CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
Step 2 = Research conducted and Discussion Memorandum issued.
IFRS Foundation - not-for-profit international organization
responsible for overseeing (supervise) the work of the International
Accounting Standards Board (IASB), the structure and strategy.
-to develop, in the public interest, a single set of high quality,
understandable, enforceable and globally accepted financial
reporting standards based on clearly articulated principles.
Monitoring Board - group of capital market authorities and
provides formal link between the Trustees and public authorities in
order to enhance the public accountability of the IFRS Foundation.
-oversees, participates, and approves
International Accounting Standards Board - independent
standard-setting body of IFRS Foundation responsible for the
development and publication of International Financial Reporting
Standards (IFRS) and for approving interpretations of IFRS as
developed by the IFRS Interpretations Committee.
-formed in 2001, to replace the International Accounting Standards
Council.
-14 board members (1 Chair & 1 Vice Chair)
IFRS Interpretations Committee - interpretative body of the
International Accounting Standards Board, which reviews the
implementation issues.
IFRS Advisory Council - provides advice and counsel to the Trustees
and the Board.
Accounting Standards Advisory Forum (ASAF) – provides an
advisory forum in which members can constructively contribute
towards the achievement of the IASB’s goal of developing globally
accepted high-quality accounting standards
Capital Market Authorities – responsible for ensuring observance of
its laws as well as the integrity of the capital markets.
-Corporations, Institutions (“Buy Side” Fund Managers), Investment
Banks (“Sell Side”), Public Accounting Firms
*Public Accounting Firms – New York Stock Exchange, American
Stock Exchange, London Stock Exchange, and NASDAW. Securities
can also be traded “over the counter”, rather than on an organized
exchange
DEVELOPMENT OF ACCOUNTING STANDARD
Due Process Handbook (August 2010) – provides the full
processes which helps the IASB and IFRS Interpretation Committee
to follow a thorough, transparent and participatory due process
issuances of IFRS standards and interpretations.
-three principles: transparency, full and fair consultation and
accountability
FASB relies on two basic premises:
(1) Responsive to the entire community
(2) Operate in full view of the public
Step 1 = Topic placed on agenda
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Step 3 = Public Hearing
Step 4 = Board evaluates research, public response and issues
Exposure Draft.
Step 5 = Board evaluates responses and issues final Statement of
Financial Accounting Standard
Basic Steps in developing Accounting Standard
Step 1: Agenda Consultation
-seek formal public input on the strategic direction and balance of
the IASB’s work program, including the criteria for assessing projects
that may be added to the IASB’s standards level program
-undertake public consultation on its work program every five years
by way of a public Request for Information
-minimum of 120 days to comment on that work program.
Step 2: Research Program
Main Purpose - analyze possible financial reporting problems by
collecting evidence on the nature
Main Output – Discussion Paper and Research Paper. It is a
comprehensive review of the issue, possible approaches to address
the issue, the preliminary views of its authors or the IASB and an
invitation to comment. IASB normally allows at least 120 days for
comment on a Discussion Paper, a research paper and a Request for
Information. For other request of information it allows for 60 days
for comment.
Step 3: Standard Setting Program
Step 4: Maintenance Program
-process includes consulting on the implementation of a new or
amended Standard to identify any implementation problems that
may need to addressed.
Supermajority - requires 8 IASB members (by ballot) in favor of the
publication of a document if it has 13, or fewer appointed members.
However, If the IASB has 14 appointed members, the requirement
for supermajority is 9 members (by ballot). Abstaining is equivalent
to voting against a proposal.
Mandatory parts of an Accounting Standard:
• The principles and the related application guidance
• The defined terms
• The effective date and transition paragraph
Conceptual Framework
-an ideal or theoretical structure that should be in a financial report
Purpose of the IASB Conceptual Framework
-to assist in development of IFRS/IAS
-to provide a basis for reducing alternatives
-to assist national standard-setters in developing national standards
-to assist preparers of financial statements in applying international
standards
-to assist auditors in forming an opinion as to whether international
standards have been complied with.
-to assist users in interpreting financial statements
Limitations of the Conceptual Framework
-the Conceptual framework is applicable for preparation and
presentation of financial statements under MFRS or FRS framework
-the framework is not accounting standards and does not override
MFRS/FRS
-in the case of conflict bet. Framework and MFRS/FRS, the standards
requirements prevail. Over time the development of new stds and
review of existing stds will narrow the conflict.
General Purpose Financial Statements
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

