,: (C$ El llE IGrE q sl=-E!

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tTGa. xo. 735.9ao? I 734-3949 TREiEO/ESPIrrul
.=7
PREWEEK LECTURE NOTES

NOTE TO REVIEWEE:
The following is a list of guidelines and summarized financial accounting standards under Full PFRS. Comments in
t-extboxes highligh fel_5MEj.. Entities with public accountability and other economically
significant entities shall use full PFRS. Small and medium enterprises (SMEs) are to use PFRS for SMEs.

An SME is an entity that:

a. Do not have public accountability; and,
b. Publish general-purpose finant.ial statements for external users,
An entity has public accountability if :
- its debt or equity instruments are traded in a public market or is in the process of issuing securities for
trading in the public market.
- It holds assets in a fiduciary capacity for broad qroup of outsider as ong of its primary businesses (e.9.
banks, credit unions, insurance companies, securities dealers, mutual funds, investment banks)

Inthe Philippines, more specificalty, an enttty ;s an SME (as defined by Philippine SEC; required to follaw PFRS for
SMEs) it all of the following conditions are net:
a.
The entity has total assets of befileen P3M and P35AM or total liabilities of between P3M and P250M
b.
It is not required to file financial statements under SRC Rule 68.1
c.
It is not in the process of filin-o its tinanciat statements for the purpose of issuing any class of instruments in a
public market
d. It is not a public utilitY, and
e. It is not a hotder of a secondary ltcense rssued by a regulatory agency (e.9. bank, all investment house etc.)

1. PESENTATION OF FINANCIAL STATEMENTS

I. STATEMENT OF FINANCIAL POSITION * minimum line items as per PAS 1
ASSETS
Current Assets
Cash and cash equtvalents'
Tradrng securities/Frnancral assets at fair value through P&Lx
Trade and othereceivables-
I nventorres *

"ol!-ej&tg€Ilt
eiEsIS'F
Property, plant and eqLiipixentx
Intangibles*
Investment ,n associates and loint ventures*
Investment property*
Financral assets (at amortized cost and at fair value through OCIIL)*
Other long-term investments (e.9. Fund investments, Cash surrender value)
Deferred tax assetsx
Other assets (e.9. Noncurrent non-trade receivables)
LIABILITIES
current Liabilities
Trade and other payablesx
Current provisions*
Short-term borrowings
Current portion of long-term debt
' Current tax liability (lncome tax payable)+
Noncurrent Liabilities
Noncurrent portion of long-term debt
Finance lease liability
Deferred tax liabilityx
Other long-term debt

STOCKHOLDERS' EQUITY
Share Capitalx (Issued and Subscribed)
Reseryes*
' Share prem./APIC reserves (Excess over parr Treasury stock trans, other gains fr. capital transactions)
Accu mu I ated
3:1itJfii#5iuu,,on s u rp r u s
Accumulated tJnrealized Flolding Gains/Losses on Investment at Fair Value Through OCI/L
Accum u lated Foreign Exchan ge Tra nslation Ga ns/Losses i

Accumulated Hedging Gains/Losses

Accumulated Remeasurement Gains/Losses from Plan Asset and Accum. Benefit Obligation
Accumulated Profits reserves (Voluntary, Legal and Contractual)
Unappropriated Accumulated Profits
(a) Additional separate line items should be provided for the following as per PAS 1, where necessary:
- Biological assets;
- Total assets classified as held for sale and assets included in disposal groups classified as held for sale under PFRS
5, Non-current asset held for sale and discontinued operations;
- Liabitities inctuded in disposal groups ctassified as held for sale.under PFRS 5;
- Non-controlling interest, presented within equity.
(b) Subscriptions receivables are presented as current bssets if collectible within 12 months after the balance sheet date,
otherwise, deducted from subscribed share capital,
(c) Treasury stocks are deducted at cost from total stockholders equity with an automatic accumulated profits approDriation
equal to the cost of the treasury shares (legal appropriation).
 >q: q#.€rilrGtE
r minimum line items aS
EXPENSES ACCORDING FUNCTION:
Net Sales/Revenue+ XX Net Sales/Revenuex XX
Other Income xx Cost of Sales (xx)
Total Income XX Gross Profit/Income xx
Expenses Other Income
(Increase)/Decrease in Inventories (X)X Total Income xx
Net Purchases XX Exoenses:
Employee Benefits Costs XX ling/Distribution Expenses
Sel
Depreciation Expense XX General/Ad ministrative Expenses
Advertising Expense XX Total Qperating Income/(Loss) )0c(
Supplies Expense XX _*lx&_ Finance Cost* (xx)
Total Operating Income/(Loss) XYr Share from net income/net loss of
Finance Costx (xx) Associate/loint Ventures* x(x)
Share from net income/net loss of Non Operating Income/(Loss) X(X)
Associate/Joint Ventures+ x(x) Net Income/(Loss) before Tax x(x)
Other Non-operating Income/(Loss) _ x(x) Income Tax (Expense)/Benefitx
Net Income/(Loss) before Tax x(x) lJet Income/(Loss) after Tax from
Income Tax (Expense)/Benefit* (x)x Continuing Operations x(x)
Net Income/(Loss) after Tax from Post tax Income/(Loss) from Discontinued
Continuing Operations x(x) Operations*
Post tax Income/(Loss) from Net Income/(Loss) after tax* x(x)
Disconti nued Operations* xix)
Net income/(Loss) after tax* x(x) Other Comprehensive I ncomel(Losses)
Revaluation Surplus, net of Tax* xx
Other Comprehensive Income/(Losses) Unrealized Holding Gains/(Losses),
Revaluation Surplus, net of Taxt XX
net of Tax* x(x)
Unrealized Holding Gains/(Losses), Foreign Translation Gains/(Losses),
net of TaX* x(x) net of Tax* X(X)
Foreign Translation Gains/(Losses). Hedging Gains(Losses), net ofTax* x(x)
net of Taxx x(x) Remeasurement Gains(Losses) from
Hedging Gains(Losses), net of Tax* x(x) Plant Asset and Accum Ben, Oblig.,
Remeasurement Gains( Losses) from
Plan Asset and Accum. Ben. Oblig
net of Taxx x(x) x(x)
Total Comprehensive Income/(Loss) x
net of Tax* x(x) x(x) __x(I)-_
Total Comprehensive Income/(Loss)* x(x

Balances, January 1 xx
Prior Period Adjustments
Cha"ge in Accounting Policy x(x)
Correcuon of Pnor Penod E:rors X(X)
value)--- ,,r..A .
Comprehensive income for the period -
Net Income/(Loss)
I
x(x)
Other Comprehensive lncome/( Loss)
Dividends declaration (x)
Losses from capital transactions (ifAPIC is not enough) (x)
Appropriations (Voluntary, Legal, Contractual) (x)
Reversal of Appropriations X
, Balances. December 31 XX

rv. STATEMENT OF CASH FLOWS (INDTRECT METHOD)

CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME xx
NON.OPERATING (INCOME)/EXPENSES (x)/x
(Gains or losses from sale of assets, investment inconreT'losses, etc.)
NON-CASH (INCOME)/EXPENSES (x)/x
(Depreciation, Amortization, Bond premium/discount amortization, etc.)
CHANGES IN WORKING CAPITAL: (Increase)/Decrease (x)ix
(Changes in current assets including trading securities and current liabilities
excluding short term debt)
Net cash provided/(used) in operating,activities x(x)
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM SALE OF INVESTMENTS (except trading securities) XX
PROCEEDS FROM SALE OF NON-CURRENT ASSETS (e,9. PPEIIntangibles) xx
PURCHASE OF INVESTMENTS (except trading securitles) (x)
PURCHASE OF NON-CURRENT ASSETS (e.q. PPE/Intangibles (Xl
Net cash provided/(used) in investing activities x(x)
CASH FLOWS FROM FINANCING ACTIVITES
PROCEEDS FROM LOAN/ISSUANCE OF LONG-TERM DERI SECURITIES (e.9. Bond XX
PROCEEDS FROM ISSUANCE OF SHARE CAPTTAL XX
PROCEEDS FROM TREASURY SHARES REISSI.'ANCE XX
PAYMENT OF DIVIDENDS (x)
PAYMENT OF LOANS/RETIREMENT OF LONG-TERM DEBT SECURITIES (x)
REACQUISITION OF SHARE CAPITAL (x)
Net cash provided/(used) in financing activities X(X)
Increase/(Decrease) in Cash and cash equivalents X(X)
Add: Cash and cash eguivalents, January 1 XX
Cash and cash equivalents, December 31 XX
+Interest expense are presented as operating cash outflow (benchmark), or financing (allowed alternative)
*xlnfereit income are presented as operating cash inflott (benchmark), or investing (allowed alternative)
***Dividend income are presented as operating cash inflow (benchmark), or inve;ting (allowed alternative)
****Dividend payments are presented as financing cash outflow (benchmark), or operating (allowed alternative)
,;iiTc"-l
 Page 3 of 21
R"SA: The Review School of Accountancy
V. NOTES TO FINANCIAL STATEMENTS
ORDER OF PRESENTING THE NOTES
A. Statement of compliance with PFRS'
B. Summary of significant accounting polti-res irne used'
C. Supporting informaiiol-r or- corrrp,utation for itefits presented in the financial statements'
D. Other disclosures, such as contingent ii,lb.irties, unrecognized contractual commitments and nonfinancial

no other ccn.rprehenst,'. 1come items, it ma\/ present *,tat-ement of

lncome a-nd'Bealle{
- If an entity has
during the period arise from profit or loss,
EarytinqE (slRE). providecl further, th.ri :he ctnly change to equity
palntent of aUiAends, correctic'n of prir'' ceriod errors and changes^li li!t?^"j;^^i-^A for
r^, sMEs'
cMEc
"i,{r"riili' niiiig' or Losses rrcn' tnvestment at t'air value are not recognized
CJiit

2. CORRECTION OF ERRORS
- where the requirement is the EEEECI-qF- ERBaBS TO-NE-TI'NqQME:
1, Consider all current Period Errors-iiiunter salancingt or Non-counter balancingxx)
2. Consider all lmmedlAlCfrc-r Year Ccunter Balancing Errors
3. Ignore all Prior Years' Non-counter b'alancing errors
x The effect of a CoUNTERBALANCING ERRoR to net income of the year of incurrence and the year
NET II\COME OF THE
9!FsEquqllr IEAB
INDIRECT

DIRECT

-- year of incurrence and the

The effect of a NoN-coUNTERBALANCTNG ERRoR in net income of the
year following the
y'ear rollorrlnq year
Lrre y_edr of
ur rrrL_9lr:lrL::_"y'l-Yi
inc-tilre1cs --, ,;: ;.^;;;.;;;;
thgl-L-q---, '-l ... o-;ili;;Mtr r1c rm--
ise
f-:Nai
ai iNcbuior -;;-----T | -f,frurr
iNCbMaOFTUt INcoME oF
iTlfif-COf,aE OFTH-E-
rHE I
, yEAg_ol_l,N!_qRRENCE_|-s!-BSEQ-UE-NIJE4&*-
YEAR oF INCURRENCE -l-suaSrauEllJE48 I

-_ cou n re r Ba ta n cr n q rro r na Li AB
Ef -__i-_------plltr9J_-'-
Lrry_ _]
--l:-- - -
l
E i r
--- -__ --lIq!BEld---L--- ---ll9-LFlEgf.._----]
EARNINGS. END (AFIER CLO-SING ENfSI-ES)-I
pF ERRORS TO RETATNED
g...e.EFFECT
*'-^1 ***ol
-',rn.r._-.na is
.- iodsrOei all Current Period Errors (CB or NCB)
2. lgnore all Prior Year Counter Balancing Errors
prior years'net income)
3. Consider all prior years'Non-counterbllancing Errors (as they affected the
- y,,here the requirement is the EFFECT-oF ERRORS.TO WORKTNG-CAIITAL ICURREYISSE:IS ":CURRENTLI.AB-)
period only.
and current liab. as of the end of the current
1. Consider all errors affecting current assets
2. The error in the current asset is DiRECTLY related to the WC (overstated current asset means
overstated WC, and vice versa)
3. The error in the current liability is INVERSELY related to the WC (overstated current liability means
understated WC, and vice versa)

3. CASH/ACCRUAL ANq STNGLE ENTRY

FoT CASH-ACCRUAt,PROELEMS TCIAtcd tO SALES ANd PURCHASE-S;

