Learning Module

Program: Bachelor of Science Management Topic: .Syllabus, Overview of Accounting,

Accounting Conceptual Framework and PASs
(Philippine Accounting Standards)

Course: CONCEPTUAL FRAMEWORK & Instructor: Mr. Usop M. Kasan

ACCOUNTING STANDARDS
Code ACCT04 Module #: 1 Week #: 1-2 # of
Page:

I. Preliminaries
Introduction to Discussion of the discussion of the course syllabus, over view of accounting and
the Module conceptual framework and financial reporting and PASs
Objective

Section Topics Learning Outcomes Assessment/ Modality

Evaluation

Topic 1
The course syllabus Discussion of course plan On line, thru
canvas
Topic 2 Assignment
1. OVERVIEW OF ACCOUNTING Ability to recognize the definition, Seat work LMS
a. Definition purpose, concepts, and branches of Quiz
b. PURPOSE of accounting accounting and business organization. Self-
c. Concepts of accounting
Face to Face
assessment
d. Common branches of accounting Ability to discuss the reporting
Instrument if permissible
e. Reporting standards standards.

Topic 3
CONCEPTUAL FRAMEWORK
FOR FINANCIAL REPORTING
a. Purpose, status and scope
b .Objectives and qualitative
characteristics and reporting entity Ability to illustrate the purpose, status
c. Elements of financial statements and scope.
d. Recognition and derecognition Ability to learn the objectives and
e. Measurement, presentation and qualitative characteristics.
disclosure Ability to explain the financial reporting
f. Concept of capital and capital standards and the elements of financial
maintenance position.

Topic 4
PAS 1 PRESENTATION OF
FINANCIAL STATEMENTS
a. Financial Statements Ability to illustrate the Financial
statements.
b. Complete set, General features,
Structure and content of Financial
Statements
c. Statement of financial position
d. Statement of profit and loss and
other comprehensive income
e. Statement of changes in equity
Topic 5
Ability to learn the complete set,
structures and features of financial
statements..
Ability to explain the financial of financial
position.
Ability to discuss the profit and loss and
other comprehensive income and
owner’s equity.

PAS 2 INVENTORIES
a. Definition Ability to identify the definition of
b. Measurement inventories.
c. Cost formulas Ability to recognize the measurement,
d. Net Realizable Value formulas, and the valuation of
e. Recognition as an Expense inventories.
f. Disclosures Ability to know the when to recognize
Topic 6 inventories as expense and its
disclosures in the financial statement.
PAS 7 STATEMENT OF CASH
FLOWS
a. Classification of cash flows Ability to distinguish the classification of
b. Presentation cash flows.
c. Disclosure Ability to learn the presentation and its
disclosure.

Topic 7

PAS 8 POLICIES, CHANGES IN

ACCOUNTING ESTIMATES & Ability to illustrate the accounting
ERRORS policies, changes in estimates and errors
a. Accounting policies, changes in correction.
estimates and errors

II. Instructions
 Keywords and concepts
Overview of Accounting
Conceptual Framework
Philippine Accounting Standards

Content Lecture/ Discussion

Topic 1

Course syllabus

Topic 2
OVERVIEW OF ACCOUNTING

1. Definition of Accounting
1. Accounting is “the process of identifying, measuring, and communicating economic information to permit
informed judgment and decisions by users of information.”

Three activities
1. Identifying - the process of analyzing events and transactions to determine whether or not they will be
recognized. Only accountable events are recognized.
2. Measuring - involves assigning numbers, normally in monetary terms, to the economic transactions and events.
3. Communicating - the process of transforming economic data into useful accounting information, such as
financial statements and other accounting reports, for dissemination to users.

Types of events
1. External events – events that involve an external party.
a. Exchange (reciprocal transfer) – reciprocal giving and receiving
b. Non-reciprocal transfer – “one way” transaction
c. External event other than transfer – an event that involves changes in the economic resources or
obligations of an entity caused by an external party or external source but does not involve transfers of
resources or obligations.
2. Internal events – events that do not involve an external party.
a. Production – the process by which resources are transformed into finished goods.
b. Casualty – an unanticipated loss from disasters or other similar events.

Measurement
• The several measurement bases used in accounting include, but not limited to, the following:
1. historical cost,
2. fair value,
3. present value,
4. realizable value,
5. current cost, and
6. sometimes inflation-adjusted costs.
• The most commonly used is historical cost. This is usually combined with the other measurement bases.
Accordingly, financial statements are said to be prepared using a mixture of costs and values.

