Conceptual Framework and Accounting Standards. Note OVERVIEW OF ACCOUTING Accounting is the ‘process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information” (AAA). Important Activities in Accounting 1. Identifying — analyzing events and transactions to determine whether or not they will be recognized Recognition — including the effects of an accountable event through journal entry ea Caer not recognized as accounting; but if it has accounting one Mab attedts coonomls souvies) relevance it is recorded in memorandum entry ‘Type of Events or Transactions * External Events ~ involve extemal party I. Exchange (reciprocal transfer) ~ give and receive li. Non-reciprocal transfer — give but not receive (e.g... donation, tax) lif. External event other than transfer- changes in economic resources or obligations but no transfer happened (e.g. price levels, technological changes) + Internal Events — do not involve external party i. Production - resources are transformed into finished goods li, Casualty — unanticipated loss. 2. Measuring — assigning numbers in monetary terms ~ FS are prepared using mixture of costs and values. FS are mixture of fact and opinion + Valued by Opinion — measuromont affected by estimatos + Valued by Fact — measuromont not affected by estimates 3. Communicating — transferring economic data into useful accounting information for dissemination and interpretation ‘Three Aspects of Communicating Process in Accounting: 1. Recording — writing the accountable events through journal entry 2. Classifying — grouping of similar items into their respective classes through posting 3. Summarizing — expressing in condensed form which include preparations of accounting reports NOTE: Interpreting the processed information is computing of financial statement ratios. BASIC PURPOSE OF ACCOUNTING * To provide Information useful in making economic decisions * Economic entity — combination of people and property that uses economic resources to achieve ceriain goals. Types of economic entity > Not-for-profit entity > Business entity Economic activities are activities that affect the economic resources, obligations and the equity of an ‘economic entity. Economic activities involve: 1. Production 8. Consumption 5. Savings 2. Exchange 4. Income Distribution 6. Investments, ‘Types of Information Provided by Accounting 1. Quantitative Information — numbers, quantities or units 2. Qualitative Information — words or description form; usually found in notes 3. Financial Information — money ‘Types of Accounting Information Classified to User's Need 1. General Purpose Accounting Information — common need of most statement users 2. Special Purpose Accounting Information — specific needs of particular users The practice of accounting requires the exercise of: CENCE E using imagination and insight | identifies alternative solutions logical analysis evaluates alternative solutions ACCOUNTING CONCEPTS - principles upon which the accounting process is based (accounting ‘assumptions or accounting theory) [Page wvwovmcomso EY studocuConceptual Framework and Accounting Standards Notes Double-entry system — debit and credit Going Concern Assumption — assumes continual operation and not expect to end Separate Entity — owners’ personal transactions are separated from the business Stable Monetary Unit — accountable events aro expressed in terms of common unit purehasing power is considered stable regardless of instability + Time Period ~ life of reporting period of entity, usually 12 months > Calendar Year —stars at January’ > Fiscal Year — staris on a dato other than January 1 Matoriality Concept — a judgmont that is basod on its size and nature Cost-benofit — cost must equal benefit Accrual Basis — the effects of transactions are recognized when they occur and not as cash is received or paid + Historical Cost Concept (Cost Principle) — the asset valve is based on the acquisition cost Concept of Articulation — all the componenis of a compleie set of financial statements are interrelated Full Disclosure Principle — including enough details to make information understandable Consistency Concept - using the same accounting principle of different periods Matching — costs are recognized as expenses when the related revenue is recognized Entity Theory — proper income determination (A=L+C) ~ income statement Propriety Theory — proper valuation of assets (A-L-C)— balance sheet Residual Equity Theory — appiicable when there are two classes of shares issued (ordinary and proferred (A:L-Proferred Shareholder's Equity=Ordinary Sharehoiders Equity) Fund Theory — custody and administration of funds (cash inflows - cash outhows=funds) Realization — converting non-cash assets into cash or claims for cash Prudence (Conservatism) — use of caution when making estimates; does not allow deliberate assets’ understatement or liabilities’ overstatement (¢.g., cookie jar reserve); choosing least effect on equity EXPENSE RECOGNITION PRINCIPLES. © Matching Concept (Direct Association of Costs and Revenues) ~ cost that are airecily related to the revenue are recognized as expenses in the same period + Systematic and Rational Allocation — cost that are not directly related to the revenue are recognized are assets first and are recognized as expenses when consumed using some method of allocation (e.g., depreciation, amortization) + Immediate Recognition — cost that do not meet or ceases to meet the definition of assets are expensed immediately (e.g., casually and impairment losses) (COMMON BRANCHES OF ACCOUNTING * Financial Accounting — focuses on general purpose financial statements > Financial Statement (FS) ~ entity's financial position and results of its operations and aro communicated to users > Financial Report — FS plus other information to help in making efficient economic decisions and | useful to extornal users. Objectives of financial reporting is 16 provide information: 1. Entity’s economic resources, claims and changes 2. Useful in assessing the entity's management stewardship Management Accounting — communication of information for use by internal users + Cost Accounting - systematic recording and analysis of cost of materials, labor and overhead incident to production Auditing - evaluating with established criteria and express opinion to ensure fairness and reliability Tax Accounting — preparations of tax returns and rendering of tax advice Government Accounting — custody of public funds, its purpose, and the responsibilty and accountability of entrusted individual * Fiduciary Accounting — handling accounts managed by a person for the benefit of other * Estate Accounting — handling accounts for fiduciaries who wind up the affairs of deceased person * Secial Accounting - communicating the social and environmental effects of an entity's economic actions to the society Institutional Accounting — for non-profit entities other than government Accounting Systems — installation of accounting procedures for the accumulation of financial data and designing of accounting forms for data gatheringConceptual Framework and Accounting Standards Notes * Accounting Research — careful analysis of economic events and other variables to understand their impact of decisions Bookkeeping ~ recording the account or transaction of an entity ends with the preparation of trial balance does not require interpretation Accountancy ~ profession or practice of accounting either public or private practice PHILIPPINE ACCOUNTANCY ACT OF 2004 (R.A. 9298) Sectors in the Practice of Accountancy 1. Practice in Public Accountancy — rendering service to more than one client on fee basis 2 Practice in Commerce and Industry — employment in private sector 3. Practice in Education/Academe — employment in educational insttutions 4. Practice in Government ~ employment in government or