-provides financial information useful for decision making for a  Who is the owner of goods with unusual
number of different users right of return?
-general urpose financial statements is general, and is available for  Seller – but not applicable to
internal and external use merchandising like grocery store
-financial statements “only”, may be used for internal use only or department store and the like
-general purpose financial statements is more credible and reliable
than financial statements because it is already audited.
Recognition?
Information about:
-the entity’s economic resources ASSET
-claims to them  When the present economic resource
-changes in those resources and claims controlled by the entity at the date of the
Information that help users in evaluating: balance sheet
-Liquidating  The entity as a legal title or ownership at
the end of the accounting period
-Solvency
-Financial Needs EXPENSE
-Company and management performance  When sold
 When written down to net realizable value
PAS 2 – Inventories and all losses of inventories
 Allocated to other asset accounts wherein
the expenses are recognized during the
Inventories not within PAS 2 useful life of the asset
1. Financial Instrument – PAS 32 and PAS 9
2. Biological assets related to PAS 41 –
Ownership of Goods? In Transit
Agriculture
Inventories not within PAS 2 –Measurement FOB – free on board/freight on board
1. Inventories held by producers of Destination – seller – while the goods is still
agricultural and forest products, agricultural in transit, paid for the shipment – Accounts
produce after harvest, and minerals and Receivable
mineral products. Buyer – Upon receipt of goods
2. Inventory held by commodity broker who Shipping point – buyer – upon shipment or
measure their inventories at fair value less when the carrier takes possession, paid the
costs to sell shipment
Commodity Broker FAS – Free Alongside
 A commodity broker is a firm or an Buyer – when the carrier takes possession
individual who executes orders to buy or sell of the goods, bears the cost of loading and
commodity contracts on behalf of the clients shipment
and charges them a commission. Buyer – when the carrier takes possession
Inventories held by them who measures of the goods, paid the cost of loading and
their inventories at FV less cost to sell are shipment although the seller paid the expenses
not within PAS 2 –measurement. and risk in delivering the goods to the vessel
Inventories CIF – cost, insurance, freight.
 Raw Materials – materials and supplies Buyer – paid the cost of CIF
to be used directly in the production
Ex-ship –buyer – after unloaded the
process
 Work in Process – in process of goods
production Seller- carrier possession until unloaded,
 Finished Goods – held for sale in the bears expenses and risk
ordinary course of business
Principle
Consignment
 Is an agreement in which goods are left in
possession of an authorized third party
 Who are the parties in consignment?
 Consignor-the owner of the
goods
 Consignee-authorized agent to
sell the goods
 Who is the owner of consigned goods?
 Consignor-who has he legal title,
regardless of location
Treatment of Freight Costs
Treatment Classification ENTITY