Valuation
a. When measurement is affected by estimates, the items measured are said to be valued by opinion.
b. When measurement is unaffected by estimates, the items measured are said to be valued by fact

Purpose
 • The basic purpose of accounting is to provide information about economic activities intended to be useful in
making economic decisions.

Types of information as to user’s needs

• General purpose accounting information - designed to meet the common needs of most statement users. This
information is governed by the Philippine Financial Reporting Standards (PFRSs).
• Special purpose accounting information - designed to meet the specific needs of particular statement users. This
information is provided by other types of accounting, e.g., managerial accounting, tax basis accounting, etc.

Basic Concepts
• Double-entry system – each accountable event is recorded in two parts – debit and credit.
• Going concern - the entity is assumed to carry on its operations for an indefinite period of time.
• Separate entity – the entity is treated separately from its owners.
• Stable monetary unit - amounts in the financial statements are stated in terms of a common unit of measure;
changes in purchasing power are ignored.
• Time Period – the life of the business is divided into series of reporting periods.
• Materiality concept – information is material if its omission or misstatement could influence economic
decisions.
• Accrual Basis of accounting – effects of transactions are recognized when they occur (and not as cash is
received or paid) and they are recognized in the accounting periods to which they relate.
• Historical cost concept – the value of an asset is determined on the basis of acquisition cost.
• Concept of Articulation – all of the components of a complete set of financial statements are interrelated.
• Full disclosure principle – financial statements provide sufficient detail to disclose matters that make a
difference to users, yet sufficient condensation to make the information understandable, keeping in mind the
costs of preparing and using it.
• Consistency concept – financial statements are prepared on the basis of accounting policies which are applied
consistently from one period to the next.
• Matching – costs are recognized as expenses when the related revenue is recognized.
• Residual equity theory – this theory is applicable where there are two classes of shares issued, ordinary and
preferred. The equation is “Assets – Liabilities – Preferred Shareholders’ Equity = Ordinary Shareholders’
Equity.”
• Fund theory – the accounting objective is the custody and administration of funds.
• Realization – the process of converting non-cash assets into cash or claims for cash.
• Prudence (Conservatism) – the inclusion of a degree of caution in the exercise of the judgments needed in
making the estimates required under conditions of uncertainty , such that assets or income are not overstated
and liabilities or expenses are not understated.

Branches of Accounting
• Financial accounting - focuses on general purpose financial statements.
• Management accounting – focuses on special purpose financial reports for use by an entity’s management.
• Cost accounting - the systematic recording and analysis of the costs of materials, labor, and overhead incident
to production.
• Auditing - the process of evaluating the correspondence of certain assertions with established criteria and
expressing an opinion thereon.
• Tax accounting - the preparation of tax returns and rendering of tax advice, such as the determination of tax
consequences of certain proposed business endeavors.
• Government accounting - refers to the accounting for the government and its instrumentalities, placing
emphasis on the custody of public funds, the purposes for which those funds are committed, and the
responsibility and accountability of the individuals entrusted with those funds.
Four sectors in accounting practice

• Practice of Public Accountancy - involves the rendering of audit or accounting related services to more than
one client on a fee basis.
• Practice in Commerce and Industry - refers to employment in the private sector in a position which involves
decision making requiring professional knowledge in the science of accounting and such position requires that
the holder thereof must be a CPA.
• Practice in Education/Academe – employment in an educational institution which involves teaching of
accounting, auditing, management advisory services, finance, business law, taxation, and other technically
related subjects.
4. Practice in the Government – employment or appointment to a position in an accounting professional group in
the government or in a government–owned and/or controlled corporation where decision making requires professional
knowledge in the science of accounting, or where civil service eligibility as a CPA is a prerequisite

Philippine Accounting standards

• Philippine Financial Reporting Standards (PFRSs) are Standards and Interpretations adopted by the Financial
Reporting Standards Council (FRSC). They comprise:
• Philippine Financial Reporting Standards (PFRSs);
• Philippine Accounting Standards (PASs); and
• Interpretations

The need for reporting standards

• Entities should follow a uniform set of generally acceptable reporting standards when preparing and presenting
financial statements; otherwise, financial statements would be misleading.
• The term “generally acceptable” means that either:
• the standard has been established by an authoritative accounting rule-making body; or
• the principle has gained general acceptance due to practice over time and has been proven to be most
useful.
• The process of establishing financial accounting standards is a democratic process in that a majority of
practicing accountants must agree with a standard before it becomes implemented.

