PAS 36

IMPAIRMENT OF ASSETS

- prescribes the procedures necessary to ensure that the assets are not carried in excess of their
recoverable amount.

Types of assets that can be impaired:

PPE

Investment measured under cost model

Investment associates, joint ventures,

and subsidiaries

Intangible assets

Goodwill

CORE PRINCIPLE

- CA of an asset shall not exceed its recoverable amount.

INDICATION OF IMPAIRMENT

External sources

Significant decline on asset’s market value.

Significant changes in technological, market, economic, and legal environment.

Increase in the market interest rate.

The CA of the entity’s net assets exceeds its market capitalization.

INTERNAL SOURCES

Obsolescence or physical damage

Significant change in the experience use of an asset

Indications that the economic performance of an assets is, or will be, worse than expected
REQUIRED TESTING FOR IMPAIRMENT

The following assets are required to be tested for least annually impairment even if there are no
indications for impairment.

Intangible assets with indefinite useful life

Intangible assets not yet available for use

Goodwill acquired from business combinations

RECOVERABLE AMOUNT

Fair Value Less Cost of Disposal (FVLCOD)

Price that would receive upon the sale of an asset less the incremental cost directly attributable to the
disposal of an asset or cash.

Value in Use (VIU)

Measured as the PV of the estimates future net cash flows expected to be derived of an asset.

If one of the values exceed that of the assets’ CA, the other value need not to be computed

If the FLVCOD cannot be determined, VIU is used

If there is no reason to believe that VIU exceed FVLCOD, FLVCOD is used
ASH GENERATING UNIT

- smallest identifiable group of assets that generates cash inflows that are largely independent of the
cash inflows from the other assets or group of assets.

RECOVERABLE AMOUNT

The asset belongs to a CGU

The asset cannot independently generate its own cash inflows

CARRYING AMOUNT

Includes assets that can be attributed directly, or allocated on a reasonable and consistent basis, to the
CGU

ALLOCATION OF GOODWILL TO CGU

Goodwill does not generate cash flows of its own

The CGUs to which the goodwill is allocated represent the lowest level within the entity at which the
goodwill is monitored for internal management purposes.

IMPAIRMENT ALLOCATION

Goodwill

Impairment allocated to a CGU will firstly be allocated to goodwill then

Other asset

If there are many excess impairment loss, it will be allocated to the other assets that belongs to the
CGU

CORPORATE ASSET

- asset other than goodwill that contribute to the future cash flows of both the CGU under review and
other CGUs.

REVERSAL OF IMPAIRMENT

- happens if the recoverable amount of the previously impaired asset exceeds its CA

PAS 37

Present obligation- in rare cases where it is not clear whether there is present obligation, the entity
deems a past event to give rise to a present obligation if available evidence shows that it is more likely
than not that a present obligation exists at the end of the reporting period.

Past event

- obligating event is a past event that creates a present obligation

- obligating event is one whereby the entity does not have any other recourse but to settle an obligation

- this is the case where:

a. the obligation is legally enforceable (legal obligation);

b. the entity's actions (past practice or published policies) have created valid expectations on others that
the entity will discharge the obligation (constructive obligation)

-financial statements deal with past or historical information.

- no provision is recognized for future operating costs.

- the only liabilities recognized in an entity's SFP

are those that exist at the end of the reporting

period. (PAS 71.18)

- only those obligations arising from past events existing independently of an entity's future actions are
recognized as provisions.

- possible outflows of resources embodying economic benefits that the entity can avoid by changing its
future actions are not recognized as provisions.

- it is not necessary that the identity of the obligee is known-indeed the obligee may be the public at
large

- for constructive obligation to create a valid expectation on others, it is necessary that the commitment
must have been communicated to the parties concerned before the end of the reporting period.

Probable outflow of resources embodying

economic benefits

- probable mean more likely than not which means there is a greater chance that the present obligation
will cause settlement than not.

Realizable estimate of the obligation

- provisions necessarily need to be estimated

- if a reliable estimate cannot be made, no provision is recognized

Contingent liabilities

in general, all provisions are contingent because they are of uncertain timing or amount.