controlled corporations: NOTE: 2 and 4 are considered private practice. ACCOUNTING STANDARDS USED IN THE PHILIPPINES * Philippine Financial Reporting Standards (PFRS) — Philippinos GAAP is basod on IFRS. PERS is comprised of: ‘a. Philippine Financial Reporting Standards (PFRS) b. Philippine Accounting Standard (PAS) c._ Interpretations Reporting standards is necessary to become comparable, avoid fraudulent reporting, and right ‘economic decisions. Selection of appropriate accounting policies is the entity's management rosponsibility. Howover, tho Proper application of accounting principles is the accountant's responsibilty. ACCOUNTING STANDARD SETTING BODIES AND OTHER RELEVANT ORGANIZATION 4. Financial Reporting Standard Council (FRSC) — official accounting standard setting body of the Philippine created under RA 298 2. Philippine Interpretations Committee (PIC) — predecessor of FRSC which reviews the interpretations of International Financial Reporting Interpretations Gommittee (IFRIS) for approval and adoption by the FRSC. 3. Board of Accountancy (BOA) — supervise the registration, licensure and practice of accountancy in the Philippines 4. Securities and Exchange Commission (SEC) ~ regulates corporations and partnership, capital and investment marks, and the investing public 5. Bureau of Internal Revenue (BIR) — administers the provisions of the National Internal Revenue 6. Code Cooperative Development Authority (GDA) — influences the selection and application of accounting policies by cooperatives NOTE: Accounting policies prescribes by a regulalory body are sometimes refered to 2s regulatory accounting principles. International Accounting Standards Board (IASB) — standard setting body of the IFRS Foundation with the main dbjectives of developing and promoting global accounting standards. Standards issued: International Financial Reporting Standards (IFRS) International Accounting Standards (IASs) + Interpretations ‘The move to IFRS was primarily brought by the increasing acceptance of IFRSs world-wide and increasing intemalization of business thereby increasing the need for a common financial reporting standards that minimize, if not eliminate, inconsistencies of financial reporting among nations Norwalk Agreement — a memorandum of FASB (USA) and IASB to produce a single set of global accounting standards, in which they agree to make financial reporting standards that are: a. Fully compatible; and b. Coordinate future work programs Changos to reporting standards are primarily made in response to users’ needs and continually provide Useful information. 31Page Thascumeniamninieterctcinmen Ey studocuConceptual Framework and Accounting Standards Notes CONCEPTUAL FRAMEWORK AND REPORTING STANDARD Prescrives the concept for general purpose financial reporting to assist IASB in developing standards, assist prepares in developing consistent accounting policies when no standard applies to a transaction ‘and assist all parties in understanding and interpreting standards. CONCEPTUAL FRAMEWORK * Provide foundation for the development of standards that promote transparency, strengthen accountability, and contribute to economics efficiency + Do not provide requirements for specific transactions or events © Gonceptual framework is nota standard. Any conflict between the two, standard will prevail Use the hierarchy of standard for guidance in authoritative status. (See PAS 2 for reference) This can be revised but not automatically result to change of Standards not until the IASB due process * Scope of Conceptual Framework OBJECTIVE OF FINANCIAL REPORTING as + Foundation of the Conceptual Framework > Existing and potential investors + Provide tmanciainfermatin that is uaafl to primary users | > Lenders and crediors in making decisions about providing resources to the entity. | Cannot demand specific information + Decsions of primary usore aro based on aseassmont of an | EMtty only provides ont’ prospect for future net Inflows and management Stewardship. Hence, users need information of ent trancial positon, financial performance, and Sther changes in ancial positon, and seeots”utizalon. Rs) General Purpose Financial Reporting Caters most of the common need of most primary users Do not directly show the value of eniity but only information that help users estimates entity value. Providing information requires estimates and judgment 1. Finanelal Position — information on resources (assets) and claims (liabilities and equity) > This can help users in assessing entity's: + Liquidity and solvency — abie to pay short and long-term obligations, respectively + Needs for additional financing + Management's stewardship 2. Changes in economic resources and claims — information on financial pertormance and other events or transaction that led to the said change QUALITATIVE CHARACTERISTICS Identifies the most useful information to primary users in making decisions using entity's financial report Applicable to information in FS and to financial information provided in other ways 1. Fundamental Qualitative Characteristics — information useful to users a. Relevance — can affect decision of users * Predictive Value — making predictions using past info * Confirmatory Value — confirming previous decisions > Materiality ‘Information is material if omitting or misstating it could influence primary users’ decision + Entity-specific + IFRS Practice Statement 2 Making Materiality Judgments provide non-mandatory guidance called materiality process. Below are the four steps: 1. Cost-Benefit Principle. However, cost is not a factor when making materiality judgment 2. Assess whether step 1 information could influence the user's decisions by: a[PaceConceptual Framework and Accounting Standards Notes a. Items nature or size or both b. Quantitative and qualitative tactors > Quantitative factors — size of impact and can be assessed in relation to another amount percentage or a threshold amount - CF and the standard do not specify a quantitative threshold since itis a judgment > Qualitative factors — characteristic of item or context: (i) entity specific and (ii) external qualitative factors No hierarchy among factors, but an entity normally assesses an item first in quantitative factors: > If itis quantitatively material, no need to reassess qualitative factors, > If not quantitatively material, needs to reassess qualitative factors 8. Maximizes understandability to users by organizing FS draft 4, Reviewing the draft allows overview. An item might be immaterial on its own, but might be material in conjunction with other FS information b. Faithful Representation — true, correct and complete depiction (when an economic phenomenon’s substance differs from its legal form (i.e., substance over form). it requires depiction) > Completeness — must provide all information needed in understanding > Neutrality — not manipulated or without bias > Free from Error — accurate but not precise; supported by prudence (use of caution when making judgment) 2, Enhancing Qualitative Characteristics — enhance usefulness of information a. Comparability — to identity similarties and differences of different information through intra- comparability or inter-comparabil b. Verifiability — different users should reach a general agreement i. Direct verification — can be observe directly (e.g., counting of cash) Ii, Indirect verification — redo the methodology used by the entity ¢. Timeliness — available to users on time . Understandability — presented in clear and concise manner but does not mean excluding complex matter Applying Qualitative Characteristics > Information must be both relevant and faithfully represented » Enhancing qualitative information cannot make irrelevant information useful » One enhancing qualitative characteristic may be sacrificed to maximize another > Cost