CFAS Midterm Notes
increase the amount of the benefit.
PAS 19 EMPLOYEE BENEFITS
- Are “all forms of consideration given by
an entity in exchange for service
rendered by employees” (pas 19.8)
Four Categories of employee benefits under
PAS 19
1. Short-term employee benefits
- Are employee benefits (other than
termination benefits) that are due to be
settled within 12 months after the end
of the period in which the employees
render the related service.
Recognition and measurement
When an employee has rendered service to
an entity during an accounting period, the
entity shall recognize the undiscounted
amount of short-term employee benefits
expected to be paid in exchange for that
service:
- as a liability (accrued expense), after
deducting any amount already paid.
- as an asset (prepaid expense) if the
amount paid is in excess of the
undiscounted amount of the benefits
incurred;
- as an expense, unless the employee
benefit forms part of the cost of an
asset, e.x as part of the cost of
inventories or property, plant and
equipment.
Short-term compensated absences
• Accumulating compensated absences
are those that are carried forward and
can be used in future periods if the
current period’s entitlement is not used
in full. Accumulating compensated
absences may either be
1. Vesting – wherein employees are
entitled to a cash payment for unused
entitlement on leaving the entity; or
2. non-vesting – wherein employees are
not entitled to a cash payment for
unused entitlement on leaving the
entity.
(When the employees render service
that increases their entitlement to
future compensated absences)
• Non-accumulating compensated
absences are those that are not carried
forward. No liability or expense is
recognized until the absences occur,
because employee service does not
(When the absences occur)
2. Post-employee benefits
- Are employee benefits (other than
termination benefits) that are payable
after the completion of employment.
Post-employment benefit plans are
classified as either:
1. Defined contribution plans
- the employer commits to
contribute to a fund which will be
used to pay for the retirement
benefits of the employees.
- risk that retirement benefit may
be insufficient rests with the
employee.
2. Defined benefit plans
- The employer commits to pay
retiring employees a definite
amount.
- risk that retirement benefit may
be insufficient rests with the
employer,
Other relevant terms
- Contributory – both the employee and
employer contributes for the
retirement benefits of the employee
- Non-contributory – only the employer
contributes for the retirement benefits
of the employee.
- Funded – a fund is transferred to a
trustee who will manage the fund. The
trustee assumes obligation of paying
retirement benefits out from the fun
and directly to retiring employees.
- Unfunded – no fund is transferred to a
trustee. The employer retains the
obligation of paying retirement benefits
to employees.
Accounting for defined contribution plan
- The accounting for defined contribution
plans is straightforward because the
reporting entity’s obligation for each
period is determined by the amounts to
be contributed for that period.
Consequently, no actuarial assumptions
are required to measure the obligation
or the expense and there is no
possibility of any actuarial gain or loss.
Accounting for defined benefit plan
- The accounting for defined benefit
plans is complex because actuarial
assumptions are required to measure
 the obligation and the expense and
there is a possibility of actuarial gains
and losses. Obligations are measured on
a discounted basis.
Accounting procedures for defined benefit plans
Step 1: determine the deficit or surplus
(deficit)surplus=FVPA-PV of DBO
Step 2: determine the net defined benefit
liability (asset)
- If there is a deficit, the deficit is the net
defined benefit liability
- If there is a surplus, the net defined
benefit asset is the lower of the surplus
and the asset ceiling
(The asset ceiling is the present value of any
economic benefits available in the form of
refunds from the plan or reductions in
future contributions to the plan)
Actuarial assumption – discount rate
Definition of terms
1. Current service cost – is the increase in
the present value of a defined benefit
obligation resulting from employee
service in the current period.
2. Past service cost – is the change in the
present value of the defined benefit
obligation resulting from a plan
amendment or curtailment.
3. Gain or loss on settlement – the
difference between the present value of
the defined benefit obligation and the
settlement price.
4. Interest cost on the defined benefit
obligation – is the increase during a
period in the present value of a defined
benefit obligation which arises because
the benefits are one period closer to
settlement.
5. Actuarial gains and losses – see changes
in the present value of the defined
benefit obligation resulting from
experience adjustments and the effects
of changes in actuarial assumptions.
Actuarial Assumptions
- Actuarial assumptions are an entity’s
best estimates of the variables that will
determine the ultimate cost of
providing post-employment benefits.
1. Demographic assumptions about the
future characteristics of employees who
are eligible for benefits. Demographic
assumptions deal with matters such as:
a. Morality, both during and after
employment
b. Rates of employee turnover,
disability and early retirement
c. The proportion of plan members
with dependents who will be
eligible for benefits
d. Claim rates under medical plans
2. Financial assumptions, dealing with
items such as:
e. The discount rates
f. Future salary and benefit levels
g. Future medical costs, if any,
including cost of administering
claims and payments
h. The expected rate of return on plan
assets
- The rate used to discount post-
employment benefit obligations shall be
determined by reference to market
yields at the end of the reporting period
on high quality corporate bonds.
- In countries where there is no deep
market in such bonds, the market yields
at the end of the reporting period on
government bonds shall be used.
3. Other long-term employee benefits
- Are employee benefits (other than post-
employment benefits and termination
benefits) that are due to be settled
beyond 12 months after the end of the
period in which the employees render
the related service.
- Other long term employee benefits are
accounted for using the procedures
applicable for a defined benefit plan.
However, all of the components of the
net benefit cost are recognized in profit
or loss.
4. Termination benefits
- Are employee benefits provided in
exchange for the termination of an
employee’s employment as a result of
either:
1. An entity’s decision to terminate an
employee’s employment before the
normal retirement date; or
 2. An employee’s decision to accept
an entity’s offer of benefits in
exchange for the termination of
employment.
Measurement
Termination benefits are initially and
subsequently recognized in accordance with the
nature of the employee benefit.
a. If the termination benefits are payable
within 12months, the entity shall
account for the termination benefits
similarly with short-term employee
benefits.
b. If the termination benefits are payable
beyond 12 months, the entity shall
account for the termination benefits
similarly with other long-term benefits.
c. If the termination benefits are, in
substance, enhancement to post-
employment benefits, the entity shall
account for the benefits as post-
employment benefits.
PAS 20 ACCOUNTING FOR GOVERNMENT
GRANTS AND DISCLOSURE OF GOVERNMENT
ASSISTANCE
- Government grants are assistance
received from the government in the
form of transfers of resources in
exchange for compliance with certain
conditions.
- Government grants excluded
government assistance whose vale
cannot be reasonably measured or
cannot be distinguished from the
entity’s normal trading transactions.
Examples of government grants
a. Receipt of cash, land, or other non-
cash assets from the government
subject to compliance with certain
conditions
b. Receipt of financial aid in case of
loss from a calamity
c. Forgiveness of an existing loan from
the government
d. Benefit of a government loan with
below-market rate of interest
The following are not government
grant:
a. Tax benefits,
b. Free technical or marketing advice,
c. Provision of guarantees,
d. Government procurement policy
that is responsible for a portion of
the entity’s sales, and
e. Public improvements that benefit
the entire community.
