CFAS ii.

The sale of inventories after the

reporting period may give
PAS 10
evidence to their net realizable
Events after the Reporting Period value at the end of reporting
period
• Events after the reporting period are
“those events, favorable or unfavorable, 3. The determination after the reporting
that occur between the end of the period of the cost of asset purchased, or
reporting period and the date that the the proceeds from asset sold, before the
financial statements are authorized for end of reporting period.
issue.” (PAS 10)
4. The discovery of fraud or errors that
Two types of events after the reporting period indicate that the financial statements are
incorrect.
1. Adjusting events after the reporting
period – are those that provide evidence Examples of non-adjusting events normally
of conditions that existed at the end of requiring disclosures:
the reporting period.
1. Changes in fair values, foreign
2. Non-adjusting events after the reporting exchange rates, interest rates or market
period – those that are indicative of prices after the reporting period.
conditions that arose after the reporting
2. Casualty losses (e.g., fire, storm, or
period
earthquake) occurring after the reporting
Date of authorization of the financial period but before the financial
statements statements were authorized for issue.

• This date is the date when management 3. Litigation arising solely from events
authorizes the financial statements for occurring after the reporting period.
issue regardless of whether such
4. Major ordinary share transactions and
authorization for issue is for further
potential ordinary share transactions
approval or for final issuance to users.
after the reporting period.
Examples of adjusting events:
5. Major business combination after the
1. The settlement after the reporting period reporting period.
of a court case that confirms that the
6. Announcing a plan to discontinue an
entity has a present obligation at the end
operation after the reporting period.
of reporting period.
7. Declaration of dividends after the
2. The receipt of information after the
reporting period
reporting period indicating that an asset
was impaired at the end of reporting Disclosures
period. For example:
• Date of authorization for issue
i. The bankruptcy of a customer
• Adjusting events
that occurs after the reporting
period may indicate that the • Material Non-adjusting events
carrying amount of a trade
receivable at the end of reporting
period is impaired.
PAS 12 INCOME TAXES temporary differences result to deferred
tax assets.
Accounting profit vs. Taxable profit
Deferred taxes
• If the increase in deferred tax liability
exceeds the increase in deferred tax
asset, the difference is deferred tax
expense. If it is the opposite, the
difference is deferred tax income or
benefit.
• The varying treatments of economic • A deferred tax asset is recognized only
activities between the PFRSs and tax to the extent that it is realizable.
laws result to permanent and temporary
• Deferred taxes are measured using
differences.
enacted or substantially enacted tax
• Permanent differences are those that do rates that are applicable to the periods
not have future tax consequences. of their expected reversals.
• Examples: • Deferred tax assets and liabilities are
not discounted.
• Interest income on government
bonds and treasury bills • Deferred tax asset and liabilities are
presented as non-current.
• Interest income on bank deposits
• Dividend income
• Fines, surcharges, and penalties
arising from violation of law
• Life insurance premium on
employees where the entity is the
irrevocable beneficiary
• Temporary differences are those that
have future tax consequences.
Temporary differences are either:
• Taxable temporary differences –
arise, for example, when financial
income is greater than taxable
income or the carrying amount of
an asset is greater than its tax
base.
• Deductible temporary differences
arise in case of the opposites of
the foregoing.
• Taxable temporary differences result to
deferred tax liabilities while deductible
PAS 16 Property, Plant and Equipment 1. Purchase price, including non-
refundable purchase taxes, after
Characteristics of PPE
deducting trade discounts and rebates.
a. Tangible assets – items of PPE have
2. Costs directly attributable to bringing the
physical substance
asset to the location and condition
b. Used in normal operations – items of necessary for it to be capable of
PPE are used in the production or operating in the manner intended by the
supply of goods or services, for rental, management.
or for administrative purposes
3. Present value of decommissioning and
c. Long-term in nature – items of PPE are restoration costs to the extent that they
expected to be used from more than a are recognized as obligation
year
Examples of items of PPE
Examples of directly attributable costs
a. Land used in business
• Costs of employee benefits arising
b. Land held for future plant site directly from the construction or
acquisition of PPE;
c. Building used in business
• Costs of site preparation;
d. Equipment used in the production of
goods • Initial delivery and handling costs (e.g.,
freight costs);
e. Equipment held for environmental and
safety reasons • Installation and assembly costs;

f. Equipment held for rentals • Testing costs, net of disposal proceeds

of samples generated during testing;
g. Major spare parts and long-lived stand- and
by equipment
• Professional fees.
h. Furniture and fixture
Cessation of capitalizing costs to PPE
i. Bearer plants
• Recognition of costs in the carrying
Recognition amount of an item of PPE ceases when
The cost of an item of property, plant and the item is in the location and condition
equipment shall be recognized as an asset necessary for it to be capable of
only if: operating in the manner intended by
management.
a. it is probable that future economic
benefits associated with the item will Measurement of Cost
flow to the entity; and • The cost of an item of PPE is the cash
b. the cost of the item can be measured price equivalent at the recognition date.
reliably. If payment is deferred beyond normal
credit terms, the difference between the
Initial measurement cash price equivalent and the total
• An item of PPE is initially measured at payment is recognized as interest over
its cost. the period of credit unless such interest

