FAR
Cash & cash Equivalents
BANK RECONCILIATION:
BANK
Unadjusted Bal.
+ DIT
(-) OS
± Errors
Adj. balance
BOOK
Unadjusted Bal.
+ CM
(-) DM
± Errors
Adj. balance
BOOK TO BANK
Book, Unadj.
(+) CM
(+) OC
Total
(-)DM
(-)DIT
Bank, Unadj.
BANK TO BOOK
Bank, Unadj.
(+) DM
(+) DIT
Total
(-) CM
(-) OC
Book, Unadj.
Book-same manner
Bank-reversed
Bank-same manner
Book-reversed
PROOF OF CASH
Balance per book- beg
+ Book debits during the month
(-) Book Credits during month
BALANCE PER BOOK- ENDING
Balance per bank- beg
+ Bank credits during the month
(-) Bank Debits during month
BALANCE PER BANK- ENDING
Deposit in transit, beginning
(+) Deposit made by company this month
Total deposits to be acknowledged by bank
(-) Deposit acknowledged by bank this mth
DEPOSIT IN TRANSIT, END
Outstanding checks, beginning
(+) Checks issued by company this month
Total checks to be paid by the bank
(-) Checks paid by the bank this mth
OUTSTANDING CHECKS, END
DIT
OS
Beg
Deposit made
Deposit acknowledged
End
Deposit made – Receipts
Checks paid/cleared
End
Beg
Checks issued
Checks issued- Disbursements
Book receipts (Debits)
Less: Credit Memo last month
Book errors last mth correct this mth:
Understatement of CR
Overstatement of CD
Book errors this month:
Overstatement of CR
+ Understatement of CR (Current month)
DEPOSITS MADE BY COMPANY
Bank receipts (Credits)
Less: Credit Memo this month
Bank errors last mth correct this mth:
Understatement of CR
Overstatement of CD
Bank errors this month:
Overstatement of CR
+ Understatement of CR (Current month)
DEPOSITS ACKNOWLEDGED BY BANK
Book disbursements (Credits)
Less: Debit Memo LAST month
Book errors last mth correct this mth:
Overstatement of CR
Understatement of CD
Book errors this month:
Overstatement of CD
+ Understatement of CD (Current month)
CHECKS ISSUED BY COMPANY
Bank disbursements (Debits)
Less: Debit Memo THIS month
Bank errors last mth correct this mth:
Overstatement of CR
Understatement of CD
Bank errors this month:
Overstatement of CD
+ Understatement of CD (Current month)
CHECKS PAID BY THE BANK
DEPOSITS/CHECKS → This month
Unadjusted Balance
CM / DIT
a. Prior Month
b. Current Month
DM / OC
a. Prior Month
b. Current Month
PRIOR
MONTH
xx
RECEIPTS
DISB.
xx
xx
xx
(xx)
xx
(xx)
CURRENT
MONTH
xx
xx
(xx)
xx
(xx)
ERRORS
UNDER RECEIPT
a. Prior Month
b. Current Month
OVER RECEIPT
a. Prior Month
b. Current Month
UNDER DISBURSEMENT
a. Prior Month
b. Current Month
OVER DISBURSEMENT
a. Prior Month
b. Current Month
Adjusted Balance
xx
(xx)
xx
(xx)
xx
(xx)
(xx)
(xx)
xx
(xx)
xx
xx
(xx)
(xx)
xx
(xx)
(xx)
xx
xx
xx
BEG REC. DISB.
END
Errors Prior; Corrected current
OVER
(xx)
(xx)
RECEIPTS
UNDER
xx
(xx)
OVER
xx
(xx)
DISB.
UNDER
(xx)
(xx)
Errors Prior; Not corrected current
OVER
(xx)
(xx)
RECEIPTS
UNDER
xx
xx
OVER
xx
xx
DISB.
UNDER
(xx)
(xx)
Errors Current; Not corrected current
OVER
(xx)
(xx)
RECEIPTS
UNDER
xx
xx
OVER
(xx)
xx
DISB.
UNDER
xx
(xx)
Errors Current; Corrected current
OVER
(xx)
(xx)
RECEIPTS
UNDER
No longer a reconciling item
OVER
(xx)
(xx)
DISB.
UNDER
No longer a reconciling item
PETTY CASH FUND
PCF- IMPREST
Establishment Adjustment
Increase in fund Decrease in fund
End (Coins & Bills)
PCF- FLUCTUATING
Establishment Payment of Expenses
Replenishments Decrease in fund
Increase in fund
End (Coins & Bills)
Petty cash accounted
(-) Petty cash accountabilities
OVERAGE (SHORTAGE)
✓
✓
✓
✓
✓
❖
❖
❖
❖
S
Dr
O
Cr
Petty Cash Accounted
Coins and currencies
Checks for deposit
Stale Checks
Post-dated checks
Unreplenished vouchers (expenses,
IOUs)
Unexpended employees’ contributions
(Christmas party, birthday party, etc.)
Cash collection of AR or sales
Unclaimed Salary
✓
✓
✓
✓
Misc. Expense - Immaterial
Rec. from custodian - Material
Misc. Revenue
Petty Cash Accountabilities
PC Fund ledger balance
Petty Cash impurities except checks
issued in settlement of cash advanced
from PCF.
Stale Checks
Company’s check- payment of Liab
(utilities)
Unexpended
employees’
contributions
(Christmas
party,
birthday party, etc.)
❖ Unclaimed Salary
❖ Cash collection of AR or sales
Accounted only if → intact or envelope is still closed
Accountabilities always → intact or not.
❖
SHOULD HAVE
BEEN:
PETTY CASH IMPURITIES
-Do not belong to fund
nevertheless found in
petty cash box.
Ex of
Checks
Company’s check in payment of
utility bills
Bills/coins & customers' check
from cashier's collections
Checks issued to client in
payment of personal advances
Delivered to payees
General cash
General cash
1. Employees' check (Good/NSF/PDC) in settlement cash advanced from PCF
2. Company’s check as a replenishment of PCF (replenishment check)
3. Company’s check payable to petty cash custodian representing salary.
Employees' checks
issued to client in
settlement of cash
advanced from PCF
Accommodated checks or checks cash out from the fund.
NOT treated as accountabilities.
Evidence that there were cash advances drawn from PCF.
If silent, check in w/c payee is “to Cash" -assumed
accommodated check.
Checks for Deposits: Part of 1. Customer's Checks
impurities. If included in
o Represent collection of AR from a customer.
accounted, must included 2. Company's Check in Payment of Liability
also in accountabilities:
(Utilities)
▪
▪
▪
•
REPLENISHMENT CHECK
Total Expense
+ Cash shortage
- Cash overage
REPLENISHMENT CHECK
Petty Cash Accountability
-Bills and coins
REPLENISHMENT CHECK
COMPUTATION OF ADJUSTED PCF BALANCE:
Coins and currencies (Excluding collections, unexpended
employees’ contribution, and unclaimed salary)
+ Expenses paid out of PCF after reporting date
+ IOU after reporting date
+ Company’s check in the name of custodian as:
a. Replenishment check
b. Salary of custodian
+ Employees' check (Good check only, exclude NSF check)
(-) Unreleased payroll (Enveloped opened; no money inside)
ADJUSTED PCF BALANCE
Pxx
xx
xx
xx
xx
(xx)
xx
Accounts Receivable
NET COLLECTION OR PAYMENT:
Invoice price of goods sold or purchased (Excluding freight)
(-) Invoice price of goods returned
Net invoice price
(-) Sales or Purchase discount (% x Net invoice price above)
Net collection or payment before freight
(-) Freight → FOB Destination, freight collect
+ Freight → FOB Shipping Point, freight prepaid
Total Net Cash Collection/Payment
FOB
Destination
Shipping Point
SHOULD
PAY
Seller
Buyer
FREIGHT
Prepaid
Collect
Freight Terms
Collect
Destination
Prepaid
Collect
Shipping Point
Prepaid
If:
Destination-Prepaid
Shipping Point- Collect:
➔ Net cash collection
or payment is not
affected by freight
because paid by
appropriate parties.
WHO
PAID
Seller
Buyer
Seller
(-) AR
Freight out
No effect
(+) AR
Buyer
(-) AP
No effect
Freight-in
(+) AP
METHODS OF ACCOUNTING FOR BAD DEBTS:
COLLECTABILITY
DOUBTFUL
WRITE OFF
(Uncollectability
CERTAIN)
BDE
ALLOWANCE
xx
ADA
ADA
AR
AR
ADA
xx
xx
DIRECT WRITE OFF
xx
xx
RECOVERY
BDE
AR
xx
xx
Recovery same fiscal yr as WO:
AR
xx
Reverse
BDE
xx
Cash
Cash
ADJUSTMENTS
NO ENTRY
xx
AR
BDE
xx
xx
xx
AR
xx
Recovery subsequent to yr of WO:
Cash
xx
NO reverse
Gain
xx
xx
ADA
xx
NO ADJUSTMENTS
METHODS OF ESTIMATING BAD DEBT EXPENSE:
1)
% of Sales
Sales x % Uncollectability = BAD DEBT EXPENSE
2)
3)
% of AR
Aging of AR
AR, end x % Uncollectability = AFDA, end
Difference: Percentage use
SUBSEQUENT MEASUREMENT: SHORT TERM RECEIVABLES
Face Value
Less: Allowance for doubtful accounts
Allowance for sales returns
Allowance for sales discounts
Net Realizable Value
Allowance for Doubtful Accounts
Write off Beginning
Recoveries BDE
Recoveries
Ending
Accounts Receivable
Beginning Sales R & A * (Before Collection)
Sales on account Sales discount
Recoveries Collections including Recoveries
Write-off
Ending
Loans Receivable
INITIAL MEASUREMENT
Principal amount
(-) Origination fees received
+ Direct origination cost
Loan receivable- Initial
or
Direct origination cost
(-) Origination fees received
Net Direct Origination cost
(Unearned Interest Income)
Principal amount
± Net Direct origination cost (UII)
Loan receivable- Initial
Direct Origination Costs > Origination Fees
Direct Origination Costs < Origination Fees
Premium
Discount
IMPAIRMENT LOSS:
CV of long-term receivable (+ accrued interest)
(-) PV of expected future cash flows at date of impairment testing*
Impairment loss
Outstanding principal or PV, date of impairment testing
+ Unpaid interest (only if recognized by the entity)
Carrying amount of long-term receivable
* Using ORIGINAL
effective interest rate.
Outstanding principal
if issued at Face
Present Value
if Issued w/ premium/discount
Outstanding principal amount as of date of impairment testing
± Unamortized Premium (Discount) on long-term receivable
Present value at date of impairment testing
Future cash inflows
x PV factor using the original effective interest rate
PV of expected future cash flows at date of impairment testing
Outstanding Face Amount
(-) Allowance for impairment
Net Carrying amount
Face < CV
Face > CV
NOTES RECEIVABLES
LUMPSUM
PV of Principal (Principal × PVO1)
+ PV of interest (Principal x nominal rate × PVOA)
PV of Notes Receivable
DISCOUNT
Acquisition Price (PV) < Face Value
Effective Rate > Nominal Rate
Effective Interest > Nominal Interest
INSTALLEMENT
1st collection (Principal + interest) x PVO1 after one period]
+ Nth collection (Principal + interest) × PVO1 after nth period]
PV of Notes Receivable
PREMIUM
Acquisition Price (PV) > Face Value
Effective Rate < Nominal Rate
Effective Interest < Nominal Interest
AMORTIZATION
= (Effective Interest - Nominal Interest
= (Nominal Interest -Effective Interest)
= (Interest Income - Interest Collection)
= (Interest Collection-Interest Income)
↑ CV & Interest Income
↓ CV & Interest Income
CARRYING AMOUNT
Addition (+)
Subtraction (-)
INITIAL RECOGNITION
Credited - “Discount on NR” or
Debited- “Premium on NR”
“Unearned Interest Income
AMORTIZATION
Discount
xx
Interest Income
xx
Interest Income
xx
Premium
xx
•
Discount is same as unearned finance charge or unearned interest income.
▪
▪
Interest Income
Based on to Effective Interest
Always Credited
INITIAL CV
AMORTIZATION
INTEREST INCOME
CV, BS DATE
CURRENT
PORTION
Installment
Lumpsum
NON-CURRENT
PORTION
PV, beg x 1.ER
(-) Nominal Interest
(-) Principal Collect
PV, end
REALISTIC
Face Value
-noneNominal
Interest
(Face x
NR/ER)
Remaining FV
Collection of
FV, next year
0
Remaining
Face value,
next year
Accrued Interest (Interest Receivable)
▪
Based on Nominal Interest
▪
If Lumpsum: Equal every year
UNREALISTIC
Present Value
PREMIUM
UNREALISTIC
Present Value
DISCOUNT
Effective Interest
(PV, beg x ER)
Effective Interest
(PV, beg x ER)
Remaining PV
Collection of FV, next
year less: Amortization
0
Amortized Cost, next
year
Remaining PV
Collection of FV, next
year less: Amortization
0
Amortized Cost, next
year
PV, beg
PV, beg
Face Amount
+ Effective Interest
+ Discount Amort.
(-) Bal. of Discount
(-) Nominal Interest
(-) Premium Amort.
+ Bal. of Premium
(-) Principal Collect
(-) Principal Collect
(-) Principal Collect
PV, end
PV, end
CV
Interest Income = PV x Effective Interest
Balance of Discount/Premium
Interest Receivable = Face x Nominal Interest
= (Beg balance - Total Amortized Amount)
Principal collectible within one year
Principal collectible beyond one year
Less: Discount Amortization (next year)
Less: Discount Amortization (Total Remaining
Current Portion of NR
amounts next to next year)
Current Portion of NR
Receivable Financing
PLEDGING:
• ALL receivables are used as collateral for a loan.
• AR is NOT affected by the pledging.
• Disclosure only/No entry for receivables pledged.
• Receivables pledged NOT derecognized nor
separated from other receivables.
ONLY ENTRY: Loan obtained
(Proceeds & Interests)
ASSIGNMENT:
AR-assigned
Less: Collections
Sales Discount
Sales Return
Write-off
AR-assigned, End
Face Amount
Less: Principal Payment (Collections-Accrued Interest)*
Notes Payable, end balance
* Collections are applied first to the accrued interest
* Interest is based on OUTSTANDING/REMAINING bal. of
NP
* Service fee, NO effect
Accounts receivable – assigned, end
Less: Related liability balance
Equity in assigned AR (Notes to FS)
FACTORING:
Gross amount of Receivable
Less: Factoring fee
Finance charge & interest expense
Net selling price
Less: Factors holdback (Gross AR x %)
Net cash received
Net SP (Holdback not deducted)
(-) CV of receivable (Net of Allowance)
Gain (loss) on factoring
Factoring fee
+ Interest
+ FV of Liability for RO
(-) Allowance for DA
Loss = Cost of Factoring
ALL collected- IGNORE
NOT all collected – ADD (Silent)
“Weighted Average time to Maturity”
→ Use 365 days in computation of Interest
If Silent: 360 days
DISCOUNTING:
Maturity value of NR (Principal + Interest for the full term)
Less: Discount (Maturity value x Discount rate x Discount period)
Proceeds from discounting
Less: CV of NR, date of Discounting (Principal + Accrued Interest)
G/L (if sale) or Interest Expense (if secured borrowing)
Face Value if
non-interest bearing
Interest-bearing note= Principal + Accrued Interest between NR date & Discounting date
Noninterest-bearing note = Principal - Unamortized discount as of date of discounting
Customer dishonored the note before maturity:
Maturity Value
+ Protest Fee
Total Amount due
+ Interest Accrued (Maturity to Payment)*
Amount collected from customer
*Based on Total Amount Due computed
Inventory
ITEMS TO BE INCLUDED IN INVENTORY:
BUYER
SELLER
FOB shipping point (FOB Seller; Free alongside, CIF)
Sales w/ right of return or Goods w/ refund offers
Installment sale
Special-order goods (Customer Specification)
Customarily manufactured & Constitute Stock item
Specifically segregated per sales contract
Bill and Hold
Sold on with high probability of returns
FOB destination (FOB Buyer, Ex-ship)
Sale with repurchase/buyback agreement
Sale under inventory financing
Inventory pledged
Inventory loaned
Sales out on approval/trial
Lay-away sale
Hold for shipping instruction
Goods in the Hands of Salesperson & Agents
Goods held by other for storage, processing, or shipment
PURCHASE (FIRM) COMMITMENTS
10/01/19:
12/31/19:
04/01/20:
Date
10/1/19
12/31/19
4/1/20
(a)
4/1/20
(b)
Commitment to purchase 100K units @ P10 each, 6 months after date.
Average purchase price of inventory = P9 per unit. → Decreased
a) Ave. purchase price P8.50 per unit → Decreased
Actual purchase
b) Ave. purchase price P9.25 per unit → Increased
Journal Entry
No Entry (Disclosure only)
Loss on PC
100K
Est. Liability on PC
100K
100K units x (P10-P9)
Purchases
850K
Loss on PC
50K
Est. Liability on PC
100K
Accounts Payable
1M
100,000 units x 8.5= 850,000
100,000 units x (9 -8.5)= 50,000
100,000 units x 10= 1,000,000
Purchases
925K
Est. Liability on PC
100K
Accounts Payable
1M
Recovery Loss on PC
25K
MARKET
PRICE:
↑
↓
Favorable
Unfavorable
Purchases:
▪ LOWER of commitment cost
and replacement cost.
Accounts Payable/Cash:
▪ Original Contract Price
RECOVERY:
▪ Limited to loss recorded in
previous period
Value ↑ after commitment date or
at the end of period (But not
actual purchase date) and No
Loss previously recorded:
▪ Increase NOT recorded
100,000 units x (9.25)= 925,000
100,000 units x (9.25 - 9)= 25,000
POV OF SELLER: Sales Revenue= Based on units produced
COST FORMULA:
FIFO PERIODIC/PERPETUAL
Units:
2
27
29
-23
6K
COGAS
Beginning
+ Net Purchases
Goods Available for sale
(-) Units Sold
Units Ending Inventory
Most recent cost (3K x 60)
Next most recent cost (3Kx 55)
Cost of Ending Inventory
180
165
345
Total Sales
(-) COGS
Gross Profit
2 x 50 = 100
18 x 52 = 936
6 x 55 = 330
3 x 60 = 180
(-) Cost of Ending Inv.
COGS
1,546
- 345
1,201
3,070
-1,201
1,869
WEIGHTED AVERAGE- PERIODIC:
Average unit cost =
Cost of Goods Available for sale
Units Available for sale
Cost of Ending Inv. = AUC x Units in End. Inv.
COGS = AUC x Units Sold
COGS = COGAS – Ending Inventory
MOVING AVE. – PERPETUAL
QTY
2,000
18,000
20,000
(7,000)
6,000
19,000
(16,000)
3,000
6,000
COST
50
54
53.6
53.6
55
54.04
54.04
60
53.05
TOTAL
100,000
972,000
1,072,000
(375,200)
330,000
1,026,800
(864,640)
180,000
342,160
New Ave. Cost=
New total Cost of Goods on hand
New number of units on hand
→ Use every sale: No sale, no need compute
After issuance/sale: Unit Cost unchanged
After Purchase: Unit cost will change
COGS = Add all the negative balance in Total
ACCOUNTING FOR LCNRV
DIRECT METHOD
Beginning Inv. at LCNRV
+ Net purchases
TGAS
(-) Ending Inv. at LCNRV
COGS AFTER WD
ALLOWANCE METHOD
Beginning Inv. at COST
+ Net purchases
TGAS
(-) Ending Inv. at COST
COGS BEFORE WD
+ Loss on inventory WD
(-) Gain on reversal of WD
COGS AFER WD
COST > NRV → ✔️ Write Down
COST < NRV → ❌ Write Down
Ending Inventory -at cost
(-) Ending Inventory -at LCNRV
Required allowance
(-) Allowance for Inv WD, beg
Loss (Gain) on Inv. WD (DURING)
Allowance for Inventory WD
Gain on WD -DURING Beginning
Loss on WD- DURING
Ending
Gain on reversal/Recovery– Limited to previous loss recorded
Required allow > Allow beg → Loss on WD
Required allow < Allow beg → Gain on WD
Retail Inventory Method
COST
RETAIL
Beginning Inventory
Pxx
Pxx
Purchases
Pxx
Pxx
Freight-in
+
Purchase Discounts
Net Purchases
(-)
Purchase Allowances
(-)
Purchase returns
(-)
(-)
Departmental transfer-in (debit)
+
+
Departmental transfer-out (credit)
(-)
(-)
Abnormal Losses
(-)
(-)
Net markup (Markup - Markup Cancellation)
+
Net markdown (Markdown - Markdown Cancellation)
(-)
Goods Available for Sale
Pxx
Pxx
Sales
(-)
Sales return
Net Sales
+
Normal Losses, Shortage, Shrinkage
(-)
Discount to Employees & Favored Customers
(-)
Ending Inventory at Retail
Pxx
Multiply: Cost to Retail Ratio
%
Ending Inventory at Estimated Cost
xx
Pxx
COST OF GOODS SOLD
Pxx
•
Sales Discount – NO effect; IGNORE
•
Losses/Breakage – Assumed NORMAL if silent
•
Purchases at Retail = Purchases at Cost + Initial Markup on Purchases
COST TO RETAIL
METHOD
BEG INV.