Recognition
Government grants are recognized if
there is reasonable assurance that:
a. The attached conditions will be
complied with; and
b. The grants will be received.
Classifications of government grants according
to attached condition
a. Grants related to assets – grants whose
primary condition is that an entity
qualifying for them should purchase,
construct or otherwise acquire long-
term assets.
b. Grants related to income – grants other
than those related to assets.
Initial measurement
• Monetary grants are measured at the
a. Amount of cash received; or
b. The fair value of amount receivable;
or
c. Carrying amount of loan payable to
government which repayment is
forgiven; or
d. Discount on loan payable to
government at a below-market rate
of interest.
• Non-monetary grants (e.x land and
other resources) are measured at the
a. Fair value of non-monetary asset
received.
b. Alternatively, at nominal amount or
zero, plus direct costs incurred in
preparing the asset for its intended
use.
Accounting for government grants
• The main concept in accounting for
gov’t grants is the Matching Concept.
• This means that the gov’t grant is
recognizes as expense the related cost
for which the grant is intended to
compensate.
Presentation of Government grants related to
assets
• Government grants related to assets
are presented in the statement of
financial position either by:
 a. Gross presentation – the grant is
presented as deferred income
(liability); or
b. Net presentation – the grant is
deducted when computing for the
carrying amount of the asset.
Presentation of Government grants related to
income
• Grants related to income are
sometimes presented in the income
statement either by:
a. Gross presentation – the grant is
presented separately or under a
general heading such as “other
income”, or
b. Net presentation – the grant is
deducted in reporting the related
expense.
Repayment of Gov’t. Grants
• A government grant that becomes
repayable is accounted for as a change
in accounting estimate that is treated
prospectively under PAS 8
PAS 21 THE EFFECTS OF CHANGES IN FOREIGN
EXCHANGE RATES
Two ways of conducting foreign activities
1. Foreign currency transactions –
individual entities often enter into
transactions in a foreign currency.
2. Foreign operations – groups often
include overseas entities.
Two main accounting issues
• Exchange rates are constantly changing.
Therefore, the principal issues in
accounting for foreign activities are
determining:
1. Which exchange rate(s) to use; and
2. How to report the effects of
changes in exchange rates in the
financial statements.
Functional currency
• When preparing financial statements, a
reporting entity must identify its
functional currency.
• Functional currency is the currency of
the primary economic environment in
which the entity operates.
• The primary economic environment in
which an entity operates is normally the
one in which it primarily generates and
expends cash.
Factors in determining functional currency
Primary factors
An entity’s functional currency is:
1. The currency that mainly influences:
- Sales prices
- Cost of goods sold/Cost of services
provided
Secondary factors
2. The currency in which funds from
financing activities are generated.
3. The currency in which receipts from
operating activities are usually retained.
Foreign currency transactions
• 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:
1. Foreign currency monetary items
are retranslated using the closing
rate;
2. 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
3. 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.
Monetary Items
- Are units of currency held and assets
and liabilities to be received or paid in a
fixed or determinable number of units
of currency.
Recognition of exchange differences
• When a foreign currency transaction
occurred in one period and settled in
another period:
a. The exchange difference between
the transaction date and the end of
reporting period is recognized in
the period of transaction, while
b. The exchange difference between
the end of the previous reporting
period and the date of settlement is
recognized in the period of
settlement.
• When a foreign currency transaction
occurred and settled in the same
 period, all the exchange difference is
recognized in that period.
Foreign operations
• A foreign operation is an entity that is a
subsidiary, associate, joint venture or
branch of a reporting entity, the
activities of which are based or
conducted in a country or currency
other than those of the reporting entity.
Translation to the presentation currency
1. Assets and liabilities are translated at
the closing rate at the date of the
statement of financial position.
2. Income and expenses, including other
comprehensive income, are translated
at spot exchange rates at the dates of
the transactions. For practical reason,
average rates for a period may be used,
if they provide a reasonable
approximation of the spot rates when
the transactions took place. However, if
exchange rates fluctuate significantly,
the use of the average rate is
inappropriate.
3. The resulting exchange difference is
recognized in other comprehensive
income.
PAS 23 BORROWING COSTS
Core principle
- “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.” (PAS 23.1)
Borrowing costs
- Borrowing costs are interest and other
costs incurred by an entity in
connection with the borrowing of
funds.
Borrowing costs may include:
1. interest expense on financial liabilities
or lease liabilities computed using the
effective interest method
2. Exchange differences arising from
foreign currency borrowings to the
extent that they are regarded as an
adjustment to interest costs.
Qualifying asset
• Qualifying asset is an asset that
necessarily takes a substantial period of
time to get ready for its intended use or
sale. Depending on the circumstances,
any of the following may be qualifying
assets:
A. Inventories
B. Manufacturing plants
C. Power generation facilities
D. Intangible assets
E. Investment properties measured
under cost model
• The following are not qualifying assets
a. Financial assets, and inventories
that are manufactured, or
otherwise produced, over a short
period of time.
b. Assets that are ready for their
intended use or sale when acquired
are not qualifying assets.
c. Assets that are routinely
manufactured or otherwise
produced in large quantities on a
repetitive basis.
d. assets measured at fair value.
Commencement of capitalization
• The capitalization of borrowing costs as
part of the cost of a qualifying asset
commences on the date when all of the
following conditions are met:
a. The entity incurs expenditures for
the asset;
b. The entity incurs borrowing costs;
and
c. It undertakes activities that are
necessary to prepare the asset for
its intended use or sale.
Suspension of capitalization
• Capitalization of borrowing costs shall
be suspended during extended periods
of suspension of active development of
a qualifying asset.
Cessation of capitalization
• An entity shall cease capitalizing
borrowing costs when substantially all
the activities necessary to prepare the
qualifying asset for its intended use or
sale are complete.
Determining borrowing costs eligible for b. sale in the ordinary course of
capitalization business” (pas40)

1. Qualifying assets financed through Investment property PPE (owner-occupied

Specific property)
Held to earn rentals or Held for use in the
borrowing for capital production or supply of
Interest expense on specific borrowing Less: appreciation or both. goods or services or for
administrative purposes
Investment income earned on specific
borrowing Generates cash flows Generates cash flows in
largely independently conjunction with the
= Borrowing cost eligible for capitalization of the other assets other assets held by an
held by an entity. entity.
Includes only land and May include assets other
Determining borrowing costs eligible for
building than land and building
capitalization
Accounted for under Accounted for
2. Qualifying assets financed through PAS40 under PAS16
General borrowing

Total interest expense on general borrowings Examples of investment property

Divide by: Total general borrowings a. Land held for long-term capital
appreciation rather than for short-term
= Capitalization rate sale in the ordinary course of business.
b. Land held for a currently undetermined
future use.