Elements of Cost
 is capitalized in accordance with PAS 23 be capable of operating in the manner
Borrowing Costs. intended by management.
Acquisition through exchange • Depreciation ceases when the asset is
derecognized or when it is classified as
• If the exchange has commercial
“held for sale” under PFRS 5, whichever
substance, the asset received from the
comes earlier.
exchange is measured using the
following order of priority: Selection of depreciation method
a. Fair value of asset Given up • There are various methods of
depreciation. The entity shall select the
b. Fair value of asset Received
method that most closely reflects the
c. Carrying amount of asset Given expected pattern of consumption of the
up future economic benefits embodied in
the asset.
• If the exchange lacks commercial
substance, the asset received from the • However, a depreciation method that is
exchange is measured at (c) above. based on revenue that is generated by
an activity that includes the use of an
Subsequent measurement asset is not appropriate.
• Subsequent to initial recognition, an The Straight-line method of Depreciation
entity shall choose either:
Straight line method – depreciation is
(a) the cost model or recognized evenly over the life of the asset by
(b) the revaluation model dividing the depreciable amount by the
estimated useful life.
as its accounting policy and shall apply that
policy to an entire class of PPE. Depreciation = (Historical cost – Residual
value) ÷
Cost Model
Estimated useful life
• After recognition, an item of PPE is
measured at its cost less any Changes in depreciation method, useful life,
accumulated depreciation and any and residual value
accumulated impairment losses. • A change in depreciation method, useful
Depreciation life, or residual value is a change in
accounting estimate accounted for
• Depreciation is the systematic allocation prospectively.
of the depreciable amount of an asset
over its estimated useful life. • Prospective accounting means the
change affects only the current period
• When computing for depreciation, each and/or future periods. The change does
part of an item of PPE with a cost that is not affect past periods.
significant in relation to the total cost of
the item shall be depreciated separately. Revaluation Model

Depreciation – continuation • After recognition as an asset, an item of

PPE whose fair value can be measured
• Depreciation begins when the asset is reliably shall be carried at a revalued
available for use, i.e., when it is in the amount, being its fair value at the date
location and condition necessary for it to of the revaluation less any subsequent
 accumulated depreciation and transferred directly to retained
subsequent accumulated impairment earnings when the asset is
losses. derecognized.
Revaluation surplus 2. If the revalued asset is
depreciable, a portion of the
Fair value*
revaluation surplus may be
xx
transferred periodically to
Less: Carrying amount retained earnings as the asset is
(xx) being used.

