lOMoARcPSD|20462347 Far notes mo to gawa sa cpar at icare oh diba walastik Accountancy (Polytechnic University of the Philippines) Studocu is not sponsored or endorsed by any college or university Downloaded by Veronika Blair (veronikablair999@gmail.com) lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES ACCOUNTING PROCESS Deferral – Cash flow first before income or expense recognition Accrual – Income or expense recognition first before cash flow Reversing Entries 1. Accrued Revenue 2. Accrued Expense 3. Prepayments – Expense Method 4. Deferrals – Income Method Costs of Goods Sold – used under perpetual inventory method REVISED CONCEPTUAL FRAMEWORK Missions of IASB in developing accounting standards 1. Contribute to transparency 2. Strengthen accountability 3.Contribute to economic efficiency Objectives of Financial Reporting in the Conceptual Framework 1. To provide financial information about a reporting entity 2. Investors, lenders, and other creditors (Primary Users) 3. Affects the decision making Addt’l info: 1. To provide information on assessing management’s stewardship of the entity’s resources Monetary Unit Assumption (2 Characteristics) 1. Do not adjust for changes in purchasing power – “ignored” 2. The Philippine peso is our currency Fundamental Qualitative Characteristics - Focus on the content or the substance a. Faithful Representation b. Relevance Quality of Faithful Representation 1. Completeness 2. Free from error 3. Neutrality Addt’l Info: 1. Also affected by measurement uncertainty (use of estimates in preparing financial information) overstated and expense and liabilities are not understated. Asset a. Present economic resource b. Economic resource is a right that has the potential to produce economic benefits. Ex 1: Right to receive cash, goods or services Ex 2: Right to use property, plant and equipment c. Economic resource is controlled by the entity as a result of past events. Liability a. The entity has an obligation. Ex 1: Legal Ex 2: Constructive b. Obligation is to transfer an economic resource Enhancing Qualitative Characteristics - Focus on the presentation or the form Revenue - Primary Activities Two types of Comparability 1. Horizontal – Comparison with an entity from one period to the next 2. Dimensional – Comparison between two or more entities in the same industry Gain - Accidental Activities Consistency – Use of the same methods for the same items. - Helps achieve comparability Two types of Verifiability - Exercise of caution when making decisions under uncertainty such that assets and income are not 1|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) Recognition Principle - Only items that meet the definition of an asset, liability, equity, income and expenses are recognized. Measurement Bases: 1. Historical Cost 2. Current Value Current Value Measurement 1. Fair Value – based on exit price lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES 2. Value in use – based on exit price 3. Fulfillment value – based on exit price 4. Current cost – Cost of an equivalent asset at measurement date composing of consideration paid plus transaction cost based on entry price. STATEMENT OF FINANCIAL POSITION Current Assets 1. Cash / Cash Equivalents 2. Held for trading 3. Expected to be realized, consumed, sold within the normal operating cycle 4. Realized within 1 year after the end of reporting period 5. Realized within 1 year or normal operating cycle whichever is LONGER. Non-current Assets 1. Residual Definition Current Liability 1. Expected to be settled within the normal operating cycle 2. Incurred for trading 3. Settled within 1 year after the end of the reporting period. 4. Realized within 1 year or normal operating cycle whichever is LONGER. 