l.

​ Ship
m.​ Aircraft
PAS 16 n.​ Motor vehicle
o.​ Office equipment
p.​ Patterns, molds and dies
PAS 16 applies to all items of PPE except to the
q.​ Tools
following for which other standards apply:
a.​ PFRS 5 - Non-current assets held for
The following are not PPE:
sale
a.​ Land held for speculation
b.​ PAS 41 - Biological assets except for
b.​ Land held for an undetermined future
bearer plants
use
c.​ PFRS 6 (Exploration for and Evaluation
c.​ Land and/or building classified as PAS
of Mineral Resources
40
d.​ Mineral rights and mineral reserves
d.​ Property held for sale in the ordinary
course of business
PPE Major Characteristics
e.​ PAS 38
-​ Tangible
f.​ Minor spare parts and short-lived
-​ For the supply and production of goods
stand-by equipment
and services, rental or administrative
purposes
Initial Measurement
-​ Expected to be used for a period of more
PPE shall be measured at cost in which
than one year
comprises:
a.​ Purchase price, including import duties,
Recognition of PPE
nonrefundable purchase taxes, less
a.​ It is probable that future economic
discounting and rebates
benefit is associated with the item that
b.​ Cost directly attributable to bringing the
will flow to the entity; and
asset to the location and condition for
b.​ The cost of the item can be measured
the intended use
reliably
c.​ Cost of dismantlement, removal and
restoration
Examples of PPE
a.​ Land used in business
Examples of directly attributable cost:
b.​ Land held for future plant site
a.​ Cost of employee benefits arising
c.​ Building used in business
directly from the construction or
d.​ Equipment used in the production of
acquisition of PPE
goods
b.​ Cost of site preparation
e.​ Equipment held for environmental and
c.​ Initial delivery and handling costs
safety purposes
d.​ Installation and assembly cost
f.​ Equipment held for rentals
e.​ Testing costs gross of disposal proceeds
g.​ Major spare parts and long-lived
of samples produced during testing (the
stand-by equipment
proceeds and the cost of the samples
h.​ Furniture and fixtures
which is measured using PAS 2
i.​ Bearer Plants
Inventories, are recognized in profit or
j.​ Land improvements
k.​ Machinery
 loss in accordance with applicable -​ The cost of replacing a part of an item of
Standards) PPE is capitalized if the recognition
f.​ Professional fees criteria are met
-​ The carrying amount of the replaced
Examples of costs that are expensed outright: part (old part) is derecognized and
a.​ Costs of opening a new facility charged as loss, regardless of whether it
b.​ Costs of introducing a new product or had been depreciated separately or not
service (including costs of advertising -​ If the carrying amount of the replaced
and promotional activities) part cannot be determined, the cost of
c.​ Costs of conducting business in a new the replacement part (new part) is used
location or with a new class of customer as an indication of what the cost of the
(including costs of staff training replaced part was at the time it was
d.​ Administration and other general acquired or constructed
overhead costs -​ Example - replacing the seat of an
aircraft
Subsequent expenditures on recognized PPE b.​ Major inspections
-​ Capitalization of costs ceases when the -​ are accounted similar to replacement
PPE is in the location and condition costs
necessary for it to be capable of -​ The cost is capitalized while the
operating in the manner intended by carrying amount of the previous
management. Therefore, costs incurred inspection is derecognized
in using or redeploying PPE are not -​ Example - A cruise ship may not be
capitalized permitted to continue sailing without the
-​ Accordingly, income and related
The following are subsequent expenditures on expenses of incidental operations are
PPE are recognized as expenses: recognized in profit or loss, and hence
a.​ Cost of day-to-day servicing of a PPE do not affect the measurement of cost of
(repairs and maintenance) a PPE
b.​ Cost incurred while an item capable of
operating in the manner intended by Self-constructed assets
management has yet to be brought into -​ The cost is determined using the same
use or is operated at less than full principles as for an acquired asset.
