ACCOUNTING 7.

Cost Benefit – cost of processing and

communicating info should not exceed the
3 IMPORTANT ACTIVITIES:
benefits to derived from it
1. Identifying 8. Accrual Basis of Accounting – effects of
2. Measuring transactions are recognized when they
3. Communicating – FS/Other financial report occur, and they are recognized in the actg
periods to which they relate
TYPES OF EVENTS: 9. Historical Cost Concept – Value of an asset
is determined on the basis of acquisition
1. External Events – involve external party
cost
a. Exchange (reciprocal transfer) –
10. Concept of Articulation – all of the
reciprocal giving and receiving
components of a complete set of FS are
b. Non-Reciprocal Transfer – one way
interrelated
transaction
11. Full Disclosure Principle - FS provide
c. External Event Other Than Transfer
sufficient detail to disclose matters that
– Example: Change in FV of an
make a difference to users, yet sufficient
asset
condensation to make the info
2. Internal Events
understandable
a. Production – process by which
12. Consistency Concept – FS are prepared on
resources are transformed into
the basis of accounting policies which are
finished goods
applied consistently from one period to the
b. Casualty – unanticipated loss from
next
disasters or other similar events
13. Matching – costs are recognized as
MEASUREMENT: (not limited) expenses when the related revenue is
recognized
1. Historical Cost – most commonly used 14. Residual Equity Theory – applicable where
2. FV there are 2 classes of shares issued
3. PV 15. Fund Theory – actg objective is the custody
4. Realizable Value and administration of funds
5. Current Cost 16. Realization – process of converting NCA into
6. Sometimes inflation – adjusted costs cash or claims for cash
TYPES OF ACCOUNTING INFORMATION CLASSIFIED 17. Prudence/ Conservatism – degree of
AS TO USERS’ NEEDS caution in the exercise of judgment needed
in making estimates required under
1. General Purpose Acctg. Info – designed to conditions of uncertainity
meet the common needs of most statement
users. Governed by PFRS COMMON BRANCHES OF ACCOUNTING
2. Special Purpose Acctg. Info – Designed to 1. Financial Accounting
meet the specific needs of a particular 2. Management Accounting
statement users. Example: Managerial 3. Cost Accounting
Actg., Tax Basis Actg. 4. Auditing
BASIC ACCOUNTING CONCEPTS (or Principles) 5. Tax Accounting
6. Government Accounting
1. Double Entry System – Each accountable
event is recorded in 2 parts: DEBIT & 4 SECTORS IN THE PRACTICE OF ACCOUNTANCY
CREDIT 1. Practice of Public Accountancy
2. Going Concern – entity is assumed to carry 2. Practice in Commerce and Industry
on its operations for an indefinite period of 3. Practice in Education/Academe
time (opposite of Liquidating Concern) 4. Practice in the Government
3. Separate Entity –entity is separated from its
owners ACCOUNTING STANDARDS IN THE PHILIPPINES
4. Stable Monetary Unit – amount in the FS
1. PFRS
are stated in terms of a common unit of
2. PAS
measure
3. Interpretations
5. Time Period – life of the business is divided
into series of reporting periods NEED FOR REPORTING STANDARDS:
6. Materiality Concept – info is material if its
omission or misstatement could influence  Entity should follow a UNIFORM set of
economic decisions generally acceptable reporting standards so
that it won’t be misleading
  “Generally Acceptable” 1. Relevance – Info is relevant if it can affect
o Standard has been established by the decisions of users
an authoritative accounting rule- a. Predictive Value
making body b. Feedback Value/Confirmatory
o Principle has gained general Value
acceptance due to practice over 2. Faithful Representation – Info provides a
time and has been proven to be true, correct and complete depiction of
most useful what it purports to represent
 Democratic process in that a majority of a. Completeness – all info is provided
practicing accountants must agree with a b. Neutrality – free from bias
standard before it becomes implemented. c. Free from error – no errors