NET
MARKDOWN
AVE. RETAIL
(Silent)
✓
✓
COMPUTATION
=
GAS @ Cost
GAS @ Retail
Net Purchases @ Cost
FIFO
Conservative
AVERAGE
(Silent)
Conservative
FIFO
•
•
✘
✓
= Net Purchases @ Retail
GAS @ Cost - beg. Inventory @ cost
= GAS @ Retail - beg. Inventory @ retail
GAS @ Cost
✓
✘
= GAS @ Retail + Net Markdown
GAS @ Cost
= GAS @ Retail exc. net markdown
Net Purchases @ Cost
✘
✘
= Net Purchases @ Retail + Net Markdown
Net Purchases @ Cost
= Net Purchases @ Retail exc. net markdown
Excluded in computation of Ratio only.
But still considered in actual computation of Ending Inv. /COGS
LCNRV → CONSERVATIVE → LCNRV
Gross Profit Method
Beginning inventory
Add: Net purchases
Cost of goods available for sale
Less: Estimated cost of goods sold
Pxx
xx
Pxx
Cost ratio
(a) GPR based on sales = Net sales x (100% - GPR)
(b) GPR based on cost = Net sales ÷ (100% + GPR)
Estimated cost of ending inventory
Less:
Undamaged inventory (Physical count) - COST
Partially damaged Inventory - LCNRV
In transit goods (owned by company)
Inventory out on consignment
Inventories owned not in warehouse during fire
Scrap or Salvage Value
Estimated inventory loss
DEDUCT:
Net Purchases:
Net Sales:
xx
Pxx
(xx)
Pxx
Returns, Discounts, Allowances, Freight
Sales Return
Determining Gross Profit Rate:
1.
Look for possible trend
2.
Average Gross Profit =
GP Rate Year 1 + Year 2+ Year N
Number of years
3. Overall GP ratio for past years =
Total GP all years
Total Sales all years
Used when NO trend on GPRs and silent as to what GP will be used.
Gross Profit Based on Sales
Sales
xx
100%
Less: COGS
(xx) -75%
Gross Profit
xx
25%
GP
= Sales x GP Rate
COGS = Sales x Cost Ratio
Gross Profit Based on Cost
Sales
xx
125%
Less: COGS
(xx)
-100%
Gross Profit
xx
25%
GP
= Sales x GP Rate
COGS = Sales ÷ Sales Ratio
Biological Assets
Initial
Subsequent
BIOLOGICAL ASSET
FV less Costs to Sell / CV / Cost
FV less Costs to Sell
Market price- Estimated SP
(-) Transport /cost to bring assets to market
Farm Price- Adjusted Fair Value
(-) Costs to sell
Fair value less costs to sell
AGRICULTURAL PRODUCE
FVLCTS at point of harvest
PAS 2 – LCNRV
1. Commission to brokers/ dealers
2. Levies by regulatory agencies
3. Transfer taxes and duties
Directly attributable cost → Ignore; Other costs incurred → Expense
BIOLOGICAL ASSETS
Beginning Balance FV losses
Acquisitions @ FVLCTS Harvest
↑ in FV (Price + Physical) Sales
Ending Bal.
“Harvested but not yet sold”
- Dr: Inventory; Cr: Gain
- Biological asset unaffected
CV, end= ∑ (# of Animals x updated age each)
BEG & ACQUIRED
FVLCTS, end @ Age, end
(-) FVLCTS, end @ Age, beg
G/L Per Unit
x Quantity
Total G/L
PHYSICAL CHANGE
BORN DURING THE YR
Pxx
FVLCTS, end @ Age, end
(xx)
(-) FVLCTS, end @ Age, beg
Pxx
G/L Per Unit
*xx
x Quantity
Pxx Total
+ FVLCTS date of birth x Qty
Total G/L
Pxx
(xx)
Pxx
*xx
Pxx
xx
Pxx
PRICE CHANGE
BEG/ ACQUIRED /BORN
FVLCTS, end @ Age, beg
Pxx
(-) FVLCTS, beg @ Age, beg
(xx)
G/L Per Unit
Pxx
x Quantity
*xx
Total G/L
Pxx
Physical Change
Price Change
AGE
Current vs. Original
Original
FVLCTS
End vs. End
End vs. Beg
GAINS AND LOSSES
Initial
Biological Asset
Agricultural Produce
Subsequent
Change in FVLCTS
Loss - Because CTS is deducted in FVLCTS
Gain- Newborn animals
G/L due to harvesting
Physical Change
Price Change
INITIAL COST
FVPL
(TRADING)
FV
FVTOCI
(NON-TRADING)
FV+TC
SUBSEQUENT COST
FV
FV
EQUITY
DIVIDEND INCOME
SHARE in NI /OCI
Cash, Property, Share (Different), Scrip,
Shares received in lieu of Cash
-
INVESTMENT IN ASSOCIATE
FV+TC
EQUITY METHOD
↓ CV of Investment
↑↓ CV of Investment
UG/UL- CURRENT
P/L
OCI
-
UG/UL- CUMULATIVE
-
Equity Section- SFP
-
-
(SP-Cost) x % sold
-
G/L ON SALE - P/L
(NSP - CV)
-
(NSP-CV)
TC ON SALE
Deduction to SP
(DISPOSAL COST)
(SP - TC= NSP)
TRANSFERRED TO RE
UPON SALE
Expense -P/L
Deduction to SP
(SP - TC= NSP)
Gain on BP + Investment Income +
TC + Dividends
Dividends
+ UG/UL + G/L on Sale
+ TC (Disposal)
IMPAIRMENT LOSS
-
-
Profit or Loss
FS PRESENTATION
Current Asset
NCA
NCA
P/L
Impairment + G/L on Sale &
Remeasurement
INITIAL COST
FVPL
(Trading)
FV
FVOCI
(Collect & Sell)
FV+TC
FAAC
(Collect)
FV+TC
SUBSEQUENT COST
FV
FV
Amortized Cost
AMORTIZATION
-
=NI – EI
=NI – EI
INTEREST INCOME
= Face Value x NR
=Amortized Cost x ER
=Amortized Cost x ER
UGOL - CURRENT
P/L - SCI
OCI - SCI
-
UGOL - CUMULATIVE
N/A
G/L ON SALE – P/L
=NSP – FV
=NSP – AC
=NSP – AC
IMPAIRMENT
-
Yes-P/L
Yes-P/L
IMPAIRMENT REVERSAL
-
P/L - no limit
P/L - no limit
DEBT
RECLASSIFICATION
(Recycled to P/L)
-
Allowed
Non-Current
Non-Current
(Unless Due 12 mts)
(Unless Due 12 mts)
Operating
Investing, Operating
Investing, Operating
TC + Interest+ UGOL
Interest + G/L on Sale
Interest + G/L on Sale +
+ G/L on Sale
+ Impairment
Impairment
SFP
Current Asset
SCF
PROFIT OR LOSS
Equity – SFP
Investment in Equity Securities
UGOL
FV, BS date
(-) CV before remeasurement
UGOL, Current Period
FV, BS date
(-) Original Cost
UGOL, Cumulative
SALE
FVPL
Net Proceeds (SP-TC)
(-) CV before sale
Realized G(L) on Sale
FVTOCI
Selling Price, all shares
(-) Original Cost, , all shares
UGOL balance as of date of sale
RE= UGOL as of date of sale x % sold
RE= Proceeds from sale – Historical Cost of Shares sold
RE = (SP-FV date of sale) + Balance of UGOL of shares sold
DIVIDEND-ON
Initial Cost = Market Price - Dividends
Cash Paid= Market Price
Dividend Income → recognized by
the one who owns the share at the Date
of Declaration
Initial Cost
Cash Paid
DIVIDENDS-ON
= Market Price-Dividends
= Market Price
EX-DIVIDENDS
= Market Price
= Market Price
Investment
Cash
Entry
Investment (Exclude Div)
Dividends Receivable
Cash (Include Div)
Cash
Div Receivable
SHARE SPLIT
• MEMO ENTRY
• CV unaffected
•
•
•
UP (2 FOR 1)
DOWN (1 FOR 2)
# OF
SHARES
↑
↓
FV PER
SHARE
↓
↑
SPECIAL ASSESSMENT
Additional contribution required during financial difficulties.
Additional Cost of Investment (Capitalized)
Percentage of Ownership unchanged
RECLASSIFICATIONS
IMPAIRMENT
➔ Not Allowed
➔ Not necessary
STOCK RIGHTS/ WARRANTS
THEORETICAL VALUE OF RIGHTS (FV OF RIGHTS NOT GIVEN):
COST OF NEW
INVESTMENT
SALE OF RIGHTS
•
ACCOUNTED FOR
SEPARATELY?
Righton
Value of one right =
Exright
Value of one right =
MV of Stock Right on - Subscription Price
No. of Rights to purchase one share +1
MV of Stock Ex rights - Subscription Price
No. of Rights to purchase one share
✔️
(Silent)
Cash paid to acquire new shares (# of Shares x SP)
+ FV of Share Rights exercised (# of Rights x FV)
Total Cost of New investment
❌
= Cash paid to acquire new shares (# of Shares x SP)
Share rights → Memo
Net sale price
(-) FV of Share rights sold (# of Rights x FV)
Gain from sale of Rights
Share rights NOT exercised → Loss on share rights
TYPES OF DIVIDENDS
TYPE OF DIVIDENDS
Cash Dividends
Property Dividends
(In kind)
Liability / Scrip Dividends
Same
Class
Out of
Earnings
Out of
Capital
Share Dividends
(Bonus Issue)
Different
Class
DIVIDEND
INCOME?
✔
✔
NOTES
✘
Face Value
FV of Property
Share of another company
+ Interest income
Memo Entry only.
↑ No. of Shares ; ↓ Cost per share ; No effect CV
✘
Investment CV is Allocated Between Initial Shares &
Share dividend based on their FV.
✔
Shares received in lieu of Cash
✔
Cash Received in lieu of shares
✘
Liquidating Dividend
✘
Debit → New Investment
Credit → Original Investment
▪
As if shares are bought.
1) FV of shares
Income is
based on: 2) Original Cash Dividends
▪
▪
As if shares are sold.
G/L on sale= (SP/Cash– FV of Shr Div)
Reduction of Investment account
Cash
Investment in Shares
Investment in Debt Securities
ACCRUED INTEREST
•
Not included in initial cost regardless of designation.
FV= (Acquisition Cost – Accrued Interest)
𝒏
Accrued Interest= (Face Value x Nominal Interest x 𝟏𝟐)
Accrued
Interest:
Excluded
Included
Acquisition
Sale
Initial Cost
Cash Paid
SP (G/L on Sale)
Cash Received
Occurs when: Interest Payment Date ≠ Acquisition/Sale/BS Date
1. Acquired between interest payment dates (Not Income, only receivable)
➔ n= From Last Interest Payment Date to Date of Acquisition
2. Sold between interest payment dates
➔ n= From Last Interest Payment Date to Date of Sale
3. Every balance sheet dates when dates doesn’t coincide
➔ n= From Last Interest Payment Date to Year End
UGOL
FVTPL
FV end
(-) CV, end
UGOL- P/L
FVTOCI
FV, end
(-) AC, end
UGOL - Cumulative - SFP
(-) UGOL - Cum Bal. Last Yr.
UGOL- Current- OCI
FVTOCI
Fair Value end
(-) CV (FV last year – AP + AD)
UGOL- CURRENT- OCI
AP – Amortization of Premium
AD – Amortization of Discount
DISPOSAL (SALE)
FVTPL
Selling Price
Less: Accrued Interest
Less: Transaction cost
Net selling price
Less: CV (Previous FV)
G/L on Sale- P/L
Pxx
(xx)
(xx)
Pxx
(xx)
Pxx
FVTOCI/AC
Selling Price
Less: Accrued Interest
Less: Transaction cost
Net selling price
Less: Amortized Cost, date of sale
G/L on Sale- P/L
Pxx
(xx)
(xx)
Pxx
(xx)
Pxx
RECLASSIFICATION – Applied Prospectively from the reclassification date. (1st day of reporting period following Δ )
RECLASSIFICATION
FROM
FVTPL
INITIAL COST
Gain / Loss on RD
INTEREST INCOME,
year of Reclassification
TO FVTOCI
FV, Rd
TO FAAC
FV, Rd
-NONEFV, Rd = CV, Rd (FV)
=(New effective rate on basis of FV, RD
x FV, RD)
FV, Rd
FV, Rd
(-) AC, Rd
Reclassification G/L – P/L
Nominal Rate x Face Value
TO FVTPL
FROM
FVTOCI
(UGOL-OCI → reclassified to P/L)
TO FAAC
FV, Rd
FV, Rd
(-) AC, Rd
UGOL – P/L
TO FVTPL
FROM
FAAC
FV, Rd
TO FVTOCI
FV, Rd
(-) AC, Rd
Reclassification G/L – P/L
FV, Rd
(-) AC, Rd
UGOL – OCI
=(Original Effective rate x FV, Adjusted
against previous UGOL or Original AC)
(Same EIR, just continue the table)
Nominal Rate x Face Value
=(Original Effective rate x would have
been AC on Rd if asset is FAAC)
(Same EIR, just continue the table)
Investment in Associates
Acquisition Cost
(-) BV of Net Assets Acquired %
Excess of Cost over BV
(-) Undervaluation of Asset %
+ Overvaluation of Asset %
Goodwill (Gain on Acquisition)
Acquisition Cost
(-) FV of Net Assets acquired %
Goodwill (Gain on acquisition)
GW- already part of investment
Thus, no separate account
ASSETS
Inventory & Land
Depreciable Assets
Intangible Assets
Goodwill
Liability
AMORTIZATION OF EXCESS
(Excess x % Sold) x %
Upon disposal or sale- In full
Every year through depreciation
UV
FV > CV
(-)
Every year through Amortization
OV
FV < CV (+)
When there is impairment
During the remaining term
(FV - CV)
Adjustments for Amortization =
x%
Remaining useful life
INVESTMENT IN ASSOCIATE
Beginning Balance Dividend Income –Received/ Accrued
Share in ADJUSTED NI Share in ADJUSTED NL
Share in Increase in OCI Share in Increase in OCL
Additional Investment Impairment Loss
Disposal of Investment
Ending Balance
ADJUSTED INVESTMENT INCOME / SHARE IN PROFIT /
EQUITY IN EARNINGS
Amortization of Excess- UV % Share in Net Income %
Impairment Loss (CV > RV) Amortization of Excess – OV%
Gain on Acquisition
PS- Dividend, declared
Ending Balance
•
Any other Gain/Loss → NOT included in computation
ASSOCIATE WITH PREFERENCE SHARES
PS Dividends
➢ Must be deducted
first from profit
before computing
investor’s share.
Cumulative
Non-Cumulative
Redeemable
Net income (loss) of associate
(-) PS Dividends = % Fixed Rate x Par Value of PS
Net income (loss) attributable to OS
x % ownership
Share in profit (loss)
➔ Annual Dividends, Declared or not
➔ Actual Dividends, Declared only
➔ None.
POTENTIAL VOTING RIGHTS
% of ownership =
•
•
•
Current # of shares + Shares from exercising all SR
Outstanding shares
Assumed to have been realized
Calculated only to determine whether FV method or Equity method
Computation of share in NI, dividends, etc. → Original % ownership is used
INTERCOMPANY TRANSACTIONS → ELIMINATED
INVENTORY
LAND
DEPRECIABLE ASSET
ADJUSTMENT OF
UNREALIZED G/L
During Intercompany sale
During Intercompany sale
During Intercompany sale
RECOGNITION OF
REALIZED G/L
When Sold to outside entity
When Sold to outside entity
Every year – Depreciation
DOWNSTREAM
UPSTREAM
Transaction
From Investor to Investee
From Investee to Investor
Seller
Investor
Investee- Associate
Unrealized G/L
Eliminate in Full 100%
Eliminate its % ownership
Realized G/L
Recognize in Full100%
Recognize its % ownership
Unrealized loss- Unless it is evidence of reduction in NRV of assets to be sold or
contributed, or of its impairment loss
•
Sale of Inventory
Share in NI before adjustment %
(-) Unrealized GP on EI, Unsold
+ Realized GP on BI (Sold)
Share in NI after adjustment
Unrealized → (-)
Realized → +
Sale of Depreciable Asset
Share in NI before adjustment
(-) Unrealized gain (SP-CV)
+ Realized gain (
Unrealized Gain
)
Useful life
Share in NI after adjustment
ASSOCIATE HAVING HEAVY LOSSES
Share of Losses ≥ Interest in Associate
If Associate
subsequently
reports profits
✓
✓
✓
➔ Discontinues recognizing further losses.
➔ Investment CV= Zero
Investor resumes recognizing share of profits ONLY AFTER:
➔ Share of profits = share of losses not recognized.
TOTAL INTEREST INCLUDES:
Investment in OV – IIA
Investment in PS
Unsecured Loans/Advances
Share in NL
1. Investment in OS
2. Investment in PS
3. Unsecured Loans/ Advances
TOTAL INTEREST DOES NOT INCLUDE:
✘ Trade receivables / payables
✘ Long-term receivables w/c collateral
exists (secured loans)
Share in NI – Subsequent
1. Unsecured Loans/ Advances
2. Investment in PS
3. Investment in OS
Limited to previous
allocated loss
CHANGE IN OWNERSHIP INTEREST
ACHIEVED IN STAGES (STEP ACQUISITION): FV → Equity Method
Remeasurement “FV of
previously held securities”
=(
(Unless FV is already given)
PP of New Investment
Additional %
FV of previously held securities
+ Cost of add’l interest acquired
Initial Cost of Investment
x old %)
FV of previously held securities
(-) CV of previously held securities
G (L) on Remeasurement
FROM EQUITY TO COST/FV: SALE/DISPOSAL/CESSATION
Net Selling Price (FV)
+ FV of Retained Investment
(-) CV of investment
Cessation G(L) - P/L
Alternative formula:
Net Selling Price (FV)
(-) CV of Investment Sold
G(L) on sale- P/L
+
Sale= % Sold x Cessation G/L
Reclassification= % Reclassified x Cessation G/L
FV of retained investment
(-) CV of retained Investment
G(L) on reclassification- P/L
=Cessation G(L)
DEEMED DISPOSAL OF ASSOCIATE (DILUTION)
New % ownership after Dilution=
# of shares held
New Total # of shares of Investee
CV of investee's NA before issuance
+ Issue price of new shares issued
New CV of investee's NA after issuance
x New % ownership after deemed disposal
CV after deemed disposal
(-) CV before deemed disposal
G(L) on Deemed Disposal- P/L
(Shares x Par Value)
New CV of FA @ FVTPL/FVTOCI
(-) CV after Deemed Disposal (CV-Loss)
Gain on reclassification- P/L
REMEASUREMENT G(L) RELATED TO CHANGE IN OWNERSHIP
REMEASUREMENT
FROM
TO
G/L
Investment in Associate
FA@FVTOCI
P&L
Investment in Associate
FA@FVTPL
P&L
FA @ FVTOCI
Investment in Associate
OCI
FA @ FVTPL
Investment in Associate
P&L
Any cumulative UGOL in OCI → Reclassified to RE
Investment Property
❖ Owner
HELD
❖ Earn Rentals
❖ Lessee under
TO
❖ Capital Appreciation
Finance Lease
✓ Professional fees for legal services
COST +
✓ Property transfer taxes (Local Property Taxes excluded)
DACs
✓ Other transaction costs.
