Far notes mo to gawa sa cpar at icare oh diba walastik PDF

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ACCOUNTING PROCESSDeferral – Cash flow first before income or expense recognition Accrual – Income or expense recognition first before cash flowReversing Entries Accrued Revenue Accrued Expense Prepayments – Expense Method Deferrals – Income Method Costs of Goods Sold – used under perpetual inventor...

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FINANCIAL ACCOUNTING AND REPORTING NOTES ACCOUNTING PROCESS Deferral – Cash flow first before income or expense recognition Accrual – Income or expense recognition first before cash flow Reversing Entries 1. Accrued Revenue 2. Accrued Expense 3. Prepayments – Expense Method 4. Deferrals – Income Method Costs of Goods Sold – used under perpetual inventory method REVISED CONCEPTUAL FRAMEWORK Missions of IASB in developing accounting standards 1. Contribute to transparency 2. Strengthen accountability 3.Contribute to economic efficiency Objectives of Financial Reporting in the Conceptual Framework 1. To provide financial information about a reporting entity 2. Investors, lenders, and other creditors (Primary Users) 3. Affects the decision making Addt’l info: 1. To provide information on assessing management’s stewardship of the entity’s resources

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Monetary Unit Assumption (2 Characteristics) 1. Do not adjust for changes in purchasing power – “ignored” 2. The Philippine peso is our currency Fundamental Qualitative Characteristics - Focus on the content or the substance a. Faithful Representation b. Relevance Quality of Faithful Representation 1. Completeness 2. Free from error 3. Neutrality Addt’l Info: 1. Also affected by measurement uncertainty (use of estimates in preparing financial information)

overstated and expense and liabilities are not understated. Asset a. Present economic resource b. Economic resource is a right that has the potential to produce economic benefits. Ex 1: Right to receive cash, goods or services Ex 2: Right to use property, plant and equipment c. Economic resource is controlled by the entity as a result of past events. Liability a. The entity has an obligation. Ex 1: Legal Ex 2: Constructive b. Obligation is to transfer an economic resource

Enhancing Qualitative Characteristics - Focus on the presentation or the form

Revenue - Primary Activities

Two types of Comparability 1. Horizontal – Comparison with an entity from one period to the next 2. Dimensional – Comparison between two or more entities in the same industry

Gain - Accidental Activities

Consistency – Use of the same methods for the same items. - Helps achieve comparability Two types of Verifiability - Exercise of caution when making decisions under uncertainty such that assets and income are not

Recognition Principle - Only items that meet the definition of an asset, liability, equity, income and expenses are recognized. Measurement Bases: 1. Historical Cost 2. Current Value Current Value Measurement 1. Fair Value – based on exit price

FINANCIAL ACCOUNTING AND REPORTING NOTES 2. Value in use – based on exit price 3. Fulfillment value – based on exit price 4. Current cost – Cost of an equivalent asset at measurement date composing of consideration paid plus transaction cost based on entry price. STATEMENT OF FINANCIAL POSITION Current Assets 1. Cash / Cash Equivalents 2. Held for trading 3. Expected to be realized, consumed, sold within the normal operating cycle 4. Realized within 1 year after the end of reporting period 5. Realized within 1 year or normal operating cycle whichever is LONGER. Non-current Assets 1. Residual Definition Current Liability 1. Expected to be settled within the normal operating cycle 2. Incurred for trading 3. Settled within 1 year after the end of the reporting period. 4. Realized within 1 year or normal operating cycle whichever is LONGER. 5. No unconditional right to defer settlement Non-current Liability 1. Residual Definition

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Equity 1. Preference Shares 2. Ordinary Shares 3. Share Premium 4. Retained Earnings 5. Other Comprehensive Income 6. Treasury Shares Other Important Matters 1. Notes Receivable – if not stated, current 2. NR Discounted – Conditional Sale 3. Financial Asset – FVPL – Current - FVOCI – Non-current Provisions for Financing 1. After the end of the reporting period but before the issue of FS – Current 2. On or before the reporting period for at least 12 months – Non current 3. Has the discretion to refinance – Non current Events after the reporting period 1. Adjusting Event - Condition is already existing at on or before the reporting period 2. Non adjusting Event - Indicative of conditions that arise after reporting period but before issuing date