CONCEPTUAL FRAMEWORK FOR FINANCIAL ENHANCING QUALITATIVE CHARACTERISTICS

REPORTING - enhance the usefulness of info

Purpose of Conceptual Framework 1. Comparability

- Prescribes the concepts of General Purpose 2. Verifiability
Financial Reporting. Purpose: 3. Timeliness
4. Understandability
1. Assist IASB in developing standards that are
based on consistent concepts
2. Assist preparers in developing consistent
ELEMENTS OF FS:
actg. Policies when NO standard applies
3. Assist all parties in understanding and 1. Asset
interpreting the standards 2. Liabilities
3. Equity
NOTES:
4. Income
1. When there is a conflict between the 5. Expenses
conceptual framework and PFRS, PFRS will
THREE ASPECTS IN THE DEFN OF ASSET:
prevail
2. In the absence of standard, mgmt. shall 1. Right
consider the Conceptual Framework in 2. Potential to produce economic benefits
making its judgment in developing and 3. Control
applying an acctg policy.
THREE ASPECTS IN THE DEFN OF LIAB:
SCOPE OF CONCEPTUAL FRAMEWORK
1. Obligation
CF provides the concepts regarding the ff.: 2. Transfer of economic resource
3. Present Obligation as a result of past events
1. The objective of FR
2. Qualitative characteristics of useful FI RECOGNITION AND DERECOGNITION
3. FS and the reporting entity
4. Elements of FS  Recognition Criteria
5. Recognition and Derecognition o It meets the defn of an asset, Liab,
6. Measurement Equity, Income or Expense
7. Presentation and Disclosure o Recognizing it would provide
8. Concepts of capital and capital maintenance useful info (relevant and faithfully
represented info)
Objective of GENERAL PURPOSE FINANCIAL  Derecognition – removal of previously
REPORTING: recognized asset or liability
to provide financial info about the reporting entity
that is useful to primary users in making decisions MEASUREMENT BASES
about providing resources to the entity. – This
1. Historical Cost
objective forms the foundation of the Conceptual
2. Current Value
Framework
a. FV
QUALITATIVE CHARACTERISTICS b. Value in Use & Fulfillment Value
c. Current Cost
1. Fundamental Qualitative Characteristics
2. Enhancing Qualitative Characteristics HISTORICAL COST of:

FUNDAMENTAL QUALITATIVE CHARACTERISTICS a. An ASSET is the consideration paid to

-make info useful to others acquire the asset + transaction cost
 b. A LIABILITY is the consideration received to 1. Statement of Financial Position
incur 2. Statement of P/L and OCI
3. Statement of Changes in Equity
Historical Cost is updated over time to depict the ff.:
4. Statement of CFs
the liab minus transaction cost
5. Notes to FS
1. Depn, Amort., or Impairment of Assets
General Features:
2. Collections or payments that extinguish part
or all of the asset or liability 1. Fair Presentation and Compliance with PFRS
3. Unwinding of discount or premium when 2. Going Concern
the asset or liab is measured @ amortized 3. Accrual Basis of Actg
cost 4. Materiality and Aggregation
5. Offsetting
FAIR VALUE – a price that would be received to sell
6. Frequency of Reporting
an asset, or paid to transfer a liability, in an orderly
a. An entity shall present a complete
transaction between market participants at the
set of FS at least annually
measurement date.
b. When an entity changes the end of
Value in Use – PV of the CFs, or other economic its reporting period and presents
benefits that an entity expects to derive from the FS for a period longer or shorter
use of an asset and from its ultimate disposal. than 1 year, an entity shall disclose
the ff:
Fulfilment Value – PV of Cash, or other economic i. The period covered by the
resources, that an entity expects to be obliged to FS
transfer as it fulfils a liability. ii. The reason for using a
longer/shorter period
CURRENT COST / CURRENT VALUE – the current cost
iii. The fact that amounts
of:
presented in the FS are
a. An ASSET is the cost of an equivalent asset not entirely comparable
at the measurement date, comprising the 7. Comparative Info
consideration that would be paid @ the 8. Consistency of Presentation
measurement date + transaction costs that a. An entity shall retain the
would be incurred at that date presentation and classification of
b. A LIABILITY is the consideration that would items in the FS from one period to
be received for an equivalent liab at the the next, UNLESS:
measurement date minus transaction cost i. It is apparent that another
that would be incurred at that date presentation or
classification would be
CONSIDERATION WHEN SELECTING A more appropriate
MEASUREMENT BASIS following a significant
a. The nature of info provided a particular change in the nature of
measurement basis the entity’s operations or
b. The qualitative characteristics, the cost- a review of its FS
constraint, and other factors ii. A PFRS requires a change
in presentation

Statement of Financial Position representation:

PAS 1: PRESENTATION OF FS
1. CLASSIFIED – Showing distinctions between
- Basis for presentation of General Purpose current and non-current assets and
FS to improve comparability both with the liabilities
entity’s FS of prev periods (intra- 2. UNCLASSIFIED (based on liquidity) – no
comparability) and with the FS of other distinction
entities (Inter-Comparability)
CURRENT ASSETS:
General Purpose FS:
 Expects to realize the asset or intends to
 Intended to serve users who do not have sell or consume it, in its normal operating
the authority to demand financial reports cycle
tailored to their own needs.  Holds the asset primarily for the purpose of
 Subject matter of the Conceptual trading
Framework and the PFRSs  Expects to realize the asset within 12
months after the reporting period
Complete Set of FS:
CURRENT LIABILITY: 2. INVESTING ACTIVITIES – NCA & Other Inv.
3. FINANCING ACTIVITIES – Borrowings &
 Expects to settle the liability in its normal Equity
operating cycle
 Holds the liability primarily for the purpose
of trading
OPERATING ACTIVITIES
 Liability is due to be settled within 12 mos
after the reporting period  Include transactions that enter into the
 The entity does not have an unconditional determination of P/L
right to defer settlement of the liability for  Normally affect Income Statement
at least 12 mos after the reporting period accounts
 Affect P/L
STATEMENT OF P/L and OCI
 Example:
 Presentation of all items of Income and o Cash receipt from sale of
Expense goods/rendering of services/other
o SINGLE STATEMENT OF P/L and forms of income
OCI o Cash payments for purchases of
o 2 STATEMENTS goods and services
o Cash payments for opex –
OCI FOR THE PERIOD:
employee benefits, insurance
a. Changes in revaluation surplus
INVESTING ACTIVITIES
b. Unrealized gains and losses on investments
in FVOCI Securities  Include transactions that affect LONG-
c. Remeasurements of the net defined benefit TERM ASSETS and other non-operating
liability (asset) assets
d. P/L arising from translating the FS of a  Affect NCA and Other Investments
foreign operation  Example:
e. Effective portion of gains and losses on o Cash receipts and cash payments
hedging instruments in a cash flow hedge in the acquisition and disposal of
 OCI may be presented either NET OF TAX or PPE, Inv Property, Intangible Assets
GROSS OF TAX and other NCA
o “””” acquisition and sale of equity
TOTAL COMPREHENSIVE INCOME:
or debt instruments of other
a. P/L entities
b. OCI
FINANCING ACTIVITIES
PRESENTATION OF EXPENSE:
 Include transactions that affect EQUITY
a. Nature of Expense Method and NON-OPERATING LIABILITIES
b. Function of Expense Method  Affect BORROWINGS AND EQUITY
 Example:
Disclosure of Dividends: either in NOTES or
o Cash receipts from issuing
STATEMENT OF CHANGES IN EQUITY
shares or other equity
ORDER OF PRESENTATION OF DISCLOSURE IN THE instruments and cash
NOTES: payments to redeem them
o Cash receipts from issuing
1. Statement of Compliance with PFRS notes, loans, bonds and
2. Summary of significant accounting policies mortgage payable and other
applied short-term or long-term
3. Supporting info for items presented in the borrowings, and their
other FS repayments
4. Other disclosures
Reporting CFs from Operating Activities:
PAS 7: STATEMENT OF CASH FLOWS
1. Direct Method – shows each major class of
Statement of CFs: Provides info about the sources gross cash receipts and gross cash
and utilization of cash and cash equivalents during payments
the period

SCF presents CFs accdg to the ff. classifications: 2. Indirect Method – adjusts accrual basis P/L
for the effects of changes in Operating
1. OPERATING ACTIVITIES – P/L Assets and Liab and effects Non-Cash Items
 a. Foreign Currency Transactions – Individual entities
often enter into transactions in a foreign currency
b. Foreign Operations – Groups often include overseas
entities

PAS 8: ACCOUNTING POLICIES, CHANGES IN ACCTG. Initial Recognition:

ESTIMATES AND ERRORS
Translated @ the SPOT EXCHANGE RATE @ the date of the
transaction
Accounting Policies
Subsequent Recognition:
 The specific principles, bases, conventions,
rules and practices applied by an entity in 1. Foreign currency monetary items are re-translated
using the closing rate
preparing and presenting FS
2. Non-monetary items measured @ Historical Cost in a
 Relevant PFRS adopted by an entity in foreign currency: shall be translated using the
preparing and presenting its FS exchange rate @ the date of the transaction
3. Non-monetary items measured @ FV in a foreign
HIERARCHY OF REPORTING STANDARDS currency: shall be translated using the exchange rates
@ the date when the FV was determined
1. PFRS
TRANSLATION TO THE PRESENTATION CURRENCY
2. Judgment
1. ASSETS and LIAB are translated @ the CLOSING RATE
Scope of Description Acctg Effect of @ the date of the statement of financial position
PAS 8 Treatment Adjustment
2. INCOME and EXPENSES: translated @ SPOT
Change in Change in * Transitional *On the Beg. EXCHANGE RATES @ the date of transaction
Accounting meas. basis provision Bal. of RE, if 3. Resulting exchange difference is recognized in OCI
Policy *Retrospective accounted for
application retrospectively PAS 24: RELATED PARTY DISCLOSURE
*if (b) is
 Prescribes the necessary disclosures regarding related
impracticable,
prospective party relationships and transactions, outstanding
application balances and commitments between an entity and its
related parties
 RELATED PARTY – A person or entity that is related to
Change in Changes in Prospective In P/L of
the reporting entity that is preparing its FS
Accounting the realization current period
Estimate of expected or current and  Example:
inflow or future periods o Key mgmt. personnel
outflow of if the change o Close family member
economic affects both o Post-employment benefit plan
benefits from
assets or liab PFRS 6: EXPLORATION FOR EVALUATION OF MINERAL
Correction Intentional a. retrospective On the Beg. RESOURCES
of Prior and restatement Bal. of RE, if
Period Error unintentional b. if a is accounted for Exploration for and evaluation of mineral resources – the search
misapplication impracticable, retrospectively for mineral resources, including minerals, oil, natural gas and
of principes, prospective similar non-regenerative resources after the entity has obtained
of facts and application legal rights to explore in a specific area, as well as the
mathematical determination of the technical feasibility and commercial viability
mistakes of extracting mineral resource.

Exploration and Evaluation Expenditures – expenditures incurred

PAS 10: EVENTS AFTER THE REPORTING PERIOD by an entity in connection with the exploration for and evaluation
of mineral resources before the technical feasibility and
 Those events, favorable or unfavorable, that occur
commercial viability of extracting a mineral resource are
between the end of the reporting period and the dathe
demonstrable.
that the FS are authorized for issue
This standard permits entities to develop their own acctg. Policy
2 TYPES OF EVENTS AFTER THE REPORTING PERIOD:
for exploration and evaluation assets which results in relevant and
1. ADJUSTING EVENTS AFTER THE REPORTING PERIOD reliable info based entirely on management’s judgment and
a. Conditions that existed at the end of the without the need to consider the hierarchy of standards in PAS 8.
reporting period
Entity may recognize exploration and evaluation expenditures as
2. NON-ADJUSTING EVENTS
expense or asset depending on the entity’s own accounting policy.
a. Arose AFTER the reporting period
Measurement @ recognition:
Date of Authorization – The date when management authorizes
the FS for issue regardless of whether such authorization for issue If opts to CAPITALIZE exploration and evaluation expenditures as
is for further approval or for final issuance to users assets, it shall be measured @ COST

Subsequent Recognition: COST MODEL or REVALUATION MODEL

PAS 21: THE EFFECTS OF CHANGES IN FOREX RATES PFRS 7: FINANCIAL INSTRUMENT @ DISCLOSURES

TWO WAYS OF CONDUCTING FOREIGN ACTIVITIES 2 CATEGORIES:

 1. Significance of financial instruments to the entity’s o Principal Market
financial position and performance o Most advantageous market (in the absence
2. The nature and extent of risks arising from financial of a principal market)
instruments to which the entity is exposed, and how
the entity manages those risks.

