SUMMARY OF PAS FOR MIDTERM

PAS 2- INVENTORIES PAS 36- IMPAIRMENT OF

PAS 12- INCOME TAXES ASSETS
PAS 16- PPE PAS 37- PROVISION,
CONTINGENT LIABILITY AND
PAS 19- EMPLOYEE BENEFITS ASSET
PAS 20- GOVERNMENT GRANT PAS 38- INTANGIBLE ASSETS
PAS 23- BORROWING COST PAS 40- INVESTMENT PROPERTY
PAS 28- INVESTMENT IN PAS 41- AGRICULTURE
ASSOCIATE
PAS 32- FINANCIAL
INSTRUMENT
INVESTMENT IN ASSOCIATE
PAS 28
ASSOCIATE
• An entity over which the investor has significant influence
• Holds 20% or more of the voting power of the investee
• Significant Influence- has the power to participate in financial and
operating policy decisions of the associate but not control or joint
control over those policy.
Measurement: Equity Method
• The investment is initially recognized at cost
• Carrying amount is increased by the investor’s share of the net income of
the investee and decreased by the investor’s share of the net loss of the
investee (recognized as investment income)
• Dividends received from an equity investee reduce the carrying amount of
the investment
• Note that the investment must be ordinary shares. If preference shares it is
not appropriate to use the equity method since it has no voting power.
• Technically, if the investor has significant influence over the investee, the
investee is said to be associate
EXCESS OF COST OVER CARRYING AMOUNT
• If the investor pays more than the carrying amount of the net assets
acquired, the difference is commonly known as excess of cost over
carrying amount and may be attributed to the following:
A. Undervaluation of the investee’s asset, such as building, land, and
inventory
B. Goodwill
 EXCESS OF COST OVER CARRYING AMOUNT
• If the assets of the investee are FAIRLY VALUED, the excess of cost over the
carrying amount of the underlying net assets is attributable to goodwill
• If the excess is attributable to undervaluation of depreciable assets, it is
amortized over the remaining life of a depreciable asset
• If the excess is attributable to undervaluation of land, it is not amortized
because it is non-depreciable. Excess amount only expensed when land is sold.
• If the excess is attributable to undervaluation of inventory, the amount is
expensed when inventory is sold.
• If the excess is attributable to goodwill, it is included in the carrying amount of
the investment and not amortized
• ENTIRE INVESTMENT IN ASSOCIATE IS TESTED FOR IMPAIRMENT AT THE END OF
EACH REPORTING PERIOD INCLUDING GOODWILL.
EXCESS OF FAIR VALUE OVER COST
Any excess of fair value of the associate’s net assets acquired over the
cost of the investment is included as INCOME in the determination of
the investor’s share of the associate’s net income or net loss in the
period in which the investment is acquired.
DISCONTINUANCE OF EQUITY METHOD
• From the date that it ceases to have significant influence over an
associate, the investor shall measure any retained investment in the
associate at fair value and shall be included in profit or loss
statement.
EQUITY METHOD NOT APPLICABLE
• If the investor is a parent that is exempt from preparing consolidated
financial statements
• The investor is a wholly-owned subsidiary, or a partially owned subsidiary
of another entity and the owners do not object to the investor not applying
the equity method.
• The investor’s debt and equity instruments is not traded in a public market
or over-the-counter market
• The investor did not file or is not in the process of filling financial statement
with the SEC for the purpose of issuing any class of instruments in a public
market
• The ultimate parent of the investor produces consolidated financial
statements available for public use that comply with PFRS
IMPAIRMENT OF ASSETS
PAS 36
IMPAIRMENT
• If the carrying amount of an asset is higher than the recoverable
amount, the asset is judged to have suffered an impairment loss.
• Asset shall not be carried at above the recoverable amount
• The recoverable amount of an asset is the fair value less the cost of
disposal or value in use, whichever is higher.
FAIR VALUE LESS COST OF DISPOSAL
• Fair Value- price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date.
• Cost of Disposal- incremental cost directly attributable to the disposal
of an asset, excluding finance cost and income tax expense.
