ACTIVITY SET 3F

SEMESTER 2
A.Y. 2019-2020
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

General Instruction: Identify each PAS, and define or elaborate concisely and shortly
each term or phrase under each particular standards by filling up the blanks and
missing portions.

PAS 23 – Borrowing Costs

BORROWING COTSTS – are defined as interest and other costs that an entity incurs
in connection with borrowing of funds.
QUALIFYING ASSETS for capitalizing interest cost:
 Investment property
 Manufacturing plant
 Power generation facility
 Intangible asset
CAPITALIZATION commences at:
 When the entity incurs expenditures for the asset.
 When the entity incurs borrowing costs.
 When the entity undertakes activities that are necessary to prepare the asset for
the intended use or sale.
 Capitalization SHALL be suspended only during extended period of delay in
which active development is delayed
QUALIFYING ASSET is financed by:
 Specific borrowing – provides that if the funds are borrowed specifically for the
purpose of acquiring a qualifying asset, the amount of capitalizable borrowing
cost is the actual borrowing cost incurred during the period less any investment
income from the temporary investment of those borrowings.
 General borrowing – used for acquiring a qualifying asset, the amount of
capitalizable borrowing cost is equal to the average carrying amount of the asset
during the period multiplied by a capitalization rate or average interest rate.
 PAS 36 – Impairment Of Assets

IMPAIRMENT LOSS – is a recognized reduction in the carrying amount of an asset that

is triggered by a decline in its fair value.
RECOVERABLE amount – of an asset is the fair value less cost of disposal or value in
use, whichever is higher.
VALUE in use – is measured as the present value or discounted value of future net
cash flows expected to be derived from an asset.
CASH GENERATING UNIT – is the smallest identifiable group of assets that generate
cash inflows from continuing use that are largely independent of the cash inflows from
other assets or group of assets.
CORPORATE ASSETS – are defined ad people, products, property, information, and
company reputation.
 When impairment testing a cash-generating unit, any corporate assets shall be
allocated on a reasonable and consistent basis; the usual basis is the CA of
cash-generating unit
 Allocation of impairment loss recognized for a cash generating unit – first, to any
goodwill, and the balance to the other assets on a prorate basis based on
carrying amount
REVERSAL of an impairment loss:
 The increased carrying amount of the asset shall be exceed the carrying amount
that would have been determined had no impairment loos been recognized in the
prior years
 Impairment loss recognized for goodwill shall not be reversed in a subsequent
period

PAS 6 – Exploration And Evaluation Of Mineral Resources

EXPLORATION AND EVALUATION EXPENDITURES – are expenditures incurred by

an entity in connection with the exploration and evaluation of mineral resources before
the technical feasibility and commercial viability of extracting a mineral resources.
 Exploration and Evaluation asset is classified as either: (1) tangible asset, or (2)
intangible asset.
ACCOUNTING for costs of drilling holes:
1. Successful Effort Method
 Resources are present: capitalized as cost of the resources property.
 Resources are absent: is expensed in the period incurred.
2. Full Cost Method
 Regardless of present or absent: of locating productive holes.

PAS 38 – Intangible Assets

INTANGIBLE ASSET – must be controlled by the entity as a result of past event and
from which future economic benefits are expected to flow to the entity.
Identifiable when:
 It is separable – capable of being separated from the entity and sold
transferred, licensed, rented or exchanged regardless of whether the
entity is either individually or together with a related asset or liability.
 It arises from contractual or other legal rights, regardless of whether those
rights, are transferable or separable from the entity or from other rights
and obligations

 Intangible asset that was acquired separately shall initially be recognized at FV

 Initial recognition either:
 Cost model – an intangible asset shall be carried at cost, less any
accumulated amortization and any accumulated impairment loss.
 Revaluating model
 Unrecognized intangibles by the acquired\ shall be recognized by the acquirer
 Identifiable intangibles are separated from goodwill

Intangibles acquired by way of government grant may be initially recorded at either:

 Fair value
 Nominal amount or zero, plus any expenditure that is directly attributable to
preparing the asset for its intended use
 Examples of intangibles by government grant:
 Airport
 GOODWILL shall be recognized only when it purchased as part of a business
acquisition.