Start-up costs- Unless necessary
Operating losses- Incurred before IP achieves planned level of occupancy
Abnormal amounts of wasted material, labor, or other resources
Cost to day-to-day servicing for asset -Repairs& maintenance expense
LAND or
BUILDING
HELD
BY
Measured
initially
Excluded
SOLD SEPARATELY
NOT SOLD SEPARATELY
Portion rented under
If owner-occupied portion
IP
operating lease
is Insignificant
Portion used by for
PPE
If IP is insignificant
admin purpose
•
BOTH EQUAL → PPE (Not IP)
PARTLY IP and
PARTLY PPE
IF SERVICES ARE:
Insignificant
Significant
ANCILLARY
SERVICES TO
OCCUPANTS
INTRACOMPANY
RENTALS
TREATMENT:
IP
PPE
RENTED to PARENT, SUBSIDIARY, or FELLOW SUBSIDIARY
CLASSIFIED AS
CONSOLIDATED FS PPE from perspective of group
SEPARATE FS
IP by Lessor
•
IF leased to ASSOCIATE → IP (Consolidated & Separate)
TRANSFERS:
Model
TRANSFER
Cost
All
IP to
PPE/INV
INV to IP
NEW CV
Previous
CV
FV date of
transfer
ON TRANSFER
▪ No G/L on transfer
▪ IL may recognized (FV<CV)
G/L = FV @ transfer - FV on previous period
▪ Before transfer, Δ FV must first updated.
FV date of
transfer
G/L = FV @ transfer - CV previous period , LCNRV
FV date of
transfer
G/L on transfer:
a. Debit RS (OCI), if any
(FV<CV) ↓
b. Excess, IL or RL (P/L)
a. Reversal of IL- (P/L) - Limited
(FV>CV) ↑
b. Excess, RS (OCI)
FV
PPE to IP
Cash Surrender Value - NCA
Entity
insures life
of its officer
Beneficiary:
Entity
Other than Entity
Cash surrender Value
Insurance Expense
✓ Policy is a whole life policy
It arises
✓ Premiums for 3 years have been fully paid
when:
✓ Policy is surrendered at the end of 3rd year or anytime thereafter
ENTRIES:
1st time recognition
of CSV
Annual advance
premium paid
↑ in CSV
↓ in CSV
Dividend Received
CSV
xx
LIE (1/3)
RE (2/3)
LIE
xx
xx
xx
Cash
CSV
xx
xx
LIE
LIE
xx
xx
CSV
Cash
Annual premium paid
(-) ↑ in CSV
+ ↓ in CSV
Dividend Received
Life Insurance Expense
LIE
xx
xx
xx
Beg > End = ↓ in CSV
Beg < End = ↑ in CSV
Amount of Life Insurance Policy
(-) CSV, as of date of death
(-) LIE, unexpired
Gain on Life Insurance Settlement
n
Beg CSV + (↑ CSV x 12 )
Annual Premium Paid x
No. of months unlived
12
Property, Plant and Equipment
MODE OF ACQUISITION:
Cash basis
= Cash Price Equivalent + Directly attributable costs
On Account
= Invoice Price - Purchase Discount (Taken or not)
Deferred or
Installment
a. Cash Price Equivalent
b. PV of all payments
a. FV of asset Received
b. FV of shares Issued
c. Par value of shares Issued
Issuance of
Share (RII)
Issuance of
Bonds (IRI)
a.
b.
c.
GR:
XPN:
No G/L
FV of bonds Issued
FV of asset Received
Face value of bonds Issued
1. Fair value
2. Appraised value
3. Assessed value
Residual value method
All FV to Land ; Building= 0
Allocate
based:
All FV is given FV
Lumpsum
Gain – Cr Share Premium
Loss – Dr Share Discount
FV of 1 not given
All FV not available
Exchange of Nonmonetary Assets
Fair Value
1. No commercial substance
2. No FV of asset received or given up
With Commercial
Substance?
(difference in CF)
Silent - With
FV of Asset given up
(-) CV of asset given up
G/L on exchange
Cash Paid
+
Cash Received (-)
✔️
1. FV of asset given up ± Cash
2. FV of asset received
3. CV of asset given up ± Cash
❌
CV of asset given up ± Cash
FV of asset received
(-) CV of asset given up
± Cash
G/L on exchange
If CV → No G/L
Trade-In
Has
FV
No
FV
FV of property given up
+ Cash payment
Initial Cost
Trade in value property given up
+ Cash payment
Initial Cost
Cash price w/o trade-in
(-) Cash price w/ trade-in
Trade-in value
Fair value of property given up
(-) CV of asset given up
Gain/loss
Trade in value
(-) CV of asset given up
Gain/loss
➢
Donation
Asset at FV when received or receivable
FV, credited to:
Direct expenses
(Fees, tax)
Directly attributable
costs (installation, testing)
SHAREHOLDER
Share premium or
Donated Capital
Deducted from
Donated capital (Dr)
NON-SHAREHOLDER
No condition - Income
W/ condition - Liab Unearned
Capitalized (+PPE)
Capitalized
Capitalized
Government Grants
• Not recognized until reasonable assurance entity will comply w/ conditions and grants will received.
• Recognized in P/L, on systematic basis, over periods in which entity recognizes as expenses the
related costs for which grants are intended to compensate, on a systematic basis.
At the time of grant:
➔
Asset donated is credited to deferred credit account, “Unearned Income from Gov’t Grant”
➔
Recognized as income over periods necessary to match them with related, on systematic basis.
Grants Related to Depreciable Asset
•
Recognized as income over the periods and in the proportion in which depreciation expense
on those assets is recognized.
Grants Related to Non-Depreciable Asset
•
May also require the fulfillment of certain obligations and would then be recognized as income
over the periods, which bear the cost of meeting the obligations.
UP - Unexpired Periods
EP - Expired Periods
DEPRECIATION METHODS
CV of Asset at the end of UL = SV
CV = Cost – Accumulated Depreciation
RV - Always based on Original cost
DA - Depreciable Amount (Cost- RV)
STRAIGHT LINE
SYD
EFFECT:
Constant / Uniform
Accelerated / Decreasing
RV
✔
✔
✘*
BASE
DA
DA
CV
Rate
=
Annual
Depreciation
Expense
=
Accumulated
Depreciation
= DA x (
CV
= DA x (
DA
UL
1
UL
SYD =
= DA x (
or (DA x Rate)
EP
UP
Total UL
n (n+1)
Remaining UL
SYD
)
= DA x (
) + RV
= DA x (
Total UL
DECLINING BALANCE
Double =
2
)
Cost = 360K ; UL = 4 years
DD rate = 0.5; SV = 5,000
DE
180K
90K
45K
40K
AD
180K
270K
315K
455K
(45– 5) (360K-5K)
CV
180K
90K
45K
5K
; 150% =
1.5
UL
= CV, beg x Declining rate
Total Numerators of EP
SYD
)
Total Numerators of UP
SYD
) + RV
*Considered only at latter part of UL by adjusting depreciation charges (So CV don’t fall below RV).
Max Depreciation for year before last year = CV – RV ; Depreciation for last year = 0
Date
2019
2020
2021
2022
2
UL
SV
= CV x (100%-Declining rate)
Multiply for a # of times equal to
period for w/c AD is to be determined.
INPUT METHOD
Cost-RV
Depreciation per hour =
Est. Total input (hours)
Depreciation = Actual hours worked during the year x Depreciation per hour
OUTPUT METHOD
Cost-RV
Depreciation per hour =
Est. Total Output (units)
Depreciation = Actual units produced during the year x Depreciation per unit
COMPOSITE/GROUP METHOD
COMPOSITE: Dissimilar; GROUP: Similar
Composite
life
=
Total depreciable amount
Total annual depreciation
Composite
rate
=
Total annual depreciation
Total cost
Depreciation Expense = Remaining cost of asset x Composite rate
Remaining Cost= Total cost, beg + Cost of newly acquired – Cost of asset sold
•
No G/L on derecognition of asset.
INVENTORY METHOD
Asset balance, end of the year
(-) Asset balance, before adjustment
Depreciation expense- current year
RETIREMENT METHOD
➔ No depreciation until
asset is retired.
Original cost of asset retired
(-) Proceeds from disposal/retirement
Depreciation expense- current year
REPLACEMENT METHOD
•
No depreciation until asset is retired and replaced.
Asset retired &
replaced
Replacement cost of asset
(-) Proceeds from disposal/retirement
Depreciation expense- current year
Asset retired but
not replaced
Original cost of asset retired
(-) Proceeds from disposal/retirement
Depreciation expense- current year
LEASEHOLD IMPROVEMENTS
Movable
Immovable
Cost
UL
Cost
DE =
UL
DE =
Useful Life
Lease term
Whichever is SHORTER
• If there’s option to renew lease- Just add the add’l years to Lease term
REVALUATION MODEL
PPE
carried at:
Revalued CV
No FV: Depreciated Replacement cost
= FV or Sound value - AD - IL
= Replacement Cost x % of AD
FV > CV = Revaluation Surplus
xx
• RS is Future taxable Amount Revaluation surplus
resulting to deferred tax liability.
Deferred tax Liability
xx
Net RS = RS x (100%-Tax rate) or RS-DTB ; DTB= RS x Tax rate
PPE
Depreciable
Nondepreciable
Derecognized
(Disposal/Sale)
IF
REVALUATION:
RS TRANSFER TO RE
• Piecemeal
=
Revaluation Surplus
Remaining Useful Life
• FULL upon disposal
• Balance of RS will be transferred to RE
RA > CV
↑ CV
RA < CV
↓ CV
1)
2)
1)
2)
Recovery of previous Impairment Loss, if any
Revaluation surplus (OCI)
Reduction of Revaluation Surplus (OCI)
Impairment Loss
ACCOUNTING METHODS FOR REVALUATION - Same CV computed
PROPORTIONATE (DRC)
ELIMINATION
AD is restated proportionately
AD is eliminated against
Meaning:
to Δ in Gross CV
gross CV
Revalued AD
%=
0
Asset
xx
AD
xx
Revaluation
AD
xx
Asset (If ↑ > AD)
xx
RS
xx
RS
xx
DE
xx
DE
xx
Depreciation
AD
xx
AD
xx
Piecemeal
RS
xx
RS
xx
Realization of RS
RE
xx
RE
xx
Derecognition of RS (Remaining Bal)
xx
RS (Remaining Bal)
xx
PPE
RE
xx
RE
xx
REVAL
COST
(FV or DRC)
Cost
Pxx
Pxx
(-) RV
(xx)*
(xx)*
DA
Pxx
Pxx
(-) AD
(xx)**
(xx)
Remaining DA
Pxx
Pxx
* New RV; **Based on original DA/original RV
ADJ.
Pxx
(xx)
Pxx
(xx)
Pxx
FV – Already Net (Bottom)
RC – Need to depreciate (Cost part)
•
FV/ New CV= (Cost-AD) or (Remaining DA + RV)
•
Percentage of AD =
•
Total Original UL =
•
Remaining UL = Original UL – (100% - % of AD)
•
If LAND: FV- Cost = RS (NO more table; since it is not depreciated)
Expired years
AD
or
Total original useful life
Total Cost
Expired years
% of AD
IMPAIRMENT LOSS:
CV > RA
CV < RA
RA
FV
➔ Impaired
➔ Not Impaired
CV of asset shall NOT exceed its RA
Asset in SFP: LOWER of CV & RA
IMPAIRMENT LOSS = Carrying Value – Recoverable Amount
FV - cost of disposal
HIGHER
Value in use
•
Price received to sell an asset at measurement date.
•
Incremental costs directly attributable to disposal.
✔
✔
✔
✔
✔
✘
✘
COD
•
Legal costs, stamp tax & similar transaction taxes
Cost of removing the asset
Direct cost of bringing asset into condition for sale
Termination benefits
Costs of reorganizing a company
Finance costs
Income tax expense.
PV of future cash flows expected to be derived from an asset.
Value in use: Inflows – Outflows = Net CF x PV factor
▪
If “total flows” - divide by remaining UL to get annual
▪
Discount rate → pre-tax discount rate
VIU
INC:
a) Future cash inflows from continuing use of asset.
b) Future cash outflows incurred to generate cash inflows
c) Net cash flows received on disposal of asset @ end of UL (RV)
EXC:
a)
b)
c)
d)
JE to Recognize IL
Future cash flows to restructuring which not yet committed.
Future costs of enhancing/improving asset's performance.
Cash flows from financing activities.
Income tax
Impairment Loss
Accumulated Depreciation
New CV of Asset = Recoverable Amount (UL→ Remaining UL)
IMPAIRMENT ON ASSET CARRIED AT REVALUED AMOUNT:
1. Charged to credit balance of RS account
2. Excess (↓ > RS) → Impairment Loss -P/L
Carrying Value
(-) Recoverable Amount
Revaluation Decrease
RS, beg
(-) Realization
RS, prior impairment
RS, prior impairment
(-) Revaluation Decrease
RS, end (Impairment Loss)
RS > Revaluation Decrease = Dr. RS
RS < Revaluation Decrease = Dr. RS & IL
IMPAIRMENT OF GOODWILL & CASH GENERATING UNIT
IMPAIRMENT
LOSS
1.
2.
Goodwill (100%)
Remaining other NCA (Pro-rata based on CV)
LIMIT = (CV - ↑ of RA or ZERO)
IMPAIRMENT
LIMIT
REVERSAL
CV shall NOT be reduced
below HIGHEST of:
✓
✓
✓
FV-Cost of Disposal
Value in use
Zero
❌ Impairment Loss allocated > Recoverable Amount
Thus, IL that would otherwise allocated to asset shall be:
➔ Reallocated pro-rata to other NCA based on CV.
Allocated to NCA (except Goodwill) → Based on CV
REVERSAL OF IMPAIRMENT – Subsequent increase in RA
GR:
XPN:
➔
➔
IL recognized in prior years shall be reversed if: RA > CV
Increased CV shall NOT exceed CV that would have been determined
had no impairment loss been recognized in prior years.
GR:
XPN:
➔
➔
Reversal as Gain in P/L
If carried at revalued amount, reversal in P/L only to extent it reverses
an unrecovered revaluation decrease and any excess credited to RS.
Increased CV
(-) CV before reversal
Gain on reversal
Lower:
Recoverable Amount
CV had no impairment
RS = RA > CV had no impairment
(Only for revaluation model)
Recoverable Amount
Revaluation Surplus
- Revaluation Model
CV had no impairment
* if this is lower than RA
CV before reversal
CV had there been no impairment
(-) CV prior to reversal of impairment
Maximum Impairment Recovery
Original Impairment Loss
(-) Partial Recovery of impairment from
lower subsequent depreciation
Maximum Impairment Recovery
IL for Goodwill → shall NOT be reversed
Gain on Reversal
Maximum
Recovery if
-Non-depreciable
Lower of the 2 above
asset
IMPAIRMENT LOSS SUMMARY:
COST MODEL
Recovery beyond CV had no IL
REVALUATION MODEL
Recovery beyond CV had no IL
SUMMARY: IMPAIRMENT & REVALUATION
Impairment Loss
(Revaluation Decrease)
Reversal
(Revaluation Increase)
PPE
P/L
a) Cost model
b) Revaluation
model
Goodwill
CGU
↓ charged to:
1. Remaining bal of RS
2. Impairment Loss - P/L
P/L
P/L
Reversal allowed through
P&L to the extent that it
reverses
previous IL.
Any
excess
over
depreciated
historical
cost would have been if
impairment had not been
recognized is ignored.
Subsequent ↑ treated as
1. Reversal of IL – P/L
2. RS- OCI
Not allowed
Allowed in P/L with LIMIT
DEPLETION
Acquisition cost of Land (+ direct attributable costs)
+ Exploration & evaluation Cost (after technical feasibility)
+ Development costs (Intangible)
+ Restoration cost (at PV)
Cost of Wasting Assets / Resource Property
I. Exploration & Evaluation costs
▪ Expended to locate a natural resource
before extraction of mineral resources.
▪ Incurred
PRIOR
to
demonstrating
technical feasibility & commercial viability.
✓
✓
✓
✓
Cost per Oil Wells
x Number of successful oil wells
Total Exploration cost capitalized
(-) Depleted oil wells during
CV of Exploration Cost
Purchase of Exploration rights
Geological/Geophysical/Topographical/Geochemical studies
Exploratory drilling
Trenching, Sampling
Presented
separately
TANGIBLE
E&E ASSET
PRIOR TECHNICAL FEASIBILITY
AFTER TECH. FEASIB.
Drilling, Testing & laboratory Equipment
Retained as E&E Asset
INTANGIBLE
E&E ASSET
Consumed costs (labor, materials,
depreciation on tangible E&E assets)
✓ Trenching & Sampling Expenditure
Transferred to
WA account
Successful
Effort
Full Cost
Cost of discovered resource property
Cost of Drilling “Dry Holes”
All exploration cost, successful or not
➔
➔
➔
Capitalized
Expense, if unsuccessful
Capitalized
II. Development Cost
❖ Activities to prepare wasting asset for Commercial Extraction/Production.
INTANGIBLE DEV’T COST
o
✓
✓
✓
✓
✓
Capitalized as WA.
Drilling
Sinking mine shafts, and
Well construction
Road construction
Tunnels; Wells; Shafts
o
o
TANGIBLE EQUIPMENT COST
PPE & depreciated
Separate account (Not capitalized as WA)
✓
✓
✓
✓
Transportation/production equipment,
Heavy machinery
Tunnels/Bunkers/Other fixed installations
Construction of building
Capitalized or Expensed → Depends on Company’s policies
Rate = (
Cost of WA - RV
)
Total units to be extracted
Depletion Expense = Depletion rate x Actual tons extracted during
Formula
(Output
Method)
Depletion Expense (Inventory)
Accum. Depletion
Revision of
Depletion
Rate
B/S:
WA – Like PPE
(-) Accumulated Depletion
CV, WA
Change in accounting estimate (Currently and prospectively)
✓ Change in units estimated to be extracted
✓ When company incurs additional costs
=
New
Depletion
Rate
Updated CV - RV + Additional Costs
Revised remaining units to be extracted, beginning
= (Estimated output, end + Extracted during the year)
= (Original Estimate – Tons extracted ± Adjustments)
Updated CV = Cost – Accumulated Depletion
Depletion Expense
Depletion (Sold)
Depletion (Unsold)
Cost per ton
Inventoriable Cost (Product Cost)
COGS = Sold tons during the year x Cost per ton
Inventory = (Mined – Sold )x Cost per ton
= Total Inventoriable Cost ÷ Units mined
➔ Equal to Depletion rate if no other inventorial cost
aside from Depletion Expense
Depreciation of Mining Property (Tangible equipment- Including Building)
Movable
Straight line
(Alternative use)
Mining
UL
Straight Line
Properties
Immovable (NO
Mining
Shorter
Output Method
alternative use)
Period
Mining Period =
Tons Extracted each year
Total Expected Output
Output Method= Depreciable Amount x
Tons Extracted during the year
Total Expected Output
Depreciable Amount, beg = DA last yr – Depreciation Last yr + Additional Asset
SHUTDOWN OF MINING OPERATIONS
❖ When output method is used to depreciate, it cannot be use in shutdown.
Straight-line method based on equipment's remaining useful life.
Year of
Remaining CV BEFORE shutdown
Depreciation=
shutdown:
Remaining Life of Equipment
Operations
resumed
•
Output method if this was used before shut down.
Remaining CV AFTER shutdown
𝐑ate =
Remaining Revised estimate of productive output
No depletion to be reported in the period of shutdown.
Dividend Payments of Wasting Asset Entities
Unrestricted retained earnings
+ Accumulated depletion
(-) Unrealized depletion End. Inv (Units, end x DR)
(-) Capital liquidated
Maximum amount of dividend can be declared
Pxx
xx
(xx)
(xx)
Pxx
Retained Earnings
xx
Capital Liquidated
xx
Dividends Payable
xx
GOVERNMENT GRANT
At the time
of grant:
➔
➔
Liability “Deferred Income from Government Grant”
Recognized as income over the periods necessary to match them
with related expenses, on a systematic basis.
Recognition ✓ Entity will comply with conditions and
Requisites
✓ Grants will be received.
TYPE OF GRANT
RECOGNIZED AS INCOME
In recognition of
➔ Same
period
as
related
Specific Expenses
expenses.
