FAR

Cash & cash Equivalents

BANK RECONCILIATION:
BANK BOOK BOOK TO BANK BANK TO BOOK
Unadjusted Bal. Unadjusted Bal. Book, Unadj. Bank, Unadj.
+ DIT + CM (+) CM (+) DM
(-) OS (-) DM (+) OC (+) DIT
± Errors ± Errors Total Total
Adj. balance Adj. balance (-)DM (-) CM
(-)DIT (-) OC
Bank, Unadj. Book, Unadj.

Book-same manner Bank-same manner

Bank-reversed Book-reversed

PROOF OF CASH
Balance per book- beg Balance per bank- beg
+ Book debits during the month + Bank credits during the month
(-) Book Credits during month (-) Bank Debits during month
BALANCE PER BOOK- ENDING BALANCE PER BANK- ENDING

Deposit in transit, beginning Outstanding checks, beginning

(+) Deposit made by company this month (+) Checks issued by company this month
Total deposits to be acknowledged by bank Total checks to be paid by the bank
(-) Deposit acknowledged by bank this mth (-) Checks paid by the bank this mth
DEPOSIT IN TRANSIT, END OUTSTANDING CHECKS, END

DIT OS
Beg Beg
Deposit made Deposit acknowledged Checks paid/cleared Checks issued
End End
Deposit made – Receipts Checks issued- Disbursements
Book receipts (Debits) Bank receipts (Credits)
Less: Credit Memo last month Less: Credit Memo this month
Book errors last mth correct this mth: Bank errors last mth correct this mth:
Understatement of CR Understatement of CR
Overstatement of CD Overstatement of CD
Book errors this month: Bank errors this month:
Overstatement of CR Overstatement of CR
+ Understatement of CR (Current month) + Understatement of CR (Current month)
DEPOSITS MADE BY COMPANY DEPOSITS ACKNOWLEDGED BY BANK

Book disbursements (Credits) Bank disbursements (Debits)

Less: Debit Memo LAST month Less: Debit Memo THIS month
Book errors last mth correct this mth: Bank errors last mth correct this mth:
Overstatement of CR Overstatement of CR
Understatement of CD Understatement of CD
Book errors this month: Bank errors this month:
Overstatement of CD Overstatement of CD
+ Understatement of CD (Current month) + Understatement of CD (Current month)
CHECKS ISSUED BY COMPANY CHECKS PAID BY THE BANK

DEPOSITS/CHECKS → This month

 PRIOR CURRENT
RECEIPTS DISB.
MONTH MONTH
Unadjusted Balance xx xx xx xx
CM / DIT
a. Prior Month xx (xx)
b. Current Month xx xx
DM / OC
a. Prior Month (xx) (xx)
b. Current Month xx (xx)
ERRORS
UNDER RECEIPT
a. Prior Month xx (xx)
b. Current Month xx xx
OVER RECEIPT
a. Prior Month (xx) (xx)
b. Current Month (xx) (xx)
UNDER DISBURSEMENT
a. Prior Month (xx) (xx)
b. Current Month xx (xx)
OVER DISBURSEMENT
a. Prior Month xx (xx)
b. Current Month (xx) xx
Adjusted Balance xx xx xx xx

BEG REC. DISB. END

Errors Prior; Corrected current
OVER (xx) (xx)
RECEIPTS
UNDER xx (xx)
OVER xx (xx)
DISB.
UNDER (xx) (xx)
Errors Prior; Not corrected current
OVER (xx) (xx)
RECEIPTS
UNDER xx xx
OVER xx xx
DISB.
UNDER (xx) (xx)
Errors Current; Not corrected current
OVER (xx) (xx)
RECEIPTS
UNDER xx xx
OVER (xx) xx
DISB.
UNDER xx (xx)
Errors Current; Corrected current
OVER (xx) (xx)
RECEIPTS
UNDER No longer a reconciling item
OVER (xx) (xx)
DISB.
UNDER No longer a reconciling item
PETTY CASH FUND

PCF- IMPREST PCF- FLUCTUATING

Establishment Adjustment Establishment Payment of Expenses
Increase in fund Decrease in fund Replenishments Decrease in fund
End (Coins & Bills) Increase in fund
End (Coins & Bills)

Petty cash accounted Misc. Expense - Immaterial

S Dr
(-) Petty cash accountabilities Rec. from custodian - Material
OVERAGE (SHORTAGE) O Cr Misc. Revenue

Petty Cash Accounted Petty Cash Accountabilities

✓ Coins and currencies ✓ PC Fund ledger balance
✓ Checks for deposit ✓ Petty Cash impurities except checks
✓ Stale Checks issued in settlement of cash advanced
✓ Post-dated checks from PCF.
✓ Unreplenished vouchers (expenses, ✓ Stale Checks
IOUs) ✓ Company’s check- payment of Liab
(utilities)
❖ Unexpended employees’ contributions
(Christmas party, birthday party, etc.) ❖ Unexpended employees’
❖ Cash collection of AR or sales contributions (Christmas party,
❖ Unclaimed Salary birthday party, etc.)
❖ Unclaimed Salary
❖ Cash collection of AR or sales
Accounted only if → intact or envelope is still closed
❖
Accountabilities always → intact or not.
SHOULD HAVE
BEEN:
Company’s check in payment of
Delivered to payees
PETTY CASH IMPURITIES utility bills
-Do not belong to fund Bills/coins & customers' check
General cash
nevertheless found in from cashier's collections
petty cash box. Checks issued to client in
General cash
payment of personal advances
1. Employees' check (Good/NSF/PDC) in settlement cash advanced from PCF
Ex of
2. Company’s check as a replenishment of PCF (replenishment check)
Checks
3. Company’s check payable to petty cash custodian representing salary.

Employees' checks Accommodated checks or checks cash out from the fund.
▪
issued to client in NOT treated as accountabilities.
▪
settlement of cash Evidence that there were cash advances drawn from PCF.
▪
advanced from PCF •
If silent, check in w/c payee is “to Cash" -assumed
accommodated check.
Checks for Deposits: Part of 1. Customer's Checks
impurities. If included in o Represent collection of AR from a customer.
accounted, must included 2. Company's Check in Payment of Liability
also in accountabilities: (Utilities)
REPLENISHMENT CHECK

Total Expense Petty Cash Accountability

+ Cash shortage -Bills and coins
- Cash overage
REPLENISHMENT CHECK REPLENISHMENT CHECK

COMPUTATION OF ADJUSTED PCF BALANCE:

Coins and currencies (Excluding collections, unexpended Pxx

employees’ contribution, and unclaimed salary)
+ Expenses paid out of PCF after reporting date xx
+ IOU after reporting date
+ Company’s check in the name of custodian as:
a. Replenishment check xx
b. Salary of custodian xx
+ Employees' check (Good check only, exclude NSF check) xx
(-) Unreleased payroll (Enveloped opened; no money inside) (xx)
ADJUSTED PCF BALANCE xx
Accounts Receivable
NET COLLECTION OR PAYMENT:

Invoice price of goods sold or purchased (Excluding freight) If:

(-) Invoice price of goods returned Destination-Prepaid
Net invoice price Shipping Point- Collect:
(-) Sales or Purchase discount (% x Net invoice price above) ➔ Net cash collection
Net collection or payment before freight or payment is not
(-) Freight → FOB Destination, freight collect affected by freight
+ Freight → FOB Shipping Point, freight prepaid because paid by
Total Net Cash Collection/Payment appropriate parties.

SHOULD WHO
FOB FREIGHT
PAY PAID
Destination Seller Prepaid Seller
Shipping Point Buyer Collect Buyer

Freight Terms Seller Buyer

Collect (-) AR (-) AP
Destination
Prepaid Freight out No effect
Collect No effect Freight-in
Shipping Point
Prepaid (+) AR (+) AP

METHODS OF ACCOUNTING FOR BAD DEBTS:

ALLOWANCE DIRECT WRITE OFF

COLLECTABILITY BDE xx
NO ENTRY
DOUBTFUL ADA xx
WRITE OFF
ADA xx BDE xx
(Uncollectability
AR xx AR xx
CERTAIN)
Recovery same fiscal yr as WO:
AR xx AR xx Reverse
ADA xx BDE xx

RECOVERY Cash xx
Cash xx AR xx
AR xx Recovery subsequent to yr of WO:
Cash xx NO reverse
Gain xx
BDE xx
ADJUSTMENTS NO ADJUSTMENTS
ADA xx

METHODS OF ESTIMATING BAD DEBT EXPENSE:

1) % of Sales Sales x % Uncollectability = BAD DEBT EXPENSE

2) % of AR AR, end x % Uncollectability = AFDA, end

3) Aging of AR Difference: Percentage use
SUBSEQUENT MEASUREMENT: SHORT TERM RECEIVABLES
Face Value Allowance for Doubtful Accounts
Less: Allowance for doubtful accounts Write off Beginning
Allowance for sales returns Recoveries BDE
Allowance for sales discounts Recoveries
Net Realizable Value Ending

Accounts Receivable
Beginning Sales R & A * (Before Collection)
Sales on account Sales discount
Recoveries Collections including Recoveries
Write-off
Ending

Loans Receivable
INITIAL MEASUREMENT

Principal amount Direct origination cost

(-) Origination fees received (-) Origination fees received
+ Direct origination cost Net Direct Origination cost
Loan receivable- Initial (Unearned Interest Income)
or

Principal amount
± Net Direct origination cost (UII)
Loan receivable- Initial

Direct Origination Costs > Origination Fees Premium Face < CV

Direct Origination Costs < Origination Fees Discount Face > CV

IMPAIRMENT LOSS:
CV of long-term receivable (+ accrued interest)
* Using ORIGINAL
(-) PV of expected future cash flows at date of impairment testing*
effective interest rate.
Impairment loss

Outstanding principal or PV, date of impairment testing Outstanding principal

if issued at Face
+ Unpaid interest (only if recognized by the entity)
Present Value
Carrying amount of long-term receivable if Issued w/ premium/discount

Outstanding principal amount as of date of impairment testing

± Unamortized Premium (Discount) on long-term receivable
Present value at date of impairment testing

Future cash inflows

x PV factor using the original effective interest rate
PV of expected future cash flows at date of impairment testing

Outstanding Face Amount

(-) Allowance for impairment
Net Carrying amount
NOTES RECEIVABLES
LUMPSUM INSTALLEMENT
PV of Principal (Principal × PVO1) 1st collection (Principal + interest) x PVO1 after one period]
+ PV of interest (Principal x nominal rate × PVOA) + Nth collection (Principal + interest) × PVO1 after nth period]
PV of Notes Receivable PV of Notes Receivable

DISCOUNT PREMIUM
Acquisition Price (PV) < Face Value Acquisition Price (PV) > Face Value
Effective Rate > Nominal Rate Effective Rate < Nominal Rate
Effective Interest > Nominal Interest Effective Interest < Nominal Interest
AMORTIZATION
= (Effective Interest - Nominal Interest = (Nominal Interest -Effective Interest)
= (Interest Income - Interest Collection) = (Interest Collection-Interest Income)
↑ CV & Interest Income ↓ CV & Interest Income
CARRYING AMOUNT
Addition (+) Subtraction (-)
INITIAL RECOGNITION
Credited - “Discount on NR” or Debited- “Premium on NR”
“Unearned Interest Income
AMORTIZATION
Discount xx Interest Income xx
Interest Income xx Premium xx
• Discount is same as unearned finance charge or unearned interest income.

Interest Income Accrued Interest (Interest Receivable)

▪ Based on to Effective Interest ▪ Based on Nominal Interest
▪ Always Credited ▪ If Lumpsum: Equal every year

REALISTIC UNREALISTIC UNREALISTIC

INITIAL CV Face Value Present Value Present Value
AMORTIZATION -none- PREMIUM DISCOUNT
Nominal
Interest Effective Interest Effective Interest
INTEREST INCOME
(Face x (PV, beg x ER) (PV, beg x ER)
NR/ER)
CV, BS DATE Remaining FV Remaining PV Remaining PV
Collection of Collection of FV, next Collection of FV, next
CURRENT Installment
PORTION
FV, next year year less: Amortization year less: Amortization
Lumpsum 0 0 0
Remaining Amortized Cost, next Amortized Cost, next
NON-CURRENT
Face value, year year
PORTION
next year

PV, beg x 1.ER PV, beg PV, beg Face Amount

(-) Nominal Interest + Effective Interest + Discount Amort. (-) Bal. of Discount
(-) Principal Collect (-) Nominal Interest (-) Premium Amort. + Bal. of Premium
PV, end (-) Principal Collect (-) Principal Collect (-) Principal Collect
PV, end PV, end CV
Interest Income = PV x Effective Interest Balance of Discount/Premium
Interest Receivable = Face x Nominal Interest = (Beg balance - Total Amortized Amount)
Principal collectible within one year Principal collectible beyond one year
Less: Discount Amortization (next year) Less: Discount Amortization (Total Remaining
Current Portion of NR amounts next to next year)
Current Portion of NR
Receivable Financing
PLEDGING:
• ALL receivables are used as collateral for a loan.
• AR is NOT affected by the pledging.
ONLY ENTRY: Loan obtained
• Disclosure only/No entry for receivables pledged.
(Proceeds & Interests)
• Receivables pledged NOT derecognized nor
separated from other receivables.

ASSIGNMENT:
Face Amount
Less: Principal Payment (Collections-Accrued Interest)*
Notes Payable, end balance
AR-assigned
* Collections are applied first to the accrued interest
Less: Collections
* Interest is based on OUTSTANDING/REMAINING bal. of
Sales Discount
NP
Sales Return
* Service fee, NO effect
Write-off
AR-assigned, End
Accounts receivable – assigned, end
Less: Related liability balance
Equity in assigned AR (Notes to FS)

FACTORING:
Gross amount of Receivable Factoring fee
Less: Factoring fee + Interest
Finance charge & interest expense + FV of Liability for RO
Net selling price (-) Allowance for DA
Less: Factors holdback (Gross AR x %) Loss = Cost of Factoring
Net cash received ALL collected- IGNORE
NOT all collected – ADD (Silent)
Net SP (Holdback not deducted)
(-) CV of receivable (Net of Allowance) “Weighted Average time to Maturity”
Gain (loss) on factoring → Use 365 days in computation of Interest
If Silent: 360 days

DISCOUNTING:

Maturity value of NR (Principal + Interest for the full term) Face Value if
Less: Discount (Maturity value x Discount rate x Discount period) non-interest bearing
Proceeds from discounting
Less: CV of NR, date of Discounting (Principal + Accrued Interest)
G/L (if sale) or Interest Expense (if secured borrowing)

Interest-bearing note= Principal + Accrued Interest between NR date & Discounting date
Noninterest-bearing note = Principal - Unamortized discount as of date of discounting

Customer dishonored the note before maturity:

Maturity Value
+ Protest Fee
Total Amount due
+ Interest Accrued (Maturity to Payment)*
Amount collected from customer
*Based on Total Amount Due computed
Inventory
ITEMS TO BE INCLUDED IN INVENTORY:
BUYER SELLER
FOB shipping point (FOB Seller; Free alongside, CIF)
Sales w/ right of return or Goods w/ refund offers
Installment sale
Special-order goods (Customer Specification)
Customarily manufactured & Constitute Stock item
Specifically segregated per sales contract
Bill and Hold
Sold on with high probability of returns
FOB destination (FOB Buyer, Ex-ship)
Sale with repurchase/buyback agreement
Sale under inventory financing
Inventory pledged
Inventory loaned
Sales out on approval/trial
Lay-away sale
Hold for shipping instruction
Goods in the Hands of Salesperson & Agents
Goods held by other for storage, processing, or shipment

PURCHASE (FIRM) COMMITMENTS

10/01/19: Commitment to purchase 100K units @ P10 each, 6 months after date.
12/31/19: Average purchase price of inventory = P9 per unit. → Decreased
a) Ave. purchase price P8.50 per unit → Decreased
04/01/20: Actual purchase
b) Ave. purchase price P9.25 per unit → Increased

Date Journal Entry MARKET ↑ Favorable

10/1/19 No Entry (Disclosure only) PRICE: ↓ Unfavorable
Loss on PC 100K
12/31/19 Est. Liability on PC 100K
100K units x (P10-P9) Purchases:
Purchases 850K ▪ LOWER of commitment cost
Loss on PC 50K and replacement cost.
Est. Liability on PC 100K Accounts Payable/Cash:
4/1/20 Accounts Payable 1M ▪ Original Contract Price
(a)
100,000 units x 8.5= 850,000 RECOVERY:
100,000 units x (9 -8.5)= 50,000 ▪ Limited to loss recorded in
100,000 units x 10= 1,000,000 previous period
Purchases 925K
Value ↑ after commitment date or
Est. Liability on PC 100K
at the end of period (But not
4/1/20 Accounts Payable 1M
actual purchase date) and No
(b) Recovery Loss on PC 25K
Loss previously recorded:
100,000 units x (9.25)= 925,000 ▪ Increase NOT recorded
100,000 units x (9.25 - 9)= 25,000
POV OF SELLER: Sales Revenue= Based on units produced
COST FORMULA:
FIFO PERIODIC/PERPETUAL
Units: COGAS
Beginning 2 2 x 50 = 100
+ Net Purchases 27 18 x 52 = 936
Goods Available for sale 29 6 x 55 = 330
(-) Units Sold -23 3 x 60 = 180 1,546
Units Ending Inventory 6K (-) Cost of Ending Inv. - 345
COGS 1,201
Most recent cost (3K x 60) 180 Total Sales 3,070
Next most recent cost (3Kx 55) 165 (-) COGS -1,201
Cost of Ending Inventory 345 Gross Profit 1,869

WEIGHTED AVERAGE- PERIODIC:

Cost of Goods Available for sale
Average unit cost =
Units Available for sale

Cost of Ending Inv. = AUC x Units in End. Inv.