RULE on amortizing intangible asset:
 Pattern of benefits if can be measured
 Otherwise, straight line method

AMORTIZATION:
 Finite useful life – the amount to be amortized is its recorded cost, less any
residual value.
 Amortization shall commence when it is available for the intended use
 Indefinite useful life – an asset means that the asset’s usefulness to the business
is not limited by age, legal or regulatory obligation, contracts, or any other
factory.

 The RESIDUAL value of an intangible asset with a finite life shall be assumed
zero, unless:
 When a third party is committed to buy the intangible asset at the end of the
useful life.
 When there is an active market for the intangible asset so that the expected
residual value can be measured and it is probable that there will be a market for
the asset at the end of the useful life.

RESEARCH – is original and planned investigation undertaken with the prospect of

gaining scientific or technical knowledge and understanding.
Search for application of research finding or other knowledge
 Search for product or process alternative
 Formulative and design of the possible product or process alternative

DEVELOPMENT – is the application of research findings or other knowledge to a plan

or design for the production of new or substantially improved material, device, product,
process, system or service, prior to the commencement of commercial production.

 If an entity cannot distinguish the research phase form the development phase of
an internal project to create an intangible asset, the entity shall treat expenditure
on tat project as fit were incurred in the research phase only
 PAS 37 – Provision, Contingent Liability And Asset

CURRENT LIABILITIES:
 Expected to be settled within the entity’s normal operating cycle
 Due to be settled within twelve months after the reporting period
 Incurred for
 No unconditional right to defer settlement
PROVISION – is an existing liability of uncertain timing or uncertain amount.
RECOGNIZED as a LIABILITY under the following condition:
 The entity has a present obligation, legal or constructive, as a result of a past
event.
 It is possible that an outflow of resources embodying economic benefits would be
required to settle the obligation.
 The amount of the obligation can be measured reliably.

LEGAL OBLIGATION is derived from the following:

 A contract (through its explicit or implicit terms)
 Legislation
 Other operation of law
CONSTRUCTIVE OBLIGATION is derived from an entity’s action where:
 By an established pattern of practice, published policy or sufficiently specific
current statement, the entity has indicated to other parties that it will accept
certain responsibilities.
 The entity has created a valid expectation on the part of those other parties that it
will discharge those responsibilities.
CONTINGENT LIABILITY:
 Possible obligation arising from past events that will be confirmed only by the
occurrence or nonoccurrence of one or more uncertain future events not wholly
within the control of the entity.
 Present obligation that arises from past events and is not recognized because it
is not probable that an outflow of resources will be required to settle the
obligation or the obligation cannot be measured reliably.
OBLIGATING EVENT – is an event that create a legal or constructive obligation
because the entity has no realistic alternative but to settle the obligation created by the
event.
ONEROUS CONTRACT – is a contract in which the aggregate cost required to fulfill the
agreement is higher than the economic benefit to be obtained from it.
RECONSTRUCTING – structed program that is planned and controlled by the
management that materially changes either the scope of a business of an entity or the
manner in which that business is conducted.

PAS 32 – Financial Instrument – Presentation

COMPOUND FINANCIAL INSTRUMENT – as a financial instrument that contains both

a liability and an equity element from the perspective of the issuer.
The issuer shall classify the liability and equity components of a compound instrument
separately as financial liability and equity instrument.
 Allocation: First, the liability component is measured at fair value and then the
remainder of the proceed is allocation to the equity component.

PERPETUAL DEBT INSTRUMENT – it may be treated as equity, not as debt. Issuers

pay coupons on perpetual bond, and they do not have to redeem the principal.

PAS 17 - Leases

FINANCE LEASE – contract that the property/asset owner allows another party to use
the property/asset in exchange for money.