CFAS REVIEWER

1.​​ Identify how inventories are measured and presented and to identify what costs are to be
included or excluded from the cost of inventories.

Answers:
Measurement:
•Inventories shall be measured at the ​lower of cost and net realisable value​​.
(IAS 2, para. 9)

Costs included in the cost of inventories:

•The cost of inventories shall comprise all ​costs of purchase​, ​costs of conversion​ and ​other
costs​ incurred in bringing the inventories to their present location and condition. (IAS 2, para.
10)
•​Cost of Purchase:
The costs of purchase of inventories comprise the purchase price, import duties
and other taxes (other than those subsequently recoverable by the entity from the taxing
authorities), and transport, handling and other costs directly attributable to the
acquisition of finished goods, materials and services.
​*Trade discounts, rebates and other similar items are deducted in determining the
costs of purchase.​ (IAS 2, para. 11)
•​Cost of Conversion:
The costs of conversion of inventories include costs directly related to the units of
production, such as direct labour. They also include a systematic allocation of fixed and
variable production overheads that are incurred in converting materials into finished
goods.
*​Fixed production overheads​ are those indirect costs of production that remain
relatively constant regardless of the volume of production, such as depreciation and
maintenance of factory buildings, equipment and right-of-use assets used in the
production process, and the cost of factory management and administration.
*​Variable production overheads ​are those indirect costs of production that vary
directly, or nearly directly, with the volume of production, such as indirect materials and
indirect labour. (IAS 2, para. 12)
•Other Costs
Other costs are included in the cost of inventories only to the extent that they are
incurred in bringing the inventories to their present location and condition. For example,
it may be appropriate to include non-production overheads or the costs of designing
products for specific customers in the cost of inventories. (IAS 2, para.15)
•​​IAS 23 Borrowing Costs identifies limited circumstances where borrowing costs are
included in the cost of inventories. (IAS 2, para. 17)
•​​In accordance with IAS 41 Agriculture inventories comprising agricultural produce that
an entity has harvested from its biological assets are measured on initial recognition at
 their fair value less costs to sell at the point of harvest. This is the cost of the inventories
at that date for application of this Standard.(IAS 2, para. 20)

Costs excluded in the cost of inventories:

•Examples of costs excluded from the cost of inventories and recognised as expenses in the
period in which they are incurred are:
(a) abnormal amounts of wasted materials, labour or other production costs;
(b) storage costs, unless those costs are necessary in the production process before a further
production stage;
(c) administrative overheads that do not contribute to bringing inventories to their present
location and condition; and
(d) selling costs. (IAS 2, para. 16)

2. Different ways of assigning cost of inventories and the corresponding assumption or

circumstances in which their use is appropriate: Specific identification, FIFO and
weighted average

Specific Identification

Specific identification of cost means that specific costs are attributed to identified items of
inventory. This is the appropriate treatment for items that are segregated for a specific project,
regardless of whether they have been bought or produced. However, specific identification of
costs is inappropriate when there are large numbers of items of inventory that are ordinarily
interchangeable. In such circumstances, the method of selecting those items that remain in
inventories could be used to obtain predetermined effects on profit or loss..

FIFO (first-in, first-out)

The FIFO formula assumes that the items of inventory that were purchased or produced first are
sold first, and consequently the items remaining in inventory at the end of the period are those
most recently purchased or produced.

Weighted-average

the cost of each item is determined from the weighted average of the cost of similar items at the
beginning of a period and the cost of similar items purchased or produced during the period.
The average may be calculated on a periodic basis, or as each additional shipment is received,
depending upon the circumstances of the entity.

The cost of inventories, other than those dealt with in paragraph 23, shall be assigned by using
the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost
formula for all inventories having a similar nature and use to the entity. For inventories with a
different nature or use, different cost formulas may be justified.

3. inventories
● When inventories are sold
● Write-down of inventories

(When inventories are sold, the carrying amount of those inventories shall
be recognised as an expense in the period in which the related revenue is
recognised. The amount of any write-down of inventories to net
realisable value and all losses of inventories shall be recognised as an
expense in the period the write-down or loss occurs. The amount of any
reversal of any write-down of inventories, arising from an increase in net
realisable value, shall be recognised as a reduction in the amount of
inventories recognised as an expense in the period in which the reversal
occurs.)

4.​​ ​ ​INITIAL MEASUREMENT - PPE, INTANGIBLE ASSETS, INVESTMENT PROPERTY

Property, Plant, and Equipment

An item of property, plant and equipment that qualifies for recognition as an asset shall
be measured at its ​cost​​.

Elements of cost The cost of an item of property, plant and equipment comprises:
● its purchase price
● any costs directly attributable
● the initial estimate of the costs of dismantling

Intangible Assets
These are initially measured at ​Cost​​, which comprises:
● Purchase Price
● Less any Trade Discount or Rebate,
● Plus any directly related cost which includes

Sales tax and Import duties (if non-refundable), Legal charges, Pre-production
testing cost (Net expense) and any other cost which is essential in bringing the
asset into its operating or intended use by the management.

Investment Property
An owned investment property shall be measured initially at its ​cost​​. Transaction costs
shall be included in the initial measurement.

The cost of a purchased investment property comprises its:

 ● purchase price; and
● any directly attributable expenditure. Directly attributable expenditure includes,
for example, professional fees for legal services, property transfer taxes and
other transaction costs.

5. Cost model, the revaluation model, and fair value model for the subsequent
measurement of PPE, Investment property and Intangible assets

Subsequent Measurement of PPE

After initial recognition, an entity shall choose either the cost model or the revaluation model as
its accounting policy and shall apply that policy to an entire class of property, plant and
equipment.
Cost model​​ means that property, plant and equipment are carried at cost less any accumulated
depreciation and any accumulated impairment loss. (IAS 16 paragraph 30)
Revaluation Model​​ means that property, plant and equipment are carried at ​revalued amount​,
being the fair value at the date of revaluation less any subsequent accumulated depreciation
and subsequent accumulated impairment loss. (IAS 16 paragraph 31)

Subsequent Measurement of Investment Property

After initial recognition, an entity shall choose either of the following models as its accounting
policy and shall apply that policy to all of its investment property:
Fair Value Model​​ -The investment property is carried at fair value. Any changes in fair value are
included in the net income or loss of the period in which they arise and shown in the income
statement. No depreciation is recorded for the investment property. (IAS 40 paragraph 33)
Cost Model ​- The investment property is carried at cost less any accumulated depreciation and
any accumulated impairment losses. Fair value of the investment property shall be disclosed.
(IAS 40 paragraph 56)

However, when a property interest held by a lessee under an operating lease is classified as an
investment property, the fair value model shall be applied.

Subsequent Measurement of Intangible Assets

After initial recognition, an entity shall choose either the cost model or revaluation model as its
accounting policy.
Cost Model​​ - an intangible asset shall be carried at cost, less any accumulated amortization
and any accumulated impairment loss. (IAS 38 paragraph 74)
Revaluation Model​​ - an intangible asset shall be carried at a revalued amount, less any
subsequent amortization and any subsequent accumulated impairment loss. (IAS 38 paragraph
75)

The revalued amount is the fair value at the date of revaluation and is determined by reference
to an active market.
Thus, an intangible asset can only be carried at revalued amount if there is an active market for
the asset.

6. Presentation of the following:

● Depreciation (IAS 16)
○ (48) The depreciation charge for each period shall be recognized in ​profit or loss,​
unless included in the carrying amount of another asset.
● Accumulated Depreciation IAS 16
○ Presented in the Statement of Financial Position as a contra-asset account to its
related Property, Plant, and Equipment.
● Amortisation IAS 38
○ (99) Usually in the ​profit or loss​, unless future economic benefits embodied in an
asset are absorbed in producing assets which makes the amortisation charge
constituted in the cost of the asset and is included in the carrying amount.
● Accumulated Amortisation IAS 38
○ Presented in the Statement of Financial Position as a contra-asset account to its
related intangible asset.
● Revaluation Surplus & Revaluation Gains/Losses IAS 16
○ (41) ​Retained earnings​ when asset is derecognized.
○ (39) If an asset’s carrying amount ​increases ​as a result of revaluation, the
increase shall be recognized in ​other comprehensive income​ under the heading,
“revaluation surplus”.
■ (39) The increase is recognized in ​profit or loss​ to the extent that it
reverses a revaluation decrease of the same asset previously recognized
in the profit or loss.
○ (40) If asset’s carrying amount ​decreases ​as a result of revaluation, the
decreasure shall be recognized in the ​profit or loss
■ (40) The decrease is recognized in ​other comprehensive income​ to the
extent of any credit balance existing in revaluation surplus of that asset.
● Impairment Loss IAS 36
○ (60) Recognized immediately in ​profit or loss,​ unless asset is carried at revalued
amount in accordance with another Standard.
● Gain on Reversal of Impairment Loss IAS 36
○ (119) ​Profit or loss​, unless asset is carried at revalued amount in accordance with
another IFRS
● Gain/Loss Arising from Derecognition IAS 16
○ (68) Included in the profit/loss. Gains are not classified as revenues.

