TOPIC 28: FINANCIAL ASSET AT measured at FVTPL even if the said FA satisfies the
AMORTIZED COST amortized cost measurement
 Any transaction cost is part of the cost of financial
asset measured at amortized cost
 Under the effective interest method, the interest
income is computed by multiplying the carrying
amount by the effective rate
 The nominal/stated rate is used in computing accrued
interest or interest receivable
TOPIC 29: MARKET PRICE OF BONDS
 In computing the market price of term bonds; get
the present value of the nominal interest payments
using the yield/effective rate and the PV of the
principal using also the yield-effective rate and add
the two PVs to get the market price.
 If there is discount, ER>NR
 If there is premium, ER<NR
 Serial bonds are those that mature in installments
 Formula to get the PV of a serial bond:
(Installment payment + Nominal interest payment)
(Present value of 1)
TOPIC 30: BOND INVESTMENT-
FVOCI/FAIR VALUE OPTION
 If the business model is to collect contractual cash
flows (primarily for principal and interest) and to
sell the financial asset, it is recorded at the FV
through OCI
 In this case, interest income is recognized using the
effective interest method as in amortized cost
measurement
 On derecognition, the cumulative gain/loss in other
comprehensive income shall be reclassified to profit
or loss
 The increase in unrealized gain is reported in the
statement of comprehensive income but the
cumulative unrealized gain is reported in the
statement of changes in owner’s equity
 PFRS 9 provides that an entity at initial recognition
may irrevocably designate a financial asset as
 Under the FV option, all changes in the fair value
are recognized in P &L.
 Moreover, under the FV option, the interest income
is based on the nominal interest rate rather than
using the effective rate. There is no
discount/premium amortization.
TOPIC 31: INVESTMENT PROPERTY
 Only land and building can qualify
 If the investment property is accounted for under
the fair value model, no depreciation is recognized.
 If accounted for under the cost model, depreciation
is to be computed.
 Property held by a subsidiary in the ordinary course
of business is included in the subsidiary’s inventory
 A land leased by the parent company to its
subsidiary under an operating lease is an owner’s
occupied property for purposes of consolidated
financial statements.
 However, from the perspective of the separate
financial statements of the parent such asset is an
investment property
 Movable property like machinery cannot qualify for
investment property
TOPIC 32: FUND AND OTHER
INVESTMENTS
 Any income earned on the sinking fund investments
should form part of the sinking fund balance
 The annual deposits to the fund and the interest
earned on those deposits should form part of the
non-current sinking fund
 The future value factor of an annuity due is used if
the annual deposits are made at the beginning of
each year
 Annual deposit to a fund is computed by dividing
the amount of the fund by the future value factor
 Increase in the cash surrender value decreases life
insurance expense
 Gain on Life Insurance Settlement:
 Proceeds
Less: Cash Surrender Value
Unexpired Life Insurance
TOPIC 33: DERIVATIVES-INTEREST SWAP,
FORWARD CONTRACTS etc.
 Unrealized gain-OCI for cash flow hedge is part of
OCI
 Received-Variable (Derivative Asset)
 Pay-Fixed (Derivative Liability)
 The Notional of the interest rate swap agreement is
equal to the principal amount of the loan
 The forward contract receivable is not discounted if
the expected transaction is less than a year
 The cost of purchases under the futures contract is
the notional amount plus the amount paid for the
call option
 The loss on call option is equal to the option money
paid to acquire such. Option is a right not an
obligation.
 If purchase transaction (received-variable, pay-
fixed)
 If sale transaction (received-fixed, pay-variable)
TOPIC 34: PROPERTY-PLANT &
EQUIPMENT-ACQUISITION COST
 When a group of assets is acquired for a lump-sum
price, the total cost should be allocated to the
individual assets based on their relative fair
value/appraised value
 Total cost of the building= Cash paid + mortgage
assumed
 If the PPE is acquired in deferred terms, the
acquisition cost is equal to the cash price
 Installation costs are to be capitalized as part of the
cost of an asset
 In the absence of any cash price, the cost of the
asset acquired by installment is equal to the present
value of the total installment payments
 Capital gifts/grants from non-shareholders shall be
recorded at income at fair value when it is received
or becomes receivable
 If shares are issued for non-cash consideration, the
proceeds should be measured by the fair value of
the consideration received or the fair value of the
shares issued in the absence thereof
 Assessed value of the land is only for real property
tax purposes and not an evidence of fair value
 Donated asset received from shareholders should be
recorded at fair value and is credited to donated
capital (part of share premium). However legal
expenses related to the acquisition or the transfer of
the donated property is not capitalized as cost of the
said property but as deduction of the donated
capital.
