FAR Notes
FAR Notes
FAR Notes
(60 days)
Philippine Interpretation Committee Overall Objectives: To provide financial information about the
To issue implementation guidance on PFRS reporting entity that is useful to existing and potential investors,
Members are appointed by FRSC lenders and other creditors in making decisions about providing
Replaces International Committee of ASC in 2000 resources to the entity.
Adj. Bal. XX XX XX XX
Poof of Cash
Account Receivables
Trade: Selling of Merchandise Initial Measurement:
Non-trade: Collectible within a year other than trade Principal Amount XX
Subscription Receivable; if collectible w/in 1yr Origination Fees (XX)
Advances to or Receivables from SH, Directors, etc Direct Origination Cost XX
Accrued Revenue Initial Carrying Amount XX
Advances to affiliates
Advances to suppliers *Initial Carrying Amount is used as basis to compute the effective
Creditor’s account debit balance interest.
Special Deposits on contract bids
Claims Receivables
*Freight Prepaid = Freight was actually paid by the SELLER Cash XXX
Discount on Note Payable XXX
Allowance for Doubtful Account Note Payable – bank XXX
PERCENTAGE OF SALE = Bad Debt Expense
PERCENTAGE OF ACCOUNT RECEIVABLES = Ending ADA Interest Expense XXX
AGING OF ACCOUNTS RECEIVABLES = Ending ADA Discount on Note Payable XXX
Accounts Receivable – assigned 700,000 ~transfer the remaining balance of assigned accounts to AR
Accounts Receivable 700,000
Accounts Receivable 365,000
Cash 555,000 Accounts Receivable – assigned 365,000
Service Charge 5,000
Note Payable – bank 560,000
NOTIFICATION BASIS
~issued credit memo for sales return on AR assigned P20,000 **Entity assigned P1,000,000 of AR to a bank. The bank advances 80%
less service charge of 4% of the face amount. The entity signed a
Sales Return 20,000 promissory note that provides for 1% per month on unpaid balance of
Accounts Receivable – assigned 20,000 loan.
~collected P300,000 of the AR assigned less 2% discount Accounts Receivable – assigned 1,000,000
Accounts Receivable 1,000,000
Cash 294,000
Sales Discount 6,000 Cash 760,000
Accounts Receivable – assigned 300,000 Service Charge 40,000
Note Payable – bank 800,000
~remitted total collections to bank plus interest for 1month
~collected P600,000 of the AR assigned less 2% discount. A check was
Note Payable – bank 294,000 sent to bank for interest due.
Interest Expense 5,600
Cash 299,600 Cash 588,000
Sales Discount 12,000
~assigned accounts of P15,000 proved worthless Accounts Receivable – assigned 600,000
~received notice from the bank that P300,000 of the assigned AR were
~remitted the total amount due to bank plus interest collected. Final settlement was made by the bank for the excess
collections together with the uncollected assigned accounts of
P100,000 CONDITIONAL SALE
DISCOUNTING
Without Recourse
*A P1,000,000 180-day, 12% note dated July 1 was received from a
customer and discounted without recourse on August 30 at 15%
discount rate.
Principal 1,000,000
Interest (1,000,000 X 12% X 180/360) 60,000
Maturity Value 1,060,000
Discount (1,060,000 X 15% X 120/360) (53,000)
Net Proceeds 1,007,000
Cash 1,007,000
Loss on Discounting 13,000
Notes Receivable 1,000,000
Interest Income (1,000,000 X 12% X 60/360) 20,000 Inventories
With Recourse
~*A P2,400,000 6-month, 12% note dated February 1 was received
from a customer and discounted on March 1 at 15% discount rate.
Periodic System – calls for the physical counting of goods on hand at *If there is a decline in purchase price after a purchase commitment
the end of the accounting period to determine quantities. has been made, a loss is recorded in the period of the price decline.
Perpetual System – requires the maintenance of records that usually ~The contract purchase price is P500,000 and the replacement cost at
offer a running summary of the inventory inflow & outflow. year-end is P450,000.
PURCHASE COMMITMENTS
Biological Assets Price Change = (New Price Old Age X # of Bio-asset)
Less (Old Price Old Age X # of Bio-asset)
Living Animals and Plants = B.A.