SIGNIFICANCE OF FINANCIAL INSTRUMENTS

PFRS 14: REGULATORY DEFERRAL ACCOUNTS
 Statement of Financial Position
o An entity is required to separately disclose  This standard specifies the financial reporting
the CA of each of the categories of FA and requirements for regulatory deferral account balances
FL under PFRS 9 arising from the sale of goods or services that are
o If an entity has reclassified FA, it shall subject to rate regulation
disclose the date of reclassification, an  Optional standard that is available only to first time
explanation of the change in business adopters.
model, and the amount reclassified  Existing PFRS users are prohibited from using PFRS 14
between categories  A first time adopter continues to apply its previous
o If an entity has offset financial assets and GAAP to the recognition, measurement, impairment
liab, it shall disclose the gross amounts of and derecognition of regulatory deferral account
those assets and liab, the amounts that balances EXCEPT for changes in accounting policies and
were set-off, the net amounts presented in the presentation of regulatory deferral accounts
the statement of financial position and a  An entity is prohibited from changing its accounting
description of the related legal right of set- policy in order to start recognizing regulatory deferral
off. account balances.
 Statement of P/L and OCI
o Required to disclose separately the income, Presentation:
expense, gains or losses arising from the
Statement of Financial Position
different classifications of financial
instruments under PFRS 9.  Separate line items are presented for the totals of
 Other Disclosures o Regulatory deferral account debit balances
o Entity shall disclose the FV of each class of o Regulatory deferral account credit balances
FA and FL in a way that the FV can be  RDA is not presented as current or non-current.
compared with the CA. Instead, they are presented separately from the sub
totals of assets and liab that are presented in
PFRS 12: DISCLOSURE OF INTEREST IN OTHER ENTITIES
accordance with other Standards.
Objective of PFRS 12: To prescribe the minimum disclosure
Statement of P/L and OCI
requirements for an entity’s interest in other entities, particularly
the nature of and risks associated with, those interests and the  Separate line items are presented:
effects of those interests on the entity’s FS. o In OCI for the net movement of RDA
balances that relate to items recognized in
Scope:
OCI showing distinctions between those
 PFRS 12 applies to entities that have an interest in a: that will be and will not be reclassified to
o Subsidiary P/L
o Joint Arrangement o In P/L for the remaining net movement of
o Associate RDA balances, excluding movements that
o Unconsolidated structure entity are not reflected in P/L

** PFRS 12 does not apply to an interest in another entity that is

accounted for in accordance with PFRS 9 Financial Instruments

MINIMUM DISCLOSURES UNDER PFRS 12

 Significant judgments and assumptions in determining

the existence of control, joint control or significant
influence over an investee or the type of a joint
arrangement.
 The composition of the group
 Significant restrictions on the entity’s ability to access
assets and settle liabilities of the group
 Changes in ownership interest that result and do not
result in a loss of control
 Any difference in reporting period with the subsidiary
 Interests in Joint Arrangements and Associates (that
are material)

PFRS 13: FAIR VALUE MEASUREMENT

 Applies to the FV measurement and related disclosures

of an asset, liab, or equity when other PFRSs req.
measurement @ FV or FVCTS
 FV – the price that would be received to sell an asset or
paid to transfer a liab in an orderly transaction
between market participants @ the meas. date
 Based on the market price of the asset in
 measuring unit current at the end of the reporting
period.
 The comparative info for the previous period shall also
be stated in terms of the measuring unit current at the
end of the reporting period.
 Presentation of info as a supplement to unrestated FS
is not permitted
 Separate presentation of the FS before restatement is
discouraged.
PAS 27: SEPARATE FS
RESTATEMENT OF FS
 PAS 27 does not mandate which entities should
produce separate FS Statement of Financial Position:
 An entity shall apply PAS 27 in accounting for
investments in subsidiaries, joint ventures, and  Only non-monetary items, statement of financial
associates when it elects, or is required by local position amounts not already expressed in terms of the
regulations, to present separate FS. measuring unit current at the end of the reporting
period, are restated when using the constant peso
Separate FS: accounting.
 Monetary items are not restated because they are
- Are those presented in addition to consolidated FS or already expressed in terms of the monetary unit
in addition to FS in which investments in associates or current at the end of the reporting period.
JVs are accounted for using the Equity Method.
- Need not be appended to, or accompany, those General Guide: Only non-monetary measured at cost are
statements. restated.

