TOPIC 1: The Accountancy Profession

1. Definition of Accounting
2.The Accountancy Profession – Public accounting, Private accounting and
government accounting
3.Limitation of the practice of public accountancy
4.Accreditation to practice public accountancy
5.Continuing Professional Development and CPD Credit Units
6.Generally Accepted Accounting Principles
7.Different Accounting Bodies that Promulgate IFRS and PFRS
What is Accounting?
• Accounting is a service activity. The accounting
function is to provide quantitative information,
primarily financial in nature, about economic entities
that is intended to be useful in making economic
decision. (Accounting Standards Council)
• Accounting is the process of identifying, measuring and
communicating economic information to permit
informed judgment and decision by users of the
information
• Accounting is a process.
ANALYTICAL TECHNICAL FORMAL

IDENTIFYING- COMMUNICATING- is the

MEASURING- is the process of process of preparing and
Recognition or nonrecognition of assigning of peso amounts to the distributing accounting reports to
business activities as accountable transactions and events potential users of accounting
“accountable” events. information

Accountable/ Quantifiable – • Journalizing/capturing transactions into the

entity’s journal
• can be quantified or expressed in Recording • Maintaining a record of all economic
terms of a unit of measure. transactions
• “when it has an effect on assets,
liabilities and equity.
• Sorting or grouping of similar and
interrelated economic transactions into their
Classifying respective classes
TRANSACTIONS • Posting to the ledger

EXTERNAL INTERNAL
-involving one entity - takes place entirely
and other entity within the entity only • Preparation of Financial Statements
Summarizing
 Objective of Accounting
Accounting is an information
system that measures business To supply financial information so
activities, processes information that the statement users could
into financial reports and
The overall objective of accounting communicates the reports to
make informed judgment and
is to provide quantitative financial better decision (ACCOUNTANT)
decision makers
information about a business
useful to statement users
particularly owners and creditors in Financial Reports tell us how well
making economic decisions an entity is performing in terms of
profit and loss and where it stands
in financial terms.

• Investors- concerned with the risk inherent in and return provided by their investment
• Employees- stability and profitability of employers. Ability of the entity to provide remuneration, retirement benefits and employment opportunities
• Lenders- enable them to determine whether loans will be paid when due
EXTERNAL
DECISION
• Suppliers and trade creditors- amounts owed will be paid when due
MAKERS • Customers- continuance of an enterprise
• Government- interested in the allocation of resources/ activities of the enterprises. Require information to regulate activities of the enterprise, determine
taxation policies, and basis of national income.

INTERNAL
DECISION
MAKERS
• Managers of the entity responsible for managing efficiently and effectively and who have the power to obtain whatever economi information they need.
The Accountancy Profession Republic Act No. 9298
• To practice the Accountancy Profession, must finish a degree in BSA and the pass the
government examination given by the Board of Accountancy
• BOA- is the body authorized to by law to promulgate rules and regulations affecting the practice
of the accountancy profession in the Philippines. Also responsible for preparing and grading the
Philippine CPA examination.
• CPALE- offered TWICE a year in authorized testing centers around the country. May and
October
• LIMITATIONS OF THE PRACTICE OF PUBLIC ACCOUNTANCY:
 Single practitioners and partnerships- shall be registered CPAs in the Philippines
 The SEC shall not register any corporation organized for the practice of public accountancy
 Certificate of Accreditation- issued to CPAs in public practice upon showing that it has acquired a minimum of three
(3) years meaningful experience in any of the areas of public practice.

• ACCREDITATION- shall be registered with the Commission and Board. Such

registration shall be renewed every three (3) years.
 Continuing Professional Development (CPD)
• Republic Act No. 10912 is the law mandating and strengthening the continuing professional
development program for all regulated professions, including the accountancy profession.
• CPD is the acquisition of advanced knowledge, skill and proficiency.
• CPD raises and enhances the technical skill and competence of the Certified Public
Accountant.
• CPD CREDIT UNITS
Mandatory`for all CPAs
Refer to the CPD credit hours required for the renewal of CPA license and accreditation of a CPA to
practice the accountancy profession every three years.
15 CPD credit units required for the renewal of CPA license
120 CP credit units required for accreditation of a CPA to practice the accountancy profession
Excess credit units earned shall not be carried over to the next three-year period, except credit units
earned for masteral and doctoral degrees.
EXEMPTION: upon reaching the age of 65 ( only for renewal of license and not for accreditation)
Three main areas in the practice of accountancy:
- To assist the - Encompasses the
PUBLIC ACCOUNTING