COGS = AUC x Units Sold
COGS = COGAS – Ending Inventory
MOVING AVE. – PERPETUAL
QTY COST TOTAL New total Cost of Goods on hand
New Ave. Cost=
New number of units on hand
2,000 50 100,000
18,000 54 972,000 → Use every sale: No sale, no need compute
20,000 53.6 1,072,000
(7,000) 53.6 (375,200) After issuance/sale: Unit Cost unchanged
6,000 55 330,000 After Purchase: Unit cost will change
19,000 54.04 1,026,800
(16,000) 54.04 (864,640) COGS = Add all the negative balance in Total
3,000 60 180,000
6,000 53.05 342,160

ACCOUNTING FOR LCNRV

DIRECT METHOD ALLOWANCE METHOD COST > NRV → ✔️ Write Down
Beginning Inv. at LCNRV Beginning Inv. at COST COST < NRV → ❌ Write Down
+ Net purchases + Net purchases
TGAS Ending Inventory -at cost
TGAS
(-) Ending Inv. at LCNRV (-) Ending Inventory -at LCNRV
(-) Ending Inv. at COST
Required allowance
COGS AFTER WD COGS BEFORE WD
(-) Allowance for Inv WD, beg
+ Loss on inventory WD
Loss (Gain) on Inv. WD (DURING)
(-) Gain on reversal of WD
COGS AFER WD
Allowance for Inventory WD
Required allow > Allow beg → Loss on WD Gain on WD -DURING Beginning
Required allow < Allow beg → Gain on WD Loss on WD- DURING
Ending
Gain on reversal/Recovery– Limited to previous loss recorded
 Retail Inventory Method
COST RETAIL
Beginning Inventory Pxx Pxx
Purchases Pxx Pxx
Freight-in +
Purchase Discounts Net Purchases (-)
Purchase Allowances (-)
Purchase returns (-) (-)
Departmental transfer-in (debit) + +
Departmental transfer-out (credit) (-) (-)
Abnormal Losses (-) (-)
Net markup (Markup - Markup Cancellation) +
Net markdown (Markdown - Markdown Cancellation) (-)
Goods Available for Sale Pxx Pxx
Sales (-)
Sales return Net Sales +
Normal Losses, Shortage, Shrinkage (-)
Discount to Employees & Favored Customers (-)
Ending Inventory at Retail Pxx
Multiply: Cost to Retail Ratio %
Ending Inventory at Estimated Cost xx Pxx
COST OF GOODS SOLD Pxx
• Sales Discount – NO effect; IGNORE
• Losses/Breakage – Assumed NORMAL if silent
• Purchases at Retail = Purchases at Cost + Initial Markup on Purchases
COST TO RETAIL
NET
METHOD BEG INV. COMPUTATION
MARKDOWN
AVE. RETAIL GAS @ Cost
(Silent) ✓ ✓ =
GAS @ Retail

Net Purchases @ Cost

= Net Purchases @ Retail
FIFO ✘ ✓ GAS @ Cost - beg. Inventory @ cost
= GAS @ Retail - beg. Inventory @ retail

Conservative GAS @ Cost

= GAS @ Retail + Net Markdown
AVERAGE
(Silent) ✓ ✘
GAS @ Cost
= GAS @ Retail exc. net markdown
Net Purchases @ Cost
Conservative = Net Purchases @ Retail + Net Markdown
FIFO ✘ ✘
Net Purchases @ Cost
= Net Purchases @ Retail exc. net markdown
• Excluded in computation of Ratio only.
But still considered in actual computation of Ending Inv. /COGS
• LCNRV → CONSERVATIVE → LCNRV
 Gross Profit Method
Beginning inventory Pxx
Add: Net purchases xx
Cost of goods available for sale Pxx
Less: Estimated cost of goods sold Cost ratio
(a) GPR based on sales = Net sales x (100% - GPR)
xx
(b) GPR based on cost = Net sales ÷ (100% + GPR)
Estimated cost of ending inventory Pxx
Less:
Undamaged inventory (Physical count) - COST
Partially damaged Inventory - LCNRV
In transit goods (owned by company)
Inventory out on consignment
Inventories owned not in warehouse during fire
Scrap or Salvage Value (xx)
Estimated inventory loss Pxx

Net Purchases: Returns, Discounts, Allowances, Freight

DEDUCT:
Net Sales: Sales Return

Determining Gross Profit Rate:

1. Look for possible trend
GP Rate Year 1 + Year 2+ Year N
2. Average Gross Profit =
Number of years
Total GP all years
3. Overall GP ratio for past years =
Total Sales all years

Used when NO trend on GPRs and silent as to what GP will be used.

Gross Profit Based on Sales Gross Profit Based on Cost

Sales xx 100% Sales xx 125%
Less: COGS (xx) -75% Less: COGS (xx) -100%
Gross Profit xx 25% Gross Profit xx 25%
GP = Sales x GP Rate GP = Sales x GP Rate
COGS = Sales x Cost Ratio COGS = Sales ÷ Sales Ratio
Biological Assets
BIOLOGICAL ASSET AGRICULTURAL PRODUCE
Initial FV less Costs to Sell / CV / Cost FVLCTS at point of harvest
Subsequent FV less Costs to Sell PAS 2 – LCNRV

Market price- Estimated SP

(-) Transport /cost to bring assets to market
Farm Price- Adjusted Fair Value 1. Commission to brokers/ dealers
(-) Costs to sell 2. Levies by regulatory agencies
Fair value less costs to sell 3. Transfer taxes and duties

Directly attributable cost → Ignore; Other costs incurred → Expense

BIOLOGICAL ASSETS “Harvested but not yet sold”

Beginning Balance FV losses - Dr: Inventory; Cr: Gain
Acquisitions @ FVLCTS Harvest - Biological asset unaffected
↑ in FV (Price + Physical) Sales
Ending Bal.
CV, end= ∑ (# of Animals x updated age each)
PHYSICAL CHANGE
BEG & ACQUIRED BORN DURING THE YR
FVLCTS, end @ Age, end Pxx FVLCTS, end @ Age, end Pxx
(-) FVLCTS, end @ Age, beg (xx) (-) FVLCTS, end @ Age, beg (xx)
G/L Per Unit Pxx G/L Per Unit Pxx
x Quantity *xx x Quantity *xx
Total G/L Pxx Total Pxx
+ FVLCTS date of birth x Qty xx
Total G/L Pxx
PRICE CHANGE
BEG/ ACQUIRED /BORN
FVLCTS, end @ Age, beg Pxx
(-) FVLCTS, beg @ Age, beg (xx)
G/L Per Unit Pxx
x Quantity *xx
Total G/L Pxx

AGE FVLCTS
Physical Change Current vs. Original End vs. End
Price Change Original End vs. Beg
GAINS AND LOSSES
Loss - Because CTS is deducted in FVLCTS
Initial Biological Asset
Gain- Newborn animals
Agricultural Produce G/L due to harvesting
Subsequent Physical Change
Change in FVLCTS
Price Change
 FVPL FVTOCI
EQUITY INVESTMENT IN ASSOCIATE
(TRADING) (NON-TRADING)
INITIAL COST FV FV+TC FV+TC
SUBSEQUENT COST FV FV EQUITY METHOD
Cash, Property, Share (Different), Scrip,
DIVIDEND INCOME ↓ CV of Investment
Shares received in lieu of Cash
SHARE in NI /OCI - - ↑↓ CV of Investment
UG/UL- CURRENT P/L OCI -
UG/UL- CUMULATIVE - Equity Section- SFP -
TRANSFERRED TO RE
- (SP-Cost) x % sold -
UPON SALE
G/L ON SALE - P/L (NSP - CV) - (NSP-CV)
TC ON SALE Deduction to SP Deduction to SP
Expense -P/L
(DISPOSAL COST) (SP - TC= NSP) (SP - TC= NSP)
Gain on BP + Investment Income +
TC + Dividends Dividends
P/L Impairment + G/L on Sale &
+ UG/UL + G/L on Sale + TC (Disposal)
Remeasurement
IMPAIRMENT LOSS - - Profit or Loss
FS PRESENTATION Current Asset NCA NCA
 FVPL FVOCI FAAC
DEBT
(Trading) (Collect & Sell) (Collect)
INITIAL COST FV FV+TC FV+TC
SUBSEQUENT COST FV FV Amortized Cost
AMORTIZATION - =NI – EI =NI – EI
INTEREST INCOME = Face Value x NR =Amortized Cost x ER =Amortized Cost x ER
UGOL - CURRENT P/L - SCI OCI - SCI -
Equity – SFP
UGOL - CUMULATIVE N/A -
(Recycled to P/L)
G/L ON SALE – P/L =NSP – FV =NSP – AC =NSP – AC
IMPAIRMENT - Yes-P/L Yes-P/L
IMPAIRMENT REVERSAL - P/L - no limit P/L - no limit
RECLASSIFICATION Allowed
Non-Current Non-Current
SFP Current Asset
(Unless Due 12 mts) (Unless Due 12 mts)
SCF Operating Investing, Operating Investing, Operating
TC + Interest+ UGOL Interest + G/L on Sale Interest + G/L on Sale +
PROFIT OR LOSS
+ G/L on Sale + Impairment Impairment
Investment in Equity Securities
UGOL

FV, BS date FV, BS date

(-) CV before remeasurement (-) Original Cost
UGOL, Current Period UGOL, Cumulative
SALE
FVPL FVTOCI
Net Proceeds (SP-TC) Selling Price, all shares
(-) CV before sale (-) Original Cost, , all shares
Realized G(L) on Sale UGOL balance as of date of sale

RE= UGOL as of date of sale x % sold

RE= Proceeds from sale – Historical Cost of Shares sold
RE = (SP-FV date of sale) + Balance of UGOL of shares sold
DIVIDEND-ON
Initial Cost = Market Price - Dividends
Cash Paid= Market Price

Dividend Income → recognized by

the one who owns the share at the Date
of Declaration

DIVIDENDS-ON EX-DIVIDENDS
Initial Cost = Market Price-Dividends = Market Price
Cash Paid = Market Price = Market Price
Investment (Exclude Div) Investment
Dividends Receivable Cash
Entry Cash (Include Div)
Cash
Div Receivable

SHARE SPLIT

# OF FV PER
• MEMO ENTRY SHARES SHARE
• CV unaffected UP (2 FOR 1) ↑ ↓
DOWN (1 FOR 2) ↓ ↑

SPECIAL ASSESSMENT
• Additional contribution required during financial difficulties.
• Additional Cost of Investment (Capitalized)
• Percentage of Ownership unchanged

RECLASSIFICATIONS ➔ Not Allowed

IMPAIRMENT ➔ Not necessary
 STOCK RIGHTS/ WARRANTS

THEORETICAL VALUE OF RIGHTS (FV OF RIGHTS NOT GIVEN):

Right- MV of Stock Right on - Subscription Price
Value of one right =
on No. of Rights to purchase one share +1

Ex- MV of Stock Ex rights - Subscription Price

Value of one right =
right No. of Rights to purchase one share

✔️ Cash paid to acquire new shares (# of Shares x SP)

(Silent) + FV of Share Rights exercised (# of Rights x FV)
COST OF NEW
ACCOUNTED FOR Total Cost of New investment
INVESTMENT
SEPARATELY?
❌ = Cash paid to acquire new shares (# of Shares x SP)
Share rights → Memo
Net sale price
SALE OF RIGHTS (-) FV of Share rights sold (# of Rights x FV)
Gain from sale of Rights

• Share rights NOT exercised → Loss on share rights

TYPES OF DIVIDENDS
DIVIDEND
TYPE OF DIVIDENDS NOTES
INCOME?
Cash Dividends ✔ Face Value
Property Dividends ✔ FV of Property
(In kind) Share of another company
Liability / Scrip Dividends ✔ + Interest income
Same Memo Entry only.
✘ ↑ No. of Shares ; ↓ Cost per share ; No effect CV
Class
Share Dividends Investment CV is Allocated Between Initial Shares &
Out of (Bonus Issue) Share dividend based on their FV.
Different ✘
Earnings
Class Debit → New Investment
Credit → Original Investment
▪ As if shares are bought.
Shares received in lieu of Cash ✔ Income is 1) FV of shares
based on: 2) Original Cash Dividends
▪ As if shares are sold.
Cash Received in lieu of shares ✘
G/L on sale= (SP/Cash– FV of Shr Div)
▪ Reduction of Investment account
Out of
Liquidating Dividend ✘ Cash
Capital
Investment in Shares
Investment in Debt Securities
ACCRUED INTEREST
• Not included in initial cost regardless of designation.
FV= (Acquisition Cost – Accrued Interest)
𝒏
Accrued Interest= (Face Value x Nominal Interest x 𝟏𝟐)
Accrued
Acquisition Sale
Interest:
Excluded Initial Cost SP (G/L on Sale)
Included Cash Paid Cash Received

Occurs when: Interest Payment Date ≠ Acquisition/Sale/BS Date

1. Acquired between interest payment dates (Not Income, only receivable)
➔ n= From Last Interest Payment Date to Date of Acquisition
2. Sold between interest payment dates
➔ n= From Last Interest Payment Date to Date of Sale
3. Every balance sheet dates when dates doesn’t coincide
➔ n= From Last Interest Payment Date to Year End
UGOL

FVTOCI FVTOCI
FVTPL FV, end Fair Value end
FV end (-) AC, end (-) CV (FV last year – AP + AD)
(-) CV, end UGOL - Cumulative - SFP UGOL- CURRENT- OCI
(-) UGOL - Cum Bal. Last Yr. AP – Amortization of Premium
UGOL- P/L
AD – Amortization of Discount
UGOL- Current- OCI

DISPOSAL (SALE)

FVTPL FVTOCI/AC
Selling Price Pxx Selling Price Pxx
Less: Accrued Interest (xx) Less: Accrued Interest (xx)
Less: Transaction cost (xx) Less: Transaction cost (xx)
Net selling price Pxx Net selling price Pxx
Less: CV (Previous FV) (xx) Less: Amortized Cost, date of sale (xx)
G/L on Sale- P/L Pxx G/L on Sale- P/L Pxx
RECLASSIFICATION – Applied Prospectively from the reclassification date. (1st day of reporting period following Δ )

INTEREST INCOME,
RECLASSIFICATION INITIAL COST Gain / Loss on RD
year of Reclassification
TO FVTOCI FV, Rd
FROM -NONE- =(New effective rate on basis of FV, RD
FVTPL TO FAAC FV, Rd FV, Rd = CV, Rd (FV) x FV, RD)

FV, Rd
(-) AC, Rd
TO FVTPL FV, Rd Reclassification G/L – P/L Nominal Rate x Face Value

FROM (UGOL-OCI → reclassified to P/L)

FVTOCI
=(Original Effective rate x FV, Adjusted
FV, Rd
against previous UGOL or Original AC)
TO FAAC FV, Rd (-) AC, Rd
Reclassification G/L – P/L
(Same EIR, just continue the table)

FV, Rd
TO FVTPL (-) AC, Rd Nominal Rate x Face Value
UGOL – P/L
FROM
FV, Rd =(Original Effective rate x would have
FAAC
FV, Rd been AC on Rd if asset is FAAC)
TO FVTOCI (-) AC, Rd
UGOL – OCI (Same EIR, just continue the table)
Investment in Associates
Acquisition Cost Acquisition Cost
(-) BV of Net Assets Acquired % (-) FV of Net Assets acquired %
Excess of Cost over BV Goodwill (Gain on acquisition)
(-) Undervaluation of Asset %
+ Overvaluation of Asset % GW- already part of investment
Goodwill (Gain on Acquisition) Thus, no separate account

ASSETS AMORTIZATION OF EXCESS

Inventory & Land Upon disposal or sale- In full (Excess x % Sold) x %
Depreciable Assets Every year through depreciation UV FV > CV (-)
Intangible Assets Every year through Amortization OV FV < CV (+)
Goodwill When there is impairment
Liability During the remaining term
(FV - CV)
Adjustments for Amortization = x %
Remaining useful life

INVESTMENT IN ASSOCIATE
Beginning Balance Dividend Income –Received/ Accrued
Share in ADJUSTED NI Share in ADJUSTED NL
Share in Increase in OCI Share in Increase in OCL
Additional Investment Impairment Loss
Disposal of Investment
Ending Balance

ADJUSTED INVESTMENT INCOME / SHARE IN PROFIT /

EQUITY IN EARNINGS
Amortization of Excess- UV % Share in Net Income %
Impairment Loss (CV > RV) Amortization of Excess – OV%
Gain on Acquisition
PS- Dividend, declared
Ending Balance
• Any other Gain/Loss → NOT included in computation

ASSOCIATE WITH PREFERENCE SHARES

PS Dividends Net income (loss) of associate

➢ Must be deducted (-) PS Dividends = % Fixed Rate x Par Value of PS
first from profit Net income (loss) attributable to OS
before computing x % ownership
investor’s share. Share in profit (loss)
Cumulative ➔ Annual Dividends, Declared or not
Non-Cumulative ➔ Actual Dividends, Declared only
Redeemable ➔ None.
 POTENTIAL VOTING RIGHTS

Current # of shares + Shares from exercising all SR

% of ownership =
Outstanding shares

• Assumed to have been realized

• Calculated only to determine whether FV method or Equity method
• Computation of share in NI, dividends, etc. → Original % ownership is used

INTERCOMPANY TRANSACTIONS → ELIMINATED

ADJUSTMENT OF RECOGNITION OF
UNREALIZED G/L REALIZED G/L
INVENTORY During Intercompany sale When Sold to outside entity
LAND During Intercompany sale When Sold to outside entity
DEPRECIABLE ASSET During Intercompany sale Every year – Depreciation

DOWNSTREAM UPSTREAM
Transaction From Investor to Investee From Investee to Investor
Seller Investor Investee- Associate
Unrealized G/L Eliminate in Full 100% Eliminate its % ownership
Realized G/L Recognize in Full100% Recognize its % ownership
• Unrealized loss- Unless it is evidence of reduction in NRV of assets to be sold or
contributed, or of its impairment loss

Sale of Inventory Sale of Depreciable Asset

Share in NI before adjustment % Share in NI before adjustment
(-) Unrealized GP on EI, Unsold (-) Unrealized gain (SP-CV)
+ Realized GP on BI (Sold) Unrealized Gain
+ Realized gain ( )
Useful life
Share in NI after adjustment
Share in NI after adjustment
Unrealized → (-)
Realized → +

ASSOCIATE HAVING HEAVY LOSSES

➔ Discontinues recognizing further losses.

Share of Losses ≥ Interest in Associate
➔ Investment CV= Zero
If Associate
Investor resumes recognizing share of profits ONLY AFTER:
subsequently
➔ Share of profits = share of losses not recognized.
reports profits

TOTAL INTEREST INCLUDES: TOTAL INTEREST DOES NOT INCLUDE:

✓ Investment in OV – IIA ✘ Trade receivables / payables
✓ Investment in PS ✘ Long-term receivables w/c collateral
✓ Unsecured Loans/Advances exists (secured loans)

Share in NL Share in NI – Subsequent

1. Investment in OS 1. Unsecured Loans/ Advances Limited to previous
2. Investment in PS 2. Investment in PS allocated loss
3. Unsecured Loans/ Advances 3. Investment in OS
 CHANGE IN OWNERSHIP INTEREST
ACHIEVED IN STAGES (STEP ACQUISITION): FV → Equity Method

Remeasurement “FV of
PP of New Investment
previously held securities” =( x old %)
(Unless FV is already given) Additional %

FV of previously held securities FV of previously held securities

+ Cost of add’l interest acquired (-) CV of previously held securities
Initial Cost of Investment G (L) on Remeasurement

FROM EQUITY TO COST/FV: SALE/DISPOSAL/CESSATION

Net Selling Price (FV)

+ FV of Retained Investment
(-) CV of investment
Sale= % Sold x Cessation G/L
Cessation G(L) - P/L Reclassification= % Reclassified x Cessation G/L
Alternative formula:
Net Selling Price (FV) FV of retained investment
(-) CV of Investment Sold (-) CV of retained Investment
G(L) on sale- P/L + G(L) on reclassification- P/L =Cessation G(L)

DEEMED DISPOSAL OF ASSOCIATE (DILUTION)

# of shares held
New % ownership after Dilution=
New Total # of shares of Investee
CV of investee's NA before issuance
+ Issue price of new shares issued (Shares x Par Value)
New CV of investee's NA after issuance
x New % ownership after deemed disposal
CV after deemed disposal
(-) CV before deemed disposal
G(L) on Deemed Disposal- P/L

New CV of FA @ FVTPL/FVTOCI
(-) CV after Deemed Disposal (CV-Loss)
Gain on reclassification- P/L
REMEASUREMENT G(L) RELATED TO CHANGE IN OWNERSHIP
REMEASUREMENT
FROM TO
G/L
Investment in Associate FA@FVTOCI P&L
Investment in Associate FA@FVTPL P&L
FA @ FVTOCI Investment in Associate OCI
FA @ FVTPL Investment in Associate P&L
Any cumulative UGOL in OCI → Reclassified to RE
Investment Property
❖ Owner
LAND or HELD HELD ❖ Earn Rentals
❖ Lessee under
BUILDING BY TO ❖ Capital Appreciation
Finance Lease
✓ Professional fees for legal services
Measured COST +
✓ Property transfer taxes (Local Property Taxes excluded)
initially DACs
✓ Other transaction costs.
Start-up costs- Unless necessary
Operating losses- Incurred before IP achieves planned level of occupancy
Excluded
Abnormal amounts of wasted material, labor, or other resources
Cost to day-to-day servicing for asset -Repairs& maintenance expense
SOLD SEPARATELY NOT SOLD SEPARATELY
Portion rented under If owner-occupied portion
PARTLY IP and IP
operating lease is Insignificant
PARTLY PPE Portion used by for
PPE If IP is insignificant
admin purpose
• BOTH EQUAL → PPE (Not IP)