constraint — pervasive constraint; providing information has cost; cost must equal benefits FINANCIAL STATEMENTS AND THE REPORTING ENTITY * The objective of general purpose financial statements is to provide financial information about the reporting entity's financial position, financial performance, and other statements and notes * Reporting Period * Information must be comparative, forward-looking, and entity's perspective '* Going concer assumption — an underlying assumption that is based on management's decision ‘+ Reporting Entity ~ can be single or group or combination of two or more entities ‘An entity controls another entity 1. Parent — controlling entity 2. Subsidiary — controled entity > Consolidated Financial Statement — combined report of parent and subsidiary > Unconsolidated Financial Statement — report from parent only > Individual Financial Statement ~ report from subsidiary only > Combined Financial Statement — report of two or more entities not linked by parent subsidiary ELEMENTS OF FINACIAL STATEMENTS. sIPage Tracoonericaaitictectcreen Ey studocu Downloaded by Mikee Siapne (siapnomConceptual Framework and Accounting Standards Note * Assets — 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. ~ ability to prevent others from accessing the benelits of controlled resources ~ control normally stems from legally enforceable rights (e.g., ownership or legal tite). However, ‘ownership is not always * Liability — present obligation of the entity to transfer an economic resource as a result of past events. - transfer of economic benefits need not be certain a. Legal obligation — result from contact, legislation, or other law of operation b. Constructive obligation — result from entity's action (eg. warranty, environmental damages) Executory Contract — a contract that is equally unporformed by both parties or have partially {ulfilled with equal extent; combined right or obligation Executed Contract — {ulllled by other party * Equity — residual interest after deducting assets from liabilities Reserves - amount set aside to protect the entity’s creditors or shareholders from losses + Income ~ revenue; increase in assets or decrease in liabilities thal resull in increase in equity * Expenses — costs; decrease in assets or increase in liabilities that result in decrease in equity NOTE: The new conceptual framework removes the notion of ‘expected’ and ‘probability’ of economic flow, and ‘reliable measurement’ Financial Position — balance sheot; assets, liabilities and equity Financial Performance — income statement; income and expenses RECOGNITION * Items are recognized if it meets the two criteria: > Meets the definition of financial element; and. > Provides useful information (relevance and faithfully represented information) An asset (liability) can exist even it producing (transferring) benefits has low probability, but can afiect the recognition, how it is measured, what and how information is provided ‘© Unresolve dispute of asset or liability will mostly affect the recognition + Existence uncertainty and low probability of an inflow or outtlow of economic benefits may result in but does not automatically lead to the non-recognition of asset or liability. Other factors should be considered. + Measurement uncertainty > Exist if the assot or liability needs to be estimated > High level of measurement uncertainty does not necessarily lead to non-recognition if it provides relevant information and is clearly and accurately described and explained > However, it can lead to non-recognition it making estimate is exceptionally difficult or subjective (can affect faithful representation) or especially if one or more of the circumstances exist: * Exceptionally wide range of possible outcome and is difficult to estimate = Highly sensitive to small changes = Exceptionally subjective allocations of cash flows that do not relate solely to the asset or liability being measured DERECOGNITION * Removal of previously recognized asset or liability when the item no longer meets its definition * Derecognizes asset or liability that have expired, consumod, collected, fulfilled or transferred and continues to recognize any assets or liabilities that have retained after derecogrizing Unit of Account is ‘the right or the group of rights, the obligation or the group of obligations, or the group of rights and obligations, to which recognition crteria and measurement concept are applied’ MEASUREMENT * Measurement basis is needed since recognition requires quantifying item in monetary terms 6lPag 1d by Mikee Siapno (slapnomkes7@gmall.com)Conceptual Framework and Accounting Standards Notes + Standards prescribe specific measurement bases {or different types of assets, liabilities, income and expenses, Measurement bases cescribe by Conceptual Framework 1. Historical Cost — acquired (incurred) cost of assets (liability) plus (minus) transaction costs - do not refiect changes in value but may need to be updated (e.g,, depreciation, amortization cost) so, the value can be changed 2, Current Value — reflect changes in value at the measurement date + Fair Value — price that would be received to sell (paid) an asset (liability) that reflects the perspective of market participants at the measurement date + Value in use of assets and fulfillment value of liability — reflect entity's assumption > Value in Use - present value of economic benefits from the use or ultimate disposal of asset > Fulfillment Value - present value of economic resources to transfer or fulfilling liability Both do not include transaction cost from acquiring or incurring, but include transaction cost of disposal or fulfillment * Current Cost — cost at the measurement date plus (minus) transaction cost at that date Eimer Exit Values Historical cost and current cost Fair value, value in use and fulfillment value. Reflect prices in acquiring assets or | Reflect prices in selling or using an asset or incurring liability transferring or fulfilling a liability Considerations when selecting a measurement ba: a. The nature of information provided by a particular measurement basis b. Considerations of other factors rather than only a single isolated factor. Example: ‘* Faithful representation. if measurement of uncertainty is high to a particular measurement basis, consider other measurement basis ‘+ Comparability. Using the same measurement basis consistently is important for comparabiity, but a change is appropriate if it result to a more relevant information ‘+ Understandability. The more diferent measurement bases are used, the more complex. PRESENTATION AND DISCLOSURE Objectives are specified in standards that strive for a balance between: ‘a. Giving entities the flexibility to provide relevant and faithfully represented information; and b. Requiring information that has both intra-comparability and inter-comparability Principles for effective communication considers: ‘@. Entity-specitic information is more useful than standardized description, also known as ‘boilerplate’; and b. Duplication of information is usually unnecessary at it can make financial statement less understandable Eames ® Sorting olomonts of FS with simitar nature, function and measurement basis > When asset and liability with separaie units of accounts are combined and only ‘Accounts receivable Peet Accounts receivable and accounts COPS — the net amount is presented > Combines dissimilar items, hence not an appropriate practice > Adding together of FS elements that ‘share characteristics and are included in the same classification > Summarizes large volume of detail eo payable are netted and presented in net amount All receivables (e.g., accounts receivable, interest receivables) are aggregated and presented under “Trade and other receivables” 71Page Mecocoranicomeicneccroase Ey studocuConceptual