Topic 3

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

Purpose
• The Conceptual Framework prescribes the concepts for general purpose financial reporting. Its purpose is to:
• assist the International Accounting Standards Board (IASB) in developing Standards that are based
on consistent concepts;
• assist preparers in developing consistent accounting policies when no Standard applies to a particular
transaction or when a Standard allows a choice of accounting policy; and
• assist all parties in understanding and interpreting the Standards.
Status
• The Conceptual Framework is not a PFRS. When there is a conflict between the Conceptual Framework and
a PFRS, the PFRS will prevail.
• In the absence of a standard, management shall consider the Conceptual Framework in making its judgment
in developing and applying an accounting policy that results in useful information.
Scope
The Conceptual Framework is concerned with general purpose financial reporting. General purpose financial
reporting involves the preparation of general purpose financial statements. The Conceptual Framework provides the
concepts regarding the following:
• The objective of financial reporting
• Qualitative characteristics of useful financial information
• Financial statements and the reporting entity
• The elements of financial statements
• Recognition and derecognition
• Measurement
• Presentation and disclosure
• Concepts of capital and capital maintenance

Objective of general of financial reporting

 • The objective of general purpose financial reporting is to provide financial information about the reporting
entity that is useful to primary users in making decisions about providing resources to the entity.
• The objective of general purpose financial reporting forms the foundation of the Conceptual Framework.

Primary users
• Primary users – are those who cannot demand information directly from reporting entities. The primary users
are:
(a) Existing and potential investors
(b) Lenders and other creditors.
• Only the common needs of primary users are met by the financial statements.

Qualitative characteristics
.a. Fundamental qualitative characteristics
(1) Relevance
(a) Predictive value
(b) Feedback value
• Materiality – entity-specific aspect of relevance
(2) Faithful representation
(a) Completeness
(b) Neutrality
(c) Free from error
II. Enhancing qualitative characteristics
(1) Comparability
(2) Verifiability
(3) Timeliness
(4) Understandability

Fundamental vs. enhancing

• The fundamental qualitative characteristics are the characteristics that make information useful to users.
• The enhancing qualitative characteristics are the characteristics that enhance the usefulness of information
Relevance
• Information is relevant if it can affect the decisions of users.
• Relevant information has the following:
• Predictive value – the information can be used in making predictions
• Confirmatory value – the information can be used in confirming past predictions
• Materiality – is an ‘entity-specific’ aspect of relevance.

Faithful representation
• Faithful representation means the information provides a true, correct and complete depiction of what it
purports to represent.
• Faithfully represented information has the following:
• Completeness – all information necessary for users to understand the phenomenon being depicted is
provided.
• Neutrality – information is selected or presented without bias.
• Free from error – there are no errors in the description and in the process by which the information is
selected and applied.

Qualitative characteristics
• Comparability – the information helps users in identifying similarities and differences between different sets
of information.
• Verifiability – different users could reach consensus as to what the information purports to represent.
• Timeliness – the information is available to users in time to be able to influence their decisions.
• Understandability – users are expected to have:
• reasonable knowledge of business activities; and
• willingness to analyze the information diligently.

Financial Statements and reporting entity

Objective and scope of financial statements
• The objective of general purpose financial statements is to provide financial information about the reporting
entity’s assets, liabilities, equity, income and expenses that is useful in assessing:
• the entity’s ability to generate future net cash inflows; and
management’s stewardship over economic resources

Reporting period
 • Financial statements are prepared for a specific period of time (i.e., the reporting period) and include
comparative information for at least one preceding reporting period.
Going concern
• Financial statements are normally prepared on the assumption that the reporting entity is a going concern,
meaning the entity has neither the intention nor the need to end its operations in the foreseeable future.
Reporting entity
• A reporting entity is one that is required, or chooses, to prepare financial statements, and is not necessarily a
legal entity. It can be a single entity or a group or combination of two or more entities.

Elements of financial statements

Elements of financial position

Asset is “a present economic resource controlled by the entity as a result of past events. An economic resource is a
right that has the potential to produce economic benefits.”
Liability is “a present obligation of the entity to transfer an economic resource as a result of past events.”
“Equity is the residual interest in the assets of the entity after deducting all its liabilities.”

Elements of financial performance

Income is “increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to
contributions from holders of equity claims.”
Expenses are “decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating
to distributions to holders of equity claims.”