ANCILLARY IF SERVICES ARE: TREATMENT:

SERVICES TO Insignificant IP
OCCUPANTS Significant PPE

RENTED to PARENT, SUBSIDIARY, or FELLOW SUBSIDIARY

CLASSIFIED AS
INTRACOMPANY CONSOLIDATED FS PPE from perspective of group
RENTALS SEPARATE FS IP by Lessor
• IF leased to ASSOCIATE → IP (Consolidated & Separate)
TRANSFERS:
Model TRANSFER NEW CV ON TRANSFER
Previous ▪ No G/L on transfer
Cost All
CV ▪ IL may recognized (FV<CV)
IP to FV date of G/L = FV @ transfer - FV on previous period
PPE/INV transfer ▪ Before transfer, Δ FV must first updated.
FV date of
INV to IP G/L = FV @ transfer - CV previous period , LCNRV
transfer
FV G/L on transfer:
a. Debit RS (OCI), if any
FV date of (FV<CV) ↓
PPE to IP b. Excess, IL or RL (P/L)
transfer a. Reversal of IL- (P/L) - Limited
(FV>CV) ↑
b. Excess, RS (OCI)
Cash Surrender Value - NCA

Entity
insures life Beneficiary: Entity Cash surrender Value
of its officer Other than Entity Insurance Expense

✓ Policy is a whole life policy

It arises
✓ Premiums for 3 years have been fully paid
when:
✓ Policy is surrendered at the end of 3rd year or anytime thereafter

ENTRIES:
CSV xx
1st time recognition LIE (1/3)
of CSV xx
RE (2/3) xx
Annual advance LIE xx
premium paid Cash xx
CSV xx
↑ in CSV LIE xx
LIE xx
↓ in CSV CSV xx
Cash xx
Dividend Received LIE xx

Annual premium paid

(-) ↑ in CSV Beg > End = ↓ in CSV
+ ↓ in CSV Beg < End = ↑ in CSV
Dividend Received
Life Insurance Expense

Amount of Life Insurance Policy

n
(-) CSV, as of date of death Beg CSV + (↑ CSV x 12 )
(-) LIE, unexpired Annual Premium Paid x
No. of months unlived
12
Gain on Life Insurance Settlement
Property, Plant and Equipment
MODE OF ACQUISITION:

Cash basis = Cash Price Equivalent + Directly attributable costs

On Account = Invoice Price - Purchase Discount (Taken or not)
Deferred or a. Cash Price Equivalent
Installment b. PV of all payments
a. FV of asset Received Gain – Cr Share Premium
Issuance of b. FV of shares Issued Loss – Dr Share Discount
Share (RII) c. Par value of shares Issued No G/L

a. FV of bonds Issued
Issuance of
b. FV of asset Received
Bonds (IRI)
c. Face value of bonds Issued
1. Fair value
Allocate
All FV is given FV 2. Appraised value
based:
Lumpsum 3. Assessed value
FV of 1 not given Residual value method
All FV not available All FV to Land ; Building= 0
Exchange of Nonmonetary Assets
GR: Fair Value
Cash Paid +
1. No commercial substance
XPN: Cash Received (-)
2. No FV of asset received or given up
1. FV of asset given up ± Cash
With Commercial ✔️ 2. FV of asset received
Substance? 3. CV of asset given up ± Cash
(difference in CF)
Silent - With ❌ CV of asset given up ± Cash

FV of Asset given up FV of asset received If CV → No G/L

(-) CV of asset given up (-) CV of asset given up
G/L on exchange ± Cash
G/L on exchange
Trade-In
FV of property given up Fair value of property given up
Has
+ Cash payment (-) CV of asset given up
FV
Initial Cost Gain/loss
Trade in value property given up
+ Cash payment
Initial Cost Trade in value
No
(-) CV of asset given up
FV Cash price w/o trade-in Gain/loss
(-) Cash price w/ trade-in
Trade-in value
 Donation
➢ Asset at FV when received or receivable
SHAREHOLDER NON-SHAREHOLDER
Share premium or No condition - Income
FV, credited to:
Donated Capital W/ condition - Liab Unearned
Direct expenses Deducted from
Capitalized
(Fees, tax) Donated capital (Dr)
Directly attributable
Capitalized (+PPE) Capitalized
costs (installation, testing)

Government Grants
• Not recognized until reasonable assurance entity will comply w/ conditions and grants will received.
• Recognized in P/L, on systematic basis, over periods in which entity recognizes as expenses the
related costs for which grants are intended to compensate, on a systematic basis.

At the time of grant:

➔ Asset donated is credited to deferred credit account, “Unearned Income from Gov’t Grant”
➔ Recognized as income over periods necessary to match them with related, on systematic basis.
Grants Related to Depreciable Asset
• Recognized as income over the periods and in the proportion in which depreciation expense
on those assets is recognized.
Grants Related to Non-Depreciable Asset
• May also require the fulfillment of certain obligations and would then be recognized as income
over the periods, which bear the cost of meeting the obligations.
 CV of Asset at the end of UL = SV UP - Unexpired Periods RV - Always based on Original cost
CV = Cost – Accumulated Depreciation EP - Expired Periods DA - Depreciable Amount (Cost- RV)

STRAIGHT LINE SYD DECLINING BALANCE

EFFECT: Constant / Uniform Accelerated / Decreasing

RV ✔ ✔ ✘*
BASE DA DA CV
1 n (n+1) 2 1.5
Rate = SYD = Double = ; 150% =
UL 2 UL UL
DEPRECIATION METHODS

Annual
DA Remaining UL
Depreciation = or (DA x Rate) = DA x ( ) = CV, beg x Declining rate
UL SYD
Expense
Accumulated EP Total Numerators of EP
= DA x ( ) = DA x ( )
Depreciation Total UL SYD

UP Total Numerators of UP = CV x (100%-Declining rate)

CV = DA x ( ) + RV = DA x ( ) + RV Multiply for a # of times equal to
Total UL SYD period for w/c AD is to be determined.
*Considered only at latter part of UL by adjusting depreciation charges (So CV don’t fall below RV).
Max Depreciation for year before last year = CV – RV ; Depreciation for last year = 0

Date DE AD CV
2019 180K 180K 180K
Cost = 360K ; UL = 4 years
DD rate = 0.5; SV = 5,000
2020 90K 270K 90K
2021 45K 315K 45K
2022 40K 455K 5K SV

(45– 5) (360K-5K)
 INPUT METHOD
Cost-RV
Depreciation per hour =
Est. Total input (hours)

Depreciation = Actual hours worked during the year x Depreciation per hour

OUTPUT METHOD
Cost-RV
Depreciation per hour =
Est. Total Output (units)

Depreciation = Actual units produced during the year x Depreciation per unit
COMPOSITE/GROUP METHOD
COMPOSITE: Dissimilar; GROUP: Similar

Composite Total depreciable amount Composite Total annual depreciation

= =
life Total annual depreciation rate Total cost

Depreciation Expense = Remaining cost of asset x Composite rate

Remaining Cost= Total cost, beg + Cost of newly acquired – Cost of asset sold
• No G/L on derecognition of asset.
INVENTORY METHOD
Asset balance, end of the year
(-) Asset balance, before adjustment
Depreciation expense- current year
RETIREMENT METHOD
Original cost of asset retired
➔ No depreciation until
(-) Proceeds from disposal/retirement
asset is retired.
Depreciation expense- current year
REPLACEMENT METHOD
• No depreciation until asset is retired and replaced.
Replacement cost of asset
Asset retired &
(-) Proceeds from disposal/retirement
replaced
Depreciation expense- current year
Original cost of asset retired
Asset retired but
(-) Proceeds from disposal/retirement
not replaced
Depreciation expense- current year
LEASEHOLD IMPROVEMENTS
Cost
Movable DE =
UL
Cost Useful Life
Immovable DE = Whichever is SHORTER
UL Lease term

• If there’s option to renew lease- Just add the add’l years to Lease term
REVALUATION MODEL
PPE Revalued CV = FV or Sound value - AD - IL
carried at: No FV: Depreciated Replacement cost = Replacement Cost x % of AD
FV > CV = Revaluation Surplus
• RS is Future taxable Amount Revaluation surplus xx
resulting to deferred tax liability. Deferred tax Liability xx
Net RS = RS x (100%-Tax rate) or RS-DTB ; DTB= RS x Tax rate
PPE RS TRANSFER TO RE
Revaluation Surplus
Depreciable • Piecemeal =
Remaining Useful Life
Nondepreciable • FULL upon disposal
Derecognized
• Balance of RS will be transferred to RE
(Disposal/Sale)

1) Recovery of previous Impairment Loss, if any

RA > CV ↑ CV
IF 2) Revaluation surplus (OCI)
REVALUATION: 1) Reduction of Revaluation Surplus (OCI)
RA < CV ↓ CV
2) Impairment Loss

ACCOUNTING METHODS FOR REVALUATION - Same CV computed

PROPORTIONATE (DRC) ELIMINATION
AD is restated proportionately AD is eliminated against
Meaning:
to Δ in Gross CV gross CV
Revalued AD %= 0
Asset xx AD xx
Revaluation AD xx Asset (If ↑ > AD) xx
RS xx RS xx
DE xx DE xx
Depreciation
AD xx AD xx
Piecemeal RS xx RS xx
Realization of RS RE xx RE xx
Derecognition of RS (Remaining Bal) xx RS (Remaining Bal) xx
PPE RE xx RE xx

REVAL
COST ADJ.
(FV or DRC)
Cost Pxx Pxx Pxx
(-) RV (xx)* (xx)* (xx) FV – Already Net (Bottom)
RC – Need to depreciate (Cost part)
DA Pxx Pxx Pxx
(-) AD (xx)** (xx) (xx)
Remaining DA Pxx Pxx Pxx
* New RV; **Based on original DA/original RV

• FV/ New CV= (Cost-AD) or (Remaining DA + RV)

Expired years AD
• Percentage of AD = or
Total original useful life Total Cost
Expired years
• Total Original UL =
% of AD
• Remaining UL = Original UL – (100% - % of AD)
• If LAND: FV- Cost = RS (NO more table; since it is not depreciated)
IMPAIRMENT LOSS:

CV > RA ➔ Impaired CV of asset shall NOT exceed its RA

CV < RA ➔ Not Impaired Asset in SFP: LOWER of CV & RA

IMPAIRMENT LOSS = Carrying Value – Recoverable Amount

FV - cost of disposal
RA HIGHER
Value in use
FV • Price received to sell an asset at measurement date.
• Incremental costs directly attributable to disposal.
✔ Legal costs, stamp tax & similar transaction taxes
✔ Cost of removing the asset
✔ Direct cost of bringing asset into condition for sale
COD
✔ Termination benefits
✔ Costs of reorganizing a company
✘ Finance costs
✘ Income tax expense.
• PV of future cash flows expected to be derived from an asset.
Value in use: Inflows – Outflows = Net CF x PV factor
▪ If “total flows” - divide by remaining UL to get annual
▪ Discount rate → pre-tax discount rate

a) Future cash inflows from continuing use of asset.

VIU
INC: b) Future cash outflows incurred to generate cash inflows
c) Net cash flows received on disposal of asset @ end of UL (RV)
a) Future cash flows to restructuring which not yet committed.
b) Future costs of enhancing/improving asset's performance.
EXC:
c) Cash flows from financing activities.
d) Income tax
Impairment Loss
JE to Recognize IL Accumulated Depreciation
New CV of Asset = Recoverable Amount (UL→ Remaining UL)

IMPAIRMENT ON ASSET CARRIED AT REVALUED AMOUNT:

1. Charged to credit balance of RS account
2. Excess (↓ > RS) → Impairment Loss -P/L

Carrying Value RS, beg

(-) Recoverable Amount (-) Realization
Revaluation Decrease RS, prior impairment

RS, prior impairment

(-) Revaluation Decrease RS > Revaluation Decrease = Dr. RS
RS, end (Impairment Loss) RS < Revaluation Decrease = Dr. RS & IL
IMPAIRMENT OF GOODWILL & CASH GENERATING UNIT
IMPAIRMENT 1. Goodwill (100%)
LOSS 2. Remaining other NCA (Pro-rata based on CV)
LIMIT = (CV - ↑ of RA or ZERO)
✓ FV-Cost of Disposal
CV shall NOT be reduced ✓ Value in use
IMPAIRMENT below HIGHEST of: ✓ Zero
LIMIT
❌ Impairment Loss allocated > Recoverable Amount

Thus, IL that would otherwise allocated to asset shall be:

➔ Reallocated pro-rata to other NCA based on CV.
REVERSAL Allocated to NCA (except Goodwill) → Based on CV

REVERSAL OF IMPAIRMENT – Subsequent increase in RA

GR: ➔ IL recognized in prior years shall be reversed if: RA > CV
XPN: ➔ Increased CV shall NOT exceed CV that would have been determined
had no impairment loss been recognized in prior years.
GR: ➔ Reversal as Gain in P/L
XPN: ➔ If carried at revalued amount, reversal in P/L only to extent it reverses
an unrecovered revaluation decrease and any excess credited to RS.

Recoverable Amount
Increased CV Lower: CV had no impairment
(-) CV before reversal
Gain on reversal RS = RA > CV had no impairment
(Only for revaluation model)

Recoverable Amount
Revaluation Surplus
- Revaluation Model
CV had no impairment
* if this is lower than RA
Gain on Reversal
Maximum Recovery if
-Non-depreciable
Lower of the 2 above
asset
CV before reversal

CV had there been no impairment

(-) CV prior to reversal of impairment
Maximum Impairment Recovery

Original Impairment Loss

(-) Partial Recovery of impairment from
lower subsequent depreciation
Maximum Impairment Recovery
IL for Goodwill → shall NOT be reversed
IMPAIRMENT LOSS SUMMARY:
COST MODEL Recovery beyond CV had no IL
REVALUATION MODEL Recovery beyond CV had no IL

SUMMARY: IMPAIRMENT & REVALUATION

Impairment Loss Reversal

(Revaluation Decrease) (Revaluation Increase)
PPE
Reversal allowed through
P&L to the extent that it
P/L reverses
previous IL.
a) Cost model
Any excess over
depreciated historical
cost would have been if
impairment had not been
recognized is ignored.
↓ charged to: Subsequent ↑ treated as
b) Revaluation
1. Remaining bal of RS 1. Reversal of IL – P/L
model
2. Impairment Loss - P/L 2. RS- OCI
Goodwill P/L Not allowed
CGU P/L Allowed in P/L with LIMIT
DEPLETION

Acquisition cost of Land (+ direct attributable costs)

+ Exploration & evaluation Cost (after technical feasibility)
+ Development costs (Intangible)
+ Restoration cost (at PV)
Cost of Wasting Assets / Resource Property

I. Exploration & Evaluation costs

▪ Expended to locate a natural resource Cost per Oil Wells

before extraction of mineral resources. x Number of successful oil wells
▪ Incurred PRIOR to demonstrating Total Exploration cost capitalized
technical feasibility & commercial viability. (-) Depleted oil wells during
CV of Exploration Cost
✓ Purchase of Exploration rights
✓ Geological/Geophysical/Topographical/Geochemical studies
✓ Exploratory drilling
✓ Trenching, Sampling

Presented
PRIOR TECHNICAL FEASIBILITY AFTER TECH. FEASIB.
separately
TANGIBLE
Drilling, Testing & laboratory Equipment Retained as E&E Asset
E&E ASSET
Consumed costs (labor, materials,
INTANGIBLE Transferred to
depreciation on tangible E&E assets)
E&E ASSET WA account
✓ Trenching & Sampling Expenditure

Successful Cost of discovered resource property ➔ Capitalized

Effort Cost of Drilling “Dry Holes” ➔ Expense, if unsuccessful
Full Cost All exploration cost, successful or not ➔ Capitalized

II. Development Cost

❖ Activities to prepare wasting asset for Commercial Extraction/Production.
INTANGIBLE DEV’T COST TANGIBLE EQUIPMENT COST
o PPE & depreciated
o Capitalized as WA. o Separate account (Not capitalized as WA)
✓ Drilling ✓ Transportation/production equipment,
✓ Sinking mine shafts, and ✓ Heavy machinery
✓ Well construction ✓ Tunnels/Bunkers/Other fixed installations
✓ Road construction ✓ Construction of building
✓ Tunnels; Wells; Shafts

Capitalized or Expensed → Depends on Company’s policies

 Cost of WA - RV
Rate = ( )
Total units to be extracted
Formula Depletion Expense = Depletion rate x Actual tons extracted during
(Output
Method) Depletion Expense (Inventory) WA – Like PPE
Accum. Depletion B/S: (-) Accumulated Depletion
CV, WA
Revision of Change in accounting estimate (Currently and prospectively)
Depletion ✓ Change in units estimated to be extracted
Rate ✓ When company incurs additional costs
Updated CV - RV + Additional Costs
=
Revised remaining units to be extracted, beginning
New
Depletion = (Estimated output, end + Extracted during the year)
Rate = (Original Estimate – Tons extracted ± Adjustments)
Updated CV = Cost – Accumulated Depletion
Depletion Expense Inventoriable Cost (Product Cost)
Depletion (Sold) COGS = Sold tons during the year x Cost per ton
Depletion (Unsold) Inventory = (Mined – Sold )x Cost per ton
= Total Inventoriable Cost ÷ Units mined
Cost per ton ➔ Equal to Depletion rate if no other inventorial cost
aside from Depletion Expense
Depreciation of Mining Property (Tangible equipment- Including Building)
Movable
Straight line
(Alternative use)
Mining
UL Straight Line
Properties
Immovable (NO Mining
Shorter Output Method
alternative use) Period

Tons Extracted each year

Mining Period =
Total Expected Output

Tons Extracted during the year

Output Method= Depreciable Amount x
Total Expected Output

Depreciable Amount, beg = DA last yr – Depreciation Last yr + Additional Asset

SHUTDOWN OF MINING OPERATIONS
❖ When output method is used to depreciate, it cannot be use in shutdown.
Straight-line method based on equipment's remaining useful life.
Year of Remaining CV BEFORE shutdown
shutdown: Depreciation=
Remaining Life of Equipment
Output method if this was used before shut down.
Operations Remaining CV AFTER shutdown
resumed 𝐑ate =
Remaining Revised estimate of productive output
• No depletion to be reported in the period of shutdown.