- however, PAS 37 uses the term contingent to refer to those liabilities and assets that are not
recognized because that do not meet all of the recognition criteria

A provision and a contingent liability are

differentiated below

Provisions Contingent Liability

A liability of an uncertain timing or A possible obligation whose existence will be

confirmed only by the occurrence or non-
amount that meets all of the
occurrence of one or more uncertain future
following conditions: events not wholly within the control of the
entity; or
a) Present obligation;
A present
b) Probable outflow;
obligation but;
and
i. It is not probable that it will cause an outflow
c) Reliably estimated in its settlement; or

ii. Its amount cannot be reliably estimated

Contingent liabilities are disclosed only, except when the possibility of an outflow of resources
embodying economic benefits is remote.

Contingent Assets

- those that are not recognized because they do not meet all of the asset recognition criteria such as
resource controlled arising from past events’, probable inflow, and reliable estimation

- it includes possible inflows of economic benefits from unplanned or unexpected events, such as claims
that an entity is seeking through legal processes where the outcome is uncertain

- example are claims under tax disputed and disputed insurance claims

- it is disclosed only if the inflow of the economic benefit is probable.

- they are not recognized because recognizing them may result to the recognition of income that may
never be realized.

- however, when the realization of income is virtually certain (100% chance of occurrence), the asset is
not a contingent asset and therefore it is appropriate to recognize it.

SUMMARY:

Contingent Probable Possible Remote

Liability Recognize and Disclose only Ignore

disclose (Provision)

Disclose only
Asset Ignore Ignore
Measurement

- provisions are measured as the best estimate of the amount needed to settle them at the end of the
reporting period.

- making the estimate requires management’s judgement, supplemented by experience from similar
transactions, ad in some cases, reports from independent experts.

- it should also consider events after the reporting period.

- if the provision being measured involves a large population of items, the obligation is measured at its
expected value.

- expected value is computed by weighting all possible outcomes by their associated probabilities.

- if there is a continuous range of possible outcomes, and each point in that range is as likely as any
other, the mid-point of the range is used.

- estimates consider risks and uncertainties

- estimates may be increased by a risk adjustment factor to provide an allowance for imprecision
inherent in estimates.

- this, however, does not mean that an entity can make excessive provisions or can deliberately
overstate liabilities

if the effect of time value of money is material, the estimate of a provision is discounted to its present
value using pre-tax discount rate

- this is usually the case for provisions for restoration and decommissioning costs where cash outflows
occur only after a relatively long period of time from the date of initial recognition.

- future events may affect the amount needed to settle an obligation. However, future events are
considered in estimating a provision ONLY if there is objective evidence that supports their anticipation.

- gains are recognized separately when disposals occur

- if another party is expected to reimburse the settlement amount of a provision, a reimbursement
asset is recognized if it is virtually certain that the reimbursement will be received.

- reimbursement asset is presented in the SFP separately from provision.

- however, in the SCI, the expense related to the provision may be presented net of the reimbursement.

- the amount recognized for the reimbursement should not exceed the amount of the provision

Example: Where a reimbursement asset may be recognized is when the obligating event that caused
the recognition of a provision is insured. The reimbursement asset would be the amount that the entity
can claim from the insurance company.

Recording of provision

- provisions are normally recognized as a debit to expense (or loss) and a credit to an estimated liability
account.

- however, sometimes a provision forms part of the cost of an asset.

Example: Provision for restoration and decommissioning costs are capitalized as part of the cost of a
PPE.

Changes in provisions

- provision are reviewed at the end of each reporting period and adjusted to reflect the current best
estimate

- changes in provisions are accounted for prospectively by accruing an additional amount or reversing a
previously recognized amount

- when the provision is discounted, the unwinding (amortization) of the related discount which increases
the carrying amount of the provision is recognized as interest expense.

Use of provisions

- a provision is used only for the expenditure it was originally intended for.

- charging expenditure against a provision that is intended for another purpose is inappropriate as it
conceal the impact of two different events

Application of the recognition and

measurement rules

Future operating losses

-no provision is recognized for future operating losses because they do not meet the definition of
liability (i.e, arising from past events)

- the expectation of future operating losses may indicate that certain assets may be impaired.

