CASH & CASH EQUIVALENT Short-term Debt (interest)

TYPES Cash Equivalent High liquid instruments acquired

1. Cash On Hand Convertible into Cash 3 months or less
 Coins & Currencies
 Petty Cash Fund 1. Treasury Bills [If silent, acquired 3 months or less]
 Undeposited Collections BTr  90 days or less
 Money Order
 CUSTOMER  WESTERN UNION  ABC (QC) PH Gov’t T-bills Investors (indv., corp.)
MONEY ORDER Cash
10,000
2. Cash In Bank Projects  Interest
2. Treasury Notes  1 – 10 years Must be acquired 3 months
 Savings Deposit  ATM Interest - 3. Treasury Bonds  10 years or more or less to become CE
 Demand Deposit  Passbook + Checks Biateearing
Checking/ Current 4. Time Deposits [If silent, acquired 3 months or less]
30, 60, 90, 180, 360
 Checks Received from Customers Interest

Personal  Most Common 5. Money Market Placement [If silent, acquired 3 months or less]
Check Cash
ABC Supplier Deposit or Encash Mr. X MF & UITF  PORFTOLIO OF INVESTORS
10,000 Interest
Certified  Verification, ‘certified’ or ‘accepted’
Check 6. Commercial Paper
Customer ABC (BDO) Deposit or Encash Large Corporation
10,000 Cash
Cashier’s or Manager’s Mr. X SM PRIME  SM
Customer  BDO  ABC CP
Traveler’s
Mr. X  US, JAPAN, KOREA * CE are interest-bearing instruments.
Cash BDO  Traveler’s Check
Replenishment and Accommodation Check
 Check drawn to the order of petty cash custodian
 Bank Draft BD
Large Purchases Mr. X BDO
Seller BD REQUEST P10M
BANK RECONCILIATION BOOK
Per Book (unadjusted)
JEs ABC Co. Book (Journals ledger) Bank (BPI) + CM Collection made by bank Cust. Check BPI
1/1 Sale A/R 20,000 Interest Received Cash xx
Sales 20,000 Proceeds from loan DL xx
Matured TD
1/5 Collection COH 20,000
A/R 20,000 - DM Bank service charges
NSF (DAIF) A/R
1/6 Deposit CIB 20,000 Cash 20,000 Auto Debits Cash
COH 20,000 Dept Liab 20,000 Loan payments

Debit Credit +/- ERRORS

Credit Debit Adjusted Balance
BANK
1/10 Purchase Purchases 10,000 Per Bank (unadjusted) check clearing pd.
A/P 10,000 + DIT Deposits not yet credited Cust.  ABC  BPI
or recorded BDO CIB
1/15 Payment A/P 10,000 Dept Liab 10,000 Undeposited Collections A/R
CIB 10,000 Cash 10,000 - OC Checks not yet encashed
ABC check Supplier +/- ERRORS
Adjusted Balance
1/30 EOM _____________ _______________
Ending Bal. 10,000 10,000 Per book
Unadjusted
Bank Recon (Timing Difference) Debit Memo – Need to minus ; Otherwise - opposite
Bank Statement (Feb . 5) Adjusted
*Only Book Reconciling Items are ADJUSTED.
Per bank
Unadjusted
DIT – Need to add; Otherwise - opposite
Adjusted
PETTY CASH FUND Coins & Currencies:

 Small and Recurring Minor Expenses 7,000

 PC Custodian/Cashier - Manage 6,000 (shortage)
Cash short/over
JEs PCF
12/1 Establishment PCF 8,000 8,000 (overage)
CIB 8,000 PCF
Cash short/over
12/5 Disbursement No Entry
- PC Registers
- Signed PC Vouchers
12/10 Replenishment Exp. 7,000
CIB 7,000
12/17 Increase PCF 2,000
CIB 2,000
12/31 Adjustment Exp. 3,000
PCF 3,000
PCF
8,000 est.
2,000 inc. 3,000

7,000 end bal.

1,000 (coins & curr.)
6,000
8,000
TRADE & OTHER RECEIVABLES  Claims Receivable
Insurance
TYPES Tax refund
1. Trade (OCB & Always CA) Calcu 1/1
 A/R Seller Buyer Measurment:
 N/R PN Cash 2/1
 L/R  BANKS 1/1 (Initial, 1st JE) 12/31
@ face value @NRV
2. Non-trade (FV = SP) most of the time
 Advances to
 Employees, Officers, Shareholders, Supppliers 12/31 I/S
 Suppliers’ Debit Balances A/R 10,000 ADA Sales 10,000
A/P (Overpayment) - Allowances (2,000) ASR - SD (500)
NRV 8,000 ASD N.Sale 9,500
Purchases 5,000 Buyer (AP) BEST ESTIMATE
A/P 5,000 5,000
A/P 5,000 8,000 Seller 10,000 Buyer ; Terms 5/10, n/30
Cash 5,000 3,000 Not A/R 5%
0 DP 10 30
A/R 5,000 Seller (A/R) 0 - 30 = Credit Period
Sales 5,000 5,000 1 – 10 = Discount Period
Cash 8,000 8,000
A/R 8,000 GROSS NET
CL, X=A/P 3,000
Sale: A/R 10,000 A/R 9,500
 Subscription Receivable Sales 10,000 Sales 9,500
w/in 1 year  CA
more than 1 year  Contra Equity W/in DP: Cash 9,500 Cash 9,500
ABC shares 1/1 Mr. X SD 500 A/R 9,500
ABC cash 2/1 A/R 10,000

Beyond Cash 10,000 Cash 10,000

 Accrued Income DP: A/R 10,0000 A/R 9,500
Earned but not yet collected SDL 500
 Interest, divedend, rent
Accounting for Bad Debts: FOB Destination – Ownership is transferred only when the buyer receives the goods.
A/R & Sales are recorded when buyer receives the goods.
Methods Allowance Direct Write-off
12/31 Accounting to Freight Charge
Doubtful Accounts BDE 2,000 -
ADA 2,000 Freight Prepaid – Seller has already paid for the freight upon shipment. Freight is
1/31 paid by the seller, but it doesn’t mean seller is the one who is supposed to pay.
Def. Uncollectible ADA 1,000 BDE 1,000
A/R 1,000 A/R 1,000 Freight Collect – Freight is not yet paid upon shipment. Upon delivery, the carrier
2/28 will collect the freight costs from the buyer. Freight is paid by the buyer, but it
Recovery A/R 1,000 A/R 1,000 doesn’t mean buyer is the one who is supposed to pay.
ADA 1,000 BDE 1,000
Cash 1,000 Cash 1,000 GR: The owner of the goods being shipped pays for the shipping costs.
A/R 1,000 A/R 1,000
Or Cash 1,000 Additional:
ADA 1,000
Trade Discounts – Encourage customers to buy in large quantities. It is deducted
from list selling price. Not accounted for and recorded.
Estimation of Doubtful Accounts:
Sales: 1,000,000 Cash Discounts – Encourage customers to pay early. Deducted from invoice price.
A/R: 500,000 Accounted for and recorded.
% of Sales (2%)  20,000 (BDE for the period)
% of A/R (10%)  50,000 (Ending/Required Allowance Method of ADA – Adheres to Matching Principle because BDE is
Aging of A/R ADA) recognized in the year in which sales revenue was recognized. It also adheres
conservatism principle because it recognized BDE when they become probable to
not overstate receivables.

Trade Receivable is recognized when an entity has an unconditional right to Direct Write-off Method of ADA – Violates Matching Principle and Conservatism
consideration. because BDE is recognized in the later accounting period, and it recognized BDE only
when uncollectible is certain, not when probable.
Shipping Terms:

FOB Shipping Point – Ownership of the goods sold is transferred upon shipment. A/R
& Sales are recorded on the date of shipment.
NOTES RECEIVABLE LOANS RECEIVABLE

- Claims supported by formal promises to pay usually in the form of notes. - Financial Assets arises from a loan granted by a bank or financial institution
- Arise in the sale of goods/services in the OCB. to a borrower or client.

1/1/25 Measurement
Goods(1M) - Initially measured at Fair Value + Transaction Cost (Direct Origination Cost)
Seller Customer P
PN Received – Deducted from loan proceeds -
Origination
Measurement Fees Collectible by bank at
- PFRS 9 Incurred Direct Orig. Cost (higher int. rate) +
- Initially, at Fair Value + Transaction Cost (usually 0) Indirect Orig. Cost (expensed)

Short-Term NR – initially measured at Face Amount IMPAIRMENT

Ex: Principal – 100,000; Term – 2 years - Recognized due to credit risk

Coupon Rate – 10%; EIR – 10% - Loss Allowance of Expected Credit Loss

Interest-Bearing ’25 ’26 ’27 N/R 100K Carrying Amount of Loan Receivable Imp. Loss xxx
PV = Face Value Sales 100K (PV of estimated CF discounted using original interest rate) Allow. xxx
I 10K 10K Loan Impairment Loss
P 100K
Expected Credit Loss (ECL) Model – Conservatism
Long-Term NR
’25 ’26 ’27 N/R 100K Credit Risk Scenario ECL
Non-Interest Bearing UII 17,400 Stage 1 No significant Paid on 12 Months
PV = Discounted Value I 0 0 Sales 82,600 Increase Time
Unreasonably Low Int. P 100K
100K x .826 = 82,600 Stage 2 Significant Inc. Paid 1 month Lifetime
100K-82.6K = 17,400 (UII/Discount) No objective for Past Due
Impairment
Subsequent Measurement
- Amortized Cost Stage 3 Significant Inc. Bankruptcy Lifetime
- Using Effective Interest Method (Amort. Table) W/ objective for
- Int. Received (Face Amount x Coupon Rate); Int. Income (PV x EIR) Impairment
RECEIVABLE FINANCING ABC Company Ar-Assigned 100k
AR 100k
- Means of generating cash. 80k Cash 100k AR
- Accelerate collection of receivables. Cash 80k
Metrobank Loss 20k
Pledging NP 100k

- The use of AR as a collateral for a loan. Notification Basis – owners are notified that their accounts have been
- The only entry in the book is the loan obtained from the financing entity. assigned. Directly remit to the bank.
- AR is accounted for normally.
- AR is not reclassified. Non-notification Basis – Owners don’t know about the assignment.
- Disclosure must be made in the notes to FS. Payment is still made to the company. Then, company to bank.

ABC Company Cash 80k Factoring

Loss 20k
80K Cash 100k AR Loans Payable 100k - Sale of Accounts Receivables. Usually at loss.
- There is transfer of ownership.
Metrobank
ABC Company Cash 80k
AR pledged Loss 20k
(Discount in AR) 80k Cash 100k AR AR 100k
Proceeds/ Cash Received
Metrobank
Assignment
Without Recourse
- More formal than pledging. - No more liability. Absolute transfer. Risk of non-collection is
- Usually with formal of promises to pay (PN). transferred to the factor entity.
- AR is reclassified to AR-Assigned.
- Disclosure must be made in the notes to FS. With Recourse
- There is still a liability. If maker don’t pay the bank, the entity has to
AR-Assigned pay for it.
(Notes payable)
Equity in the assigned account Casual Factoring – Seldom only. Losses are charge to Loss Account.
Difference of the balance of assigned account over the balance of the loan. Continuing Agreement – Part of the operation. Losses are charged to the
corresponding expenses.
If factored with recourse, set up an account title Cr. - ‘ Libility for Rrecourse
Obligation’ and charge to Dr. - ‘Loss’.