Average expenditure on the asset c. A building owned by the entity (or held
by the entity under a finance lease) and
Multiply by: Capitalization rate
leased out under one or more operating
= Borrowing cost that may be eligible for leases.
capitalization d. A building that is vacant but is held to
be leased out under one or more
operating leases
The amount computed in the formula above e. Property that is being constructed or
shall be compared with the actual borrowing developed for future use as investment
costs incurred during the period. The amount to property.
be capitalized is the lower amount.
Examples of items that are not investment
property

Financial statement presentation a. Property intended for sale in the

• Qualifying assets are not segregated
from other assets in the financial
statements. They are presented as
regular assets under their normal
classification as provided under other
standards.
PAS 40 INVESTMENT PROPERTY
Investment property
- Is “property (land or a build – or a part
of a building – or both) held (by the
owner or by the lessee under finance
lease) to earn rentals or for capital
appreciation or both, rather than for:
a. use in the production or supply of
goods or services or for
administrative purposes; or
ordinary course of business or property
acquired exclusively with a view to
subsequently disposal in the near future
or for development and resale.
b. Property being constructed or develop
on behalf of third parties (PFRS15
Revenue from contracts with customer)
c. Owner-occupied property (PAS16) and
owner-occupied property awaiting
disposal.
d. Property that is lease to another entity
under a finance lease.
Property that is partly investment property and
partly owner-occupied
• If the portions could be sold separately
(or leased out separately under a
finance lease), an entity accounts for
the portions separately. The portion
being rented out under operating lease
 is classified as investment property and
the portion used as owner-occupied is
classified as property, plant, and
equipment.
• If the portion could not be sold
separately, the property is investment
property only if an insignificant portion
is held for use in the production or
supply of goods or services or for
administrative purposes. If the owner-
occupied portion is significant, the
entire property is classified as property,
plant, and equipment.
Ancillary services to occupants
• When ancillary services are provided to
the occupants of a property held, the
property is classified as investment
property if the services are insignificant
to the arrangement as a whole.
Measurement
Initial: cost
Subsequent: either the cost model or
fair value model
• The following are excluded from the
cost of investment property and are
expensed immediately:
a. 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)
b. Operating losses incurred before
the investment property achieves
the planned level of occupancy
c. Abnormal amounts of wasted
material, labor or other resources
incurred in constructing or
developing the property
Change in accounting policy
• A change from the cost model to the
fair value is accounted prospectively
• A change from the fair value model to
the cost model is not permitted.
Determining fair value
• PAS40 requires all entities to determine
the fair value of investment property
whether it uses the cost model or fair
value model. Fair values determined are
used for measurement and disclosure
purposes if the entity uses the fair value
model and for disclosure purposes only
if the entity uses the cost model.
Fair value model
• After initial recognition, an entity that
chooses the fair value model shall
measure all of its investment property
at fair value, except in cases where the
exemptions under PAS40 applies
• Changes in fair values are recognized in
profit or loss.
• Depreciable assets classified as
investment property measured under
fair value model are not depreciated.
• If the fair value of an item of investment
property cannot be determined reliably
on initial recognition, such item is
subsequently measure under the cost
model.
Cost model
• After initial recognition, an entity that
chooses the cost model shall measure
all of its investment property at cost
less any accumulated depreciation and
impairment losses in accordance with
PAS 16 Property, plant, and equipment.
Transfers
• Transfers to, or from, investment
property shall be made when, and only
when, there is a change in use,
evidenced by:
a. Commencement of owner-occupation,
for a transfer from investment property
to owner-occupied property;
b. Commencement of development with a
view to sale, for a transfer from
investment property to inventories;
c. End of owner-occupation, for a transfer
from owner-occupied property to
investment property; or
d. Commencement of an operating lease
to another party, for a transfer from
inventories to investment property.
PAS41 AGRICULTURE
- Is applied to account for the following
when they relate to agriculture activity:
a. Biological assets, except for bearer
plants
b. Agricultural produce at the point of
harvest; and
c. Unconditional government grants
related to a biological asset
 measured at its fair value less cost Agricultural activity
to sell
• PAS 41 applies to biological assets,
- Does not applied to the following:
agricultural produce and gov’t grants
a. Land (PAS16 PPE and PAS40
only when they relate to agricultural
INVESTMENT PROPERTY)
activity.
b. Bearer plants related to agricultural
activity (PAS16). However, PAS41 • Agricultural activity is the management
applies to the produce on those by an entity of the biological
bearer plants. transformation of biological assets for
c. Government grants related to sale, into agricultural produce, or into
bearer plants (PAS20 acctg. for additional biological assets.
gov’t grants and disclosure of gov’t Common features of agricultural activity
assistance).
d. Intangible assets (PAS38 Intangible a. Capability to change – living animals
assets) and plants are capable of biological
• PAS41 is applied to agricultural produce transformation
at the point of harvest. After the point b. Management of change – management
of harvest, PAS2 inventories or other facilitates biological transformation by
applicable standard is applied. enhancing, or at least stabilizing,
conditions necessary for the process to
Nature of asset take place. - Harvesting from
• Living animal or Biological asset unmanaged sources is not agricultural
plant (PAS41) however, activity.
bearer plants are c. Measurement of change – the change
classified as in quality or quantity brought about by
Property, plant and
biological transformation is measured
equipment
and monitored as a routine
• Unprocessed Agricultural produce
(PAS41) management function.
harvested
product Recognition
• Processed Inventory (PAS2)
harvested A biological asset or agricultural produce is
product recognized when:

a. The entity controls the asset as a result

of past events;
b. It is probable that future economic
benefits associated with the asset will
flow to the entity; and
c. The fair value or cost of the asset can be
measured reliably.

Measurement

• A biological asset shall be measured on

Consumable vs. Bearer biological assets
Biological assets are either consumable or
bearer.
a. Consumable – those that are to be
harvested as agricultural produce or
sold as biological assets. E.x timber
b. Bearer – those other than consumable
biological assets. E.x fruit tree
• PAS41 applies to both consumable and
bearer animals. However, PAS41 only to
consumable plants but not to bearer
Definitions
plants
initial recognition and at the end of
each reporting period at its fair value
less costs to sell.
• Agricultural produce harvested from an
entity’s biological assets shall be
measured at its fair value less costs to
sell at the point of harvest. Such
measurement is the cost at that date
when applying PAS2 Inventories or
another applicable standard.
• A biological asset is measured at cost
less accumulated depreciation and
accumulated impairment loss if the fair
value of the biological asset cannot be
measured reliable on initial recognition.
