CASH AND ACCRUAL BASIS ACCOUNTS RECEIVABLE/NOTES RECEIVABLE/ADVANCES FROM CUSTOMERS BEG A/R END A/R X X BEG N/R END N/R X X END ADV FROM CUSTOMERS BEG ADV FROM CUSTOMERS X X SRA excl CASH REFUNDS SALES ON ACCOUNT X X RECOVERIES SALES DISC X X COLLECTIONS incl RECOVERIES X WRITE OFFS X WRITE OFFS END ALLOWANCE FOR DOUBTFUL ACCOUNTS BEG X X BAD DEBT EXPENSE X X RECOVERIES ACCOUNTS PAYABLE/NOTES PAYABLE/ADVANCES TO SUPPLIERS PAYMENTS BEG A/P X X PRA BEG N/P X X PURCH DISC END ADV TO SUPPLIERS X X BEG ADV TO SUPPLIERS PURCHASES X X END A/P X END N/P X BEG NET PURCHASES MERCHANDISE INVENTORY X X X X END COGS PPE BEG COST ACQUIRED ACCDEP, DERECOG END X X X X ACCUM. DEPRECIATION X X X X DERECOG @COST END BEG DEPRN EXP RENT RECEIVABLE/UNEARNED RENT - OTHER DEFERRALS BEG RENT REC END RENT REC X X END UNEARNED RENT BEG UNEARNED RENT X X INCOME COLLECTIONS X X PREP RENT/RENT PAYABLE - OTHER PREPAIDS BEG PREPAID ASSET END PREPAID ASSET X X END ACCRUED LIABILITY BEG ACCRUED LIABILITY X X PAYMENTS EXPENSE X X CAPITAL X X X WITHDRAWALS END BAL NET LOSS X X X BEG BAL ADDTL INVESTMENTS NET INCOME NOTE: If owner withdraws inventories or other non cash asset, drawings account is debited @ COST RE END BAL PRIOR ERRORS DIVIDEND DECLARED NET LOSS X X X X SFP/NET ASSETS X X X X INCR ASSETS DECR LIABILITIES DIVIDEND DECLARED NET LOSS X X X BEG BAL PRIOR ERRORS NET INCOME X X X X X DECR ASSETS INCR LIABILITIES INCR SHARE CAPITAL INCR SHARE PREMIUM NET INCOME CORRECTION OF ERRORS 1. BALANCE SHEET OR SFP ERRORS 2. INCOME STATEMENT 3. COMBINED A. COUNTERBALANCING B. NON COUNTERBALANCING BALANCE SHEET ERRORS AND INCOME STATEMENT ERRORS errors discovered and corected the same year; reclassification only prior year errors corrected subsequent year prior FS should be restated COUNTERBALANCING ERRORS TYPE I A/R MI end Accr Income Prep Expense Adv to Suppliers NI RE end CA WC UNDERSTATED last yr this yr + (-) + x + x + x OVERSTATED last yr this yr NI (-) + RE end (-) x CA (-) x WC (-) x TYPE 2 A/P Accr Expense Unearned Income Adv from Customers NI RE end CL WC UNDERSTATED last yr this yr (-) + (-) x + x (-) x OVERSTATED last yr this yr + (-) + x (-) x + x NOTE: Prepaid Expense and Unearned Income SHOULD BE EXPENSED/COLLECTED IN FULL the following year to qualify as counterbalancing ERRORS OR OMISSION IN THE FOLLOWING 1. Deferred expense or Prepaid Expense under Expense Method 2. Deferred Income or Precollection under Revenue Method 3. Acrrued Expense and Revenue OVER(UNDER) the following 1. Sales not recoderd in first yr and recorded subsequently or vice versa 2. Purchases 3. Ending Inventory NON COUNTERBALANCING ERRORS 1. Prepayments under ASSET METHOD 2. PRECOLLECTION under LIABILITY METHOD 3. Depreciation Errors 4. Improper expense capitalization 5. Improper expensing of capital expenditures 6. Proceeds of sale of asset (PPE) as Other Income Note: Effect on RE is always CUMULATIVE ILLUSTRATIONS A. 1 YR insurance of 12k paid Apr 1 whole amount debited to asset account year 1 year 2 dr cr dr cr Ins Exp 9k Ins Exp 3k Prep Ins 9k RE 9k (12k/12*9) 12k Prep Ins B. 1YR lease 12k received Apr 30 whole amount credited to Uneraned Revenue year 1 year 1 dr cr dr cr Un Inc 8k Un Inc 12k Rent Inc 8k 8k RE (12/12*8) 4k Rent Inc C. Depreciation Expense is under by 2k year 1 dr cr Dep Exp 2k AccDep 2k year 1 RE AccDep dr 2k cr 2k D. 10K Repairs charged to asset and Deprn based on 4yr life on Yr 1 and Yr 2. year 1 year 1 dr cr dr cr Rep Exp 10K RE 10k Asset 10K 10k Asset AccDep Dep Exp 2.5k 2.5k (10k/4) AccDep RE Dep Exp 5k 2.5k 2.5k E. Major repairs of 50k charged to expense. Improvements have 4yr life year 1 year 1 dr cr dr cr Asset 50k Asset 50K Rep Exp 50k 50K RE Dep Exp AccDep 12.5K 12.5k (50k/4) Dep Exp RE AccDep 12.5k 12.5k 25k F. Sold PPE costing 50k for 30k with AccDep 15k. Cash received recorded as Other Income year 1 year 1 dr cr dr cr Other Inc 30K RE 35K AccDep 15K AccDep 15K Loss 5K 50K PPE PPE 50K CASH AND CASH EQUIVALENTS CASH ITEMS Cash On Hand Cash In Bank Cash Fund for current operations Cash Fund for non-current operations a. Pension - GR: LT Inv XPN: Cash if current b. Redeemable Pref Shares - GR: LT Inv XPN: >3MOS Curr Inv <=3MOS Cash Equiv c. Contingent/Insurance Fund - LT Inv CASH EQUIVALENTS Time Deposits Money Market/ Commercial Papers Treasury Bills/ Notes/ Bonds Redeemable PS Note: If above CE items are: a. Originally Invested/Acquired for more than 3mos before maturity Remaining is <= 3mos ST Inv Remaining is >3mos but <= 12 mos Remaining is >1yr LT Inv b. Originally Invested/Acquired for <= 3mos before maturity CE Item PS: If item is does not fall within CE, it will always be Investment either Short or Longterm Reckoning period for securities a. With secondary market - 3mos from acqui date before maturity b. Without secondary market - duration Rules on Silent with regards to a. Treasury Notes/Bonds - LT Inv b. MM and Time Deposit - CE MEASUREMENT ISSUES AND TRICKS A. Cash in closed bank due to bankruptcy is measured at NRV, presented as NCA-Receivable B. Bank Overdraft > if different banks GR: Liability XPN: Offset if part of cash management or immaterial >if same bank GR: maybe netted XPN: not on restricte account netted overdraft should be added back to computefor correct cash in bank C. Compensating Balance GR: Silent, NOT LEGALLY RESTRICTED, part of cash XPN: LEGALLY RESTRICTED if ST as Current Receivable otherwise NCR D. Callable PS - Equity account of issuer, LT Inv of holder E. Unearned Credit Line - amount of credit applied approved by bank, disclosure only F. Treasury Warrants - cash G. Escrow Deposits - C/NC asset/liability PETTY CASH FUND Replenishment Check = Total Expenses +Short (-)Over Impurities - items do not belong to fund but for some reasons are found in petty cash box Accountabilities Cash Fund per Ledger plus Impurities except those uissued to client to settle advances taken out from PCF Petty Cash Accounted Petty Cash Accountability OVER(SHORT) x (x) xx PETTY CASH ACCOUNTED >coins and currencies >unexpensed employee contributions (Xmas Party, B-day)INTACT ONLY >A/R or Sales Collections CASH ONLY >unclaimed salaries >checks for deposit >stale checks >PDCs >unreplenished vouchers taken from PCF PETTY CASH ACCOUNTABILITIES >PCF Ledger balance >impurities except those issued to client to settle advances taken from PCF >unexpensed employee contributions (Xmas Party, B-day)INTACT OR NOT >A/R or Sales Collections CASH OR CHECK >unclaimed salaries >stale checks >comapany check in payment of liabilities eg utilities (if among checks for deposits) >undeposited collections Note: If silent, checks payable to cash is assumed accomodated check and not included in accountabilities Checks for deposit that are part of impurities and IF included in accounted must also be includedin accountabilities ADJUSTED PCF BALANCE Coins and Currencies x (except undeposited collections, employee contrib, unclaimed salary) Expenses out of PCF after reporting date Replenishment check Salary of PCF custodian Employee check in custodian's name x x x x (good checks only exclude NSF) xx Note: If there's unused supply and the related disbursement does not appear in unreimbursed vouchers INCLUDE IT otherwise exclude. BANK RECONCILIATION Rules on errors assuming using Adjusted Method > certified checks no longer outstanding under receipts over receipts under disbursements over disbursements + (-) (-) + ASSUMPTION: Reconciling items of LAST MONTH is recorded only in CURRENT MONTH Company POV LM-CM debited TM incr receipts LM-DM credited TM incr disb LM-over receipts credited TM incr disb LM-under receipts debited TM incr receipts LM- over disb debited TM incr receipts LM- under disb credited TM incr disb Bank POV DIT,end LM OC, end LM LM-over receipts LM-under receipts LM- over disb LM- under disb credited TM debited TM debited TM credited TM credited TM debited TM incr receipts incr disb incr disb incr receipts incr receipts incr disb Assumption: Bank errors are recorded the following month. PROOF OF CASH DIT,beg Deposits made TM Total deposits to be acknowledge Deposits acknowledged TM DIT, end x x x (x) xx OC, beg Checks issued TM Total checks to be paid Checks paid TM OC, end x x x (x) xx Note: Errors commited and corrected in same month, adjustment is on "as is" basis. If relating receipts adjust receipts tab regardless if over(under) DEPOSITS MADE AND ACKNOWLEDGED BY BANK Book Receipts unadj(dr) x CM-LM (x) errors LM corr TM: under CR (x) over CD (x) errors TM: over CR (x) under CR x DEPOSITS MADE xx Bank Receipts unadj(cr) CM-TM errors LM corr TM: under CR over CD errors TM: over CR under CR ACKNOWLEDGED x (x) CHECKS ISSUED AND PAID BY BANK Book disb unadj(cr) DM-LM error LM corr TM: over CR under CD error TM over CD under CD CHECKS ISSUED Bank disb unadj(dr) DM-TM error LM corr TM: over CR under CD error TM over CD under CD CHECKS PAID x (x) x (x) (x) (x) (x) x xx (x) (x) (x) x xx (x) (x) (x) x xx Note: DIT should exclude PDC, if included and recorded as receipts TM, assuming adjusted method reconciliation should be deduction to both Receipts and End of Unadj Book Balance TM Note: OC should exclude the ff: a) Company's PDC b)unreleased/undelivered company checks. If included as disbursement this month assuming adjusted method reconciliation should be deduct to disb and ending unadj book balance SUMMARY OF PROOF OF CASH (assuming adjusted method) Cash per Book/Bank LM-CM/DIT TM-CM/DIT LM-DM/OC TM-DM/OC Adjusted Balance Beg x x Receipts x (-) x (-) xx xx Disb x End x x (-) x xx (-) xx ERRORS - both Book and Bank; amounts presented is difference between correct and erroneous amount Beg ERRORS LM, CORR TM OVER CR UNDER DR OVER CD UNDER CD (-) x x (-) ERROR LM, NOT YET CORR TM OVER CR UNDER DR OVER CD UNDER CD (-) x x (-) ERROR TM, NOT YET CORR OVER CR UNDER DR OVER CD UNDER CD Receipts Disb End (-) (-) (-) (-) (-) x x (-) (-) x (-) x (-) x x (-) > If payment was made out of collections (internal control violation) Unadj Cash per Bank Paid Out of Collection Beg x Receipts x x Disb x x End x LOANS AND RECEIVABLES CURRENT a) TRADE - regardless of period/term from reporting date due to concept of normal optg cycle b) NON TRADE - only if realizable within 12 mos from reporting date NON CURRENT Non Trade receivables not realizable within 12 mos from reporting date INITIAL RECOGNITION > recognized simultaneously with revenue RECOGNITION ISSUES 1. BILL AND HOLD - billed customer but seller retains physical possession recognize revenue when customer obtains control: > customer initiated the agreement > separately identified as belonging to customer > ready for physical transfer to customer > entity can not use it or deliver to another 2. SHIPMENTS SUBJECT TO CONDITIONS a) Installation and Inspection - recognize revenue when cutomer accepts delivery and installation/inspection is complete b) On approval - customer has limited right to return; period of return lapsed 3. Lay-away sales - goods delivered only when buyer has paid the final installment; revenue is recognized when goods are delivered or significant deposits were made and goods are segregated and ready for delivery. INITIAL MEASUREMENT PFRS 15 - Transaction Price excluding estimates for variable consideration PFRS 9 - FV plus Transaction Costs SUBSEQUENT MEASUREMENT amortized (NRV) uising EIR method SHORT TERM RECEIVABLES ! Trade and Cash Discounts, exclude freight in calculation FREIGHT TERMS FOB-D FC FP FOB-SP FC FP BUYER (-)AP (+)AP SELLER (-)AR (+)AR INITIAL MEASUREMENT Transaction price when effect of discounting is immaterial SUBSEQUENT MEASUREMENT Face Value Allowance for Freight Allowance for Discount Allowance for Doubtful Accts NRV/Amortised Cost ACCOUNTING FOR BAD DEBTS DIRECT WRITE OFF ALLOWANCE - proper matching x (x) (x) (x) xx BDE A/R x BDE ADA x x x METHODS OF ESTIMATING BDE UNDER ALLOWANCE METHOD 1. as % of Sales (IS approach) - resulting amount is BDE 2. as % of AR (BS approach) - result is ADA, end Note: Any changes are treated as change in accounting estimate applied current and prospectively BDE - if granted by credit department G&A, if by sales department as Selling Expense BEG SALES ON ACCT RECOVERIES END WRITE OFFs ACCOUNTS RECEIVABLES(ADA) x x x x x x x x x x x x x END SRA SALES DISC COLLECTIONS INCL RECOVERIES WRITE OFFs BEG BDE RECOVERIES Allowance for Sales Discount PAS18 Sales Disc x Allow for SD x PFRS15 NE, because already considered in determination of transaction price Allowance for Sales Returns PAS18 Sales Ret x Allow for SR PFRS15 Asset for right to recover Refund Liability COS AFRTR Refund Liability Sales x x x x x x x AUDIT OF AR RELATED ACCOUNTS VALID SALES? RECORDED SALES? INVENTORY EXCLUDED ON COUNT? IF YES TO ALL, NO ADJ ENTRY VALID SALES? RECORDED SALES? INVENTORY EXCLUDED ON COUNT? Y N N dr AR cr Sales dr COS cr Inventory VALID SALES? RECORDED SALES? INVENTORY EXCLUDED ON COUNT? N Y Y dr Sales cr AR dr Inventory cr COS LONG TERM NOTES RECEIVABLES 1. INTEREST BEARING a) Realistic Rate - EIR=NR b) Unrealistic Rate - EIR=/=NR lump sum - PV of 1 uniform, end of yr PV of OA uniform, beg of yr PV of AD 2. NON INTEREST BEARING a) Periodic payment with cash price, FAIR VALUE = CASH PRICE b) Lump sum without cash price, PV of 1 c) Uniform no cash price, PVOA SUBSEQUENT MEASUREMENT amortized cost Face Amount Premium NR Disc on NR Loss allowance Amortized Cost x x (x) (x) xx Assumed entries on sale of asset x Notes Rec (face) x AccDep x Loss on Sale x PPE x Gain on Sale x Unearned Int (face less PV) Amortization of Interest x Unearned Int x Int Income ILLUSTRATIONS 1. IBN - Unrealistic - One time collection of principal > PV Principal + PV Interest = PV of Notes; Face less PV of Notes = Unearned Int Income > PV * 1.EIR - Cash Outflows = CV 2. Same with (1) but interest is semi-anually > all same except, period is multiplied by two and both NR and EIR is divided by two 3. IBN - Unrealistic - Uniform collection of principal Int based on outst Principal year prin sum Payment multiplied by NR 1 x x xx = 2 x add x xx * 3 x x xx PV of 1 factor x x x PV = xxx xxx xxx xxxx 4. NIBN - One time collection of pricipal > Face x PV of 1 = PV of Note 5. NIBN - Uniform collection of principal > if at end of year, use PVOA; if at the beginning use PVAD factors multiplied by uniform coll > to amortise both, PV * 1.EIR - Cash outflows = CV 6. NIBN with cash price and periodic payments > PV of Note = Cash Price > Face of NR less Cash Price = Unearned Int Income eg: Face 300, cash price 288, int is 12 Outstanding Fraction Int Alloc 300 3/6 12 6 200 2/6 12 4 100 1/6 12 2 600 Annual Collection = PV of Notes divided by PVOA or PVAD LOAN RECEIVABALE INITIAL MEASUREMENT > FV plus Transaction costs > Origination Fees recorded as Unearned Int Inc >Direct origination costs not chargeable to customers > Indirect origination costs are expensed Therefore, the initial CA : Principal Amount x Origination Fee (x) Origination Costs x Initial PV or CA xx Loan Rec x Cash x Record Loan Cash x Un Int Inc x Receipt of Origination Fees UII x Cash x Payment of direct origination costs Cash x Loan Rec x Int Inc x Collection and amortization of UII UII Int Inc x x SUBSEQUENT MEASUREMENT > Amortized using EIR method > higher Interest Rate lower PV Interpolation to get EIR Eff Rate lower x ? higher x PV assumed PV initial PV assumed PV Gaps xx xx xx xxx ? = LR + ((HR-LR)* Higher Gap/Total Gap) LOANS AND RECEIVABLE IMPAIRMENT PFRS 9 - Entity shall recognize in P&L the amount of ex[ected losses and reversals PAS39 PFRS9 Imp Loss P/L P/L P/L with limit* Reversal of IL P/L no limit * up to extent of previously recognized imp loss PV using original EIR vs would have been amort cost had there be no impairment lower amount less actual amort cost at date of reversal = imp recovery CA of Receivable less: PV using original EIR I Loss x (x) xx CA of Receivable 1. where receivable has NR=EIR (start date) Principal plus Accrued Int, if recorded only 2. where receivable has NR=/=EIR (start date) PV at Impairment date plus Accrued Int, if recorded only > date is from impairment date up to receipt of cash Loan Imp Accr Int, if any Loss Allowance date of impairment Loss Allowance Int Income amortization of loan imp x x x x x take the lower amount REVERSAL OF IMPAIRMENT 1. On Jan 1, 2019 5yr grant was awarded for 5M loan with 10% interest. On Dec 31, 2020 loan is considered to be impaired only 4M is collectible. No interest was accrued and prevailing rate is 12%. On Dec 31, 2021 borrower's condition improved and can pay its entire obligation including principal and interest Determine Gain on Reversal under PAS36 and PFRS9 Provide Jornal Entries Imp Loss : NR=EIR @ start date Principal 5000K PV of CF 3005.2K (4MxPV of 1 for 3yrs) ILOSS 1994.8K Int PV 12/31/2020 0 3005.2 12/31/2021 300.52 3305.72 12/31/2022 330.572 3636.292 12/31/2023 363.708 4000 Journal Entries 12/31/2020 ILOSS Allow for Loss 12/31/2021 Allo for loss Int Income 1994.8 SFP Presentation PFRS9 PV using orig EIR Principal Int,unpaid Total CF PV Factor actual PV reversal 3305.72 1694.28 5000 5000 2000 7000 0.8264 5784.8 3305.72 2749.08 if no impairment lower amount actual PV gain on reversal 5000 2000 (5M*.10*4yrs) 7000 0.8264 5784.8 5000 5000 3305.72 1694.28 1994.8 1994.8 ILOSS Allow for Loss 300.52 300.52 Allo for loss Int Income 300.52 Allow for loss 1694.28 Gain on reversal PAS39 PV using orig EIR Principal Int, unpaid Total CF PV of 1;2 1994.8 300.52 Allow for loss 1694.28 Gain on reversal 2479.08 SFP Presentation 3305.72 2479.08 5784.8 2479.08 RECEIVABLE FINANCING PLEDGE loan ASSIGN FACTOR sale DISCOUNT PLEDGING On 10/1/2018 pledged AR amounting to 1.5M to secure 1M loan with 12% interest rate deducted