitalizable BC = Ave. Expenditures x - Includes software, copyright,
Capitalization rate franchise, trademark, customer list,
computer software, and
Note: Capitalizable BC shall not exceed the broadcasting license.
actual interest incurred. 2. Control – entity must be able to
The capitalization rate or average interest enjoy future economic benefits from
is equal to: the asset and prevent others from
enjoying the same benefits.
Capitalizable rate = Total annual BC/total - Usually legal rights.
general borrowings 3. Future economic benefits – revenue
Note: no specific guidance is provided for from sales of products, cost savings
general borrowing w/ respect to investment or other benefits resulting from the
income. use of asset by the entity.

- Any income from general Unidentifiable intangible asset

borrowing is not deducted from - Cannot be sold, transferred,
capitalizable BC. licensed, rented, or exchange
Disclosure separately.
- Squarely describes a goodwill.
a. Amount of the borrowing cost
capitalized during the period. Initial measurement of intangible asset
b. Capitalization rate used to determine - Intangible asset shall be measured
capitalizable barrowing cost. initially at cost.
Note: segregation of asset that are Intangible assets may be acquired
“qualifying asset” from other asset on through:
statement of financial position is not
required to be disclosed. 1. Separate acquisition
a. Purchase price
PAS 38: ITANGIBLE ASSETS b. Import duties and nonrefundable
- An identifiable nonmonetary asset purchase tax.
w/o physical form. c. Any directly attributable cost of
preparing the asset for its
Essential criteria for intangible asset: intended use.
a. Identifiability
b. Control
c. Future economic benefits
 28

- Examples of directly attributable d. Business relocation or reorganization

cost: cost.
a. Cost of employee benefits arising e. Selling and administrative overhead.
bringing assets to its working
Measurement after recognition
condition.
b. Professional fees arising bringing - Entity can choose either cost
assets to its working condition. model or revaluation model.
c. Cost of testing whether the asset is 1. Cost model – carried at its cost
functioning properly. less any accumulated amortization
2. Business combination – initial and any accumulated impairment
measurement at fair value at losses.
acquisition date. 2. Revaluation method – carried at
3. Government grant – Fair value or its fair value at the date of the
nominal amount. revaluation less any accumulated
4. Exchange of assets – initial depreciation and subsequent
measurement at order of priority: accumulated impairment losses.
a. Fair value of asset given up. - Note: Intangible asset can only be
b. Fair value of asset received. carried at revalued amount if there
c. Carrying amount of asset given is an active market.
up. - Absence of the active market,
- Note: if the exchange lacks recognized at cost model.
commercial substance, the
intangible asset received is Amortization and impairment of
measured at carrying amount of intangible assets
asset given up. - PAS 38 provides the ff. on the
5. Internally generated intangible amortization and impairment of
asset intangible assets:
- Comprises all directly attributable 1. Intangible assets with limited
costs necessary to create, produce, or finite life are amortized over
and prepare the asset for the their useful life.
intended use. This includes: 2. Intangible assets with
a. Cost of materials and services. indefinite life are not
b. Cost of employee benefit. amortized but tested for
c. Fee to register a legal right. impairment annually.
Expenditures expensed when incurred: Definition of amortization
a. Start-up cost – consist of - Systematic allocation of
organization cost such as legal cost amortizable amount of an
incurred in establishing legal entity intangible asset over the useful
and preopening cost and pre- life.
operating cost.
b. Trading cost to operate the asset.
c. Advertising and promotional cost.
 29

Useful life – useful life of an intangible c. Conceptual formulation and design

asset must be assessed as either indefinite or of possible product or process
finite. alternative.
d. Testing in search for product or
Finite – measurable, expressed in
process alternative.
years/numbers.
Examples of development activities
Indefinite – no foreseeable limit.
a. Design construction and testing of
- Tested for impairment annually.
production prototype and model.
Amortization method – pattern in which b. Design tools, jigs, molds, and dies
the economic benefits from the asset are involving new technology.
expected to be consumed by the entity. c. Design, construction, and operation
of a pilot plan that is not a scale
- If cannot determined reliably, economically feasible to the entity
straight line method of for commercial production.
amortization shall be used. d. Design, construction, and testing of a
Research and Development chosen alternative for a new product
or process.
- If cannot be distinguish research
phase from development phase, Activities not considered research and
expenditures incurred are treated development.
in research phase only. - Activities that relate to commercial
- Research – original and planned production do not result to
investigation undertaken with the research and development cost.
prospect of acquiring knowledge a. Engineering follows through in an
and understanding. early phase of commercial
- Research activity – undertaken to production.
discover new knowledge. b. Quality control during commercial
- Development – application of production.
research findings to a plan or c. Trouble shooting breakdown
design to produce new product. during production.
- Development activity – d. Routine on-going effort to refine,
application of research findings to enrich, or improve quality of an
develop new product. existing product.
Examples of research activities e. Adaptation of an existing
capability to a particular
a. Laboratory research aimed at requirement or customer need.
obtaining or discovering new f. Periodic design changes to existing
knowledge. products.
b. Searching for application of research g. Routine design of tools, jigs, mold,
finding and other knowledge. and dies.
 30