 • Fair value is the price that would be specifications or are able to sustain
received to sell an asset or paid to regular harvests.
transfer a liability in an orderly b. Immature biological assets are
transaction between market those that have not yet attained
participants at the measurement date. harvestable specifications or are
• Costs to sell are the incremental costs not yet able to sustain regular
directly attributable to the disposal of harvests.
an asset, excluding finance costs and 3. Disclosure of breakdown of total “Gain
income taxes (e.x commissions to (loss) from changes in FVLCS) during the
brokers, levies by regulatory agencies period attributable to price change and
and commodity exchange, and transfer physical change
taxes and duties)
• Costs to sell do not include transport
costs, advertising costs, income taxes, PFRS 1 FIRST-TIME ADOPTION OF PHILIPPINE
and interest expense. FINANCIAL REPORTING STANDARDS
• If location is a characteristic of the
First PFRS financial statements
biological asset, the price in the
principal (or most advantageous) • Are the “the first annual financial
market shall be adjusted for the statements in which an entity adopts
transport costs. PFRSs, by an explicit and unreserved
statement of compliance with PFRSs”.
Gains and losses
(PFRSs1.3)
• A gain or loss arising on initial • Financial statements are considered
recognition of a biological asset at fair “First PFRSs financial statements” if the
value less costs to sell and from a previous financial statements:
change in fair value less costs to sell of a a. Were prepared in accordance with
biological asset shall be included in other reporting standards not
profit or loss for the period in which it consistent with the PFRS; or
arises b. Did not contain an explicit and
unreserved statement of
Nature of Accounting
compliance with PRFSs; or
government grant procedure
c. Contained an explicit and
Government grant Recognize income equal
unreserved statement of
(a) is unconditional to fair value of the
and (b) relates to grant when the grant compliance with some, but not all,
biological asset becomes receivable PFRSs; or
measured at FVLCS d. Were prepared using some, but not
Government grant Recognize income only all, applicable PFRSs; or
is conditional when condition is met e. Prepared in accordance with PFRSs
Relates to Account for the grant but were used for internal reporting
biological asset under PAS20 purposes only; or
measured at cost f. Did not contain a complete set of
Is conditional but a Recognize income using financial statements as required
portion of the straight – line method under PAS1 Presentation of
grant is retained Financial Statements.
according to the g. The entity did not present financial
time that has
statements in previous periods.
elapsed
• PFRS 1 is applied only once
• An entity presenting its first PFRS
Encourage disclosures financial statements is called a “first-
time adopter”
Disclosure of the following information is
encouraged but not required: Recognition and measurement
1. Disclosure of consumable and bearer • PFRS 1 requires an entity to prepare
biological assets. and present an opening PFRS statement
2. Disclosure of mature and immature of financial position at the date of
biological assets. transition to PFRSs.
a. Mature biological assets are those • The date to transition to PFRSs is the
that have attained harvestable beginning of the earliest period for
which an entity presents full
 comparative information under PFRSs in instead of paying in cash the entity
its first PFRS financial statements. The issues its own shares of stocks or share
application of the PFRSs stars on this options; or
date. 2. Cash-settled share-based payment
transaction – is a transaction whereby
Accounting policies
an entity acquires goods or services and
• The entity selects its accounting policies incurs an obligation to pay cash at an
based on the latest versions of PFRSs as amount that is based on the fair value
at the current reporting date. The of equity instruments; or
selected policies are then applied to all 3. Choice between equity-settled and
financial statements presented together cash-settled
with the first PFRS financial statements. • Equity instrument is a contract that
evidences a residual interest in the
Retrospective application assets of an entity after deducting all of
• In general (but subject to some its liabilities.
exceptions which will be discussed Core principle
momentarily), PFRS 1 requires
retrospective application of the • An entity shall recognize in profit or loss
accounting policies selected by the first- and financial position the effects of
time adopter. share-based payment transactions,
• PFRS 1 requires an entity to do the including expenses associated with
following in its opening PFRS statement transactions in which share options are
of financial position: granted to employees.
a. Recognize all assets and liabilities
Recognition
whose recognition is required by
PFRSs; • Goods and services received in share-
b. Not recognize items as assets or based payment transactions are
liabilities if PFRSs do not permit recognized when the goods are
such recognition; received or as the services are received.
c. Reclassify items recognized under Goods or services received that do not
previous GAAP that have different qualify as assets are recognized as
classifications under PFRSs; and expenses.
d. Apply PFRSs in measuring all
recognized assets and liabilities • The entity shall recognize:
(PFRS1.10) a. A corresponding increase in equity if
the goods or services were received in
Exceptions to the requirements of PFRS 1
an equity-settled share-based payment
• A first-time adopter is exempted from transaction, or
complying with the “retrospective b. A liability if the goods or services were
application” requirement of PFRS 1 if: acquired in a cash-settled share-based
a. The cost of compliance exceeds the payment transaction.
expected benefit.
Equity-settled share-based payment
b. Retrospective application requires
transactions
management judgements about
past conditions after the outcome Summary of initial measurement
of a particular transaction is already Transactions with non- Transactions with
known. employees employees and others
providing similar
Presentation and disclosure services
Goods or services Goods or services
• The first PFRS financial statements shall
acquired from non- acquired from
include at least one-year comparative
employees are employees and others
information. measured using the providing similar
PFRS 2 Share-based payments following order of services are measured
priority: using the following
Scope of PFRS 2 1. Fair value of order of priority:
goods or 1. Fair value of
1. Equity-settled share-based payment services equity
transaction – is a transaction whereby received at instruments
an entity acquires goods or services and measurement granted at
 date. grant date
2. Fair value of 2. Intrinsic value
equity
instrument
granted at
measurement
date.
• Equity instrument granted is the right
(conditional or unconditional) to an
equity instrument of the entity
conferred by the entity on another
party under a share-based payment
arrangement.
• Measurement date is the date at which
the fair value of the equity instruments
granted is measured for the purposes of
PFRS 2.
a. For transactions with non-
employees, the measurement date
is the date when the entity receives
the good or service.
b. For transactions with employees
and others providing similar
services, the measurement date is
grant date.
• Grant date is the date at which the
entity and the counterparty agree to a
share-based payment arrangement,
being when the entity and the
counterparty have a shared
understanding of the terms and
conditions of the arrangement.
• Intrinsic value is the difference between
the fair value of the shares to which the
counterparty has the conditional or
unconditional right to subscribe or the
right to receive and the subscription
price (if any) that the counterparty is
required to pay for those shares.
Share-based compensation plans
• Share-based compensation plan is an
arrangement whereby an employee is
given compensation in return for
services rendered in the form of the
entity’s equity instruments or cash
based on the fair value of the entity’s
equity instruments or a choice of
settlement between equity instrument
and cash. Examples:
a. Employee share options (equity-
settled)
b. Employee share appreciation rights
(cash settled)
c. Compensation plans with a choice
of settlement between (1) and (2)
above
Employee share option plans – equity settled
• Share option is a contract that gives the
holder the right, but not the obligation,
to subscribe to the entity’s shares at a
fixed or determinable price for a
specified period of time. Some share
options given to employees may not
require any subscription price, meaning
shares will be issued to the employees
in consideration merely for services
rendered.