capacity -​ The cost excludes internal profits and
c.​ Initial operating loss the cost of abnormal amounts of wasted
d.​ Cost of relocation or reorganizing part material, labor, or other resources
or all of an entity’s operations incurred in self-constructing the asset

An entity uses the recognition criteria when Bearer plants

determining whether subsequent expenditures -​ Are accounted similar to
can be capitalized. PAS 16 specifically addresses self-constructed assets.
the capitalization of the following expenditures: -​ PAS 16 used the term ‘construction’ to
a.​ Replacement costs include activities that are necessary to
inspection
Incidental operations cultivate the bearer plants -​ The following are examples of separate
before they are in the location and condition classes:
necessary to be capable of operating in the a.​ Land
manner intended by management b.​ Land and building
a.​ Is used in the production and supply of c.​ Machinery
agricultural produce d.​ Ships
b.​ Is expected to bear produce for more e.​ Aircraft
than one period f.​ Motor vehicles
c.​ Has a remote likelihood of being sold as g.​ Furnitures and fixtures
agricultural product, except for h.​ Office equipment
incidental scrap sales i.​ Bearer plants

Measurement of PPE after initial recognition or Accounting for Revaluations

subsequent measurement -​ An increase or decrease in the carrying
-​ An entity shall choose either the cost amount of a PPE resulting from
model or revaluation model as the revaluation is recognized in other
accounting policy and shall apply that comprehensive income and accumulated
policy to an entire class or PPE in equity under the “Revaluation
surplus” account, except for the
Cost model following:
-​ The cost model means that PPE are a.​ An increase that represents a reversal of
carried at cost less anu accumulated a previous impairment loss is recognized
depreciation and any accumulated in the profit or loss as impairment gain
impairment loss b.​ A decrease in excess of the credit
balance in the “revaluation surplus” of
Revaluation model the asset is recognized in the profit or
-​ The revaluation model means that PPE loss as impairment loss
are carried at revalued carrying amount.
The revalued carrying amount is the fair Acquisition on a cash basis
value at the date of revaluation less any -​ The cost of an item of PPE is the cash
subsequent accumulated depreciation price equivalent at the recognition date
and subsequent accumulated impairment -​ The cost includes the cash paid plus
loss directly attributable cost
-​ Frequency of revaluation depends on the
significance of changes in fair values. Acquisition on account
Assets whose fair values fluctuate -​ The cost of is equal to the invoice price
significantly may need to be revalued minus discount, regardless of whether
annually. Assets whose fair value do not the discount is taken or not
fluctuate significantly may be revalued -​ Cash discounts are generally considered
every three or five years as reduction of cost and not as income
-​ Revaluations are applied to an entire
class of PPE. A class of PPE is a Acquisition on installment basis
grouping of assets with similar nature.
 -​ When payment for item of PPE is -​ However, the exchange is recognized at
deferred beyond normal credit terms, the carrying amount of the asset given in the
cost is the cash price equivalent exchange plus any cash payment if the
-​ If offered at a cash price and at an exchange transaction lacks commercial
installment price and is purchased at the substance
installment price, the asset shall be
recorded at the cash price Commercial substance
-​ The excess of the installment price over -​ Is a new notion and is defined as the
the cash price is treated as an interest to event or transaction causing the cash
be amortized over the credit period flows of the entity to change
significantly by reason of the exchange
Issuance of share capital -​ An exchange transaction has
-​ Philippine GAAP provides that if shares commercial substance when the cash
are issued for consideration other than flows of the asset received differ
actual cash, the proceeds shall be significantly from the cash flows of the
measured by the fair value of the asset transferred
consideration received
-​ Accordingly, whether a property is Construction
acquired through the issuance of share -​ The cost of self–constructed asset is
capital, the property shall be measured determined using the same principles as
at an amount equal to the following in for an acquired asset
the order of priority -​ The cost of self-constructed PPE
a.​ Fair value of the property received includes:
b.​ Fair value of the share capital a.​ Direct cost of materials
c.​ Par value or stated value of the share b.​ Direct cost of labor
capital c.​ Indirect cost and incremental overhead
specifically identifiable or traceable to
