Chapter 15 - Exchange:

Property, Plant and Equipment - Cost measured at fair value plus any cash payment unless
PAS 16 lacking commercial substance.
Property, Plant, and Equipment:
- Construction:
- Definition: - Cost includes direct materials and labor, indirect costs, and
- Tangible assets used in production, rental, or incremental overhead.
administrative purposes over more than one period.
- Characteristics: - Derecognition:
- Tangible with physical substance. - Carrying amount removed when disposed or no future
- Used in business operations. economic benefits.
- Expected to be used for more than a year. - Gain or loss determined by difference between net
disposal proceeds and carrying amount.
- Examples:
- Land - Depreciation:
- Land improvements - Systematic allocation of depreciable amount over useful
- Buildings life.
- Machinery - Depreciation period starts when asset is available for use
- Ships and ceases when derecognized.
- Aircraft - Factors: Depreciable amount, residual value, useful life.
- Motor vehicles - Each significant part depreciated separately.
- Furniture and fixtures
- Office equipment - Depreciation Methods:
- Patterns, molds, and dies - Straight line: Equal allocation of depreciable amount over
- Tools useful life.
- Bearer plants - Production: Based on output or hours of use.
- Diminishing balance: Higher depreciation in earlier years,
- Initial Measurement: lower in later years. Methods include sum of years' digits and
- Measured at cost, including purchase price, directly double declining balance.
attributable costs, and initial dismantling estimates.
QUESTIONS
- Elements of Cost: (page 266)
- Purchase price
- Costs directly attributable to asset preparation and 1. Define property, plant and equipment.
condition. - Property, plant, and equipment are tangible assets held
- Initial dismantling estimates. for use in the production or supply of goods or services, for
- Examples of directly attributable costs: site preparation, rental to others, or for administrative purposes, with an
delivery, handling, installation, professional fees, testing. expected use over more than one period.

- Subsequent Measurement: 2. What are the major characteristics of property, plant and
- Choose between cost model or revaluation model. equipment?
- Cost model: Carried at cost minus depreciation and - Tangibility with physical substance.
impairment. - Usage in business operations.
- Revaluation model: Carried at fair value at revaluation - Expected use over more than one year.
date minus subsequent depreciation and impairment.
3. Explain the measurement of property, plant and
- Acquisition: equipment at initial recognition and after recognition.
- Cash basis: Cost is cash price equivalent. - Initially measured at cost, including purchase price,
- Acquisition on account: Cost equals invoice price minus directly attributable costs, and initial dismantling estimates.
discount. - After recognition, can be measured using either the cost
- Installment basis: Recorded at cash price with excess model (carried at cost less any accumulated depreciation and
treated as interest. impairment) or the revaluation model (carried at revalued
carrying amount).
- Issuance of Share Capital:
- Proceeds measured at fair value of consideration received. 4. What are the elements of cost of property, plant and
- Property measured at fair value of property received, equipment?
share capital, or par value. - Purchase price.
- Costs directly attributable to asset preparation and
- Issuance of Bonds Payable: condition.
- Asset measured at fair value of bonds payable or asset - Initial dismantling estimates.
received.
5. Explain directly attributable costs.
- Costs directly related to bringing the asset to its intended 16. Explain the depreciation period.
condition and location for use, such as site preparation, - The period over which the depreciable amount of an
delivery, handling, installation, professional fees, and testing. asset is allocated on a systematic basis, beginning when the
asset is available for use and ceasing when it is derecognized.
6. What is the cost of the asset acquired on a cash basis?
- The cost of an asset acquired on a cash basis includes the 17. Explain depreciable amount.
cash price equivalent at the recognition date, plus directly - The cost of an asset or other amount substituted for cost,
attributable costs such as freight and installation. less its residual value.