5. No unconditional right to defer settlement Equity 1. Preference Shares 2. Ordinary Shares 3. Share Premium 4. Retained Earnings 5. Other Comprehensive Income 6. Treasury Shares Other Important Matters 1. Notes Receivable – if not stated, current 2. NR Discounted – Conditional Sale 3. Financial Asset – FVPL – Current - FVOCI – Non-current Provisions for Financing 1. After the end of the reporting period but before the issue of FS – Current 2. On or before the reporting period for at least 12 months – Non current 3. Has the discretion to refinance – Non current Events after the reporting period 1. Adjusting Event - Condition is already existing at on or before the reporting period 2. Non adjusting Event - Indicative of conditions that arise after reporting period but before issuing date Non-current Liability 1. Residual Definition 2|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) STATEMENT OF COMPREHENSIVE INCOME Functional Presentation – according to function Net Sales Less: Cost of Sales Gross Profit Add: Other Income Investment Income Total Income Less: Distribution Cost Admin Cost Finance Cost Other Expense Income before tax Less: Tax expense Income from continuing operations Add: Income from discontinued operations Net Income Other Comprehensive Income Comprehensive Income Natural Presentation – according to nature Net Sales Add: Other Income Investment Income Total Income Less: Purchases Depreciation Expense Doubtful Accounts Expense Add: Change in Inventory Income before tax Tax Expense Income from continuing operations lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES Add: Income from discontinued operations Net Income Other Comprehensive Income Comprehensive Income Add’l Info: a. Current Asset b. No Depreciation Liability a. Line item under Current Liability Criteria – Held for sale are violated Other Comprehensive Income Presentation 1. May be recycled to P/L a. Unrealized G/L of debt instrument b. UG/UL on cash flow hedge c. Translation G/L of foreign currency 2. May not be recycled to P/L a. UG/UL on equity investment – OCI b. Net remeasurement G/L on Defined Benefit Plan c. Financial Liability at FVPL d. Revaluation Surplus Change in Accounting Policy - Retrospectively - Reported net of tax CA (as if never classified as HFS) vs Recoverable Amount (FV less COD vs Value in Use = whichever is higher) Measurement Less: CA per book Php xxx (xxx) Php xxx Order of Classification 1. By default P/L 2. If previously using revaluation model Revaluation (adjust revaluation surplus) Noncurrent Asset Held for Sale DISCOUNTINUED OPERATIONS 1. Considered as a component of an entity (clearly distinguishable) 2. Can identify assets, liabilities and income/expense will be eliminated when the component is discontinued Requirements to be held for sale 1. Available for sale in its present condition 2. Sale is considered highly probable When to be classified as Discontinued Operations 1. If the component is actually disposed of or classified as HFS – whichever comes first Accounting Estimate - Prospectively Measurement Carrying Value vs FV less cost to sell = W/C ever is lover (Check for impairment) Asset a. Line item under Current Asset b. Carrying Amt or FVLCOD – whichever is LOWER c. No depreciation 3|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) Income/Loss to Discontinued Operation a. Below continuing operation but before P/L b. Reported net of tax Cash Flows a. Separately SCF b. Notes OPERATING SEGMENTS I. Reportable (ANY of the criteria) 1. Segment Revenue – at least 10% of the total revenue of all the operating segment 2. Segment P/L – at least 10% of the greater between (ABSOLUTE VALUE) a. Total Profit all segment profit b. Total Loss all segment loss II. Threshold 1. External Revenue – total external revenue of the reportable segment should be at least 75% of the external revenue of all operating segments. If below 75% - entity may aggregate segments even if they’re not reportable Similar in the ff characteristics a. Product b. Production c. Customer d. Marketing e. Regulated environment lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES INTERIM REPORTING 1. Usually less than 1 year 2. Optional Two approaches in presenting interim reporting 1. Integral View - Interim period is considered an integral part of an annual period - allocations are allowed 2. Independent view - Interim period is considered a separate accounting period - allocations are not allowed Combination of Integral and Independent Interim Reporting - Used when the problem is silent - not stated in the standard CASH AND CASH EQUIVALENTS 1. Not restricted 2. Item used to pay or settle current operations or current obligations A. Cash on Hand – Undeposited collection B. Cash in Bank 1. Demand Deposit – CA 2. Savings Acct – CA 3. Time Deposit, Treasury Bills, Money Market Placements, Commercial Papers a. Cash Equivalent – Maturing in 3 months or less b. Short-term investment – More than 3 months but within 1 year c. Long-term investment – More than 1 year. C. Fund - purpose 1. PCF, Payroll, Tax – Cash 2. Plant Expansion – ALWAYS NCA 3. Sinking Fund – normally LT - If BP is ST = CASH ACCOUNTS RECEIVABLE 1. Gross AR Php xxx Less: Allowances xxx NRV Php xxx Components of ALLOWANCES 1. Allowance for Sales Discounts 2. Allowance for Sales Return 3. Allowance for Freight Charges 4. Allowance for Doubtful Accounts Methods of Estimating DA 1. Percent of Sales Method – REQUIRED D.A. EXPENSE 2. Percent of AR Method – REQUIRED ALLOWANCE 3. Aging of AR – REQUIRED ALLOWANCE RECEIVABLE FINANCING 1. Need of cash 2. Accelerate the cash collection Types of Receivable Financing 1. Pledge of AR (no transfer of title) - Serves as collateral (general assignment) - DISCLOSE PLEDGED AR 2. Assignment of AR (no transfer of title) - Collateral 4|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) - Specific assignment a. Assigned b. Unassigned Two methods of assignment 1. Non-notification basis 2. Notification basis 3. Factoring of AR - Sale of AR Two methods of factoring 1. w/o recourse – no obligation for non-payment of our customer 2. w/ recourse – there is an obligation for nonpayment of our customer 4. Discounting of NR Two types of Discounting AR 1. w/o recourse – in case of dishonor of note, the company has no obligation (ABSOLUTE SALE) 2. w/ recourse - in case of dishonor of note, the company has obligation a. Conditional sale w/ contingent - Secondarily liable in case of dishonor b. Secured borrowing - Primarily liable whether dishonored or not NOTES RECEIVABLE AND LOAN IMPAIRMENT Valuation of AR 1. Short term (whether interest or non-interest bearing) a. Conceptually – PV lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES b. ConventionFace ValueDisc is IMMAT. 2. Long term 2.1. Interest bearing (SR = ER) a. measured at FACE AMOUNT = PV 2.2. Non-interest bearing a. PV - Unearned interest income - Amortized using EIM Shipping Terms (Who must pay) 1. FOB SP – Buyer 2. FOB DS – Seller (Who paid) 3. Freight Collect – Buyer 4. Freight Prepaid – Seller INVENTORY COST FLOW AND LCNRV Impairment 1. Determine if impairment is present - Financial Difficulty of debtor FORMULA: Carrying Amount of Loan Receivable + Any Acc Int. PV of contractual CASH FLOWS > PV of Expected Future Cash Flows = Impairment Loss 2. Presentation of Impairment Loss - Maintained in a valuation account - Allowance for Impairment Loss INVENTORY Title to goods: 1. Owned and on-board 2. Purchased – in transit – FOB SP 3. Sold – in transit – FOB DES 4. Out on consignment 5. In the custody of sale agent 6. Sales with buy back agreement 7. Out on trial/approval to customers 1. Weighted average – periodic 2. Moving average – perpetual Two methods in measuring LCNRV 1. Allowance method 2. Direct method Individual Approach - REQUIRED by standard will result to the lowest measurement Purchase Commitment - Fixed number of units based on fixed price 1. Mkt Price < Fx Price = Loss on PC 2. Inc in Mkt Price Gain on PC EXTEND OF LOSS ONLY 3. amt to be credit to “Purchases” = Mkt Price (Dt of Purchase