PAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Provisions
A liability with uncertain timing or amount.
Examples of provisions are:
 warranty obligations
 provisions for restructuring costs
 provisions for environmental damages

Recognition of a Provision

 There is a present obligation as a result of a past event (legal or constructive).

 It is probable that a future outflow of resources will be required to settle the obligation (more
likely than not to happen).
 The amount can be reliably estimated.

Contingent Liabilities
 Possible obligations that don’t meet all the criteria for recognition. Not recorded on the
financial statements.
 Disclosed in the notes to the financial statements if there is a possibility of an outflow of
resources, but only if the possibility is remote.
Contingent Assets
 Possible future inflows of economic benefits that don’t meet all the criteria for recognition. Not
recorded on the financial statements.
 Disclosed in the notes to the financial statements if it is probable that the inflow will occur.

Key Differences
 Provisions are recognized in the financial statements because it is probable that a future outflow
of resources will be required to settle the obligation.
 Contingent liabilities are not recognized because it is not probable that a future outflow of
resources will be required.
 Contingent assets are not recognized because it is not probable that a future inflow of resources
will occur.

REMEMBER
 Don’t recognize future operating costs as provisions.
 Disclose contingent liabilities except for those where the possibility of outflow is remote.
 Disclose contingent assets when it is probable that the inflow will occur.
 PAS 38 – INTANGIBLE ASSETS

Intangible Asset
 An identifiable non-monetary asset without physical substance.
Examples:
 Patents
 Copyrights
 Franchises
 Computer software
Recognizing Intangible Assets
An intangible asset can be recognized as an asset if it meets all of the following criteria:

1. It is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity.
2. The cost of the asset can be measured reliably.

Initial Measurement

 Intangible assets are initially measured at cost

 The measurement depends on how the intangible asset is acquired.

Subsequent measurement
Intangible assets can be subsequently measured using two methods:
1. Cost Model: The intangible asset is carried at its cost less any accumulated amortization and
any accumulated impairment losses.
2. Revaluation Model: The intangible asset is carried at its fair value at the date of revaluation less
any subsequent accumulated depreciation and subsequent accumulated impairment losses.
Amortization
It is the systematic allocation of the depreciable amount of an intangible asset over its useful life.
 Starts when the asset is available for use, in the manner intended by management.
 Stops when the asset is derecognized, classified as held for sale under PFRS 5, or becomes fully
depreciated.
 Does not cease when the asset is no longer used, unless one of the conditions above are met.
 Is recognized as expense, unless it is included in the cost of producing another asset.
Impairment - An intangible asset is impaired if its carrying amount is greater than its recoverable
amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in
use.
Derecognition - An intangible asset is derecognized when it is disposed of or when no future economic
benefits are expected from its use.
 PAS 40 – INVESTMENT PROPERTY
Investment Property
 Is land and/or building held to earn rentals or for capital appreciation or both.
 Investment property includes only land and building. It does not include any other type of asset.
 Investment property is held to earn rentals or for capital appreciation or both.

Recognizing Investment Property

For an investment property to be recognized, it must meet the definition of investment property and
these criteria:
1. Probable future economic benefits
2. Reliable measurement of cost
Initial Measurement
The cost of the investment property includes the purchase price and any directly attributable costs to
get it ready for rent or sale. These can be:
 Professional fees for legal services
 Property transfer taxes
 Other transaction costs
Subsequent Measurement
You have two options for measuring an investment property after purchase:
1. Cost Model: Simpler method. Tracks the original cost, minus accumulated depreciation (wear
and tear).
2. Fair Value Model: More complex method. Tracks the property's current market value.

Transfers
Transfers to or from investment property are made only when there is a change in use, as evidenced by
the following:
a) Commencement of owner-occupation, for a transfer from investment property to PPE;
b) End of owner-occupation, for a transfer from PPE to investment property;
c) Commencement of an operating lease to another party, for a transfer from inventories to
investment property; or
d) Commencement of development with a view to sale, for a transfer from investment property to
inventories.
Derecognition
You remove the investment property from your accounting records when:
1. You sell it.
2. You no longer expect future economic benefits from it (e.g., due to damage).
 PAS 41 – AGRICULTURE
Biological Assets
 Living plants and animals owned by a business that are used in agricultural activity.
 Examples are livestock, plantation trees, and other crops that are cultivated for harvest.
The following are NOT Biological Assets
a) Bearer plants - These are plants that are typically used for a long period of time and
continuously produce outputs. Examples include fruit trees and nut trees.
b) Agricultural Produce - Harvested products from biological assets. This includes fruits,
vegetables, and grains.

Recognizing Biological Assets

A biological asset qualifies for recognition if:
 The entity controls the asset as a result of past events (e.g. planting or purchasing)
 It is probable that future economic benefits will flow to the entity from the asset
 The fair value or cost of the asset can be measured reliably

Measuring Biological Assets

 Biological assets are initially and subsequently measured at fair value less cost to sell.
 Fair value is the price that an entity would receive to sell an asset or pay to transfer a liability in
an arm's-length transaction between knowledgeable willing parties.
 Cost to sell includes estimated costs of disposal, such as transportation and marketing.
Subsequent Measurement
The gain or loss arising from changes in the fair value less costs to sell of biological assets are recognized
in profit or loss.
Government Grants
 Unconditional grants related to biological assets measured at fair value less cost to sell are
recognized in profit or loss when the entity becomes receivable of the grant.
 Conditional grants are recognized in profit or loss only when the conditions attached to the
grant are met.

Key Points to Remember

1. Biological assets are living things and their value can change over time.
2. Bearer plants and agricultural produce are not considered biological assets under PAS 41.
3. Biological assets are recognized when they meet specific criteria.
4. The fair value less cost to sell approach is used to measure biological assets.
5. Changes in fair value are recognized in profit or loss.