in advance 01-Oct Cash Disc NP NP 880 120 31-Dec Int Exp Disc NP 30 SFP Loans Payable 1000 -90 (120-30) 910 1000 30 120k*3/12 IS Int Exp 30 ASSIGNMENT a) Loan is set at specified percentage b) collateral, interest and service fees are charged to BORROWER c) occasionally debtors are notified to make payments to lender d) Assigned A/R is segregated JE if NON NOTIFICATION BASIS A/R Assigned x A/R JE IF NOTIFICATION BASIS x SAME x SAME x SAME To separate accounts Cash Service Charge NP Bank x x Record Loan Sales Ret A/R Assigned x Issue of credit memos Cash Sales Disc A/R Assigned x x x NP Bank Sales Disc A/R Assigned x x x Collection NP Bank Int Exp Cash Remittance x x Int Exp Cash x x x ADA A/R Assigned x x SAME x SAME Write off A/R A/R Assigned x Transfer from Assigned to unassigned BEG A/R Assigned x A/R Assigned, end NP, end Equity in Assigned account x (x) xx FACTORING Gross Amount of Receivable Less: Factor Fee Finance Charges Net Selling Price Less: Factors Holdback Net Cash Received x (x) (x) xx (x) xx x x x x x END COLLECTIONS DISCOUNTS RETURNS AND ALLOW. WRITE OFFs disclose to notes only Note: Factor's Holdback, aka Receivable from Factor is an amount retained to cover probable returns, discounts and allowances. Net Selling Price Less: Recourse Oblig, if any Net Proceeds Less: BV of AR G(L) on Sale x (x) xx (x) xx TYPES OF FACTORING a) CASUAL FACTORING - treated as outright sale G(L) = Proceeds less CA of Receivables WITHOUT RECOURSE Cash x ADA x Loss on Fac x Rec fr Fac x AR x Record Factoring WITH RECOURSE x Cash x ADA x Loss on Fac x Rec fr Fac AR Est. Recourse Oblig x x Cash x Sales Return x Rec fr Fac x same Return of Factor's Holdback less allowances N/A Loss on Fac Cash x x Transfer of recourse oblig with further payment N/A Est. Recourse Oblig x Gain on recovery x Transfer of recourse oblig without further payment b) REGULAR FACTORING - cost of factoring is debited to appropriate expense account WITHOUT RECOURSE Cash x ADA x Fees(net of ADA) x Int Exp x Rec fr Fac x AR x Record Factoring WITH RECOURSE x Cash x ADA Fees(net of ADA) x Int Exp x Rec fr Fac x x **Loss on Fac AR **Est Recourse Oblig x x **equal amounts Cash x Sales Return x Rec fr Fac x same Return of Factor's Holdback less allowances N/A Loss on Fac Cash x x Transfer of recourse oblig with further payment N/A Est. Recourse Oblig x Gain on recovery x Transfer of recourse oblig without further payment Rec fr Fac = CA Est Recourse Oblig = CL Cost of factoring is equal to loss on factoring or Factoring Fees plus Finance charges DISCOUNTING PROCEEDS Maturity Value Less: Discount MATURITY VALUE IBN NIBN x (x) xx Principal plus Int Face INTEREST TO MATURITY (P*R*T) P = Face Value T = entire term of note Maturity Date = when note is due/payable DISCOUNT Maturity Value * Disc Rate * Disc Period where Disc Period is from discounting date to maturity date CA OF NOTE Principal Add: Accrued Int from date of note to disc date GAIN OR LOSS Proceeds Less: CA of Note x x xx x (x) xx ENTIRE TERM OF NOTE TERM FOR ACCR INT DATE OF NOTE FS PRESENTATION IN CA SECTION DISC W/O RECOURSE AR x ADA (x) NR, net of NR DISC x Trade and Other Rec xx DISC W/ RECOURSE - contingent liability AR x ADA (x) NR x NR discounted (x) Trade and Other Rec xx DISC TERM DISC DATE DISC W/O RECOURSE - secured borrowing same but Add NR without netting MATURITY ILLUSTRATION On Jan 16 2018, accepted 600k 10% 90 day note from customer. On Feb 15 2018 note was discounted at 12%. At maturity note was dishonored and bank charged 2.5k MV= 600K + (600K*10%*90/360) MV= 615K PROCEEDS = 615K - (615K*12%*60/360) PROCEEDS = 602.7K CA OF NR Principal Accr Int 600k 5k 605k (600k*10%*30/360) JOURNAL ENTRIES a) DISC W/O RECOURSE Cash 602.7 Loss on Disc 2.3 NR Int Inc 600 5 Gain (Loss) Proceeds 602.7k CA OF NR 605K (2.3k) Loss b) DISC W/ RECOURSE - Conditional sale with contingent liability 602.7 Cash 2.3 Loss on Disc 600 NR disc 5 Int Inc NR Dishonored Cash incl protest fee NR Disc NR Disc SECURED BORROWING Cash 602.7 Int Exp 2.3 Liab for NR Disc Int Inc NR Dishonored Cash 600 5 617.5 Liab for NR Disc 600 NR 617.5 600 617.5 617.5 600 600 DISCOUNTING OWN NOTE > accounted for as regular loan >discounting means interest is deducted in advance Cash Disc on NP NP Bank x x x Int Exp Disc on NP x x EIR = Discount/Net Proceeds Note: Prime rate is the lowest possible bank rate charged to its credit-worthy clients Nominal or Stated rate is prime rate plus spread DERECOGNITION a) Collected, sold, condoned, exchanged for another asset, used to settle existing obligation or written off. GAIN OR LOSS ON DERECOGNITION Consideration Received CA at Derecognition date x (x) xx to P/L INVENTORIES INITIAL RECOGNITION > entity has control over asset as result of past event > probable that the future benefit will flow INITIAL MEASUREMENT > includes cost of purchase, conversion other directly attributable costs in bringing to present condition BEG NET PURCH RAW MATERIALS x x x x FG END USED WIP BEG DM, used DL App FOH x x x x x x END COGM BEG COGM x x x x END COGS ITEMS TO BE INCLUDED In Transit from Supplier a) SP b) D Consigned Out on Approval Buy-back agreement Right of Return Installment Segregated in Warehouse a) Special Order b) Hold for Shipping Instructions WHOSE INVENTORY ? Buyer Seller NOR Seller Seller Buyer Buyer Buyer, upon completion Seller REPURCHASE AGREEMENTS > entity sells an asset and promises or has an option to repurchase a) Forward Contract - entity is Obliged b) Option Call - entity has right c) Put Option - customer has right to require entity to repurchase PERPETUAL > Purchase returns and allowance, discount, Freight are recorded directly to inventory account > COGS is debited with credit to Inventory > shortages/overages and losses are charged to COGS if normal, otherwise Other OpEx/Income > LOW VOLUME HIGH COST eg cars PERIODIC > Purchase returns and allowance, discount, Freight are recorded in their specific account > HIGH VOLUME LOW COST > shortages/overages and losses are charged to COGS ALWAYS SUBSEQUENT MEASUREMENT > Lower of cost and NRV > usually written down to NRV ITEM BY ITEM NRV for the ff: a) Raw Materials and Factory Supplies > replacement cost, not written down below cost in w/c FG they're incorpo will bes sold at or above cost b) WIP > Est SP less Cost to Complete and Cost to Sell c) FG > Est SP less Cost to Sell WRITTEN DOWN AND REVERSAL > any written down to NRV, added to COGS > any reversal, added to COGS METHODS OF WRITING DOWN DIRECT : Mdse, beg at LCNRV Net Purchases Mdse, end at LCNRV COGS after writedown x x (x) xx Mdse, beg at COST Net Purchases Mdse, end at COST Loss on writedown Gain on Reversal COGS after writedown x x (x) x (x) xx ALLOWANCE Gain or Loss on writedown Mdse, end COST Mdse, end LCNRV Required Allowance Allowance, beg Gain or Loss x (x) x (x) xx If beginning balances, result is Allowance,beg COST FORMULA a) SPECIFIC IDENTIFICATION b) FIFO - same answer regardless if perpetual or periodic c) WA - TGAS/Units available = Unit Cost d) MOVING AVERAGE - unit cost is updated everytime sales and purchases are made UNIT COSTS FOR SALES RETURNS a) FIFO - unit cost of last sold b) MOVING AVERAGE - last available unit cost before the said return Note: Changes in inventory method, per PAS 8 accounted for as Change in Accounting Policy to be applied RETROSPECTIVELY ; type of counterbalancing error Inventory, end PRIOR METHOD Inventory, end NEW METHOD over (under) x (x) xx PURCHASE COMMITMENTS - non cancellable agreement to purchase goods in future at fixed price and quantity; if reasonable certainty that goods are impaired loss is recognized and any gain on reversals/recovery to extent of previously recognized loss ILLUSTRATION a) Commitment to purchase NE b) Impaired Loss on Purchase Comm Liability on Purch Comm x x c) goods were received Purchases (lower of purch comm cost or replacement cost) x x A/P or CASH d) Recovery of Imp Loss before receipt of goods Liab on Purch Comm Gain on recovery INVENTORY ESTIMATION a) GROSS PROFIT Based on sales Sales 100% COGS -75% GP 25% Based on Cost Sales 125% COGS -100% GP 25% x x only Sales Return is deducted due to physical flow of inventory Determine GPR a) Look for trend b) Average GP Yr 1 + GP Yr n / Num of Years c) Overall GP - if no trend and silent as to what to use GP Yr 1 + GP Yr n / Sales Yr 1 + Sales Yr n STEPS > GP Rate > Cost Ratio = 100% less GP Rate > Net Sales = Sales less Sales Return > Est. COGS = Cost Ratio * Net Sales > Inventory Loss TGAS x Est.Loss (x) Est. end Invty x Less: scrap, in transits, out on consign, physical count or held by third paty whouse b) RETAIL METHOD (in order of priority) Average FIFO Conservative STEPS > Cost Ratio F TGAS @ COST less BEG INVTY @ COST TGAS @ RETAIL less BEG INVTY @ RETAIL A TGAS @ COST TGAS @ RETAIL C TGAS @ COST TGAS @ RETAIL EXCL MARK DOWN > Ending Inventory @ Retail TGAS @ RETAIL NET SALES END, @ RETAIL x (x) x > Ending Inventory @ Cost Cost Ratio * End @ Retail > COS TGAS @ COST x End Inventory @ Cost (x) x COST COST ONLY Freight In Purchase Allowance Purchase Discount RETAIL ONLY Mark Up Mark Down M-UP Cancellation M-DOWN Cancellation Normal Shrink, waste, loss (deducted after getting cost ratio) Employee Disc (deducted after getting cost ratio) BOTH BEG INVTY PURCH PURCH RET TRANSF IN TRANSF OUT ABNORMAL LOSS (deducted to get amt to be used in computing cost ratio) RETAIL X (X) (X) X X (X) (X) X (X) (X) X X (X) X (X) (X) X X (X) X (X) (X) GUIDE QUESTIONS OF AUDIT OF AP AND OTHER RELATED ACCOUNTS VALID PURCH ? RECORDED PURCH ? INVTY INCL IN COUNT ? Y Y Y N N N Y N N dr Purch cr A/P dr Mdse cr COS N Y Y dr A/P cr Purch dr COS cr Mdse NO DJ ENTRY WASTING ASSETS > needs to be consumed to be used EXPLORATION AND EVALUATION PFRS 6 STAGES 1. EXPENSE - all pre-exploratory 2. ASSET or EXPENSE ? - all during exploration; capitalize the following: Rights acquisition, studies, exploratory drills, trench sampling and evaluation of commercial and technical feasibility 3. ASSET - all valuation, development, production and closure. > once technical feasibility is demonstrated Exploration and Evaluation costs are reclassified into Development Costs INITIAL MEASUREMENT > Natural Resources 1. Acquisition Costs 2. Exploration and Evaluation Costs 3. Development Costs ; tangible and intangible 4. Estimated Restoration Costs only to extent of recognized provision SUBSEQUENT MEASURE 1. COST or 2. REVALUATION with regards to Exploration and Evaluation Refer to PAS 16 PPE for Tangible Dev't Cost and PAS 38 for Intangible Dev't Cost PFRS 6 requires that capitalized Exploration and Evaluation Costs be tested for impairment in accordance with PAS 36; impaired if Recoverable Value is less than Carrying Amount DEPLETION Rate = Total Cost of WA less SV / Total Units to be Extracted * Units Exracted during the year where : Total Cost = Acqui + Expl + Intl Dev't + Est. Restoration Change in Estimated units to be extracted is a change in accounting estimate New Rate = Remaining Depleteable Cost / Remaining revised estimate of output * Units Extracted Change in asset retirement obligation is a change in ccounting estimate resulting difference is adjusted to COST OF WASTING ASSET and RELATED LIABILITY TO RESTORE Int Exp x ARO-restoration cost x WA x ARO-restoration cost Record of Interest Expense Increase in PV (REVERSE IF DECREASE) x DEPRECIATION OF MINING EQUIPMENT 1. IMMOVABLE a) Equipment life is shorter, USE IT b) WA life is shorter, use OUTPUT METHOD above 2 MOVABLE - useful life of equipment SHUTDOWN Depreciation = Remaining BV b4 shutdown/Remaining life of eqpmnt * units extracted RESUMED OPS AFTER SHUTDOWN Deprreciation = Rem BV after shutdown/Rem revised estimate of output * units extracted WASTING ASSET DOCTRINE RE, Unapplied Acc Depletion Capital Liquidated, prior year Depletion in Invty, end MAXIMUM DIVIDEND x x (x) (x) xx INVESTMENT PROPERTY PAS 40, LAND AND BUILDING held to earn rentals Held by owner of lessee under finance lease CLASSIFICATION ISSUES 1. PORTION CAN BE SOLD OR LEASED OUT SEPARATELY a) IP = portion rented out is for capital appreciation b) Owner Occupied = if for admin purposes 2. PORTION CAN NOT BE SOLD OR LEASED OUT SEPARATELY a) IP = owner occupied portion is INSIGNIFICANT b) OO = if IP portion is INSIGNIFICANT INTRA COMPANY RENTALS 1. CONSO FS - owner occupied for GROUP PRESENTATION 2. SEPARATE FS - IP by lessor if met the definition INITIAL MEASUREMENT Acquisition plus directly attributable costs to bring the property to its intended use PROPERTY LEASED BY LESSEE UNDER FINANCE LEASE TO BE USED AS IP Initial cost is lower of: a) FV of Property b) MLP - PV ACQUIRED THRU MONETARY, NON MONETARY OR COMBINATION Measure according to order of priority 1. FV given up plus cash paid 2. FV received less cash received 3. BV given up plus cash paid SUBSEQUENT MEASURE 1. COST MODEL 2. FV MODEL - without reduction for transaction costs and changes in FV to P/L Change of measure only if it will present more reliable, PAS 40 states change from FV to COST MODEL is unlikely to present more reliable data for presentation purposes SFP SCI-P/L FV MODEL IP Carried at FV Changes in FV COST MODEL Cost less Deprn less Iloss Deprn and Iloss TRANSFERS TO OR FROM IP 1. COST MODEL > CA does not change > No G/L 2. FV MODEL a) IP TO PPE/INVTY > cost for subsequent acctg shall be the FV at date of change in use b) PPE to IP > apply PAS 16 (OO) or PFRS 16 (Lease) up to change in use date > diff bet CA and FV treated as ff: Resulting decrease to CA to P/L to extent of revaluation surplus for that property Resulting increase to CA to P/L to extent it reverses previous Iloss, any remaing part of increase to Equity in Revaluation Surplus, upon disposal balance of Revaluation Surplus is transferred to RE. ORIG COST x AccDep (x) CA xx CA if no imp loss (x) IMP LOSS xx FV CA Change in FV x (x) xx Change in FV is applied in order of priority: 1. Imp loss previously recognized as reversal 2. Revaluation Surplus if with excess c) INVENTORY TO PPE > diff bet FV and prebiouis CA recog in P/L > treated as sales of inventories QUALIFYING ASSET AS IP > measured at FV at completion date > changes in FV from/to construction is charged to P/L DERECOGNITION > disposed > retired > no future economic benefit INTANGIBLE ASSETS > PAS 38 1. IDENTIFIABLE - separable and arises from contractual rights 2. CONTROL -obtain future benefits 3. FUTURE ECONIMC BENEFITS - increase revenue and decrease costs INITIAL RECOGNITION > meets definition, if not expensed > probable future benefits > cost measured reliably INITIAL MEASUREMENT > acquisition costs or other standards ie (PFRS 2 for sharebased settlements) XPN: 1. BusCom - FV at acquisition date 2. Grant - FV at grant date 3. Exchange a) with commercial subs - FV of asset given up/received b) no commercial subs - CV of asset given up 4. Self creation a) Research phase - expensed; if unable to distinguish if Research or Dev't b) Development phase - if met all, capitalize > Technical feasibility > Intention to complete/use/sell > Ability to use/sell > Probable future benefit > Measured reliably PPE and INTANGIBLES > If with future use, depreciation and amortization to R&D > no future use, R&D as expense SUBSEQUENT EXPENDITURES expensed, unless met the criteria: > probable future economic benefit > measured reliably SUBSEQUENT MEASURE a) COST MODEL - Cost less Amortization less Imp Loss b) REVALUATION MODEL PATENT > silent, legal life is 20 years > shorter of life or legal life RELATED PATENT a) Extend Life Related plus Old Patent Extended Life b) No extension New - over its life Old - over its life COPYRIGHT > 50 years after death FRANCHISE a) DEFINITE - Shorter of useful life or definite period b) INDEFINITE - tested for impairment LEASE RIGHT/IMPROVEMENT a) LEASE RIGHT - over lease term b) IMPROVEMENT - shorter of life of improvement or lease term > or if renewal is certain, shorter of extended lease term or useful life TRADEMARK > silent, legal life is 10 years CUSTOMER LISTS a) Purchased - capitalized b) Internally generated - expensed ORGANIZATION COSTS > Legal fees regarding incorporation > Incorporation Fees EXPENSED > Promotional and underwriting > Stock Issue Costs PAS 32 accounted as deduction to equity net of related income tax benefit, debited in ff order a) SP - issuance b) SP - other issuance c) RE GOODWILL a) Internally generated - not recognized b) BusCom - capitalized MEASUREMENT 1. Indirect - (PFRS 3) BusCom ; Consideration Transferred > FViNA 2. Direct or Excess of earnings approach - determines reasonableness of PURCHASE PRICE FViNA plus GOODWILL = PURCHASE PRICE a) Normal Rate of Return b) FViNA c) Future Earnings d) Period of Excess Earnings PROCEDURES > Get FViNA > Get normal earnings > Get average earnings = FViNA * Normal rate of return Total Earnings for # periods Less : Gain on sale of PPE Add : Loss on sale of PPE Total bonus to mgmt personnel Adjusted Earnings Divide : # periods Average Earnings x (x) x x xx x xx > Compute GW using different approcahes a) Purchase of Average of excess earnings Average Earnings x L : Normal Earnings (x) Average Excess x * # Periods x Goodwill xx b) Capitalization of average excess earnings Average Earnings x L : Normal Earnings (x) Average Excess x / Capitalization Rate x Goodwill xx c) Capitalization of average earnings Average Earnings x / Capitalization Rate x FViNA INCL GW x L : FViNA excl GW (x) Goodwill xx d) PV of discounted value of average earnings Average Earnings x L : Normal Earnings (x) Average Excess x * PVOA % x Goodwill xx Note : Goodwill is not amortised but tested for impairment If normal earnings is based on average net assets, to compue normal