vs Fixed Price >> w/c ever is lower) 4. Payment – Fixed Price GROSS PROFIT, RETAIL METHOD AND BIO ASSETS Gross Profit Method 5|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) - Sales Discount not considered since no movement of merchandise Retail Method - Avail for sale (retail) Less: Sales Less: Sales Returns Add: Employee Discount Normal Shrinkage Normal Shoplifting Ending Inv @ SP Cost Ratio EI @ Cost Cost Ratio = GAS @ cost / GAS @ retail Three approaches in Retail Method 1. Conservative Method (Conventional Method/LCNRV) – net mark-up Note: Do not include net mark-down 2. Average Method – both net mark-up and net mark down Note: Approx ave cost of merch 3. FIFO Retail – Include both mark-up and net mark down on FIFO basis Biological Assets - Living animals/plants - FV less Cost of Disposal Agriculture Produce - harvested product a. As the produce grows on the plant - FV less COD - Considered as Bio Assets b. When harvested lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES - FV less COD @ pt. of harvest - after harvest = inventory Animals Recreational Activities (ZOO) a. Breeding - incidental to provide a recreational facility - no agriculture - PPE Bearer Plants - Used in the supply of production of agricultural produce - Expected to bear produce for more than 1 period - Remote likelihood that the plant itself will be sold as Agricultural produce except for incidental scrap sales - PPE Bearer Animals - Remain to be Bio Assets even if its sole purpose is to bear animals - FV less COD Note: In reporting gain, aggregate gain and loss (offsetting is allowed) INVESTMENTS Equity Investments - Ownership interest in another entity - Passive Interest Ex. Less than 20% of the outstanding ordinary shares FVPL (Trading, Non trading, all other quoted) Initial Measurement - FV (Transaction Costs Outright Expense) FV Changes - P/L Cash Dividend - Income P/L Impairment - Not Applicable Disposal - Gain/Loss P/L FVOCI (Non trading IRREVOCABLE ELECTION) Initial Measurement - FV + TC FV Changes - OCI Cash Dividend - Income P/L Impairment - Not Applicable Disposal - Gain/Loss Retained Earnings Stock Rights 1. To preserve the equity interest 2. Valuable Exercise Price < Mkt Price 3. Inherent in every share 4. a. Accounted for Separately FV Entry: Inv in SR xxx Inv in Equity b. Not accounted for separately Memo Entry only - memo entry only 2. Share in Lieu of Cash - Passive Income - Measurement of share/income 1. FV of shares 2. Cash Dividend 3. Liquidating Dividend - Net Income - 20% = good as liquidating dividend - exercise of significant influence - equity method: - cash dividend – not an income 4. Property Dividend - FV of the property Ordinary and Preference Share - P/L attributable to ordinary shareholders sig. influence = OS = voting shares - deduct annual/current year preference share dividend a. Cumulative – whether declared or not b. Non-cumulative – only when declared INVESTMENT IN ASSOCIATE - 20% 50% of the outstanding ordinary shares of another entity - exert significant influence - equity method xxx Dividends 1. Share Dividend (same class) - not considered income 6|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) Journal Entries 1. Purchase Inv. In Assoc Cash 2. Share in Net Income Inv. In Assoc xxx xxx xxx lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES Inv. Income 3. Share in Net Loss Inv. Loss xxx Inv. In Assoc 4. Share in Other Equity Changes Inv. In Assoc xxx Rev Surplus – Investee 5. Cash Dividend Cash xxx Inv. In Assoc 6. Stock Dividend MEMO ENTRY 7. Amortization of excess cost Inv Income xxx Inv. In Assoc 8. Excess FV Inv in Assoc xxx Inv Income Investment in Preference Shares - Non voting shares - Passive Interest Investment in Associate achieved in stages 1. Previous interest - REMEASURED @ FV - Any change in FV P/L 2. If previous interest FVOCI - Cumulative amount in OCI RE xxx xxx xxx - Interest Income Eff Int Method Computation of Goodwill FV of Previous Interest Cost of Add’l Inv. Initial Cost NA Acq. CA Excess Cost Adjustments Goodwill/Excess FV xxx xxx xxx (xxx) xxx (xxx) xxx xxx xxx xxx Loss of Significant Influence - Remaining Investment 1. Remeasured @ FV - any adj P/L 2. Passive Interest a. FVPL b. FVOCI *c. Cost – FV cannot be determined BOND INVESTMENT Held For Trading - FVPL a. Transaction Cost Expense b. No Impairment c. Interest Income (Nominal Interest Rate) d. No discount/premium amortization Held for Collection of Contractual Cash Flows (Principal and Interest) a. Amortized Cost - Transactions Costs Capitalized - Impairment 7|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) Held for Collection of Contractual Cash Flows and Sell the Asset - FVOCI a. Transaction Costs Capitalized b. Interest Income Eff Int Method c. FV Changes OCI d. Impairment e. Derecognition OCI P/L - FVPL (IRREVOCABLE ELECTION) a. FV Option DERIVATIES Purpose - Manage or reduce financial risk Important Characteristics a. Underlying / Notional b. No payment / Small payment c. Future date Net Settlement Examples Secondary Contracts a. Interest Rate Swap b. Forward c. Futures d. Options e. Foreign Currency Forward Measurement a. FV b. FV Changes OCI Primary Bank Loan Forecasted Purchase Transaction lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES - Cash Flow Hedge Settlement - Recycling to P/L - OCI P/L INVESTMENT PROPERTY Definition a. Land / Building b. Held for Rentals / Held for Capital Appreciation Initial Measurement - @ cost Subsequent Measurement - Accountancy Policy Choice: a. Cost Model = Cost – Acc Dep – Acc Imp Loss Note: FV = Disclosed in notes b. Fair Value Model = Changes of FV P/L Note: No depreciation to be recorded Transfers (Change of Use) a. Cost Model CA Initial Cost of subsequent accounting b. From IP to PPE or Inventory @ FV - Initial cost for subseq. acctng. c. PPE IP FV FV Change = Rev Model d. Inv IP FV FV Change @ P/L e. Completion of self-constructed IP - FV FV change P/L Cash Surrender Value 1. Life Insurance Policy 2. Entity Beneficiary 3. Premium Fully paid for 3 years 4. Surrender At the end of the 3rd yr of anytime thereafter 5. LT investment Non-current asset PPE Modes of Acquisition 1. Cash 2. On account subject to cash discount - DEDUCT whether TAKEN OR NOT 3. Installment / Deferred Payment a. Cash Price b. PV of future payments 4. Issue of share capital a. FV of the consideration received b. FV of shares c. Par / Stated Value 5. Issue of BP a. FV of Bonds b. FV of asset c. Face amount of Bonds 6. Donation a. FV Note: Donor is: a. Shareholder – Cr. Donated Cap (Part of Share Premium @ SFP) b. Non-shareholder – Cr. Income 7. Government Grant 8. Exchange a. w/ commercial substance - there’s a significant difference w/ cashflow i. FV of asset given-up + cash paid – 8|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) cash received ii. FV of asset received b. w/o commercial substance - CA of asset given up + paid – received 9. Construction a. Material b. Labor c. Overhead Property Tax a. Up to acquisition – Capitalize b. After – Expense Option (Time to Decide) a. If acq capitalize cost of alternative land b. If not acquired expense Special Assessment - Increase of value due to public improvements Dismantling Cost: a. Present Obligation - Capitalized b. PV (if w/ discount rate) Borrowing Cost 1. Production, Construction, Development 1.1 Qualifying asset assets that take substantial time to complete - Capitalized a. Specific Borrowing - BC incurred – Investment Income lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES b. General Borrowing - Weighted Ave Exp x General Borrowings x Average Int Rate c. BC capitalized should not exceed the actual borrowing cost incurred 1.2. Not qualifying asset (ready for use) - Expense DEPRECIATION Composite Method 1. Group of assets “single” asset 2. Composite life = Dep. Amount / Annual Dep. 3. Composite rate = Annual Dep / Total Cost 4. Dep = Total Cost x Composite Rate 5. No gain or loss on disposal DEPLETION 1. Acquisition Cost 2. Exploration Cost – to locate or explore a. Successful efforts method i. Resources – present capitalized ii. Dryholes expense b. Full cost method - capitalized 3. Development cost – to extract 4. Restoration cost - Present obligation - PV Equipment / Machine – not part of wasting asset - Subject to depreciation a. No alternative use - useful life of wasting asset - useful life of equipment Note: WHICHEVER IS LOWER b. Alternative use - useful life of equipment REVALUATION AND IMPAIRMENT Revaluation Model 1. Revalued Amount* Carrying Amount Revaluation Php xxx (xxx) Php xxx *a. Fair Value b. Depreciated Replacement Cost Replacement Cost Php xxx Acc Dep based on Repla. Cost (xxx) Sound Value Php xxx 2. CA of Asset > Tax Base of Asset = Future Taxable Amount (Deferred Tax Liability) Realized RE a. Derecognition b. Depreciable Asset Used 3. Cash Generating Unit a. CA > Recov Amt. IL (Allocate to) i. Apply Goodwill (full amt) ii. Other Assets based on CA b. CGU must not be reduced below the highest of: i. FVLCOD ii. Value in Use iii. Zero 9|Page Downloaded by Veronika Blair (veronikablair999@gmail.com) 4. Subsequent increase in the RA Reversal of IL Gain LIMIT Increased CA SHOULD NOT EXCEED the ORIGINAL CA (As if no impairment) Value In Use - Present Value of net cash flows from: a. Continuing use of assets of CGU and b. Disposal of asset of CGU INTANGIBLE ASSETS Initial Measurement - @ COST Subsequent Measurement Methods - Cost Model - Revaluation Model Limited Life - Amortized - Impairment whenever there is an indication of impairment Unlimited Life - NOT Amortized - ONLY Impairment ANNUALLY Notes: a. Deposit w/ advertising agency – PREPAID EXPENSE b. Excess of Cost over FV (Assoc) – Goodwill (Included in the investment balance) c. Excess of Cost over FV (Subd) – Goodwill (Reported Separately) d. Expropriation gain/loss – non-recurring lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES - Cannot be traded separately from the bonds Research and Development (R&D) 1. Before commercial production 2. Research Phase - expensed 3. Development Phase - expensed - capitalize only AFTER establishing technical feasibility 4. Equipment/Machine a. No Alternative Use - Expensed b. There’s an Alternative Use - Depreciate R&D Exp 5. Start-up cost (Pre-operating Cost) - Expense CURRENT LIABILITIES Customer Loyalty Program 1. Points/Awards Recognized Separately 2. Consideration Product Based on Stand Points Alone SP 3. Deferred Revenue Future delivery of goods/services 4. Revenue Total Pts Redeemed _ Total Pts to be Redeemed Provision Requirements: 1. Present Obligation 2. Probable 3. Outflow of benefits can be measured reliably BONDS PAYABLE Financial Liability 1. Amortized Cost a. Includes bond issue cost - Amortized b. Interest Expense - Eff Interest Method 2. FVPL (Held for Trading/Fair Value Option) a. BIC (TC) - Expensed b. Int. Expense - Face Value x Nominal % - NO PREM/DISC AMORT c. Change in FV i. Trading P/L ii. FV Option a. Credit Risk OCI b. Residual P/L Convertible Liability 1. Transfer from one type of capital to another type of capital - NO GAIN/LOSS ON CONVERSION 2. Conversion Cost = Share Issue Cost Dr. to SP Detachable Warrants - Can be traded separately from the bonds Non-detachable Warrants 10 | P a g e Downloaded by Veronika Blair (veronikablair999@gmail.com) OPERATING LEASE 1. Rentals - amortized - lessee (rent expense) - lessor (rent income) a. Pattern of Benefits b. If no pattern, use straight line over the lease term 2. Lease bonus a. Lessee - Prepaid Expense (Amort as Rent Expense over lease term) b. Lessor - Deferred Rent Income (Amort as Rent Income over lease term) 3. Leasehold Improvement - Depreciation (LT vs UL = SHORTER) - Residual Value = IGNORE - Renewal Option – Certain to Exercise 4. Initial Direct Cost a. Lessor - Deferred Charge – amort as exp over the lease term. - Unamortized Direct Cost – INCLUDED in the CARRYING AMOUNT of leased asset b. Lessee - Expense 5. Refundable Security Deposit a. Lessee lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES - NCA b. Lessor - NCL SALES AND LEASEBACK 1. Cash Flow Problem 2. Seller – Lessee; Buyer – Lessor A. Operating Lease 1. Selling Price = FMV - Gain/Loss RECOGNIZED IMMEDIATELY 2. SP < FV - Gain/Loss RECOGNIZED IMMEDIATELY *Loss Compensated by below market rent (deferred and amortized over lease term) 3. SP> FV - Excess of SP over FV Def & Amort over LT 4. CA > FV - Impairment Loss B. Finance Lease 1. Gain – Def & Amort over LT 2. Loss – Recognized Immediately Note: If SP<FV any excess of FV over CA is NOT RECOGNIZED FINANCE LEASE – LESSEE 1. Major Criteria (ANY) - Transfer of Title - BPO (Price < FV @ the end of LT) - LT – at least 75% of the UL of the asset - PV of min lease payments at least 90% of the FV of the asset 2. Risk and Rewards Incidental to ownership - Lessee “Installment Purchase” 3. Cost of the Asset - PV of Min. Lease Payments FV of the asset - IF BOTH IS GIVEN, CHOOSE W/C EVER IS LOWER - Initial Direct Cost 4. Minimum Lease Payments - Periodic Rentals - BPO - If no BPO, Asset will revert back to lessor, GUARANTEED RESIDUAL VALUE 5. Periodic Payment - Interest Payment, Principal 6. Depreciate – depends on the criteria: a. TOT or BPO – UL b. 75% or 90% - LT vs UL w/c ever is shorter - PV of MLP + Any PV of RV (Guar or UnGuar) 3. Total Financial Revenue - Gross Investment LESS Net Investment 4. Sales - PV of MLP vs FMV of Asset = w/c ever is LOWER 5. Cost of Sales - Cost of the asset + IDC – PV of UG RV 6. Gross Profit - Sales less Cost of Sales 7. Initial Direct Cost - Expense (Included in COS) 9. Unearned Interest Income - GI less PV of RV (G/UG) FINANCE LEASE – LESSOR 1. Gross Investment 2. Net Investment 3. Total Financial Revenue 4. Sales 5. Cost of Sales 6. Gross Profit 7. Initial Direct Cost 8. Lessor’s Asset Receivable 9. Unearned Interest Income Under Direct Financing: 1. Gross Investment - Gross MLP + Any Gross RV (Guar or UnGuar) 2. Net Investment - Cost of Asset + IDC 3. Total Financial Revenue - GI less NI 7. Initial Direct Cost - Capitalized (NI) 8. Lessor’s Asset Receivable - NI + Unearned Int Income 9. Unearned Interest Income - GI less PV of RV (G/UG) Under Sales Type: 1. Gross Investment - Gross MLP + Any Gross RV (Guar or UnGuar) 2. Net Investment NOTE PAYABLE AND DEBT RESTRUCTING 1. Debtor – Financial Difficulty to pay Creditor – Max Recov of Inv. 2. Type of Payments (Swap) a. Asset Swap 11 | P a g e Downloaded by Veronika Blair (veronikablair999@gmail.com) lOMoARcPSD|20462347 FINANCIAL ACCOUNTING AND REPORTING NOTES i. IFRS based Liab CA of the Asset G/L ii. US GAAP FV of the Asset CA of Asset G/L on Disposal Php xxx xxx Php xxx Php xxx xxx Php xxx Liab Php xxx FV of Asset xxx G/L on Restructuring Php xxx b. Equity Swap - Measurement of Share Capital 1. FV of Shares 2. FV of Liability 3. CA of Liability Total Liability Php xxx Measurement of SC xxx G/L on Ext Php xxx 2. Less than 10% of the total OLD LIAB - Modification Only DEFERRED INCOME TAX 1. Taxable Income – Income Tax Law 2. Acc/Financial Income – Acctng Standard 3. Permanent Diff – Non-taxable Income/Nondeductible expense 4. Temporary Diff a. FTA /TTD - AI > TI - CA of Asset > Tx Base of Asset - CA of Liab < Tx Base of Liab b. FDA/DTD - AI < TI - CA of Asset < Tx Base of Asset - CA of Liab > Tx Base of Liab 5. Current Tax Expense Taxable Income Php xxx Inc. Tax % x% Inc. Tax Exp Php xxx 6. Total Tax Exp Modification of Terms 1. Reduction of Principal Balance, Interest %, Exten. of term 2. Ext of old liab/modify exist. liab 3. Issue a new liab/modify exist. liab 4. Total Old Liab Php xxx PV of Modified Liab xxx G/L Php xxx NOTE: If G/L is: 1. At least 10% of the total OLD LIAB - Extinguishment; Mod is substantial 12 | P a g e Downloaded by Veronika Blair (veronikablair999@gmail.com)
