PFRS 1- First time Adoption of Philippine Financial Reporting Standards

-First PFRS are “the first annual financial statements in which entity adopts PFRS, by an explicit and
unreserved statement of compliance with PFRS.
-if the previous financial statements are:
a. were prepared in accordance with other reporting standards not consistent with PFRS
b. did not contain an explicit and unreserved statement of compliance with PFRS
c. contained an explicit and unreserved statement of compliance with some. But not all
d. prepared in accordance with PFRS but were used for internal reporting purposes only
e. did not contain a complete set of financial statements as required under PAS 1
f. The entity did not present financial statements in previous periods.

-PFRS is applied only once…

-An entity presenting its first PFRS financial statements is called “first-time adopter”
-PFRS 1 requires entity to prepare and present opening PFRS statement of financial position at the
date of transition to PFRS(the beginning of the earliest period for which entity presents full
comparative information under PFRS)

a. What is the date of transition

Answer: The date of transition is Jan 1,20x2 (the beginning of the earliest period)
b. What is the date of the opening PFRS statement of financial position?
Answer: The date of the opening PFRS statement of financial position is Jan 1,20x2
c. What financial statements shall be prepared on December 31,20x3?
Answer: 1. Statement of Financial position as of Jan 1, 20x2 (opening)
2. Complete set oof financial statements dated December 31,20x2 (comparative)
3. Complete set of financial statements dated December 31,20x3 (current year first PFRS financial
statements)
ABC CO. shall apply uniform accounting policies based on the latest version
d. What if ABC Co. reports two-year comparative information, what is the date of transition to PFRS?
Answer: Jan. 1,20x1

-PAS 1 requires retrospective application

-Retrospective application means as if PFRS have been used all along. This application requires
restating assets and liabilities in the opening statement of financial position.

PFRS 2 SHARE-BASED PAYMENT

-Transactions involving the issuance of shares in exchange for noncash consideration are account under PFRS 2
-Share-based payment transaction is a transaction in which the entity acquires goods or services and pays for them
by issuing its own equity instrument or cash based on the value of its own equity instruments.
A share-based payment transaction can be:
1. Equity-settled share-based payment transaction- one in which the entity receives goods or services and pays for
them by issuing its shares of stocks or share options
2. Cash-settled share-based payment transaction- one which the entity receives goods or services and incurs an
obligation to pay cash at an amount that is based on the fair value of its own equity instruments
2. Choice between equity-settled and cash-settled- one which entity receives goods or services and either the entity
or the counterparty is given a choice of settlement in the form of equity instruments or cash based on the fair value
of equity instruments.

-Equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities
- increase in equity if goods and services are received in equity settled
- liability if goods or services are acquired in cash-settled
-Share-based compensation plan-is an arrangement whereby, in exchange for services, an employee is
compensated in the form of the entity’s equity instrument.
Examples:
a. Employee share options (equity settled)
b. Employee share appreciation rights (cash settled)
c. Compensation plans with a choice of settlement between (a) and (b) above
-Share option is a contract that gives the holder the right, bit not the obligation to subscribe to the entity’s shares at
a fixed or determinable price for a specified period of time.
Cash-settled
Share appreciation right-is a form of compensation given to an employee whereby the employee is entitled to
future cash payment

