Overview of Accounting (3) Branches of Accounting
 Financial accounting/Financial
(1-2) Definition of Accounting
Accounting is the process of identifying, measuring,
and communicating economic information to permit
informed judgment and decisions by users of
information. AAA (American Association of
Accountants)
 Identifying-the process of analyzing events
and transactions to determine whether they
will be recognized in the books.
 Measuring-involves assigning numbers,
normally in monetary terms, to the economic
transactions and events.
 Communicating- the process of
transforming economic data into useful
accounting information, such as financial
statements and other accounting reports, for
dissemination to users.
Measurement Bases
 Historical Cost-price based on past
exchange
 Current Cost-price based on current
exchange
 Realizable (settlement) value-net cash that
could currently be obtained by selling the
asset in an orderly disposal.
 Present value- price based on future
exchange
 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.
 Fair value less costs to sell - Costs to sell
are the incremental costs directly attributable
to the disposal of an asset excluding finance
costs and income tax expense.
 Revalued amount- is the asset's fair value
at the date of the revaluation less any
subsequent accumulated depreciation and
subsequent accumulated impairment losses.
 Inflation-adjusted costs- amounts adjusted
to the measuring unit current at the reporting
date.
Reporting-focuses on general purpose
financial statements.
 Management accounting - focuses on
special financial reports geared towards the
needs of an entity's management.
 Cost accounting the systematic recording
and analysis of the costs of materials, labor,
and overhead incident to production.
 Auditing - a systematic process of
objectively obtaining and evaluating
evidence regarding assertions about
economic actions and events to ascertain the
degree of correspondence between these
assertions and established criteria and
communicating the results to interested
users.
 Tax accounting the preparation of tax
returns and rendering of tax advice, such as
determination of tax consequences of certain
proposed business endeavors.
 Government accounting- the accounting
for the national government and its
instrumentalities, focusing attention on the
custody of public funds and the purpose or
purposes to which such funds are
committed.
(4-5) Accounting Concept
 Going concern assumption, the entity is
assumed to carry on its operations for an
indefinite period of time.
 Separate entity, the entity is treated
separately from its owners.
 Stable monetary unit-amounts in financial
statements are stated in terms of a common
unit of measure, changes in purchasing
power are ignored.
 Time Period-the life of the business is
divided into series of reporting periods.
 Materiality concept- information is
material if its omission or misstatement
could influence economic decisions.
 Cost benefit (Reasonable
assurance/Pervasive constraint/ Cast
constraint)- the cost of processing and
 communicating information should not
exceed the benefits to be derived from it.
 Accrual Basis of accounting- effects of
transactions are recognized when they occur
(and not as cash or its equivalent is received
or paid) and they are recognized in the
accounting periods to which they relate.
 Historical cost concept (cost principle) -
the value of an asset is to be determined on
the basis of acquisition cost.
 Concept of Articulation- all of the
components of a complete set of financial
statements are interrelated.
 Full Disclosure Principle- financial
statements provide sufficient detail to
disclose matters that make a difference to
users, yet sufficient condensation to make
the information understandable, keeping in
mind the costs of preparing and using it.
 Consistency concept - financial statements
are prepared on the basis of accounting
principles which are followed consistently
from one period to the next.
 Matching (Associating cause and effect)-
costs are recognized as expenses when the
related revenue is recognized.
 Entity theory- the accounting objective is
geared towards the proper income
determination. It emphasizes the income
statement and is exemplified by the equation
"Assets Liabilities Capital"
 Proprietary theory - the accounting
objective is geared towards the prop
valuation of assets. It emphasizes the
importance of the balance sheet and is
exemplified by the equation "Assets +
Liabilities = Capital
 Realization - the process of converting non-
cash assets into cash or claims to cash.
Conceptual Framework
(6) The objective of financial reporting is to
provide financial information that is useful to users
in making decisions relating to providing resources
to the entity
(7-8) Primary Users of Financial Statements
Primary users of the financial statements are
considered existing and potential investors, creditors,
and lenders. Primary users obtain financial statement
information and allow them to understand the overall
health of the company such as its net cash flow status.
(9-11) Qualitative Characteristics of useful financial
information
Fundamental Qualitative Characteristics are
relevance and faithful information to be use.
Fundamental Qualitative Characteristics are
comparability, verifiability, timeliness and
understandability.
(12-15) Elements of financial statements
Asset – a present economic resources controlled by the
entity as a result of past event. An economic resource is
right that has the potential to produce economic benefits.
Liability – A present obligation of the entity to
transfer an economic resource as a result of past
event. An Obligation Resources is a duty or
responsibility that the entity has no practical ability.
Unit of account - the right of obligation, or group
of rights and obligation, to which recognition
criteria and measurement concepts are applied.
