ACCOUNTING FRAMEWORK FOR FULL

PFRS, PFRS FOR SMES, AND PRFRS FOR SE

BASIC FINANCIAL INSTRUMENTS

INVESTMENTS IN ASSOCIATES

GROUP 2
Sumalinog, Genesis Xyla
Tuazon, Ailane Jade
Tuba, Friscila
DIFFERENCES FULL PFRS PFRS FOR SMES PFRS FOR SE
IN TERMS OF:
Measurement On initial recognition, financial Basic Financial Instruments is When a financial asset or
instruments are measured at fair initially measured at financial liability is
value plus, in the case of a transaction price, including recognized initially, an
financial instrument other than at transaction cost. entity shall measure it at the
fair value through profit or loss, For subsequent measurement, transaction price (including
transaction costs. basic financial instruments is transaction costs) unless the
measure at fair value arrangement constitutes, in
through profit or loss. effect, a financing
transaction.

Impairment Loss Impairment loss is measured as Impairment loss is measured as Impairment loss is the
the difference between carrying the difference between carrying difference between the
amount of FA and the present amount of FA and the best asset’s carrying amount and
value of future estimated cash estimate of the amount of the the present value of
flow discounted at current entity would receive for the asset estimated cash flows
market rate. if it were to be solved. discounted at the asset’s
original effective interest
rate.

Amortized Cost The amount at which the FI is Same as Full PFRS Same as Full PFRS
measured at initial recognition,
minus repayment of the
principal.
DIFFERENCES IN FULL PFRS PFRS FOR SMES PFRS FOR SE
TERMS OF:
SUBSEQUENT 1. Debt Instruments- measured at 1.Debt Instruments-measured at 1. FA- measured at
MEASUREMENT OF FVOCI Amortised Cost. amortized cost.
BASIC FINANCIAL
INSTRUMENTS 2.Investment in Trading 2. Investments in
2.FA at Amortised Cost (FA that Securities-meausred at FVPL. Trading Securities
are held to collect using EIR) carried at lower of
3. Equity Instruments- cost/FV (shares traded in
3. Equity Instruments- measured measured at-Amortised Cost active market.
at FVOCI (those shares not traded in active
market.
4.FA at FVOCI (FA that are held
to collect and sell and equity 4. FVOCI are not permitted in
securities not held for trading. PFRS for SMES.

5.. FA at FVPL (for other business

model).
DIFFERENCES IN FULL PFRS PFRS FOR SMES PFRS FOR SE
TERMS OF:
SUBSEQUENT 1. Financial Asset for those held to 1.Debt Instruments-measured at 1. FA like loands and
MEASUREMENT OF collect using EIR is measured at Amortised Cost. receivables are
BASIC FINANCIAL Amortised Cost measured at amortized
INSTRUMENTS 2.Investment in Trading cost.
2. Financial Asset that are held to Securities-meausred at FVPL.
collect and sell and equity 2. Investments in
securities not held for trading is 3. Equity Instruments- Trading Securities
measured at FVOCI measured at-Amortised Cost carried at lower of
(those shares not traded in active cost/FV (shares traded in
3. Financial Asset Other business market) active market.
model are measured at FVPL
4. FVOCI are not permitted in 3. Investments in shares
PFRS for SMES. not traded in an active
market are measured at
Cost less impairment
INITIAL RECOGNITION
• UNDER FULL PFRS

Enerzy Company had the following investment transactions.

January 1,2023 Purchased ordinary shares for 3,000,000 with 50,000 as commission fee.
December 31,2023 The ordinary shares have a fair value of 4,000,000.

Jan 1, 2019 FA-FVPL 3,000,000 Dec. 31, 2019 FA-FVPL 1,000,000

Cash 3,000,000 Unrealized gain-PL 1,000,ooo
Commision Expense 50,000
Cash 50,000
INITIAL RECOGNITION
• UNDER PFRS FOR SMES

Enerzy Company had the following investment transactions.

January 1,2023 Purchased ordinary shares for 3,000,000 with 50,000 as commission fee.
December 31,2023 The ordinary shares have a fair value of 4,000,000.