Factors Holdback – A receivable. The factor entity will return it once all the AR is
collected.

If the problem is silent, assume it is factored without recourse.

Discounting

- Sale of Notes Receivable on a notification basis and with recourse.

- Solve immediately for the Proceeds.

Face Value of NR
Interest on Maturity (Face value x Notes rate x maturity period)
Maturity Value
(Discount) (MV x Bank rate x Remaining term)
Proceeds from Disc.

- If bank discounted the Notes after certain period from the date of the NR, an
entity must recognize INTEREST INCOME.

Without Recourse – No liability at all.  Cash 80K

Loss 20K
NR 100K

Conditional Sales  Cash 80K

(Contingent Liab.) Loss 20K
NR-Discounted 100K
With Recourse
Secured Borrowing  Cash 80K
(Not a sale) Int. Expense 20K
Liability for NR-D 100K
INVENTORY 2.Perpetual Inventory System
 Goal: Compute for Cost Ratio  COGS  End. Inventory  Low volume, large peso
- PAS 2  Cars (Toyota)
- Assets  Stock Cards Inventory
 Held for sale in the OCB. (Running Balance) COGS
 In the process of production for such sale  Prepare T-Accounts for Inventory and COGS. Any difference charge to
 In the form of Materials/Supplies to be consumed in the production. Inventory Shortage (COGS) xxx
Inventory xxx
Merchandising  Complete, Purchase for resale
Classification (trading/retail) Require Physical Count
Manufacturing  Need to be further assemble/manufacture Periodic – E.I
Kinds of Inventory  RM, WIP, FG Perpetual – Accuracy

Inclusions: Legal Title (control & ownership) Beg. Invty. Net Sales Purchases
1. Goods owned & on hand  Store & Warehouse Purchase (COGS) (Sales)
2. Goods in Transit  Should be shipped CGAS Profit E. I
FOB Destination FOB Shipping Point (E. I) (OPEX)
Seller / COGS N.I
Buyer / /
(if received) Beg. Invty is DIRECTLY RELATED to COGS
 Who owns the good, pays the freight. End. Invty is DIRECTLY RELATED TO NET INCOME
3. Consigned goods
Consignor  Owns the good still unsold FORMULAS
Consignment E. Inv  B/S
Consignee Cost of Inventory
 Freight of transferring the good to consignee is part of cost of inventory. COGS  I/S

INVETORY SYSTEM 1. Specific Identification  Low volume, Large peso

2. FIFO (First In, First out)  Goods first purchased are first sold.
1. Periodic Inventory System End. Invty are the recent purchases.
 High volume, Small peso  Periodic & Perpetual
 Department, SM, Hardware 3. WAVE (Weighted Average) – Wave Cost/unit is multiplied to # of units on
 Mixture of homogenous products hand. Wave cost/u = Total CGAS/Total # of units avail for sale
 Ending Inventory – Physical count at the end of the year.  Periodic
E.I (B/S) xxx  Perpetual  Moving Average Method – new wave cost/u is computed every
I/S xxx new sale is made.
MEASUREMENT ESTIMATION

Initial (1/1) Subsequent (12/31) Instances:

1. Interim Reporting
Cost LCNRV 2. Inventory are destroyed
3. Test the reasonableness of the physical count
Merchandise LCNRV = Estimated Selling Price
- Purchase price (Estimated Cost of Completion) Gross Profit Method
Manufacturing (Estimated Cost to Sell/Disposal) - Based on the assumption that gross profit rate is approximately the same
- DM, DL, OH from period to period.
- Cost ratio are relatively constant from period to period.
+ Other Cost - COGS is computed through profit rate.
- Incurred in bringing the inventory
To its present location and condition. Sales 100,000 – 100% Beg. Invty 20,000
(Taxes, Freight, Handling Fees, Direct Acquisition Cost) COGS (60,000) – (1 - .40)/60% = Cost Ratio Purchases 180,000
(Less: Trade discounts, rebates, etc.) Profit 40,000 – 40% CGAS 200,000
COGS (60,000) – 100Kx.60
In writing down INVENTORY to its NRV, it is preferably to be End. Invty 140,000
 Item-by-item
 If appropriate, by group GPR based on Sales (Sales = 100%); GPR 40%

PURCHASE COMMITMENT Sales 100% Sales x 60% = COGS

(COGS) 60%
- Agreement between buyer and seller to purchase goods in the future at GP 40%
agreed fixed prices.
- Minimize risk of price increases GPR based on Cost (Cost = 100%); GPR 40%
 If price increases; not settlement date – no JE (conservatism)
 If price decreases; not settlement date – recognized liability Sales 140% Sales/140% = COGS
Loss in PC xxx (COGS) 100%
Est. Liab in PC xxx GP 40%
 At settlement date – Cash to be paid is at fixed price; purchases to be
recorded follows LCNRV. Recognize Loss/Gain, if any.
RETAIL INVENTORY METHOD Ownership  SELLER
 FOB Destination
- High volume, small peso  FOB Buyer
- Department Store  FOB ex-ship
 FOB place of the buyer
Approaches  Lay away sale
1) Average Cost Method  Sale with buyback agreement
 Includes Net Mark-up and Net Mark-down in computing Cost Ratio.  Sale under Inventory Financing
2) FIFO Retail Method  Hold for shipping instruction
 Includes Net Mark-up and Net Mark-down in computing Cost Ratio.  Sale on trial/approval
 Exclude Beg. Inventory in computing Cost Ratio  Inventory pledged
3) Conservatism/Conventional/LCNRV
 Exclude Net Mark-down in computing Cost Ratio Ownership  BUYER
 FOB Shipping Point
 Total CGAS, and RetailGAS will be used in computing the End. Invty at cost  FOB Seller
and COGS in all approaches.  FOB FAS
 FOB CIF
Additional Key Points!  FOB place of the seller
 Employee Discount – Added to sale  Hold and Bill Arrangement
 Normal Spoilage – Added to Sale  Sold on installment
COGS xxx  Sale on with high probability of return
Invty xxx  Goods manufactured at customer’s specification
 Abnormal Spoilage – Deducted to cost and retail  Special orders
Loss xxx
Invty xxx Notes:
 Sales Discount – Ignored No physical flow of Storage Cost is generally not part of the Cost of Inventory, unless this storage cost is
 Sales Allowances – Ignored Invty necessary prior to the production process.
 Purchase Discount & Allowance – Deducted to cost only
 Purchase return – deducted both cost and retail Inventory Writedown:
 Initial Purchase mark-up – add to purchases to get the retail  Direct Method – Charged to COGS
Cogs
Inventory
 Allowance Method – Charged to P/L [Loss]
Loss on Inventory WD
Allowance for Loss
INVESTMENTS BM: Hold to Collect ‘FA’ FA @ AC
 PFRS 9, PAS 32 CFC: SPPI (solely payment of principal
and interest)
Any contacts –that gives rise to both– BM: Hold to Collect and Sell ‘FA’ FVOCI
Financial Instrument Financial Assets of one entity or; CFC: SPPI (solely payment of principal
Financial Liability or Equity Instrument of another and interest)
entity. BM: Not defined FVPL
CFC: Not defined
Financial Asset is any asset that: {Must be FINANCIAL}
 Cash
 Contractual right to receive cash or financial asset of another entity
 Contractual right to exchange financial instrument with another entity under
condition that are potentially favorable
 Equity instrument of another entity
 If owns entity – treasury shares

 Cash and CE
 Receivables
 Investment in Debt & Equity Securities

Examples:
Bank Deposit  Creates Creditor-Debtor Relationship. Debtor receives financial Exceptions:
asset (cash), while Creditor creates liability (Deposit Liability).  Equity Instrument (not for trading)  FVOCI (By irrevocable election)
 w/out recycling: UGL – RE
Acquisition of Share (Equity Securities)  [Shareholder] receives financial asset  FA (qualified AC & FVOCI)  FVPL (By irrevocable designation)
(Investment in Shares), while [Issuer] creates liability (Ordinary Shares).  To eliminate accounting mismatch

Acquisition of Bonds  [Bondholder] receives financial asset (Investment in Bonds),

while [Issuer] creates liability (Bonds Payable).

Equity and Debt Securities are financial instruments classified as investments.

Basis of classifying Financial Assets:

 Entity’s business model of managing FA
 Contractual Cash-flow Characteristics of FA
INVESTMENT: DEBT SECURITIES INVESTMENT: EQUITY SECURITIES
 Bonds  Shares/Stocks

Jes: Ownership Types Standards Classification Measurement

Bondholder Issuer < 20% Regular PFRS 9 FVPL, FVOCI FV
Investment in Bonds xxx Cash xxx 20% - 50% Significant PAS 28 Inv. In Equity
Cash xxx Bonds Payable xxx Influence Associate Method
> 50% Control PFRS 3,10 Inv. In Consolidation
Bond Indenture – A contract between the issuer and bondholder. In contains the Subsidiary
terms of the contract and the restrictions.
Jes:
AC FVOCI FVPL Shareholder Issuer
Debt / / / Investment in Shares xxx Cash xxx
MTM X / / Cash xxx Ordinary Shares xxx
Amort / / X
Stocks Certificate – Contract that contains the number of shares subscribe.
Present Value
Effective Rate = Nominal rate Face Value Dividends
Effective Rate > Nominal rate Discount [recog. gain to be amort & addtional interest income] Cash Dividend – Dividend Income
Effective Rate < Nominal rate Premium [recog. loss to be amort & reduction of interest income]
Dividend On – Purchase shares between date of declaration and record.
Purchase Price or Market Price = Present value of Principal and Interest using EIR  PP includes dividend
 Remove dividend in initial measurement
 If bonds purchased between interest payment dates
- Remove accrued interest from initial measurement Ex - Dividend – Purchase shares between date of record and payment.
- Either debit ‘Int. Inc’ or ‘Int. Rec.’  PP excludes dividend
 If bond is sold between interest payment dates before maturity
- Remove accrued interest when computing for the gain. Property Dividend – Dividend Income at FV of the property. [Inventories, PPE]
- Accrued interest is recognized as interest income
Liquidating Dividend – Not a dividend income but rather a return of capital.
 Reduces investment carrying amount

Share Dividend – Not a dividend income.

 Increase number of shares
 Decreases cost per share
 Total cost remains the same
Split-Up – Increase number of shares, reduces cost per share. [retrospective]
Split-down - Decrease number of shares, increase cost per share. [retrospective]
Special Assessment – Increases investment.
Share in Lieu of Cash Dividend – Recognized as dividend income at the shares FV.
Cash in Lieu of Share Dividend – Not a dividend income. Assumed shares received
and sold.
Compound Financial Instruments
 Bonds are purchased together with share warrants.
 Prioritize allocating the FV of the liability from the cost.
 The residual amount is for the equity security.