-Share-based transaction with non-employee is measured using the ff. order of priority:
1. Fair value of the goods or services received
2. Fair value of the equity instrument granted
- Share-based payment of transaction with employee or others providing similar services is measured using the ff
order of priority:
1. Fair value of the equity instrument granted
2. Intrinsic value
- Measurement date is the date at which the fair value of the equity instrument granted is measured:
a. For transactions with non-employees, the measurement date is the date the goods or services are obtained
b. For transactions with employees and others providing similar services, the measurement date is the grant date
PAS 3 BUSINESS COMBINATIONS
-Business Combination- occurs when one company acquires another or when two or more companies
merge into one. Transaction on which the acquirer obtains control of one or more businesses.
After the combination, one company gains control over the other.
Parent or acquirer- the company that obtains control over the other/acquiree.
Subsidiary or acquiree- the other company that is controlled/ business that acquirer obtains control
PFRS 3 does not apply if a.) formation of a joint venture b.) the acquisition of an asset and related
liabilities that does not constitute a business c.) combination of entities under common control
Essential elements in the definition of a business combination
1.) Control 2.) Business
Control- an investor controls an investee when the investor has the power to direct the investee’s
relevant activities.
-Control normally presumed to exist when the acquirer holds more than 50% (or 51% or more) interest
in the acquiree’s voting rights (presumption). It can also obtained when:
a.) the acquirer can remove the majority of the board of directors of the acquiree
b.) the acquirer cast the majority of votes at board meetings/equivalent bodies within the acquiree
c.) acquirer has power more than half of voting rights because an agreement with other investors
d.) acquirer controls the acquiree’s operating and financial policies because of a law/ an agreement
Business- is an integrated set of activities and assets that is capable of being conducted and managed
for the purpose of providing goods or services to customers, generating income
Business has three elements:
1. Input- any economic resources that results to an output when one or more process are applied.
2. Process- any system, standard, protocol, convention or rule that when applied to an input, creates an
output.
3. Output- the result of 1 and 2 above that provides goods or services to customers, and income
-If the assets acquired (and related liabilities assumed) do not constitute a business, the entity accounts
for the transaction is not a business combination.
Business combinations are accounted using acquisition method: a) identifying the acquirer
b) determining the acquisition date c) recognizing and measuring goodwill.
The acquisition date is the date on which the acquirer obtains control of the acquiree. This is normally
the closing date(the date which the acquirer legally transfer the consideration)

Recognizing and measuring goodwill

a. Goodwill as an asset
b. Goodwill on a bargain purchase as gain in profit or loss

-A ‘gain on a bargain purchase” is recognized in profit or loss in the year of acquisition only after
reassessment of the assets acquired and liabilities assumed in the business combination.
-Only identifiable assets acquired are recognized. Unidentifiable assets are not recognized.
- Acquisition related costs are expensed, except costs of issuing equity and debt instruments.
- Acquisition related costs do not affect the measurement of goodwill.
PFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCOUNTED OPERATIONS
-non current assets can be a current assets only if they meet the criteria to be classified as held for sale
under PFRS5
Noncurrent assets within the scope of PFRS 5:
a.) PPE b.) Investment in property measured under cost model
c) Investment in associate, subsidiary, or joint venture d.) Intangible assets
-Disposal group- is a group of assets to be disposed of, by sale or otherwise , together as a group in a
single transaction.
-Noncurrent asset(disposal group) is classified as held for sale if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use.
-An asset (or disposal group) that is not sold within 1 year from the date of its classification as held for
sale is reclassified back to its previous classification (held for sale back to PPE)
Measurement- Held for sale assets are initially and subsequently measured at the lower of carrying
amount and fair value less cost to sell.
Fair value- is the price that would be received to sell an asset
Costs to sell- are the incremental costs directly attributable to the disposal of an asset, excluding
finance cost and income tax expense
-Subsequent changes in fair value less costs to sell are recognized in profit or loss as impairment losses
or gains on reversal impairment
-The results of discontinued operations are presented in the statement of profit or loss and other
comprehensive income as a single amount. (post-tax profit or loss)

-Held for sale assets are measured at the lower of carrying amount and fair value less costs to sell
-Held for sale classification is permitted when the noncurrent asset or disposal group is (a) available for
immediate sale in its present condition (b) the sale is highly probable
-Non-adjusting event after reporting period
-The result of discontinued operations are presented separately in the statement of comprehensive
income as a post-tax single amount
-The assets and liabilities of a disposal group are presented separately on the face of the statement of
financial position. Offsetting is prohibited.

PAS 6- EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES

-PFRS 6 applies to expenditures incurred after the entity has obtained legal rights to explore
in a specific area but before the existence of mineral reserved is in fact established and the
technical feasibility and commercial viability are demonstrable are called development costs.