INCOME CURRENT YEAR
Related to
Depreciable Asset
➔ Over periods and in proportion
to depreciation of asset
=
Related to NonDepreciable Asset
➔ Over periods that bear the cost
of meeting obligations
➔ In P/L of period in w/c it
becomes receivable/received.
Compensation for
Expenses Incurred
= Grant x
=
Expenses, current yr
Total expenses
Grant
UL
Grant
UL
Immediately as a whole
CLASSIFICATION OF GOVERNMENT GRANTS:
1) As deferred income (Gross method) - Silent
Cash
xx
Deferred grant income
xx
P/L: Income from Grant – Depreciation expense
Grants related
to ASSETS
Purchase,
construct
2)
Deducting grant from Asset (Net Method)
Cash
xx
Fixed Asset
xx
New Cost = Cost- Grant; DE =
P/L: - Depreciation expense
Grants related
to INCOME
Other than
assets
•
1)
2)
(Cost-Grant) - RV
UL
Regardless of method: Same effect to P/L
Separate or Other income (Gross method)
Deducted in related expenses (Net Method)
REPAYMENT OF GOVERNMENT GRANTS
▪
Due to non-compliance with agreement → change in accounting estimate.
GRANTS RELATED TO ASSETS
Increasing asset's CV (If deduction from
asset approach is followed)
Lowering deferred grant income
balance by amount repayable.
✓
✓
Cumulative add’l depreciation would have
been recognized in P/L in absence of grant :
GRANTS RELATED TO INCOME
Apply repayment
1. Unamortized deferred grant income
2. Loss on repayment of grant - PL
Deferred grant income
Loss on repayment of grant
Cash
xx
xx
xx
Remaining UL as of date of repayment
=Grant x
Total UL of asset
➔
Add’l DE in P/L for current year.
LOAN at BELOW MARKET INTEREST RATE:
Cash (Face Value)
xx
Discount (Face Value – PV)
xx
Loan Payable (Face Value)
xx
Deferred income on GG (Face Value – PV)
xx
Interest Expense
Discount
Equal
Deferred income on GG
Income on GG
xx
xx
xx
xx
BORROWING COST
Borrowing Cost
Interest Expense → Capitalize (DAC)
Applicable to:
Qualifying Asset (Takes substantial time to complete)
Assets
financed by
1)
2)
3)
Specific borrowing (SB)
General borrowing (GB) – For WC purposes ; Incidental
Mixed borrowings
Capitalization Rate
Capitalization Period
Capitalization Limit
➔ Effective Interest rate
➔ Construction Period only
➔ Capitalizable BC should NOT exceed actual BC
SPECIFIC BORROWING
n
Actual interest incurred (CV x % x 12)
(-) Interest income on investment
Capitalizable borrowing costs
GENERAL BORROWING
LOWER
S1
Actual interest cost
Average borrowing cost (Limit)
WAIR =
Actual interest cost on GB
Total GB
Face value
Face value
Shortcut: % x
+%x
Total Face
Total Face
WAAE = Each Expenditure x
Total Expenditures
If one GB only:
WAIR = Effective interest
Month outstanding
12 months
Get the total of all
expenditure
If expenditures incurred EVENLY
S2
WAAE =
S3
Average BC= (WAAE) * (WAIR) *
2
Actual > Limit = Interest Expense
Actual < Limit = Ignored
n
12
BOTH SPECIFIC & GENERAL
a) Actual interest on SB - Interest income
Capitalization b) LOWER between:
n
combination of:
• Actual interest on GB or (WAAE - SB) x (WAIR) x
12
TOTAL COST, current = Total Actual expenditures + Total Capitalizable BC
Qualifying Asset
Beginning Balance
Total Expenditures during the yr
Capitalizable BC
Ending balance
Type of BC
1. Specific
2. General
3. Mixed
S1
S2
Capitalizable Borrowing Cost
= Actual Interest – Investment Income
Actual Annual Interest Expense
Lower
Maximum Capitalizable BC (Limit)
Traditional or Contemporary method
Traditional
Compute WAAE
WAAE – SB = WAAE (GB)
Max CBC = WAAE x WAIR
Total Interest
WAIR = Total Borrowings
Actual > Limit = Int. Exp.
Actual < Limit = Ignored
Contemporary
Total Expenditure - SB
WAAE (GB)
Mixed Borrowing Cost:
(a)
% SB
% GB
Total
Borrowing Cost
(b)
xx
xx
xx
Capitalization Rate =
Interest
(a*b)
xx
xx
xx
Total General Annual Interest
Total General Borrowings
Actual
Expenditures
(a)
Months
Outstanding
(b)
Month 1p
xx
n/12*
Month 2
xx
n/12*
Month 3
xx
n/12*
Average Expenditure
(-) Specific Borrowing
Average Expenditure related to GB
x Capitalization Rate
n
Capitalizable Borrowing Cost (GB)
x
12
+ Capitalizable Borrowing Cost (SB)
(-) Investment Interest Income
Total Capitalizable Borrowing Cost
*Not always 12 ; If expenditure were incurred evenly, simply divide to 2
Actual Annual Interest
(-) Total Capitalizable Borrowing Cost
Interest Expense (Ignored) - PL
Amount
(a*b)
xx
xx
xx
Pxx
(xx)
Pxx
%
Pxx
xx
(xx)
Pxx
Intangible Asset
INTANGIBLE COMPONENT:
INTEGRAL PART OF ASSET
NOT AN INTEGRAL PART
INTERNALLY GENERATED:
PHASE
➢ Expensed
RESEARCH
TREAT:
PPE
IA.
ALL EXPENDITURES:
GR: Expensed
XPN: Capitalized from the moment ALL requisites are met: (PIRATE)
a.
b.
c.
d.
e.
DEV’T
f.
Probable future economic benefits
Intention to complete, use and sell it.
Resources adequate & available
Ability to use/sell asset.
Technical feasibility
Expenditures reliably measurable
INTERNALLY GENERATED GOODWILL → NOT recognized as asset.
1) Internally generated Brands
INTERNALLY GENERATED
2) Masthead
IA THAT CANNOT BE
3) Customer lists and items similar in substance
CAPITALIZED (BMCP):
4) Publishing titles
Cannot distinguish
R from D
➔
Treats expenditure as research phase only.
In process R&D
acquired in BusCom
➔
➔
Asset, even if component is research.
Subsequent expenditure - R&D cost.
ITEMS OF PPE USED IN R&D ACTIVITIES:
IF ITEM OF PPE:
HAS ALTERNATIVE USE
NO ALTERNATIVE USE
COST/CV of PPE
PPE - Capitalized
R&D expense
DEPRECIATION
R&D expense
✘
USEFUL LIFE OF IA:
Meaning
Examples
Amortization
DEFINITE/FINITE LIFE
Limited period of benefit
✓ Patent
✓ Copyright
✓ Fixed-term Franchise
✓ License
✓ Computer software
Amortized over
SHORTER: UL & LL ; RV= 0
Tested for
Impairment
Whenever there’s indication
Value in Use
Future cash flows × PV factor(s)
COSTS OF
LITIGATION
INDEFINITE LIFE
No foreseeable limit
✓ Goodwill
✓ Trademark
✓ Perpetual Franchise
NOT Amortized
1. At least annually
2. Whenever there’s indication
Successful or not ➔ Expensed
If unsuccessful
➔ Patent written off- loss
=
Annual cash Flow
Discount Rate
GOODWILL:
Recognition
Internally developed goodwill → Not recognized
Purchased (From BusCom) → Recognized separately from other IA
Measurement
a)
b)
Amortization
Impairment
Indirect valuation approach (Residual Approach)
Direct valuation (Excess of earnings approach)
NOT Amortized
a) At least annually
b) Whenever there is an indication
NEVER reversed
INDIRECT VALUATION (Residual Approach):
= Cost of investments over FV of net tangible assets acquired
GW
= Consideration transferred (price paid) - FV of acquiree’s identifiable NA
DIRECT VALUATION (Excess of Earnings Approach):
•
GW measured based on future earnings of business.
•
Future
earnings:
Normal OI •
Key mgmt. bonus
METHOD
Purchase of AEE
PV or DV of AEE
Capitalization of AEE
Capitalization of AE
G/L sale of PPE/investments should be excluded.
Excluded. Added back from NI
GOODWILL
= AEE x No. of periods
= AEE x PV factor
= AEE ÷ Capitalization rate
= Purchase Price* - FVNA, exc. GW
*AE ÷ Capitalization rate
Total earnings for No. of periods
(-) Gain on sale
+ Loss on sale
+ Bonus of mgmt. personnel
ADJUSTED EARNINGS
÷ Number of periods
AVERAGE EARNINGS (AE)
(-) Normal Earnings
AVERAGE EXCESS EARNINGS (AEE)
=FVNA acquired x Normal rate of return
=FV of tangible assets, exc. GW - FV of Liab
RESEARCH
DEVELOPMENT
Commercial and
technological feasibility
NOT yet established;
After establishment of
commercial and
technological feasibility.
Recognition criteria
NOT yet met
Expensed
Capitalization criteria
are met.
Intangible Asset
COMMERCIAL
PRODUCTION
Reproduced from Product
Masters or Purchased for
Resale
Product Cost
Non-Financial Liabilities
PREMIUM:
Premiums expected to be distributed
x Premium Expense Per Unit
= (Units Sold x % Expect) ÷ Required No.
= (Purchase Price + DACs) - Remittance
PREMIUM EXPENSE
= Required No. x PE/u
PREMIUM LIABILITY
(Units Sold x % )
= Remaining Premiums to be distributed x PE/u
Premiums expected to be distributed (Cumulative Sales x %) ÷ Required
Premiums actually distributed (Cumulative Coupons Redeemed ÷ Required
Remaining Premiums to be distributed
PREMIUM LIABILITY
Premiums distributed Beginning
Premium Expense
PREMIUM INVENTORY
Beginning Distributed
Purchased
Ending
Ending
WARRANTY:
Warranty Liability
Actual Warranty Cost Beginning
Warranty Expense
= Sales x (Y1% + Y2%)
Ending
= Total WE all years – Total WC all years
PROVISIONS & CONTINGENT LIABILITY
PROVISION
Present Obligation
BOTH: Probable & measurable
CONTINGENT LIABILITY
Possible Obligation
EITHER: Probable or measurable
Liability; Disclosed
Disclosed only
RELIABLY
MEASURABLE
LOSS CONTINGENCIES (LIABILITY)
Probable
Yes
Probable
No
Possible
Yes/No
Remote
Yes/No
GAIN CONTINGENCIES (ASSET)
Virtually Certain
Yes
Virtually Certain
No
Probable
Yes/No
Possible/Remote
Yes/No
OCCURENCE
TYPE
Probable
Possible
Remote
ACCOUNTING TREATMENT
Accrue
Disclose
Ignore
✔
Provision
✔
✔
✔
✔
Occurrence
> 50% → More likely
≤ 50% → Less likely
≤ 10% → Least likely
Reimbursement Asset → Claim / Separate Asset
Remarks
Contingent
Liability
Asset
✔
✔
✔
Contingent
Asset
CUSTOMER LOYALTY AWARDS
TP
Allocate
(SPSP)
1) Revenue– G/S
SR =TP x (
2) Liability- Points
UR=TP x (
Upon
redemption
Sale:
Revenue from points= (
SP of G/S
)
Total SASP
SP of Award
)
Total SASP
G
SASP
3K
3/9
P
6K
6/9
9K
TP
1K
2K
SR
UR
3K
Redeemed Cumulative
x UR ) – Rev Previous Yrs
Total Expected
Total expected = Issued credits x % Est. Redemption for the year
Cash (TP)
SR
UR
Redemption:
UR
SR – Sales
UR – Unearned Revenue
SR
SAME TO CUSTOMER LOYALTY AWARDS:
• Manufacturers may reimburse retailers for discount to customers
Manuf 1. Transfer G/S to retailer
2 PO 2. Reimburse retailer (Rebate liability)
Rebate
1. Product
2. Coupons
TP
Cash (TP)
RL
SR
Reimburse
Cash
RL
RL, end = RL, beg + RLB during – Reimbursement
Sale:
Free
Products /
Discount
(Retailer)
Free
Products /
Discount
(Entity
Itself)
Seller
2 PO
1. Transfer G/S to customer
2. Transfer add’l G/S (customer options)
Revenue Coupons = (
Sale:
TP
1. Product
2. Option
Delivered Cumulative
x UR ) – Rev Previous Yrs
Total Add'l units
Cash (TP)
SR
UR
Reimburse
UR
SR
SASP of Coupons = Ave price of Purchase x % Discount x % Estimate
Cash (TP)
Cash*
Sale:
SR
Reimburse UR
UR
SR
*Ave price of Purchase x % Estimate x (100% - % Discount)
GIFT CERTIFICATE
GIFT CERTIFICATE
Redeemed Beginning
Expired Sold /Cash Receipts
Ending
Expired→ Gain or Breakage Revenue
Bonds Payable
Initial
=FV - BOND ISSUE COST
=Face + Unamortized Premium – Unamortized Discount
=Initial Measurement + Discount Amort. – Premium Amort.
Subsequent
BOND ISSUE
COST
Contra account liability
Increases discount
Decreases premium
Not expense
▪
▪
▪
▪
RETIREMENT OF BONDS
RETIREMENT
On Maturity Date
PRIOR to maturity
GAIN/LOSS
✘
RP applicable to principal
(-) CV of bonds
Gain/Loss
RP > CV
RP < CV
Retirement between Interest Payment Dates
Should include interest?
From most recent
interest payment up
Payment
✔
to retirement date
RP
✘ Deduct if include
ENTRIES:
ISSUANCE
ANNUAL
INTEREST
RETIREMENT
Cash
Discount on BP
Bonds payable
Premium on BP
Interest Expense (Effective interest)
Premium on BP (E<N)
Discount on BP (E>N)
Cash (Nominal Interest)
Bonds Payable (Face amount)
Premium on BP
Loss on retirement
Cash (Retirement Price)
Discount on BP
Gain on retirement
D (P)= Face - CV of Bonds Sold
LOSS
GAIN
RP
+ Acc. Int.
Cash Paid
COMPOUND FINANCIAL INSTRUMENT
❖
❖
Contains LIABILITY & EQUITY
Accounted Separately
a.
b.
Convertible Bonds
Bonds with detachable or
nondetachable share warrants
ISSUE PRICE
1) Liability component at its FV
2) Equity component at Residual amount
ISSUE COSTS
➔ Allocated in proportion to allocated proceeds
FV of BP
➔ If no FV, then PRESENT VALUE
BONDS W/ DETACHABLE WARRANTS:
Warrants entitle holder to acquire Equity Security of issuer at agreed
subscription price.
• Presumed aside from bonds, entity has also issued an equity instrument.
Proceeds (Asset)
Proceeds allocate to:
1. Bonds
Less: FV of BP (Liabilities)
(Residual Approach)
2. Warrants
SWO (Equity)
A-L=E
•
SWO
• Share Premium, Credit
• Equity section of SFP
• OS purchased at option price
• SWO is derecognized
SW
Exercised
Increase in SP (OP – PAR)
(-) Decrease in SWO
Net Increase in SP
SW
Expired
• Net effect to Equity = ZERO
• Balance of SWO to General Premium (Equity to Equity)
ISSUANCE
EXERCISED
EXPIRED
Increase in SP (OP – PAR)
+ Decrease in SWO
SP from exercise to be reported
Cash
Discount on BP
BP (Face)
Premium on BP
SWO
Cash
SP- WO
OSC (Par)
SP [SWO + (OP-PAR)]
SP- WO
SP- unexercised SW
•
CONVERTIBLE BONDS
Give holder an option to convert bonds into issuer's equity securities.
Proceeds (Asset)
Proceeds allocate:
1. Bonds
Less: FV of BP (Liabilities)
(Residual Approach)
2. Conversion option
CO (Equity)
A-L=E
CONVERSION OF CONVERTIBLE BONDS: (NOT Debt for equity swap)
•
Derecognize liability & recognize equity.
•
Original equity component remains as equity (Equity to Equity).
•
Update Amortization of BP as of date of conversion
CONVERSION
CONVERSION
COST
BP (Face)
Premium on BP
SP - conversion privilege
Cash (CP)
Discount on BP
Share premium [SP CP + (CV of BP – PAR)]
SP
Cash
CV of BP (Face + Prem – Disc)
+ SP- CP (Converted)
Total Consideration
(-) Par value of shares issued
(-) Conversion Cost
SP from conversion to be reported
CV of BP
converted
SP-CP
Conversion
Cost
• Value assigned to OS.
• Hence, NO G/L
➔ Cancelled
1. (-) SP → Share issue cost
2. Expense (If Cost > SP)
RETIREMENT OF CONVERTIBLE BONDS:
RETIREMENT
GAIN/LOSS
On Maturity Date
✘ RP & CV = Face Amount
PRIOR to
Maturity date
RP
(-) RP applicable to principal
RP Allocated to Equity
FV of Bond w/o CP
on date of payment
CV of bonds on date of maturity
(-) RP applicable to principal
Gain (Loss) on Retirement
RP Allocated to Equity
CV of Equity Cancelled
SP- Unexercised CP
RP – Retirement Price; CP -Conversion Privilege
Retired prior
to maturity
RETIREMENT
▪
▪
▪
RP is allocated to liability settled and equity portion for bond CP
After allocation, G/L recognized in P/L related to Liability component.
Excess of equity cancelled as a result of retirement over consideration
allocated to equity component is taken to equity.
BP (Face)
Premium on BP
SP - conversion privilege (RP Allocated to Equity)
Loss on retirement
Cash (RP)
Discount on BP
SP - conversion privilege (Total SP-CP - RP Allocated to Equity)
SP- issuance
Debt Restructuring
➔ In downward economic conditions, creditor may grant concession to
debtor that it would not otherwise grant under normal conditions.
OBJECTIVE OF CREDITOR:
➔ Maximize recovery of investment
✓ Derecognition of Financial liability
EFFECTS:
✓ Recognition of gain/loss
ASSEET SWAP
EQUITY SWAP
MODIFICATION OF TERMS
Issuance of own equity
NCA is given up
securities
Notes Payable
Notes Payable
Interest Payable
Interest Payable.
Loss on Disposal
Gain on Extingu.
NCA at CV
OSC
Gain on Restr.
SP
•
CV of Debt → Includes Unpaid Accrued Interest
Changing terms of original
agreement
NP (Decrease)
Premium
Gain on Modifi.
Cash (DC)
I. ASSET SWAP
Transfer by debtor of NCA to creditor to settle obligation. DEBTOR’S POV:
•
IFRS
G/L on Extinguishment
CV OF DEBT
GAPP
FV OF ASSET
G/L on Restructuring
CV OF ASSET
G/L on Disposal
Left higher, GAIN
II. EQUITY SWAP
Debtor issues own shares to creditor to settle obligation. DEBTOR’S POV:
•
CV OF DEBT
SHARE CAPITAL
Gain on
Extinguishment
✓
✓
✓
✓
✓
PAR VALUE
Share
Premium
1. FV of Equity
2. FV of Liability
3. CV of Liability
III. MODIFICATION OF DEBT TERMS
Reduction of interest rate
Reduction or condonation of Accrued interest
Reduction of principal amount
Extension of maturity date
Moratorium on the payment of interest/ principal
CV of OLD Liability (Principal + Accrued Interest)
(-) PV of NEW Cashflow (Using ORIGINAL discount rate)
GAIN (LOSS) ON EXTINGUISHMENT
(-) Direct Cost
NET GAIN (LOSS) ON EXTINGUISHMENT
≥ 10% of CV of DEBT
SUBSTANTIAL MODIFICATION
Extinguishment of OLD
Recognition of NEW
NO NEW
rate
➔ Net G (L) on Extinguishment above is recognized.
W/ NEW
rate
➔ Net G (L) using new rate; repeat process above
➔ Computed above is only to determine if substantial or not
CV of OLD Liability (Principal + Accrued Interest)
(-) PV of NEW Cashflow (Using NEW discount rate)
GAIN (LOSS) ON EXTINGUISHMENT
± Direct Cost
NET GAIN (LOSS) ON EXTINGUISHMENT
Face value of new – PV of new = Discount (Premium)
Interest Income = PV of new x new discount rate
< 10% of CV of DEBT
NO SUBSTANTIAL MODIFICATION
Old liability NOT extinguished
But continued with modified cash flows
CV OLD liability (Principal + Accrued Interest)
(-) PV of modified cash flows
G/L ON MODIFICATION
± Direct Cost
NET GAIN (LOSS) ON MODIFICATION
• Direct Cost - Deducted from PV of modified liability
• With computation of new effective rate after DC
• No need to repeat the steps.
