PAS 29 Summary - This document summarizes PAS 29 of Conceptual Framework and Accounting Standard. PDF

Preview

Summary

This document summarizes PAS 29 of Conceptual Framework and Accounting Standard....

Description

PAS 29 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES I.

NATURE PAS 29 prescribes the restatement procedures for the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy. PAS 29 does not prescribe an absolute rate at which hyperinflation is deemed to arise. This is a matter of judgment. Instead, PAS 29 provides the following indicators which an entity considers when determining the existence of hyperinflation. a. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power. b. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency; c. Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short; d. Interest rates, wages and prices are linked to a price index; and e. The cumulative inflation rate over three years is approaching, or exceeds, 100%.

PAS 29 prohibits the presentation of the required information as supplement to unrestated financial statements. PAS 29 discourages the separate presentation of the financial statements before restatement. II.

TRANSACTION Entity A operates in a hyperinflationary economy. Entity A’s building has a carrying amount of 1M on December 31, 20x2. The building was acquired on June 21, 20x0. The general indices are as follows: June 21, 20x0 100 December 31, 20x1 150 Average – 20x2 180 December 31, 20x2 200 The building’s carrying amount is restated as follows: 1M

x=

200 current priceindex , Dec . 31, 20 x 2 100 Historical price index , June 21, 20 x 2

=2M restated amount to current measuring unit as of Dec. 31, 20x2 Assume that the 20x2 depreciation expense on the building is 200,000. The depreciation is restated in the same manner as follows: (200K x 200/100) = 400K. Assume further that the carrying amount of the building is 1.2M on December 31, 20x1. This corresponding figure is restated also in the same manner as follows : (1.2M x 200/100) = 2.4M.

III.

DISCLOSURES a. The fact that the financial statements, including corresponding figures, have been restated for changes in the general purchasing power of the reporting currency. b. Whether the financial statements are based on historical cost or current cost. c. The identity and level of the price index at the end of the reporting period and the movements during the current and previous periods.

PAS 32 FINANCIAL INSTRUMENTS PRESENTATION I.

NATURE PAS 32 prescribes the principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. PAS 32 complements PFRS 9 Financial Instruments, which prescribes the recognition and measurement of financial assets and financial liabilities, and PFRS 7 Financial Instruments: Disclosures, which prescribes the disclosures for financial instruments. PAS 32 applies to all types of financial instruments except the following for which other standards apply: a. Investments in subsidiaries, associates and joint ventures; b. Employer’s rights and obligations under employee benefit plans and sharebased payments; and c. Insurance contracts

PAS 32 applies to instruments designated to be measured at fair value through profit or loss and contracts for the future purchase or delivery of a commodity or other nonfinancial items that can be settled net.

I.

TRANSACTION Entity A issues convertible bonds with face amount of 1,000,000 for 1,050,000. Each 1,000 bond is convertible into 8 shares with par value of 100 per share. On issuance date, the bonds are selling at 98 without the conversion option.

The issue price is allocated to the liability and equity components as follows: Issue price Fair value of debt instrument without equity feature Equity Component

II.

1,050,000 980,000 70,000

PRESENTATION The issuer classifies a financial instrument, or its component parts, as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contract (rather than its legal form) and the definitions of a financial asset, a financial liability and an equity instrument. When determining whether a financial instrument is a financial liability or an equity instrument, the overriding consideration is whether the instrument meets the definition of a financial liability.

FINANCIAL LIABILITY The entity has a contractual obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition.





FINANCIAL LIABILITY The contract requires the delivery of (a) variable number of the entity’s own equity instruments in exchange for a fixed amount of cash or another financial asset or (b) a fixed number of the entity’s own equity instruments in exchange for a variable amount of cash or another financial asset. Examples: a. Variable number for fixed amount: - A contract to deliver as

EQUITY INSTRUMENT The entity has no obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition

FINANCIAL INSTRUMENT The contract requires the delivery (receipt) of a fixed number of the entity’s own equity instruments in exchange for a fixed amount of cash or other financial asset. Example: a share option that gives the holder a right to buy a fixed number of the issuer’s shares for a fixed price.

many shares as are equal to the value of a fixed amount of cash, say 100,000 or a fixed number of units of a commodity, say 50 grams of gold. b. Fixed number for a variable amount: - A contract to deliver 1,000 own equity instruments in exchange for an amount of cash equal to the value of 10 grams of gold.

NOTES:  

FINANCIAL ASSET/ LIABILITY Variable number for a fixed amount. Fixed number for a variable amount.



EQUITY INSTRUMENTS Fixed number for a fixed amount

PAS 33 EARNINGS PER SHARE I.

