ACC 103 | Conceptual Framework & Accounting Standards

Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

Lesson Title: PAS 27 Separate Financial Statements; Materials:

PAS 28 Investments in Associates and Joint Ventures Calculator, reviewer
Lesson Objectives: notebook, textbook

At the end of this module, I should be able to: References:

1. Describe the applicability of PAS 27 and describe Millan, Zeus Vernon B.,
the measurement bases allowed under PAS 27. Conceptual Framework &
Accounting Standards,
Bandolin Enterprise, Baguio
2. Define an investment in associate and describe City, 2019
the accounting requirements for investments in [Link]
associates and joint ventures. PAS-28-investments-
associates-joint-ventures/
1.

Productivity Tip:
Follow a School-Like Schedule
The easiest way to mimic the focus and productivity that you have in school is by
working on the same schedule you would when you are in school. Similarly, to how you
spend consecutive periods in different subjects during the school day, you can set a
schedule for yourself that has you spend a certain number of consecutive hours
studying each subject every day.

A. LESSON PREVIEW/REVIEW
Let’s begin your 11th day in this subject by activating your prior knowledge through
answering the pre-test as your first activity today. Do not worry if you answer the
questions incorrectly, that only means you do not have prior knowledge of the subject.
(Distribute Activity Sheet 1 (AS-1). Activity 1 is good for 10 minutes only.

Activity 11-1: Pre-test (10 min.)

Student Name: __________________________________________ Date: ________
Instructions: Encircle the letter of the best answer to each questions.

1. These are those presented in addition to consolidated financial statements or the

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

financial statements of an entity with an investment in associate or joint venture

that is accounted for using equity method in accordance with PAS 28.
a. Individual financial statements
b. Separate financial statements
c. Consolidate financial statements
d. Equity financial statements

2. Entity A acquired an investment in associate for ₱1M many years ago. At the end of
the current reporting period, the investment has a fair value of ₱2.9M. If the equity
method is used, the investment would have a current carrying amount of ₱2.6M. In
Entity A’s separate financial statements, the investment should be valued at
a. 1,000,000.
b. 2,600,000.
c. 2,900,000.
d. any of these, as a matter of an accounting policy choice

3. Which of the following best describes the term ‘significant influence’ as used under
PAS 28?
a. The holding of 20% interest in an investee.
b. The ability to control an investee’s relevant activities through holding of
significant portion of the investee’s voting rights.
c. The power to participate in the financial and operating policy decisions of an
entity.
d. The contractually agreed sharing of profits and losses in an investee.

4. Entity A owns 25% of the voting rights in Entity B. However, Entity A has no
representation on the board of directors of Entity B. Which of the following
statements is correct?
a. Entity A cannot be presumed to have significant influence over Entity B because
Entity A does not have board representation.
b. Entity A is presumed to have signification influence over Entity B because it holds
25% or more of the voting rights in Entity B.
c. Entity A is presumed to have signification influence over Entity B because it holds
20% or more of the voting rights in Entity B.
d. Representation on an investee’s board of directors is never considered when
determining the existence of significant influence.

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

5. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity B
reports profit of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much
is the carrying amount of the investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000

6. The Hanwell Company acquired a 30% equity interest in The Northfield Company for
CU400,000 on 1 January 20X6. In the year to 31 December 20X6 Northfield earned
profits of CU80,000 and paid no dividend. In the year to 31 December 20X7
Northfield incurred losses of CU32,000 and paid a dividend of CU10,000. In
Hanwell's consolidated statement of financial position at 31 December 20X7, what
should be the carrying amount of its interest in Northfield, according to PAS 28
Investments in associates?
a. CU438,000
b. CU411,400
c. CU414,400
d. CU400,000

(After 10 minutes)
Self-Check of Activity 11-1. (Teacher will write the answers on the board.)
How did you fair so far? Again, do not worry if you answered some or all incorrectly. Let
us proceed to the next set of activities.

B. MICRO-LECTURE (15 min.)

 Guide to the Teacher’s Discussion (based on the results of Pre-Test)
 Student Engagement - Quality of questioning
 Teacher asks questions to probe and deepen students understanding or
uncover misconceptions
 Teacher assists students in clarifying and assessing their thinking with one
another.
 Teacher encourage student to answer another student’s question to probe
for deeper thinking.
 Guide questions:
 Describe the applicability of PAS 27.