earnings: > Average the Total Net Assets for given period > Total Net Assets / # periods > Normal Earnings = Average Net Assets * Normal Rate of Return DERECOGNITION > disposed > no future benefits > G(L) on derecog to P/L as other income not Revenue SUBSEQUENT MEASUREMENT (SMEs) > at cost only <= 10 years amortization > R & D are all expensed > Initially at Cost plus DACs FS PRESENTATION > All Intangibles are NCA but Goodwill shall be presented as: a) Separate Line Item b) Included in Intangible Assets but heading must be Intangible Assets incl Goodwill being not possess attributes of identifiable per PAS 38 definition GAIN ON REVERSAL of IMP LOSS FV x BV if no IMP LOSS x Lower amount x BV @ revalued amount (x) Gain on Reversal xx CASH GENERATING UNITS smallest identifiable group ALLOCATION OF IMPAIRMENT IN ORDER > Reduce goodwill allocated to CGU > Reduce other assets within CGU pro-rata Limitation of Imp Loss > CA of Asset should not reduce below highest of a) FVCTS B) Value In Use c) Zero Note: No reversal of Imp Loss in Goodwill REVERSAL OF IMPAIRMENT LOSS > allocated pro-rata except Goodwill > CA of Asset shall not increase above the lower of a) Recoverable Amount b) CA had there been no Impairment Loss SUBSEQUENT MEASURE REVALUATION > Items of PPE whose FV can be reliably measured shall be carried at revalued amount HOW FREQUENT? > Significant/Volatile - anually > Insignificant - every 3 or 5 years Note: If an item of PPE is revalued, the entire PPE where it belong shall be revalued also REVALUATION OF DEPRECIABLE PPE HISTORICAL REPLACE COST MENT COST x x ACCDEP (x) (x) xx xx SOUND VALUE APPRECIAT ION x COST less SV divide by UL * age = AccDep (x) xx REVALN SURPLUS REVALUATION DOWN > Debited to Revaluation Surplus to extent of any credit balance in respect of that asset METHODS IN RECORDING REVALUATION > CA of that asset is adjusted to its revalued amount at revaluation date a) Proportional - both Gross/AccDep are adjusted in proportionate basis b) Elimination - AccDep is adjusted to Gross CA TRANSFER OF REVALUATION SURPLUS TO RE a) Disposal - whole surplus balance b) Continues usage Deprn on orig cost Deprn on revalued Transfer to RE x x xx Piecemeal realization = Revaluation Surplus / Remaining UL Revaluation Balance = Revaluation Beg less Piecemeal Realization Total Deprn = Deprn based on orig cost Piecemeal Realization or BV of Replacement Cost / UL π₯− π₯ πππ = π΅π ππΏ x x xx IMPAIRMENT OF ASSETS PAS 36 N/A to the ff: PAS 2 INVTY PFRS 15 Contracts w/ Customer - Contract Asset PAS 12 DTA PAS 19 Employee Benefits PFRS 9 Financial Assets PAS 40 Investment Property at FV PAS 41 Bio Asset at FV PFRS 4 Insurance PFRS 5 NCAHFS IMPAIRED WHEN CA > RECOVERABLE AMOUNT Recoverable amount is the higher of : Value in Use or FVCTS FVCTS = net selling price excl finance cost and income tax expense ViU = Discounted PV of future CFs πππ π·ππππππ‘π πΏπππ = πΆπΉπ ∗ ππ πΉπππ‘ππ a) continues use of asset b) disposal at end of UL πππ πΌππππππππ‘π πΏπππ = π΄πππ’ππ πΆπΉπ /π·ππ π π ππ‘π ππ‘ πππ − π‘ππ₯ π ππ‘π where Disc Rate is either WACC/ Incremental Borrowing Rate/Market Borr rate RECOGNITION OF IMPAIRMENT LOSS 1 REVALUATION MODEL - debit to revaluation surplus OCI 2 COST MODEL - debit to impairment loss P/L AGRICULTURE PAS 41 a) Bilogical Assets b) Agricultural produce at harvest point c) Gov't Grants at FVCTS Inapplicable to a) Agricultural produce after harvest PAS 2 Inventory b) Land related to agricultural activity (PPE/Leases/Inv Prop) c) Intangible assets related to agricultural activity PAS 38 BIOLOGICAL ASSETS - any living plant or animal AGRICULTURAL PRODUCE - harvested product from Biological Asset CONSUMABLE BIO ASSET - those harvested as agri produce or sold as bio asset BEARER BIO ASSET - held for more than one financial period capable of bearing consumable bio asset to be harvested as agri produce INITIAL RECOGNITION a) BIO ASSET / PRODUCE > controls asset as result of past events > probable future economic benefit > FV or cost can be measurede reliably b) AGRICULTURAL ACTIVITY > legal ownership > branding/marking of cattles INITIAL AND SUBSEQUENT MEASUREMENT BIO ASSET > measured at FVCTS if FV can not be measured, FVCTS is computed as ff: Estimated Sell Price at Market x L : Transport cost to bring to market (x) FV xx L : Cost to sell (x) Commisions (x) Tax Levies (x) Transfer Taxes (x) FVCTS xx AGRI PRODUCE > INITIAL at FVCTS > SUBSEQUENT refer to PAS 2 Inventories Note: If FV can not be measured reliably due to unavailability of quoted market price after considering PAS 2, 16 and 36 COST x AccDep/Iloss (x) CA xx this assumption is applicable only to BIO ASSET, not to AGRI PRODUCE being marketable commodity whose FV is readily available Costs incurred after harvest are expensed Bio Assets attached to Land shall be measured separately ; in case Bio Asset has no market COMBINED PRICE x FV of Land & Impr (x) FV of Bio Asset xx GAINS AND LOSSES FROM : 1. INITIAL RECOG TO P/L a) BIO ASSET - arise on determination of FVCTS or when a young is born b) AGRI PRODUCE - as result of harvesting 2. SUBSEQUENT - to P/L CHANGES IN FVCTS 1.PHYSICAL CHANGE 2. PRICE CHANGE Price Change Beg Yr 2 y/o (1 y/o) End Yr Physical Change 1 y/o (new born) CA of Bio Asset is presented in NCA section FV at end * Qty of animals per age FS PRESENTATION SFP - wether matture/immature, shall be presented as NCA for Bio Asset and Agri Produce at CA as Inventory SCI - Gain or Loss from sale of harvested produce and changes in FVCVTS to P/L GOV'T GRANTS CONDITIONAL - IF NOT COMPLIED (return entire grant); deferred the entire amount if allowed to retain portion ; deferred and amortised UNCONDITIONAL - grant becomes receivable and later on as income INVESTMENT IN SECURITIES 1. DEBT SECURITIES a) IAC - collect b) FVOCI - sell and collect c) FVPL - sell or initially designated 2. EQUITY SECURITIES a) FVPL - default classification b) FVOCI - irrevocable designation 3. DERIVATIVES - FVPL INITIAL MEASUREMENT > FV plus attributable transaction costs other than FVPL because expensed DETERMINATION OF FV FROM MOST RELIABLE TO LEAST 1. Active market, identical 2. Active market, similar 3. Non active market, identical or similar 4. Unobservable inputs SUBSEQUENT MEASUREMENT a) AMORTISED COST b) FVPL c) FVOCI IMPAIRMENT AND REVERSAL (PFRS 9) Gain or Loss recognition, diff between CA at derecognition date Consideration received, net of liability assumed x (x) xx to P/L New asset Servicing asset Loss on derecog Old asset Servicing liability Gain on derecog RECLASSIFICATION > change in business model > prospective application > reclassification date is FIRST DAY of period following the change of business model AVAILABLE RECLASSIFICATION PER PFRS 9 > available on DEBT SECURITIES ONLY to and from IAC/FVPL to and from IAC/FVOCI to and from FVPL/FVOCI SFP PRESENTATION 1. FVPL - Current asset 2. FVOCI - Check maturity, in case of debt securities, sold => 1 year as equity 3. IAC - Maturity EQUITY SECURITIES % of ownership <20% 20%-50% >50% Pref Shares FVPL/FVOCI FVPL/FVOCI FVPL/FVOCI Ord Shares FVPL/FVOCI Inv Assoc Inv in Subs INITIAL MEASUREMENT 1) FVPL - FV excluding transcation costs 2) FVOCI - FV plus transaction costs SUBSEQUENT MEASUREMENT at reporting date changes in FV (ug/ul) FVOCI FV OCI FVPL FV P/L UG(UL) 1. FVPL FV at measurement date CV previous rep date UG(UL) to P/L x (x) xx FV at measurement date CV previous rep date UG(UL) to OCI x (x) xx FV at measurement date COST UG(UL) to SFP x (x) xx 2. FVOCI Note : Acquisition between declaration and record date aka dividend on; dividend accrued on such investment shall be DEDUCTED from total consideration given to arrive at adjusted cost of investment Investment x Cash x Div Receivable x x Div Income Cash x DERECOGNITION Consideration received Dividend On (acquired) Transaction Costs NET SELLING PRICE New Asset obtained New Liability assumed CA at derecog date G(L) To record sale Cash x Loss x FVPL Gain x (x) (x) x x (x) (x) xx dividend is deducted if sold in between declaration and record date Cash RE x x Transfer of UG(UL) NE UG NE RE x x FVOCI RE x x x RE x x UL x SHARE DIVIDENDS 1. RECEIPT OF a) Same Class b) Different Class INV in Unquoted Securities FVPL FVOCI Memo FVPL @ FV x UG-P/L x FVOCI UG x x allocate ORIG COST using aggregate PAR Inv in Pref x Inv in Ord 2. REMEASURE OLD SHARES TO FV N/A x FVPL-PS UG x FVPL @ FV x UG-P/L x x FVOCI-PS x UG x FVOCI UG x x 3. CASH DIVIDENDS 4. PROPERTY DIVIDENDS 5. SHARES IN LIEU OF CASH Recorded as income at amount of cash receivable Recorded as income at FV of property receivable at declaration date Income equal to cash that would've been received Income at FV of stock received 6. CASH IN LIEU OF SHARES As if shares received and later sold G(L) equal to NET SELLING PRICE less CA CV b4 sh.divi + cost of sh.divi / orig sh + sh. Divi * same but CV of sold sh.divi is FV at declaration same to FVPL DIVIDENDS OUT OF CAPITAL/LIQUIDATING DIVIDENDS > Partial Liquidation - only to wasting assets Cash x Investment x > Full Liquidation - applies to all Cash x Loss x Investment x Gain x STOCK SPLITS 1. UNQUOTED - memo only 2. FVPL FVPL @ FV x UG 3. FVOCI x FVOCI @ FV UG STOCK RIGHTS aka Pre-emptive Rights Declaration Date Right On, can not be accounted for separately Record Date Ex Right, can be accounted for separately Exercise Date x x STOCK RIGHTS 1. Receipt UNQUOTED 2. Exercise Inv in Eq Cash MEMO ONLY x x 3. Expired 4. Sold FVOCI FVPL FVPL Cash x x MEMO ONLY Cash Investment x Note: No G(L) x Cash FVPL x x Note: No G(L) SR UG FVOCI Cash SR Loss SR SR Cash Loss SR SR Gain SR x x x x x x x x x x x Note : usually classified as accounted for as FVPL considered derivative and presented as CA THEORETICAL VALUE OF RIGHTS 1. SELLING RIGHT ON ππππ’π ππ πππ π ππππ‘ = ππ π ππππ‘π ππ − ππ’ππ ππ πππππ/# π ππππ‘π π‘π ππ’πππππ π πππ + 1 2. SELLING EX RIGHT ππππ’π ππ πππ π ππππ‘ = ππ πΈπ₯ π ππππ‘ − ππ’ππ ππ πππππ/# π ππππ‘π π‘π ππ’πππππ π πππ RECLASSIFICATION OF FVPL/FVOCI > PFRS 9 permits reclassification only to debt securities. > FVPL is a CA > FVOCI <= 12 mos is CA > FVOCI >12 mos is NCA Regular Purchase or Sale of Financial Assets TRADE DATE 1. When to recog FA commitment date 2. When to derecog FA commitment date 3. Recog change in FV fr Trade to Settle Date Purchase x FVPL x UG Sale Ignore SETTLE DATE delivery date delivery date AR UG Ignore x x Exchanges of Financial Assets 1. Conversion of PS to OS > recog G(L); diff of FV of new FA acquired over CA of Old FA 2. PPE for FA; in order of priority a) FV asset RECEIVED b) FV non cash asset GIVEN c) Cost/BV of non cash asset GIVEN 3. FA for PPE; in order of priority a) FV non cash asset GIVEN b) FV of asset RECEIVED c) Cost/BV of non cash asset GIVEN DEBT SECURITIES a) FVPL b) FVOCI c) IAC INITIAL MEASUREMENT > Except for FVPL, FV plus transaction costs whose FV is determined in ff order: a) Quotation in Active Market b) PV of CFs using EIR FVPL > Held for trading > Irrevocably designated > Others that do not meet requirements to classify as IAC/FVOCI INITIAL MEASUREMENT > FV, where transaction costs are expensed outright SUBSEQUENT MEASURE > @ FV ; UG(UL) to P/L > Premium or Discount is NOT AMORTIZED, hence interest income is based on NOMINAL RATE DERECOGNITION > G(L) to P/L > If sold between interest dates, deduct interest income Consid Received x Cash, net of Trxn Costs Int Income (x) Loss on sale Transac Costs (x) FVPL NET SELLING PRICE xx Gain o sale CA (FV fr previous rep date ) (x) Int Income(Rec) G(L) to P/L xx x x x x x IAC > To collect INITIAL MEASUREMENT > FV plus Transaction Costs incident to acquisition Proceeds vs Face Eff Rate vs Nominal at FACE P=FA E=N PREMIUM P>FA E<N DISCOUNT P<FA E>N Maturity Value Face Face Face ACQUISITION IN BETWEEN INTEREST DATES PV Principal x PV Interest x PV Last Int Date x from last int date to date of acqui Disc(Prem) Amort x(x) Accr Int (nominal rate ) x PURCHASE PRICE xx SERIAL BONDS Year Prin Coll + 1 x 2 x 3 x Int on Bal TOTAL PV of 1 x x x x x x x x x Purchase Price TOTAL PV XX XX XX XX BONDS WITH WARRANTS > allocate using relative FV SUBSEQUENT MEASURE > amortized using EIR method > no UG(UL) since not measured in FV amort of Disc amort of Prem Incr Decr both Investment and Interest Account INTERPOLATION > Higher Rates yields lower PV and vice versa πΏππ€ππ π ππ‘π + ( π»π − πΏπ ∗ (Higher Gap/Total Gap)) TERM BONDS AMORTIZATION SHORTCUT PV @ end of Previous Yr * 1.Eff Rate less ( Pricipal * NR) SERIAL BONDS AMORTIZATION PV @ end of Previous Yr * 1.Eff Rate less ( Total Collection incl Int on NR) DERECOGNITION OF IAC Consideration Received Int Inc if sold in bet dates Transac Costs NET SELLING PRICE Amort Cost @ derecog date G(L) to P/L x (x) (x) x (x) xx x Cash x Loss IAC Gain Int Inc (Rec) Cash (txn costs) x x x x FVOCI > Sell and Collect INITIAL MEASURE > FV plus Transaction Costs SUBSEQUENT MEASURE > FV > Still amortized using EIR > FV less Amort = Cumulative Amount presented in EQUITY UG(UL) FV at Year End Amort at Year End UG(UL) in Equity UG(UL) cumulative bal UG(UL) to OCI x (x) x (x) xx INT INCOME > same with IAC > PV beg of period * EIR DERECOGNITION OF FVOCI > Realized G(L) is prsented in P/L and cumulative G(L) recognized in OCI is reclassed to P/L Consideration Received x x Cash Int Inc if sold in bet dates x (x) UG-OCI Transac Costs x (x) Loss-P/L NET SELLING PRICE x x FVOCI Amort Cost @ derecog date x (x) Gain-P/L G(L) to P/L x xx UL-OCI Int Inc (Rec) x Note: UG(UL) DEBT v EQUITY 1. FVOCI-DEBT recycled to P/L 2. FVOCI-EQUITY Transferred to RE RECLASSIFICATIONS > allowed on DEBT SECURITIES ONLY > If there's change in business model > prospective application > start at FIRST DAY OF YEAR FOLLOWING CHANGE IN MODEL FVPL TO FVOCI > continue measure at FV > FV at reclass date is the new CA > new EIR must be determined based on FV at reclass date FVOCI FVPL FVPL TO IAC > FV at reclass date is the new CA > Difference bet FV at reclass date and Face amount is AMORTIZED to P/L over remaining term using EIR method IAC x > calculate new EIR based on FV at reclass date FVPL x x x FVOCI TO FVPL > continue measure at FV > FV at reclass date is the new CA > cumulative UG(UL) from equity is reclassified to P/L at reclass date FVPL x UG-OCI x FVOCI x Reclass Gain P/L x Reclass Loss P/L x UL-OCI x FVOCI TO IAC > reclassified at FV at reclass date > cumulative G(L) recognized in OCI is REMOVED from equity and adjusted against FV at reclass date > original EIR is used to amortize IAC x UG-OCI x FVOCI x IAC x IAC x UL-OCI x INITIAL CA OF IAC FV at reclass date x UG-OCI (x) UL-OCI x xx equal to Amort Cost had investment was measured at IAC from beginning IAC TO FVPL > measured at FV at reclass date > difference bet FV and amortized cost at reclass date is recog in P/L IAC TO FVOCI > measured at FV > difference bet FV and amortized cost at reclass date is recog in OCI > orig EIR is used to amort FVOCI x Reclass Loss P/L x IAC x Reclass Gain P/L x RECLASS G(L) > Diff bet FV @ reclass date and CA > Recog in either OCI or P/L RECLASS ADJ > recycling of UG(UL) to P/L > from unrealized to realized IMPAIRMENT PFRS 9 > IAC and FVOCI debt only > Reversal of Impairment Loss PAS 39 - Limited to previously recognized Imp Loss PFRS 9 - No Limit CA x PV of CFs using orig ER (x) ImpLoss (Reversal) x(x) EXPECTED CREDIT LOSS End Beg Gain Imp Loss FVOCI Imp Loss-P/L Loss Allow OCI SFP PRESENTATION PV or GROSS CA x x IAC Imp Loss-P/L Loss Allow SFP PV Loss Allow SFP Amort Cost x x x (x) xx SUMMARY INITIAL RECOG INITIAL MEASURE SUBSQ MEASURE G(L) REMEASURE INT INC (DEBT) DIV ON EQUITY IMP LOSS ILOSS REVERSAL FOREX G(L) RECOG G(L) UG(UL) IN OCI FVPL FVOCI IAC FVOCI DEBT/EQ/DERIV DEBT DEBT EQUITY RECOGNIZE ON SFP IF ENTITY BECOMES PARTY TO CONTRACTUAL PROVISIONS FV FAIR VALUE PLUS TRANSACTION COSTS FAIR VALUE AMORTIZED COST P/L OCI NET OF TAX N/A NR*FACE EIR*BEG AMORT COST EIR*BEG AMORT COST N/A P/L N/A N/A P/L N/A P/L P/L N/A N/A P/L NO LIMIT P/L NO LIMIT N/A P/L OCI P/L OCI P/L P/L P/L CLOSED TO RE N/A RECYCLED TO P/L N/A CLOSED TO RE INVESTMENT IN ASSOCIATE (JOINT VENTURE) > PAS 28 > investor has significant influence ie =>20% up to 50% > use PFRS 11 to know if Joint Arrangement is a Joint Venture > same pricilples apply in Investment in Associate/JV/Subsidiary (separate FS) using equity method INVESTMENT IN ASSOCIATE (NET INV INC) BEG ACQUI COST DIV RECEIVED X X SH in NI of ASSOC AMORT OF EXCESS (xpn GWILL) X X SH INCR in OCI IMP LOSS X X SH DECR in OCI X END X AMORT OF EXCESS (xpn GWILL) SH in NI of ASSOC X X IMP LOSS X END X Acqui Cost BViNA Excess Cost over BV Under value Over value GWILL (GBPO) x (x) x (x) x x(x) ADJUSTMENTS FOR AMORTIZATION RECOGNITION OF AMORT INVTY Upon disposal or sale LAND Upon disposal or sale DEPRECIABLE ASSETS Annual depreciation GWILL When Impaired Note: 1. G(L) on sale of Land of Subsidiary is not included in the computation of Net Inv Inc because it is already included in Subs Net Inc 2. SH in NI of Assoc need to be prorated base on time outstanding 3. SH in OCI need not be prorated ASSOCIATE OWNS PREF SHARES > investor computes his share in net inome of Assoc after deducting dividends to PS NI of Assoc x CUMULATIVE PS Pref Sh Divi (x) > Fix Rate * Par value * Outst * 1yr only declared or not NI to OS x NON CUMULATIVE PS ownership % % > Actual declaration only SH in NI of Assoc xx REDEEMABLE PS > treated as financial liability, dividend declared is treated as finance costs in P/L which is already deducted to arrive at NI of Associate CHANGES IN OWNERSHIP 1. COST TO EQUITY - account as if step acquisition 10% + 20%acqui = 30% (PAS 28) 2. DISCONTINUE EQUITY METHOD 30% - 20%sold = 10% remaining (PFRS 9) 30% + 30%acqui = 60% (PFRS 3 