Framework and Accounting Standards Notes CAPITAL AND CAPITAL MAINTENANCE Nnurene ferent eter mvestec money or investment Entity’s productive capacity Purchasing price eae with the maintenance of nominal [OSIM invested capital of purchasing power of | To the entity's operating capability Ceo the invested capital ad is Profit is eamed only if entity’s Pi Profitis earned # net assets at the end | Prt uve capacity at the ond RISE period exceeds the beginning perio. Period exceeds the beginning period | Fevind exceeds the beginning period LE Curent Does not require particular pen See measurement basis > Both capital maintenances exclude the distributions to, contributions from owners during the period. > Capital Maintenance is essential in distinguishing between return on capital and return of capital Capital Maintenance Adjustments — the revaluation or restatement of assets and liabilifies results in Increase or decrease In equity. Although these increases or decreases meet the definition of income or ‘expense, they are not recognized in proft or loss under certain concepts of capital maintenance. Accordingly, those items are included in equity as capital maintenance adjustments or revaluation reserves. alPageConceptual Framework and Accounting Standards Notes PAS 1 PRESENTATION OF FINANCIAL STATEMENT It prescribes the basis for the presentation of general purpose financial statements, its siructure guidelines and content’s minimum requirements to ensure comparability (inter -comparability and intra- comparability). The terminology of PAS 1 is suitable for profit-oriented entities, Financial Statements ‘© Stuctured presentation of an entity's financial pesition and result of its operation * Pertain only to the entity not the industry + General purpose financial statements — cater most of the common needs of a wide range of external users (cannot demand specific reports for their own needs) Purpose of Financial Statements. * To provide useful information useful toa wide range of users in making economic decision + To show result of management stewardship over the entity's resources ‘Complete Set of General Purpose Financial Reporting Statement 1. Statement of Financial Position (or Balance Sheet) 2. Statement of Profit or loss and other comprehensive income (not the same as income statement) 3. Statoment of Changes in Equity 4, Statement of Cash Flows 5. Notes — qualitative into to explain the quantitative info 1-4 = comparative information in respect of the preceding period 6. Additional statement of financial position - required under certain instances GENERAL FEATURES OF FINANCIAL STATEMENTS, Management is responsible for preparation and the fair presentation of entity's FS in accordance to PFRS 1. Falr presentation and compliance with the PFRS. ‘* Make an explicit and unreserved statement + Application of PFRS with additional disclosure when necessary + If management concludes that PFRS requirement compliance is misleading, PAS 1 permits departure irom it if relevant regulatory framework (prescribed by a government regulatory body) requires or allows such departure + Itit departs, the entity shall disclose which PFRS it departs, why, and the effect of departure = Compliance or departure is written in the note section . Geing Concern ‘If there are uncertainties of going concern, it shall be disclosed ‘© If entity is not a going concern, it shall’ be disclosed and the reason why, and FS shall be Prepared using another basis % Not a going concem if as of the reporting p management either: a. Intends to liquidate the entity to cease trading b. Has no realistic alternative but to do so (e.g., bankruptey) 3. Accrual Basis of Account All FS shall use this except cash flow statement, which uses cash basis to know the amount of ‘cash the company has because it is easier to liquidate (ability to pay short-term obligation) 4, Materiality and Aggregation ‘© Each material class of similar item (line item) is presented separately. ‘*_ Immaterial items can be aggregated 5. Offsetting + Not offsetting if it measure asset net valuation allowance, for example, allowances for obsolete inventories and of doubtful accounts on receivables, and accumulated PPE depreciation ‘+ Shall not use it unless permitied by PFRS Only permitted when it reflects substance of the transaction + Example of offsetting: Using two bank accounts in the same bank (not the same is prohibited). If the other has negative balance and the other is positive, therefore oifsetting is okay. 6. Frequency of reporting © Proparod at least annually + Changes in reporting period shall disclose the period covered, the reason for changing, and the fact that amount presented are not entirely comparable 7. Comparative Information ‘* Minimum requirement tor comparison is two different statements and related notes 14 date or the authorization of FS issuance, 8[Page voreectowreon Ey studocuConceptual Framework and Accounting Standards Nowe = PAS 1 permits addition to the minimum requirement * Additional Statement of Financial Position — instances to add are: 1. Application of accounting policy retrospectively 2. Makes a retrospective restatement on items in its financial position, or 3. Reclassifies items in its FS These instances have a material effect on the information of statement of financial position at the ning of the preceding period. 8. Consistency of Presentation ‘+ Retainment of one method from one to next period unless change is needed for a more relevant information STRUCTURE AND CONTENT OF FINANCIAL STATEMENT 4. Name of the reporting entity =z = 2. For whom the statements (individual or group entity) ‘ABC Group 5. Date (end or covered period) Statement of Financiel Position 4. Presentation currency fs of December, 20:2 5. Rounding level used (e.g. thousands, millions) {in thousane of Philppine Peso) STATEMENT OF FINANCIAL POSITION Presentation of Statement of Financial Position Gms dane Pema ease shows distinction between current and non-current, assets oF liabilties a > shows no distinction between Se cee ora momane no conguton | ~ eretan nae of liquidity and solvency ratios - PAS { does not prescribe the order or format in which an entity presents items, PAS + permits mixed presentation especially if the entity's operation is diverse. Current and Non-Current Assets or Liabilities etn NON-CURRENT > Used for trading during the entity's normal > Used more than 1 year operating cyclo (12 months) > Cash and cash equivalents restricted for » Cash or cash equivalents restricted from exchange (@.g., maintaining balance of bank being account) > Includes accruals > Includes deferrals > Ex. Trade Receivables. > Ex. Nontrade Receivables Currently Maturing Long-Term Liabilities * Must be presented as current liabilities * Example: A 10-year loan payable acquired 10 years ago must be fulfilled within this year. Hence, it must be presented current liabilities * Exception is refinancing agreement (defer settlement of currently maturing long-term lability) when: > Refinancing agreement is fully completed on or before balance-sheet date: or » Refinancing agreement after balance sheet date but before FS are authorized for issue ach of Loan Contract * Aliability that is payable on demand is a current liability * Exception is if a lender provides on or before balance sheet date a grace period ending at least 12 months after the balance sheet date to rectify the breach Prosentation of Deferred Taxes * Prosented as non-curront in a classified presentation, irrespective of their expected date of reversal STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME. Income and expenses may be presented either: @ = a. Single statement of profit or loss and other comprehensive | PAS 7 requires entty to present income, called statement of comprehensive income ieee ea b. Other comprehensive