• Fair value less cost of disposal is equal to exit price or selling price
minus cost of disposal.
• EXAMPLE OF COST OF DISPOSAL: legal cost, stamp duty, cost of
removing the asset, direct cost in bringing the asset into condition for
sale
VALUE IN USE
• Measured as the present value or discounted value of future net cash
flows expected to be derived from an asset. Estimates of future cash
flows include:
a. Cash inflows from the continuing use of the asset
b. Cash outflows necessarily incurred to generate the cash inflows
from the continuing use of the asset
c. Net cash flows received or paid on the disposal of the asset at the
end of the useful life in an arm’s length transaction
Do not include: cost of improving asset performance, restructuring
cost, cash flows from financing activities, income tax payments
RECOGNITION OF IMPAIRMENT LOSS
• Recognized immediately by reducing the asset’s carrying amount to
its recoverable amount.
• Impairment loss is recognized and presented separately in income
statement.
REVERSAL OF IMPAIRMENT LOSS
• It must be reversed if there has been a change in the estimate of the
recoverable amount.
• The increased carrying amount of an asset due to the reversal of an
impairment loss shall not exceed the carrying amount that would
have been determined had no impairment loss been recognized for
the asset in prior years.
• It must be recognized immediately in the income statement as gain
on reversal of impairment loss.
CASH GENERATING UNIT (CGU)
• The smallest identifiable group of assets or segment of business that
generates revenue and cash inflows independently.
• May be a department, a product line, or a segment of business
• The recoverable amount of an asset shall be determined for the asset
individually, if it is not possible and entity shall determine the
recoverable amount of the cash generating unit to which the asset
belongs
ALLOCATION OF IMPAIRMENT LOSS OF CGU
• Allocated to the assets of the unit in the following order:
a. First, to the goodwill, if any
b. Then, to all other noncash assets of the unit prorata based on their
carrying amount
In recognizing impairment loss, the carrying amount of an asset shall
not be reduced below its fair value less cost of disposal or value in use,
whichever is higher.
REVERSAL OF IMPAIRMENT LOSS ON GOODWILL
• Impairment loss recognized for goodwill shall not be reversed in a
subsequent period
Intangible assets
PAS 38
INTANGIBLE ASSET
• An identifiable monetary asset without physical substance, must be
controlled by an entity as a result of past event and from which future
economic benefits are expected to flow to the entity
RECOGNITION
• MUST SATISFY ALL 3 CRITERIA
1. IDENTIFIABILITY
2. CONTROL
3. FUTURE ECONOMIC BENEFITS
1. IDENTIFIABLE
• IT IS SEPARABLE- the asset can be sold, transferred, licensed, rented,
or exchanged separately.
• IT ARISES FROM CONTRACTUAL OR OTHER LEGAL RIGHT- the is a
transfer of legal right that would make the asset identifiable
2. CONTROL
• The entity has the power to obtain future economic benefits flowing
from an intangible asset and restrict the access of others to those
benefits.
• Able to enjoy the future economic benefits and prevent others from
enjoying the same benefits
• It stems from legal rights that are enforceable in court, as in the case
of trademarks, copyrights, and patents.
3. FUTURE ECONOMIC BENEFITS
• Include revenue from the sale of products, cost savings, or other
benefits resulting from the use of the asset
IDENTIFIABLE ASSETS
• PATENTS
• COPYRIGHT
• FRANCHISE
• TRADEMARK
• CUSTOMER LIST
• COMPUTER SOFTWARE
• BROADCASTING LICENSE
UNIDENTIFIABLE ASSETS
• Cannot be sold, transferred, licensed, rented, or exchanged. It is
inherent in continuing business and can only be identifiable with the
entity as a whole
• EX. Goodwill
INITIAL MEASUREMENT
• Initially at cost, it comprises;
Purchase price
Import duties and nonrefundable purchase tax
Directly attributable cost; professional fee and cost of
testing asset
SUBSEQUENT MEASUREMENT
• An entity can choose between cost model or revaluation
model
• COST MODEL- intangible assets are carried at cost less any
accumulated amortization and impairment losses.
