AFAR-22
ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 45  May 2023 CPA Licensure Examination
ADVANCED FINANCIAL ACCOUNTING & REPORTING (AFAR)
A. DAYAG  A. CRUZ
FULL PFRS vs. PFRS for SMEs
Business Combination and Goodwill
Item
Definitions and terminology
1. Business combination
2. Contingent
Consideration
Full PFRS
SME
• “…is a transaction or other event
in which an acquirer obtains
control of one or more businesses.”
• “bringing together separate
entities or businesses into one
reporting entity”
• Initially recognized as part of the
consideration
transferred
regardless of the probability of
payment
• Initially recognized in the cost of
the combination only if it meets
probability
and
‘reliably
measurable’ criteria.
• Non-occurrence of a future event
(e.g. not meeting earnings target)
is not considered to be a
measurement period adjustment –
therefore not adjusted against
goodwill.
• If future event does not occur,
then any adjustments to the
cost
of
the
business
combination are made against
goodwill.
3. Costs incurred in a business combination
Direct costs
Indirect costs
Costs to issue and
register stocks
Costs to issue debt/bonds
• Expensed
Expensed
Debited to APIC/Share
Premium
Debited to BIC
• Capitalized
Expensed
Debited to APIC/Share
Premium
Debited to BIC
4. Recognizing and measuring assets acquired and liabilities assumed on initial recognition
Identifiable intangible
assets
• Recognized separately from
goodwill if it is either
contractual-legal or separable
• Requires recognition if their fair
value can be measured
reliably
5. Exceptions to recognition or measurement principles, or both, on initial recognition
Contingent liabilities
• Recognize only where there is a
present obligation that arises from
past events and its fair value can
be measured reliably.
• Requires recognition of possible
obligations if
their fair value
can be measured reliably.
6. Accounting Method
Terms Used
Measuring goodwill/
bargain purchase gain
Valuation of goodwill
• Acquisition Method
Options:
1. Full fair Value
(Full-Goodwill)
2. Proportionate share of
identifiable net assets
(Partial- Goodwill)
• Purchase Method
• Cost less impairment losses
• Cost less impairment losses and
amortization (life should be
presumed to be 10 years)
Proportionate share of
identifiable net assets
(Partial-Goodwill)
Consolidated and Separate Financial Statements
7. Accounting for investment in
subsidiaries, jointly
controlled entities (JCE)
and associates
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Either:
(a) at cost, or
(b) in accordance with PFRS 9,
or
(c) Equity method (PAS 27)
Either:
(a) at cost less impairment, or
(b) at fair value with changes in
fair value recognized in P&L
(FVTPL)
(c) Equity Method (effective
1/1/2017)
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AFAR-22
ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
FULL PFRS vs. PFRS for SMEs
8. Non-controlling Interests
(NCI)in the acquiree)
NCI can be measured using either:
1. Fair value of NCI
(full goodwill); or
2. Proportionate interest in the fair
value of net identifiable assets
of the entity acquired
(partial goodwill)
NCI are stated at the non –
controlling (NCI) interest
portion of the fair value of the
net assets of the entity
acquired (partial goodwill)
Construction Contracts
Full PFRSs and the PFRS for SMEs share the same principles for accounting and reporting. However, the PFRSs
for SMEs are drafted in simple language and provide less guidance on how to apply the principles.
Revenue
PFRS 15
Sec 23 – Revenue (old standard)
pending revisions to conform with
PFRS 15.
Foreign Currency
Full PFRSs and the PFRS for SMEs share the same principles for accounting and reporting. The key differences
are:
1. Simplified language and application guidance in the PFRS for SMEs.
2. The PFRS for SMEs does not allow or require cumulative exchange differences that relate to a
foreign operation that were previously recognized in other comprehensive income to be
reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss
on disposal of the foreign operation is recognized. The Full PFRSs does.
Hedging
Some of the key differences between Full PFRSs and PFRS for SMEs are as follows:
1. The IFRS for SMEs gives SMEs a choice of following Sections 11 and 12 or PFRS 9 in accounting for
all of their financial instruments.
2. Hedge accounting is not permitted with an option-based hedging strategy. Because hedging
with options involves incurring a cost, SMEs are more likely to use forward contracts as hedging
instruments than options.
Hyperinflation
Full PFRSs and the PFRS for SMEs share the same principles for accounting and reporting. The key differences
are:
1. Simplified language and application guidance in the PFRS for SMEs.
2. The PFRS for SMEs does not set out specific procedures for the translation of the results and
financial position of an entity whose functional currency is the currency of a hyperinflationary
economy into a different presentation currency. Full PFRSs does.
Once in a Long While
Once in a long while, someone special walks into your life and really makes a difference.
They take the time to show you so many little ways that you matter,
They see and hear the worst in you and ugliest in you, but they don’t walk away in fact,
they may care about you.
Their heart break with yours, their tears fall with yours, their laughter is shared with yours.
Once in a long while, somebody special walks into your life and then has to go and separate ways.
Every time you see a certain gesture, hear a certain laugh or phrase or return to a certain place,
it reminds you of them.
Your eyes filled with tears, and a big smile comes across your face,
and then you thank GOD that someone can still touch your heart so deeply.
You remember their words, their looks, their expressions,
you remember how much of themselves they gave – not just to you, but to all.
You remember the strength that amazed you, the courage that impressed you, and the love that touched you…
To live your life on your own way
To reach for the goals you have set for yourself
To be YOURSELF as what you want to be….That is SUCCESS.
Trust yourself for you know more than you think you do.
To achieve all that is possible, we must attempt the impossible.
No one but HIMSELF can fill the emptiness of our soul.
GOD’s LOVE is like a river that keeps on flowing…
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