Dividend Payments of Wasting Asset Entities

Unrestricted retained earnings Pxx

+ Accumulated depletion xx Retained Earnings xx
Capital Liquidated xx
(-) Unrealized depletion End. Inv (Units, end x DR) (xx) Dividends Payable xx
(-) Capital liquidated (xx)
Maximum amount of dividend can be declared Pxx
GOVERNMENT GRANT
➔ Liability “Deferred Income from Government Grant”
At the time ➔ Recognized as income over the periods necessary to match them
of grant: with related expenses, on a systematic basis.
Recognition ✓ Entity will comply with conditions and
Requisites ✓ Grants will be received.
TYPE OF GRANT RECOGNIZED AS INCOME INCOME CURRENT YEAR
In recognition of ➔ Same period as related Expenses, current yr
= Grant x
Specific Expenses expenses. Total expenses

Related to ➔ Over periods and in proportion Grant

=
Depreciable Asset to depreciation of asset UL
Related to Non- ➔ Over periods that bear the cost Grant
=
Depreciable Asset of meeting obligations UL
Compensation for ➔ In P/L of period in w/c it
Immediately as a whole
Expenses Incurred becomes receivable/received.
CLASSIFICATION OF GOVERNMENT GRANTS:
1) As deferred income (Gross method) - Silent
Cash xx
Deferred grant income xx
P/L: Income from Grant – Depreciation expense

Grants related Purchase, 2) Deducting grant from Asset (Net Method)

to ASSETS construct Cash xx
Fixed Asset xx
(Cost-Grant) - RV
New Cost = Cost- Grant; DE = UL
P/L: - Depreciation expense

• Regardless of method: Same effect to P/L

Grants related Other than 1) Separate or Other income (Gross method)
to INCOME assets 2) Deducted in related expenses (Net Method)

REPAYMENT OF GOVERNMENT GRANTS

▪ Due to non-compliance with agreement → change in accounting estimate.
GRANTS RELATED TO ASSETS GRANTS RELATED TO INCOME
✓ Increasing asset's CV (If deduction from Apply repayment
asset approach is followed) 1. Unamortized deferred grant income
✓ Lowering deferred grant income 2. Loss on repayment of grant - PL
balance by amount repayable.
Deferred grant income xx
Cumulative add’l depreciation would have
Loss on repayment of grant xx
been recognized in P/L in absence of grant :
Cash xx
Remaining UL as of date of repayment
=Grant x
Total UL of asset
➔ Add’l DE in P/L for current year.

LOAN at BELOW MARKET INTEREST RATE:

Cash (Face Value) xx Interest Expense xx
Discount (Face Value – PV) xx Discount xx
Loan Payable (Face Value) xx Equal
Deferred income on GG (Face Value – PV) xx Deferred income on GG xx
Income on GG xx
BORROWING COST
Borrowing Cost Interest Expense → Capitalize (DAC)
Applicable to: Qualifying Asset (Takes substantial time to complete)

1) Specific borrowing (SB)

Assets
2) General borrowing (GB) – For WC purposes ; Incidental
financed by
3) Mixed borrowings
Capitalization Rate ➔ Effective Interest rate
Capitalization Period ➔ Construction Period only
Capitalization Limit ➔ Capitalizable BC should NOT exceed actual BC

SPECIFIC BORROWING
n
Actual interest incurred (CV x % x 12
)
(-) Interest income on investment
Capitalizable borrowing costs

GENERAL BORROWING
Actual interest cost Actual > Limit = Interest Expense
LOWER
Average borrowing cost (Limit) Actual < Limit = Ignored

Actual interest cost on GB

WAIR = If one GB only:
S1 Total GB
Face value Face value WAIR = Effective interest
Shortcut: % x + %x
Total Face Total Face

Month outstanding Get the total of all

WAAE = Each Expenditure x 12 months expenditure
Total Expenditures
S2 WAAE = If expenditures incurred EVENLY
2
n
S3 Average BC= (WAAE) * (WAIR) *
12

BOTH SPECIFIC & GENERAL

a) Actual interest on SB - Interest income
Capitalization b) LOWER between:
combination of: n
• Actual interest on GB or (WAAE - SB) x (WAIR) x
12

TOTAL COST, current = Total Actual expenditures + Total Capitalizable BC

Qualifying Asset
Beginning Balance
Total Expenditures during the yr
Capitalizable BC
Ending balance
 Type of BC Capitalizable Borrowing Cost Max CBC = WAAE x WAIR
1. Specific = Actual Interest – Investment Income Total Interest
WAIR = Total Borrowings
Actual Annual Interest Expense
2. General Lower
Maximum Capitalizable BC (Limit) Actual > Limit = Int. Exp.
3. Mixed Traditional or Contemporary method Actual < Limit = Ignored

Traditional Contemporary
S1 Compute WAAE Total Expenditure - SB
S2 WAAE – SB = WAAE (GB) WAAE (GB)

Mixed Borrowing Cost:

Borrowing Cost Interest

(a) (b) (a*b)
% SB xx xx
% GB xx xx
Total xx xx

Total General Annual Interest

Capitalization Rate =
Total General Borrowings

Actual Months
Amount
Expenditures Outstanding
(a*b)
(a) (b)
Month 1p xx n/12* xx
Month 2 xx n/12* xx
Month 3 xx n/12* xx
Average Expenditure Pxx
(-) Specific Borrowing (xx)
Average Expenditure related to GB Pxx
x Capitalization Rate %
n
Capitalizable Borrowing Cost (GB) x Pxx
12
+ Capitalizable Borrowing Cost (SB) xx
(-) Investment Interest Income (xx)
Total Capitalizable Borrowing Cost Pxx
*Not always 12 ; If expenditure were incurred evenly, simply divide to 2

Actual Annual Interest

(-) Total Capitalizable Borrowing Cost
Interest Expense (Ignored) - PL
Intangible Asset
INTANGIBLE COMPONENT: TREAT:
INTEGRAL PART OF ASSET PPE
NOT AN INTEGRAL PART IA.
INTERNALLY GENERATED:
PHASE ALL EXPENDITURES:
RESEARCH ➢ Expensed
GR: Expensed
XPN: Capitalized from the moment ALL requisites are met: (PIRATE)
a. Probable future economic benefits
b. Intention to complete, use and sell it.
DEV’T
c. Resources adequate & available
d. Ability to use/sell asset.
e. Technical feasibility
f. Expenditures reliably measurable
INTERNALLY GENERATED GOODWILL → NOT recognized as asset.
1) Internally generated Brands
INTERNALLY GENERATED
2) Masthead
IA THAT CANNOT BE
3) Customer lists and items similar in substance
CAPITALIZED (BMCP):
4) Publishing titles
Cannot distinguish
➔ Treats expenditure as research phase only.
R from D
In process R&D ➔ Asset, even if component is research.
acquired in BusCom ➔ Subsequent expenditure - R&D cost.

ITEMS OF PPE USED IN R&D ACTIVITIES:

IF ITEM OF PPE: COST/CV of PPE DEPRECIATION
HAS ALTERNATIVE USE PPE - Capitalized R&D expense
NO ALTERNATIVE USE R&D expense ✘

USEFUL LIFE OF IA:

DEFINITE/FINITE LIFE INDEFINITE LIFE
Meaning Limited period of benefit No foreseeable limit
✓ Patent ✓ Goodwill
✓ Copyright ✓ Trademark
Examples ✓ Fixed-term Franchise ✓ Perpetual Franchise
✓ License
✓ Computer software
Amortized over
Amortization NOT Amortized
SHORTER: UL & LL ; RV= 0
Tested for 1. At least annually
Whenever there’s indication
Impairment 2. Whenever there’s indication
Annual cash Flow
Value in Use Future cash flows × PV factor(s) =
Discount Rate

COSTS OF Successful or not ➔ Expensed

LITIGATION If unsuccessful ➔ Patent written off- loss
 GOODWILL:

Internally developed goodwill → Not recognized

Recognition
Purchased (From BusCom) → Recognized separately from other IA

a) Indirect valuation approach (Residual Approach)

Measurement
b) Direct valuation (Excess of earnings approach)
Amortization NOT Amortized
a) At least annually
Impairment NEVER reversed
b) Whenever there is an indication

INDIRECT VALUATION (Residual Approach):

= Cost of investments over FV of net tangible assets acquired
GW
= Consideration transferred (price paid) - FV of acquiree’s identifiable NA

DIRECT VALUATION (Excess of Earnings Approach):

• GW measured based on future earnings of business.
• Future Normal OI • G/L sale of PPE/investments should be excluded.
earnings: Key mgmt. bonus Excluded. Added back from NI
METHOD GOODWILL
Purchase of AEE = AEE x No. of periods
PV or DV of AEE = AEE x PV factor
Capitalization of AEE = AEE ÷ Capitalization rate
= Purchase Price* - FVNA, exc. GW
Capitalization of AE
*AE ÷ Capitalization rate

Total earnings for No. of periods

(-) Gain on sale
+ Loss on sale
+ Bonus of mgmt. personnel
ADJUSTED EARNINGS
÷ Number of periods
AVERAGE EARNINGS (AE)
(-) Normal Earnings =FVNA acquired x Normal rate of return
AVERAGE EXCESS EARNINGS (AEE)
=FV of tangible assets, exc. GW - FV of Liab

COMMERCIAL
RESEARCH DEVELOPMENT
PRODUCTION
Commercial and After establishment of
technological feasibility commercial and
Reproduced from Product
NOT yet established; technological feasibility.
Masters or Purchased for
Resale
Recognition criteria Capitalization criteria
NOT yet met are met.
Expensed Intangible Asset Product Cost
Non-Financial Liabilities
PREMIUM:

Premiums expected to be distributed = (Units Sold x % Expect) ÷ Required No.

x Premium Expense Per Unit = (Purchase Price + DACs) - Remittance
(Units Sold x % )
PREMIUM EXPENSE = x PE/u
Required No.

PREMIUM LIABILITY = Remaining Premiums to be distributed x PE/u

Premiums expected to be distributed (Cumulative Sales x %) ÷ Required
Premiums actually distributed (Cumulative Coupons Redeemed ÷ Required
Remaining Premiums to be distributed
PREMIUM LIABILITY PREMIUM INVENTORY
Premiums distributed Beginning Beginning Distributed
Premium Expense Purchased
Ending Ending
WARRANTY:
Warranty Liability
Actual Warranty Cost Beginning
Warranty Expense = Sales x (Y1% + Y2%)
Ending
= Total WE all years – Total WC all years

PROVISIONS & CONTINGENT LIABILITY

PROVISION CONTINGENT LIABILITY

Present Obligation Possible Obligation
BOTH: Probable & measurable EITHER: Probable or measurable
Liability; Disclosed Disclosed only

RELIABLY ACCOUNTING TREATMENT

OCCURENCE Remarks
MEASURABLE Accrue Disclose Ignore
LOSS CONTINGENCIES (LIABILITY)
Probable Yes ✔ Provision
Probable No ✔
Contingent
Possible Yes/No ✔
Liability
Remote Yes/No ✔
GAIN CONTINGENCIES (ASSET)
Virtually Certain Yes ✔ Asset
Virtually Certain No ✔
Contingent
Probable Yes/No ✔
Asset
Possible/Remote Yes/No ✔

TYPE Occurrence
Probable > 50% → More likely
Possible ≤ 50% → Less likely
Remote ≤ 10% → Least likely

Reimbursement Asset → Claim / Separate Asset

 CUSTOMER LOYALTY AWARDS
SP of G/S SASP TP
TP 1) Revenue– G/S SR =TP x ( ) G 3K 3/9 1K SR
Total SASP
Allocate P 6K 6/9 2K
SP of Award UR
(SPSP) 2) Liability- Points UR=TP x ( )
Total SASP 9K 3K

Redeemed Cumulative
Revenue from points= ( x UR ) – Rev Previous Yrs
Upon Total Expected
redemption
Total expected = Issued credits x % Est. Redemption for the year

Cash (TP)
UR SR – Sales
Sale: SR Redemption:
SR UR – Unearned Revenue
UR

SAME TO CUSTOMER LOYALTY AWARDS:

• Manufacturers may reimburse retailers for discount to customers
Manuf 1. Transfer G/S to retailer 1. Product
TP
2 PO 2. Reimburse retailer (Rebate liability) 2. Coupons
Rebate Cash (TP)
RL
Sale: SR Reimburse
Cash
RL
RL, end = RL, beg + RLB during – Reimbursement
Seller 1. Transfer G/S to customer 1. Product
TP
2 PO 2. Transfer add’l G/S (customer options) 2. Option
Free Delivered Cumulative
Products / Revenue Coupons = ( x UR ) – Rev Previous Yrs
Total Add'l units
Discount
Cash (TP)
(Retailer) UR
Sale: SR Reimburse
SR
UR
Free SASP of Coupons = Ave price of Purchase x % Discount x % Estimate
Products / Cash (TP) Cash*
Discount Sale: SR Reimburse UR
(Entity UR SR
Itself) *Ave price of Purchase x % Estimate x (100% - % Discount)

GIFT CERTIFICATE

GIFT CERTIFICATE
Redeemed Beginning Expired→ Gain or Breakage Revenue
Expired Sold /Cash Receipts
Ending
Bonds Payable
Initial =FV - BOND ISSUE COST
=Face + Unamortized Premium – Unamortized Discount
Subsequent
=Initial Measurement + Discount Amort. – Premium Amort.

▪ Contra account liability

BOND ISSUE ▪ Increases discount
COST ▪ Decreases premium
▪ Not expense

RETIREMENT OF BONDS

RETIREMENT GAIN/LOSS
On Maturity Date ✘
RP > CV LOSS
RP applicable to principal
RP < CV GAIN
PRIOR to maturity (-) CV of bonds
Gain/Loss

Retirement between Interest Payment Dates

Should include interest? From most recent RP
Payment ✔ interest payment up + Acc. Int.
RP ✘ Deduct if include to retirement date Cash Paid

ENTRIES:
Cash
Discount on BP
ISSUANCE
Bonds payable
Premium on BP
Interest Expense (Effective interest)
ANNUAL Premium on BP (E<N)
INTEREST Discount on BP (E>N)
Cash (Nominal Interest)
Bonds Payable (Face amount)
Premium on BP
Loss on retirement
RETIREMENT Cash (Retirement Price)
Discount on BP
Gain on retirement
D (P)= Face - CV of Bonds Sold
 COMPOUND FINANCIAL INSTRUMENT

❖ Contains LIABILITY & EQUITY a. Convertible Bonds

❖ Accounted Separately b. Bonds with detachable or
nondetachable share warrants
1) Liability component at its FV
ISSUE PRICE
2) Equity component at Residual amount
ISSUE COSTS ➔ Allocated in proportion to allocated proceeds
FV of BP ➔ If no FV, then PRESENT VALUE

BONDS W/ DETACHABLE WARRANTS:

• Warrants entitle holder to acquire Equity Security of issuer at agreed
subscription price.
• Presumed aside from bonds, entity has also issued an equity instrument.
Proceeds allocate to: Proceeds (Asset)
1. Bonds Less: FV of BP (Liabilities)
(Residual Approach)
2. Warrants SWO (Equity)
A-L=E
• Share Premium, Credit
SWO
• Equity section of SFP

• OS purchased at option price

• SWO is derecognized
SW Increase in SP (OP – PAR) Increase in SP (OP – PAR)
Exercised (-) Decrease in SWO + Decrease in SWO
Net Increase in SP SP from exercise to be reported

SW • Net effect to Equity = ZERO

Expired • Balance of SWO to General Premium (Equity to Equity)

Cash
Discount on BP
ISSUANCE BP (Face)
Premium on BP
SWO
Cash
SP- WO
EXERCISED
OSC (Par)
SP [SWO + (OP-PAR)]
SP- WO
EXPIRED
SP- unexercised SW
 CONVERTIBLE BONDS
• Give holder an option to convert bonds into issuer's equity securities.
Proceeds (Asset)
Proceeds allocate:
1. Bonds Less: FV of BP (Liabilities)
(Residual Approach)
2. Conversion option CO (Equity)
A-L=E
CONVERSION OF CONVERTIBLE BONDS: (NOT Debt for equity swap)
• Derecognize liability & recognize equity.
• Original equity component remains as equity (Equity to Equity).
• Update Amortization of BP as of date of conversion
BP (Face)
Premium on BP
SP - conversion privilege
CONVERSION
Cash (CP)
Discount on BP
Share premium [SP CP + (CV of BP – PAR)]
CONVERSION SP
COST Cash

CV of BP (Face + Prem – Disc) CV of BP • Value assigned to OS.

+ SP- CP (Converted) converted • Hence, NO G/L
Total Consideration SP-CP ➔ Cancelled
(-) Par value of shares issued Conversion 1. (-) SP → Share issue cost
(-) Conversion Cost Cost 2. Expense (If Cost > SP)
SP from conversion to be reported

RETIREMENT OF CONVERTIBLE BONDS:

RETIREMENT GAIN/LOSS
On Maturity Date ✘ RP & CV = Face Amount
RP
(-) RP applicable to principal FV of Bond w/o CP
RP Allocated to Equity on date of payment
PRIOR to
Maturity date CV of bonds on date of maturity RP Allocated to Equity
(-) RP applicable to principal CV of Equity Cancelled
Gain (Loss) on Retirement SP- Unexercised CP
RP – Retirement Price; CP -Conversion Privilege

▪ RP is allocated to liability settled and equity portion for bond CP

Retired prior ▪ After allocation, G/L recognized in P/L related to Liability component.
to maturity ▪ Excess of equity cancelled as a result of retirement over consideration
allocated to equity component is taken to equity.
BP (Face)
Premium on BP
SP - conversion privilege (RP Allocated to Equity)
Loss on retirement
RETIREMENT Cash (RP)
Discount on BP

SP - conversion privilege (Total SP-CP - RP Allocated to Equity)

SP- issuance
Debt Restructuring
➔ In downward economic conditions, creditor may grant concession to
debtor that it would not otherwise grant under normal conditions.
OBJECTIVE OF CREDITOR: ➔ Maximize recovery of investment
✓ Derecognition of Financial liability
EFFECTS:
✓ Recognition of gain/loss

ASSEET SWAP EQUITY SWAP MODIFICATION OF TERMS

Issuance of own equity Changing terms of original
NCA is given up
securities agreement
Notes Payable Notes Payable
NP (Decrease)
Interest Payable Interest Payable.
Premium
Loss on Disposal Gain on Extingu.
Gain on Modifi.
NCA at CV OSC
Cash (DC)
Gain on Restr. SP
• CV of Debt → Includes Unpaid Accrued Interest

I. ASSET SWAP
• Transfer by debtor of NCA to creditor to settle obligation. DEBTOR’S POV:
G/L on Extinguishment IFRS

CV OF DEBT FV OF ASSET CV OF ASSET

GAPP
G/L on Restructuring G/L on Disposal

Left higher, GAIN

II. EQUITY SWAP

• Debtor issues own shares to creditor to settle obligation. DEBTOR’S POV:
CV OF DEBT SHARE CAPITAL PAR VALUE

1. FV of Equity
Gain on Share
2. FV of Liability
Extinguishment Premium 3. CV of Liability

III. MODIFICATION OF DEBT TERMS

✓ Reduction of interest rate
✓ Reduction or condonation of Accrued interest
✓ Reduction of principal amount
✓ Extension of maturity date
✓ Moratorium on the payment of interest/ principal
 CV of OLD Liability (Principal + Accrued Interest)
(-) PV of NEW Cashflow (Using ORIGINAL discount rate)
GAIN (LOSS) ON EXTINGUISHMENT
(-) Direct Cost
NET GAIN (LOSS) ON EXTINGUISHMENT
≥ 10% of CV of DEBT < 10% of CV of DEBT
SUBSTANTIAL MODIFICATION NO SUBSTANTIAL MODIFICATION

Extinguishment of OLD Old liability NOT extinguished

Recognition of NEW But continued with modified cash flows
NO NEW
➔ Net G (L) on Extinguishment above is recognized. CV OLD liability (Principal + Accrued Interest)
rate
(-) PV of modified cash flows
W/ NEW ➔ Net G (L) using new rate; repeat process above G/L ON MODIFICATION
rate ➔ Computed above is only to determine if substantial or not ± Direct Cost
NET GAIN (LOSS) ON MODIFICATION
CV of OLD Liability (Principal + Accrued Interest)
(-) PV of NEW Cashflow (Using NEW discount rate) • Direct Cost - Deducted from PV of modified liability
• With computation of new effective rate after DC
GAIN (LOSS) ON EXTINGUISHMENT
• No need to repeat the steps.
± Direct Cost
PV of modified cash flows – Original Rate
NET GAIN (LOSS) ON EXTINGUISHMENT
(-) Direct Cost
Face value of new – PV of new = Discount (Premium)
Interest Income = PV of new x new discount rate PV of modified cash flows – New Rate
(-) Face value of modified cash flows
Premium (Discount)
Leases - Lessee’s Book
FINANCE LEASE
RIGHT-OF-USE ASSET (PPE)
❖ At COST
Lease liability, initial measurement
+ Initial Direct costs incurred by lessee
Initial + PV of Dismantling and removing cost
+ Lease Bonus paid to lessor
(-) Lease Incentive received from Lessor
RIGHT OF USE ASSET
1. Cost model → (Cost – AD – AIL) ; Adjusted for remeasurement of LL
2. FV model, if IP
3. Revaluation model, if PPE
Subseq. DEPRECIATION: There is a Cost - RV
=
✓ Transfer of ownership at end of LT UL
✓ Reasonably certain to exercise PO Cost - GRV
✓ No GRV =
LT

LEASE LIABILITY (NCL)

• At PV of Minimum Lease Payments not paid at that date.
Discounted using: 1. Implicit Interest Rate
(In order) 2. Lessee’s Incremental Borrowing Rate
PV of Fixed & Variable rentals
PV of Guaranteed Residual Value
Either; can’t be both
PV of Purchase Option
PV of Penalties (pre-terminated)
LEASE LIABILITY
Initial
GRV PO
▪ Lessee has right to buy leased asset
▪ Assured RV at the end of LT
▪ Reasonably certain
▪ Leased Asset will revert
▪ Must be significantly less than RV
back to Lessor
▪ Leased Asset will transfer to Lessee
• Fixed/Variable - Exclude contingent rent, costs for services
and taxes to be paid & reimbursed to lessor.