GOVERNMENT ACCOUTNING
PRIVATE ACCOUTNING
-Rendering of independent and
expert financial services to the Management in process of
public.
planning and analyzing,
-Services: Auditing, taxation and
management advisory services controlling the entity’s classifying,
- AUDITING or external auditing operations summarizing and
is the examination of financial
statements by independent - Includes maintaining communicating all
certified public accountant for the
purpose of expressing an opinion the records, producing transactions
as to the fairness with which the
the financial reports, involving the
financial statements are prepared.
- TAXATION- includes the preparing the budgets receipt and
preparation of annual income tax
and controlling and disposition if
returns and determination of tax
consequences of certain proposed allocating the government funds
business endeavors
resources of the entity and property and
- MANAGEMENT ADVISORY
SERVICES- Advice on interpretimg the
installation of computer system,
quality control, budgeting, etc.
results thereof.
Generally Accepted Accounting Principles
• Generally acceptable means that either:
The standard has been established by an authoritative accounting rule-making body; or
The principle has gained general acceptance due to practice over time and has been proven to be most
useful

• Represents the rules, procedures, practice and standards followed in the preparation and
presentation of financial statements.
• These are like laws that must be followed in in financial reporting.
• The accounting standards promulgated by the Financial Reporting Standards Council constitute
the highest hierarchy of generally accepted accounting principles in the Philippines.
Accounting Bodies that Promulgate the IFRS and PFRS
Standard Setting Body Promulgations Basis

Prior to 1981 Committee on Accounting Principle Philippine GAAP US- GAAP based
(created by PICPA)

1981 Accounting Standards Council (ASC) (created by Statement of Financial US- based Financial Accounting
PICPA) Accounting Standards Standards Board

Between 1997 to International Financial International Accounting

2004 Accounting and Reporting Standards - International
Standards Accounting Standards
Committee(IASC)
2004 Financial Reporting Standards Council (FRSC) New and revised Philippine International Accounting
- 14 members 1 Chairman Accounting Standards (PAS) and Standards Board (IASB) -IAS
- Participates in the evaluation and the new Philippine Financial and IFRS
deliberation of proposed IFRS forwarded by Reporting Standards
the IASB and submits to the Board of
Accountancy its recommendation for the
adoption of the proposed IFRS.

International
IASC (1973)- agreement by International
Financial
Accounting various professional IASB (2001) Reporting
Standards (IAS) accountancy bodies Standards
(IFRS)
 Philippine Financial Reporting Standards
2
Collectively includes the:

3
PAS corresponds
to the IAS
Philippine Interpretations
corresponds to the Interpretations
1 PFRS corresponds of the IFRIC and interpretations
to the IFRS developed by the Philippine
Interpretations Committee
(PIC)

Philippine
Financial
Reporting
Standards
TOPIC 2: The conceptual framework
1.Financial Reporting and Assumptions
2.Qualitative Characteristics
3.Elements of Financial Statements
Conceptual Framework
Complete , comprehensive and single document promulgated by the IASB

Underlying theory for the: Provides the foundation for Standards

- Development of accounting standards
and
- Revision of previously issued
accounting standards
that:
1. Contribute to transparency
2. Strengthen accountability
3. Contribute to economic efficiency

Summary of the
terms and concepts Intended to guide the
standard setters, Describes the
Àn attempt to that underlie the
preparers and users of objectives and
provide theoretical preparation and financial information concepts for
foundation for presentation of in the preparation and general purpose
accounting financial presentation of financial reporting
statements for Financial Statements
external users
 Purpose of the Revised Conceptual Framework
1. To assist the IASB to develop the IFRS based on consistent concepts.
2. To assist preparers of financial statements to develop consistent accounting policy when no
standard applies to a particular transaction or other event or where an issue is not yet
addressed by an IFRS.
3. To assist preparers of financial statements to develop accounting policy when a standard
allows a choice of an accounting policy.
4. To assist all parties to understand and interpret the IFRS standards.
 Authoritative Status of the Revised Conceptual Framework
1. IFRS

If there is a Standard or Interpretation that specifically applies to a transaction, the STANDARD or
INTERPRETATION overrides the Conceptual Framework
In case of conflict, the requirements of the IFRS shall PREVAIL over the Conceptual Framework

2. CONCEPTUAL FRAMEWORK

In the absence of a Standard or Interpretation, consider the applicability of the CONCEPTUAL
FRAMEWORK.
 Users of financial information under the Conceptual Framework for Financial
Reporting

PRIMARY USERS
• Parties to whom general purpose financial reports are primarily directed.
• Include the existing and potential investors, lenders and other creditors.