Share/Stock Rights Bonds [liab] 90,000 FV

- Pre-emptive rights  right to subscribe to new shares (priority) CFI 100,000
Share rights [equity] 10,000 Residual Value
Accounted Separately
w/ FV Fair Value Measurement
Accounting Not Accounted Separately  PFRS 13 – How to measure FV

w/o FV  Theoretical/Parity Value Fair Value – The price that would be received to sell an asset or to be paid to
transfer a liability in a market transaction.
Shares Right-on – Purchase shares between date of declaration and record.
 PP includes stock rights Principal Market – FV ‘quoted price’; Exit Price
 Account separately or not
Valuation Techniques
Shares Ex – right – Purchase shares between date of record and expiration.  Principal Market
 PP excludes stock rights  Most advantageous market – highest price in the available markets.
 Accounted separately
Hierarchy of FV:
Theoretical Value [estimate] Level 1 – Quoted price at Principal Market [Most Reliable]
Level 2 – Observable Input. Ex: Price of recent sale of adjacent land.
Right-on Level 3 – Unobservable Input [Least Reliable]
MV of shares right on – SP
# of shares to purchase 1 share + 1 In determining Most advantageous market between markets:
Ex – right Market 1 vs Market 2
MV of shares right on – SP Quoted price
# of shares to purchase 1 share (Transaction Cost)
(Transport Cost)
 If shares are purchased with detachable warrant, allocate cost to shares and Amount received
stock rights.  Includes both cost to determine the most advantageous market
 If not, multiply SR FV to the number of shares of an investor. FV = Quoted price – Transport Cost  to compute FV of the chosen market
INVESTMENT IN ASSOCIATE Net Assets
 PAS 28  Assets – Liabilities
 If an investor holds 20% S- 50% of voting rights of the investee [associate] – It  aka EQUITY
has a SIGNIFICANT INFLUENCE.  PP reflects FVNA of the associate
 If FVNA is not equal to BVNA;
Presumption: SI – Power to participate in financial and operating policy process.  Convert BV to FV [adjustment]
 Even if < 20%, investor still has S.I if,
 Representation in the board Scenarios:
 Participation in Policy making process PP = FVNA No problem
 Material transaction between investor and investee PP > FVNA Goodwill [Not recorded separately; part of CA]
JEs: PP < FVNA Gain on Purchase [Part of Income]
Acquired Ordinary Shares for 2,000,000
IIA 2,000,000 Accounting Issues:
Cash 2,000,000  Intercompany Transactions
 Upstream [Associate sells to Investor]
Net Income of 200,000  Downstream [Investor sells to Associate]
IIA 200,000  Eliminate Intercompany GAIN
Share in NI 200,000
 IIA achieved in Stages
Received Cash Dividends of 100,000 (return of capital)  From < 20% [PFRS 9] – 20% - 50% [PAS 28]
Cash 100,000  Changed Method from FV to Equity.
IIA 100,000  Recognized FV changes before derecognized Investment to IIA.

UG – OCI and Revaluation of 500,000  Loss of Significant Influence

IIA 500,000  PAS 28 – PFRS 9
Share in OCI 500,000
 Potential Voting Rights
 Undervaluation and Overvaluation Affects Net Income.  Stock Rights
 Excess in BV of Assets; Recognize Depreciation Expense.  Assumed stock rights are exercised to determine the ownership %.
 Still in computing the share in investment income and dividend, use
Investment in Associate Investment Income the % of shares owned over the outstanding shares of the investee.
Net Income [R/E] Increase Increase
Net Loss Decrease Decrease
Dividends [R/E] Decrease No effect
OCI – Gain/Rev. Surpl Increase No effect
OCI - Loss Decrease No effect
JOINT ARRANGEMENT Separate Vehicle – Separate Identifiable Entity (eg. Corporation).
 PFRS 11

Joint Arrangement – A contractual arrangement whereby two or more parties share

controls.

Joint Control – A contractually agreed sharing of controls of an arrangement, which

exists only when decisions about relevant activities requires unanimous consent of
the parties sharing control.

Element:

Contractual Arrangement – Written Contract

Sharing of Control – all parties are able to direct relevant decisions of the
arrangement. No single party can decide.
Unanimous Consent – Requires all consent of the parties, or at least no party objects
to it.

Joint Venture (JV)

 Rights to Net Assets (Equity)
 Equity Method
Types
Joint Operation (JO)
 Rights to Assets and Liabilities
 Proportionate share Assets, Liabilities, Revenues, Expenses

JV JO
w/ separate vehicle / / [if silent, JV]
Structure
w/o separate vehicle X / [JO only]

In concluding whether JV or JO consider the following: (w/ vehicle)

 Legal form of Joint Arrangement
 Terms of Contractual Agreement
 Other Facts and Circumstances when relevant
Accounting for SMEs
 Small, Medium Enterprise

Jointly Controlled Operations, Assets, and Entities

 Venturer should recognize assets it controls, liabilities it incurs as well as share
in income earned and expenses that are incurred.

Model options for venture to use:

 Fair-Value Model [PFRS 9; FVPL]
 Cost Model [Amortized Cost]
 Equity Model [PAS 28]
INVESTMENT PROPERTY Measurement:
 PAS 40 Initial – Cost (incurred and necessary)
Earn Rentals (Apartment)
Land or Building Subsequent Measurement:
(under finance lease, Capital Appreciation (Land) Cost Model
Held by owner or lease) Cost – Acc. Dep. – Impairment Loss = BV/CV/CA
Fair Value Model (FVPL)
Used in production/supply of goods or services  Marked to Market
 Fair Value change to be recognized in P/L
PPE (Operations)
(owner-occupied property) For Administrative Purposes (Office)
Other Classification Issues:
 Party IP & Partly PPE
Land & Bldg PPE
Floor 1&2 – IP
-printing
Yes (accounted separately)
Scenario 1: Produce & Sell -Admin office
Floor 3&4 – PPE
Acctng. Books
Sold/Leased Separately
ABC Condo  Tenants IP
1 PPE IP
No (significance) – 50 units 49 IP
Apartment  Tenants PPE (main line of business)
Scenario 2: Property Developer
49 PPE PPE
Condo  Sell Inventory (held for sale)
1 IP
Examples of Investment Property:  Ancillary Services to occupants
- Land held for long-term capital appreciation
- Land held for undetermined use Significant (hotel) PPE
- Building being leased out under operating lease Ancillary Services
- Vacant Building held to be leased out under operating lease Insignificant (security) IP
- Property under construction as an investment property
 Intracompany Rental
Examples of Not Investment Property:
- Property used in production/supply of goods or services or for admin. purposes (PPE)  Consolidated FS – Not investment property, rather PPE
- Property held for sale in the ordinary course of business (Inventory)  Separate FS (Lessor) – Investment property
- Owner-occupied property (PPE)
- Property being constructed on behalf of another party (LTCC)
- Property being leased out to another entity under finance lease

Operating – No transfer of ownership

Lease
Finance – W/ transfer of ownership
  Transfer between IP, PPE, Inventory  Succeeding CSV, the difference will fully be charged to insurance expense.
 Change in Use  Recognition of dividend is also charged to expense.
 CSV and Dividend are deductions to Insurance Expense.
Cost Model – Carrying Amount, No G/L PPE xxx  Upon death, proceed will be collected and CSV shall be derecognized and the unused
IP xxx expenses.
 Difference will be charged as Gain in P/L.
FV Model
IP – PPE/Inventory PPE/Invty (FV) SINKING FUND
IP (CA)
G/L – P/L - Cash set aside for repayment of long-term liability (Bonds Payable).

Inventory – IP IP (FV) B/S

Inventory (CA) Bond Sinking Fund – NCA mirror to Bonds Payable – NCL
G/L – P/L CA CL

PPE (owner-occupied) – IP IP (FV) P10M 

Imp. Loss – P/L X
PPE (CA) ABC Y Bondholders/Investors
Revaluation Surplus – OCI Z
P10M; 5 years  Interest + Principal
OTHER LONG-TERM INVESTMENT
Administered by the entity (ABC) – pays the interest and principal
CASH SURRENDER VALUE (CSV) Accounting
Administered by the trustee (bank) – Interest and Principal
Life Insurance Policy Invest (excess)
ABC PHILAM LIFE Debt – interest Equity – Dividend
Premiums P50K/Yr
- CEO  The trustee sends a statement of fund balance to ABC.
- LIFE INSURANCE PROCEEDS
CEO (Family) Ins. Exp.
Beneficiary Cash
ABC

CSV – amount the insurance company pays upon pre-termination.

(Financial Asset – contractual to receive cash)

 If the beneficiary is the corporation, there is a CSV.

 If the problem is silent, CSV starts on the 3rd year.
 On initial recognition of CSV, it’ll be divided by 3 yrs. 1st year is for deduction of
expense recognized for the current year, the previous 2 years are charged to R/E.
PROPERTY PLANT AND EQUIPMENT Modes of Acquisition:
 PAS 16 DM + DL + OH
Self-constructed
Tangible Assets productions/supply of goods or services Directly attributable cost
PPE Used in business rentals (hotel) `
Long-term in nature admin. purposes Cash basis – Cash payment
Acquisition On account – Deduct discount, whether taken or not
Examples: On installment – Present Value of Installment/Deferred payment
a. Land
b. Building Hierarchy of priority
c. Machine w/ commercial FV of asset given up +/- cash (if paid/received)
d. Equipment substance FV of asset received
e. Land improvement Exchange CA of asset given up +/- cash (if paid/received)
f. Leasehold improvement
g. Furniture and Fixture Lacks commercial CA of asset given up +/- cash (if paid/received)
Substance (no gain/loss)
Measurement:
 Probable future economic benefits Hierarchy of priority
 Cost can be measured reliably Trade – in FV of asset given up + cash
Initial - significant cash FV of asset received (cash price w/out trade-in)
Purchase Price - car dealers
Cost Hierarchy of priority
Directly Attributable Cost Yes – Capitalized Issuance of Share FV of asset received
(necessary for its intended use) No – Expense And Bonds FV of issued instrument

Directly Attributable Cost Unrelated party – Income from donation (credit)

 Cost of employee benefits arising during construction Donation @ FV
 Cost of site preparation Related Party – Donated Capital (credit)
 Initial delivery and handling cost (shareholder) (share premium)
 Installation and assembly cost Cost incurred to transfer title – debit to the credited account
 Professional fees
 Cost of testing Systematic allocation of
Depreciation Depreciable Amount of an asset
Subsequent Over use life expected usage
Cost Model  Cost – Acc. Dep. – Acc. Impairment = CA/CV/BV Physical wear and tear
Matching principle Obsolescence
Revaluation Model  Fair value – Acc. Dep. – Acc. Impairment = CA/CV/BV
Methods: Key notes:
 Depreciable Amount = Cost – Residual/Salvage Value  If expenditures result to efficiency – Capitalized
 If expenditures result to inefficiency – Expense
Formula Base
1. Straight-line Cost – Residual Value Depreciable Amount Change in Accounting Estimate
- constant/uniform UL  Change in Depreciation Method
Steps:
2. Sum-of-the –years SYD Denominator Depreciable Amount 1. Update Carrying Amount
Digit (SYD) UL x (UL+1/2) 2. Use the new method, useful life, and salvage value, if any

3. Declining Balance
 Double-declining 2/UL Carrying Amount
 150% declining 1.5/UL Carrying Amount

4. Units of Production
- usage
Output Denominator – Output Depreciable Amount

Input Denominator – Input Depreciable Amount

5. Others
 Composite – Group first, then depreciate
 Retirement – No depreciation until assets are retired
 Replacement – No depreciation until assets are retired and replaced
 Inventory – physical count (beg. Inventory – end. Inventory)

Lump-sum acquisition of Land and Building

Land
Usable – PP (allocate @ FV)
If the building is Bulding

Not usable – PP  100% Land

(If the usable building is sold)