Recognition and derecognition

Relevance
• The recognition of an item may not provide relevant information if, for example:
• it is uncertain whether an asset or liability exists; or
• an asset or liability exists, but the probability of an inflow or outflow of economic benefits is low.
(Conceptual Framework 5.12)
However, the presence of one or both of the foregoing does not automatically lead to the non-recognition of
an item. Other factors should also be considered.
Faithful representation
• The level of measurement uncertainty and other factors can affect an item’s faithful representation, but not
necessarily its relevance.
Measurement uncertainty
• Measurement uncertainty exists if the asset or liability needs to be estimated. A high level of measurement
uncertainty does not necessarily lead to the non-recognition of an asset or liability if the estimate provides
relevant information and is clearly and accurately described and explained.
• However, measurement uncertainty can lead to the non-recognition of an asset or a liability if making an
estimate is exceptionally difficult or exceptionally subjective.
Derecognition
• Derecognition is the removal of a previously recognized asset or liability from the entity’s statement of
financial position.
• Derecognition occurs when the item ceases to meet the definition of an asset or liability.
Measurement bases
• Historical cost
Current value
• Fair value
• Value in use and fulfilment value
• Current cost
The historical cost of:
a. an asset is the consideration paid to acquire the asset plus transaction costs.
b. a liability is the consideration received to incur the liability minus transaction costs.
Historical cost
Historical cost is updated over time to depict the following:
a. Depreciation, amortization, or impairment of assets
b. Collections or payments that extinguish part or all of the asset or liability
 c. Unwinding of discount or premium when the asset or liability is measured at amortized cost
Fair value is “the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date.”

Value in use is “the present value of the cash flows, or other economic benefits, that an entity expects to derive from
the use of an asset and from its ultimate disposal.”
Fulfilment value is “the present value of the cash, or other economic resources, that an entity expects to be obliged to
transfer as it fulfils a liability.”
Entry and Exit values
• Current cost and historical cost are entry values (i.e., they reflect prices in acquiring an asset or incurring a
liability), whereas fair value, value in use and fulfilment value are exit values (i.e., they reflect prices in
selling or using an asset or transferring or fulfilling a liability).
Measurement of equity
• Total equity is not measured directly. It is simply equal to difference between the total assets and total
liabilities.
• Because different measurement bases are used for different assets and liabilities, total equity cannot be
expected to be equal to the entity’s market value nor the amount that can be raised from either selling or
liquidating the entity.
• Equity is generally positive, although some of its components can be negative. In some cases, even total
equity can be negative such as when total liabilities exceed total assets.

Presentation and disclosure

• Information is communicated through presentation and disclosure in the financial statements.
• Effective communication makes information more useful. Effective communication requires:
• focusing on presentation and disclosure objectives and principles rather than on rules.
• classifying information by grouping similar items and separating dissimilar items.
• aggregating information in a manner that it is not obscured either by excessive detail or by excessive
summarization.
Presentation and disclosure objective and principle
• The objectives are specified in the Standards.
• The principles include:
• the use of entity-specific information is more useful that standardized descriptions, and
• duplication of information is usually unnecessary.
Classification
• Classifying means combining similar items and separating dissimilar items.
• Offsetting of assets and liabilities is generally not appropriate.
Classification of income and expenses
• Income and expenses are classified as recognized either in:
• profit or loss; or
• other comprehensive income.
Aggregation is “the adding together of assets, liabilities, equity, income or expenses that have shared characteristics
and are included in the same classification.”

Concept of cost of capital and capital maintenance

• Financial concept of capital – capital is regarded as the invested money or invested purchasing power.
Capital is synonymous with equity, net assets, and net worth.
• Physical concept of capital – capital is regarded as the entity’s productive capacity, e.g., units of output per
day.

Topic 4
PAS 1 PRESENTATION OF FINANCIAL STATEMENTS

Objective
PAS 1 prescribes the basis for presentation of general purpose financial statements to improve comparability both
with the entity's financial statements of previous periods (intra-comparability) and with the financial statements of
other entities (inter-comparability).
General purpose of financial statements
• General purpose financial statements are those intended to serve users who do not have the authority to
demand financial reports tailored for their own needs. General purpose financial statements cater to most of
the common needs of a wide range of external users. General purpose financial statements are the subject
matter of the Conceptual Framework and the PFRSs.

Complete set of financial statements

• Statement of financial position
• Statement of profit or loss and other comprehensive income
• Statement of changes in equity
• Statement of cash flows
• Notes (5a) comparative information in respect of the preceding period; and
• Additional statement of financial position (required only when certain instances occur)

