Table of Contents:

I. Midterm Period
- The Accountancy Profession
- The Conceptual Framework
- Financial Statements (Pas 1)
- Cash Flow (Pas 7)
- Financial Instruments Framework (PFRS 9, Pas 32)
- Investment in Associates (Pas 28)
- Inventories (Pas 2)
- Agricultural Assets (Pas 41)
- Impairment of Assets (Pas 36)
- Property, Plant, and Equipment (Pas 16)
- Government Grants (Pas 20)
- Borrowing Costs (Pas 23)
- Investment Property (Pas 40)

II. Finals Period

- Intangible Assets (Pas 38)
- Exploration and Evaluation of Mineral Resources (PFRS 6)
- Non-current assets held for sale and Discontinued Operations (PFRS 5)
- Provision, Contingent Liability and Asset (Pas 37)
- Leases (PFRS 16)
- Income Taxes (Pas 12)
- Employee Benefits (Pas 19)
- Accounting Policies, Estimates, and Errors (Pas 8)
- Events after the reporting period (Pas 10)
- Related Party Disclosures (Pas 24)

I. Midterm Period
- The Accountancy Profession
What is accounting?
Accounting is a (1) service activity that provides (2) quantitative information that is (3) financial in nature
that should be (4) useful in making economic decisions.
Components of accounting:
1. Identifying - the process of recognizing which is the accountable event or an economic activity. Accountable
event is an event that has effects on the assets, liabilities, and equity of an entity.
Transactions or accounting events are classified as external and internal:
Internal transactions - are economic activities that take place within the entity ONLY. No other parties are involved.
External transactions - are those economic events involving ONE entity and ANOTHER entity

2. Measuring - process of assigning peso amounts to accountable events. This is done because for the accounting
information to be useful, it must be expressed in terms of a common financial denominator. The information must be
measurable.

3. Communicating - process of preparing and distributing accounting reports to potential users of information. This
process is the reason why accounting has been called the universal language of business.
The communication process includes:
a. Recording - maintaining records. In other words, journalizing.
b. Classifying - sorting of similar interrelated economic transactions in the ledger.
c. Summarizing - preparation of financial statements.

Accountancy Profession
RA # 9298 (Accountancy Act of 2004) - the law regulating the practice of accountancy in the Philippines

BOA (Board of Accountancy)

- authorized by law to promulgate rules and regulations about the practice of accountancy profession in the
Philippines.
- responsible for preparing and grading of CPALE

In order to qualify to practice the accountancy profession, a person must finish a degree in Bachelor of Science in
Accountancy and pass the board exam, known as CPALE (Certified Public Accountant Licensure Examination)
that is offered twice a year by the BOA during May and October.

* Securities and Exchange Commission shall not register any corporation organized for the practice of public
accountancy. Only as single practitioners or partnership.

Accreditation to practice public accountancy

* CPAs, firms, and partnerships of CPAs including partners and staff members are required to register with the
BOA and PRC (Philippine Regulation Commission) for the practice
* PRC shall approve that a registrant accomplished minimum of 3 years experience in any of the areas of public
practice before issuing certificate of accreditation

* PRC upon recommendation of BOA, shall issue the Certificate of Registration which shall be valid for 3 years
and renewable every 3 years.

AREAS OF ACCOUNTANCY PROFESSION

1. Public Accounting - accountants render services to the public
Services in offered by public accountants :
a. Auditing - examination of FS by independent CPA for the purpose of expressing professional opinion.
External auditing is the attest function of independent CPAs.
b. Taxation - services include the preparation of annual income tax returns and determination of tax
consequences. Accountants offering this service must be thoroughly familiar with tax laws and regulations.
c. Management advisory services - accountants provide services to clients on about: advices, quality control,
budgeting, planning, and forecasting

2. Private Accounting - accountants are employed in business entities as accounting staff, internal auditor, and
controller (highest accounting officer).
- Accountants in private accounting assist management in planning and controlling the entity’s operations through
maintaining records, producing financial reports, preparing budgets, and controlling the resources of the entity.