 Cash discounts whether taken or not, trade
discounts and rebates are deducted in arriving at the
cost of PPE
TOPIC 35: PROPERTY-PLANT &
EQUIPMENT-ACQUISITION BY
EXCHANGE
 PAS 16, paragraph 24, provides that an item of PPE
acquired in a non-monetary exchange or a
combination of monetary and non-monetary
exchange is measured at fair value of the asset
given up plus the cash payment
 The exchange has commercial substance if the
configuration of the cash flows from the asset
acquired is expected to be significantly different
from the configuration of cash flows of the asset
exchanged
 The exchange transaction is measured at the
carrying amount of the asset given up adjusted by
the cash involved if the exchange lacks commercial
substance
 If the old asset has no available fair value, the new
asset received in exchange is recorded at its cash
price without trade-in.
TOPIC 36: GOVERNMENT GRANT
 PAS 20, paragraph 12 provides that government
grants are recognized as income over the periods
necessary to match them with the related costs
which they are intended to compensate on a
systematic basis.
 PAS 20, paragraph 17, provides that grants related
to depreciable assets are usually recognized as
income over the periods and in proportion to the
depreciation of the related assets
 PAS 20, paragraph 18, provides that grants related
to non-depreciable assets requiring fulfillment of
certain conditions are recognized as income over
the periods which bear the cost of meeting the
conditions
 PAS 20, paragraph 20, provides that a government
grant that becomes receivable as compensation for
expenses already incurred or for the purpose of
giving financial support to the entity with no related
future costs is recognized as income over the period
in which it becomes receivable or when received
 PAS 20, paragraph 32, provides that repayment of
government grant shall be accounted for as a change
in accounting estimate. The repayment of grant
related to income shall be applied first to the
unamortized deferred income and any balance shall
be recognized in P & L.
 PAS 20, paragraph 32, provides that repayment of
grant related to an asset shall be recognized by
increasing the carrying amount of the asset if the
“deduction from the asset approach” was followed.
The cumulative additional depreciation that would
have been recognized to date in the absence of the
grant shall be recognized in P&L immediately
 2 policies for recording grant:
a. Deduction from the asset approach
b. Deferred Income approach
 PAS 20, paragraph 10a, provides that the benefit
from a below-market or zero-interest government
loan shall be measured as the difference between
the face amount of the loan or proceeds received
and the present value of the loan. The deferred grant
income is recognized as income using the effective
interest method.
TOPIC 37: LAND AND BUILDING
 Under PIC Interpretation, the net cost of
demolishing an old building to make room for the
construction of new building is charged to the cost
of the new building
 If the land is acquired as an investment property and
the old building is razed, the net cost of demolishing
an old building is charged to the cost of the land
 Under PIC Interpretation, when land and an old
building are acquired at a single cost, the single cost
is allocated to land and building based on their
relative fair value
 If the old building is subsequently demolished for
the construction of a new building, the demolition
cost is capitalized as cost of the new building but
the allocated cost of the old building is accounted
for as loss
 Organization fees and corporate organization costs
should be expensed immediately
 Delinquent property taxes are capitalized to the cost
of the land
 Sidewalk and parking lot should be charged to land
improvements
 Imputed interest is not to be capitalized. Only those
interest actually incurred to finance the construction
should be capitalized
 Option fee for land not acquired should be treated
as outright expense
TOPIC 38: MACHINERY & CAPITAL
EXPENDITURE
 Cost of removing the old machinery is treated as
outright expense
 Any cash discount is deducted from the cost of the
machinery regardless of whether taken or not
 Shipping, installation and testing costs are to be
capitalized
 Recoverable VAT is not capitalizable
 Estimated dismantling costs (present value) are
capitalizable
 Major improvements and costs incurred resulting to
a significantly more efficient production are to be
capitalized
TOPIC 39: BORROWING COST
 PAS 23, paragraph 12, provides that if the funds are
borrowed specifically for the purpose of acquiring a
qualifying asset, the amount of capitalizable
borrowing cost is the actual borrowing cost incurred
during the period less any investment income from
the temporary investment of these borrowings
 PAS 23, paragraph 14, provides that if the funds are
borrowed generally and used for acquiring a
qualifying asset, the amount of capitalizable
borrowing cost is equal to the average carrying
amount of the asset during the period multiplied by
a capitalization rate or average interest rate.
