CFAS ( Chapter 13-21) Conceptual Framework and Accounting Standard PDF

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MAPAYE, GLYDELL D.BSA – 201(CHAPTER 22-40)CHAPTER 221 biological assets, agricultural produce and harvest Living animals and living plants Is the harvested product of an entty’s biological assets Is the detachment of produce from a biological asset or the cessaton of a biological asset’s life pro...

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MAPAYE, GLYDELL D. BSA – 201 (CHAPTER 22-40)

CHAPTER 22 1.Define biological assets, agricultural produce and harvest  Living animals and living plants  Is the harvested product of an entty’s biological assets  Is the detachment of produce from a biological asset or the cessaton of a biological asset’s life processes 2.What is an agricultural actvity?  Is the management by an entty of the biological transformaton and harvest of biological assets for sale or for conversion into agricultural produce or into additonal biological assets 3.Explain biological transformaton.  Comprises the processes of growth, degeneraton, producton and procreaton that cause qualitatve or quanttatve changes in a biological asset. 4.Explain the recogniton of biological asset and agricultural produce A.The entty controls the asset as a result of past event B.It is probable that future economic benefits associated with the asset will flow to the entty C.The fair value or cost of the asset can be measured reliably. 5.Explain the measurement of biological asset.  At a Fair value less cost of disposal. 6.Explain the measurement of agricultural produce as it grows and once harvested.  At fair value less cost of disposal at the point of harvest. 7.Define bearer plant  Are used solely to grow agricultural produce over several periods. 8.Explain the treatment of bearer plants Accountng Standard 10 has been amended to include bearer plants as an item of PPE. Companies may deduct the value of land from the total estate development costs to determine the value of bearer plants. Such bearer plants would be required to be depreciated over their remaining useful life 9.Explain the treatment of bearer animals IAS 41 Agriculture sets out the accountng for agricultural actvity – the transformaton of biological assets (living plants and animals) into agricultural produce (harvested product of the entty's biological assets). The standard generally requires biological assets to be measured at fair value less costs to sell. 10.Explain the treatment of animal-related recreatonal actvites. The natural breeding that takes place is not a managed actvity and is incidental only to the main actvity of providing a recreatonal facility.

PROBLEM 22-1 Forester Company provided the following assets in a forest plantaton and farm: Freestanding trees 5,000,000 Land under trees

600,000

Roads in forest

300,000

Animals related to recreatonal actvites 1,500,000

1,000,000 Bearer plants

Bearer animals

2,000,000

Agricultural produce growing on bearer plants 800,000 Agricultural produce harvested

1,200,000

Plants with dual use

1,400,000

what total amount should be reported as biological assets?

a. 7,800,000 b. 7,200,000 c. 8,400,000 d. 9,200,000

2. What total amount should be included in property, plant and equipment?

a. 4,600,000 b. 3,400,000 c. 1,800,000

d. 4,200,000

Chapter 23 1. Explain the meaning of a provision  Existng liability of uncertain tming or uncertain amount. 2. What are the three conditons necessary for the recogniton a provision as a liability  The standard IAS sets 3 criteria for recognizing a provision: There must be a present obligaton as a result of a past event; The outflow of economic benefits to satsfy the obligaton must be probable 3. Define a legal obligaton and constructve obligaton  The liability may be a legal obligaton or a constructve obligaton. A constructve obligaton arises from the entty's actons, through which it has indicated to others that it will accept certain responsibilites, and as a result has created an expectaton that it will discharge those responsibilites 4. What is the measurement of a provision?  A provision is measured at the amount that the entty would ratonally pay to settle the obligaton at the end of the reportng period or to transfer it to a third party at that tme. Risks and uncertaintes are taken into account in measuring a provision. A provision is discounted to its present value 5. Discuss briefly each of the following in connecton with measurement of a provision A. Risk a and uncertaintes  The difference between risk and uncertainty can be drawn clearly on the following grounds: The risk is defined as the situaton of winning or losing something worthy. Uncertainty is a conditon where there is no knowledge about the future events. Risk can be measured and quantfied, through theoretcal models B. Present value of obligaton  The present value of a defined benefit obligaton is the present value, without deductng any plan assets, of expected future payments required to settle the obligaton resultng from employee service in the current and prior periods. C. Future events  That affect the amount required to settle an obligaton shall be reflected in the amount of a provision where there is a significant evidence that they will occur. D. Expected disposal of assets Gain from expected disposal of assets shall not be taken into account in measuring a provision. E. Reimbursements Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party. F. Change in provision