3. Government Accounting - includes the process of analyzing, classifying, summarizing and communicating all
transactions of government funds and property and interpreting the results thereof.

CONTINUING PROFESSIONAL DEVELOPMENT (CPD)

- acquisition of advanced knowledge, skill, and proficiency
- enhances the technical skill and competence of CPAs

RA #10912 - the law mandating the CPD programs for all regulated professions, including the accountancy
profession. All CPAs shall abide by the requirements and rules on CPD to be promulgated by the BOA and to be
approved by PRC

CPD CREDIT UNITS - hours required for the renewal of CPA license and accreditation of a CPA to practice the
accountancy profession every 3 years.
15 CPD credit units - required for renewal of CPA license
120 CPD credit units - required for accreditation of a CPA to practice the accountancy profession
NOTE: excess credit units earned shall not be carried over to the next three-year period, except credit units earned
for masteral and doctoral

Exemption from CPD

A CPA shall be permanently exempted from CPD requirements upon reaching the age of 65 years. BUT the
exemption can ONLY be applied to renewal of CPA license and NOT for accreditation

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

- rules, procedure, practice, and standards followed in the preparation and presentation of FS. GAAP are like laws
that must be followed in financial reporting.
- the principles have developed on the basis of experience, reason, custom, usage, and practical necessity

Purpose of accounting standards

- To identify proper accounting practices for the preparation and presentation of FS
- create common understanding between preparer and users of FS

FINANCIAL REPORTING STANDARDS COUNCIL or FRSC (formerly, Accounting Standards Council)

-setting body created by PRC upon recommendation of BOA to assist the BOA in carrying out its powers and
functions provided under RA # 9298
- the main function of FRSC is to establish and improve accounting standards that will be generally accepted in the
Philippines
- composed of 15 members including the chairman

PAS & PFRS - are accounting standards promulgated by FRSC

- PAS and PFRS constitutes the highest hierarchy of GAAP in the Philippines

PIC or Philippine Interpretations Committee (formerly, Interpretations Committee) - formed by FRSC in August
2006
- the role of PIC is to prepare interpretations of PFRS for approval by FRSC and to provide timely guidance on
financial reporting issues
 FRSC IASB

PFRS IFRS

PAS IAS

PIC IFRIC

AGRICULTURE (PAS 41)

Scope:
1. Bio assets, except for bearer plants
2. Agricultural produce AT THE POINT OF HARVEST
3. Govt. grants related to bio assets

PAS 41 does not apply to:

1. Land related to agricultural activity
2. Bearer plants related to agricultural activity
3. Govt. grants related to bearer plants
4. Intangible assets related to agricultural activity
5. Right of use asset from a lease of land related to agricultural activity

* PAS 41, is applied to agricultural produce harvested from bio assets AT THE POINT OF HARVEST

* PAS 41, does NOT deal with the processing of agricultural produce AFTER harvest

DEFINITION OF TERMS
Biological Assets - are living plants and animals
Agricultural produce - harvested products of an entity’s bio assets
Harvest - is the detachment (pagpitas) of produce from bio asset OR cessation of a bio asset’s life processes
(pagkatay)
Biological transformation - comprises the processes of growth, degeneration, production, and procreation that cause
qualitative or quantitative changes in a bio asset
Agricultural Activity - management by an entity of the biological transformation and harvest of bio asset for sale or
conversion
a. Into agricultural produce (pag-bunga)
b. Into additional bio asset (pag-papalago)

Agricultural activity covers a diverse range of activities. Certain common features exist within this diversity:
A. Capability to change - bio assets are capable of biological transformation
B. Management of change - management facilitates biological transformation by enhancing, or atleast stabilizing,
conditions necessary for the process to take place
C. Measurement of change - the change in quality or quantity brought about by biological transformation or harvest
is measure and monitored as a routine management function