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
Freight- Capitalized Cost of Goods PURCHASER
in into Sold
inventory
Freight- Expressed Selling SELLER
out when expenses
incurred
Accounting system: Measurement:
Periodic and Perpetual System
Periodic
 requires a periodic physical count of goods
at the end of the accounting period
Perpetual
 inventory quantities are updated after each
transaction
 We know exactly how many items were sold
 We know exactly how many items are left
 requires the maintenance of record (stock
card) and monitors the balance of inventory
on hand. Physical count is only necessary to
verify the perpetual record if correct.
 Beginning inventory + purchases – ending
inventory (based on the actual physical
count) = Cost of Goods Sold (COGS)
Recording and Measuring of Inventory
TYPES OF INVENTORY
Merchandise Manufacturing
Inventory Inventory
 Goods acquired  Raw Materials
for resale  Work-in-Process
 Finished Goods
Inventory General Measurement:
lower of cost and net realizable
value
Cost of purchase- purchase price, import
duties and irrecoverable taxes, transport,
handling and other costs directly attributable to
the acquisition of finished goods, materials and
services
1. Trade Discount, rebates and other similar
items are deducted from the costs of
purchase.
Cost of conversion – cost associated in
converting raw materials into finished goods. It
includes direct materials, direct labor, indirectly
related factory overhead
1. Fixed factory overhead – indirect cost of
production that remains fixed regardless of
the volume of production (depreciation,
maintenance, management and
administration related to factory cost)
MEASURMENT OF INVENTORIES
 Inventories should be valued at lower of cost
and NRV.
 Major points for valuation of inventories:
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Determination of cost of inventories ->
Determination of NRV -> Comparing cost &
NRV
Variable Factory Overhead – indirect costs of
production that vary directly with the volume of
production such as indirect materials and indirect
labor.
Costs excluded from the costs of
inventory
Must be expense in the period in which they
are incurred
1. Abnormal amount of wasted materials, labor
or other production cost
2. Storage costs, unless necessary before a
further production stage
3. Administrative overhead not for factory
4. Selling costs
5. Interest expense
6. Foreign currency difference
Techniques for measurement of cost:
Standard and retail cost method
Standard cost method – costing method that
takes into account the normal levels of materials
and supplies, labor efficiency and capacity
utilization
*from low to high
 Establishing standards
 Determination of Actual Costs
 Comparison of Actual Costs and Standard
Cost
 Determination of Causes
 Disposition of Variances
Formula used in the computation of
costs: specific identification, FIFO,
Weighted average)
Specific identification method
 use for inventory that are not ordinarily
interchangeable and goods or services
produced and segregated for specific
projects, whether they are bought or
produced
 car dealerships, jewelry stores, art galleries,
furniture stores
Specific Identification Method
FIFO
 Assume that the inventory that were
purchased or produces first are sold first,
thus the inventories are those most recently
purchased or produced goods with
expiration restriction – such as?
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
Weighted Average
 Determined from the weighted average cost
of similar items at thebeginning and during
the period
 Chemical manufacturing, agriculture
business, oil companies
Difference between NRV and FV
NRV
 It is the net amount that an entity expects
to realize from the sale of inventory in the
ordinary course of business (based on the
most reliable evidence available at the time
the estimates are made)
 It is an entity-specific value
Fair Value
 It is the price at which an orderly
transaction to sell the same inventory in the
principal market for the inventory would
take place between market participants at
the measurement date
 It is not entity-specific value
Net Realizable Value
 estimated selling in the ordinary course of
business – estimated costs of completion –
estimated costs necessary to make a sale
Steps:
1. Determine market value of asset
2. List all cost associated with process of
selling asset
3. Calculate net realizable value = Market
value of asset – Selling cost of asset
Reason of written down the inventory to NRV
 Inventory are damaged
 Inventory is wholly or patially obsolete
 Selling price of the inventory decline
 Estimated cost of completion increased
Presentation of inventory in financial
statement
 Current asset
 One line item in the balance sheet or
statement of financial position
 Details shall be disclosed in the notes of
financial statements
Necessary disclosures
 Accounting policy in measuring inventory
and cost formula use
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 Total carrying amount of inventories and the
carrying amount in classification appropriate
to the entity
 Carrying amount carried at fair value less
cost to sell
 Amount of inventory recognize as an
expense during the period
 Amount of any write down
 Circumstances that led to the reversal of a
write down
 Carrying amount of inventory pledged as
security for liability
 Inventory from consignment
 Inventory out for consignment
PAS 7 – Statement of Cash Flows
 Objective is to require the provision of