❖ Effective interest method

Subseq. ❖ CL = Amortization Next Year (Annual Rent – Interest Expense)
❖ NCL = CV next year – Amortization next year
➢ Expensed when incurred
Executory
➢ Paid by lessee to third Party
Costs
➢ Ownership expenses (Maintenance & Taxes)
Cost of Asset Purchased = Cash payment + CV of Asset – Balance of Liability
Loss on FL = Exercise price of PO – CV of ROUA at expiration of lease.
UL-LT
CV of ROUA = (ROUA x ) + RV
UL
 Right of use asset
Lease Liability
Initial Recognition
Cash (payment at or before commence+ initial DAC)
Provision for dismantling/restoration
Interest Expense
Payment of rentals
Lease Liability
& Interest Expense
Cash
Interest Expense Interest Expense
of Restoration Cost Cash
Depreciation Depreciation expense
of ROUA Accumulated Depreciation
FV of asset at expiration of lease ≥ GRV
Lease Liability
Accumulated Depreciation
Right of use asset
FV of asset at expiration of lease < GRV
Lease Liability
Accumulated Depreciation
Return of Asset to
Loss on Finance Lease
Lessor
Right of use asset
Cash
FV of asset at expiration of lease < URV
Lease Liability
Accumulated Depreciation
Right of use asset
Deficiency in FV is ignored
Lessee exercised PO
Lease Liability
Cash
Lessee not exercise PO
PO Lease Liability
Accumulated Depreciation
Loss on finance lease*
Right of use asset
*= Exercise price of PO – CV of ROUA at expiration of lease.

OPERATING LEASE
1) Short-Term lease → LT is ≤12 months
APPLIED IF:
2) Low Value lease → NO quantitative threshold
• Lease payments: Expense on either SL basis over LT or another systematic basis.
• NO Depreciation Expense
Total Payments
ANNUAL RENTAL (Rent Expense/Accrued Expense) = SL (Equal) =
Years or months
Total Payment < Accrued Expense 1. Reduction of Prepaid Rent (Credit)
= Accrual 2. Credit Rent Payable
Total Payment > Accrued Expense 1. Reduction to Rent Payable Debit)
= Deferral / Prepaid 2. Debit Prepaid Rent

BONUS TO LESSOR
➔ Must also be systematically allocated (Spread out)
Bonus
➔ Annual Lease Bonus charged to Annual Rent Expense = Lease Term
➔ Initially recognized as Prepaid Rent (Advance Payment)
➔ Adjusted subsequently by crediting Prepaid Rent
Leases - Lessor’s Book
OPERATING LEASE
• NOT transfer substantially all risks/rewards.
• Ownership remains with Lessor and bears all ownership or executory costs.
• Lessor Records Depreciation Expense
• NOT recognize any selling profit because not a sale.

PERIODIC PAYMENTS ➔ Income (Straight-line or another systematic basis.)

➔ + Revenue recognized over the LT
LEASE BONUS by Lessee
➔ Unearned Rent Income/Liability
LEASE BONUS by Lessor ➔ (-) Rent revenue, on SL basis
CONTINGENT RENTALS ➔ + Rent revenue in period in w/c they arise.
REFUNDABLE DEPOSIT ➔ LIABILITY; Affected by time value of money.
DEPRECIATION POLICY ➔ Lessor’s normal depreciation policy (Based on UL)

IF PAID BY LESSEE IF PAID BY LESSOR

INITIAL DIRECT COSTS Capitalized &
Professional/Finder’s fees /Commissions
IGNORE
expensed over LT*
EXECUTORY COSTS INCOME equal to
Taxes/Insurance/Maintenance
EXPENSE
amount paid by Lessee.
*Separate DE to leased asset because different denominator: Asset → UL ; IDC → LT

Lease Bonus Unequal Rental Payments Rent Receivable/ Unearned

Lease bonus Total payments entire term Total rental income to date
÷ Lease term ÷ Lease term (-) Total collection to date
Rental income Annual Rental income Receivable /Unearned Rent

Rent income
Revenue > Received 1. Dr: Unearned Rent
Lease Bonus, amortization
Accrual 2. Dr: Rent Receivable
(-) Depreciation Expense
(-) Amortization of IDC
Revenue < Received 1. Cr: Rent Receivable (-) Executory Costs
Deferral 2. Cr: Unearned Rent
Net Rent Income
Shortcut: Total the Revenue & Total the Received

OPERATING LEASE
LESSOR LESSEE
Records Leased Asset
Depreciates Asset
Rental Payments Rent income SL Rent expense SL
+ CV of leased asset
Initial Direct Cost* Expensed
Depreciated over LT
Amortized as Amortized as
Lease Bonus
Unearned rent over LT Prepaid expense over LT
Refundable Security Deposit Liability Receivable
Executory Cost Expensed Expensed

WITH TRANSFER OF OWNERSHIP (IMPLICIT)

➔ Disregard GRV/URV
 FINANCING LEASE
INDICATORS (At least one)
(a) Transfers ownership
(b) Lessee has option to purchase asset at sufficiently lower than FV
LT
(c) LT is major part of economic life of asset even if title is not transferred. (UL =75%)
(d) At inception, PV of MLP amounts to at least substantially all of FV of asset (90%)
(e) Asset is specialized nature that only lessee can use it w/o major modifications.
INDICATORS OF SITUATIONS
(a) Lessee can cancel the lease →Lessor’s losses w/ cancellation are borne by lessee.
(b) G/L from fluctuation in FV of residual accrue to lessee
(c) Extension of LT at the option of Lessee → Lessee has ability to continue lease for
secondary period at rent lower than market rent.
DIRECT FINANCING SALES TYPE
• 1 type of revenue: Interest Inc. 2 types of Revenue:
• NO GP; NO Depreciation 1) GP- Full @ inception
• Don’t matter whether RV is 2) Interest Inc. – Over LT
Guaranteed or unguaranteed.
EC Expense Expense
+ Net investment (Cost/FV)
IDC ▪ (-) Reduction from UII + COGS
▪ Amortized over LT
BPO (Gross) + Gross Investment (FLR) + Gross Investment (FLR)
GRV & UGRV
+ Gross Investment (FLR) + Gross Investment (FLR)
(Gross)
PV of BPO + Net Investment + Net Investment
PV of GRV + Net Investment + Net Investment
+ Net Investment
(-) COGS
PV of URV + Net Investment
(Excluded in Sales.
But added in NI)

FLR
Asset for Lease
Initial
Cash (Initial Direct Cost)
UII
DIRECT FINANCING Cash
Collection of Rentals FLT
UII
Interest Income Interest Income
Cash
FLR
Commencement of LT
Sales
UII
COGS
CV of asset is UII (If there’s URV)
recognized as COGS Inventory
Cash (IDC)
SALES FLR (Gross RV)
PV of URV reduces
COGS (PV of URV)
COGS
UII
Cash
FLR
COGS (CV of asset – PV of URV)
COMPOUNDED
Sales
Inventory (CV of asset)
UII
 DIRECT FINANCING LEASE MANUFACTURER/DEALER/SALES LEASE
Total of Periodic Payments ▪ Undiscounted MLP
GROSS INVESTMENT + Gross of BPO/GRV/URV ▪ Subsequent: Deduct payments
Gross Investment (FLR)

= PV of Gross Investment (FMV of Asset) = PV of Gross Investment or FLR

= Cost of Asset + IDC PV of Lease payments
GI -FLR bal. NI, beg PV of BPO
NET INVESTMENT
(-) Bal. of UII (-) Annual Lease payment PV of GRV
(SFP)
NI, end ± Amortized of Discount -UII PV of URV
Net Investment
NI, end

Gross investment Unearned Interest, balance

(-) Net Investment (-) Amortized Discount/Revenue
UII
Unearned, over the LT Unearned, end balance
(Discount)
• Advance lease payment can either include or exclude.
• But Gross & Net Investment must have same treatment.

INTEREST INCOME = Net Investment x % Implicit Rate

▪ FV of leased asset
LOWER:
▪ PV of Rentals, BPO, GRV or (NI - PV of URV)
SALES/COGS/GP NONE
Sales
(-) COGS = Cost of Asset+ IDC - PV of URV
GP on Sales SAME whether GRV or URV

TREATMENT: NI (FMV of Asset) = Cost FMV of Asset) ≠ Cost

IF WITH TRANSFER OF OWNERSHIP (IMPLICIT)

➔ Disregard GRV/URV; Not added to Sales (Net Investmen
SALE & LEASEBACK
Entity (seller) transfer asset to another entity SELLER BUYER
(buyer) who lease back to original seller (lessee) (LESSEE) (LESOR)

Either transfer SALE ➔ Buyer-lessor has control

of asset is: NOT SALE ➔ Seller-lessee retains control
TRANSFER: SELLER (LESSEE) BUYER (LESOR)
Continue to recognize asset Do not recognize asset
NOT SALE FINANCIAL ASSET
FINANCIAL LIABILITY (Proceeds)
(Proceeds)
Derecognize asset Apply lessor accounting
Recognize:
✓ Sale at FV
SALE Recognize purchase of asset
✓ Lease Liability
✓ ROUA, proportion of previous CV
G/L on rights transferred to buyer -

EXCESS: SELLER-LESSEE:
Lessor: Financial Liability
SP > FV FV of RR = PV of MLP – FL
Lessor: Financial Asset
SP < FV Prepayment of LP FV of RR = PV of MLP + Prepayment
FL → Deduction to MLP to arrive at LL
Prepayment → No effect to LL account; Added only to FV of RR for computation of G/L

RIGHT RIGHT FV
ASSET: TOTAL (PV of MLP)
RETAINED TRANSFERRED
FV 100,000 S2 S4 SP of RT
CV* 80,000 S3 (ROUA) S5 (CV of RT)
G/L
Gain 20,000 G/L
FV of Right Transferred
*Apportioned based on FV G/L = Total G/L x
Total FV
S1 Fill up FV and CV (always given)
S2 PV of Minimum Lease Payments
S3 Apportion CV based on FV: 80K x (S2/100K) ▪ ROU retained (S3)
S4 (100,000 – S2)
S5 (80,000 – S3)

NET RENTAL INCOME OF BUYER-LESSOR = Annual Rent – DE

ANNUAL RENT Financial Liability Prorated Based on

Lease Liability Total of PV of MLP
Income Tax
PERMANENT DIFFERENCES
▪ Income subject to Final tax
NON-
▪ Tax exempt income
TAXABLE
▪ Gain from settlement of life insurance of officers/employees where
corporation is named beneficiary
▪ Fines and penalties
NON-
▪ Charitable contributions in excess of tax limitation
DEDUCTIBLE
➔ 5% of taxable income before charitable contribution
EXPENSES
▪ Premiums on life insurance for officers/employees where
corporation is named beneficiary.
TEMPORARY (TIMING) DIFFERENCES
TAXABLE TEMPORARY DIFF. (TTD) DEDUCTIBLE TEMPORARY DIFF. (DTD)
FI > TI FI <TI
Asset: CV > Tax base Asset: CV < Tax base
Liability: CV < Tax base Liability: CV > Tax base
Deferred Tax Liability (DTL) Deferred Tax Asset (DTA)
✓ Prepayments ✓ Unearned Income
✓ Upward Revaluation Surplus ✓ Accrued/Estimated Expenses
✓ Installment sales (Accrual) ✓ Downward Revaluation Surplus
✓ Interest revenue ✓ Bad debt expense
✓ Development costs ✓ Excess of Est. uncollectible accounts over
✓ Unrealized gains accounts actually written off
✓ Cost of business combination accounted ✓ Impairment / Unrealized losses
for as an acquisition ✓ Research Cost
✓ Tax depreciation in excess of book ✓ Book depreciation in excess of tax
depreciation (SL for FR; SYD for tax) depreciation (Acc. Dep. for FR; SL for tax)

Pretax Financial Income Pxx

+ Non-deductible Expense xx
(-) Non-taxable income (xx)
Financial Income subject to tax Pxx Constant Tax Rate = TITE
TTD:
↑ Increase (xx)
DTL
↓ Decrease xx
Future Tax Rate
DTD:
↑ Increase xx
DTA
↓ Decrease (xx)
TAXABLE INCOME PxxCurrent Tax Rate = CTE
(-) Income Tax Payments (xx)
Tax Payable (Prepaid Tax) Pxx Current Tax Liability (Asset)
TTD/DTD → Changes for year (↑/↓) must not be cumulative.

Profit before income tax Current Tax Expense Pxx

(-) Total Income Tax Expense Deferred Tax Expense (Benefit)
Profit (NI After Tax) ↑ in DTL Pxx
↑ in DTA (xx) xx
TOTAL INCOME TAX EXPENSE Pxx
 DTL DTA
↓TTD x % TTD beg x % DTD beg x % ↓DTD x %
↑TTD x % ↑DTD x %
TTD end x % DTD end x %
Ending Balances → Presented in SFP as NCA/L
I/S Approach → Computed is Δ (↑↓) for the period
B/S Approach → Ending Balance

Income tax Expense-Deferred

TTD
Deferred Tax Liability
Deferred Tax Asset
DTD
Income tax Expense- Benefit
Current Tax Expense Income Tax Expense- Current
and Payable Income Tax Payable
Payment of Tax Income Tax Payable
Payable Cash

OPERATING LOSS CARRYFORWARD

• Tax deductions > Gross income (Taxable income)
➔ In a year that may be carried forward to reduce TI in future year.
• Within 3 years from date of occurrence.
• Results in Future deductible amount (Deferred tax asset)

MINIMUM CORPORATE INCOME TAX (MCIT)= 2% of GI

• Beginning of 4th taxable year immediately following commencement.
• Income tax HIGHER:
➢ 30% based on taxable NI
➢ 2% of Gross income
• Excess of MCIT over normal income tax of 30% (MCIT>Normal Tax)
➔ Carried forward and credited against normal income tax for 3 immediately
succeeding taxable years.
Expects to operate profitably in succeeding years and RCIT > MCIT DTA
Continue to Pay MCIT No DTA

Permanent → NOT Reverses ; Temporary → Reverses

 Defined Benefit Obligation (DBO) Fair Value of Plan Assets (FVPA)
Actuarial Gain Beginning Beginning Settlement Price BO - Advance
PV of BO settled- Advance Current Service Cost Actual Return* Benefits Paid
Benefits Paid Past Service Cost Contributions to plan
Interest Expense Ending
Actuarial Loss *(Interest income + Remeasurement Gain)
Ending

FVPA < DBO Deficit DEFICIT Defined Benefit Liability (Accrued)

FVPA > DBO Surplus LOWER: Surplus & Asset Ceiling Defined Benefit Asset (Prepaid)

DEFINED BENEFIT COST

Defined Benefit Plan

SERVICE COST NET INTEREST REMEASUREMENTS

Current Service Cost Interest Expense Remeasurement -FVPA
Past Service Cost (Interest Income) Remeasurement- PBO
Loss (Gain) on early Interest on Effect of Change in effect of
Settlement Asset Ceiling asset ceiling
PROFIT OR LOSS OCI/OCL

DISCOUNT RATE- Market yield on High Quality Corporate Bonds

Actuarial Gain on DBO → Decrease in Projected BO due to Δ in actuarial assumptions
Actuarial Loss on DBO → Increase in Projected BO due to Δ in actuarial assumptions
INTEREST INCOME (Expected Return on PA) = (FVPA, beg x % rate)
INTEREST EXPENSE (Interest Cost on BO) = (DBO, beg x % rate)

NET Interest = Interest Expense – Interest Income

NET Interest = (DBP, beg – FVPA, beg) x %
Actual Return PV of BO settled in advance
(-) Interest Income (-) Settlement Price BO – in advance
Remeasurement G (L) on FVPA G (L) on Early Settlement

BEG END
FVPA Pxx Pxx
Surplus > Ceiling = Effect
PBO (xx) (xx)
Surplus < Ceiling = NO effect
Surplus Pxx Pxx
Asset Ceiling (xx) (xx)
Effect of Asset Ceiling Pxx Pxx
*%
INTEREST ON EFFECT OF AC Pxx

Effect of AC, end Increase (End > Beg) → Loss

(-) Effect of AC, beg Decrease (End < Beg) → Gain
Increase (Decrease) in effect of AC
(-) Interest on effect of AC - P/L Remeasurement Loss – Interest
Δ in EFFECT OF AC - OCI Remeasurement Gain + Interest

Accrued (Prepaid) BC, beg (PBO, beg - FVPA beg)

(-) Accrued (Prepaid) BC, during Defined Benefit Cost - Contribution
Accrued (Prepaid) BC, end (PBO, end - FVPA end)
BC- Benefit Cost

Accrued (Underfunding) → Defined Benefit Liability / Pension Liability

Prepaid (Overfunding) → Defined Benefit Asset / Pension Asset

FVPA < DBO = Deficit Accrued

FVPA > DBO = Surplus
Lower
Asset Ceiling
Shareholder’s Equity
Share capital issued
Ordinary share capital (Common stock) Pxx
Preference share capital (Preferred stock) xx
Subscribed share capital xx
Share dividends distributable (Stock dividends payable) xx
Less:
Subscriptions receivable (xx)
Discount on share capital (xx)
Capital liquidated (In liquidating dividends) (xx) Pxx
Share premium:
SP excess over par Pxx
SP -Delinquent/Forfeited Subscription xx
SP - Treasury shares xx
SP conversion option- convertible BP xx
Donated capital xx
SP - warrants outstanding xx
SP - options outstanding xx xx
TOTAL PAID IN CAPITAL (CONTRIBUTED CAPITAL) Pxx
Retained Earnings
RE - unappropriated Pxx
RE - appropriated xx xx
Other comprehensive income (cumulative balance)
Revaluation surplus Pxx
Unrealized gain or (loss) on FVTOCI xx
Remeasurement gain or (loss) under PAS 19 xx
Translation gain or (loss) xx
Effective portion of cash flow hedge xx
Change in FV due to credit risk of designated FLQTPL xx xx
Less: Treasury shares -xx
TOTAL SHAREHOLDERS' EQUITY Pxx