However, the capitalizable borrowing cost shall not
exceed the actual interest incurred
 In general borrowings, any investment income is
not deducted from the actual interest cost incurred
TOPIC 40: DEPRECIATION-CHANGE
IN THE USEFUL LIFE & METHOD
 If an asset is acquired by installment, the cost is
equal to the cash price or present value of future
payments
 Any costs incurred in order to improve the
efficiency and increase the inflow of economic
benefits is capitalizable
 Composite life= TDA/TAD
 Composite Rate= TAD/TC
 Under the composite method, no gain/loss is
recognized on the derecognition of an asset
 If technological advancements have made the assets
virtually obsolete and that they would have to be
replaced, any carrying amount in excess of the
expected residual value should be fully depreciated
 Any costs incurred in order to comply with
pollution control ordinance is capitalizable
TOPIC 41: DEPLETION
 Exploration assets are expenditures incurred by an
entity after the entity has obtained legal rights for
the exploration & evaluation of mineral resources
but before the technical feasibility and commercial
viability of extracting mineral resource
 Roads and infrastructure should not be recognized
as exploration asset but as development cost
 Under the successful effort method, only the
exploration costs associated with successful wells
are capitalized. The exploration costs associated
with dry holes are expensed immediately.
 Under the full cost method, all exploration costs
whether associated with successful or dry holes are
capitalized.
 Depletion is a cost of production and therefore may
be directly debited to inventory under the perpetual
system.
 Composition of the Wasting Asset:
1. Acquisition Cost
2. Exploration Cost
3. Development Cost
4. Estimated Restoration Cost (at PV)
 The development cost related to production
equipment is not part of the cost of the mineral
property because it is subject to depreciation.
 Depletion rate per ton= Remaining Depletable
Amount/Remaining Tons to be Extracted
 If there is an appropriate rate available for the
restoration cost capitalized, such shall be used to
discount such cost
 If mining equipment is movable and can be used in
future extractive project, the equipment is
depreciated over the useful life using the straight-
line method
 If immovable, the shorter between the life of the
mine and the life of the equipment. If the life of the
mine (output method) while if life of the equipment
(straight-line method)
 Maximum dividend declared:
(Retained Earnings + Accumulated Depletion) –
Capital liquidated - Unrealized Depletion in Ending
Inventory
 In the year of shutdown, the straight-line method is
used, based on the remaining life of the asset
TOPIC 42: REVALUATION
 Depreciated Replacement Cost/Sound Value
-Carrying Amount = Revaluation Surplus
 The revaluation surplus of land is not realized
annually because it is non-depreciable. It is realized
in full upon disposal of it
TOPIC 43: IMPAIRMENT OF ASSETS
 If the recoverable amount of an asset is lower than
the carrying amount, the difference is recognized as
an impairment loss. The recoverable amount is
equal to the value in use or fair value less cost of
disposal, whichever is higher
 The discounted value of a stream of indefinite
annual cash flows is simply computed by dividing
the annual cash flow by the discount rate
 In case of reversal of impairment, PAS 36 cost would only maintain and not enhance the
paragraph 117, provides that the fair value cannot originally assessed future benefits
exceed the carrying amount assuming there was no  The patent should be amortized over the shorter
impairment between the remaining useful life and the remaining
Formula: Carrying amount assuming no impairment legal life
Less: Carrying amount at the date of reversal  Considering the almost automatic renewal of a
 The carrying amount plus the estimated cost of trademark, it can be classified as an intangible asset
disposal should be recognized as impairment loss if with an indefinite useful life. It is not amortized but
the asset will no longer be economically useful in is tested for impairment at least annually.
the production process after the reporting period
 PAS 36, paragraph 104, provides that when an
impairment loss is recognized for a cash generating
unit, the loss is allocated to the assets of the unit in
the following order:
a. Goodwill, if there’s any
b. To all other NCA of the unit, pro-rata based on
their Carrying amount
 PAS 36 paragraph 105, provides that the carrying
amount of an asset shall not be reduced below the
highest of FV less cost of disposal, value in use &
zero
 PAS 36, paragraph 76, provides that the carrying
amount of a cash generating unit includes the
carrying amount of only those assets that can be
attributed directly or allocated on a reasonable and
consistent basis to the CGU and shall generate the
future cash inflows used in determining the value in
use of the CGU
 Goodwill impairment is determined at the level of
the individual reporting unit and not at the entity
level
TOPIC 44: INTANGIBLE ASSETS
 An in-process research and development project
acquired separately is recognized as an asset at cost,
even if a component is a research
 Subsequent expenditure of an in-process research
and development project is accounted for as any
other research and development expenditure which
may be expensed or capitalized depending on the
criteria for the recognition of an intangible asset
 Research and Development expenditures are treated
as outright expense, unless it is an acquired in
process R and D, separately
 The cost of litigation, whether successful or not,
should be treated as outright expense because such