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

 Define an investment in associate. (let the first student who answered the
first question, to call one of his/her classmate) (* Student talk is
predominantly student-to-student. Talks reflects discipline-specific
knowledge and ways of thinking)

TEACHER’S DISCUSSION

it by amount of collection
55. Immediate recognition of expense- reflects conservatism or prudence. Revenue
expenditure
56. Financial performance is determined using 2 approa
PASC- improvement, harmonization and worldwide acceptance and observance of
accounting standards
30. PASB replaces PASC. It is a global phenomenon intended to bring about great
transparency and a higher
degree of comparability in financial reporting; one uniform and globally accepted
financial reporting standard
31. Accounting assumptions- serve as the foundation or bedrock of accounting to avoid
misunderstanding.
Known as postulates.
32. Accounting/fiscal period- 12months
33. Fiscal period could either be calendar or natural. If calendar, ends on dec. 31. if
natural, ends on any month
when the business is at the lowest or experiencing slack season.
34. Monetary Unit has 2 aspects, quantifiability and stability of peso(current replacement
cost is ignored).
Sometimes, it is not necessarily valid that peso is stable since there may be instances
wherein there is
PASC- improvement, harmonization and worldwide acceptance and observance of
accounting standards
30. PASB replaces PASC. It is a global phenomenon intended to bring about great
transparency and a higher
degree of comparability in financial reporting; one uniform and globally accepted
financial reporting standard
31. Accounting assumptions- serve as the foundation or bedrock of accounting to avoid
misunderstanding.

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

Known as postulates.
32. Accounting/fiscal period- 12months
33. Fiscal period could either be calendar or natural. If calendar, ends on dec. 31. if
natural, ends on any month
when the business is at the lowest or experiencing slack season.
34. Monetary Unit has 2 aspects, quantifiability and stability of peso(current replacement
cost is ignored).
Sometimes, it is not necessarily valid that peso is stable since there may be instances
wherein there is
PASC- improvement, harmonization and worldwide acceptance and observance of
accounting standards
30. PASB replaces PASC. It is a global phenomenon intended to bring about great
transparency and a higher
degree of comparability in financial reporting; one uniform and globally accepted
financial reporting standard
31. Accounting assumptions- serve as the foundation or bedrock of accounting to avoid
misunderstanding.
Known as postulates.
32. Accounting/fiscal period- 12months
33. Fiscal period could either be calendar or natural. If calendar, ends on dec. 31. if
natural, ends on any month
when the business is at the lowest or experiencing slack season.
34. Monetary Unit has 2 aspects, quantifiability and stability of peso(current replacement
cost is ignored).
Sometimes, it is not necessarily valid that peso is stable since there may be instances
wherein there is
PASC- improvement, harmonization and worldwide acceptance and observance of
accounting standards
30. PASB replaces PASC. It is a global phenomenon intended to bring about great
transparency and a higher
degree of comparability in financial reporting; one uniform and globally accepted
financial reporting standard
31. Accounting assumptions- serve as the foundation or bedrock of accounting to avoid
misunderstanding.
Known as postulates.
32. Accounting/fiscal period- 12months

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

33. Fiscal period could either be calendar or natural. If calendar, ends on dec. 31. if
natural, ends on any month
when the business is at the lowest or experiencing slack season.
34. Monetary Unit has 2 aspects, quantifiability and stability of peso(current replacement
cost is ignored).
Sometimes, it is not necessarily valid that peso is stable since there may be instances
wherein there is
ASC- accounting is a service activity. Its function is to provide quantitative information
primarily financial in
nature that is intended to be useful in making economic decisions.
2. AICPA- accounting is the ART of recording, classifying, summarizing(RCS--
communication process)
3. AAA(statement of basic accounting theory)- PROCESS of identifying, measuring,
communicating(IMC)
4. Identifying as the analytical component
5. Measuring as the technical component
6. Communicating as the formal component
7. In order to be identifiable, a certain event must be quantifiable or expressed in terms
of a unit of measure. It
must have an effect on Assets, Liabilties, OE.
8. External transaction is also known as exchange
ASC- accounting is a service activity. Its function is to provide quantitative information
primarily financial in
nature that is intended to be useful in making economic decisions.
2. AICPA- accounting is the ART of recording, classifying, summarizing(RCS--
communication process)
3. AAA(statement of basic accounting theory)- PROCESS of identifying, measuring,
communicating(IMC)
4. Identifying as the analytical component
5. Measuring as the technical component
6. Communicating as the formal component
7. In order to be identifiable, a certain event must be quantifiable or expressed in terms
of a unit of measure. It
must have an effect on Assets, Liabilties, OE.
8. External transaction is also known as exchange
ASC- accounting is a service activity. Its function is to provide quantitative information
primarily financial in