7. What is the cost of an asset acquired on account subject 18. Explain residual value.
to a cash discount? - The estimated net amount obtainable from an asset at
- The cost equals the invoice price minus the discount, the end of its useful life.
regardless of whether the discount is taken or not.
19. Explain useful life of an asset.
8. If an asset is acquired on the installment basis, the asset - The period over which an asset is expected to be available
is recorded at what amount? for use by the entity, or the number of production or similar
- Recorded at the cash price equivalent, with any excess of units expected to be obtained from the asset.
the installment price over the cash price treated as interest
to be amortized over the credit period. 20. Explain briefly the straight line method, production or
output method and diminishing balance method of
9. Discuss the accounting procedure when an asset is depreciation.
acquired through the issuance of share capital. - Straight line method: Equal allocation of depreciable
- The property is measured at an amount equal to the fair amount over useful life.
value of the consideration received, prioritizing fair value of - Production or output method: Depreciation based on
the property received, fair value of the share capital, or par output or hours of use.
value of the share capital. - Diminishing balance method: Higher depreciation in
earlier years, lower in later years, with methods like sum of
10. Discuss the accounting procedure when an asset is years' digits and double declining balance.
acquired by issuing bonds payable.
- The asset acquired is measured at the fair value of the
bonds payable or the fair value of the asset received, CHAPTER 16
whichever is more readily determinable. GOVERNMENT GRANT
PAS 20
11. Discuss the accounting procedure for recording an
exchange. - Definition:
- The cost of the item acquired in exchange for a - Government grants are assistance by the government in
nonmonetary asset is measured at fair value plus any cash the form of transfers of resources to an entity in return for
payment, unless the exchange lacks commercial substance. past or future compliance with certain conditions relating to
the operating activities of the entity.
12. Explain commercial substance in relation to an
exchange. - Recognition:
- Commercial substance exists when the cash flows of the - Government grants shall not be recognized until there is
entity change significantly due to the exchange, indicating reasonable assurance that:
that the future cash flows of the assets received differ - The entity will comply with the conditions attaching to
significantly from those of the assets transferred. them.
- The grants will be received.
13. Explain the cost of self-constructed property, plant and
equipment. - Accounting for Government Grant:
- Includes direct costs of materials, direct labor, and - Government grants shall be recognized in profit or loss on
indirect costs specifically identifiable or traceable to the a systematic basis over the periods in which the entity
construction. Excludes costs of abnormal wasted material, recognizes as expenses the related costs for which the grants
labor, or overhead. are intended to compensate.
- Grants related to depreciable assets are usually recognized
14. Explain derecognition of property, plant and equipment. in profit or loss over the periods and in the proportions in
- Derecognition occurs when the cost of the asset, along which depreciation expense on those assets is recognized.
with related accumulated depreciation, is removed from the - Grants related to non-depreciable assets may also require
financial statements upon disposal or when no future fulfillment of certain obligations and would then be
economic benefits are expected from its use or disposal. recognized in profit or loss over the periods that bear the
cost of meeting the obligations.
15. Define depreciation. - A government grant that becomes receivable as
- Depreciation is the systematic allocation of the compensation for expenses or losses already incurred or for
depreciable amount of an asset over its useful life.
the purpose of giving immediate financial support to the - Specific borrowing refers to funds borrowed by an entity
entity with no future related costs shall be recognized in specifically for the purpose of obtaining a qualifying asset.
profit or loss of the period in which it becomes receivable. General borrowing, on the other hand, involves funds
borrowed generally by an entity and used for the purpose of
- Classification of Government Grant: obtaining a qualifying asset.
- Grant related to assets: Primary condition is that an entity
qualifying for the grant shall purchase, construct, or 3. What is a qualifying asset for purposes of capitalization of
otherwise acquire long-term assets. borrowing cost?
- Grant related to income: All government grants other than - A qualifying asset is an asset that necessarily takes a
grant related to assets. substantial period of time to get ready for its intended use or
sale. Examples include manufacturing plants, power
- Presentation: generation facilities, intangible assets, and investment
- Government grants related to assets, including non- properties.
monetary grants at fair value, shall be presented in the
statement of financial position either by: 4. Explain the accounting for borrowing cost.
- Setting up the grant as deferred income. - The accounting for borrowing costs involves capitalizing
- Deducting the grant in arriving at the carrying amount of borrowing costs directly attributable to the acquisition,
the asset. construction, or production of a qualifying asset as part of the
- Grants related to income are presented by: cost of that asset. Other borrowing costs are recognized as an
- As a credit in the statement of comprehensive income, expense in the period in which they are incurred.
either separately or under a general heading such as ‘Other
income’. 5. Explain the capitalization of borrowing cost for asset
- Alternatively, the grant is deducted in reporting the financed by specific borrowing.
related expense. - When assets are financed by specific borrowing, the entity
capitalizes the actual borrowing costs incurred on that
- Government Assistance: borrowing during the period, less any investment income
- Government assistance is action by the government earned on the temporary investment of those borrowings.
designed to provide an economic benefit specific to an entity
or range of entities qualifying under certain criteria. 6. Explain the capitalization of borrowing cost for asset
financed by general borrowing.
- Examples of Government Assistance: - For assets financed by general borrowing, the entity
- Free technical or marketing advice. determines the amount of borrowing costs eligible for
- Provision of guarantee. capitalization by applying a capitalization rate to the
- Government procurement policy that is responsible for a expenditures on that asset. The capitalization rate is the
portion of the entity’s sales. weighted average of the borrowing costs applicable to the
entity's outstanding borrowings during the period, excluding
- Disclosure about Government Grant: borrowings made specifically for the purpose of obtaining a
- The accounting policy adopted for government grants, qualifying asset.
including the methods of presentation adopted in the
financial statements. 7. Explain the capitalization of borrowing cost for asset
- The nature and extent of government grants recognized in financed by both specific and general borrowing.
the financial statements and an indication of other forms of - When assets are financed by both specific and general
government assistance from which the entity has directly borrowing, the entity computes the capitalization rate and
benefited. weighted average expenditure during the period, deducts the
- Unfulfilled conditions and other contingencies attaching to amount of specific borrowing from the weighted average
government assistance that has been recognized. expenditure to determine the amount financed by general
borrowing, multiplies the capitalization rate to this amount,
CHAPTER 17 and ensures that it does not exceed the actual interest
BORROWING COST incurred from general borrowing during the period.
PAS 23
8. Explain commencement of capitalization of borrowing
cost.
1. Define borrowing costs. - The commencement of capitalization of borrowing costs
- Borrowing costs are interest and other costs incurred by occurs when the entity first meets conditions such as
an entity in connection with the borrowing of funds. This incurring expenditures for the asset, incurring borrowing
includes interest expense calculated using the effective costs, and undertaking activities necessary to prepare the
interest method, finance charges in respect of finance leases, asset for its intended use or sale.
and exchange differences arising from foreign currency
borrowings that are regarded as an adjustment to interest 9. Explain cessation of capitalization of borrowing cost.
costs. - Capitalization of borrowing costs ceases when
substantially all activities necessary to prepare the qualifying
2. Explain specific borrowing and general borrowing. asset for its intended use or sale are complete.
10. What are the necessary disclosures related to borrowing - This occurs when the fair value of the net assets acquired
cost? exceeds the cost of acquiring the investment. It is included in
- Necessary disclosures related to borrowing costs include investment income of the investor.
the amount of borrowing costs capitalized during the period
and the capitalization rate used to determine the amount of 7. Explain the discontinuance of the equity method.
borrowing costs eligible for capitalization. - An investor discontinues the use of the equity method
when it ceases to have significant influence over an associate.
The investment is then accounted for as a financial asset at
CHAPTER 18 fair value through profit or loss, through other
INVESTMENT IN ASSOCIATE comprehensive income, or at cost.
PAS 28
8. Explain the measurement of the investment in associate
1. Define associate. when significant influence is lost.
- An associate is an entity over which the investor has - When significant influence is lost, the investor measures
significant influence. Significant influence is the power to any retained investment in associate at fair value.
participate in the financial and operating policy decisions of
the associate but not control or joint control over those 9. Explain the treatment of the difference between the
policies. carrying amount of the retained investment and its fair
value.
2. Define significant influence. - The difference between the carrying amount and fair
- Significant influence is the power to participate in the value of the retained investment is included in profit or loss.
financial and operating policy decisions of the associate but
not control or joint control over those policies. 10. What are the circumstances when the equity method is
not applicable?
3. What is the practical guidance or quantitative threshold - The equity method is not applicable when the investor is
in determining significant influence? a parent that is exempt from preparing consolidated financial
- The practical guidance provided by PAS 28, paragraph 5, statements or when certain criteria specified in PAS 28 are
states that if the investor holds, directly or indirectly through met, such as being a wholly-owned subsidiary, not trading
subsidiaries, 20% or more of the voting power of the debt and equity instruments publicly, and not filing financial
investee, it is presumed that the investor has significant statements with the SEC.
influence, unless it can be clearly demonstrated that this is
not the case. Conversely, if the investor holds less than 20% CHAPTER 19
of the voting power of the investee, it is presumed that the IMPAIRMENT OF ASSETS
investor does not have significant influence, unless such PAS 36
influence can be clearly demonstrated.
1. What is an impairment loss of an asset?
4. Explain the accounting procedures under the equity An impairment loss of an asset is the amount by which the
method of accounting for share investment. carrying amount of the asset exceeds its recoverable amount.
- a. Initial measurement of investment: The investment is
initially recognized at cost. 2. What is the recoverable amount of an asset?
- b. Share in net income of associate: The carrying amount The recoverable amount of an asset is the higher of its fair
is increased by the investor's share of the profit of the value less costs to sell and its value in use.
investee.
- c. Share in net loss of associate: The carrying amount is 3. Explain fair value less cost of disposal.
decreased by the investor's share of the loss of the investee. Fair value less cost of disposal is the amount obtainable
- d. Share in cash dividend paid by associate: Dividends from the sale of an asset in an arm’s length transaction
received from an equity investee reduce the carrying amount between knowledgeable, willing parties, less the costs of
of the investment. disposal.
- e. Share in share dividend issued by associate: The equity
interest is not affected by the share dividend. 4. Explain value in use.
Value in use is the present value of the future cash flows
5. Explain excess of cost over carrying amount with respect expected to be derived from an asset or cash-generating unit.
to investment in associate.
- This refers to the situation where the investor pays more 5. What cash flows are included in computing value in use?
for an investment than the carrying amount of the underlying Cash flows included in computing value in use are
net assets. It may be attributable to undervaluation of the projections of cash inflows from the continuing use of the
investee's assets or goodwill. asset, projections of cash outflows that are necessarily
incurred to generate the cash inflows from continuing use of
6. Explain excess fair value of net assets acquired over cost the asset, and net cash flows to be received (or paid) for the
of acquiring investment in associate. disposal of the asset at the end of its useful life.