Revaluation surplus – gross of tax Derecognition

xx
• The carrying amount of an item or PPE
*The fair value is determined using an shall be derecognized:
appropriate valuation technique, taking into
a. on disposal; or
account the principles set forth under PFRS 13.
b. when no future economic benefits
Frequency of revaluation
are expected from its use or
• For items with significant and volatile disposal
changes in fair value, annual revaluation
is necessary. For items with insignificant
changes in fair value, revaluation may
be made every 3 or 5 years.
Revaluation applied to all assets in a class
• If an item of PPE is revalued, the entire
class of PPE to which that asset belongs
shall be revalued.
• The items within a class of PPE are
revalued simultaneously to avoid
selective revaluation of assets and the
reporting of amounts in the financial
statements that are a mixture of costs
and values as at different dates.
Subsequent accounting for revaluation surplus
• Revaluation is initially recognized in
other comprehensive income unless the
revaluation represents impairment loss
or reversal of impairment loss, in which
case it is recognized in profit or loss.
• Subsequently, the revaluation surplus is
accounted for as follows:
1. If the revalued asset is non-
depreciable, the revaluation
surplus accumulated in equity is
PAS 20 Accounting for Government Grants a. Grants related to assets – grants whose
and Disclosure of Government Assistance primary condition is that an entity
qualifying for them should purchase,
• Government grants are assistance
construct or otherwise acquire long-term
received from the government in the
form of transfers of resources in assets.
exchange for compliance with certain b. Grants related to income – grants other
conditions. than those related to assets.
• Government grants exclude government
assistance whose value cannot be Initial measurement
reasonably measured or cannot be
• Monetary grants are measured at the
distinguished from the entity’s normal
trading transactions. a. amount of cash received; or
• Receipt of cash, land, or other non-cash b. the fair value of amount
assets from the government subject to receivable; or
compliance with certain conditions
c. carrying amount of loan payable
• Receipt of financial aid in case of loss to government for which
from a calamity repayment is forgiven; or
• Forgiveness of an existing loan from the d. discount on loan payable to
government government at a below-market
rate of interest.
• Benefit of a government loan with
below-market rate of interest
• The following are not government • Non-monetary grants (e.g., land and
grants: other resources) are measured at the
• Tax benefits, a. fair value of non-monetary asset
received.
• Free technical or marketing
advice, b. alternatively, at nominal amount
or zero, plus direct costs incurred
• Provision of guarantees,
in preparing the asset for its
• Government procurement policy intended use.
that is responsible for a portion of
Accounting for Gov’t. Grants
the entity’s sales, and
• The main concept in accounting for
• Public improvements that benefit
gov’t. grants is the MATCHING
the entire community.
CONCEPT.
Recognition
• This means that the gov’t. grant is
• Government grants are recognized if recognized as income as the entity
there is reasonable assurance that: recognizes as expense the related cost
for which the grant is intended to
a. the attached conditions will be compensate.
complied with; and
Presentation of Government grants related to
b. the grants will be received assets
Classifications of government grants according
to attached condition
 • Government grants related to assets are PAS 23 BORROWING COSTS
presented in the statement of financial Core principle
position either by:
• “Borrowing costs that are directly
a. Gross presentation –the grant is attributable to the acquisition,
presented as deferred income construction or production of a
(liability); or qualifying asset form part of the cost of
that asset. Other borrowing costs are
b. Net presentation – the grant is
recognized as an expense.” (PAS 23.1)
deducted when computing for the
carrying amount of the asset Borrowing costs are interest and other costs
incurred by an entity in connection with the
Presentation of Government grants related to
borrowing of funds. Borrowing costs may
income
include:
• Grants related to income are sometimes
1. interest expense on financial liabilities or
presented in the income statement
lease liabilities computed using the
either by:
effective interest method
a. Gross presentation – the grant is
2. Exchange differences arising from
presented separately or under a
foreign currency borrowings to the
general heading such as “Other
extent that they are regarded as an
income”, or
adjustment to interest costs.
b. Net presentation – the grant is
3. Qualifying asset is an asset that
deducted in reporting the related
necessarily takes a substantial period of
expense
time to get ready for its intended use or
Repayment of Gov’t. Grants sale. Depending on the circumstances,
any of the following may be qualifying
• A government grant that becomes assets:
repayable is accounted for as a change
in accounting estimate that is treated 1. Inventories
prospectively under PAS 8.
2. Manufacturing plants
3. Power generation facilities
4. Intangible assets
5. Investment properties measured
under cost model
4. The following are not qualifying assets
1. Financial assets, and inventories
that are manufactured, or
otherwise produced, over a short
period of time.
2. Assets that are ready for their
intended use or sale when
acquired are not qualifying
assets.
 3. Assets that are routinely 2. Qualifying assets financed through
manufactured or otherwise General borrowing
produced in large quantities on a
Total interest expense on general borrowings
repetitive basis.
₱ xx
4. assets measured at fair value.
Divide by: Total general borrowings
Commencement of capitalization xx
• The capitalization of borrowing costs as Capitalization rate
part of the cost of a qualifying asset %
commences on the date when all of the
following conditions are met:
Average expenditure on the asset
a. The entity incurs expenditures for
₱ xx
the asset;
Multiply by: Capitalization rate
b. The entity incurs borrowing costs;
%
and
Borrowing cost that may be eligible for
c. It undertakes activities that are
capitalization ₱ xx
necessary to prepare the asset
for its intended use or sale. The amount computed in the formula above
shall be compared with the actual borrowing
Suspension of capitalization
costs incurred during the period. The amount to
• Capitalization of borrowing costs shall be capitalized is the lower amount.
be suspended during extended periods
Financial statement presentation
of suspension of active development of
a qualifying asset. • Qualifying assets are not segregated
from other assets in the financial
Cessation of capitalization
statements. They are presented as
• An entity shall cease capitalizing regular assets under their normal
borrowing costs when substantially all classification as provided under other
the activities necessary to prepare the standards.
qualifying asset for its intended use or
sale are complete.
Determining borrowing costs eligible for
capitalization
1. Qualifying assets financed through
Specific borrowing
Interest expense on specific borrowing
₱ xx
Less: Investment income earned on specific
borrowing xx
Borrowing cost eligible for capitalization
₱ xx