7​​. Intangible Assets

Intangible assets are identifiable non-monetary assets without physical substance. They
are typically nonphysical assets used over the long-term. Intangible assets are often
intellectual assets, and as a result, it's difficult to assign a value to them because of the
uncertainty of the future benefits.
 Intangible assets are intellectual property that include:
•Patents - A patent is the granting of a property right by a sovereign authority to an inventor.
This grant provides the inventor exclusive rights to the patented process, design, or invention
for a designated period in exchange for a comprehensive disclosure of the invention.
•Trademarks - is a recognizable insignia, phrase or symbol that denotes a specific product or
service and legally differentiates it from all other products. A trademark serves to exclusively
identify a product or service with a specific company, and is a recognition of that company's
ownership of the brand. Trademarked products are generally considered a form of property.
•Franchises - A franchise is a type of license that a party (franchisee) acquires to allow them
to have access to a business's (the franchiser) proprietary knowledge, processes, and
trademarks in order to allow the party to sell a product or provide a service under the
business's name. In exchange for gaining the franchise, the franchisee usually pays the
franchisor an initial start-up and annual licensing fees.
•Goodwill - Goodwill is an intangible asset associated with the purchase of one company by
another. Specifically, goodwill is recorded in a situation in which the purchase price is higher
than the sum of the fair value of all identifiable tangible and intangible assets purchased in
the acquisition and the liabilities assumed in the process. The value of a company’s brand
name, solid customer base, good customer relations, good employee relations, and any
patents or proprietary technology represent some examples of goodwill.
•Copyrights - refers to the legal right of the owner of intellectual property. In simpler terms,
copyright is the right to copy. This means that the original creator of a product and anyone he
gives authorization to are the only ones with the exclusive right to reproduce the work.
Copyright law gives creators of original material, the exclusive right to further develop them
for a given amount of time, at which point the copyrighted item becomes public domain.
•A company's brand - A brand is an identifying symbol, mark, logo, name, word and/or
sentence that companies use to distinguish their product from others. A combination of one
or more of those elements can be utilized to create a brand identity. Legal protection given to
a brand name is called a trademark.

Other Types of Intangible Assets

Depending on the type of business, intangible assets may include internet domain
names, performance events, licensing agreements, service contracts, computer software,
blueprints, manuscripts, joint ventures, medical records, permits, and trade secrets, motion
picture films, customer lists, mortgage servicing rights, fishing licences, import quotas, customer
or supplier relationships, customer loyalty, market share and marketing rights.

8. Borrowing Cost
Core principle​​: Borrowing costs directly attributable to the acquisition, construction and
production of a qualifying asset form part of the cost of that asset. Other borrowing costs are
recognized as expenses when incurred.

Recognition​​:
Borrowing costs are capitalised when it is probable that they will result in future economic
benefits to the entity and the cost can be measured reliably. These borrowing costs would have
been avoided if the expenditure of a qualifying asset was not made.

To the extent that an entity borrows funds :

A​​.​) Specifically for the purpose of obtaining a qualifying asset

amount for capitalisation is the actual borrowing costs incurred on that borrowing during that
period less any investment income on the temporary investment of those borrowings.
borrowing costs under this type can be readily identified, otherwise judgement should be
exercised.

B​​.​) Generally and uses them to obtain a qualifying asset

to determine the amount for capitalisation, apply capitalisation rate to the expenditures of an
asset

9. Determine whether a particular asset is impaired or not

An asset is impaired when its carrying amount exceeds its recoverable amount.
Irrespective of whether there is any indication of impairment, an entity shall:

(a) test an intangible asset with an indefinite useful life or an intangible asset not yet available
for use for impairment annually by comparing its carrying amount with its recoverable amount.
This impairment test may be performed at any time during an annual period, provided it is
performed at the same time every year. Different intangible assets may be tested for impairment
at different times. However, if such an intangible asset was initially recognised during the
current annual period, that intangible asset
shall be tested for impairment before the end of the current annual period.

(b) test goodwill acquired in a business combination for impairment annually in accordance with
paragraphs 80–99.

In assessing whether there is any indication that an asset may be impaired, an entity shall also
consider, as a minimum, the following indications:

External sources of information

(a) there are observable indications that the asset’s value has declined during the period
significantly more than would be expected as a result of the passage of time or normal use.

(b) significant changes with an adverse effect on the entity have taken place during the period,
or will take place in the near future, in the technological, market, economic or legal environment
in which the entity operates or in the market to which an asset is dedicated.
(c) market interest rates or other market rates of return on investments have increased during
the period, and those increases are likely to affect the discount rate used in calculating an
asset’s value in use and decrease the asset’s recoverable amount materially.

(d) the carrying amount of the net assets of the entity is more than its market capitalisation.

Internal sources of information

(e) evidence is available of obsolescence or physical damage of an asset.

(f) significant changes with an adverse effect on the entity have taken place during the period, or
are expected to take place in the near future, in the extent to which, or manner in which, an
asset is used or is expected to be used. These changes include the asset
becoming idle, plans to discontinue or restructure the operation to which an asset belongs,
plans to dispose of an asset before the previously expected date, and reassessing the useful life
of an asset as finite rather than indefinite.

(g) evidence is available from internal reporting that indicates that the economic performance of
an asset is, or will be, worse than expected.

Dividend from a subsidiary, joint venture or associate

(h) for an investment in a subsidiary, joint venture or associate, the investor recognises a
dividend from the investment and evidence is available that:

(i) the carrying amount of the investment in the separate financial statements exceeds the
carrying amounts in the consolidated financial statements of the investee’s net assets, including
associated goodwill; or

(ii) the dividend exceeds the total comprehensive income of the subsidiary, joint venture or
associate in the period the dividend is declared.

10. Costs Related to Intangible Assets (​​IAS 38 par. 68)​

● As a general rule, expenditures related to an intangible asset are recognized as
expense​​ upon incurment.
● However, it is added to the related intangible asset's carrying amount if:
○ it is directly attributable to the cost of such intangible asset (​par 28)​ , and
○ it meets the recognition criteria (​par 21)​
■ inflow of expected future economic benefits is probable
■ cost can be measured reliably
● If the item is acquired in a business combination and cannot be recognized as an
intangible asset, it is recognized as goodwill.
11. Determine when a noncurrent asset (or disposal group) shall be classified as held for
sale and how it should be measured and presented in the statement of financial position.
● Classification
A noncurrent asset (or disposal group) is classified as held for sale or ​held for
distribution to owners if its carrying amount will be ​recovered principally through a
sale transaction​​ rather than continuing use. It shall meet both the following conditions:
a.) The noncurrent asset or disposal group is ​available for immediate sale in its
present condition​ subject only to terms that are usual and customary; and
b.) The sale is ​highly probable,​ as evidenced by the existence of ​ALL of the
following:
➢ The entity’s management is committed on selling the asset;
➢ The entity is actively locating a buyer;
➢ The sale price is reasonable in relation to the asset’s (or disposal group’s)
current fair value;
➢ The sale is expected to be completed within ​one year from the date of
classification; and
➢ It is unlikely that the plan to sell will be withdrawn.
● Measurement:
Held for sale assets are initially and subsequently measured at the ​lower of
carrying amount​​ and ​fair value less cost to sell.
● Presentation:
Held for sale assets are presented in the statement of financial position as
current assets​​. The assets and liabilities of a disposal group are ​presented separately​​.

12.​​ Items to which PAS 41 applies:

(a) biological assets, except for bearer plants;

(b) agricultural produce at the point of harvest; and
(c) government grants.

PAS 41 ​does not apply​ to:

(a) land related to agricultural activity (see IAS 16 and IAS 40).
(b) bearer plants related to agricultural activity (see IAS 16). However, this Standard applies to
the produce on those bearer plants.
(c) government grants related to bearer plants (see IAS 20).
(d) intangible assets related to agricultural activity (see IAS 38).
(e) right-of-use assets arising from a lease of land related to agricultural activity (see IFRS 16
Leases).