6. What cash flows are excluded in computing value in use?

 Cash flows excluded in computing value in use are those Future economic benefits refer to the potential revenue,
expected to arise from future restructuring to which an entity cost savings, or other advantages that an entity can derive
is not yet committed, improving or enhancing the asset’s from using the intangible asset.
performance, cash inflows or outflows from financing
activities, and income tax receipts or payments. 6. When should an intangible asset be recognized?
An intangible asset should be recognized if it is probable
7. Explain the reversal of an impairment loss. that the expected future economic benefits attributable to
The reversal of an impairment loss occurs when the the asset will flow to the entity, and the cost of the asset can
recoverable amount of an asset increases after it has been be reliably measured.
impaired. This increase allows for the restoration of the
previously recognized impairment loss, but only to the extent 7. What comprises the cost of a separately acquired
that the carrying amount of the asset does not exceed what it intangible asset?
would have been had no impairment loss been recognized. The cost includes its purchase price, directly attributable
costs of preparing the asset for its intended use, and any
8. Define a cash generating unit. non-refundable purchase taxes.
A cash generating unit is the smallest identifiable group of
assets that generates cash inflows that are largely 8. How are internally generated intangible assets treated in
independent of the cash inflows from other assets or groups terms of recognition?
of assets. Internally generated intangible assets are recognized only if
certain criteria are met. Their costs include directly
9. Explain the allocation of impairment loss across the attributable expenses necessary for their creation,
assets of a cash generating unit. production, and preparation for use.
The allocation of impairment loss across the assets of a cash
generating unit begins with reducing the carrying amount of 9. What is the treatment of expenditure on intangible
any goodwill allocated to the unit. Then, any remaining items?
impairment loss is allocated to the other assets of the unit Expenditure on intangible items is recognized as an expense
pro rata based on the carrying amount of each asset in the when incurred unless it forms part of the cost of an intangible
unit. asset that meets the recognition criteria.

10. Is reversal of an impairment loss on goodwill allowed? 10. How are intangible assets measured after recognition,
No, reversal of an impairment loss on goodwill is not and what are the methods of amortization?
allowed. After recognition, intangible assets can be measured using
either the cost model or the revaluation model. Amortization
CHAPTER 20 methods include reflecting the pattern of future economic
INTANGIBLE ASSETS benefits or using the straight-line method.
PAS 38
1. Define intangible asset.
1. What is the definition of an intangible asset? - An intangible asset is an identifiable non-monetary asset
An intangible asset is an identifiable non-monetary asset without physical substance.
without physical substance.
2. Explain identifiability of an intangible asset.
2. What are the three essential criteria in the definition of - Identifiability means that an intangible asset must be
an intangible asset? distinguishable from goodwill. It can be separated from the
The three essential criteria are: entity and sold, or it arises from contractual or legal rights.
a. Identifiability
b. Control 3. Explain control of an intangible asset.
c. Future Economic Benefits - Control refers to an entity's ability to obtain future
economic benefits from the intangible asset and to restrict
3. Explain the concept of identifiability in the context of others' access to those benefits, typically through
intangible assets. enforceable legal rights.
An intangible asset must be identifiable to distinguish it
from goodwill. It can be separable or arise from contractual 4. Explain future economic benefit that may be derived
or legal rights. from an intangible asset.
- Future economic benefits include potential revenue,
4. What is control regarding intangible assets? cost savings, or other advantages that an entity can derive
Control refers to an entity's power to obtain the future from using the intangible asset.
economic benefits of the intangible asset and to restrict
access to those benefits. 5. Explain the initial measurement of intangible asset.
- Intangible assets are initially measured at cost, which
5. Define future economic benefits in relation to intangible includes purchase price and directly attributable costs of
assets. preparing the asset for its intended use.
 6. Explain the subsequent measurement of intangible
asset. 15. What are the criteria for the recognition of
- Subsequent measurement of intangible assets can be development cost as an intangible asset?
done using either the cost model or the revaluation model, - To recognize development costs as an intangible asset,
where assets are carried at cost less any accumulated an entity must demonstrate technical feasibility, intention to
amortization and impairment losses, or at a revalued complete the asset, ability to use or sell it, probable future
amount. economic benefits, availability of adequate resources, and
reliable measurement of expenditure.
7. Explain the measurement of cost of an intangible asset
acquired separately. CHAPTER 21
- The cost of a separately acquired intangible asset INVESTMENT PROPRTY
includes its purchase price, directly attributable costs of PAS 40
preparing the asset for its intended use, and any non-
refundable purchase taxes. 1. Define an investment property.
- Investment property is property, including land or
8. Explain the cost of an internally generated intangible buildings or both, held by an owner or lessee under a finance
asset. lease to earn rentals or for capital appreciation or both. It
- The cost of an internally generated intangible asset excludes properties held for use in production or supply of
includes all directly attributable costs necessary to create, goods or services, or for sale in the ordinary course of
produce, and prepare the asset for its intended use. business.
9. What is the treatment of internally generated brand, 2. Define an owner-occupied property.
masthead, publishing title, customer list and other item - Owner-occupied property is property held by an owner for
similar in substance? use in the production or supply of goods or services, or for
- Internally generated brands, mastheads, publishing administrative purposes. It is not held for rental income or
titles, customer lists, and similar items are not recognized as capital appreciation.
intangible assets. Expenditure on these items is recognized as
an expense when incurred. 3. Explain the initial measurement of investment property.
- Investment property is initially measured at cost, including
10. Define the terms research and development. transaction costs. This cost comprises the purchase price and
- Research is original and planned investigation aimed at directly attributable expenditure, such as legal fees and
gaining new scientific or technical knowledge. Development property transfer taxes.
is the application of research findings to a plan or design for
the production of new or substantially improved materials, 4. What is the measurement of investment property
devices, products, processes, systems, or services. subsequent to initial recognition?
- Subsequent to initial recognition, investment property can
11. Identify the research activities. be measured using either the fair value model or the cost
- Research activities include original investigations aimed model. Under the fair value model, it is carried at fair value,
at gaining new scientific or technical knowledge, such as with changes in fair value recognized in profit or loss. Under
obtaining new knowledge, evaluating and selecting the cost model, it is carried at cost less accumulated
applications of research findings, searching for alternatives, depreciation and impairment.
and formulating design alternatives.
5. Explain the cost model of measuring investment property.
12. Identify the development activities. - Under the cost model, investment property is carried at
- Development activities involve applying research cost less any accumulated depreciation and impairment
findings or other knowledge to create plans or designs for losses. Changes in fair value are not recognized, and the
new or improved materials, devices, products, processes, property is depreciated over its useful life.
systems, or services. Examples include constructing
prototypes, designing tools, and testing pre-production 6. Explain the fair value model of measuring investment
models. property.
- Under the fair value model, investment property is carried
13. Explain the accounting for research cost. at fair value, with changes in fair value recognized in profit or
- Expenditure on research activities is recognized as an loss. This model reflects the current market value of the
expense when incurred because the research phase typically property.
does not lead to the creation of identifiable intangible assets
capable of generating future economic benefits. 7. Explain fair value of investment property.
- Fair value is the price that would be received to sell an
14. Explain the accounting for development cost. asset in an orderly transaction between market participants
- Development costs are capitalized as an intangible at the measurement date. It represents the market value of
asset if specific criteria are met, including demonstrating the property.
technical feasibility, intention to complete the asset, ability to
use or sell it, and availability of adequate resources.
Otherwise, they are expensed.
8. Explain the treatment of property that is partly - Biological assets are initially measured at cost, which
investment and partly owner-occupied. includes all directly attributable costs incurred to bring the
- Such property should be accounted for separately if the asset to its present location and condition. Subsequently,
portions can be sold or leased out separately. If not, and only biological assets are measured at fair value less any
an insignificant portion is for manufacturing or administrative estimated point-of-sale costs, with changes in fair value
purposes, the property is treated as investment property. recognized in profit or loss.

