Week 4

PAS 16 PROPERTY PLANT AND EQUIPMENT

PAS 19 EMPLOYEE BENEFITS
PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS AND
DISCLOSURE OF GOVERNMENT ASSISTANCE
PAS 21 THE EFFECTS OF CHANGES IN FOREIGN
EXCHANGE RATES

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 16 PROPERTY PLANT AND
EQUIPMENT
PPE are initially measured at cost. Cost comprises the (a) purchase price
plus non-refundable taxes minus trade and cash discounts (b) direct cost (c)
intial estimate of dismantlement,removal and restroration cost.
PPE acquired in an exchange with commercial substance is measured at
the (a) fair value of the asset Given up (b) fair value of the asset Received
(c) carrying amount of the asset Given up. If the exchange lacks commercial
substance , the PPE acquired is measured at the carrying amount of the asset
Given up.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 16 PROPERTY PLANT AND
EQUIPMENT
Recognition of costs in the carrying amount of an item of PPE ceases when
the item is in the location and condition necessary for it to be capable of
operating in the manner intended by management.
Subsequent to initial recognition, an entity shall choose either the cost
model or the revaluation model as its accounting policy and shall apply
that policy to entire class of PPE.
Depreciation is the systematic allocation of the depreciable amount of an
asset over its estimated useful life.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 16 PROPERTY PLANT AND
EQUIPMENT
Depreciation begins when the asset is available for use and ceases when the
asset is derecognized, classified as held for sale under PFRS 5, or fully
depreciated.
An asset is fully depreciated when its carrying amount is zero or equal to its
residual value.
Depreciatin does not cease when the asset becomes idle or is retired from
active use.
Depreciation = (Cost or Fair Value- Residual Value)
(straight-line method) Useful life
Prepared by: Miss Ivy Beatrice A. Alias, CPA
 PAS 16 PROPERTY PLANT AND
EQUIPMENT
Revaluation surplus= Fair Value less Carrying Amount
Gain or loss on disposal= Net disposal proceeds less Carrying amount

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 19 EMPLOYEE BENEFITS
Types of Employee benefits under PAS 19: (a) Short-term, (b) Post-
employment, (d) Other long-term and (d) Termination
Entitlement to compensated absences is either:
a) Accumulating- can be carried to the future periods if not used.
 Vesting- monetized
 Non vesting- not monetized
b) Non-accumulating- forfeited if not used

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 19 EMPLOYEE BENEFITS
Accumulating and Vesting-all unused absences are accrued.
Accumulating and non-vesting-only unused absences expected to be used
are accrued.
Non-accumulating- not accrued, absences are recognized as expense when
they occur.
Post-employment benefit plans are either:
a) Defined contribution Plan
b) Defined Benefit Plan
Prepared by: Miss Ivy Beatrice A. Alias, CPA
 PAS 19 EMPLOYEE BENEFITS
The accounting for defined contribiution plans is straight-forward- the
employer recognizes the agreed fixed amount of contribution as retirement
benefit cost after the end of each period that the employees have rendered
service.
The accounting for defined benefit plan is complex- it requires actuarial
valuations using the projected unit credit method.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 19 EMPLOYEE BENEFITS
Steps in the accounting of defined benefit plans:
1) Determine the deficit or surplus
 If FVPA < PV of DBO, difference is deficit
 If FVPA > PV of DBO, difference is surplus
2) Determine the net defined benefit liability (asset)
 Net defined benefit lability= deficit
 Net defined benefit asset= lower of surplus and ‘asset ceiling’
3) Determine the components of the defined benefit cost to be recognized in P/L and
OCI.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 19 EMPLOYEE BENEFITS
Other long-term employee benefits are accounted for like defined benefit
plans except that all the components of the defined benefit cost are
recognized in profit or loss.
The obligation to pay termination benefit arises from the employer’s act of
terminating an employee rather than from employee’s service.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS &
DISCLOSURE OF GOVERNMENT ASSISTANCE
PAS 20 does not apply:
a. accounting for government grants under hyperinflationary economies;
b. tax benefits such as income tax holidays, investment tax credits, accelerated depreciation
allowances and reduced income tax rates.
c. government participation in the ownership of the entity; and
d. government grants covered by PAS 41 Agriculture
Government Grants (sometimes called subsidies, subventions or premiums) are
assistance received from the government in the form of transfers of resources in
exchange for compliance with certain conditions

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE
Only government assistance that meet the asset recognition are recognized as
government grants,
If significant government assistance are disclosed but not recognized as government
grants.
The following are the reasons why receipt of government assistance may be
significant in the preparation of FS according to PAS 20:
 If resources are received, an appropriate accounting method is necessary to account for the receipt;
 The indication of the extent to which the entity has benefited from the assistance during the period
improves the comparability of its FS.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE

Recognition:
Government Grants are recognized if there are reasonable assurance that:
 the attached conditions will be complied with; and
 the grants will be received
Types of government grants according to attached condition
1. Grants related to assets- grants whose primary condition is that recipient entity should
acquire or construct long-term assets
2. Grants related to income- grants other than those related to assets.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE
Measurement
MONETARY GRANTS NON-MONETARY GRANTS
a. amount of cash received or a. fair value of the non-monetary asset received; or
b. fair value of amount receivable b. alternatively, at nominal amount

Government grants in the form of loan:

 Forgivable loan- loan that the government waives the repayment subject to certain condition
 Measured at carrying amount of the loan forgiven
 Loan at below-market rate of interest or zero-interest- benefit is measured as the difference
between the initial carrying amount of the loan determined in accordance with PFRS 9 Financial
Intruments and the proceed received.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE
 Approaches to the accounting for government grants:
Capital Approach Income Approach

-grant recognized outsideprofit or loss in - grant is recognized in profit or loss over

equity one or more periods.

 Accounting for Government Grants

These are recognized in profit or loss on a systematic basis over the periods in which the entity recognizes
as expenses the related costs for which the grants are intended to compensate. (it simply uses a ‘matching’
concept)
Government grants in profit or loss on a receipt basis (e.g. cash basis) is prohibited as it violates the
accrual basis of accounting. It isacceptable if there is no allocation basis other than the one in which the grant
was received.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE
 Presentation
Grants related to assets
Statement of Financial Position
Gross Presentation Net Presentation
- The grant is presented as a deferred income -The grant is deducted from the carrying amount of
(liability) the related asset.
Statement of Comprehensive Income (profit or loss section)
Gross Presentation Net Presentation
- The income from the grant is reported separately - The income from the grant is deducted from the
or included in ‘Other income’. depreciation charge.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE

Presentation
Grants related to assets
Statement of Cash flows
- Cash flow from the receipt of the grant and the purchase of the related asset
are presented separately, even if the entity uses the net presentation above.
PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE

Presentation
Grants related to income
Statement of Comprehensive Income (profit or loss section)

Gross Presentation Net Presentation

- The income from the grant is reported separately or - The income from the grant is deducted from the
included in ‘Other income’. related expenses.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE
Repayment of Grants
 It is treated as change in accounting estimate and accounted for prospectively.
 Repayment of grant related to income is deducted from the related income balance,if any.
Any excess is recognized immediately as in profit or loss.
 Repayment of grant related to asset is treated as a reduction in the deferred income balance
or an increase in the carrying amount of the asset. The cumulative additional depreciation that
would have been recognized in the absence of the grant is recognized immediately in profit or
loss.
 Following the repayment, the entity may need to consider the possibility of impairment of the
new carrying amount of the asset.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

PAS 20 ACCOUNTING FOR GOVERNMENT GRANTS
& DISCLOSURE OF GOVERNMENT ASSISTANCE

Disclosure
a. Accounting policy and method of presentation
b. Nature and extent of government grants and other forms of
government assistance from which the entity has directly
benefited.
c. Unfulfilled conditions and contingencies attached to the
government grants.
PAS 21 THE EFFECTS OF CHANGES IN FOREIGN
EXCHANGE RATES
Two ways of conducting foreign activities
1. Foreign currency transactions- e.g., import or export transactions that are
to be settled in a foreign currency. These transactions need to be translated
to Philippine pesos before they can be recorded in the books of accounts.
2. Foreign operations- e.g., a branch in another country. The overseas branch
will normally maintain its accounting records and prepare its financial
statementsin a foreign currency. Those financial statements need to be
translated Philippine pesos before they can be combined with the home
office’s financial statements.
 PAS 21 THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
Two main accounting issues
Exchange rates are constantly changing. Therefore, the principal issues in the
accounting for foreign activities are determining:
a. Which exchange rate(s) to use; and
b. How to report the effects of changes in exchange rates in the financial
statements