OUTSTANDING SHARES = Issued + Subscribed SC - TS

CONTRIBUTED/PAID-IN = SC + Share Premium*
(CASH) *Premium from subscribed excluded
With Par = SC + Subscribed SC
LEGAL
No Par = SC + Subscribed SC + OS premium*
*in excess of Stated Value
ISSUED SHARE CAPITAL = Authorized SC - Unissued SC

SHARES PREMUM Issued ↑ Par Par or SV < Consideration (+) SHE

ISSUED AT A DISCOUNT Issued ↓ Par Par or SV > Consideration (-) SHE
DISCOUNT/ • Issuing shares below PAR or SV is prohibited only on orig issuance.
PREMIUM Thus, TS may be reissued below par or stated value.
 ISSUANCE
NON-CASH CONSIDERATION:
CONSIDERATION VALUATION (Order of priority)
NON-CASH ASSET 1. FV of noncash consideration Received
OR SERVICE 2. FV of share capital Issued.
3. Par value of share capital Issued.
LIABILITY 1. FV of share capital issued
EXTINGUISHED 2. FV of liability extinguished
3. CV of liability extinguished

FV of equity issued (FV of liability) FV of equity issued (FV of liability)

(-) CV of liability extinguishment (-) Par or SV of equity issued
G/L on extinguishment of liability Share premium (or Discount)

TWO OR MORE CLASSES OF SHARES

a. Issued Separately → Accounted separately
b. Issued simultaneously at a basket or lump-sum price
Fair Value or Proportional method
FV ALLOCATED COST
ALL FVs are PS 240,000 240/600 400,000
available OS 360,000 360/600 600,000
600,000 1,000,000
PREMIUM= Allocated Cost- (Shares*PAR)

Incremental/Residual Method:
Total Proceeds
Only ONE
has FV (-) Total FV (Securities w/ available FV)
Amount allocated to the other securities

ALL have ➢ Use Proportional method and allocate the

NO FV lump-sum price based on PAR VALUE

SHARE COSTS
RELATED TO ISSUANCE DEBITED to:
✓ Publication Fees 1. SP from related issuance
✓ Underwriting fees and commissions 2. SP from previous issuance
✓ Registration fee w/ SEC 3. RE
✓ OPT and DST
RELATED OFFERING/LISTING
✓ Public relations fees
Expensed
✓ Listing fee in LSE
✓ Road Show presentation
OTHER INDIRECT COSTS- EXPENSED
✓ Indirect costs related to sale of share capital
✓ Recurring Cost of maintaining shareholders records
✓ Handling ownership transfers→ Registrar Agent Fees
✓ Incorporation Fees
✓ Broker commission
JOINT COSTS Allocated pro-rata between:
▪ Jointly to listing & issuance of new 1. Newly-issued listed shares
shares and listing old shares. 2. Newly-listed old shares
• Basis: Total Outstanding shares
 SUBSCRIPTION
➔ Issuance of shares will only happen upon FULL PAYMENT.

SUBSCRIBED ▪ Not yet issued since not yet fully collected

SHARE CAPITAL ▪ Entitled to receive dividends
SUBSCRIPTION Short-Term → Current Asset
RECEIVABLE Long-Term → Deduction from Subscribed SC (Silent)

DELINQUENT ▪ Subscriber does NOT pay in full his unpaid stock

SUBSCRIPTION subscription on the date fixed by the BOD.

AUCTIONED SUBSCRIPTIONS
• Subscription remains unpaid at a due date.
• After 30 days but not exceeding 60 days from shares declared delinquent.

SOLD AT A PUBLIC AUCTION TO HIGHEST BIDDER

OFFER PRICE includes:
HIGHEST BIDDER a. Unpaid balance
• Willing to pay "offer price" b. Interest accrued
for SMALLEST # of shares. c. Expenses in public auction

Total No. of Shares Subscribed

• DS STILL receive paid shares. (Bal) (-) No. of Shares to HB
• Shares divided to: DS & HB Remaining Shares to DS.

NO BIDDERS - TREASURY SHARES

• Corporation may bid for shares → Only if it has sufficient unrestricted RE
• Credited as paid in full in books of corporation.
• Title to ALL shares shall be vested in corporation → TS recorded @ COST
• DS NOT entitled for any shares in subscription (Regardless if paid)
NO BIDDERS AND CORPORATION HAS INSUFFICIENCY OF RE
• Subscription is CANCELLED in its entirety
• Amount Paid by DS → forfeited and treated as SHARE PREMIUM.

CONDITION RECIPIENT OF SHARES

a. To HB - No. of Shares willing to receive
With Highest Bidder
b. To SD - Remaining shares
No HB: Corp. acquires ALL shares will be acquired by Corporation (TS)
No HB: Corp. prohibited No Issuance
Forfeited down payment No Issuance
ENTRIES:

SR 120
SUBSCRIPTION OF SC Subscribed SC 100
SP 20
Cash 50
CASH COLLECTION
SR 50
EXPENDITURES ON Due from HB 8
PUBLIC AUCTION Cash 8

Cash 80
Receipt of SR 70
SOLD AT
Payment Due from HB 8
PUBLIC
Interest Income 2
AUCTION
Issuance of Subscribed SC 100
shares SC 100

TS* 78
Acquisition of
SR 70
subscription as
Due from HB 8
TS
*Unpaid + direct costs.
CORP RE- Unrestricted 100
BID FOR Appropriation RE- Appropriated* 100
SHARES of RE TS
Acquired *Aggregate PV of Delinquent shares.
TS ≠ Amt Appropriated
Issuance of Subscribed SC 100
shares SC 100

Expenditures Expenses on delinquent Sale 8

on equity Due from HB 8
Subscribed SC 100
NO
SP 20
BIDDER Derecognize
SR 70
Equity Accounts
SP-Delinquent Subscription* 50
*Amount paid by delinquent subs.
SR → Subscription Receivable
 TREASURY SHARES
• Entity's own shares previously issued but subsequently reacquired
• Issued but not Outstanding (NOT entitled to Dividends)
• Contra equity: ↓ OS = ↓ SHE (NO EFFECT Issued shares)
• RE must be APPROPRIATED = Cost of TS acquired.
• Cost method is required by standard

COST METHOD:

REACQUISITION APPROPRIATION OF RE:

➔ Corporation is permitted in TS transaction provided it
sufficient unrestricted RE to cover shares purchased.
➔ When reissued, related A-RE are reverted back to U-RE.
• No appropriation in Donation
• Donated Capital → Additional paid in capital

RETIREMENT • Unlike TS, retired shares cannot be reissued anymore.

OF SHARES • Total par and related SP is removed from books.
• Difference of RP & IP→ NOT recognized as G/L
Retirement Price Paid to shareholder to retire
(RP) (Outflow)
Issuance Price Received when you issued
(IP) (Inflow)

Immediately Retired → No need to set up TS account

REACQUISITION ↓ SHE; Equal to COST

REISSUANCE ↑ SHE; Equal to REISSUANCE PRICE
EFFECT:
No effect SHE; ↓ BOTH – Shares issued &
RETIREMENT
outstanding

BALANCE OF TS = Regardless of # of Shares, Depends on TOTAL COST

Acquired 5K Shares x 20 = 100,000
Ex: Balance of TS = 50,000
Reissue 5K Shares x 10 = 50,000

PAR VALUE METHOD:

• Reacquired TS are accounted for as if they are retired.
• Not acceptable for financial reporting.
• SP & TS = OS; SHE = unaffected.
PAR VALUE METHOD:
TS (at par)
REACQUISITION SP-Original Issuance
(AS IF RETIRED) Cash
SP- TS

COST METHOD:
TS
BY PURCHASE
REACQUISITION Cash
OF TS TS No effect
BY DONATION
Donated Capital to SHE

AT COST Cash
(RP = COST) TS
MORE THAN COST Cash
(RP > COST) TS
REISSUANCE OF
Gain SP-TS
TS
Cash
BELOW COST
(a) SP- TS
(RP < COST)
(b) RE
Loss
TS

SC
RC < OIP SP- Original Issuance
RETIREMENT OF (Gain) TS
TS SP-TS
SC
- NOT affect SP-Original Issuance
RC > OIP
Total SHE (a) SP- TS
(Loss)
(b) RE
TS

Total SP before retirement* Total issue price – originally issued

÷ Total issued shares before retirement (-) Par Value per share
SP per share -original issuance SP per share -original issuance
x No. of Shares Retired x No. of Shares Retired
SP-ORIGINAL ISSUANCE SP-ORIGINAL ISSUANCE
*Share Premium-TS, excluded

Issuance Price (Par SC + SP) x # shr issued Par Value + Related SP

Original IP=
(-) Retirement Price # of shares issued
SP-Retirement

SC
RP < OIP SP – Original Issuance
(Gain) SP – Retirement
RETIREMENT Cash
OF SC SC
(NOT TS) SP – Original Issuance
RP > OIP
(a) SP – Retirement
(Loss)
(b) RE
Cash
 RETAINED EARNINGS
• Cumulative profits retained in business /not yet distributed to shareholders
• APPROPRIATION - No effect on total RE & SHE
APPROPRIATED Restricted ✔ Dividend payments
UNAPPROPRIATED Unrestricted ✘ Dividend payments

▪ Relates SCI to SFP by displaying changes that directly affect RE

STATEMENT
▪ Part of “Statement in Changes of Equity”
OF RE:
▪ No longer required in SFP

RETAINED EARNINGS
Dividends declared Beginning
Loss from retirement of SC/TS NI
Loss from reissue of TS ± Prior Period Errors
± Δ Accounting policy
± Reclassification of OCI - DECS
Ending

RE
APPROPRIATION
RE- Appropriated
RE- Appropriated
REVERSAL
RE

If TS NOT reissued RE
by end of year RE- Appropriated- TS
If TS are REISSUED RE- Appropriated – TS
afterwards RE

SHARE SPLIT
• MEMO ENTRY MAY BE: 1. Split UP or share split
• Also affects TS 2. Split DOWN or reverse share split

INCREASES DECREASES
UP (2 FOR 1) Number of shares FV/ PAR per share
DOWN (1 FOR 2) FV/PAR per share Number of shares

BEFORE SPLIT UP “2 for 1” DOWN “1 for 2”

No. of OS 10,000 20,000 5,000
Par 100 50 200
Total Par 1,000,000 1,000,000 1,000,000

✓ Number of issued/outstanding shares

AFFECTS ✓ Treasury shares
✓ Par value per share
✓ Assets, Liabilities, Equity,
NOT
✓ Total par value (Total CV)
AFFECT
✓ SC, SP, RE, SHE.
 OS DIVIDENDS
•Pro-rata distributions of Earnings to owners of corporation
•Shares Entitled: Issued & Outstanding
OUT OF UNAPPROPRIATED RE OUT OF CAPITAL
DIVIDENDS MAY
(RETURN ON CAPITAL) (RETURN OF CAPITAL)
BE DECLARED:
Cash; Property; Scrip; Share Liquidating Dividends

DIVIDENDS ON • Paid in full provided not yet declared delinquent.

UNPAID Due on o Cash Dividends first applied to Unpaid Bal + Exp
SUBSCRIPTION Delinquent o Stock dividends withheld until subscription is paid
CASH DIVIDENDS
• Most common form a) Certain amount per share
• May be declared as: b) Certain percentage of par value of shares.
SCRIP DIVIDENDS
• Deferred Cash Dividends (Notes Payable)
• Recording of Accrued Interest
PROPERTY DIVIDENDS
• Shares of another entity; Inventory, PPE, Intangibles, Investment in Associate
PDP Initially measured @ FV of NCA at date of declaration
BS Date Adjusted for changes in FV → G/L, directly in RE
Settlement P/L = CV of PDP – CV of NCA @ Declaration
DECLARED AS DIVIDENDS:
Recognized at: Lower of: CV & FVLCTD @ date of declaration
Impairment Loss If: FVLCTD < CV
↑ in FVLCTD Gain on Impairment Recovery. (Extent of cumulative IL.
NCA
Loss on Distribution If: CV of PDP < Asset Distributed
Net Effect of Declaration
Net Debit = CV of NCA on date of declaration
& Settlement on RE
▪ Accounted for under its previous accounting; No reclassification
CA
▪ Adjusted for changes in FV

PROPERTY DIVIDENDS PAYABLE NON-CASH ASSET

Update to FV of NCA every: Remeasure:
➔ Declaration; Year-end; Settlement ➔ Declaration & Year-End

SHARE DIVIDENDS/ BONUS ISSUE

• Paid in form of entity’s own shares.
SMALL LARGE ↑ Outstanding Shares
% Declared < 20% of OS ≥ 20% of OS ↓ RE
Charged to RE FV @ Decla Par Value x A, L, C; PAR /per shr
Credited to SP FV - Par None
➔ FV must not be lower than Par or Stated value
Outstanding Shares FORMULA
x % Share Dividends Declared SC
OS x % Div x Par
Add’l Shares Declared as Div SDP
x FV /Par per share Small OS x % Div x FV
RE
SHARE DIVIDENDS DECLARED Large OS x % Div x Par

TREASURY SHARES DECLARED AS DIVIDENDS

• Cost Method is used→ RE is Debited for Cost of TS declared; No SP
• Reverse restriction of RE
LIQUIDATING DIVIDENDS
• Dividends declared out of capital, rather than from RE.
• Dividends declared in excess of balance of unrestricted RE.
• Charged to “Capital Liquidated” account, a deduction from SHE (Contra-equity)
• Unintentional LD - declared out of RE that is overstated. (Correcting entry is made.)
 Retained earnings
Declaration
CASH Cash Dividends payable
DIVIDENDS Cash Dividends Payable
Payment
Cash

Equity Investments at FV
Unrealized Gain on Equity Inv.
Declaration
RE (FV)
PROPERTY
Property Dividends payable
DIVIDENDS
RE (FV)
(CA) BS Date
Property Dividends payable
Property Dividends payable
Loss on derecognition (if any)
Payment Equity Investments at FV
Cash
Gain on derecognition (If any)

RE (FV @ declaration date)

Declaration
PDP
RE
↑ FV of NCA
PDP
BS Date
PDP
↓ FV of NCA
RE
PROPERTY RE ↑ FV of NCAHFDO
DIVIDENDS PDP
(NCA)
PDP
RE ↓ FV of NCAHFDO
Payment
PDP (FV @ payment)
Loss on Distribution
CV of NCA @ Declaration
Gain on Distribution
Retained earnings (FV)
Declaration
Scrip Dividends payable
Interest Expense
SCRIP BS Date
Interest Payable
DIVIDENDS
Scrip Dividends Payable
Payment Interest Expense/Interest Payable
Cash (Principal + interest)

RE (FV)
Small
Stock Dividends Payable (+SHE)
Declaration <20%
SP
(Company)
SHARE Large RE (PAR)
DIVIDENDS ≥20% Stock Dividends Payable (+SHE)
Declaration (SH) Memo Entry
Stock Dividends Payable
Payment
Share Capital
Capital Liquidated/Premium
Declaration RE
LIQUIDATING
Cash Dividends Payable
DIVIDENDS
Cash Dividends Payable
Payment
Cash
 PREFERENCE SHARES

PS preferences 1. Distribution of assets in liquidation (Preferred as to Assets)

over OS: 2. Distribution of dividends (Preferred as to Dividends)
PREFERENCE OVER ASSETS
• "Preferred as to assets" → Entitled to Liquidation value.
• Amount PS shareholders are entitled to receive in case of corporate liquidation.
• Usually more than par value of PS.
PREFERENCE OVER DIVIDENDS
• When dividends are declared, PS are paid first before OS.
Non ▪ Div entitlement for a year is forfeited when not declared in that year
Cumulative ▪ Current year only dividend only.
▪ Dividend entitlement accumulates each year until paid.
▪ Provide all dividends in arrears
Cumulative
Accumulated ➔ Disclosed as dividends in arrears
Unpaid Dividends ➔ Not accrued as liability unless declared.
Non
▪ Entitled only to fixed amount of dividends.
Participating
▪ Entitled to amount in excess of fixed amount of dividends.
Participating
▪ Computed after both PS & OS allocated their basic dividends.
• Any excess of dividends declared after deducting basic dividends is the amount subject
to participation which is allocated depending on nature of participation of PS.

Participates on Pro rata basis

FULL ➔ Based on aggregate par values of outstanding
Participating shares with ordinary shareholders.
may be:
Participates only up to certain amount/percentage.
PARTIAL
=(Participation % -Div %) x Agg. Par of PS Outstanding

▪ Provide dividends of PS first.

S1
▪ Noncumulative - one-year only; Cumulative - all dividends in arrears.
S2 ▪ Provide basic dividends of OS using PS rate.
▪ Allocate excess dividends after deducting amounts computed in
S3
above to PS & OS pro rata (If fully) based on aggregate par values

CONVERTIBLE PREFERENCE SHARES

TYPE MEANING RIGHT TREAT
Convertible PS • Entitles holder to exchange PS to OS. SH Equity
• Gives issuer right, but not obligation, to
Callable PS reacquire and retire share at fixed call Issuer Equity
price. (Cash Payment involved)
Mandatorily • Holder has option to require issuer to Financial
SH
Redeemable PS retire or reacquire PS at fixed date. Liability

REDEEMABLE PS CALLABLE PS
Holder has right to redeem Issuer has right to call
Equity Instrument - right to call is at
Financial Liability - when holder exercises
discretion of issuer and therefore has no
its right to redeem, issuer is mandatorily
obligation to pay unless it chooses to call on
obligated to pay for redemption price.
shares
Has fixed redemption date NO fixed redemption date
 CONVERTIBLE PS
• Gives holder an option of converting originally purchased instrument into OS.
Entity has issued (1) Financial liability for bonds → Liability
2 types of instruments: (2) Equity instrument for conversion feature → SHE
When Convertible PS are Issued:
▪ Only 1 type of financial instrument is issued- equity instrument, but different classes.
▪ Conversion option is embedded derivative that requires no separate recognition.
▪ On conversion date, reclassification entry is made from PS to OS.
▪ PS converted are cancelled & issuance of OS is recorded. (Similar to retirement of PS)

Cash
Issuance of
PS
PS
SP- PS
PS
IP > Par SP- PS
CONVERTIBLE
(Gain) OS
PS
SP - OS (Squeezed)
Conversion
PS
IP < Par SP- PS
(Loss) RE (Squeezed)
OS
Cash
Issuance of
PS
PS
SP- PS
PS
IP > RP SP- PS
CALLABLE PS
(Gain) Cash
(Cash involved)
SP - OS (Squeezed)
Redemption
PS
IP < RP SP- PS
(Loss) RE (Squeezed)
Cash
Cash
Issuance of RPS
Redeemable PS
REDEEMANBLE Interest Expense
Dividend
PS Cash
Redeemable PS
Redemption
Cash
 STOCK RIGHTS
• Issued to existing ordinary shareholders in relation to their preemptive rights.
• To protect current interests by acquiring new shares before offered to new investors.
• Enable to purchase new shares at a price lower than shares' MV
• Evidenced by share warrants.
• Memo entry only.
ACCOUNTING FOR • Entry only when rights are exercised or recalled.
STOCK RIGHTS • If recalled, consideration paid is debited to SP
• No entry if expired but not recalled. (Memo Entry only)

WARRANTS

SHARE ▪ Certificates that entitle holder to acquire shares

WARRANTS ▪ Issued in conjunction with ff issuances:
a) Stock rights – preemptive right
b) Detachable warrants with other securities
c) Share options to employees - additional compensation.