9. Explain the treatment of property leased to an affiliate. 6. Explain the measurement of agricultural produce as it
- From the perspective of the individual entity, property grows and once harvested.
leased to an affiliate is considered investment property. - Agricultural produce is measured at fair value less
However, for consolidated financial statements, it is treated estimated point-of-sale costs at the point of harvest. While
as owner-occupied property. growing, the agricultural produce may be measured at its fair
value less estimated costs to complete its growth and
10. Explain transfers to and from investment property. estimated point-of-sale costs at the end of each reporting
- Transfers occur when there is a change in the use of the period.
property, evidenced by factors like owner occupation,
development for sale, or commencement of an operating 7. Define bearer plants.
lease. The transfer is accounted for based on the carrying - Bearer plants are living plants that are used solely to grow
amount or fair value, depending on the circumstances. agricultural produce over their productive life. These plants
are typically scrapped at the end of their productive life, even
if they are sold as scrap.

CHAPTER 22 8. Explain the treatment of bearer plants.

AGRICULTURE - Biological Asset and Agricultural Produce - Bearer plants are recognized as biological assets. They are
PAS 41 measured at cost initially and subsequently at fair value less
any estimated point-of-sale costs. The agricultural produce
they bear is recognized separately once harvested.
1. Define biological asset, agricultural produce and harvest.
- Biological asset: A biological asset is a living animal or 9. Explain the treatment of bearer animals.
plant, such as livestock or crops, that is used in agricultural - Bearer animals, such as livestock raised for breeding
production. purposes, are also recognized as biological assets. They are
- Agricultural produce: Agricultural produce refers to the measured similarly to bearer plants, with the value of their
harvested product from biological assets, such as fruits, offspring recognized separately as agricultural produce.
grains, or livestock products.
- Harvest: Harvest is the process of gathering or collecting 10. Explain the treatment of animal-related recreational
agricultural produce from biological assets, usually at the end activities.
of their growing or production cycle. - Animal-related recreational activities, such as horseback
riding or petting zoos, typically involve animals that are not
2. Explain an agricultural activity. used solely for agricultural production. Therefore, they would
- Agricultural activity involves the cultivation, breeding, or not be considered bearer animals, and the accounting
management of biological assets (plants or animals) for the treatment would depend on the specific circumstances and
purpose of producing agricultural produce. This includes purpose of the animals involved.
activities such as planting crops, raising livestock, and
harvesting produce. CHAPTER 23
Provisions, Contingent Liabilities and Contingent Assets
3. Explain the recognition of biological asset and PAS 41
agricultural produce.
- Biological assets are recognized when they meet the 1. Explain a provision.
definition of a biological asset and it is probable that future A provision is a liability of uncertain timing or amount. It
economic benefits will flow to the entity. Agricultural is recognized when there is uncertainty about the future
produce is recognized at the point of harvest when it is expenditure required to settle the obligation. This
separated from the biological asset and meets the definition uncertainty distinguishes a provision from other liabilities.
of agricultural produce.
2. What are the three conditions necessary for the
4. Explain the gain that may arise from the initial recognition of a provision as a liability?
recognition of biological asset and agricultural produce. According to PAS 37, a provision is recognized as a
- The gain from the initial recognition of a biological asset liability when:
and agricultural produce is the difference between the fair a. The entity has a present obligation (legal or
value of the asset or produce at initial recognition and its constructive) as a result of a past event.
cost. b. It is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation.
5. Explain the measurement of biological asset. c. The amount of the obligation can be measured reliably.
 3. Define a legal obligation.
A legal obligation is an obligation that arises from a
contract, legislation, or other operation of law.
CHAPTER 24
4. Define a constructive obligation. FINANCIAL INSTRUMENTS - Presentation
A constructive obligation arises from an entity's actions PAS 22
where an established pattern of past practice, published
policies, or a specific statement has created a valid 1. Define a financial instrument.
expectation in other parties that the entity will accept and - A financial instrument is a contract that gives rise to both
discharge certain responsibilities. a financial asset for one entity and a financial liability or
equity instrument for another entity. It encompasses various
5. Explain the measurement of a provision. types of contracts, including cash, securities, loans,
The amount recognized as a provision should be the best derivatives, and more.
estimate of the expenditure required to settle the present
obligation at the end of the reporting period. This best 2. Define a financial asset.
estimate is based on the amount that an entity would - A financial asset is any asset that is:
rationally pay to settle the obligation. Where outcomes are - Cash
uncertain, the midpoint of the range of possible outcomes is - A contractual right to receive cash or another financial
used. For large populations of items, the estimate is based on asset from another entity
a weighted average of possible outcomes. - A contractual right to exchange financial instruments
with another entity under favorable conditions
6. Define a contingent liability. - An equity instrument of another entity
A contingent liability is either: Examples of financial assets include cash, accounts
a. A possible obligation that arises from past events and receivable, loans receivable, and investments in shares or
whose existence will be confirmed only by the occurrence or equity instruments.
nonoccurrence of one or more uncertain future events not
wholly within the control of the entity. 3. Define a financial liability.
b. A present obligation that arises from past events but is - A financial liability is any liability that is a contractual
not recognized because it is not probable that an outflow of obligation:
resources embodying economic benefits will be required to - To deliver cash or another financial asset to another
settle the obligation, or the amount of the obligation cannot entity
be measured reliably. - To exchange financial instruments with another entity
under conditions that are potentially unfavorable
7. Distinguish a contingent liability from a provision. Examples of financial liabilities include accounts payable,
A provision is recognized as a liability because it is both notes payable, loans payable, and bonds payable.
probable that an outflow of resources will be required to
settle the obligation and the amount can be measured 4. Define an equity instrument.
reliably. A contingent liability, on the other hand, is not - An equity instrument is any contract that evidences a
recognized as a liability on the balance sheet because it residual interest in the assets of an entity after deducting all
either is not probable that an outflow of resources will be of the liabilities. Equity instruments include ordinary share
required or the amount cannot be measured reliably. capital, preference share capital, and share options or share
warrants.
8. Explain the treatment of a contingent liability.
The treatment of a contingent liability depends on its 5. Define a compound financial instrument.