 Relevance - a unit of account is selected to
provide relevant information about the asset
or liability and any related income and
expenses.
 Faithful Presentation - a unit of account is
selected to provide a faithful representation
of the substance of the transaction or other
event from which the asset, liability and any
related income or expense have arise.
Income – Increase in assets or decrease in liabilities
that will result in increase in equity, other than those
relating to contribution from holders of equity
claims.
Expense – Decrease in assets or increase in
liabilities that result in decrease in equity, other than
those relating to distribution to holders of equity
claims.
PAS 1 – Presentation of 2. Results to more relevant and reliable
information.
Financial Statements  Before significant amendments of PAS 1,
this statement was simply called "balance
FINANCIAL STATEMENTS are
sheet", however, it was renamed.
structured. financial representation of the financial
 PAS 1 requires presentation of classified
position and financial performance of an entity.
statement of financial position where current
▪ OBJECTIVE OF FINANCIAL STATEMENTS assets or liabilities are separated from non-
current assets or liabilities. Basically, the
1. PRIMARY OBJECTIVE: To provide
asset or liability is current when it is
information about the financial position,
expected to be recovered or settled within 12
financial performance and cash flows of an
months after the reporting period.
entity that is useful to a wide range of users
 PAS 1 does NOT prescribe the precise
in making economic decisions.
format of the statement of financial position.
2. SECONDARY OBJECTIVE: To show the
results of the management's stewardship of (18-19) (20) Components of a complete set of
the resources entrusted to it. financial statements.
(16-17) General Features of Financial Statements Statement of Financial Position (balance sheet)
current asset or liability are separated from non-
 FREQUENCY OF REPORTING -An
current asset or liability.
entity shall present a complete set of
financial statements at least annually. The statement of comprehensive income has 2
basic elements:
An entity shall disclose:
1. Profit or loss for the period: here, all items
 The period covered by the financial
of income and expenses must be recognized.
statements
2. Other comprehensive income: items
 The reason for using a longer or shorter
recognized directly to equity or reserves,
period
such as changes in revaluation surplus,
 The fact that amounts presented in the
gains, or losses from subsequent
financial statements are not entirely
measurement of available-for-sale financial
comparable
assets, etc.
 COMPARATIVE INFORMATION
Profit or loss for the period, as well as total
PAS 1 requires an entity to present comparative
comprehensive income shall be both presented in
information in respect of the preceding period
allocation
for all amounts and for certain narrative
information in the current period's FS.  attributable to non-controlling interests and
 attributable to owners of the parent.
 OFFSETTING - Applicable to Income and
Expense if permitted by PFRS. The Comprehensive Income is classified into two:
reporting of assets net valuation allowance is
1. Profit/Loss (P/L) or
not offsetting.
2. Other Comprehensive Income (OCI).
 CONSISTENCY OF PRESENTATION -
Shall be uniform from one accounting General rule: An income is part of profit or loss
period to the next unless it will be classified as OCI.

- Any changes are allowed: Notes to the financial position the notes are meant
to be document accompanying numerical financial
1. Permitted by PFRS; statements listed above.
(21) PAS 1 sets that the notes shall contain a
statement of compliance with PFRS, summary of
significant accounting policies applied, supporting
information for the numbers presented in the
financial statements and other disclosures.
PAS 2 – Inventories
(22) Inventories are assets:
a. Held for sale in the ordinary course of
business (Finished Goods).
b. In the process of production for such sale
(Work In Process);
c. In the form of materials or supplies to be
consumed in the production process or in the
rendering of services (Raw materials and
manufacturing supplies).
(23) Inventories are measure at the lower of cost
and net realizable value (NRV)
Cost Formula
1. Specific identification shall be used for
inventories that are not ordinarily
interchangeable (ie, used for inventories that
are unique). Cost of sales is the cost of the
specific inventory that was sold.
2. FIFO-cost of sales is based on the cost of
inventories that were purchased first.
Consequently, ending inventory represents
the cost of the latest purchases.
Weighted Average Cost-cost of sales is based
on the average cost of all inventories purchased
during the period. Wtd. Ave. Cost = (TGAS in
pesos /TGAS)
PAS 7 - Statement of Cash
Flows
Note: that the movements between cash and cash
equivalents is a part of cash management and are
not shown in the operating, financing or investing
part of the statement of cash flows.
(24) Statement of Cash Flows
The statement of cash flows provides information
about the sources and utilization (i.e., historical
changes) of cash and cash equivalents during the
period. The statement of cash flows presents cash
flows according to the following classifications:
(25-26)
 Operating activities include transactions
that enter into the determination of profit
or loss. These transactions normally affect
income statement accounts. affect profit or
loss.