Measurement of compensation
• Since employee share option plan is a
transaction with an employee, the
following order of priority shall be used
to measure the services received
(salaries expense):
1. Fair value of equity instruments
granted at grant date
2. Intrinsic value
Recognition of equity-settled share-based
compensation plans
1. If the share options granted vest
immediately, salaries expense shall be
recognized in full with a corresponding
increase in equity at grant date.
2. If the share options granted do not vest
until the employee completes a
specified period of service, the entity
shall recognize the related
compensation expense as the services
are rendered by the employee over the
vesting period.
In the absence of evidence to the contrary, it
shall be presumed that the share options vest
immediately.
Cash-settled share-based payment transactions
• A cash-settled share-based payment
transaction is one whereby an entity
acquires goods or services and incurs an
obligation to pay cash at an amount
that is based on the fair value of equity
instruments.
• The goods or services acquired and the
liability incurred on cash-settled share-
based payment transactions are
measured at the fair value of the
liability.
• At the end of each reporting period and
even on settlement date, the liability
shall be remeasured to fair value.
 Changes in fair value are recognized in
profit or loss.
Employee share appreciation rights (SARs) –
cash-settled
• A share appreciation right is a form of
compensation given to an employee
whereby the employee is entitled to
future cash payment (rather than an
equity instrument), based on the
increase in the entity’s share price from
a specified level over a specified period
of time.
Measurement of compensation
• The liability for the future cash payment
on share appreciation rights shall be
measured, initially and at the end of
each reporting period until settled, at
the fair value of the share appreciation
rights. Changes in fair value are
recognized in profit or loss.
Recognition of cash-settled share-based
compensation plans
a. If the share appreciation rights granted
vest immediately, the entity shall
recognize the related compensation
expense on the services received in full
with a corresponding increase in liability
at grant date.
b. If the share options granted do not vest
until the employee completes a
specified period of service, the entity
shall recognize the services received,
and a liability to pay for them, as the
employee renders service during that
period.
Share-based payment transactions with cash
alternatives
• If the counterparty has the right to
choose settlement between cash (or
other assets) or equity instruments, the
entity has granted a compound
instrument.
• For transactions with non-employees,
the equity component is computed as
the difference between the fair value of
goods or services received and the fair
value of the debt component at the
date the goods or services are received.
• For transactions with employees and
others providing similar services, the
entity shall measure the fair value of
the compound instrument and its
components as follows:
A. If the fair value of one settlement
alternative is the same as the other, the
fair value of the equity component is
zero, and hence the fair value of the
compound financial instrument is the
same as the fair value of the debt
component.
B. If the fair values of the settlement
alternatives differ, the fair value of the
equity component will be greater than
zero, in which case, the fair value of the
compound financial instrument will be
greater than the fair value of the debt
component.
• If the entity has the right to choose
settlement between cash (or other
assets) or equity instruments, the entity
has not granted a compound
instrument.
• In such case, the entity shall determine
whether it has a present obligation to
settle in cash and shall account for the
share-based payment transaction
accordingly.
• If the entity has a present obligation to
settle in cash, it shall account for the
transaction as a cash-settled share-
based payment transaction.
• If the entity has no present obligation to
settle in cash, it shall account for the
transaction as an equity-settled share-
based payment transaction.
PRFS 3 BUSINESS COMBINATIONS
Definition of a Business Combination
- A business combination is “a
transaction or other event in which an
acquirer obtains control of one or more
businesses.” (PFRS 3)
Control
• An investor controls an investee when
the investor is exposed, or has rights, to
variable returns from its involvement
with the investee and has the ability to
affect those returns through its power
over the investee.
• Control is normally presumed to exist
when the ownership interest acquired
in the voting rights of the acquiree is
more than 50% (or 51% or more).
• Control may exist even if the acquirer
holds less than 50% interest in the
voting rights of acquiree, such as in the
following cases:
 1. The acquirer has the power to • The acquisition date is the date on
appoint or remove the majority of which the acquirer obtains control of
the board of directors of the the acquiree.
acquiree; or
2. The acquirer has the power to cast
the majority of votes at board
meetings or equivalent bodies
within the acquiree; or
3. The acquirer has power over more
than half of the voting rights of the
acquiree because of an agreement
with other investors; or
4. The acquirer has power to control
the financial and operating policies
of the acquiree because of a law or Consideration transferred
an agreement.
• The consideration transferred in a
Accounting for business combinations business combination is measured at
fair value.
• Business combinations are accounted
• Examples of potential forms of
for using the acquisition method. This
consideration include:
method requires the following:
1. Cash,
1. Identifying the acquirer;
2. Other assets,
2. Determining the acquisition date; and
3. A business or a subsidiary of the
3. Recognizing and measuring goodwill.
acquirer,
This requires recognizing and measuring
4. Contingent consideration,
the following:
5. Ordinary or preference equity
a. Consideration transferred
instruments, options, warrants and
b. Non-controlling interest in the
member interests of mutual
acquiree
entities.
c. Previously held equity interest in
the acquiree Acquisition-related costs
d. Identifiable assets acquired and
liabilities assumed on the business • Acquisition-related costs are costs the
combination. acquirer incurs to effect a business
combination.
• Acquisition-related costs are recognized
Identifying the acquirer as expenses in the periods in which they
• The acquirer is the entity that obtains are incurred, except for the following:
control of the acquiree. The acquiree is a. Costs to issue debt securities
the business that the acquirer obtains measured at amortized cost –
control of in a business combination. included in the initial measurement
of the resulting financial liability.
• The acquirer is normally the entity that:
b. Costs to issue equity securities – are
a. Transfers cash or other assets and
accounted for as deduction from
incurs liabilities;
share premium. If share premium is
b. Issues its equity interests (except in
insufficient, the issue costs are
reverse acquisitions);
deducted from retained earnings.
c. Receives the largest portion of the
voting rights;
d. Has the ability to elect or appoint or
to remove a majority; Non-controlling interest (NCI)
e. Dominates the management of the • Non-controlling interest (NCI) is the
combined entity; equity in a subsidiary not attributable,
f. Significantly larger of the combining directly or indirectly, to parent.
entities;
• NCI is measured either at:
a. Fair value, or
g. Initiated the combination b. The NCI’s proportionate share of
Determining the acquisition date the acquiree’s identifiable net
assets.

Previously held equity interest in the acquiree
• Previously held equity interest in the
acquiree pertains to any interest held
by the acquirer before the business
combination.
Net identifiable assets acquired
• On acquisition date, the acquirer shall
recognize, separately from goodwill, the
identifiable assets acquired, the
liabilities assumed and any non-
controlling interest in the acquiree.
• Any unidentifiable asset of the acquiree
(e.g., any recorded goodwill by the
acquiree) shall not be recognized.
• The identifiable assets acquired and the
liabilities assumed are measured at
their acquisition-date fair values.