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

nature that is intended to be useful in making economic decisions.

2. AICPA- accounting is the ART of recording, classifying, summarizing(RCS--
communication process)
3. AAA(statement of basic accounting theory)- PROCESS of identifying, measuring,
communicating(IMC)
4. Identifying as the analytical component
5. Measuring as the technical component
6. Communicating as the formal component
7. In order to be identifiable, a certain event must be quantifiable or expressed in terms
of a unit of measure. It
must have an effect on Assets, Liabilties, OE.
8. External transaction is also known as exchange
PAS 27 SEPARATE FINANCIA STATEMENTS

PAS 27 has the objective of setting standards to be applied in accounting for investments
in subsidiaries, jointly ventures, and associates when an entity elects, or is required by
local regulations, to present separate (non-consolidated) financial statements.
Key definitions

Consolidated Financial statements of a group in which the assets, liabilities,

financial equity, income, expenses and cash flows of the parent and its
statements subsidiaries are presented as those of a single economic
entity

Separate financial Financial statements presented by a parent (i.e. an investor

statements with control of a subsidiary), an investor with joint control of,
or significant influence over, an investee, in which the
investments are accounted for at cost or in accordance
with PFRS 9 Financial Instruments

Preparation of separate financial statements

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

PAS 27 does not mandate which entities produce separate financial statements available
for public use. It applies when an entity prepares separate financial statements that
comply with International Financial Reporting Standards.
Financial statements in which the equity method is applied are not separate financial
statements. Similarly, the financial statements of an entity that does not have a
subsidiary, associate or joint venturer's interest in a joint venture are not separate
financial statements.
An investment entity that is required, throughout the current period and all comparative
periods presented, to apply the exception to consolidation for all of its subsidiaries in
accordance with of PFRS 10 Consolidated Financial Statements presents separate
financial statements as its only financial statements.
[Note: The investment entity consolidation exemption was introduced into PFRS 10
by Investment Entities, issued on 31 October 2012 and effective for annual periods
beginning on or after 1 January 2014.]

Choice of accounting method

When an entity prepares separate financial statements, investments in subsidiaries,
associates, and jointly controlled entities are accounted for either:

 at cost, or
 in accordance with PFRS 9 Financial Instruments (or PAS 39 Financial Instruments:
Recognition and Measurement for entities that have not yet adopted PFRS 9), or
 using the equity method as described in PAS 28 Investments in Associates and
Joint Ventures.

The entity applies the same accounting for each category of investments. Investments
that are accounted for at cost and classified as held for sale in accordance with PFRS
5 Non-current Assets Held for Sale and Discontinued Operations are accounted for in
accordance with that PFRS. Investments carried at cost should be measured at the lower
of their carrying amount and fair value less costs to sell. The measurement of
investments accounted for in accordance with PFRS 9 is not changed in such
circumstances.
If an entity elects, in accordance with PAS 28 (as amended in 2011), to measure its
investments in associates or joint ventures at fair value through profit or loss in
accordance with PFRS 9, it shall also account for those investments in the same way in
its separate financial statements.

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

Investment entities
[Note: The investment entity consolidation exemption was introduced into PFRS 10
by Investment Entities, issued on 31 October 2012 and effective for annual periods
beginning on or after 1 January 2014.]
If a parent investment entity is required, in accordance with PFRS 10, to measure its
investment in a subsidiary at fair value through profit or loss in accordance with PFRS
9 or PAS 39, it is required to also account for its investment in a subsidiary in the same
way in its separate financial statements.
When a parent ceases to be an investment entity, the entity can account for an
investment in a subsidiary at cost (based on fair value at the date of change or status) or
in accordance with PFRS 9. When an entity becomes an investment entity, it accounts
for an investment in a subsidiary at fair value through profit or loss in accordance with
PFRS 9.