 Investing activities include transactions that
affect long-term assets and other non-
operating assets. affect non-current assets
and other investments
 Financing activities include transactions
that affect equity and non-operating
liabilities. affect borrowings and equity.
Core Principle: available or could be reasonably obtained when
preparing these financial statements.
When preparing statement of cash flows:
Errors include the effects of:
 Include only the transactions that have
affected cash and cash equivalents.  Mathematical mistakes
 Exclude transactions that have not affected  Mistakes in applying accounting policies
cash and cash equivalents.  Oversights or misinterpretations of facts;
and
 Fraud

PAS 8 – Accounting Policies,

Changes in Accounting PAS 12 – Income Taxes
Estimates and Errors (31-33) Permanent differences are those that do
not have future tax consequences.
(28) The objective of PAS 8
Temporary differences are those that have future
The Standard PAS 8 Accounting Policies, Changes
tax consequences.
in Accounting Estimates and Errors tells us:
 How to select and apply our accounting
policies, How to account for the changes
in accounting policies,
 How to account for changes in
accounting estimates, and
 How to correct errors made in the
previous reporting periods.
(29) Difference between accounting policy and
accounting estimate
Temporary differences are either:
1. Accounting policy is a principle or rule, or
a measurement basis, an accounting 1. Taxable temporary differences (TTD)-
estimate is the amount determined based on arise, for example, when financial Income is
the selected basis or some pattern of future greater than taxable income or the carrying
consumption of the asset. amount of an asset is greater than its tax
base.
For example, choice fair value vs. historical cost
a. Depreciation is recognized under
is a choice in accounting policy (remember,
financial reporting is lower than the
measurement basis), but updating some
depreciation recognized for taxation
provision based on fair value change is a change
purposes.
in accounting
2. Deductible temporary differences (DTD)
2. Change accounting policy is accounted for arise in case of the opposites of the
retrospectively, you need to account for the foregoing.
change in accounting estimate prospectively.
Taxable temporary differences (TTD) result to
Errors Deferred Tax Liabilities (DTL) while;
Deductible Temporary Differences (DTD) result
Prior-period errors are some omissions or
to deferred tax assets(DTA).
misstatements in the financial statements as a result
of ignoring or misusing the information that was DEFERRED TAXES
  If the increase in deferred tax liability
exceeds the increase in deferred tax asset,
the difference is deferred tax expense. If it
is the opposite, the difference is deferred
tax income or benefit.
 A deferred tax asset is recognized only to
the extent that it is realizable.
 Deferred taxes are measured using enacted
or substantially enacted tax rates that are
applicable to the periods of their expected
reversals.
 Deferred tax assets and liabilities are not
discounted.
 Deferred tax asset and liabilities are
presented as non-current.
PAS 16 – Property, Plant,
and Equipment
Characteristics of PPE
a. Tangible assets-items of PPE have
physical substance
b. Used in normal operations-items of
PPE are used in the production or
supply of goods or services, for
rental, or for administrative purposes
c. Long-term in nature-items of PPE
are expected to be used from more
than a year
(34-35) Recognition
The cost of an item of property, plant and
equipment shall be recognized as an asset only if:
a. it is probable that future economic
benefits associated with the item will
flow to the entity; and
b. the cost of the item can be measured
reliably.
Initial measurement
 An item of PPE is initially measured at its
cost.\
Subsequent measurement
 Subsequent to initial recognition, an entity
shall choose either: 1. the cost model or 2.
the revaluation model
(36-37) Cessation of capitalizing costs to PPE
 Recognition of costs in the carrying amount
of an item of PPE ceases when the item is in
the location and condition necessary for it to
be capable of operating in the manner
intended by management.
Measurement of Cost
 The cost of an item of PPE is the cash price
equivalent at the recognition date.
Acquisition through exchange
If the exchange has commercial substance, the asset
received from the exchange is measured using the
following order of priority:
a. Fair value of asset Given up
b. Fair value of asset Received
c. Carrying amount of asset Given up
Depreciable amount - is the cost of an asset or
other amount substituted for cost, less its residual
value.
Residual Value is the estimated amount that an
entity. Other term: salvage value, scrap value.
Useful life is either:
 the period over which an asset is expected to
be available for use by an entity.
 the number of production or similar units
expected to be obtain from asset by an
entity.
Depreciation = (Historical cost-Residual
value)/Estimated useful life
Revaluation Model
After recognition as an asset, an item of PPE whose
fair value can be measured reliably shall be carried
at a revalued amount,
Frequency of revaluation
For items with significant and volatile changes in
fair value, annual revaluation is necessary. For
items with insignificant changes in fair value,
revaluation may be made every 3 or 5 years.