PFRS 5 NON-CURRENT ASSETS HELF FOR SALE
AND DISCONTINUED OPERATIONS
Core Principle
• A noncurrent asset is presented in the
classified statement of financial position
as current asset only when it qualifies to
be classified as “held for sale” in
accordance with PFRS 5.
Scope
• PFRS 5 applies to the following non-
current assets:
a. Property, plant and equipment
b. Investment property measured
under the Cost model
c. Investments in associate or
subsidiary or joint venture
d. Intangible assets
Classification of non-current assets (or disposal
groups) as Held for Sale
• A non-current asset (or disposal group)
is classified as held for sale or held for
distribution to owners if it carrying
amount will be recovered principally
through a sale transaction rather than
through continuing use.
Conditions for classification as held for sale
• A non-current asset (or disposal group)
is classified as “held for sale” if all of the
following conditions are met:
1. The asset or disposal group is
available for immediate sale in its
present condition subject only to
terms that are usual and customary;
and
2. The sale is highly probable (i.e.,
significantly more likely than not).
i. Management is committed to a
plan to sell the asset;
ii. An active program to locate a
buyer has been initiated;
iii. The sale price is reasonable in
relation to its current fair value;
iv. The sale is expected to be
completed within one year; and
v. It is unlikely that the plan of sale
will be withdrawn.
Exception to the one-year requirement
• An extension of the period required to
complete a sale does not preclude an
asset (or disposal group) from being
classified as held for sale if:
1. the delay is attributable to events
or circumstances beyond the
entity’s control; and
2. there is sufficient evidence that the
entity remains committed to its
plan to sell the asset (or disposal
group)
Event after reporting period
• If the criteria for classification as held
for sale are met after the reporting
period, an entity shall not classify a non-
current asset (or disposal group) as held
for sale in those financial statements
when issued.
Non-current assets that are to be abandoned
• An entity shall not classify as held for
sale a non-current asset (or disposal
group) that is to be abandoned since
the asset’s carrying amount will be
recovered through continuing use
rather than principally through a sale.
• An entity shall not account for a non-
current asset that has been temporarily
taken out of use as if it had been
abandoned.
Initial and subsequent measurement Non-current A single non- Statement of
asset held current asser financial
• Lower of carrying amount and fair value for sale (e.x position
less cost to sell. equipment)
• A write-down to fair value less cost to Disposal A group of Statement of
sell, and related reversal thereof, is group held assets (e.x financial
recognized in profit or loss. for sale equipment position
• Reversal of impairment is recognized as and
gain to the extent of cumulative inventories
impairment loss that has been and payables
recognized. directly
related to the
• Depreciation (amortization) ceases
equipment
during the period an asset is classified
and
as held for sale. inventories)
Discontinued A component Statement of
operation of an entity financial
Changes to a plan of sale (e.x a branch) position and
statement of
• A non-current asset that ceases to be profit or loss
classified as held for sale shall be and other
measured at the lower of the asset’s: comprehensive
1. Carrying amount before it was income.
classified as held for sale, adjusted
for any depreciation, amortization
Presentation of discontinued operations
or revaluation that would have
been recognized had the asset not • The results of operations of the
been classified as held for sale, and discontinued operations, including
2. Recoverable amount at the date of impairment losses and actual gain on
subsequent decision not to sell. disposal, is presented as a single
amount, net of tax, after profit or loss
Discontinued operations from continuing operations.
• If a component of an entity qualified as
• A discontinued operation is a discontinued operation during the year,
component of an entity that either has all of its results of operations, before
been disposed of or is classified as held and after classification date, shall be
for sale, and classified as discontinued operations.
1. Represents a major line of business
or geographical area of operations;
2. Is part of a single coordinated plan Direct costs associated to decision to dispose a
to dispose of a separate major line component
of business or geographical area of • Costs or adjustments directly associated
operations; or with the decision to dispose a
3. Is a subsidiary acquired exclusively component should be recognized and
with a view to resale shown as part of discontinued
operations. Examples of such costs
Component of an entity include:
1. such items as severance pay or
• A component of an entity comprises employee termination costs,
operations and cash flows that can be 2. additional pension costs,
clearly distinguished, operationally and 3. employee relocation expenses, and
for financial reporting purposes, from 4. future rentals on long-term leases
the rest of the entity. It can be cash
generating unit or group of cash Comparative information
generating units. • If, in the current year, a component of
an entity is classified as discontinued
operation, an entity shall re-present the
Classification Asset(s) being Presentation disclosures for prior periods presented
sold in the financial statements so that the
disclosures relate to all operations that
 have been discontinued by the
reporting period for the latest period
presented.
Events after the reporting period
• If the criteria for classification as
discontinued operation are met after
the reporting period but before the
financial statements are authorized for
issue, the entity shall disclose the
information in the notes as non-
adjusting event after the reporting
period.
Cessation of classification as held for sale: Effect
on comparative statement of financial position
• The cessation of classification as
discontinued operation is accounted for
retrospectively; while
• The cessation of classification as held
for sale (non-current assets and
disposal groups that are not
components of an entity) is accounted
for prospectively.
FS presentation
• Non-current assets held for sale and
assets and liabilities of disposal groups
are presented as current assets (current
liabilities) but separately from the other
assets and liabilities in the statement of
financial position.
• An entity shall not offset the assets and
liabilities of a disposal group.
QUIZ
PAS 16,19,20
1. Entity A has 20 employees who are each
entitled to one day paid vacation leave
for each month of service rendered.
Unused vacation leaves cannot be
carried forward and are forfeited when
employees leave the entity. All the
employees have rendered service
throughout the current year and have
taken a total of 150 days of vacation
leaves. The average daily rate of the
employees in the current period is
₱1,000. However, a 5% increase in the
rate is expected to take into effect in
the following year. Based on Entity A’s
past experience, the average annual
employee turnover rate is 20%. How
much will Entity A accrue at the end of
the current year for unused
entitlements?
- 0
2. Under a profit-sharing plan, Entity A
agrees to pay its employees 5% of its
annual profit. The bonus shall be
divided among the employees currently
employed as at year-end. Relevant
information follows: Profit for the year
₱8,000,000; Employees at the beginning
of the year 8; Average employees
during the year 7; Employees at the
end of the year 6. If the employee
benefits remain unpaid, how much
liability shall Entity A accrue at the end
of the year?
- 400,000
3. Which of the following instances does
not preclude an entity from recognizing
depreciation during a certain period?
- The asset becomes idle or is taken out
of active use.
4. Which of the following is not
considered a government grant under
PAS 20?
- Tax breaks
5. Which of the following is not one of the
essential characteristics of a PPE?
- primarily held for sale
6. You are the business owner of Entity A.
You have 10 employees, each earning
₱20,000 per month. You pay salaries on
a bi-monthly basis. During the month of
April 20x1, none of your employees
were absent, late or have rendered
overtime service. When will you
recognize the salaries expense (and at
what amount) for the first payday in the
month of April 20x1? Timing of
recognition Amount recognized
- April 15 ; 100,000
7. Which of the following is considered a
government grant under PAS 20?