BUSCOM/PFRS 10 CONSO FS) > if investment becomes subsidiary account using PFRS 3 and 10 > if retained interest is Financial Asset, measure at FV per PFRS 9 > G(L) to P/L FV of retained interest x Proceeds x CA of Inv at discontinuance (x) G(L) to P/L xx STEP ACQUISITION (ππππππ πππππ πππ πππππ % πππ πππππ) ∗ %ππππππππ πππ = ππ½ π¨π ππππππ FV Adjusted + Consid Given new Acqui = Total Cost DEEMED DISPOSAL OF ASSOCIATE > investee issue new shares and investor did not acquire new shares 1. INVESTOR LOSES SIGNIFICANT INFLUENCE > recog in G(L) in P/L on partial disposal > discontinue equity method > reclassify Share in OCI to either P/L or RE > apply PFRS 9 Shares held before deemed disposal x / Outst shares after deemed disposal x New % of ownership x Investee Net Asset before issue Issue price new shares CA after issuance * % new ownership CA after deemed disposal CA before deemed disposal G(L) P/L x x x % x (x) xx 2. DOSE NOT LOSE SIGNIFICANT INFLUENCE > recog in G(L) in P/L on partial disposal > continue equity method > reclass Share in OCI of Assoc in proportion to decrease in ownership (πππ ππππππ ππππππ FROM CTRL/Sig Inf CTRL/Sig Inf FVOCI FVPL % ππππππππ πππππππππ) ∗ %π πππ ππ πππππππππ TO Remeasure G(L) FVOCI P/L FVPL P/L CTRL/Sig Inf OCI CTRL/Sig Inf P/L ASSOCIATE HAVING HEAVY LOSSES > if investor share in losses of assoc equals or exceeds its investment, DISCONTINUE recog further losses > losses are charged to other components of investor's interest in assoc in ff order: 1. Inv in Assoc 2. Inv in Pref Share 3. Unsecured longterm non trade loans or receivables > unrecog share in losses are provided as liability. If assoc subsequently reports profit, resume recog of share in income after its shares in profits exceeds or equals unrecog share in losses > first amount to be recovered is the last item deducted in sharing the losses. π΅ππ π°πππππ ππ π¨ππππ ∗ % πππππππππ ππππ πΌππππππ π³πππππ = π¨π π πΊππππ ππ π΅π° ππ π¨ππππ IMPAIRMENT (PAS 36) > apply PFRS 9 for impairment to other interest in associate not falling under PAS 28 > entire amount per PAS 28 is tested for impairment using PAS 36 Recoverable Amount (higher of ViU or FVCTS) x CA (x) Imp Loss xx Value In Use is calculated as either : 1. PV of share in income and ultimate disposal; or 2. PV of expected dividends and ultimate disposal INTERCOMPANY TRANSACTIONS DS UG(UL) ELIMINATE IN FULL Realized G(L) RECOG FULL Basic Formula Net Income of Assoc * % ownership Unrealized DS Unrealized US*%owned Realized DS Realized US*%owned Share in NI of Assoc x % (x) (x) x x xx Detailed Formula SALE OF INVENTORY NI of Assoc * % ownership SH in NI before Adj UPEI RPBI Adjusted SH in NI x % x (x) x xx SALE OF PPE NI of Assoc * % ownership SH in NI before Adj UG Realized Gain Adjusted SH in NI x % x (x) x xx US ELIMINATE SHARE RECOG SHARE If upstream, just multiply the UPEI/RPBI with the % owned If upstream, just multiply the UG/RG with the % owned ((Net Sell Price - BV)*Undepreciated Portion) Year of sale (Total Gain/Ulife) Subsequent to Yr of Sale assumed SL method INTERCOMPANY ADJUSTMENTS ADJ OF UG(UL) INVTY during iterco sale LAND during iterco sale DEPRECIABLE ASSET during iterco sale RECOG OF G(L) disposal to outside party as COGS disposal to outside party as GAIN annually as depreciation Note : Net unrealized gain on sale of PPE, year of sale is equal to (Total Gain * (Remaining Ulife/Ulife)) assuming a SL method is used FS PRESENTATION > Generally NON CURRENT; XPN NCAHFS under PFRS 5 TRANSAC COSTS DIVIDENDS SH in NI(L) SH in OCI(L) Change in FV of Investment Imp Loss review Imp Loss PFRS FOR SMEs COST EQUITY FV YES YES NO INCOME DECREASE INCOME N/A P/L N/A N/A OCU N/A N/A N/A P/L YES YES N/A P/L P/L P/L PPE (PAS 16) > includes BEARER PLANT used in Production of Agriclutural Produce expected to bear produce for > 1yr remote likelihood of being sold as agricultural produce except incidental scrap > Owner Occupied Properties (PAS 40) Recognition Issues a) To be sold - PAS 2 Invty b) Spare Parts - PAS 2 if <= 12 months; otherwise PAS 16 c) Major Parts - PAS 16 ; XPN PAS 2 d) Safety and Environmental Equipments > qualified as PPE under PAS 16 > although no direct benefit to existing PPE, it enables future economic benefits from related assets INITIAL MEASUREMENT > cost incl import duties, non refundable taxes and directly attributable costs WHAT INCLUDES DIRECTLY ATTRIBUTABLE COSTS? > testing costs, site preparation, professional fees, asset retirement obligation, installation insurance,freight and employee benefits MACHINERY > Water to cool, adjustments, safety rails, testing and trial, consultants, unloading charge and dismantling costs OLD and NEW Installation Costs a) MACHINE MOVED TO NEW LOCATION OLD INST expensed NEW INST added to new asset b) MACHINE IS REMOVED/ RETIRED OLD INST expensed NEW INST added to new asset ROYALTY PAYMENTS ON MACHINES a) Based on units of Production = to MFG OH b) Based on units produced and sold = to SELLING EXPENSE LAND > purchase price, survey, registration, legal fees, unpaid RPT up to DoAcq, payment to tenants to vacate the premises, option price of acquired land (expensed otherwise), prof fees liabilities assumed and escrow fees on acquired properties IMPROVEMENTS a) Not Depreciable = added to LAND b) Depreciable = if included in Building Blueprint, to BUILDING otherwise LAND IMP. c) Special Assesments = LAND d) RPT = expensed, unless related to acquisition Note : Building owned and Land Leased Out under Finance Lease IS NOT reported in the books of Lessor/Owner 1. Insurance a) CONSTRUCTION = BLDG b) Claim for Damages = Expense 2. Building Fixtures a) IMMOVABLE = BLDG b) Movable = F&F 3. Savings or Loss on Construction = not added nor deducted to cost of building ACQUIRED LAND AND BUILDING TOGETHER > allocate base on relative FV Purchase Price 1. FV of Old Bldg is INSIGNIFICANT LAND and DEMOLISHED 2. OLD Bldg is USABLE will be classified as: a) PPE b) INVTY c) INV PROP COST MODEL FV MODEL 3. OLD Bldg is USABLE but DEMOLISHED Common Costs Net Demolition Costs LAND NEW BUILDING allocate relative FV allocate relative FV INVTY INVTY NEW BUILDING added to cost of INVTY NEW BUILDING NEW BUILDING separate items, allocated based on relative FV one item as INV PROP common cost added allocate relative FV allocate relative FV NEW BUILDING cost allocated to BLDG charged as LOSS SCENARIO A Acquired property current year, intention to demolish and replace with new. Will not use old. New building will be used as PPE INV PROP INVTY alloc value old + const + demo COST OF NEW Constr + Demolition Constr + Demolition CV OF OLD loss on retirement capitalized as invty loss on retirement SCENARIO B Acquired property prior year, intention to demolish current yr and replace with new. Old bldg was used. New building will be used as PPE/INVTY/INV PROP COST OF NEW construction costs + demolition costs CV OF OLD @ time decided to demolish > recompute depreciation so that CV at planned demolition date is NIL > if there's still remaining balance charge as Loss on Retirement OTHER ITEMS 1. PATTERN DIES used in regular products = PPE > DEPRN used in special orders = COST OF PRODUCT 2. CONTAINERS RETURNABLE (BIG UNITS) = PPE>NCA RETURNABLE (SMALL UNITS) = NCA NOT RETURNABLE = EXPENSED ACQUISITION METHODS CASH > one item PPE > cash paid + DACs > if multiple item or basket price, allocate using relative FV ON ACCOUNT > invoice price less discount whether taken or not DEFERRED aka beyond normal credit > with available cash price equivalent, use it > difference bet CPE and Total payment is recog as INT EXP unless in accordance with PAS 23 > no CPE, PV of all payments ISSUANCE OF SHARES (R-I-I) PFRS 2 Equity Settled Trnxn FV property RECEIVED share premium or discount FV stock ISSUED Par stock ISSUED ISSUANCE OF BONDS PAYABLE (I-R-I) FV Bond ISSUED FV Property RECEIVED Face Bond ISSUED EXCHANGE GR: FV XPN if lacks commercial substance where FV of either is not measurable a) WITH COMMERCIAL SUBSTANCE (recognize Gain or Loss in Full) no cash involved (I-R-I) with cash involved FV Property Issued Payor : FV plus Cash FV Property Received Payee : FV less Cash Cost Property Issued TRADE-IN > new asset is recorded in ff order of priority a) FV asset given plus cash paid G(L) Fully Recognized = FV less BV given b) Trade In value plus cash paid G(L) Fully Recognized Cash Price w/o Trade In x Trade In plus Cash Payment Cash Price with Trade In (x) Trade In Allowance x BV Asset given (x) G(L) xx DONATED a) From Stockholder > credit Share Premium or Donated Capital at FV net of direct expenses b) From Non Shareholder > Income or Liability at FV plus direct expenses incurred GOVERNMENT GRANT (PAS 20) > recognized at FV when entity will comply with the condition or grant is receivable 1. related to expense, recog as income over period of expense 2. compensation for losses, recof as income when receivable 3. depreciable asset, recog in P/L over period in proportion to depreciation 4. non-depreciable, recog in P/L over period bear cost of meeting obligation PRESENTATION OF GRANT RELATED TO ASSETS GROSS METHOD 1. set up Deferred Income (Liability) Cash x > recog P/L in systematic basis over useful life of asset Deferred Income - Gov't Grant x > depreciation of asset provided normally NET METHOD Cash x PPE x > recog in P/L over life of depreciable asset as reduced deprn exp > deprn base on amount net of grant COST - SV - GRANT PRESENTATION OF GRANT RELATED TO INCOME 1. Other Income; or 2. Deducted in reporting related expense REPAYMENT OF GOVERNMENT GRANTS 1. Related to Income > change in Accounting Estimate, applied in ff order a) against unamortised portion b) loss on excess of repayment over unamort portion Deferred Inc - Gov't Grant x Loss x Cash x 2. Related to Asset > recog by increasing CA of Asset or reducing Deferred Income balance by amount repaybale Deferred Inc - Gov't Grant x Loss x Cash x Asset (total repaid) Loss Cash (total repaid) AccDep x FORGIVABLE LOAN - lender waives repayment of certain prescribed amount dr Loan Payable cr Inc from Gov't Grant x x x BORROWING COSTS (PAS 23) > for qualifying assets only Excluded from Capitalization 1. Qualifying Assets measured at FV 2. Inventories produced in large quantities, repetitive even if takes substantial time to complete 3. Non qualifying assets PERIOD OF CAPITALIZATION 1. Commence when MET ALL: > incurs expenditure for asset > incurs borrowing costs > undertakes activities necessary to prepare asset for its intended use 2. Suspend on period which it suspends active development of qualifying asset 3. Cessation is earlier between when substantially all are complete or no longer incurs borrowing costs CAPITALIZABLE BORROWING COSTS 1. Financed by Specific Borrowings 2. Financed by General Borrowings 3. Combination of both SPECIFIC BORROWINGS > all borrowing costs less investment income Actual Borrowing Cost (Loan * %) x Investment Income (x) Capitalizable BC xx difference is Interest Expense If compounded interest, divide rate by period and get the Future Value Factor 1.rate x = = nth GENERAL BORROWINGS STEPS 1. Get the Capitalization Rate πππ‘ππ π΅πππππ€πππ πΆππ π‘π πππ‘ππ πΊππππππ π΅πππππ€ππππ 2. Get the Weighted Average Expenditures > summation of products if you multiply the Expediture from Months Outstanding > If completed beyond one year, WAE is: Beg of Yr 2 incl total expenditures in yr 1 together with capitalized BC. Average from start to completion date of year 2 All other expenditures during Year 2 are averaged from Beg of Year up to end of construction 3. Avoidable BC = Cap Rate * WAE * Months Outstanding 4. Capitalizable BC = LOWER of actual BC and Avoidable BC FINANCED BY BOTH SPECIFIC AND GENERAL Specific Actual BC x Inv Income (x) xx General WAE, all x Principal Specific (x) WA General x * Cap Rate % xx WA BC xx YEAR 2 *months outst xx *months outst xx xx Capitalizable BC = LOWER of actual BC and WA BC Use company policy, if silent: WAE all <= Principal Specific, use SPECIFIC RATE * WAE WAE all > Principal Specific, use CAP RATE * WAE For expenditures incurred evenly, WAE = Total Expenses / 2 Note: Specific Borrowings used for General Purposes shall be treated as if General Borrowings hence, Investment Income is not deducted. SUBSEQUENT EXPENDITURES 1. Revenue Expenditures - Benefits current year only, expensed 2. Capital Expenditures - Benefits > one acctg period; capitalize if BIGGER, BETTER, LONGER Examples 1. Additions are capaitalized a) New Unit - depreciated over its Ulife b) Expansion - depreciated over shorter of its Ulife orr life of existing asset which it's a part 2. Improvements, if do not involve replacement of parts just added to cost of existing asset 3. Rearrangement Costs are capitalized and amortized over life of asset which it pertains Undepreciated cost of Orig Installation is expensed and related AccDep is cancelled 4. Only extraordinary repairs are capitalized MAJOR REPLACEMENTS 1. SEPARATE IDENTIFICATION IS PRACTICABLE Loss on Ret x x Asset Replacement @cost AccDep x x Cash Asset @cost x 2. SEPARATE IDENTIFICATION IS NOT PRACTICABLE Loss on Ret x x Asset Replacement @cost AccDep x x Cash Asset @assumed cost x assumed cost is Replacement Cost * PV of 1 use discount rate over EXPIRED ULIFE OF ASSET aka age of asset. SUBSEQUENT MEASURE 1. COST MODEL > Cost less AccDep less Imp Loss 2. REVALUATION MODEL > FV less AccDep > Provided FV can be measured reliably Depreciation starts when asset is AVAILABLE FOR USE DEPRECIATION METHODS 1. Composite Rate π΄πππ’ππ π·ππππ πππ‘ππ πΆππ π‘ > multiplied to Total Cost to get Annual Deprn 2. Composite Life Total Cost SV Depreciable Amt / Ulife Annual Deprn x (x) x x xx π·ππππππππππ π΄πππ’ππ‘ π΄πππ’ππ π·ππππ 3. SL/OUTPUT/MACHINE HOURS Annual Deprn is πΆππ π‘ − ππ πΏπππ ππ π»π π ππ ππ’π‘ππ’π‘ BV is 4. SYD πΆππ π‘ −ππ (πΏπππ ππ π»π π ππ ππ’π‘ππ’π‘ * Remaining ULife) + SV π π * (Cost -SV) * Months Outstanding if not bought at beginning of year AccDep is ππ’π ππ ππ ππ πΉππππ‘ππππ ∗ π·ππππππππππ πΆππ π‘ BV is ππ’π ππ πππ’π ππ πΉππππ‘ππππ ∗ π·ππππππππππ πΆππ π‘ + ππ 5. DECLINING BALANCE π ππ‘π = 1/πππππ * Declining Rate Depreciation Exp= π ππ‘π ∗ π΅π > Maximum Deprn at end of life is BV prior end of life less SV Note: Changes in depreciation or life of asset is accounted for as Change in Acctg Estimates PAS 8 and is accounted for Current and Prospectively STEPS IN CHANGES IN DEPRECIATION ESTIMATES 1. Compute BV at change date 2. Compute depreciation from change date prospectively using: a) Revised Ulife b) Revised SV c) New Depreciation method Fixed Asset turnover = πππ‘ πππππ π΄π£πππππ πππΈ,πππ‘ PFRS FOR SMEs PPE > Account only either Historical Cost less Deprn less Imp Loss; or FV less Deprn less Imp Loss GOVERNMENT GRANTS > without future performance condition = P/L when receivable > with future performance condition = P/L when conditions are met BORROWING COSTS >expensed immediately ACCOUNTING FOR INCOME TAX (PAS 12) Accounting or Financial Income - income appearing on FS determined using PFRS Taxable Income - income appearing on ITR determined using NIRC DIFFERENCES 1. PERMANENT > items included in either Financial or Taxable Income but will never be included in the other a) NOT TAXABLE INCOME > subject to Final Tax > exempt from Tax b) NON DEDUCTIBLE EXPENSES > not allowed to be deductible in Taxable Revenue > Fines, surcharges and Penalties, Life Insurance premium where entity is beneficiary > loss on expropriation, Impairment Losses, Charitable Contrib in excess of allowable Note: Permanent differences does not have future consequences, hence no DTA/DTL 2. TEMPORARY > Difference between CA of Asset and Liability per PFRS and Tax Base per BIR > Has future consequences creating DTA/DTL Tax Base Assets > amount deuctible for tax purposes against any taxable benefits that will flow when it recovers the CA > if economic benefits is not taxable, the tax base is equal to its CA Tax Base Liabilities > CA less any amount deductible for tax purposes in future period > Revenue received in advance, tax base is CA if liability less revenue that will not be taxable in future KINDS OF TEMPORARY DIFFERENCES 1. TAXABLE TEMPORARY DIFFERENCE (TTD) OR FUTURE TAXABLE AMOUNT (FTA) > creates DTL >DTL = FTA * Future Rate 2. DEDUCTIBLE TEMPORARY DIFFERENCE (DTD) OR FUTURE DEDUCTIBLE AMOUNT (FDA) > creates DTA > DTA = FDA * Future Rate Financial Inc > Taxable Inc CA of Asset > Tax Base CA of Liab < Tax Base refers to FTA (TTD) reverse the signs and you'll get FDA (DTD) METHODS OF ACCOUNTING TEMPORARY DIFFERENCES 1. INCOME STATEMENT - LIABILITY METHOD > focuses on Timing Difference only 2. BALANCE SHEET - LIABILITY METHOD > focuses on all temporary differences > preferred 1. PROCEDURES INCOME STATEMENT - LIABILITY METHOD a) Determine the taxable Income Accounting Income x Non Deductible Expenses x Non Taxable Revenue (x) * curr tax rate = Accounting Income Subject to Tax x * future tax rate = Increase FDA x * future tax rate = Increase FTA (x) * curr tax rate = Taxable Income xx Total Inc Tax Expense DTA DTL Current Tax Expense BALANCE SHEET LIABILITY METHOD **CA of Asset Tax Base Incr (Decr) Future Rate DTL (DTA) x (x) x % xx **CA of Liability Tax Base Incr (Decr) Future Rate DTA (DTL) x (x) x % xx ** at revaluation date Difference between BS-L and IS-L method is that the former use carrying amounts of assets and liabilities whereas the latter uses transactions and events ASSET LIABILITY FTA CA > TB CA < TB FDA CA < TB CA > TB DTL ARISING FROM ASSET REVALUATION 1. Compute DTL COST REVAL'N PPE x x AccDep (x) (x) Cost/Revalued x x APPRECIATION x (x) x Net Revaluation Surplus = Revaluation * (1-Tax Rate) DTL, date of revaluation = Revaluation * Tax DTL, end = (CA at End - Tax Base at End) * Tax Illustration Jan 1 2014 acquired Bldg for 5M. Revalued on Jan 1 2018 at 8M w/o change in Ulife Pre-tax acctg income before deprn is 4M. Tax rate is 30%. COST REVAL'N APPRECIATION Bldg 5000 8000 3000 AccDep -2000 -3200 -1200 Cost/Revalued 3000 4800 1800 Bldg AccDep Revaln DTL 3000 Deprn AccDep 800 DTL ITExp 90 1200 1260 540 800 (300*30%) 90 balancing fig (1.8m*70%) (1.8m*30%) ITExp ITPayable 1050 Revaln RE 210 1050 (1260/6) 210 4000 -800 3200 300 3500 * 30% 1050 incr FTA Balances Revaluation 1260-210=1050 DTL 540-90=450 CTExp 1050 ITExp 1050-90=960 COMPOUND FINANCIAL INSTRUMENTS Issued 1000, 4000 face bonds at 105. Matures 7yrs. At issuance the bond is selling at 98 w/o conversion feature. Tax rate is 30% Proceeds 4000*1000*105 Alloc to bonds 4000*1000*98 Alloc to conv DTL, date of recog 4200 -3920 280 30% 84 Cash Disc BP BP SP-Conv Ops DTL 4200 80 4000 196 84 280*70% 280*30% RECOGNITION OF DTA AND DTL 1. DTL shall be recognized in all temporary differences except: > initial recog is Gwill > initial recog of asset/liab which is not BusComb and at the time does not affect acctg/tax inc 2. DTL shall be recog where assoc w/ inv in subs/jv/assoc except: need both > Parent able to control timing of reversal of temp diff > Probable that temp diff will not reverse in forseeable future 3. DTA shall be recog: > not BusComb > at transac that doesn't affect acctg/tax income > temp diff will reverse in forseeable future > taxable profit will be available against temp diff EMPLOYEE BENEFITS 1. SHORT TERM > within 12 mos > for current employees 2. LONG TERM a) Defined Contribution Plan (DCP) b) Defined Benefit Plan (DBP) TYPE ENTITY OBLIG FIXED RISK DCP Contrib Contrib employee DBP Provide Benefit Benefit entity DEFINED CONTRIBUTION PLAN > entity pays fixed contributions and have no obligation to pay further. if <= 12 mos @ undisc amt Asset/Expense x Liability/Cash x if > 12 mos @ PV Asset/Expense x Liability/Cash x DEFINED BENEFIT PLAN/ DEFINED BENEFIT OBLIGATION > Benefit is definite > Possible actuarial gains or losses > discounted STEPS 1. Determine surplus or deficit a) Projected Unit Credit Method (PUCM) b) PV of DBO/DBP c) PV of DBP less FV Plan Assets 2. Determine Net Defined Benefit Liability 3. Determine Current Service Cost, Past Service Cost, Gains (Loss) Settlement in P/L 4. Remeasurements recog in OCI a) Actuarial G(L) b) Return on Plan Assets excl interests c) Change in Asset Ceiling ILLUSTRATION 1 Jan 1 2018 hired employees for 5yrs. At end, will pay 1M lumpsum remuneration Discount rate for actuarial valuation is 5% per year 1M/5yrs = 200 per year 200 PV of 1 at 5% 0.8227 Current SC 164.54 Opening 0 5% interest 0 CSC 165.54 Benefit Pd 0 Closing 165.54 Dr Expense 165.54 Cr Liability 165.54 200 0.8638 172.76 165.54 8.227 172.768 0 346.535 180.995 180.995 200 0.907 181.40 345.535 17.227 181.406 0 544.168 198.633 198.633 200 200 1 0.9524 190.48 200.00 761.91 544.218 38.095 27.211 200 190.476 0 0 1000 761.905 238.1 217.687 238.1 217.687 ILLUSTRATION 2 Jan 1 2018 payable on Dec 31 2022 equal to 4% of final salary each year. Year 1 salary is 1M to increase 7% each year. Discount rate is 10% per year Future Value Factor Future Salary 1.07 x = = = = 1.402552 1.402552 * 1000 = 1402.552 1.402552 * 4% = 56.102 Previous Current Total 0 56.102 56.102 56.102 56.102 112.204 112.804 56.102 168.906 224.41 168.306 56.102 56.102 224.408 280.51 CSC PV of 1 10% 56.102 0.683 38.318 0 0 38.318 0 38.318 38.318 38.318 56.102 0.7513 42.149 38.318 3.8318 42.149 0 84.299 45.981 45.981 56.102 0.8264 46.363 84.301 8.4301 46.363 0 139.094 54.793 54.793 56.102 0.9091 51.002 139.096 13.9096 51.002 0 204.008 64.912 64.912 Opening 10% Interest CSC Benefit Pd Closing Dr Expense Cr Liability 56.102 1 56.102 204.01 20.401 56.102 0 280.511 76.503 76.503 FV PLAN ASSETS > assets set aside for future payment of benefits > comprising of assets held by fund and qualifying insurance policies FAIR VALUE PLAN ASSETS BEG END X X INTEREST INCOME (Disc Rate * FVPA, beg) SETTLEMENT DBO X X CONTRIBUTIONS BENEFITS PAID X X REMEASUREMENT GAINS REMEASUREMENT LOSS X X Actual Return PA X Remeasurement Gain (Loss) x Settlement Price Interest Inc FVPA x x Plan Assets Transferred Actual Return PA (x) x Payments made by Entity Loss (Gain) xx (x) PV of DBO settled xx Loss (Gain) on Settlement PV DEFINED BENEFIT OBLIGATION BENEFIT PAID BEG X X PV DBO SETTLED CSC X X DECREASE DBO PSC X X INTEREST EXP (DiscRate * DBO,beg) END X X INCREASE DBO X NET DEFINED BENEFIT LIABILITY (ASSET) FVPA x If deficit, as is. DBO (x) If surplus, the DBL(A) is the lower of: Surplus (Deficit) xx > surplus in DBP > asset ceiling discounted using corporate bonds DEFINED BENEFITCOST P/L X X X X X X X INT EXP ASSET CEILING (DiscRate * EAC,beg) X CSC INT EXP DBO PSC LOSS SETTLEMENT DBO INT INC FVPA BEG GAIN SETTLEMENT DBO BENEFIT EXPENSE Net Interest Cost is the change in Net DBP Liability (Asset) thru passage of time EFFECT OF ASSET CEILING (EAC) 1. ASSUMING SURPLUS FVPA x DBO (x) Surplus x Asset Ceiling x Net Benefit Asset X aka Lower Figure between Surplus and Asset Ceiling Note: If surplus is > Asset Ceiling the EAC is computed as ff, otherwise NO EAC Surplus x Asset Ceiling (x) EAC x Interest Expense EAC to P/L = EAC,beg * DiscRate Note : Net Interest Income to be deducted against employee benefit expense Net Benefit Asset, beg * DiscRate or Int Exp DBO + Int in PA + Int Exp EAC Remeasurements of Net Defined Liability (Asset) is recog in OCI SHALL NOT BE RECLASSIFIED to P/L but maybe transferred to RE 2. ASSUMING DEFICIT Net Interest Expense is Net Benefit Liability, beg * DiscRate or Int Exp DBO + Int Inc PA EAC, end x EAC, beg (x) Incr (decr) x Int Exp EAC,beg (x) Rem loss (gain) on EAC to OCI xx INTREST EXPENSE P/L DBO, beg > FVPA, beg Net Defined Liability Net Interest Expense Net Interest Expense Net DBL * DiscRate Int Exp DBO less Int Inc FVPA INTEREST INCOME P/L FVPA, beg > DBO, beg Net Benefit Asset (lower of Surplus/Asset Ceiling) Net Interest Income Net Interest Income Net DBA * DiscRate Int Inc FVPA less Int Exp DBO less Int Exp EAC EAC, BEG Surplus, beg > AC, beg AC, beg > Surplus, beg EAC, beg Surplus, beg less AC, beg EAC, beg ZERO Interest Exp EAC EAC, beg * DiscRate Interest Expense ZERO EAC, END Surplus, end > AC, end EAC, end Surplus, end less AC, end Total Change in EAC EAC, end less EAC, beg Remeasurement Loss (Gain) OCI Total Change in EAC less Int Exp EAC AC, end > Surplus, end EAC, end ZERO STATEMENT OF COMPREHENSIVE INCOME - DEFINED BENEFIT COST P/L CSC PSC Net Interest Cost DBL (Asset) Loss (Gain) Settlement DBO Defined Benefit Cost - P/L x x x x xx OCI Actuarial Loss (Gain) Interest Income PA less Return PA Change in EAC less Int EAC Defined Benefit Cost - OCI Total Defined Benefit Cost Employee Benefits Expense Remeasurement Loss OCI Net Defined Benefit Asset (balancing) Cash (contributions to fund) x x x xx xxx xxx xxx x x x Remeasurement Gain OCI Net Defined Benefit Liability (balancing) x x x PROCEDURAL STEPS 1. Determine Surplus or Deficit at beginning of the Year FVPA, beg x DBO, beg (x) Surplus (Deficit) x If neither Surplus or Deficit, proceed to step 4 2. Determine Net Defined Benefit Asset and EAC at beginning of year > NDBA is if Surplus < Asset Ceiling > EAC is Surplus @ lower amount * DiscRate > If Deficit, as is and Zero EAC 3. Interest on EAC, beg to P/L EAC * DiscRate 4. FVPA T-Account and get the year end balance 5. DBO T-Account and get the year end balance 6. Get the Surplus (Deficit) at year end FVPA, end x DBO, end (x) Surplus (Deficit), end x Skip steps 7-10 if no Surplus (Deficit), end 7. Determine Net Defined Benefit Asset and EAC at end of year 8. Total Change on EAC EAC, end x EAC, beg (x) Incr (decr) x 9. Remeasurement (Gains) Losses Incr (decr) EAC x EAC, beg *DiscRate (x) (Gains) Losses x 10. Gain (Loss) Settlement of DBP Settlement Price x PV of DBO Settled (x) (Gain) Loss x 11. Use employee benefit expense T-Account to determine define benefit cost or employee benefit expense in P/L 12. Defined Benefit Cost to OCI and Total Benefit Cost Interest Income FVPA x Actual Return PA (x) Rem Loss (Gain) PA x Actual Loss (Gain) DBO x Net Rem Loss (G) OCI x Net Benefit Exp P/L x Net Rem Loss (G) x Total Defined Benefit Cost x LIABILITIES ASSERTIONS 1. EXISTENCE AUDIT PROCEDURE Purchase and A/P Cut-off Confirmation Inspection of docx Analytical Procedures 2. COMPLETENESS General and Subsidiary Ledger reconciliation Cut-off tests Unrecorded Liabilities Analytical Procedures 3. VALUATION AND ALLOCATION Reconciliation Confirmation Inspection of docx Recomputation Analytical Procedures 4. RIGHTS AND OBLIGATIONS Cut-off tests Unrecorded Liabilities Confirmation Inspection of docx Analytical Procedures 5. PRESENTATION and DISCLOSURE Compliance to debt agreements Proper presentation and disclosure LIABILITY > a present obligation arising from past events requiring an outlow of resources INITIAL RECOGNITION > Probable and measured reliably FINANCIAL LIABILITY > contracted obligation to deliver cash or entity's own equity instruments; arising from contract NON FINANCIAL LIABILITIES > settled through provision of service and delivery of non cash assets; arising from law FL @ FV > measured at FV > Transaction costs are expensed > changes in FV is recognized in P/L INTEREST BEARING NR = EIR ; Face Value NR =/= EIR ; Present Value NON INTEREST BEARING LONG TERM Present Value RECLASSIFICATION OF FINANCIAL LIABILITIES > PFRS 9 "in your dreams" DERECOGNITION > destroyed, cancelled, paid, expired > G(L) to P/L FS PRESENTATION (PAS 1) > settled within normal operting cycle regardless of term 1. CURRENT > within 12 months > held for trading > has no unconditional right to defer payment for atleast 12 months from reporting date 2. NON CURRENT 3. SETTLEMENT AND REFINANCING 4. BREACH > other than current > specifically set by standards like DTL > to be settled at maturity > with discretion to refinance for => 12 mos from reporting date is NCL > to refinance after reporting date for < 12 mos from reporting date is CL NON ADJUSTING EVENT > to refinance on or before reporting date for =>12 mos from reporting date is NCL > requires to settle within 12 mos is CL > grace period granted after reporting period for < 12 mos is CL a NON ADJUSTING EVENT > grace period is granted on or before reporting date for period => 12 mos from reporting date is NCL TRADE ACCOUNTS PAYABLE List Price Trade Discounts, rebates Initial Measurement Purchase Discount Initial Measurement x (x) x (x) x if using gross method if using net method EFFECT OF FREIGHT FOB is who should pay the freight charges Collect or Prepaid is who actually paid the feight charges FOB Destination - seller is the one who should pay the freight charges FOB Shipping Point - buyer is the one who should pay the freight charges BONUS CALCULATION 1. NI BEFORE BONUS AND TAX B = NI * RATE 2. NI AFTER BONUS BUT BEFORE TAX B = RATE * (NI - B); or B = RATE * (NI/(100%+RATE)) 3. NI AFTER BONUS AND TAX B = RATE * (NI - B - T) T = RATE * (NI - B) LEASE DEPOSITS 1. REFUNDABLE - depends on settlement date 2. NON REFUNDABLE - recog as liability and amortised as income over lease term DEPOSITS FOR FUTURE SUBSCRIPTION OF SHAREHOLDERS > a line item in SHE section PROVISION > present obligation > both probable and measurable > recog as regular liability CONTINGENCIES > present obligation > either probable or measurable > not recog but disclosed only in notes PROVISION > uncertin amount and timing > recog when : a) has present oblig from past events b) probable that outflow of resources will occure to settle oblig c) can be measured reliably BEST ESTIMATE EXPECTED VALUE sum of cost * probabilities MID POINT each point is as likely as the other CONTINGENT > existence is confirmed by occurrence or non occurrence of events > not within entity's control > not recog bu disclosed END REDEEMED END ACTUAL COST INCURRED PREMIUMS/REBATES X X X X X X X X BEG EXPENSE BEG ESTIMATED EXPENSE LONG TERM LIABILITES AND DEBT RESTRUCTURING ILLUSTRATION 1. (FVPL WITH CHANGES DUE TO CREDIT RISK) Jan 1 2018 4yr bond face 2M for 1935.152 8% interest annually Dec 31. Transaction cost of 10. On Dec 31 2018 bonds are quoted at 103% a) Interest Expense = 2M * 8% * 12/12 = 160 b) UG(UL) = 2M * 103% = 2060 - 1935.152 = 124.848 2. (FVPL WITHOUT CHANGES DUE TO CREDIT RISK) Jan 1 2018 10yr face 1500 coupon rate 8% which is equal to market rate. Entity observes benchmark rates. At inception is at 5% At end of year, benchmark decreased to 4.75% and FV of Interest Rate is 7.60% UG(UL) - OCI = 14.364 Inception 8%-5% = 3% End 4.75% + 3% = 7.75% FV at end using the 7.60% for remaining 9 years Face 1500 * .5172 775.8 Interest 1500 * 8% * 6.3521 762.252 1538.052 FV at end using the 7.75% for remaining 9 years 766.2 Face 1500 * .5108 Interest 1500 * 8% * 6.3124 757.488 1523.688 1538.1 -1523.7 14.364 UG(UL) - P/L = 23.688 1538.052 - 1500 = 38.052 - 14.364 = 23.688 UL-OCI 14.364 UL-P/L 23.688 Financial Liability 38.052 DERECOGNITION OF FL @ FVPL 1. Using the info in Illustration 1. Adding, Jan 3 2019 bonds were retired at 104% Ret Price 2M * 104% 2080 FL-FVPL 2060 CV 12/31/2018 -2060 Loss 20 Loss On Ret 20 2080 Cash 2. Using the info in Illustration 2. Adding, Jan 3 2019 bonds were retired at 104% Ret Price 1.5M * 104% 1560 FL-FVPL CV 12/31/2018 -1538.05 RE 21.948 Cash FL-IAC BONDS PAYABLE > FV plus Transaction Costs > FV is determined using the ff in order of priority: Active Market Quotation PV of Principal and Interest Payments SUBSEQUENT MEASUREMENT > amortized using EIR Method ILLUSTRATION 1. Jan 1 2018 issued 10% 3yr 1000 interest every year end a) Face Amt Cash 1000 BP 1000 b) To yield 8% PV Principal 1000 * 0.7938 PV Interest 1000 * 10% * 2.5771 c) To yield 12% PV Principal 1000 * 0.7118 PV Interest 1000 * 10% * 2.4018 d) To yield 12% quoted at 98 1000 * 98% = 980 Cash Disc BP 793.8 Cash 257.71 BP 1051.51 Premium 1051.5 711.8 240.18 951.98 951.98 49.02 Cash Discount BP 1000 51.51 980 20 1000 Note : use interpolation to amortized this kind of problems ISSUANCE AT INTEREST DATE OF SERIAL BONDS Jan 1 2018 6M NR 6% every Dec 31 EIR 8%. Mature every Dec 31 at 2M PV Principal 2M * 2.5771 5154.2 PV of Int 6M * 6% * 0.9259 333.324 4M * 6% * 0.08573 205.752 2M * 6% * 0.07938 95.256 5788.532 Periodic Payments yr 1 2M + (6M * 6%) yr 2 2M + (4M * 6%) yr 3 2M + (2M * 6%) CV at Year End 5788.532 * 1.08 - 2360 = 3891.615 3891.615 * 1.08 - 2240 = 1962.944 1962.944 * 1.08 - 2120 = 0 2360 2240 2120 1000 ISSUANCE BETWEEN INTEREST DATES > Proceeds is composed of 1) amount received from issuance and 2) accrued interest from interest date to issuance date ILLUSTRATION 1. Mar 1 2018 issued 12% 5yr 1000 at 98. Bonds were dated Jan 1 2018. Interest due annually Total Proceeds 1000 * 98% 980 980 Cash Accrued Int 1000 * 12% * 2/12 40 -20 Discount Proceeds applicable to bonds 1000 960 BP Int Exp/Payable 20 Amortize using interpolation 2. Jan 1 2018 issue 12% 5yr 1000 bonds. Interest due annually every Dec 31. EIR at 15% . Compute for proceeds assuming issued on: a) Jan 1 2018 PV Principal 1000 * 0.04972 497.2 PV Interest 1000 * 12% * 3.3522 402.264 899.464 899.464 * 1.15 - (1000*12%) = 914.384 CV at Year end b) Mar 1 2018 CV at Jan 1 2018 Disc Amort 14.922 * 2/12 Proceeds applicable to bonds Accr Int 1M * 12% * 2/12 Total Proceeds RETIREMENT OF BONDS 1. Update Amortization Table 2. Compute Gain or Loss Retirement Price CV of Bonds (G)L BP Premium Loss on Ret Cash, net Discount Gain on Ret 899.464 2.487 901.951 20 921.951 Note : No gain or loss if retired at maturity x (x) xx x x x x x x ILLUSTRATION 5yr 10% 1M bond issued on Jun 30 2017 to yield 8% due semi-annually Determine gain or loss if retired on: a) Jan 1 2018 at Face PV Principal 1000 * PV1 4% 10YRS X PV Interest 1000 * 5% * PVOA 4% 10YRS X PV at Issuance date 1081.145 CV at Dec 31 2017 1081.145 * 1.04 - (1000*5%) = 1074.391 Retirement Price CV at Jan 1 2018 Gain on Ret 1000 -1074.39 -74.931 b) Apr 1 2020 at 105 Retirement Price CV at 12/31/19 1044.562 Amort -4.109 Loss on Ret 1050 -1040.45 9.547 (1000*105%) > amort is deducted because issued at premium so decrreasing effect on CV > 3/6 because Jan 1 2020 to Apr 1 2020, semiannual 8.218 * 3/6 c) Jun 30 2020 NONE, because maturity date COMPOUND FINANCIAL INSTRUMENTS a) Debt Instruments with detachable warrants 1. Allocate Proceeds x FV Bonds (x) Value of Warrants xx 2. JE Cash x Disc BP x BP at Face Premium BP Share Warrants Outst x x x 3. Exercise of Warrants Cash x SP-SWO x x SC-Par x SP 4. Expired Warrants SP-SWO x SP x ILLUSTRATION 4000 10% 5YR Face Value 1000 at 98 on Jan 1 2018. Easc bond is entitled to warrants to purchase 20 shares of 50par at 55 per share. Interest payable every Dec 31. Prevailing interest without warrants is 12% Proceeds Principal Interest Warrants 4000 * 1000 * 98% 4000 * PV 1 12% 5yrs 4000 * 10% * PVOA 12% 5YRS 3920 -2269.6 -1441.92 208.48 Cash Disc BP BP SWO 3920 288.48 (4000- 3711.52) 4000 208.48 60% of warrants exercised Cash 4000 * 60% * 20sh * 55 SWO 208.48 * 60% Share Cap 4000 * 60% * 20sh * 50 SP-OS 40% expired SWO 208.48 *40% SP 45.382 45.382 2400 365.088 83.392 83.392 Cash Disc BP BP at Face Prem BP SP-Conv Ops RETIRING OF BONDS FV Bonds x CV Bonds (x) Loss (Gain) xx CONVERSION 1. Regular - no gain or loss 2. Induced - only loss 400 2640 125.088 CONVERTIBLE BONDS > use residual approach Proceeds x FV Bonds (x) Conv Ops xx FV Bonds Ret applicable Prin Incr (Decr) in equity 400 Int Exp Cash Int Exp Disc BP x x x x x > No gain or loss if retired at maturity x (x) xx BP at Face x Loss Ret x Prem BP x SP-Conv Ops x RE (balancing) x Cash,net ret price Disc BP Gain Ret SP-CO Par (balancing) x x x x REGULAR CONVERSION 1. Update the amortization table 2 BP at Face x Prem BP x SP-Conv Ops x Disc on SC (bal) x Cash,net price Disc BP SP-CO Par (bal) x x x ILLUSTRATION CONVERTIBLE Converted 5000, 1000 face 12% BP with CV 5248.634 for 100 OS with par 50. GV of BP at retirement is 5400. Assume convertible and SP-Conv Ops is 180 BP 5000 SP-Conv Ops 180 Prem BP 248.634 (5248.634-5000) OS 5000 SP 428.634 NON CONVERTIBLE BONDS - assume this if silent as to conversion Assume same facts but it is equity swap BP 5000 Loss Settlement 151.366 Prem BP 248.634 (5248.634-5000) OS 5000 (100*50) SP 400 INDUCED CONVERSION Face amt debt converted / new conv price # shares upon conv * FV of sh at conv date FV of sh converted Face amt debt converted / old conv price # shares upon orig conv * FV of sh at conv date FV of sh on orig conv Loss on Induced Conversion x x x x x x x x x x x (x) xx BP Loss Ind Disc BP OS SP (bal) x x x x x (# shares upon conversion) BONDS WITH REDEMPTION PRICE Issued 20k 10php 12% bonds on Jan 1 2018 at disc of 4% tobe redeemed on Dec 31 2020 at premium of 5% EIR of 15.1948% FV Principal 20k * 10 * (105% * 0.6542) 200 137.379 FV Interest 20k * 10 * 12% * 2.2759 -192 54.621 8 Disc 192 Disc Prem 10 * 20 * 4% 10 * 20 * 5% Interest Amortization 200 * 12% 24 192 * 15.1948% 29.174 Total 53.174 8 10 18 8/18 10/18 0.444444 0.555555 53.174 * 0.44444 53.174 * 0.55555 23.633 29.541 NOTES PAYABLE INITIAL MEASUREMENT > FV less Transaction costs,in absence of FV use PV INTEREST BEARING a) equal rates at Face b) unequal rates at PV NON INTEREST BEARING a) For Cash then PV is the cash received b) For non cash PV using this in order of priority 1. Cash Price Equivalent 2. PV of Principal Pmts Face Amount Disc NP Net CV x (x) xx SUBSEQUENT MEASUREMENT > amortized using EIR method LOAN PAYABLE INITIAL MEASUREMENT FV x Trxn Cost (orig fees) (x) Initial CV xx Note : Remember the formula for interpolation SUBSEQUENT MEASUREMENT > amortized using EIR method ILLUSTRATION Jan 1 2018 2500 5yrs 10% loan.Bank charges 5% non refundable loan origination fees Face (NR=EIR) 2500 Orig Fees 125 (2500 *5%) Initial CV 2375 Interpolate EIR for amortization assume 10% 2500 ???????? 