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Shall be reviewed at every end of the reportng period and adjustng to reflect the current best estmate. G. Use of provision Shall be used only for expenditures for which the provision was originally recognized. H. Future operatng losses Shall not be recognized for future operatng losses. I. Onerous contract The present obligaton under the contract shall be recognized and measured as a provision. Define a contngent liability A contngent liability is a liability that may occur depending on the outcome of an uncertain future event. A contngent liability has to be recorded if the contngency is likely and the amount of the liability can be reasonably estmated. Both GAAP and IFRS require companies to record contngent liabilites. Distnguish a contngent liability from a provision Provision liability reduces an asset's value because of a present obligaton arising out of a past event. Contngent liability is a potental liability that can occur at a future date due to events beyond a company's control. Explain the treatment of a contngent liability A contngent liability is a liability that may or may not happen. This means there is uncertainty about recording such a liability in the financial accounts. ... It is an obligaton that may possibly arise from the occurrence or the non-occurrence of a certain future event. Define a contngent asset A contngent asset is a potental economic benefit that is dependent on some future event(s) largely out of a company's control. ... Not knowing for certain whether these gains will materialize, or being able to determine their precise economic value, means these assets cannot be recorded on the balance sheet Explain the treatment of a contngent asset. A contngent asset becomes a realized asset recordable on the balance sheet when the realizaton of cash flows associated with it becomes relatvely certain. In this case, the asset is recognized in the period when the change in status occurs

PROBLEM 23-1

Eastern Company had several contingent liabilities on December 31, 2020. The auditor obtained the following brief description of each liability.

In May 2020, Eastern Company became involved in litigation. In December 2020, the court assessed a judgment for P1,600,000 against Eastern Company.

The entity is appealing the amount of the judgment. The entity's attorneys believed it is probable that the assessment can be reduced on appeal by 50%.

In July 2020, Pasig City brought action against Eastern Company for polluting the Pasig River with its wastenproducts.

It is probable that Pasig City will be successful but the amount of damages Bastern Company might have to pay should not exceed P1,500,000.

A personal injury liability suit for P500,000 was brought against Eastern Company in December 2020.

The management and legal counsel of Eastern Company concluded that it is not probable that Eastern Company will be responsible for damages and that P200,000 is the best estimate of the damages.

What total amount should be accrued as provision on December 31, 2020?

a. 2,000,000 b. 2,500,000 C. 3,100,000 d. 2,300,000

Chapter 24 1. Define a financial statement  Financial statements are written records that convey the business actvites and the financial performance of a company. 2. Define a financial asset  A financial asset is a liquid asset that gets its value from a contractual right or ownership claim 3. Give example of financial asset  Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets. Unlike land, property, commodites, or other tangible physical assets, financial assets do not necessarily have inherent physical worth or even a physical form. 4. Define a financial liability  Financial liability: any liability that is: a contractual obligaton: to deliver cash or another financial asset to another entty; or. to exchange financial assets or financial liabilites with another entty under conditons that are potentally unfavorable to the entty; 5. Give example of a financial liability 

Accounts payable, i.e. payments you owe your suppliers.

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Principal and interest on a bank loan that is due within the next year. Salaries and wages payable in the next year. Notes payable that are due within one year. Income taxes payable. Mortgages payable. Payroll taxes. Define an equity instrument An equity instrument is defined by IAS 32 as any contract that evidences a residual interest in the assets of an entty after deductng all of its liabilites What is the guideline in determining whether a financial instrument Is a financial liability or an equity instrument An instrument is a liability when the issuer is or can be required to deliver either cash or another financial asset to the holder. This is the critcal feature that distnguishes a liability from equity. An instrument is classified as equity when it represents a residual interest in the net assets of the issuer. Explain a redeemable preference share. Redeemable preference shares are hybrid securites, which generally combine debt and equity. Explain the accountng for a compound financial instrument A compound financial instrument, such as a convertble bond, is split into equity and liability components Explain the accountng for bonds payable issued with share warrants and convertble bonds. When the bonds are sold with share warrants, the bondholders are given the right to acquire shares of the issuing entty at a specified price at some future tme. Actually, when bonds are sold with share warrants two securites are sold - the bonds and the share warrants. PROBLEM 24-1 At the beginning of current year, Case Company issued P5.000,000 of 12% nonconvertble 5-year bonds at 103. In additon, each Pl,000 bond was issued with 30 detachable share warrants, each of which enttled the bondholder to purchase, for P50, one ordinary share of Case Company, par value. The quoted market value of each warrant was P4. The market value of the bonds ex-warrants at the tme of issuance is 95. 1.What is the carrying amount of the bonds payable? a. 5,000,000 b. 4,750,000 C. 5,150,000 d. 4,550,000

2. What amount of the proceeds from the bond issue should be recognized as an increase in shareholders equity? a. 600,000 b. 300,000 C. 200,000 d. 400,000

