TOPIC 1: STATEMENT OF FINANCIAL  Subscription Receivable if collectible currently is

POSITION considered as current, if not, it is presented as

deduction to the subscribed share capital
 It is also known as balance sheet, it is used by
 Deferred charges are considered as Non-current
decision makers to assess the company’s liquidity
 Discount on Bonds Payable is a contra-liability and
and solvency
is to be amortized using the effective interest rate
 An asset is considered as current when it is
method
realizable within 1 year or within the normal
 A provision is probable and measurable therefore
operating cycle whichever is higher
recognized as accrual in the financial statements
 Financial assets held for trading are considered as
 A contingent liability is either possible and
Current while those that are held through other
immeasurable, it is only disclosed in the financial
comprehensive income are considered as Non-
statements
Current
 Debit balances of AP represent overpayment on the
 Bank overdraft is considered as current liability, no
part of the entity, it is a current asset, there is no
offsetting is allowed except when the company
offsetting except when it is immaterial
maintains multiple accounts in one same bank and
 Credit balances of customer accounts, it is a current
one of the accounts have a negative balance
liability, it is an overpayment on the part of the
 Deferred tax asset or liability is always considered
customer
as Non-current regardless of when they are
 If the loan is refinanced after the reporting period
reversible
but before the issuance of financial statements, it is
 FA through other comprehensive income and those
classified as current asset
that are measured at amortized cost are considered
 If before the end of the reporting period, it is
as Non-Current
considered as Non-current because it is an adjusting
 Intangible assets are considered as non-current
event
assets
 If the entity has the discretion to roll-over the
 Non-current asset held for sale is considered as
payments of the liability, it is considered as Non-
current, they cease to be depreciated but is subject
Current
to impairment
 Treasury shares are considered as deduction to
 Sinking Fund & Investments in Associate are Non-
equity
Current assets
 Working capital is computed as the difference
 Goods received on consignment is not part of
between current assets and CL
inventories of the consignee but that of the
 Bond sinking Fund- Its classification depends on the
consignor
related liability
 Cash is generally unrestricted as to withdrawal
 Foreign currency translation adjustment is part of
 If cash is restricted to pay a specific liability, its
the other comprehensive income, thus part of the
classification depends on the related liability
reserve section
 Inventories are recorded at LCNRV or lower
 Cost in excess of billings in construction contracts,
between cost and net realizable value
is a current asset
 Notes Receivable Discounted Account is deducted
 Billings in excess of cost in construction contracts,
to the Notes receivable in arriving at the total current
is a current liability
assets
 The interest based on the nominal rate in issuing
 Accounts receivable whether assigned or not
bonds is to be recognized as accrued liability but for
assigned is to be added in arriving for the
interest expense it is based on the carrying amount
computation of current assets
multiplied by the effective rate
 Advances to subsidiary is considered as Non-
 If the loan is payable on demand, then it is
current in the separate books of the parent
considered as current
 Undelivered checks issued by the entity at the end
of the reporting period is to be reverted back to cash
and accounts payable
 Cash surrender value applies only to Life Insurance
Expense and when the entity is the beneficiary; it is
classified as non-current asset
 Unamortized issue cost of note payable is treated as
deduction to its carrying amount
TOPIC 2: NOTES TO FINANCIAL
STATEMENTS
 Intercompany sales are always eliminated when
consolidated FS is prepared
 PAS 24 paragraph 16 requires disclosure of key
management personnel compensation
 Sales to affiliated entities shall be disclosed in their
separate FS but eliminated in the consolidated FS
 Adjusting events are those events happening after
the end of the reporting period but is reflective of
the events happening during that year, it calls for an
adjustment
 The bankruptcy of a customer after the end of the
reporting period is an event that gives a condition
for the uncollectibility of any receivable from that
customer, therefore it is an adjusting event.