Jan 1, 2019 Investment in Equity Instruments 3,000,000

Cash 3,000,000
Commision Expense 50,000
Cash 50,000

Dec. 31, 2019 Investment in Equity Instruments 1,000,000

Gain 0n Investment in Equity Instruments 1,000,000
DIFFERENCE FULL PFRS PFRS FOR SMES PFRS FOR SE
S IN TERMS
OF:
Measurement All investments in associates shall be All investments in associates are All investments in associates
accounted for using equity method accounted for using any of the cost are accounted for using at cost
only under PAS 28. model, equity method, and the fair less impairment and equity
value method. method.
Cost model are not permitted except Investment associates are initially
in separate financial statements. recognized at transaction price
including the transaction cost.
Investment associates are initially
recognized at cost.
Goodwill included in the CA is not
amortized.

Goodwill Goodwill included in the CA is not Goodwill is treated separately and is

amortized. amortized.

Areas covered in 1.Guidance on significant influence

Full PFRS but not 2.Consequence when an investment
in PFRS for SMES cease to be an associate
and SE. 3.Profit and Loss upward and
downward transaction.

Classification and Investment in Associates are Associates are presented in the line
Presentation classified as non-current asset. item on the balance sheet.
Associates can be classified as a line
item that use equity method only.
 FULL PFRS PFRS FOR SMES PFRS FOR SE

Type of Investment
1.Investment measured at FV
2.Investment in Associate
3.Investment in Subsidiary
4. Investment in Joint Venture

Significant Influence

Less than 20%- FA at FV

20%-50% Investment in Associate
51-100% Investment in Subsidiary
Contractually Agreed sharing of control- Investment in Joint Venture

Investment in Associates are classified as non-current asset. Associates can be

classified as a line item that use equity method only.
DIFFEREN FULL PFRS PFRS FOR SMES PFRS FOR SE
CES IN
TERMS OF:
EQUITY Applicable only if the investor has Same as Full PFRS Same as Full PFRS
METHOD a significance influence over the
investee.

measured at cost and adjusted

after for the post acquisition
change in the investors share.
COST MODEL Transaction price including
transaction cost.

Not permitted of the investment in

associate has a publishe price
quotation.
FAIR VALUE Transaction price excluding the
MODEL transaction cost. (measured at
FVPL)
 COMPARISON OF DEFINITION OF
INVESTMENT IN ASSOCIATE UNDER:

FULL PFRS PFRS FOR SMEs PFRS FOR SE

An associate is an entity An associate is an entity, The same definition in PFRS

over which an investor including unincorporated for SMEs
has significant influence, entity such as a partnership,
being the power to over which the investor has
participate in the significant influence and that
financial and operating it is neither a subsidiary
policy decisions of nor an interest in joint
investee (but not control venture.
or joint control) (IAS 28)
Sample Problem
On January 1, 2018, SME acquired 25% of the equity of each of entities B, C and D for
1,000,000, 1,500,000 and 2,800,000 respectively. Transaction costs of 1% of the purchase
price were incurred by SME. For the year ended December 31, 2018, entities B and C
recognized profit respectively of 500,000 and 1,800,000. However, entity D recognized a
loss of 2,000,000. Using appropriate valuation techniques SME determined the fair value
of the investments in entities B, C and D on December 31, 2018 at 1,300,000, 2,900,000
and 1,500,000 respectively. Cost of disposal are estimated at 5% of the fair value of the
investments.

Required:

1. Under the cost model, what is the total carrying amount of the
investments in associates of December 31, 2018?
2. Under the cost model, what amount should be reported as
impairment loss?
3. Under the equity model, what is the total carrying amount of the
investments in associates of December 31, 2018?
 Sample Problem
On January 1, 2018, SME acquired 25% of the equity of each of entities B, C and D for
1,000,000, 1,500,000 and 2,800,000 respectively. Transaction costs of 1% of the purchase
price were incurred by SME. For the year ended December 31, 2018, entities B and C
recognized profit respectively of 500,000 and 1,800,000. However, entity D recognized a
loss of 2,000,000. Using appropriate valuation techniques SME determined the fair value
of the investments in entities B, C and D on December 31, 2018 at 1,300,000, 2,900,000
and 1,500,000 respectively. Cost of disposal are estimated at 5% of the fair value of the
investments.