Accounts Receivable/ Advances from Advances to Accounts Payable/

Notes Receiva ble-Trade Notes Payable-Trade
--- -1qpp,Le-rs,----*
Bes. Bal (AR/NR) XXX XXX Beg. Bal. (Advanc.) Beg, Bal (Advanc,) XXX XXX Bes. Bal (AP/NP)
Sales on Account XX XX Collections Payments xx XX Purchase on Acc.
(Accrual ba3is) (Cash basis) (Cash basis) (Accrual basis)
Recoveries ofxx XX Sales discounts Purchase discounts XX
prev. write offs XX XX Sales returnsx Purchase returns* XX
Xx Sales allowances Purchase allowance XX
.El{-lellaBtNc XX
"-dxx Write offs
in x ErL!1tJAryl
*excluding refunded sales return tc custamers
**included in the analysis only if cc'llections from suppliers
included the said recoverY

@LEM.S rglated to item -oF'I_llcoME and EXPENSES (e.g. rental incorne and expense-
roya I ty i n come--ar.d--sxBe!-cc-an d--o!h er srmt-ior]-Lcnrs)
Accrued inco nearned rncome .,.*. ifit (pret:.t*- xXl xX-Beg bal (Acc, ;Exp)
-'*-- -

Beg bal. (Acc Inc.) XX I XX Beg bal. (Unear, Inc.) Beg

--=-_ry9perd-E-x-eol-{$eru5d*-E-rP.9rle
Recog. Income I Cottection of cash Payment of cash I Recogn. of ExP.
Accrual basis) XL]-Xx--"--LQeptt-bgSj-9,) --- - =lgsplr baFjg}- xx I xx (AsqudLas-is).
ir '1-.r., -tr;;h"r -/4". tr"^)
(ncc'l-xpj-,
qld
End --'. (Acc
bal. Inc.) XX I xX lttg]lel-ture,.r.jlsf
\.._:-_-_
-..- bsL{As-c-l!sJ- End bal - -jLro-b-q!,ercpJ* -XX.l -XX-Elq!e! -
Note: if the prabtem inadtes n€reie a'i Aec/eaii iine'ietated-ba'lan ce sheef accounts, rnstead ?f.lh",bu!!^l:\9,:nlcl
ending balances, simply place in the beginning balance if it is net (lecrease (since this indicates that the beginntng
ts

higheT than ending balaice) or pla<:e in the enclintT batance if it is net increase (since this indicates that ending balance is
higher than the beginning balance).
R"SA: The Review School of lccountancy
rdgG + tst 3L 'a
4. CASH

LC.&CASH COUNT PROBLEMS :

L ldentify the accountabilitY:

Balance per General Ledger
a. If Petty Cash Fund, the accc,untability is the Ir1lprest
is total undeposited collections per
b. If UndepositeO Cotiections, t.he accounlability
oooxi/-records adjustecl further for any unrecorcled collections (based on additional
information of the problem) ..'L- L:!:1.. j- -^,^^t;
If there is no djrect it.1f()rmation about collections per records, accountabilitY is collections
collections'
per official Receipts, Cash receipt vouchers or other documents evidencing
for charities or any other purposes not in
c. Other collections (e.g. .eturn of expense advance, collection If the said collections for
tact and as5umed tc haye Qee_tl{le1!!€-{.cmonq currencieg-s!-[aCId
anvothe|.p*pcse.sl^:act,..nesameshallbeignoredintheCashcount.
2. Identify valid supports to the accounlabrtrlV as presented irr the problem
u.,ro,.Petty.CashFund,acceptablevalldsupportshallinclude:
- Bills and Coins, Replenishment Check, encashable Accommodated Checks (Valid cash items)
- Unreplenished petty casn Expense Vouchers (Adjusted to various expense accounts)
- Employee iOUs iAd;usted to receivables)previously accommodated checks which shall be
- PoSt dated/NSF Che:kS , Assumed to be
adjusted to receivablE.
unused r3sar,:-e -] -,, , valid support where the accountabitity
* the PettY Cash Fund
is
*'*retrJrit c,'a- erie,-'s e advances (e.g. excess from travel advance) i5 added to the
accountab ,ii .r get the total accountabitity and not added
to valid supports
b. For UndePosited Collecttons
- Bills and Coins (Post d'ated' stale and NSF
- Depositable Customer coilec-[qn checks o5-9-tlhelau$*{ale
not as valid collection, thus should not
collection checks count date atu irrcfrAed
"so6ih"
be included as valid suPPort)
- Copies of expense vouchers evidencing the use of lhe
collection to pay certaln expenses
- (valid support where accottntabitity is lJndeposited Collections' )
Unused postage stamps

FO-R BANK RECONCiLIATION PR,O_ELEY]s] .

EA-[I_K B_QO.l(

Unadlusted Baiance XX XX Unadiusted Balance

Unrecorded Bank Credits
DePosits in Transit/
(Note collection bY bank,
Undeposited Collections XX XX
Customer payments to bank, Loan proceeds)
Outstandrnc Checks (excludtng (xx) (xx) Unrecorded Bank Debits
(BSC, NSF Checks, Note/Loan
;.- c -.1 -. ---'

**;::_ payments directlY thru bank)

Bank errors
Barance rx"l-
pdriair--iiatt be the t.t!:!"11u]1'lt"
Adjusred
(a): the acllusted naUnie
---{X*:11-- CORRECT CASH BALANCE
ia') - (b): t-he net adjustment to cash shalt be the difference between the
unadjusted babhce per books an(l the adiusted balance per bank
(a) - (c): the cash shortage/overage shall be the c!ifferertce between> the two adiusted balances
SHORTAGE if: Bank < Book; OVERAGE if: Bank Book

oe f Baai-At CA 5 H P Ro BLEM S (A dl u s t e-d-Lalaree-lteilrs-d )-

E
gss. R!cSj plS Q1$Uur.s*e. 8rd
XX XX
Unadjusted balance Per bank xX XX

oepoiits in transit, beginning xx (XX)

XX XX
end
' ix).i (XX)
Outstanding checks, beginnlng (XX)
XX
end
Bank Errors (Receipt, beg is over)
' (xx) (xx)
(ReceiPt, beg is under) xx (xx) ,

(Disbursement, beg is over) xx (xx)

(Disbursement, beg is under) (xx) (xx)
(ReceiPt, end is over) (xx) (xx)
(ReceiPt, end is under) xx xx
(Disbursement, end is over) (xx) xx
xx (xx)
(Disbursement, end is under) x(x)
Bank errors in the previous month, not yet x(x)
corrected by the current month (xx)
Bank errors in the current month, corrected in
(xx)
the current month (overstatement error)** -*
Adjusted Balances xx _- _xL_,__ XX

Bes. R-qsctpts Drs_bu,rsc. "E_nd-

XX XX XX
XX
Unadlusted balance Per book
XX (xx)
Unrecorded credit, beginning XX XX
, end (XX)
(XX)
Unrecorded debit, beginning XX (XX)
, end (XX)
NSF check, beginning (XX)
XX (XX)
NSF check, end
NSF check received and rbdeposited the xx
same period (not recorded by book)*
xx
(xx) (xx)
Book Errors (Receipt, beg is over)
(Receipt, beg is under) xx (xx)
(Disbursement, beg is over) xx (xx)
(Disbursement, beg is under) (xx) (xx)
(xx) (xx)
(ReceiPt, end is over) xx
(Receipt, end is under) xx
(xx) xx
(Disbursementr end is ovcr)
,16ir.;>.
 R"SA: The Review School of Accountancy Page 5 of 21
(Disbursement, end is under) I' XX (XX)
x(x) X(X)
Book error in the previous month, not yet
corrected by the current month (xx)
Bank errors in the current month, corrected in (xx)
xX
Acjjusted Balances --,-X] - -- ,*-- * - --XX*---*,------- -
+An NSF check whiCh is recorctetl cOrrectly dutirtg lhe cLrrrcttt perioC is t1() longer a reconCiling item' - ------*-XI-'-
)An NSF check which is recarded as a recluctian agatnst ihi.,'pssipts lor the period shatt be added to both receipl and disbursement
t..riumn:;. (cash ending balance i:, ttnaffected)
,/)n NSF check received from the benk ancl redepastrecl clLtring the sanre pertod shalI no ionger be inctucled in the proof of cash statement if
,c|eipt and redeposlt were recorCec,rr rhe bocAs carrectly, olherwise if the same was not recorcted in the book, the item shall be added
to

bolh the receipt and disbursement cai ur-rs. (cash enoin(i b.1larlce' $ Lrnaffected)

f3anl.; and book errars: if the

d. trror in the curre.i ,.:h icl vet ,:orrecttd tt,the errar is irt rccor(ling receipt, the correctiot, i5 in the receipt colurnn;
er,ror is in recording -t,s::-.:erilen[i the corre':-t:ot] i:; in the disbursernent column
b. +*Error in the cu!re,^:...--^a. aoirecfetl tn tht.,aurrent montll - if the error is !n recording receipt (over), the correc-tian will be
recordect as a disbu.sen.:.: a/rus rhe tecon(.,itatlon F a reduclian from both
receipt anci disbursement columns. lf the error it;
reconciliation i5 also a reduction fram
irt recordinq disbursel-,a.:: j..!.1 ). the cor.€c..t.t] \ryili be recorde(.1 as a r(lceipt, thu:; the
both receipt and disb- -:!''a-: cc/1';ll'lr)s' ,..:il be
k", recorded 1tc. in
-^-^.A^t also .

the correction will

Notice that if ihe e..:.. .i -!ther recetpt at di,,;bLtrser: et]t. is an understatement error,
receipt or disburser.e^. ::.s J .irrrer-.I ,-'rnlh crror li]alls undersf atenent,
whether receipt or disbursement is no langer a
Proof-cf-cash re.c': ^i :a- .. ,2111 rnsnttt - If ttte prior filonth error i5 an Llncierstatefi]ent in receipt the
c. Error in the prior ff^^t^ -.r.eaa€.f ,.. l,r.
.Q:-- -il:1. 1",.5 tite rccanciliatlon ts a redaction in the receipt column in the current rnonth' If
correctjon is recordeJ Di ii
the prior month errcr -s Jn ...€,.>:-1:.-..-:
-e.eipl, the correctioti is recorded bY deducting from cash, thLts the reconciliation
is a reduction in the ./tsb.trse.-.-: :....-'- :he current moth. If the prior month errar i5 an understatement in disbursement,
the correction is recorded lr. i:.1.-:-: ^.t '--- - .ash. tllus thc reconcitiation ls a reduction
in the disbursement calumn in the
current month. If tae pitoi r:-a
. --:- ,. .1,' .lerstatement in disbLtrsemetlt, the carrection is an additiott ta cash, tllus the
reconciliation is a re1icttct'frcr '."e "::'-'pt aotunn in the currertt rnonlh'
tn the current tnonth, the
cj. Error in the prior mcnth, not re: :i..-:.jisi - If ilrc p;ior nonth errcr 6 Yet to be corrected
,Ja cl prior nonth (first column) and in the current n?anth (last caiumn)
reconcilinq ,r"n1 wtt! be,o the cas^ r;r;o1 the

5. RECEIVABLES
E lBJ\cLNc*p-t }*c!ou r\ rtREe E LVABT=EJBA.B,L-E-!15.
- The aging u.f,r"Orf" ihoutd be based on ancl shot.ild agree with the !ub5-rd.i-4.ry*le3.qel
- The aging schedule should br: adjr-rsted first with all possible adjuslments before a required
allowance is computed. Possible adjustments include:
a. Adjustment to both the GL and SL (ihus to Aging)
- aCdllrortal ,'^'rite-olf of acco(l,.lts
' Irrrrecoraiec s(lie,/over recorded sale; Linrecorded ccllections
- credrt 5elarrce rn a(,coLlnts recervable (ad]usted to aijvances f'rom customers)
b. Aclustmerl t9 SL onlv rno ad;usting entry required, but Aging schedule may be adjusted)
SaleS/CClIectlrJnS al:eady r-ecorcled lil the GL but not yet ln the sL
l'*.* Postinq errors
Adjustments to GL only- will not afFect tlre aging schedule anyn'lore (e.9. sales/collections
c,
not /et recorded by tne GL but already posted to the SL)
- The adlusted balance of the subsidrary ledger shall ultimateiy be the correct/adltlsted balance of the
accounts recelvable gross of the required allowance'
- If the general iedger ultimately does not coincide or equal to the subsidiary ledger, an additional
adjustmen[ should be in place to correct the general ledger to equal the Adjusted Balance of
the subsidiary ledger, The acljustment is eilher debited or credited to SALES account
- To compute for the Bad Debt Expense for the period, the adjusted balance per computation is
compared to the unadjusted balarrce. (Do not forget to consider write-off of accounts receivable,
recoveries of previously written-off accounts and interim bad debt provisions, if there are any)