Recognition of dividends
An entity recognises a dividend from a subsidiary, joint venture or associate in profit or
loss in its separate financial statements when its right to receive the dividend in
established.
(Accounting for dividends where the equity method is applied to investments in joint
ventures and associates is specified in PAS 28 Investments in Associates and Joint
Ventures.)

Group reorganizations
Specified accounting applies in separate financial statements when a parent reorganises
the structure of its group by establishing a new entity as its parent in a manner
satisfying the following criteria:
 the new parent obtains control of the original parent by issuing equity instruments
in exchange for existing equity instruments of the original parent
 the assets and liabilities of the new group and the original group are the same
immediately before and after the reorganisation, and
 the owners of the original parent before the reorganisation have the same absolute
and relative interests in the net assets of the original group and the new group
immediately before and after the reorganisation.
 Where these criteria are met, and the new parent accounts for its investment in
the original parent at cost, the new parent measures the carrying amount of its
share of the equity items shown in the separate financial statements of the original

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 ACC 103 | Conceptual Framework & Accounting Standards
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_______
Section: ____________ Schedule: _________________________________
Date:
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parent at the date of the reorganisation.

The above requirements:

 apply to the establishment of an intermediate parent within a group, as well as

establishment of a new ultimate parent of a group
 apply to an entity that is not a parent entity and establishes a parent in a manner
that satisfies the above criteria
 apply only where the criteria above are satisfied and do not apply to other types of
reorganisations or for common control transactions more broadly.

PAS 28 INVESTMENT IN ASSOCIATES AND JOINT VENTURES

What is the objective of PAS 28?

The objective of PAS 28 Investments in Associates and Joint Ventures is:

 To prescribe the accounting for investments in associates, and

 To set out the requirements for the application of the equity method when
accounting for investments in associates and joint ventures.

An associate is an entity over which an investor has significant influence.

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

A joint venture is a joint arrangement whereby the parties having joint control of the
arrangement have rights to the net assets of the joint arrangement.

What is significant influence and how to detect it?

Standard PAS 28 defines significant influence as the power to participate in the

financial and operating policy decisions of the investee, but is NOT a control or joint
control of those policies.

Sometimes, it can be quite difficult to determine whether we deal with control or

significant influence – and we can’t make a mistake, because the whole accounting
treatment and reporting depends on this classification.

How can significant influence be evidenced?

The main indicator of significant influence is holding (directly or indirectly) more

than 20% of the voting power of the investee.

BUT!

It’s not the rule of thumb and often, the truth is different.

Sometimes, when an investor holds more than 20% of the voting power (but less than
50), it can still control the investee.

Let me show you an illustration:

Here, CarProd does not own the majority (over 50%), but it’s still more than 20% – that
would indicate significant influence.

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

But, as other investors own max. 1% each, the probability of outvoting CarProd in major
decisions is very low, so CarProd may in fact exercise control over TyreCorp, rather than
significant influence. Of course, you would need to examine it further.

The other ways of evidencing significant influence are as follows:

 Investor has a representation on the board of directors (or other equivalent

governing body) of the investee.
 Investor participates in policy-making processes (including dividend
decisions).
 There are material transactions between the investor and its investee.
 There’s interchange of managerial personnel.
 Provision of essential technical information.

When you assess the presence of significant influence, you should not forget to
examine potential voting rights (in form of some options to buy shares, or convertible
debt instruments, etc).

Apply the equity method

Once the investor acquires significant influence, or joint control of a joint venture, then it
must apply equity method.

The basic principles of equity method are:

On initial recognition:

1. The investment in an associate or joint venture is recognized at cost. The journal

entry is:
o Debit investments in the statement of financial position,
o Credit cash (bank account, or whatever applies).

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

2. If there’s a difference between cost and investor’s share on investee’s net

fair value of identifiable assets and liabilities, then it depends, whether this
difference is positive or negative:
o When the difference is positive (cost is higher than the share on net
assets), then there’s a goodwill and you don’t recognize it separately. It
is included in the cost of an investment and NOT amortized.
o When the difference is negative (cost is lower than the share on net
assets), then it’s recognized as an income in profit or loss in the period
when the investment is acquired.