CA of old building – Loss/Expense
Demolition Cost
Capitalize to NEW Building
(net of proceeds from salvage value)
REVALUATION AND IMPAIRMENT  The entire class of which the assets belongs to must be revalued.
Impairment – Decline in the value of an asset. Carrying amount exceeds Recoverable amount.
Revaluation
Revalued Amount = FV – AD – Acc. Impairment PPE
Initial Recognition – Cost PAS 36 [Impairment] - IP ; not applicable to – inventories and financial assets
Subsequent Measurement IA
Cost Model
Revaluation Model Carrying Amount
FV @ the date of revaluation (Recoverable Amount)
Revalued Amount Impairment Loss
Depreciated Replacement Cost (DRC)
Example: Fair Value Less Cost of Disposal
1/1/25 P500 – Casio Calculator Recoverable amount (fair value less cost to sell)
1/1/27 P300 – Fair Value Value in Use
Present value/Estimated Future Net Cash Flows
If FV is indeterminable:
2027 model Casio Calculator Indicators of Impairment:
Cost Replacement Cost  Physically Damaged
Car 2000 5000  Obsolescence
AD (500) (1250) – 5000*.25  Not well-maintained
AD/Cost = .25 3750
Reversal of Impairment:
Revalued Amount – Not equal to FV model [FVPL]
(Carrying Amount) If Non-Depreciable Asset – to the extent of the revaluation surplus. [whole amount]
Revaluation Surplus (OCI) If Depreciable Asset – [Limit] CA assuming no impairment less RA.
[FVOCI]
Cash Generating Unit
R/S  R/E (UL) [Piecemeal Realization]  Smallest identifiable group of assets that generates cash-flow which are independent
Option among other assets.
Disposal/Sale
Examples: Toyota – CGUs are Fortuner, Innova, Vios –each product line can be impaired
Depreciable Assets – Piecemeal/Sale separately.
Non-depreciable – Sale only
Rules:
Proportional Goodwill (100%)
Approaches Impairment Loss [charge]
Elimination – [of] Accumulated Depreciation Other NCA [excess] – prorate based on CA

Technique – Create a table for Cost, FV, and Difference [JE]  If after allocation the CA of a particular asset is below the RA of a specific asset,
REALLOCATE to match RA.
  Restoration Costs
WASTING ASEETS & DEPLETION  Future costs to be incurred to restore the property back to its original
condition
 Mining companies  Assets Retirement Obligation (ARO)
 Natural resource property in the form of a land containing mineral deposits, precious  Required by law
stones, metals, or trees to be harvested as logs or lumbers with limited life and
subject to depletion. Depletion:
 Gold, silver, copper, coal, etc.  Systematic allocation of depletable amount of wasting assets
 Removal or extraction of natural resources
Physically consumable  Units of production Method is used
Properties of WA Cost – RV
Irreplaceable Total expected output x Actual Output

Costs of Wasting Assets: Depletion Rate: [cost – rv] / total expected output

 Acquisition Costs  Depletion is charge to inventory and subsequently to cogs once sold.
 Purchase price of the property
 Cost of the land & Other directly attributable costs Rate used to multiply the units sold = Total inventoriable amount/Actual output

 Exploration and Evaluation Costs [PFRS 6] Property, Plant, and Equipment

 Costs incurred to locate natural resources  If Immovable property
 Assessment of technical feasibility and economic viability UL of PPE – S/L Depreciation Method
Right to explore (DENR, LGU) W/ ever is shorter
Studies from experts UL of WA – Units of output method
Samples & Trenching (Testing)
 PFRS 6 applies only after obtaining legal right to explore but before obtaining  If movable property – UL of PPE – S/L Depreciation Method
technical feasibility
 Depends on the company policy whether to capitalize or expense, if Liquidating Dividend
silent capitalized.  Wasting Asset Doctrine
 Mining company can issue dividend not only up to the extent of R/E but up to the
 Development Costs extent of Accumulated Depletion [sold].
 Costs incurred in the actual production/extraction  Return of Capital is legally valid even during the life of corporation as opposed to trust
Tangible Development Costs [PPE] – Trucks, Drilling machineries, excavation fund doctrine.
tools, bunkers
Unrestricted R/E
Intangible Development Costs [Capitalized] – Drilling costs & Costs of Accumulated Depletion [ sold]
construction (wells, shafts) Total maximum dividend available
(Capital Liquidated in prior years)
Maximum Dividend for the year
GOVERNMENT GRANTS GG – Income:
 PAS 20  Separately/Other Income [I/S]
 Assistance from the government in the form of transfer of resources in return for a  Deducted from related expense
PAST or FUTURE compliance of a certain conditions relating to the operating activities
of the entity. Repayment of Government Grant:
 In short, assistance from the government with a condition attached to it.  Change in Accounting Estimate
 Prospective
Government Assistance – action by the government designed to provide economic benefit to  Applied first to unamortized deferred income and the excess to expense
a specific entity. [with or w/out conditions] Specific to a particular entity only.  As to asset – by increasing the CA of the asset.

GG related to Assets – condition is to acquire or construct as asset. [Future] Notes:

GG related to Income – Not related to asset. Losses already incurred. [Past]  In case of non-monetary assets, FMV of such asset will be used.

Accounting for Government Grants:

 Initially recognized as a Liability [Deferred Income], and subsequently recognized as

an Income once the conditions are complied with.
 Follows Matching Principle – recognized income when expense has been incurred.
o Specific Expenses – Grants are recognized as income over the period of related
expenses.
o Depreciable Assets – Grants are recognized as income in proportion to the
depreciation of related assets.
o Non-Depreciable Assets – Grants are recognized as income over the period which
bears the cost of meeting the conditions.

Recognition:
 Recognize income when
There’s reasonable assurance that conditions will be complied with

Government grants will be received

Presentation of GG:
Deferred Income [Liability] – Cash DIGG
Deferred Income from GG IGG

Deduction of an Asset – Deduct in the assets CA

  Interest expense incurred after is charge to expense.
BORROWING COST

 PAS 23
 Self-constructed PPE
 Interest and other costs incurred in connection with the borrowing of funds
 Directly Attributable Costs [Capitalizable]
 Interest Expense = Borrowing Costs

Qualifying Asset – An asset that requires a substantial period of time to be ready for its
intended use/sale.
 An entity must construct a qualifying asset in order for the borrowing cost to be
capitalizable.

Specific Borrowing – Actual Borrowing Costs – Interest Income

Types
General Borrowing – Average Expenditures X Capitalization Rate

Ave. Exp. – Weighted average [amount for the construction]

Capitalization Rate – Total Interest Exp. / Total Principal

Notes:
 Interest Income if deducted in specific borrowing because it came from an investment
that are not necessary for the current period.
 If entity both has specific and general borrowings, average expenditures from general
borrowing will be deducted with specific borrowing.

Important Rule:
 The capitalizable borrowing costs must not exceed the actual interest expense.

Commencement of Capitalization:
Interest
Incurrence [overlap] @ commencement of activities
Expenditures

Suspension of Capitalization:
 During extended periods which are delayed in which active development is delayed.

Cessation of Capitalization:
 When the qualifying assets has been substantially completed.
BIOLOGICAL ASSETS Commissions to brokers and dealers
Living Animals – Horse, chickens, cows, pigs, sheep, etc. Cost to Sell Levies to Regulatory Agencies and Commodities Exchange
Bio-Assets Transfer Taxes and Duties
Living Plants (Consumable) – Vegetables [Once consumed it
dies] Transportation Cost – Fair Value adjustment [Deduction to FV]
PAS 41 Bearer Plants [PPE] – To bear produce [Coconut tree, Other necessary costs – Expensed when incurred
avocado tree, papaya tree] – once consumed, do not
die  Gain on Fair Value Changes is recognized in P/L

Agricultural Produce – Harvested Product [egg, coconut fruit, apple, wool, Disclosures: [Encourage]
cotton] FVLCTS Age
 To qualify under PAS 41, it must undergo AGRICULTURAL ACTIVITY. Price Change End vs. Beg Orignal
Total Change
Management by entity for the biological transformation of bio-assets into In FVLCTS
agricultural produce or another biological asset. Physical Change End vs. End Current vs. Orig.

Definitions: Disclosures: [Required]

Biological Assets – Living animals or plants  Gain or Loss in FV changes
Agricultural Produce – Harvested products of Bio-Assets.  Description of each group of Biological Assets
Biological Transformation – Process of growth, degeneration, production, and procreation
that results to qualitative or quantitative change in Bio-Assets.
Bearer Plant – Living plant that are;
 Use in production of agricultural produce
 Expected to bear produce for > 1 period
 Remote likelihood to be sold [except, as scrap]

Examples:
1. Cows Milk Cheese
Classification Bio-assets[PAS 41] Agri. Produce Inventory [processed]
Measurement FVLCTS FVLCTS@PofH LCNRV

2. Avocado Trees Avocado fruits Avocado Shakes

Classification PPE [PAS 16] Agri. Produce Inventory [PAS 2]
Measurement Cost FVLCTS@PofH LCNRV

Initial and Subsequent Measurements:

Biological Assets – Fair Value Less Cost to Sell
Agricultural Produce – Fair Value Less Cost to Sell at the Point of Harvest
INTANGIBLE ASSETS 2. Trademark – Symbol, sign logo, name representing a company or a product. [Brand name
or Trade name]
 PAS 38  Legal life [10 years], subject to unlimited renewal – indefinite
 Internally-generated IA -Expensed  Not subject to amortization, unless company has policy as to useful life.
Identifiable [legal rights]  Tested for impairment annually.
Definition Non-monetary [not easily convertible into cash] 3. Copyright – Exclusive right given to authors, artists, composers. etc.
Without Physical Substance  Books, songs, films
 Amortized over the useful life using:
Initial Measurement:  Patterns of Benefits; if available
 Cost [PP + Other directly attributable cost]  Straight-line method
Subsequent Measurement: 4. Franchise – Right to operate a business or sell a product.
 Cost Model [Cost – Acc. Amortization – Acc. Impairment]  Initial Franchise Fee [IFF] – Capitalized
 Revaluation Model [FV – Acc. Amortization – Acc. Impairment]  Periodic/Continuing Franchise Fee [CFF] – Expensed
 Used only when there’s active market for the IA. 5. Goodwill – Excess of cost over the FVNA. [PFRS 3]
 Capitalized only if acquired through business combination.
Research and Development Cost:  Unidentifiable
1. Research Phase Method:
 Costs incurred in this phase are expensed outright.  Residual Method – PP less FVNA [Preferred]
 R&D are not distinguishable, charge to research as expense.  Capitalization of ‘Average excess earnings’
 Discovery of new knowledge  Capitalization of ‘Average earnings’
 Lab research  Purchase or multiples of ‘Average excess earnings’
 Studies and clinical testing  PV of ‘Average excess earnings’
2. Development Phase
 Can be CAPITALIZED if costs are incurred when there’s already a TECHNOLOGICAL 6. Other minor IA
FEASIBILITY. [Dev. Cost IA] a. Computer Software – Capitalized after acquisition of Technological Feasibility.
 Application of research Own-use - Intangible Asset
 Creation of master product Classification Sale to others - Inventory
 Prototypes/models Integral part of machine - PPE
 Mass testing and FDA approval b. Website
3. Production Own-use - Intangible Asset
 Charge to inventory Classification Sale to others - Inventory
 Commercial product Promotional/Ad - Opex
 Distribution c. Customer List – Data-based of customers
Purchased - Intangible Asset
Major Intangible Assets: Internally Generated - Expensed
1. Patent – gives an inventor the right to prevent other people to use or sell his invention.
 Licensing and Registration Fees – Capitalized Impairment Rules:
 PP + Other directly attributable cost – Capitalized w/ indicators w/o indicators
 Amortized over the U/L or Legal Life [20 years], w/ever is shorter Definite Life [P, C, F] / X
Indefinite [TM, GW] / /
Current Liabilities
Notes Payable and Debt Restructuring Debt Restructuring
 Bank may offer concession/other way of fulfilling the obligation.