• REVALUATION MODEL- intangible assets are carried at
revalued amount of fair value less any subsequent
amortization and impairment. (Can only be carried at
revalued amount if there is an active market for the asset)
COSTS OF INTERNALLY GENERATED
INTANGIBLE ASSETS
• Directly attributable costs:
Cost of materials and services used in generating the
intangible asset
Cost of employee benefits arising from the generation of
intangible assets
Fee to register a legal right
• INTERNAL GENERATED BRAND, MASTHEAD,
PUBLISHING TITLE, CUSTOMER LIST, AND
OTHER ITEMS SIMILAR IN SUBSTANCE IS NOT
RECOGNIZED AS INTANGIBLE ASSET

•INTERNALLY GENERATED GOODWILL SHALL

NOT BE RECOGNIZED AS AN ASSET
EXPENDITURES EXPENSED WHEN INCURRED
• LEGAL COSTS- organization cost such as legal cost, preopening cost,
preoperating cost
• TRAINING COST
• ADVERTISING AND PROMOTIONAL COST
• BUSINESS RELOCATION OR REORGANIZATION COST
• SELLING AND ADMINISTRATIVE OVERHEAD
AMORTIZATION AND IMPAIRMENT OF
INTANGIBLE ASSET
• Assets with limited or finite life are amortized over their useful life. It
is tested for impairment whenever there is an indication of
impairment at the end of the reporting period.
• Assets with indefinite life are not amortized but are tested for
impairment at least annually whenever there is an indication that the
intangible assets are impaired.
AMORTIZATION
• Systematic allocation of the amortizable amount of an intangible
asset over the useful life
• Amortizable amount is the cost of intangible asset less residual value
USEFUL LIFE
• It is the major problem for an intangible assets. Must be assessed
either indefinite or finite.
• Finite- it is expressed in terms of years or the number of
units to be produced
• Indefinite- there is no foreseeable limit to the period over
which the asset is expected to generate net cash flow.
AMORTIZATION METHOD
• Reflect the pattern in which the future economic benefits from the
asset are expected to be consumed by an entity
• If such pattern cannot be determined, the straight line method of
amortization shall be used.
RESEARCH AND DEVELOPMENT
• If an entity cannot distinguish the research phase from development
phase, the entity treats it as if it were incurred in the research phase
only.
RESEARCH- activity taken to discover new knowledge that will be
useful in developing new product (planning)
DEVELOPMENT- involves the application of research findings to
develop a new product (applicating)
EXAMPLES OF RESEARCH ACTIVITIES
• Laboratory research aimed at obtaining new knowledge
• Searching for application of research findings and other knowledge
• Conceptual formulation and design of possible products or process
alternative
• Testing in search for product or process alternative
EXAMPLES OF DEVELOPMENT ACTIVITIES
• Design, construction, and testing of preproduction prototype model
• Design of tools, jigs, molds, and dies involving new technology
• Design construction and operation of a pilot plant that is not of a
scale economically feasible to the entity for commercial production
• Design, construction, and testing of a chosen alternative for new or
improved product or process
COMMERCIAL PRODUCTION NOT CONSIDERED
RESEARCH AND DEVELOPMENT
• Engineering follow through in an early phase of commercial
production
• Quality control during commercial production
• Troubleshooting breakdown during production
• Routine ongoing effect to improve quality of an existing product
• Adaptation of an existing capability to customer need
• Periodic design changes to existing products
• Routine design of tools, jigs, molds and dies
ACCOUNTING FOR RESEARCH COST
• It shall be recognized as an expense when incurred. In
this stage there are too much uncertainty about the
future economic benefits that would probably flow to
an entity.
ACCOUNTING FOR DEVELOPMENT COST
• It is incurred at a later stage, and the probability of success may be
more apparent.