General features
1. Fair Presentation and Compliance with PFRSs - The application of PFRSs, with additional disclosure when
necessary, is presumed to result in financial statements that achieve a fair presentation.
2. Going concern - An entity is not a going concern if, as of the financial reporting date or prior to the date of
authorization of the financial statements for issue, management either:
a. Intends to liquidate the entity or to cease trading, or
b. Has no realistic alternative but to do so.
• The assessment of going concern is at least 12 months.
3. Accrual Basis of Accounting - An entity shall prepare its financial statements, except for cash flow information,
using the accrual basis of accounting.
4. Materiality & Aggregation - Each material class of similar items must be presented separately in the financial
statements.
5. Offsetting - Assets and liabilities, and income and expenses, shall not be offset unless required or permitted by a
PFRS.
• Measuring assets net of valuation allowances, for example, obsolescence allowances on inventories,
allowances for doubtful accounts on receivables, and accumulated depreciation on property, plant, and
equipment are not offsetting.
6. Frequency of reporting – An entity shall present a complete set of financial statements (including comparative
information) at least annually.
• When an entity changes the end of its reporting period and presents financial statements for a period longer or
shorter than one year, an entity shall disclose the following:
• The period covered by the financial statements,
• The reason for using a longer or shorter period, and
• The fact that amounts presented in the financial statements are not entirely comparable.
7. Comparative Information
An entity shall present comparative information in respect of the preceding period for all amounts reported in the
current period’s financial statements, unless other standards permit or require otherwise.
8. Consistency of presentation - An entity shall retain the presentation and classification of items in the financial
statements from one period to the next unless:
• it is apparent that another presentation or classification would be more appropriate following a
significant change in the nature of the entity’s operations or a review of its financial statements; or
• a PFRS requires a change in presentation.
•
Additional statement of financial position
• An additional statement of financial position is presented as at the beginning of the preceding period when an
entity:
• Applies an accounting policy retrospectively, or
• Makes a retrospective restatement of items in its financial statements, or
• reclassifies items in its financial statements.
…..and the effect of the event to the statement of financial position as at the beginning of the preceding period is
material.

Statement of financial position

• A statement of financial position may be presented as either
• Classified – showing distinctions between current and noncurrent assets and liabilities, or
• Unclassified (based on liquidity) – showing no distinction between current and noncurrent items
Current Asset
• An entity shall classify an asset as current when:
• it expects to realize the asset or intends to sell or consume it, in its normal operating cycle;
• it holds the asset primarily for the purpose of trading;
• it expects to realize the asset within twelve months after the reporting period; or
• the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to
settle a liability for at least twelve months after the reporting period.
Current liability
• An entity shall classify a liability as current when:
• it expects to settle the liability in its normal operating cycle;
• it holds the liability primarily for the purpose of trading;
• the liability is due to be settled within twelve months after the reporting period; or
• the entity does not have an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period.
Currently maturing long termobligations
• General rule: Currently maturing long term liabilities are presented as current liabilities.
• Exceptions:
• Refinancing agreement is fully completed on or before the balance sheet date – non-current liability
• Refinancing agreement after the balance sheet date but before the financial statements are authorized
for issue – noncurrent liability if the entity expects, and has the discretion, to refinance it on a long-
term basis under an existing loan facility.
Breach of loan agreement
• General rule: A liability that is payable on demand is a current liability.
• Exception: It is presented as non-current liability if the lender provides the entity, on or before the balance
sheet date, a grace period ending at least 12 months after the balance sheet date to rectify a breach of loan
covenant.

Deferred tax liabilities (assets) are presented as noncurrent items in a classified statement of financial position,
irrespective of their expected dates of reversal.

Minimum line items in the statement of financial position

• Property, plant and equipment;
• Investment property;
• Intangible assets;
• Financial assets (excluding amounts shown under (e), (h) and (i));
• Investments accounted for using the equity method;
• Biological assets;
• Inventories;
• Trade and other receivables;
• Cash and cash equivalents;
• Assets (or disposal groups) classified as held for sale in accordance with PFRS 5;
• Trade and other payables;
• Provisions;
• Financial liabilities (excluding amounts shown under (k) and (l));
• Liabilities and assets for current tax, as defined in PAS 12 Income Taxes;
• Deferred tax liabilities and deferred tax assets, as defined in PAS 12;
• Liabilities included in disposal groups classified as held for sale in accordance with PFRS 5;
• Non-controlling interests, presented within equity; and
• Issued capital and reserves attributable to owners of the parent

• PAS 1 does not prescribe the order or format in which an entity presents items.

Statement of profit or loss and other comprehensive income

• An entity shall present all items of income and expense recognized in a period:
• in a single statement of profit or loss and other comprehensive income; or
• in two statements: (1) a statement displaying the profit or loss section only (separate ‘statement of
profit or loss’ or ‘income statement’) and (2) a second statement beginning with profit or loss and
displaying components of other comprehensive income.
• PAS 1 prohibits the presentation of any items of income or expense as extraordinary items in the statement(s)
presenting profit or loss and other comprehensive income or in the notes.
Other comprehensive income for the period
• Changes in revaluation surplus
• Unrealized gains and losses on investments in FVOCI securities
• Remeasurements of the net defined benefit liability (asset)
• Gains and losses arising from translating the financial statements of a foreign operation
• Effective portion of gains and losses on hedging instruments in a cash flow hedge
• OCI may be presented either (a) net of tax or (b) gross of tax.