- those assets are tests for impairment under PAS 36

Onerous contracts

- the provision recognized from an onerous contract reflects the least net cost of exiting from the
contract, which is lower of the cost of fulfilling it and any compensation or penalties arising from failure
to fulfill it.

- it cost the company more to fulfill than what the company will receive in return.

Restructuring

- it is a program that is planned and controlled by management, and materially changes either:

a) The scope of a business undertaken by an entity; or

b) The manner in which that business is conducted.

Examples:

a) Sale or termination of a line of business;

b) Closure of business locations in a country or region or the relocation of business activities from one
country or region to another;

c) Changes in management structure, for example, eliminating a layer of management; and

d) Fundamental organizations that have a material effect on the nature and focus of the entity’s
operations. An entity applies the general recognition criteria provided earlier when recognizing
provisions for restructuring costs. In addition, the entity considers the following:

Sale of operation

- a legal obligation exists (and therefore a provision is recognized) only if, at the end of the reporting
period, a binding sale agreement is obtained.

- it is because, until a binding sale agreement is obtained, the entity can still change its mind and may
withdraw its plan to sell if it cannot find a purchaser under acceptable terms.
- if the binding sale agreement is obtained only after the end of the reporting period, no provision is
recognized because no present obligation exist at the end of the reporting

period.

- this, however, may be disclosed as a non-adjusting event after the reporting period.

Closure or reorganization

- a constructive obligation exists (and therefore a provision is recognized) only if at the reporting date,
the entity has created valid expectations from others that will discharge certain responsibilities.

- this would be the case if, at the end of the reporting period, both the following conditions are met:

a) Detailed formal plan for the restructuring is adopted; and

b) The plan is announced to those affected by it.

- a mere board decision to restructure is not enough.

- no provision is recognized if the detailed plan is adopted or announced after the end of the reporting
period.

- this may also be disclosed as a non-adjusting event after reporting period.

Measurement of restructuring provision

- restructuring provision includes only the direct costs that are necessarily entailed with the
restructuring.

- it does not include costs that relate to the ongoing activities of the entity or the future conduct of its
business.

A restructuring provision exclude the following costs:

a) Retraining or relocating continuing staff

b) Marketing

c) Investment in new systems and distribution networks

Disclosure

a) Reconciliation for each class of provision showing:

i. Beginning balance

ii. Additions (additional provisions recognized, unwinding of the discount, and effect of a change
in the discount rate)

iii. Deductions (amounts charged against the provision or reversed)

iv. Ending balance

b) Comparative information is not required.

c) For each class of provision, a brief description of the:

i. Nature

ii. Timing

iii. Uncertainties

iv. Assumptions

v. Reimbursement

PAS 41 AGRICULTURE

- prescribes the acctg and disclosures for agricultural and related activity

Agricultural activity- management of biological transformation (such as biological growth) of a biological

asset for the purpose of sales of that asset

- management of biological transformation (reproduction) of a biological asset for the purpose of

creating additional biological asset

-purpose of harvesting agricultural produce from that asset

Biological asset- living plants and animals

Agricultural produce- harvested produce from biological asset

Harvest- detachment of produce from a biological asset or the cessation of a biological

asset’s life processes.

Biological transformation- comprises the ff processes that cause qualitative changes in a biological asset:

1. Growth
2. Degeneration

3. Reproduction/Procreation

4. Production

Cost to sell- incremental costs directly attributable to the disposal of an asset, excluding finance costs
and income taxes

Classes of biological assets

- Animals

- Plants

Consumable- those that are to be harvested as agricultural produce or sold as biological assets

Bearer- held to bear produce. Only the produce is harvested while the bearer biological asset remains.