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

Subsequently, after the initial recognition:

1. The carrying amount of the investment is increased or decreased by the

investor’s share on investee’s net profit or loss after the acquisition date. The
journal entry is:
o Debit Investment in the statement of financial position, and
o Credit Income from associate in profit or loss.

Or vice versa when an associate made loss.

When an associate or joint venture make losses and these losses exceed the
carrying amount of the investment, investor cannot bring down the carrying
amount of the investment below zero. Investor simply stops bringing in further
losses.

2. When an investee distributes some dividends to the investor, then such a

distribution decreases the carrying amount of the investment. The journal entry is:
o Debit Cash (or whatever applies here) and
o Credit Investment in the statement of financial position.

Learn the equity method procedures

The procedures in equity method are very similar to consolidation procedures under the
standard PFRS 10 Consolidated Financial Statements:

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 Both investor and investee shall apply uniform accounting policies for the
similar transactions.
 The same reporting date shall be used, unless it’s impracticable.
 Investor’s share on gain or loss from mutual „upstream“ and „downstream“
transactions is eliminated. So here, you don’t eliminate mutual balances
(receivables or payables) outstanding at the end of the reporting period, but you
eliminate just investor’s share on trading profit and similar items.

Exemptions from applying the equity method

Investor does not need to apply the equity method in one of the following circumstances:

1. Investor is a parent that is exempt from preparing consolidated financial

statements by the scope exception of paragraph 4(a) of PFRS 10 (it’s similar as
below point); OR
2. All of the following applies:
o The entity is a wholly owned subsidiary; or it’s a partially-owned subsidiary of
another entity and its other owners have been informed about and do not
object to not applying the equity method;
o The entity’s debit or equity Instruments are not traded in a public market;
o The entity did not file, nor is in the process of filing, its financial statements
with a securities commission or other body for the purpose of issuing any
class of Instruments in a public market;
o The ultimate or any intermediate parent of the entity produces consolidated
financial statements available for public use that comply with PFRS.
3. When an investment in an associate or a joint venture is held by in entity that is
a venture capital organization, mutual fund, unit trust or similar entity, then
investor might opt to measure investments at fair value through profit or loss
under PFRS 9 (and thus not apply equity method).The same applies for the
situation when an investor has an investment in an associate a portion of which is
held by these organizations.

When an investment meets the criteria in PFRS 5 and is classified as held for sale,
then an investor shall apply PFRS 5 to that investment and not equity method (even
when it relates to a portion of investment, then PFRS 5 is applied to that portion).

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

Name: ________________________________________________________ Class number:

_______
Section: ____________ Schedule: _________________________________
Date:
_______________

When to discontinue equity method

An investor stops applying the equity method when its investment ceases to be an
associate or a joint venture.

The way of discontinuing depends on specific circumstances, for example if the

investment becomes a subsidiary, then an investor stops equity method and starts full
consolidation in line with PFRS 10/PFRS 3.

Guided Practice.
Activity 11-2 (30 min.)
1. Answer Problems 1 and 2- Nos. 1(refer to pp. 273); Answer Problem 1- No. 1 to 4 (refer
to pp. 282-283) Millan, Conceptual Framework & Accounting Standards.

Seatwork is designed as performance task for students demonstrate thinking skills

connected to the learning target. Students applies concepts learned in the given task.
-current cost

C. LESSON WRAP-UP
1) Thinking about Learning (5 mins)
Work tracker. Congratulations! You have finished the module for today! Shade the
number of the module that you finished.
Period 1 Period 2 Period 3
1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6

How do you feel today?

I feel (unsatisfactory/satisfactory/excellent) because
_______________________________________________________________.

What are your challenges in learning the concepts in this module? If you do not have
challenges, what is your best learning for today?
__________________________________________________________________________________________
__________________________________________________________________________________________
________________________________________________________

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 ACC 103 | Conceptual Framework & Accounting Standards
Student Activity Sheet Module #11

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_______
Section: ____________ Schedule: _________________________________
Date:
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What are the questions/thoughts you want to share to your teacher today?
__________________________________________________________________________________________
__________________________________________________________________________________________
________________________________________________________

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