- Cancellation of an existing loan from
the government
8. You are employed as an accountant.
Your company’s retirement plan states
that, upon retirement, an employee
(not less than 60 years but not more
than 65 years of age) is entitled to a
lump sum payment equal to the
employee’s final monthly salary level
multiplied by the number of years in
service (not less than 10 years). At the
end of month following the month of
retirement and every month thereafter,
the retired employee is entitled to a
monthly pension equal to one-eighth
(1/8) of the final monthly salary level.
The monthly pensions cease upon
 death of the retired employee.
However, if the employee has
immediate dependent(s) with age of
less than 18 years, the dependent(s) will
be entitled to the monthly pensions,
which will cease when the dependent(s)
reaches 18 years of age. What type of
post-employment benefit plan does
your company have?
- Defined benefits plan
9. Entity A acquires equipment on January
1, 20x1. Information on costs is as
follows: Purchase price, gross of trade
discount 1,000,000; Trade discount
available 10,000; Freight costs 20,000;
Testing costs 30,000; Net disposal
proceeds of samples generated during
testing 5,000; Present value of
estimated costs of dismantling the
equipment at the end of its useful life
6,209. The equipment has an estimated
useful life of 10 years and a residual
value of ₱200,000. Entity A uses the
straight-line method of depreciation.
How much is the carrying amount of the
equipment on December 31, 20x3?
- 788,846
10. If plotted on a graph (X-axis: time; Y-
axis: ₱), the depreciation charges under
the straight-line method would show.
- a straight-line.
11. Entity A acquires equipment on January
1, 20x1. Information on costs is as
follows:Purchase price, gross of trade
discount 1,000,000; Trade discount
available 10,000; Freight costs 20,000;
Testing costs 30,000; Net disposal
proceeds of samples generated during
testing 5,000; Present value of
estimated costs of dismantling the
equipment at the end of its useful life
6,209. How much is the initial cost of
the equipment?
- 1,041,209
12. Entity A acquires equipment on January
1, 20x1. Information on costs is as
follows:Purchase price, gross of trade
discount 1,000,000; Trade discount
available 10,000; Freight costs 20,000;
Testing costs 30,000; Net disposal
proceeds of samples generated during
testing 5,000; Present value of
estimated costs of dismantling the
equipment at the end of its useful life
6,209. The equipment has an estimated
useful life of 10 years and a residual
value of ₱200,000. Entity A uses the
straight-line method of depreciation.
On December 31, 20x3, Entity A
revalues the equipment at a fair value
of ₱820,000. There is no change in the
residual value and the remaining useful
life of the asset. How much is the
revaluation surplus on December 31,
20x3?
- 31,154
13. In 20x1, Entity A proposes an
environmental clean-up project for a
river. The government supports this
project and gives Entity A a ₱1M
monetary grant conditioned that the
money will only be spent on the
proposed project. The proposed project
is expected to take about 2 years to
complete. Entity A starts the clean-up
project in 20x2. How should Entity A
recognize income from the government
grant?
- over the period of the project as
expenses are incurred
14. According to PAS 16, the selection of an
appropriate depreciation method rests
upon the entity’s
- management.
15. The main concept used in recognizing
income from government grants is
- matching
16. PAS 16 requires an entity to review the
depreciation method and the estimates
of useful life and residual value at the
end of each year-end. A change in any
of these is accounted for using
- prospective application.
17. Imagine you are an employer (an
awesome one). When should you
recognize short-term employee
benefits?
- When the employees have rendered
service in exchange for the employee
benefits.
18. According to PAS 20, a government
grant that becomes repayable is
accounted for
- prospectively.
PAS 21-23
1. These are those which do not give rise
to a right to receive (or an obligation to
deliver) a fixed or determinable amount
of money.
- Non-monetary items
2. You are an auditor. ABC Philippines Co.,
your client, is not sure on what to
disclose in its financial statements as its
functional currency. Relevant
information follows: ABC Philippines
Co. is a branch of ABC U.S. Co. ABC
 Philippines operates in a Philippine
Economic Zone Authority (PEZA) Special
Economic Zone. ABC Philippines is
engaged in the apparel business. All of
its raw materials are imported from the
main office in the U.S. and all of its
finished products are exported directly
to U.S. customers. The U.S. customers
remit payments to the U.S. main office.
The U.S. main office will then provide
the Philippine branch its working capital
needs. None of ABC Philippines Co.s’
finished products are sold in the
Philippines. The raw materials imported
and finished goods exported are
denominated in U.S. dollars. 2. ABC
Philippines Co. is required to file
audited financial statements with the
Philippine Securities and Exchange
Commission (SEC) and the Bureau of
Internal Revenue (BIR). What is the
presentation currency for the financial
statements to be filed with the said
government agencies?
- Philippine peso
3. You are an auditor. ABC Philippines Co.,
your client, is not sure on what to
disclose in its financial statements as its
functional currency. Relevant
information follows: ABC Philippines
Co. is a branch of ABC U.S. Co. ABC
Philippines operates in a Philippine
Economic Zone Authority (PEZA) Special
Economic Zone. ABC Philippines is
engaged in the apparel business. All of
its raw materials are imported from the
main office in the U.S. and all of its
finished products are exported directly
to U.S. customers. The U.S. customers
remit payments to the U.S. main office.
The U.S. main office will then provide
the Philippine branch its working capital
needs. None of ABC Philippines Co.s’
finished products are sold in the
Philippines. The raw materials imported
and finished goods exported are
denominated in U.S. dollars. What is
ABC Philippines Co.’s functional
currency?
- U.S. dollar
4. On December 1, 20x1, you imported a
machine from a foreign supplier for
$100,000, due for settlement on
January 6, 20x2. Your functional
currency is the Philippine peso. The
relevant exchange rates are as follows:
Dec. 1, 20x1: ₱50:$1; Dec. 31, 20x1:
₱52:$1; Jan. 6, 20x2: ₱47:$1.
How much foreign exchange gain (loss)
- (200,000)
5. On January 1, 20x1, Entity A obtained a
10%, ₱5,000,000 loan, specifically to
finance the construction of a building.
The proceeds of the loan were
temporarily invested and earned
interest income of ₱180,000. The
construction was completed on
December 31, 20x1 for total
construction costs of ₱7,000,000. How
much is the cost of the building on
initial recognition?
- 7,320,000
6. An asset is being constructed for an
enterprise's own use. The asset has
been financed with a specific new
borrowing. The interest cost incurred
during the construction period as a
result of expenditures for the asset is
- a part of the historical cost of acquiring
the asset to be written off over the
term of the borrowing used to finance
the construction of the asset.
7. Which of the following may not be
considered a “qualifying asset” under
PAS 23?
- An expensive private jet that can be
purchased from a local vendor.