Mature biological assets- those that have attained harvestable specifications or are able to sustain
regular harvests

Recognition and measurement

Recognition criteria

- entity controls the set as a result of past events

- there is probable future inflow of economic benefits

- the FV or the cost of the asset can be measured reliably

Measurement of biological asset

- biological asset is measured at FV – COST OF SALES initially and subsequently

- any gain or loss on initial recognition is presented in p or l

- any gain or loss changes in FV – COST OF SALES is presented in p or l

- if FV is not initially reliably measurable then biological asset is measured at COST –

ACCUMULATED DEPRECIATION AND

IMPAIRMENT

* depreciation can only be started after the asset is matured

MEASUREMENT OF AGRICULTURAL PRODUCE

- agricultural produce, in all cases, initially measured at FV – COST TO SELL at the point of harvest

- any gains or loss on initial recognition is presented in p or l

- after the initial measurement, agricultural produce is transferred to inventory. With the FV

– COST TO SALES of produce being the cost of inventory

BEARER PLANT IS A LIVING PLANT THAT:

1. is used in the production or supply of agricultural produce;

2. is expected to bear produce for more than 1 period

3. has remote likelihood of being sold as agricultural produce, except incidental scrap sales

GOVERNMENT GRANTS

- under PAS 41, if the government grant is:

1. Unconditional – grant is recognized in p or l when it become receivable

2. Conditional – grant is recognized in p or l when the attached condition are met

3. Conditional but the terms of the grant allow part of it to be retained according to the time that has
elapsed

DISCLOSURE

The aggregate gain or loss arising on initial recognition of biological assets are agricultural produce

Description of each group of biological assets

Description of the nature of activities involving each group of biological assets

Restrictions on titles to biological assets

Commitment for the development or acquisition of biological assets

ENCOURAGE DISCLOSURE

Consumable and bearer biological assets

Mature and immature biological assets

PAS 41 DOES NOT APPLY TO THE FF

Land related to agricultural activity (PAS 16 & PAS 40

Bearer plants (PAS 16). However, PAS 41 applied to the produce on those bearer plants.

Government grants related to bearer plants (PAS 20)

Intangible assets related to agricultural activity (PAS 38)

PFRS 1 FIRST-TIME ADOPTION OF PFRS

- reporting standards used in the PH were primarily based on US GAAP

- in 2005, these SFASs were superseded by PFRSs (based on IFRSs)

- reporting entities in the PH were mandated to transition from their previous GAAP to PFRSs

- the application of PFRS 1, however, is not confined only to the year 2005

-entities that are issuing general purpose FS for the 1st time may need to apply PFRS 1

OBJECTIVE

- to ensure that an entity’s 1st PFRS FS, including interim financial reports covered thereon, contain high
quality info that is transparent to users, comparable, makes way for accounting in accordance with
PFRSs, and can be prepared with cost efficiency.

- 1st PFRS FS are the first annual FS in which an entity adopts PFRSs, by an explicit and unreserved
statement of compliance with PFRSs. (PFRS 1.3)

- FS prepared in accordance with PFRS are considered the entity’s 1ST PFRS FS if the previous FS:

Were prepared in accordance with other reporting standards not consistent w/ PFRS

Did not contain an explicit and unreserved statement of compliance

w/PFRS

Contained an explicit and unreserved compliance with some, but not all PFRS

Were prepared using some, but not all, applicable PFRS

Prepared in accordance w/PFRS but were used for internal reporting purposes only

Did not contain a complete set of FS as required under PAS 1

The entity did not present FS in previous periods.

- PFRS 1 is applied once, that is, when the entity 1st adopts PFRSs.

- PFRS 1 does not apply when previous FS contained an explicit and unreserved statement of
compliance w/PFRS, even if the auditors’ report has been qualified.

- also, PFRS 1 does not apply when an entity that has been applying the PFRSs subsequently changes its
accounting policy in accordance with PAS 8 or specific transitional provisions of other standards.

- an entity presenting its 1st PFRS FS is called 1st time adopter

RECOGNITION AND MEASUREMENT

- PFRS 1 requires an entity to prepare and present an opening PFRS SFP at the date of transition to
PFRSs.

- the date of transition to PFRSs is the beginningof the earliest period for which an entity presents full
comparative info under PFRSs in its 1st PFRS FS.

- the application of the PFRSs starts on this date.

ACCOUNTING POLICIES

- accounting policies will be chosen by the entity based on the latest version of PFRS.