1​3.) Bearer Plants and Identify their treatment

A ​BEARER PLANT​​ is a living plant that:
(a) is used in the production or supply of agricultural produce;
(b) is expected to bear produce for more than one period; and
(c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap
sales.
-under Property, Plant and Equipment
Recognition and Measurement​​:
Initia​​l:
☆COST
Subsequent​​:
☆COST MODEL
☆REVALUATION MODEL

14.) Biological Assets

● INITIAL MEASUREMENT
Biological asset - INITIAL MEASUREMENT
● Biological asset - ​measure at fair value less cost to sell
● Agricultural produce - ​measure at fair value less cost to sell at the point of
harvest

SUBSEQUENT MEASUREMENT
Biological asset - ​measure at fair value less cost to sell
Agricultural produce- . ​Such measurement is the cost at that date when applying IAS
2 Inventories or another applicable Standard

IF fair value cannot be measured reliably

- ​cost less any accumulated depreciation & accumulated impairment losses

Corresponding Gain & Losses from their measurement and derecognition

- ​Present it in profit / loss for the period in which it arises.

15. Initial measurement rule and transactions/events that affect the investment balance
under the equity method
Initial Measurement: a ​ t COST
Note: C​ arrying amount is increased or decreased to recognise the investor’s
share of the profit or loss of the investee after the date of acquisition.
transactions/events that affect the investment balance under the equity method:
● Distributions received from an investee reduce the carrying amount of the investment
● Adjustments to the carrying amount arising from changes (e.g. revaluation of PPE and
foreign exchange translation differences) in the investee’s other comprehensive income
16. An entity shall discontinue the use of the equity method from the date when its
investment ceases to be an associate or a joint venture as follows:
(a) ​If the investment becomes a subsidiary, the entity shall account for its investment in
accordance with IFRS 3 Business Combinations and IFRS 10.
(b) If the retained interest in the former associate or joint venture is a financial asset​, the entity
shall measure the retained interest at fair value. The fair value of the retained interest shall be
regarded as its fair value on initial recognition as a financial asset in accordance with IFRS 9.
The entity shall recognise in profit or loss any difference between:
(i) the fair value of any retained interest and any proceeds from disposing of a part interest in
the associate or joint venture; and
(ii) the carrying amount of the investment at the date the equity method was discontinued.

c. ​If it is held for sale

D. When an investment in an associate or a joint venture is held by, or is held indirectly through,
an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities
including investment-linked insurance funds, the entity may elect to measure that investment at
fair value through profit or loss in accordance with IFRS 9.

E. When an entity has an investment in an associate, a portion of which is held indirectly

through a venture capital organisation, or a mutual fund, unit trust and similar entities including
investment-linked insurance funds, the entity may elect to measure that portion of the
investment in the associate at fair value through profit or loss in accordance with IFRS 9
regardless of whether the venture capital organisation, or the mutual fund, unit trust and similar
entities including investment-linked insurance funds, has significant influence over that portion
of the investment.

F. If it ceases to have significant influence

17. (IAS 28) Effects on the financial statements when there are differences between the
reporting entity and the associate with regard to the reporting period and accounting
policies.

(33) The most recent available financial statements of the associate or joint venture are used by
the entity in applying the equity method. When the end of the reporting period of the entity is
different from that of the associate or joint venture, the associate or joint venture prepares, for
the use of the entity, financial statements as of the same date as the financial statements of the
entity unless it is impracticable to do so.

(34) When, in accordance with paragraph 33, the financial statements of an associate or a joint
venture used in applying the equity method are prepared as of a date different from that used by
the entity, adjustments shall be made for the effects of significant transactions or events that
occur between that date and the date of the entity’s financial statements. In any case, the
difference between the end of the reporting period of the associate or joint venture and that of
the entity shall be no more than
three months. The length of the reporting periods and any difference between the ends of the
 reporting periods shall be the same from period to period.

(35) The entity’s financial statements shall be prepared using uniform accounting policies for like
transactions and events in similar
Circumstances.

18) ​Instances in which significant influence by an entity exists

- An associate is an entity over which the investor has significant influence. [IAS
28(2011):3] IAS 28(2011) does not define an 'investor' but, for the purpose of applying
IAS 28 (2011), there is no requirement for the interest held by the investor to be in the
form of debt or equity instruments of its investee.
Indicators of Significant Influence:
- As a general rule, significant influence is presumed to exist when an investor holds,
directly or indirectly through subsidiaries, ​20 percent or more of the voting power ​of
the investee​​.

As with the classification of any investment, the substance of the arrangements in each case will
need to be considered. If it can be clearly demonstrated that an investor holding 20 per cent or
more of the voting power of the investee does not have significant influence, the investment will
not be accounted for as an associate.

A substantial or majority ownership by another investor does not necessarily preclude an

investor from having significant influence.

Even when another party has control, it is still possible that a reporting entity may have
significant influence (e.g. when it has a right to input into the board decision-making process).
There is also no upper limit to the size of the holding that may be associated with significant
influence. For example, an entity may have significant influence and more than 50 per cent of
the shares in another entity, but a third party may have control of that other entity (e.g. as a
result of potential voting rights).

19. ​) R​ elated Parties and identify transactions between related parties that require
disclosures.
● RELATED PARTY
➢ A normal feature of commerce and business. E.g. (entities frequently carry on parts of their
activities through subsidiaries, joint ventures and associates)
● It could have an effect on the​ P/L and financial position ​of an entity.
➢ Related Parties may enter into transactions that unrelated parties will not.
● Transactions between ​related parties may not be the same amount as unrelated
parties.
● P/L and FS of an entity may be affected​​ by a related party relationship even if related
party transactions ​do not occur​​.
➢ The mere existence of the relationship may be sufficient to affect the transactions of the entity
with other parties.
DEFINITIONS

1) RELATED PARTY- is a person or entity that is related to the entity that is preparing its
financial statements (referred to as the 'reporting entity') [IAS 24.9].
(a) A ​person ​or a ​close member of that person's family is related to a reporting entity if that
person:
(i) has control or joint control over the reporting entity;
(ii) has significant influence over the reporting entity; or
(iii) is a member of the key management personnel of the reporting entity or of a parent
of the reporting entity.
(b) An ​entity ​is related to a reporting entity if any of the following conditions applies:
(i) The entity and the reporting entity are members of the same group (which means that
each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint
venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the
third entity.
(v) The entity is a post-employment defined benefit plan for the benefit of employees of
either the reporting entity or an entity related to the reporting entity. If the reporting entity
is itself such a plan, the sponsoring employers are also related to the reporting entity.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of
the key management personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key
management personnel services to the reporting entity or to the parent of the reporting
entity*.

2) RELATED PARTY TRANSACTION- is a transfer of resources, services or obligations

between a reporting entity and a related party, regardless of whether a price is charged.
DISCLOSURE
· ​ Relationships between parent and its subsidiaries shall be disclosed.
- Name of its parent and, if different, the ultimate controlling party.
- If neither both produces consolidated FS available for public use. The name of the next most
senior parent that does so shall also be disclosed.
· Key management personnel compensation in total and each of the ff categories.
- Short Term Employee Benefits
- Long Term Employee Benefits
- Other Long Term Employee Benefits
- Termination Benefits
- Share-based Payment
· In addition, at a minimum it shall include
- The amount of the transactions
- The amount of outstanding balances including commitments and their terms and conditions
and the nature to be provided in settlement.
- Details of any guarantees received.
- Provisions for doubtful debts related to the amount of the outstanding balances.
- And the expense recognized during the period.

Amounts incurred by the entity for the provision of key mgmt. personnel services that are
provided by a separate mgmt. entity shall be disclosed
· It shall be made separately for the ff.
- The parent
- Entities with joint control of, or significant influence over the entity
- Subsidiaries
- Associates
- Joint ventures in w/c the entity is a joint venture;
- Key mgmt. personnel of the entity or its parent; and
- Other related parties

Transactions that are disclosed if they are with a related party​​:

- purchases or sales of goods
- purchases or sales of property and other assets;
- rendering or receiving of services;
- leases;
- transfers of research and development;
- transfers under licence agreements;
- transfers under finance arrangements
- provision of guarantees or collateral;
- commitments to do something if a particular event occurs or does not occur in the future,
including executory contracts (recognised and unrecognised)
- settlement of liabilities

20) General disclosure requirements for related parties and related party transactions.

This Standard ​requires ​disclosure of related party ​relationships​, ​transactions a

​ nd ​outstanding
balances,​ including ​commitments​, in the consolidated and separate financial statements of a
parent or investors with joint control of, or significant influence over, an investee presented in
accordance with IFRS 10 Consolidated Financial Statements or IAS 27 Separate Financial
Statements. This Standard also applies to individual financial statements.

TAKE NOTE:
Related party transactions and outstanding balances with other entities in a group are disclosed
in an entity’s financial statements. ​Intragroup related party transactions and outstanding
 balances are ​eliminated​​, except for those between an investment entity and its subsidiaries
measured at fair value through profit or loss, in the preparation of consolidated financial
statements of the group.

RELATED PARTY DISCLOSURES

❖ Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether
there have been transactions between them. An entity shall disclose the name of its parent and,
if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling
party produces consolidated financial statements available for public use, the name of the next
most senior parent that does so shall also be disclosed.

❖ An entity shall disclose key management personnel compensation in total and for each of the
following categories:
(a) short-term employee benefits;
(b) post-employment benefits;
(c) other long-term benefits;
(d) termination benefits; and
(e) share-based payment.

❖ If an entity obtains key management personnel services from another entity (the ‘management
entity’), the entity is not required to apply the requirements in paragraph 17 to the compensation
paid or payable by the management entity to the management entity’s employees or directors.

RELATED PARTY TRANSACTION DISCLOSURES

❖ If an entity has had related party transactions during the periods covered by the financial
statements, it shall disclose the nature of the related party relationship as well as information
about those transactions and outstanding balances, including commitments, necessary for
users to understand the potential effect of the relationship on the financialstatements. These
disclosure requirements are in addition to those in paragraph 17. At a minimum, disclosures
shall include:
(a) the amount of the transactions;
(b) the amount of outstanding balances, including commitments,and:
(i) their terms and conditions, including whether they are secured, and the nature of
the consideration to be provided in settlement; and
(ii) details of any guarantees given or received;
(c) provisions for doubtful debts related to the amount of outstanding balances; and
(d) the expense recognised during the period in respect of bad or doubtful debts due
from related parties.

❖ Amounts incurred by the entity for the provision of key management personnel services that are
provided by a separate management entity shall be disclosed.
 The disclosures required by paragraph 18 shall be made separately for each of the following
categories:
(a) the parent;
(b) entities with joint control of, or significant influence over, the entity;
(c) subsidiaries;
(d) associates;
(e) joint ventures in which the entity is a joint venturer;
(f) key management personnel of the entity or its parent; and
(g) other related parties.

❖ Items of a similar nature may be disclosed in aggregate except when separate

disclosure is necessary for an understanding of the effects of related party transactions
on the financial statements of the entity.

❖ Government-related entities
A reporting entity is exempt from the disclosure requirements of paragraph 18 in relation
to related party transactions and outstanding balances, including commitments, with:
(a) a government that has control or joint control of, or significant influence over,
the reporting entity; and
(b) another entity that is a related party because the same government has
control or joint control of, or significant influence over, both the reporting entity
and the other entity.
If a reporting entity applies the exemption in paragraph 25, it shall disclose the following
about the transactions and related outstanding balances referred to in paragraph 25:
(a) the name of the government and the nature of its relationship with the
reporting entity (ie control, joint control or significant influence);
(b) the following information in sufficient detail to enable users of the entity’s
financial statements to understand the effect of related party transactions on its financial
statements:
(i) the nature and amount of each individually significant transaction; and
(ii) for other transactions that are collectively, but not individually, significant, a
qualitative or quantitative indication of their extent. Types of transactions include
those listed in paragraph 21.
21. Short-term Employee Benefits
—those expected to be settled wholly before twelve months after the end of the annual reporting
period in which the employees render the related services

Recognition and Measurement

Recognized at undiscounted amount when an employee renders service to an entity for an
accounting period.
A) as liability (accrued expense) after deducting any amount already paid. Any excess is
recognized as an asset (prepaid expense)
B) as an expense, unless another IFRS requires the inclusion of the benefits in the cost of an
asset

Short-term Paid Absences

Entity shall recognise the expected cost of short-term employee benefits in the form of paid
absences as follows:
(a) accumulating paid absences- when the employees render service that increases their
entitlement to future paid absences.
(b) non-accumulating paid absences- when the absences occur.
Accumulating paid absences are those that can be carried forward in future periods if current
period's entitlement are not used in full. It could be vesting (employees are entitled to a cash
payment for unused entitlement on leaving the entity) or non-vesting. An entity shall measure
the expected cost of accumulating paid absences as the additional amount that the entity
expects to pay as a result of the unused entitlement that has accumulated at the end of the
reporting period.

Profit-Sharing and Bonus Plans

An entity shall recognise the expected cost of profit-sharing and bonus payments when, and
only when:
(a) the entity has a present legal or constructive obligation to make such payments as a result of
past events; and
(b) a reliable estimate of the obligation can be made.
A present obligation exists when, and only when, the entity has no realistic alternative but to
make the payments.
■
22. Recognition requirement, measurement and presentation rules for the following:
contribution to a defined benefit plan, net defined benefit liability(asset), current service
cost, past service cost, gains and losses on settlement, and reimbursements

Recognition, measurement and presentation of Defined benefit Plan

Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions
by an entity, and sometimes its employees, into an entity, or fund, that is legally separate from
the reporting entity and from which the employee benefits are paid. The payment of funded
benefits when they fall due depends not only on the financial position and the investment
performance of the fund but also on an entity’s ability, and willingness, to make good any
shortfall in the fund’s assets. Therefore, the entity is, in substance, underwriting the actuarial
and investment risks associated with the plan. Consequently, the expense recognised for a
defined benefit plan is not necessarily the amount of the contribution due for the period.

Accounting by an entity for defined benefit plans involves the following steps:
(a) determining the deficit or surplus. This involves:
 (i) using an actuarial technique, the projected unit credit method to make a reliable estimate
of the ultimate cost to the entity of the benefit that employees have earned in return for their
service in the current and prior periods. This requires an entity to determine how much benefit
is attributable to the current and prior periods and to make estimates (actuarial assumptions)
about demographic variables (such as employee turnover and mortality) and financial variables
(such as future increases in salaries and medical costs)
that will affect the cost of the benefit.
(ii) discounting that benefit in order to determine the present valueof the defined benefit
obligation and the current service cost.
(iii) deducting the fair value of any plan assets from the present value of the defined
benefit obligation (b) determining the amount of the net defined benefit liability (asset) as the
amount of the deficit or surplus determined in, adjusted for any effect of limiting a net defined
benefit asset to the asset ceiling
(c) determining amounts to be recognised in profit or loss:
(i) current service cost
(ii) any past service cost and gain or loss on settlement
(iii) net interest on the net defined benefit liability (asset)
(d) determining the remeasurements of the net defined benefit liability
(asset), to be recognised in other comprehensive income, comprising:
(i) actuarial gains and losses
(ii) return on plan assets, excluding amounts included in net interest on the net defined
benefit liability (asset) and
(iii) any change in the effect of the asset ceiling excluding amounts included in net interest
on the net defined benefit liability (asset). Where an entity has more than one defined
benefit plan, the entity applies these procedures for each material plan separately.

Recognition, measurement and presentation of Net Defined Benefit Liability(asset)

An entity shall determine the net defined benefit liability (asset) with sufficient regularity that the
amounts recognised in the financial statements do not differ materially from the amounts that
would be determined at the end of the reporting period.

Statement of financial position

An entity shall recognise the net defined benefit liability (asset) in the statement of financial
position.
When an entity has a surplus in a defined benefit plan, it shall measure the net defined benefit
asset at the lower of:
(a) the surplus in the defined benefit plan; and
(b) the asset ceiling, determined using the discount rate specified in paragraph 83.
A net defined benefit asset may arise where a defined benefit plan has been
overfunded or where actuarial gains have arisen. An entity recognises a net
defined benefit asset in such cases because:
 (a) the entity controls a resource, which is the ability to use the surplus to
generate future benefits;
(b) that control is a result of past events (contributions paid by the entity
and service rendered by the employee); and
(c) future economic benefits are available to the entity in the form of a
reduction in future contributions or a cash refund, either directly to the
entity or indirectly to another plan in deficit. The asset ceiling is the
present value of those future benefits.

REGOGNITION, MEASUREMENT AND PRESENTATION OF CURRENT SERVICE COST

In determining the present value of its defined benefit obligations and

the related current service cost and, where applicable, past service cost, an
entity shall attribute benefit to periods of service under the plan’s benefit
formula. However, if an employee’s service in later years will lead to a
materially higher level of benefit than in earlier years, an entity shall
attribute benefit on a straight-line basis from:
(a) the date when service by the employee first leads to benefits under
the plan (whether or not the benefits are conditional on further
service) until
(b) the date when further service by the employee will lead to no
material amount of further benefits under the plan, other than
from further salary increases.

The projected unit credit method requires an entity to attribute benefit to the
current period (in order to determine current service cost) and the current and
prior periods (in order to determine the present value of defined benefit
obligations). An entity attributes benefit to periods in which the obligation to
provide post-employment benefits arises. That obligation arises as employees
render services in return for post-employment benefits that an entity expects to
pay in future reporting periods. Actuarial techniques allow an entity to measure
that obligation with sufficient reliability to justify recognition of a liability
Employee service gives rise to an obligation under a defined benefit plan even if
the benefits are conditional on future employment (in other words they are not
vested). Employee service before the vesting date gives rise to a constructive
obligation because, at the end of each successive reporting period, the amount of
future service that an employee will have to render before becoming entitled to
the benefit is reduced. In measuring its defined benefit obligation, an entity
considers the probability that some employees may not satisfy any vesting
requirements. Similarly, although some post-employment benefits, for example,
post-employment medical benefits, become payable only if a specified event
occurs when an employee is no longer employed, an obligation is created when
the employee renders service that will provide entitlement to the benefit if the
specified event occurs.

The probability that the specified event will occur affects

the measurement of the obligation, but does not determine whether the
obligation exists
Where the amount of a benefit is a constant proportion of final salary for each
year of service, future salary increases will affect the amount required to settle
the obligation that exists for service before the end of the reporting period, but
do not create an additional obligation. Therefore:
(a) for the purpose of paragraph 70(b), salary increases do not lead to further
benefits, even though the amount of the benefits is dependent on final
salary; and
(b) the amount of benefit attributed to each period is a constant proportion
of the salary to which the benefit is linked

Past service cost

Past service cost is the change in the present value of the defined benefit obligation resulting
from a plan amendment or curtailment.
An entity shall recognise past service cost as an expense at the earlier of the following dates:
(a) when the plan amendment or curtailment occurs; and
(b) when the entity recognises related restructuring costs or termination benefits
A plan amendment occurs when an entity introduces, or withdraws, a defined
benefit plan or changes the benefits payable under an existing defined benefit plan.
GAINS AND LOSSES ON SETTLEMENT

The gain or loss on a settlement is the difference between:

(a) the present value of the defined benefit obligation being settled, as
determined on the date of settlement; and
(b) the settlement price, including any plan assets transferred and any
payments made directly by the entity in connection with the settlement.
An entity shall recognise a gain or loss on the settlement of a defined
benefit plan when the settlement occurs.

A settlement occurs when an entity enters into a transaction that eliminates all
further legal or constructive obligation for part or all of the benefits provided
under a defined benefit plan (other than a payment of benefits to, or on behalf
of, employees in accordance with the terms of the plan and included in the
actuarial assumptions). For example, a one-off transfer of significant employer
obligations under the plan to an insurance company through the purchase of an
insurance policy is a settlement; a lump sum cash payment, under the terms of
the plan, to plan participants in exchange for their rights to receive specified
post-employment benefits is not.

REIMBURSEMENT

When, and only when, it is virtually certain that another party will
reimburse some or all of the expenditure required to settle a defined
benefit obligation, an entity shall:
(a) recognise its right to reimbursement as a separate asset. The
entity shall measure the asset at fair value.
(b) disaggregate and recognise changes in the fair value of its right to
reimbursement in the same way as for changes in the fair value of
plan assets (see paragraphs 124 and 125). The components of
defined benefit cost recognised in accordance with paragraph 120
may be recognised net of amounts relating to changes in the
carrying amount of the right to reimbursement.

Sometimes, an entity is able to look to another party, such as an insurer, to pay

part or all of the expenditure required to settle a defined benefit obligation.

Qualifying insurance policies, as defined in paragraph 8, are plan assets. An

entity accounts for qualifying insurance policies in the same way as for all other
plan assets and paragraph 116 is not relevant

23. COMPONENTS OF DEFINED BENEFIT COST AND ITS PRESENTATION IN THE

FINANCIAL STATEMENT

COMPONENTS OF DEFINED BENEFIT COST

● Service cost
● Net interest on the net defined benefit liability (asset)
● Remeasurements of the net defined liability (asset)

PRESENTATION IN THE FINANCIAL STATEMENTS

● Service cost*
● Net interest on the net defined benefit liability (asset)*
● Remeasurements of the net defined liability (asset)
-Recognized in ​other comprehensive income – shall not be reclassified to profit
or loss in a subsequent period but the entity may transfer those amounts
recognised in other comprehensive income within equity

*IAS 19 does not specify how an entity should present service cost and net interest on the net
defined benefit liability (asset). An entity presents those components in accordance with IAS 1.

24. Defined benefit plan, its content, valuation policy, and disclosures
​IAS 19: EMPLOYEE BENEFITS

(P.30) Under defined benefit plans:

• the entity’s obligation is to provide the agreed benefits to current and former employees; and
• actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance,
on the entity.

(VALUATION POLICIES)

When an entity has a surplus in a Defined Benefit Plan, it measures the net defined benefit
asset at the lower of:

• The surplus in the defined benefit plan

• The asset ceiling (being the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan), determined using the
discount rate in reference to market yields at the end of the reporting period.

(DISCLOSURES)

Characteristics of defined benefit plans and risks associated with them

An entity shall disclose:

(a) information about the characteristics of its defined benefit plans, including:
• the nature of the benefits provided by the plan.
• a description of the regulatory framework in which the plan operates.
• a description of any other entity’s responsibilities for the governance of the plan.

(b) a description of the risks to which the plan exposes the entity, focused on any unusual,
entity-specific or plan-specific risks, and of any significant concentrations of risk.

(c) a description of any plan amendments, curtailments and settlements.

Defined benefit plans that share risks between entities under common control

(P. 149) If an entity participates in a defined benefit plan that shares risks between entities
under common control, it shall disclose:

(a) the contractual agreement or stated policy for charging the net defined benefit cost or the
fact that there is no such policy.

(b) the policy for determining the contribution to be paid by the entity.

(c) if the entity accounts for an allocation of the net defined benefit cost as noted, all the
information about the plan as a whole should be disclosed.

25. Recognition rules for equity-settled share-based payment transactions, cash-settled

share-based payment transaction, share-based payment transactions with cash
alternatives, share-based payment transaction, and the effect of vesting periods

RECOGNITION & MEASUREMENT - IFRS 2

For ​equity-settled share-based payment transactions​​, the entity shall measure the
goods or services received, and the corresponding increase in equity, directly, at the ​fair value
of the goods or services received,​ unless that fair value cannot be estimated reliably. If the
entity cannot estimate reliably the fair value of the goods or services received, the entity shall
measure their value, and the corresponding increase in equity, indirectly, by reference to the fair
value of the equity instruments granted.
For ​cash-settled share-based payment transactions​​, the entity shall measure the
goods or services acquired and the liability incurred at the ​fair value of the liability,​ (​subject to
the requirements of paragraphs 31–33D of IFRS 2)​. Until the liability is settled, the entity shall
remeasure the fair value of the liability at the end of each reporting period and at the date of
settlement, with any changes in fair value recognised in profit or loss for the period.
For ​share-based payment transactions with cash alternatives in which the terms of
the arrangement provide either the entity or the counterparty with the choice of whether the
entity settles the transaction in cash (or other assets) or by issuing equity instruments, the entity
shall account for that transaction, or the components of that transaction, as ​a cash-settled
share-based payment transaction if, and to the extent that, the entity ​has incurred a liability
to settle in cash or other assets, or as an e ​ quity-settled share-based payment transaction if,
and to the extent that,​ ​no such liability has been incurred.​
The entity shall recognise an amount for the goods or services received during the
vesting period​​. That amount shall be based on the ​best available estimate of the number of
awards that are expected to vest. The entity shall revise that estimate, if necessary, if
subsequent information indicates that the number of awards that are expected to vest differs
from previous estimates. On the vesting date, the entity shall revise the estimate to equal the
number of awards that ultimately vested.

26. Rules and Policies in the Recognition, Measurement, and Presentation of Provisions,
Contingent Liabilities, and Contingent Assets
Provision
- "a liability of uncertain timing or amount." (IAS 37.10)
Recognition Criteria
-A provision is recognized when​ ALL​​ of the following conditions are met:
a.) The entity has a ​PRESENT OBLIGATION​​ (legal or constructive) resulting from a past event;
b.) It is ​PROBABLE that an outflow of resources embodying economic benefits will be required
to settle the obligation; and
c.) The amount of the obligation can be ​RELIABLY ESTIMATED​​.

If any of the conditions is not met, no provision is recognized. (PAS 37.14)

PRESENTATION
Provisions are presented in the STATEMENT OF FINANCIAL POSITION SEPARATELY from
other types of liabilities.

Contingent Liabilities are DISCLOSED ONLY, except when the possibility of an outflow of
resources embodying economic benefits is remote.

Contingent Assets are DISCLOSED ONLY, if the inflow of economic benefits is PROBABLE.

MEASUREMENT

· Provisions are measured at the best estimate of the expenditure required to settle the present
obligation at
reporting date.
· Where the provision being measured involves a large population of items (i.e. goods’
warranties), the obligation is
estimated by weighting all possible outcomes by their associated probabilities.
· In determining the best estimate, the related risks and uncertainties are taken into account
· Where the effect of the time value of money is material, the amount of the provision is the
present value of the
expenditures expected to be required to settle the obligation. The discount rate used is a pre-tax
discount rate
that reflects current market assessments of the time value of money and the risks specific to the
liability
- The discount rate does not reflect risks for which future cash flow estimates have been
adjusted

· Future events that may affect the amount required to settle the obligation are reflected in the
amount of the
provision where there is sufficient objective evidence that they will occur
· Gains from the expected disposal of assets are not taken into account in measuring the
provision
· Reimbursements from third parties for some or all expenditure required to settle a provision are
recognised only
when it is virtually certain that the reimbursement will be received. The reimbursement is treated
as a separate
asset, which cannot exceed the amount of the provision
· Provisions are reviewed at each reporting date and adjusted to reflect the current best
estimate
· If it is no longer probable that an outflow of economic benefits will be required to settle the
obligation, the
provision is released
· Provisions are not recognised for future operating losses.

27. Restatement of items in the Statement of Financial Position and Income Statement

When an entity applies an accounting policy retrospectively or makes a retrospective

restatement of items in its financial statements, or when it reclassifies items in its financial
statements, it must also present a statement of financial position (balance sheet) as at the
beginning of the earliest comparative period.(IAS 1)

Selection and application of accounting policies

-When a Standard or an Interpretation specifically applies to a transaction, other event or

condition, the accounting policy or policies applied to that item must be determined by applying
the Standard or Interpretation and considering any relevant Implementation Guidance issued by
the IASB for the Standard or Interpretation. [IAS 8.7]

-In the absence of such Standard or Interpretation that applies, management will use its
judgment in developing and applying an accounting policy that results in information that is
relevant and reliable.

-An entity shall select and apply its accounting policies consistently for similar transactions,
other events and conditions, unless a Standard or an Interpretation specifically requires or
permits categorisation of items for which different policies may be appropriate.

Changes in accounting policies

An entity is permitted to change an accounting policy only if the change:

is required by a standard or interpretation; or results in the financial statements providing

reliable and more relevant information about the effects of transactions, other events or
conditions on the entity's financial position, financial performance, or cash flows. [IAS 8.14]

Changes in accounting estimates

The effect of a change in an accounting estimate shall be recognised prospectively by including
it in profit or loss in: [IAS 8.36]

the period of the change, if the change affects that period only, or the period of the change and
future periods, if the change affects both.

Errors

The general principle in IAS 8 is that an entity must correct all material prior period errors
retrospectively in the first set of financial statements authorised for issue after their discovery by:
[IAS 8.42]

-restating the comparative amounts for the prior period(s) presented in which the error occurred;
or

-if the error occurred before the earliest prior period presented, restating the opening balances
of assets, liabilities and equity for the earliest prior period presented.

28. Classification and Presentation of Government grants

Government grants are assistance by government in the form of transfers
of resources to an entity in return for past or future compliance with
certain conditions relating to the operating activities of the entity. They
exclude those forms of government assistance which cannot reasonably have a value placed
upon them and transactions with government which
cannot be distinguished from the normal trading transactions of the
entity.
Grants related to assets​​ are government grants whose primary condition
is that an entity qualifying for them should purchase, construct or
otherwise acquire long-term assets. Subsidiary conditions may also be
attached restricting the type or location of the assets or the periods
during which they are to be acquired or held.
Grants related to income​​ are government grants other than those related
to assets.

Presentation of grants related to assets

Government grants related to assets, including non-monetary grants at
fair value, shall be presented in the ​statement of financial position ​either
by setting up the grant as deferred income or by deducting the grant in
arriving at the carrying amount of the asset.

Presentation of grants related to income

Grants related to income are ​presented as part of profit or loss,​​ either separately
or under a general heading such as ‘Other income’; alternatively, they are
deducted in reporting the related expense.

29. Measurement of Government Grant

Recognition Criteria:
Government grants, including non-monetary grants at fair value, shall
not be recognised until there is reasonable assurance that:
(a) the entity will comply with the conditions attaching to them; and
(b) the grants will be received.

If government grant satisfies the recognition criteria, it will be measured as follows:

1) ​In Case of Government Grant in Cash
If government grant is in the form of cash, it will be measured at the amount of cash received or
receivable.
2) ​In Case of Non-monetary Government Grant
If the government grant is in the form of non-monetary asset such as free of cost land, license or
other non-monetary resources, it will be measured either at fair value of asset or nominal cost of
such asset.

30. Classification criteria of a business into an SME (Small and Medium-sized Entities).

● According to the International Accounting Standards Board (IASB):

SMEs are entities that:
1. Do not​​ have public accountability, ​and
2. Publish ​general purpose​​ financial statements for external users.
(​*Note: all should be present)​

● According to the Philippine Securities and Exchange Commision (SEC):

SMEs are entities:
1. With total assets between ​₱3,000,000 and ₱350,000,000 ​OR ​with total liabilities
between ₱3,000,000 and ₱250,000,000
2. That is ​not​​ required to file financial statements under SRC Rule 68.1
3. That is ​not in the process of filing financial statements for the purpose of issuing
any class of instruments in a public market
4. That is ​not a holder of secondary license issued by a regulatory agency (such
as bank, investment house, finance company, insurance company, securities
broker or dealer, mutual fund, and pre-need company)
5. That is ​not a public utility​​.
(​*Note: all should be present)​

*Definitions:
➔ An entity has ​Public Accountability ​if:
 a. Its debt or equity instruments are traded in a public market or it is in a process of
issuing such instruments for trading in the public market.
b. It holds assets in fiduciary capacity for a broad group of outsiders as the primary
business.
➔ SRC ​(Securities Regulation Code)​ Rule 68.1
- Pertains to “listed entities” or entities whose securities are traded in an exchange
market, and entities with assets of at least ₱50,000,000 and have 200 or more
holders each holding at least 100 shares of a class of equity securities.

31. Businesses that can or should apply PFRS for SMEs

● Small and medium-sized entities​​ that:

(a) do not have public accountability, and
(b) publish general purpose financial statements for external users. Examples of external users
include owners who are not involved in managing the business, existing and potential creditors,
and credit rating agencies. General purpose financial statements are those that present fairly
financial position, operating results, and cash flows for external capital providers and others.

An entity has public accountability if:

(a) its debt or equity instruments are traded in a public market or it is in the process of issuing
such instruments for trading in a public market (a domestic or foreign stock exchange or an
over-the-counter market, including local and regional markets), or
(b) it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary
businesses. This is typically the case for banks, credit unions, insurance companies, securities
brokers/dealers, mutual funds and investment banks. If an entity holds assets in a fiduciary
capacity as an incidental part of its business, that does not make it publicly accountable. Entities
that fall into this category may include public utilities, travel and real estate agents, schools, and
charities.

● The standard does not contain a limit on the size of an entity that may use the IFRS for
SMEs provided that it does not have public accountability nor is there a restriction on its
use by a public utility, not-for-profit entity, or public sector entity

● A subsidiary whose parent or group uses full IFRSs may use the IFRS for SMEs if the
subsidiary itself does not have public accountability
The standard does not require any special approval by the owners of an SME for it to be
eligible to use the IFRS for SME

● Listed companies, no matter how small, may not use the IFRS for SMEs Q&A 2011/01
(published June 2011) states that a parent entity assesses its eligibility to use the IFRS
for SMEs in its separate financial statements on the basis of its own public accountability
without considering whether other group entities have, or the group as a whole has,
public accountability
32. Make a table showing the following information: Kind of assets/liabilities, definition,
recognition criteria, initial measurement and subsequent measurement.

ASSETS DEFINITION RECOGNITIO INITIAL SUBSEQUENT

N CRITERIA MEASUREMEN MEASUREMEN
T T

Inventories Assets held for RECOGNITIO Inventories shall COSTS OF

sale in the N AS AN be measured at PURCHASE-
ordinary course EXPENSE- the lower of cost comprises the
of business; in when and net purchase price,
the process of inventories are realizable value import duties
production for sold, the and other taxes
such as sale; carrying COSTS OF
or in the form amount of CONVERSION-
of materials or those include costs
supplies to be inventories directly related
consumed in shall be to the units of
the production recognized as production, such
process or in an expense in as direct labor
the rendering the period in OTHER
of services which the COSTS-
related included in the
revenue is cost of
recognized. inventories only
to the extent
that they are
incurred in
bringing the
inventories to
their present
location and
condition
Property, Are tangible The cost of an MEASURMENT MEASUREMEN
Plant, and items that are item of AT T AFTER
Equipment held for use in property, plant RECOGNITION- RECOGNITION-
the production and equipment an item of (a) ​Cost Model-
or supply of shall be property plant after recognition
goods or recognized as and equipment as an asset, an
services, for an asset if and that qualifies for item of property,
rental to only if: recognition as plant and
others, or for (a) it is an asset shall equipment shall
administrative probable that be measured at be carried at its
purposes; and future cost cost less any
are expected to economic accumulated
be used during benefits depreciation and
more than one associated any
period with the item accumulated
will flow to the impairment
entity; and (b) ​Revaluation
(b) the cost of Model- ​after
the item can recognition as
be measured an asset an item
reliably of property,
plant and
equipment
whose fair value
can be measure
reliably shall be
carried at a
revalued
amount, being
its fair value at
the date of the
revaluation less
any subsequent
accumulated
depreciation and
subsequent
accumulated
impairment
losses
Intangible Is an An intangible An intangible Only rare will
Assets identifiable asset should asset should be subsequent
non-monetary be recognized measured expenditure-
asset without if and only if: initially at cost. expenditure
physical (a) it is Cost is the incurred after
substance probable that amount of cash the initial
the future or cash recognition of an
economic equivalents paid acquire
benefits or the fair value intangible asset
attributable to of other or after
the asset will consideration completion of an
flow to the given to acquire internally
enterprise; and an asset at the generated
(b) the cost of time of its intangible asset-
the asset can acquisition or can be
be measured construction recognized in
reliably the carrying
amount of an
asset