Chapter 25 1. What enttes are required to report deferred tax asset or liability ?  Every entty is required to engage in tax accountng. This includes individuals, corporatons, sole proprietorships, partnerships, and every variaton on these entty concepts 2. Explain accountng income and taxable income  Accountng income is the net profit before tax for a period, as reported in the profit and loss statement. Taxable income is the income on which income tax is payable, computed by applying provisions of the Income Tax Act, 1961 & Rules. 3. Explain permanent differences  Are item of revenue and expense which are included in either accountng income or taxable income but will never be included in the other. 4. Explain temporary differences Are items of income and expenses which are included in both accountng income and taxable income but at different tme periods. 5. Explain taxable temporary differences  Is the temporary difference that will result in future taxable amount in determining taxable income of future periods 6. Explain deductble temporary differences  A deductble temporary difference is a temporary difference that will yield amounts that can be deducted in the future when determining taxable profit or loss. A temporary difference is the difference between the carrying amount of an asset or liability in the balance sheet and its tax base 7. Explain deferred tax liability  A deferred tax liability is a listng on a company's balance sheet that records taxes that are owed but are not due to be paid untl a future date. The liability is deferred due to a difference in tming between when the tax was accrued and when it is due to be paid. 8. Give examples of temporary differences resultng to higher accountng income than taxable income.  Temporary differences arise when business income or expenses are recognized in different periods on the financial statements than on the tax returns. These differences might

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include revenue recogniton, expenses incurred but not yet paid or depreciaton calculaton differences, reports Finance Train. Explain deferred tax asset? A deferred tax asset is an item on a company's balance sheet that reduces its taxable income in the future Give examples of temporary differences resultng to higher taxable income than accountng income. If a temporary difference causes pretax book income to be higher than actual taxable income, then a deferred tax liability is created. This is because the company has now earned more revenue in its book than it has recorded on its tax returns. Explain current tax asset and current tax liability Current Tax Liability means estmated or accrued tax liability amounts which are expected to be required to cover expenditures within the year for known tax obligatons for tax consequences, net of any payments that have been made to or from Parent, that are recognized. When a company is set to receive money back on its taxes, that money becomes a short-term asset untl the company receives it, at which point it becomes cash. Explain the statement presentaton of current tax asset and current tax liability Current tax liabilites (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxaton authorites, using the tax rates (and tax laws) that have been enacted or substantvely enacted by the end of the reportng period. Explain the statement presentaton of deferred tax asset and deferred tax liability A deferred tax asset is an item on a company's balance sheet that reduces its taxable income in the future. ... Therefore, the overpayment becomes an asset to the company. A deferred tax asset is the opposite of a deferred tax liability, which indicates an expected increase in the amount of income tax owed by a company. Explain the measurement of current tax asset and current than liability The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectvely. The current tax expense is calculated on the basis of the tax laws enacted or substantvely enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income.

15. Explain the measurement of deferred tax asset and deferred tax liability. Deferred income tax is recognized, using the so-called "liability method", on temporary differences arising between the tax bases of assets and liabilites and their carrying amounts in the IFRS consolidated financial statements, which then lead in the future to a higher (passive deferred tax) or lower (actve deferred tax) level of taxable income (temporary tax-related measurement difference). If in a transacton, which does not represent a business combinaton, deferred income tax arises from the inital recogniton of an asset or liability that at the tme of the transacton affects neither accountng nor taxable profit or loss, then the tax deferral is not recognized both at this inital point in tme or afterwards

Deferred income tax is determined using tax rates (and tax laws) that have been enacted or substantally enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utlized. The deferred tax assets also include tax reimbursement claims arising from the expected future utlizaton of existng tax losses that are guaranteed to be realized within a period of five years.

CHAPTER 26 1. Define employee benefits  are all forms of consideraton given by an entty in exchange for services rendered by employees or for the terminaton of employment. 2. Define short term employee benefits  Short-term employee benefits are those expected to be settled wholly before twelve months after the end of the annual reportng period during which employee services are rendered, but do not include terminaton benefits. 3. Explain the recogniton and measurement of short- term employee benefits  Short-term employee benefits (to be settled within 12 months, other than terminaton benefits) These are recognized when the employee has rendered the service and are measured at the undiscounted amount of benefits expected to be paid in exchange for that service. 4. Define postemployment benefits  Post-employment benefit plans are informal or formal arrangements where an entty provides post-employment benefits to one or more employees, e.g. retrement benefits (pensions or lump sum payments), life insurance and medical care. 5. Explain fully a define contributon plan  a defined-contributon plan is defined as “a plan providing for an individual account for each partcipant, and for benefits based solely on the amount contributed to the account, plus or minus income, gains, expenses, and losses allocated to the account.” 6. Explain fully a define benefit plan  A defined-benefit plan is an employer-based program that pays benefits based on factors such as length of employment and salary history. 7. Explain accountng for a defined contributon plan  The amount of pension expense for a defined contributon plan is equal to the amount of contributon to the plan. As the company makes the annual contributon, the journal entry will include a debit to pension expense and a credit to cash. 8. Explain the components of a defined benefit cost  Under US GAAP, net periodic benefit cost comprises service cost, interest cost on the projected benefit obligaton, expected return on plan assets, amortzaton of prior service cost, and amortzaton of gains or losses recognized in the other comprehensive income previously

9. Explain plan assets and actual return on plan assets  Actual return refers to the de facto gain or loss an investor receives or experiences on an investment or portfolio. Actual return can also refer to the performance of pension plan assets. 10. Explain the remeasurement of plan assets  Remeasurement of defined benefit liability or asset consistng of: Actuarial gains/losses Retur...