Revaluation applied to all assets in a class
 If an item of PPE is revalued, the entire class
of PPE to which that asset belongs shall be
revalued.
 The items within a class of PPE are revalued
simultaneously to avoid selective
revaluation of assets and the reporting of
amounts in the financial statements that are a
mixture of costs and values as at different
dates.
PAS 23 Borrowing Cost
(38) Core Principle of pas 23 borrowing cost
Borrowing costs that are directly attributable to the
acquisition, construction, or production of a
qualifying asset form part of the cost of that asset.
Other borrowing costs are recognized as an
expense.
Borrowing costs are interest and other costs that an
entity incurs in connection with the borrowing of
funds.
Qualifying asset is an asset that necessarily takes a
substantial period of time to get ready for its
intended use or sale.
(39) Borrowing Costs Eligible for Capitalization
Borrowing costs that are directly attributable to the
acquisition, construction, or production of
qualifying asset are those borrowing costs that
would have been avoided if the expenditure on the
qualifying asset had not been made.
PAS 19 – Employee Benefits
Employee benefits are "all forms of consideration
given by an entity in exchange for service rendered
by employees.
(40) Difference between defined contribution
plan and defined benefit plan
Defined contribution plan
 The employer commits to contribute to a
fund that will be used to pay for the
retirement benefits of the employees.
 Risk that retirement benefit may be
insufficient rests with the employee.
Defined Benefit Plan
 The employer commits to pay retiring
employees a definite amount.
 Risk that retirement benefit may be
insufficient with the employer.
(41) Accounting Procedures for defined benefit
plans
Step #1: Deficit or Surplus = FVPA – PV of DBO
Step #2: Determine the Net defined benefit liability
(asset)
a. If there is a deficit, the deficit is the Net
defined benefit liability.
b. If there is a surplus, the Net defined benefit
asset is the lower of the surplus and the asset
ceiling.
Step #3: Determine the defined benefit cost
Service Cost
a. Current Service cost xx
b. Past Service Cost xx
c. Any (gains) or loss on settlement xx
xx
Net Interest on the net defined benefit liability
(asset)
 a. Interest cost on the defined benefit
obligation xx
b. Interest income on plan assets xx
c. Interest on the effect of the asset ceiling
xx
xx
Remeasurements of the net defined benefit
liability (asset)
a. Interest cost on the defined benefit
obligation xx
b. Interest income on plan assets xx
c. Interest on the effect of the asset ceiling
xx
xx
Total Defined Benefit Cost xx
Measurement
 Termination benefits are initially and
subsequently recognized in accordance with
the nature of the employee benefit.
(42) IAS 26 Accounting and Reporting by
Retirement Benefit Plans outlines the
requirements for the preparation of financial
statements of retirement benefit plans. It outlines
the financial statements required and discusses the
measurement of various line items, particularly the
actuarial present value of promised retirement
benefits for defined benefit plans.
PAS 20 - Accounting for
Government grants and
Disclosure of Government
Assistance
(43-44) Initial measurements
1. Monetary grants are measured at the
 amount of cash received; or
 the fair value of amount receivable; or
 carrying amount of loan payable to the
government for which repayment is
forgiven; or
 discount on loan payable to the government
at a below-market rate of interest.
2. non-monetary grants (e.g., land and other
resources) are measured at the r
 the fair value of the non-monetary asset
received.
 alternatively, at a nominal amount or zero,
plus direct costs incurred in preparing the
asset for its intended use.
Recognition
Government grants are recognized if there is
reasonable assurance that: the attached conditions
will be complied with; and the grants will be
received.
PAS 21 - The effects of
Changes in Foreign
Exchange Rates
(45) Two ways of conducting foreign activities
• Foreign currency transactions – individual
entities often enter into transactions in a
foreign currency.
• Foreign operations – groups often include
overseas entities.
Foreign currency transactions
(46) Initial recognition:
The foreign currency amount is translated at the
spot exchange rate at the date of the transaction.
Subsequent recognition: At the end of each
reporting period:
 Foreign currency monetary items are re-
translated using the closing rate;
 Non-monetary items that are measured at
historical cost in a foreign currency shall be
translated using the exchange rate at the date
of the transaction; and
 Non-monetary items that are measured at
fair value in a foreign currency shall be
translated using the exchange rates at the
date when the fair value was determined.
(47) The steps in this translation process are as
follows:
1. Determine the functional currency of the
foreign entity.
2. Remeasure the financial statements of the
foreign entity into the reporting currency of
the parent company.
3. Record gains and losses on the translation of
currencies.