IP-n_LOANS BEEEIVABjE.P.BQE!EJ:1,S- L5IMII-AB TO ,TINAJ\ICJAL ASS-ET ATAU-Q.BILZ ID*,EOST)

INITIAL MEASUREMENT:
Initial measurement of loans receivable stlall be .lt fair market value, which shall be the net initial investment or the net
cash given-up on the loan transaction. Ivlore specrfrcally, the ilet initral investment shall be:
Principal arnourrt of tl'le loai-t XX
Add: Originatron costs'i XX
Less: Oriqination fees'i' (x}f
FMV of the loan/lnrt.ial investrtent xx
:Qlg!@IialI_ggsl5 are costs that are (lirectty attribute(t to the loan transacttan such as brokers' fees and caitnlisslans,
-p;ofession5fees (e,g.to lawyers for draftrnq clebt agreentents or to accountants for assessment of any asset callateral
on the loan).
::gzsjldtial_fe;Q.g are origination cosrs chargeable to the debtor es per the c]ebt agreentent, lt can be an etmottnt
higher'
or lower than the actual originatian cost trtcttrred'

BALANCE SHEET MEASUREMENT

Loans receivable shall be rneasurecJ at tlre balarrc-e sheet date at O]f]-SL!l?-ed!!Lt, which shall be:
lnitial amount recognized/FMV at inttial recoglnition XX
Less: Principal collections (xx)
Less: Amortization of premiurn cn ioan or XX

Add: Arnortization of discount on loart ( xx)

Less: Impairmerrt lossN. if anY as
Amortrzed cost ' xx

"FIMPAIRMENT LOSS OF LOANS RECEIVABLI

Carrying value of the Loans and Receivabie** XX
Less: Present value of expected cash to be recovered
using the ORIGINAL EFFICTIVE it!IEREST RATI (xX)
Impairment Loss/Bad Debt E>lpense:
**inclutle accrueci irlterest as a genetal rrtle
 - -'
R"SA: The Review School of Accountancy Page 6 of 21 :vgffir!

6. INVENTORY
FO R C_UT OFF,PROB LEI\.15:_
1. Determine validity of the Sales or Purchase l'ransaction*
2. Determine whether.sales/A.R or Purchases/AP has been recorded in the Sales or Purchases.lournals.
(Based on the recording of ther relatecl sales/purchase invoice)
3. Determine whether invenlories were Excluded or Included in the year-end physical count*x
iF it a Vaiid Sale, the Receivable sltoui,-1 be rr:corrJeci, the Inventc-rry shoulcl be excluded.
iS
If it is not a Vaiid Sale, the Receivable siroulci nol tre recordecl, the inventory should be included.
If it iS a Valid Pr.rrchase, the Payabie shoi,ld tre reccrded, the inventory should be included'
If it is not a Valid Purchase, the Payat-rle .,houlcl ncl be recordecl, the Inventory should be excluded.
'VALIDITY OF SALES/PURCHASE TRAIISACTIOI]
In considering the validity of Saie oi P,.jr':i 3se i.a'rsacticn- consider the following items:
As i.rule of thumb assun ; ) 4tc-a-Bel)-dclLv-ery-and -a-PuLelal-gis ya!te!-Lrp-o-AreQ9.!pt'"
Exceptions to the rule of lh':nrb' assumii'. 'li-r :

A. Goods in Transit
- FOB Shipping point/FOB Seller or Seller.'s Locatroir inclucie as rnventory of buyer (plus freight in)
- FOB Destination/FOB Bi.iyer- or- Buyer's Locat,orr rnciude as inventory of seller (exclude freight out)
- Cost of insurance anC f:eight (CIF) incl,.rde as rnve:rtory of buyer upon delivery to carrier
(plus cost of insurance and freight)
- Fiee Alorrgside (FAS) the Vessel include as rnventory of buyer upon possessron of the carrier
(exclude freight cost to Vessel, include freighl cost from Vessei to Customer)
B. Special Sale/Prrrchase Aqree'rent
a. With delivery/receipt but not yet valicl saleTpLtrchase
1. When seller retains 6n ob:rgation for unsatisfactory perfornrance not covered by normal warranty
orovisions (rnciude as inventory of the seller);
2. \i/he^ t,.e receic: c, Tevenue frorn particular sale is contingent on the derivation of revenue by the
: -,e, f,.-- i:s sate of goods. Goods on consignment * include as inventory of consignor/seller
:'Js f'e:'.]-: :3s: tl :onsignee)
I ..,r€i l-e;c,ics are sn;pped sr-rb;ect to installatrorr and installation is a significant part of the
:cn:-aci rrt c., las rot yet been conrpleted by lhe seller - include as pari. of sellers inventory.
.i when tne cu!,ei- "as rhe right to rescind the purchase for a reason specified in the sales contract and
entrty is uncertail.i aboLrt the probabilrt'y of return. Saies on approval - include as inventory of seller,
unless informatioi. rdentified that a rnanrFestation of approval has already been made
5. Inventory financing/Park sale/Product frnancing - rnclude as inventory of seller
b. Without delivery/receipt but is already vaiict sale/purchase
1. Special order for customized goods
2. Bill and hold agreement
Segregated goods - rnere segregatrcn of rlood; dpes*1At e-Xe.U-de the same frorn the seller's inventory,
-.. ceriifieC tr'at sale rs roVtred by a special sale agreei'nent.
"ts:5e,Lrroljienr
X*DETERMINING WHETHER INVENTOR]ES ARE INCLUDED OR EXCLUDED'FROMTHE COT}N1':
If the problem did not indicate whether qoods under consideration has been included or excluded from the count, the
following assumptions are to be made:
1. All deliveries 1on sale) made on or before the count clate are excluded frorn tl're count, all de!iveries made after the
count date are included in the count, unless otherwise stated by the orobletr.

SALES CUT-OFF
Dcliverics on before lhe count dalel
Dellveries after the count dater INCLUoEO

Recelpts on before the count alate:

PURCHASES CUT-OFF

2, All recelpt (on purchases) of goods orr or before the courit date shall be included ir-] the count, ali receipts after tirt:
count date are excluded from the count, unless otherwise stateil l')y the problem,

TOBIN.YE.NTO&Y_E5:T-1MA]TON_P_BQE LI. II5.

1.
Gross Profit Meth"9-d
Cost of Goods Available for Sale (Actual)'
Less: Cost of Sales (fstrmate)*" UXJ
Estimated ending inventory XX
,(CAGAS is actual that is consider all ltems inctucled in the compuiation of Ccst of goods available for sale
(Inventory, beg + Purchases + Freigl-tt-in - Purch discount'* Purch returns & allow +
Dept transfer in - Dept transfer out -" Abnorrnal spoilage, breakage, shrinkage)
'k*COS is estimated by:
Gross Sales x Cost Rate (rf GP ts based an sales)
Gross Sales / Selling Prlce Rate (if GP is based on cost)
***For the purpose af estimating Cost cf Sales:
Assume that alt sales were made ernder the normal GP rate thus, vthen contputing Gros-s Sale.s;
- Ignorc sales discourtt ta customers
- idA Oac* speciat discounts to Gross Sales (e.q. Erttplayee Dtscouitts)
- Deduct sales return:; from Gross Sales
- Ignore sales allowarrces (Declu<:t if Sales returns an(l altowances as srngle account is providecl)
- Norntal spoilage, breakage, shopliftrnq iosses sltall be adclecl b.tck to gross sales at seliingl price
 --- ?+€l
R"SA: The Review School of Accountancy PageT ot 2L
2. Retail Method
Cost of Goods Available for Sale (at Retail)
ra) XX
Less: Cost of sales (at Retail)=Gross Sales io) ux)
Estimated ending inventory (at Retail) XX
MultiPlY bY: Cost rate (LCA or Ave) "' xfu
Estimated ending inverrtory (at Cost) xx
Cost Retail
Beginning Inventory XX XX
Add: Purchases XX XX
Freight-in XX
Less: Purchase allowance (XX)
Purchase discount (xx)
. Purctrase returns (XX) (XX)
Ad<1: Departmental transfei--rn or Deuit XX XX
Less: Departmental transfer-out or Credit (xx) (XX)
Less : Abnormal spoi lage/breakage/shri nkage _ gx)_ __u)0_ -
Add: Mark-uPs, net of cancellations XX
COGAS under CONSERVATIVE/LCA XX XX xo/o Cast rate under Lower of Cost
or Average (Conservative)
Less: Mark-downs, net of cancellations --
(c)
COGAS under AVERAGE APPROACH XX 1 -"(xx)
XXfl xo/o Cost rate under Average
Retail
Gross Sales XX
Less: Sales Return (XX)
Add: Special Discounts (Employee Dtsc) XX
Normal Spoilage/Breakages/Shopl rfting losses * XX
Sales/ Cost of Sales at Retail i-ir"-
o/o the beginning inventories:
For FIFO Average, simply disregard in the computation the cast
Casto/o = COGAS-@ Cost - B'eglnvento.ry at-epl! or Nj.Pu]eba_S--@*C*pSt
coGAS @ Retail - Beg inventory at Retait Net Purchases @ Refail

FORI@PTqgLENlS-'
Inventories shall be valued at lcwer of COST or NRV:
a. COST shall be measured throuqb *
1 FIFO/periodic the cost shall be computed as: (+ [nverttory an hand Cost of latest purchases)
-
Z. F1FOlperpetual - the computation of cost shall be the same as FIFO/Periodic
3. AVE/Perrodic (aka WEIGHTED AVERAGE): (tt of Inventory on han! * WA unit Cost)
WA unit Cost = COGAS / # of GAS
4. AVE/perpetual (aka MOVING AVERAGE): (# of Inventory on hand * MA unit Cost)
The average cost is recomputed after every purchase transaction. The last Moving average unit
cost (afteathe last purchase transaction of the year) shall be used for the computation of the
inventory cost at Year end.
b
1. Finished goods/Merchatrdise Inventory = Est. Selling Price - Est. cost lo sell
-Ne!-re-altza-ble-velue-sIai.l-[e-'
2. Work-in-process inventorY = Est. Sellirrg Price - Est. cost to complete - Est. cost to seil
3. Raw materials and SuPPlies - The NRV of ratv materials shall be the Currerlt Replacement Cost
(Current Purclrase Price), The same shall be written down only if lhe finished Eoods
to which they are related to are also written dourn.
tuofes;
j. The DIRECT WRITE-OFF METHOD is used in instances where the ccmpanY holds inventories that are nat
'lhus, there shall be na chances to recover any toss on
relatively the same from year-end to year-end.
write-down from one year over the next. If NRV is lower than the cost, the difference is automatically the
loss on write-down for the year. (which is either added ta cost of sale ar recognized as a separate lass in
the statement of comprehensit'e income)
The ALLOWANCE MET"HOD is used in instances where the company holds inventories that are relatively the
same fram one year-end to another, Thus there shall be a possibility of recoverY from inventory write-
down from one year/ unto the ne.yt year. The difference between cost and NRV, where NRV is lower
becomes the required allowance for inventory write-down (similar to allowance for bad debts), to
determine haw much ls fhe /o-ss cluring the period, the increment from the unadiusted balance of the
account shall be determined. Thus, if cost rs lower the NRV, required balance is zero/nil, anY
unadjusted credit balance of the account shall generally be recognized as gain from recovery in
the income statem."'::'
':' ::xtr;;i,i.";l*i!;l"ffiffinu"
Beginning Balance
--
Dr Adjustment for Gain on Recovery (r.)r I Cr Adlustnrent ft-rr Loss on wrrte-down for
*re-{v5*!1oglp11QQ9-L- --- - - -- t t!-c,-p9!qQ-lqr-qd-d,tl-s! to*qq9)--**
I lt*tqU{S4tqd'Ig Balancs._