Issuance of bonds payable the construction
-​ PFRS 9, paragraph 5.1.1, provides the
asset acquired by issuing bonds payable Concept of depreciation
is measured in the following order of -​ Depreciation is defined as the systematic
priority: allocation of the depreciable amount of
a.​ Fair value of bonds payable an asset over the useful life
b.​ Fair value of asset received -​ Depreciation is not so much a matter of
c.​ Face amount of bonds payable valuation
-​ Depreciation is a matter of cost
Exchange allocation in recognition of the
-​ PAS 16, paragraph 24, provides that the exhaustion of the useful life of an item
cost of an item of PPE acquired in of PPE
exchange for a nonmonetary asset or a -​ Each significant part of an item of PPE
combination of monetary and is depreciated separately
nonmonetary asset is measured at fair -​ Depreciation is recognized as an
value of the asset given in the exchange expense (in profit or loss) unless it is
plus any cash payment
 included in the cost of producing -​ Each part of an item of PPE with a cost
another asset. that is significant in relation to the total
cost of the item shall be depreciated
Carrying amount separately
-​ Is the amount at which an asset is
recognized after deducting any Residual value
accumulated depreciation and -​ Residual value is the estimated net
accumulated impairment losses amount currently obtainable if the asset
is at the end of the useful life
Fair value -​ The residual value shall be reviewed at
-​ Is the price that would be received to least at each financial year-end and if
sell an asset or paid to transfer a liability expectations differs from previous
in an orderly transaction between market estimate, the change shall be account for
participants at the measurement date as a change in an accounting estimate

Depreciation period Useful life

-​ The depreciable amount of an asset shall -​ Useful life is either the period over
be allocated on a systematic basis over which an asset is expected to be
the useful life available for use by the entity, or the
-​ Depreciation begins when it is available number of production or similar units
for use, meaning, when the asset is in expected to be obtained from the asset
the location and condition necessary for by the entity
the intended use by management -​ The factors in determining useful life
-​ Depreciation ceases when the asset is are:
derecognized, classified as held for sale a.​ Expected usage of the asset
under PFRS 5, or fully depreciated b.​ Expected physical wear and tear
-​ Depreciation does not cease when the c.​ Technical or commercial obsolescence
asset becomes idle temporarily d.​ Legal limit for the use of the asset, such
-​ Temporary idle activity does not as the expiry date of the related lease
preclude depreciating the asset as future
economic benefits are consumed not Depreciation method
only through usage but also through -​ It shall reflect the pattern in which the
wear and tear and obsolescence future economic benefits from the asset
are expected to be consumed by the
Factors of depreciation entity
-​ In order to properly compute the amount -​ PAS 16 prohibits the use of a
of depreciation, three factors are depreciation method that is based on
necessary, namely, depreciable amount, revenue
residual value and useful life -​ PAS 16 requires an annual review of the
depreciation method and the estimates
Depreciable amount of useful life and residual value at each
-​ Depreciable amount is the cost of an year-end
asset or other amount substituted for
cost, less residual value Straight line method
 -​ The annual depreciation charge is determined as the difference between
calculated by allocating the depreciable between the net disposal proceeds and
amount equally over the number of the carrying amount of the item
years of useful life
-​ Most common Depreciation
-​ Constant charge over the useful life -​ After revaluation, a revalued asset is
-​ Function of time rather than as a depreciated based on its fair value
function of usage
Subsequent revaluation surplus
Production method -​ Transfers from revaluation surplus to
-​ The production or output method retained earnings are not made through
assumes that the depreciation is more a profit or loss
function of use rather than a function of a.​ If the revalued asset is non-depreciable,
time the whole of the revaluation surplus is
-​ The useful life of the asset is considered transferred directly to retained earnings
in terms of the output it produces or the when the asset is derecognized
number of hours it works b.​ If the revalued asset is depreciable, a
-​ Depreciation is related to the estimated portion of the revaluation surplus may
production capability of the asset and is be transferred directly to retained
expressed in a rate per unit of output or earnings as the asset is used. The portion