(48) IAS 29 Financial Reporting in
Hyperinflationary Economies applies where an
entity's functional currency is that of a
hyperinflationary economy. The standard does not
prescribe when hyperinflation arises but requires the
financial statements (and corresponding figures for
previous periods) of an entity with a functional
currency that is hyperinflationary to be restated for
the changes in the general pricing power of the
functional currency.
(49) Related Party Transaction This represent any
transfer of resources, services or obligations
between related parties regardless of whether a price
is charged.
PAS 26 – Accounting and
Reporting by Retirement
Benefits Plan
Retirement Benefit Plan – An arrangement by
which an entity provides benefits to employees after
they terminate from service.
Defined Distribution Plan – A retirement benefit
plan by which benefits to employees are based on
the amount of funds contributed to the plan plus
investment earnings thereon.
Defined Benefit Plan – A retirement benefit plan
by which employees receive benefits based on a
formula usually linked to employee earnings.
- Statement that shows the net assets available
for benefits.
- Statement of net assets available for
benefits, including either a note disclosing
the auctorial present value of promised
retirement benefits.
Defined Contribution Plan – The report of a
defined contribution plan should contain a statement
of net assets available for benefits and a description
of the funding policy.
 Retirement Benefit Plan investments should
be carried at fair value.
 For Marketable securities, fair value means
market value
PAS 27 – Separate Financial
Statements
Choice of accounting method
When an entity prepares separate financial
statements, investments in subsidiaries, associates,
and jointly controlled entities are accounted for
either:
 At cost, or
 In accordance with Financial Instruments
(PFRS 9)
(50) The entity applies the same accounting for each
category of investments. Investments that are
accounted for at cost and classified as held for sale
in accordance with PFRS 5 Non-current Assets
Held for Sale and Discontinued Operations are
accounted for in accordance with that PFRS.
Investments carried at cost should be measured at
the lower of their carrying amount and fair value
less costs to sell. The measurement of investments
accounted for in accordance with PFRS 9 is not (54-55) Classification of financial assets
changed in such circumstances.
IAS 39 requires financial assets to be classified in
one of the following categories:
Financial assets at fair value through profit or loss
PAS 28 - Investment in Available-for-sale financial assets Loans and
Associates and Joint receivables Held-to-maturity investments

Ventures Those categories are used to determine how a

particular financial asset is recognized and
(51) Investment in associate refers to the investment in measured in the financial statements.
an entity in which the investor has significant
influence but does not have full control like a parent (56-58) Classification of financial liabilities
and a subsidiary relationship. Usually, the investor has IAS 39 recognizes two classes of financial
a significant impact when it has 20% to 50% of shares of liabilities:
another entity.
Financial liabilities at fair value through profit or
Associate – Is an entity over which an investor has
loss Other financial liabilities measured at
significant influence.
amortized cost using the effective interest method.
Joint Venture – is a joint arrangement whereby the
The category of financial liability at fair value
parties having joint control of the arrangement have
through profit or loss has two subcategories:
rights to the net assets of the joint arrangement.
Designated. a financial liability that is designated
PAS 28 Defines Significant Influence as the power
by the entity as a liability at fair value through profit
to participate in the financial and operating policy
or loss upon initial recognition
decisions of the investee but is NOT a control or
Joint control of those policies. Held for trading. a financial liability classified as
held for trading, such as an obligation for securities
The main indicator of significant influence is
borrowed in a short sale, which have to be returned
HOLDING (directly or indirectly) more than 20%
in the future
of the voting power of the investee. BUT, It’s not
the rule of the thumb and often , the truth is Initial recognition
different.
IAS 39 requires recognition of a financial asset or a
Initial Recognition financial liability when, and only when, the entity
becomes a party to the contractual provisions of the
The Investment in an associate or joint venture is
instrument, subject to the following provisions in
recognized at cost.
respect of regular way purchases.
(52-53) Under the equity method, on initial
recognition the investment in an associate or a joint
venture is recognized at cost, and the carrying
amount is increased or decreased to recognize the
Measurement subsequent to initial recognition
investor's share of the profit or loss of the investee
after the date of acquisition. Subsequently, financial assets and liabilities
(including derivatives) should be measured at fair
value, with the following exceptions…

PAS 32 – Financial (59) Two main categories of disclosures under

PFRS 7.
Instruments: Presentation
1. Disclose about significance of financial
instruments for financial position and
performance.
2. Disclosure about nature and extent of risks
arising from financial instruments, both
quantitative and qualitative, about the following
risks.
(60) Types of Risks
3. Credit Risk
4. Liquidity Risk
5. Market Risk
PAS 33 – Earnings Per Share
(61) Basic Earnings per share =
Net Profit (loss) attributable to ordinary shares
Weighted average number of ordinary shares
outstanding during the period
(62) Diluted EPS =
Net Income (loss) – Preferred Dividends + paid
out to dilutive securities
Weighted average no. of common shares
outstanding + conversion of dilutive securities
PAS 34 Interim Financial
Reporting
(63) The Objective of pas 34 is to prescribe the
minimum content of an interim financial report and
to prescribe the principles for recognition and
measurements in financial statements presented for
an interim period.
Key Definitions
- Interim Period: a financial reporting period
shorter than a full financial year (most
typically a quarter of half-year)
- Interim Financial Report: a financial
report that contains either a complete or
condensed set of financial statements for an
interim period.
PAS 36 – Impairment of
Assets
(64) IAS 36 applies to all assets except:
 inventories,
 assets arising from construction contracts,
 deferred tax assets,
 assets arising from employee benefits,
 financial assets,
 investment property carried at fair value,
 agricultural assets carried at fair value,
 insurance contract assets,
 non-current assets held for sale.
The objective of pas 36 is to make sure that
entity’s assets are carried at no more than their
recoverable amount.
Key definitions
Impairment loss: the amount by which the carrying
amount of an asset or cash-generating unit exceeds
its recoverable amount
Carrying amount: the amount at which an asset is
recognized in the balance sheet after deducting
accumulated depreciation and accumulated
impairment losses
Recoverable amount: the higher of an asset's fair
value less costs of disposal* (sometimes called net
selling price) and its value in use
(65) Impairment of Asset
An asset is impaired when its carrying amount
exceeds its recoverable amount.
(Carrying amount > Recoverable amount)
The impairment loss shall be allocated to reduce
the carrying amount of the assets of the unit in
the following order:
1. Reduce the carrying amount of any
goodwill allocated to the CGU.
 2. Allocate remaining impairment loss to the
other assets of the unit pro rata on the basis
of the carrying amount of each asset in the
unit. These reductions are recognized as
impairment losses on individual assets.
In allocating an impairment loss you must make
sure that you don't reduce the carrying amount
of an asset below the highest of:
(a) Its fair value less cost of disposal
(b) Its value in use
(c) Zero
PAS 37 Provisions,
Contingent Liabilities and
Contingent Assets
(66) Recognition of a provision
An entity must recognize a provision if, and only if:
a present obligation (legal or constructive) has
arisen as a result of a past event (the obligating
event),
payment is probable ('more likely than not), and
the amount can be estimated reliably.
(67) Key definitions
Provision: a liability of uncertain timing or amount.
Liability:
present obligation as a result of past events
settlement is expected to result in an outflow of
resources (payment)
Contingent liability:
a possible obligation depending on whether some
uncertain future event occurs, or a present
obligation but payment is not probable or the
amount cannot be measured reliably
Contingent asset:
a possible asset that arises from past events, and
whose existence will be confirmed only by the
occurrence or non-occurrence of one or more
uncertain future events not wholly within the
control of the entity.
(68) Measurement of provisions
The amount recognized as a provision should be the
best estimate of the expenditure required to settle
the present obligation at the balance sheet date, that
is, the amount that an entity would rationally pay to
settle the obligation at the balance sheet date or to
transfer it to a third party.
PAS 38 Intangible Assets
(69) Intangible assets is an identifiable non-
monetary asset without physical substance.
(70) Initial measurement
Intangible assets are initially measured at cost.
Measurement subsequent to acquisition: cost
model and revaluation models allowed
An entity must choose either the cost model or the
revaluation model for each class of intangible asset.
PAS 40 Investment in
Property
(71) Investment property is property (land or a
building or part of a building or both) held (by the
owner or by the lessee under a finance lease) to earn
rentals or for capital appreciation or both.
(72) Initial measurement
Investment property is initially measured at cost,
including transaction costs. Such cost should not
include start-up costs, abnormal waste, or initial
operating losses incurred before the investment
property achieves the planned level of occupancy.
Measurement Subsequent to initial recognition
IAS 40 permits entities to choose between a fair
value model, and a cost model.
One method must be adopted for all of an entity's owners or external parties in the preceding year,
investment property. Change is permitted only if then the entity will already be considered to be on
this results in a more appropriate presentation. IAS IFRSs, and IFRS 1 does not apply.
40 notes that this is highly unlikely for a change
(76-77) PFRS 1 requires an entity that is adopting
from a fair value model to a cost model.
IFRS Standards for the first time to prepare a
complete set of financial statements covering its
first IFRS reporting period and the preceding year.
PAS 41 Agricultural The entity uses the same accounting policies
throughout all periods presented in its first IFRS
I. Biological Asset is a living animal or plant. financial statements.
Consumable biological assets are those that will be
PFRS 2 Share-based Payment
either:
(78-79) A share-based payment is a transaction in
1. Harvested as agricultural produce
which the entity:
2. Sold as biological asset
receives goods or services from the supplier
Bearer Biological Asset are other than consumable
(including employee) in a share-based payment
biological asset. (Example: Apple Tree for
arrangement; or
harvesting apples)
incurs an obligation to settle the transaction with the
II. Agricultural Produce is the harvested
supplier in a share-based payment arrangement
produce of the entity’s biological assets.
when another group entity receives those goods or
III. Agricultural Land that you use for
services.
agricultural activity is definitely within the
scope of PAS 16 and measure using the cost (80) Measurement
or revaluation model.
The share-based payment transaction to be
(74) Measurement measured at fair value for both listed and unlisted
entities. PFRS 2 permits the use of intrinsic value
Biological assets are measured on initial recognition
(that is, fair value of the shares less exercise price)
and at subsequent reporting dates at fair value less
in those "rare cases" in which the fair value of the
estimated costs to sell, unless fair value cannot be
equity instruments cannot be reliably measured.
reliably measured.
Agricultural Produce is measured at fair value to PFRS 3 Business Combination
sell at the point of harvest.
(81) Business Combination
PFRS 1 First time adoptions A transaction or other event in which an acquirer
obtains control of one or more businesses.
(75) A first-time adopter is an entity that, for the
Transactions sometimes referred to as 'true mergers'
first time, makes an explicit and unreserved
or 'mergers of equals' are also business
statement that its general purpose financial
combinations as that term is used in [PFRS 3]
statements comply with PFRSs.
(82) Method of accounting for business
An entity may be a first-time adopter if, in the
combinations
preceding year, it prepared IFRS financial
statements for internal management use, as long as Acquisition method
those PFRS financial statements were not made
The acquisition method (called the 'purchase
available to owners or external parties such as
method) is used for all business combinations.
investors or creditors. If a set of PFRS financial
statements was, for any reason, made available to Steps in applying the acquisition method are:
 1. Identification of the 'acquirer'
2. Determination of the 'acquisition date'
3. Recognition and measurement of the
identifiable assets acquired, the liabilities
assumed and any non-controlling interest
(NCI, formerly called minority interest) in
the acquiree
4. Recognition and measurement of goodwill
or a gain from a bargain purchase
(83) Goodwill =
FV of Consideration transferred + Amount of
non-controlling interests + Fair value of previous
equity interests - FV of Net assets recognized
PFRS 10 Consolidated Financial
Statements
(84) Consolidation procedures
1. combine like items of assets, liabilities,
equity, income, expenses and cash flows of
the parent with those of its subsidiaries
2. offset (eliminate) the carrying amount of
the parent's investment in each subsidiary
and the parent's portion of equity of each
subsidiary (IFRS 3 Business Combinations
explains how to account for any related
goodwill)
3. eliminate in full intragroup assets and
liabilities, equity, income, expenses and cash
flows relating to transactions between
entities of the group
PFRS 5 Non-current Assets Held for
Sale and Discontinued Operations
(85) Measurement
At the time of classification as held for sale.
Immediately before the initial classification of the
asset as held for sale, the carrying amount of the
asset will be measured in accordance with
applicable IFRSs. The resulting adjustments are also
recognized in accordance with applicable.
After classification as held for sale. Non-current
assets or disposal groups that are classified as held
for sale are measured at the lower of carrying
amount and fair value less costs to sell (fair value
less costs to distribute in the case of assets classified
as held for distribution to owners).
(86) Held-for-sale classification
1. In general, the following conditions must be
met for an asset (or 'disposal group') to be
classified as held for sale: [IFRS 5.6-8]
2. management is committed to a plan to sell
3. the asset is available for immediate sale
4. an active programme to locate a buyer is
initiated
5. the sale is highly probable, within 12 months
of classification as held for sale (subject to
limited exceptions)
6. the asset is being actively marketed for sale
at a sales price reasonable in relation to its
fair value
7. actions required to complete the plan
indicate that it is unlikely that plan will be
significantly changed or withdrawn
Classification as discontinuing
1. A discontinued operation is a component of
an entity that either has been disposed of or
is classified as held for sale and:
2. represents either a separate major line of
business or a geographical area of operations
3. is part of a single coordinated plan to
dispose of a separate major line of business
or geographical area of operations or
4. is a subsidiary acquired exclusively with a
view to resale and the disposal involves loss
of control.
PFRS 6 Exploration for and
Evaluation of Mineral Resources
(87) Exploration and evaluation expenditures are
expenditures incurred in connection with the
exploration and evaluation of mineral resources
before the technical feasibility and commercial
viability of extracting a mineral resource is
demonstrable.