information about the historical changes in
cash and cash equivalents of an entity by
means of a statement of cash flows
 Governs the preparation of a statement of
cash flows
What makes a statement of cash flows
valuable and useful?
- It is useful in providing users of financial
statements with a basis to assess the ability
of the entity to generate cash and cash
equivalents and the needs of the entity to
utilise those cash flows
- Economic decisions require an evaluation of
the ability of an entity to generate cash
- Users are interested in how the entity
generates and uses cash and cash
equivalents
What information does a statement of cash
flows provide?
- It provides information that enables users to
evaluate the changes in net assets of an
entity, its financial structure (including its
liquidity and solvency) and its ability to
affect the amounts and timing of cash flow
in order to adapt to changing circumstances
and opportunities.
Advantages of Cash Flows
1. Show Changes
2. Looks at Growth Potential
3. Helps to make Cash Forecast
4. Ascertaining Liquidity and Profitability
Positions
5. Performance Appraisal
Cash Flows
 Means the amount of cash flowing in and
out of the company. In order to keep a
record of the cash flows, organizations
prepare a cash flow statement. Cash flow
statement provides cash based information,
whereas an income statement provides
accrual-based information
Benefits of Statement of Cash Flows
 Useful in assessing the ability of the entity
to generate cash and cash equivalents
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
 Enables users to develop models to assess
and compare the present value of the future
cash flows of different entities.
 Eliminates the effects of using different
accounting treatments for the same
transactions and events
Historical Cash Flow Information
 often used as an indicator of the amount,
timing and certainty of future cash flows.
 useful in checking the accuracy of past
assessments of future cash flows
 examine the relationship between
profitability and net cash flow and the
impact of changing prices
Cash comprises cash on hand and demand
deposits
 Demand deposits
o is an account with a bank or other
financial institution that allows the
depositor to withdraw his or her funds
from the account without warning or with
less than seven days’ notice.
o can be on a checking or a savings
account, and withdrawals can be made
either from an ATM or from the bank’s
cashier
 Cash equivalents
o are short-term, highly liquid investments
that are readily convertible to known
amounts of cash and which are subject
to an insignificant risk of changes in
value.
o are held for the purpose of meeting
short-term cash commitments rather
than for investments or other purposes
Investments as Cash Equivalents
For an investment to qualify as a cash
equivalent….
-must be readily convertible to a known
amount of cash and be subject to an insignificant
risk of changes in value
-when it has a short maturity of, say, three
months or less from the date of acquisition
Do equity investments qualify as cash
equivalents?....
-equity investments are excluded from cash
equivalents
-having no maturity, equity investments
generally are not considered as short-term
investment and are readily convertible to a known
amount of cash and are subject to an insignificant
risk of changes in value
-some equity investments are actually cash
equivalents in substance and should be classifies
as such (e.g preferred shares acquired within a
short period of their maturity and with a specified
redemption date).
Bank Overdrafts
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 Overdraft is an extension of credit from a
lending institution that is granted when an
account reaches zero
 Allows account holder to continue
withdrawing money even when the account
is 0 or no sufficient balance
 Not result in cash flowing into a business
 Represents bank borrowing
Bank Borrowing
 generally considered to be financing
activities and do not form part of cash
and cash equivalents
 in some countries, in which they are
repayable on demand form an integral
part of the entity’s cash management
An entity shall disclose…
Concerning cash and cash equivalents:
-disclose the components of cash and cash
equivalents and shall present a reconciliation of
the amounts in its statement of cash flows with
the equivalent items reported in the SFP
-disclose the policy which it adopts in
determining the composition of cash and cash
equivalents
PRESENTATION OF A STATEMENT
OF CASH FLOWS
PAS 16 - PROPERTY, PLANT, & EQUIPMENT
 Held by an entity
 Production, rental, and administration
 Long-term assets used in the course in
business
 Tangible assets
Recognize the cost of PPE as an asset:
 It is probable that future economic
benefits associated with the item will
flow to the entity
 The cost can be measured reliably
The following are not considered as PPE:
 PPE held for sales – PFRS 5
 Biological assets, other than bearer
plant – PAS 41
 Recognition and measurement of
exploration and evaluation – PFRS 6
 Mineral rights and mineral reserves
Spare parts & Servicing Equipment
IAS 2 Inventories IAS 16 Property,
Plant, and
Equipment
Held for: Held:
 resale(merchandise)  For operation
 consumption in the in connection
production with an item
 rendering services of PPE
 Less than 1 period  As PPE itself
 Small tools, moulds,  More than 1
pallets or containers period
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