Cost Model
B C D

Investment in associate 1,000,000 1,500,000 2,800,000 Note:

For other
Transaction Cost (1% of 10,000 15,000 28,000
investments,
purchase price) there is no
TOTAL COST 1,010,000 1,515,000 2,828,000 impairment
because FV
FV 1,300,000 2,900,000 1,500,000 less cost of
disposal is
Cost of Disposal (5%) (65,000) (145,000) (75,000) higher than
FV less cost of Disposal 1,235,000 2,755,000 1,425,000 the carrying
amount.
Not Impaired Not Impaired 1,403,000
(Impairment Loss)
 Sample Problem
On January 1, 2018, SME acquired 25% of the equity of each of entities B, C and D for
1,000,000, 1,500,000 and 2,800,000 respectively. Transaction costs of 1% of the purchase
price were incurred by SME. For the year ended December 31, 2018, entities B and C
recognized profit respectively of 500,000 and 1,800,000. However, entity D recognized a
loss of 2,000,000. Using appropriate valuation techniques SME determined the fair value
of the investments in entities B, C and D on December 31, 2018 at 1,300,000, 2,900,000
and 1,500,000 respectively. Cost of disposal are estimated at 5% of the fair value of the
investments.

Cost Model
Investment in Associate
B 1,010,000
C 1,515,000
D 1,425,000
Total Carrrying Amount/ 12-31-18 3,950,000 (1)

Investment in Associate D
FV less COD 1,425,000
CA (2,828,000)
Impairmet Loss (1,403,000) (2)
 Sample Problem
On January 1, 2018, SME acquired 25% of the equity of each of entities B, C and D for
1,000,000, 1,500,000 and 2,800,000 respectively. Transaction costs of 1% of the purchase
price were incurred by SME. For the year ended December 31, 2018, entities B and C
recognized profit respectively of 500,000 and 1,800,000. However, entity D recognized a
loss of 2,000,000. Using appropriate valuation techniques SME determined the fair value
of the investments in entities B, C and D on December 31, 2018 at 1,300,000, 2,900,000
and 1,500,000 respectively. Cost of disposal are estimated at 5% of the fair value of the
investments.

Equity Model
B C D
Investment in associate 1,000,000 1,500,000 2,800,000

Transaction Cost 10,000 15,000 28,000 P/L (25%)

(1% of purchase price)
B- 500,000 X 25% =125,000
25% of the equity 125,000 450,000 (500,000) C- 1,800,000 X 25% = 450,000
D- 2,000,000 X 25%= (500,000)
CA 1,135,000 1,965,000 2,328,000

Investment in Associate
B 1,135,000
C 1,965,000
D 1,425,000
Total Carrrying Amount/ 12-31-18 4,525,000 (3)
 Sample Problem
On January 1, 2018, SME acquired 25% of the equity of each of entities B, C and D for
1,000,000, 1,500,000 and 2,800,000 respectively. Transaction costs of 1% of the purchase
price were incurred by SME. For the year ended December 31, 2018, entities B and C
recognized profit respectively of 500,000 and 1,800,000. However, entity D recognized a
loss of 2,000,000. Using appropriate valuation techniques SME determined the fair value
of the investments in entities B, C and D on December 31, 2018 at 1,300,000, 2,900,000
and 1,500,000 respectively. Cost of disposal are estimated at 5% of the fair value of the
investments.

Equity Model
B C D
Investment in associate 1,000,000 1,500,000 2,800,000

Transaction Cost 10,000 15,000 28,000 P/L (25%)

(1% of purchase price)
B- 500,000 X 25% =125,000
25% of the equity 125,000 450,000 (500,000) C- 1,800,000 X 25% = 450,000
D- 2,000,000 X 25%= (500,000)
CA 1,135,000 1,965,000 2,328,000

Investment in Associate
B 1,135,000
C 1,965,000
D 1,425,000
Total Carrrying Amount/ 12-31-18 4,525,000 (3)
5,700,000
 EQUITY METHOD UNDER IFRS STANDARD AND IFRS FOR SMEs

IFRS STANDARDS PFRS FOR

SMEs
1. Impracticability exemption from the  No exemption  Has
requirement that investor makes exempti
adjustments to the associate’s financial on
statements to reflect the investor’s
accounting policies.
 Requires the difference
2. If it is impracticable for the financial between the end of the  No
statements of the associate to be prepared as reporting period of the
of the same date as the financial statements associate and that of the
three-
of the investor, both full IFRS Standards and investor to be no more month
the IFRS for SMEs Standard require the than three months limit
most recent available financial statements of
the associate to be used.  Require the retained
investment to be
3. If an investor loses significant influence remeasured to fair
for reasons other than a partial disposal of value.
 Require
its investment, it requires the investor to
regard the carrying amount of the s
investment at that date as a new cost basis  Do not allow amortisation
for accounting. of goodwill

4. Requires that implicit goodwill be

systematically amortised over its expected  Require