NATURE PAS 33 prescribes the principles in computing and presenting earnings per share (EPS) to promote inter – and intra- comparability of performance of entities. PAS 33 recognizes the EPS data may have limitations – particularly on ‘earnings’ which is the numerator in the EPS calculation. Therefore, the focus of PAS 33 is on the consistent determination of the denominator of the EPS calculation. PAS 33 require publicly listed entities, including those in the process of enlisting, to present EPS information. A publicly listed entity is one whose ordinary shares or potential ordinary shares are traded in a public market (e.g Philippine Stock Exchange ‘PSE’) Non-publicly listed entities are not required to present EPS information. However, if they choose to do so, they will need to apply PAS 33.

II.

PRESENTATION The two EPS (basic and diluted) are presented with equal prominence on the face of the statement of profit or loss and other comprehensive income. If the entity uses a ‘two-statement’ presentation as described in PAS 1, it presents the EPS only in the separate statement of profit or loss. EPS is presented every time a statement of profit or loss and other comprehensive income is presented, including comparatives. If diluted EPS is presented for at least one period, it will be presented for all periods, even if it equals basic EPS. Basic and diluted EPS are presented even if the amounts are negative (i.e., loss per share) If an entity reports discontinued operations, it presents basic and diluted EPS for each of the following: a. Profit or loss from continuing operations, b. Results of discontinued opeartions, and c. Profit or loss for year.

An entity is not required to present EPS on other comprehensive income and total comprehensive income.

PAS 34 INTERIM FINANCIAL REPORTING I.

NATURE PAS 34 prescribes the minimum content of an interim financial report and the recognition and measurement principles in complete or condensed financial statements for an interim period. PAS 34 does not mandate which entities should produce interim financial reports. PAS 34 is applied when an entity chooses, or is required by the government or other institution, to publish interim financial report that complies with PFRSs. PAS 34, however, encourages publicly listed entities to provide at least a semi-annual financial report for the first half of the year to be issued not later than 60 days after the end of the interim period.

II.

PRESENTATION An interim financial report is a financial report prepared for an interim period and contains either: a. A complete set of financial statements as described in PAS 1; or b. A set of condensed financial statements as described in PAS 34

An entity presenting an interim financial report has the option of applying either PAS 1 or PAS 34. a. The entity applies PAS 1 if it opts to provide a complete set of financial statements in its interim financial report. b. The entity applies PAS 34 if it opts to provide a condensed set of financial statements in its interim financial report. PAS 1 COMPLETE SET OF FS 1. Statement of financial position 2. Statement of profit or loss and other comprehensive income 3. Statement of changes in equity 4. Statement of cash flows 5. Notes Comparative Information 6. Additional statement of financial position (required only when certain instances occur)

PAS 34 CONDENSED SET OF FS 1. Condenses statement of financial position 2. Condensed statement of profit or loss and other comprehensive income 3. Condensed statement of changes in equity 4. Condensed statement of cash flows 5. Selected explanatory notes

III.

IV.

RECOGNITION AND MEASUREMENT The same accounting policies are used in interim reports as those used in annual except for accounting policy changes made after the date of the most recent annual financial statements that are to be reflected in the next annual financial statements. OTHER DISCLOSURES In addition to significant events and transactions, the following are also disclosed in the interim financial report: a. A statement that the same accounting policies were used in the interim financial statements as those in the latest annual financial statements. If there have been changes, those changes are disclosed. b. Explanation of seasonality or cyclicality of interim operation c. Unusual items affecting the financial statement elements d. Changes in accounting estimates e. Issuances and settlements of debt and equity securities f. Dividends paid g. Segment information ( if the entity is covered by PFRS 8) h. Events after the reporting period i. Changes in the composition of the entity, e,g,. business combinations, obtaining or losing control of subsidiaries, restructurings, and discontinued operations j. Disclosures on the fair value of financial instruments k. Disclosures required by PFRS 12 when the entity becomes or ceases to be an investment entity l. Disaggregation of revenue from contracts with customers as required by PFRS 15.

PAS 36 IMPAIRMENT OF ASSETS I.

NATURE PAS 36 prescribes the procedures necessary to ensure that assets are not carried in excess of their recoverable amount. PAS 36 applies in accounting for the impairment of the following assets: a. Property, plant and equipment b. Investment property measured under the cost model c. Investments in associates, joint ventures and subsidiaries d. Intangible assets e. Goodwill

II.

TRANSACTION On December 31, 20x1, Entity A determines that its building is impaired. The following information is gathered. Building Accumulated depreciation Fair value less costs of disposal Value in use (VIU)

1,000,000 300,000 600,000 580,000

The impairment loss is computed as follows: Recoverable amount (higher of FVLCD and VIN) Less: Carrying amount Impairment loss

600,000 (700,000) 100,000

PAS 37 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS I.