7. INVESTMENTS
EOBJNVESTMENT IN Eq
- C".trol gxists (r50% equity in voting shares, that is ordinary shares) - Investment in Subsidiary
")
b) Significant Influencd exists (200/o - 50% in voting shares, that is ordinary shares)
- Investment in Associate (Equity Method)
c) No Ctrl nor Sign. Infl. - Financial Asset at Fair Value (PAS 39 or PFRS 9, effective January 1, 2018)
c,l) Financial asset at fair value through profit or losses (Trading)
c,2) Financial asset at fair value lhrough other comprehensive income or losses (AFS)
 'i<+iail
Page 8 of 21
R"SA: The Review School of Accountancy
Investment in Associate/Equity Method
- Rt cost adjusted for share in the post acqulsition changes in the net assets (capital) of the
associate
BeginningBalance(CostofAcquisitionincludingtransaction cost) (XX) xx
Share from Dividends
Share in net income/(net loss)**
xx(xx)
Share ir.r the other corlprehensive incorne/(losses) of the associate lXlJ,XJ
VV
Ending Balance
*xshare in net rncome or net loss:
Assocrates Net incorne or Net loss XX
Multiply by n/a of rrlterest X-9/e" XX
Atliusted for Excess of acquisition cost over book value
Depreciablr: asset understatement/remaining life
(XX)
Adlusted share rn net income xx
.ExcessofAcquiS,'t:o,).-j:]icr/e/f...;ivaltleofic]ent'ifiabteasset(Goodwill)shatlnotbeincludedinthe
computation cf snare .i- ."-..''')s /o-qs. excepr if there is an impairment.
.,
shalt rtot be included in the
. Excessof f(1i; .!e ..e ,.-,. er lici< /tlue of non-cleytreciabte asset (e.g. land)
computation of sha,e ', ).r tncaine'loss, except if there i5 an impairrnent'
. tf the acquistt!c. :cst ;s lcwer tnan the fMi of tdentifiable asset, the A*egAtLrc-eX-C-gSSshall be inclLtded
(adcled)inthesha.e..,,re/)eflncollleintheyearofacquisition.
.IfinveStment'\'esacqe-eclothettltanatthebeginningOftheyear,sharefromnetincomeshouldbe
proportionateovetthe^'.''rber:'n)onthstheinvestmenthadbeenheld'

CESSATIO*N-(Disposal of shares tc '.he extent' tlrat the company losses significant influence)
Realized Unrealized Total
Gain(Loss) Gain(Loss) Gain(Loss)
Proceeds frorn the portion dispcsed 'rlet of trans' cost)
XX XX

Add:FMVoftheremainlnqportrcnnotsoldandreclassified
xx xx
XX
Tota
**-QQ9*1---*-- (xx)-'.*
I

Less: CV of the investnlent in associate prior to cessatiotr -(X!-:-

X(X) x(x) x(x)
Gain/(loss) on ceSsatron, before recycling of OCI/OCt
Recycling of Other Comp Income/(Loss)
x(x).
:jrL--.--..-
x(x),i-__ _ x(x-l- _
Gain/(loss) on Cessation (Recognized in the Profit cr Loss) : XG)--,,. -- xG)
*Prorated based on the portion sold - ---Xg-t-"-"
xxProrated based on the portic)n retained and reclassified

interest in associate decreases because of the issuance of

D_ffI{EB-SALELDTLUIIaN (Happens when the company's participating on such new issuance)
the associate of adclitional shares to other parties, with trre company not
Deemed share from the increase in the associates
net assets as a result of the issuance of shares
-{pr"oeeeds from--issue of new shares-o,c of lnterest, after dilution) xx
CV of the investment deemed sold
decrease in interest/7o original rnterest)
CV*1o70
g)0
Gain/(loss) on cleemed sale, before recycling of OCI/L X(X)
Recycling of Other Comp lncorne/(Loss) x(xl
Gain/(loss) on deemed salel Dilution gain(ioss) x00

5T EP- AC Q U I S ITI O N F
U-\I_V_E51!:1 EN T I N A55 AE IA I'I
in the investee
If as a result oilcqu;l"g addCIcnir sr,Jrei of stocks, rhe entity acquired significant influence to
-O

from investment rn finanr-ial asset at fair rrarket value (no significant influence) investment irl
company, the transition
associate (with significant influence) shall be accounted for trrlcler any of the
following methodsl
TO RETAINED EARNINGS'
A. COST.BASED APPROACH WITH CATCH-UP AD]USTN1EN'T (RETROSPECTIVE) -Ihe
difference
As if equity nrethod had beerr used frorn the date the original investment.had been acqr:ired.
-
investment inconte that shoLLlcl have been recognizecl under the equity rnethod and the investmenl
between
income recognized under farr market value approach shall be retrospectively adjusted to the
retained
ea rnings.
b. COST BASED APPROACH WITHOUT CATCH UP AD]USTMENT
- The initial cost of the investnrent tn associate shall be the sum of the original cost of the oriqinal investmenl
(original investment shall be revertecl back to its original cost) and t.he cost of the new lnvestment'
C. FAIR MARKET VALUE APPROACFI (PFRS :].BASED APPROACH) of the otiginrir
- The initial cost of the investment irr associate shall be the sum of tire current fair marketrvalue of the new
rrreasurt:d at its cLlrrent fair nrarket value) and the cost
investment (ori,qinal iirvestnrent shall be
investment.

PFRS for SMEs, SEC 14. INVE97'MENT iN ASSACIA] E

and among the fr:lltsvtingl
- allows sMEs to have an optiort in accounting for tnvestnent in Associate betvveen
methods:
a, Equity methoct (almost similaI to full PFt<s with specitic distinctians: (if indefinite, u,s j() years)
- Goodwilt identified Ltnder equtty rnethoci is treated separately and is arnortized to that of the investor (thus there
- Llnder equity methocl, accoLtnting poticies of the associate are adJLtsteo gliins/tosses from finartcial assers fu other
shalt be no reval,ed assers, no recognition of unrealizecl holcling
co m pre h e nsive in co rn ei loss )
b. At cost less inlpairn"rerlt, provrcleci there is no puLtlishecl prl(:e qLlotatians for the investment
in profit or loss, provtded that the determinatt()i;
c. At fair value wiith changes in tair value be,ing recogrtizecl the
of the investment's fair value w*ilt not cause undue cost ot effort'
 Page 9 of 21
-^l
R"SA: The Review School of Accountancy
F-i@e ( rh ou g h plt-s1oQt I LLcE!-t-PAs
f I Invesfnte',: 3t Falf-ValuejhrcuS-h I nyeslntc[l-a! FaflgaluelhrcuSh
;ral"LCI LO_sSeS otlreliemprehensive income
, ,T a I ro Sec.trttres)
rii ffiitral recoq I Rt nair value 'fa'r value of At Fair value (fair value of
I consrderatrorr ;iven up), Transactions consideration given uP) Plus anY
I costs shall -be expensed-SlI,tSrlgd tra nsaction
-'---1-ra.
btill-ance sheet traluatio" -_- I r-:- \/-r,,^ o-t--^^
value aarance chd6t Date
Sheet nlio Fair Value Balance Sheet Date
(ternporary changes in value) Le5r'_eary11rc Valu_q Less: Oriqinal eost'
L] n Leelze.d-s-a-LryllasS -*-ll-S Unrealized cainlloss - 5HE of SFP

I Fair Value Balance Sheet Date

L
tess: Carrvino Value
I
in SCI
cl'oisposar I n.oceeos
vallle
I t-ess- earrrrng
I i Realized qain/loss - 11S
' al *ru"*".n a ' -_te"-tPoiatv
iiI Oecl;ne) or permanent are r-ecognized in the
l^-.
orofit or
^-^f;| ^r loss
i e)'RAovery of impaiirnent toss Subsequent increases irr FMV shall be No recovery recognized in the
rs6sgniTsd in the Profit or loss income statement, thus:
i Fair Value Balance Sheet Date
Ls:s:,Lmpaired ValudNew Cost
I

!_
L --_--
i AFS to TS * not allowed Transfer frorn AFS * ASSOCIATE
i TS to AFS - generallY not allowed See Step-Acquisition of Investment
I unless under RARE in Associate
CIRCUMSTANCES; treated currentlY Transfer frorn ASSOCIATE *
and prospectively. See Cessation in lnvestrnent in
! __,.___-
Associate.

Financial Asset at Fair value (Through p/L or ocl/L) PFRS g wherg regvctiaq is not allowed for eouitv
Secur'lties catego! - ---- - ---
I tqvestnnel!-aLfalr-Value,Lhro-ush
I
Ln ve5men!-At-EAtilhLu e th]-ou q h
ULI ICI LUI IIUI EI Ig
Pja-t!-t AI_L951e-1 +_- -#----
I
ti -Same
a) I!irtial recognltion with PAS 39 .Same with PAS 39
--
ot galance sheet ualuat,on su*u *ith PA'S 3; - I ea,tte-witt*aS sg
.- .temporary changes in value)
Same with PAS 39 Upon disposall
; c)
.t.
Disposal
a) Before the disposal' the
I
I financial asset is remeasured to
its fair value with the gain/loss
recognized in the OCI/L. Thus as
a result, the FMV/CV shall be
equal to the sales price.
b) The Financial Asset shall be
derecognized without gain/loss
from the disposal (Sales Price =
CVlFMV)
c) Any tJnrealized holding gain or
loss in the SHE shall be

d) Irnpairment loss (permanent

decline) temporary or permanent are

e) Recovery of impairment loss

I

*-l
I

) Recla ssificatio n
ir
I
I

t_" *1
NOTES
1, If shares are acquired D_fV1dgnd on (Between Declaration and Record date of Dividends), the purchase
price shall Oe deblteO lo dividend receivable first before debiting the investment account for the balance.
(lnitial Cost = Purchase Price - Dividend Receivable)
2. Cash dividend$. shall be creditecl to drviciend income upon declaration at face value,
3. propertv dividgnds shall be credited to dividend irrcome at fair value on deciaration date.
4. per share)
_5lSek_d"tyidCnd shall be recorded only through memo (update carryirrg value
5. SLoSkjn_lCU_SLeeSb shall be r-ecorded as dividend income at the fair value of shares
received or lhe
supposed cash dividend (in order of priority)
_C_Ash_iLlle-U_at5lggk shall be ar:counted for uncler the"as if" approach, that is, as shares 'IS
6, if were received
and sold at thE-casli received. Gain or loss shall be recorcjed accordingly. (see disposal of and AFS)
7. on ordinary shares held) shall be accounted for
Spgcla1dl_yldgld5 (preference shares received as dividend
by allocating fne carrylng value of the original shares held (if tradirrg) or tlre original cost of the original
 'q
R"SA: The Review School of Accountancy Page 1O of 21

shares held (if AFS) to the preference dividends received and to the original investment based on
aggregate fair values on a PRORATA basis.
8. Share assessment shall be debited to the investment account and credited to cash

FOR TNVESTMENT IN DEBT SECURTTTES (BONDS)

Under PAS 39. the cateoorv of the debt securitv shall be based on the followin,oi
oJnititytoholdtheinveStmentuntilmaturity-HTM(AmortizedCost)
b) Either no intention or abilitYr
b.1) Fair Market Value Method
b.1.1) Trading Securities - if held for short-term profit intention
b.1.2) Available-for-Sale - if no short-term profit intention

Financial Asset at Fair value Method and at Amortized cost: PAS 39

*,"Debt security categorized as Investment at Fair value throuah Profit or Lass or Tradin? shall follow the same
iiiciiies i Eauitt, iivestment cateqorized at Trading (PAS 39- see previous tablel.
Available-for-Sale Investment at Amortized Cost
(Held-to-Matu ritv)
a) Initial recognition At Fair value (fair value of At cost which is assumed to be equal
consideration given uP) Plus any to the fair value of bonds Plus anY
transaction costs incurred, net of any transaction cost, net of any accrued
accrued interest, (") interest. (u)
b) Balance sheet measurement Fair Value @ Balance Sheet Date At Amortized Costto'
Less: Amortized Cost
Unrealized oain/loss - SHE in SFP

Fair Value @ Balance Sheet Date

Less: Carryino Value

c) Drsposal Proceeds. net of transactions costs, Proceeds, net of transactions costs,

net of accrued interest (")
Less: Amortized Cost
Realized oaln/loss - IS
d) Impairment Fair Value @ Balance Sheet Date
Less: Arnortized Cost
net of accrued interestG)
Less: Amortized Cost
Gain/loss on sale
*Partial disposal of HTM - the
remaining investment is "tainted"
and reclassified' to AFS.
PV of remaining future cash flows at
original effective nterest
i

lmoairr,nent loss - IS Less: Carrvinq value of HTM

t..^-i,6^61 t^-- rC (c)
-
e) Recovery of previous impairment Amortized Cost had there been no Amortized Cost had there been no
impairment impairment
Less: Amortized Cost based on the Less: Amortized cost based on the
Srior year impaired v remaining future cash flows at
Gain on recoverv - IS orioinal effective interest
Gain on recoveny,-15
Fair value @ Balance Sheet date
Less: Amortized Cost had there been
no impairment
Unrealized oain/loss - BS
* if Fair vatue is provided through a prevailing interest rate, simply get the present value of all cash flows
from the bonds using the said prevailing interest rate.

(a) If bonds were acquired or sold in between interest payment dates, the acquisition price or the selling price
includes accrued interest not unless specifically expressed by the problem (e.9. at 105 plus accrued interest)
(b) If bonds were acquired at a premium (acquisition price > face value), the premium is a loss to be allocated
over the remaining term of the bonds by deducting the same to the related interest income. If bonds were
acquired at a discount (acquisition price < face value), the discount is a gain to be allocated over the remaining
term of bonds by adding the same to the related interest income
In summarY:
Amortization of premium, decreases carrying value of investment and interest income.
Amortization of discount, increase carrying value of investment and interest income,
'
(c) Computation of impairment loss on investment in HTM is actually the same with the computation of
impairment of loans and receivables.

Under PFRi9. the cateqorv of the debt securitv shall be based on the BUSINESS MODEL. to wit:
a) The brrsiness modet of the company has an objective of holding debt security investments primarily to
collect contract cash flows and cash flows are in the form of principal and interest with fixed maturity
date - Investment at Amortized Cost.
b) The business model of the company has an objective of holding the debt security investment primarily
to collect contractual cash flows but also has an objective of holding the debt security available for
sale to take advantage of business opportunities - at Fair Market Value through OCI/L
c) The business model has an objective of holding the securities for short-term profits - at Fair Market
Value through Profit or Loss.
R.SA: The Rwiw School of AountancY Page 11 of 21
Financial Asset at Fair Vatue Through P/L and at Amortazed Cost: PFRS 9 where recvclina IS ALLOWED
for debt securitv investments cate.rarized as FA@FMV throuoh OCI 't :
**Debt security categorized as Investment at Fair Value through Profit or Loss shall follow the same orinciPles with
that of Eauitv investment caliiorized as Investment at Fair Value throuah P&L/Tradina (see Previous table\.

At FMV Through At FMV Through Investment at Amortized Cost

Profit or Loss OCI/L
I Same ,as PAS 39 Same as PAS 39 Same as PAS 39
<heef meaqrrrement Same ,as PAS 39 Same as PAS 39 'Same as PAS 39
c) Disposal Same as PAS 39 Same as PAS 39 Same as PAS 39

*Partial disposal of Investment at

Amortized Cost - the remaining
investment sball be retained as
Investment at Amortized cost (no more
"tainting" provision under PFRS 9)

d) Imoairment i Same as PAS 39 Same as PAS 39 Same as PAS 39

e) Recovery of previous Same as PAS 39 Same as PAS 39 Same as PAS 39
imoairment
f) Reclassification Rectassification froii one category to another is allowed when and gnly
when the entity changes r'ts Dusioess model in holding debt security
investment,
- The transfer shatl be made at the beainnino of the followina reoortino
oeriod from the date business model has been changed.
- iransfers are accoudted for currentty and prospectively. An entity should
not restate any previously recognized gainsr rosses (including impairment
gains/losses) or interest. The following table summarizes the different
reclassification scena rios and thei r accou nti

RECLASSIFI TION RULES UNDER PFRS 9 DEBT SECURITY INVESTM ENTS

ORIGINAL TING IMPACT
Amortized cost FMVPL Fair value is measured at reclassification date. Difference from carrying
amount is nized in the orofit or loss,
FMVPL Amortized cost Fair value at the reclassification date becomes its new gross carrylng
amount. Effective rate is determined on the basis of the fair value on the
reclassification d
Amortized cost FMVOCI Fair market value is measured at the reclassification date. Difference from
amortized cost should be recognized in OCI. Effective interest is NOT
usted as a the reclassification
Amortized cost Fair value on the reclassification date becomes the new amortized cost
carrying value. Cumulative gains/losses in the OCI is adjusted against the
he financial asset at reclassification date.
FMVOCI I Fair value on the reclassification date becomes the new carrying amount.
' Effective rate is determined on the basis of the fair value on the
i reclassification date,
Fair value on the reclassification date becomes the new carrying amount.
Cumulative gains/losses in the OCI is reclassified to profit or loss on the
reclassification date.

PFRS for SMEs, SEC 11. FINANCIAL INSTRUMENTS allowsSMEs to have an option in accounting for investment in
Financial Instruments between applying Sec 11 of PFRS for SMEs or PAS i9 of full PFRS.
lJnder SEC 71, Financial instruments in bonds shall be categorized as:
(a) Debt instrument at amortized cost (HTM)
(b) Debt instrument classified as current, measured at undiscounted value (Cost) (unless from a financing
transaction)
(c) If financing transaction, current debt instrument shall be measured at the present value of future cash
flows at market rate of interest for similar debt instrument (at Fair Value)

Financial instrument in sharesshall be measured at:

(a) Fair value (if publicly tracled or fair value can otherwise be measured reliably with changes in fair value
recagnized in the profit or losses).
(b) All other investment shall be measured at cost less impairment.

8. PROPERTY, PLANT AND EQUIPMENT

INITIAL MEASUREMENT at Cost. Cost of PPE shall include:
a. Cost of acquisition*
b. Incidental cost in bringing the asset to its present location and condition necessary for use.
c. Present value of the initial estimate of dismantling, removal or site restoration cost (to the extent that
the company has incurred an obligation over these future costs, credit goes to a provision account -
asset retirement obligation)
*Cost of acquisition depends on the mode of acquisition:
a. Cash purchase = Cash price + import duties + nonrefundable taxes (net of discount and rebates)
b, On account = at cash price equivalent (net of discounts whether taken or not taken)
c. Installment/Deferred payment basis - at cash price equivalent or at present value of deferred payment
d, SharelBond issue - at fair value of asset received, if not determinable, at Fair value of shares issued.
e. Exchange with commercial substance - at fair value of asset received (which is equal to the fair value
 .._. _ iarlrrrlal4lt

R.SA: The Review School of Accountancy Page 12 of 2l

of asset given-up + cash paid or - cash received
f, Exchange without comm. substance - at book value of asset given-up +9a1h paiO or - cash received
g. Donagon where the donor is a related party - at fair value (credit to APIClDonated capital)
Donation where the donor is a ngn-related party (e.g. Government Grant) - at fair value
(credit to
h.
Income, if unconditionll grant or Deferred Income, if conditional grant)

SUBSEQUENT MEASUREMENT
a. cost method: At cost, net of accumulated depreciation, and impairment loss
b. Appraisal/Revaluation method: At fair market value
Depreciation Methods
1. Uniform/Fixed Charge Method
Straight line = Depreciable cost / Useful life
2, Variable Charge Methods * actual hours used
Working"hor.s = Depreciable cost/ life in terms of working hours *
Output-method = Depreciable cost / life in terms of total output actual output
3. Diminishing balance Methods
x
SYD = DePreciable cost SYD rate
year of depr')
Oeclining balance = CostxDB rate (consider salvage value only on the last
4.others(usefu-|fordepreciatingsmalltoolsandsimilaritems)
Inventory method = Beg tools + Purchases - End tools - Proceeds from disposal of tools
Replacement method = Tools disposed Costof latest purchases - Proceeds
x from disposal
method Tools disposed x Cost of earlier purchases - Proceeds from disposal
Retirement =
period
** Forthe computation of depreciation, where there are several transactions happening during the
time or another during the period:
- List down all the items which became outstanding at one
Disposed (Depreciate from Jan. 1 to date of disposal)
Newly Acquired (Depreciate from Date of acquisition to Dec' 31)
Outstanding during the entire year
IMPAIRMENT Loss
An asset is impaired if only if the Carrying value is > that the Net recoverable value
x Net recoverable value is the higher between the Fair Value less Cost to Sell or the Value in use
x Fair Value less Cost to Sell = Estimated Selling Price - Estimated Cost to Sell
*Value in use = pV of the future net cash flows from the continued use of the asset
andfromitsultimatedisposalusingapre-taxdiscountrate.
REVALUATIONIAPPRAISAL
A. If asset have an active market, thus FMV is readily determinable:
Fair value of Asset
- Ees: €arrYing Value-
Revaluation Surplus
B. If asset have no active market, thus appraisal is determined through the current replacement cost:
Replacement Cost XX-XX Original Cost
Replacement AD (XX)
(XX) - Accum. DePr, on Cost
Fair Value/Sound Value XX - XX Carrying Value

Fair Value/Sound Value = Replacement costxCondition Percent

Condition Percent = (remaining life/total life, original estimate) or
(carrying value/depreciable cost, original estimate)

Transfer of Revaluation Surplus: (credit to retained earnings)

a, Piecemeal: RS/Remaining life of depreciation asset.
b. Lump sum: Realize upon disposal or retirement
Impairment with subsequbnt revaluation
a) Recognized impairment logs on the year of incurrence.
b) Continue Depreciation based on the impaired value.
c) Upon revaluation, recognize the gain on recovery = ,

CV had there been no impairment - CV based on impaired value

d) Recognize as revaluation surplus (under revaluation method) =
Fair Value - CV had there been no impairment
Revaluation with subsequent impairment
a) Recognize the revaluation surplus in the stockholders'equity
Ui Continue Depreciation based on the revalued amount (realize revaluation surplus on a piecemeal
basis if aPPlicable)
c) Upon impairment, write off the remaining rev' surplus =
CV based on revalued amt. - CV had there been no revaltn'
d) Recognize as impairment loss in the income statement =
CV had there been no revaluation - Impaired value/Fair value

Compensation for Impairment Loss of PPE )

a) Compensation for impairment loss of PPE shall be recognized as an asset in the BS and income in the
IS, when lnd oniy when it becomes virtually certain (when it becomes receivable).
statement.
b) The impairment loss shall be recognized separately at gross amount in the income not
cj fn" impairment loss and the com[ensation shall be separately recognized and are to be offset.
R"SA: The Review School of Accountancy Page 13 of 21

PFRS for SMESS, SEC 17. PPE

- (along with Sec 25, Borrowing Cost), requires all borrowing cost to be expensed as incurred
- reguires to measure PPE at the balance sheet date at Cost, less Accumulated Depreciation, less Impairment
Loss.

fL,\PDATE: Effective for annual periods beainnina on or after Januarv 1. 2017 with eartier application permitted: SME',
have an option to use revaluation model for Drooertv. plant and equigment.

9. INTANGIBLES AND GOODWILL

INTIAL MEASUREMENT
a. Separate Acquisition: Cash purchase, installment basis, share/bond issue (see PPE)
b. Grants - At Fair Value or ZerolNominal Amount
c, Business Combination - At Fair Value of ldentifiable Intangibles acquired (regardless of intent to use)
d. Exchange - With Commercial Substance - At Fair Value
- Wout Commercial Substance - At Book Value of asset given + cash paidl - cash received
e, Internally Developed Intangibles
e.1. For Patents, Brands, Mastheads, Publishing Titles, Recipes and Formulas, Customer Lists
- All research and development costs shall be recognized as outright expense. Only the
cost directly associated to acquiring the tegal rights over the intangible forms part the
initial cost of the asset.
e.2. For other internally developed intangibles (e.9. Computer Software)
- All research and development cost incurred prior to achieving the capitalization criteria
under PAS 38 shall be recognized as outright expense)
- Development costs that qualiFy for capitalization under PAS 38 (e,9, after establishment
of technical feasibility)
SUBSEQUENT MEASUREMENT
COST METHOD
-
For Intangibles lvithout definite useful life (including Goodwill): Cost net of Irnpairment Loss
-
For Intangibles with definite useful life; Cost net of Amortization and impairment Loss
REVALUATION METHOD (similar to PPE, except that intangibles shall only be revalued if it has an active
market)

MATTERS ABOUT GOODWILL: Initial Measurement

Indirect: Acquisition Cost XX
Less: Fair Value of identifiable net assets, excluding goodwill (XX)
Goodwill .. XX

Direct: a) Purchase of excess earnings (Excess Earnings*#years)

b) Present value (Excess EarningsxPV factor)
c) Capitalization of excess earnings (Excess Earnings/0/o)
d) Capitalization of normal/average earnings (Acq Price - (Norm Earnings/%))

Where; Excess Earnings is computed as:

1) If Average or Normal Earnings is given as a percentage:
Fair market value of net asset, excl goodwill * (Entity normal earnings o/o - Industry ave. earningso/o )

2) If Normal Earnings is given in terms of actual historical earnings:

Historical accumulated earnings (usually 5 years) XX
Adj: Non-operating (9ains)/losses X(X)
Historical earnings from operations XX
' Divide by: number of year (usually 5 years) xvears
Average earnings XX
Add/Ded: IncrementaUDecremental expenses X(X)*
Entity Average earnirigs XX
Less: Industry normal earnings (XX)
Excess earnings XX
*eg. Bonuses to officers are no longer incurred after the business combination.
Depreciation and amortization shall either increase or decrease after the bus. com.