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 21 THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
Functional Currency
-the currency of the primary economic environment in which the entity operates.
-it is the currency in which the entity’s cash inflows and outflows are normally denominated into and is not
necessarily the currency of the country where the entity is based.
An entity considers the following factors ( in descending order) when determining its functional currency:
a. the currency that mainly influences the entity’s sale prices and cost of goods or services
b. the currency in which cash flows from financing activities and operating activities are usually generated and retained.
Once determined , the functional currency is not changed unless there is a change in underlying transactions,
events and conditions. In such cases , a change in functional currency is accounted for by translating the
financial statements into the new functional currency prospectively from the date of change.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 21 THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
Foreign Currency Transaction- transaction that is denominated or
requires settlement in a foreign currencies.
 Initial Recognition
Initially recognized by translating the foreign currency amount
into the functional currency using the spot exchange rate at the date
of transaction.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 21 THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
 Subsequent Measurement
At each reporting date , the following items are translated as follows:
Items Translated using
a. Monetary items  Closing rate*
b. Nonmonetary items measured at historical  Exchange rate at the date of transaction
cost
c. Nonmonetary items measured at fair value  Exchange rate at the date when the when
fair value was determined.
*Closing rate- the spot exchange rate at the reporting date

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 21 THE EFFECTS OF CHANGES
IN FOREIGN EXCHANGE RATES
Monetary item vs. Non-monetary item
 Monetary items are currencies heldand assets and liabilities to be received or
paid in a fixed or determinable amount of money.
 Non-monetary items are those which do not give rise to receipt or payment
of a fixed or determinable amount of money.
Exchange Differences
 It is the difference resulting from translating a given number of units of one
currency into another currency at different exchange rates.
Prepared by: Miss Ivy Beatrice A. Alias, CPA
PAS 21 THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
 Exchange difference arising from settling or translating:
a) Monetary items are recognized in profit or loss in the period in which
they arise.
b) Nonmonetary items- if the gain or loss is recognized in other
comprehensive income (OCI) , the exchange component of the gain or
loss is also recognized in OCI. Conversely , if the gain or loss is
recognized in profit or loss, the exchange component is also recognized in
profit or loss.

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 21 THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
Translation of Financial Statements
Items Translated using
a. Assets and Liabilities  Closing rate at the date of the
(including comparatives) statement of financial position
b. Income and Expenses  Exchange rates at the dates of
(including comparatives) the transactions
 All resulting exchange differences are recognized in other
comprehensive income

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 21 THE EFFECTS OF CHANGES
IN FOREIGN EXCHANGE RATES
Foreign Operation
-It is a subsidiary, associate or joint venture or branch that is based in a foreign
country and is using a foreign currency.
-FS of foreign operation need to be translated before they can be incorporated into
the reporting entity’s financial statements.
-When a foreign operation is disposed of, the cumulative amount of exchange
difference s recognized in other comprehensive income and accumulated in equity is
reclassified to profit or loss as reclassification adjustment.
Disclosure

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 PAS 21 THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
Disclosure
 Exchange differencesrecognized in profit or loss and OCI
 The fact and reason for using a different presentation
currency from the entity’s functional currency
 The fact and reason for a change in functional currency

Prepared by: Miss Ivy Beatrice A. Alias, CPA

 REFERENCE
• Ballada W & Ballada S (2020). Conceptual Framework and Accounting
Standards. Manila:Domdane Publishers
• Zeus Vernon Millan (2018). Conceptual Framework and Accounting
Standards. Baguio City: Bandolin Enterprise Publishing & Printing

Prepared by: Ivy Beatrice A. Alias, CPA

 REVIEW AS YOU GO :D

• STUDY THE CONCEPT

• SOLVE PROBLEMS
• DISCUSS WITH YOUR
GROUPMATE