 Issuance of share capital after the end of the
reporting period is a Non-adjusting event
 The decline of the market value of trading securities
after the end of the reporting period is a Non-
Adjusting event, it is recorded in the period on
which such decline occurs.
 Declaration of any dividend after the end of the
reporting period is an adjusting event.
 Destruction of assets caused by circumstances
beyond the control of man are considered Non-
Adjusting event (but is to be disclosed). It is to be
recorded in the period on which it occurred.
TOPIC 3: STATEMENT OF
COMPREHENSIVE INCOME
 Distribution costs are costs incurred relating to the
selling activity of the entity
 Cost of Goods Sold:
Beginning Inventory
Plus: Net Cost of Purchases
Less: Ending Inventory at LCNRV
 An increase in an account by an amount is placed in
the opposite side of the normal balance of such
account while decrease in such account is placed in
the normal balance of such account
 Gross Margin is synonymous to Gross Profit
 Accounts Receivable Turnover
Net Sales/Average Accounts Receivable
 Inventory Turnover
Cost of Goods Sold/Average Inventory
 Unrealized loss on foreign currency translation is
presented in the other comprehensive income
 Any adjustment of profit of prior year is treated as
an adjustment to the Retained Earnings (net o any
tax effect)
 Any dividend from an associate is not considered an
income, but a deduction to the investment in
associate account
 Depreciation error has no counterbalancing effect
therefore treated retrospectively
 Any error in the valuation of ending inventory has a
counterbalancing effect in the succeeding year
 Any loss on disposal of a division/segment is
recorded in the profit/.loss from discontinued
operations
 Unrealized gain from a derivative contract,
revaluation surplus during the year, foreign
currency translation adjustment is recorded as part
of the other comprehensive income
TOPIC 4: NON-CURRENT ASSET HELD
FOR SALE
 PFRS 5, paragraph 15, provides that an entity shall
measure a Non-current asset or a disposal group
classified as held for sale at the lower of carrying
amount and the Fair value less cost of disposal
 The loss on disposal of a NCA held for sale is
calculated as the difference between the proceeds
and the value designated at the time of sale (lower
between carrying amount and the FV-cost of
disposal)
 The entity shall not depreciate a NCA while it is
classified as held for sale or while it is part of a
disposal group classified as held for sale
 Any gain on reversal of impairment loss shall not
exceed the impairment loss previously recognized
 An entity shall measure a NCA that ceases to be
classified as held for sale at the lower between
a. Carrying amount on the basis that the asset had
never been classified as Held for Sale
 b. Fair value less cost of disposal at the time it was
not intended to be sold
TOPIC 5: DISCONTINUED OPERATIONS
 Termination costs related to the discontinued
operation expected to be incurred shall be accrued in
the year the legally binding contract was signed
 When the fair value less cost of disposal (recoverable
amount) is less than the carrying amount of the
disposal group, there is an impairment loss
 When the fair value less cost of disposal of a segment
or a disposal group exceeds the carrying amount, any
gain is not to be recognized, the basic rule is LCNRV
 A segment is a separate identifiable component
TOPIC 6: CHANGE IN ACCOUNTING
POLICY
 It is accounted for retrospectively
 Change from FIFO to weighted-average is a change
in accounting policy on inventory valuation
 The cumulative effect of a change in inventory
method is determined by considering only the ending
inventory of the immediately preceding year.
