PFRS1: FIRST TIME ADOPTION OF PFRS
FIRST TIME ADOPTER
- entity that presents for the first time its financial statements in DATE TRANSITION TO PFRS
conformity with Philippine Financial Reporting Standards
- refers to the beginning of the earliest period for which an entity
- makes an explicit and unreserved statement that is generally purpose
[presents full comparative information under PFRS in its first PFRS
financial statements comply with the Philippine Financial Reporting
financial statements
standards
- date of transition
Sample situation: "Delicious Treats Bakery," a small family business, wants to the date of adoption of PFRS
expand. To attract investors and secure a loan, they need to present financial the number of years of comparative information that an
statements that comply with Philippine Financial Reporting Standards (PFRS) entity decides to present together with the financial
for the first time. John and Lisa, the owners, work with an accountant to statements in the year of adoption
create a balance sheet, income statement, and other documents. They also
OPENING PFRS STATEMENT OF FINANCIAL POSITION
make an explicit and unreserved statement that their financial statements
comply with PFRS. By adopting PFRS, they gain the trust of investors and - prepared by a first time adopter on the date of transition to PFRS
lenders, opening the door for their expansion plans. - in preparing the opening statement of financial position, an entity is
required to:
FIRST PFRS FINANCIAL STATEMENTS
RECOGNIZE all assets and liabilities required by PFRS
- first annual statement in which an entity adopts PFRS by an explicit DERECOGNIZE assets and liabilities not permitted by PFRS
and unreserved statement of compliance with PFRS RECLASSIFY items that is recognized under previous GAAP as
- financial statements presented by an entity in the current year would one type of asset, liability, or equity but a different type of
qualify as first PFRS FINANCIAL STATEMENTS under the following asset liability or equity under PFRS
conditions: MEASURE ALL recognized assets and liabilities in compliance
when entity presented its most recent previous financial with PFRS
statements
Any adjustments should recognized in retained earnings or in other
when an entity prepared financial statements in the previous
component of equity.
period under PFRS but the financial statements were for
INTERNAL USE ONLY
when an entity prepare financial statements in the previous
period under PFRS for consolidation purposes without
preparing a complete set of financial statements
when an entity did not present financial statements in the
previous period
PFRS 2: SHARE-BASED COMPENSATION - Share appreciation right creates a liability
SHARE BASED COMPENSATION PLAN
- Compensation arrangement established by the entity.
- Employees shall receive equity shares in exchange for their services
PFRS3: BUSINESS COMBINATION
or the entity incurs liabilities to the employees in amounts based on
the price of its shares Business Combination- when one entity gains control over one or more
- COMPENSATION PLANS feature of employee remuneration for businesses, typically through acquisition. This term covers "true mergers" or
directors, senior executives and other key employees. "mergers of equals," as defined in PFRS 3. Business- a set of activities and
- COMPENSATION PLAN tied to performance in a strategy that uses assets intended to generate revenue, either by providing goods/services,
compensation to motivate the recipients. earning investment income, or creating other income streams.
Share based compensation plans are classified into Acquisition Date- The date the acquirer gains control over the acquiree.
1. EQUITY SETTLED- entity issued equity instruments in consideration Acquirer- The entity that gains control of another business in a business
for services received. combination.
Example: share option (option given by a company to an employee to
buy a share in the company at a discount or at a stated fixed price.) Acquiree- The business or businesses acquired in a business combination.
2. CASH SETTLED- entity incurs a liability for services received and the Acquisition Method- A method of accounting for business combinations that
liability is based on the entity’s equity instruments involves several steps, including measuring acquired tangible assets and
Example: share appreciation rights (investing) liabilities.
SHARE OPTIONS Goodwill- An asset representing the future economic benefits arising from
- Granted to officers and key employees to enable them to acquire assets acquired in a business combination that are not separately recognized.
shares of the entity during specified period
- Part of their remuneration package
OBJECTIVES AND SCOPE OF IFRS 3
MEASUREMENT OF COMPENSATION
The goal of IFRS 3 is to improve the relevance, reliability, and comparability
1. FAIR VALUE METHOD- compensation is equal to the fair value of the of information on business combinations. It sets principles and requirements
share options on the DATE OF GRANT for:
2. INTRISIC VALUE METHOD- compensation is equal to the intrinsic
value of the share options. Recognizing and measuring acquired assets and liabilities, along with
any non-controlling interest.
SHARE APPRECIATION RIGHT Recognizing and measuring goodwill or gains from bargain purchases.
- Entitles an employee to receive cash equal to the excess of the Determining disclosures for users to evaluate the financial impact of
market value of the entity’s share over a predetermined price for a business combinations.
stated number of shares on settlement or exercise date.
when the acquiree's net identifiable assets exceed the consideration
paid by the acquirer.
EXCEPTIONS TO IFRS 3 APPLICATION
DISCLOSURE
IFRS 3 does not apply to:
- An acquirer must disclose information that allows users of its
Joint Arrangements' formation.
financial statements to evaluate the nature and financial impact of a
Acquisition of assets that do not constitute a business.
business combination. This disclosure requirement applies to
Combinations of entities under common control.
business combinations that happen during the current reporting
Acquisitions by investment entities required to measure at fair value
period or after the period's end but before the financial statements
through profit or loss.
are officially authorized for issue.
ACQUISITION METHOD
- used by entities to account for business combinations. It involves
several key steps:
IDENTIFY THE AQUIRER- gains control of the acquiree. This is typically
the entity providing cash, assets, or equity interests to effect the
combination. To identify the acquirer, consider:
Voting rights in the combined entity.
Any large minority interest.
The composition of the governing body and senior
management.
Terms for exchanging equity interests.
Sometimes, it's unclear who the acquirer is, like in mergers or reverse
acquisitions, where smaller companies acquire larger ones.
DETERMINE THE ACQUISITION DATE- when the acquirer gains
control over the acquiree. It's generally the closing date, when the
transaction is signed off and completed, but it could differ from the
effective date, which is when the transaction is considered to have
occurred.
RECOGNIZE AND MEASURE IDENTIFIABLE ASSET AND LIABILITIES-
involves identifying and measuring the assets acquired, liabilities
assumed, and any non-controlling interest (NCI).
RECOGNIZE AND MEASURE GOODWILL OR GAIN ON BARGAIN
PURCHASE- Goodwill is the extra value arising from assets that are
not individually identified. A gain from a bargain purchase occurs