BONDS WITH DETACHABLE WARRANTS

• Similar w/ issuance of convertible bonds, when (1) Financial liability for bonds
bonds are issued with DW, entity issued (2) Equity instrument for DW
compound instrument having 2 components: ➔ Accounted Separately
PS WITH DETACHABLE WARRANTS
• Similarly with issuance of Convertible PS to OS
• Entity issued only 1 type of instrument -equity instrument, but different classes.
• DW NOT embedded derivative but standalone instrument that accounted separately
1. FV on issuance date.
Allocation of
2. Intrinsic value of warrants = (FV of OS – Exercise Price)
issue price:
➢ Any excess of issue price is allocated to PS.

Issuance Memo
Cash
STOCK RIGHTS Exercise SC
SP (If any)
Expiration Mana

Total
Equity # FV Allocate
FV
PS 1K 110 110K 110/120 123,750
W 1K 10 10K 10/120 11,250
120K 135,000
Issuance
of PS Cash (Issue Price) 135K
PS Capital (At Par Value) 100K
PS W/ SHARE SP- PS (IP of PS – Par Value) 23.75
WARRABTS SP-WO (IP of warrants) 11.25
Cash (# of OS x Exercise Price) 35K
SP-WO 11.25
EXERCISE
OS (At par) 25K
SP- OS (Squeezed) 21.25
SP-WO 11.25
EXPIRED
SP- OS 11.25
 DONATED CAPITAL
• Gifts received by corporation From Shareholders Credited to SP.
from nonreciprocal transactions. From Government Government grants
• Part of SHARE PREMIUM
DONATIONS FROM SHAREHOLDERS MAY BE IN THE FORM OF:
CASH ➔ Recognized at amount of cash received or receivable
NCA ➔ Recognized at FV of NCA
➔ Initially recorded through memo entry.
▪ DC is recognized only when shares are reissued. (No asset
ENTITY'S OWN
generated from donated shares until reissued.)
SHARES
▪ If shares are not resold, entity should effect formal
reduction of authorized capital by retiring shares received

ASSET ENTITY’S OWN SHARE

Asset (FV)
Memo
Upon Receipt Donated Capital
↓ Outstanding shares.
of Donation
Cash
Upon Sale Loss (if any) Cash
(Reissuance) Asset Donated Capital
Gain (if any)

QUASI-REORGANIZATION
ELIMINATE DEFICIT 1) Revaluation of NCA
(NEGATIVE RE) BY: 2) Restatement of invested capital (Recapitalization)
After Quasi-Reorganization: Must have a zero balance in RE
Account used to wipe-out Deficit
REVALUATION Revaluation Surplus
RECAPITALIZATION Share Premium

• Entity needs to appraise value of NCA

REVALUING NCA: • When writing down values → Add’l deficit may arise
• Result of RS (PPE & IA) will be used to offset deficit of RE.
• Establish Additional Share Premium that will be used in
capital restructuring or quasi-reorganization.
WAYS a) Change in par/stated value
(NO effect b) Par to no par share or vice versa
RECAPITALIZATION:
to she) c) Share Split (Up & Down)
1. Write-down of assets to FV or NRV
2. Creating enough SP to absorb deficit
3. Cancellation of resulting deficit against SP
• Amount of transfer is limited only to amount of deficit. Just to ZERO out.
RS
Upward
RE
REVALUATION
RE
Downward
Acc. Dep /Allow for Inv. WD
SC, P100 par
Recapitalization
SC, P50 par
(Reduce Par)
RECAPITALIZATION SP
Cancellation of SP
deficit RE
 BOOK VALUE PER SHARE
• Peso equity in corporate capital of each capital share.
1 CLASS:
SHE Gross of Subscription Receivable
BV per OS = (Don’t deduct, if net, add back)
# Outstanding Shares
2 CLASSES:
Total SHE Preference Share Capital (at par)
(-) Preference SHE Liquidation premium = (Liq. price - Par) x No. of PS
Ordinary SHE Cumulative PS (Dividend in arrears)
Noncumulative PS (Current year only)
Share in "Excess over par" (participating)
PREFERENCE SHE

• Dividends in arrears = Undeclared dividends in prior years + current year

• If dividends paid already, not added anymore

Preference SHE Ordinary SHE

BV per PS = ; BV per OS = # Outstanding OS
# Outstanding PS

Non-Cumulative • Current year dividend only (Undeclared Div-Forfeited)

Cumulative • Undeclared div. accumulate until paid (Dividend in Arrears)
Non-Participating • Fixed Rate dividends
• Fixed Rate + Excess
Participating
➔ Before participation, OS must receive div. = (% PSD x Par OS)

IN-EXCESS OF
PSC OSC
PAR
PARTICIPATING PS:
Balances Pxx Pxx Pxx
PS Liquidation Premium (xx) xx
PS Dividend (xx) xx
OS Basic Dividend (xx) xx
Balance – Allocated based on SC (Par) Pxx xx xx
Total Pxx Pxx
÷ Outstanding Shares xx xx
Book Value per Share Pxx Pxx
NON-PARTICIPATING PS
Balances Pxx Pxx Pxx
PS Liquidation Premium (xx) xx
PS Dividend (xx) xx
Balance – To OS only Pxx xx
Total Pxx Pxx
÷ Outstanding Shares xx xx
Book Value per Share Pxx Pxx

Liq. Premium = (Liquidation Value -Par) x Outstanding PS

OS Dividend = (PS % x OS Par Value x OSO) → If 2 PS Participating, use lower rate
PARTIAL PART: Participation = Par Value PS x (% Participation - % Fixed PSD)
Call Price Ignored. (Amount paid to PS holders during lifetime of Corp)
OSC
Treat “As if retired”
SP (If RC > OIP)
Treasury Shares ➔ Deduction in SC
TS
➔ ± SP
SP (If RC < OIP)
Subscrip. Rec. Treat as Asset, thus NOT deducted to Subscribed SC
Share-based Compensation
Share Options • Pays by issuing its shares
EQUITY-SETTLED
(↑ Equity) • Share Premium Account

Share Appreciation Rights • Obligation to pay cash at amount

CASH-SETTLED
(↑ Liability) based on FV of own shares

VEST Without condition At grant date (Y1):

SALARY
IMMEDIATELY (Exercisable immediately) Full (100%) + ↑ in equity,
EXPENSE
DO NOT VEST With condition Allocate over vesting period

VESTING CONDITION
SERVICE CONDITION PERFORMANCE CONDITION
1) Service Condition- 1) Service condition - render service
Render service over 2) Specified performance target(s)
specified period of time a. Growth in profit (Nonmarket condition)
b. Increase in share price (Market condition)
Considered ✘ Estimating FV of SO at measurement date
when: ✓ Estimating No. of SO that will eventually vest.

FV of options Determined at date they were granted.

Determined FV Charged to SCI equally over VP.
Adjustments To reflect best estimate of # of SO that will vest.
SHE Increased by an amount equal to SCI charge.
Non-exercise of SO ✓ No subsequent adjustment to equity.
after vesting date ✓ Transfer from equity to another equity.
Measurement Measurement Date
1. FV of G/S
Non-
2. FV of equity (SO) Date entity receives G/S
Employees
3. Par Value
Grant date
1. FV of Equity (SO) Regardless whether VP
(Constant; not adjusted)
already ends, still need
Employees Every Dec. 31 to update (record
2. Intrinsic value (Updated every yr, Expense) until
until expiration of SO) expiration of SO
INTRINSIC VALUE = FV of shares - subscription price
= Market Price - Option Price
PERFORMANCE TARGETS:
MARKET CONDITION NON-MARKET CONDITION
Considered Est. FV of shares or SO at
Est. No. of SO expected to vest.
when: measurement date.
FV estimates NOT revised irrespective outcome. Revised for new info -Prospectively
Compensation Recognized even if market condition
Recognized in prior yrs – Not restated
expense is NOT satisfied and SO do NOT vest.
VP, Determined: Grant date -NOT revised. Grant date- May be revised
# of employees
Estimated at end of reporting period. -
entitle to SO:
Discontinue CE for resigned employee
Non-Attainment
Ignored, continue to recognize CE ✓ Removes SO Outstanding
of Vesting
for equity instrument granted ✓ Reclassify to another equity
Condition
→ “SP forfeited options”
 Y1 Y2 Y3
Original Number of employees xx xx xx
Less: Total Employees who left -xx -xx -xx
Est. Employees expected to leave - current -xx -xx -xx
Total employees entitled for the benefit xx xx xx
Multiply: Share options per employee* xx xx xx
Total share options xx xx xx
Multiply: Fair value or intrinsic value xx xx xx
Total value of the compensation xx xx xx
Multiply by: Ratio (ex. 3 years vesting period) 1/3 2/3 3/3
Cumulative Salaries expense xx xx xx
Less: Cumulative compensation in previous years - -xx -xx
Salaries expense during the year xx xx xx

Y1 { [200 x (300-20-10)] P50 } x 1/3= 900,000

Y2 { [200 x (300-20-8-32)] P50 } x 2/3= 1,600,000-900K=700,000
Y3 { [200 x (300-20-8-25)] P50 } x 3/3 = 2,470,000-1,6M= 870,000
Original employees - Actual employees left - (-) Est. employees expected to leave
SHARE APPRECIATION RIGHTS (CASH-BASED)
G/S & Liability: ➔ Measured at FV of liability
Until Liability is Settled ➔ Remeasure FV of liability at end & settlement date
Changes in FV ➔ P/L for the period
If SAR not vest until ➔ Recognize services received, and liability to pay,
completed period of service as employees render service during that period

1) FV of SARs -every year end

CE & liability recorded periodically during VP
2) IV
Paid to employees on exercise of SAR ➔ IV of SARs at of exercise.

Liability Bal. date of payment < Intrinsic Value (Cash Payment) = Additional CE
Liability Bal. date of payment > Intrinsic Value (Cash Payment) = Credit to RE

SO- EQUITY BASED SAR- CASH-BASED

Grant date Memo Entry Memo Entry
Accrual of Salary Expense Salary Expense
Salary every yr SP-SO Salary Payable
Cash (# Shares x Exercise Price) Salary Payable Cumulative
Exercise of SP-SO (Total amount recorded) Cash amount
SO/SAR SC (# Shares x Par)
SP (Balancing Figure)
• NET SP = SP credited – SP,SO debited
• “Liability” → Cumulative amount ; “Expense” → Current amount
MODIFICATION FROM CASH-SETTLED TO EQUITY-SETTLED
• Measured: FV of equity at modification date and recognized immediately in equity.
• Liability for cash-settled as of modification date is derecognized.
FV of SO/SAR = # of Rights x FV @ Modif x 2/3
(-) CV of liability = Cumulative amount of CE
Increase (Decrease) in CE
+ CE, year of modification
Total Expense for the year
CASH AND SHARE ALTERNATIVE
Right to Choose Employer • Entity's recognition is either equity or cash settled
between S/C Employee • Counterparty has right to receive S/C, but not both

Entity deemed issued Liability - obligation to pay cash ➢ FV of SARs @ grant

compound instrument Equity - obligation to issue shares ➢ Residual amount
Earnings Per Share
➔ Required for publicly traded OS.
Profit or loss (After tax)
(-) Declared Non-cumulative PS
(-) Declared or Undeclared Cumulative PS (Current period only)
(-) Repurchased PS (FV paid > CV of PS repurchased)
+ Repurchased PS (FV paid < CV of PS repurchased)
(-) Converted PS (FV of OS or consideration paid > FV of OS issuable under orig conv)
+ Converted PS (FV of OS or consideration paid < FV of OS issuable under orig conv)
Profit or Loss Attributable to Ordinary Shareholders

PS capital At LOSS At GAIN

PS SP-PS PS capital PS capital
REDEMPTION/ Total CV of PS SP-PS SP-PS
REPURCHASE (-) Redemption Price RE Cash
Income (Loss) Cash SP-PS

“PS Premium payable ➔ Loss on Redemption (DR: RE)

upon redemption” ➔ Deduction to Net Income

If there is a significant change in ➔ Average OS outstanding should be

OS outstanding during the year: used as denominator in computing EPS.
Share split/dividend after the ➔ Retrospective. As if occurred beginning
year but PRIOR to issuance of FS of earliest period presented.
If AFTER issuance of FS ➔ Recognized only in the Comparative I/S

SHARE RIGHTS/RIGHTS ISSUE:

▪ Exercise price is less than FV of shares
▪ Rights issue include a BONUS ELEMENT (Shares issued for no consideration)
▪ Adjust # of shares outstanding before exercise of rights for Bonus element
▪ If rights is still existing, treat it as if Retrospective
MV of share right-on
▪ Adjustment factor =
MV of share ex-right

If computing for two consecutive years:

➔ Beginning Outstanding shares of 2nd year is computed based on actual
outstanding shares NOT on weighted OS last year.

MULTIPLE POTENTIAL OS:

➔ Rank from Most Dilutive to Least Dilutive
▪ Most Dilutive - Least Incremental EPS
▪ Least Dilutive – Highest incremental EPS
➔ Shares Options → always Rank 1 because zero numerator
After tax Interest Expense
Convertible PS Incremental EPS =
# of Potential OS
Preference dividends
Convertible Bonds Incremental EPS =
# of Potential OS
Options & Warrants Most dilutive since no incremental EPS

If BEPS > DEPS = Then DPES is Equal to BEPS

 BASIC EARNINGS PER SHARE: “Actual” conversion & exercise

Profit or loss attributable to ordinary shareholders = (NI – Annual PS Dividends)

BASIC EPS = = Fixed 1 year div only (Ignore actual amt paid)
Weighted Average Number of OS Outstanding
= No. of PS x Par x % Fixed DR
= Issued + Subscribed – Treasury ▪ Cumulative – Declared/not
Outstanding + ACTUAL Conversion of Convertible PS into OS ▪ Noncumulative – Declared
Shares Adjustments: 1) Share Split Also ▪ If Redeemable – No deduction
Retrospective 2) Bonus Issue affects TS
DILUTED EARNINGS PER SHARE: “As if” conversion & exercise
➔ Lowest possible EPS SHOULD ALWAYS be LOWER than BEPS At the START of the year or date of Issuance,
➔ “As if” Approach ❖ “As if” Convertible PS or Bonds have been converted whichever comes later. (Regardless actual
❖ "As if" Options or warrants have been exercised. conversion or exercise.)

DILUTED PoLATOS + Avoidable after tax interest expense on convertible bonds Share Split/
EPS = WANOSO + Incremental shares from conversion/exercise of potential OS
POTENTIAL OS NUMERATOR DENOMINATOR n
No. of Shares x
12
PSD not deducted
1) CONVERTIBLE PS + WANOSO • If issued during the year (Not Jan1)
(Added back)
• If converted during the year (Jan 1- Date of Conversion)
+ Interest Expense,
2) CONVERTIBLE BONDS + WANOSO ➢ If actually converted → NOT average anymore.
net of tax
➢ Bonus Issue/Share Split = Affects Incremental Shares
+ WANOSO Ave. MP - Issue Price
3) OPTIONS & WARRANTS
✘ (Shares assumed issued = Shares x ( )
Ave. MP
(AMP > EP) w/o consideration) ➢ If MP < IP = No Incremental shares
➢ If Put Option: Exercise Price > Ave. MP
If PS NONCONVERTIBLE → PSD deducted EP - MP
• Potential OS = Shares x ( )
MP
n If issued during the year (Not Jan1)
Interest Expense =Face Value of BP x % x ( 1- Tax rate) x
12 If actually converted during the yr
Statement of Cash Flows
OPERATING
Current Current

INVESTING
A L
Non-current

E
FINANCING
Non-current

FUNCTION PRESENTATION
o Principal revenue-producing activities.
Direct -encouraged
Operating o Transactions that enter into determination of P/L.
Indirect– practiced
➢ Collection of Income; Payment of Expense
o Acquisition & disposal of: PPE, IA, Short & long-term
investments. Except:
Investing Trading Investment- Operating Direct
Cash equivalents (No effect of CF)
o Making/Collecting loan (If not financial Institution)
o Activities that result to changes in size and composition of
contributed equity & borrowings .
Financing o Cash Receipts/Payments connected to: Direct
✓ Non-Trade Liabilities (Bonds, Lease Liab)
✓ Equity Transactions (SC;TS; Dividends)
OPERATING ACTIVITIES
a) Sale/render of G/S
b) Royalties, fees, commissions and other revenue
c) Payments to suppliers for G/S
d) Payments to and on behalf of employees
e) Payments of insurance entity for premium & claim, annuities and benefit
f) Payments or refunds of income taxes
g) Contracts held for dealing or trading purposes.
h) Purchase & sale of dealing or trading securities
i) Advances and loans made by financial institutions
INVESTING ACTIVITIES
a) Acquire/sale PPE, intangibles and other long-term assets
b) Acquire/sale equity or debt instruments of other entities & interests in JV
c) Advances & loans made to other parties
d) Receipts from repayment of advances & loans made to other parties
e) Futures/forward/option/swap contracts except when contracts are held for trading
FINANCING ACTIVITIES
a) Issuing shares or other equity instruments
b) Acquire or redeem entity's shares
c) Issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings
d) Cash repayments of amounts borrowed
e) Cash payments by lessee for reduction of outstanding liability to finance lease.
DEFAULT ALTERNATIVE
Received Operating Investing
INTEREST
TAXES, Paid Operating Financing or Investing*
INTEREST Received Operating Investing
DIVIDEND
DIVIDENDS: Paid Financing Operating
Received Operating
TAX Financing/Investing if identified
Paid Operating
• For financial institution (banks): Interest and dividends - Operating
• *Interest paid: Investing if capitalized as part of an asset (borrowing cost).
• Dividend Declared – Disclosure only
 DIRECT
• Show in detail the major classes of gross cash receipts & payments
METHOD
✓ From P/L to net CF from operating activities
P/Ls is adjusted for effects of:
✓ Collection of income & payment of expense if not yet included in P/L
✓ Remove Noncash income & expense
➔ Depreciation, provisions, deferred taxes, unrealized foreign
currency G/L, and undistributed profits of associates
INDIRECT
✓ Remove G/L on:
METHOD
❖ Disposal of PPE, IA and Investments (Investing)
❖ Early settlement of nontrade liabilities (Financing)
✓ Changes in inventories and operating receivable & payable
✓ Any deferrals or accruals of past or future operating cash practice
receipts or payment
✓ All other items for which cash effects are investing or financing

OTHER ITEMS:
PART OF CF FROM
Finance lease liability Principal payment Outflow -Financing
Interest payment Outflow - Operating
Finance Lease Receivable Principal collection Inflow - Investing
Interest collection Inflow - Operating
Loan Receivable Principal collection Inflow - Investing
Interest collection Inflow - Operating
Loan payable Principal payment Outflow -Financing
Interest payment Outflow - Operating
Sale of AR Proceeds from sale Inflow - Operating
Pledging of AR In/Out -Financing

INVESTMENT IN ASSOCIATE & JV

OPERATING ACTIVITIES DIRECT INDIRECT
Cash dividend received + + NI
Share in NI ✘ (-) NI
• Acquisition and sale of Inv. in Associate or JV = Investing activity.

TRADING SECURITIES OR FVTPL:

DIRECT
Cash dividend received +
Cash acquisition of T/S or FVTPL -
Cash sale of T/S or FVTPL +
INDIRECT
Cash dividend received -
Total increase in /S or FVTPL (-) NI
Total decrease in T/S or FVTPL + NI
Unrealized gain ✘
Unrealized loss ✘
Realized gain on sale ✘
Realized loss on sale ✘
• Unrealized G/L → ignored since already taken up in total ↑ ↓ in FVTPL.
• Realized G/L on sale → is ignored since already included in NI.
G(L) ON SALE OF DEBT EQUITY*
FVTOCI UNDER Loss on sale + ✘
INDIRECT METHOD: Gain on sale (-) ✘
Cash Accrual Basis
CASH BASIS ACCRUAL BASIS
INCOME RECOGNIZED Cash is received Earned
EXPENSE RECOGNIZED Cash is paid Incurred
✓ AR/AP
✓ Accrued/Deferred Inc.
✓ Accrued/Prepaid Exp.