IMPAIRMENT LOSS ON GOODWILLI

Carrying value of the Cash Generaiing Unit (including Goodwill) XX
Recoverable Value of the cash generating unit* (xx)
Impairment loss XX
xHigher between the Value in use (present value of remaining future cash flows from continued use and eventual
disposal of the net assets comprising the CGU) and the fair value less cost to sell of the CGU.
a. Impairment loss shall be charged first against the goodwill attributed to the CGU,
b. if not enough any excess shall be charged to all other assets,of the CGU in the ratio their carrying value
before any impairment. In allocating the remaining loss, the resulting carrying value of all other assets should not
result to amounts lower than the higher between and among: (a) the individual asset's fair value less cost to sell;
(b) the individual asset's value in use; and, (c) zero
 ,. .Ff.+irrl
R"SA: The Review School of AccountancY Page t4 of 2L

PFRS for SMESs, SEC 18. INTANGIBLES

requires all research and development costs to be expensed as incurre-d unless
it forms part of the cost of
another asset that meets the recognition criteria ln terms of IFRS for'SMEs
internally generated intangibtes aie expensed: developmenf cosfs may not be capitalized
cost of intingible acquired through government grant is at fair value only:
zero/nominal amount is not

PFRS for SMESs, SEC 19. BUSINESS COMBINATION AND GOODWILL

and impairment
- require to meisulre goocwill at each balance sheet date at cost less accumulated amortizatian
peria,J which the economic benefits are expected, goodwill shall be
losses. If an entityZannct determine the
amortized over a period not rc exceed 10 years.

10. LIABILITIES
REFINANCING AND BREACH OF CONTMCTS (PAS 1)
Refinancing:ffiob|igation.hastobepresentedaSCurrentliability. refinancing
A currengy maturing obligation may be presanted as a long term liability under
agreement, onlY if:
right to refinance the liability OR
1. The.orpuny has the prerogative/optionlunconditional completed
2. If there is no right but the rLfinancing agreement was before or at the balance sheet date'
Note: Refiiancing may be thru:-a)bxtension of maturity date, b) issuance of bonds
the proceeds of ihich is used to sett/e the currently maturing obligation.

Breach of Contract: Generally, if the company breaches a covenant or contract

the long-term
obligati,cn becomes due and dernandable, thus is presented as short term liability.
fne oOtigation may still be presented as long-term only under the following conditions:
1. tf the creJit5r agreed to give the debtor a grace period for at least 12 months after the balance sheet
date AND
Z. The said grace period should have been provided on or before the balance sheet date.

PROVISIONS (PAS 37)

- A liability whose either amount or timing is uncertain'
ACCRUED, under the following conditions:
1. present obligation (legal or constructive) resulting form a past event or transaction (obligation event
should have happened on or before the balance sheet date)
2. It is probable that an outflow of economic benefits will be required to settle the obligation'
3. th-d-;Tnffifif oi obtigation should be capable of-being reliable measured.
Common examples of provision are: Product warranties and guarantees, Premiums and coupon
obligations, Lia'bility from litigations, Guarantee of liability of others, Provisions from onerous
contracts, Unlawful environmental damages

FOR PROVISIONS FOR PREMIUMS/WARRANTIES/COU PON S :

Total expense, per estimatlon policy XX
Less: Actual cost incurred to date (xx)
*Provision/Estimated Liability at year end XX
Note: for premiumst expense and liability shall be net cost (cast of premiums +
additionat processing costs - collections made/to be made prior to distribution if there are any)
* Before accruing liability at year end, consider if all provision/estimated liability are still valid,
that is, are still probable to be settled in the next period (e,9. it warrantY, consider warranty
period, if GCP.consider validity period, etc.)

- REIMBURSEMENTS OF PROBABLE LOSSES UNDER PAS 37 - these are amounts expected to be received as
reimbursements if entity settles the provision. Reimbursements shall be accounted for as follows:
1. If the entity has no obligation for the part of the expenditure to be reimbursed, the reimbursable
amount stratt Oe deducted against the losses recognized in the income statement, The liability shall be
presented in the balance sheet net of the reimbursable amount.
Z. If the obtigation for the amount expected to be reimbursed remains with the entity and
reimbursem6nt is Virtually Certain, the reimbursements shall be accrued as an asset (receivable) in
the balance sheet any may Oe-ofiset against the losses recognized in the income statement. The
amount recognized for the expected reimbursement should not exceed the liability,
3. If the obllgition for the amount expected to be reimbursed remains with the entity and the
an
reimbursem-ent is not virtually certain, the expected reimbursement is not recognized as asset.
The expected reimbursement may be disclosed.

CONTINGENT LIABILITIES
1. possible olGation whose existence is io be determined in the future contingent upon the happentng
of a future event; or
Z. present obligation, but is not accrued because it is either remotely possible that economic benefits will
be required-to settle the obligation ancl/or the amount of the obligation is not'capable of being reliably
measured.

FOR BONDS PAYABLE PROBLEMS:

RsSA: The Reviery School of Aountancy Page 15 ol 2L
Bonds issued at a Discount (Proceeds < Face Vatue; Effective Interest > Nominal lnterest)
- discount is a transaction loss (amount received/proceed is lower than the amount to be paid/face value) to
be amortized over the remaining term of the bonds using the EFFECTIVE INTEREST METHOD.
- the amortization is added to the related expense - INTEREST EXPENSE
Dr: Interest ExPense XX
Cr: Discount on Bonds PaYable XX
.- as a result of the amortization, the interest expense recognized in the income statement is higher than the
interest paid and/or accrued. Tlre difference is the amount of amortization.
- Correct interest is computed as: (Carrying value of Bonds x Effective interest)
- Nominal interest is computed as; (Face value of Bonds x Nominal interest)
Bonds issued at a Premium (Proceecls > Face Value; Effective Interest < Nominal Interest)
- premium is a transaction gain (amount received/proceed is higher than the amount to be paid/facq value)
to be amortized over the remaining term of the bonds using the EFFECTIVE INTEREST METHOD.
- the amortization is deducted from the related expense - INTEREST EXPENSE
Dr: Premium on Bonds PaYable XX
Cr: Interest Expense XX
- as a result of the amortization, the interest expense recognized in the incorne statement is lower than the
interest paid/accrued. The difference is the amount of amortization.
Bond Issue Cosfs - are deducted from net cash proceeds, thus in the process are deducted from premium or
added to discount on bonds payable (after which a new effective interest rate shall be computed)

Retirement of Bonds - if bonds are retired prior to their maturity dates, gain or loss shall be recognized in the
profit o, loss (diffe"ince between the retirement price and updated amortized cost of the bonds plus accrued
interest, where applicable)

Accrued Interest - in accounting for bond ispuance and retirement, consider inclusion of accrued interest
specifically if bonds were issued or retired in between interest payment dates.

CONVERTIBLE BONDS
1. ISSUANCE - Proceeds from the issuance of Convertible Bonds should be allocated between the debt
component (bonds payable) and the equity component (Share Premium form Bond Conversion Privilege)
using the RESIDUAL APPROACH. To wit, the pro-forma entry to record issuance is:
Dr: Cash XX
Dr: Discount on Bonds Payable XX (or)
Cr: Premium on Bonds PaYable XX
Cr: Bonds Payable XX
Cr: Share Premium from Bonds Conv, Priv. XX

2. CONVERSION - If Convertible bonds are converted into ordinary shares, the carrying value of the bonds
(updated amortized bonds payable) shall be cancelled out, The difference between the carrying value of
the bonds and the aggregate par value of the converted shares shall be credited to share premium
account, An allowed alternative is the cancel out the equity component originally credited to share
premium account upon issuance of the bonds. The same shall be added to the amount credited to the
share premium account upon conversion. To wit, the pro-forma entry to record the conversion is;
Alternative I Alternative 2
Dr: Bonds Payable XX Dr: Bonds Payable XX
Dr:Premium on Bonds Payable XX (or) Dr:Sh Prem fro.m Bond Conv. Priv. XX
Cr: Discount on Bonds Payable XX Dr:Premium on Bonds Payable XX (or)
Cr: Ordinary Shares XX Cr: Discount on Bonds Payable XX
Cr: Share Premium XX Cr: Ordinary Shares XX
Cr: Share Premium XX

3. EARLY RETIREMENT - If Convertible bonds are retired prior to maturity date, the retirement price shall
be allocated between tlie Bonds and the equity component, consistent with how the original
issue price was allocated (Residual Approach). The difference between the retirement price of the
allocated to the debt component and the carrying value of the bonds payable shall be recognized in
the income statement, whiie the difference between the retirement price allocated to the equity
component and the original share premium from bond conversion privilege shall be credited to share
premium account.

BONDS PAYABLE WITH WARRANTS (see warrants accounting in SHE)

LEASE (PAS 17)

- leases are generally OPERATING, unless FINANCE under specific criteria/requirements under PAS 17: (1)
Transfer of ownership to lessee; (2) Bargain Purchase Option; (3) Term at least 75o/o of life of asset; (4) PV of
minimum lease payments (MLP) is at least 90o/o of the FMV of the leased asset; (5) The asset is specialized in
nature that only lessee can use with very minimal alterations.

OPERATING LEASE (guidelines)

a, Lease payments including lease bonuses shall be recognized as expense (lessee) or income (lessor) over the
lease term on the straight line basis, unless a more systematic method is warranted.
b. Lease escalation clauses, provision for lease/rental holidays and uneven rental payments built into the lease
' contract must be accounted for on a straight line basis, unless a more systematic method is warranted.
c. Contingent rentals are recognized as expense (lessee) or income (lessor) when incurred/earned.
d, Lease security deposits are generally treated as receivable/other asset (lessee) or payable (lessor)
 - i- !/:'qq

R"SA: The Review Scltool of Accountancy Page 16 of 21

e. Direct lease expense (paid for by lessor) are either recognized as outright expense or as a deferred charged
(added to the cv of leased asset, and amortized as expense over lease term)
generally incurred
e
Usual routinary lease retated expense (depreciation, property taxes, maintenance costs) are
by lessor and are recognized as outright expense.

PFRS foT SMESS, SEC. 20, LEASES

- operaiing lease'payments are not recognized on a straight-line basis when the paYments are structured to
increase in line with expected general inflation'

FINANCE LEASE (ouidelines. books of lessee)

- Upon inieption, if payments are made in arrears (at the end of each lease Period)
DR: ASSET (at FVIPV of MLP*, whichever is lower) XX
CR: FINANCE LEASE LIABILITY XX
*MLP include 1) Periodic Payment and 2) Bargain Purchase Option or Guaranteed Residual Value
*PV shall be based on the Implicit Lease Rate, if unknown the Incremental Borrowing Rate

or, if payments are made in advance (at the beginning of each lease period)
DR: ASSET XX
CR: CASH XX
CR: FINANCE LEASE UABILITY (Bal) Xx

- ' periodic Payments

Upon
o/o') xx
Dir: INTEREST EXPENSE (cv of liabxeff
DR: FINANCE LEASE LIAB (Balancing fig;) XX
CR: CASH XX

- Year-end depreciation, shall be computed as:

co9tlUseful life
1. If there is transfer of ownerslrip (Criteria 1 and 2): Deoreciableuseful
where: Depr. cost: cost - Aciual Residual Value after life
2. lf there is no transfer of ownership (Criteria 3 and 4) : Depreciable cost/Lease term
Where: Depr. Cost: Cost - Actual Residual Value or Guaranteed Residual Value after lease term,
whichever is lower'

FINANCE LEASE (guidetines. bookq of LESSOR)

If the lessor is tne man,.rfic[urer/dEater oi itre asset, the lessor shall be recognizing gross profit from the lease
which shall be accounted for as SALES TYPE LEASE.
UPon sale:
DR: FINANCE LEASE RECEIVABLE XX
CR: SALES XX

Or, if paym€nts are made in advance (at the beginning of each lease period)
DR: CASt'l XX
DR: FINANCE LEASE RECEIVABLE (balance) XX
CR: SALES xx

To recognize the related cost of sales:

DR: COST OF SALES XX
CR: INVENTORY/ASSET XX
a. The amount of sale shall be the fair market vaiue of the asset sold or the present value of the
minimum lease payments (MLP), whichever is lower.
b. The minimum lease payments (MLP) shall include a) Periodic Payments and b) Bargain Purchase
Option or Guaranteed Residual Value.
c, If.the residual value is not guaranteed, the same shall still be added in the determination of the
Finance lease receivable, but instead of it being added to sale, it will now be deducted from the
cost of sales. The rationate is that if the residual value is not guaranteed, that portion of the asset
is not deemed sold, while it will still accrue to the benefit of the lessor at the expiration of the
lease (no transfer of ownershiP).
d. As a result, the gross profit to be recognized shall be the same whether the residual value is
guaranteed or unguaranteed.