Bearer Plants - is a living plant that (treated as PPE)

 a. Used in the production or supply of agricultural produce
b. Expected to bear produce for more than 1 period
c. Has a remote likelihood of being sold as agricultural produce, except as incidental scrap
* Bearer plants are used solely to grow agricultural produce over several period
* A bearer plant that no longer bears produce is commonly cut down and sold as scrap at the end of the productive
life

NOT CONSIDERED BEARER PLANTS:

a. Plants grown to be harvested
b. Annual crops

Bearer Animals - held solely for the produce that they bear (treated as bio asset unlike on bearer plants)
* Managing recreational activities is not agricultural activity (EX. zoos and gameparks) animals in these
recreational activities are accounted for as PPE
* Natural breeding that takes place is NOT A MANAGED ACTIVITY and is incidental ONLY

RECOGNITION
An entity shall recognize a bio asset or agricultural produce when and ONLY when:
a. The entity controls the asset as a result of past event
b. It is probable that future economic benefits associated with the asset will flow to the entity
c. the FV or cost of the asset can be measured reliably
In agricultural activity, control may be evidenced by: legal ownership and branding

MEASUREMENT

Biological asset Agricultural produce Agricultural produce growing on

bearer plant

Measured at FV-CTS Measured at FV-CTS at the POINT Measured at FV-CTS

OF HARVEST

* entities often enter into contracts to sell their bio assets or agricultural produce at a future date. Prices indicated in
contracts are not relevant in measuring fair value, because fair value reflects the current market conditions in which
market participants enter into a transaction. As a result, FV of bio asset and agricultural produce are not adjusted
because of the existence of a contract. In some cases, a contract for sale of bio assets or agricultural produce may be
an onerous contract and could result in gain or loss.

GAINS AND LOSSES

 Biological Assets Agricultural produce

G/L arising on initial recognition at FV-CTS from a G/L arising on initial recognition at FV-CTS shall be
change FV-CTS, shall be included in profit or loss included in profit or loss for the period in which it
arises
A loss may arise on initial recognition because CTS are
deducted in determining FV-CTS A G/L may arise on initial recognition of agricultural
produce as a result of harvesting
A gain may arise on initial recognition, such as when a
calf is born Entry:
Agricultural produce xx
Entry: Gain xx
Bio asset xx
Gain xx

INABILITY TO MEASURE FAIR VALUE RELIABLY

Biological Asset Agricultural produce

There is a presumption that FV can be measure reliably PAS 41 reflects the view that the FV of agricultural
produce at the point of harvest can always be measured
reliably
BUT, if the FV cannot be measured reliably, bio asset
In other words, agricultural produce always has fair
shall be measure at its cost less any accum.
value
Depreciation less any accum. Impairment loss

ONCE the FV of such bio asset becomes reliably

measurable, an entity shall measure it at its FV-CTS

GOVERNMENT GRANTS FOR BIOLOGICAL ASSETS

There are 2 basic types of govt. Grants, conditional and unconditional

Unconditional Conditional

Unconditional govt. Grants related to bio assets If the govt. Grant related to bio asset measured at its
measured at its FV-CTS shall be recognized in profit FV-CTS, an entity shall recognize the govt. Grant in
or loss when and ONLY when the govt. grants profit or loss when and ONLY when the conditions
becomes receivable attaching to the govt. grants are met
IMPAIRMENT OF ASSETS (PAS 36)
Objective - to ensure that assets are carried at no more than their recoverable amount

Impairment Loss - amount by which carrying amount of an asset or CGU exceeds recoverable amount

INDICATION OF POSSIBLE IMPAIRMENT

1. Quantitative
Asset is impaired when:
CA > RA = impairment loss

DEFINITION OF TERMS
Carrying amount - amount at which the asset is recognized (yung amount sa records or book value)
Recoverable amount - amount expected to be recovered by use or sale of the asset

How to determine the recoverable amount?