Agricultural Produce Physical Change = (New Price New Age X # of Bio-asset)
o As the produce grows = B.A. Less (New Price Old Age X # of Bio-asset)
o When harvested = Inventory (FV-COD @point of harvest)
Animals for Recreational Activities = PPE
Bearer Plants = PPE
o Used for supply of goods and services
o Expected to bear agricultural produce for more than 1yr
o Remote likelihood that the plant itself will be sold as
agricultural produce except for incidental scrap sales
*IMMATURE = Accumulated Cost
*MATURE = Cost or Revaluation Model
Bearer Animals = B.A.
Dual-Use Plants = B.A.
o Expected to bear agricultural produce
o The plant itself will be sold as living plant or agricultural
produce
Equity Investments *The fair value at the reclassification date becomes the new carrying
amount of the financial asset at amortized cost.
Securities Measurement
Held for Trading FVPL *The difference between the new carrying amount of the financial
asset at amortized cost and the face value of the financial asset shall be
Not Held for Trading FVPL
AMORTIZED THHROUGH P/L over the remaining life of the financial
*Not Held for Trading FVOCI by irrevocable election asset using EFFECTIVE INTEREST METHOD.
*The difference between the previous carrying amount and the fair
Debt Investments value is recognized in profit or loss.
Securities Measurement
Held for Trading FVPL
Held for Collection of RECLASSIFICATION from AMORTIZED COST to FVOCI
Amortized Cost
Contractual Cash Flows
*The fair value is determined at reclassification date.
Held for Collection of FVPL by irrevocable designation
Contractual Cash Flows or fair value option *The difference between the previous carrying amount and the fair
value is recognized in other comprehensive
Held for Collection of
Contractual Cash Flows and for FVOCI
*The effective interest rate and the measurement of expected credit
Sale of the Financial Asset
losses are NOT ADJUSTED as a result of the reclassification
Held for Collection of
FVOCI by irrevocable
Contractual Cash Flows and for
designation or fair value option
Sale of the Financial Asset
RECLASSIFICATION from FVOCI to AMORTIZED COST Sale of Equity Securities:
The difference of the carrying amount and the consideration
*The cumulative gain or loss previously recognized in other received on the sale of equity securities shall be recognized in
comprehensive income is removed from equity and adjusted against profit or loss.
the FV at reclassification date
RECLASSIFICATION from FVPL to FVOCI Dividends
Date of Declaration – date on which the payment of dividends
*The financial asset continues to be measured at fair value is approved by the BOD
Date of Record – date on which the stock and transfer book is
*Effective Rate is NOT ADJUSTED. closed for registration. Only those SH registered are entitled to
receive dividends.
Date of Payment – date on which the dividends declared shall
RECLASSIFICATION from FVOCI to FVPL be paid.
*The financial asset continues to be measured at fair value *Between the Date of Declaration and Date of record, the shares are
selling DIVIDEND ON.
*The cumulative gain or loss previously recognized in other *Between the Date of Record and Date of payment, the shares are
comprehensive income is reclassified to profit or loss at reclassification selling EX-DIVIDEND.
date.
Cash Dividend
*If the equity securities are measured at FVPL or FVOCI or at Cost,
dividends earned are considered INCOME.
Investment in Equity Instruments
Acquisition by Exchange: Property Dividend
1.) Fair Value of Asset Given Up *Considered as INCOME and recorded at FAIR VALUE.
2.) Fair Value of Asset Received *Shares of another entity declared as dividends.
3.) Carrying Amount of Asset Given Up
Noncash Asset XX
Lump-Sum Acquisition: Dividend Income XX
If two or more equity securities are acquired at a lump-sum,
the single cost is allocated to the securities on the basis of their
FAIR VALUE.
If only one security has a known market value, the amount
allocated to it is equal to its market value. The remainder will
be allocated to the other security with no known market value.
Liquidating Dividend Shares Received in Lieu of Cash Dividends
*Represent return of invested capital and therefore, NOT AN INCOME. ~A shareholder owns 10,000 shares costing P1,000,000. Subsequently
the shareholder receives 1,000 shares in lieu of cash dividend of P10
Cash/Other Appropriate Amount XX per share. The market value of the share is P150.