per hour of use transferred each year is equal to the
difference between the depreciation
Diminishing balance or accelerated method based on the revalued carrying amount
-​ Higher depreciation in the earlier years and the depreciation based on the
and lower depreciation in the later years original cost
of the useful life of the asset
-​ Decreasing depreciation over the useful Disclosure
life -​ General disclosures for each class of
-​ The accelerated methods include sum of PPE:
years’ digits method and double a.​ The measurement bases used
declining balance method b.​ The depreciation methods used
c.​ The useful lives or depreciation rates
Derecognition used
-​ Means that the cost of the PPE together d.​ The gross carrying amount and the
with the related accumulated accumulated depreciation (aggregated
depreciation shall be removed from the with accumulated impairment losses) at
statement of financial position the beginning and end of the period
-​ PAS 16, paragraph 67, provides that the e.​ A reconciliation of the carrying amount
carrying amount of an item of PPE shall at the beginning and end of the period
be derecognized on disposal or when no showing: additions, disposals and other
future economic benefits are expected changes
from the use or disposal
-​ The gain or loss arising from the Additional disclosures
derecognition of an item of PPE shall be
 a.​ Restrictions on title and PPE pledged as conditions relating to the operating
security for liabilities activities of the entity
b.​ Expenditures to construct PPE during -​ Sometimes called subsidies,
the period subventions, or premiums)
c.​ Contractual commitments for the -​ Only government assistance that meets
acquisition of PPE the asset recognition criteria is
d.​ Compensation for impairment losses recognized as a government grant.
e.​ Proceeds and cost of items produced
during testing of PPE PAS 20 does not apply to:
f.​ Changes in estimates relating to PPE a.​ Accounting for government grants under
hyperinflationary economies
Disclosures for revalued PPE: b.​ Tax benefits such as income tax
a.​ Date of the revaluation holidays, investment tax credits,
b.​ Whether an independent valuer was accelerated depreciation allowances and
involved reduced income tax rates
c.​ The carrying amount of each revalued c.​ Government participation in the
class of PPE if they had been measured ownership of the entity
under the cost model d.​ Government grants covered by PAS 41
d.​ Revaluation surplus, including changes
during the period and any restrictions on Examples of government grants:
its distribution to shareholders a.​ Receipt of cash, land, or other non-cash
assets from government subject to
Encouraged disclosures: compliance with certain conditions
a.​ Carrying amount of temporarily idle b.​ Receipt of financial aid in cases of loss
PPE from a calamity
b.​ Gross carrying amount of any fully c.​ Forgiveness of an existing loan from the
depreciated PPE that is still in use government
c.​ Carrying amount of PPE retired from d.​ Benefit of a government loan with
active use and not classified as held for below-market rate of interest
sale in accordance with PFRS 5
d.​ When the cost model is used, the fair Receipt of government assistance
value of PPE when this is materially -​ PAS 20 provides the following reasons
different from the carrying amount why the receipt of government
assistance may be significant in the
preparation of financial statements:
a.​ If resources are received, an appropriate
PAS 20 accounting method is necessary to
account for the receipt
b.​ The indication of the extent to which the
Government Grant
entity has benefited from the assistance
-​ PAS 20, paragraph 3, defines
during the period improves the
government grant as assistance by
comparability of its financial statements
government in the form of transfer of
resources to an entity in return for part
Recognition
or future compliance with certain
 -​ The mere receipt of a grant is not
conclusive evidence that the attached Measurement
condition has been or will be satisfied
-​ Government grant shall be recognized
Monetary Grants Non-monetary grants
when there is reasonable assurance that:
a.​ The entity will comply with the a.​ Amount of a.​ Fair value of
conditions of the grant cash received the
b.​ The grant will be received b.​ Fair value of non-monetar
amount y asset
receivable received
Accounting for government grant
b.​ Nominal
a.​ Grant in recognition of specific amount
expenses shall be recognized as income
over the period of the related expenses
b.​ A government grant that becomes
Government assistance
receivable as compensation for expenses
-​ Is action by government designed to
or losses already incurred or for the
provide an economic benefit specific to
purpose of giving immediate financial
an entity or range of entities qualifying
report to the entity with no further