Invty 10K 1M
ABC XYZ ABC XYZ
PN P+I
Invty NR
NP Sales Asset Swap [Dacion en Pago]
- NCA will be paid in exchange of cash [AR, INVTY, INVESTMENT, PPE]
Measurements: - Most common is PPE – Land [Mortgage/Collateral]
Financial Assets [Receivables, Investments] - The difference between the obligation + accrued interest + other charger [Financial
PFRS 9 [Financial Instrument] Liability] and the Consideration given is charged to P/L.
Financial Liabilities [Notes Payable]  Financial Liability > Consideration = Gain
 Financial Liability < Consideration = Loss
Initial: - CV of Liab vs CV of Asset
Fair Value Less Transaction Costs [FV – TC]
 Usually TC is zero [0] Equity Swap
- Issuance of shares in settlement of the obligation
Subsequent: - Creditor becomes shareholders
 Short-term/ Within 1 year – Fair Value = Face Value Heirarchy:
 Long-term/ > 1 year – Fair Value = Present Value  FV of equity instrument issued
Interest-bearing – PV = Face Value  FV of liability extinguished
Non-interest – PV = Discounted Value  CA of liability extinguished
 Amortization Table - The difference between the obligation + accrued interest + other charger [Financial
Liability] and the Consideration given is charged to P/L.
Fair Value Option: Irrevocable
Modification of Terms
Transaction Costs – Expensed Outright - Restructuring the terms of the loan
Effects No Amortization - Forgiveness of accrued interest
Marked-To-Market [P/L] - Decrease of interest rate = 10%  8%
- Reduction of Principal
- Extension of maturity date
G/L
With substantial modification Yes
CV [old liab] - gain or loss [at least 10% of old CV]
Vs
PV [new liab] W/out substantial modification No
(old EIR, disc) - gain or loss [below 10% of old CV]
Bonds Payable A=L+E  A [CFI] – L [FV] = Equity [Residual]
 Form of financing
 Bond Indenture contains the agreement [terms] of the parties 2 Types:
X
Bondholders Y Globe [issuer] Construct Tower Convertible Bonds
Z  The Bondholder has the right/option to convert bonds into shares.
100M 100M  Bondholder  Interest Income [fixed]
 Shareholder  Dividend Income [based on NI]
P+I NI Liability – Bonds Payable
Equity – Conversion Privilege [Share Premium]
Investment in Debt Cash
Cash Bonds Payable Bonds with Share Warrants
Cash Int. Expense  The Bondholder has a right to buy share at a fixed price [usually lower than the
Int. Income Cash market price]
 Bonds + Shares
Measurement: PFRS 9  Entitled to interest and dividend income
Bonds Payable is not derecognized
Initial: Fair Value – Transaction Cost Required Cash Payment
Bond Issuance Cost
 Increase Discount
 Decrease Premium

Subsequent: Amortized Cost [Effective Interest Method]

PV
Effective = Nominal  Face Amount
Issuance of B/P Effective > Nominal  Discount
Effective < Nominal  Premium

Issuance of Bonds Payable between interest dates

 Accrued Interest should be separated from the fair value of the bonds because it
should be recognized separately.

Compound Financial Instrument

Liability
Components [Separate]
Equity
SHAREHOLDER’S EQUITY 2. Retained Earnings
 Governed by the RCC Unappropriated
o AOI and By-laws Appropriated

For example: 3. Other Comprehensive Income [OCI]

ABC invested to JFC for 1,000,000 in exchange of 10,000 shares for P100. Unrealized G/L – FVOCI
Revaluation Surplus
ABC Books: JFC Books: Remeasurement G/L
Investment in JFC Shares Cash G/L in FOREX Translation
Cash Share Capital G/L in cash-flow hedge
Cash Retained Earnings
Div. Income Cash 4. Treasury Shares
Creditors – 1st Contra-equity [reduction in equity]
Voting Dividend Liquidation
Ordinary / 2nd excess inc. 2nd *Contributed Capital – Contribution of the shareholders [CASH]
SH CC = SC + SSC + SP
Preferred GR: X 1st Fixed 1st *Legal Capital – Cannot be issued as dividends to shareholders
 Par-Value – total par [ISSUED + SIBSCRIBED] – not deduct the SR
Par Value – fixed amount in AOI; Cannot be issued below par  No Par – Contributed Capital [SC + SSC + SP] – not deduct the SR
Types:
No Par-Value – have stated value; min. is P5/share Treasury Shares
 Reacquired shares
1. Authorized Share – Max. number of shares the entity can issue [AOI]  Cost method
2. Subscribed Share – Promised to buy share
3. Issued Share – Fully paid [Stock Certificate] Outstanding Shares = Issued + Subscribed – Treasury
4. Treasury Share – Reacquired shares [Buy-back]
5. Outstanding # of Share – Issued – treasury Excess Cash – save dividend
Entitled to dividends Reasons
Entity’s share is undervalued – reissue at a higher price
Presentation: B/S – SHE
1. Share Capital Treasury Shares reissued below cost – debit the loss to
Preference Share Capital [P/S] – @PAR  SP – TS [if there’s existing]
Ordinary Share Capital [C/S] – @PAR  R/E
Subscribed Share Capital – @PAR  SP – O/S – NOOOOO!!!!
(Subs. Receivable) Retirement –
Share Premium [APIC]  SP – O/S
Share Dividend Payable – @PAR  SP – TS
 R/E
Retained Earnings 3. Share Dividends
 Small – less than 20% of the outstanding shares
BB o R/E [at FV]
Dividends NI  Large – at least 20% of outstanding shares
[R/E +/- Prior Period Errors o R/E [at PAR Value]
Div. Pay] +/- Change in Accounting Policy
4. Liquidating Dividends
 From legal capital [Capital liquidated – contra- equity]
*Undistributed – retained earnings  During liquidation or bankruptcy
o Creditors – 1st
Dividends: o Shareholders – 2nd
 Date of Declaration Dividends
- Authorization of declaration of dividends Unappropriated [unrestricted] /
 Date of Record Total R/E
- All shareholders recorded in this date shall be entitled of dividends Appropriated [restricted] X
 Date of Payment
- Actual date of payment to shareholders Legal Appropriation – Treasury Shares
Reasons Contractual – Issuance of bonds [protection of creditors]
Types: Voluntary – Expansion, Working Capital, Contingencies [lawsuit]
1. Cash Dividends
 Most common Other Issues
 Express in a per share basis  ABC invest to JFC, and JFC issued C/S or P/S + additional feature
R/E CDP
Cash Div. Payable [Liab] Cash Right
1. Convertible Shares
2. Property Dividends [IFRIC 17]  Shareholders has the option to convert P/S into O/S Shareholder
 Non-cash asset 2. Callable P/S
o CA – FVPL, Inventory  Issuer has the right to redeem/call/retire the P/S
o NCA – FVOCI, AC, PPE  Involve cash payment Issuer
R/E 3. Redeemable P/S
Property Div. Payable @FV  The shareholder has the option to require the issuer Shareholder
 MTM at the - CA to redeem the P/S
o Date of Dec.  Mandatorily redeemable P/S – Liability
o Year-end  Interest Expense
o Date of Payment 4. Share Option
Additional Entry for NCA:  Shareholder has the option to buy a new share
NCA held for dist. To owners** [CA]  Shareholder has priority
PPE  Compound Financial Instrument
*reclassify from NCA to CA [PFRS 5]  Separate
**CA or FVLCTD, w/ever is lower o P/S – equity
 o Share warrants – equity [SP]
*Allocate at their FV

Recapitalization
 Changes in the capital structure in the corporation
 Cancellation of old shares and issuance of new shares

Ways: No effect to total SHE

1. Change from PAR to NO-PAR; vice-versa
2. Reduction of Par Value
3. Share Split – memo entry
 Split Up – # of shares increase, Par value decreases
 Split Down - # of shares decreases, Par value increases

Quasi-Reorganization
 Applies to financially troubled organization
 Increase R/E

Criteria:
1. Large Deficit [- R/E]
2. Approved by Shareholders and Creditors
3. Approved by SEC
4. Advantageous to all parties

Ways:
1. Recapitalization – SP
2. Revaluation of PPE – Revaluation Surplus
INCOME TAXES [PAS 12] I/S Approach – Change for the period ‘for the period’
Approach
Required B/S Approach – Ending Balance ‘as of’
Audited FS [B/S, I/S, SCF, SOCE] DTA
Corporation Beg. Bal
Income Tax Return – Quarterly I/S Approach

I/S ITR [Tax Code] End. Bal – B/S

Revenues* Taxable Revenues [GI]*** Approach
(Expenses)* (Deductible Expenses) [AD]*** DTL
Income Before Tax** Taxable Income Beg. Bal
(Income Tax) X Tax Rate [25% RCIT] I/S Approach
NI Income Tax
End. Bal - –
*Accrual B/S Approach
**Accounting Income, Financial Income, Pre-tax Income
***Cash Basis I/S Approach 2025 2026
Objective: Reconcile Accounting Income to Taxable Income Accounting Income 1M 2M
I/S ITR ± PD
Differences: Non-taxable income Int. Income (50K) -
1. Permanent Diff [PD] Penalties 70K -
Non-deductible expenses Acc. Inc. subject to tax 1.02M 2M
a. Income subject to Final Taxes [Passive Income, CGT] / X - Never ± TD
b. Exempt Income [Dividend] / X Installment sale (100K) 100K
c. Non-deductible Expenses [Fines & Penalties late filing] / X BDE 60K (60K)
d. Expenses subject to limit [Donations] / / - Limit Taxable Income 980K 2.04M
X 25% 25%
I/S ITR Income Tax Payable 245K 510K
2025 2026 2025 2026
2. Temporary Differences [TD] – Timing differences *PD cannot be reverse
a. Installment Sale / X X / –* **TD can be reverse due to timing differences
o PFRS – Upon sale Summary:
o Tax Code – Upon collection A/R Cash AI > TI = DTL – ‘if negative adjustment’
Sales A/R AI < TI = DTA – ‘if positive adjustment’
*Taxable Temporary Difference [TTD] – Deferred Tax Liability [Liability in the future]

b. Bad Debts Expense

o PFRS – @ Dec. 31 [Dr. BDE, Cr. ADA] / X X / –*
o Tax Code – Actual write-off
o *Deductible Temporary Difference [DTD]
B/S Approach
Carrying Amount - Cost
(Tax Base) – CA of A/L using the tax code
Difference*Tax Rate = DTL or DTA