OTHER USERS
• Parties that may find the general purpose financial reports useful but the reports are not
directed to them primarily.
• Employees, Customers, Government and their agencies, Public
 Scope of the Revised Conceptual Framework
1. Objective of financial reporting
2. Qualitative characteristics of useful financial information
3. Financial statements and reporting entity
4. Elements of financial statements
5. Recognition and derecognition
6. Measurement
7. Presentation and disclosure
8. Concepts of capital and capital expenditure
Scope of the Revised Conceptual Framework

1. OBJECTIVE FINANCIAL REPORTING

 Scope of the Revised Conceptual Framework
1. Objective of Financial Reporting
Overall
Objective of
Financial
Reporting
To provide financial information
useful in making decisions.
- The objective of financial reporting
is the “why”, purpose or goal of
accounting
Primarily directed to primary users
Specific
Objectives of
Financial
Reporting -to emphasize the management stewardship of the
entity’s economic resources
- enity’s future cash flows
1. To provide information useful in making decisions
about providing resources to the entity
2. To provide information useful in assessing the cash
flow prospects of the entity
3. To provide information about entity resource,
claims and changes in resources and claims.
Scope of the Revised Conceptual Framework

2. QUALITATIVE CHARACTERISTICS OF
USEFUL FINANCIAL INFORMATION
Scope of the Revised Conceptual Framework

2. Qualitative Characteristics
Capacity of the
Relevant information to
Qualities or attributes influence a decision
that makes the Fundamental
information useful in Actual effects of the transaction
making economic Faithful shall be properly accounted for
Representation
decisions Relates to the content or and reported
substance of financial
information
Qualitative Comparability
Characteristics

Understandability

Enhancing

Verifiability
Relates to presentation or form
of the financial information

Timeliness
 2. Qualitative Characteristics (Fundamental)

Help users increase the likelihood

INGREDIENTS: of correctly or accurately
predicting or forecasting outcome
1. Predictive Value of events

2. Confirmative Value
Enable users to confirm or correct
earlier expectations

RELEVANCE
MATERIALITY
- Significant enough to affect/ influence the
evaluation, decision and fairness of the FS.
- Doctrine of Convenience. Information is material if omitting, OBSCURING INFORMATION-
- Depends on relative size rather than absolute size misstating or obscuring it could reasonably presentation of information not
- Also depends on good judgment, professional be expected to influence decisions that readily understood or not clearly
expertise and common use. primary users of general purpose FS make expressed.
- The CF does not specify a uniform quantitative -language is vague or unclear or
on the basis of those statements which
threshold for materiality or predetermine what aggregation of dissimilar items
could be material in a particular situation. provide financial information about a
specific reporting entity
 2. Qualitative Characteristics (Fundamental)

- Descriptions and figures must match what

FAITHFUL REPRESENTATION really existed or happened

INGREDIENTS:

1. Completeness 2. Neutrality 3. Free from error

Requires that relevant information
should be presented in a way that Without bias in the preparation or
facilitates understanding and avoids presentation of financial information. -does not mean that
erroneous implications Synonymous with the principle of information is perfectly
fairness.
accurate in all respects
-it means that there are no
Standard of Adequate Disclosure errors in the description and
PRUDENCE (support neutrality) in the process by which the
information is selected and
-Not disclose in the FS but - Exercise of care and caution
when dealing with uncertainties in applied.
disclosure is necessary to avoid
misleading the measurement process such that
- Significant enough to assets or income are not overstated
influence the judgement of and liabilities and expense are not
SUBSTANCE OVER
users. understated
FORM- faithful
representation inherently
represents the substance of
an economic phenomenon or
CONSERVATISM (Synonymous to prudence)
transaction rather than
When alternative exist, Alternative which has
merely representing the legal
the least effect to the equity shall be chosen.
form
 2. Qualitative Characteristics (Enhancing)

Enhancing

Comparability Understandability Verifiability Timeliness

Means the ability to bring together for Requires that financial Means that different Means that financial
the purpose of noting points of likeness information must be knowledgeable and information must be
and difference comprehensible or independent observers available or
intelligible if it is to be could reach consensus, communicated early
Comparability within Comparability between and most useful although not necessarily enough when a decision
an entity across entities complete agreement, that a is to be made
(HORIZONTAL or (INTERCOMPARABILIT Intended for users who have: particular depiction is a
INTRACOMPARAB Y or DIMENSIONAL 1. Reasonable knowledge
ILITY COMPARABILITY)
faithful representation
of business activities;
and
CONSISTENCY 2. Who are willing to
- Use of the same method for the same analyze the information Verification can be:
diligently 1. DIRECT- cash examination
item either from period to period within
2. INDIRECT- recalculating the
an entity or in a single period across ending balance, checking cash
entities ledger
Scope of the Revised Conceptual Framework

3. FINANCIAL STATEMENTS AND REPORTING

ENTITY

UNDERLYING ASSUMPTIONS
General objective of Financial Statements- provide information about economic resources of the
reporting entity , claims against the entity and changes in economic resources and claims
• Financial statements provide financial
information about an entity’s assets,
liabilities, equity, income and expenses
useful to users of financial statements in:
A. Assessing future cash flows to the
reporting entity.
B. Assessing management stewardship of
the entity’s economic resources.
SCOPE: General Purpose Financial Statement-
designed to meet the common needs of most
statement users. Information is governed by the
PFRSs
• The financial information is provided in the
following:
1. Statement of financial position, by
recognizing assets, liabilities and equity
2. Income statement by recognizing income
and expenses
3. Statement of cash flows, by recognizing
cash flows from operating, investing, and
financing activities
4. Statement of changes in equity by
recognizing contributions from equity
holders and distributions to equity holders
5. Notes to financial statements, by
recognizing disclosures required by
accounting standards.
Three types of Financial Statement:
A. CONSOLIDATED FS B. UNCONSOLIDATED FS C. COMBINED FS

-Comprises both the parent and its Parent only Two or more entities that are not
subsidiaries. linked by a parent-subsidiary
relationship
- Viewed as a single reporting
entity

PARENT- an entity that

SUBSIDIARY- controlled entity
controls another entity. MORE THAN 50%
REPORTING ENTITY
Reporting entity- is an entity that is required or chooses to prepare financial
statements. Not necessarily a legal entity.
Reporting Entity Types of FS
Individual corporation, partnership or Stand alone FS
proprietorship
The parent alone Unconsolidated FS or separate
The parent and its subsidiaries as single Consolidated FS; Separate FS
reporting entity
Two or more entities without parent and Combined FS; Separate FS
subsidiary relationship as a single
reporting entity
A reportable business segment of an Business segment report
entity
REPORTING PERIOD
Reporting period- is the period when financial statements are prepared for general
purpose financial reporting.
INTERIM ANNUAL
Period Three months, six months, Twelve months
nine months
Requirement Optional Mandatory
Fiscal Year – twelve-month period that
ends on any month
Calendar Year- twelve-month period that
ends on December 31
UNDERLYING ASSUMPTION
Accounting assumptions or postulates are basic notions or fundamental premises on which the
accounting process is based.
-Bedrock or foundation of accounting to: (a) avoid misunderstanding; and (b) enhance the
understandability and usefulness of FS.
ASSUMPTIONS
Going Concern In the absence of the evidence to the contrary, the entity is viewed as continuing in
operation indefinitely
Accounting Entity/ Entity The entity is separate from the owners, managers, and employees who constitute
concept the entity
Time Period/ Periodicity Indefinite life of the an entity is subdivided into accounting periods which are
concept usually of equal length for the purpose of preparing financial reports on financial
position, performance and cash flows.
Monetary Unit Monetary unit has two aspects:
• Quantifiability- means that asset, liabilities, equity, income and expenses
should be stated in terms of a unit of measure which is the peso in the
Philippines.
• Stability of the peso- means that the purchasing power of the peso is stable or
constant and that its instability is insignificant and therefore maybe ignored.
Scope of the Revised Conceptual Framework

4. ELEMENTS OF FINANCIAL STATEMENTS

Elements of Financial Statement
• Elements of financial statement refers to the quantitative information reported in the statement
of financial position and income statement.