under certain criteria
related costs shall be recognized as
-​ The essence of government assistance is
income of the period win which it
that no value can reasonably be placed
becomes receivable
upon it. Examples are:
c.​ Grant related to depreciable assets shall
a.​ Free technical or marketing advice
be recognized as income over the
b.​ Provision of guarantee
periods and in proportion to the
c.​ Government procurement policy that is
depreciation of the related asset
responsible for a portion of the entity’s
d.​ Grant related to non depreciable asset
sales
requiring fulfillment of certain
conditions shall be recognized as
Government assistance does not include the
income over the periods which bear the
following indirect benefits or benefits not
cost of meeting the conditions
specific to an entity:
a.​ Infrastructure in development areas such
Presentation of government grant
as improvement to the general transport
1.​ Government grant related to asset shall
and communication network
be presented in the statement of
b.​ Imposition of trading constraints on
financial position in either two ways:
competitors
a.​ By setting grant as deferred income
c.​ Improved facilities such as irrigation for
b.​ By deducting the grant in arriving at the
the benefit of an entire local community
carrying amount of the asset
2.​ Government grant related to income:
Repayment of Grants
a.​ The grant is presented in the income
-​ A government grant that becomes
statement, either separately or under the
repayable is treated as a change in
general heading “other income”
accounting estimate and accounted for
b.​ Alternatively, the grant is deducted from
prospectively
the related expenses
 -​ The repayment of a grant related to -​ Borrowing costs are defined as interest
income is deducted from the related and other costs that an entity incurs in
deferred income balance, if any. Any connection with borrowing funds
excess recognized immediately as in -​ Borrowing costs are interest costs
profit or loss incurred as a result of borrowings from
-​ The repayment of a grant related to an banks and other financial institutions
asset is treated as a reduction in the
deferred income balance or an increase Borrowing costs can be classified as specific
in the carrying amount of the asset. The borrowing and general borrowing
cumulative additional depreciation that -​ A specific borrowing is intended
would have been recognized in the specifically for acquiring a qualifying
absence of the grant is recognized asset
immediately in profit or loss -​ A general borrowing is intended partly
-​ Following repayment, the entity may in acquiring a qualifying asset and partly
need to consider the possibility of for general or working capital purposes
impairment of the new carrying amount
of the asset Qualifying asset
-​ Is an asset that necessarily takes a
Disclosures about government grant substantial period of time to get ready
a.​ The accounting policy adopted for for the intended use of sale
government grant, including the method
of presentation adopted in the financial Examples of qualifying assets
statements a.​ Manufacturing plant
b.​ The nature and extent of government b.​ Power generating facility
grant recognized in the financial c.​ Intangible asset
statements and an indication of other d.​ Investment property
forms of government assistance from
which the entity has directly benefited Capitalization
c.​ Unfulfilled conditions and other -​ PAS 23 requires that borrowing costs
contingencies attaching to government incurred in connection with acquisition
assistance that has been recognized of a qualifying asset should be
capitalized as cost of the qualifying
It is not required to disclose the name of the asset
government agency that gave the grant along
with the date if sanction of the grant by such Excluded from capitalization
government agency and the date when cash was a.​ Asset measured at fair value, such as
received in case of monetary grant biological asset
b.​ Inventory that is manufactured in large
quantity on a repetitive basis, such as
maturing whisky, even if it takes a
PAS 23 substantial period of time to get ready
for sale
c.​ Asset that is ready for the intended use
or sale when acquired
Accounting for borrowing cost -​ Amount of capitalizable borrowing cost
-​ PAS 23, paragraph 8, mandates the = average carrying expenditures on the
following rules on borrowing cost: asset during the period x capitalization
a.​ If the borrowing is directly attributable rate or average interest rate
to the acquisition, construction or -​ Capitalization rate = annual borrowing
production of a qualifying asset, the cost ÷ total general borrowings
borrowing cost is required to be
capitalized as cost of the asset. Commencement of capitalization
Capitalization of borrowing cost is -​ The capitalization of borrowing costs as