Summary:
For Assets – If CA > TB = DTL
If CA < TB = DTA

For Liab – If CA > TB = DTA

If CA < TB = DTL
EMPLOYEE BENEFITS [PAS 19] Actuarial Assumption – life expectancy, work period
Assumptions
Mr. X render service to Toyota, in turn Toyota will give Mr. X salary and EMPLOYEE BENEFITS Financial Assumption – discount rate, salary increase/year

Types: FVPA [Fair Value of Plan Assets; Fund] – Pays the PBO
1. Post-employment benefits
 Retirement benefits Defined Benefit Cost
o Pension - monthly  Items to appear in P/L and OCI
o Lump-sum upon retirement Components:
2. Short-term employee benefits – within 12 months 1. Service Cost – P/L
 Sick leaves  Current SC – Increase in PBO for every year in service
 Vacation leaves  Past SC – Increase in PBO from plan introduction, amendment or curtailment
3. Other long-term employee benefits – more than 12 months  Gain or Loss on settlement
 Sabbatical leave – study MBA abroad 2. Net Interest – P/L
4. Termination Benefits  Interest Expense on PBO
 Separation Pay for retrenchment  Interest Income on FVPA
 Interest Expense on effect of asset ceiling
POST-EMPLOYMENT BENEFIT 3. Re-measurement – OCI [asset on fund]
Fixed Contribution  FVPA - MTM
Defined Contribution Plan  PBO
[SSS, GSIS] Employee bears the risk  Effect of asset ceiling
Toyota  10K/mo. [FUND]*  Pay pension [variable] to Mr. X
*Trust, retirement, or pension fund FVPA*
Beg. Bal.
Accounting: fixed contrib. is recorded as EXPENSE Contributions
Returns [Interest Inc. & MTM] Benefits Paid
Fixed Benefit
End. Bal.
Defined Benefit Plan
[RA 7641] Employer bears the risk
PBO*
Toyota  Variable Amt. [FUND]*  Pay pension [fixed; 50K/mo] to Mr. X Beg. Bal.
CSC
Projected Benefit Obligation – ‘Projected unit credit method’ - Actuary PSC
Benefits Paid Interest Expense
50 yrs old 60 yrs old - retire 75 yrs old End. Bal

1/1/25 1/1/35 1/1/50 *Memo Entry only; Disclosure in Notes to FS

50K/mo; 600K annual  Presented in B/S is the NET between the FVPA and PBO
o Prepaid/Accrued Benefit Cost
 o FVPA > PBO = Prepaid - NCA
o FVPA < PBO = Accrued – NCL

Asset Ceiling
 The present value of economic benefits in the form of:
o Refunds
o Reduction in future contributions
 Limit of Prepaid Benefit Cost

Monthly – 100,000
Actual – 150,000
Excess 50,000 [i-present value]
SHARE-BASED COMPENSATION FV Method – 1st – FV every Dec. 31
How to measure?
Equity Settled – Share Option [SO] Intrinsic Method – 2nd
PFRS 2
Cash Settled – Share Appreciation Rights [SARs] Vesting immediately* – exercisable immediately [no conditions]
Classification
Share Options Not vesting immediately** – with conditions [service/vesting period; e.g. 3
 Part of compensation package of the executives [CEO, CFO, VP] yrs]
 Mr. X, CEO, render employment services to Meralco, in exchange of Salary, Bonuses,
and SHARE OPTIONS Shares and Cash Alternative
 Mr. X has rights to buy share at specified price [exercise price/subscription Liability – Cash
price/option price] Entity or
 Share option is tied to the performance of the company Choice Equity – Equity
Counter-Party [Employee]
Accounting:  Compound Financial Instrument
Salary Expense o Get the FV of liability
Share Premium-SO o Residual Value for the Equity

How to measure?
1. Fair-Value Method [1st] – FV of share option at the date of grant.
2. Intrinsic Method [2nd] – Intrinsic Value = Stock Price [receive] – Exercise Price [pay]
*until share option is exercised, MTM is applied, regardless of vesting period

Vesting immediately* – exercisable immediately [no conditions]

Classification
Not vesting immediately** – with conditions [service/vesting period; e.g. 3
yrs]

* Salary on Year 1 – 100% recognized

** Salary allocate over 3 years

Share Appreciation Rights

 Executive will receive cash
 CASH = Stock Price – Exercise Price
 Intrinsic Value
 Reported as Liability
JE:
Salary Expense
Salary Payable
LEASES [PFRS 16] o Implicit Interest Rate1st – Required target return of the lessor
Rental rate o Incremental Borrowing Rate2nd – Bank interest rate
Contract Escalation clause [5%]
Lease term Right of Use Asset [RUA]
Lease Security Deposit  PPE – measure at cost [PP + DACs]

Right to use the asset 1. PV of Minimum Lease Payment [LL]

For a period of time 2. Lease Bonus [capitalized]; Lease Incentives [deduct]
In exchange for a consideration o LB – payment of lessee to the lessor to get more favorable terms
o LI – payment of lessor to the lessee [reimbursement for relocation]
Measurement: 3. Initial Direct Cost – DACs [broker’s fee, agent’s commission, finder’s fee]
Lessee 4. Restoration Cost – Leasehold improvement [must be written in the contract]
o Remove leasehold improvement
Initial – All leases shall be classified as a FINANCE Lease [GR] o Restore to its original form
JE:
Right of Use Asset [RUA] – PPE Subsequent Measurement
Lease Liability [LL] – NCL 1. Lease Liability – at amortized cost
2. Right of Use Asset – [Cost – Acc. Dep. – Acc. Imp.]
Exemption:
 Operating Lease – Straight-line method [fixed amount per year] Depreciation
o Short-term [12 months or less] o Straight-line method
o Asset is of Low-Value [Furniture] LT UL
1. No transfer of ownership /
Lease Liability [LL] 2. With transfer /
 PV of minimum lease payment –lessee to lessor 3. Purchase Option /
 Excludes executory costs [expensed] – lessee to 3rd party [property taxes, security, 5. GRV /
maintenance]
1. Fixed Rentals
2. Variable Rentals LESSOR
3. Purchase Option – the lessee has the right to buy the leased asset [PV of 1] Transfer of Risk and Rewards
o If reasonably certain – included in the min. lease payment Operating Lease X  S/L Method [Fixed Rent/Yr.]
o Leased asset will go to the lessee Classification
4. Guaranteed Residual Value – assured RV at the end of lease term Finance Lease /
o The leased asset will revert back to the lessor
5. Penalties Finance Lease if any of these:

*****Unguaranteed Residual Value – Lessee’s POV is always ignored 1. Transfer of ownership to the lessee [explicit in the contract]
*3 and 4 – mutually exclusive; either of the two 2. Bargain Purchase Option – lessee’s payment to buy the asset is significantly lower than
**1,3 and 4 – common in problems the FV.
*** 1-5 shall be discounted/PV
3.Lease–Term is a major part of the economic/useful life of the leased asset [LT is at least Operating Income – Lessor
75% of the U/L of the asset]  Lease Bonus is amortized over the lease-term
4. If the PV of the Min. Lease Payment amounts to substantially all of the FV of the leased  Initial Direct Cost [Deferred IDC] – Capitalized and Separately depreciate over lease
asset. [at least 90%] term
5. If the least asset is of specialized nature [leased asset requires major modification]
Notes:
*2-5 is an application of substance over form Date of Inception
 Date of lease contract
Direct Financing  Date of commitment of the parties [date of signing]
 Applies to companies in the PH engage in leasing/financing o w/ever is earlier
 Rental Income + Interest Income
 BDO Leasing [subsidiary of Banko de Oro] Date of Commencement
 Orix Metro Leasing [subsidiary of Metrobank]  First day of the lease contract
 BPI Leasing [[subsidiary of BPI]  Compute for PV of MLP
 Leased out heavy equipmentv [trucks, contruction equipment; generators]
JE: Sales and Leaseback
Lessee Lessor  ABC sold its building to XYZ, XYZ pays ABC 20M
RUA Lease Receivable [Gross]  ABC leased back the building from XYZ for 1M/yer
LL [PV] Equipment  ABC [Seller-Lessee]
Unearned Interest Income  XYW [Buyer-Lessor]

Gross Investment – MLP [Rentals, PO, GRV] + Unguaranteed RV Advantages:

(Net Investment) – Cost of Equipment + Initial Direct Cost [PV of MLP] Lessee
Unearned Interest Income 1. Source of financing
2. Tax advantages [Lessee – Rent Expense and Dep. Expense [deduction]
*Total Financial Revenue = Unearned Interest Income 3. Avoid executory costs [shoulder by lessor]
*Executory Cost = Income on the part of the lessor Lessor
1. Stable income
Sales-Type Lease 2. Tax advantages [operating lease – dep. Exp]
 The leasing company is a manufacturer and seller
 Rent to own PFRS 16  POV Lessee
 With Mark-Up 1. SP = FV
 Rental + Interest Income + Mark-up RUA [in proportion to the rights retained]
 Ordinary Course of Business of a company LL [PV of MLP]
o Recognize Sales and COGS *Gain – in proportion to the rights transferred/not retained
 Initial Direct Cost – Charged to COGS 2. SP > FV
JE:  Excess is considered as additional financing [deduct to LL]
LR 3. SP < FV
Sales [PV of MLP or FV of LA, w/ever is lower]  Prepayment of rentals
UII
FINANCIAL STATEMENTS [PAS 1]
 To provide useful information to the user of the FS to make a wise economic Current – Expected to be realized [asset] or settled [liability] within 12 months or normal
decision operating cycle, w/ever is longer
 FS must be reliable [compliance with the standards]
Non-current – More than 12 months
Users:
1. Investors Statement of Comprehensive Income
2. Creditors  I/S or P/L
3. Suppliers  Measures the financial performance of the entity
4. Employees  Profitability
5. Government[BIR]
6. SEC I/S – Net Income only
7. Top Management SCI – NI + OCI