8. On December 1, 20x1, you imported a
machine from a foreign supplier for
$100,000, due for settlement on
January 6, 20x2. Your functional
currency is the Philippine peso. When
preparing the December 31, 20x1
statement of financial position, which of
the following will you translate to the
closing rate?
- accounts payable
9. Capitalization of borrowing costs
- Shall be suspended only during
extended periods of delays in which
active development is delayed.
10. Which of the following costs may not be
eligible for capitalization as borrowing
costs under PAS 23?
- Imputed cost of equity.
PAS 40-41
1. Which of the following qualifies for
classification as an investment
property?
- Property that is currently being
developed for future use as investment
property
-
2. Which of the following is considered an
inventory rather than an agricultural
produce at the point of harvest?
- Tea
3. Which of the following statements is
incorrect regarding the accounting for
biological assets?
- PAS 41 is used to account for both
consumable and bearer plants.
4. Which of the following is considered an
agricultural produce?
- felled trees
5. Which of the following is most likely an
acceptable measurement for
agricultural produce: Initial
measurement ; Subsequent
measurement
- fair value less costs to sell ; lower of
cost and NRV
6. Entity A acquires an investment
property for ₱1,000,000 cash.
Additional costs incurred are as
follows:• Repairs and
remodelling before occupancy,
₱50,000.• Legal costs of
transferring title to the property,
₱20,000.• Repairs after
occupancy, ₱15,000.The investment
property is estimated to have a
remaining useful life of 10 years and a
residual value equal to 5% of initial cost.
Entity A uses the straight line method of
depreciation. How much is the carrying
amount of the investment property
under the cost model after one year?
- 968,350
7. Under this model, an investment
property is measured at cost less
accumulated depreciation and
accumulated impairment losses.
- Cost model
8. Entity A acquires an investment
property for ₱1,000,000 cash.
Additional costs incurred are as
follows:• Repairs and
remodelling before occupancy,
₱50,000.• Legal costs of
transferring title to the property,
₱20,000.• Repairs after
occupancy, ₱15,000.The investment
property is estimated to have a
remaining useful life of 10 years and a
residual value equal to 5% of initial cost.
Entity A uses the straight-line method
of depreciation. The investment
property has a fair value of ₱980,000 at
the end of Year 1. How much is the
carrying amount of the investment
property under the fair value model
after one year?
- 980,000
9. Biological assets and agricultural
produce are recognized when all of the
following are present except
- probable future event
10. The distinguishing characteristic that
identifies an investment property from
the other assets of an entity is
- it generates separately identifiable cash
flows from the other assets of the
entity.
PFRS 1-2
1. The statement of financial position of
ABC Co. as of January 1, 20x4 included
an allowance for bad debts computed
using the “aging of accounts receivable”
method. The “over 120 days” category
in the aging schedule included a
₱200,000 receivable which was actually
written off on January 5, 20x4 (the 20x3
financial statements were authorized
for issue on March 1, 20x4). ABC Co.
could not have foreseen this event on
December 31, 20x3. Does ABC Co. need
to revise its previous estimate of bad
debts as of January 1, 20x4 (date of
transition) on December 31, 20x5 (end
of first PFRS reporting period)?
- No. The receipt of the information on
January 5, 20x4 is accounted for
prospectively as a non-adjusting event
after the reporting period.
2. Many shares and most share options
are not traded in an active market.
Therefore, it is often difficult to arrive at
a fair value of the equity instruments
being issued. Which of the following
option valuation techniques should not
be used as a measure of fair value in the
first instance?
- Intrinsic value.
3. PFRS 1 requires a first time adopter to
do which of the following in the
opening PFRS statement of financial
position?
- All of these
4. Retrospective application of accounting
policies means
- as if PFRSs have been used all along.
5. PFRS 1 requires an entity to prepare
and present an
- opening PFRS statement of financial
position.
 6. Under PFRS 1, the early application of
PFRSs that have not yet become
effective as of the current reporting
period
- is permitted, but not required.
7. Elizabeth, a public limited company, has
granted 100 share appreciation rights to
each of its 1,000 employees in January
20X4. The management feels that as of
December 31, 20X4, 90% of the awards
will vest on December 31, 20X6. The fair
value of each share appreciation right
on December 31, 20X4, is P10. What is
the fair value of the liability to be
recorded in the financial statements for
the year ended December 31, 20X4?
- P300,000
8. The date to transition to PFRSs is
- the beginning of the earliest period for
which an entity presents full
comparative information under PFRSs in
its first PFRS financial statements.
9. An entity that presents its first PFRS
financial statements is referred to
under PFRS 1 as a
- first-time adopter.
PFRS 3-5
1. The “excess of the acquirer’s interest in
the net fair value of acquiree’s
identifiable assets, liabilities, and
contingent liabilities over cost”
(formerly known as negative goodwill)
should be
- Reassessed as to the accuracy of its
measurement and then recognized
immediately in profit or loss.
2. Assets that are classified as held for
sale under PFRS 5 are
- not depreciated.
3. According to PFRS 5, the assets and
liabilities of a disposal group are
presented
- separately on the face of the statement
of financial position.
4. Which of the following statements is
true regarding the accounting
treatment of costs to sell under PFRS
5?
- Costs to sell are discounted if it is
expected that the sale will be made
beyond one year.
5. The statement of profit or loss includes
which of the following?
- Discontinued operations.
6. The acquisition date is
- the date on which the acquirer obtains
control of the acquiree.
7. On January 1, 20x1, ABC Co. acquired
60% interest in XYZ, Inc. for ₱2,000,000
cash. ABC Co. incurred transaction
costs of ₱100,000 in the business
combination. ABC Co. elected to
measure NCI at the NCI’s proportionate
share in XYZ, Inc.’s identifiable net
assets. The fair values of XYZ’s
identifiable assets and liabilities at the
acquisition date were ₱6,000,000 and
₱3,500,000, respectively. How much is
the goodwill (gain on a bargain
purchase)?
- 500,000
8. According to PFRS 5, gains and losses on
remeasurement of assets held for sale are
- recognized in profit or loss.
PRELIM QUIZZES
1. At the end of the period, Entity A has
deductible temporary difference of
100,000. Entity A’s income tax rate is
30%. Entity A’s statement of financial
position would report which of the
following? (gimultiply ang 30% sa 100k)
- 30,000 deferred tax asset.
2. Biological assets and agricultural
produce are recognized when all of the
following are present except
- probable future event
3. Which of the following assets can be
measured using the revaluation model?
- PPE and Investment
4. According to PAS 23, borrowing costs
are capitalized when
- They relate directly to the acquisition,
construction or production of a
qualifying asset.
5. Which of the following is not one of the
principal issues in the accounting for
PPE?
- Recognition of carrying amount as
expense when the related revenue is
recognized.
6. ABC Co. During the period your
company purchased staplers worth
1,500. Although the staplers have an
estimated useful life of 10 years.