used for more than 1  Critical spares Cost of PPE acquired in exchange of
period and standby
equipment Another Asset
 Back up  Cost of exchanged asset is measured at fair
turbine value unless
 Capital spares
 Exchange transaction lacks commercial
 Spare
motor substance, or
 Fair value of neither asset received nor
given up can be measured reliably
Measurement at Recognition Cost of PPE acquired in exchange of Another
 An item of PPE shall be measured initially at asset:
cost, which is to compromise:
 Fair value of asset given up is used,
 Purchase price (including non-refundable
unless fair value of asset received is
duties/taxes, after deducting discounts);
more clearly evident
 Any costs directly attributed to bringing the
Or
asset to the location and condition
necessary for it to be capable of operating  If not measured at fair value, carrying
on the manner intended by management – amount of the asset given up becomes
for example, costs of delivery and the new cost
installation; and 
 An estimate of the costs of dismantling and Asset acquired in an exchange with
removing an item, and restoring the site on commercial substance
which it is located  fair value of asset given plus cash payment
 Instead of debiting these costs to an expense – on the part of the payor
account, they are debited to an asset account  fair value of asset given up minus cash
- that is, these costs are capitalised. received - on the part of the recipient
Asset acquired in an exchange with lacks
INITIAL MEASUREMENT = at COST commercial substance
Elements of Cost Directly Attributable  carrying amount of asset given plus cash
 Purchase price, Cost payment on the part of the payor
including import  Cost of employee  carrying amount of asset given minus cash
duties and non- benefits arising from received on the part of the recipient
refundable purchase construction or NO GAIN OR LOSS IS RECOGNIZED WHEN
taxes, after deducting acquisition of PPE
THE EXCHANGE LACKS COMMERCIAL
trade discounts and  Cost of site
rebates preparation SUBSTANCE
 Any cost directly  Initial delivery and
attributable to handling costs
bringing the asset to  Installation and Commercial Substance
the location and assembly costs  as the event or transaction causing the cash
condition necessary  Cost of testing flows of the entity to change significantly by
for it capable of  Professional fees reason of the exchange
operating in the  When the cash flows of the asset received
manner intended by
differ significantly from the cash flows of the
management
 Estimated costs of asset transferred
dismantling and
removing the item Income earned from incidental operations
and restoring the site before an asset is put to use
Manner of Acquisition Excluded as part of  is recognized in profit or loss together with
 Cash Basis – refer Cost of Asset
the related expenses during the period such
above  Costs of opening a
 On Account – cash new facility incidental items arose. These incidental
price equivalent  Cost of introducing a operations may occur before or during the
 Exchange for non- new product or service construction or development activities
monetary assets  Costs of conducting
 For example, income may be earned by the
 Fair Value business in a new
 Carrying amount- location or with a new temporary using a building site as a car
in the absence of class of customer park until construction starts. Incidental
FV or the exchange  Administration and operations are not necessary in bringing the
lacks commercial other general cost
asset to the location and condition
substance  Cost incurred before
PPE is used intended necessary for it to be capable of operating
by the management in the manner intended by the management.
(incidental costs) Thus, income and expenses incurred from
 Initial operating losses
such operations should be recognized in
 Cost of relocating or
reorganizing part or all profit or loss immediately
of an entity’s operation

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

6 Measurement subsequent to initial the Profit/

(loss)
recognition Deficit Surplus Reverse the
 IAS 16 sets out two models for measuring previously
PPE subsequent to its initial recognition as recognized
an asset. These are the ‘cost model’ and under Other
Comprehensive
the ‘revaluation model’
Income and
COST Accumulated in
Revaluation
 Cost less any accumulated depreciation and
Reserve.
any accumulated impairment losses.
Revaluation
Residual Value
 Revalued amount, being fair value less  Is the estimated amount that an entity
accumulated depreciation and impairment would currently obtain from disposal of the
losses asset, after deducting the estimated cost of
 IAS 16 defines fair value as the ‘amount for disposal, where the asset is already of the
which an asset could be exchanged between age and at end of its useful life
knowledgeable, willing parties in an arm’s  May increase to an amount equal to or
greater than carrying amount in which case
length transaction’.
the depreciation charge is zero
 Where an item is revalued, all other assets  Shall be reviewed at least at each financial
in the same class should be revalued year-end
 Revaluations should be carried out regularly  Any change is accounted for as a change in
estimate
Carrying Amount
Service life – refers to the time an asset would
 is at which an asset is recognized in the FS
be used by an entity
(balance sheet) after deducting any
accumulated depreciation and accumulated Physical life- refers to how long the asset
would last
impairment losses regardless of using cost
or revaluation model Fully depreciated assets but still in use?
1. Apply revaluation model
The Revaluation Model  Change in accounting policy
 Carry at fair value at date of revaluation 2. Review useful life
less subsequent accumulated depreciation  Change in accounting estimate
and impairment losses Factors that shorten the useful life of an asset:
 Fair value is usually market value as physical and economic factor
determined by professionally qualified 1. Wear and tear
valuers 2. Deterioration or decay through aging or
 Revaluations shall be made with sufficient passage of time
3. Obsolescence, suppression, inadequacy
regularity such that the carrying amount
4. Expected usage of the asset
does not differ materially from that which
would be determined using fair value at the
reporting date Depreciation
 Must revalue ALL assets within class
 Is the process of allocating the cost of a
 Revalued assets must continue to be
plant asset to expense in the accounting
depreciated
periods benefiting from its use
Revaluation of Revalued PPE  Is the result of an allocation, not a valuation
First Time Second Time Accounting process
Treatment  Depreciation does not cease when it is idle
Surplus Surplus Recognized or is retired from active use unless it is
under Other already fully depreciated
Comprehensive
 The entity selects depreciation method that
Income and
is most closely reflects the expected pattern
Accumulated in
Revaluation of consumption of the future economic
Reserve benefits embodied in the asset
Deficit Deficit Recognized as  The method should be applied consistently
an expense in from period to period, unless there is a
the Profit/ change in estimate
(loss)
FORMULAS
Surplus Deficit Reverse the
previously
recognized
Surplus. Any
excess over it,
Recognized as
an expense in

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 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
Starts of depreciation of asset:
 Available for use – asset is in the location
and condition necessary for it to be capable
of operating in the manner intended by
management
Ceases the depreciation of asset:
 Earlier date that the asset is classified as
held for sale and the asset is derecognized
Straight line depreciation assumption
1. Service value declines as a function of time
rather than use
2. Ignores variation in the rate of asset use
3. It is not appropriate for the equipment on
which maintenance and repairs increase
substantially with age
Units of Production Method
 Charge is based on the expected use or
output
 If there is no output, the depreciation will
be zero
 Appropriate for manufacturers whose usage
of machinery varies by year because it
matches the cost of the machinery to the
revenue that it creates
 Appropriate for manufacturers whose usage
of machinery varies by year because it
matches the cost of the machinery to the
revenue that it creates
Diminishing Balance
 Reducing balance method
 Results in a decreasing charge over the
useful life
 Assumes that the value of a depreciating
asset decreases more in the early years of
its effective life. (the depreciation is high on
early years)
 Repair charges increases as the asset
become old
 The value of asset can never be equals to
zero
Impairment Loss
 recognize the impairment loss when the
carrying amount of the asset is not
recoverable
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The financial statements shall disclose foer
each class of PPE:
 the measurement bases used for
determining the gross carrying amount
 the depreciation methods used; the useful
lives or depreciation rates used;
 the reconciliation of the carrying amount at
the beginning and end of the period
If PPE are stated at revaluated mounts the
following shall be disclosed:
 the effective date of the revaluation;
 methods and significant assumptions
used in estimating items at fair values;
 the revaluation surplus indicating the
change for the period
PAS 23 – BORROWING COST
Qualifying assets
-are assets that necessarily takes a substantial period
of time to get ready for its intended use for sale
Excluding:
-Qualifying assets in PAS 41
-Inventories that are manufactured, others produced
in large quantities on a repetitive basis
Core Principles
-That are directly attributable to acquisition,
construction or production of a qualifying asset form
part of the cost
Capitalized borrowing costs
-when it is directly attributable to the acquisition,
construction or production of a qualifying assets,
otherwise it will be expensed
-it incurs expenditure for the asset
-It incurs borrowing costs
-It undertakes activities that are necessary to
prepare the asset for its intended use or sale
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