mandatory for a qualifying asset. part of the cost of a qualifying asset
b.​ All other borrowing costs shall be shall commence when the following
expensed as incurred. If the borrowing is three conditions are present:
not directly attributable to a qualifying a.​ When the entity incurs expenditures for
asset, the borrowing cost is expensed the asset
immediately b.​ When the entity incurs borrowing costs
c.​ When the entity undertakes activities
Asset financed by specific borrowing that are necessary to prepare the asset
-​ PAS 23, paragraph 12, provides that if for the intended use or sale
the funds that are borrowed specifically
for the purpose of acquiring a qualifying Cessation of capitalization
asset, the amount capitalizable -​ Capitalization of borrowing costs shall
borrowing cost is the actual borrowing cease when substantially all the
cost incurred during the period less any activities necessary to prepare the
investment income from the temporary qualifying asset for the intended use or
investment of those borrowings sale are complete
-​ An asset is normally ready for the
Assets financed by general borrowing intended use or sale when the physical
-​ PAS 23, paragraph 14, provides that if construction of the asset is complete
the funds are borrowed generally and even though routine administrative work
used for acquiring a qualifying asset, the might still continue
amount of capitalizable borrowing cost
is equal to the average carrying PAS 28: Investment in Associates and Joint
expenditures on the asset during the Ventures
period multiplied by a capitalization rate
or average interest rate Associate
-​ The capitalizable borrowing cost shall -​ An entity over which the investor has
not exceed the actual interest incurred significant influence
-​ The capitalization rate or average
interest rate is equal to the total annual Significant influence​
borrowing cost divided by the total -​ The power to participate in the financial
general borrowings outstanding during and operating policy decisions of the
the period investee but is not control or joint
control of those policies
Formulas
Joint arrangement​ majority ownership by another investor
-​ An arrangement of which two or more does not necessarily preclude an entity
parties have joint control from having significant influence.

Joint control​ The existence of significant influence by an

-​ The contractually agreed sharing of entity is usually evidenced in one or more of the
control of an arrangement, which exists following ways:
only when decisions about the relevant a.​ representation on the board of directors
activities require the unanimous consent or equivalent governing body of the
of the parties sharing control investee;
b.​ participation in the policy-making
Joint venture​ process, including participation in
-​ A joint arrangement whereby the parties decisions about dividends or other
that have joint control of the distributions;
arrangement have rights to the net assets c.​ material transactions between the entity
of the arrangement and the investee;
d.​ interchange of managerial personnel; or
Joint venturer​ e.​ provision of essential technical
-​ A party to a joint venture that has joint information
control of that joint venture
Assessing whether an entity has significant
Equity method​ influence
-​ A method of accounting whereby the -​ The existence and effect of potential
investment is initially recognised at cost voting rights that are currently
and adjusted thereafter for the exercisable or convertible, including
post-acquisition change in the investor's potential voting rights held by other
share of the investee's net assets. The entities, are considered when assessing
investor's profit or loss includes its share whether an entity has significant
of the investee's profit or loss and the influence. In assessing whether potential
investor's other comprehensive income voting rights contribute to significant
includes its share of the investee's other influence, the entity examines all facts
comprehensive income and circumstances that affect potential
rights
Significant influence -​ An entity loses significant influence
-​ Where an entity holds 20% or more of over an investee when it loses the power
the voting power (directly or through to participate in the financial and
subsidiaries) on an investee, it will be operating policy decisions of that
presumed the investor has significant investee. The loss of significant
influence unless it can be clearly influence can occur with or without a
demonstrated that this is not the case. If change in absolute or relative ownership
the holding is less than 20%, the entity levels.
will be presumed not to have significant
influence unless such influence can be Basic principle.
clearly demonstrated. A substantial or
 -​ Under the equity method, on initial the equity method is not applied.