2375 assume 12% 2319.7 125 55.3 180.3 = 10% + (12%-10%)(125/180.3) = 11.39 EIR DEBT DESTRUCTURING 1. DEBT FORGIVENESS 2. ASSET SWAP 3. EQUITY SWAP 4. MODIFICATION OF TERMS ACCOUNTING FOR COSTS INCURRED RELATED TO DEBT RESTRUCTURING > maybe treated as adjustment to amount recognized as gain (deducted from) or loss (added to) on extinguishment of debt DEBT FORGIVENESS > CV of Liability forgiven is simply recognized as gain on extinguihment of debt in P/L ASSET SWAP CV of Asset Given CV of Liability Ext Loss (Gain) on ext x (x) xx EQUITY SWAP **Share Capital Issued CV of Liability ext Loss (Gain) on ext x (x) xx ** Initial measurement in order of priority 1. FV of Equity Instrument 2. FV of Liability extinguished 3. CV of Liability extinguished, hence no gain or loss Note: Entity shall not apply these rules if 1. creditor is direct/indirect shareholder 2. creditor and entity is controlled by same party/ies before and after transaction 3. Extinguishment by issuing equity instrument was in accordance with the original terms MODIFICATION OF TERMS 1. Reschedule or modify the maturity dates 2. Modify interest or ,maturity value or both 3. Exchange debt instrument with substantially different terms > entity recog ext of old liability and the new financial liability > substantially different if => 10% of CV of old liability was the resulting gain or loss on ext. > gain or loss recog immediately PV of modified term using orig EIR x CV of liability extinguished (x) Loss (Gain) on extinguishment xx whether substantially diff or not recog in P/L OLD TREATMENT NEW TREATMENT Old Liability ADJUSTMENT PV OF MODIFIED TERMS IS BOTH BASED ON ORIGINAL EFFECTIVE RATE PV less CV Old Liability NOT RECOG GAIN/LOSS IN P/L EIR Calculated on new CF Original MODIFICATION - SUBSTANTIALLY MODIFIED ILLUSTRATION Old Liability Principal 8000 12% Interest 840 New Liability Principal 7000 Forgave 840 interest Modified maturity for 2 yrs Changed interest to 10% PV of new liability using original EIR Principal 7000 * 0.7972 Interest 7000 * 10% * 1.6901 CV of Liability Gain on Ext NP Old Int Payable Disc NP (bal) NP New Gain on Ext 5580.4 1183.07 Ratio : 2076.53/8840 = 23.49% 6763.47 8840 -2076.53 8000 840 236.53 7000 2076.53 If not substantially modified, JE would be Disc NP x or Loss on Modif x Gain on Modif x Disc NP x LEASE FINANCE LEASE > transfers substantially all risks and rewards incidental to ownership, the right to use an asset for a period of time. Title may or may not be transferred OPERATING LEASE > other than finance lease CRITERIA TO BE CONSIDERED FINANCE LEASE (PAS 17) 1. Transfer of ownership 2. Bargain purchase option aka Price lower than FV 3. Lease term is =>75% of useful life 4. PV of MLP is => 90% of FV of leased asset Other Criteria 1. Specialized nature 2. Losses borne by lessee 3. G(L) from Changes in FV accrues to lessee 4. Extension of lease term at lessees option OPERATING LEASE SUMMARY LESSEE LESSOR Periodic Rentals Expensed Income Unequal Payments Total recog as expense Total recog as income over lease term over lease term Lease Bonus Asset, amortized over Liability, amortized over lease term lease term Contingent Rent Expensed in period Income in period arise arise Refundable Sec Dep NCA, affected by NCL, affected by Time Value Time Value Amortization shall be SL unless specified Lease Bonus / Lease Term Rent Inc/Exp x (x) xx Unequal Rentals Total / Lease Term Rent Inc/Exp x (x) xx Accrued/Prepaid Rent Expense, to date Rent Payments, to date Accrued (Prep) Rent x (x) xx OTHER COSTS OPERATING LEASE 1. INITIAL DIRECT COSTS Paid by Lessee Paid by Lessor LESSEE Expense n/a LESSOR n/a Capitalized to leased asset 2. EXECUTORY COSTS Paid by Lessee Paid by Lessor Expense n/a Income Expense 3. Leased Asset NOT Recognized Continue recognition and deprn 4. Improvements Capitalized, depr over shorter of life of impr or lease term; SV is NIL because revert back to Lessor n/a OPERATING LEASE - COMPREHENSIVE ILLUSTRATION Jan 1 2018 5yr non renewable operating lease. The office being leased has 50yrs life and lease specifies 20k per month Independent Cases a) Total Rent Expense 2018 20 * 12 = 240k b) 9 months free rent, rent expense 2019 and accrued rent 2018 20 * (60-9) 1020 Expense to date 204 * 2 = 408 2019 Term 60mos Payments to date 20 * 15mos = 300 Per month 17k Accrued rent = 108 * 12 mos Rent Exp 2018 204 c) First 2yrs at 20k per month last 3yrs at 25k per month. Rent expense 2018? Acrr Rent 2019? 20 * 24 480 Expense to date 276 * 2 = 552 2019 25 * 36 900 1380 Payments to date 20 * 24 = 480 / 60 mos Accrued Rent = 72 23 * 12 mos Rent Expense 2018 276k d) Lease bonus 60k and 40k deposit, rent expense 2018? Periodic Rental (20 * 12) 240 Lease Bonus (60/60mos*12mos) 12 Total Rent Expense 2018 252 e) Lessor paid initial direct cost of 6k and insurance of 30k for 2018. Deprn for office space is 30k. Rent income of lessor for year 2018? Monthly rent 20*12 240 Insurance 30 Deprn 30 Amort of Direct Costs 6/60*12 1.2 Net Income 178.8 f) Additional rent at 6% of net sales over 1500 up to 3000 and 5% of net sales over 3000 per calendar year. Net sales were 5000 Periodic 20*12 240 Contingent 1500 * 6% 90 (5000 - 3000)5% 100 Rent Expense 2018 430 FINANCE LEASE - LESSEE BOOK > lessee shall record an asset and lease liability equal to lower of FV of Leased Property at inception or PV of Minimum Lease Payments INITIAL MEASUREMENT LOWER of FV of Leased Asset PV MLP SUBSEQUENT MEASUREMENT > amortized using EIR method Note: If FV of asset is lower than PV MLP, interpolate to get the EIR for amortizing lease liability ACQUISITION COST LOWER of FV of Leased Asset PV MLP DIRECT COSTS INITIAL DC COST OF ASSET TO BE CAPITALIZED Computation of MLP PV of periodic Rental Payments PV of BPO, if transf to Lessee PV of GRV, if retained by OR PV of Minimum Lease Payments x x x xx Priority of rates to be used in computing PV MLP 1. Implicit Rate 2. Lessee Incremental Borrowing Rate SUBSEQUENT VALUATION OF LEASED ASSET 1. If with transfer of ownership > depreciate over leased asset's life > SV at end of life If periodic rental payments is not available FV Leased Property x PV of (U)GRV or BPO (x) PV Periodic Rentals x / PV Factor x Periodic Payments xx 2. If without transfer of ownership > depreciate over shorter of life of leased asset or lease term > gross amount of guaranteed RV ILLUSTRATION 4yr lease of machine for 267.845. Machine has 10yr life with 40 RV at end of life Depreciation (267.845-40)/10yrs = 22.785 assume incl 20 guaranteed RV Depreciation (267.845-20)/4yrs = 61.961 LEASE OF LAND AND BUILDING GR: Operating XPN: Lease extends for a very long period of time If accounted for as Finance Lease, the Land and Building: 1. With relative FV, allocate MLP using relative FV method 2. If no relaible allocation, account as single item under Finance Lease 3. Land is immaterial, single item as Finance Lease using Building's Ulife for entire asset LAND AND BUILDING AS INVESTMENT PROPERTY FV Model - single item since there is no depreciation Cost Model - allocate MLP to Land and Depreciable Asset using relative FV method FINANCE LEASE- LESSOR TYPES DEFINITION Initial DC Effect of IDC DIRECT FINANCE LEASE No Profit Add to Initial measurement of Net Lease Rec or Net Investment Interpolate for New Implicit Rate SALES TYPE with profit or loss on transfer to lessee Expensed n/a GROSS INVESTMENT > Total MLP Receivable by Lessor NET INVESTMENT > Gross Investment discounted at implicit interest rate DEALER'S PROFIT (only in Sales Type) > PV MLP less Cost of Leased Asset Formulas PV Periodic Payments x GRV or BPO x PV GRV or BPO UGRV x PV UGRV Gross Inv or Total Lease Rec xx Net Investment Unearned Income = Total Lease Receivable less Net Investment Periodic Payments * Term x x x xx DEALER'S PROFIT Sales (PV MLP or Sales Price) COS (deduct from COS the UGRV, if any) Initial DC, if any Profit (Loss) same whether GRV/UGRV GRV Y Y N Incl in Gross Investment? Incl in Net Investment? PV Deducted in COS? x (x) (x) xx UGRV Y N Y DECREASE IN RESIDUAL VALUE a) GRV - lessee will pay for the decrease in value b) UGRV - lessor will bear the loss ACTUAL PURCHASE OF LEASED ASSET UNDER FINANCE LEASE Issues : Cost of Leased asset to Lessee; G(L) on sale to Lessor COST TO LESSEE Cost of Leased Asset Accum Deprn Cash Payment Total Consideration Lease Liability Cost of Asset GAIN (L) TO LESSOR Selling Price CA: x Lease Rec (x) Un Int Inc G(L) x (x) x x (x) xx x (x) xx SALE AND LEASEBACK > seller - lessee > purchaser - lessor SLB - FINANC LEASE Selling Price or Proceeds CA of Leased Asset SP>CA, deferred gain to be amortized over lease term SP<CA, loss to be recog in P/L for the period SUB - OPERATING LEASE 1. CA> SP=FV as outright loss to P/L 2. CA<SP=FV as outight gain to P/L 3. SP> FV> CA SP FV CA 4. FV>SP> CA FV SP CA deferred gain, amort outright gain to P/L ignored outright gain to P/L Note : Deferred gain shall be amortized over leased term or derecog when asset is disposed Loss is deferred if compensated by future leases payments below market value PFRS 16 LEASES INITIAL RECOGNITION > Right of Use Asset (ROUA) and Lease Liability (LL) INITIAL MEASUREMENT a) ROUA - at cost which includes: > initial amount > lease payments made less incentives or expenses of lessee paid by lessor > initial direct costs > estimated cost of dismantling or asset retirement obligation (ARO) b) LL - at PV of lease payments using implicit rate or incremental borrowing rate as said under PAS 17 SUBSEQUENT MEASUREMENT a) ROUA COST MODEL Cost less AccDep less Iloss REVALUATION FV at Revaln date less AccDep less Iloss INV PROP either cost or FV model b) LL > incr to reflect interest on lease liability > decr to reflect lease payments > remeasure to reflect reassessments or lease modifications ILLUSTRATION PV LL before remeasure CA of ROUA 650 370 Case 1 PV LL was remeasured to be 700 ROUA 50 LL 50 Case 2 PV LL was remeasured to be 70 LL 580 ROUA 370 this should zero out Income 210 REVISED LEASE PAYMENTS AND DISCOUNT RATE > change in lease term > change in option to purchase asset REVISED LEASE PAYMENT UNCHANGED DISCOUNT RATE > change in amounts payable under GRV > change in future lease payments due to change rates LEASE MODIFICATION 1. Accounted for as separate lease > Increase in scope of lease and consideration > commensurate to stand alone price > no gain or loss ROUA x LL x 2. Not accounted for as separate > other lease modification, follow the above info > Decrease in scope of lease > with possible gain or loss ROUA x Gain Modif x ILLUSTRATION Case 1 If accounted for as separate Jan 1 2018 10yrs 150k per yr rent with 10% rate. Jan 2 2022 PV of Lease Liability is 653.289k and CA of ROUA is 553.011k. Agreed to add another 90k rent for the next 6yrs for which it is commensurate to stand alone price ROUA 391.973 90 * 4.35526 = 391.973 LL 391.973 Balances ROUA LL 553.011 + 391.973 = 944.984 653.289 + 391.973 = 1045.263 Case 2 If accounted for as not separate Same facts, add agreement to extend lease term by 5yrs and incremental rate in 2022 was 12% Compute for PV of modified Lease Liability Period 10-4+5=11yrs Rate 12% PV Factor 5.9377 PV of Modified LL 150 * 5.9377 237.366 890.655 ROUA PV orig Lease 237.366 653.289 LL Increase 237.366 Case 3 If accounted for as not separate A) Decrease in scope of Lease Same facts, add on 2022 agreed toamend space to reduce by half. Annual fixed payments of 90k and borrowing rate starting 2022 was 12% Decr in LL 653.289/2 326.645 Decr in ROUA 553.011/2 276.506 PV Modif LL 90 *4.1114 PV orig LL 653.289/2 Increase 370.027 LL 326.645 ROUA 43.382 Gain 326.645 ROUA LL 43.382 276.51 50.139 43.382 B) Other modification, change in consideration Same facts, add on 2022 agreed to reduce lease payments from 150k to 100k and incr rate at 12% PV Modif LL 100*4.1114 411.141 PV orig LL 653.289 LL 242.148 Decrease -242.148 ROUA 242.148 SUBLEASE Owner/Head Lessor Head Lessee/Intermediate Lessor SubLessee ILLUSTRATION Jan 1 2018 10yr lease 5ksq.m annual payment is 150k every Dec 31. Implicit rate is 10% Jan 1 2022 PV of LL 653.289 cost of ROUA 921.685 AccDep 368.674 or CA of 553.011 Lessee subleased 5ksq.m for remaining 6yrs for 180k implicit rate 9% Case 1 Intermediate Lessor treat it as Finance Lease PV Sublease at 9% 180*4.4859 = 807.465 Jan 1 2022 Lease Rec 1080 180*6yrs AccDep 368.674 ROUA 921.685 Unearned Int 272.535 1080-807.465 Gain Sublease 254.454 Dec 31 2022 Cash Lease Rec UII Int Inc 180 180 72.672 72.672 807.465*9% INTERMEDIATE LESSOR > derecog ROUA from Head Lease and recog Net Investment in Sublease (NIISL) > diff bet ROUA and NIISL recog in P/L > reatin LL relating to leased owed to Head Lessor in its SFPos SUBLESEE BOOK Jan 1 2022 ROUA LL 807.465 807.465 Dec 31 2022 Deprn AccDep 134.577 Int Exp LL Cash 72.672 107.328 134.577 807.465/6yrs 807.465*9% 180 Case 2 Intermediate Lessor treats it as Operating Lease Jan 1 2018 NO ENTRY Dec 31 2018 Cash 180 Rent Inc 180 Deprn AccDep 92.169 92.169 921.685/10yrs INTERMEDIATE LESSOR > recog deprn and interest on LL > recog income from Sub Lease SUBLESSEE BOOK Jan 1 2022 ROUA LL 807.465 807.465 Deprn AccDep 134.577 Int Exp LL Cash 72.672 107.328 134.577 807.465/6yrs 807.465*9% 180 SALE AND LEASEBACK > sale of buyer-lessor control asset > not sale if, seller-lessee control asset Transfer is sale (PFRS 15) a) Seller-Lessee recog ROUA proportion to previous CA of asset retained by seller. Recog gain (loss) related to portion transferred to buyer-lessor b) Buyer-Lessor, applicable standards on Purchase of Asset and Lessor Accounting If Selling Price is not equal to FV x SP (x) FV xx Addtl Financing (Prepayments) Gain (Loss) FV CA G(L) x (x) xx SELLER -LESSEE , accounts it as either Selling Price is: a) Equal to FV b) > FV c) < FV Assume : SP 2M CA 1M Annual Payment Rate Term 120*12.1599 = 1459.2 120k 4.50% 18yrs PV of payments Independent Cases Case 1 2M FV = SP, no additional financing (prepayment) G(L) = 2m-1m = 1m If Negative result, Addtl Financing otherwise Prepayments ROUA (CA/FV)*Payments (1m/2m)*1459.2 = 729.6 % CA Gain FV Rights retained 729.6 729.6 1459.2 0.7296 Rights transferred 270.4 270.4 540.8 0.2704 1000 1000 2000 BUYER-LESSOR SELLER-LESSEE Asset at FV Cash 2000 2000 ROUA 729.6 2000 Cash Gain Transf Right 270.4 LL 1459.2 2160 120*18 Lease Rec Asset 1000 160 UII** 2000 Asset Int Exp 65.664 1459.2*4.5% LL 54.336 ** interpolate to get the income portion Cash 120 Case 2 SP> FV, Additional Financing 2m-1.8m=200k G(L) 1.8m-1m=800k gain PV Payments 1459.2 -200 addtl = 1259.2 ROUA (1m-1.8m)*1459.2-200 = 699.556 FV % CA Retained 1259.2 0.699555 699.556 Transferred 540.8 0.30044 300.444 1800 1000 Gain 559.64 240.36 800 SELLER-LESSEE Cash ROUA Gain Transf LL Asset Int Exp LL Cash BUYER-LESSOR 2000 699.556 240.356 1459.2 1000 65.664 54.336 1800 200 Asset @ FV Financing Cash Lease Rec UII Asset 2000 2160 360 1800 1459.2*4.5% 120 Case 3 SP < FV Prepayment 2m - 2.1m = (100) Prepayment G(L) 2.1M - 1M = 1.1M gain ROUA = (1.m/2.1m)*1459.2+100 = 742.476 PV Payment 1459.2 + 100 prepmt = 1559.2 FV % CA Retained 1559.2 0.742476 742.476 Transf 540.8 0.257523 257.523 2100 1000 SELLER-LESSEE Gain 816.72 283.28 1100 BUYER-LESSOR Asset @ FV Cash ROUA Gain Transf LL Asset Int Exp LL Cash 2000 742.476 2100 2000 100 Cash UnRentInc 283.276 1459.2 1000 Lease Rec UII Asset 2160 60 2100 65.664 54.336 120 TRANSFER IS NOT SALE SELLER-LESSEE > continue recof transferred asset > reco financial liability for transf proceeds