- it will be then applied to all FS together with the 1st PFRS FS made by the entity

- PFRS 1 prohibits the application of non-uniformed accounting policies or earlier version of PFRSs to the
comparative period as these undermine comparability

RETROSPECTIVE APPLICATION

- in general, PFRS 1 requires retrospective application of the accounting policies selected by the 1st time
adopter

- retrospective application means as if PFRSs have been used all along

- this application requires restating assets and liab in the opening SFP in order to conform to PFRSs.

- the resulting adjustments are recognized directly in retained earnings (or other category of equity, if
appropriate)

- PFRS 1 requires an entity to do the ff in its opening PFRS SFP

Recognize all assets and liabs whose recognition is required by PFRSs

Not recognize items as assets and liabs if PFRSs do not permit such recognition

Reclassify items recognized under previous GAAP that have different classifications under PFRSs; and
Apply PFRSs in measuring all recognizedassets and liabs.

EXCEPTION TO THE REQUIREMENTS OF PFRS 1

- PFRS 1 grants certain exemptions from compliance with the retrospective application requirement
when the cost of compliance exceeds the expected benefits

- also, PFRS 1 prohibits retrospective application in cases where retrospective application

requires management judgements about past conditions after the outcome of a particular transaction is
already known

OTHER EXCEPTIONS

1. Derecognition of financial instruments

- a 1st time adopter may not recognize financial instruments that it has been already

derecognized under its previous GAAP prior to the date of transition.

2. Hedge accounting

- a 1st time adopter is required to do the ff at thedate of the transition to PFRS:

i. Measure all derivative at FV; and

ii. Eliminate all deferred losses and gains on derivatives that were reported underprevious GAAP

3. Business combinations

- a 1st time adopter is exempted from applying PFRS 3 Business combinations retrospectively to
business combinations that occurred prior to the date of transition to PFRSs

- however, if it elects to restate any business combination to comply w/PFRS 3, it shall also restate all
subsequent business combinations

4. FV or revaluation amount as deemed costs

- if they are using different cost model for their business then they are permitted to use FV as their
deemed cost

5. Cumulative translation differences

- 1st time adopter is permitted to zero-out any cumulative translation differences recognized in equity
under the previous GAAP
6. Compound FI

- 1st time adopter need to separate the 2 components of a compound FI (ie, liab and equity
components) if the liab component is no longer outstanding at the date of transition to PFRSs.

PRESENTATION AND DISCLOSURE

- the 1st PFRS FS shall include at least 1 year comparative info

- if the entity presents non-PFRS comparative info and historical summaries for periods before the date
of transition (e.g, summary of income and expenses earned in the previous 3 years), it need not restate
those summaries to PFRS

- however, it shall label them as being prepared in accordance w/the previous GAAP and shall disclose
the nature of the main adjustments that would make those summaries comply w/PFRSs. The entity shall
explain how the transition from previous GAAP to PFRSs affected its financial position, financial
performance, and cash flows. This includes:

Reconciliations of equity reported under previous GAAP to equity under PFRS both (a) at the end of
transition to PFRS and (b) the end of the last annual period reported under the previous GAAP.

Reconciliation of total CI for the last annual period reported the previous GAAP to TCI under PFRSs for
the same period

Disclosure of impairment losses and reversals of impairment losses recognized when the opening SFP
was prepared

Disclosures of errors discoveries in the course of transition to PFRSs.

Material adjustments made to restate the FS to PFRSs

Appropriate explanations if the entity has elected to apply any of the exemptions permitted under PFRS
1

PFRS 2 SHARE-BASED PAYMENTS

Share-based payment transactions – transaction in which the entity acquires goods or services and pays
for them by issuing its own equity instruments or cash based on the value of its own equity instruments.

Share-based payment can be:

Equity-settled

Cash-settled

Choice between equity settled and cash settled

NOTE: PFRS 2 applies to all entities and to all share-based payment transactions except for the ff:
Transactions with owners acting in their capacity as owners.