ELEMENTS directly related to the ELEMENTS directly related ELEMENTS directly related to
measurement of FINANCIAL to the measurement of the measurement of
POSITION FINANCIAL STATEMENT OF CHANGES
PERFORMANCE IN EQUITY

1. ASSET- economic resources 1. INCOME-

2. LIABILTIIES- claims or
obligations
3. EQUITY- residual interest in
the assets after deducting all
its liabilities
There is NO ELEMENT. The
revenue/profit/gains statement comprises items that
2. EXPENSES- operating
appear in the statement of
expenditures financial position and income
statement.
 ASSET
NEW DEFINITION: An asset is defined
as 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
OLD DEFINITON: A resource
controlled by the entity as a result of
past events and from which future
economic benefits are expected to
flow to the entity
ASSET
ESSENTIAL CHARACTERISTICS

1. The Asset is a present economic resource

2.The economic resource is a right that has the potential to

produce economic benefits

3. The economic resource is controlled by the entity as a

result of past events.
ASSET ESSENTIAL CHARACTERISTICS

1. RIGHT

Rights that have the potential to produce economic benefits may take the
following forms:

1. Rights that correspond to an obligation of another entity

 Right to receive cash
 Right to received goods and services

2. Rights that do not correspond to an obligation of another entity

 Right to PPE and Intellectual property

3. Rights established by contract or legislation

 Owning debt instruments or registered patent
ASSET ESSENTIAL CHARACTERISTICS

2. Potential to produce economic benefits

For POTENTIAL to exist, it does not need to be certain or even likely that the
right will produce economic benefits. It is only necessary that the right already
exists

An asset can produce economic benefit in many ways such as:

 sold, leased, transferred or exchange of assets;
 used singly or combination with other assets;
 settle liability, etc.
ASSET ESSENTIAL CHARACTERISTICS

3. CONTROL

CONTROLLED- can be freely deployed or disposed of.

- An entity controls the asset if it has the present ability to direct the use of the
asset and obtain the economic benefits that flow from it
- Ability to prevent others from accessing those benefits

An asset can produce economic benefit in many ways such as:

 sold, leased, transferred or exchange of assets;
 used singly or combination with other assets;
 settle liability, etc.
ASSET ESSENTIAL CHARACTERISTICS

OTHER CONSIDERATIONS

1. Rights is not set on the Physical Object (ex. Leasehold right)

2. Absence or presence of expenditure (ex. Donation)
3. Does not necessarily mean ownership over the resource (ex. Car obtain
through loan)
4. Physical possession (ex. Consignment)

THERE MUST BE A RIGHT THAT HAS THE POTENTIAL TO PRODUCE

ECONOMIC BENEFIT. THE RIGHT TO THE ECONOMIC BENEFIT
THAT MAYBE DERIVED FROM THE RESOURCE MUST BE
CONTROLLED BY THE ENTITY OR HAS EXCLUSIVE RIGHT OVER
SUCH BENEFITS
LIABILITY
NEW DEFINITION:
A liability is defined as a present
obligation of an entity to transfer an
economic resource as a result of past
events
OLD DEFINITON: A present
obligation of the entity arising from
past events, the settlement of which
is expected to result in an outflow
from the entity of resources
embodying economic benefits
LIABILITY
ESSENTIAL CHARACTERISTICS

1. The entity has an obligation

2. The obligation is to transfer an economic resource.

3. The obligation is a present obligation that exists as a result

of past event
- Liability is not recognized until incurred.
LIABILITY ESSENTIAL CHARACTERISTICS

1. Obligation

 OBLIGATION is a duty or responsibility that an entity has no practical ability

to avoid.
 Obligations can either be legal or constructive.
 Entity liable must be identified
LIABILITY ESSENTIAL CHARACTERISTICS

2. Obligation to transfer of an economic resource.

Obligation to transfer an economic resource includes:

1. Obligation to pay cash
2. Obligation to deliver goods or noncash resources
3. Obligation to provide services at some future time
4. Obligation to exchange economic resources with another party on
favorable terms
5. Obligation to transfer an economic resource if specified uncertain future
event occurs
LIABILITY ESSENTIAL CHARACTERISTICS

2. Obligation exist as a result of past events

An obligation exists as a result of past event if both of the following conditions

are satisfied:
1. An entity has already obtained economic benefits or taken an action
2. An entity must transfer an economic resource
 INCOME
Income encompasses both An expense is defined as decreases
INCOME EXPENSE in assets or increases in liabilities
revenue and gains
that result in decreases in equity,
other than those relating to
REVENUE- arises in the course of distributions to equity holders.
the ordinary regular activities and
An income is is referred to by variety of different
defined as increases names including sales, fees, interest,
in assets or dividends royalties and rents. It encompasses losses as well
decreases in - Essence of revenue is regularity as those expenses that arise in
liabilities that the course of the ordinary
results in increases regular activities.
in equity, other than
those relating to GAINS- represent other items that
contributions from meet the obligation of income and
equity holders. do not arise in the course of the
ordinary regular activities.
- Includes gain from disposal of
noncurrent assets, unrealized gain
on trading investment and gain from
expropriation.
The definitions of income and expenses are opposites:
INCOME EXPENSES
Increases assets Decreases assets
Decreases liabilities increases liabilities
Results in increase in equity Results in decrease in equity
Excludes contributions from entity owners* Excludes distributions to the entity owners

Contributions from and distributions to the entity’s owners are not income and expenses
but rather direct adjustments to equity
Scope of the Revised Conceptual Framework

5. RECOGNITION AND MEASUREMENT

RECOGNITION
• As the process of capturing for inclusion in the financial statements an item that
meets the definition of an asset, liability, equity, income or expense.
• Involves recording the item in words and in monetary amount and including
that amount in the totals of either of the statement of financial position or
statement of financial performance.
• Carrying amount- amount at which an element is recognized in the SFP.
RECOGNITION
• Links the elements to the statement of financial position and statement of
financial performance.

Recognition of income resulting in an increase in asset
Recognition of income resulting in a decrease in
liability
Recognition of expense resulting in a increase in
liability
Recognition of expense resulting in a decrease in
assets
Recording a sale increases both cash/ receivable and
sales
Earning an unearned income decreases unearned
income (liability) and increases income
Accruing unpaid salaries increases both salaries
expenses and salaries payable
Payment for supplies expense increases supplies
expense and decreases cash

Beginning
+
Statement of Financial Position Statement of Financial
Performance Ending
+ Changes in the capital
contributions = Statement of Financial Position
Ending
RECOGNITION
CRITERIA IN RECOGNIZING AN ITEM
1. It meets the definition of an asset, liability, equity, income or expense; and
2. Recognizing it would provide useful information, i.e., relevant and faithfully
represented information
RECOGNITION
• The recognition of an item may not
provide relevant information, for
example:
1. Existence of asset or liability is
uncertain; and
2. Low probability of an inflow or
outflow of economic benefits.
• The recognition of an item may not
faithfully represent the information,
for example:
1. Measurement uncertainty
2. Recognition inconsistency
(accounting mismatch)
3. Presentation and disclosure

NON RECOGNITION-
DISCLOSE IN THE NOTES
RECOGNITION
INCOME RECOGNITION EXPENSE RECOGNITION

Income shall be recognized

Expense are recognized when incurred
when earned

Expense is recognized when

EARNED: with respect to sale of Cause and effect
the revenue is already
goods in the ordinary course of Association recognized
business, the point of sale is
unquestionably the point of income Some costs are expensed by
recognition. Systematic and rational
simply allocating them over
allocation the periods benefited

POINT OF SALE: Delivery Cost incurred is expensed

Immediate recognition outright because of
uncertainty of future
economic benefits.
DERECOGNITION
• Derecognition is defined as the removal of all or part of a recognized asset or
liability from the statement of financial position
• Derecogniton aim to faithfully represent :
those assets and liabilities retained after the transfer, if any, and
 any change in assets and liabilities as a result of the transaction that led to
recognition.
DERECOGNITION
Derecognition occurs when an item no longer
meets the definition of an asset or liability