Preparation of Separate FS: Shall be prepared in accordance with The ff. non-monetary items need not be restated:
all applicable PRSs, except as follows:
1. Non-monetary items measured at NRV or FV at
 Investment in Subsidiaries, Associates, and JV are the end of reporting period.
accounted for in the separate FS either: 2. Non-monetary items measured at revalued
o At Cost amounts as at the end of reporting period
o In Accordance with PFRS 9 Financial
Instruments Restatement of FS:
o Using the Equity Method
 All items in the statement of P/L and OCI are restated
 The entity shall apply the same accounting for each
category of investments. PAS 33: EARNINGS PER SHARE

PAS 29: FINANCIAL REPORTING IN HYPERINFLATIONARY  Computation made for ordinary shares
ECONOMIES  Form of profitability ratio which represents how much
was earned by each OS during the period.
Stable monetary assumption: the purchasing power of money is
 No EPS is presented for preference shares because
assumed to be stable. Therefore, inflation is ignored.
these shares have a fixed return represented by their
Exception: Hyperinflation (occurs when inflation is VERY HIGH) dividend rates
 Types:
Price level changes: o BEPS (Basic EPS)
o DEPS (Diluted EPS)
INFLATION: General price level INCREASES, purchasing power  BEPS = P/L less Pref Divs
DECREASES Weighted Ave. # of Outstanding OS
DEFLATION: General price level DECREASES, purchasing power Adjustment for Pref Divs:
INCREASES
a. If PS are Cumulative: 1 year dividend is deducted from
PAS 29 does not establish an absolute rate at which hyperinflation P\L whether declared or not
is deemed to arise. This is a matter of judgment. b. If PS are non-cumulative: only the dividend declared is
deducted from P/L
Indicators of hyperinflation:
Restatement of EPS:
1. The general population prefers to keep its wealth in
non-monetary assets or in a relatively stable foreign
 EPS in previous periods are adjusted retrospectively
currency. Amounts of local currency held are
when an entity issues any of the ff.:
immediately invested to maintain purchasing power.
o A capitalization or bonus issue (ex. Share
2. The general population regards monetary amounts not
div)
in terms of the local currency but in terms of a
o A bonus element in any other issue, for
relatively stable foreign currency. Prices may be
example a bonus element in a rights use to
quoted in that currency.
existing shareholders (preemptive stock
3. Sales and purchases on credit take place at prices that
rights)
compensate for the expected loss of purchasing power
o A share split
during the credit period, even if the period is short.
o Reverse share split
4. Interest rates, wages, and prices are linked to a price
index DEPS (see FAR)
5. The cumulative inflation rate over three years is
approaching or exceeds 100%.  The amount of profit for the period per share,
reflecting the maximum dilutions that would have
Core Principle: resulted from conversions, exercises, and other
contingent issuances that individually would have
 The FS of an entity whose functional currency of a
hyperinflationary economy shall be stated in terms of a
 decreased EPS and in the aggregate who would have  An entity is not prohibited from publishing a complete
had a dilutive effect. set of FS in accordance with PAS 1 in its interim
 Only BEPS is presented if an entity has no dilutive financial report
potential OS  An entity is also not prohibited from including in its
 Treasury method is used in computing for the condensed interim financial statements info that is
incremental shares. This method assumes that more than the minimum line items or selected
o The options or warrants are exercised explanatory notes set out under PAS 34.
o The proceeds received from the exercise  If business is HIGHLY SEASONAL: PAS 34 encourages
are used to purchase treasury shares at the disclosure of financial info for the latest 12 mos. And
ave. market price comparative info for the prior 12-month period in
o The difference between the treasury shares addition to the interim period financial statements.
assumed to have been purchased and the
option shares represents the incremental RECOGNITION AND MEASUREMENT
shares.
 Gains and Losses arising in an interim period are
FS Presentation: recognized immediately and are not deferred.
Example, invty. Write downs and reversals, asset
 BEPS and DEPS are computed on the ff.: impairment losses & reversals, discontinued
o P/L from continuing operations operations and FV changes on assets meas. @ FV
o P/L from discontinued operations, if the  Cost and expenses (income) that benefit the entire
entity reports a discontinued operation year or are incurred (earned) over the year are spread
o P/L for the year out over the interim periods. Example: Depn, Amort.,
 EPS is not computed on OCI and Total Comprehensive Property taxes, insurance expense, int. exp.(income),
Income 13th month pay and other year-end bonuses.
 EPS computed on P/L from continuing operations and  Discretionary income are recognized immediately in
P/L for the year are presented on the face of the the period the income is earned. Example, dividend
statement of P/L and OCI. If the entity uses a 2- income.
statement presentation, EPS is presented only on the  Income tax expense in the interim periods is computed
separate income statement. using the best estimated of the weighted ave. annual
income tax rate expected for the full financial year.
PAS 34: INTERIM FINANCIAL REPORTING
PFRS 1: FIRST TIME ADOPTION OF PFRS
Containing:
 First PFRS FS are first annual FS in which an entity
A. A complete set of FS (pas 1) adopts PFRSs by an explicit and unreserved statement
a. Statement of financial position of compliance with PFRSs.
b. Statement of P/L and OCI  FS are considered first PFRS FS if the previous FS:
c. Statement of Changes in Equity o Were prepared in accordance with other
d. Statement of CFs reporting standards not consistent with
e. Notes PFRSs
f. Statement of financial position as at the o Did not contain an explicit and unreserved
beg. Of the preceding period (in cases of statement of compliance with PFRS
retrospective restatement or o Contained an explicit and unreserved
reclassification adjustment) statement of compliance with some, but
B. A set of condensed FS (pas 34) not all pfrs
o Were prepared using some, but not all,
SCOPE:
applicable PFRS
 PAS 34 does not require entities to provide interim FS o Prepared in accordance with PFRSs but
 PAS 34 applies if were used for internal reporting purposes
o An entity is required by govt, securities only
regulators, stock exchanges, and acctcy o Did not contain a complete set of FS as
bodies required under PAS 1 presentation of FS
o The entity elects or chooses to publish an o The entity did not present FS in previous
interim financial report in accordance with periods
PFRSs.  PFRS 1 is applied only once
 PAS 34 encourages public traded entities to provide at  An entity presenting its first PFRS FS is called a FIRST
least semiannual interim financial report and publish TIME ADOPTER
them not later than 60 days after the end of the
RECOGNITION AND MEASUREMENT:
interim period.
 Prepare and present an opening PFRS statement of
MINIMUM CONTENT OF AN INTERIM FINANCIAL REPORT UNDER
financial position at the date of transition to PFRSs.
PAS 34
 Date of transition: beginning of the earliest period to
1. Condensed statement of financial position which an entity presents full comparative info under
2. Condensed statement of P/L and OCI presented as PFRSs in its PFRs FS. Application of PFRSs starts on this
either (a) condensed singe statement (b) condensed date.
separate income statement and a condensed
ACCOUNTING POLICIES:
statement of comprehensive income
3. Condensed statement of changes in equity  The entity selects its accounting policies based on the
4. Condensed statement of CFs latest versions of PFRSs as at the current reporting
5. Selected explanatory notes date. Selected policies are then applied to all FS
presented together with the first PFRS FS.