Accounting for research cost PAS 40: INVESTMENT PROPERTY

- Research phase of an internal - Prescribes the accounting and
project shall be recognized as disclosure requirements for
expense when incurred. investment property.
Accounting for development cost Investment property – defined as property
(land/building/part of the building or both)
- Development cost is incurred at a
held to earn rentals or for capitalization or
later stage in a project and the
both.
probability of success may be
more apparent. - Only includes land and building.
Development cost may qualify as intangible They are held:
asset if and only if the entity demonstrates
a. To earn rentals
all of the ff:
b. For capital appreciation
a. Technical feasibility of completing
Investment property is not held:
the intangible asset which is
achieved when prototype or models a. For use in the production or supply
is produced. of goods or services or for
b. The intention to complete the administrative purposes (owner-
intangible asset. occupied property).
c. Ability to use or sell the intangible b. For sale in the ordinary course of
asset. business.
d. Intangible asset will generate c. Classified as “held for sale” under
probable future benefit. PFRS 5 non-current assets held for
e. Availability of resources or funding sale and discontinued operations.
to complete the asset.
f. The ability to measure reliably the Examples of investment property
development expenditure. a. Land held for long term capital
Capitalize Expenditures – expenditures for appreciation.
research and development which have b. Land held for a currently
alternative future use, either in additional undetermined use.
research project or for productive purposes, c. Building owned by the reporting
can be capitalized. entity leased out under an operating
lease.
ff. should be charged to research and d. Building that is vacant but is held to
development expense: be leased out under an operating
lease.
a. Cost of materials used.
e. Property that is being constructed or
b. Depreciation of equipment used in
developed for the future use as
research and development.
investment property.
c. Amortization of intangible asset used
in research and development.
 31

The ff. are not investment property: Property leased to an affiliate.

a. Property acquired exclusively for - Property leased to parent or
sale in the near future or for subsidiary is considered
development and resale. investment property by individual
b. Owner-occupied property including: entity or the owner.
1. Property held for future use as - However, its is classified as
owner-occupied property. owner-occupied property in
2. Property held for future consolidated financial statement.
development and subsequent
Recognition
use as owner-occupied
property. - Investment property is
3. Property occupied by recognized when:
employees. a. Probable future economic
4. Owner-occupied property benefits.
awaiting for disposal. b. Reliable measurement of cost.
c. Property that is leased out to another
entity under finance lease. Fair value of investment property

Partly investment and partly owner- - Received to sell an asset on an

occupied orderly transaction between the
market participants at the
- Properties may include portion of measurement date.
investment and owner-occupied. - Should not be adjusted for
- If can be sold or leased transaction cost.
separately, may account
separately as investment property Inability to determine fair value reliably.
and owner-occupied. - Fair value of the investment
- If cannot be sold or leased property cannot be determined
separately: reliably on continuing basis.
1. If owner-occupied property is - - PAS 40, mandates that
insignificant, classified as investment property shall be
investment property. measure as cost method until
2. If owner-occupied is disposal.
significant, classified as PPE.
Initial Measurement of investment
Ancillary services to occupants property
- If services are insignificant, - Measured initially at cost.
classified as investment property.
- If services provided are significant, Acquisition by purchase
classified as PPE. - Cost of purchased investment
property comprises the purchase
price and any directly attributable
expenditure.
 32

The cost of an investment excludes the ff. - Fluctuation on fair value of

investment property is not
a. Start-up cost
recognized.
b. Operating loss incurred before
- Annual depreciation and
occupancy.
impairment are charged against
c. Abnormal amount to wasted
profit or loss.
material, labor or other resources
incurred in constructing or Derecognition of investment property
developing property.
a. On disposal
Exchange of assets b. When permanently withdrawn from
use.
- Measurement depends on whether
c. When no future economic benefits
the investment property (acquired
are expected.
in exchange of another non-
monetary asset) has commercial Disposal of investment property
substance.
- Gain or loss from disposal of
a. With commercial substance
investment property shall be
- measured using the ff. order of
determined as net disposal
priority:
proceeds less carrying amount of
1. Fair value of the asset given up.
the asset.
2. Fair value of asset received.
3. Carrying amount of the asset given Transfer of investment property
up.
b. Lacks commercial substance. - Made only when there is a change
- Measured at the carrying amount of use evidenced by:
of asset given up. No gain or loss a. Commencement of owner-
arises when measured at carrying occupation – transfer from
amount of asset given up. investment property to owner-
occupied property.
Subsequent measurement b. Commencement of
development with a view to
1. Cost model
sale – investment property to
2. Fair value model
inventory.
Fair value model – changes in fair value c. End of owner occupation –
from year to year are recognized in profit or owner-occupied property to
loss. investment property.
d. Commencement of an
- No depreciation is recorded for
operating lease to another
investment property.
entity – owner-occupied
Cost model – carried at cost less property to investment
accumulated depreciation and any property.
accumulated impairment loss.
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Measurement of transfer Biological assets can be either:

- Uses cost model – transfer a. Consumable biological asset –
between investment property, harvested as agricultural produce or
owner-occupied and inventory sold as biological asset.
shall be made at carrying amount.
Examples:
- From investment property (Fair
value) to owner-occupied or 1. Livestock intended for the
inventory shall be accounted for production of meet.
fair value (deemed cost). 2. livestock held for sale.
- From owner-occupied to 3. Fish in farms.
investment property carried at fair 4. Crops such as maize and wheat.
value, the differences shall be 5. Produce on bearer plants.
accounted for as revaluation of 6. Trees being grown for lumber.
PPE.
- From inventory to investment b. Bearer biological assets – held to
property carried at fair value the bear produce.
remeasurement shall be on profit
Examples:
or loss.
- Investment property completed 1. Livestock from which milk is
carried at fair value, the difference produced.
shall be on profit or loss. 2. Fruit trees from fruit is harvested.
Disclosure Agricultural produce – harvested product
of an entity’s biological asset.
- Whether the entity uses the cost
model or fair value model of Harvest – detachment of produce from a
measuring investment property. biological asset or the cessation of a
- Amount of rental income for the biological asset life processes (inventory).
period along with related expense.
Agricultural activity – management by an
- Restrictions on the investment
entity of the biological transformation and
property either through rentals or
harvest of biological assets for sale or for
sale proceeds.
conversion into agricultural produce or into
- Contractual obligations to
additional biological asset.
purchase or construct investment
property. Common features of agricultural
produce:
PAS 41: AGRICULTURE
a. Capability to change.
- Biological asset and agricultural
b. Management of change.
produce.
c. Measurement of change.
Definition of terms
Biological transformation – comprises the
Biological asset – living animals and living following processes that cause qualitative or
plants. quantitative changes in a biological asset:
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1. Assets changes through: - A gain may arise on initial

a. Growth recognition of agricultural
b. Procreation produce as a result of harvesting
c. Degeneration which shall be included in profit or
2. Production of agricultural produce loss.
Examples of agricultural activity: Agricultural land – not deemed as
biological asset.
1. Raising livestock
2. Annual or perennial cropping - Classified either PPE or
3. Cultivating orchards and plantations investment property.
4. Floriculture
Bearer plants – accounted as PPE.
5. Aquaculture, including fish farming.
- Living plant used in the production
Recognition
of agricultural produce, expected
- Biological asset or agricultural to bear produce for more than one
produce are recognized when: period.
a. Entity controls the asset as a - Solely used to grow agricultural
result of past event. produce over several periods.
b. It is probable that future - Usually scrapped at the end of
economic benefits associated production life.
with the asset will flow to the
Examples of bearer plants:
entity.
c. Fair value or cost of the asset a. Trees that produce fruit.
can be measured reliably. b. Grape vines
Measurement Not considered bearer plants:
- Biological assets are measured a. Tress grown to be harvested and sold
initially and subsequently at fair as log or lumber a are not bearer
value less cost of disposal. plants.
- Agricultural produce harvested b. Annual crops
shall be measured at fair value less
cost of disposal at the point or Agricultural produce growing on bearer
harvest. plants.
- Agricultural produce growing on - Classified as biological asset.
bearer plant is measured at fair - Once harvested, agricultural
value less cost of disposal. produce is measured at fair value
Gain on biological asset and agricultural less cost of disposal at point of
produce. harvest.
- Harvested product is recorded as
Biological asset – included in profit or loss. inventory and recognized as gain
from agricultural produce.
- Loss may arise from initial
recognition.
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Bearer animals – continue to be reported as

biological assets.
Animal related to recreational activities –
classified as PPE.
Government grants
- Gov. grant related to biological
assets are measured at fair value
less costs to sell.
- If measured at cost less
accumulated depreciation and
impairment losses, accounted at
PAS 20.
Under PAS 41, if gov. grant is:
a. Unconditional – recognized in profit
or loss when becomes receivable.
b. Conditional – recognized in profit
or loss when the attached condition
is met.
c. Conditional but the terms of the
grant allow part of it to be
retained according to the time that
has elapsed – portion of grant is
recognized in profit/loss as time
passes (e.g., straight line method).
Disclosures
- Aggregate gain or loss arising on
initial recognition of biological
assets and agricultural produce and
from the change in fair value less
costs to sell of biological asset.
- Description of each group of
biological assets.
- Description of nature of activities.
- Restrictions on titles to biological
assets.
- Commitments for development or
acquisition of biological asset.
- Financial risk management
strategies.