recognition the investment in an Instruments containing potential voting
associate or a joint venture is recognised rights in an associate or a joint venture
at cost, and the carrying amount is are accounted for in accordance with
increased or decreased to recognise the PFRS 9, unless they currently give
investor's share of the profit or loss of access to the returns associated with an
the investee after the date of acquisition. ownership interest in an associate or a
joint venture
Distributions and other adjustments to carrying
amount Classification as non-current asset
-​ The investor's share of the investee's -​ An investment in an associate or a joint
profit or loss is recognised in the venture is generally classified as
investor's profit or loss. Distributions non-current asset, unless it is classified
received from an investee reduce the as held for sale in accordance with
carrying amount of the investment. PFRS 5 Non-current Assets Held for
Adjustments to the carrying amount may Sale and Discontinued Operations
also be necessary for changes in the
investor's proportionate interest in the Basic principle
investee arising from changes in the -​ In its consolidated financial statements,
investee's other comprehensive income an investor uses the equity method of
(e.g. to account for changes arising from accounting for investments in associates
revaluations of property, plant and and joint ventures.
equipment and foreign currency -​ Many of the procedures that are
translations.) appropriate for the application of the
equity method are similar to the
Potential voting rights consolidation procedures described in
-​ An entity's interest in an associate or a PFRS 10. Furthermore, the concepts
joint venture is determined solely on the underlying the procedures used in
basis of existing ownership interests accounting for the acquisition of a
and, generally, does not reflect the subsidiary are also adopted in
possible exercise or conversion of accounting for the acquisition of an
potential voting rights and other investment in an associate or a joint
derivative instruments. venture.

Interaction with PFRS 9 An entity is exempt from applying the equity

-​ PFRS 9 Financial Instruments does not method if the investment meets one of the
apply to interests in associates and joint following conditions:
ventures that are accounted for using the a.​ The entity is a parent that is exempt
equity method. An entity applies PFRS from preparing consolidated financial
9, including its impairment statements under PFRS 10 Consolidated
requirements, to long-term interests in Financial Statementsor or if all of the
an associate or joint venture that form following four conditions are met (in
part of the net investment in the which case the entity need not apply the
associate or joint venture but to which equity method):
-​ the entity is a wholly-owned subsidiary, loss in accordance with PFRS 9
or is a partially-owned subsidiary of regardless of whether the venture capital
another entity and its other owners, organisation, or the mutual fund, unit
including those not otherwise entitled to trust and similar entities including
vote, have been informed about, and do investment-linked insurance funds, has
not object to, the investor not applying significant influence over that portion of
the equity method the investment. If the entity makes that
-​ the investor or joint venturer's debt or election, the entity shall apply the equity
equity instruments are not traded in a method to any remaining portion of its
public market investment in an associate that is not
-​ the entity did not file, nor is it in the held through a venture capital
process of filing, its financial statements organisation, or a mutual fund, unit trust
with a securities commission or other and similar entities including
regulatory organisation for the purpose investment-linked insurance funds.
of issuing any class of instruments in a
public market, and Classification as held for sale
-​ the ultimate or any intermediate parent -​ When the investment, or portion of an
of the parent produces financial investment, meets the criteria to be
statements available for public use that classified as held for sale, the portion so
comply with PFRSs, in which classified is accounted for in accordance
subsidiaries are consolidated or are with PFRS 5. Any remaining portion is
measured at fair value through profit or accounted for using the equity method
loss in accordance with PFRS 10. until the time of disposal, at which time
b.​ When an investment in an associate or a the retained investment is accounted
joint venture is held by, or is held under PFRS 9, unless the retained
indirectly through, an entity that is a interest continues to be an associate or
venture capital organisation, or a mutual joint venture.