• Reclassification adjustments are amounts reclassified to profit or loss in the current period that were
recognized in other comprehensive income in the current or previous periods.

• Total comprehensive income comprises all components of

• Profit or loss; and
• Other comprehensive income.

Presentation of expenses
• Nature of expense method
• Function of expense method
• If an entity classifies expenses by function, it shall disclose additional information on the nature of expenses

• Dividends declared by an entity are disclosed either in the (a) notes or (b) statement of changes in equity.

Order of presentation of disclosures in the Notes

• Statement of compliance with PFRSs;
• Summary of significant accounting policies applied;
• Supporting information for items presented in the other financial statements; and
• Other disclosures.

Topic 5

PAS 2 INVENTORIES

Inventories are assets:

• Held for sale in the ordinary course of business (Finished Goods);
• In the process of production for such sale (Work In Process); or
• In the form of materials or supplies to be consumed in the production process or in the rendering of services
(Raw materials and manufacturing supplies).

Financial statement presentation

• All items that meet the definition of inventory are presented on the statement of financial position as one line
item under the caption “Inventories.” The breakdown of this line item (as finished goods, WIP and Raw
materials) is disclosed in the notes.
• Inventories are normally presented in a classified statement of financial position as current assets.
Measurement
• Inventories are measured at the lower of cost and net realizable value (NRV).
• The cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition.
Net realizable value (NRV) is the estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale.
Costs that are EXPENSED when incurred
Abnormal amounts of wasted materials, labor or other production costs.
Selling costs, for example, advertising and promotion costs and delivery expense or freight out.
Administrative overheads that do not contribute to bringing inventories to their present location and condition.
Storage costs, unless those costs are necessary in the production process before a further production stage, (e.g.,
the storage costs of partly finished goods may be capitalized as cost of inventory, but the storage costs of
completed finished goods are expensed).

Cost Formulas
Specific identification - shall be used for inventories that are not ordinarily interchangeable (i.e., used for
inventories that are unique). Cost of sales is the cost of the specific inventory that was sold.
FIFO – cost of sales is based on the cost of inventories that were purchased first. Consequently, ending inventory
represents the cost of the latest purchases.
Weighted Average Cost – cost of sales is based on the average cost of all inventories purchased during the
period.
Wtd. Ave. Cost = (TGAS in pesos ÷ TGAS in units)
Write down of inventories
• Inventories are usually written down to net realizable value on an item by item basis.
• If the cost of an inventory exceeds its NRV, the inventory is written down to NRV, the lower amount. The
excess of cost over NRV represents the amount of write-down.
Reversal of write-downs
• The amount of reversal to be recognized should not exceed the amount of the original write-down previously
recognized.
Recognition as an expense
• The carrying amount of an inventory that is sold is charged as expense (i.e., cost of sales) in the period in
which the related revenue is recognized. Likewise, the write-down of inventories to NRV and all losses of
inventories are recognized as expense in the period the write-down or loss occurs.

Topic 6

PAS 7 STATEMENT OF CASH FLOWS

• The statement of cash flows provides information about the sources and utilization (i.e., historical changes) of
cash and cash equivalents during the period. The statement of cash flows presents cash flows according to the
following classifications:
• Operating activities
• Investing activities
• Financing activities
Activities
• Operating activities include transactions that enter into the determination of profit or loss. These transactions
normally affect income statement accounts.
• Investing activities include transactions that affect long-term assets and other non-operating assets.
• Financing activities include transactions that affect equity and non-operating liabilities.
Examples – cash flow from operating activities
• cash receipts from the sale of goods, rendering of services, or other forms of income
• cash payments for purchases of goods and services
• cash payments for operating expenses, such as employee benefits, insurance, and the like, and payments or
refunds of income taxes
• cash receipts and payments from contracts held for dealing or trading purposes
Examples – cash flow from investing activities
• cash receipts and cash payments in the acquisition and disposal of property, plant and equipment, investment
property, intangible assets and other noncurrent assets
• cash receipts and cash payments in the acquisition and sale of equity or debt instruments of other entities
(other than those that are classified as cash equivalents or held for trading)
• cash receipts and cash payments on derivative assets and liabilities (other than those that are held for trading
or classified as financing activities)
• loans to other parties and collections thereof (other than loans made by a financial institution)
Examples – cash flow from financing activities
• cash receipts from issuing shares or other equity instruments and cash payments to redeem them
 • cash receipts from issuing notes, loans, bonds and mortgage payable and other short-term or long-term
borrowings, and their repayments
• cash payments by a lessee for the reduction of the outstanding liability relating to a lease.