Business combinations (PFRS 3)

Issuance of shares settlement of forward contract, future, and other

derivative instruments (PAS 32 & PFRS

9)

RECOGNITION

- goods and services acquired through share-

based payment transactions are recognized as

asset or expense when the goods are received

or as the services are rendered.

In line with this, the entity either recognizes

A corresponding increase in equity if the goods and services are received in an equity-settled share-
based payment transaction.

A liability if the goods and services are received in cash settled share-based payment transaction.

NOTES:

FV is determined at measurement date.Non-employees: receipt date

Employees: grant date (date on which an employer and employee agree upon wherein that approval is
obtained.)

Intrinsic value is computed as (FV of shares – Subscription price of shares)

Share-based compensation plans – share options

Share-based compensation plans – an agreement whereby an employee is compensated in the form of

(or based on) the entity’s equity instruments in exchange of his/her services.

Employee share option plans – contract that gives holder a right, but bit the obligation, to subscribe to
the entity’s share at a fixed or determinable price for a specified period of time.

- not measured

- settled through issuance of equity instruments The compensation expense on share-based

compensation plans are recognized

In full at grant date if they vest immediately.

Over the vesting period if there are vesting conditions.

ILLUSTRATIONS
On January 1, 20x1, Entity A grants 10k share options to its key employees. The share options entitle the
employees to purchase Entity A’s shares at a subscription price of P110 per share.Entity A’s shares have
a par value P100 per share and a FV on grant date of P120 per share. The share options have FV of P15
per share option.

Case 1: Share options vest immediately

P10,000 share options x P15 FV per share option

= P15,000 salaries expense

Case 2: Share options do not vest immediately (if the vest options in 3 years )

Changes in Service condition

Cash-settled share-bases payment transactions

Entity acquires goods and services and incurs an obligation to pay cash at an amount that is based on
the FV of equity instruments

Measured at FV of the liability

Changes in FV are recognized in p or l

SHARE APPRECIATION RIGHTS (SAR’s)

Form of compensation given to an employee whereby the employee is entitles to future cash payment
(rather than equity instrument)

Remeasured at each year-end and on settlement date

Settled through payment in cash

Choice between equity settled and cash-settled

Share-based payment transaction that can be settled either through equity instrument or cash
depending on which party is given the right of choice of settlement.

a) The counterparty

b) The entity
PAS 38 INTANGIBLE ASSETS

- applicable to all intangible assets except those that are specifically dealt with the under standards.

a) Goodwill acquired in a business combination.

b) Intangible assets held for inventory

c) Intangible assets classified as held for sale

- an identifiable non-monetary asset without physical substance.

Essential element

Identifiability

a) Separable

b) Arises from contractual or legal rights

Control
a) Ability to benefit from the intangible asset

b) Ability to prevent others from benefitting from it

c) Normally arises from legal rights= enforceable to law

Future economic benefits

Benefits resulting from the entity’s use of the asset

Recognition criteria

Probable future economic benefit

Reliable measurement cost

Common examples:

Computer software

Patents

Copyrights

Motion picture films

Customer list

Mortgage servicing rights

Fishing licenses

What to do when an asset has both intangible and tangible element?

- the entity uses judgement to assess which is .more significant

FS PRESENTATION

- intangible assets accounted under PAS 38 are aggregated and presented as one line item under the
heading “intangible assets” or “other intangible assets” in the SFP.

RECOGNITION OF INTANGIBLE ASSET

- when it meets the definition of an intangible asset

- when it meets the 2 recognition criteria:

a) Probable future economic benefits

b) Reliable measurement of cost

INITIAL MEASUREMENT

- intangible assets are initially measured at cost.Intangible assets may be acquired through:

a. Separation acquisition

b. Acquisition as part of a business combination

c. Acquisition by way of a government grant

d. Exchanges of asset

e. Internal generation

INTERNALLY GENERATED INTANGIBLE ASSET RESEARCH PHASE

Research – original and planned investigation undertaken with the prospect of gaining new scientific or
technical knowledge and understanding.

- cost during the phase are expensed

EXAMPLES OF RESEARCH ACTIVITIES:

- the search for, evaluation and final selection of, applications of research findings or other knowledge

- the formulation, design, evaluation, and final selection of possible alternatives for new or improved
materials, devices, products, processes, systems or services.