STATEMENT OF COMPREHENSIVE INCOME Functional Presentation – according to function Net Sales Less: Cost of Sales Gross Profit Add: Other Income Investment Income Total Income Less: Distribution Cost Admin Cost Finance Cost Other Expense Income before tax Less: Tax expense Income from continuing operations Add: Income from discontinued operations Net Income Other Comprehensive Income Comprehensive Income Natural Presentation – according to nature Net Sales Add: Other Income Investment Income Total Income Less: Purchases Depreciation Expense Doubtful Accounts Expense Add: Change in Inventory Income before tax Tax Expense Income from continuing operations

FINANCIAL ACCOUNTING AND REPORTING NOTES Add: Income from discontinued operations Net Income Other Comprehensive Income Comprehensive Income

Add’l Info: a. Current Asset b. No Depreciation

Liability a. Line item under Current Liability

Criteria – Held for sale are violated Other Comprehensive Income Presentation 1. May be recycled to P/L a. Unrealized G/L of debt instrument b. UG/UL on cash flow hedge c. Translation G/L of foreign currency 2. May not be recycled to P/L a. UG/UL on equity investment – OCI b. Net remeasurement G/L on Defined Benefit Plan c. Financial Liability at FVPL d. Revaluation Surplus Change in Accounting Policy - Retrospectively - Reported net of tax

CA (as if never classified as HFS) vs Recoverable Amount (FV less COD vs Value in Use = whichever is higher) Measurement Less: CA per book

Php xxx (xxx) Php xxx

Order of Classification 1. By default  P/L 2. If previously using revaluation model  Revaluation (adjust revaluation surplus)

Noncurrent Asset Held for Sale

DISCOUNTINUED OPERATIONS 1. Considered as a component of an entity (clearly distinguishable) 2. Can identify assets, liabilities and income/expense will be eliminated when the component is discontinued

Requirements to be held for sale 1. Available for sale in its present condition 2. Sale is considered highly probable

When to be classified as Discontinued Operations 1. If the component is actually disposed of or classified as HFS – whichever comes first

Measurement Carrying Value vs FV less cost to sell = W/C ever is lover (Check for impairment)

Asset a. Line item under Current Asset b. Carrying Amt or FVLCOD – whichever is LOWER c. No depreciation

Accounting Estimate - Prospectively

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Income/Loss to Discontinued Operation a. Below continuing operation but before P/L b. Reported net of tax Cash Flows a. Separately SCF b. Notes OPERATING SEGMENTS I. Reportable (ANY of the criteria) 1. Segment Revenue – at least 10% of the total revenue of all the operating segment 2. Segment P/L – at least 10% of the greater between (ABSOLUTE VALUE) a. Total Profit  all segment  profit b. Total Loss  all segment  loss II. Threshold 1. External Revenue – total external revenue of the reportable segment should be at least 75% of the external revenue of all operating segments. If below 75% - entity may aggregate segments even if they’re not reportable Similar in the ff characteristics a. Product b. Production c. Customer d. Marketing e. Regulated environment

FINANCIAL ACCOUNTING AND REPORTING NOTES

INTERIM REPORTING 1. Usually less than 1 year 2. Optional Two approaches in presenting interim reporting 1. Integral View - Interim period is considered an integral part of an annual period - allocations are allowed 2. Independent view - Interim period is considered a separate accounting period - allocations are not allowed Combination of Integral and Independent Interim Reporting - Used when the problem is silent - not stated in the standard CASH AND CASH EQUIVALENTS 1. Not restricted 2. Item used to pay or settle current operations or current obligations A. Cash on Hand – Undeposited collection B. Cash in Bank 1. Demand Deposit – CA 2. Savings Acct – CA 3. Time Deposit, Treasury Bills, Money Market Placements, Commercial Papers a. Cash Equivalent – Maturing in 3 months or less b. Short-term investment – More than 3 months but within 1 year 4|Page

c. Long-term investment – More than 1 year. C. Fund - purpose 1. PCF, Payroll, Tax – Cash 2. Plant Expansion – ALWAYS NCA 3. Sinking Fund – normally LT - If BP is ST = CASH ACCOUNTS RECEIVABLE 1. Gross AR Php xxx Less: Allowances xxx NRV Php xxx Components of ALLOWANCES 1. Allowance for Sales Discounts 2. Allowance for Sales Return 3. Allowance for Freight Charges 4. Allowance for Doubtful Accounts Methods of Estimating DA 1. Percent of Sales Method – REQUIRED D.A. EXPENSE 2. Percent of AR Method – REQUIRED ALLOWANCE 3. Aging of AR – REQUIRED ALLOWANCE RECEIVABLE FINANCING 1. Need of cash 2. Accelerate the cash collection Types of Receivable Financing 1. Pledge of AR (no transfer of title) - Serves as collateral (general assignment) - DISCLOSE PLEDGED AR 2. Assignment of AR (no transfer of title) - Collateral

- Specific assignment a. Assigned b. Unassigned Two methods of assignment 1. Non-notification basis 2. Notification basis 3. Factoring of AR - Sale of AR Two methods of factoring 1. w/o recourse – no obligation for non-payment of our customer 2. w/ recourse – there is an obligation for nonpayment of our customer 4. Discounting of NR Two types of Discounting AR 1. w/o recourse – in case of dishonor of note, the company has no obligation (ABSOLUTE SALE) 2. w/ recourse - in case of dishonor of note, the company has obligation a. Conditional sale w/ contingent - Secondarily liable in case of dishonor b. Secured borrowing - Primarily liable whether dishonored or not NOTES RECEIVABLE AND LOAN IMPAIRMENT Valuation of AR 1. Short term (whether interest or non-interest bearing) a. Conceptually – PV

FINANCIAL ACCOUNTING AND REPORTING NOTES b. ConventionFace ValueDisc is IMMAT. 2. Long term 2.1. Interest bearing (SR = ER) a. measured at FACE AMOUNT = PV 2.2. Non-interest bearing a. PV - Unearned interest income - Amortized using EIM

Shipping Terms (Who must pay) 1. FOB SP – Buyer 2. FOB DS – Seller (Who paid) 3. Freight Collect – Buyer 4. Freight Prepaid – Seller INVENTORY COST FLOW AND LCNRV

Impairment 1. Determine if impairment is present - Financial Difficulty of debtor FORMULA: Carrying Amount of Loan Receivable + Any Acc Int. PV of contractual CASH FLOWS > PV of Expected Future Cash Flows = Impairment Loss 2. Presentation of Impairment Loss - Maintained in a valuation account - Allowance for Impairment Loss INVENTORY Title to goods: 1. Owned and on-board 2. Purchased – in transit – FOB SP 3. Sold – in transit – FOB DES 4. Out on consignment 5. In the custody of sale agent 6. Sales with buy back agreement 7. Out on trial/approval to customers

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1. Weighted average – periodic 2. Moving average – perpetual Two methods in measuring LCNRV 1. Allowance method 2. Direct method Individual Approach - REQUIRED by standard will result to the lowest measurement Purchase Commitment - Fixed number of units based on fixed price 1. Mkt Price < Fx Price = Loss on PC 2. Inc in Mkt Price  Gain on PC EXTEND OF LOSS ONLY 3. amt to be credit to “Purchases” = Mkt Price (Dt of Purchase vs Fixed Price >> w/c ever is lower) 4. Payment – Fixed Price GROSS PROFIT, RETAIL METHOD AND BIO ASSETS Gross Profit Method

- Sales Discount not considered since no movement of merchandise Retail Method - Avail for sale (retail) Less: Sales Less: Sales Returns Add: Employee Discount Normal Shrinkage Normal Shoplifting Ending Inv @ SP Cost Ratio EI @ Cost Cost Ratio = GAS @ cost / GAS @ retail Three approaches in Retail Method 1. Conservative Method (Conventional Method/LCNRV) – net mark-up Note: Do not include net mark-down 2. Average Method – both net mark-up and net mark down Note: Approx ave cost of merch 3. FIFO Retail – Include both mark-up and net mark down on FIFO basis Biological Assets - Living animals/plants - FV less Cost of Disposal Agriculture Produce - harvested product a. As the produce grows on the plant - FV less COD - Considered as Bio Assets b. When harvested