• Development cost may qualify as an intangible asset if an entity can
demonstrate ALL of the following:
The technical feasibility of completing the intangible asset
The intention to complete the intangible asset
The ability to use or sell the intangible asset
The intangible asset will generate a probable future economic benefit
Availability of resources to complete the asset
The ability to measure reliably the development expenditure
CAPITALIZED EXPENDITURES
• Expenditures for research and development such as cost for
materials, equipment, and intangible assets which have alternative
future use can be capitalized.
• Subsequently, the following can be charged to research and
development costs:
 Cost of materials used
 Depreciation of equipment used in research and development
 Amortization of intangible asset used in research and development
Income Taxes
PAS 12
OBJECTIVE OF PAS 12
• The standard aims to prescribe the accounting treatment for
current and future tax consequences of:
• The future recovery (settlement) of the carrying amount of assets
(liabilities) recognized in the statement of financial position.
• Transactions and other events of the current period that are
recognized in the financialstatements.
Accounting Income
• Accrual Basis
• Income appearing on traditional income statement and computed in
accordance to accounting standards
• SEC
Taxable Income
• Cash Basis
• Income for the period in accordance with tax law upon which income
taxes are payable or recoverable
• Appear in income tax return and computed in accordance with
income tax law
• BIR
Permanent Differences
• Non-taxable revenue and nondeductible expenses
• It does not give rise to deferred tax asset and liability since it has no
future tax consequences
• Examples:
Interest income on deposit
Dividends received
Life insurance premium when the entity is the beneficiary of a life insurance
policy
Proceeds of life insurance received as a result of death of an officer
Tax penalties, surcharges, and fines are nondeductible
Temporary Differences
• Items of income and expenses which are included in both accounting
and taxable income but at different time period.
• Either give rise to deferred tax liability or deferred tax asset
• Types of Temporary Differences
1. Taxable Temporary Difference- It will result to future taxable
amount in determining taxable income of future periods (DEFERRED
TAX LIABILITY)
2. Deductible Temporary Difference- It will result in future deductible
amount in determining taxable income for future periods
(DEFERRED TAX ASSET)
Deffered Tax
• Definition: Taxes payable or recoverable in future periods due to
temporary differences between the carrying amount of
assets/liabilities and their tax base.
• Measurement: Using Enacted Future Tax Rate
• Types of Temporary Differences:
• Taxable Temporary Differences → Give rise to Deferred Tax Liabilities (DTL)
• Deductible Temporary Differences → Give rise to Deferred Tax Assets (DTA)
Deferred Tax Liability
• Shall be recognized to all taxable temporary differences
• Arises when Accounting Income is greater than Taxable Income
because of future taxable amount
• A.I.>T.I.
• Presented as Noncurrent Liability and it shall not be discounted
• Example
Revenues and gain are included in accounting income of the current period
but are taxable in future periods
Expenses and losses are deductible for tax purposes in the current period but
deductible for accounting purposes in future period
Deferred Tax Asset
• Shall be recognized for all deductible temporary differences and operating
loss carryforward when it is probable that taxable income will be available
against which the deferred tax asset can be used.
• Arises when taxable income is higher than accounting income because of
future deductible amount. T.I.>A.I.
• Presented as Noncurrent Asset and it shall not be discounted
• Shall not be netted against deferred tax lliablity unless allowed and levied
by the taxing authority in the same jurisdiction
Operating loss carryforward- an excess of tax deductions over gross income in a year
that may be carried forward to reduced taxable income in a future year.
Examples:
Revenues and gains are included in taxable income of current period but are
included in accounting income of future periods
Expenses and losses are deducted from accounting income of current period but are
deductible for tax purposes in future period.
Current Tax
• Definition: The amount of income taxes payable (or
recoverable) in respect of the taxable profit (or loss) for a
period. Current Tax Rate.
• Recognition: Recognized as a liability (or asset) for unpaid (or
refundable) tax.
• Measurement: Using current tax rate
Current Tax Liability
• It is the current tax expense or the income tax payable.
• Income tax for corporations are payable every quarter
• It is measure using current tax rate and it is classified as current
liability.
Current Tax Asset
• The excess amount of tax already paid for the current period that
exceeds the actual payable amount.