-PFRS 6 permits entities to develop their own accounting policy for exploration and
evaluation assets
-An entity may recognize exploration and evaluation expenditures as expenses or assets
depending on its chosen accounting policy.
-Exploration and evaluation of assets are initially measured at cost.
-Exploration and evaluation of assets are subsequently measured using either cost model or
revaluation model
-Classification of exploration and evaluation of assets are treated as a separate class of assets
as tangible (vehicles and drilling rigs) or intangible ( drilling rights)
- Exploration and evaluation of assets are assessed for impairment when indication exists that
their carrying amount exceeds their recoverable amount.
PFRS 7 Financial Instruments: Disclosure
-applies to financial instruments that are within the scope of PFRS 9.
Statement of financial position
Carrying amounts of financial assets and financial liabilities
a.) Financial assets measured at fair value through profit or loss (FVPL)
b.) Financial assets measured at amortized cost
c.) Financial assets measured at fair value through other comprehensive income (FVOCI)
d.) Financial liabilities at amortized cost
e.) Financial liabilities at fair value through profit or loss (FVPL)
Financial assets and financial liabilities measured at FVPL
-If entity designates financial asset to be measure at FVPL, it shall disclose the financial asset’s
exposure to credit risk and change in fair value attributable to changes in credit risk.
-If entity has reclassified financial assets, it shall disclose the date of reclassification
-If entity reclassifies financial assets from FVOCI or FVPL to amortized cost, it shall disclose the fair
value gain or loss that would have been recognize in profit or loss or OCI, if financial asset had not
been reclassified.
-If entity has offset financial assets and financial liabilities, it shall disclose the gross amounts of those
assets and liabilities
Statement of Comprehensive Income
a.Net gain or net losses b.Total interest revenue and total interest expense c.Fee income and expense
PRFS 7 requires the disclosure of the following risks:
1. Credit risk- is “the risk that one party to a financial instrument will cause a financial loss for the
other party by failing to discharge an obligation.
2. Liquidity risk- is “the risk that an entity will encounter difficulty in meeting obligations associated
with financial liabilities that are settled by delivering cash or another financial asset”.
-credit risk includes the possibility that entity cannot collect while the liquidity risk include the
possibility than an entity cannot pay its payables.
3. Market risk- is “the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market prices”. It has three types:
a. Currency risk-“the risk that the fair value or future cash flows of financial instrument will fluctuate
because of changes in foreign exchange rates”
b. Interest rate risk-“ the risk that the fair value or future cash flows of financial instrument will
fluctuate because of changes in market interest rates”
c. Other price risk-“ the risk that the fair value or future cash flows of financial instrument will
fluctuate because of changes in market prices”
-The entity shall provide both qualitative and quantitative disclosures for each type of risks.
PFRS 8 OPERATING SEGMENTS
-PFRS 8 requires an entity to disclose information needed in evaluating the nature and financial effects
of the business activities in which it engages and the economic environments in which it operates.
-PFRS 8 applies to the separate or individual financial statements of an entity, and to the consolidated
financial statements of a group with a parent, that is publicly listed or in the process of enlisting.
Operating segments is “a component of an entity”:
a.) that engages in business activities from which it may earn revenues and incur expenses
b.) whose operating results are regularly reviewed by entity’s chief operating decision maker
c.) for which discrete financial information is available
- To qualify as an operating segment, one must be a profit center ( earn its own revenues and incurs
own expenses) used internally by management for decision making, and on which separate financial
information is available.
-An operating segment is reportable if it: a) is used by management in internal reporting or results from
aggregating two or more segments; and b.) qualifies under the quantitative thresholds.
-Internal reports
PFRS 9- FINANCIAL INSTRUMENTS
-Initial recognition
Financial assets and financial liabilities are recognized only when the entity becomes a party to the
contractual provisions of the instrument.
Subsequent measurement:
a. Amortized cost b. FVOCI c. FVPL
PFRS 10 CONSOLIDATED FINANCIAL STATEMENTS
-prescribes the principles for the preparation and presentation of consolidated financial statements
Consolidated financial statements- the financial statements of a group in which the assets, liabilities,
equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a
single economic entity.