PAS 23 – BORROWING COST 3. Cash inflows or outflows from financing

PAS 36 – IMPAIRMENT OF ASSETS activities
4. Income tax
SCOPE OF PAS 36
IAS 36 Impairment of Assets
Discount rate for the value in use:
Does not apply to: Does apply to:
 Inventories(IAS 2)  Land, building, 1. Pre-tax rate that reflects current market
 Financial assets(IFRS machinery(IAS 16) assessments of
9)  Investment property
 Deferred Tax(IAS at cost(IAS 40) A. time value of money
12)  Intangible assets(IAS B. Risks specific to the asset for which the
 Employee 38)
benefits(IAS 19)  Goodwill
future cash flow estimates have not been
 Construction  Subsidiaries, adjusted
contracts(IAS 11) associates, JV at cost
 Investment property  Assets at revalued
at FV(IAS 40) amounts Fair value
 Agricultural assets at
FV(IAS 41)  is the price that would be received to sell
 Insurance the asset in an orderly transaction between
contracts(IFRS 4) participants at the measurement date
 Non-current assets
held for sale(IFRS 5) Costs to sell/dispose
 Costs of disposal, other than those that
have been recognised as liabilities, are
The elements in the calculation of an deducted in determining fair value less
asset value in use: Costs to sell.

1. An estimate of the future cash flows the entity Examples of such costs are:
expects to derive from the asset  legal costs, stamp duty and similar
2. Expectations about possible variations in the transaction taxes, costs of removing the
amount or timing of those future cash flows asset, and direct incremental costs to bring
3. The time value of money, represented by the an asset into condition for its sale.
current market risk-free rate of interest sum of
money is worth more now than the same sum
will be at a future date. Estimating future cash flows
-based on the economic condition of the country The following bases can be used to
with all over economic conditions estimate the future cash flows:
4. The price for bearing the uncertainty inherent
(a) base cash flow projections on
in the asset - difficulty of predicting
reasonable and supportable assumptions
outcomes because of limited or inexact
knowledge. that represent management's best estimate,
-not enough basis (b) base cash flow projections on the
5. Other factors, such as illiquidity, that market most recent financial budgets/forecasts
participants would reflect in pricing the future approved by management,
cash flows the entity expects to derive from the (c) estimate cash flow projections
asset beyond the period covered by the most
-uncertainty of predicting future cash flows recent budgets/forecasts by extrapolating
the projections based on the
Future cash flows included in estimation budgets/forecasts using a steady or
1. Cash flows projections from the continuing declining growth rate for subsequent years.
use of the asset Indications of Impairment
2. Cash flows projections necessarily incurred to
EXTERNAL SOURCES INTERNAL SOURCES
generate the cash inflows from the continuing
Decline in market value Obsolescence/ Physical
use of the asset damage
3. Net cash flows received on the disposal of the Increase in interest Significant changes
asset at the end of the useful life in an arm's rate (restructuring,
length transaction discontinuing)
Carrying amount > Internal reporting
Estimated cash flows do not include:
Market capitalization evidence
1. Future restructuring to which an entity is not Significant changes
yet committed (Market, Technology,
2. Future costs of improving or enhancing the Legal, economics)
asset's performance