PFRS 11 Joint Arrangements
(88) 2 Types of joint arrangements
Joint arrangements are either joint operations or
joint ventures:
A joint operation is a joint arrangement whereby
the parties that have joint control of the arrangement
have rights to the assets, and obligations for the
liabilities, relating to the arrangement. Those parties
are called joint operators.
A joint venture is a joint arrangement whereby the
parties that have joint control of the arrangement
have rights to the net assets of the arrangement.
Those parties are called joint venturers.
PFRS 12 Disclosure of Interests in
Other Entities
(89) 4 basic types of investment
1. Subsidiaries (PFRS 10) Defines a subsidiary as
“an entity controlled by another entity”
2. Associate (PAS 28) Defines an associate as “an
entity over which an investor has significant
influence, and which is neither a subsidiary nor an
interest in joint venture”
3. Joint Arrangement (PFRS 11) Defines a joint
arrangement as “arrangement of which 2 or more
parties have joint control”
4. Other Investment If an investor acquires any
other investment that does not fall into any above
categories, then it is accounted for as financial
instrument in line with PAS 39 or PFRS 9
PFRS 13 Fair Value Measurement
(90) 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.
This is notion of an exit price
(91) Valuation techniques
An entity uses valuation techniques appropriate in
the circumstances and for which sufficient data are
available to measure fair value, maximizing the use
of relevant observable inputs and minimizing the
use of unobservable inputs.
PFRS 14 Regulatory Deferral
Accounts
(92) PFRS 14 is permitted, but not required, to be
applied where an entity conducts rate-regulated
activities and has recognized amounts in its
previous GAAP financial statements that meet the
definition of 'regulatory deferral account balances'
(sometimes referred to as 'regulatory assets' and
'regulatory liabilities').
When applied, the requirements of IFRS 14 must be
applied to all regulatory deferral account balances
arising from an entity's rate-regulated activities.
PFRS 15 Revenue from Contracts with
Customers
(93) The five-step model framework
1. Identify the contract(s) with a customer –
a contract is an agreement of two parties that
creates enforceable rights and obligations
2. Identify the performance obligations in
the contract – Performance obligation is
any good or services that contract promises
to transfer to the customer.
3. Determine the transaction price – A
transaction price is the amount of
consideration than an entity expects to be
entitled in exchange for transferring
promised goods or services to a customer,
excluding amounts collected on behalf of
third parties.
4. Allocate the transaction price to the
performance obligations in the contract –
 split the transaction price and allocate it to recognize an asset in their financial statements (it's a
the individual performance obligation. bit controversial and there were huge debates
5. Recognize revenue when (or as) the entity around).
satisfies a performance obligation –
(100) An entity shall apply IFRS 17 Insurance
promised good or service is transferred to a
Contracts to:
customer. This happens when control is
passed. Insurance contracts, including reinsurance contracts,
it issues; Reinsurance contracts it holds; and
(94) The transaction price is allocated to the
Investment contracts with discretionary
performance obligations based on its relative
participation features it issues, provided the entity
standalone selling price. The standalone selling
also issues insurance contracts.
price for each good or service representing a
performance obligation should be determined at the Some contracts meet the definition of an insurance
contract inception. contract but have as their primary purpose the
provision of services for a fixed fee. Such issued
(95)
contracts are in the scope of the standard unless an
(96) Lease entity chooses to apply to them IFRS 15 Revenue
from Contracts with Customers and provided the
A contract is or contain a lease if it conveys the
following conditions are met:
right to control the use of an identified asset for a
period of time in exchange for consideration. (a) the entity does not reflect an assessment of
the risk associated with an individual
(97) LEESES DO NOT CLASSIFY THE
customer in setting the price of the contract
LEASES AS FINANCE OPERATING
with that customer;
ANYMORE!
(b) the contract compensates the customer by
(98) Indicators of Finance Lease providing a service, rather than by making
cash payments to the customer; and
 At the inception of the lease the present (c) the insurance risk transferred by the contract
value of the minimum lease payments* arises primarily from the customer’s use of
amounts to substantially all of the fair value services rather than from uncertainty over the
of the asset. cost of those services.
 The lease agreement transfers ownership of
the asset to the lessee by the end of the lease.
(99) The accounting for an operating lease assumes
that the lessor owns the leased asset, and the lessee
has obtained the use of the underlying asset only for
a fixed period of time. Based on this ownership and
usage pattern, we describe the accounting treatment
of an operating lease by the lessee and lessor.
Lessor keeps recognizing the leased asset in his
statement of financial position.
Lease income from operating leases shall be
recognized as an income on a straight-line basis
over the lease term, unless another systematic basis
is more appropriate.
Here you can see that the accounting for operating
leases is asymmetrical: both lessees and lessors