PV of modified cash flows – Original Rate
(-) Direct Cost
PV of modified cash flows – New Rate
(-) Face value of modified cash flows
Premium (Discount)
Leases - Lessee’s Book
FINANCE LEASE
RIGHT-OF-USE ASSET (PPE)
❖ At COST
Lease liability, initial measurement
+ Initial Direct costs incurred by lessee
+ PV of Dismantling and removing cost
+ Lease Bonus paid to lessor
(-) Lease Incentive received from Lessor
RIGHT OF USE ASSET
Initial
Subseq.
1. Cost model → (Cost – AD – AIL) ; Adjusted for remeasurement of LL
2. FV model, if IP
3. Revaluation model, if PPE
Cost - RV
DEPRECIATION: There is a
=
UL
✓ Transfer of ownership at end of LT
Cost - GRV
✓ Reasonably certain to exercise PO
=
✓ No GRV
LT
LEASE LIABILITY (NCL)
•
At PV of Minimum Lease Payments not paid at that date.
Discounted using: 1. Implicit Interest Rate
(In order)
2. Lessee’s Incremental Borrowing Rate
PV of Fixed & Variable rentals
PV of Guaranteed Residual Value
PV of Purchase Option
PV of Penalties (pre-terminated)
LEASE LIABILITY
Initial
GRV
▪ Assured RV at the end of LT
▪ Leased Asset will revert
back to Lessor
•
Subseq.
❖
❖
❖
▪
▪
▪
▪
Either; can’t be both
PO
Lessee has right to buy leased asset
Reasonably certain
Must be significantly less than RV
Leased Asset will transfer to Lessee
Fixed/Variable - Exclude contingent rent, costs for services
and taxes to be paid & reimbursed to lessor.
Effective interest method
CL = Amortization Next Year (Annual Rent – Interest Expense)
NCL = CV next year – Amortization next year
➢ Expensed when incurred
➢ Paid by lessee to third Party
➢ Ownership expenses (Maintenance & Taxes)
Cost of Asset Purchased = Cash payment + CV of Asset – Balance of Liability
Loss on FL = Exercise price of PO – CV of ROUA at expiration of lease.
UL-LT
CV of ROUA = (ROUA x
) + RV
Executory
Costs
UL
Initial Recognition
Payment of rentals
& Interest Expense
Interest Expense
of Restoration Cost
Depreciation
of ROUA
Return of Asset to
Lessor
PO
APPLIED IF:
•
•
1)
2)
Right of use asset
Lease Liability
Cash (payment at or before commence+ initial DAC)
Provision for dismantling/restoration
Interest Expense
Lease Liability
Cash
Interest Expense
Cash
Depreciation expense
Accumulated Depreciation
FV of asset at expiration of lease ≥ GRV
Lease Liability
Accumulated Depreciation
Right of use asset
FV of asset at expiration of lease < GRV
Lease Liability
Accumulated Depreciation
Loss on Finance Lease
Right of use asset
Cash
FV of asset at expiration of lease < URV
Lease Liability
Accumulated Depreciation
Right of use asset
Deficiency in FV is ignored
Lessee exercised PO
Lease Liability
Cash
Lessee not exercise PO
Lease Liability
Accumulated Depreciation
Loss on finance lease*
Right of use asset
*= Exercise price of PO – CV of ROUA at expiration of lease.
OPERATING LEASE
Short-Term lease → LT is ≤12 months
Low Value lease → NO quantitative threshold
Lease payments: Expense on either SL basis over LT or another systematic basis.
NO Depreciation Expense
ANNUAL RENTAL (Rent Expense/Accrued Expense) = SL (Equal) =
Total Payment < Accrued Expense
= Accrual
Total Payment > Accrued Expense
= Deferral / Prepaid
1.
2.
1.
2.
Total Payments
Years or months
Reduction of Prepaid Rent (Credit)
Credit Rent Payable
Reduction to Rent Payable Debit)
Debit Prepaid Rent
BONUS TO LESSOR
➔ Must also be systematically allocated (Spread out)
Bonus
➔ Annual Lease Bonus charged to Annual Rent Expense = Lease Term
➔ Initially recognized as Prepaid Rent (Advance Payment)
➔ Adjusted subsequently by crediting Prepaid Rent
Leases - Lessor’s Book
•
•
•
•
OPERATING LEASE
NOT transfer substantially all risks/rewards.
Ownership remains with Lessor and bears all ownership or executory costs.
Lessor Records Depreciation Expense
NOT recognize any selling profit because not a sale.
PERIODIC PAYMENTS
LEASE BONUS by Lessee
LEASE BONUS by Lessor
CONTINGENT RENTALS
REFUNDABLE DEPOSIT
DEPRECIATION POLICY
➔ Income (Straight-line or another systematic basis.)
➔ + Revenue recognized over the LT
➔ Unearned Rent Income/Liability
➔ (-) Rent revenue, on SL basis
➔ + Rent revenue in period in w/c they arise.
➔ LIABILITY; Affected by time value of money.
➔ Lessor’s normal depreciation policy (Based on UL)
IF PAID BY LESSEE
INITIAL DIRECT COSTS
Professional/Finder’s fees /Commissions
IGNORE
IF PAID BY LESSOR
Capitalized &
expensed over LT*
EXECUTORY COSTS
INCOME equal to
EXPENSE
amount paid by Lessee.
*Separate DE to leased asset because different denominator: Asset → UL ; IDC → LT
Taxes/Insurance/Maintenance
Lease Bonus
Lease bonus
÷ Lease term
Rental income
Unequal Rental Payments
Total payments entire term
÷ Lease term
Annual Rental income
Revenue > Received
Accrual
1. Dr: Unearned Rent
2. Dr: Rent Receivable
Revenue < Received
Deferral
1. Cr: Rent Receivable
2. Cr: Unearned Rent
Rent Receivable/ Unearned
Total rental income to date
(-) Total collection to date
Receivable /Unearned Rent
Rent income
Lease Bonus, amortization
(-) Depreciation Expense
(-) Amortization of IDC
(-) Executory Costs
Net Rent Income
Shortcut: Total the Revenue & Total the Received
OPERATING LEASE
LESSOR
Records Leased Asset
Depreciates Asset
Rental Payments
Initial Direct Cost*
Lease Bonus
Refundable Security Deposit
Executory Cost
Rent income SL
+ CV of leased asset
Depreciated over LT
Amortized as
Unearned rent over LT
Liability
Expensed
WITH TRANSFER OF OWNERSHIP (IMPLICIT)
➔ Disregard GRV/URV
LESSEE
Rent expense SL
Expensed
Amortized as
Prepaid expense over LT
Receivable
Expensed
FINANCING LEASE
INDICATORS (At least one)
(a) Transfers ownership
(b) Lessee has option to purchase asset at sufficiently lower than FV
LT
(c) LT is major part of economic life of asset even if title is not transferred. (UL =75%)
(d) At inception, PV of MLP amounts to at least substantially all of FV of asset (90%)
(e) Asset is specialized nature that only lessee can use it w/o major modifications.
INDICATORS OF SITUATIONS
(a) Lessee can cancel the lease →Lessor’s losses w/ cancellation are borne by lessee.
(b) G/L from fluctuation in FV of residual accrue to lessee
(c) Extension of LT at the option of Lessee → Lessee has ability to continue lease for
secondary period at rent lower than market rent.
DIRECT FINANCING
SALES TYPE
2 types of Revenue:
• 1 type of revenue: Interest Inc.
1) GP- Full @ inception
• NO GP; NO Depreciation
• Don’t matter whether RV is 2) Interest Inc. – Over LT
Guaranteed or unguaranteed.
EC
Expense
Expense
+ Net investment (Cost/FV)
IDC
BPO (Gross)
GRV & UGRV
(Gross)
PV of BPO
PV of GRV
PV of URV
+ COGS
▪ (-) Reduction from UII
▪ Amortized over LT
+ Gross Investment (FLR)
+ Gross Investment (FLR)
+ Gross Investment (FLR)
+ Gross Investment (FLR)
+ Net Investment
+ Net Investment
+ Net Investment
+ Net Investment
+ Net Investment
(-) COGS
(Excluded in Sales.
But added in NI)
+ Net Investment
FLR
Asset for Lease
Cash (Initial Direct Cost)
UII
Initial
DIRECT FINANCING
Collection of Rentals
Interest Income
Commencement of LT
CV of asset is
recognized as COGS
SALES
PV of URV reduces
COGS
COMPOUNDED
Cash
FLT
UII
Cash
FLR
Interest Income
Sales
UII
COGS
UII (If there’s URV)
Inventory
Cash (IDC)
FLR (Gross RV)
COGS (PV of URV)
UII
Cash
FLR
COGS (CV of asset – PV of URV)
Sales
Inventory (CV of asset)
UII
DIRECT FINANCING LEASE
GROSS INVESTMENT
NET INVESTMENT
(SFP)
MANUFACTURER/DEALER/SALES LEASE
Total of Periodic Payments
+ Gross of BPO/GRV/URV
Gross Investment (FLR)
= PV of Gross Investment (FMV of Asset)
= Cost of Asset + IDC
GI -FLR bal.
NI, beg
(-) Bal. of UII
(-) Annual Lease payment
± Amortized of Discount -UII
NI, end
NI, end
▪
▪
Undiscounted MLP
Subsequent: Deduct payments
= PV of Gross Investment or FLR
PV of Lease payments
PV of BPO
PV of GRV
PV of URV
Net Investment
UII
(Discount)
Gross investment
Unearned Interest, balance
(-) Net Investment
(-) Amortized Discount/Revenue
Unearned, over the LT
Unearned, end balance
• Advance lease payment can either include or exclude.
• But Gross & Net Investment must have same treatment.
INTEREST INCOME
= Net Investment x % Implicit Rate
LOWER:
SALES/COGS/GP
TREATMENT:
NONE
NI (FMV of Asset)
Sales
(-) COGS
GP on Sales
=
Cost
IF WITH TRANSFER OF OWNERSHIP (IMPLICIT)
➔ Disregard GRV/URV; Not added to Sales (Net Investmen
▪
▪
FV of leased asset
PV of Rentals, BPO, GRV or (NI - PV of URV)
= Cost of Asset+ IDC - PV of URV
SAME whether GRV or URV
FMV of Asset)
≠
Cost
SALE & LEASEBACK
Entity (seller) transfer asset to another entity
(buyer) who lease back to original seller (lessee)
SELLER
(LESSEE)
Either transfer
of asset is:
SALE
NOT SALE
TRANSFER:
SELLER (LESSEE)
Continue to recognize asset
NOT SALE
SALE
SP > FV
SP < FV
➔
➔
BUYER
(LESOR)
Buyer-lessor has control
Seller-lessee retains control
BUYER (LESOR)
Do not recognize asset
FINANCIAL ASSET
(Proceeds)
Apply lessor accounting
FINANCIAL LIABILITY (Proceeds)
Derecognize asset
Recognize:
✓ Sale at FV
✓ Lease Liability
✓ ROUA, proportion of previous CV
G/L on rights transferred to buyer
EXCESS:
Lessor: Financial Liability
Lessor: Financial Asset
Prepayment of LP
Recognize purchase of asset
-
SELLER-LESSEE:
FV of RR = PV of MLP – FL
FV of RR = PV of MLP + Prepayment
FL → Deduction to MLP to arrive at LL
Prepayment → No effect to LL account; Added only to FV of RR for computation of G/L
ASSET:
TOTAL
FV
CV*
Gain
100,000
80,000
20,000
RIGHT
RETAINED
S2
S3 (ROUA)
RIGHT
TRANSFERRED
S4
S5
G/L
*Apportioned based on FV
S1
S2
S3
S4
S5
FV
(PV of MLP)
SP of RT
(CV of RT)
G/L
G/L = Total G/L x
Fill up FV and CV (always given)
PV of Minimum Lease Payments
Apportion CV based on FV: 80K x (S2/100K)
(100,000 – S2)
(80,000 – S3)
▪ ROU retained (S3)
NET RENTAL INCOME OF BUYER-LESSOR = Annual Rent – DE
ANNUAL RENT
Financial Liability
Lease Liability
FV of Right Transferred
Total FV
Prorated Based on
Total of PV of MLP
Income Tax
PERMANENT DIFFERENCES
Income subject to Final tax
NONTax exempt income
TAXABLE
Gain from settlement of life insurance of officers/employees where
corporation is named beneficiary
▪
Fines and penalties
NON▪
Charitable contributions in excess of tax limitation
DEDUCTIBLE
➔ 5% of taxable income before charitable contribution
EXPENSES
▪
Premiums on life insurance for officers/employees where
corporation is named beneficiary.
TEMPORARY (TIMING) DIFFERENCES
TAXABLE TEMPORARY DIFF. (TTD)
DEDUCTIBLE TEMPORARY DIFF. (DTD)
FI > TI
FI <TI
Asset: CV > Tax base
Asset: CV < Tax base
Liability: CV < Tax base
Liability: CV > Tax base
Deferred Tax Liability (DTL)
Deferred Tax Asset (DTA)
✓ Prepayments
✓ Unearned Income
✓ Upward Revaluation Surplus
✓ Accrued/Estimated Expenses
✓ Installment sales (Accrual)
✓ Downward Revaluation Surplus
✓ Interest revenue
✓ Bad debt expense
✓ Development costs
✓ Excess of Est. uncollectible accounts over
✓ Unrealized gains
accounts actually written off
✓ Cost of business combination accounted ✓ Impairment / Unrealized losses
for as an acquisition
✓ Research Cost
✓ Tax depreciation in excess of book ✓ Book depreciation in excess of tax
depreciation (SL for FR; SYD for tax)
depreciation (Acc. Dep. for FR; SL for tax)
▪
▪
▪
Pretax Financial Income
+ Non-deductible Expense
(-) Non-taxable income
Financial Income subject to tax
TTD:
↑ Increase
↓ Decrease
DTD:
↑ Increase
↓ Decrease
TAXABLE INCOME
Pxx
xx
(xx)
Pxx
(xx)
xx
Constant Tax Rate
=
DTL
Future Tax Rate
xx
(xx)
Pxx
DTA
=
Current Tax Rate
(-) Income Tax Payments
(xx)
Tax Payable (Prepaid Tax)
Pxx
Current Tax Liability (Asset)
TTD/DTD → Changes for year (↑/↓) must not be cumulative.
Profit before income tax
(-) Total Income Tax Expense
Profit (NI After Tax)
TITE
Current Tax Expense
Deferred Tax Expense (Benefit)
↑ in DTL
↑ in DTA
TOTAL INCOME TAX EXPENSE
CTE
Pxx
Pxx
(xx)
xx
Pxx
DTA
DTD beg x %
↓DTD x %
↑DTD x %
TTD end x %
DTD end x %
Ending Balances → Presented in SFP as NCA/L
I/S Approach → Computed is Δ (↑↓) for the period
B/S Approach → Ending Balance
↓TTD x %
DTL
TTD beg x %
↑TTD x %
TTD
DTD
Current Tax Expense
and Payable
Payment of Tax
Payable
Income tax Expense-Deferred
Deferred Tax Liability
Deferred Tax Asset
Income tax Expense- Benefit
Income Tax Expense- Current
Income Tax Payable
Income Tax Payable
Cash
OPERATING LOSS CARRYFORWARD
•
Tax deductions > Gross income (Taxable income)
➔ In a year that may be carried forward to reduce TI in future year.
•
Within 3 years from date of occurrence.
•
Results in Future deductible amount (Deferred tax asset)
MINIMUM CORPORATE INCOME TAX (MCIT)= 2% of GI
•
Beginning of 4th taxable year immediately following commencement.
•
Income tax HIGHER:
➢ 30% based on taxable NI
➢ 2% of Gross income
•
Excess of MCIT over normal income tax of 30% (MCIT>Normal Tax)
➔ Carried forward and credited against normal income tax for 3 immediately
succeeding taxable years.
Expects to operate profitably in succeeding years and RCIT > MCIT
DTA
Continue to Pay MCIT
No DTA
Permanent → NOT Reverses ; Temporary → Reverses
Defined Benefit Obligation (DBO)
Actuarial Gain Beginning
PV of BO settled- Advance Current Service Cost
Benefits Paid Past Service Cost
Interest Expense
Actuarial Loss
Ending
Defined Benefit Plan
FVPA < DBO
FVPA > DBO
Deficit
Surplus
SERVICE COST
Current Service Cost
Past Service Cost
Fair Value of Plan Assets (FVPA)
Beginning Settlement Price BO - Advance
Actual Return* Benefits Paid
Contributions to plan
Ending
*(Interest income + Remeasurement Gain)
DEFICIT
LOWER: Surplus & Asset Ceiling
Defined Benefit Liability (Accrued)
Defined Benefit Asset (Prepaid)
DEFINED BENEFIT COST
NET INTEREST
REMEASUREMENTS
Interest Expense
Remeasurement -FVPA
(Interest Income)
Loss (Gain) on early
Interest on Effect of
Settlement
Asset Ceiling
PROFIT OR LOSS
Remeasurement- PBO
Change in effect of
asset ceiling
OCI/OCL
DISCOUNT RATE- Market yield on High Quality Corporate Bonds
Actuarial Gain on DBO → Decrease in Projected BO due to Δ in actuarial assumptions
Actuarial Loss on DBO → Increase in Projected BO due to Δ in actuarial assumptions
INTEREST INCOME (Expected Return on PA) = (FVPA, beg x % rate)
INTEREST EXPENSE (Interest Cost on BO)
= (DBO, beg x % rate)
NET Interest = Interest Expense – Interest Income
NET Interest = (DBP, beg – FVPA, beg) x %
Actual Return
(-) Interest Income
Remeasurement G (L) on FVPA
FVPA
PBO
Surplus
Asset Ceiling
Effect of Asset Ceiling
INTEREST ON EFFECT OF AC
PV of BO settled in advance
(-) Settlement Price BO – in advance
G (L) on Early Settlement
BEG
Pxx
(xx)
Pxx
(xx)
Pxx
*%
Pxx
Effect of AC, end
(-) Effect of AC, beg
Increase (Decrease) in effect of AC
(-) Interest on effect of AC - P/L
Δ in EFFECT OF AC - OCI
Accrued (Prepaid) BC, beg
(-) Accrued (Prepaid) BC, during
Accrued (Prepaid) BC, end
END
Pxx
(xx)
Pxx
(xx)
Pxx
Surplus > Ceiling = Effect
Surplus < Ceiling = NO effect
Increase (End > Beg) → Loss
Decrease (End < Beg) → Gain
Remeasurement Loss – Interest
Remeasurement Gain + Interest
(PBO, beg - FVPA beg)
Defined Benefit Cost - Contribution
(PBO, end - FVPA end)
BC- Benefit Cost
Accrued (Underfunding) → Defined Benefit Liability / Pension Liability
Prepaid (Overfunding) → Defined Benefit Asset / Pension Asset
FVPA < DBO
FVPA > DBO
= Deficit
= Surplus
Asset Ceiling
Accrued
Lower
Shareholder’s Equity
Share capital issued
Ordinary share capital (Common stock)
Preference share capital (Preferred stock)
Subscribed share capital
Share dividends distributable (Stock dividends payable)
Less:
Subscriptions receivable
Discount on share capital
Capital liquidated (In liquidating dividends)
Share premium:
SP excess over par
SP -Delinquent/Forfeited Subscription
SP - Treasury shares
SP conversion option- convertible BP
Donated capital
SP - warrants outstanding
SP - options outstanding
TOTAL PAID IN CAPITAL (CONTRIBUTED CAPITAL)
Retained Earnings
RE - unappropriated
RE - appropriated
Other comprehensive income (cumulative balance)
Revaluation surplus
Unrealized gain or (loss) on FVTOCI
Remeasurement gain or (loss) under PAS 19
Translation gain or (loss)
Effective portion of cash flow hedge
Change in FV due to credit risk of designated FLQTPL
Less: Treasury shares
TOTAL SHAREHOLDERS' EQUITY
OUTSTANDING SHARES
CONTRIBUTED/PAID-IN
(CASH)
With Par
LEGAL
No Par
ISSUED SHARE CAPITAL
SHARES
ISSUED AT A
DISCOUNT/
PREMIUM
Pxx
xx
xx
xx
(xx)
(xx)
(xx)
Pxx
xx
xx
xx
xx
xx
xx
Pxx
xx
Pxx
xx
xx
xx
xx
xx
Pxx
xx
Pxx
xx
xx
-xx
Pxx
= Issued + Subscribed SC - TS
= SC + Share Premium*
*Premium from subscribed excluded
= SC + Subscribed SC
= SC + Subscribed SC + OS premium*
*in excess of Stated Value
= Authorized SC - Unissued SC
PREMUM
Issued ↑ Par
Par or SV < Consideration
(+) SHE
DISCOUNT
Issued ↓ Par
Par or SV > Consideration
(-) SHE
•
Issuing shares below PAR or SV is prohibited only on orig issuance.