Highlights

Core principles

Interest and dividend

Reporting cash flows from operating activities

• Direct method - shows each major class of gross cash receipts and gross cash payments.
• Indirect method - adjusts accrual basis profit or loss for the effects of changes in operating assets and
liabilities and effects of non-cash items.

Topic 7

PAS 8 POLICIES, CHANGES IN ACCOUNTING ESTIMATES & ERRORS

• PAS 8 prescribes the criteria for selecting, applying, and changing accounting policies and the
accounting and disclosure of changes in accounting policies, changes in accounting estimates and
correction of prior period errors.

Objective and Scope

• PAS 8 prescribes the criteria for selecting, applying, and changing accounting policies and the
accounting and disclosure of changes in accounting policies, changes in accounting estimates and
correction of prior period errors.

• Accounting policies are “the specific principles, bases, conventions, rules and practices applied by an entity in
preparing and presenting financial statements.” (PAS 8.5)
• Accounting policies are the relevant PFRSs adopted by an entity in preparing and presenting its financial
statements
• Philippine Financial Reporting Standards (PFRSs) are Standards and Interpretations adopted by the Financial
Reporting Standards Council (FRSC). They comprise the following:
• Philippine Financial Reporting Standards (PFRSs);
• Philippine Accounting Standards (PASs); and
• Interpretations
 • When it is difficult to distinguish a change in accounting policy from a change in accounting estimate, the
change is treated as a change in an accounting estimate.
• An entity shall change an accounting policy only if the change:
1. is required by a PFRS; or
2. results to a more relevant and reliable information about an entity’s financial position, performance,
and cash flows.
Examples of changes in accounting policy
1. Change from FIFO cost formula for inventories to the Average cost formula.
2. Change in the method of recognizing revenue from long-term construction contracts.
3. Change to a new policy resulting from the requirement of a new PFRS.
4. Change in financial reporting framework, such as from PFRS for SMEs to full PFRSs.
5. Initial adoption of the revaluation model for property, plant, and equipment and intangible assets.
6. Change from the cost model to the fair value model of measuring investment property.
7. Change in business model for classifying financial assets resulting to reclassification between financial asset
categories.
Examples of changes in accounting estimate
1. Change in depreciation or amortization methods
2. Change in estimated useful lives of depreciable assets
3. Change in estimated residual values of depreciable assets
4. Change in required allowances for impairment losses and uncollectible accounts
5. Changes in fair values less cost to sell of non-current assets held for sale and biological assets
Errors
• Errors include the effects of:
1. Mathematical mistakes
2. Mistakes in applying accounting policies
3. Oversights or misinterpretations of facts; and
4. Fraud
 Viable and vibrant Activities
Description of the Learning Activities

Individual/ group assignment and seatwork/homework will be provided on line or hard copy.

Quiz/zes involve problem solving taken from the text book/s.

a. Opportunity to reflect and articulate students’ acquired knowledge.

Purpose of the activity

1. Tackle more complex problems than they could on their own.
2 Delegate roles and responsibilities.
3. Hold one another (and be held) accountable.
4. Receive social support and encouragement to take risks

Evaluations Criteria
Rubrics
Points Scoring criteria
40- 50 The students answer the question correctly. (correctly and complete)
26- 39 The student does not use proper data from lecture notes to answer the question. (partially correct)
11 - 25 The student does not use any data from lecture notes to answer the question. (incorrect answer)
0 - 10 The student does not know how to answer the question.

Summary and Reflection

[This section required student to fill up a learning journal]

b. Textbooks and other References

Text book:
COnceptual Frameworks and accounting standards F.V. b. Millan. Bandolin. Baguio . 2019 edition

Other references:
Conceptual Framework and Accounting Standards. Aduana, N. L. C & E Publishing, Inc. Manila 2019
edition
 The TCC Learning Module Component Details

Each course module shall independently design from students’ available resource to ensure
that students will learn from the designed teaching and learning materials. Further, it is intentionally
designed containing components with acronym PIVOT which is the same acronym of the City
Government and the College Core Values (Professionalism, Integrity, Value for Excellence, Open
for Innovation, Teamwork) to instill amongst TCCians the spirit of these core values exceptionally in
the midst of crisis.