x Cash Financial Liab BUYER-LESSOR > not recog transferred asset . Recog financial asset for proceeds Financial Asset Cash x x x SHAREHOLDER'S EQUITY PAID IN CAPITAL Share Capital - Issued Subscribed Subscription Receivable ADDITIONAL PIC Share Premium - Excess over Par Share Premium - Excess over Stated Value Share Premium - Treasury Shares Share Premium - Conversion Options Donated Capital Share Warrants Outstanding Share Options Outstanding RETAINED EARNINGS Unappropriated Appropriated OCI - Cumulative Balances Revaluation Surplus UG(UL) FVOCI Remeasurement G(L) Translation G(L) Effective Cash Flow Hedge Change in FV credit risk FVPL TREASURY SHARES AT COST TOTAL SHAREHOLDER'S EQUITY x x (x) x x x x x x x x x x x x x x x (x) xx Notes: 1. Subscription Receivable > collectible within 12 months, CA > collectible beyond 12 months, netted against Subscibed Capital 2. Legal Capital > PAR VALUE - aggregate Par Value only > NO PAR VALUE - entire consideration received Under corporation code preference shares should not be issued without par value 3. Organization Costs related to Shares > expensed in first years of operations > STOCK ISSUANCE COSTS is deducted in the following order: SP - from issuance then to RE > INDIRECT COSTS are always expensed as incurred 4. Watered Shares > issued at discount or below par but shares are issued as fully paid > deduction to Total Shareholder's Equity as discount on Share Capital SHARES ISSUED FOR NON CASH CONSIDERATION > non cash asset or services shall be credited to Share Capital in the ff priority a) FV non cash asset RECEIVED b) FV share capital ISSUED c) Par value shares capital ISSUED ITEMS CLASSIFIED AS DEBT FOR EQUITY SWAP a) FV capital ISSUED b) FV extinguished Liability c) CA of extinguished Liability d) If not classified as debt for equity, use CA of extinguished Liability Value of Shares Issued CA of extinguished Liab (G)L to P/L x (x) xx FV of Share/Liab Par/Stated issued SP (DISC) ISSUANCE OF TWO OR MORE CLASSES FOR LUMP SUM > relative fair value method - Ratio of FV * Total Proceeds = Allocation > if only one has FV, excess to the other > no FV, allocate proportionate to PAR VALUE DELINQUENT SUBSCRIPTION a) Forfeited Subscribed Capital x Share Premium x Subscription Receivable SP-Forfeited Downpmt x x b) Auctioned > Highest Bidder to pay price for smaller number of shares Total Shares Subscribed Rec fr HB x Cash x Shares to HB Rem to DELIQ SUBSCR Cash x Rec fr HB x Subscr Rec x Subscr Cap Share Cap x x > no Highest Bidder and corporation may acquire TS x Rec fr HB x Subscr Rec x x (x) xx x (x) xx > no Highest Bidder and corporation is prohibited to acquire Subscr SC x SP-Orig Sub x Subscr Rec x Rec fr HB x SP-deliq Sub x TREASURY SHARES a) ACQUISITION TS at Cost x Cash b) RE-ISSUANCE > at cost Cash x TS at Cost > above cost Cash x TS at Cost SP-TS > below cost Cash x SP-TS x RE TS at Cost x x x x x x x x x SUMMARY ISSUED ACQUIRED ISSUED at GAIN LOSS RETIRED at GAIN LOSS c) RETIREMENT > perceived gain Share Cap x SP-Orig Issue x TS at Cost SP-TS > perceived loss Share Cap x SP-Orig Issue x x SP-TS x RE TS at Cost # OF SHARES OUTSTANDING TOTAL EFFECT ON SHE NO EFFECT DECREASE DECREASE NO EFFECT NO EFFECT INCREASE INCREASE INCREASE INCREASE DECREASE DECREASE NO EFFECT NO EFFECT NO EFFECT NO EFFECT equal to consideration DONATED CAPITAL > from Shareholder - credited to APIC Account > from Outsider - Income Account ASSET RECEIPT Asset at FV OWN SHARE memo (decrease effect in Outstanding) Donated Cap SALE Cash Loss Asset Gain x x Cash Donated Cap x x x x IMMEDIATE RETIREMENT OF SHARES at GAIN Share Cap x SP-Orig Issue x Cash x SP-Ret x PREFERENCE SHARES (convertible ---> equity) at GAIN Pref Shares x SP-Orig Issue x Ord Shares par x SP-OS x RECAPITALIZATION 1. PAR TO NO PAR SHARES OS x SP x RE (bal) x OS x SP-recap (bal) x 2. NO PAR TO PAR OS x SP x RE (bal) x OS SP-recap (bal) x x at LOSS Share Cap x SP-Orig Issue x x RE Cash at LOSS Pref Shares x SP-PS Orig x x RE Ord Shares par x 3. REDUCTION OF PAR/STATED VALUE x OS x SP-recap 4. STOCK SPLITS > UP - Increase in numbers decrease in Par > DOWN - Decrease in number increase in Par BEFORE UP *(4/1) DOWN *(1/4) AFTER x *(4/1) *(1/4) xx SC x *(4/1) *(1/4) xx SUBCR x *(4/1) *(1/4) xx TS *(4/1) *(1/4) xx DONATED x *(4/1) *(1/4) xx DIV DECL x x *(4/1) *(1/4) xx OUTST x *(4/1) *(1/4) xx PAR SHARE WARRANTS 1. NON DETACHABLE - can't be traded separately from security 2. DETACHABLE - can be traded separately from security ISSUANCE AND EXPIRATION - memorandum entry only EXERCISE OF WARRANTS Cash x Share Cap x SP x x DETACHABLE WARRANTS 1. Both warrants and share have FV, allocate base on relative fair values 2. Only one has FV, excess from total proceeds to other security 3. Both FV are unknown MV of OS x x Total Proceeds Exercise Price (x) (x) MV of Warrants Intrinsic V x xx SC * #sh claimable x MV of Warrants xx Cash PS SP OSWO x if not exercised OSWO x SP x x x ISSUED WITH BONDS Issue Price incl warrants Issue Price excl warrants Allocation to warrants x x (x) xx RETAINED EARNINGS - cumulative P/L > Appropriated and Unappropriated > Deficit if debit balance DIVIDENDS > Out of Earnings or Capital > only to shares issued and outstanding are entitled to dividends Share Capital Issued x Subscribed Shares x Treasury Shares (x) Issued and Outtanding xx DIVIDENDS ON UNPAID SUBSCRIPTION > provided not delinquent > Cash, applied first to unpaid balance > Stock, withheld until fully paid PROPERTY DIVIDENDS > NCAHFD (PFRS 5) > Other assets not covered by PFRS 5 STEPS 1. At declaration date, measure dividends payable at FV of asset to be distributed 2. Adjust CA of payable every reporting date and settlement date 3. At settlement, get the difference between CA of dividend payable and CA of NCA CA Div Payable (FV NCA at settlement) x CA of NCA for Distribution (x) Gain (Loss) on distribution P/L xx DECLARATION PFRS 5 Reclassify to NCAHFD at lower of CA and FVCTS no depreciation and amortization REPORT DATE measure at lower of CA & FVCTS recog gain not to exceed cumulative loss previously recognized SETTLEMENT for purpose of Gain (Loss) on distribution. CA of NCA is the CA as adjusted using PFRS 5 at reporting date OTHER THAN PFRS 5 No need to reclassify eg PAS 2 Inventory measure using applicable standard eg PAS 2 LCNRV same but using the applicable standard other than PFRS 5 CHOICE BETWEEN CASH OR NON CASH > estimate both FV of each and associate probability ILLUSTRATION Choice of 5 outstanding shares if 10k cash or NCA with 12k FV. 60:40 respectively 10k * 60% *5 = 30 RE 54 12k * 40% * 5 = 24 Div Payable 54 30 + 24 = 54 a) All opted cash b) All opted NCA Div Pay 54 54 Div Pay Cash 50 6 Loss RE (balancing) 4 60 (12K*5) NCA SCRIP DIVIDENDS RE x SDP x SDP Int Exp Cash x x x SHARE DIVIDENDS a) SMALL - 19% and below at Higher of FV or Par Value with share premium b) LARGE - 20% or more at Par Value hence no Share Premium RE at FV x x x Sh Div at Par SP RE at Par SDP at Par x x FRACTIONAL DIVIDENDS RE x SDP Par x SP x SDP x Share Cap x SDP x Share Cap x SDP x SC Par Frac Warr Outs x x TREASURY SHARES AS DIVIDEND > amount charged to RE should be at cost of TS declared as dividend DIVIDENDS OUT OF CAPITAL/LIQUIDATING DIVIDENDS presented as dedcution to SHE Capital Liquidated x Cash x RETAINED EARNINGS APPROPRIATED 1. Law - Treasury Shares 2. Contract - Bond Sinking Fund or PS Redemption 3. Voluntary - Plant Expansion Statement of Retained Earnings 1. Dividend declared and paid 2. Appropriations 3. Effects of changes in Accounting Policy 4. Prior period errors 5. NI (Loss) during the period SHARE BASED PAYMENTS PFRS 2 a) EQUITY SETTLED - Stock Options b) CASH SETTLED - Stock Appreciation Rights c) WITH CASH ALTERNATIVE > Originally equity cash subsequently added > granted simultaneously STOCK OPTIONS > gives the holder right but not obigation to subscribe to entity's shares FWO SC Par SP x x x GRANT DATE > date both parties agreed > if subject to approval, at date approval obtained MEASUREMENT DATE > Transaction with employees - at grant date > Other than employees - when entity obtains goods or counterparty renders service VESTING CONDITION 1. SERVICE CONDITION (SC) 2. PERFORMANCE CONDITION (PC) a) Market b) Non Market SERVICE CONDITION > completion of specified period of service > does not require performance target to meet PERFORMANCE CONDITION - MARKET > exercise price, vesting, exercisability depend on market price of entity's equity instruments or another entity within same group > requires counterparty to satisfy service condition > shall account market conditions to estimate fair value of option at measurement date > vesting period is determined at grant date and NOT REVISED PERFORMANCE CONDITION - NON MARKET > based on things other than market price of entity's equity instruments eg Profit/EPS > ignored in estimating fair value of option at measurement date > vesting period is determined at grant date and MAYBE REVISED RECOGNITION PFRS 2 : Entity shall recognize goods/services received in sharebased payments when it obtains the same Equity Settled - increase in equity Cash Settled - increase in liability EQUITY SETTLED 1) WITH EMPLOYEES > measure at FV of equity instrument granted 2) OTHER THAN EMPLOYEES > FV of goods/services or FV of equity instrument > absence of both, use Intrinsic Value Intrinsic Value = Market Price less Option Price TRANSACTION WHEN SERVICES ARE RECEIVED 1) VEST IMMEDIATELY - recognize in full with corresponding increase in equity 2) DO NOT VEST IMMEDIATELY - recognize over vesting period YR1 YR2 YRn No. of Entitled Employees X X X Less : Left cumulative (X) (X) (X) Expected to leave (X) (X) (X) Total Entitled Employees X X X * Shares Ops per EE X X X Total Share Options X X X * FV or Intrinsic Value X X X Total Value of Compen X X X * Ratio or Period 3/3 1/3 2/3 Cumulative Salaries X X X Less : Prior Yr Cumu Salary 0 (X) (X) Current Salary Expense XX XX XX ILLUSTRATIONS 1) SC VEST IMMEDIATELY πΈπππππ¦ππ πΈππ‘ππ‘πππ πππππ πππ‘ππππ ∗ πΉπ 2) SC DO NOT VEST IMMEDIATELY No. of Entitled Employees Less : Left cumulative Expected to leave Total Entitled Employees YR1 X (X) (X) X YR2 X (X) (X) X YRn X (X) (X) X 3) FV METHOD 20% will leave during the 3yr period ππ. ππ πΈπππππ¦πππ ∗ 80% ∗ πππππ πππ‘ππππ ∗ πΉπ ππ πΌπ same results for over 3yr period 4) FV METHOD VARYING YR1 20 LEFT; 15% ESTIMATE WILL LEAVE YR2 22 LEFT: 12% ESTIMATE WILL LEAVE YR3 15 LEFT GRANT DATE : MEMORANDUM ENTRY ONLY VESTING PERIOD Salary Expense x SOO x = = = No. of Employees * 85% No. of Employees * 88% No. of Employees less 57 WHO LEFT EXERCISE DATE Cash x SOO x Share Cap SP x x Total Options * Exercise Price Cumulative Salaries Total Options * Par Value balancing figure EXPIRED/NOT MET SOO x SP-Forfeited Ops x MODIFICATIONS, CANCELLATIONS AND SETTLEMENT a) BENEFICIAL TO EMPLOYEES 1. Increase in FV of Equity Instruments granted > continue recog original FV in normal way > recog increase in FV at modification date spread over period between modification date and vesting date > if modification occurs after vesting date, recog immediately unless there is additional service period in which difference is spread ver that period # of options x * Employees Entitled x * Increase in Value x period from modif date to vesting date * Ratio n/n Total Increase x added to cumulative salaries 2. Increase in number of equity instruments granted > continue recog original FV in normal way > recog increase in number of equity instruments spread over period between modif date and vesting date > if after vesting date, recog immediately unless additional service period in which spread over that period 3. Reducing vesting period (NMC) PFRS 2: entity shall not forfeit salary expense on year original condition was not met. If modification is beneficial to employees b) NOT BENEFICIAL TO EMPLOYEES 1. Decrease in FV of Equity Instruments > continue recog at original FV in normal way > ignore any decrease in FV 2. Decrease in number of equity instruments granted > accounted for as cancellation of that portion of grant ILLUSTRATION Jan 1 2018 2k options exercise price of PHP18 each 25 managers to stay for 3 yrs. FV at PHP33 estimate will vest to 23 managers Dec 31 2019 decided to abolish when MV is PHP70 per share Case 1. 2019 FV options PHP35 and paid PHP30 to 24 managers 2018 2019 23 24 Dec-18 Sal Exp 506K 2000 2000 SOO 506K 46000 48000 Dec-19 Sal Exp 1078K 33 33 SOO 1078K 1518000 1584000 SOO 1440k 1/3 1 Cash 1440k 2k * 24 * 30 506,000 1,584,000 SOO 144k -506000 SP-unexpired 144k 506k+1078k-1440 506,000 1,078,000 Since cash paid is less than FV of shares, no additional salary expense to be recog Case 2. FV PHP30 paid PHP35 to 24 managers 1680-240 Dec-19 SOO 1440k (35-30)*24*2k Sal Exp 240k Cash 1080k 2*24*35 SOO 144k SP-unexpired 144k Case 3. FV PHP60 paid PHP63 to 24 managers 506k+1078k Dec-19 SOO 1584k (63-60)*24*2k Sal Exp 144k balancing RE 1296k Cash 3024k 2k*24*63 3. Increase in vesting period > continue recog services rendered over vesting period base on original conditions INTRINSIC VALUE METHOD PFRS 2 : If FV can not be reliably measured, entity shall measure option at Intrinsic Value (IV) Initially and subsequently unti; settlement date with any changes in IV to P/L Market Price of Shares Exercise Price IV x (x) x ILLUSTRATION Jan 1 2018 grant 100 options to 50 employees will vest in 2020. Option has life of 5yrs exercise price is PHP50 2018 3 LEFT FURTHER 5 2019 2 LEFT FURTHER 2 2020 2 LEFT IV IV 2018 42 100 4200 11 46200 1/3 15400 0 15400 2019 43 100 4300 15 64500 2/3 43000 -15400 27600 2020 43 100 4300 20 86000 3/3 86000 -43000 43000 FV 61 65 70 88 100 MV -50 -50 -50 -50 -50 IV 11 15 20 38 50 18 12 shares were exercised during 2021-2022 for 2.6K and 1.7k options 2021 2022 18 12 2600 1700 46800 20400 30600 0 Unexercised 17k * 18 77400 20400 CASH SETTLED SHAREBASED PAYMENTS > vest immediately > do not vest immediately > measured at FV of Share Appreciation Rights (SARs) YR1 YR2 Share Appreciation Rights, unexercised x x FV x x Cumulative Salary x x Ratio (years) 1/3 2/3 Cumulative for Year x x Previous Year (x) Salaries Expense, current x x Yrn x x x 3/3 x (x) x Additional, start at end of vesting pd SARs exercised * IV xx xx (x) xx MODIFICATION - CASH SETTLED TO EQUITY SETTLED > transaction is accounted for as such from the date of modification # empl X left (X) will leave (X) exercised (X) entitled X * SAR per EE X Total SARs unexercised X a) Compute FV of equity instruments at maturity date and recog equity to extent of goods/services received b) Derecog cash settled sharebased payment at modification date c) Difference in FV of equity recog and CA of Liability derecog at modification date is immediately recog at P/L Note: > If result of modif, vesting period is extended or shortened application of above procedures reflects the modified vesting period. This also apply if modification happens at end of vesting period > Above procedure is also applicable if on grant date equity instruments were identified as replacement for cash settled payment. ORIGINALLY EQUITY SETTLED THEN CASH SETTLEMENT WAS SUBSEQUENTLY ADDED > continue recog original FV in normal way > recog liability at modification date base of FV of shares at modification date > Remeasure FV of liability with any changes in FV in P/L > Balance of equity component is excess of FV of equity at grant date less FV cash alternative at date of modification multiplied by number of share options multiplied by extent of service rendered πΉπ πΈππ’ππ‘π¦ ππ‘ πΊππππ‘ πππ‘π − πΉπ πΆππ π π΄ππ‘ ππ‘ πππππ ∗ #πππππ πππ‘ππππ ∗ π ππ‘ππ GRANTED SIMULTANEOUSLY 1. Counterparty has right to choose a) Employee - compound instrument b) Not Employee - compound instrument, residual approach 2. Counterparty has no right to choose COUNTERPARTY EMPLOYEE HAS RIGHT TO CHOOSE FV Share Alternative x Equity Component FV Cash Alternative (x) / vesting period Equity Component xx Addtl Salary Exp Determine salaries attributable to cash alternative Cash Alternative x x * FV x x Total Liability x x Ratio (vesting period) n/n n/n Cumulative Salaries x x Previous Yr Sal Exp (x) Current Yr Sal Exp x x Addtl Sal Exp x x Total Salary Exp xx xx x x x n/n x (x) x x xx x x xx GRANT DATE : MEMORANDUM ENTRY ONLY REPORT DATE Salary Exp x SAR x for liability component Salary Exp x SOO x for equity component EXERCISE DATE 1. Opt cash SAR x 2. Opt Equity Cash x SOO x SP x BOOK VALUE PER SHARE 1. ONE CLASS OF SHARE SAR SOO SC par SP x x πππ‘ππ ππ»πΈ ππ₯ππ ππ’ππ ππ π ππ # ππ ππππππ ππ’π‘π π‘ππππππ > Corporation code prohibits deduction of Subscr Rec from Subscr Cap whenever there's corporate liquidation 2. MORE THAN ONE CLASS OF SHARES πππ‘ππ ππππ ππ»πΈ # ππ ππ ππ’π‘π π‘ππππππ πππ‘ππ ππππππππ¦ ππ»πΈ # ππ ππ ππ’π‘π π‘ππππππ PROCEDURAL STEPS 1. Compute for the number of shares outstanding and total Par Value/Stated Value for both class. Treasury Shares shall be valued at PAR 2. Compute the Total SHE excluding any Subscr Rec. Treasury Shares shall be valued at COST 3. Compute the Preference SHE Total Par Value of PS x PS Dividends x Liquidation Premium x PS Participation, if any x Preference SHE xx OS Dividend when entity has more than one class of PS with varying rates is Total Par or Stated Value * Basic Rate of PS with lowest rate PREFERENCE SHARE DIVIDEND a) If cumulative πΉππ₯ππ π ππ‘π ∗ πππ‘ππ πππ ππππ’π ππ ∗ πππππ π΄πππππ b) If non cumulative c) Liquidation Premium πΉππ₯ππ π ππ‘π ∗ πππ‘ππ πππ ππππ’π ππ πΏπππ’ππππ‘πππ ππππ’π − πππ ππππ’π ∗ ππ ππ’π‘π π‘ππππππ ππππππ x x d) PS Participation Total SHE excl Subscr Rec L: Total Par PS L: Total Par/SV OS L: Pref Dividend L: OS Dividend x (x) (x) (x) (x) (basic rate