Changes in inventory valuation of prior years has a
counterbalancing effect
 Any prior period effect is charged to retained
earnings
TOPIC 7: CHANGE IN ACCOUNTING
ESTIMATE
 Change in the useful life, depreciation method,
residual value of the asset is a change in accounting
estimate; it is treated currently and prospectively
 There is no entry to be made to reflect the accounting
change of a change in the useful life of the asset
 Of all the depreciation methods, only the Declining
balance method ignores residual value when it comes
to computation for depreciation
 In the sum of year’s digit method (SYD), the
denominator’s formula: (n) (n+1/2), where n= useful
life
TOPIC 8: PRIOR PERIOD ERROR
 A prior-period error is not included in profit/loss but
is treated as an adjustment of the beginning balance of
the retained earnings
 Change in the depreciation method, is a change in
accounting estimate, therefore no effect in current net
income and not considered as a prior-period error, it
is treated currently and prospectively
 Change in the method of computing inventory
obsolescence and provision of uncollectible accounts
are changes in accounting estimate and therefore has
no effect on retained earnings
TOPIC 9: OPERATING SEGMENT
 Under PFRS 8, an entity shall disclose information
about an operating segment that meets any of the
following quantitative thresholds:
a. Segment revenue (both intersegment and external)
should be 10% or more of the total combined revenue
of all segments (both intersegment & external)
b. Segment’s profit or loss is at least 10% of the
greater in absolute amount between the combined
segments profits and the combined segment’s losses
c. The assets of the segment are 10% or more of the
combined assets of all operating segments
 The total external revenues of the reportable
segments must be at least 75% of the total entity’s
external revenues
 A major customer disclosure is required if an entity
derived 10% or more of its external revenue from a
single customer or group of entities under common
control
 Expenses regularly received by the chief operating
decision maker as a measure of profit/loss is to be
allocated by all the segments on a specified basis.
 General corporate expenses are not traceable to a
specific segment and therefore not to be allocated
among them
 Interest expense and interest revenue must be
reported separately unless a majority of the segment
revenue is from interest and the chief operating
decision maker relies primarily on net interest
revenue in assessing performance
 Segments that are below the 10% threshold can be
aggregated into one segment if they have similar
economic characteristics and share a majority of the
5 aggregation criteria:
a. Nature of the product
b. Nature of the production process
c. Class of customer
d. Method of distributing product
e. Regulated environment
 TOPIC 10: INTERIM REPORTING
 PAS 34, paragraph 28, the general rule in preparing
interim FS is that cost and expenses that clearly
benefit more than 1 interim periods are allocated to
the interim periods affected
 Gains and losses are not allocated over the interim
periods, it is recorded in the period on which it occurs
 Inventories shall be measured at the lower of cost and
net realizable value even for interim purposes
 If NRV<COST, a los on inventory writedown shall be
recognized regardless of whether the writedown is
temporary or non-temporary
 Inventory loss from market decline is reported in the
interim period in which the decline occurs. Recovery
of such loss on the same inventory in later interim
periods is recognized as gain, but such amount is
limited only to the amount of loss previously
recognized
 The effects of a disposal of segment of business are
reported separately in the interim periods in which
they occur
 Gain should be recognized in the interim periods
realized
 The cumulative effect of a change in accounting
policy is shown in the statement of retained earnings
not in the income statement
TOPIC 11: CASH AND CASH
EQUIVALENTS
 Under PAS 7, treasury bills, money market
placements and time deposit normally qualify as cash
equivalents only when they have a short maturity of
3 months or less from the date of acquisition
 The classification of a cash fund depends on the
nature of its purpose to which it is being set aside
 Undelivered checks issued by the entity is restored
back to cash balance
 A certificate of deposit is a cash equivalent
 Postdated customer check is reverted back to AR
 Share investments cannot qualify as cash equivalents
although they are very actively traded, such
investments do not have maturity date
 Commercial papers are actually money market
placements
 A compensating balance is a minimum checking or
demand deposit account balance that must be
maintained in connection with a borrowing
arrangement with a bank
-It is part of cash if it is not restricted as to withdrawal
-If it is legally restricted, it is excluded from the
amount shown as cash and is to be shown separately
as current or non-current depending on the bank loan
to which it is related.
 Outstanding checks are deducted from the cash in
bank if the cash balance given is per bank statement
 Deposit in a bank closed by BSP, is a non-current
asset and is often reduced to its liquidation value
 Checks drawn by the entity to the order of the petty
cash custodian is actually a replenishment check
and therefore part of cash
 Checks drawn payable to the order of a petty cash
custodian representing her salary is an
accommodation check
 Unrestricted foreign bank account in equivalent
pesos is part of cash. If restricted, it is reported as
NCA
 A Bank overdraft is a current liability; offsetting is
not allowed except when a company has multiple
accounts in one same bank and one account has a
negative balance
TOPIC 12: BANK RECONCILIATION
& PROOF OF CASH
 Bank Reconciling Items:
Deposits in Transit
Outstanding Checks
Errors
 Book Reconciling Items:
Debit Memo
Credit Memo
Errors
 A certified check is no longer outstanding for
reconciliation purposes, such amount is deducted
from the total outstanding checks
 Cash balance per bank statement is an unadjusted
balance per bank while cash balance per ledger is
an unadjusted per book
TOPIC 13: ACCOUNTS RECEIVABLE
 The recovery of accounts written off does not
affect the balance of AR because the effect is
offsetting
 Net realizable value of AR
AR Balance
Less: Allowance for Bad Debts
Estimated future sales returns
 A security deposit is a non-current receivable
TOPIC 14: ESTIMATION OF
DOUBTFUL ACCOUNTS
 The allowance for doubtful accounts per aging is the
required ending allowance for bad debts, it is used
in the computation for the Net realizable value
 Only the bad debt expense decreases working
capital
 The write-off does not affect anymore the working
capital because the effect is offsetting on current
assets
 Under the Aging Method, the amount computed
represents the required ending allowance for
uncollectible accounts
 If the percentage of AR is used, the amount
computed represents the required ending allowance
for bad debts
 Under the percentage of sales method, the amount
computed already represents the uncollectible
accounts expense
 Historical bad debt loss percentage computation:
(Write-off – Recoveries)/ Credit Sales
 Individually significant accounts receivable shall be
individually assessed for impairment, if not
impaired, it will be included in the other accounts
receivable not individually significant for collective
assessment of impairment
TOPIC 15: ASSIGNMENT &
FACTORING
 Receivable financing is the financial flexibility or
capability of an entity to raise money out of its
receivables
 When accounts are pledged, no entry would be
necessary; disclosure is sufficient thereof in the
notes to FS
 In substance, Assignment of AR means that a
borrower called the assignor transfer its rights in
some of its AR to a lender called the assignee, it is
a more formal type of pledging
 Pledging is general while assignment is specific
 Assignment may be done either on a nonnotification
or notification basis
 Equity in Assigned Accounts
AR Assigned – Notes Payable
 Factoring is a sale of AR on a without recourse
notification basis, a gain or loss is recognized for the
difference between the proceeds received and the
carrying amount of the receivables assigned
 Factoring differs from assignment because the
former actually transfers ownership to the buyer
 In assignment, the assignor retains ownership of the
assigned accounts
 In assignment, no gain or loss is recognized because
it is a secured borrowing not a sale
TOPIC 16: DISCOUNTING OF NOTE
RECEIVABLE
 If weighted average time, use 365 days
 Cost of Factoring= Factor Fee + interest
 Discounting specifically pertains to Notes
Receivable
 Endorsement may be with recourse which means
that the endorser shall pay the endorsee if the
maker dishonors the note. This is the
contingent/secondary liability of the endorser
 In the absence of any evidence to the contrary,
endorsement is with recourse
 Net Proceeds
Maturity Value less Discount
 Maturity Value= Principal + Interest (If interest-
bearing), If non-interest bearing, the face value of
the note is already the maturity date
 Discount = Maturity value * Discount rate *
Discount period
 Gain or Loss on Discounting
Net Proceeds – Carrying Amount of Note
Receivable
-recognized only if the discounting is without
recourse and a conditional sale
 Types of Discounting with Recourse
a. Conditional Sale- Note Receivable Discounted
b. Secured Borrowing- Liability for NR
discounted
 In discounting without recourse, the sale of the NR
is absolute and therefore there is no contingent
liability
 Note Receivable Discounted in conditional sale is
deducted from the total notes receivable when
preparing the statement of financial position with
disclosure of the contingent liability
 If the discounting is treated as a secured borrowing,
the note receivable is not derecognized but instead