DEVELOPMENT PHASE

Development- the application of research findings or other knowledge to a plan or design

for the production before the start of commercial production for use.
- cost incurred during the phase are capitalized if the entity demonstrated the ff conditions:

- technical feasibility of completing the intangible asset;

- intention to complete the intangible asset;

- ability to use or sell intangible asset;

- probable future economic benefits;

- availability of adequate resources needed to complete the development; and

- reliable measurement of the cost of intangible asset

* if it is not clear whether an expenditure is a research or a development cost, it is treated as research

cost.

- Internally generated brands, mastheads, publishing titles, customer lists, and similar items are not
recognized as intangible assets. The costs to developed them are expensed.

- Research costs and development costs that do not qualify for capitalization are expensed and discloses
as R & D expense.

ORGANIZATIONAL COSTS

- are start-up costs or those incurred in establishing a new business

- expensed when incurred

SUBSEQUENT EXPENDITURES

- capitalization costs cease when:

* intangible asset is in the condition necessary for it to be capable of operating the manner intended by
the management.

- subsequent expenditures are expensed, unless it’s very clear that thy meet the definition and
recognition criteria
FACTORS

Expected usage of the asset, and whether it can be managed efficiently by another management team;

Product life cycles and public information on estimates of useful lives of similar assets are similar use

Technical, technological, commercial or other types of obsolescence

Industry stability and demand or the asset’s output

Experiences actions by competitors or potential competitors

Maintenance costs of the asset

Legal and similar restrictions on the use of the asset; and

Dependence of the asset’s useful life with the useful life of other assets of entity.

AMORTIZATION – the systematic allocation of the depreciable asset amount of an intangible

asset over its useful life.

Note:

The depreciable amount of an intangible asset with a finite useful life is amortized over the shorter of
its useful life and legal life, if any.

Amortization starts when the asset is available for use

Amortization stops when the asset is derecognized, classified as held for sale under PFRS 5, or becomes
fully depreciated

Amortization does not cease when the asset is no longer in used, unless one of the conditions are met.
Amortization is recognized as expense in P or L unless, included in the costs of producing another asset

AMORIZATION METHOD

- PAS 38 does not prescribe only specific method. The choice depends on management’s

judgement

- prohibits the use of an amortization method that is based on revenue

- an intangible asset’s residual value is assumed to be zero unless the entity can demonstrate its ability
to sell the intangible asset before the end of its economic life.

A third party commitment to purchase the asset at the end of its useful life; or

An active market where the asset can be sold at the end of its useful life

Impairment- intangible assets are tested for impairment under PAS 36

Derecognition- an intangible asset is derecognized when it is disposed of or when no future economic

benefits are expected from it.

DISCLOSURE

Whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortization rates
used:

Amortization methods used:

Gross CA and accumulated amortization at the beginning and end of the period:

The line item(s) of the SCI in which any amortization of intangible assets is included:

A recon of the CA at beginning and end of the period showing increases and decreases to intangible
assets and related accumulated amortization and accumulated impairment loss

Changes in acctg estimates in accordance with PAS 8

Intangible assets assessed as having indefinite useful lives and reasons supporting the assessments

Intangible assets acquired by way of a government grant and initially recognized at FV

Any restrictions on title to intangible assets

Contractual commitments to acquire intangible assets

Revaluation surplus recognized on revalued intangible assets and the methods and assumptions used
in estimating

FV of intangible assets

Aggregate amount of r & d expenditure recognized as an expense during the period

The following are encourage, but not required, disclosures:

* description of any fully amortized intangible asset that is still in use; and

* brief description of significant intangible assets controlled by the entity but not recognized asassets
because they did not meet the recognition criteria.

SEPARATE CLASSES OF

INTANGIBLE ASSETS

- groupings of assets of a similar nature and use in an entity’s operations.