income; and | pret Gamerchersive income Presenting only an income statement is (poorest y‘Conceptual Framework and Accounting Standards Notes b. Two statements 1. statement of profit or loss (income statement) 2. statoment presenting comprehensive income Profit or Loss. * Income minus expenses, excluding the components of comprehensive income * Not included in determining profit or loss 1. Correction of prior period error 2. Change in accounting policy 3. Other comprehensive income 4. Transactions with owner/s Presentation of Expense Poutanen) fineness en eed % According to their function > According to their nature > Ex. Cost of salos, distribution costs, > Ex, Transportation cost, advertising administrative expense cost, purchase of materials > More difficult to apply out has potential of providing more relevant information NOTE: Ii an entity classifies expenses by function, it shall disclose additional information on the nature of expenses OTHER COMPREHENSIVE INCOME (Cl May presented in net tax or gross of tax * Comprises items of income and expense (including reclassification adjustmonts) that are not recognized in profit or loss as required or permitted by other PFRS * Amounts in OCI are usually accumulated as separate components of equity Reclassification of adjustments — amounts ftom OCI reclassified to profit or loss a. Gain is deduction to OCI and addition to profit or loss b. Loss is addition to OCI and deduction to profit or loss shall group items into reclassification adjustment is allowed and not allowed Drees) Peer ena! ja. Changes in revaluation surplus Not allowed! 'b. Remeasurement of the net defined benefit Not a liability (asset) (e.g., employee benefit) Dalat «. Fair Value changesin FVOCI ~ Equity instrument (election) Not allowed = Debt instrument (mandatory) ‘Alowed @. Translation diference in foreign operations Allowed . Effective portion of cash flows Allowed Total Comprehensive Income * Tho sum of profit or loss and OCI * Prosented hore is also the change in non-owner's equity during a periods; owner's is excluded STATEMENT OF CHANGES IN EQUITY © Owner/s only ‘© Shows the following: ‘a. Effect of change in accounting policy and correction of error retrospectively b. Total comprehensive income for the period ¢. For each component of equity, a reconciliation between the carrying amount at the beginning and end of period, showing separately changes resulting from proft or loss, other comprehensive income, and transaction with owners STATEMENT OF CASH FLOWS. Rotor to PAS 7 NOTES q1|Page victor Ey studocuConceptual Framework and Accounting Standards Notes * Provides qualitative information to the other FS, thorofore other FS should be cross-refenced to tho notes. Integral part of a complete FS PAS 4 requites entity to present the notes in system manner. Itis structured as follows: General information onthe reporting ertity Statement of compliance with the PERS and Basis of preparation of FS. ‘Summary of significant accounting policies Disagoregation (breakdowns) of line items in the other FS and other supporting information Other disclosure required by PFRS Other disclosure not required y PFRS but is relevant in understanding PAS 2 INVENTORIES Determination of costs to recognize as asset to expense is the primary issue in accounting inventories, Hence, PAS 2 provides guidance in the determination of costs oi inventories, including use of cost formulas, and their subsequent measurement and recognition as asset then expense. Moe * Finished goods * Work in progress * Raw materials and manufacturing supplies PAS 2 applies to alll invertories except: + Assets accounted for under other standards a. Financial instruments (PAS 32 and PFRS 9) b, Biological assets and agricultural produce at the point of harvest (PAS 41) MEASUREMENT OF INVENTORIES Inventory is not always valued at its “cost” price. Exception to the measurement: a. Producers of agricultural, forest products, minerals and mineral products measured at Cota NRV of the practices in those industries Lower of Cost | | Net Realizable Value b. Commodity if dealers and brokers measured at fair value less costs of sell LonRV Crees = Purchase cost — trade discounts, rebates, and other Excluded in Cost similar items are deducted to ourchase cost + Abnormal waste + Conversion cost ~ costs in converiing raw materials into | * Storage cost (out include those finished goods (e.g., labor and production, exclude direct necessary in the _ production materials because it is already included in purchase cost) procosc) + Other cost necessary in bringing inventories to their z resent location and condition (e.g... costs of factory Administrative overheads Management and maintenance cost of machines) ‘When @ purchase transaction effectively contains a financing element, such as when payment of the purchase price is deferred, the difference between the purchase price for normal credit terms and the amount paid is recognized as interest expense over the period of financing ‘COST FORMULAS * Deal with the computation of cost of sales or cost of goods sold and the ending Inventory. = Applies maiching concept * Considered cost flow assumptions. Therefore, not necessarily the actual flow of inventory. 12 [PageConceptual Framework and Accounting Standards Notes Petia cue eae ee eee ee ee eyed PO eee = ra Formula: Terror TGAS in pesos GAS in units WA Cost NoTE: > Use the same cost formula for inventories with similar nature and use, unless it's different. > Last-ln-First Out not permitted. > TGAS — Total Goods Available on Sale NET REALIZABLE VALUE (NRV) + Estimated selling price — estimated cost of completion — estimated selling cost * Not equal to fair value — costs of sales * Different from fair value * Inventories in FS must not be stated above NRV value of an item ~ cost of making the sale * I NRV < costs, write-down * I NRV > costs, need not to write-down Write-down ‘+ Residual trom deducting costs from NRV, when cost > NRV = Written in an item-by-item basis; some circumstances may be appropriate to group similar item ‘* Not appropriate on classification basis ‘+ IF NRV subsequontly increases, the provious write down is reversed. * Reversal of write-down shall not exceed original write-down. Theretore, the inventory shown in FS is cost plus original write-down CRS © “Tho amount of any reversal of any write-down of inventories Sold inventories shall be recognized as reduction in the amount of inventories Write-down or loss recognized as expense in the period in which the reversal Inventories that are used in the construction of another asset are not expensed rather capitalized as cost of the constructed asset. Note: Total inventory shown in FS must be the lowest cost (lower of cast or NAV) PAS 7 STATEMENT OF CASH FLOWS. Statement of cash flows and It provides information about: > the sources and utilization (.e., historical changes) of cash and cash equivalents > quality of earnings > enhances inter-comparability Prosontod in cash basis — income (expense) is recognized only when collected (paid). Hence, only transaction that affected cash and cash equivalent are reported; non-cash are excluded, Cash — either cash on hand or cash on bank Cash Equivalents — short term, highly liquid investments thai are acquired within 3 months or less before maturity dato Cash Flows — inflows (sources) and outflows (uses) of cash and cash equivalents 13 [Page thaccoumenianainieterctcheseon €%y StudocuConceptual Framework and Accounting Standards Notes revenue-producing activities that affect profit or loss. Classification of Cash Flows ‘Acquisition and disposal of noncurrent assets and other investment affect the equity capital and borrowing structure of entity + income and operating ‘expenses from the ordinary operation + changes in current assets and ‘= Making and collecting