DERECOGNITION OF ASSET: Occurs when

the entity loses control of all or part of the asset

DERECOGNITION OF LIABILITY: occurs when

the entity no longer has a present/ obligation for
all or part of the liability

On derecognition, the entity:

a. Derecognizes the element that have expired or have been consumed, collected,
fulfilled or transferred (i.e. transferred component)
b. Continues to recognize any element retained after the derecognition (i.e. retained
component)
MEASUREMENT
• Measurement is defined as quantifying in monetary terms the elements in the financial
statements.
• The revised Conceptual Framework mentions two categories:
(a) HISTORICAL COST
-derived from the price of the transaction or other event that gave rise to the asset or
liability
(b) CURRENT VALUE
CURRENT VALUE

VALUE IN USE AND

FAIR VALUE CURRENT COST
FULFILLMENT VALUE
HISTORICAL
COST FAIR VALUE; VALUE IN USE; FULFILLMENT VALUE; CURRENT COST
MEASUREMENT- Historical Cost
HISTORICAL COST OF AN ASSET
(ACQUISITION COST)
Consist of:
a. Cost incurred in acquiring or creating the asset
comprising the consideration paid, plus
b. Transaction cost
Updated because of:
a. Depreciation and amortization (consumption)
b. Payment received as a result of disposing part or
all of the asset (ex. Receivables)
c. Impairment
d. Accrual of interest to reflect any financing
component of the asset
e. Amortized cost measurement of financial asset
 Entry price or entry value to acquire an asset or to incur a liability
HISTORICAL COST OF A LIABILITY
Consist of the:
a. Consideration received to incur the liability minus
transaction cost
Updated because: of:
a. Payment made or satisfying an obligation to
deliver goods (fulfillment)
b. Increase in value of the obligation to transfer
economic resources such that the liability becomes
onerous
c. Accrual of interest to reflect any financing
component of liability
d. Amortized cost measurement of financial liability
MEASUREMENT
CURRENT VALUE
- measures reflect changes in values at the measurement date.
- Unlike historical cost, current value is not derived from the price of the
transaction or other event that gave rise to the asset or liability
1. FAIR VALUE
Price to sell an asset
Price paid to transfer a liability
Reflects the perspective of market participants
Can be measure by:
- directly observing in active market
- Indirectly using measurement techniques such as present value of cash flows
Transaction cost not considered
EXIT price or exit value
MEASUREMENT
2. VALUE IN USE AND FULFILLMENT VALUE
- Present value of cash flows; or
- Other economic benefits that an entity expects to derive from the use of an asset
and from its ultimate disposal
VALUE IN USE
Present value of cash flows that an entity
expects to derive from the use of an asset and
from the ultimate disposal
Entity specific assumptions
EXIT PRICE or Exit Value
Includes transaction cost at disposal only not
during acquisition
FULFILLMENT VALUE
Present value of cash flows that an entity
expects to transfer on paying or settling a
liability
Entity specific assumptions
EXIT PRICE or Exit Value
Includes transaction cost on fulfillment only not
during incurrence of liability
MEASUREMENT
2. CURRENT COST

- Reflects the current cost that would be paid to acquire an equivalent asset and
received to take on an equivalent liability
- Based on the entry price or entry value but reflects market conditions on
measurement date.

COST OF AN ASSET COST OF A LIABILITY

Cost of an equivalent asset at the Consideration that would be received less any
measurement date comprising paid and transaction cost at measurement date.
transaction cost
Includes transaction cost Includes transaction cost

 Current cost reflects condition at measurement date by adjusting the current

price by taking into account the age and circumstances of the asset held
Scope of the Revised Conceptual Framework

5. PRESENTATION AND DSCLOSURE

PRESENTATION AND DISCLOSURE- communication tool
 Effective
communication makes information useful
makes information more relevant and contributes to faithful representation.
Enhances comparability and understandability
 Requirement for effective communication:
1. Focus on the presentation and disclosure objectives and principles rather than on rules
- flexibility to provide relevant and faithfully represented information
- provide information that has both intra-comparability and inter-comparability
- Entity specific information is more relevant than standardized descriptions
2. CLASSIFY
-sorting (nature, function, measurement basis, etc.)
-grouping similar items and separating dissimilar items Aggregating information
3. AGGREGATE
- adding together
-excessive details or excessive summarization.
END