an accounting liability is recorded at an amount
 equal to the face amount of the note receivable
discounted
 There is no gain/loss on discounting, if it is a
secured borrowing
 The entity shall derecognize an asset when:
a. The contractual rights to the cash flows have
expired
b. It has been transferred based on the extent of
the transfer of the risks and rewards of
ownership
 Rules on the transfer of Risks and Rewards:
a. If the entity has transferred substantially,
derecognized
b. If retained, do not
 If neither transferred nor retained, it depends on
whether the entity has retained control of the asset
TOPIC 17: NOTE RECEIVABLE
 Notes Receivable are claims supported by formal
promises to pay. Conceptually, notes receivable I
measured at present value
 Short term receivables are measured at face value
 Interest-bearing long-term notes are measured at
face value which is actually the PV upon issuance
 Non-interest bearing long-term notes are measured
at present value which is the discounted value of
the future cash flows using the effective interest
rate
 Subsequent measurement: Amortized cost using
the effective interest method
 If the note is made under customary trade terms it
is recorded at face value
TOPIC 18: LOAN RECEIVABLE &
IMPAIRMENT OF LOAN
 A financial asset arising from a loan granted by a
bank or other financial institution to a borrower or
a client
 Initial Measurement:
Fair Value + Direct Origination Cost – Direct
Origination fees
 Indirect Origination Costs are expensed outright
 Subsequent measurement
Amortized cost using effective interest rate method
 Measurement of Impairment
The amount of loss is measured as the difference
between the carrying amount of the loan and the
PV of estimated future cash flows discounted at the
original effective rate of the loan.
 It is important to take note of the date of assessment
of impairment
TOPIC 19: INVENTORY
 Inventories are assets which are held for sale in the
ordinary course of business, in the process of
production for such sale or in the form of
materials/supplies to be consumed in the
production process or in the rendering of services.
 As a rule, all goods to which the entity has title
shall be included in the inventory, regardless of
location
 FOB Destination-seller owns the goods if still in
transit
 FOB shipping point- The buyer owns if already in
transit
 FAS or free alongside- buyer owns the moment the
carrier possesses it
 CIF- buyer
 Ex ship- transfers to the buyer the moment the
goods are unloaded
 Consigned goods shall be included in the
consignor’s inventory and excluded from the
consignee’s
 Freight and other handling charges on goods out on
consignment are part of the cost of goods
consigned
 Periodic system calls for the physical counting of
goods on hand at the end of the reporting period to
determine the quantities
-this approach gives actual or physical inventories,
used in individual inventory items that are of small
peso investment
 Perpetual system requires the maintenance of
records called stock cards that usually offer a
running summary of the inventory inflow and
outflow
-this gives book/perpetual inventories
 When physical count < book count, there is
shortage. It is usually closed to COGS because
this is often a result of normal shrinkage and
breakage in inventory
 Abnormal and Material shortage shall be
separately classified and presented as Other
expense
 Trade discounts are not recorded, invoice price is
usually net of any trade discounts
 Cost of inventories shall comprise the following:
Cost of purchase, cost of conversion, other cost
incurred in bringing the inventories in its present
location and condition
 Cost of purchase comprises: purchase price,
import duties, irrecoverable purchase taxes,
freight, handling and other costs directly
attributable to the acquisition of finished goods,
materials and services
 Trade discounts, rebates are excluded
 The cost of purchase shall not include any foreign
exchange differences from the recent acquisition
of inventories involving a foreign currency
 Storage costs for goods in process are capitalized
while for finished goods they are expensed
TOPIC 20: INVENTORY VALUATION AND
INCLUSION
 PAS 2, paragraph 9 provides that inventories shall
be measured at LCNRV
 FIFO method assumes that the goods first
purchased are first sold and consequently the
goods remaining in the inventory at the end of the
period are those most recently purchased or
produced
 In a period of inflation or rising prices, FIFO
yields the highest net income
 In a period of deflation or decreasing prices, FIFO
yields the lowest net income
 Weighted Average-Periodic
Total cost of GAFS divided by the total units
available for sale yield cost per unit
 Weighted Average-Perpetual (Moving Average)
A new weighted average unit cost must be
computed after every purchase and purchase
return.