FINANCIAL ACCOUNTING AND REPORTING NOTES - FV less COD @ pt. of harvest - after harvest = inventory Animals  Recreational Activities (ZOO) a. Breeding - incidental to provide a recreational facility - no agriculture - PPE Bearer Plants - Used in the supply of production of agricultural produce - Expected to bear produce for more than 1 period - Remote likelihood that the plant itself will be sold as Agricultural produce except for incidental scrap sales - PPE Bearer Animals - Remain to be Bio Assets even if its sole purpose is to bear animals - FV less COD Note: In reporting gain, aggregate gain and loss (offsetting is allowed) INVESTMENTS Equity Investments - Ownership interest in another entity - Passive Interest Ex. Less than 20% of the outstanding ordinary shares FVPL (Trading, Non trading, all other quoted) Initial Measurement - FV (Transaction Costs  Outright Expense) FV Changes 6|Page

- P/L Cash Dividend - Income  P/L Impairment - Not Applicable Disposal - Gain/Loss  P/L FVOCI (Non trading  IRREVOCABLE ELECTION) Initial Measurement - FV + TC FV Changes - OCI Cash Dividend - Income  P/L Impairment - Not Applicable Disposal - Gain/Loss  Retained Earnings Stock Rights 1. To preserve the equity interest 2. Valuable  Exercise Price < Mkt Price 3. Inherent in every share 4. a. Accounted for Separately  FV Entry: Inv in SR xxx Inv in Equity b. Not accounted for separately Memo Entry only Dividends 1. Share Dividend (same class) - not considered income

- memo entry only 2. Share in Lieu of Cash - Passive Income - Measurement of share/income 1. FV of shares 2. Cash Dividend 3. Liquidating Dividend - Net Income - 20% = good as liquidating dividend - exercise of significant influence - equity method: - cash dividend – not an income 4. Property Dividend - FV of the property Ordinary and Preference Share - P/L  attributable to ordinary shareholders  sig. influence = OS = voting shares - deduct annual/current year preference share dividend a. Cumulative – whether declared or not b. Non-cumulative – only when declared INVESTMENT IN ASSOCIATE - 20%  50% of the outstanding ordinary shares of another entity - exert significant influence - equity method

xxx Journal Entries 1. Purchase Inv. In Assoc Cash 2. Share in Net Income Inv. In Assoc

xxx xxx xxx

FINANCIAL ACCOUNTING AND REPORTING NOTES Inv. Income

3. Share in Net Loss Inv. Loss xxx Inv. In Assoc 4. Share in Other Equity Changes Inv. In Assoc xxx Rev Surplus – Investee 5. Cash Dividend Cash xxx Inv. In Assoc 6. Stock Dividend MEMO ENTRY 7. Amortization of excess cost Inv Income xxx Inv. In Assoc 8. Excess FV Inv in Assoc xxx Inv Income Investment in Preference Shares - Non voting shares - Passive Interest Investment in Associate achieved in stages 1. Previous interest - REMEASURED @ FV - Any change in FV  P/L 2. If previous interest  FVOCI - Cumulative amount in OCI  RE

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- Interest Income  Eff Int Method

xxx

xxx

xxx

Computation of Goodwill FV of Previous Interest Cost of Add’l Inv. Initial Cost NA Acq. CA Excess Cost Adjustments Goodwill/Excess FV

xxx xxx xxx (xxx) xxx (xxx) xxx

xxx

xxx

xxx

Loss of Significant Influence - Remaining Investment 1. Remeasured @ FV - any adj  P/L 2. Passive Interest a. FVPL b. FVOCI *c. Cost – FV cannot be determined BOND INVESTMENT Held For Trading - FVPL a. Transaction Cost  Expense b. No Impairment c. Interest Income (Nominal Interest Rate) d. No discount/premium amortization Held for Collection of Contractual Cash Flows (Principal and Interest) a. Amortized Cost - Transactions Costs  Capitalized - Impairment