Thus, TS may be reissued below par or stated value.
ISSUANCE
NON-CASH CONSIDERATION:
CONSIDERATION
VALUATION (Order of priority)
1.
FV
of
noncash
consideration Received
NON-CASH ASSET
2. FV of share capital Issued.
OR SERVICE
3. Par value of share capital Issued.
1. FV of share capital issued
LIABILITY
2. FV of liability extinguished
EXTINGUISHED
3. CV of liability extinguished
FV of equity issued (FV of liability)
(-) CV of liability extinguishment
G/L on extinguishment of liability
FV of equity issued (FV of liability)
(-) Par or SV of equity issued
Share premium (or Discount)
TWO OR MORE CLASSES OF SHARES
a. Issued Separately → Accounted separately
b. Issued simultaneously at a basket or lump-sum price
Fair Value or Proportional method
ALL FVs are
available
PS
OS
FV
240,000
360,000
600,000
240/600
360/600
ALLOCATED COST
400,000
600,000
1,000,000
PREMIUM= Allocated Cost- (Shares*PAR)
Only ONE
has FV
ALL have
NO FV
Incremental/Residual Method:
Total Proceeds
(-) Total FV (Securities w/ available FV)
Amount allocated to the other securities
➢
Use Proportional method and allocate the
lump-sum price based on PAR VALUE
SHARE COSTS
RELATED TO ISSUANCE
DEBITED to:
✓ Publication Fees
1. SP from related issuance
✓ Underwriting fees and commissions
2. SP from previous issuance
✓ Registration fee w/ SEC
3. RE
✓ OPT and DST
RELATED OFFERING/LISTING
✓ Public relations fees
Expensed
✓ Listing fee in LSE
✓ Road Show presentation
OTHER INDIRECT COSTS- EXPENSED
✓ Indirect costs related to sale of share capital
✓ Recurring Cost of maintaining shareholders records
✓ Handling ownership transfers→ Registrar Agent Fees
✓ Incorporation Fees
✓ Broker commission
JOINT COSTS
Allocated pro-rata between:
▪
Jointly to listing & issuance of new
1. Newly-issued listed shares
shares and listing old shares.
2. Newly-listed old shares
•
Basis: Total Outstanding shares
SUBSCRIPTION
➔ Issuance of shares will only happen upon FULL PAYMENT.
SUBSCRIBED
SHARE CAPITAL
▪
▪
Not yet issued since not yet fully collected
Entitled to receive dividends
SUBSCRIPTION
RECEIVABLE
Short-Term → Current Asset
Long-Term → Deduction from Subscribed SC (Silent)
DELINQUENT
SUBSCRIPTION
▪
Subscriber does NOT pay in full his unpaid stock
subscription on the date fixed by the BOD.
AUCTIONED SUBSCRIPTIONS
•
Subscription remains unpaid at a due date.
•
After 30 days but not exceeding 60 days from shares declared delinquent.
SOLD AT A PUBLIC AUCTION TO HIGHEST BIDDER
OFFER PRICE includes:
HIGHEST BIDDER
a. Unpaid balance
b. Interest accrued
•
Willing to pay "offer price"
c. Expenses in public auction
for SMALLEST # of shares.
• DS STILL receive paid shares. (Bal)
• Shares divided to: DS & HB
Total No. of Shares Subscribed
(-) No. of Shares to HB
Remaining Shares to DS.
NO BIDDERS - TREASURY SHARES
• Corporation may bid for shares → Only if it has sufficient unrestricted RE
• Credited as paid in full in books of corporation.
• Title to ALL shares shall be vested in corporation → TS recorded @ COST
• DS NOT entitled for any shares in subscription (Regardless if paid)
NO BIDDERS AND CORPORATION HAS INSUFFICIENCY OF RE
• Subscription is CANCELLED in its entirety
• Amount Paid by DS → forfeited and treated as SHARE PREMIUM.
CONDITION
With Highest Bidder
No HB: Corp. acquires
No HB: Corp. prohibited
Forfeited down payment
RECIPIENT OF SHARES
a. To HB - No. of Shares willing to receive
b. To SD - Remaining shares
ALL shares will be acquired by Corporation (TS)
No Issuance
No Issuance
ENTRIES:
SUBSCRIPTION OF SC
CASH COLLECTION
EXPENDITURES ON
PUBLIC AUCTION
SR
Subscribed SC
SP
Cash
SR
Due from HB
Cash
Cash
SOLD AT
PUBLIC
AUCTION
Receipt of
Payment
Issuance of
shares
Acquisition of
subscription as
TS
CORP
BID FOR
SHARES
NO
BIDDER
Appropriation
of RE TS
Acquired
SR
Due from HB
Interest Income
Subscribed SC
SC
TS*
SR
Due from HB
*Unpaid + direct costs.
RE- Unrestricted
RE- Appropriated*
120
50
8
80
70
8
2
100
100
78
70
8
100
100
*Aggregate PV of Delinquent shares.
TS ≠ Amt Appropriated
Subscribed SC
SC
100
Expenditures
on equity
Expenses on delinquent Sale
Due from HB
Subscribed SC
SP
SR
SP-Delinquent Subscription*
8
*Amount paid by delinquent subs.
SR → Subscription Receivable
50
8
Issuance of
shares
Derecognize
Equity Accounts
100
20
100
100
20
8
70
50
•
•
•
•
•
TREASURY SHARES
Entity's own shares previously issued but subsequently reacquired
Issued but not Outstanding (NOT entitled to Dividends)
Contra equity: ↓ OS = ↓ SHE (NO EFFECT Issued shares)
RE must be APPROPRIATED = Cost of TS acquired.
Cost method is required by standard
COST METHOD:
REACQUISITION
APPROPRIATION OF RE:
➔ Corporation is permitted in TS transaction provided it
sufficient unrestricted RE to cover shares purchased.
➔ When reissued, related A-RE are reverted back to U-RE.
•
No appropriation in Donation
•
Donated Capital → Additional paid in capital
RETIREMENT
OF SHARES
Unlike TS, retired shares cannot be reissued anymore.
Total par and related SP is removed from books.
Difference of RP & IP→ NOT recognized as G/L
Retirement Price Paid to shareholder to retire
(RP)
(Outflow)
Issuance Price
Received when you issued
(IP)
(Inflow)
•
•
•
Immediately Retired → No need to set up TS account
EFFECT:
REACQUISITION
REISSUANCE
RETIREMENT
↓ SHE; Equal to COST
↑ SHE; Equal to REISSUANCE PRICE
No effect SHE; ↓ BOTH – Shares issued &
outstanding
BALANCE OF TS = Regardless of # of Shares, Depends on TOTAL COST
Acquired 5K Shares x 20 = 100,000
Ex:
Balance of TS = 50,000
Reissue 5K Shares x 10 = 50,000
PAR VALUE METHOD:
•
Reacquired TS are accounted for as if they are retired.
•
Not acceptable for financial reporting.
•
SP & TS = OS; SHE = unaffected.
PAR VALUE METHOD:
TS (at par)
REACQUISITION SP-Original Issuance
(AS IF RETIRED)
Cash
SP- TS
COST METHOD:
REACQUISITION
OF TS
REISSUANCE OF
TS
BY PURCHASE
BY DONATION
AT COST
(RP = COST)
MORE THAN COST
(RP > COST)
Gain
BELOW COST
(RP < COST)
Loss
RETIREMENT OF
TS
- NOT affect
Total SHE
RC < OIP
(Gain)
RC > OIP
(Loss)
Total SP before retirement*
÷ Total issued shares before retirement
SP per share -original issuance
x No. of Shares Retired
SP-ORIGINAL ISSUANCE
*Share Premium-TS, excluded
Issuance Price (Par SC + SP) x # shr issued
(-) Retirement Price
SP-Retirement
RP < OIP
(Gain)
RETIREMENT
OF SC
(NOT TS)
RP > OIP
(Loss)
TS
Cash
TS
Donated Capital
Cash
Cash
Cash
(a) SP- TS
(b) RE
No effect
to SHE
TS
TS
SP-TS
TS
SC
SP- Original Issuance
TS
SP-TS
SC
SP-Original Issuance
(a) SP- TS
(b) RE
TS
Total issue price – originally issued
(-) Par Value per share
SP per share -original issuance
x No. of Shares Retired
SP-ORIGINAL ISSUANCE
Original IP=
Par Value + Related SP
# of shares issued
SC
SP – Original Issuance
SP – Retirement
Cash
SC
SP – Original Issuance
(a) SP – Retirement
(b) RE
Cash
RETAINED EARNINGS
Cumulative profits retained in business /not yet distributed to shareholders
APPROPRIATION - No effect on total RE & SHE
•
•
APPROPRIATED
UNAPPROPRIATED
✔ Dividend payments
✘ Dividend payments
Restricted
Unrestricted
▪ Relates SCI to SFP by displaying changes that directly affect RE
STATEMENT
▪ Part of “Statement in Changes of Equity”
OF RE:
▪ No longer required in SFP
RETAINED EARNINGS
Dividends declared Beginning
Loss from retirement of SC/TS NI
Loss from reissue of TS ± Prior Period Errors
± Δ Accounting policy
± Reclassification of OCI - DECS
Ending
RE
APPROPRIATION
RE- Appropriated
RE- Appropriated
RE
REVERSAL
If TS NOT reissued
by end of year
If TS are REISSUED
afterwards
RE
RE- Appropriated- TS
RE- Appropriated – TS
RE
SHARE SPLIT
•
•
MAY BE: 1.
2.
MEMO ENTRY
Also affects TS
UP (2 FOR 1)
DOWN (1 FOR 2)
AFFECTS
NOT
AFFECT
INCREASES
Number of shares
FV/PAR per share
BEFORE SPLIT
10,000
100
1,000,000
No. of OS
Par
Total Par
✓
✓
✓
✓
✓
✓
Split UP or share split
Split DOWN or reverse share split
UP “2 for 1”
20,000
50
1,000,000
DECREASES
FV/ PAR per share
Number of shares
DOWN “1 for 2”
5,000
200
1,000,000
Number of issued/outstanding shares
Treasury shares
Par value per share
Assets, Liabilities, Equity,
Total par value (Total CV)
SC, SP, RE, SHE.
OS DIVIDENDS
•
•
Pro-rata distributions of Earnings to owners of corporation
Shares Entitled: Issued & Outstanding
OUT OF UNAPPROPRIATED RE
OUT OF CAPITAL
DIVIDENDS MAY
(RETURN ON CAPITAL)
(RETURN OF CAPITAL)
BE DECLARED:
Cash; Property; Scrip; Share
Liquidating Dividends
DIVIDENDS ON
UNPAID
SUBSCRIPTION
•
•
•
•
•
•
Paid in full provided not yet declared delinquent.
o Cash Dividends first applied to Unpaid Bal + Exp
Due on
Delinquent
o Stock dividends withheld until subscription is paid
CASH DIVIDENDS
a) Certain amount per share
b) Certain percentage of par value of shares.
SCRIP DIVIDENDS
Deferred Cash Dividends (Notes Payable)
Recording of Accrued Interest
PROPERTY DIVIDENDS
Shares of another entity; Inventory, PPE, Intangibles, Investment in Associate
PDP
Initially measured @ FV of NCA at date of declaration
BS Date
Adjusted for changes in FV → G/L, directly in RE
Settlement
P/L = CV of PDP – CV of NCA @ Declaration
Most common form
May be declared as:
DECLARED AS DIVIDENDS:
NCA
CA
Recognized at:
Lower of: CV & FVLCTD @ date of declaration
Impairment Loss
If: FVLCTD < CV
Gain on Impairment Recovery. (Extent of cumulative IL.
↑ in FVLCTD
Loss on Distribution
If: CV of PDP < Asset Distributed
Net Effect of Declaration
Net Debit = CV of NCA on date of declaration
& Settlement on RE
▪ Accounted for under its previous accounting; No reclassification
▪ Adjusted for changes in FV
PROPERTY DIVIDENDS PAYABLE
Update to FV of NCA every:
➔ Declaration; Year-end; Settlement
•
•
•
•
•
•
•
NON-CASH ASSET
Remeasure:
➔ Declaration & Year-End
SHARE DIVIDENDS/ BONUS ISSUE
Paid in form of entity’s own shares.
SMALL
LARGE
Outstanding Shares
↑
% Declared
< 20% of OS
≥ 20% of OS
RE
↓
Charged to RE
FV @ Decla
Par Value
A, L, C; PAR /per shr
x
Credited to SP
FV - Par
None
➔ FV must not be lower than Par or Stated value
Outstanding Shares
FORMULA
x % Share Dividends Declared
SC
OS x % Div x Par
SDP
Add’l Shares Declared as Div
Small
OS x % Div x FV
x FV /Par per share
RE
Large
OS x % Div x Par
SHARE DIVIDENDS DECLARED
TREASURY SHARES DECLARED AS DIVIDENDS
Cost Method is used→ RE is Debited for Cost of TS declared; No SP
Reverse restriction of RE
LIQUIDATING DIVIDENDS
Dividends declared out of capital, rather than from RE.
Dividends declared in excess of balance of unrestricted RE.
Charged to “Capital Liquidated” account, a deduction from SHE (Contra-equity)
Unintentional LD - declared out of RE that is overstated. (Correcting entry is made.)
CASH
DIVIDENDS
Declaration
Payment
Declaration
PROPERTY
DIVIDENDS
(CA)
BS Date
Payment
Declaration
BS Date
PROPERTY
DIVIDENDS
(NCA)
Declaration
BS Date
Payment
SHARE
DIVIDENDS
Declaration
(Company)
Small
<20%
Large
≥20%
Declaration (SH)
Payment
LIQUIDATING
DIVIDENDS
Equity Investments at FV
Unrealized Gain on Equity Inv.
RE (FV)
Property Dividends payable
RE (FV)
Property Dividends payable
Property Dividends payable
Loss on derecognition (if any)
Equity Investments at FV
Cash
Gain on derecognition (If any)
RE (FV @ declaration date)
PDP
RE
↑ FV of NCA
PDP
PDP
↓ FV of NCA
RE
RE
↑ FV of NCAHFDO
PDP
PDP
Payment
SCRIP
DIVIDENDS
Retained earnings
Cash Dividends payable
Cash Dividends Payable
Cash
Declaration
Payment
↓ FV of NCAHFDO
RE
PDP (FV @ payment)
Loss on Distribution
CV of NCA @ Declaration
Gain on Distribution
Retained earnings (FV)
Scrip Dividends payable
Interest Expense
Interest Payable
Scrip Dividends Payable
Interest Expense/Interest Payable
Cash (Principal + interest)
RE (FV)
Stock Dividends Payable (+SHE)
SP
RE (PAR)
Stock Dividends Payable (+SHE)
Memo Entry
Stock Dividends Payable
Share Capital
Capital Liquidated/Premium
RE
Cash Dividends Payable
Cash Dividends Payable
Cash
PREFERENCE SHARES
PS preferences
over OS:
1.
2.
Distribution of assets in liquidation (Preferred as to Assets)
Distribution of dividends (Preferred as to Dividends)
PREFERENCE OVER ASSETS
•
"Preferred as to assets" → Entitled to Liquidation value.
•
Amount PS shareholders are entitled to receive in case of corporate liquidation.
•
Usually more than par value of PS.
PREFERENCE OVER DIVIDENDS
•
When dividends are declared, PS are paid first before OS.
Non
▪
Div entitlement for a year is forfeited when not declared in that year
Cumulative
▪
Current year only dividend only.
▪
Dividend entitlement accumulates each year until paid.
▪
Provide all dividends in arrears
Cumulative
Accumulated
➔ Disclosed as dividends in arrears
Unpaid Dividends ➔ Not accrued as liability unless declared.
Non
▪
Entitled only to fixed amount of dividends.
Participating
▪
Entitled to amount in excess of fixed amount of dividends.
Participating
▪
Computed after both PS & OS allocated their basic dividends.
•
Any excess of dividends declared after deducting basic dividends is the amount subject
to participation which is allocated depending on nature of participation of PS.
Participating
may be:
FULL
PARTIAL
S1
S2
S3
▪
▪
▪
▪
Participates on Pro rata basis
➔ Based on aggregate par values of outstanding
shares with ordinary shareholders.
Participates only up to certain amount/percentage.
=(Participation % -Div %) x Agg. Par of PS Outstanding
Provide dividends of PS first.
Noncumulative - one-year only; Cumulative - all dividends in arrears.
Provide basic dividends of OS using PS rate.
Allocate excess dividends after deducting amounts computed in
above to PS & OS pro rata (If fully) based on aggregate par values
CONVERTIBLE PREFERENCE SHARES
TYPE
Convertible PS
Callable PS
Mandatorily
Redeemable PS
MEANING
• Entitles holder to exchange PS to OS.
• Gives issuer right, but not obligation, to
reacquire and retire share at fixed call
price. (Cash Payment involved)
• Holder has option to require issuer to
retire or reacquire PS at fixed date.
REDEEMABLE PS
Holder has right to redeem
Financial Liability - when holder exercises
its right to redeem, issuer is mandatorily
obligated to pay for redemption price.
Has fixed redemption date
RIGHT
SH
TREAT
Equity
Issuer
Equity
SH
Financial
Liability
CALLABLE PS
Issuer has right to call
Equity Instrument - right to call is at
discretion of issuer and therefore has no
obligation to pay unless it chooses to call on
shares
NO fixed redemption date
•
CONVERTIBLE PS
Gives holder an option of converting originally purchased instrument into OS.
(1) Financial liability for bonds → Liability
Entity has issued
2 types of instruments: (2) Equity instrument for conversion feature → SHE
When Convertible PS are Issued:
▪ Only 1 type of financial instrument is issued- equity instrument, but different classes.
▪ Conversion option is embedded derivative that requires no separate recognition.
▪ On conversion date, reclassification entry is made from PS to OS.
▪ PS converted are cancelled & issuance of OS is recorded. (Similar to retirement of PS)
Issuance of
PS
CONVERTIBLE
PS
Cash
PS
SP- PS
PS
IP > Par
SP- PS
(Gain)
Conversion
IP < Par
(Loss)
Issuance of
PS
CALLABLE PS
(Cash involved)
PS
SP- PS
RE (Squeezed)
OS
Cash
PS
SP- PS
PS
IP > RP
SP- PS
(Gain)
Redemption
IP < RP
(Loss)
Issuance of RPS
REDEEMANBLE
PS
OS
SP - OS (Squeezed)
Dividend
Redemption
Cash
SP - OS (Squeezed)
PS
SP- PS
RE (Squeezed)
Cash
Cash
Redeemable PS
Interest Expense
Cash
Redeemable PS
Cash
•
•
•
•
STOCK RIGHTS
Issued to existing ordinary shareholders in relation to their preemptive rights.
To protect current interests by acquiring new shares before offered to new investors.
Enable to purchase new shares at a price lower than shares' MV
Evidenced by share warrants.
•
Memo entry only.
•
Entry only when rights are exercised or recalled.
ACCOUNTING FOR
STOCK RIGHTS
•
If recalled, consideration paid is debited to SP
•
No entry if expired but not recalled. (Memo Entry only)
WARRANTS
SHARE
WARRANTS
▪
▪
Certificates that entitle holder to acquire shares
Issued in conjunction with ff issuances:
a) Stock rights – preemptive right
b) Detachable warrants with other securities
c) Share options to employees - additional compensation.