NATURE PAS 37 prescribes the accounting and disclosure requirements for provisions, contingent liabilities and contingent assets to help users understand their nature, timing and amount. PAS 37 applies to the accounting for provisions, contingent liabilities and contingent assets, except those arising from executor contracts, unless they are onerous, and those that are covered by other PFRSs.

II.

RECOGNITION A provision is recognized when all of the following conditions are met: a. The entity has a present obligation (legal or constructive) resulting from a past event b. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and c. The amount of the obligation can be reliably estimated. If any of the conditions is not met, no provision is recognized.

III.

MEASUREMENT Provisions are measured at the best estimate of the amount needed to settle them at the end of the reporting period. Making the estimate requires management’s judgment, supplemented by experience from similar transactions, and in some cases, reports from independent experts. The estimate also considers events after the reporting period. If the provision being measured involved a large population of items, the obligation is measured at its “expected value”.

IV.

DISCLOSURE a. Reconciliation for each class of provision showing: i. Beginning balance ii. Additions (additional provisions recognized, unwinding of discount, and effect of a charge in the discount rate) iii. Deductions (amounts charged against the provision or reversed) iv. Ending Balance b. Comparative information is not required

c.

For each of provision, a brief description of the: i. Nature ii. Timing iii. Uncertainties iv. Assumptions v. Reimbursement

PAS 38 INTANGIBLE ASSETS

I.

NATURE PAS 38 applies to all intangible assets except those that are specifically dealt with under other standards. For example, PAS 38 does not apply to goodwill acquired in a business combination (PFRS 3), intangible assets held as inventory (PAS 2), and intangible assets classified as held for sale (PFRS 5).

II.

PRESENTATION Intangible assets accounted for under PAS 38 are presented separately from goodwill. Such intangible assets are aggregated and presented as one line item under the heading “Intangible assets” or “Other intangible assets” in the statement of financial position. The breakdown of the line item is disclosed in the notes. Goodwill is presented separately under a line item described as “Goodwill”.

III.

TRANSACTION

IV.

RECOGNITION An intangible asset is recognized when it meets the definition of an intangible asset as well as the asset recognition criteria of “probable future economic benefits” and “reliable measurement of cost”.

V.

INITIAL MEASUREMENT Intangible assets are initially measured as cost. The measurement of cost depends on how the intangible asset is acquired. Intangible assets may be acquired through: a. Separate acquisition b. Acquisition as part of a business combination c. Acquisition by way of a government grant d. Exchanges of assets; or e. Internal generation

VI.

SUBSEQUENT MEASUREMENT After initial recognition, an entity chooses either the cost model or the revaluation model as its accounting policy and applies that policy to an entire class of intangible assets

COST MODEL

REVALUATION MODEL

The intangible asset is carried at its cost less

The intangible asset is carried at its fair value

any accumulated amortization and any accumulated impairment losses.

VII.

at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

DISCLOSURE The following are disclosed for each class of intangible assets distinguishing between internally generated intangible assets and other intangible assets: a. Whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortization rates used. b. Amortization methods used; c. Gross carrying amount and any accumulated amortization (aggregated with accumulated impairment losses) at the beginning and end of the period; d. The line item(s) of the statement of comprehensive income in which any amortization of intangible assets is included; e. A reconciliation of the carrying amount at the beginning and end of the period showing increases and decreases to intangible assets and related accumulated amortization and accumulated impairment loss. f. Changes in accounting estimates in accordance with PAS 8. g. Intangible assets assessed as having indefinite useful lives and reasons supporting the assessments. h. Intangible assets acquired by way of a government grant and initially recognized at fair value. i. Any restriction on title to intangible assets j. Contractual commitments to acquire intangible assets and the methods and assumptions used in estimating fair values of intangible assets k. Revaluation surplus recognized on revalued intangible assets and the methods and assumptions used in estimating fair values of intangible assets. l. Aggregate amount of research and development expenditure recognized as an expense during the period. m. The following are encouraged, but not required, disclosures: i. Description of any fully amortized intangible asset that is still in use; and ii. Brief description of significant intangible assets controlled by the entity but not recognized as assets because they did not meet the recognition criteria.

PAS 40 INVESTMENT PROPERTY I.

NATURE PAS 40 prescribes the accounting and disclosure requirements for investment property.

II.

TRANSACTION

III.

RECOGNITION An investment property is recognized when it meets the definition of an investment property as well as the asset recognition criteria of “probable future economic benefits” and “reliable measurement of cost.”

IV.

INITIAL MEASUREMENT An investment property is initially measured at cost. The measurement of cost depends on the mode of acquisition.

V.

SUBSEQUENT MEASUREMENT After the initial recognition, an entity chooses either the cost model or the fair value model as its accounting policy and applies that policy to all of its investment property. Only one model shall be used. Using both models selectively for items of investment property is prohibited , except in the following cases...