likelihood: - A compound financial instrument is a financial instrument
- Possible but not probable: Disclosure only. that contains both a liability and an equity element from the
- Probable but not measurable: Disclosure only. perspective of the issuer. Common examples include bonds
- Remote: No disclosure needed. payable issued with share warrants and convertible bonds
- Probable and measurable: Recognize as a provision (not payable. Split accounting is typically used to account for
a contingent liability). compound financial instruments, where the liability and
equity components are accounted for separately.
9. Define a contingent asset.
A contingent asset is a possible asset that arises from
past events and whose existence will be confirmed only by CHAPTER 25
the occurrence or nonoccurrence of one or more uncertain INCOME TAXES
future events not wholly within the control of the entity. PAS 12

10. Explain the treatment of a contingent asset. 1. Explain accounting income and taxable income:
- Probable: Disclosure only. - Accounting income refers to the income reported on a
- Possible: No disclosure needed. company's financial statements, prepared in accordance with
- Remote: No disclosure needed. accounting standards such as Generally Accepted Accounting
Principles (GAAP) or International Financial Reporting - Prepaid expenses recognized for financial reporting but
Standards (IFRS). deductible for tax purposes in future periods.
- Taxable income is the income upon which an entity's tax - Recognition of revenue for tax purposes before it is
liability is calculated for a particular period, as determined by recognized for financial reporting.
tax regulations and laws. It may differ from accounting
income due to variations in tax rules, deductions, and 9. Explain the measurement of current tax asset and current
allowances. tax liability:
- Current tax assets and liabilities represent the amounts
2. Explain permanent differences: expected to be paid or received in taxes for the current
- Permanent differences are differences between reporting period. They are measured based on the tax rates
accounting income and taxable income that arise in a period and laws applicable in the reporting period.
and are not expected to reverse in the future. These
differences result from items that are included in accounting 10. Explain the measurement of deferred tax asset and
income but are never included in taxable income, or vice deferred tax liability:
versa. - Deferred tax assets and liabilities represent the future tax
consequences of temporary differences. They are measured
3. Explain temporary differences: based on the enacted or substantively enacted tax rates
- Temporary differences are differences between the expected to apply when the temporary differences reverse.
carrying amount of an asset or liability in the financial
statements and its tax base, which will result in taxable or CHAPTER 26
deductible amounts in future periods when the carrying EMPLOYEE BENEFITS
amount of the asset or liability is recovered or settled. PAS 19
4. Explain taxable and deductible temporary differences: 1. Define employee benefits:
- Taxable temporary differences are temporary differences - Employee benefits are all forms of consideration given by
that will result in taxable amounts in future periods when the an entity in exchange for services rendered by employees or
carrying amount of the asset or liability is recovered or for the termination of employment. This includes various
settled. types of compensation, incentives, and perks provided to
- Deductible temporary differences are temporary employees during and after their employment.
differences that will result in deductible amounts in future
periods when the carrying amount of the asset or liability is 2. Define short-term employee benefits:
recovered or settled. - Short-term employee benefits are employee benefits
other than termination benefits, which are expected to be
5. Explain a deferred tax liability: settled wholly within twelve months after the end of the
- A deferred tax liability arises when taxable temporary annual reporting period in which the employees render the
differences result in taxable amounts in future periods. It related service. Examples include salaries, wages, social
represents the future tax consequences of temporary security contributions, bonuses, and non-monetary benefits
differences that have resulted in lower taxable income in the like medical care or housing.
current period.
3. Define post-employment benefits:
6. Give examples of temporary differences resulting in - Post-employment benefits are employee benefits, other
higher accounting income than taxable income: than termination benefits and short-term employee benefits,
- Depreciation expenses may be recognized differently for which are payable after completion of employment. This
financial reporting and tax purposes. includes retirement benefits, post-employment life
- Accruals for estimated expenses or provisions that are insurance, and post-employment medical care.
deductible for tax purposes only when paid.
- Recognition of revenue under the percentage of 4. Explain a defined contribution plan:
completion method for financial reporting but under the - A defined contribution plan is a post-employment benefit
completed contract method for tax purposes. plan under which an entity pays fixed contributions into a
separate fund. The entity has no legal or constructive
7. Explain a deferred tax asset: obligation to pay further contributions if the fund does not
- A deferred tax asset arises when deductible temporary hold sufficient assets to pay all employee benefits relating to
differences result in deductible amounts in future periods, employee service in the current and prior periods. The
which can be used to reduce future tax liabilities. It retirement benefit received by the employee depends on the
represents the future tax benefit of temporary differences performance of the fund.
that have resulted in higher taxable income in the current
period. 5. Explain a defined benefit plan:
- A defined benefit plan is a post-employment benefit plan
8. Give examples of temporary differences resulting in other than a defined contribution plan. Under a defined
higher taxable income than accounting income: benefit plan, the entity's obligation is to provide the agreed
- Accelerated depreciation methods used for tax purposes, benefits to employees, usually related to their salary and
resulting in lower depreciation expenses for tax than for years of service. The entity bears the investment risk, and the
financial reporting.
retirement benefit received by the employee is - Entities with publicly traded ordinary shares.
predetermined. - Entities in the process of issuing ordinary shares or
potential ordinary shares in the public securities market.
6. Explain the components of employee benefit expense - Nonpublic entities are encouraged, but not required, to
under a defined benefit plan: present EPS.
- The components of employee benefit expense under a
defined benefit plan include: - Uses of EPS:
a. Current service cost - Determines the market price of ordinary shares.
b. Past service cost - Measures the performance of management.
c. Net interest - Serves as the basis for an entity's dividend policy.
d. Gain on plan settlement
e. Loss on plan settlement - Presentation of EPS:
- Present both basic and diluted EPS on the face of the
7. Explain fair value of plan assets: income statement for income or loss from continuing
- Fair value of plan assets refers to the market value of the operations.
assets held by a pension plan. It represents the amount that - Disclose basic and diluted EPS for discontinued operations
would be received to sell an asset in an orderly transaction either on the income statement or in the notes.
between market participants at the measurement date. - Present EPS even if the amounts are negative.