* brand names

* mastheads and publishing titles

* computer software

* licenses and franchises

* copyrights, patents, and other industrial property rights, service and operating rights

* recipes, formulae, models, design and prototypes; and * intangible assets under development

PAS 40 INVESTMENT PROPERTY

INVESTMENT PROPERTY – land and/or building held to earn rentals or for capital appreciation or both

*Important note- investment property include only land and building. It does not include any other type
of assets

EXAMPLES OF INVESTMENT PROPERTY

1. Land held for a long-term capital appreciationrather than for short-term sale in the ordinary course of
business.

2. Land held for currently undetermined future use

3. A building owned by the entity and leased out under one or more operating leases

4. Building that is vacant but is held to be leasedout under one or more operating leases
5. Property that is being constructed and developed for future use in investment property.

EXAMPLES OF NOT INVESTMENT PROPERTY

1. Property acquired exclusively for sale in the near future or for development and resale

2. Property that is leased out to another entity under finance lease

3. Owner occupied property including:

- property held for future use as owner-occupied property

- property held for future development and subsequent use as owner-occupied property;

- owner- occupied property awaiting disposal

IT CAN BE ACCOUNTED AS:

- if could be sold separately,

* if leased out separately under a finance lease, they are accounted separately.

- if could not be sold separately

* if the owner-occupied portion is significant,

* the entire property is classified as PPE.

RECOGNITION

- investment property shall be recognized as an asset, when and only when:

- it’s probable that the future economic benefits that are associated with the investment property will
flow to the entity; and

- the cost of the investment property can be measured reliably

INITIAL MEASUREMENT

- at cost

- purchase price + any directly attributable expenditure

SUBSEQUENT MEASUREMENT

Cost model

Cost – Accumulated depreciation – accumulatedimpairment losses in accordance with PAS 16, PPE
Fair value model

Fair value

- is the price that would be received to sell an asset or paid to transfer liability in an orderly transaction
between market participants at the measurement date.

- gains ang losses arising from changes in FV are recognized in P or L

- assets are not depreciated

Excluded from the cost of investment property

and expensed immediately:

1. Start-up costs (unless they are necessary to bring the property to the condition necessary for it to be
capable of operating in the manner intended by management.)

2. Operating losses incurred before the investment property achieves the planned level of occupancy.

3. Abnormal amounts of wasted material, labor,or other resources, incurred in constructing or

developing the property.

TRANSFER- made only when there is a change in use

- if the entity uses the cost model, transfers between investment property, PPE and inventories are
accounted for the CA of the asset transferred. No gain or loss arises because the asset’s measurement
remains the same before and after the transfer

IF FV MODEL IS USED,

a. From investment property of PPE- gain or loss in P or L

b. From PPE to investment property- applies PAS16 until the end of transfer. Differences in CA and FV is
recognized in OCI as an adjustment to the asset’s revaluation surplus.

c. From inventories to investment property- difference in the FV on the date of transfer and the previous
CA is recognized in P or L

DERECOGNITION
- an investment property is derecognizes when it is disposed of or when no future economic benefits are
expected from it

GENERAL DISCLOSURES:

a. whether an entity uses the FV model or cost model

b. when classification is difficult, the criteria used to distinguish investment property from PPE and
inventory.

c. the extent to which the FV of investment property is based on a valuation by an independent valuer. If
an independent valuation is not obtained, the facts are disclosed

d. the amount recognized in p or l for rental income and related expenses

e. the existence and amounts of restrictions on investment property

f. contractual obligation to purchase, construct or development investment property or for repairs,

maintenance or enhancements

ADDITIONAL DISCLOSURES UNDER FV MODEL

a. reconciliation showing increases and decreases in investment property

b. when a valuation obtained for investment property is adjusted to avoid double-counting of assets or
liabs that are recognized as separate assets and liabs, the entity discloses a recon between the valuation
obtained and adjusted valuation

c. disclosure of any investment property whose FV on initial recognition can’t be reliably measured and
hence measured under the cost model using the exception allowed under PAS 40

ADDITIONAL DISCLOSURE UNDER COST MODEL

a. the depreciation method used, the useful lives, and the depreciation rates used

b. reconciliation showing increases and decreases in investment property and related

accumulated depreciation and accumulated Impairment loss.