loans * Acauiring and disposing (sale) ‘of investment debt or ecuily securities + Obtaining and selling of PPE * Include obtaining resources from owners and creditors + Cash flows on non-operating ‘OF non-irade liabilities = Changes in equity and noncurrent and other productive assots Prosontod otror 1. Direct Method ~ classifying gross cash receipts and gross cash payments 2. Indirect Method — accrual method of P/L betore tax is adjusted for the effects of non-cash items and operating assets and liabilities changes Presented in gross amount, unloss they qualify for not Presentation '* On behalf of customers * Quick turnover, large amounts, short maturity Presented in gross amount, unloss they qualify for not presentation: ‘+ On behalf of customers © Quick tumover, large amounts, short maturity PAS 7 does not require any particular method. But it encourages direct method because It provides information that may be useful in estimating cash flows. In practice, indirect method is commonly used because it is easier to apply. [iene Liabilities > Increase Liabilities > Add > Decrease Liabilities > Deduct Asset other than cash > Increase Asset > Deduct > Decrease Asset > Add Changes in ownership interest in business Acauisition and disposals of subsidiaries or other business units: ‘+ Investing Activities - resulting to loss or obtaining of contro! ‘* Financing Activities — do not result to loss or obtaining control Entities except financial institutions may classify Interest and Dividends as follows: Cash Flows Option 1 | Option 2 | + Only those were received or paid aro Interest income received Operating Investing included. interest expense paid | Operating | Financing | * Only option 1 is for financial institutions Dividend income received | Operating [Investing | * In GPABE, when problem is silent, use Dividend paid to owners | Financing | Operating option t Cash flows excluded from the activities sections + Cash and cash equivalents are not coerce presented separately pet oy * Bank overdratts that cannot be offset to | cammemnnawenesnn wma | cash are presented as financing activities Rect te roarae et noe onto) * Cash flows in foreign exchange is reported | Sent mchea™ ne | in ScF to reconcile cash and cash equivalents at the | Sexjsmsfartepume beginning and the end of the period. But, separate from activities section. Additional Term: + Treasury Bill — short term Be, financial instrument that Bm | aaipace investors are lending money Srarssomere ee to the government and interest Saeco om is acquired on maturity daterioss bono (sapnem sehrConceptual Framework and Accounting Standards Notes PAS 8 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS PAS 8 prescribes 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. Intended to enhance relevance, reliability and comparability of FS. Geese Adjusting the opening balance of the prior period that is used for comparison to the current period as new accounting policy has always been applied Pri or Recognizing the effects of change in profit or Joss in the period of change and/or future period: not the beginning balance Going back to prior periods to restate FS ‘Only from this day onward and does not restate the previous FS * Retrospective application — applying new policy to prior period ‘+ Retrospective restatement — correcting error of * Prospective application — applying new policy in current * Prospective restatement — correcting error in rior period. current Itis impracticable if the prior period effects: * Gannot be determined in the current period * Requires significant estimates and assumptions Impracticable — cannot be done after making reasonable efforts kee kee Ea Specific principles, bases, conventions, rules and practices applied by enti Preparing and presenting FS Not all FS can be accurately measure because of uncertainties (e.a., depreciation, bad debts). Hence, estimate is necessary to provide relevant information. Misapplication of policies, mathematical mistakes, oversights or misinterpretations of facis, and fraud * PAS 8 parmits change only if change: a. Is required by PFRS; or . Results in reliable and more relevant information * Change in measurement basis read crc * Adjustments of the carrying amount of asset or liability because of present status or new information; and not error corrections ‘© Changes in the realization (incurrence) of expected inflow (outllow) of economic benefits from assets (liabilities) Errors should be corrected to arrive at reliable information 1. Transitional provision in a PRS; if any 2. Retrospective application; in the absence of 1 3. Prospective application: it 2is impractical ery esas Prospective application 1. Retrospective restatement 2. Prospective restatement; it 1 is impractical > Ifachange is difficult to distinguish between accounting policies and accounting estimates, the change is treated as change in an accounting estimate. > Voluntary change in accounting policy is accounted for retrospective application. An early application of PFRS is not a voluntary change in accounting policy. Accounting Policies © studocu 15 [PagConceptual Framework and Accounting Standards Notes PAS 8 requires consistent selecting and application of accounting policies. When selecting and applying, an entity shall refer to hierarchy of reporting standards. Hierarchy of reporting standards >» 1. PFRSs 2 Judgment When making the judgment the management: > shall consider: ‘a, Requirements in other PFRSs dealing with similar transactions b. Conceptual Framework > may consider: a. Pronouncement issued by other standard-setting bodies w b. Other accounting literature and industry practices Not changes in accounting policies if: a. Diffor in substance, from those previously occurring b. Did not occur previously or were immaterial Errors An FS do not comply to PFRS if they contain either material (can cause FS misstated) or immaterial errors made intentionally to achieve a pariicular presentation. This is considered fraud. Errors can be: * Errors of commission — doing something wrong + Errors of omission — not doing something that should have been done ‘Type of errors according to period occurrence + Current period errors — errors of current period; corrected by correcting entries + Prior period errors — errors of one or more prior period; corrected by retrospective restatement, it impracticable, prospective application is allowed Both are discovered either during the current period or alter but before FS are authorized for issue. PAS 10 EVENTS AFTER THE REPORTING PERIOD PAS 10 prescribes the accounting for, and disclosures of, events alter the reporting period, including disclosures regarding the date when the FS were authorized for issue. Events after the Reporting Period * Those events, favorable and unfavorable, that occur between the end of the reporting period and the date when the FS are authorized for issue * Evonts after the reporting period until FS aro authorized for issue * Date of authorization is when the management authorizes the FS for issue regardless o! whether such authorization is tor further approval or final issuance to users. Two Types of Events Alter the Reporting Period ee na (eet tec > Arose after the reporting period > Do not require adjustments > If material, disclosure is needed > happened within the reporting period but after the reporting period was known or confitmed > requiros adjustments and disclosures PAS 12 INCOME TAXES Not all income is liable for tax, only those that ave taxable profit (taxable loss). Hence, ‘government don't base taxes on accounting profit (loss). Income taxes refers to taxes that are based on taxable profits, 16 [PageConceptual Framework and Accounting Standards Nats Accounting Profit (Loss) ee > Computed using PFRSS > Computed using tax laws > Income less expenses, excluding lax expense | > Taxable income less tax-deductible expense > Other terms: > Other term: Pretaxincome Taxable Income Financial Income Accounting Income Income tax expense — total amount included to determine P/L, computed using PFAS also called tax ‘expense or tax income Current tax expense — payable (recoverable) taxes to BIR based on taxable profi laws; also called current tax Varying treatment of economic activities between PFRS and tax laws result to: 1. Permanent differences — arise when income and expenses enter in the computation of either accounting profit or taxable profit but not both; do not have future tax consequences. 