8. Explain projected benefit obligation: - Basic EPS Calculation:

- Projected benefit obligation (PBO) is an estimate of the - Basic EPS = Net Income / Ordinary Shares Outstanding
present value of all future pension obligations attributed to - Deduct preference dividends from net income:
employee service rendered to date. It reflects the amount of - Cumulative preference shares: Deduct the dividend for
money the pension plan would need to cover all future the current year whether declared or not.
pension payments to employees if the plan were to be - Noncumulative preference shares: Deduct only if
terminated immediately. declared.

9. Define other long-term employee benefits: - Handling Significant Changes in Share Capital:
- Other long-term employee benefits are employee - Use the weighted average number of ordinary shares
benefits, excluding postemployment benefits, termination outstanding during the period as the denominator.
benefits, and short-term employee benefits, which are
payable over a period longer than twelve months. Examples - Basic Loss Per Share:
include long-term disability benefits and sabbatical leave. - Basic Loss Per Share = Net Loss / Ordinary Shares
Outstanding
10. Define termination benefits: - Add preference dividends to net loss for cumulative
- Termination benefits are employee benefits provided in preference shares.
exchange for the termination of an employee's employment - Ignore preference dividends for noncumulative preference
before the normal retirement date. These benefits may shares if there is a net loss.
include severance pay, early retirement incentives, and other
forms of compensation given to employees upon - Dilution and Antidilution:
termination. - Potential ordinary share: A financial instrument or contract
that may entitle the holder to ordinary shares.
- Dilution: Occurs when the inclusion of potential ordinary
CHAPTER 27 shares decreases basic EPS or increases basic loss per share.
EARNINGS PER SHARE - Antidilution: Occurs when the inclusion of potential
PAS 33 ordinary shares increases basic EPS or decreases basic loss
per share.

- Definition: - Diluted EPS Calculation:

- Earnings per share (EPS) is the amount attributable to each - Assume the conversion of convertible securities and the
ordinary share outstanding during the period. exercise of share options and warrants.
- It pertains only to ordinary shares, which are equity - Adjust both net income and the number of ordinary shares
instruments subordinate to all other classes of equity outstanding for the assumed conversions and exercises.
instruments.
- Preference shares are excluded because they have a - Convertible Bond Payable:
definite rate of return. - Add back the interest expense on the bond, net of tax, to
net income.
- Required Presentations: - Increase the number of ordinary shares by those issuable
- Basic earnings per share (Basic EPS) upon conversion.
- Diluted earnings per share (Diluted EPS)
- Convertible Preference Shares:
- Entities Required to Present EPS: - Do not reduce net income by the preference dividend.
 - Increase the number of ordinary shares by those issuable CHAPTER 28
upon conversion. INTERIM FINANCIAL REPORTING
PAS 34
- Share Options and Warrants:
- Use the treasury share method to compute the number of 1. Explain interim financial reporting.
incremental shares. - Interim financial reporting involves preparing and
- Assume options and warrants are exercised at the presenting financial statements for a period of less than one
beginning of the year or when issued. year.
- Proceeds from exercise are used to repurchase shares at
the average market price. 2. Is it required to prepare interim financial reports?
- Incremental shares = Option shares - (Proceeds from - It's not mandatory for all entities to prepare interim
exercise / Average market price). financial reports, but publicly traded entities are often
encouraged or required to do so.
- Handling Losses:
- If the entity has a net loss, report only the basic loss per 3. Explain the frequency of interim reporting.
share. - Interim financial reports can be presented monthly,
- Diluted loss per share is not reported because it would quarterly, or semiannually, with quarterly reports being the
always be antidilutive. most common.
1. Explain earnings per share.
Earnings per share (EPS) is a financial metric that represents 4. Explain interim reporting under Philippine jurisdiction.
the portion of a company's profit allocated to each - In the Philippines, entities covered by the reportorial
outstanding ordinary share of common stock. It is used by requirements of the Revised Securities Act are required to file
investors to gauge the company's profitability and financial quarterly interim financial reports within 45 days after the
performance. end of each of the first three quarters.
2. What are the two presentations of earnings per share? 5. What are the components of an interim financial report?
The two presentations of earnings per share are: - Components of an interim financial report include
a. Basic earnings per share: This measures the profit condensed statements of financial position, comprehensive
attributable to each ordinary share outstanding during the income, changes in equity, and cash flows, along with
period without considering any potential dilution. selected explanatory notes.
b. Diluted earnings per share: This measures the profit
attributable to each ordinary share outstanding during the 6. Explain the presentation of interim financial statements
period, considering the potential dilution from convertible on a comparative basis.
securities like convertible bonds and stock options. - Interim financial statements are presented on a
comparative basis, showing both the current interim period
3. Explain the presentation of earnings per share in the and the corresponding period from the preceding year.
income statement.
An entity must present both basic and diluted earnings per 7. What are the basic principles in the preparation and
share on the face of the income statement for income or loss presentation of interim financial statements?
from continuing operations. If the entity reports a - Basic principles for interim financial reporting include
discontinued operation, it must disclose the basic and diluted applying the same accounting policies as annual financial
amounts per share for the discontinued operation either on statements, recognizing revenues and costs as incurred, and
the face of the income statement or in the notes. Even if the disclosing significant events and transactions since the last
amounts are negative, they must be presented. annual report.
4. Explain the formula for the computation of basic earnings 8. Explain the treatment of the following for interim
per share. reporting:
The formula for computing basic earnings per share (Basic - a. Measurement of inventories: Inventories are measured
EPS) is: Basic EPS equals Net Income minus Preference at the lower of cost or net realizable value.
Dividends divided by the Weighted Average Number of - b. Dividend revenue, royalty revenue and other income:
Ordinary Shares Outstanding. Dividend revenue, royalty revenue, and other income are
recognized when realized.
5. What is the treatment of preference dividend in - c. Estimated warranty cost: Estimated warranty costs are
computing basic earnings per share? accrued as an expense.
In computing basic earnings per share: - d. Cost of planned major periodic maintenance: The cost
- For cumulative preference shares, the preference dividend of planned major periodic maintenance is recognized as an
for the current year is deducted from the net income, expense when incurred.
whether the dividend is declared or not. - e. Expenditure for advertising: Expenditure for advertising
- For noncumulative preference shares, the preference is recognized as an expense when incurred.
dividend for the current year is deducted from net income - f. Bonus: Bonuses are accrued if they are a legal or
only if it is declared. constructive obligation and a reliable estimate of the
obligation can be made.
 - g. Depreciation and amortization: Depreciation and 7. Adjusting restated amounts of property, plant, and
amortization are based only on assets owned during the equipment if they exceed recoverable amounts.
interim period. 8. Eliminating previously recognized revaluation surpluses.
- h. Paid vacation and holiday leave: Paid vacation and 9. Balancing retained earnings in the restated statement of
holiday leave are accrued as expenses. financial position.
- i. Gain or loss from disposal of property: Gain or loss from 10. Expressing monetary items of the preceding year in
disposal of property, discontinued operations, and other terms of the index number at the end of the current year
events are recognized in the interim period when realized or when preparing comparative statements.
incurred.
- j. Income tax: Income tax expense reflects the annual CHAPTER 30
effective income tax rate applied to the pretax income of the FIRST TIME ADOPTION OF PFRS
interim period. PFRS 1

CHAPTER 29 1. Define first time adopter.

REPORTING IN HYPERINFLATIONARY ECONOMY - A first time adopter is an entity that presents its financial
PAS 29 statements for the first time in conformity with Philippine
Financial Reporting Standards (PFRS). It's when an entity
1. What are the characteristics of an economic environment explicitly and unreservedly states that its general purpose
indicating hyperinflation? financial statements comply with PFRS.
- Characteristics indicating hyperinflation include:
- The general population prefers to keep wealth in 2. Define first PFRS financial statements.
nonmonetary assets or stable foreign currency. - First PFRS financial statements are the initial annual
- Monetary amounts being regarded in terms of a stable statements in which an entity adopts PFRS with an explicit
foreign currency. and unreserved statement of compliance. These are the
- Sales and purchases on credit compensating for expected financial statements that reflect the entity's transition to
loss of purchasing power. PFRS from its previous reporting framework.
- Linking interest rates, wages, and prices to a price index.
- Cumulative inflation rate over three years approaching or 3. What are the conditions in order that financial
exceeding 100%. statements presented by an entity would qualify as first
PFRS financial statements?
2. Explain the financial reporting in a hyperinflationary - Financial statements qualify as first PFRS financial
economy. statements under various conditions:
- Financial reporting in a hyperinflationary economy - Previous financial statements were prepared under
involves restating financial statements using constant peso national GAAP inconsistent with PFRS.
accounting to reflect the current purchasing power of the - Previous statements were in conformity with PFRS but
currency. Only nonmonetary items are restated, while lacked an explicit statement of compliance.
monetary items are automatically stated in terms of current - Previous statements included an explicit statement of
purchasing power. compliance with some but not all PFRS.
- Financial statements were prepared under PFRS in the
3. Explain monetary and nonmonetary items. previous period but for internal use only.
- Monetary items include cash and assets or liabilities to be - Financial statements were prepared under PFRS for
received or paid in fixed or determinable amounts of money. consolidation purposes without presenting a complete set of
Nonmonetary items are those that cannot be classified as financial statements.
monetary and have amounts reported in financial statements - Entity did not present financial statements in the
that differ from what is ultimately realizable or payable. previous period.

4. What is the formula for restatement? 4. Explain the date of transition to PFRS.
- index number at the end of reporting period/index - The date of transition to PFRS is the start of the earliest
number on acquisition date x historical cost period for which an entity presents full comparative
information under PFRS in its first PFRS financial statements.
5. What are the procedures for restating financial It depends on the date of adoption of PFRS and the number
statements in a hyperinflationary economy? of years of comparative information the entity decides to
- Procedures for restatement include: present.
1. Classifying items into monetary and nonmonetary.
2. Not restating monetary items. 5. Define an opening PFRS statement of financial position.
3. Restating nonmonetary items. - An opening PFRS statement of financial position is the
4. Adjusting carrying amounts for revalued nonmonetary initial statement of financial position prepared under PFRS,
items. reflecting the entity's financial position at the beginning of
5. Restating all items in the income statement using the the earliest period for which full comparative information is
average index during the year. presented.
6. Computing general purchasing power gains or losses on
monetary items.
6. What are the requirements in preparing an opening PFRS - Deferred vesting: compensation expense recognized over
statement of financial position? the vesting period, from grant date to the exercise date
- Requirements for preparing an opening PFRS statement of
financial position include restating previous financial Share Appreciation Rights (SARs)
statements to comply with PFRS, recognizing all assets, - Definition: entitles an employee to cash equal to the excess
liabilities, and equity items, and ensuring consistency and of the market value over a predetermined price for a stated
comparability with subsequent financial statements. number of shares on settlement or exercise date
- Nature: creates a liability for the entity as it involves future
7. How should a first time adopter recognize the cash payment
adjustments required to present an opening PFRS statement - Measurement of Compensation
of financial position? - Based on the fair value of the liability at the reporting date,
- A first time adopter should recognize adjustments by reassessed yearly until settled
restating previous financial statements to comply with PFRS, - Fair value equals the excess of market value over a
adjusting assets, liabilities, and equity items as necessary, and predetermined price for a given number of shares over a
ensuring that the opening PFRS statement reflects the definite vesting period
entity's financial position accurately. - Recognition of Compensation
- Immediate vesting: compensation recognized immediately
8. What are the first PFRS financial statements prepared by - Deferred vesting: compensation recognized over the
a first time adopter? vesting period
- The first PFRS financial statements prepared by a first time
adopter are the initial set of financial statements that comply
with PFRS and reflect the entity's transition to PFRS from its CHAPTER 32
previous reporting framework. NONCURRRENT ASSET HELD FOR SALE
PFRS 5