Investment Property (land Investment An investment FAIR VALUE

Property or building or Property shall property shall be MODEL- the
part of a be recognized measured investment
building or as an asset initially at cost. property is
both) held by when and only Transaction carried at fair
an owner or by when: costs shall be value with
the lessee (a) it is included in the changes in fair
under a finance probable that initial value are
lease to earn the future measurement. included in profit
rentals or for economic The cost of a or loss. No
capital benefits that purchased depreciation is
appreciation are associated investment recorded for the
with the property investment
investment comprises the property
property will purchase price COST MODEL-
flow to the and any directly the investment
entity attributable property is
(b) the cost of expenditure. carried at cost
the investment less any
property can accumulated
be measured depreciation and
reliably any
accumulated
impairment. Fair
value of the
investment
 property shall be
disclosed

Impairment of Is a fall in the An asset is MEASURING IMPAIRMENT

Assets market value of impaired when RECOVERABL LOSS- if and
an asset so its carrying E AMOUNT- the only if the
that the amount higher of an recoverable
recoverable exceeds its asset`s or amount of an
amount is now recoverable cash-generating asset is less
less than the amount unit`s fair value than its carrying
carrying less costs of amount, the
amount in the disposal and its carrying amount
statement of value in use of the asset
financial shall be reduced
position to its
recoverable
amount

Non- Current An asset that (a) the asset or An entity shall If subsequently
Assets Held does not meet disposal group measure a there is an
for Sale and the definition of is available for noncurrent increase in the
Discontinued a current asset. immediate sale asset or fair value less
Operations The in the present disposal group cost of disposal,
non-current condition classified as an entity may
asset may be subject only to held for sale at recognize a gain
an individual terms that are the lower of but not in
asset, like land usual and carrying amount excess of any
and building, or customary and fair value impairment loss
a disposal (b) the sale less cost of previously
group must be highly disposal recognized
probable
Agriculture The An entity shall A biological Biological asset
management recognize a asset shall be shall be
by an entity of biological measured on measured at its
the biological asset or initial cost less any
transformation agricultural recognition and accumulated
and harvest of produce when at the end of depreciation and
biological and only when: each reporting any
assets for sale (a) the entity period at its fair accumulated
or for controls the value less costs impairment
conversion into asset as a to sell losses. Once
agricultural result of past the fair value of
produce or into event; such a biological
additional (b) it is asset becomes
biological probable that reliably
assets future measurable, an
economic entity shall
benefits measure it at its
associated fair value less
with the asset costs to sell.
will flow to the
entity; and
(c) the fair
value or cost
of the asset
can be
measured
reliably
Contingent A possible Contingent
Assets asset that assets are not
arises from recognised,
past events but they are
and whose disclosed
existence will when it is more
be confirmed likely than not
only by the that an inflow
occurrence or of benefits will
non-occurrenc occur.
e of one or However,
more uncertain when the
future events inflow of
not wholly benefits is
within the virtually certain
control of the an asset is
entity recognised in
the statement
of financial
position,
because that
asset is no
longer
considered to
be contingent.
Borrowing Are interest An entity shall
Costs and other costs capitalize
that an entity borrowing
incurs in costs that are
connection with directly
the borrowing attributable to
of funds the acquisition,
construction or
production of a
qualifying
asset as part
of the cost of
that asset. An
entity shall
recognize
other
borrowing
costs as an
expense in a
period in which
it incurs them
LIABILITIE Contingent (a) a possible A contingent
S Liability obligation that liability is not
arises from recognised in
past events the statement
and whose of financial
existence will position.
be confirmed However,
only by the unless the
occurrence or possibility of
non-occurrenc an outflow of
e of one or economic
more uncertain resources is
future events remote, a
not wholly contingent
within the liability is
control of the disclosed in
entity; or the notes.
(b) a present
obligation that
arises from
past events but
is not
recognised
because:
(i) it is not
probable that
an outflow of
resources
embodying
economic
benefits will be
required to
settle the
obligation;
or
(ii) the amount
of the
obligation
cannot be
measured with
sufficient
reliability.
Cash and Cash Equivalents

What is Cash? (as defined by IASB)

-This comprises the ​CASH IN BANK​​ and ​DEMAND DEPOSITS​​ (IAS 7, par.6)

What are Cash Equivalents? (as defined by IASB)

- These are ​short-term​​, ​highly liquid investments​​ that are
readily convertible to known amounts of cash​​ and which are ​subject to an
insignificant risk of changes in value​​. (IAS 7, par. 6)

-These are​ held for the purpose of meeting short-term cash

commitments​​ rather than for investment or other purposes. (IAS 7, par. 7)

Investment as Cash Equivalent (IAS 7, par. 7)

- It is a cash equivalent if it applies the definition of a Cash Equivalent.
- It is a cash equivalent if it has short maturity (according to the standards, 3 months or
less from the date of acquisition.)
- Equity investments are excluded from cash equivalents, unless it applies the definition of
a Cash Equivalents.

According to the Standard:

- BANK OVERDRAFTS are included as a component of Cash and Cash Equivalent. (IAS
7, par. 8)
- Cash Management includes the investment of excess cash in Cash Equivalents. (IAS 7,
par. 9)

CHAPTER SUMMARIES:

Conceptual Framework for Financial Reporting

CHAPTER 1- The objective of general purpose financial reporting

Objective
To provide financial information about the reporting entity
Useful to:
➔ Existing and potential investors
➔ Lenders and;
➔ Other creditors in making decisions about providing resources to the entity.
This enables them to assess the prospects for future net cash inflows to an entity.
Decisions involves:
➔ Buying
➔ Selling or holding equity or debt instruments
➔ Providing or settling loans
 ➔ Other forms of credit
General purpose financial reports are not designed to show the value of a
reporting entity; but they provide information to help existing and potential
investors, lenders and other creditors to estimate the value of the reporting entity.

What to report Where to report

Economic resources and Claims Statement of financial position

Changes in economic resources and claims Statements of comprehensive income

resulting from financial performance

Changes in cash flows Statement of cash flows

Changes in economic resources and claims Statement of changes in equity

NOT​​ resulting from financial performances

Conceptual Framework: Chapter 2

Qualitative Characteristics of Useful Financial Information
-identify the types of information that are likely to be most useful to the users of FS

Fundamental Qualitative Characteristics:

a. Relevance
-information is relevant if it is capable of making a difference to the decisions made by users
-financial information is capable of making a difference in decisions if it has predictive value or
confirmatory value
Predictive value​- financial information has predictive value if it can be used as an input to
processes employed by users to predict future outcomes; need not be a prediction or forecast;
is employed by users in making their own predictions
Confirmatory value​- financial information has confirmatory value if it provides feedback about
(confirms or changes) previous evaluations
(both are interrelated and information that has predictive value often also has confirmatory
value)
Materiality​ –
​ information is material if omitting it or misstating it could influence decisions

b. Faithful Representation
-information must be faithfully represent the substance of what it purports to represent
-has three characteristics:
​Complete – includes all information necessary for a user to understand the phenomena
(descriptions, explanations)
Neutral​ – without bias in the selection or presentation of financial information
Free from error​ – does not mean perfectly accurate in all respects
Process/ application:
1. Identify an economic phenomenon, information about which is capable of being useful to
users of the entity’s financial information
2. Identify the type of information about the phenomenon that would be most relevant
3. Determine whether that information is available and whether it can provide faithful
representation of the economic phenomenon.