RETROSPECTIVE APPLICATION
 Condensed - entity needs only to provide the
minimum info required under PAS 34
  In general: PFRS 1 requires retrospective application of  PFRS 8 adopts a management approach to identifying
the accounting policies selected by the first time reportable segments
adopter.  Under this approach, operating segments are
 Exceptions: identified on the basis of internal reports that are
o If the cost of compliance exceeds the regularly reviewed by the entity’s chief operating
expected benefits decision maker in order to allocate resources to the
o Retrospective application requires segment and assess its performance
management judgments about past
conditions after the outcome of a particular Aggregation Criteria
transaction is already known.
 2 or more operating segments may be aggregated into
a single operating segment if the segments have
similar economic characteristics, and the segments are
 PFRS 1 requires an entity to do the ff. in its opening similar in each of the ff. respects:
PFRS statement of financial position: o Nature of the product and services
o Recognize all assets and liab whose o Nature of the production processes
recognition is required by PFRS o Type or class of customer for their products
o Not recognize items as assets or liab if and services
PFRSs do not permit such recognition o The methods used to distribute their
o Reclassify items recognized under previous products and services
GAAP that have different classifications o Nature of the regulatory environment, if
under PFRSs applicable ex. Banking insurance or public
o Apply PFRSs in measuring all recognized utilities
assets and liabilities
Quantitative Thresholds
PRESENTATION AND DISCLOSURE
 An entity shall report separately info about an
 The first PFRS FS shall include at least one year operating segments that meets ANY of the ff.
comparative info quantitative thresholds:
o Segment’s revenue is at least 10% of the
PFRS 8: OPERATING SEGMENTS total revenues (internal and external)
o Segment’s assets is at least 10% of the total
Core Principle: An entity shall disclose info to enable users of its
assets (external and internal eg.
FS to evaluate the nature and financial effects of the business
Intersegment receivables)
activities in which it engages and the economic environments in
o Segment’s P/L is at least 10% of the greater,
which it operates.
in absolute amount of:
Scope:  The combined reported profit of
all operating segments that did
 Applies to the separate, individual and conso FS of an not report a loss and
entity which is publicly listed or in the process of  The combined reported loss of
enlisting publicly all operating segments that
 An unlisted entity that chooses to apply PFRS 8 shall reported a loss
comply with ALL of the requirements of PFRS 8.
Otherwise it shall not describe the info as segment info Limit on external revenue
 If financial report contains both the conso and
 Total external revenue = at least 75% of the entity’s
separated FS of a parent that is within the scope of
external revenue
PFRS 8, segment info is required only in the conso FS.
Disclosure of major customer
An operating segment is a component of an entity:
 A single external customer providing revenues of 10%
1. That engages in business activities from which it may
or more of an entity’s revenues
earn revenues and incur expenses (including revenues
and expenses relating to transactions with other Other Disclosures
components of the same entity)
2. Whose operating results are regularly reviewed by the  Entity-wide disclosures apply to all entities subject to
entity’s chief operating decision maker to make PFRS 8 including those entities that have a single
decisions about resources to be allocated to the reportable segment.
segment and assess its performance  Revenues from external customers attributed to the
3. For which discrete financial info is available entity’s country of domicile and attributed to all
foreign countries in total from which the entity derives
Component of an entity - comprises operations and CFs that can
be clearly distinguished, operationally and for financial reporting revenues.
purposes, from the rest of the entity. It can be cash generating  Non-current assets other than financial instruments,
unit or group of CGUs. deferred tax assets, post-employment benefit assets,
and rights arising under insurance contracts located in
Reportable Segments: the entity’s country of domicile and located in all
foreign countries in total in which the entity holds
 An entity shall report separately info about each assets.
operating segment that:
o Mgmt uses in making decisions about PAS 2: Inventories
operating matters or those which results
from aggregating 2/more of those segments Inventories are assets:
o Qualify under the quantitative threshholds
A. Held for sale in the ordinary course of business
Management Approach (Finished Goods);
B. In the process of production for such sale (Work In
Process); or
 C. In the form of materials or supplies to be consumed in write-down of inventories to NRV and all losses of
the production process or in the rendering of services inventories are recognized as expense in the period the
(Raw materials and manufacturing supplies). write-down or loss occurs.