Investment in Equity Securities XX
Investment in Equity Securities 150,000
Dividend Income 150,000
Stock Dividend
*Form of issuing entity’s own shares. -If there is NO MARKET VALUE of share;
Shares Cost per Share Total Cost Cash Received in Lieu of Stock Dividend
Original Shares 10,000 120 P1,200,000 *In this case, the “AS IF” approach is followed. This means that the
Stock Dividends 2,000 - - stock dividends are assumed to be received and subsequently sold at
12,000 100 P1,200,000 the cash received. Therefore, a gain or loss may be recognized.
EQUITY METHOD
*Acquisition
Investment in Associate XX
Cash XX
Investment in Associate XX
Investment Income XX
Cash XX
Investment in Associate XX
Excess of Cost over Carrying Amount Investee with Preference Share
*If the assets of investee are FAIRLY VALUED, the undervaluation is *The investor shall compute its share of earnings or losses after
attributable to GOODWILL. deducting the preference dividends whether declared or not, if it is a
cumulative preference share. Conversely, if the PS is noncumulative, it
*If the excess is attributable to undervaluation of depreciable asset, it is deducted only when the dividend is declared.
is amortized over the remaining life of the asset.
*If the excess is attributable to undervaluation of land, it is not Discontinuance of Equity Method
amortized.
*The investor shall discontinue the use of the equity method from the
*If the excess is attributable to inventory, the amount is expensed date that it ceases to have significant influence over an associate.
when the inventory is already sold.
*The investor shall measure any retained investment in associate at fair
*Same as to excess of net FV over cost. value which will be the initial recognition as a financial asset.
*The investment is reported at nil or zero value. *Investment in Associate shall not be accounted using the equity
method if the investor is a parent that is exempt from preparing
*Additional losses are provided for or a liability is recognized, to the Conso-FS or if ALL of the following apply:
extent that the investor has incurred legal or constructive obligations or
made payments on behalf of the associate. The investor is a wholly-owned subsidiary or a partially-owned
of another entity and the other owners do not object to the
*If the associate subsequently reports income, the investor resumes investor not applying the equity method
including its share on income after its share on income equals the share The investor’s debt and equity instruments are NOT TRADED in
of losses recognized. a public market or “over the counter” market.
The investor did not file or it is not in the process of filing FS
with the SEC for the purpose of issuing any class of instruments
in a public market.
The ultimate or any intermediate parent of the investor Investment Property
produces Conso-FS available for public use that comply with
PFRS.
Investment Property – a property held by an owner or by the lessee
under a finance lease to earn rentals or for capital appreciation or
BOTH.
–only land and building can be qualified as
Investment in Bonds investment property.
FV on
Investment Inventory
FV P/L reclassification Sinking Fund Contribution may be Voluntary and Mandatory
Property or PPE
date
*It is VOLUNTARY if the sinking fund contribution is the result of a
FV on discretionary action of management
Inventory Investment
FV P/L reclassification
(as if sold) Property
date *It is MANDATORY if the sinking fund contribution is required by
FV on contract, usually with bondholders.
PPE Invst. Prop. Revaluation
FV reclassification
(revalue) / Inventory Surplus
date
Preference Share Redemption Fund
I.I Cost / C.A of *The terms of the preference share issue may provide that PS may be
No Gain or called in for redemption by the issuing entity. The issuing entity may set
Inventory ANY COST reclassification
Loss up a fund to insure the eventual redemption of the PS.
PPE date
*The beneficiary of the insurance must not be a family of the dead Cash XX
officer and the payment of the premium is simply charged to insurance Cash Surrender Value XX
expense. Life Insurance Expense XX
Gain of life Insurance Settlement XX
IFRS PIC
Amount paid to relocate squatters LAND BLDG
Cost to tear down old building LAND BLDG
Amt. recovered from salvage of demolition (LAND) (BLDG)
Grant Related to Income – this is government grant other than grant Excluded from Capitalization
related to asset. 1.) Assets measured at FV such as Biological asset.
2.) Inventories that are manufactured or produced in large
*A grant in recognition of specific expense shall be recognized as quantities on a repetitive basis
income over the period of the related expense. 3.) Assets those are ready for their intended use or sale when
acquired.