BONDS WITH DETACHABLE WARRANTS
• Similar w/ issuance of convertible bonds, when
bonds are issued with DW, entity issued
compound instrument having 2 components:
(1)
(2)
Financial liability for bonds
Equity instrument for DW
➔ Accounted Separately
PS WITH DETACHABLE WARRANTS
• Similarly with issuance of Convertible PS to OS
• Entity issued only 1 type of instrument -equity instrument, but different classes.
• DW NOT embedded derivative but standalone instrument that accounted separately
1. FV on issuance date.
Allocation of
2. Intrinsic value of warrants = (FV of OS – Exercise Price)
issue price:
➢ Any excess of issue price is allocated to PS.
Issuance
STOCK RIGHTS
Memo
Cash
Exercise
Expiration
Issuance
of PS
PS W/ SHARE
WARRABTS
EXERCISE
EXPIRED
Equity
#
FV
PS
W
1K
1K
110
10
SC
SP (If any)
Mana
Total
FV
110K
10K
120K
Allocate
110/120
10/120
Cash (Issue Price)
PS Capital (At Par Value)
SP- PS (IP of PS – Par Value)
SP-WO (IP of warrants)
135K
Cash (# of OS x Exercise Price)
SP-WO
OS (At par)
SP- OS (Squeezed)
SP-WO
SP- OS
35K
11.25
123,750
11,250
135,000
100K
23.75
11.25
25K
21.25
11.25
11.25
DONATED CAPITAL
•
•
Gifts received by corporation
from nonreciprocal transactions.
Part of SHARE PREMIUM
From Shareholders
From Government
Credited to SP.
Government grants
DONATIONS FROM SHAREHOLDERS MAY BE IN THE FORM OF:
CASH
➔ Recognized at amount of cash received or receivable
NCA
➔ Recognized at FV of NCA
➔ Initially recorded through memo entry.
▪ DC is recognized only when shares are reissued. (No asset
ENTITY'S OWN
generated from donated shares until reissued.)
SHARES
▪ If shares are not resold, entity should effect formal
reduction of authorized capital by retiring shares received
Upon Receipt
of Donation
Upon Sale
(Reissuance)
ASSET
Asset (FV)
Donated Capital
ENTITY’S OWN SHARE
Memo
↓ Outstanding shares.
Cash
Loss (if any)
Asset
Gain (if any)
Cash
Donated Capital
QUASI-REORGANIZATION
ELIMINATE DEFICIT
(NEGATIVE RE) BY:
1) Revaluation of NCA
2) Restatement of invested capital (Recapitalization)
After Quasi-Reorganization:
REVALUATION
RECAPITALIZATION
REVALUING NCA:
Must have a zero balance in RE
Account used to wipe-out Deficit
Revaluation Surplus
Share Premium
• Entity needs to appraise value of NCA
• When writing down values → Add’l deficit may arise
• Result of RS (PPE & IA) will be used to offset deficit of RE.
• Establish Additional Share Premium that will be used in
capital restructuring or quasi-reorganization.
RECAPITALIZATION:
WAYS
(NO effect
to she)
a)
b)
c)
Change in par/stated value
Par to no par share or vice versa
Share Split (Up & Down)
1. Write-down of assets to FV or NRV
2. Creating enough SP to absorb deficit
3. Cancellation of resulting deficit against SP
•
Amount of transfer is limited only to amount of deficit. Just to ZERO out.
RS
Upward
RE
REVALUATION
RE
Downward
Acc. Dep /Allow for Inv. WD
SC, P100 par
Recapitalization
SC, P50 par
(Reduce Par)
RECAPITALIZATION
SP
Cancellation of
SP
deficit
RE
BOOK VALUE PER SHARE
Peso equity in corporate capital of each capital share.
•
1 CLASS:
BV per OS =
SHE
# Outstanding Shares
2 CLASSES:
Total SHE
(-) Preference SHE
Ordinary SHE
•
•
Gross of Subscription Receivable
(Don’t deduct, if net, add back)
Preference Share Capital (at par)
Liquidation premium = (Liq. price - Par) x No. of PS
Cumulative PS (Dividend in arrears)
Noncumulative PS (Current year only)
Share in "Excess over par" (participating)
PREFERENCE SHE
Dividends in arrears = Undeclared dividends in prior years + current year
If dividends paid already, not added anymore
BV per PS =
Preference SHE
# Outstanding PS
Non-Cumulative
Cumulative
Non-Participating
Participating
Ordinary SHE
; BV per OS = # Outstanding OS
• Current year dividend only (Undeclared Div-Forfeited)
• Undeclared div. accumulate until paid (Dividend in Arrears)
• Fixed Rate dividends
• Fixed Rate + Excess
➔ Before participation, OS must receive div. = (% PSD x Par OS)
IN-EXCESS OF
PAR
PARTICIPATING PS:
Balances
Pxx
PS Liquidation Premium
(xx)
PS Dividend
(xx)
OS Basic Dividend
(xx)
Balance – Allocated based on SC (Par)
Pxx
Total
÷ Outstanding Shares
Book Value per Share
NON-PARTICIPATING PS
Balances
Pxx
PS Liquidation Premium
(xx)
PS Dividend
(xx)
Balance – To OS only
Pxx
Total
÷ Outstanding Shares
Book Value per Share
Liq. Premium
OS Dividend
PARTIAL PART:
Call Price
Treasury Shares
Subscrip. Rec.
PSC
OSC
Pxx
xx
xx
Pxx
xx
Pxx
xx
Pxx
Pxx
xx
xx
Pxx
xx
Pxx
xx
xx
Pxx
xx
Pxx
Pxx
xx
Pxx
xx
Pxx
= (Liquidation Value -Par) x Outstanding PS
= (PS % x OS Par Value x OSO) → If 2 PS Participating, use lower rate
Participation = Par Value PS x (% Participation - % Fixed PSD)
Ignored. (Amount paid to PS holders during lifetime of Corp)
OSC
Treat “As if retired”
SP (If RC > OIP)
➔ Deduction in SC
TS
➔ ± SP
SP (If RC < OIP)
Treat as Asset, thus NOT deducted to Subscribed SC
Share-based Compensation
EQUITY-SETTLED
Share Options
(↑ Equity)
CASH-SETTLED
Share Appreciation Rights
(↑ Liability)
SALARY
EXPENSE
VEST
IMMEDIATELY
DO NOT VEST
VESTING CONDITION
SERVICE CONDITION
1) Service
ConditionRender
service
over
specified period of time
• Pays by issuing its shares
• Share Premium Account
• Obligation to pay cash at amount
based on FV of own shares
At grant date (Y1):
Full (100%) + ↑ in equity,
Allocate over vesting period
Without condition
(Exercisable immediately)
With condition
1)
2)
PERFORMANCE CONDITION
Service condition - render service
Specified performance target(s)
a. Growth in profit (Nonmarket condition)
b. Increase in share price (Market condition)
✘ Estimating FV of SO at measurement date
✓ Estimating No. of SO that will eventually vest.
Considered
when:
FV of options
Determined at date they were granted.
Determined FV
Charged to SCI equally over VP.
Adjustments
To reflect best estimate of # of SO that will vest.
SHE
Increased by an amount equal to SCI charge.
✓ No subsequent adjustment to equity.
✓ Transfer from equity to another equity.
Non-exercise of SO
after vesting date
NonEmployees
1.
2.
3.
Measurement
FV of G/S
FV of equity (SO)
Par Value
1.
FV of Equity (SO)
2.
Intrinsic value
Employees
Measurement Date
Date entity receives G/S
Grant date
(Constant; not adjusted)
Every Dec. 31
(Updated every yr,
until expiration of SO)
Regardless whether VP
already ends, still need
to update (record
Expense) until
expiration of SO
INTRINSIC VALUE = FV of shares - subscription price
= Market Price - Option Price
PERFORMANCE TARGETS:
Considered
when:
FV estimates
Compensation
expense
VP, Determined:
# of employees
entitle to SO:
Non-Attainment
of Vesting
Condition
MARKET CONDITION
Est. FV of shares or SO at
measurement date.
NOT revised irrespective outcome.
Recognized even if market condition
is NOT satisfied and SO do NOT vest.
Grant date -NOT revised.
NON-MARKET CONDITION
Est. No. of SO expected to vest.
Revised for new info -Prospectively
Recognized in prior yrs – Not restated
Grant date- May be revised
Estimated at end of reporting period.
-
Ignored, continue to recognize CE
for equity instrument granted
Discontinue CE for resigned employee
✓ Removes SO Outstanding
✓ Reclassify to another equity
→ “SP forfeited options”
Original Number of employees
Less: Total Employees who left
Est. Employees expected to leave - current
Total employees entitled for the benefit
Multiply: Share options per employee*
Total share options
Multiply: Fair value or intrinsic value
Total value of the compensation
Multiply by: Ratio (ex. 3 years vesting period)
Cumulative Salaries expense
Less: Cumulative compensation in previous years
Salaries expense during the year
Y1
Y2
Y3
Y1
xx
-xx
-xx
xx
xx
xx
xx
xx
1/3
xx
xx
Y2
xx
-xx
-xx
xx
xx
xx
xx
xx
2/3
xx
-xx
xx
Y3
xx
-xx
-xx
xx
xx
xx
xx
xx
3/3
xx
-xx
xx
{ [200 x (300-20-10)] P50 } x 1/3= 900,000
{ [200 x (300-20-8-32)] P50 } x 2/3= 1,600,000-900K=700,000
{ [200 x (300-20-8-25)] P50 } x 3/3 = 2,470,000-1,6M= 870,000
Original employees - Actual employees left - (-) Est. employees expected to leave
SHARE APPRECIATION RIGHTS (CASH-BASED)
G/S & Liability:
➔ Measured at FV of liability
Until Liability is Settled
➔ Remeasure FV of liability at end & settlement date
Changes in FV
➔ P/L for the period
If SAR not vest until
➔ Recognize services received, and liability to pay,
completed period of service
as employees render service during that period
CE & liability recorded periodically during VP
Paid to employees on exercise of SAR
1)
2)
➔
FV of SARs -every year end
IV
IV of SARs at of exercise.
Liability Bal. date of payment < Intrinsic Value (Cash Payment) = Additional CE
Liability Bal. date of payment > Intrinsic Value (Cash Payment) = Credit to RE
SO- EQUITY BASED
SAR- CASH-BASED
Memo Entry
Memo Entry
Salary Expense
Salary Expense
SP-SO
Salary Payable
Cumulative
Cash (# Shares x Exercise Price)
Salary Payable
amount
Exercise of
SP-SO (Total amount recorded)
Cash
SO/SAR
SC (# Shares x Par)
SP (Balancing Figure)
•
NET SP = SP credited – SP,SO debited
•
“Liability” → Cumulative amount ; “Expense” → Current amount
MODIFICATION FROM CASH-SETTLED TO EQUITY-SETTLED
•
Measured: FV of equity at modification date and recognized immediately in equity.
•
Liability for cash-settled as of modification date is derecognized.
FV of SO/SAR
= # of Rights x FV @ Modif x 2/3
(-) CV of liability
= Cumulative amount of CE
Increase (Decrease) in CE
+ CE, year of modification
Total Expense for the year
CASH AND SHARE ALTERNATIVE
Employer
• Entity's recognition is either equity or cash settled
Right to Choose
between S/C
Employee
• Counterparty has right to receive S/C, but not both
Grant date
Accrual of
Salary every yr
Entity deemed issued
compound instrument
Liability - obligation to pay cash
Equity - obligation to issue shares
➢ FV of SARs @ grant
➢ Residual amount
Earnings Per Share
➔ Required for publicly traded OS.
Profit or loss (After tax)
(-) Declared Non-cumulative PS
(-) Declared or Undeclared Cumulative PS (Current period only)
(-) Repurchased PS (FV paid > CV of PS repurchased)
+ Repurchased PS (FV paid < CV of PS repurchased)
(-) Converted PS (FV of OS or consideration paid > FV of OS issuable under orig conv)
+ Converted PS (FV of OS or consideration paid < FV of OS issuable under orig conv)
Profit or Loss Attributable to Ordinary Shareholders
PS
REDEMPTION/
REPURCHASE
PS capital
SP-PS
Total CV of PS
(-) Redemption Price
Income (Loss)
“PS Premium payable
upon redemption”
➔
➔
At LOSS
PS capital
SP-PS
RE
Cash
At GAIN
PS capital
SP-PS
Cash
SP-PS
Loss on Redemption (DR: RE)
Deduction to Net Income
If there is a significant change in
OS outstanding during the year:
Share split/dividend after the
year but PRIOR to issuance of FS
If AFTER issuance of FS
➔
➔
➔
Average OS outstanding should be
used as denominator in computing EPS.
Retrospective. As if occurred beginning
of earliest period presented.
Recognized only in the Comparative I/S
SHARE RIGHTS/RIGHTS ISSUE:
▪
Exercise price is less than FV of shares
▪
Rights issue include a BONUS ELEMENT (Shares issued for no consideration)
▪
Adjust # of shares outstanding before exercise of rights for Bonus element
▪
If rights is still existing, treat it as if Retrospective
MV of share right-on
▪
Adjustment factor =
MV of share ex-right
If computing for two consecutive years:
➔ Beginning Outstanding shares of 2nd year is computed based on actual
outstanding shares NOT on weighted OS last year.
MULTIPLE POTENTIAL OS:
➔ Rank from Most Dilutive to Least Dilutive
▪
Most Dilutive - Least Incremental EPS
▪
Least Dilutive – Highest incremental EPS
➔ Shares Options → always Rank 1 because zero numerator
Convertible PS
Incremental EPS =
After tax Interest Expense
# of Potential OS
Convertible Bonds
Incremental EPS =
Preference dividends
# of Potential OS
Options & Warrants
Most dilutive since no incremental EPS
If BEPS > DEPS = Then DPES is Equal to BEPS
BASIC EARNINGS PER SHARE: “Actual” conversion & exercise
= Weighted Average Number of OS Outstanding
Outstanding
Shares
= Issued + Subscribed – Treasury
+ ACTUAL Conversion of Convertible PS into OS
Adjustments:
1) Share Split
Also
Retrospective
2) Bonus Issue
affects TS
➔
➔
Lowest possible EPS
“As if” Approach
DILUTED
EPS
= (NI – Annual PS Dividends)
= Fixed 1 year div only (Ignore actual amt paid)
= No. of PS x Par x % Fixed DR
▪ Cumulative – Declared/not
▪ Noncumulative – Declared
▪ If Redeemable – No deduction
Profit or loss attributable to ordinary shareholders
BASIC EPS
DILUTED EARNINGS PER SHARE: “As if” conversion & exercise
SHOULD ALWAYS be LOWER than BEPS
At the START of the year or date of Issuance,
❖ “As if” Convertible PS or Bonds have been converted
whichever comes later. (Regardless actual
❖ "As if" Options or warrants have been exercised.
conversion or exercise.)
Share Split/
PoLATOS + Avoidable after tax interest expense on convertible bonds
= WANOSO + Incremental shares from conversion/exercise of potential OS
POTENTIAL OS
1)
CONVERTIBLE PS
2)
CONVERTIBLE BONDS
3)
OPTIONS & WARRANTS
(AMP > EP)
NUMERATOR
PSD not deducted
(Added back)
DENOMINATOR
No. of Shares x
n
12
+ WANOSO
•
•
If issued during the year (Not Jan1)
If converted during the year (Jan 1- Date of Conversion)
+ Interest Expense,
net of tax
+ WANOSO
➢
➢
If actually converted → NOT average anymore.
Bonus Issue/Share Split = Affects Incremental Shares
✘
+ WANOSO
(Shares assumed issued
w/o consideration)
If PS NONCONVERTIBLE → PSD deducted
Interest Expense =Face Value of BP x % x ( 1- Tax rate) x
= Shares x (
➢
➢
Ave. MP - Issue Price
Ave. MP
)
If MP < IP = No Incremental shares
If Put Option: Exercise Price > Ave. MP
• Potential OS = Shares x (
n
12
If issued during the year (Not Jan1)
If actually converted during the yr
EP - MP
MP
)
Statement of Cash Flows
OPERATING
INVESTING
Current
Current
A
Non-current
L
Non-current
E
FINANCING
FUNCTION
Operating
o
o
o
Investing
o
o
Financing
o
PRESENTATION
Principal revenue-producing activities.
Transactions that enter into determination of P/L.
➢
Collection of Income; Payment of Expense
Acquisition & disposal of: PPE, IA, Short & long-term
investments. Except:
Trading Investment- Operating
Cash equivalents (No effect of CF)
Making/Collecting loan (If not financial Institution)
Activities that result to changes in size and composition of
contributed equity & borrowings .
Cash Receipts/Payments connected to:
✓
Non-Trade Liabilities (Bonds, Lease Liab)
✓
Equity Transactions (SC;TS; Dividends)
Direct -encouraged
Indirect– practiced
Direct
Direct
OPERATING ACTIVITIES
Sale/render of G/S
Royalties, fees, commissions and other revenue
Payments to suppliers for G/S
Payments to and on behalf of employees
Payments of insurance entity for premium & claim, annuities and benefit
Payments or refunds of income taxes
Contracts held for dealing or trading purposes.
Purchase & sale of dealing or trading securities
Advances and loans made by financial institutions
INVESTING ACTIVITIES
a) Acquire/sale PPE, intangibles and other long-term assets
b) Acquire/sale equity or debt instruments of other entities & interests in JV
c) Advances & loans made to other parties
d) Receipts from repayment of advances & loans made to other parties
e) Futures/forward/option/swap contracts except when contracts are held for trading
FINANCING ACTIVITIES
a) Issuing shares or other equity instruments
b) Acquire or redeem entity's shares
c) Issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings
d) Cash repayments of amounts borrowed
e) Cash payments by lessee for reduction of outstanding liability to finance lease.
a)
b)
c)
d)
e)
f)
g)
h)
i)
TAXES,
INTEREST
DIVIDENDS:
INTEREST
DIVIDEND
TAX
•
•
•
Received
Paid
Received
Paid
Received
Paid
DEFAULT
Operating
Operating
Operating
Financing
Operating
Operating
ALTERNATIVE
Investing
Financing or Investing*
Investing
Operating
Financing/Investing if identified
For financial institution (banks): Interest and dividends - Operating
*Interest paid: Investing if capitalized as part of an asset (borrowing cost).
Dividend Declared – Disclosure only
DIRECT
METHOD
•
INDIRECT
METHOD
✓ From P/L to net CF from operating activities
P/Ls is adjusted for effects of:
✓ Collection of income & payment of expense if not yet included in P/L
✓ Remove Noncash income & expense
➔
Depreciation, provisions, deferred taxes, unrealized foreign
currency G/L, and undistributed profits of associates
✓ Remove G/L on:
❖ Disposal of PPE, IA and Investments (Investing)
❖ Early settlement of nontrade liabilities (Financing)
✓ Changes in inventories and operating receivable & payable
✓ Any deferrals or accruals of past or future operating cash practice
receipts or payment
✓ All other items for which cash effects are investing or financing
Show in detail the major classes of gross cash receipts & payments
OTHER ITEMS:
Finance lease liability
Finance Lease Receivable
Loan Receivable
Loan payable
Sale of AR
Pledging of AR
Principal payment
Interest payment
Principal collection
Interest collection
Principal collection
Interest collection
Principal payment
Interest payment
Proceeds from sale
PART OF CF FROM
Outflow -Financing
Outflow - Operating
Inflow - Investing
Inflow - Operating
Inflow - Investing
Inflow - Operating
Outflow -Financing
Outflow - Operating
Inflow - Operating
In/Out -Financing
INVESTMENT IN ASSOCIATE & JV
OPERATING ACTIVITIES
DIRECT
INDIRECT
Cash dividend received
+
+ NI
Share in NI
(-) NI
✘
•
Acquisition and sale of Inv. in Associate or JV = Investing activity.
TRADING SECURITIES OR FVTPL:
DIRECT
+
+
INDIRECT
Cash dividend received
Total increase in /S or FVTPL
(-) NI
Total decrease in T/S or FVTPL
+ NI
Unrealized gain
✘
Unrealized loss
✘
Realized gain on sale
✘
Realized loss on sale
✘
•
Unrealized G/L → ignored since already taken up in total ↑ ↓ in FVTPL.
•
Realized G/L on sale → is ignored since already included in NI.