2. Temporary differences — difference between the carrying amount of an asset or liability in the statement of financial position and its tax base: have future tax consequences: either: omputed using tax Seon eee CEToGacuors can * Fuluro taxable amounts + Future deductible amounts. * Arise when: Arise when: > Assets’ carrying amount > tax base; or | > Assets’ carrying amount < tax base; or > Financial Income > Taxable income » Financial Income < Taxable Income If mulliplied to tax rate, results to deferred —_| if multiplied io tax rate, resulis to deferred tax lability tax asset > Deferred tax is the difference of asseis (income) and tax base (income tax). PAS 12 requires use of asset-liability method > Deferred taxes are presented separately as non-current in a classified FS. > PAS 12 prohibits tho discounting of doforrod taxes. > Temporary differences include timing differences — the timing or period of income and expenses recognition differs between financial reporting and taxation I DT liability > DT assets, their difference is deferred ‘* Tax base — amount of asset or liability that is taxable Exemples: 1. An asset has a carrying amount of 1,000 and a tax base of P00. Analysis The difference of 600 (1,000 ~ 400) is a taxable temporary di ive. carrying amount of an asset grenter than its tax base. If the tx rate is 30%, the deferred tax liability ie P80 (600 x 30%) © Current tax Ilability — unpaid current taxes Current tax asset — excess tax payments over the current tax due Cowie Cae > Actual amount payable to tax office > An accounting measure to measure tax > Payable in respect on current period effect to accounting taxable profit (loss) xtax rate (%) =CIT | > Settled or recovered in future period temporary difference x taxrate = DIT PAS 12 permits offsetting of deterred tax assets and liabilities only if, > Legally enforceable right to offset current tax and liability; and > Levied by the same taxation authority wpa wietwctcrmwon Gy studocuConceptual Framework and Accounting Standards Notes PAS 12 permits offsetting of current tax assets and liabilities only it: > Legally enforceable tight: > Intention to realize in net basis. Presentation in Statement of Comprehensive Income ‘Tax consequences are accounted for the same way as the related transactions or events. Thus, > If transaction is recognized in profit or loss, as wall as its tax offect > If transaction |s recognized outside profit or loss (e.g., OC! and equity), as well as its tax effect ‘Tax effect recognized directly in equity is accounted for as direct adjustment to related component of eauity. PAS 16 PROPERTY, PLANT AND EQUIPMENT. PAS 16 applios to all items of PPE except: ‘a. Held for sale b. Biological assets other than bearer plants but not produce on bearer plants . Exploration and evaluation assets d. Mineral rights and mineral reserves (non-renewable resources) Cnc a Tangible assets; pecea pect veneers 1. Future economic benefits will flow to the entity; and aed mronnal speranery aba 2. Cost can be measured reliably c. Long-term in uso (>1 yr.) * Spare-parts, stand-by equipment and servicing equipment are PPE if it meets its definition. If not, then recognized as inventory. * Safety and environmental equipment are PPE. It does not increase the future benefits, but it is necessary in obtaining future benefits of other assets. Measured al cost ‘a. Purchase price b. Direct costs of bringing the asset to the location and condition . Inilial estimate of dismantiement, removal and site restoration costs Except cost of opening now facility, introducing new product or service, new business location or now class customers, and administration end general overheads * Recognition of initial cost stops when the item is in the location and congition necessary * Cost of PPE is the cash equivalent at the recogrition date. I deferred payment (installment), the excess amount Is interest. * Acquisition through exchange: Additional Cost 1, Replacement Cost » Replaced parts carrying amount is derecognized as loss > I replaced part cannot be determined, replacement part is used as indication 2. Major Inspections » Major insPection cost is capitalized while Previous insPection cost is derecognized > IFit has commercial substance, cost is measured using 1. Fair value of asset given up 2. Fair value of asset received: if 1 can't be determined 3. Carrying amount of asset given up; if 2 can’t be determined > If exchange lacks commercial use, use number 3. So 1a [PageConceptual Framework and Accounting Standards fotos a. Cost Model b. Revaluation Model Entity can choose either the two, and then applies the accounting policy to an entire class of PPE (COST MODEL - cost less any accumulated depreciation and any accumulated impairment losses Depreciation * Each significant part of item of PPE is depreciated separately. * Depreciation Is recognized as expense, unless it is included in the cost of producing another asset. * Depreciation starts when used. * Depreciation stops when: a. Derecognized (sold or disposed); or b. Classified as held for salo; or . Fully depreciated; however, if the residual value decreases below the carrying amount, the decrease is recognized as an additional depreciation * Carrying amount (Book Value) — recognized asset amount atter deducting accumulated depreciation and impairment loss * Depreciation does not cease when the asset becomes idle or is retired from active use. * Land and building are accounted separately. Land is not depreciated while building is depreciated. Pooch > Does not prescrive any method. It depends on the = Straightline Method management's judgment, but the choice must be the method Cost—Salvage Value that best reflects the expected pattern of consumption, Useful Life > Prohibits the use of depreciation based on revenue ‘+ Diminishing Balance Method > Requires annual review of depreciation method, useful life ‘* Units of Production Method and residual value. Any changes are treated as changes in accounting estimates REVALUATION MODEL * Fair value less any subsequent accumulated depreciation and impairment losses * Frequency of revaluation: > If fair value fluctuates significantly, annually > If fair value does not fluctuate significantly, every 3-5 years. * Revaluation applied to entire class of PPE ‘+ Revalued simultaneously. If not possible, use rolling basis (i.