*A grant related to depreciable asset shall be recognized as income
over the periods and in proportion to the depreciation of the related
asset. Asset Financed by “Specific Borrowing”
*The amount of capitalizable borrowing cost is the actual borrowing
*A grant related to non-depreciable asset requiring fulfilment of certain cost incurred during the period less any investment income from
conditions shall be recognized as income over the periods which bear temporary investment of those borrowings.
the cost of meeting the conditions.
*A grant that becomes receivable as compensation for expenses or Asset Financed by “General Borrowing”
losses already incurred or for the purpose of giving immediate financial *The amount of capitalizable borrowing cost is equal to the average
support to the entity with no further related costs shall be recognized carrying amount of the asset during the period multiplied by a
as income of the period in which it becomes receivable. capitalization rate or average interest rate.
Land Improvement
*Must not be part of the blueprint, if it does, then it is part of building.
Building (P2LUMR)
Purchase price
Payment to tenants to induce them to vacant the building
Legal fess
Unpaid taxes up to date of purchase assumed
Mortgages, Interests and Liens assumed
Renovating and remodelling cost incurred
Royalty Payments on Machines:
Units Produced – based on Factory Overhead
Units Produced and Sold – based on Selling Expense
Depletion of the year = Depletion Rate X Units Extracted Revalued Amount – is the fair value at the date of the revaluation less
any subsequent accumulated depreciation and subsequent
Depreciation of Mining Property: accumulated impairment loss.
*Life of Natural Resources > Life of PPE = Straight Line
*Life of Natural Resources < Life of PPE = Output Method Basis of Revaluation
1.) Fair Value
2.) Depreciated Replacement Cost – is the replacement cost of
*Trust Fund Doctrine = Declaration of Div. < Unappropriated RE PPE minus the corresponding accumulated depreciation.
*It is the Sound Value of the asset.
*Wasting Asset Doctrine = Declaration of Div. > Unappropriated RE *It is used when market value is not available
Example:
Cost Replacement Cost Appreciation
Machinery 8,000,000 12,000,000 4,000,000
Accum. Dep’n 2,000,000 3,000,000 1,000,000
CA / SV / RS 6,000,000 9,000,000 3,000,000
Proportional Approach
Machinery 4,000,000
Accum. Depreciation 1,000,000
Revaluation Surplus 3,000,000
Elimination Approach Impairment of Asset
Accum. Depreciation 2,000,000 *The recognition of an impairment loss is covered by PAS 36 which
Machinery 2,000,000 deals with impairment of assets.
Internal Sources
1. Evidence of obsolescence or physical damage of an asset
2. Significant change in the manner or extent in which the asset is
used with an adverse effect on the entity
3. Evidence that the economic performance of an asset will worse
than those budgeted.
c. Acquisition by Exchange
Fair Value
Carrying Amount of Asset Given Up
d. Internally Generated
Borrowing Costs
Employee Benefits
Amortization of patents and licenses used to generate the
asset
Materials used and services consumed
Other direct costs, legal fees to register legal right
*Internally Generated that CANNOT be capitalize: Patent and Trademark
Brands
Mastheads Patent (20 years LEGAL LIFE)
Customer List Acquired by Purchase : Purchase Price + Direct Costs
Publishing Titles Internally Generated : Licensing and other related legal fees
Engineering and consulting cost to
Amortization of Intangible Assets develop and design changes
1. Intangible asset with FINITE or LIMITED life are amortized over
their life Amortization:
2. Intangible asset with INDEFINITE life are NOT amortized but are Indefinite Life: NO amortization
TESTED for IMPAIRMENT Impairment Test
*Residual Value shall be presumed to be zero, except: Finite Life: ORIGINAL PATENT – Legal or useful life whichever is shorter
When a 3rd party is committed to buy the asset at the end of COMPETITIVE PATENT – Remaining useful life of old patent
the useful life RELATED PATENT – to extend life; cost of related patent &
When there is an active market that the residual value can be unamortized cost of old is amortized over extended life
measured reliably - no extension; new patent is amortized
over its own life
Software Development Costs
Project Technological Available for Commercial *Legal fees and other costs of successfully prosecuting or defending a
Sold patent shall be expensed.
Initiated Feasibility Production