CHAPTER 31 1. When is a noncurrent asset classified as held for sale?

SHARE-BASED PAYMENT - A noncurrent asset is classified as held for sale when the
PFRS 2 carrying amount will be recovered principally through a sale
transaction rather than through continuing use. The entity
intends to sell the asset and recover its carrying amount
Share-based compensation plan: an arrangement where primarily through the sale, with no intention of continuing its
employees receive equity shares or liabilities based on the use as part of the ongoing business.
price of the entity’s shares in exchange for services
- Common recipients: directors, senior executives, and key 2. What are the conditions for classification as held for sale?
employees - The conditions for classification as held for sale include:
- Purpose: motivates performance and aligns employee 1. The asset is available for immediate sale in its present
interests with shareholders condition, effectively "sold as seen."
2. The sale of the asset is highly probable and expected to
Types of Share-Based Compensation Plans be completed within one year from the date of classification
1. Equity Settled as held for sale.
- Employees receive equity instruments (e.g., share options)
in exchange for services 3. Explain the measurement of noncurrent asset classified as
2. Cash Settled held for sale.
- Entity incurs a liability based on its equity instruments - A noncurrent asset classified as held for sale is measured
(e.g., share appreciation rights) at the lower of its carrying amount or fair value less cost of
disposal. It is not depreciated. If the fair value less cost of
Share Options disposal is lower than the carrying amount, the asset is
- Definition: granted to officers and key employees, allowing written down to fair value less cost of disposal, treated as an
them to acquire shares within a specified period upon impairment loss. Any subsequent increase in fair value is
meeting certain conditions recognized as a gain, not exceeding any impairment loss
- Purpose: part of the remuneration package alongside cash previously recognized.
salary and other benefits
- Measurement Methods 4. Explain the presentation of noncurrent asset classified as
- Fair value method: compensation equals the fair value of held for sale in the statement of financial position.
share options on the grant date - A noncurrent asset classified as held for sale is presented
- Intrinsic value method: compensation equals the intrinsic separately as a current asset. If it constitutes a disposal
value, i.e., the excess of market value over the option price; group, the assets and liabilities of the group are presented
used only if fair value cannot be reliably estimated separately and cannot be offset as a single amount. The
assets are described as noncurrent assets classified as held
Recognition of Compensation (Share Options) for sale, presented under current assets, while the liabilities
- Immediate vesting: compensation expense recognized in are described as liabilities directly associated with those
full immediately on the grant date assets, presented under current liabilities.
 PFRS 5
5. Explain the treatment of a change in classification of a - Definition of Exploration and Evaluation:
noncurrent asset classified as held for sale. - Search for mineral resources after obtaining legal rights.
- If a noncurrent asset ceases to be classified as held for - Determination of technical feasibility and commercial
sale, it is measured at the lower of its carrying amount before viability.
classification or its recoverable amount at the date of the
subsequent decision not to sell. This ensures consistency in - Expenditures Not Included:
measurement and prevents potential overstatement of the - Pre-rights acquisition costs.
asset's value. - Costs incurred after demonstrating feasibility and viability
(development costs).
CHAPTER 33
DISCONTINUED OPERATION - Exploration and Evaluation Expenditures:
PFRS 5 - Acquisition of exploration rights.
- Geological studies.
1. Define a discontinued operation. - Exploratory drilling.
- A discontinued operation is a component of an entity that - Trenching and sampling.
has been disposed of or meets the criteria to be classified as - Evaluation of technical and commercial viability.
held for sale. It represents a distinct business unit, such as a - Direct administrative costs.
division, subsidiary, or major line of business, that the entity
no longer operates or intends to operate in the near future. - Exploration and Evaluation Asset:
- Recognition depends on entity's accounting policy.
2. Give examples of discontinued operation. - Initial measurement at cost.
- Examples of discontinued operations include: - Classified as tangible or intangible.
- Selling a major division that represents the entity's only
activities in a specific industry. - Measurement and Classification:
- Selling a controlling interest in a subsidiary that operates - Initial measurement at cost.
in a different industry from the entity's remaining operations. - Subsequent application of cost or revaluation model.
- Selling all radio stations when the entity's remaining - Classified as tangible or intangible.
activities are in television and publishing.
- Phasing out a product line within a product group. - Accounting Methods for Exploration Costs:
- Shifting production or marketing activities for a particular - Successful Effort Method:
line of business to a different location. - Capitalize costs related to discoveries.
- Closing a facility, factory, or branch. - Expense costs for unsuccessful attempts.
- Full Cost Method:
3. Explain the presentation of a discontinued operation in - Capitalize all exploration costs.
the income statement. - Costs of unsuccessful attempts considered part of
- The income or loss from discontinued operations, net of productive resource discovery.
tax, is presented as a single amount in the income statement
below the income from continuing operations. It includes - Variations in Accounting Methods:
revenue, expenses, gains, losses, impairment losses, and - Larger entities often prefer successful effort method.
termination costs associated with the discontinued - Smaller entities commonly use full cost method.
operation.

4. Explain the presentation of the assets of a discontinued

operation in the statement of financial position.
- Assets of the discontinued operation are presented
separately as a single amount under current assets in the
statement of financial position. They are measured at the
lower of fair value less cost of disposal or carrying amount.
Noncurrent assets of the discontinued operation are not
depreciated.

5. Explain the presentation of the liabilities of a

discontinued operation in the statement of financial
position.
- Liabilities of the discontinued operation are presented as a
single amount under current liabilities in the statement of
financial position. They are not offset against the entity's
other liabilities.

CHAPTER 34
EXPLORATION AND EVALUATION OF MINERAL RESOURCES