P
reliminaries. An introduction to the module objectives, contents, its rationale or purpose, list
of assignments, activities, lecture notes, test/quizzes, and due dates. This is a place to
provide a rationale and highlight the module’s relevance by describing how it fits into the
course, and may provide a brief overview of new material. It is also a place to remind students what
they have already learned and how this new information will build on their previous knowledge.

 Introduction: A general statement about the nature of the module and its relation to the
course as a whole. The introduction should not only introduce the topic of the module, but
should also forecast the content and organization of the module itself.
 Module Learning Objectives: These objectives should be the specific outcomes that relate
to each individual module, not the objectives that relate to the entire course. Students should
be explicitly and clearly told what they are expected to learn in each module. It is very
important to make sure that the module outcomes align properly with the assessments in the
same module.
 Learning outcomes are direct statements that describe the knowledge, skills, and attitudes
that students are expected to reliably demonstrate in successfully completing a course. They
describe learning that is significant and durable– learning that really matters in the long term.
Learning Outcomes should be observable, assessable in some way, and both rigorous and
 flexible (rigorous in that they specify the complexity of learning expected and flexible in that
the learning may be demonstrated in a variety of ways).

I
nstructions. This part of the module discourses the subject matter. It contains lectures and
instructions supported by any reading or visual material like instructor prepared text, PowerPoint
slides, Web sites, articles, graphic organizers, or other media and material. This would also be
the place to link discussion boards, audio files, video conferencing, and chat room discussions that
are serve as the means of interaction between students and faculty for this module period and help
students meet the objectives associated with this period of time in the course.

 Key Words and Concepts: A list of keywords with definitions, perhaps listed for emphasis
so that the student will be on the alert for an explanation or definition later in the module.
 Content Lectures/Discussions: This can be a very broad area to cover and may include
multiple topics separated into sections. Therefore, you may want to link your discussion to
your presentation related to the module.

V
iable and vibrant Activities. This is where faculty would list assignments/activities related
to this specific course module. This section contains activities that ways for students to
engage with each other in discussion and with the information and concepts. This section
actively engages students with the course material and explicitly practice or review, apply, analyze
or synthesize through discussion, exercises, laboratories, problem solving, case studies, role plays,
test, quiz, essay, journal or portfolio entry, peer evaluation, or self-evaluation and other methods.

 Collaborative and interactive activities that will facilitate communication between and
among students, including group projects, discussion questions, or other types of
communication and collaboration.
 Assignments. While the assignments were listed in the preliminaries, here is a chance to
describe the assignments in detail and to provide students with the needed information and
resources, including the due dates. If there are more than one type of assignment the module
may have a page for each.

pportunity to reflect and articulate students’ acquired knowledge. This section provides

O clear and explicit details on how students will evaluate/ assess their work/performance. This
section encourages students to fill up the college Standard Learning Journal (SLJ), it further,
explained how the faculty will give feedback to students regarding their learning and
accomplishment of the module objectives.

 Evaluations. All assessments should contain detailed explanations of their purpose, with full
descriptions of how students are to complete and submit them. Assessment and Evaluation
tools are specified under this section.
 Summary and Reflection. This section provides a way to engage the student in a dialogue
about what they have learned by completing the module. This dialogue might take place in
an online or classroom discussion, in a small-group activity, or through a writing assignment.
It might also contribute to a student’s grade for participation.
 Standard Learning Journal. A standardized form use to record the collection of notes,
observations, thoughts and other relevant materials built up over a period of time and maybe
a result of a period of study, learning and/or working experience. Its purpose is to enhance
student’s learning through the process of writing and thinking about your learning
experiences. Student learning journal is personal to them and will reflect their personality,
 preferences and experiences. (With Attached copies of Learning Journal Guidelines and SLJ
Form).

T
extbooks and other References. This part contains textbook and reference used in the
module. It also covers possibly additional resources supplemental or complementary
materials relevant to the module essential for students to extend their learning through
enriching activities and evaluation. Be certain to clearly and explicitly designate a note for optional
materials or required materials. Specify a time period within the duration of the module for student
to browse the required materials.

Notes:

1. This Learning Module will be submitted to the office of Academic Affair along with the course
syllabus before the actual opening of classes on August 17, 2020.
2. Faculty are required to divide their lessons into eight(8) major modules.
3. Each module requires Powerpoint Presentation and Learning Module in Soft and Hard
copies.
4. Each faculty member will be required to create account per subject from the required LMS.
5. Only materials and activities specified in the module will be allowed to upload in the LMS
(Learning Management System).