If the lessor is a mere financing company (as in the case of a bank) instead of a manufacturer/dealer, the lease is
under DIRECT FINANCE LEASE. There will be no manufacturer's profit to be recognized, instead income shall be
derived merely through interest. Upon sale:
DR: FINANCE LEASE RECEIVABLE XX
CR: ASSET XX

Or, if payments are made in advance (at the beginning of each lease period)
DR.: CASH XX
DR: FINANCE LEASE RECEIVABLE (balance) XX
CR: ASSET XX

Regardless whether the lease is under sales-type or direct financing, upon periodic collection:
DR: CASH XX
CR: FINANCE LEASE REC. (Balancing fig.) XX
CR: INTEREST INCOME (CV of REC.'keff o/o) XX
a. The interest is computed based on the finance lease receivable balance.
b. The credit to the finance lease receivable is the balancing figure, that is the periodic collection less
interest income comPuted in a.
as an
Direct lease costs incuried by the lessor snali be recognized as outright operating expense, under sales-type lease or are recognized
addition to the initiat investment on the lease by the iessor, under Direct finance lease (added to the amount receivable by the lessor).
R"SA: Thc Raicw Scrtool of AowttancV Page 17 oJ 2l
20 i9.

All leases result in a company (the lessee) obtaining IFRS 16 substantiallY carries forward the lessor
the right to use an asset at the start af the lease and, accounting requirements in IAS 17. Accordingly, a
if tease payments are made over time, also obtaining lessor continues to classify its leases as operating
iinancing, leases or finance leases, and to account for those
two types of leases differentlY.
Accordingty, IFRS 16 eliminates the classification of
leases as either operating leases or finance leases as
is required by IAS 77 and, instead, introduces a single
lessee accounting model. Applying that model, a
/essee ls required to recognize:
(a) assets and liabilities for all leases with a term
of more than 12 months, unless the underlYing asset
is of low value; and
(b) depreciation of lease assets separately from

TNCOME TAXES (PAS 12)

The reconciliation between financial income and taxable income is shown below:
Financial Income before any differences (Net income before tax in the SCI) XX
Add: Permanent Difference, Non-deductible expenses XX
Less: Permanent Difference, Non-taxable income (XX)
Financial Income before Temporary Difference XX
Add: Future Deductible Amounts creating
Deferred Tax Asset and Deferred Tax Benefit (FDAAB) XX
Less: Future Taxable Amounts creating
Deferred Tax Liability and Deferred Tax Expense (FTALE) (XX)
Taxabte Income Xx
If there are no exoected changes in tax rates in the future: *
a. fotat fai Expense = Financial Income before tempOrary differences
x
Taxo/o
b. Current rax Expense (Payable to BIR) = Taxable Income raxo/o
c. Deferred Tax asset 1in tfri Balance Sheet) and Deferred Tax Benefit (in the Income Statement) = FDAAB*Taxo/o
d. Deferred Tax Liability (in the Balance Sheet) and Deferred Tax Expense (in the Income Statement) =
FTALExTaxo/o
e. To Reconcile:
Current Tax Expense (Taxable IncomexTaxo/'o) XX
Addl Deferred tax expense (FT,ALE*Taxo/o) XX
Less: Deferred tax benefit,(FQAABlTaxo/o (XX)
Total Tax Expense (Fin' Inc, before Temp. Diff.*Taxo/o) XX
f. Entry to recognize the same shall be:
DR: INCOME TAX EXPENSE (TOTAL) XX
DR: DEFERRED TAX ASSET XX
CR: INCOME TAx PAYABLE (CURRENT rAX) XX
CR: DEFERRED TAX LIABILITY XX
If tax rates are expected to chanoe in the future years:
Current Tax Expense (Taxable IncomexTaxo/o) XX
Add: Deferred tax expense (FTALE*Future TaxYo) XX
Less: Deferred tax benefit (FDAABxFuture Taxo/o (XX)
Total Tax ExPense Xx

pLRNaNeNr DTFFERENcES
a. Non-deductible expenses - fines and penalties by tax authorities, life insurance expense
b. Non-taxable income - dividend income, liFe insurance policy settlement
TEMPORARY DIFFERENCES
FUTURE DEDUCTIBLE AMOUNTS (FDAAB)
- Amounts that are deductible for tax purposes in the future. These items are not yet deductible from current
income, thus are being added back to financial income to determine taxable income.
- Future deductible amounts create deferred tax asset (in the balance sheet) and deferred tax benefit (deducted
from current tax expense in determining the total tax expense in the income statement)
- Generally includes the following:
o Accrued expenses - deducted only upon payment in the future.
o Unearned income - taxed upon collection, thus are taxable in the current period but are not yet
recognized as income for financial accounting purposes. (no longer taxable in the future, thus are
deductible in the future)
o Excess financial depreciation over tax depreciation.
o Excess taxable incorne over finaricial income
o Bad debts (under allowance method) - deductible upon write-off in the future,
FUTURE TAXABLE AMOUNTS (FTALE)
- Amounts that are taxable for tax purposes in the future. These items are not yet taxable in the current period,
thus are being deducted from firrancial income to determine taxable income.
- Future taxable amounts create deferred tax liabilities (in the balance sheet) and deferred tax expense (added to
the current tax expense in determining the total tax expense in the income statement)
- Generally includes the following:
o Accrued income - taxed only upon collection in the future'
o prepaid expenses - decluctible upon payment, thus are already deductibie in the current period for tax
purposes. (no longer deductible in the future, thus are taxable in the tuture)
o Excess tax depreciation over financial depreciation
o Excess financial income over taxable income /-iix
 Page 18E|!I:" -r-i:iqe+* qE
R"SA: The Revlew Sdtool dAccotntancy
POST RETIREMENT BENEFTTS PROBLEMS (PAS 19.)
TYPES OF POST RETIREMENT BENEFITS PLANS
A. DEFINED CONTRIBUTION - Under-a defined contribution plan, what is defined, that is what has been agreed
upon with the employees, shall be the periodic contribution of the company to the employees retirement fund.
plan, As a
Tire periodic p"nrion'"*p"nse shall therefore be equal to the periodic agreed-upon contribution to the
resuit, any future income that shall be earned by the employees' retirement fund shall accrue to the benefit of '
the employeesand shall not affect in any way the computation of the company's periodic pension expense.

B. DEFINED BENEFIT - under a defined benefit plan, what is defined, that is what has been agreed upon.with the
employees, shall be the final amount the employee will be able to receive in the future upon their retirement.
date
The amount is usually based on a certain percentage of the final salary of the employee on their retirement
multiplied by the number of years the employee his been in service. (o/o*Final Salary*#of years in service). The
fund
future amount to be settled upon retirement, where funded, shalt be paid through the employees retirement
(plan asset) which the company funds through the periodic contribution'

In a defined benefit plan, contribution to the employees retirement fund is separately accounted for in a pension
separate
pun
-it-*irr'u.1ru"nsser
memorandum account, (pA), to account for any income that it may earn (reduction from
expense, since to the benefit of the company). l!_"_3:.r11Yl*:9 -Ofnll,! obligation.is also
(ABo), to monitor the
maintained in i separate memorandum account, ACCUMULATED BENEFIT OBLIGATION
between these two
balance of the benefits earned by the employees (incurred by the company). The_difference
memorandum jccounts will actually be tne year-end Accrued Pension Expense (ABo>PA) or Prepaid Pension
(PA>ABO).

nFtrTNFrr coNTRIBtITION P|AN DEFINED BENEFIT PLAN

Entry: Periodic Contribution to the Plan Entry: Periodic Contribution to the Plan
DR: Pension ExPense XX DR: Pension ExPense XX
CR: Cash xx CR: Cash xx

Year-end AJE: Year-end AJE:

If, Contribution = Required Expensex ir, coniioution = Required Expensex*
No AJE necessary No AIE necessary

If, Contribution < Required Expense* If, Contribution < Required Expensexx
DR: Pension ExPense XX DR: Pension Expense XX
CR: Accrued Pension Expense XX CR: Accrued Pension ExPense XX

If, Contribution > Required Expense* If, Contribution > Required Expense**
DR: Prepaid Pension ExPense XX DR: Prepaid Pension ExPense XX
CR: Pension Expense Xx CR: Pension Expense XX

Where *Required Expense = Defined contribution or

- the prepaid pension is subjected to an asset
ceiling test first (see discussion below) before the
the periodic contribution to the plan as per entry to set it uP.
agreement wrth emPloyees.
Where **Required Expense shall be computed as
follows:
Service Cost XX
Net Interest Expense/(Income) X(X)
Net Remeasurement Loss(Gain) X(X)
Total XX

Service Cost and Net Interest Expense(Income) shall

be recognized in the profit or loss while the Net
Remeasurement Loss(Gain) shall be recognized as
other comprehensive income or loss.

SERVICE COST
Service cost shall comprise the (1) current service cost, (2) past service cost, (3) settlement gain or loss. Service
cost is a component of pensioh expense recognized in the profit or loss.
CURRENT SERVICE COST - This is the increase in accumulated benefits obligation (ABO) for the current period
due to the services of er"rrployees for the current year.
PAST SERVICE COST - This is the increase in the accumulated benefits obligation (ABO) in the current period
due to the services of employees in the past years. This results from introduction of significant changes in the definecJ
contribution plan during the year. As for instance the, increase in the agreed percentage of final salary (e'9. from 10o/o to
20%) as a basis for thdcomputation of the defined benefit will result to substantial increase in the obligation for the
current period, not only due to services of the current year but also for the services in the previous years. Whether vested
immediately or not vested immediately, past service cost is immediately recognized as a component of service cost and
pension expense for the current year'
price
SETTLEMENT GAIN OR LOSS - This resuit from the difference between an obligation's settlement
(retirement benefits actually paid to retiring employees) against the carrying value of the accumulated benefit obligation
being settled. One possible reason for such difference would be when the company offers early retirement_plans to
employees. To encourage employees to take advantage of early retirement offers, the company usually offers to settle
possible
retirement plans at amo-unts whiih are significantly higher that that earned by the employee (thus leading to a
loss on the said settlement).

NET INTEREST EXPENSE (INCOME)

Net ilterest expe"se ti.rcomEl ,s tfte aifference belween the Interest Expense on the accumulated benefit obligation 0/o)'
(ABO, beg*settlemeni ordiscount o/o) and the Interest Income on the plan asset (PA, beg*settlementordiscount
Like any liabilities, the accumulated benefit obligation increases periodically due to interest incurred. Interest incurred
ori
the ABO shall be recognized as a component of pension expense in the profit or loss.
 :-?t.-: e-{-FF!!
R.SA: The Review School of Accountancy Page 19 of 21
plan asset. The interest
The expected return on the plan asset on the other hand, shall be the interest income on the
on
lncome rate shall be assumed to be equal to the settlement or discount rate used to determine the interest expense
profit or
on the plan asset shall be recognized as a reduction from pension expense in the
the ABO. The interest income
ioss.
of the
]-ne net interest expense (income) is also effectively, the interest expense (income) on the beginning balance
eccrued pension expense inAOrpA) or the prepaid pension expense (PA>ABO).

1-he net remeasurement fos<guin)oithe actuarial loss (9ain) shall comprise: (1) Actuarial loss (gain) on the plan prepaid
asset;
fZie.truiiuf-fosi (gainlon a..l*rtut"O br=nefit obligation", unO; (:) Effect of the asset ceiiing (impairment on the
pension). The net reme;surement loss (gain) shall be recognized as an element of pension expense as other
comprehensive income or loss.

REMEASUREMENT LOSS (GAIN) ON PLAN ASSET - At year end, the employees

retirement fund (plan asset)
the plan asset's current fair market value
shall be remeasured at fair market value. As a result any difference between
and carrying value shall be recognized as actuarial loss (gain)'
PLAN
Beginning Balance xx
Contribution to the Plan XX XX Settlement Price to retirees
Interest income on the Plan asset XX
xx Actua
Ba at Fair Value XX
e actual return on the plan asset and the
expected retuin on the plan asset (interest income on the plan asset).