¢., one asset after another) Accounting for Revaluations An increase or decrease in the cartying amount of PPE resulting irom revaluation is recognized in OCI and equity under “Revaluation Surplus” account, Except pairment gain ~ increase to carrying amount; reversal of previous impairment loss b. Impairment loss — below carrying amount; excess credit balance in the Revaluation Surplus Both are recognized in P/L. Revaluation Surplus ~ excess from carrying amount meme /X\ sues Fair Value a a / \ ‘Se Less: Carrying Amount ba ‘oncnal cost Y) Revaluation Surplus (Impairment Loss or Gain) xx ‘ vss SN A set Ator revaluation, depreciation will bo based on its fair valve tN = Fair Value ot Divided by: Remaining useful life (xe) ‘Annual Depreciation x ‘Subsequent accounting for revaluation surplus » Non-depreciable revalued asset, transferred directly to retained earning when derecognized > If depreciable, a portion is transferred poriodically to retained earning when used Depreciation based on revalued carrying amount xx bal ene Less: Depreciation based on original cost box _,Rewaluation Surplus Revaluation surplus transferred each year pd ite Na eee eam ° This docurentisavallaite tree af charge § studocuConceptual Framework and Accounting Standards Notes Derecognition of PPE a Itis disposal; or 'b, No future economic benefits expected from the asset’s use or disposal Gainor loss = Net Disposal Proceeds — Carrying Amount I the asset derecognized is revalued, any balance in the related revaluation surplus is transferred directly to retained earnings and will not affect the amount of gain or loss recognized in profit or loss. PAS 19 EMPLOYEE BENEFITS Employee benefits are all forms of considerations given by an entity in exchange for service rendered by employees. Recognition > Expense, when employees have rendered service unless it forms part of an assot > Liabilities, if unpaid > Asset, if payment exceeds the benefits SHORT-TERM EMPLOYEE BENEFITS * Due to be settled within 12 months after reporting period + Recognized as expense, liability, or asset in an undiscounted amount * Short-term compensated absences: a. Accumulating — unused entitlement in the current period can be claimed in the future period 1 Vesting — all unused entitlements are monetized . Non-vesting — unused entitlements are not monetized b. Non-accumulating ~ for current period only POST-EMPLOYEE BENEFITS + Payable after the completion of employment (e.g., retirement plans and pension plans) Contributory Non-contributory Both employee and employer contribute | Only the employer contributes Funded Non-funded fund is transferred (0 a trustee to No fund is transferred to a trustee thus, manage the fund and obliged to pay the | the employer has obligations of paying benefits; have third-pany the benefits Classification of Post-Employee Benefits Prince rerna ci een Pence canara > Based on the total contribution Based on a definite amount > Contribute to fund to save for retirement Specified payment amount of retirement > Insufficiency rest with the employee insufficiency rest with the employer > Straightforward computation Requires actuarial assumption > Undiscounted amount Discounted amount vvyvy Detined Benefit Plan Accounting Procedure a Step 1, Dotormino tho devict or surplus Eaange tuna 11 Pion Asset (EVP) = AvEA vor pmom (merceusurptt cae ate ch Dene, Benet > If FVPA < PV of DBO, the difference is deficit ea > If FPA > PV of DBO, the difference is surplus Based on ending Step 2. Determine the Net Defined Benefit Liability (Asset) zolPage din Naa acai ean rea ecConceptual Framework and Accounting Standards. Notes > If deficit, then net defined benefit liability > If surplus, then net defined benefit asset is the lower of the surplus and asset ceiling Presented in statement of financial position under non-current item. Step 3. Determine the Benefit Gost Service Cost: ecosnzoamet) (a) Current Service Gost xx (b) Past Service Cost xx {c) Any (gain) loss on settlement Xx Net interest on the net defined benefit liability (asset): ecooneesinP) {a) Interest cost on the DBO (breisnin oF 929~%) xx {b} Interest income on plan assets (Hsing 774%) Xx. {c) Interest on the effect of the asset ceiling xXx Remeasurement of the net defined liability (asset): resoenizesn ocr) {a) Actuarial (gains) losses xx (b} Difference between interest income on plan asset and return on plan assets Xx {c) Difference between the interest on the effect of the asset coiling and chango in the effect of the asset ceiling, xx xx Total Defined Benefit Cost x Definition of Terms 4. Current Service Cost ~ increase in the PV of DBO resuting from employee service in current period 2. Past Service Cost ~ change in the PV of DBO resulting from a plan amendment or curtailment 3. Gain or loss on settlement ~ difference between PV of DBO and the settlement price 4, Interest cost on the defined benefit liability (asset) — change in the net defined benefit liability (asset) during the period that arises from the passage of time 5. Actuarial gain or loss — changes in PV of DBO resulting from changes in actuarial assumptions. Actuarial Assumption — give value or best estimate of the variables that will determine the ultimate cost of providing post-employment benefits 1, Demographic assumptions — e.g., mortality, health condition 2. Financial assumptions — ie., discount rate and future salary levels Discount rate used to discount post-employment benefits obligation is based on high quality corporate bonds. it no deep market, use government bonds. 6. Return on plan of assets — investment income earned by the plan assets during the year after deducting the cost of managing the fund Multi-employer plan — unrelated employers contribute to common fund State Plan - established by law and operated by gov't; absence of one definition is not a state plan Insurance Plan — employer pays insurance premium to fund a postemployee benefit, OTHER LONG-TERM EMPLOYEE BENEFITS * Due to be seitled beyond 12 months after the end of the reporting period other than post-employment and termination benefits * Accounted similar to defined benefit plan. However, all the components are recognized in profit or loss. ‘TERMINATION BENEFITS + Employer's act of terminating an employee as a result, either: >Entily's decision to terminate an employee before the normal retirement date; or Employee's decision to accept the benefits in exchange of termination 21 [Pag viotedtcrewen Gy studocuConceptual Framework and Accounting Standards fotes + Employee's request for termination, is considered post employee benefits * Termination benefits are accounted: >If payable within 12 morths, same as short-term employee benefits >If payable beyond 12 months, same as long-term employee benefits >If are in substance, enhancement io post-employee benefits, same as post-employee benefits PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS, AND DISCLOSURE OF GOVERNMENT ASSISTANCE Goverment grants are assistance received from the government in the form of transfers of resources in exchange for compliance with certain conditions. Recognition a. Conditions will be compli b. Grants will be received ‘Types of government grants according to atiached condition 1. Grants related to assets — primary condition is to acquire or construct long-term assets 2. Grants related to income — granis other than those related to assets ‘Measurement Reem [emote ee > Amount of cash received: or > Fair value of the non-monetary asset > Fair value of amount receivable received > Alternatively, at nominal amount Grants in the form of loan, such as: > Forgivable loan measured the carrying amount of the loan forgiven > Loan at below-market rate of interest or zero interest measured al the discounted amount Accounting > PAS 20uses income approach in which grant is recognized in P/L. Not automateally that when you received the grant, it is recognized in P/L.j Uses matching concept Recognized in P/L in systematic basis as related condition expenses are recognized. Analyze the recognition of income in the following cases: a, Grants related to depreciable assets b. Grants related to non-depreciable assets c. Grants received as financial aid for expenses or losses The depreciation method used for computing related must also be the same for computing grants. vyyy Sion of or Coryng amount teen [Gres pronation z wpe speed | sed from te pit, In statement of cash flows, the cash flows from the receipt of the grant and the purchase of the related asset are presented separately, even if the entity uses the net presentation Presentation of grants related to income (BSS | Sears | 22 [Page aii Sb hina aah cabal ats