 Purchase commitments are obligations of the
entity to acquire certain goods sometime in the
future at a fixed price and a fixed quantity
 Inventories specifically segregated per sale
contract is excluded
 Goods sold to a customer which are being held for
the customer to call at his convenience are
excluded
TOPIC 21: SALES REVENUE
 The goods sold FOB shipping point and lost in
transit are properly included in sales because the
customer will suffer the loss because ownership
has been transferred to the latter
 Revenue should be recognized at the point of
sale which is usually the point of delivery
 Revenue is recognized at the point of production
for agricultural, mineral and forest product
when a sale is assured under a forward contract
TOPIC 22: GROSS PROFIT METHOD
 Gross profit rate is assumed to be based on sales
 The cost of any inventory not covered by an
insurance is to be reported as loss from
explosion
 The sales discounts are ignored for purposes of
estimating inventory under the gross profit
method
 Loss from explosion is presented as a separate
expense not part of the cost of goods sold
 Like sales discounts sales allowances are
ignored in determining net sales under the gross
profit method
TOPIC 23: RETAIL INVENTORY METHOD
 PAS 2, paragraph 22 provides that this method
is often used in the retail industry for measuring
inventory of large number of rapidly changing
items with similar margin for which it is
impracticable to use other costing methods
 Basic Formula:
GAFS at retail price
Less: Net sales (net of any sales returns only)
=Ending Inventory at Retail price
Multiply: Designated cost ratio
= Ending inventory at cost
 Employee Discounts- added back to sales
 Normal Shortage- deducted to GAFS retail
 Abnormal Shortage- deducted from GAFS cost
and retail
 Approaches in the use of Retail method
1. Conventional/Conservative/LCNRV
-includes net mark-up but excludes net
markdown in determining the cost ratio
2. Average Approach
-both mark-up and mark-down
 3. FIFO Retail Method  Characteristics of a Financial Instrument
1. There must be a contract
-same as average but excludes beginning inventory
2. At least 2 parties to a contract
in the computation of the cost ratio
3. Give rise to a financial asset on one party and
 Estimated shoplifting losses is deducted together a financial liability/equity instrument of
with sales from GAFS at retail price another
 Employee discounts, normal shortage, abnormal  Financial Assets are:
shortage are not included in the computation of the 1. Cash
cost ratio 2. A contractual right to receive cash or another
FA from another entity
TOPIC 24: BIOLOGICAL ASSETS 3. A contractual right to exchange financial
 PAS 2 instrument under conditions that are
-applies after the point of harvest, inventory shall potentially favorable
be recorded at the lower between cost and net 4. Equity instrument of another entity
realizable value  2 major classifications of financial assets:
 Initial measurement of inventory at the point of a. FA at fair value (P&L /OCI)
harvest shall be at fair value less cost of disposal b. FA at amortized cost
 Gain from the changes in the fair value consists of:  Initial measurement
a. Physical Change-Different Age, Same date 1. FA at FV through P&L
b. Price Change – Same age, different date -any transaction costs are expensed
 Gain from Agricultural produce, used when an
2. FA at OCI
inventory is harvested at the point of harvest
 Gain from change in fair value, used when an -any transaction costs are capitalized
offspring is born (physical change)
 Subsequent Measurement
 PAS 41
-either at fair value or amortized cost
-relates to agricultural activity, biological assets
- depending on the entity’s business model for
-applied to agricultural produce at the point of
managing financial assets
harvest
 FA through P&L
-does not deal with processing of agricultural
1. Trading Securities
produce after harvest
2. Irrevocable Designation through P&L
 Hierarchy of Fair Value Measurement
3. Quoted Equity instruments