APILAR, YVONNE_BSA
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS
 if the company has a strong implementation of
repair & maintenance policy, the asset cannot be
repaired
-the company can choose 2 methods subsequently.
PPE measurement methods:
-initial recognition of PPE
-subsequent recognition of PPE
What is a Cash Generating Unit (CGU)?
 the smallest identifiable group of
assets that generates cash inflows
that are largely independent of the
cash inflows from other assets or
groups of assets
Example:
Surya Tourism in a hill station
Travel agency
The have 2 CGU (BUS AND LICENSE)
Assets:
Bus:
-red bus
-green bus
-yellow bus
License:
-Operating license
-Read License
Instances when the individual recoverable
amounts cannot be determined
1. The asset's value in use cannot be
estimated to be close to its fair value
less costs of disposal
2. The asset does not generate cash
inflow that are largely independent of
those from other assets
Therefore, there is a need for the asset's
generating unit to estimate the recoverable
amount
Recoverable amount of the CGU
 Higher of the CGU's fair value less costs of
disposal and its value in use.
Carrying amount of the CGU
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1. Includes the carying amount of those assets
that can be attributed directly, or allocated
on a reasonable and consistent basis to the
CGU and will generate the future cash
inflows used in determining- the value in use
2. It does not include any recognized liability,
unless the recoverable amount of the CGU
cannot be determined without consideration
of their liability
Corporate Asset
 Are assets other than goodwill that
contribute to the future cash flows of
both the CGU under review and other
CGU.
 Examples are building of a
headquarters or a division, EDP
equipment or research center. , EDP
 They do not generate cash inflows
independently of other assets or
group of assets this recoverable
amount of an individual asset cannot
be determined unless it will be
dispose of
When there is indication that the corporate
asset is impaired, the RA of CGU it
belongs will be Used.
 The impairment loss shall be allocated to
reduce the carrying amount of the assets
Goodwill Then to other assets of the unit on
a prorate basis using the carrying amount of
each asset in the unit o In allocating the
impairment loss to the individual assets, the
entity shall not reduce the carrying amount of
the asset below the highest of Fair value less
cost of disposal Its value in use Zero
PAS 40 – INVESTMENT PROPERTY
Investment Property
-Land held for long term capital appreciation
-Land held for currently undetermined use
-Building owned by the entity and leased out under
operating lease
-A building that is vacant but held to be leased out
under operating lease
-Property that is being constructed or developed
for future use as investment property
-Limited to land/building, and the goal is to have
capital appreciation or earn rent income
-if sale of building/land, pas 2. If for rent, pas 40
-if rent to own, finance lease na
Investment property vs owner occupied property
Cash flow –
Mixed Use
 Portion used to earn rental = investment
property
 CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS

 Other portion = owner occupied property

 Significant portion=rental=investment
property
 Significant portion=use in
production/administrative use=owner
occupied property

Ancillary Service
Insignificant = investment property (janitorial
services, maintenance services)
Significant=owner occupied property(entity
manages and own the hotel, services provided to
the guests)
*hotel is not considered as lease (kay minimum
12 months man) kay temporary accomodations
rmn naa. It is an owner occupied property

Property leased to, and occupied by its

parent or another subsidiary
Consolidated FS (financial statement) = Owner
occupied property
Separate FS of the entity who owns it =
investment property

-if whether or not nagbayad ang employee ug

rent, it is an OOP, not IP. This is in a situation if
the company provides a place to live in for the
employees, whether or not the employee pays the
rent, it is an OOP.

Fair value of investment property

-is the price that would be received to sell the
asset in an orderly transaction between market
participants at the measurement date
-Equipment such as lift or air conditioning is often
an integral part of a building and is GENERALLY
INCLUDED in the FV of the investment property
-If an office is leased on a furnished basis, the FV
of the office generally includes the FV of the
furniture because the rental income relates to---

Circumtances wherein the entity cannot use Fair

value model
-in the exceptional cases, the FV of the

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