Financial statement presentation

 All items that meet the definition of inventory are

presented on the statement of financial position as
one line item under the caption “Inventories.” The
breakdown of this line item (as finished goods, WIP
and Raw materials) is disclosed in the notes.
 Inventories are normally presented in a classified
statement of financial position as current assets.

Measurement

 Inventories are measured at the lower of cost and net

realizable value (NRV).
 The cost of inventories comprise all costs of purchase,
costs of conversion and other costs incurred in bringing
the inventories to their present location and condition.
 Net realizable value (NRV) is the estimated selling price
in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary
to make the sale.

Costs that are EXPENSED when incurred

1. Abnormal amounts of wasted materials, labor or other

production costs.
2. Selling costs, for example, advertising and promotion
costs and delivery expense or freight out.
3. Administrative overheads that do not contribute to
bringing inventories to their present location and
condition.
4. Storage costs, unless those costs are necessary in the
production process before a further production stage,
(e.g., the storage costs of partly finished goods may be
capitalized as cost of inventory, but the storage costs
of completed finished goods are expensed).

Cost Formulas

1. Specific identification - shall be used for inventories

that are not ordinarily interchangeable (i.e., used for
inventories that are unique). Cost of sales is the cost of
the specific inventory that was sold.
2. FIFO – cost of sales is based on the cost of inventories
that were purchased first. Consequently, ending
inventory represents the cost of the latest purchases.
3. Weighted Average Cost – cost of sales is based on the
average cost of all inventories purchased during the
period.
a. Wtd. Ave. Cost = (TGAS in pesos ÷ TGAS in
units)

Write down of inventories

 Inventories are usually written down to net realizable

value on an item by item basis.
 If the cost of an inventory exceeds its NRV, the
inventory is written down to NRV, the lower amount.
The excess of cost over NRV represents the amount of
write-down.

Reversal of write-downs

 The amount of reversal to be recognized should not

exceed the amount of the original write-down
previously recognized.

Recognition as an expense

 The carrying amount of an inventory that is sold is

charged as expense (i.e., cost of sales) in the period in
which the related revenue is recognized. Likewise, the