PAS 37 – Provision, Contingent Liability AND Asset & PAS 22 - Financial Instruments PDF

Preview

Summary

PAS 37 – PROVISION, CONTINGENT LIABILITY AND ASSET1. Explain the meaning of a provision.PROVISION – is an existing liability of uncertain timing or amountMEANING: Ang provision ay isang existing liability since nirerecognize natin siya sa books at kaya naman uncertain ang timing at amount nito since...

Description

PAS 37 – PROVISION, CONTINGENT LIABILITY AND ASSET 1. Explain the meaning of a provision. PROVISION – is an existing liability of uncertain timing or amount MEANING: Ang provision ay isang existing liability since nirerecognize natin siya sa books at kaya naman uncertain ang timing at amount nito since hindi pa siya nagyayari kaya we are not certain. Ex. Patent- Kapag nagkademandahan about sa patent ng product mo at inaangkin nila yung patent mo at kapag nanalo sila it means na may babayaran tayo in the future. 2. What are the three conditions necessary for the recognition a provision as liability? RECOGNITION OF PROVISION Sa pagrerecognize ng isang provision as a liability dapat (1) may present obligation, as a result of a past event (2) Possible an may economic benefits that will flow from the entity-meaning palabas or outflow of resources para ma-settle yung obligation (3) The amount of the obligation should be measured reliably * By the use of estimates 3. Define legal obligation.

obligation

and

constructive

OBLIGATING EVENT

RELIABLE ESTIMATE Para masabi na reliable ang estimated amount of provision, according sa standard dapat daw natin na gamitin ay yung range of possible outcomes para maestimate yung liability na babayaran for settlement. Kapag naman walang reliable estimate kung saan remote or less than 10% likely to occur yung outflow, ibig sabihin hindi na siya irerecognize. Pero kung probable irerecognize ito at kapag naman possible lang ay kasama lang siya sa ididisclose sa financial statements. 4. What is the measurement of provision? The amount of the provision is the best estimate of the expenditure requires to be settled at the end of the reporting period. (Kapag isa lang yung estimated na obligation, maglalaan pa rin yung entity ng pasobra incase na meron pang mag-arise na ibang obligation) 2. Midpoint of range approach kapag may continuous range of possible outcome at walang nangingibabaw dun sa possible outcome kung magkano yung possibleng bayarin dun sa provision Ex. Ang range nung babayaran is from P 100,000 – 150,000, the midpoint is equal to the highest amount plus the lowest amount then divided by 2 Also ginagamit lang ito kung reasonable yung range kasi kapag masyadong malaki yung agwat nung highest and lowest amount, hindi reasonable para gamitin yung approach na ito. So ang mangyayari kung ganito yung case magiging 0 yung amount ng provision since it can be no longer measured reliably.

Ito yung event na nagderive sa past event na nagcause na magkaroon tayo ng present obligation. Yung obligation ay either legal or constructive since yun lang naman yung options para ma-settle ang obligation ng isang entity.

3. Expected Value Approach

LEGAL OBLIGATION – kapag yung obligation ay nag-arise from contract or by law.

If maraming possible amount na given sa problem just multiply those possible amounts to their corresponding probability the kunin yung sum ng product nila so yun na yung value ng provision.

CONSTRUCTIVE OBLIGATION – nagkaroon ng obligation ang isang entity due to its past action (ex. Bad practices) of accepting certain responsibilities so they can be discharged from those obligations. PROBABLE OUT FLOW OF ECONOMIC BENEFITS PROBABLE = MORE THAN 50% CHANCE TO OCCUR POSSIBLE = 50 % OR LESS LIKELY TO OCCUR REMOTE = 10% OR LESS LIKELY TO OCCUR

Dito naman, yung amount ng provision is equal to the sum of all possible amounts multiplied to their corresponding probability.

5. Discuss briefly each of the following in connection with measurement of a provision? a) Risks and uncertainties – ito yung mga dapat iconsider sa pag-eestimate ng amount of provisions since uncertain ito kaya nagvavary yung mismong amount. However, sinasabi din dito na dapat yung judgment natin ng amount is reasonable to avoid overstatement of assets and income and understatement of expenses and liabilities.

Amount of provision = Best estimate x Risk Adjustment Factor b) Present value of obligation Since the value ng pera ngayon is not the same few years from now, at sa future pa natin babayaran yung provision, kailangan natin siyang idiscount to present value yung amount ng provision. So ang gagamitin natin ay yung pretax rate as a discount rate to reflect the effect of the time value of money Probable- chance is more the 50% c) Future events – ito yung mga probable events in the future na pwedeng maka-affect dun sa value ng provision. Ex. Creation of new laws d) Expected disposal of assets – yung inflows from disposal ay hindi siya kasama sa measurement of provision since nirerecognize lang siya sa mismong time ng disposal of assets e) Reimbursements – yung mga reinbursements ay virtually certain pero treated as separate asset at hindi kasama sa measurement ng provision. Also, hindi dapat mag-eexceed yung amount ng reimbursement sa mismong amount ng provicion f) Changes in provisions – yung changes in provision ay nirereview kada reposting period para makuha yung best estimate ng value ng provision. Pero kung hindi naman na ito probable na magkaroon ng outflow, nirereverse na yung value ng provision. Kapag naman dinidiscount ito, tumataas naman yung carrying amount nito every year. g) Use of provision – yung provision ay ginagamit lang para sa expenditures na nakasaad dun sa mismong provision hindi pwede na yung expenditure na irerecognize ay nakasaad pala ay sa ibang provision thus creating fraud. h) Future operating losses – hindi siya irerecognize since hindi pa naman nag-oocur yung event na maaring magcreate ng future obligation i)

Onerous contract – yung present obligation under nito ay recognized at kasama sa measurement ng provision. Yung mga unavoidable costs under nito na nag-exceed sa expected outflow ay recognized as the least net cost of exiting the contract.

6. Define a contingent liability. CONTINGENT LIABILITY - a possible obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of 1 or more future events not wholly within the control of the entity. So, meaning hindi siya probable - present obligation meaning it is not probable na magkakaroon ng outflow or the amount can not be measured reliably so hindi pa siya pwedeng recognize as a liability. 7. Distinguish a contingent liability from a provision. Explain the treatment of a contingent liability. Kapag contingent liability, pwedeng probable siya na magkaroon ng outflow pero hindi siya measurable or the other way around na measurable pero hindi probable. Pero kapag naman provision, dapat present yung dalawang requisite na measurable yung amount and probable na magkaroon ng outflow of resources for settlement. 8. Explain the treatment of a contingent liability So ang treatment sa contigent liability ay hindi siya irerecognize pero kasama siya sa ididisclose sa financial staments. Yung mga kasamang ididisclose ay yung description ng nature ng contingent liability, yung estimates, indication of uncertainties and possible reimbursements. 9. Define a contingent asset. Ito yung mga asset that arised from past events na may potential economic benefit dependent on 1 or more future events out of the company’s control. Subject to disclosure ang contingent asset pero hindi hindi siya nirerecognize as income sa financial statements kasi baka hindi naman pala mag uundergo ng realization kasi hindi naman certain na marereceive natin yung asset. At kahit probable at can be estimated ang gain na makukuha ng entity hindi pa rin ito irerecord. 10. Explain the treatment of a contingent asset. Ang contingent asset ay hindi nirerecognize pero dinidisclose lang sa financial staments kung ito ay may probable na inflow of economic benefits or more than 50% likely to occur pero kung possible and remote lang yung occurrence, hindi na siya kailangang idisclose. EX. LAWSUITS

PAS 22 – FINANCIAL INSTRUMENTS - PRESENTATION 1. Define a financial instrument. - any (1) contract involving (2) 2 parties, (3) producing a financial asset to one party and a financial liability or equity instrument on the opposing party. EXAMPLES a. Cash in the form of notes and coins - This is a financial asset of the holder or bearer and a financial liability of the issuing government. b. Cash in the form of checks - This is a financial asset of the payee and a financial liability of the drawer or issuer. c. Cash in bank - This is a financial asset of the depositor and a financial liability of the depository bank. d. Trade accounts - This is a financial asset of the seller as accounts receivable and a financial liability of the customer or buyer as accounts payable. This a financial asset of the lender or buyer as accounts payable. e. Note and loan - creditor as note receivable or loan receivable and a financial liability of the borrower or debtor as note payable or loan payable. f. Debt security - This is a financial asset of the investor and a financial liability of the issuer. 8. Equity security - This is a financial asset of the investor and an equity of the issuer.

unfavorable exchange of financial assets or liabilities with another entity. 5. Give examples of a financial liability. Trade accounts payable - liability to pay for goods or services that have been acquired from suppliers notes payable - a written promissory note. A borrower obtains a specific amount of money from a lender and promises to pay it back with interest over a predetermined time period loans payable bonds payable - current liability if the issuer of the bonds must use a current asset or will create a current liability in order to pay the bondholders when the bonds mature 6. Define an equity instrument. - Ang equity instrument ito ay yung mga residual interest na nangagling sa difference ng asset at liability example po nito ordinary share capital. Katulad sa basic accounting nung shs ginagamit ito or para makuha ang ginagawa ay asset minus liablity equal to equity at ito ay dapat residual interest in the asset of an entity pagkatapos ideduct lahat ng liabilities. 7. What is the guideline in determining whether financial an instrument is a financial liability or an equity instrument?

3. Give examples of financial asset.

According to pas 32 na dedetermine ang financial instrument is a financial liability or an equity instrument accordance with the substance of the contractual arrangement at sa definition nitong tatlo katulad nito the instrument ay magiging equity instrument pag walang contractual obligation to deliver cash or another financial asset dahil pag ito ay contractual to deliver cash ito ay magiging financial liability.

Cash or currency as it is use as a medium of exchange

8. Explain a redeemable preference share.

Deposit of cash from a financial institution since it is a form of asset na nagderive from contractual right of the depositor and the bank

Ang redeemable preference share ay nag proprovide ng madatory redemption by the issuer for a fixed at ito rin ay nag bibigay ng the holder the rights to require the issuer to redeem the instrument at a particular date for fixed or pag dedeterminable ng amount is also financial liability of the issuer dahil ito ay contractual obligation to pay cash para sa future time.

2. Define a financial asset. Ito yung asset in a form of cash or from contractual agreements on future cash flows or from owning an equity instrument of another entity.

Also yung mga receivables na pwede nating mareceince in the future. Trade accounts receivable, note receivable, loans receivable and bonds receivable. 4. Define a financial liability.

9. Explain the accounting for a compound financial instrument.

Any liability from contractual obligation that is either to deliver cash or another financial asset. Or a potentially

Ang compound financial instrument ito yung binubuo ng dalwa, both liabilty and an equity. One component meet

2 financial instrument Example is bond payable issued with share warrants or convertible bond Then acording to pas 32 pag ganito nag cocombine ang dalawa, ang financial liablity at financial equity dapt itong pinag hihiwalay at tinatawag ito bilang "split accounting". So the first step is to determine the fair value of the liability and then pag na determine natin then ileless natin sya sa total consideration to get the equity portion at ang matitira or residual would be allocated to equity portion. 10. Explain the accounting for bonds payable issued with share warrants and convertible bonds....