DEBT
EQUITY*
G(L) ON SALE OF
Loss on sale
+
FVTOCI UNDER
✘
INDIRECT METHOD:
Gain on sale
(-)
✘
Cash dividend received
Cash acquisition of T/S or FVTPL
Cash sale of T/S or FVTPL
Cash Accrual Basis
INCOME RECOGNIZED
EXPENSE RECOGNIZED
✓ AR/AP
✓ Accrued/Deferred Inc.
✓ Accrued/Prepaid Exp.
Sales
Purchase
Other
Income
Expense
DE
BDE
CASH BASIS
Cash is received
Cash is paid
ACCRUAL BASIS
Earned
Incurred
Cash Basis
Accrual Basis
✓ Cash Sales
✓ Cash Sales
✓ Collection of Trade Receivable
✓ Credit Sales (On Account)
✓ Advances from Customers
✓ Cash purchase
✓ Cash purchases
✓ Payment of Trade payable
✓ Purchases on Account
✓ Advances to supplier
✓ Collections
✓ Earned
✓ Deferred Income
✓ Accrued Income
✓ Paid Expenses
✓ Expenses Incurred
✓ Prepaid Expenses
✓ Accrued Expenses
Provided normally
Provided normally
Not recognized
DA are treated as BDE
RECEIVABLE
Beg. Balance
Collection inc. Recov
Sales on Account
Sales Returns*
Recoveries**
Sales Allowances
Sales Discount
Write off
End. Balance
PAYABLE
Payments (cash)
Beg. Balance
Purchases Returns*
Purchases
on
Purchases Allow
account (accrual)
Purchase Discount
End. Balance
*Excluding Refunded PR from customers
*Excluding Refunded SR to customers
**Included only if Collections includes said
recovery
ACCRUED REVENUE
Beg. Balance Collections
Recog. Income (Cash basis)
(Accrual basis)
End. Balance
PREPAID EXPENSE
Beg. Balance Recog. Expense
Payment of Cash (Accrual basis)
(Cash basis)
End. Balance
ALLOWANCE FOR DA
Written off
Beg. Balance
DA Expense
Recoveries
End. Balance
UNEARNED REVENUE
Recog. Income Beg. Balance
(Accrual basis)
Collections
(Cash basis)
End. Balance
ACCRUED EXPENSE
Payment of Cash Beg. Balance
(Cash basis)
Recog. Expense
(Accrual basis)
End. Balance
ACCUMULATED DEPRECIATION
AD of Derecog. Asset
Beg. Balance
DE
End. Balance
CAPITAL
Beg.
Add’l Investment
Net Income
End. Balance
Withdrawal
Net Loss
RE
Dividends declared
Prior Period Error
Net Loss
End. Balance
Beg. Balance
Prior Period Error
Net Income
SFP/ NET ASSETS
Increase in Assets
Decrease in Assets
Decrease in liabilities
Increase in liabilities
Dividends declared
Increase in SC
Net Loss
Increase in SP
Net Income
xx xx
SINGLE-ENTRY SYSTEM
•
•
•
•
•
•
•
System of bookkeeping, only cash & personal accounts are recognized.
Simple and economical.
Accounting record will be incomplete; double entry automatic check (DR=CR) is
missing.
Accounting equation is disregarded.
Usually, one effect of each transaction is recognized.
Data needed for preparation of FS is incomplete
NI is determined by reconstructing revenue & expenses or comparing Beg & End
capital.
DOUBLE ENTRY
Principles
Involved
Transactions/
Events recorded
Accounts
recognized
SINGLE ENTRY
Recognizes only one phase
of transactions.
Records only transactions involving
cash and personal accounts.
Duality & Equality
Records every type of
accountable events
Assets, liabilities, equity,
revenues and expenses
Cash, AR, AP, equity
Books used
Journal & ledger
FS preparation
Systematic processing data;
Income (loss) is computed using
matching principle.
CAPITAL
MAINTENANCE
APPROACH:
Dividends
Net Loss
Prior Period Error
RE, end
Capital/RE end
Capital/RE beg
Increase (Decrease)
+ Withdrawals
+ Dividends
(-) Add’l Investments
Net Income (Loss)
RE
RE, beg
Net Income
Prior Period Error
✓
Day Book/ General Journal
✓
Cash Book
✓
Debtor & Creditor’s Ledger
Income (loss) and statement of assets
and liabilities are prepared using
analysis or indirect approach.
Pxx
(xx)
Pxx
xx
xx
(xx)
Pxx
∆CC + ∆RE = ∆Asset - ∆Liability
Accounting Concepts
PROCESS:
Recording
Classifying
Summarizing
REVERSING
ENTRIES
✓
✓
✓
ADJUSTING ENTRIES:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Identifying/analyzing transactions
Journalizing
Posting ledger
Unadjusted trial balance (TB)
Adjusting Entries
Adjusted Trial Balance
Financial Statements
Closing Entries
Post-closing Trial Balance
Reversing Entries -optional
Accrued Income / Accrued Expense
Prepayments (Expense Method)
Deferrals (Income Method)
Financial Statements
Statement of Financial Position:
Refinance or Roll over an obligation for at Least 12 months under existing loan
Breaches a provision of long-term loan - liability becomes payable on demand
Covenants
Entity has already complied with at
the end of the reporting period
Entity has NOT yet complied with
at the end of the reporting period
Entity must complied with AFTER
the end of the reporting period
➔ Non-current liability
➔ Current liability
➔ NOT affect classification of
liability at end of period
ASSETS
Cash and cash equivalents
Trade receivables
Prepaid Expenses
Non-trade receivables
Inventories
FA at FVPL
FA at FOCI
FA at Amortized cost
PPE
Right-of-use asset
Investment property
Intangible assets
Investments - equity method
Deferred tax assets
Assets for current tax
Biological assets
NCAHFS
LIABILITIES
Trade Payables
Non-trade payables
Provisions
Financial liabilities
Current Tax Liability
Liabilities
in
disposal
classified as HFS
Deferred tax liabilities
Finance Lease liability
EQUITY
CURRENT
✔
✔
✔
w/n 12 months
✔
✔
w/n 12 months
w/n 12 months
✔
w/n 12 months
✔
CURRENT
✔
w/n 12 months
w/n 12 months
w/n 12 months
✔
groups
NON-CURRENT
> 12 months
> 12 months
> 12 months
✔
✔
✔
✔
✔
✔
> 12 months
NON-CURRENT
> 12 months
> 12 months
> 12 months
✔
w/n 12 months
✔
> 12 months
• Residual interest in the assets after deducting all liabilities.
• Account name depends on the form of organization:
✓ Sole proprietorship → Owner’s equity
✓ Partnership
→ Partner’s equity
✓ Corporation
→ Stockholders’ equity
• Includes: Contributed capital & earned capital
Statement of Comprehensive Income
Functional Presentation:
Net sales
Cost of goods sold
Gross profit
Investment income
Other income
Total income
Selling expense
Administrative expense
Finance cost
Other expense
Income before tax
Income tax expense
Income from continuing operation
Income from discontinued operation
Net income
Other comprehensive income
Reclassified to P/L
Reclassified to RE
Total comprehensive income
Natural Presentation:
Net sales
Other income
Investment income
Total income
Purchase of inventory
Increase in inventory
COGS
Decrease in inventory
Depreciation
Doubtful accounts
Salaries expense
Finance cost
Income before tax
Income tax expense
Income from continuing operation
Income from discontinued operation
Net income
Other comprehensive income
Reclassified to P/L
Reclassified to RE
Total comprehensive income
PROFIT OR LOSS
✓ Revenue, presenting separately interest revenue and insurance revenue
✓ G/L - derecognition of financial assets measured at amortized cost
✓ Insurance service expenses from contracts issued within the scope of IFRS 17
✓ Income or expenses from reinsurance contracts held
✓ Finance costs
✓ Impairment losses (+ reversals of impairment losses or impairment gains)
✓ insurance finance income or expenses from contracts issued
✓ finance income or expenses from reinsurance contracts held
✓ Share of P/L of associates and joint ventures accounted for using the equity method
✓ if FA is reclassified out of amortized cost measurement category so that it is measured
at FVTPL, any G/L arising from difference between the previous amortized cost of the
FA and its FV at the reclassification date
✓ if FA is reclassified out of FVTOCI measurement category so that it is measured at
FVTPL, any cumulative G/L previously recognized in OCI that is reclassified to P/L
✓ Tax expense
✓ Single amount for the total of discontinued operations
OTHER COMPREHENSIVE INCOME
✓ Unrealized G/L of Debt investments at FVTOCI
✓ Unrealized G/L - derivative contracts as cash flow hedge
✓ G/L on Translation of foreign operations
Reclassified
✓ Difference between total insurance finance income/expense for the
to P/L:
period and systematic allocation of expected total insurance finance
income/expense over the duration of the group of insurance
contracts
Reclassified
to RE:
✓
✓
✓
✓
Net Remeasurement G/L - Defined benefit plans (Actuarial)
Unrealized G/L of Equity investments at FVTOCI
G/L on credit risk for financial liabilities at FVTPL
Change in Revaluation Surplus
Events After Reporting Period
ADJUSTING EVENTS (TYPE I)
❖
❖
Provide evidence of conditions that
existed AT END of reporting period.
Require adjustments of amounts in FS
Has Entry 12/31 (Reporting date)
a.
b.
c.
d.
e.
f.
Settlement after reporting period of court
case that confirms that entity has present
obligation at the end of reporting period.
Receipt of information after reporting
period indicating that an asset was
impaired at the end of reporting period.
i. Bankruptcy of customer occurs after
reporting period indicate that CV of
receivable at the end of reporting
period is impaired. -Doubtful
accounts
ii. Sale of inventories after reporting
period may give evidence to their
NRV at end of reporting period.
Determination after reporting period of
cost of asset purchased, or proceeds from
asset sold, before the end of reporting
period.
Determination after reporting period of
amount of profit-sharing or bonus
payments, if the entity had a present legal
or constructive obligation at the end of
reporting period to make such payments.
Discovery of fraud or errors that indicate
that FS incorrect.
Events that indicate that going concern
assumption in relation to the whole or part
of the entity is not appropriate
Pre-existing condition
NON-ADJUSTING EVENTS (TYPE II)
❖ Events indicative of conditions
that arose AFTER
reporting
period.
❖ NO adjustments; Disclosed if
material.
NO Entry 12/31 (Reporting date)
a. Changes in fair values, foreign
exchange rates, interest rates or
market prices after the reporting
period.
b. Casualty losses (fire, storm, or
earthquake).
c. Litigation arising solely from
events occurring after reporting
period.
d. Significant
commitments
or
contingent liabilities entered after
the reporting period, e.g.,
significant guarantees.
e. Major and potential ordinary
share transactions
f.
Major business combination or
disposal of subsidiary
g. Announcing/commencing
the
implementation
of
major
restructuring
h. Announcing a plan to discontinue
operation after reporting period.
i.
Change in tax rate or laws enacted
after reporting period.
j.
Major purchase or disposal of
assets, classification of assets as
held for sale or expropriation of
major assets by government
Subsequent Event
ADJUSTING
BS date
NONADJUSTING
FS issuance date
Pre-existing condition Subsequent Event
BS date
FS issuance date
Related Party Disclosures
RELATED
PARTY
❖
❖
❖
❖
❖
❖
Party that has the ability to
(a) Control the other party
(b) Exercise significant influence over the other party in making
financial and operating decisions
(c) Related party and another entity- subject to joint control
Joint Venture
Close family members – Spouse, children, children’s spouse, dependents
Key management personnel- BOD, Executive (CEO,CFO), compensation
Affiliates – Parents & Subsidiaries
Post employment benefit plan- BDO asset management
Associate- Investor & Associates
DISCLOSURES:
RELATIONSHIP
BETWEEN PARENT
& SUSBIDIARIES
MANAGEMENT
COMPENSATION
RELATED PARTY
TRANSACTIONS
Name of Parent entity
Ultimate Controlling party
Next most senior parent that produces FS for public use
Short term employee benefit- Wages and salaries
Post employment benefit- Defined Benefit/Contribution
Plans
✓ Other long term benefit- Sabbatical leave
✓ Termination benefits
✓ Share based payment benefits- Share options/App Rights
✓ Nature of relationship
✓ Information about transactions and outstanding balance
o Amount of transactions
o Outstanding balances
o Allowance for DA
o Bad debt expense
✓
✓
✓
✓
✓
Accounting Policies / Estimates
Hierarchy of guidance when selecting accounting policies:
1) Standard from IFRS if it specifically relates to the transaction
2) Requirements in IFRS dealing with similar and related issue
3) Definitions, recognition, measurement concepts in Conceptual Framework
4) Most recent pronouncements of other standard setting bodies
ACCOUNTING POLICY
Principles / Measurement basis
Principles, bases, conventions, rules and
practices applied in Preparing FS
ACCOUNTING ESTIMATE
Amounts/Patterns
Uncertainties inherent in business
activities that many items cannot be
measured with accuracy but only
estimated.
Currently & Prospectively
Estimation of Doubtful Account
Estimation of Warranty Cost
Net Realizable Value of Inventory
PPE methods (SL, SYD, DB)
Retrospectively (Retroactively)
Change in Inventory Method
✓
(FIFO → WAVE)
✓
✓ PPE (Cost → Revaluation)
✓
✓ IP (Cost → FV)
✓
✓ ∆ in business model (BMT, CFC)
✓ ∆ in recognizing revenues for LTCC
(POC → cost recovery)
Difficult to distinguish a change → Apply Accounting estimate + disclosure
✓
Error Correction
COGS
Beginning Inv.
+ Net Purchases
CGAS
(-) Ending Inv.
COGS
ERRORS NI
SALES
- Over
COGS
- Over
EXPENSES - Over
ERROR
O
U
O
U
U
O
U
O
O
U
U
O
↑=
↑Direct ↓Inverse
↑=
↓Inverse ↑Direct
EFFECT IN NI
Over
Under
Under
ERRORS WORKING CAPITAL
Current Assets - Over
Current Liabilities - Over
Purchases
Purchases
Ending Inventory
Ending Inventory
Accrued Expenses
Accrued Expenses
Accrued Income
Accrued Income
Prepaid Expense
Prepaid Expense
Unearned Income
Unearned Income
NI
RELATIONSHIP
DIRECT
INVERSE
INVERSE
EFFECT
Over
Under
INCOME
EXPENSES
RELATIONSHIP
DIRECT
INVERSE
EFFECT ON PROFIT
Current Year
Next year
U
O
O
U
O
U
U
O
O
U
U
O
U
O
O
U
O
U
U
O
O
U
U
O
PURCHASES
ENDING INVENTORY
ACCRUED EXPENSES
ACCRUED INCOME
PREPAID EXPENSES (DEFERRED EXPENSES)
UNEARNED INCOME (DEFERRED INCOME)
RELATIONSHIP ON PROFIT
(CURRENT YR)
Inverse
Direct
Inverse
Direct
Direct
Inverse
EFFECT TO PROFIT
Direct
Inverse
NCAHFS
Initial & Subsequent Measurement:
Carrying Amount
Lower = New CV of asset
FV- Costs to Sell*
*Excludes finance costs & income tax expense
LOWER:
1. Classification/Initial
2. Subsequently.
❌ Depreciation/Amortization
FV - CTS < CV = ✔️ Impairment
FV - CTS > CV = ❌ Impairment
Impairment loss
✔️ Current asset
Changes in
FV-CTS
↓
↑
+ Impairment loss
+ Gain on reversal
Recovery is limited only to cumulative
impairment
loss
previously
recognized.
NCA that CEASES TO BE CLASSIFIED AS HELD FOR SALE
LOWER
CV before it was classified as
held for sale
Recoverable amount at the date
of decision not to sell/ distribute.
Adjusted
for
depreciation,
amortization or revaluations that
would have been recognized had
asset not been classified as HFS
HIGHER
1. FV - costs of disposal
2. Value in use.
Value In Use- PV of estimated future
cash flows.
Lower of CV & RA > CV of Asset HFS = Gain on reclassification (Recovery)
Lower of CV & RA < CV of Asset HFS = Loss on reclassification
REVALUATED ASSET CLASSIFIED AS HELD FOR SALE
Revaluated to
Fair value immediately PRIOR to classification as HFS
Additional
= FV classification date - CV at that date.
Revaluation surplus
Cost of disposal at
Recognized as impairment loss
classification date
Deducted from asset held for sale.
CV
Subsequent
LOWER of:
year-end
FV -cost of disposal
FV, classification date
(-) CV, classification date
Add’l Revaluation Surplus
CV (Revalued Amt)
(-) FV-CTS
Impairment Loss
Equal to Cost of Disposal
Discontinued Operations
Component
(Segment)
✓ Major line of business
✓ Geographical area
✓ Subsidiary
✓ Available for immediate sale
✓ Operation/Cash flow will be eliminated
✓ Entity
will
not
have
continuing
involvement in operation after disposal
• Operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of entity.
Statement of Comprehensive Income
Revenues
Less: Expenses
Income before Tax
Less: Income Tax Expense
Income from continuing operations
Income from discontinued operations
Net Income
Pxx
(xx)
Pxx
(xx)
Pxx
xx
Pxx
NOTES TO FS:
Single
Post-tax P/L
Amount ±
Post-tax G/L on
▪ Remeasurement (CV vs. FVLCTS)
▪ Disposal of Asset
Operation Income (Loss) – whole year
Actual G (L) on Disposal
Estimated Disposal Loss - separation; relocation
Remeasurement G (L) of asset – CV > FVLCTS
Total Gain (Loss)
After Tax Rate ( 100% - Tax Rate)
Income from discontinued Operation
Whole Year
NOT prorated
Pxx
xx
(xx)
(xx)
Pxx(Pxx)
*%
Pxx
Tax Benefit – if loss – Total Loss x Tax Rate
Tax Expense – if Gain - Total Gain x Tax Rate
Statement of Financial Position
Assets
➢ CA
Liabilities
➢ CL
Separate
Statement of Cash Flow
▪ Separately presented on the face of
SCF or disclosed in the notes.
Operating Segments
QUANTITATIVE
CRITERIA:
(At least one)
QUALITATIVE
CRITERIA
OVERALL SIZE
TEST
AGGREGATION
CRITERIA
1) REVENUE
3) ASSETS
≥ 10% of Total revenue, internal & external
a) Total profit
≥ 10% of HIGHER in absolute amount
b) Total loss
≥ 10% of Total assets
OS that do not meet
quantitative thresholds:
Considered reportable/separately disclosed, if management believes
that information about segment would be useful to users of FS.
2) PROFIT OR LOSS
REPORTABLE Segments:
TOTAL EXTERNAL REVENUE
IF below 75%
1.
2.
3.
4.
5.
≥ 75% of Total EXTERNAL revenue
➢
Nature of products / services
Nature of process
Type or class of customer
Marketing methods (Distribution)
Nature of regulatory environment
Additional OS shall be identified as reportable
segments until at least 75% is achieved.
Majority (3/5)
Major customers → If its external revenue is ≥10% of entity’s total EXTERNAL revenues
Interim Reporting
Who/Which
Mandate
None
Frequency
None
When
None
Recognition &
Measurement
Integral
Independent
SEC
Required
Publicly Listed Entities
Quarterly
w/n 45 days from end of
interim period
➔ Same accounting policies are used in interim reports
as those used in annual reports
Integral
Two views
VIEW
PAS 34
Encourage
Publicly Listed
Entities
Semi-Annual
w/n 60 days from
end of interim period
Independent
▪ Interim period is considered as an integral
part of the annual accounting period.
▪ Each interim period is considered a
discrete or separate accounting period.
TRANSACTION
Depreciation/Amortization
Year end bonuses
Income tax expense
Insurance Expense
Variable Expense
Write-down of Inventory / Reversal
Impairment Loss/Reversal
Dividend income
Gains/Losses
Fixed Expenses
Can be estimated?
Interim Financial Report
TREATMENT
Allocated
Recognized in FULL in interim
Period
Allocate
100% recognized in interim period they occue
Complete set of FS
Containing either
Set of condensed FS
Period for which interim FS are required to be presented:
Semi-annual interim on June 30, 2023
3rd quarter interim on Sept. 30, 2023
SFP
SCI
SCE
SCF
Current
06/30/23
06/30/23
06/30/23
06/30/23
Comparative
12/31/22
06/20/22
06/20/22
06/20/22
SFP
SCI
SCE
SCF
Current
09/30/23
09/30/23
09/30/23
09/30/23
09/30/23
Comparative
12/31/22
09/30/22
09/30/22
09/30/22
09/30/22
SME
=