REMEASUREMENT LOSS (GAIN) oN ACCUMULATED BENEFIT OBLIGATION At

- year end, the accumulated
present value of the projected benefits ea-rned by employees using. an
benefit obligation is cletermined by computing the
setgement rate. ine difference between the computed present vale of projected benefits and the
appropriate assumed
accumulated benefit obligations'carrying value shall be the actuarial loss (gain)'
ACCUM TED BENEFIT OBLIGATI
XX Beginning balance
Settlement to retirees at CV XX XX Current service cost
] xx Past service cost
XX Interest expense on ABO, Beg
atn XX Actua
XX Ending balance (Present Value of the
i Proiected Benefits)

EFFECT OF THE ASSET CE1LING --If thefair market value of the plan asset at year-end is higher than the
present *rr" tne project6o b6neJits (PA;AB-o), ihe prepaid pension expense is tested for asset ceiling (tested for
"i
possible impairment), before the same is set-up is prepayment at year end. The ASSET cEILING shall be the sum of the
present value of any expected future benefits from over-funding the benefit obligation (usually in the form of reduction in
future contribution or future refunds). If the asset ceiling is higher than the prepaid pension (PA - ABO) there is.no loss.
If the asset ceiting however is lower that the prepaid peniion (PA - ABo) the prepaid pension is written-down to the
ceiling and additional loss shall be recognized as a component of pension expense as other comprehensive income/loss.

11. STOCKHOLDERS' EOUITY

SHARE ISSUE
-
Issuance of Shara Capital for Cash - Preference or ordinary shares are credited equal to par and the excess
to additional paid in capital.
- Share Issuance Costs - include registration fees, underwriter commissions, legal fees, accounting fees,
share certificate cost, promotional costs and postage.
Generally, For; subsequent issuances - charged lo APIC relative to that partlcular issue.
foi initial issuance - charged to Organization Expense
- Issuance of Preference and Ordinary Shares for a Lump-sum Price - This is accounted as follows:
a. If preference are effectively equity securities, use pro-rata approach in reference to the aggregate
market value of preference and ordinary shares,
b. If preference are effective debt securities (e.g. redeemable), use residual approach assigning the
fair value of the preference shares first with the residual value assigned to the ordinary shares.
- Issuance of Share Capital on a Subscription Basis - The agreed purchase price is debited to
Subscriptions Receivable, Share Capital Subscribed is credited at par and the difference is credited to
AplC. Uponfull payment,theShareCapitat Subscribed isclosedto ShareCapital.
The Subscriptiois'Receivable is presented as a current asset if collection is expected within one year
of the balance sheet date, If there is no definite due date set for subscription receivable, it is shown
as a contra to stockholder's equity, an offset against lhe Ordinbry Shares Subscribed account'
- Issuance of Share Capital for Non-cash Consideration (PFRS 2)
Non cash consideration (Assr:t or Services) received shall be valued at their fair value, unless the
fair value of shares are more clearly determinable (as when the shares are traded in the market)
TREASURY SHARES
- Acquisition of Treasury Shares, use cost model
Treasury Stock at cost XX
Cash XX

Sale of Treasury Shares - When treasury shares are reissued, the journal entry is:
a. Sold at a price higher than the cost, resulting in a "capital gain"
Cash xxx
Treasury shares (at cost) xxx
 Page.2O of 21
R"SA: The Revlew School of Accountancy
red Sh a res("ga n") xxx
APIC f rom TSTra nsactions/Reacq u i i

b. At a price less than the cost, resulting in a "capital loss"

xxx
Cash
(1) APIC from TreasurY Shares
Transactions (until balance is exhausted) xxx
(2) Retained Earnings xxx
TreasurY shires (at cost) xxx
be identified'
* lvofe.. when treasury acquired,at different costs, specific share-s..ma.y

Otherwise a FIFO or average

'iurit'ir"
cost per snar" is- isui to determine the cost of the treasury shares sold'

Retirement of TreasurY Shares

is the original issue price:
Retire treasury shares at their carrying value, which
> of TS: "caPital gain"
If Original Issue Price (carrying value) Cost xxx
Ordinary share (at Par) xxx
paid in tapital in Exceis of par (from orig. issue/pro-rata)
(at cost) xxx
Treasury Shares xxx
APIC from Treasury Shares Transactions/Retirement
"capital lossl'
If Original Issue Price (carrying value) < Cost of TS: xxx
OrdinarY shares (at Par)
paid in tapitaiin'excesi of par (from orig. issue/p.ro-rata). xxx
xxx
(1) paid in capiiar rronr-Treasury shares Transactions (until exhausted) xxx
(2) Retained Earnings xxx
TreasurY Shares (at Cost)
has to appropriate Retained Earnings equal to
Restrictions of Retained Earnings for Treasury shares -
(Appropriation = cost of TS)
the balance of its treasury sFates'

RIGHTS, WARRANTS AND OPTIONS

exercise rate ordinarily toyver !n-11 llte prevailing
- These securities entitle holders to acqulre shares at an
rate. T illustrate how to accoun! [or their issuance
trverrice
M entry (memo entry only) Normal entrY for issuance No entry (memo entry
RIGHTS - are issued to
of shares: only)
entitle the general
stockholders in relation to 1 right for every 1 stock
Cash (Ex. P) XX
their pre-emPtive rights, to outstanding OS XX
protdct their ProPortional Share Prem Xx
interest whenever
corporations issue fresh new
-@
- normally issued PS with warraats:XX
attached to a Cash Cash (Ex P) Xx oswo** xx
Principal
security (Bond or Pref' PS XX oswo*x xx Share Premium
Shares) as an inducement to ShareXX Prem OS XX from expired
buyers of the PrinciPal oswo xx Share Premium XX warrants XX
*Use pro'rata or residual
securities.
approach
**debit OSWO at the
carrying value of the
warrants exercised.
Bonds with warrants:
Cash XX
Discount XX (or)
Premium XX
Bonds Pyable XX
oswo
xUse
xx
. residual aPProach.

exp. Cash (Ex P) xx u>\.^.J-- A

OPTIONS - normallY issued Comp XX
to key executives and officers osoo optionsxxor the osoo**
os
xx
xx
Share premium
from exPired
as additional comPensation At FMV of options XX
for either Past or future intrinsic value, whichever is Share Premium XX
services Provided to the appropriate
**debit OSOO at the
company.
(see note below) carrying value of the
warrants exercised.

Notes on Accounting for option Issuance (Equity-settled share,ba:ed-payment):

1. Determine if options ViSff O IMMEDIATELY or NOT VESTED IMMEDIATELY'
for th9-e1!g-e-valuation of the options)
options vest immediately (charge compensation/salaries expense
a. If**The
value oi optiJn snoutO Oe a1 fruR'veLUE of option, otherwise at INTRINSIC VALUE
on
- If fair value method is used, value of ihe option shall be fixed at whatever is the fair value of the options
the grant date' is updated at each balance
- lf intrinic value (FMV of stocks - Exercise Price) is tlsed, the intrinsic value
.ud.
are Any changes irr intrinsic
sheet date before and after the vesting period, until the options
exercls'
in estimate (current and prospective), charged to profit or loss'
value shall be treated as mere change ,

ir opuon plan is FIXED or VARIABLE

2. If options are not vested immediately, oetermi"ne
only vesting condition is the vesting period), charge compensation
a. If options are under FIXED OPTIOU pr-nu (the Jr tne options to the said vesting period' (optlons/vP)
expense to the vesting period ov arrociting ihe vaiuation
b. In estimating the compensation
-become e*penie ioi eacn period, ui*uyi consider in the.analysis the estimated nurnber
options whicn witt exercisable based on number of emptoyees who sh-all remain within the company's
employs until the end of the vesting- periocr Any changes
in the number of employees remaining with tlte
 L.- :- |

R"SA: The Review School of Accountancy Page 21 of 21

accounted for as a
company until the options vest (thus number of options that will become exercisable) shall be
mere change in estimate.
3. If options are under VARIABLE OPTION PLAN (if apart from tlie vesting period, there is an additional vesting
condition), determine what is the nature of the additional vesting condition (MARKET BASED OR NON-MARKET BASED)
a. If additional vesting condition is MARKET BASED (e.9. share p7iss1, account fQ.r the Qption as if it.is- FIXEP' That
market
is, compensation expense shall be recognized ouer. the vesting period regardless whether the additional the
condition is achieved or not. This is beiause the Cetermination of the fair valuation of the options considers
probability that market based condition rvilt be achieved or not achieved. In addition, market based condition
cannot be directly influenced by l<ey employees, that is, services of employees are not related to the
achievability
.of whether the market-based conditicn is achieved or not, in principle, the company received
the condition, thus
the services of ihe employees thus compensataon expense shall be recognized.
4. Il additional vesting condition'is NONMARKiT Aasto (e.g. target sales, earnings, increase in sales etc.), consider
whether the additional nonmarket based condrt:on is achieved or not in vesting the options' This means that
compensation expense shall only be reccgnized rf the additional vesting condition (apart from the vesting period) is
achievable/achieved. In addition, ascetain \\'i'rrch among the following items are variable/varies in response to the
nonmarket based condition :
a. Number of options
b. Vesting Period
c. Fair value of oPtions
If non-market based vesting condition is not achieved, the option shall revert to the company'
sTocK APPRECIATION RIGHTS (Cash-settled share-based payments)
SARs are accounGE fo. similar with options (follow the same steps above)
with the following exceptions;
- SAR Payable is a financial liability to payaUte
pay in cash'
- Measurement: the value of the SAR (at fair value or intrinsic value) shall be updated at the end of
eacfr reporting y"u. during and after the vesting period until the liability is settled.
- The liability is-sbtttea at tfre prevailing fairlintrinsic of the SAR on the settlement date. shall be treated as
- Any changes in fair valuation at eaci balance sheet date and on the settlement date
mere change in estimate (currrent and prospective), charged to profit or loss.

RETAINED EARNINGS/ACCUMU LATED PROFITS

RETAINED EARNI ACCUMULATE TS- ATED
R.E, beginning
Prior pericc ac.lustments
(a) DPErrors (a) PPErrors
ibi Cnanoe rr Pc'.c;es i (b'l Chanqe in Policies
' RE, beg as adjusted
(c) DrvrOends Ceaiared frc:' earntngs
Possrbie rosses iiom cai'i3
ransactrors'
(f) Reversai of
!ncome
G)- 'r) Q'lasr-recrganizatlon
(h) Quasi-reorcai,zat.:^ ._ --_
ibr transactions' if
-Posstble tosses from captal tnngctons are firs
profits account
not enouqh, the batance is chatged to the accumutated

- Cash Dividend
Computation of Cash dividends payable: *
Number of shares outstanoinl-and subscribed
(% of cash dividend*PAR per share)

- Propertv and is no
ilJ;i::i';:f:t:?norru be recosnized onty when the dividend is appropriatelv authorized
longer at the discretion of the entity'
assers tu be distributed'
. An entity shoiti *"urrr" the dividelnd payabte at Fair value of rhe the entity shall review and adjust the
. At the end of each reporting period and'at the date of sitttement,
carrying u*ouit of the divi-dend pivZotu (restate at
fair ialue), w'ith any chan.ges in the carrying amount
to the amount of the distribution'
of the divideii pivioi,p recognized in uqrity as adjustments between the dividend payable and the carrying
. lJpon distribution, an entity should reco'gniie the difference
a'mount of the asset distributed in the
profit or loss'
dividend is a stock dividend of the
- stock Dividends or capitalization or Bonus Issue - An ordinary stock R special stock dividend i,s a stock dividend
same class; i.e., ordinary shares io snarenoioeii.
"roinurv
ofadifferentclass;l'e',p'efe"nt"thut"ttoordinaryshareholders'
a) less than 2ao/o ot the shares previously outstanding and subscribed, the stdck dividend is termed
earnings is equal to its current
small, in which case the amount to be charged tJretained
is termed larse
b) "a,Jli!?';'#i;" shares previousry ourstanding and subscribed, the stock dividend
Earnings is equal to par value'
in which case the amounr;i,;GiJ alainst Re[ained

-ScripDividends_AcorporationmaydeclareaScripdividendbyissuingpromissorynotescalledscrip'
retained elrnings to meet the legal dividend
This arises when the corporation nluy nuu"'adequate-
requirementr'urt-n"tinsufficientrunostodisburse'Ifthepromissorynotebearsinterest'thisis
charged to Interest ExPense'
Payable and scrlp Dividends
- Balance sheet classification - Dividends Payable, Property .Dividends
Dividends Distributable is an addition in the
payabte areltassiriea as tiabilities *r-,Li"ui'Stock
Stockholders' EquitY '