PAS 2 Inventories; PAS 10 Events After Reporting Period; PAS 12 Income Taxes PDF

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PAS 2 INVENTORIES Inventories are assets: a. Held for sale in the ordinary course of business (Finished Goods); b. In the process of production for such sale (Work In Process); or c. In the form of materials or supplies to be consumed in the production process or in the rendering of services (Raw materials and manufacturing supplies). Financial statement presentation • All items that meet the definition of inventory are presented on the statement of financial position as one line item under the caption “Inventories.” The breakdown of this line item (as finished goods, WIP and Raw materials) is disclosed in the notes. • Inventories are normally presented in a classified statement of financial position as current assets. Measurement • Inventories are measured at the lower of cost and net realizable value (NRV). • The cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. • Net realizable value (NRV) is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Costs that are EXPENSED when incurred 1. Abnormal amounts of wasted materials, labor or other production costs. 2. Selling costs, for example, advertising and promotion costs and delivery expense or freight out. 3. Administrative overheads that do not contribute to bringing inventories to their present location and condition. 4. Storage costs, unless those costs are necessary in the production process before a further production stage, (e.g., the storage costs of partly finished goods may be capitalized as cost of inventory, but the storage costs of completed finished goods are expensed). Cost Formulas 1. Specific identification - shall be used for inventories that are not ordinarily interchangeable (i.e., used for inventories that are unique). Cost of sales is the cost of the specific inventory that was sold. 2. FIFO – cost of sales is based on the cost of inventories that were purchased first. Consequently, ending inventory represents the cost of the latest purchases. 3. Weighted Average Cost – cost of sales is based on the average cost of all inventories purchased during the period. Wtd. Ave. Cost = (TGAS in pesos ÷ TGAS in units

Write down of inventories • Inventories are usually written down to net realizable value on an item by item basis. • If the cost of an inventory exceeds its NRV, the inventory is written down to NRV, the lower amount. The excess of cost over NRV represents the amount of write-down. Reversal of write-downs • The amount of reversal to be recognized should not exceed the amount of the original writedown previously recognized. Recognition as an expense • The carrying amount of an inventory that is sold is charged as expense (i.e., cost of sales) in the period in which the related revenue is recognized. Likewise, the write-down of inventories to NRV and all losses of inventories are recognized as expense in the period the write-down or loss occurs.

PAS 10 Events after the Reporting Period Events after the reporting period are “those events, favorable or unfavorable, that occur between the end of the reporting period and the date that the financial statements are authorized for issue.” Two types of events after the reporting period ● Adjusting events after the reporting period – are those that provide evidence of conditions that existed at the end of the reporting period. ● Non-adjusting events after the reporting period – those that are indicative of conditions that arose after the reporting period Date of authorization of the financial statements This date is the date when management authorizes the financial statements for issue regardless of whether such authorization for issue is for further approval or for final issuance to users. Accounting ● Adjust financial statements for adjusting events - events after the balance sheet date that provide further evidence of conditions that existed at the end of the reporting period, including events that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. ● Do not adjust for non-adjusting events - events or conditions that arose after the end of the reporting period. ● If an entity declares dividends after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period. That is a non-adjusting event. Going concern issues arising after end of the reporting period

An entity shall not prepare its financial statements on a going concern basis if management determines after the end of the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so. PAS 12 INCOME TAXES Accounting profit vs. Taxable profit Accounting profit or loss Computed using PFRSs Total income less total expenses, excluding tax expense Other terms: pretax income, financial income and accounting income

Taxable profit (Tax loss) Computed using tax laws Taxable income less tax-deductible expenses Other term: taxable income

The varying treatments of economic activities between the PFRSs and tax laws result to permanent and temporary differences. Permanent differences Permanent differences are those that do not have future tax consequences. Examples: ● Interest income on government bonds and treasury bills ● Interest income on bank deposits ● Dividend income ● Fines, surcharges, and penalties arising from violation of law ● Life insurance premium on employees where the entity is the irrevocable beneficiary Temporary differences 1. Temporary differences are those that have future tax consequences. Temporary differences are either: ● Taxable temporary differences – arise, for example, when financial income is greater than taxable income or the carrying amount of an asset is greater than its tax base. ● Deductible temporary differences arise in case of the opposites of the foregoing. 2. Taxable temporary differences result to deferred tax liabilities while deductible temporary differences result to deferred tax assets. Deferred taxes ● If the increase in deferred tax liability exceeds the increase in deferred tax asset, the difference is deferred tax expense. If it is the opposite, the difference is deferred tax income or benefit. ● A deferred tax asset is recognized only to the extent that it is realizable. ● Deferred taxes are measured using enacted or substantially enacted tax rates that are applicable to the periods of their expected reversals. ● Deferred tax assets and liabilities are not discounted. ● Deferred tax asset and liabilities are presented as non-current....