Compare FV-CTS and Value in use. Whichever is higher between the two is the recoverable amount

Value in use - present value of net cash flow expected to derive from an asset

2. Qualitative
External Factor - the entity has no control
EX.
- Significant decline in market value of the asset
- Changes in technological environment
- Changes in legal environment

Internal Factor - Can be observed inside the company or happens on the asset itself
- Significant changes have taken place or are likely to take place which have an adverse effect on the manner
of using assets or on the entity
- Declining asset performance
- Physical damage
RECOGNITION
● Impairment loss shall be recognized immediately in profit or loss by reducing the asset’s carrying amount
to its recoverable amount

Example ENTRY:
Impairment loss xx
Accum. Depreciation xx

* After the recognition of IL, the depreciation charge for the asset shall be adjusted in future periods to
allocate the revised CA less residual value on a systematic basis over the remaining useful life

● If the impaired asset is measured at revalued amount in accordance with another standard, impairment loss
shall be treated as revaluation decrease in accordance with that other standard

REVERSAL OF AN IMPAIRMENT LOSS

* If the RA of an asset that has previously been impaired turns out to be higher than the current CA, the CA of the
asset shall be increased to new recoverable amount

BUT, the increased CA of an asset due to a reversal of an impairment loss shall not exceed the CA that would have
been determined if there was no impairment loss recognized in prior years

* The reversal of the impairment loss shall be recognized immediately in the income statement as gain on reversal
of impairment loss

IMPAIRMENT LOSS FOR A CASH GENERATING UNIT (CGU)

- Is segment of business that generates revenue and cash inflows independently. A CGU may be a
department, a product line or as segment of business
- The recoverable amount of an asset shall be determined for the asset individually
- If not possible to estimate the RA of an individual asset, an entity shall determine the RA of the CGU to
which the asset belongs
The impairment loss shall be allocated to reduce the CA of the assets of the unit in the following order:
1. Reduce the CA of any goodwill allocated to the CGU and
2. then , to the other assets of the unit pro rata (in proportion) on the basis of the CA of each asset in the unit

REVERSAL OF IMPAIRMENT LOSS ON GOODWILL

* Impairment loss recognized for goodwill shall not be reversed in a subsequent period

PROPERTY, PLANTS, AND EQUIPMENTS (PAS 16) [louise]

Definition and characteristics

1. Are tangible assets (w/ physical substance)
2. Used in business
3. Expected to be used over a period of more than 1 year

INITIAL MEASUREMENT
An item that qualifies as PPE, shall be measured at COST.
Cost is the amount of cash or cash equivalent paid and the FV of the other consideration given to acquire an asset at
the time of acquisition or construction

Elements of cost:
a. Purchase price (including import duties, nonrefundable taxes, after deducting trade discounts and rebates)
b. Cost directly attributable to bringing the asset to the location and condition FOR THE INTENDED USE
c. initial estimate cost of dismantling

SUBSEQUENT MEASUREMENT
An entity shall choose either:
1. Cost model or,
2. Revaluation model

Cost model - PPE are carried at cost - any acumm. Depreciation - any acumm. Impairment loss

Revaluation model - is the fair value at the date if revaluation - any subsequent accum. Depreciation - any susequent
accum. Impairment loss
MODES OF ACQUISITION
1. Acquisition on a cash basis
Cost of asset= cash paid + directly attributable cost
2. Acquisition on account
Cost of asset = invoice price minus the discount, regardless whether the discount is taken or not
Cash discounts are generally considered as reduction of cost and not as income
3. Acquisition on installment basis
If payment for item of PPE is deferred beyond normal credit terms, the cost is the cash price equivalent
4. Issuance of share capital
Property shall be measured at an amount equal to the following in the order of priority:
a. FV of the property received
b. FV of the share capital
c. Par value or stated value of the share capital (yung nasa share certificate)
5. Issuance of bonds payable
Asset shall be measured in the following order:
a. FV of the bonds payable
b. FV of asset received
c. Face amount of bonds payable