-A parent entity is required to consolidate its subsidiaries except

a.) when the parent is also a subsidiary and its owners do not object to non-presentation of consolidated
financial statements b.) the parent is not publicly listed or in the process of enlisting
c.) the parent’s parent produces consolidated PFRS financial statements
-Control is the basis of consolidation. Consolidation begins when control is obtained and ceases when
control is lost. Control has the following elements: 1) power 2) exposure, or rights, to variable returns
b) ability to affect returns
-Consolidated financial statements are prepared using uniform accounting policies.
-NCI in the subsidiary’s net assets is presented within equity but separate form the equity of the owners
of the parent.
-Consolidation involves: eliminating the Investment in subsidiary account, measuring the subsidiary’s
assets and liabilities at their acquisition-date fair values, recognizing goodwill, replacing the
subsidiary’s pre-combination equity accounts with NCI in net assets and adding, line by line, similar
items of assets and liabilities of the parent and subsidiary.
-Profit or loss and Comprehensive Income are attributed to the (a) owners of the parent and (b) NCI
PFRS 11- JOINT ARRANGEMENTS
-prescribes the principles for financial reporting by parties to a joint arrangements.
Joint arrangement- an arrangement if which two or more parties have joint control.
-The two essential elements of a joint arrangement are (1.) contractual arrangement
(2.) joint control by two or more parties.
Joint control- is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require the unanimous consent of the parties sharing control. It
distinguishes an interest in a joint arrangement from other types of investments.
Joint operation- joint arrangement whereby parties have joint control/have rights to the assets and
obligations for the liabilities, relating to the arrangement. Those parties called “joint operators”
-normally, not structured through a separate vehicle
Joint venture- joint arrangement whereby parties have joint control/ have rights to the net assets of the
arrangements. Those parties are called “joint venturers”
- normally, structured through a separate vehicle
PFRS 12- DISCLOSURE OF INTERESTS IN OTHER ENTITIES
-
PFRS 13- FAIR VALUE MEASUREMENT
-applies to the fair value measurement, and related disclosures, of an asset, liability or equity when
other PFRSs require measurement at fair value or fair value less cost to sell.
Fair value- the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date”
-The market price (either principal or most advantageous market) used in measuring fair value is not
adjusted for any transaction cost, but is adjusted for any transport cost.

-Fair value is measured based on the market price in the principal market ( if one exists) or in the most
advantageous market (in the absence of a principal market)
- The market price used in measuring fair value is adjusted for any transport costs, but not for
transaction costs.
-The hierarchy of fair value inputs include: (a) Level 1 inputs- quoted prices in active market

(b) Level 2 inputs- prices derived from observable data (c) Level 3 inputs- unobservable inputs
-When measuring the fair value of a non-financial asset, an entity considers the asset’s highest and best
use.
-Valuation techniques are: 1.) Market approach 2) Cost approach 3) Income approach
PFRS 14- Regulatory Deferral Accounts
-specifies the financial reporting requirements for regulatory deferral account balances arising from the
sale of goods or services that are subject to rate regulation.
-is an optional standard that is available only to first-time adopters.
- A first-time adopter is allowed, but is not required to apply PFRS 14 in its PFRS financial statements.
-The regulatory deferral account balances are not presented as current or noncurrent.
-They are presented separately from the sub-totals of assets and liabilities that are presented in
accordance with other standards.

PFRS 15 Revenue from Contracts with Customers

-Provides the principles in reporting the nature, amount, timing, and uncertainty of revenue and cash
flows arising from entity’s contracts with customers.
- applies to contracts wherein the counterparty is a customer. Contracts with customers.
-applies to individual contracts with customers.
It requires the following steps in recognizing revenue:
Step 1: Identify the contract with customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

Step 1: A contract is accounted for under PFRS 15 if it meets all the criteria, including the probability
of collection of the consideration.
If the contract does not meet the criteria, no revenue is recognized; any consideration received is
recognize as liability.
Step 2: Each promise to transfer a distinct good or service is treated as a separate performance
obligation.
-A good or services is distinct if:
a.) the customer can benefit from it ( the good or service is regularly sold separately)
b.) the good or service is separately identifiable ( not an input to a combined output, does not
significantly modify the other promises, or not highly interrelated with other promises)
-A good or service that is not distinct is combined with the other promises in the contract. Combined
promises are treated as a single performance obligation.
Step 3: The transaction price is the amount at which revenue will be measured.
Step 4: The transaction price is allocated to the performance obligations based on their relative stand-
alone selling prices.
Step 5: Revenue is recognized when or as the entity satisfies a performance obligation
-A performance obligation is satisfied when the control over a promised good or service is transferred
to the customer.
-If the outcome of a performance obligation cannot be reasonably measured, revenue is recognized
only to the extent of cots incurred that are expected to be recovered.
-Contract costs include (a) incremental costs of obtaining a contract (b) cost to fulfill a contract
Presentation: A contract where one party has performed is presented in the statement of financial
position as a contract liability, contract asset or receivable.
Contract liability- recognized when consideration is received or becomes due before goods or services
are transferred to the customer.
Contract asset- recognized after goods or services are transferred to the customer but he right to
consideration is conditional
Receivable- recognized after goods or services are transferred to the customer and the right to
consideration is unconditional.
PFRS 16- LEASES
-prescribe the accounting and disclosure requirements for leases.
-The objective is to provide information that is faithfully represented, necessary for financial statement
users to assess the effect of leases on the financial position, financial performance and cash flows of an
entity
PRFS 17- INSURANCE CONTRACTS