Cash Basis Accrual Basis

✓ Cash Sales
✓ Cash Sales
Sales ✓ Collection of Trade Receivable
✓ Credit Sales (On Account)
✓ Advances from Customers
✓ Cash purchase
✓ Cash purchases
Purchase ✓ Payment of Trade payable
✓ Purchases on Account
✓ Advances to supplier
Other ✓ Collections ✓ Earned
Income ✓ Deferred Income ✓ Accrued Income
✓ Paid Expenses ✓ Expenses Incurred
Expense
✓ Prepaid Expenses ✓ Accrued Expenses
DE Provided normally Provided normally
BDE Not recognized DA are treated as BDE

RECEIVABLE PAYABLE
Beg. Balance Collection inc. Recov Payments (cash) Beg. Balance
Sales on Account Sales Returns* Purchases Returns* Purchases on
Recoveries** Sales Allowances Purchases Allow account (accrual)
Sales Discount Purchase Discount
Write off End. Balance
End. Balance *Excluding Refunded PR from customers
*Excluding Refunded SR to customers
**Included only if Collections includes said
recovery

ACCRUED REVENUE UNEARNED REVENUE

Beg. Balance Collections Recog. Income Beg. Balance
Recog. Income (Cash basis) (Accrual basis) Collections
(Accrual basis) (Cash basis)
End. Balance End. Balance

PREPAID EXPENSE ACCRUED EXPENSE

Beg. Balance Recog. Expense Payment of Cash Beg. Balance
Payment of Cash (Accrual basis) (Cash basis) Recog. Expense
(Cash basis) (Accrual basis)
End. Balance End. Balance

ALLOWANCE FOR DA ACCUMULATED DEPRECIATION

Written off Beg. Balance AD of Derecog. Asset Beg. Balance
DA Expense DE
Recoveries End. Balance
End. Balance
 CAPITAL RE
Withdrawal Beg. Dividends declared Beg. Balance
Net Loss Add’l Investment Prior Period Error Prior Period Error
Net Income Net Loss Net Income
End. Balance End. Balance

SFP/ NET ASSETS

Increase in Assets Decrease in Assets
Decrease in liabilities Increase in liabilities
Dividends declared Increase in SC
Net Loss Increase in SP
Net Income
xx xx
SINGLE-ENTRY SYSTEM
• System of bookkeeping, only cash & personal accounts are recognized.
• Simple and economical.
• Accounting record will be incomplete; double entry automatic check (DR=CR) is
missing.
• Accounting equation is disregarded.
• Usually, one effect of each transaction is recognized.
• Data needed for preparation of FS is incomplete
• NI is determined by reconstructing revenue & expenses or comparing Beg & End
capital.
DOUBLE ENTRY SINGLE ENTRY
Principles Recognizes only one phase
Duality & Equality
Involved of transactions.
Transactions/ Records every type of Records only transactions involving
Events recorded accountable events cash and personal accounts.
Accounts Assets, liabilities, equity,
Cash, AR, AP, equity
recognized revenues and expenses
✓ Day Book/ General Journal
Books used Journal & ledger ✓ Cash Book
✓ Debtor & Creditor’s Ledger
Systematic processing data; Income (loss) and statement of assets
FS preparation Income (loss) is computed using and liabilities are prepared using
matching principle. analysis or indirect approach.

Capital/RE end Pxx

Capital/RE beg (xx)
CAPITAL Increase (Decrease) Pxx
MAINTENANCE + Withdrawals xx
APPROACH: + Dividends xx
(-) Add’l Investments (xx)
Net Income (Loss) Pxx

RE
Dividends RE, beg
Net Loss Net Income ∆CC + ∆RE = ∆Asset - ∆Liability
Prior Period Error Prior Period Error
RE, end
 Accounting Concepts

PROCESS:
1. Identifying/analyzing transactions
Recording 2. Journalizing
Classifying 3. Posting ledger
4. Unadjusted trial balance (TB)
5. Adjusting Entries
6. Adjusted Trial Balance
7. Financial Statements
Summarizing 8. Closing Entries
9. Post-closing Trial Balance
10. Reversing Entries -optional

✓ Accrued Income / Accrued Expense

REVERSING
✓ Prepayments (Expense Method)
ENTRIES
✓ Deferrals (Income Method)

ADJUSTING ENTRIES:
Financial Statements
Statement of Financial Position:

Refinance or Roll over an obligation for at Least 12 months under existing loan

Breaches a provision of long-term loan - liability becomes payable on demand

Entity has already complied with at

➔ Non-current liability
the end of the reporting period
Entity has NOT yet complied with
Covenants ➔ Current liability
at the end of the reporting period
Entity must complied with AFTER ➔ NOT affect classification of
the end of the reporting period liability at end of period
 ASSETS CURRENT NON-CURRENT
Cash and cash equivalents ✔
Trade receivables ✔
Prepaid Expenses ✔
Non-trade receivables w/n 12 months > 12 months
Inventories ✔
FA at FVPL ✔
FA at FOCI w/n 12 months > 12 months
FA at Amortized cost w/n 12 months > 12 months
PPE ✔
Right-of-use asset ✔
Investment property ✔
Intangible assets ✔
Investments - equity method ✔
Deferred tax assets ✔
Assets for current tax ✔
Biological assets w/n 12 months > 12 months
NCAHFS ✔

LIABILITIES CURRENT NON-CURRENT

Trade Payables ✔
Non-trade payables w/n 12 months > 12 months
Provisions w/n 12 months > 12 months
Financial liabilities w/n 12 months > 12 months
Current Tax Liability ✔
Liabilities in disposal groups
✔
classified as HFS
Deferred tax liabilities ✔
Finance Lease liability w/n 12 months > 12 months

• Residual interest in the assets after deducting all liabilities.

• Account name depends on the form of organization:
✓ Sole proprietorship → Owner’s equity
EQUITY
✓ Partnership → Partner’s equity
✓ Corporation → Stockholders’ equity
• Includes: Contributed capital & earned capital
Statement of Comprehensive Income

Functional Presentation: Natural Presentation:

Net sales Net sales
Cost of goods sold Other income
Gross profit Investment income
Investment income Total income
Other income Purchase of inventory
Total income Increase in inventory COGS
Selling expense Decrease in inventory
Administrative expense Depreciation
Finance cost Doubtful accounts
Other expense Salaries expense
Income before tax Finance cost
Income tax expense Income before tax
Income from continuing operation Income tax expense
Income from discontinued operation Income from continuing operation
Net income Income from discontinued operation
Other comprehensive income Net income
Reclassified to P/L Other comprehensive income
Reclassified to RE Reclassified to P/L
Total comprehensive income Reclassified to RE
Total comprehensive income

PROFIT OR LOSS
✓ Revenue, presenting separately interest revenue and insurance revenue
✓ G/L - derecognition of financial assets measured at amortized cost
✓ Insurance service expenses from contracts issued within the scope of IFRS 17
✓ Income or expenses from reinsurance contracts held
✓ Finance costs
✓ Impairment losses (+ reversals of impairment losses or impairment gains)
✓ insurance finance income or expenses from contracts issued
✓ finance income or expenses from reinsurance contracts held
✓ Share of P/L of associates and joint ventures accounted for using the equity method
✓ if FA is reclassified out of amortized cost measurement category so that it is measured
at FVTPL, any G/L arising from difference between the previous amortized cost of the
FA and its FV at the reclassification date
✓ if FA is reclassified out of FVTOCI measurement category so that it is measured at
FVTPL, any cumulative G/L previously recognized in OCI that is reclassified to P/L
✓ Tax expense
✓ Single amount for the total of discontinued operations
OTHER COMPREHENSIVE INCOME
✓ Unrealized G/L of Debt investments at FVTOCI
✓ Unrealized G/L - derivative contracts as cash flow hedge
✓ G/L on Translation of foreign operations
Reclassified
✓ Difference between total insurance finance income/expense for the
to P/L:
period and systematic allocation of expected total insurance finance
income/expense over the duration of the group of insurance
contracts

Reclassified ✓ Net Remeasurement G/L - Defined benefit plans (Actuarial)

to RE: ✓ Unrealized G/L of Equity investments at FVTOCI
✓ G/L on credit risk for financial liabilities at FVTPL
✓ Change in Revaluation Surplus
Events After Reporting Period
ADJUSTING EVENTS (TYPE I) NON-ADJUSTING EVENTS (TYPE II)
❖ Events indicative of conditions
❖ Provide evidence of conditions that
that arose AFTER reporting
existed AT END of reporting period.
period.
❖ Require adjustments of amounts in FS
❖ NO adjustments; Disclosed if
material.
Has Entry 12/31 (Reporting date)
NO Entry 12/31 (Reporting date)
a. Settlement after reporting period of court a. Changes in fair values, foreign
case that confirms that entity has present exchange rates, interest rates or
obligation at the end of reporting period. market prices after the reporting
b. Receipt of information after reporting period.
period indicating that an asset was b. Casualty losses (fire, storm, or
impaired at the end of reporting period. earthquake).
i. Bankruptcy of customer occurs after c. Litigation arising solely from
reporting period indicate that CV of events occurring after reporting
receivable at the end of reporting period.
period is impaired. -Doubtful d. Significant commitments or
accounts contingent liabilities entered after
ii. Sale of inventories after reporting the reporting period, e.g.,
period may give evidence to their significant guarantees.
NRV at end of reporting period. e. Major and potential ordinary
c. Determination after reporting period of share transactions
cost of asset purchased, or proceeds from f. Major business combination or
asset sold, before the end of reporting disposal of subsidiary
period. g. Announcing/commencing the
d. Determination after reporting period of implementation of major
amount of profit-sharing or bonus restructuring
payments, if the entity had a present legal h. Announcing a plan to discontinue
or constructive obligation at the end of operation after reporting period.
reporting period to make such payments. i. Change in tax rate or laws enacted
e. Discovery of fraud or errors that indicate after reporting period.
that FS incorrect. j. Major purchase or disposal of
f. Events that indicate that going concern assets, classification of assets as
assumption in relation to the whole or part held for sale or expropriation of
of the entity is not appropriate major assets by government

Pre-existing condition Subsequent Event

ADJUSTING
BS date FS issuance date

Pre-existing condition Subsequent Event

NON-
ADJUSTING
BS date FS issuance date
Related Party Disclosures
Party that has the ability to
(a) Control the other party
RELATED (b) Exercise significant influence over the other party in making
PARTY financial and operating decisions
(c) Related party and another entity- subject to joint control

❖ Joint Venture
❖ Close family members – Spouse, children, children’s spouse, dependents
❖ Key management personnel- BOD, Executive (CEO,CFO), compensation
❖ Affiliates – Parents & Subsidiaries
❖ Post employment benefit plan- BDO asset management
❖ Associate- Investor & Associates

DISCLOSURES:

RELATIONSHIP ✓ Name of Parent entity

BETWEEN PARENT ✓ Ultimate Controlling party
& SUSBIDIARIES ✓ Next most senior parent that produces FS for public use
✓ Short term employee benefit- Wages and salaries
✓ Post employment benefit- Defined Benefit/Contribution
MANAGEMENT Plans
COMPENSATION ✓ Other long term benefit- Sabbatical leave
✓ Termination benefits
✓ Share based payment benefits- Share options/App Rights
✓ Nature of relationship
RELATED PARTY ✓ Information about transactions and outstanding balance
TRANSACTIONS o Amount of transactions o Outstanding balances
o Allowance for DA o Bad debt expense
Accounting Policies / Estimates
Hierarchy of guidance when selecting accounting policies:
1) Standard from IFRS if it specifically relates to the transaction
2) Requirements in IFRS dealing with similar and related issue
3) Definitions, recognition, measurement concepts in Conceptual Framework
4) Most recent pronouncements of other standard setting bodies

ACCOUNTING POLICY ACCOUNTING ESTIMATE

Principles / Measurement basis Amounts/Patterns
Uncertainties inherent in business
Principles, bases, conventions, rules and activities that many items cannot be
practices applied in Preparing FS measured with accuracy but only
estimated.
Retrospectively (Retroactively) Currently & Prospectively
✓ Change in Inventory Method ✓ Estimation of Doubtful Account
(FIFO → WAVE) ✓ Estimation of Warranty Cost
✓ PPE (Cost → Revaluation) ✓ Net Realizable Value of Inventory
✓ IP (Cost → FV) ✓ PPE methods (SL, SYD, DB)
✓ ∆ in business model (BMT, CFC)
✓ ∆ in recognizing revenues for LTCC
(POC → cost recovery)
Difficult to distinguish a change → Apply Accounting estimate + disclosure
Error Correction
COGS NI
Beginning Inv.
+ Net Purchases
↑= ↑Direct ↓Inverse
CGAS
(-) Ending Inv. ↑= ↓Inverse ↑Direct
COGS

ERRORS NI EFFECT IN NI RELATIONSHIP EFFECT TO PROFIT

SALES - Over Over DIRECT INCOME Direct
COGS - Over Under INVERSE EXPENSES Inverse
EXPENSES - Over Under INVERSE

ERRORS WORKING CAPITAL EFFECT RELATIONSHIP

Current Assets - Over Over DIRECT
Current Liabilities - Over Under INVERSE

EFFECT ON PROFIT
ERROR
Current Year Next year
O Purchases U O
U Purchases O U
O Ending Inventory O U
U Ending Inventory U O
U Accrued Expenses O U
O Accrued Expenses U O
U Accrued Income U O
O Accrued Income O U
O Prepaid Expense O U
U Prepaid Expense U O
U Unearned Income O U
O Unearned Income U O

RELATIONSHIP ON PROFIT
(CURRENT YR)
PURCHASES Inverse
ENDING INVENTORY Direct
ACCRUED EXPENSES Inverse
ACCRUED INCOME Direct
PREPAID EXPENSES (DEFERRED EXPENSES) Direct
UNEARNED INCOME (DEFERRED INCOME) Inverse
NCAHFS
Initial & Subsequent Measurement:
Carrying Amount
LOWER: Lower = New CV of asset
FV- Costs to Sell*
*Excludes finance costs & income tax expense
1. Classification/Initial
FV - CTS < CV = ✔️ Impairment Impairment loss
2. Subsequently.
FV - CTS > CV = ❌ Impairment ❌ Depreciation/Amortization

✔️ Current asset

↓ + Impairment loss Recovery is limited only to cumulative

Changes in
↑ + Gain on reversal impairment loss previously
FV-CTS recognized.

NCA that CEASES TO BE CLASSIFIED AS HELD FOR SALE

LOWER
CV before it was classified as Recoverable amount at the date
held for sale of decision not to sell/ distribute.

Adjusted for depreciation, HIGHER

amortization or revaluations that 1. FV - costs of disposal
would have been recognized had 2. Value in use.
asset not been classified as HFS Value In Use- PV of estimated future
cash flows.

Lower of CV & RA > CV of Asset HFS = Gain on reclassification (Recovery)

Lower of CV & RA < CV of Asset HFS = Loss on reclassification

REVALUATED ASSET CLASSIFIED AS HELD FOR SALE

Revaluated to Fair value immediately PRIOR to classification as HFS
Additional
= FV classification date - CV at that date.
Revaluation surplus
Cost of disposal at Recognized as impairment loss
classification date Deducted from asset held for sale.
Subsequent CV
LOWER of:
year-end FV -cost of disposal

FV, classification date CV (Revalued Amt)

(-) CV, classification date (-) FV-CTS
Add’l Revaluation Surplus Impairment Loss Equal to Cost of Disposal
Discontinued Operations
✓ Available for immediate sale
✓ Major line of business ✓ Operation/Cash flow will be eliminated
Component
✓ Geographical area ✓ Entity will not have continuing
(Segment)
✓ Subsidiary involvement in operation after disposal

• Operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of entity.

Statement of Comprehensive Income

Revenues Pxx
Less: Expenses (xx)
Income before Tax Pxx
Less: Income Tax Expense (xx)
Income from continuing operations Pxx
Income from discontinued operations xx
Net Income Pxx

NOTES TO FS:
Single Post-tax P/L
Amount ±
Whole Year
Post-tax G/L on
NOT prorated
▪ Remeasurement (CV vs. FVLCTS)
▪ Disposal of Asset

Operation Income (Loss) – whole year Pxx

Actual G (L) on Disposal xx
Estimated Disposal Loss - separation; relocation (xx)
Remeasurement G (L) of asset – CV > FVLCTS (xx)
Total Gain (Loss) Pxx(Pxx)
After Tax Rate ( 100% - Tax Rate) *%
Income from discontinued Operation Pxx

Tax Benefit – if loss – Total Loss x Tax Rate

Tax Expense – if Gain - Total Gain x Tax Rate

Statement of Financial Position Statement of Cash Flow

Separate Assets ➢ CA ▪ Separately presented on the face of
Liabilities ➢ CL SCF or disclosed in the notes.
 1) REVENUE ≥ 10% of Total revenue, internal & external
QUANTITATIVE a) Total profit
2) PROFIT OR LOSS ≥ 10% of HIGHER in absolute amount
CRITERIA: b) Total loss
(At least one) 3) ASSETS ≥ 10% of Total assets

QUALITATIVE OS that do not meet Considered reportable/separately disclosed, if management believes

Operating Segments

CRITERIA quantitative thresholds: that information about segment would be useful to users of FS.

REPORTABLE Segments: ≥ 75% of Total EXTERNAL revenue

OVERALL SIZE TOTAL EXTERNAL REVENUE
TEST ➢ Additional OS shall be identified as reportable
IF below 75%
segments until at least 75% is achieved.
1. Nature of products / services
2. Nature of process
AGGREGATION
3. Type or class of customer Majority (3/5)
CRITERIA
4. Marketing methods (Distribution)
5. Nature of regulatory environment

Major customers → If its external revenue is ≥10% of entity’s total EXTERNAL revenues
Interim Reporting
PAS 34 SEC
Mandate Encourage Required
None Publicly Listed
Who/Which Publicly Listed Entities
Entities
Frequency None Semi-Annual Quarterly
w/n 60 days from w/n 45 days from end of
When None
end of interim period interim period

Recognition & ➔ Same accounting policies are used in interim reports

Measurement as those used in annual reports
▪ Interim period is considered as an integral
Integral part of the annual accounting period.
Two views
▪ Each interim period is considered a
Independent discrete or separate accounting period.

VIEW TRANSACTION TREATMENT

Depreciation/Amortization
Year end bonuses
Integral Income tax expense Allocated
Insurance Expense
Variable Expense
Write-down of Inventory / Reversal
Impairment Loss/Reversal
Recognized in FULL in interim
Independent Dividend income
Period
Gains/Losses
Fixed Expenses

Allocate
Can be estimated?
100% recognized in interim period they occue
Complete set of FS
Interim Financial Report Containing either
Set of condensed FS

Period for which interim FS are required to be presented:

Semi-annual interim on June 30, 2023 3rd quarter interim on Sept. 30, 2023
Current Comparative Current Comparative
SFP 06/30/23 12/31/22 SFP 09/30/23 12/31/22
SCI 06/30/23 06/20/22 SCI 09/30/23 09/30/22
SCE 06/30/23 06/20/22 09/30/23 09/30/22
SCF 06/30/23 06/20/22 SCE 09/30/23 09/30/22
SCF 09/30/23 09/30/22
SME
=