SFP – ‘As of’ [running balance] OCI Compositions Reclassification

SCI, SCF, SCE, Notes – ‘For the period’ [only for a particular year] Subject [w/ recycling;P/L] Not Subject[RE]
Accounting Policies and Details 1. UG from FVOCI
a. Mandatory /
Statement of Financial Position b. By election /
 Financial position – ability to pay 2. Revaluation Surplus [PPE] /
o Liquidity – ability to pay short-term obligation [AP] 3. G/L on Remeasurement [Empl. Ben.] /
o Solvency – ability to pay long-term obligation [BP] 4. G/L on Forex Translation /
5. G/L on Cash-flow hedge /
Asset – C and NC
Equity Liability – C and NC Single-statement – SCI
Equity – SC, SSC, (SR), SP, SDP, OCI, R/E Presentation
Tw-statement – NI + OCI
Current Asset Current Liability
a. C&CE Trade and Other Payable Format:
b. Trade and Other Receivables Income Tax Payable Sales Net Income
c. Financial Asset [FVPL] Current portion of LT borrowing (COGS) OCI
d. Prepaid Expense GP Comprehensive Income
Other Income
Non-current Asset Non-current Liability Total Income
a. PPE Bonds Payable (Selling Exp)
b. Long-term investment [FVOCI, AC] Notes Payable [LT] (Admin Exp)
c. Intangible Assets Loans Payable (Other Exp)
d. Biological Asset Lease Liability (Int. Exp)
e. Deferred Tax Asset Deferred Tax Liability Income before Tax
(Income Tax Exp)
Expense Presentation Statement of R/E – Optional only; already part of the SCE
 Functional Presentation – grouped
Format: Statement of Cash Flows
Expenses:  PAS 7
(Selling Exp)
(Admin Exp) Inflows [+]
(Other Exp) Of cash
(Int. Exp) Outflows [-]
 Natural Presentation – specific item [broken down] NI is not equal to CF
Format: SCI uses accrual method for revenue and expenses
Expenses:
Dep. Exp Activities:
Rent Exp 1. Operating Activities
Salary Exp  Related to the entities main line operation
Utility Exp
Direct Method - encourage
Statement of Changes in Equity 1. Cash received from customers
 Movements/Changes of Items in SHE 2. Cash paid to suppliers
3. Cash paid for operating expense
SHE 4. Interest Paid
1. Share Capital – C/S or P/S 5. Income Tax Paid
2. SP Cash Flow from Operating Activities
3.R/E *Should be Gross, not NET
4. OCIvb
5. Treasury Shares Indirect Method – used in practice
Net Income
OCI 1. Adj. for non-cash items
BB a. Depreciation Expense
Change - SCI b. Amortization Expense
c. Loss on Sale
EB – SFP [Equity] d. Gain on Sale [-]
RE 2. Changes in Working Capital [CA- CL]
BB a. Increase in A/R – deduct [inverse]
± Prior Period Errors* b. Increase in A/P – add [direct]
Appr. RE ± Change in Acctng Policy* 3. Interest Paid
4. Income Tax Paid
Dividends NI
Cash Flow from Operating Activities
EB – SFP [Equity]
*Can be NET
*Retroactive Restatement
1. Investing Activities
 Purchase and Sale of LT Investment [FVOCI, AC, Inv. Property, Inv. In Assoc.
Intangible Asset] and PPE [Land, Building, Equipment, etc.]

3. Financing Activities
 Related to LT borrowing – issuance of BP and issuance of shares
 Payment of Dividends, loans, lease payment
 Related to NCL [creditors] and Equity [shareholders]

Significant non-cash transaction – Disclose in Notes to FS

B/S Perspective

Current – Operating
A
NCA – Investing

Current – Operating
L
NCL – Financing

E – Financing

Allowable Presentation
Operating*
Received
Investing – received thru investing
Interest
Operating*
Paid
Financing – because you have NCL

Operating*
Received
Investing – earned dividends from investment
Dividends
Operating
Paid
Financing* – R/E
*If silent
EVENTS AFTER THE REPORTING PERIOD 2. Non-Adjusting Events
 Pas 10  Requires only disclosures in the Notes to FS
 There is evidence or conditions existing after the end of the reporting period
Significant Dates:  No JE on Dec. 31

Jan. 1, 2025 – Start of the year Reporting Period Examples: [02/28/2026]

Dec. 31, 2025 – FS or B/S Date 1. Casualty Losses – Fire, Earthquake, Typhoon
March 31, 2026 – Date of authorization of FS 2. Gain/Loss on sale of PPE
 Date wherein the BOD and Top Management have reviewed and approved the FS 3. Changes in FV [MTM – FVPL, FVOCI]
April 30, 2026 – Date of accrual issuance of FS 4. Issuance of Shares
 Issuance of FS 5. Declaration of Dividends

After the Reporting Period - Date between the B/S Date and Authorization Data *Transactions occurring between Date of authorization and issuance of FS is ignored. Part of
2026.
Types:
1. Adjusting Events
 Requires adjusting entry
 There is evidence or conditions existing as of the end of the reporting period [B/S
Date]
 JE as of Dec. 31

Examples:
1. Pending Lawsuit
*12/31/25 Loss on lawsuit 1,000,000
Estimated Liab on LS 1,000,000

*02/28/26 Loss on lawsuit 500,000

Estimated Liab on LS 500,000

2. Mr. X A/R 500,000

*12/31/25 BDE 100,000
ADA 100,000

*02/25/26 BDE 400,000

ADA 400,000
ADA 500,000
A/R 500,000
REVISED CONCEPTUAL FRAMEWORK Chapter 2: Qualitative characteristics of useful financial information
 Issued by IASB on March 2018
 Comprehensive set of concepts and guidance for financial reporting Fundamental Qualitative Characteristics: Content of FS
 Not a standard 1. Relevance
 Information is capable of making difference to the user
Purpose o Predictive Value
1. To assist IASB [FSRSC] in developing new standard o Confirmatory Value
2. To assist IASB [FSRSC] in reviewing existing standard 2. Faithful Representation
3. To assist preparers in accounting for transactions when no standards apply  Reliability
 Information is
Chapters o Complete – Adequate disclosures
1. Objective of Financial Reporting o Neutral [Prudence/Cautious] – Free from Bias
2. Qualitative characteristics of useful financial information  Not overstate, A & Inc
3. Financial Statement and Reporting Entity  Not understate L & Exp
4. Elements of Financial Statement o Free from Error
5. Recognition and derecognition of A and L
6. Measurement basis + How to use them Enhancing Qualitative Characteristics: [VCUT] Presentation
7. Presentation and Disclosure 1. Verifiability – different users attempt to verify an information and arrived at the same
8. Capital and Capital Maintenance conclusion.
2. Comparability – appropriate balanced is achieved between the relevance and the
Chapter 1: Objective of Financial Reporting reliability of information that has been concluded
3. Understandability – FS is presented that can be easily understand. It links the decision
Objective: Provide financial information that is useful to users in making economic decision maker and the decisions they make.
relating to providing resources to the entity 4. Timeliness

Users: Cost-Benefit – the benefit of useful info must outweigh its cost
1. Primary – potential investors and creditors Constraint
2. Others – Suppliers, employees, management, gov’t, etc. Timeliness – on time

Decisions: Example Chapter 3: Financial Statement and Reporting Entity

1. Buying, selling, or holding equity of debt instrument PLDS Shares
2. Providing or settling loans or other forms of credit BDO FS: SFP, SCI, SCE, SCF, Notes to FS
3. Voting or influencing management decision BOD of SM
Type of FS:
Prospects for future net CF to the entity [SCF, SCI] 1. Consolidated FS [Business Combination]
Users must access FS 2. Unconsolidated/Separate FS
Management stewardship on the entity’s economic resources [SFP] 3. Combined FS [HOBA]

Reporting Entity: Prepare FS; Can be more than 1

 Chapter 7: Presentation and Disclosure
 Sufficiency of the Notes to Financial Statements
 Accounting Policies and Details
Chapter 4: Elements of Financial Statement  Income Statement [Statement of P/L] – when to include item in the I/S
 A, L, E, I, E  OCI – when to include item in the OCI
 Recycling vs Without Recycling
ASSET – 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 [revenues]. Chapter 8: Capital and Capital Maintenance
 Income should only be recognized after the entity’s capital has been
LIABILITY – A present obligation of the entity to transfer economic resource as result of past recovered/maintained.
events. An obligation is a duty or responsibility that the entity has no practical ability to  Income is recognized in excess of capital maintenance
avoid.
 Arising from contract Capital – Shareholder’s Equity
 Customary practice [warranty]
Capital Maintenance – Recovery
EQUITY – The residual interest in the asset of the entity after deducting all its liability.
Notes:
INCOME – Increase in Assets, Decrease in Liabilities that results in Increase in Equity other 1. Systematic and Rational Allocation – Depreciation and Amortization
than those relating to contribution from holders of equity claims. 2. Immediate Recognition – Write-Off

EXPENSES – Decrease in Assets, Increase in Liabilities that results in Decrease in Equity other
than those relating to distributions to holders of equity claims.

Chapter 5: Recognition and derecognition of A and L

Recognition: Inclusion of item in the FS. The first journal entry.

 Recognize when the information result to relevance and faithful representation

Derecognition: Removal of A & L in the SFP

Asset – Entity losses control of the asset
Liability – Entity has no longer present obligation

Chapter 6: Measurement basis + How to use them

1. Historical Cost – PPE, Intangible Asset

2. Fair Value – Investment, Investment Property
3. Value in Use – Impairment Loss
4. Fulfillment Value – Expected Value [Liabilities]
5. Current Cost – Replacement Cost
BASIC ACCOUNTING CONCEPTS Sales
 Uniform Accounting Standards and Practices around the world Feb. 1 10,000
Apr. 2 8,000
Background: Jun. 3 2,000
EB 20,000
International: International Accounting Standard Boards; 2021 [Former: IASC]
 Independent private sector that develops and approves IFRS [IAS] 4. Preparing the unadjusted trial balance
 IFRS – adopted by 167 jurisdictions globally [except US – US GAAP]  Before adjusting entries
 Detect errors
Local:
1. Financial and Sustainability Reporting Standard Council [FSRSC; 2022] [FRSC] [ASC] 5. Preparing Adjusting Entries
 Promulgates PFRS in the Philippines  Every Dec. 31
 RA 9298 AKA PH Accountancy Act of 2004 Adj. Entries:
Accrual: Interest Exp
2. Philippines Interpretation Committee [PIC] Interest Payable
 Assist FSRSC [Implementation, Interpretation, Clarification of the standards] Deferral: Unearned Income
Income
3. Board of Accountancy Prepayment: Insurance Exp
 Supervises and Regulates the Accountancy practice in the PH Prepaid Insurance
o Administering and Preparation of CPALE Others: DE
o Oversee the practice of accountancy in the field of private practice, public AD
practice, government, and academe
Expense [Prepayment]
Accounting Cycle Asset Method
1. Identifying and Analyzing Business Transaction Prepaid Supplies 120,000
 Check source documents Cash 120,000
2. Journalizing Supplies Expense 30,000
 Journals Prepaid Supplies 30,000
 Double-Entry System [Dr., CR.]
 AKA Books of Original Entry Expense Method
Date Account Title & Description Dr. Cr. Supplies Expense 120,000
Cash 120,000
3. Posting Prepaid Supplies 90,000
 Transferring from Journal to Ledger Supplies Expense 90,000
 Ledgers – classify the entries in the journal base on their nature
 AKA Books of Final Entry Income [Deferred]
Liability Method
Cash 120,000
Unearned Rent Income 120,000
 Unearned Rent Income 90,000 o Deferrals [Income Method]
Rent Income 90,000
09/30/2025 Issuance of N/P for P1,000,000
Income Method
Cash 120,000 12/31/2025 Int. Exp. 30,000
Rent Income 120,000 Int. Pay 30,000
Rent Income 30,000
Unearned R.I 30,000 01/01/2026 Int. Pay. 30,000
Int. Ep. 30,000

6. Preparing Adjusted Trial Balance 09/30/2026 Int. Exp. 120,000

 Detect Errors w/ reversing Cash 120,000
 Incorporated with adjusting entries
w/out reverse Int. Pay. 30,000
7. Prepare FS Int. Exp. 90,000
 SFP, SCI, SCE, SCF, Notes to FS Cash 120,000

8. Preparing Closing Entries

 Closing of temporary or nominal accounts
 I/S accounts
 Zero balance at the end of the year
 Not applicable to permanent or real accounts [B/S]

Sales
COGS
Expenses
I/S [Balancing Figure – Net Income]
I/S
Retained Earning

9. Preparing Post – Closing Trial Balance

 Eliminated I/S items

10. Preparing Reversing Entries

 Optional
 Simplify recording
 What can be reversed?
o Accruals
o Prepayments [expense method]
RELATED PARTY DISCLOSURES [PAS 24]
 Transactions that requires disclosures

Two Parties are related – when one party can influence the decision of another party.