of PS * Total Par OS) Balance for Participation (BFP) x πππ‘ππ πππ ππ ∗ BFP = PS Participation πππ‘ππ πππ ππ + πππ‘ππ πππ ππ ππ ππ πππ‘ππ πππ ππ ππ ππ ∗ BFP = OS Participation πππ‘ππ πππ ππ + πππ‘ππ πππ ππ ππ ππ 4. Compute for Total Ordinary SHE Total SHE x Pref SHE (x) Ordinary SHE xx 5. Compute BVPS and enjoy! ALTERNATIVE COMPUTATION OF BVPS 1. Compute Total number of Outstanding Shares and Total Par Value for each Treasury Shares shall be valued at PAR 2. Compute the Excess over Par > Total SHE excl Subscr Rec less Par Value of PS and OS 3. Use the table provided as guide EXCESS OVER PAR OS Par PS Par Balances x x x Liq. Prem (x) x PS Div (x) x OS Div x (x) BFP x PS Particip (x) x OS Particip x (x) Total 0 x x / Outst Shares x x BVPS xx xx Note: If not participating, OS Div, PS and OS Particip is blank with the BFP goes all to OS Par column. The PS Particip in table is for Fully Participating PS, if not; % Participation * Fixed Rate of PS x * Total Par Value of PS x Amount of Participation xx EARNINGS PER SHARE > applicable only to Ordinary Shares > Either Basic or Diluted > Public entites are required to present EPS while others are just encouraged πππ‘ πΌππ ππ πΏππ π πππ π ππ π·ππ£ = BEPS ππππππ‘ππ π΄π£π ππ ππ’π‘π π‘ππππππ ππ ππ΄πππ Notes: 1. Net Income or Loss calculation > if silent, assumed already AFTER TAX > Income should be AFTER TAX 2. PS Dividend > cumulative = Total Par PS * Dividend Rate * 1yr ; whether declared or not > non cumulative = Total Par PS * Dividend Rate * Months Outstanding ; actual declared only 3. WAOSO > in case of bonus issue (stock dividend), stock splits. The ff provision of PAS 33 shall apply: a) If number of OS or potential OS outstanding increase due to bonus issue, splits calculation shall be adjusted retrospectively b) If changes occur after reporting period but before FS is authorized for issue. The EPS shall be calculated based on new number of shares c) In addition, BEPS and DEPS of all periods shall be adjusted for effects of errors and adjustments are accounted for retrospectively 4. Basic Loss Per Share > Amount of PS Dividend is added to Net Loss > Basic Loss per Share is also negative amount and required to be disclosed ILLUSTRATION 1. Weighted Average with Bonus Issue Jan 1 100 issued and outstanding with ff transactions Mar 1 issued 24, Apr 1 10% bonus issue, Jun 1 Reacquire 9 and Oct 1 Reissue 4.5 Jan 100 * 110% = 110 * 2/12 = 18.333 Mar 124 * 110% = 136.4 *3/12 = 34.1 Jun (136.4-9) * 4/12 = 42.466 Oct (127.4+4.5)*3/12 = 32.975 WAOSO 18.333+34.1+42.466+32.975 = 127.874 2. Weighted Average with Share Split Jan 1 120 outstanding, Mar 1 Issue 15, Apr 1 Reissue 5 TS, Jun 1 2 for 1 split and Oct 1 reissue 4.5 TS Jan (120 * 2/1) * 2/12 = 40 Mar (135 * 2/1) * 1/12 = 22.5 Apr (140 * 2/1) * 6/12 = 140 Oct (280 +4.5) *3/12= 71.125 WAOSO 40+22.5+140+71.125 = 273.625 DILUTED EARNINGS PER SHARE > reduction in EPS or increase in Loss per Share resulting from assumption that convertible instruments are converted, exercise of options and warrants or OS are issued to satisfy conditions CONVERSION METHOD > assumes that conversion takes place on first day of reporting period or date of issuance both curent period or conversion date whichever is later CONVERTIBLE BONDS πππ‘ πΌπππππ + πΌππ‘ πΈπ₯π, πππ‘ ππ π‘ππ₯ = DEPS ππ΄πππ use EIR for Interest Expense WAOSO Beg Oust Sh * 12/12 x n/n aka months outstanding is w/e later Actual Issue * n/n x between issuance date and start of period Actual Conv * n/n x from reporting date or from conversion WA Actual OS x BEPS date to reporting date Assumed Conv * n/n x Total WAOSO xx DEPS ILLUSTRATION Jan 1 has 100k OS Outstanding during the year reported 5M net income tax rate is 30% Has 4k 10% convertible bonds with 1k face. Each convertible to 5 OS Compute for a) BEPS b) DEPS if issued on Jan 1 no conversion, Apr 1 no conversion or issued last year converted on Oct 1 BEPS = 5M/100K = PHP50 a) WAOSO Actual 100 Assumed 20 4K * 5 * 12/12 TWAOSO 120 b) WAOSO Actual Assumed TWAOSO 5π + ( 4π ∗ 10% ∗ 1 − 30% ) = PHP44 120πΎ 100 5π + ( 4π ∗ 10% ∗ 9/12 ∗ 1 − 30% ) 15 4K * 5 * 9/12 = PHP45.3 115πΎ 115 9 months from Apr 1 to reporting date c) WAOSO Actual Actual Conv WA Actual OS Assumed TWAOSO 100 5 105 15 120 4K * 5 * 3/12 BEPS = 5M/105K = PHP47.62 BEPS 4K * 5 * 9/12 DEPS 5π + ( 4π ∗ 10% ∗ 9/12 ∗ 1 − 30% ) = PHP43.42 120πΎ Note: months outsatnding to be multiplied to get interest expense is always based on months outstanding of assumed conversion CONVERTIBLE PREFERENCE SHARES ππΌ − (ππππ π·ππ£ ∗ ππππ‘ππ ππ’π‘π π‘) = BEPS ππ΄πππ ππΌ = DEPS πππ΄πππ Beg Shares Actual Issue Actual Conv WAOSO Assumed Conv * 12/12 x x x x x xx * months outst * months outst * months outst TWAOSO BEPS DEPS OPTIONS AND WARRANTS > has dilutive effect if average market value of OS is greater than exercise price a) Option and Warrants not exercised Exercise Price x Ops Shares x ππΌ − ππππ π·ππ£ FV each ops x * Total Exercise Price x = DEPS πππ΄πππ Total ExP x Proceeds from assumed exercise x / Average MV during yr x Assumed Treasury Shares x Ops Shares Assumed TS Incr Shares * months outst WA Incr in Sh x (x) x x xx WA Actual Issuance WA Incr in Sh TWAOSO x x xx months outstanding is later between start of year or issuance up to reporting date a) Option and Warrants are exercised Ops Shares x * Total Exercise Price x / Market Price at Conv x Assumed Treasury Sh xx x Ops Shares (x) Assumed TS x Incr in Sh x * months outst xx WA Incr in Sh months outstanding is later between start of year or issuance up to exercise date WA Actual shares beg WA Actual exercise WA Incr in Sh TWAOSO x x x xx ππΌ − ππππ π·ππ£ = DEPS πππ΄πππ In computing for BEPS, the WAOSO is composed only of Beg Shares * 12/12 x Addtl Issue * n/n x Actual Exercise * n/n x WAOSO xx MULTIPLE POTENTIAL DILUTIVE SECURITIES > ranking from most to least dilutive a) Options, warrants, rights b) Bonds, Preferrence Shares ranked based on lowest increase in EPS to highest > If Anti-Dilutive, exclude in DEPS computation PROCEDURE 1. Compute BEPS 2. Initial checking of dilution Options and Warrants > Dilutive if Exercise Price < Average Market Price otherwise anti-dilutive Convertible Pref Shares > Dilutive if Increase in EPS < BEPS where Increase in EPS is calculated as ff ππππ π·ππ£ ππ΄ πππ‘πππ‘πππ πππ ππππππ Convertible Bonds > Dilutive if Increase in EPS < BEPS where Increase in EPS is calculated as ff πΌππ‘ππππ π‘ πΈπ₯π, πππ‘ ππ πππ₯ ππ΄ πππ‘πππ‘πππ πππ ππππππ 3. Rank potential diluters, most dilutive if: > Lowest increase in EPS > If Options, Warrants and Rights are dilutive they're ranked first always 4. Include potentially dilutive convertible securitites one by one. Everytime an item is included compute for new EPS or Loss Per Share (LPS) 5. Continue selecting and applying convertible securitites until security in list has EPS > last EPS computed or when LPS < Last computed LPS 6. If next item has greater EPS stop at that point, all other securities are deemed anti-dilutive ILLUSTRATION NI from Ops 1500k NI from Discont Ops 300k OCI 600K Total Compre Inc 2400k OS 100 Par 100k shares all issued from previous period 10% PS 100 Par 50k shares conv 2 OS per PS 10% Bonds 1000 * 1000PHP conv 40 OS each 1k. Has 10k ops with Exercise Price of 150PHP avg MV 200PHP Tax rate is 30% Continued Operations 1500π − (50π ∗ 100 ∗ 10%) = BEPS PHP10 100π Initial checking of dilution a) Options exercise price 150 < avg MV 200 hence dilutive b) Conv PS (5M*10%)/(50K*2) = PHP5 < PHP10 BEPS hence dilutive c) Conv BP ((1M*10%)(1-30%)/(1M/1K)*40) = PHP1.75 < PHP10 BEPS hence dilutive Ranking would be from most to least dilutive: Options, Bonds then Conv PS Inclusions one by one Profit 1000k 0 1000k 70k 1070k 500k 1570k BEPS Cont Ops Options Total Conv Bonds Total Conv PS Total Exercise Price FV Total Option Sh / Avg MV Assumed TS 150 0 150 10k 1.5m 200 7.5k OS 100K 2.5K 102.5K 40K 142.5K 100K 242.5K EPS PHP10 PHP9.76 PHP7.51 PHP6.47 Final DEPS Option Sh Assumed TS Incr in Sh * months outst WA Incr in Share 10k (7.5k) 2.5k 12/12 2.5k Disontinued Operations 300π 300π = BEPS PHP3 = DEPS PHP1.24 100π 242.5π WAOSO used was the final denominator in DEPS in Continuing Operations Summary Continued Operations - no such thing as Diluted Loss per Share Discontinued Operations - Diluted Loss per Share maybe reported OCI - determination of both BEPS and DEPS is not applicable RIGHTS ISSUE a) OFFERED TO EXISTING SHAREHOLDER πΉπ πππ πππππ ππππππ ππ₯πππππ π = Adj Factor ππππππππ‘ππππ πΈπ₯ − πππππ‘π πΉπ πππ πππππ ππ’π‘π π‘ππππππ ππ ∗ π΄πππ’π π‘ππππ‘ πΉπππ‘ππ THEORETICAL EX-RIGHTS FV PER SHARE (TEFVPS) πΉπ πππ πππππ π ππππ‘ ππ πππ π πΈπ₯πππππ π πππππ = Value of One Right # π ππππ‘π π‘π ππ’πππππ π πππ πππππ + 1 πΉπ πππ πππππ π ππππ‘ ππ πππ π ππππ’π ππ πππ π ππππ‘ = ππΈπΉπππ Alternative Formula Outstanding OS before issue * FV Right On Issuance thru exercise * Exercise Price Total / OS After right issue TEFVPS PROCEDURES 1. Compute for TEFVPS 2. Compute Adjustment Factor 3. Compute WAOSO in calculating EPS PRIOR RIGHTS ISSUE Oustanding OS - Actual x * Adj Factor x Adjusted Outst OS x * months outst/12 n/n WAOSO x Exercise Issue * months x/n TWAOSO xx x x x x x AFTER RIGHTS ISSUE Oustanding OS - Actual * months outst/12 WAOSO ILLUSTRATION Net Income 2017, 2018 and 2019 at 1008k, 1237.5k and 1750k respectively OS before issue is 20k. Rights issued during 2017 is one OS every 4 shares = 5k Date exercised April 1 2018; FV share Right On PHP120 exercise price PHP20 Compute the BEPS for years 2017, 2018 and 2019. STEPS 1. TEFVPS = 100 120 − 20 = Value of One Right PHP20 4+1 ππ»π120 − 20 = ππ»π100 ππΈπΉπππ 2. Adjustment Factor = 1.2 PHP120/PHP100 = 1.2 x x/12 xx 3. WAOSO 2017 : 20k*1.2*12/12 = 24k BEPS 1008k /24k = PHP42 2018 : 20K*1.2*3/12 = 6 (20+5)*9/12 = 18.75 Total 6+18.75 = 24.75k BEPS = 1237.5K/24.75K = PHP50 2019 : 25K*12/12 = 25K BEPS = 1750K/25K = PHP70 CONTINGENT ORDINARY SHARES For BEPS > treated outstanding and included in calculation from date when all conditions are met > if issuable only after a passage of time, it is not considered to be a contingent OS > if returnable, excluded for calculation until the date the shares are no longer subject to recall For DEPS > treated outstanding and included in calculation from date when all conditions are met Determination of Outstanding OS OS Beg Retail Condition: x x (avg from condition date to reporting) Total WAOSO BEPS Earnings Condition Total WAOSO DEPS x x x WRITTEN PUT OPTIONS > requires entity to repurchase its own shares. Incremental Shares πΈπ₯πππππ π πππππ − π΄π£π ππ ∗ ππππ‘π‘ππ πππ‘ππππ = πΌπcr in Shares π΄π£π ππ Purchased Call Options and Put Options are not included in calculation of DEPS because they're anti-dilutive CONVERTIBLE BONDS SETTLED IN SHARES/CASH > if conv bonds are accounteed aprtly liability and equity. The interest expense, net of tax on liability component is added back to Net Income EPS TO PARTICIPATING PS Total PS Dividend / Outstanding PS STATEMENT OF FINANCIAL POSITION AND COMPREHENSIVE INCOME CURRENT ASSETS > normal operating cycle > Trading purposes > within 12 months after reporting period > Cash and CE (PAS 7) unless restricted to settle liabilities for atleast 12 months CURRENT LIABILITIES > normal operating cycle > Trading purposes > within 12 months after reporting period > does not have unconditional right to defer payments for atleast 12 months NCAHFS/D > PFRS 5 Current Assets and Liabilities should not be offsetted BANK OVERDRAFT > CL > not allowed to offset against another bank except part of cash management > offset to bank account with credit balance within the same bank where overdraft occurred EVENTS AFTER REPORTING PERIOD (PAS 10) TYPE I . ADJUSTING EVENTS > events after reporting period that are existing at end of reporting period TYPE II. NON ADJUSTING EVENTS > events after reporting period existing after end of reporting period > disclosure only RELATED PARTY DISCLOSURES (PAS 24) a) Close member of family to reporting entity > has control or joint control over reporting entity > has significant influence > member of key management personnel b) An entity is related to reporting entity if any condition applies > both members of same group > one is associate of Joint Venture of another entity > both venturers to third party > one entity is JV of third party and other entity is associate of third party > entity is Post Employee Defined Benefit Plan > entity is controlled by close members DISCLOSURE REQUIREMENTS : GENERAL PRINCIPLES > relationship between PARENT & SUBSIDIARY, irrespective of existence of transaction > name of Parent or ultimate controlling party > if neither Parent nor Ultimate Controlling Party produces Consolidated FS. Name of next most senior parent RELATED PARTY DISCLOSURES 1. Nature of Relationship 2. Information about transactions > amount > outstanding balances including commitments, terms, guarantees received or given > provision for doubtful accounts > Bad Debt Expense STATEMENT OF COMPREHENSIVE INCOME 1. Single 2. Dual : composed of P/L and OCI MINIMUM LINE ITEM Revenue COS Gross Profit Other Income Distribution Cost General Admin Finance Cost Share in Assoc Profit Before Tax Profit Income Tax Expense P/L - Continued Ops P/L - Disc Ops, aft Tax Profit for the Year OCI Component: x (x) x x (x) (x) (x) x x (x) x x x Sh in OCI - Equity method x xx Total Comprehensive Inc OTHER COMPREHENSIVE INCOME > items of income and expense not recognized in P/L > presented net of tax, if not with one amount showing aggregate tax relating to those amounts a) OCI without reclassification to P/L - reclassed within Equity/RE only Changes in Revaluation Surplus Remeasurement of DBP G(L) Investment in Equity FVOCI Changes in FV Financial Liability attributable to credit risk G(L) Hedging Instrument that hedges FVOCI Changes in Forward Contracts b) OCI with reclassification to P/L - reclassification adjustments with disclosure G(L) ForEx Translation Effective portion of Hedging Instrument Changes in Time Value separating Intrtinsic PRESENTATION OF DISCONTINUED OPERATIONS a) Single amount comprising post tax > P/L Discontinued Operations > G(L) FVCTS to Disposal b) Single amount > Revenue and Expenses, at pretax amount > Income Tax Expense > G(L) FVCTS to Disposal and related tax DISCONTINUED OPERATIONS Sales COS Gross Profit Expenses Impairment Loss Termination Costs Income Tax Income from Disc Ops x (x) x (x) (x) (x) (x) xx If FVCTS is > CA STATEMENT OF CHANGES IN EQUITY 1. Total Comprehensive Income - CI & NCI 2. Effects of retrospective application/restatement per PAS 8 3. Reconciliation of Beginning and Ending carrying amount for each component of Equity > P/L > OCI > transaction with owners and changes in interest in Subsidiary not resulting to loss of ctrl > amount of dividends and related per share amount STATEMENT OF CASH FLOWS Cash and CE, Beg Cash and CE, End Net Increase (decrease) INVESTING > NCA > Direct Only OPERATING > CA > CL > either Direct or Indirect FINANCING > NCL > Equity > Direct Only OPERATING ACTIVITIES > primarily derived from principal revenue producing activities of entity. Transactions that enter into determination of P/L > G(L) Sale of PPE > Securities held for trading purposes > Loans/Advances made by Financial Institution > PPE routinely sold after rental INTEREST PAID RECEIVED OPTG OPTG DIVIDEND RECEIVED PAID OPTG/INV FIN'G/OPTG TAX REFUND PAID OPTG OPTG or Financing if equity, Investing if Borrowing Cost or Investing if relating to NCA DIRECT METHOD > encouraged Cash sales, proceeds, collections and dividends Cash payments to acquire CA or settle CL Cash provided or (used) for Operating Activities or FIN'G/INV if specifically identified X (X) XX INDIRECT METHOD > commonly used Net Income Add : Non Cash Expenses Deprn Amort Imp Loss Disc BP Prem BP Div fr Assoc Less : Non Cash Income Sh In Assoc Profit Amort UII Prem BP Disc BP Add (Deduct) Adjustments: Sal Exp Sharebased Payments UG(L) Inv Prop at FV G(L) sale of NCA, FVOCI Sec, Inv in Assoc, and settlement of BP Increase (Decrease) CL and DTL (Increase) Decrease CA and DTA Cash provided or (used) Optg Act x x x x x x x (x) (x) (x) (x) x(x) x(x) x(x) x(x) x(x) XX INVESTING ACTIVITIES > acquisition or disposal of Longterm Assets and other investments not included in Cash Equivalents a) Cash Payments to acquire NCA and those relating to qualifying assets b) Cash proceeds from sale of NCA c) Cash payments to acquire Debt/Equity securities of other entity d) Cash proceeds from sale of acquired Debt/Equity securities of other entity e) Advances and Loans made to other oarties other than Financial Institution f) Cash receipts from repayments in item /e/ g) Cash payments to future/forward/option/swap contracts except if classified as held for trading or financing h) Cash receipts from item /g/ FINANCING ACTIVITIES > result to changes in size and composition of contributed equity and borrowings of entity a) Proceeds from issuance of shares b) Payments to redeem shares c) Proceeds from issuance of loan/notes/bonds/mortgage and other Longterm borrowings d) Payments on borrowings e) Payments by Lessee on liability relating to Finance Lease Non Cash transactions from Investing and Financing shall be excluded from Statement of Cash Flows because they're done thru DIRECT METHOD ONLY ADDITIONAL ACQUISITION OR PARTIAL DISPOSAL OF INVESTMENT IN SUBSIDIARY CONSO FS If result to loss of control Investing otherwise Financing SEPARATE FS always Investing regardless PFRS FOR SMEs > all are same except SMEs are not encouraged to report CF from Operating Activities using Direct Methodand not rquired to report particular cash flows on net basis ENJOY !!!!!!!