Held for Collection of Contractual Cash Flows and Sell the Asset - FVOCI a. Transaction Costs  Capitalized b. Interest Income  Eff Int Method c. FV Changes  OCI d. Impairment e. Derecognition  OCI  P/L - FVPL (IRREVOCABLE ELECTION) a. FV Option DERIVATIES Purpose - Manage or reduce financial risk Important Characteristics a. Underlying / Notional b. No payment / Small payment c. Future date  Net Settlement Examples  Secondary Contracts a. Interest Rate Swap b. Forward c. Futures d. Options e. Foreign Currency Forward Measurement a. FV b. FV Changes  OCI

Primary Bank Loan Forecasted Purchase Transaction

FINANCIAL ACCOUNTING AND REPORTING NOTES - Cash Flow Hedge Settlement - Recycling to P/L - OCI  P/L INVESTMENT PROPERTY Definition a. Land / Building b. Held for Rentals / Held for Capital Appreciation Initial Measurement - @ cost Subsequent Measurement - Accountancy Policy Choice: a. Cost Model = Cost – Acc Dep – Acc Imp Loss Note: FV = Disclosed in notes b. Fair Value Model = Changes of FV  P/L Note: No depreciation to be recorded Transfers (Change of Use) a. Cost Model  CA  Initial Cost of subsequent accounting b. From IP to PPE or Inventory @ FV - Initial cost for subseq. acctng. c. PPE  IP  FV  FV Change = Rev Model d. Inv  IP  FV  FV Change @ P/L e. Completion of self-constructed IP - FV  FV change  P/L Cash Surrender Value 8|Page

1. Life Insurance Policy 2. Entity  Beneficiary 3. Premium  Fully paid for 3 years 4. Surrender  At the end of the 3rd yr of anytime thereafter 5. LT investment  Non-current asset PPE Modes of Acquisition 1. Cash 2. On account subject to cash discount - DEDUCT whether TAKEN OR NOT 3. Installment / Deferred Payment a. Cash Price b. PV of future payments 4. Issue of share capital a. FV of the consideration received b. FV of shares c. Par / Stated Value 5. Issue of BP a. FV of Bonds b. FV of asset c. Face amount of Bonds 6. Donation a. FV Note: Donor is: a. Shareholder – Cr. Donated Cap (Part of Share Premium @ SFP) b. Non-shareholder – Cr. Income 7. Government Grant 8. Exchange a. w/ commercial substance - there’s a significant difference w/ cashflow i. FV of asset given-up + cash paid –

cash received ii. FV of asset received b. w/o commercial substance - CA of asset given up + paid – received 9. Construction a. Material b. Labor c. Overhead Property Tax a. Up to acquisition – Capitalize b. After – Expense Option (Time to Decide) a. If acq  capitalize  cost of alternative land b. If not acquired  expense Special Assessment - Increase of value due to public improvements Dismantling Cost: a. Present Obligation - Capitalized b. PV (if w/ discount rate) Borrowing Cost 1. Production, Construction, Development 1.1 Qualifying asset  assets that take substantial time to complete - Capitalized a. Specific Borrowing - BC incurred – Investment Income

FINANCIAL ACCOUNTING AND REPORTING NOTES b. General Borrowing - Weighted Ave Exp x General Borrowings x Average Int Rate c. BC capitalized should not exceed the actual borrowing cost incurred 1.2. Not qualifying asset (ready for use) - Expense DEPRECIATION Composite Method 1. Group of assets  “single” asset 2. Composite life = Dep. Amount / Annual Dep. 3. Composite rate = Annual Dep / Total Cost 4. Dep = Total Cost x Composite Rate 5. No gain or loss on disposal DEPLETION 1. Acquisition Cost 2. Exploration Cost – to locate or explore a. Successful efforts method i. Resources – present  capitalized ii. Dryholes  expense b. Full cost method - capitalized 3. Development cost – to extract 4. Restoration cost - Present obligation - PV Equipment / Machine – not part of wasting asset - Subject to depreciation a. No alternative use - useful life of wasting asset - useful life of equipment Note: WHICHEVER IS LOWER 9|Page

b. Alternative use - useful life of equipment

REVALUATION...