Enhancing Qualitative Characteristics:

-enhance the usefulness of information but they cannot make non-useful information useful
a.Comparability – enables users to identify and understand similarities, in an differences among
items
Consistency​- use of same methods for the same items across periods (related to comparability
but not the same)
b.Verifiability​ – different knowledgeable and independent observers could reach consensus
​Direct verification​ – through direct observation (ex. Counting cash)
​Indirect verification – checking the inputs to a model, formula, technique and recalculating the
outputs using the same methodology (ex. Inventory)

c.Timeliness – having information available to decision-makers in time to be capable of

influencing their decisions
d.Understandability – classifying, characterizing and presenting information clearly and
concisely makes it understandable

Other Terms:
Prudence-​ the exercise of caution when making judgments under conditions of uncertainty;
does not allow for understatement or overstatement of the elements of FS (supports neutrality)
Measurement Uncertainty-​ does not prevent information from being useful
-in some cases, the most relevant information may have such a high level of uncertainty that the
most useful information is information that is slightly less relevant but is subject to lower
measurement uncertainty
Cost Constraint​- the benefit of providing information needs to justify the cost of providing and
using the information
Cost-​ a pervasive constraint on the reporting entity’s ability to provide useful financial
information; justified by the benefits of reporting that information

Chapter 3—Financial statements and the reporting entity

This chapter describes the objective and scope of financial statements and provides a
description of the reporting entity.

Objective and scope of financial statements:

The objective of financial statements is to provide financial information about the reporting
entity’s assets, liabilities, equity, income and expenses.

That information is provided:

(a) ​in the statement of financial position​, by recognising assets, liabilities and equity;
(b) ​in the statement(s) of financial performance​, by recognising income and expenses; and
(c) ​in other statements and notes​, by presenting and disclosing information.

Reporting period:
(a) ​assets and liabilities​—including unrecognised assets and liabilities—and equity that existed
at the end of the reporting period, or during the reporting period; and
(b) ​income and expenses​ for the reporting period.

Going concern assumption:

Financial statements are normally prepared on the assumption that the reporting entity is a
going concern and will continue in operation. Hence, it is assumed that the entity has neither the
intention nor the need to enter liquidation or to cease trading. If such an intention or need exists,
the financial statements may have to be prepared on a different basis. If so, the financial
statements describe the basis used.

The reporting entity

A ​reporting entity​ is an entity that is required, or chooses, to prepare financial statements.
- If a reporting entity comprises both the parent and its subsidiaries, the reporting entity’s
financial statements are referred to as ‘​consolidated financial statements​’.
- If a reporting entity is the parent alone, the reporting entity’s financial statements are
referred to as ‘​unconsolidated financial statements​’.
- If a reporting entity comprises two or more entities that are not all linked by a
parent-subsidiary relationship, the reporting entity’s financial statements are referred to
as ‘​combined financial statements​’.

Determining the appropriate boundary of a reporting entity can be difficult if the reporting entity:
(a) is not a legal entity; and
(b) does not comprise only legal entities linked by a parent-subsidiary relationship.

Faithful representation ​in such cases​:

(a) the boundary of the reporting entity does not contain an arbitrary or incomplete set of
economic activities;
(b) including that set of economic activities within the boundary of the reporting entity results in
neutral information; and
(c) a description is provided of how the boundary of the reporting entity was determined and of
what constitutes the reporting entity.

Consolidated and unconsolidated financial statements:

 - Consolidated financial statements​ provide information about the assets, liabilities, equity,
income and expenses of both the parent and its subsidiaries as a single reporting entity.
- Consolidated financial statements​ are not designed to provide separate information
about the assets, liabilities, equity, income and expenses of any particular subsidiary.
- Unconsolidated financial statements ​are designed to provide information about the
parent’s assets, liabilities, equity, income and expenses, and not about those of its
subsidiaries.

When consolidated financial statements are required, unconsolidated financial statements

cannot serve as a substitute for consolidated financial statements. A parent may be required, or
choose, to prepare unconsolidated financial statements in addition to consolidated financial
statements.

CHAPTER 4 - Elements of Financial Accounting

Underlying assumption
The IFRS Framework states that the going concern assumption is an underlying assumption.
Thus, the financial statements presume that an entity will continue in operation indefinitely or, if
that presumption is not valid, disclosure and a different basis of reporting are required.

The elements of financial statements

Financial statements portray the financial effects of transactions and other events by grouping
them into broad classes according to their economic characteristics. These broad classes are
termed the elements of financial statements.
The elements directly related to financial position (balance sheet) are:
● Assets Liabilities Equity
The elements directly related to performance (income statement) are:
● Income Expenses
The cash flow statement reflects both income statement elements and some changes in
balance sheet elements.

Definitions of the elements relating to financial position

● An asset is a resource controlled by the entity as a result of past events and from which
future economic benefits are expected to flow to the entity.
● A liability is a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying
economic benefits.
● Equity is the residual interest in the assets of the entity after deducting all its liabilities.
Income is increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.
 ● Expenses are decreases in economic benefits during the accounting period in the form
of outflows or depletions of assets or incurrences of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants.
The definition of income encompasses both revenue and gains.
● Revenue arises in the course of the ordinary activities of an entity and is referred to by a
variety of different names including sales, fees, interest, dividends, royalties and rent.
Gains represent other items that meet the definition of income and may, or may not,
arise in the course of the ordinary activities of an entity. Gains represent increases in
economic benefits and as such are no different in nature from revenue.
● The definition of expenses encompasses losses as well as those expenses that arise in
the course of the ordinary activities of the entity. Expenses that arise in the course of the
ordinary activities of the entity include, for example, cost of sales, wages and
depreciation. They usually take the form of an outflow or depletion of assets such as
cash and cash equivalents, inventory, property, plant and equipment. Losses represent
other items that meet the definition of expenses and may, or may not, arise in the course
of the ordinary activities of the entity. Losses represent decreases in economic benefits
and as such they are no different in nature from other expenses.

Recognition of the elements of financial statements

Recognition is the process of incorporating in the balance sheet or income statement an item
that meets the definition of an element and satisfies the following criteria for recognition:

It is probable that any future economic benefit associated with the item will flow to or from the
entity; and The item's cost or value can be measured with reliability.

Based on these general criteria:

● An ​asset is recognised in the balance sheet when it is probable that the future economic
benefits will flow to the entity and the asset has a cost or value that can be measured
reliably.

● A ​liability is recognised in the balance sheet when it is probable that an outflow of

resources embodying economic benefits will result from the settlement of a present
obligation and the amount at which the settlement will take place can be measured
reliably.

● Income is recognised in the income statement when an increase in future economic

benefits related to an increase in an asset or a decrease of a liability has arisen that can
be measured reliably. This means, in effect, that recognition of income occurs
simultaneously with the recognition of increases in assets or decreases in liabilities (for
example, the net increase in assets arising on a sale of goods or services or the
 decrease in liabilities arising from the waiver of a debt payable).

● Expenses are recognised when a decrease in future economic benefits related to a

decrease in an asset or an increase of a liability has arisen that can be measured
reliably. This means, in effect, that recognition of expenses occurs simultaneously with
the recognition of an increase in liabilities or a decrease in assets (for example, the
accrual of employee entitlements or the depreciation of equipment).

Measurement of the elements of financial statements

Measurement involves assigning monetary amounts at which the elements of the financial
statements are to be recognised and reported.
The IFRS Framework acknowledges that a variety of measurement bases are used today to
different degrees and in varying combinations in financial statements, including:

* Historical cost Current cost Net realisable (settlement) value Present value (discounted)
Historical cost is the measurement basis most commonly used today, but it is usually combined
with other measurement bases. The IFRS Framework does not include concepts or principles
for selecting which measurement basis should be used for particular elements of financial
statements or in particular circumstances. Individual standards and interpretations do provide
this guidance, however.

Chapter 8 CONCEPT OF CAPITAL:

1. Physical Concept of Capital - capital is regarded as the peoductive capacity if the entity, such
as operating capacity.
2. Financial Concept of Capital - if the users are primarilt concerned with the maintenance of the
nominal invested capital or the purchasing power of invested capital.
- capital is synonymous with the net assets or equity of the entity which is adopted by most
entities in preparing their FS.

*The selection of the appropriate concept capital by an entity should be based on the needs of
the users of it FS.*

CONCEPTS OF CAPITAL MAINTENANCE AND THE DETERMINATION OF PROFIT:

* The Concept of Capital Maintenance is concerned with how an entity defines the capital that it
seeks to maintain.*
1. Financial Capital Maintenance - a profit is earned only if the financial amount of the net
assets at the end of the period exceeds the financial amount of net assets at the beginning of
the period, after excluding any distributions to, nd contributions from, owners during the period.
- can be measured in either nominal monetary units or units of constant purchasing power.
2. Physical Capital Maintenance - a profit is earned only if the physical productive capacity of
the entity at the end of the period exceeds the physical productive capacity at the beginning of
the period, after excluding any distributions to, and contributions from, owners during the period.