• It is also known as Prepaid Income Tax and shall be classified as
current asset
• Measured using current tax rate
Employee Benefits
PAS 19
• PAS 19 applies to all forms of employee benefits, except those
covered by other standards (e.g., share-based payments under PFRS
2). It includes:
• Short-term employee benefits
• Post-employment benefits
• Other long-term employee benefits
• Termination benefits
SHORT-TERM EMPLOYEE BENEFITS
• Expected to be settled wholly within 12 months after the end of annual
reporting period.
• Not measured in discounted basis. No actuarial assumptions is required
therefore there is no possibility of actuarial gain or loss.
• It is expensed when service is rendered. Accrued expense when there is
unpaid short-term employee benefits. Prepayments when paid in advance.
These are:
Salaries, wages, and social security contribution
Short-term compensated or paid absences
Profit sharing and bonuses payable within 12 months
Nonmonetary benefits such as medical care, housing, or free goods
Postemployment Benefits
• Payable after completion of employment.
• Postemployment benefit plan requires formal arrangement between
an employer and employee or may be established by law.
It includes:
Retirement benefits, such as pensions and lump sum payments on retirement
Postemployment life insurance
Postemployment medical care
• It can be classified as either; Defined Contribution Plan or Defined
Benefit Plan
Defined Contribution Plan
• Employer pays fixed contributions to a fund.
• No further obligation after payment.
• No actuarial valuation needed.
• Recognize expense when the employee renders service.
• Accrued expense when there is unpaid contribution
• Prepaid expense when there is an excess in contribution
Defined Benefit Plan
• More complex. Employer agreed/promises a specific benefit level
(e.g., pension).
• Obligation recognized using actuarial valuations and projected unit
credit method.
• It may be unfunded, fully funded, or partly funded by the
contribution of the entity.
• The expense recognized is not necessarily the amount of contribution
for the period.
Components:
• Service cost- Current Service Cost, Past Service Cost, Any gain or loss on plan
settlement. (recognized in profit or loss)
• Net interest (recognized in profit or loss)
• Remeasurements (recognized in Other Comprehensive Income)
Defined Benefit Plan
• Service Cost:
1. Current Service Cost- increase in present value of the defined
benefit obligation resulting from employee service.
2. Past Service Cost- services rendered by employee from prior
period. All PSC whether vested or unvested, shall be recognized
expense immediately.
3. Any gain or loss on plan settlement
• Net Interest
1. Interest expense on defined benefit obligation
2. Interest income on plan assets.
Defined Benefit Plan
• Memorandum records:
1. Fair Value of Plan Assets (FVPA)- source of fund
2. Projected Benefit Obligation (PBO)- present value of expected
future benefits required to be settled
• These two does not appear in Financial Statement, only their
differences.
If FVPA is more than PBO (FVPA>PBO), the plan is overfunded, and the difference is a
prepaid benefit cost, a noncurrent asset which is a debit balance.
If PBO is more than FVPA (PBO>FVPA), the plan is underfunded, and the difference is
an accrued benefit cost, a noncurrent liability, which is a credit balance.
FAIR VALUE OF PLAN ASSETS (FVPA)
• Increased by:
Contribution to the plan
Actual return on plan assets; it includes interest, dividend income, and gains
on plan asset
• Decreased by:
Benefits paid to retirees
Settlement of payment of benefits settled in advance before retirement date
PROJECTED BENEFIT OBLIGATION (PBO)
• Increased by:
Current service cost
Past service cost
Interest expense on PBO
Actuarial loss or increase in PBO
• Decreased by:
Benefits paid to retirees
Actuarial gain
Present value of the PBO settled in advance before retirement date
Other Long-term Employee Benefits
• Not expected to be settled within 12 months
• Remeasurements are recognized in profit or loss, not OCI.
• Long-service leave
• Long-term disability benefits
• Jubilee or other long-service benefits
Termination Benefits
• Benefits from termination of employment before normal retirement
or voluntary redundancy is a result of either: An entity’s decision to
terminate an employees or an employee’s decision to accept an offer
in exchange of termination.