Level 1- quoted price for identical assets in an
 FA through OCI
active market
By irrevocable election, any investment in equity
Level 2- quoted price for similar assets in an active
instrument not held for trading
market or quoted prices for identical assets in an
inactive market
TOPIC 26: INVESTMENT IN EQUITY
Level 3- unobservable inputs for the asset
SECURITIES
-uses the best available information from the
 Initial Measurement
entity’s own data
If trading, any transaction costs are expensed
If not, any TC are capitalized
TOPIC 25: FINANCIAL ASSET AT FAIR
 Acquisition by Exchange
VALUE
Acquisition cost is determined in the order of
 Reasons for handling investments:
priority:
 Accretion of wealth/regular income
a. FV of the asset given
 Capital appreciation
b.FV of the asset received
 Ownership control
c. CA of the asset given
 Meeting Business requirements
 Lumpsum Acquisition
 For Protection
 -the single cost is allocated based on the
securities fair value
-If only 1 security has a known market value,
then that amount will be allocated to that security
and the remainder is allocated to a security with
no known market value.
-Investment in unquoted equity instruments: Cost
 Cash Dividends
Dividend-On
-From the date of declaration to the date of record
Ex-Dividend
-date of record to date of payment
 PAS 18, paragraph 29, provides that dividends
shall be recognized as revenue when the
shareholders right to receive payment is
established (Date of declaration)
 Property Dividends or dividends in kind are
dividends in the form of property or NCA. They
are considered as income and recorded at fair
value
 Liquidating dividends represent return of
invested capital and therefore they are not
income. It can also be partially income as well as
liquidating one.
 Stock dividends are not income, there is no
distribution of assets to the stockholder
 They are recorded by means of a memorandum
entry. It does not affect the total cost of
investment but reduce the investment cost per
share
 Stock dividends different from those held, the
original cost of the investment is apportioned
between the original shares and the stock
dividends on the basis of market value of each at
the date of receipt.
TOPIC 27: INVESTMENT IN ASSOCIATE
 If the investor holds directly or indirectly through
subsidiaries 20% or more of the voting power of
the investee, it is presumed that the investor has
significant influence, unless it can be clearly
demonstrated that this is not the case
 If less than 20%, presumed that investor does not
have significant influence, unless such influence
can be clearly demonstrated
 Equity method is an accounting method used to
account for the investment in associate
 The investment is initially recorded at cost, and
the carrying amount is increased by the investor’s
share of the profit of the investee and decreased
by the investor’s share of the loss of investee.
 Dividends received reduced the carrying amount
of the account
 Excess of cost over carrying amount is
attributable to:
a. Undervaluation of investee’s assets: building,
land and inventory
b. Goodwill
 If attributable to a depreciable asset, the excess is
amortized over the remaining useful life of the
asset
 If attributable to land and goodwill, not
amortized
 If attributable to inventory, expensed the moment
it is sold
 Excess of net fair value over cost is included as
income in the determination of the investor’s
share of the associate’s profit/loss in the period
in which the investment is acquired
 PAS 28, if an investor’s share of losses of an
associate equals or exceeds the CA of an
investment, the investor discontinues
recognizing its share of further losses.
 The investment is reported at nil/zero value
 If the associate subsequently reports income, the
investor resumes including its share of such
income after its share of such income after its
share of the income equals the share of the losses
not recognized
Prepared by:
King Christopher R. Laganao, CPA
Noted By:
Marie Antoinette Emata, CPA, MBA