Examples:
1. Affiliates
 Parent
 Subsidiary
 More than 50% ownership over another entity [control]
2. Associates
 Investor
 Associate
 20% - 50% [Significant Influence]
3. Venturers in Joint Venture
 Y and Z both has 50% ownership over another entity [separate vehicle]
 Every decision requires unanimous consent – Joint Control
4. Key Management Personnel
 BOD
 Executives
 CEO, COO, CFO
 Disclose compensation for the year
5. Close Family Members – more favorable terms
 Spouse
 Children
 Children’s Spouse
 Etc.
6. Post-employment benefits
 BDO Asset Management [disclose]

Related-Party Transactions required disclosures:

1. Nature of relationship
2. Nature of Transaction
3. Peso Amount
4. A/R, A/R Balances
5. BDE, ADA

*All other are considered unrelated parties – no need disclosures

INTERIM REPORTING [PAS 34]
 Preparation and presentation of Financial Statement shorter than 1 year
 Monthly, Quarterly, and Semi-annually – Interim Reports

Purpose:
1. Provide updates on the Dec. 31 FS
2. Regulatory Requirements
 SEC requires Listed Entities to submit Quarterly FS
3. Management decision-making

Issue – Costly and Impractical

PAS 34 Minimum Requirements:

1. Condensed FS – SFP, SCI, SCE, SCF
 Less detailed

2. Selected Explanatory Notes

 Only relevant to the users of FS

Basic Principles
1. Same accounting policies [Dec. 31]
 Same AP monthly, quarterly, or semi-annually
2. Seasonal/Irregular Transactions
 Recognized 100% in the interim period in which they occur [only quarter they occur]
 Gain/Loss on PPE, Impairment Loss, Loss on inventory write-down, dividend income
 Discrete or Independent View
3. OPEX that can be estimated and allocated – allocate throughout the period
 Depreciation and Amortization Expense
 Integral View

Yes – Allocate
Cost can be estimated?
No – 100% in the interim period in which they occur
OPERATING SEGMENTS [PFRS 8]
 Component of an entity Major Customer
 Division, Branch, Store, or a product  If a single customer accounts for at least 10% of entity’s external revenue
o Has its own revenue and expenses  Total external revenue is 100,000,000, SM accounts for the 10,000,000 revenue
o Results are reviewed by Chief Operating Decision Maker  Provide disclosure
o Where financial information is available
 Based on product or location Notes:
o Product – Nestle [2000+ products; each product is a segment]  All will be reported but the limit for reportable segment is 10, the rest will be
o Location – Jollibee [1000+ store in different location] combined
 Common Cost – for the whole company.
Goal: To determine which segments are reportable separately  If there’s a basis for allocation – allocate
 If none, ignore for segment purposes
Qualitative – management approach; upon management discretion
Criteria
Quantitative – passing the thresholds

Thresholds
1. Revenue Test – Segment’s revenue must be ≥ 10% of the total revenues [both internal and
external revenues]

2. Profit/Loss Test – Segment’s P/L ≥ 10% of the higher between Profit and Loss.
 Compare absolute amounts [as if loss is positive]

3. Asset Test – Segment’s asset must be ≥ 10% of the total asset

After identifying the reportable segment, must undergone another test:

Over-all Size Test – Reportable segments external revenues must be ≥ 75% of the total
external revenues
 If the sum did not reach 75% , add another segment according to the problem [if
silent, next highest revenue] to reach the 75% or more threshold

Aggregation Criteria – Segments have similar characteristics

1. Nature of product or services
2. Process
3. Type or Class of Customers
4. Marketing or Distribution Method
5. Regulatory Environment
*at least majority [3/5]
NON-CURRENT ASSET HELD FOR SALE [PFRS 5] DISCONTINUED OPERATION
 If its carrying amount can be recovered through a sale transaction rather than a
continued use. Major line of business
JE: Component Geographical area Disposed of or reclassify as HFS
Factory Building – Held for sale [no longer subject to depreciation] (segment) Subsidiary
Factory Building
 Termination of a line of business/operation
Measurement:
Carrying Amount Measurement:
Initial w/ever is lower Carrying Amount
Recoverable Amount Initial w/ever is lower
 Fair values less cost to sell Recoverable Amount
 Value in use  Fair values less cost to sell
 *w/ever is higher  Value in use
 *w/ever is higher
Individual Asset – PPE, IP, IIA, IA
NCA Presentation:
Group of Asset – disposal group 1. SCI – single amount [post-tax P/L; ± post-tax G/L on measurement (FVLCTS)]
*whole year
Criteria: Revenue
1. Available for immediate sale – no restrictions [mortgage] (Expenses)
2. Sale must be highly probable IBT
a. Management is committed on selling (ITE)
b. Management is locating a buyer Inc. from continuing ope.
c. Sales is expected to be complete w/in 1 year or beyond entity’s control Inc. from discontinued ope. – single amount
d. Price is reasonable – Price = FV Net Income
e. Management is unlikely to withdraw the plan to sell
2. SFP
Group of Assets  Report separately the Assets and Liabilities of the discontinued operation [CA and
1. Impair individually CL]
2. Impair as a group
3. The difference between the two charge to:
 Goodwill, if there is
 Other NCA, remaining

Change in Classification
1. Compute CA before reclassification adjusted for depreciation – as if no reclassification
2. Recoverable Amount – FVLCTS or VIU, w/ever is higher
*w/ever is lower
ACCOUNTING CHANGES [PAS 28]
Types:
Change in Accounting Estimate
1. Estimation of Doubtful Account
BDE 5% of Sales – 2%
ADA 5% of Sales
2. Estimation Warranty Cost
Warranty Exp 3% of sales – 4%
Est. warranty exp
3. NRV of Inventory
Loss on Inventory WD – Increase/Decrease
Allowance on Invty WD
4. PPE
 Depreciation Method – SL to DD
 Useful Life – 5 years to 10 years
 Residual Value – 50,000 to 70,000
*Accounted for currently and prospectively [this year and future years] – no effect on prior
year
*P/L effect
CORRECTION OF ERRORS
 Prior Period Errors
 The effect is retrospective
 Charged to R/E, Beg
Types:
1. Counterbalancing Errors
 Errors that autocorrect after two years
 Self-correcting
3% of sales Examples:
a. Accruals
b. Deferrals
c. Prepayments
d. Inventory-related transactions [purchases and sale]
2. Non-counterbalancing Error
 Do not autocorrect after two years
Examples:
a. Omission of JE
b. Incorrect Classification

Change in Accounting Policy

1. Change in inventory method – FIFO to Weighted-Average
2. PPE – Cost to Revaluation Model
3. IP – Cost to FV Model
4. Change in business model – AC t0 FVOCI
5. Change in recognizing revenues for LTCC – POC to Cost Recovery method

*Accounted for retrospectively/retroactively – avoid manipulation of income

*R/E, Beg effect
BOOK VALUE PER SHARE
 Amount to be recovered by shareholders per share during liquidation

Basic Formula:
Total SHE
# of shares outstanding

Liquidation Process:
1. Sell all NCA [NCA – Cash]
2. Pay the creditors
3. Return Capital to Preferred Shareholders
 Liquidation Value [if silent = PAR Value]
 Unpaid Dividends/Dividends in Arrears
4. Return Capital to Ordinary Shareholders

Features of P/S:
1. Cumulative P/S – entitled to dividends in arrears [includes current year dividend]

2. Non-cumulative P/S – entitled to current year dividend – default

3. Participating P/S – entitled to fixed rate dividends + excess

*Share 1,000; PAR 100; 12%
Dividend = 100,000
P/S – 12,000
C/S – 12,000
100K-12K-12K = 76K [allocate to P/S and O/S]

4. Non-participating – entitled only to fixed rate dividend – default

*Share 1,000; PAR 100; 12%
100K*.12 = 12,000 – P/S
Dividend [100,000]
100K-12K = 88K – C/S
EARNINGS PER SHARE [PAS 3] b. Convertible Bonds
 Amount of income that each share earns  Bonds to O/S
 Required for publicly listed companies  As if converted on January 1
Presentation:  No more interest expense
SCI:  Add back Interest Expense [Net of Tax]
NI
EPS c. Options/Warrants
Measure of an entities performance  Rights of a shareholder to buy a share at a specified price [exercise/subscription
Uses ABC XYZ price]
Determination of over or under-valued P10 P12  Treasury Share Method – As if there’s a buy-back of shares
companies/stocks buy sell o Goal – compute for share that are issued for no consideration [free shares]
*buy low, sell high
*applies to ordinary shares only *Average market price – default used in buy-back
*Actual market price – if there’s actual exercise of option
1. Basic EPS

𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆−𝑷𝒓𝒆𝒇𝒆𝒓𝒓𝒆𝒅 𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅𝒔

BEPS =
# 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒐𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈

Rules:
1. Cumulative – Deduct the PD whether declared or not
2. Non-cumulative – Deduct only when PD is declared

*Issuance of significant # of shares = Weighted Average # of Shares

*Consider retroactive effect of share dividend and share splits – increase in shares without
consideration
*If should be dividend is different to the actual dividend paid, the ‘should be’ prevails

2. Diluted EPS
 Applicable when an entity’s capital structure is complex
o There are dilutive securities – decrease EPS
 Goal – lowest possible EPS
 ‘As if’ approach

a. Convertible P/S
 P/S to O/S
 As if all P/S is converted at the beginning of the year
 Preferred Dividend is ELIMINATED
SMEs Income and RE [replaces
 Still required to submit Financial Statement SCI, SCE] SCIRE
 Difficulty to comply with the standard due to small manpower, no sufficient
knowledge about the standard Basic – with basic features
 FSRSC – created PFRS for SME [approved by SEC Jan. 1, 2010; revised on 2017 and Financial Instrument
2019] Other – with complex features
 Has 35 sections
*Basic Financial Assets – Right to receive fixed rate/amount of cash
Total assets between 3M – 350M or Total Liabilities between 3M – 250M *Basic Financial Liabilities – Right to pay fixed amount of cash
SMEs
Does not have public accountability

Not SMEs: Beyond the threshold [Large] and with public accountability [Full PFRS]
1. Listed Companies [PSE]
2. Companies in the process of IPO [otw to being listed]
3. Public Utilities – Meralco, Manila Water
4. Entities with fiduciary capacities – holds fund in behalf of the public [banks, insurance
company, mutual funds, pension funds]

Major Differences between Full PFRS and PFRS for SMEs

Full PFRS PFRS for SMEs
1. Investment
 Equity FVPL, FVOCI FVPL
 Debt FVPL, FVOCI, FAAC FAAC
2. Investment in Associate Equity Method Equity Method, Cost or FV
Model
3. Investment in JV Equity Method Equity Method, Cost or FV
Model
4. Investment Property Cost or FV Model GR: FV Model, if no FV then
Cost model
5. R & D Research – Expense; Dev’t – 100% expensed
Capitalized if met the criteria
6. Goodwill Not amortized; impaired Amortized for 10 years
7. Other Intangible Assets Finite or Indefinite life Finite life – 10 years
8. Borrowing Cost May be capitalized 100% expensed
9. Employee Benefits Actuarial G/L - OCI P/L or OCI
10. Presentation of FS SFP, SCI, SCE, SCF, Notes to FS Same with Full PFRS, +
option of Statement of