EXCHANGE
If an item of PPE acquired in exchange for a non monetary asset or a combination of monetary and non monetary
asset,
Cost of asset = fair value + any cash payment

HOWEVER, the exchange is recognized at carrying amount if the exchange LACKS COMMERCIAL
SUBSTANCE

Commercial Substance - event or transaction causing the cash flows of the entity TO CHANGE SIGNIFICANTLY
by reason of the exchange

In other words, an exchange has commercial substances if the cash flows of the asset received DIFFER
SIGNIFICANTLY from the cash flows of the asset transferred

CONSTRUCTION
Cost of Self-Constructed PPE includes:
1. Direct cost of materials
2. Direct cost of labor
3. Indirect cost and incremental overhead specifically identifiable or traceable to the construction

NOTE: abnormal amounts of wasted material, labor or overhead incurred in the production or construction is NOT
INCLUDED in the cost of the asset (EX. may nalaglag sa building, yung expenses for that incident is not part of the
cost of asset)
DERECOGNITION
Cost of the PPE together with its accumulated depreciation shall be removed from SFP

* PPE shall be derecognized:

1. on disposal
2. When no future economic benefits are expected from the use of disposal

* G/L arising from derecognition of an item of PPE shall be determined as the difference of the net of disposal and
the CA of the item

DEPRECIATION
* Is a systematic allocation of depreciable amount of an asset over the useful life
* A matter of cost allocation in recognition of the exhaustion of the useful life

Depreciation period
Begins = when the asset is available for use
Ceases = when asset is derecognized

Depreciation Method
1. Straight line methods - considers depreciation as a function of time
2. Production method - assumes that depreciation is more a function of use rather than passage of time
3. Diminishing balance or accelerated methods- provide higher depreciation in the earlier years and lower
depreciation in the later years of the useful life of the asset

BORROWING COST - PAS 23

Borrowing cost - are interest costs incurred as a result of borrowings from banks and other financial institutions

2 classifications of borrowing costs

1. Specific borrowing - intended specifically in acquiring a qualifying asset
2. General borrowing - intended partly in acquiring a qualifying asset and partly for general or working capital
purposes

Qualifying Asset - an asset that necessarily TAKES A SUBSTANTIAL PERIOD OF TIME to get ready for the
intended use or sale
NOTE: borrowing costs incurred in connection w/ acquisition of a qualifying asset should be capitalized as cost of
the qualifying asset

ACCOUNTING FOR BORROWING COST

1. Capitalization of borrowing cost is required for a qualifying asset
2. If borrowings are not directly attributable to a qualifying asset, the borrowing is expensed immediately

ASSET FINANCED BY SPECIFIC BORROWING

Amount of capitalizable borrowing cost = actual borrowing cost incurred during the period LESS any investment
income from temporary investment of those borrowings

ASSET FINANCED BY GENERAL BORROWING

Amount of capitalizable borrowing cost = average carrying expenditure in the asset during the period multiplied by a
capitalization rate or average interest rate

NOTE: The amount of borrowing costs that an entity capitalizes during a period shall not exceed the amount of
borrowing costs it incurred during that period.

COMMENCEMENT OF CAPITALIZATION
Capitalization shall commence when the conditions are present:
1. When the entity incurs expenditures for the asset
2. When the entity incurs borrowing costs
3. When the entity undertakes activities that are necessary to prepare the asset for the intended use or sale

CESSATION OF CAPITALIZATION
Capitalization shall cease when SUBSTANTIALLY all the activities necessary to prepare the qualifying asset for
intended use of COMPLETE

DISCLOSURES
An entity shall disclose in the notes to financial statement the following:
A. the amount of borrowing costs capitalized during the period AND
B. the capitalization rate used to determine the amount of borrowing costs eligible for capitalization.