fund, unit trust and similar entities
including investment-linked insurance Use of the equity method should cease from the
funds, the entity may elect to measure date that significant influence or joint control
investments in those associates and joint ceases:
ventures at fair value through profit or -​ If the investment becomes a subsidiary,
loss in accordance with PFRS 9. The the entity accounts for its investment in
election is made separately for each accordance with PFRS 3 Business
associate or joint venture on initial Combinations and PFRS 10
recognition. When an entity has an -​ If the retained interest is a financial
investment in an associate, a portion of asset, it is measured at fair value and
which is held indirectly through a subsequently accounted for under PFRS
venture capital organisation, or a mutual 9
fund, unit trust and similar entities -​ Any amounts recognised in other
including investment-linked insurance comprehensive income in relation to the
funds, the entity may elect to measure investment in the associate or joint
that portion of the investment in the venture are accounted for on the same
associate at fair value through profit or basis as if the investee had directly
 disposed of the related assets or cost of the investment and the entity’s
liabilities (which may require share of the net fair value of the
reclassification to profit or loss) investee's identifiable assets and
-​ If an investment in an associate becomes liabilities in case of goodwill is included
an investment in a joint venture (or vice in the carrying amount of the investment
versa), the entity continues to apply the (amortisation not permitted) and any
equity method and does not remeasure excess of the entity's share of the net fair
the retained interest. value of the investee's identifiable assets
and liabilities over the cost of the
Changes in ownership interests investment is included as income in the
-​ If an entity's interest in an associate or determination of the entity's share of the
joint venture is reduced, but the equity associate or joint venture’s profit or loss
method is continued to be applied, the in the period in which the investment is
entity reclassifies to profit or loss the acquired. Adjustments to the entity's
proportion of the gain or loss previously share of the associate's or joint venture's
recognised in other comprehensive profit or loss after acquisition are made,
income relative to that reduction in for example, for depreciation of the
ownership interest depreciable assets based on their fair
values at the acquisition date or for
Equity method procedures. impairment losses such as for goodwill
-​ Transactions with associates or joint or property, plant and equipment.
ventures. Profits and losses resulting -​ Date of financial statements. In applying
from upstream (associate to investor, or the equity method, the investor or joint
joint venture to joint venturer) and venturer should use the financial
downstream (investor to associate, or statements of the associate or joint
joint venturer to joint venture) venture as of the same date as the
transactions are eliminated to the extent financial statements of the investor or
of the investor's interest in the associate joint venturer unless it is impracticable
or joint venture. However, unrealised to do so. If it is impracticable, the most
losses are not eliminated to the extent recent available financial statements of
that the transaction provides evidence of the associate or joint venture should be
a reduction in the net realisable value or used, with adjustments made for the
in the recoverable amount of the assets effects of any significant transactions or
transferred. Contributions of events occurring between the accounting
non-monetary assets to an associate or period ends. However, the difference
joint venture in exchange for an equity between the reporting date of the
interest in the associate or joint venture associate and that of the investor cannot
are also accounted for in accordance be longer than three months.
with these requirements. -​ Accounting policies. If the associate or
-​ Initial accounting. An investment is joint venture uses accounting policies
accounted for using the equity method that differ from those of the investor, the
from the date on which it becomes an associate or joint venture's financial
associate or a joint venture. On statements are adjusted to reflect the
acquisition, any difference between the
 investor's accounting policies for the -​ Recognition and Measurement to
purpose of applying the equity method. determine whether it is necessary to
-​ Application of the equity method by a recognise any additional impairment
non-investment entity investor to an loss with respect to its net investment in
investment entity investee. When the associate or joint venture. If
applying the equity method to an impairment is indicated, the amount is
associate or a joint venture, a calculated by reference to PAS 36
non-investment entity investor in an Impairment of Assets. The entire
investment entity may retain the fair carrying amount of the investment is
value measurement applied by the tested for impairment as a single asset,
associate or joint venture to its interests that is, goodwill is not tested separately.
in subsidiaries. The election is made The recoverable amount of an
separately for each associate or joint investment in an associate is assessed
venture. for each individual associate or joint
-​ Losses in excess of investment. If an venture, unless the associate or joint
investor's or joint venturer's share of venture does not generate cash flows
losses of an associate or joint venture independently.
equals or exceeds its interest in the
associate or joint venture, the investor or
joint venturer discontinues recognising
its share of further losses. The interest in
an associate or joint venture is the
carrying amount of the investment in the
associate or joint venture under the
equity method together with any
long-term interests that, in substance,
form part of the investor or joint
venturer's net investment in the associate
or joint venture. After the investor or
joint venturer's interest is reduced to
zero, a liability is recognised only to the
extent that the investor or joint venturer
has incurred legal or constructive
obligations or made payments on behalf
of the associate. If the associate or joint
venture subsequently reports profits, the
investor or joint venturer resumes
recognising its share of those profits
only after its share of the profits equals
the share of losses not recognised.

After application of the equity method an entity

applies PAS 39 Financial Instruments: