INTERNATIONAL ACCOUNTING STANDARDS (IAS)

IAS 1: Presentation of Financial Statements

IAS 2: Inventories

IAS 7: Statement of Cash Flows

IAS 8: Accounting Policies, Changes in Estimates and Errors

IAS 10: Events After the Reporting Period**

IAS 11: Construction Contracts**

IAS 12: Income Taxes**

IAS 16: Property, Plant and Equipment

IAS 17: Leases (defective on January 1, 2019)

IAS 18: Revenue**

IAS 19: Employee Benefits**

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance

IAS 21: The Effects of Changes in Foreign Exchange Rates**

IAS 23: Borrowing Costs

IAS 24: Related Party Disclosures**

IAS 26: Accounting and Reporting by Retirement Benefit Plans**

IAS 27: Equity Method in Separate Financial Statements**

IAS 28: Investments in Associates and Joint Ventures

IAS 29: Financial Reporting in Hyperinflationary Economies**

IAS 32: Financial Instruments: Presentation

IAS 33: Earnings Per Share**

IAS 34: Interim Financial Reporting**

IAS 36: Impairment of Assets

IAS 37: Provisions, Contingent Liabilities and Contingent Assets**

IAS 38: Intangible Assets

IAS 39: Financial Instruments: Recognition and Measurement**

IAS 40: Investment Property

IAS 41: Agriculture

INTERNATIONAL FINANCIAL REPORTING
STANDARDS (IFRS)
IFRS 1: First-time Adoption of International Financial Reporting Standards

IFRS 2: Share-based Payment**

IFRS 3: Business Combination

IFRS 4: Insurance Contracts**

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations

IFRS 6: Exploration for and Evaluation of Mineral Resources

IFRS 7: Financial Instruments: Disclosures

IFRS 8: Operating Segments**

IFRS 9: Financial Instruments

IFRS 10: Consolidated Financial Statements**

IFRS 11: Joint Arrangements**

IFRS 12: Deferred Taxes**

IFRS 13: Fair Value Measurement

IFRS 14: Regulatory Deferral Accounts**

IFRS 15: Revenue from Contracts with Customers**

IFRS 16: Leases (effective on January 1, 2019)

 CASH AND CASH EQUIVALENT
APPLIED TO NOT APPLIED TO
1. Cash on Hand 1. Postdated checks
2. Cash in Bank 2. IOUs or advances to employees
3. Used credit line (unused credit line is 3. Cash funds not available for use in current
disclosed in the notes) operations (sinking fund, plant expansion
fund, depreciation fund, contingency fund,
preference share redemption fund, insurance
fund)
4. Postage stamp

Cash includes: Coins & currencies, demand deposits (checking or current accounts), savings
account, bank drafts, money orders, checks (cashier’s checks, personal checks, manager’s
checks, traveller’s checks, certified checks), petty cash fund, revolving fund, payroll fund,
change fund, dividend fund, tax fund, travel fund, interest fund, other types of imprest bank
accounts used in current operations, compensating balances that are not legally restricted

Cash Equivalents Not Cash Equivalents

3-month treasury bill Treasury notes & treasury bonds**
90-day money market instrument or Checks & bank drafts
commercial paper
3-month time deposit Equity securities/ equity instruments
1-year treasury bill acquired 3 months before Restricted deposits not available for
maturity date immediate withdrawal, legally restricted
compensating balances
Redeemable preference shares (acquired 3
months or less)

RECOGNITION
1. It meets the requirements for asset recognition
2. Available for unrestricted use in current operations

DERECOGNITION
1. It fails to meet the requirements for asset recognition

Add’l notes:
1. Restricted cash is excluded from cash and represented under other line item as either
current or non-current asset depending on the nature of the restriction.
2. Cash maintained in a bank undergoing bankruptcy is excluded and presented as
receivable measured at REALIZABLE VALUE.
3. Cash in foreign currency is translated at the current exchange rate as of reporting date.
Also, restricted deposits in foreign banks that are not available for immediate
withdrawal are excluded and presented as receivable subject to appropriate allowances
for uncollectibility and impairment.
4. Legally restricted compensating balance are excluded and presented current or non-
current assets. Deposit in escrow is also excluded.
 5. Bank overdraft are not to be offset to cash unless it is permitted or the entity has 2 or
more bank accounts in the same bank provided it is unrestricted.

Bank Reconciliation:
BOOK BANK
Credit Memo (+): Collections made by bank on Deposits in Transit (+)
behalf of the entity, proceeds from loan,
unrolled-over matured time deposits
transferred by the bank to entity’s account
Debit Memo (-): Service charge, NSF checks, Outstanding checks (-)
DAIF checks, Automatic debits, payment of
loans
Book errors (+/-) Bank errors (+/-)

Proof of cash:
FIRST MONTH RECEIPTS DISBURSEMENTS 2ND MONTH
Credit Memo: 1st month (+) (-)
Credit Memo: 2nd month (+) (+)
Debit Memo: 1st month (-) (-)
Debit Memo: 2nd month (+) (-)
 RECEIVABLES
(IFRS 7, IFRS 9, IFRS 15, IAS 32, IAS 39)

ACCOUNTS RECEIVABLES
Terms of sale contract (ownership transferred to buyer)
1. FOB SHIPPING POINT- upon shipment
2. FOB DESTINATION- upon receipt of goods
Freight Charges
1. Freight Prepaid- paid by seller in advance
2. Freight Collect- paid by buyer upon delivery

** the entity who owns the goods being shipped should pay for the shipping costs.

A. FOB shipping point, freight prepaid- buyer, seller (freight will be settled by buyer)
B. FOB destination, freight collect- seller, buyer (freight is deducted from buyer’s payment)

Accounting for Bad Debts

1. Allowance Method -> more accurate
2. Direct write-off Method -> inaccurate

Estimating Doubtful Accounts

1. Percentage of credit sales- bad debt expense is computed (income statement)
Net credit sales x (Bad debt expense net of past recoveries ÷ past credit sales)
Allow, end= BDE + Allow, beg – write offs + recoveries

2. Percentage of receivables- REQUIRED allowance for doubtful accounts (ADA)-

(Statement of Financial Position)
Receivable, end x (past BDE net of past recoveries ÷ past credit sales)
BDE for the period= required ADA – unadjusted carrying amount of ADA

3. Aging of receivables- MOST ACCURATE method (Statement of Financial Position)

- REQUIRED ADA is computed
Receivables, end x percentage of uncollectibility
BDE for the period= required ADA – unadjusted carrying amount of ADA
Add’l notes:
1. List price must be deducted through trade discounts in order to arrive at invoice price.
2% trade discount -> list price x 98% = invoice price
2. Cash discounts are deducted from invoice price to determine net amount collectible
within discount period.
3. Generally, net method is used. (Sales discount forfeited/Purchase discount loss
NOTES RECEIVABLES
IB- Interest Bearing NIB-Noninterest Bearing OB- Outstanding Balance
RI- Reasonable Interest URI- Unreasonable Interest UI- Unearned Interest
LS- Lump sum INS- Installment
Measurement Journal Present Interest Payment of Payment of
Entry Value Rate Interest Principal
IB, RI, LS Face amount Dr. N/R X Stated Every year Maturity
Cr. Asset (fixed) date
IB, RI, INS Face amount Dr. N/R X Stated Every year Every year
Cr. Asset (OB x rate) (OB )
(interest )
NIB, LS Present Value Dr. N/R / Market No collection Maturity
Cr. Asset of interest date
Cr. UI (Dr. UI (PV of 1)
Cr. Int. Inc.)
NIB, INS Present Value Dr. N/R / Market No collection Every year
Cr. Asset of interest (PVOA/PVAD)
Cr. UI (Dr. UI
Cr. Int. Inc.)
IB, UI, LS Present Value Dr. N/R / Market Every year Maturity
Cr. Asset (fixed,stated) date
Cr. UI (Dr. Cash (PV of 1)
Dr. UI
Cr. Int. Inc.)
PVOA
IB, UI, Present Value Dr. N/R / Market Every year Every year
INS Cr. Asset (interest ) (PVOA/PVAD)
Cr. UI
(multiple PV
of 1)

FORMULAS:
FV of 1 = (1 + i)ⁿ PV of 1= PV of 1= (1 + i)⁻ⁿ
FVOA= [(1 + 𝑖)ⁿ − 1] ÷ i PVOA= [1 − (1 + 𝑖)⁻ⁿ] ÷ i
FVAD= [[(1 + 𝑖)ⁿ+ ¹ − 1] − 1] ÷ i PVAD= ([1 − (1 + 𝑖)⁻ⁿ] ÷ i)(1 + i)

LOANS RECEIVABLES
Transaction Costs Not Transaction Costs
Fees & commissions paid to agents, advisers, Debt premiums or discounts
brokers, dealers
Levies by regulatory agencies Financing costs
Securities exchanges Internal administrative or holding costs
Transfer taxes & duties

DERECOGNITION
1. Contractual rights to the cash flows from financial assets expire (collect, cancel,
uncollectible)
2. Financial assets are transferred & it qualifies for derecognition
RECEIVABLE FINANCING
1. Pledge- not qualified for transfer, not derecognized, treated as secure borrowing
- NO ENTRY is made for pledge, only note disclosure.
- Receipt of loan: Dr. Cash on Hand, Cr. Loan Payable
2. Assignment- not qualified for transfer, not derecognized, treated as secure borrowing
A. Notification Basis
Assignment: Dr. A/R-assigned, Cr. A/R
Receipt of loan: Dr. Cash on hand, Dr. Discount on loan payable*, Cr. Loan payable
Collection by bank: NO ENTRY
Notified of collection: Dr. Loan Payable, Dr. Sales returns and discounts*, Cr. A/R-
assigned
Payment of interest: Dr. Interest expense, Cr. Cash on hand

B.Non-notification Basis
Assignment: Dr. A/R-assigned, Cr. A/R
Receipt of loan: Dr. Cash on hand, Dr. Discount on loan payable*, Cr. Loan payable
Collection: Dr. Loan Payable, Dr. Sales returns and discounts*, Cr. A/R-assigned
Remittance to bank: Dr. Loan Payable, Dr. Interest expense, Cr. Cash on hand

3. Factoring- sell of receivables to factor

A. without recourse- outright sale
Casual basis: Dr. Cash on hand, Dr. Receivable from factor,
Dr. Loss on sale of receivable*, Cr. A/R
Regular means: Dr. Cash on hand, Dr. Receivable from factor, Dr. Service charge*,
Dr. Interest expense*, Cr. A/R

B. with recourse-neither transfers nor retains

Casual basis: Dr. Cash on hand, Dr. Receivable from factor, Dr. Loss on sale of
receivable*, Cr. A/R, Cr. Liability for recourse obligation
Regular means: Dr. Cash on hand, Dr. Receivable from factor, Dr. Service charge*,
Dr. Interest expense*, Dr. Loss on recourse obligation, Cr. A/R,
Cr. Liability for recourse obligation
Settlement of factor’s holdback
Without recourse With recourse
Cash on hand Cash on hand
Sales returns Sales returns
Receivable from factor Receivable from factor

Recourse obligation
Gain on recourse obligation

4. Discounting- endorses note to bank

A. Without recourse- sold outright
Net proceeds = maturity value – discount
Maturity value= principal + interest in full term
Discount= maturity value x discount period x discount rate
Interest income= principal x stated interest rate x period*
 Dr. Cash on Hand, Dr. Loss on discounting, Cr. N/R, Cr. Interest Income
B. With recourse-
Dr. Cash on Hand, Dr. Loss on discounting, Cr. N/R discounted, Cr. Interest
Income

**Discounting own note: Dr. Cash on hand, Dr. Discount on note payable, Cr. Note Payable

Add’l notes:
1. Dishonored notes are transferred from N/R to A/R (maturity value + any costs)
 INVENTORIES

IAS 2 / PAS 2
(accounting treatment for inventories)
APPLIED TO NOT APPLIED TO
1. Finished Goods 1. Financial Instruments
2. Work-in-process 2. Biological assets & agricultural produce at
the point of harvest
3. Raw Materials 3. Inventories of producers of agricultural,
forest, mineral products to the extent they are
measured at NRV
4. Manufacturing Supplies 4. inventories of commodity broker-traders @
FVLCTS

Terms of sale contract (ownership transferred to buyer)

3. FOB SHIPPING POINT- upon shipment
4. FOB DESTINATION- upon receipt of goods
Freight Charges
3. Freight Prepaid- paid by seller in advance
4. Freight Collect- paid by buyer upon delivery

** the entity who owns the goods being shipped should pay for the shipping costs.

C. FOB shipping point, freight prepaid- buyer, seller (freight will be settled by buyer)
D. FOB destination, freight collect- seller, buyer (freight is deducted from buyer’s payment)

MEASUREMENT
Costs of inventories:
Costs of purchase (purchase price, import duties & other non-recoverable taxes,
transport & handling costs/freight-in or transportation-in, other costs directly attributable to
the acquisition of finished goods, materials & services)-(does not include taxes paid, trade
discounts & rebates are deducted but if the purchaser is not a VAT payer, the VAT is included)
Costs of conversion (direct labor & variable, fixed overhead)
Other costs necessary in bringing the inventories to present location & condition

INVENTORY ESTIMATION
1. Gross Profit Method
Gross Profit Rate: Based on sales= Gross profit ÷ Net sales
Based on cost= Gross profit ÷ COGS
Cost Ratio from GPR based on sales= 100% net sales – GPR based on sales
Cost Ratio from GPR based on cost= 100% COGS ÷ Net sales (100% + GPR based on cost)
** Only sales returns are deducted from gross sales in computing net sales. Sales discounts &
allowances are not deducted.

2. Retail Method
A. Average cost method:
Cost ratio= total COGS at cost ÷ total COGS at sales price or retail
 C. FIFO method:
Cost ratio = total COGAS less beg inventory @ cost ÷ total COGAS less beg
inventory @ retail

Add’l notes:
1. Consigned goods are made through memorandum entries only.
2. Repair costs & maintenance costs are expensed.
3. Commissions are expensed by consignor & recorded as income by consignee.
4. Inventory financing- sell then buy the same goods sold at a later date
5. Pledge of inventory- included in borrower’s inventory & excluded in lender’s inventory
6. Installment Basis- excluded in seller’s inventory & included in buyer’s inventory at the time of
sale (Bill and hold arrangement, Lay away sale)
7. Ending inventory : Profit- Direct Relationship (Periodic System)
Beginning inventory & Purchases : Profit- Inverse Relationship (Periodic)
Ending inventory : COGS- Inverse Relationship (Periodic)
Beginning inventory & Purchases : COGS- Direct Relationship (Periodic)
8. Freight-in is not included in computing discount.
9. Weighted Average Unit Cost (Periodic) = total COGAS in pesos ÷ total COGAS in units
10. Write-down to NRV is an item-by-item basis
11. If cost exceeds NRV, it is written down but if cost is lower than NRV, no write-down is
necessary
12. Write-downs due to abnormal losses are charged to loss
13. Reversal of write-down is to the extent of original write-down previously recognized

DISCLOSURE
1. Accounting policy adopted including cost formula
2. Total carrying amount of inventories & carrying amount in classifications appropriate to
entity
3. Carrying amount of inventories @ FVLCTS
4. Amount of inventories expensed
5. Amount of any write-down of inventories expensed
6. Amount of any reversal of write-down as a reduction in the amount of inventories expensed
7. Circumstances that led to write-down
8. Carrying of inventories pledged as security for liabilities
 AGRICULTURE
PAS 41 / IAS 41
(accounting and disclosures for agricultural and related activity)

APPLIED TO NOT APPLIED TO

1.Biological Assets (except ->) ; living
2.Agricultural Produce AT the point of harvest
/ PRODUCE of bearer plants ; natural state/
unprocessed
3.UNCONDITIONAL government grants related
to biological asset measured at its FAIR VALUE
LESS COST TO SELL
1.Bearer plants related to agricultural activity
2.Land related to agricultural activity
3.Government grants related to agricultural
activity (IAS 20)
4.Intangible Assets related to agricultural
activity (IAS 38)
5.Agricultural Produce AFTER the point of
harvest (IAS 2) ; processed

BIOLOGICAL ASSET AGRICULTURAL PRODUCE RESULT OF PROCESSING

(IAS 41) AFTER HARVEST (IAS 2)
Sheep (IAS 41) Wool Yarn, carpet
Trees in a timber plantation Felled trees Logs, lumber
(IAS 41)
Dairy cattle (IAS 41) Milk Cheese
Pigs (IAS 41) Carcass Sausages, cured hams
Cotton plants (IAS 41) Harvested cotton Thread, clothing
Sugarcane (IAS 41) Harvested cane Sugar
Tobacco plants (IAS 41) Picked leaves Cured tobacco
Tea bushes (IAS 16) Picked leaves/Tea leaves Tea
Grape vines (IAS 16) Picked grapes/grapes Wine
Fruit trees (IAS 16) Picked fruit Processed fruit
Oil palms (IAS 16) Picked fruit/oil palm fruit Palm oil
Rubber trees (IAS 16) Harvested latex/latex Rubber products

RECOGNITION
1. the entity CONTROLS the asset as a result of past events
2. it is probable that FUTURE ECONOMIC BENEFITS associated with the asset will flow to
the entity
3. FV or cost of the asset can be MEASURED RELIABLY

MEASUREMENT
i. Biological Asset- FVLCTS (Initial and subsequent)
ii. Agricultural Produce- FVLCTS (at the point of harvest) – becomes the cost of LCNRV
- Lower of cost or NRV (after harvest, IAS 2)
* Cost to sell- includes commissions to brokers, levies by regulatory agencies and
commodity exchanges, transfer taxes and duties (does not include finance cost, income taxes,
transport cost, advertising cost, interest expense). However, if location is a characteristic of the
BA, the price in the principal or most advantageous market shall be adjusted for the transport
costs.
DISCLOSURES
1. Consumable and Bearer biological assets
2. Mature and Immature biological assets
3. Breakdown of total “Gain (loss) from changes in FVLCTS” during the period attributable
to price change and physical change

FORMULAS
i. Due to price change
(FVLCTS, END. Age as of BEG.) – (FVLCTS, BEG. Age as of BEG.) x Qty

ii. Due to physical change

[ (FVLCTS, END. Age as of END.) – (FVLCTS, END. Age as of BEG.) x Qty ] + FVLCTS
newborn at the date of birth
 PROPERTY, PLANT AND EQUIPMENT
IAS 16 / PAS 16
(accounting and disclosures for PPE)

APPLIED TO NOT APPLIED TO

1. PPE used to develop or maintain biological
assets, mineral rights, and mineral reserves
2. PPE used in business, production, future
plant site
3.ALL equipment (except minor, short lived)
4. Animals that are not related to
agricultural activities*
1.PPE held for sale/Land and Building as
investment property (speculation)
2.Biological Assets and Agricultural Produce
(except bearer plant)
3.Exploration and Evaluation Assets
4.Mineral rights and mineral reserves
5.Intangible Assets
6.MINOR spare parts & SHORT lived stand by
equipment

RECOGNITION
1. probable FUTURE ECONOMIC BENEFITS associated with the item will flow to the entity
2. the cost of the item can be MEASURED RELIABLY

MEASUREMENT
i. COST (INITIAL)
INCLUDES: (a) purchase price (import duties, non-refundable purchase taxes; after
deducting trade discounts and rebates, and inclusive VAT if vat-registered payer otherwise
included)
(b) any costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by the
management (costs of employee benefits, cost of site preparation, initial delivery and
handling costs, installation and assembly costs, cost of testing after deducting net
proceeds, professional fees)
(c) initial estimate of dismantling (PV decommissioning costs) and removing the
item and restoring the site to which it is located (PV restoration costs) which provides
liability to be recognized

EXCLUDES: costs incurred while an item capable of operating in the manner intended by
management has YET to be brought into use or is operating at less than full capacity, initial
operating losses, costs relocating or reorganizing part or all of an entity’s operations, internal
profits on self-construction

EXPENSED: costs of operating new facility, costs of introducing new product or service
(advertising, promotional activity), costs of conducting business in a new location or with a new
class of customers (staff training), administration and other general overhead costs, interest
between cash price equivalent and total payment (UNLESS capitalized according to IAS 23),
unpaid taxes after date of acquisition, option (not taken) paid to acquire property, repairs and
maintenance AFTER occupancy, costs of abnormal amounts, uninsured hazards/accidents, costs
of relocating after it has been put to location intended, cost of dismantling and removing an old
equipment belonging to entity prior to installation of new equipment (EXCEPT when previously
recognized as liability), demolition costs (if land’s future economic benefits not enhanced)

A. LAND: Cost
- Purchase price (include broker’s commissions)
- Closing costs (include titling cost, attorney’s fees, recording fees)
- Costs incurred in getting the land in the condition for its intended use (surveying,
grading, filling, draining, clearing)
- Unpaid taxes prior to date of acquisition assumed by buyer
- Assumption of any liens, mortgages, encumbrances on the property
- Special assessments for local gov’t-maintained improvements (pavements, street
lights, sewers, drainage systems)
- Option (taken or acquired) paid to acquire the land
- Costs incurred to induce tenants to vacate premises
- Costs incurred to relocate and reconstruct property belonging to others
- Initial estimate of restoration costs (has present obligation)
- Any additional land improvements (INDEFINITE useful life- draining, clearing,
grading, leveling, filling, surveying, subdividing, permanent improvements)
- Demolition costs (if its future economic benefits is enhanced- possible future sale)
*Prior to classification of held for sale/ prerequisite to the sale of land classified
inventory- treated as cost to sell
A-1. LAND IMPROVEMENTS
- Private driveways, walks, fences, parking lots, drainages, water systems, cost of
trees, shrubs, plants and landscaping (DEFINITE)- not included in the blueprint of the
building
B. BUILDING
- Purchase price (include broker’s commissions, legal fees)
- Costs incurred in getting the building in the condition for its intended use
(remodeling, renovation, repairs PRIOR to occupancy)
- Assumption of any liens, mortgages, encumbrances on the property
- Option (taken or acquired) paid to acquire the building
- Unpaid taxes prior to date of acquisition assumed by buyer
- Costs incurred to induce tenants to vacate premises
- Cost of site preparation (capitalized to new building- to make way for new building)
B-1. SELF-CONTRUCTED BUILDING/BEARER PLANT
- Materials, labor, overhead costs incurred during construction
- Architectural costs, supervision costs, costs of building permit
- Excavation costs
- Insurance costs and safety inspection fees
- Costs of temporary structures (temporary safety fence, construction offices, sleeping
quarters of laborers, materials and tools shed)
- Interest on borrowings made to finance construction (capitalized only once if it is a
qualifying asset)
- Private driveways, walks, permanent fences, parking lots, drainage and water
systems included in the blueprint
 - ventilation systems, plumbing, lightning systems (installed prior occupancy/self-
constructed building)
B-2. BUILDING IMPROVEMENTS
- Costs of elevator, escalator, or similar items (not included in the blueprint),
ventilation systems, plumbing, lightning systems (installed after occupancy/self-
constructed building), immovable fixtures
C. EQUIPMENT
- Purchase price (include broker’s commissions, non-refundable purchase taxes)
- Freight, handling charges, insurance (WHILE in transit)
- Cost of necessary foundation/platform
- Assembling and installation costs
- Costs of testing and conducting trial runs
- Initial estimate of decommissioning and restoration costs (has present obligation)

WAYS OF ACQUISITION
EXCHANGE commercial substance: lacks commercial
-FV of the asset given up (+ cash substance:
paid or – cash received)
-FV of the asset received
-CA of the asset given up (+ cash -CA of the asset given up (+
paid or – cash received) cash paid or – cash
received)
TRADE-IN -FV of the asset given up + cash
given
-FV of the asset received
ISSUANCE (OWN EQUITY -FV of the asset received
INSTRUMENT/BONDS -FV of the bond/equity issued
PAYABLE) -Face Value/Par Value of
bonds/shares
DONATION related party: third party:
-credit: donated capital @ FV -credit: income from
donation @ FV

Government: IAS 20

ii. COST MODEL/REVALUATION MODEL (SUBSEQUENT)

COST MODEL: (Computing for depreciation) – (Cost less AD less AIL)
A. Straight-line method = (cost – residual value) ÷ Useful life
 Deduct the discount from the cost first

B. Sum-of-the-years method = (cost – residual value) x SYD rate

• Compute first for SYD denominator by adding the remaining useful life (e.g. 3 -> 3+2+1)
or Life x [ (life + 1) ÷ 2]
• The numerator is the remaining useful life as of that year

C. Double declining balance method (RESIDUAL VALUE IS IGNORED UNLESS CARRYING

AMOUNT IS BELOW THE RESIDUAL VALUE) = [2 ÷ Life] x Carrying amount

D. 150% declining balance method (RESIDUAL VALUE IS IGNORED UNLESS CA IS BELOW RV)
 = [1.5 ÷ Life] x Carrying amount

 Partial year depreciation

- Acquired/disposed during first half of a month, treat as if it has been
acquired/disposed at the beginning of the month
- Acquired/disposed during last half of a month, treat as if it has been
acquired/disposed at the end of the month or beginning of the following month

E. Units-of-production method (Activity/Variable-charge method)

= (Cost – residual value) x (units of output produced ÷ estimated total units of output)
= (Cost – residual value) x (hours of input ÷ estimated total hours of input)

 For leasehold improvements, it is depreciated over the useful life of the

improvements or remaining lease term whichever is SHORTER.

REVALUATION MODEL (FV less AD less AIL)

MARKET APPROACH
COST APPROACH (Computing Revaluation Surplus)
1. Identify Replacement Cost
2. Total Economic Life = Effective life + Remaining economic life
3. Depreciation rate = Effective life ÷ Total economic life
4. Depreciation = Depreciation rate x Replacement cost
5. Fair value = Replacement cost – Depreciation
6. Revaluation Surplus (gross of tax) = Fair Value – Carrying Amount
7. Revaluation Surplus (net of tax) = RV gross of tax – deferred tax
INCOME APPROACH (Recording Revaluation Surplus)
A. Proportional Method (Default)- AD is equal to the difference between GROSS carrying
amount and the carrying amount after taking into account AIL
B. Elimination Method- AD is eliminated against GROSS carrying amount

 REVALUATION SURPLUS
o Non-depreciable asset revalued
- When derecognized, transfer directly to retained earnings (full amount)
○ Depreciable asset revalued
- Piece meal basis over the remaining useful life of the asset (difference between the
depreciation on the revalued amount and the depreciation based on original cost)

• Reversal of Revaluation- increases & decreases are recognized in equity through OCI unless
they represent impairment loss or reversals. The IL and gains are recognized in profit & loss.

DECRECOGNITION
1. Disposal
2. No future economic benefits from its use or disposal
DISCLOSURES (Each class of PPE)
1. Measurement bases used determining gross CA
2. Depreciation methods used
3. Useful lives/depreciation rates used
4. Gross CA and AD (with AIL) at the beginning and end of the period
5. Reconciliation of CA at the beginning and end of period (additions, disposals, other
changes)
6. Existence & amounts of restrictions of title, PPE pledged as security for liabilities
7. Amount of expenditures recognized in CA of PPE during construction
8. Amount of contractual commitments for acquisition of PPE
9. Compensation for impairment losses
10. Depreciation
11. Accumulated depreciation
12. Changes in estimates (residual values, decommissioning & restoration costs, useful lives,
depreciation methods)
13. Effective date of revaluation
14. If an independent valuer was involved
15. Methods and significant assumptions applied in estimating item’s FV
16. Extent of the item’s FV determined (observable prices in an active market/ recent
market transactions/using other valuation techniques)
17. Each revalued class of PPE (also CA that would have been recognized had the assets
carried under cost model)
18. Revaluation surplus (with change for the period and restrictions on the distribution of
the balance to shareholders)
19. CA of temporarily idle PPE, PPE retired but not classified held for sale
20. Gross CA of fully depreciated PPE and still in use
21. When the cost model is used, the FV of PPE when this is materially different from CA
 DEPLETION OF MINERAL RESOURCES

IFRS 6 / PFRS 6
(financial reporting for exploration for and evaluation of mineral resources)
(exploration and evaluation expenditures)
APPLIED TO NOT APPLIED TO
1. AFTER obtaining legal rights 1. BEFORE obtaining legal rights
2. BEFORE technical feasibility & commercial 2. AFTER technical feasibility & commercial
viability of extracting mineral resource are viability of extracting mineral resource are
demonstrable demonstrable

MEASUREMENT
i. COST (INITIAL)
- Acquisition of rights to explore
- Topographical, geological, geochemical, and geophysical studies
- Exploratory drilling
- Trenching
- Sampling
- Activities in relation to evaluating technical feasibility & commercial viability of
extracting mineral resources

COST OF NATURAL RESOURCES

- Purchase price (include direct costs)
- Restoration costs (to the extent the entity has present obligation @ FV)
- Exploration costs (after legal rights have been obtained), (accounted for in
accordance with entity’s policy developed based on management’s judgment)
- INTANGIBLE Development costs (include drilling costs, and cost of construction of
tunnels, shafts, wells)
 Tangible development cost are capitalized as equipment
ii. COST MODEL/REVALUATION MODEL (SUBSEQUENT)
- TANGIBLE development cost (equipment)
Movable Tangible Equipment- depreciated over its useful life (default: straight-line method)
Immovable Tangible Equipment- useful life or life of the resource (whichever is SHORTER)
STRAIGHT-LINE METHOD UNITS-OF-PRODUCTION METHOD
Useful life Life of the resource
No extraction activities Extraction activities in a period

*Depletion method- use units-of-production method

EXPENSED: dismantling cost required to place equipment to be installed

DERECOGNITION of expenditures
1. Existence of reserves is in fact established

DISCLOSURES
1. Information that identifies and explains the amounts recognized in FS
2. Accounting policies (including the recognition of exploration & evaluation assets)
 3. Amounts of assets, liabilities, income, and expense, operating and investing cash flows
arising from exploration for and evaluation of mineral resources

FORMULA
Unrestricted Retained Earnings Sales
Add: Accumulated depletion Less: Cost of Sales
Less: Capital liquidated Operating Expenses
Depletion in ending inventory Add: (Depletion cost x tons sold)
Maximum amount of dividend Maximum amount of dividend
 GOVERNMENT GRANTS

IAS 20 / PAS 20
(accounting and disclosure of gov’t grants and disclosure of other forms gov’t assistance)

APPLIED TO NOT APPLIED TO

1. Gov’t grants under hyperinflationary economies
2. Tax benefits (Income tax holidays, investment tax credits, accelerated
depreciation allowances, reduced income tax rates)
3. gov’t participation in ownership of entity
4. gov’t grants under IAS 41 Agriculture
GOV’T ASSISTANCE
5. gov’t procurement policy responsible for a portion of entity’s sale
6. free technical/market advice (cannot reasonably have a value)
7. Provision of guarantees (cannot reasonably have a value)
8. Public improvement that benefit the community

RECOGNITION
-there’s reasonable assurance that:
1. the entity will comply with the conditions attaching to them, AND
2. the grants will be received
• an economic benefit received from the gov’t
• direct benefits is specific to the recipient entity
• with measurable value
• received or receivable in return for past/future compliance with attached condition

MEASUREMENT
i. Monetary grants: amount of cash received
FV of amount receivable
CA of loan payable to gov’t for which repayment is forgiven
Discount of loan payable to gov’t at a below-market rate of interest
ii. Non-monetary grants: FV of non-monetary asset received
Loan at zero interest or below-market rate of interest

DISCLOSURE
1. Accounting policy (including methods of presentation)
2. Nature and extents of gov’t grants and other form gov’t assistance which the entity
directly benefited
3. Unfulfilled conditions & other contingencies attaching to gov’t assistance
 BORROWING COSTS

IAS 23 / PAS 23
(accounting for borrowing costs)

APPLIED TO NOT APPLIED TO

1. Interest expense (effective interest method) 1. actual or imputed cost of equity (include
preferred capital not classified as liability)
2.finance charges in respect of finance leases 2. qualifying asset @ FV (FV model)
3.exchange differences (from foreign currency 3. inventories produced in large quantities on
borrowings to the extent they are regarded as a repetitive basis
an adjustment to interest costs)

QUALIFYING ASSETS
YES NO
1.Inventories 1. Financial Assets & inventories
manufactured over a short period of time
2.Manufacturing plants 2. Acquired assets ready for its intended
use/sale
3.Power generation facilities 3. assets manufactured repetitively on large
quantities
4.Intangible Assets 4. Assets @ FV
5.Investment properties @ cost (cost model)

RECOGNITION
1. Directly attributable to the acquisition, construction, production of a QUALIFYING asset
• the entity incurs expenditures for the asset
• the entity incurs borrowing costs
• it undertakes activities necessary to prepare the asset for its intended use/sale
(technical & administrative work PRIOR to start of physical construction like obtaining
permit to construct, actual physical construction)

INCLUDES AND LIMITED TO: payments of cash, transfers of other assets, assumption of interest
bearing liabilities

CESSATION of CAPITALIZATION
1. When substantially all the activities necessary to prepare the qualifying asset for its
intended use/sale are complete (even if routine for administrative work might still
continue)

DISCLOSURES
1. Amount of borrowing costs capitalized
2. Capitalization rate used

FORMULAS
Specific Borrowing:
Borrowing costs = interest expense – investment income earned on specific borrowing
General Borrowing:
1. Capitalization rate = total interest expense on general borrowing ÷ total general
borrowing
2. Borrowing cost = average expenditure on asset x capitalization rate
3. Compare which is LOWER between actual borrowing costs & amount eligible for
capitalization
Both specific & general borrowing:
1. Average expenditure = total of (expenditure x (month outstanding ÷ 12))
2. Specific borrowing = interest expense – investment income earned on specific
borrowing
3. General borrowing:
Capitalization rate = total interest expense on general borrowing ÷ total general
borrowing
Borrowing cost = (average expenditure on asset – specific borrowing) x capitalization
rate
Compare which is LOWER between actual borrowing costs & amount eligible for
capitalization

Specific borrowing used for general purpose:

Borrowing cost = average expenditure net of investment income x interest rate on specific
Borrowing
 INVESTMENT PROPERTY

IAS 40 / PAS 40
(accounting and disclosures for investment property)

APPLIED TO NOT APPLIED TO

1. land/building held for rentals, long term 1. accounting for leases (except lessee’s IP
capital appreciation, undetermined future use, interests under finance lease & lessor’s IP
leased out under operating lease, for future under operating lease)
use as investment property
2. biological assets (IAS 41)
3. mineral rights & reserves

RECOGNITION
1. Probable FUTURE ECONOMIC BENEFITS will flow to the entity
2. Cost of IP can be MEASURED RELIABLY

MEASUREMENT
i. COST (INITIAL)
1. Purchase price
2. Any directly attributable expenditure (includes professional fees for legal
services, property transfer tax, other transaction costs)
 Self-constructed IP- cost at the date of construction/development completed

EXPENSED: day-to-day servicing, start-up costs (UNLESS necessary), operating losses incurred
before IP achieves planned level of occupancy, abnormal amounts of wasted material, labor or
other resources

 Deferred settlement- Cash price equivalent

 IP under FINANCE LEASE (whichever is LOWER)
1. FV of the property
2. PV of the minimum lease payments (premium)

Acquisition through exchange:

commercial substance: lacks commercial substance:
-FV of the asset given up (+ cash paid or – cash
received)
-FV of the asset received
-CA of the asset given up (+ cash paid or – cash -CA of the asset given up (+ cash paid or – cash
received) received)

 If FV cannot be determined reliably, use Cost Model until its disposal. When
depreciating, residual value is assumed to be ZERO.

ii. COST MODEL/ FAIR VALUE MODEL (SUBSEQUENT)

COST MODEL: Cost less AD less AIL
FAIR VALUE MODEL: (No Depreciation!!!), must be applied if property interest in operating
lease is classified as IP

 Cost Model to FV Model (Yes!) • FV Model to Cost Model (No!)

*TRANSFERS (Change in Use)- refer to book

DISCLOSURES
1. Model used (cost or FV)
2. Criteria used to distinguish IP from PPE and from inventory
3. Methods and significant assumptions applied in determining FV of IP
4. The extent to which FV of IP is based on valuation by an independent valuer. If no
valuation, that fact shall be disclosed.
5. Amounts recognized in profit or loss for rental income & rental expenses
6. Existence & amounts of restrictions on IP
7. Contractual obligations to purchase, construct, or develop IP, or for repairs,
maintenance or enhancements
COST MODEL FAIR VALUE MODEL
Depreciation methods used, useful lives, Whether and what circumstances, property
depreciation rates used interests held under operating leases are
classified and accounted for as IP
Reconciliation in increases & decreases of IP Reconciliation in increases & decreases of IP
and related AD and AIL
Valuation obtained for IP is adjusted to avoid
double counting of assets, liabilities,
reconciliation between valuation obtained
and adjusted valuation
 INTANGIBLE ASSETS

IAS 38 / PAS 38
(accounting and disclosure for intangible assets other than those specifically dealt with
under other standards)
APPLIED TO NOT APPLIED TO
1. goodwill acquired in business combination
2. financial assets (IFRS 7 & 9, IAS 32)
3. exploration & evaluation assets rights
4. intangible assets held for sale in the ordinary course of business
5. deferred taxes (IAS 12)
6. leases
7. assets from employee benefits
8. deferred acquisition costs & intangible assets from insurer’s
contractual rights under insurance contracts (IFRS 4)
9. non-current intangible assets held for sale

RECOGNITION
1. Meets the DEFINITION of intangible asset
2. Probable expected FUTURE ECONOMIC BENEFITS will flow to the entity
3. Cost of the asset can be MEASURED RELIABLY

MEASUREMENT
i. COST (INITIAL)

Ways of Acquisition
SEPARATE ACQUISITION
BUSINESS COMBINATION
WAY of a GOV’T GRANT
EXCHANGE
INTERNAL GENERATION
-Purchase price, import
duties, non-refundable
purchase taxes (after
deducting trade discounts &
rebates)
-Any directly attributable cost
(costs of employee benefits,
professional fees, costs of
testing)
-Fair Value (includes R & D If no active market:
project) -Amount the entity would
have been paid at the
acquisition date
- discounting estimated future
net cash flows from asset
-Fair Value - Nominal amount or zero +
direct costs
commercial substance: lacks commercial substance:
-FV of the asset given up (+
cash paid or – cash received)
-FV of the asset received
-CA of the asset given up (+ -CA of the asset given up (+
cash paid or – cash received) cash paid or – cash received)
Research phase- EXPENSED
 Development phase- normally
expensed UNLESS “MAPAIT”
is demonstrated

M-easure reliably the expenditure attributable to IA’s development

A-vailability of adequate technical, financial, other resources to complete development & to
use/sell the IA
P-robable future economic benefits will be generated
A-bility to use/sell IA
I-ntention to complete the IA & use/sell it
T-echnical feasibility of completing the IA so that it will be available for use/sale

EXPENSED REGULARLY: activities related to commercial production, periodic design changes to

existing products, modification of design for a specific customer, internally generated IAs,
expenditure on start-up activities (establishment costs, legal & secretarial costs, expenditure to
open new facility/business, expenditure for starting new operations/launching new
products/processes--UNLESS included in the cost of PPE), expenditure on training activities,
advertising/promotional activities, relocating/reorganizing part of all of an entity, subsequent
expenditures (subsequent expenditures on externally and internally generated IAs, costs to
develop/maintain goodwill from business combination, internally generated goodwill, litigation
to defend existing IA--UNLESS it extends the useful life of IA)

EXPENSED through R & D expense: R & D costs not qualified for IA, depreciation of PPE used in
various R&D activities that was capitalized, PPE that has no alternative use

Cost of internally generated IA: materials &services used in generating IA, employee benefits
from generation of IA, fees to register a legal right, amortization of patents & licenses used to
generate IA, capitalized borrowing costs for qualifying IA

ii. COST MODEL/REVALUATION MODEL (SUBSEQUENT)

COST MODEL: Cost – Acc. Amortization – AIL
REVALUATION MODEL: FV – Acc. Amortization – AIL (applied only if there’s an active market)

USEFUL LIFE
 Definite useful life- amortized
- Useful life or legal life, whichever is SHORTER
 Indefinite useful life (may be due to indefinite renewals)- not amortized but tested
for impairment

RESIDUAL VALUE
- Zero unless: commitment by third party to purchase asset at the end of its useful life
is present, and probable market will exist at the end of asset’s useful life
- If equal or greater than to CA, amortization is zero

DERECOGNITION
1. Disposal
2. No future economic benefits are expected from its use/disposal
DISCLOSURES
1. If useful life is definite or indefinite; if finite- useful life/amortization rates used
2. Amortization methods used
3. Gross CA & any acc. Amortization (with AIL) at beginning & end of period
4. Line items of statement of profit or loss & OCI which amortization is included
5. Reconciliation of CA at beginning and end of period & related AA, & AIL
6. Changes in accounting estimates
7. IA assessed as having indefinite useful life & reasons supporting assessments
8. IA acquired by way of gov’t grant & initially @ FV
9. Restriction on title of IA
10. Contractual commitments to acquire IA
11. Revaluation surplus recognized on revalued IA & assumptions used in estimating FV of
IA
12. R & D expenditure expensed
13. Description of fully amortized IAs & still in use
14. Brief description of significant IAs controlled by entity but not recognized as assets
because of not met criteria

CAPITALIZED NOT CAPITALIZED/EXPENSED

Internal web site use
External web site use which customers can
place orders
Application & infrastructure, graphical
design stage (if ALL conditions are met)
Operating stage (unless met the recognition
Acquired/externally generated IAS
External web site use which customers
cannot place orders
Planning stage
Content development stage (to the extent
that content is developed to advertise
products/services)
criteria)
Internally generated IAs
Organization costs (by start-up entity)

INTANGIBLE ASSET INITIAL COST AMORTIZATION

Patent Purchased: Purchase cost + SHORTER:
direct cost Useful life or legal life (20
Self-created: legal & years)
registration costs
Copyright Purchased: Purchase cost + SHORTER:
direct cost Useful life or legal life
Internally generated: All (creator’s life + 50 years)
necessary costs that meet
ALL conditions for
capitalization
Franchise Purchased: Purchase cost + FINITE useful life
direct cost
Trademark Purchased: Purchase cost + NOT AMORTIZED
direct cost (legal life: 10 years
Internally generated: All renewable indefinitely)
necessary costs that meet
ALL conditions for
capitalization
 Computer Software Purchased: Purchase cost + Over useful life
direct cost
Costs AFTER technological
feasibility is established
(costs of coding and testing
after TF, costs of producing
product master, cost of
installation for internal use
software)
Web site cost Purchased: Purchase cost + SHORT useful life
direct cost
Costs incurred in application
& infrastructure
development, graphical
design stage, content
development stages (if self-
created)

For advertisement: expensed

Brands, mastheads, Externally generated: Yes! Over useful life
customer list, order of
production backlog & similar Internally generated:
items Expensed
 INVESTMENTS

IFRS 9 / PFRS 9
with IFRS 7, IFRS 13, IAS 32

APPLIED TO NOT APPLIED TO

1. Financial Assets
2. Financial Liabilities
3. Equity instruments of another entity
4. Commodity contracts settled in cash or another financial
instrument

Financial Assets Not Financial Assets

Cash & Cash Equivalents (cash on hand & in
banks, short-term money placements, cash
funds)
Receivables (accounts, notes, loans, finance
lease receivables)
Investments in equity instruments of other
entities
Investments in debt securities
Sinking fund & other long term funds (only of
cash & other financial assets)
Cash surrender value of life insurance
Physical assets & Intangible Assets
Prepaid expenses & advances to suppliers
Prepaid Interest**
Own equity instruments
Claims for refund of over remittances to gov’t
agencies for statutory required payments
Commodity contracts not settled in cash or
another financial instrument or settled by
commodity exchange

Financial Liability Not Financial Liability

Payables (accounts, notes, loans, bonds)
Finance lease obligations
Liabilities held for trading
Redeemable preference shares issued
Security deposits received by lessor to be
returned to tenants at the end of lease term
Unearned revenues & warranty obligations
that are to be settled by future delivery of
goods or provision of services
Taxes, SSS, Philhealth, Pag-IBIG, HDMF
payables
Commodity contracts settled by commodity
exchange

Type of Composition Statement of Initial recognition Subsequent Fair value

Investment Financial Position measurement changes
FAFVPL Debt & equity Current FV FV-PL Profit or
securities (transaction costs Loss
are expensed)
FAFVOCI Debt & equity Current or FV + transaction FV-OCI Other
securities Noncurrent (but costs compreh
normally NC) ensive
Income
FAAC Debt Current or FV + transaction Amortized cost Ignored
securities Noncurrent (but costs (Impairm
normally NC) ent only)
RECOGNITION
(INITIAL)
- A. Amortized cost (Both are met)
• To hold & collect
• SPPI (solely payments of principal & interest)
- B. Fair Value
• FAFVPL (FVPL or Held for trading securities)
• FAFVOCI

(SUBSEQUENT)
- Business Model
A. To hold & collect- FAAC or FAFVPL
B. To hold & sell- FAFVPL
C. To hold in order to collect & sell- FAFVOCI

IF SOLD:
Debt securities (recyclable)- unrealized gain/loss is transferred to profit or loss
Equity securities (non-recyclable)- (FAFVOCI) cumulative unrealized gain/loss is transferred to
retained earnings

Other long-term investments:

- Sinking fund - Expansion fund
- Preference share redemption - Contingency fund
fund - Insurance fund
- Asset replacement fund - Cash surrender value

Add’l notes:
1. Since the purpose of the entity is merely to but & sell, its ownership on the equity of
another entity must be less than 20%.
2. If it is greater than or equal to 20%, accounting for investment in associate applies.
3. If it is greater than or equal to 50%, the entity has control over the investee.
4. The statement of other comprehensive income includes only revaluation surplus &
changes in the FV of FAFVOCI
5. Normally: Principal (PV of 1), Interest (PVOA)
6. Sinking funds may or may not appropriate retained earnings (it depends who
administers the fund)
7. Preference share redemption fund appropriates retained earnings
8. All other long-term funds are accounted like sinking funds except for cash surrender
value.
9. Cash surrender value is allocated over required holding period necessary for it to
accumulate. The amount allocated to the CURRENT year, increases in CSV in subsequent
recognition, cash dividends received are recognized as deduction from insurance
expense. However, amount allocated to prior years is credited to retained earnings.
Also, when the insured key employee dies during the year, the increase in CSV is
recognized up to the date of death. The difference between insurance proceeds
received or receivable and sum of CSV & any unexpired portion of prepaid insurance is
recognized as gain on life insurance settlement.
 INVESTMENT IN ASSOCIATES

IAS 28 / PAS 28
(accounting for investments in associates and sets out requirement for the application
of equity method)

SIGNIFICANT INFLUENCE (QUALITATIVE CHARACTERISTICS)

1. Representation on BOD or equivalent governing body of the investee
2. Participation in the policy making processes, decisions about dividends or other distributions
3. Material transactions between the investor & investee
4. Interchange of managerial personnel
5. Provision of essential technical information

** percentage of ownership matters when there is no qualitative characteristics stated.

MEASUREMENT
i. COST (INITIAL)
ii. EQUITY METHOD (SUBSEQUENT)

Investor’s share in the change in investee’s
equity (net assets or capital)
Profit or loss
Dividends
OCI/Discontinued operations
Effect on the carrying amount of the
investment
Increase in share of profit
Decrease in share of loss
Decrease
Increase in share of gain
Decrease in share of loss

Add’l notes:
1. Discount (Dr. FAAC, Cr. Interest Income)
2. Premium (Dr. Interest Income, Cr. FAAC)
3. Debt instruments @ FAAC
- Carrying amount at the end of term is zero because the amount is paid by the investee
unless it is stated that the amount has not been paid by the investee.