PFRS 1- First time Adoption of Philippine Financial Reporting Standards

-First PFRS are “the first annual financial statements in which entity adopts PFRS, by an explicit and unreserved
statement of compliance with PFRS.
-if the previous financial statements are:
a. were prepared in accordance with other reporting standards not consistent with PFRS
b. did not contain an explicit and unreserved statement of compliance with PFRS
c. contained an explicit and unreserved statement of compliance with some. But not all
d. prepared in accordance with PFRS but were used for internal reporting purposes only
e. did not contain a complete set of financial statements as required under PAS 1
f. The entity did not present financial statements in previous periods.

-PFRS is applied only once…

-An entity presenting its first PFRS financial statements is called “first-time adopter”
-PFRS 1 requires entity to prepare and present opening PFRS statement of financial position at the date of
transition to PFRS(the beginning of the earliest period for which entity presents full comparative information
under PFRS)

a. What is the date of transition

Answer: The date of transition is Jan 1,20x2 (the beginning of the earliest period)
b. What is the date of the opening PFRS statement of financial position?
Answer: The date of the opening PFRS statement of financial position is Jan 1,20x2
c. What financial statements shall be prepared on December 31,20x3?
Answer: 1. Statement of Financial position as of Jan 1, 20x2 (opening)
2. Complete set oof financial statements dated December 31,20x2 (comparative)
3. Complete set of financial statements dated December 31,20x3 (current year first PFRS financial statements)
ABC CO. shall apply uniform accounting policies based on the latest version
d. What if ABC Co. reports two-year comparative information, what is the date of transition to PFRS?
Answer: Jan. 1,20x1

-PAS 1 requires retrospective application

-Retrospective application means as if PFRS have been used all along. This application requires restating assets
and liabilities in the opening statement of financial position.

PFRS 2 SHARE-BASED PAYMENT

-Transactions involving the issuance of shares in exchange for noncash consideration are account under PFRS 2
-Share-based payment transaction is a transaction in which the entity acquires goods or services and pays for them
by issuing its own equity instrument or cash based on the value of its own equity instruments.
A share-based payment transaction can be:
1. Equity-settled share-based payment transaction- one in which the entity receives goods or services and pays for
them by issuing its shares of stocks or share options
2. Cash-settled share-based payment transaction- one which the entity receives goods or services and incurs an
obligation to pay cash at an amount that is based on the fair value of its own equity instruments
2. Choice between equity-settled and cash-settled- one which entity receives goods or services and either the entity
or the counterparty is given a choice of settlement in the form of equity instruments or cash based on the fair value
of equity instruments.

-Equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities
- increase in equity if goods and services are received in equity settled
- liability if goods or services are acquired in cash-settled
-Share-based compensation plan-is an arrangement whereby, in exchange for services, an employee is
compensated in the form of the entity’s equity instrument.
Examples:
a. Employee share options (equity settled)
b. Employee share appreciation rights (cash settled)
c. Compensation plans with a choice of settlement between (a) and (b) above
-Share option is a contract that gives the holder the right, bit not the obligation to subscribe to the entity’s shares at
a fixed or determinable price for a specified period of time.
Cash-settled
Share appreciation right-is a form of compensation given to an employee whereby the employee is entitled to
future cash payment

-Share-based transaction with non-employee is measured using the ff. order of priority:
1. Fair value of the goods or services received
2. Fair value of the equity instrument granted
- Share-based payment of transaction with employee or others providing similar services is measured using the ff
order of priority:
1. Fair value of the equity instrument granted
2. Intrinsic value
- Measurement date is the date at which the fair value of the equity instrument granted is measured:
a. For transactions with non-employees, the measurement date is the date the goods or services are obtained
b. For transactions with employees and others providing similar services, the measurement date is the grant date
PAS 3 BUSINESS COMBINATIONS
-Business Combination- occurs when one company acquires another or when two or more companies
merge into one. Transaction on which the acquirer obtains control of one or more businesses.
After the combination, one company gains control over the other.
Parent or acquirer- the company that obtains control over the other/acquiree.
Subsidiary or acquiree- the other company that is controlled/ business that acquirer obtains control
PFRS 3 does not apply if a.) formation of a joint venture b.) the acquisition of an asset and related
liabilities that does not constitute a business c.) combination of entities under common control
Essential elements in the definition of a business combination
1.) Control 2.) Business
Control- an investor controls an investee when the investor has the power to direct the investee’s
relevant activities.
-Control normally presumed to exist when the acquirer holds more than 50% (or 51% or more) interest
in the acquiree’s voting rights (presumption). It can also obtained when:
a.) the acquirer can remove the majority of the board of directors of the acquiree
b.) the acquirer cast the majority of votes at board meetings/equivalent bodies within the acquiree
c.) acquirer has power more than half of voting rights because an agreement with other investors
d.) acquirer controls the acquiree’s operating and financial policies because of a law/ an agreement
Business- is an integrated set of activities and assets that is capable of being conducted and managed
for the purpose of providing goods or services to customers, generating income
Business has three elements:
1. Input- any economic resources that results to an output when one or more process are applied.
2. Process- any system, standard, protocol, convention or rule that when applied to an input, creates an
output.
3. Output- the result of 1 and 2 above that provides goods or services to customers, and income
-If the assets acquired (and related liabilities assumed) do not constitute a business, the entity accounts
for the transaction is not a business combination.
Business combinations are accounted using acquisition method: a) identifying the acquirer
b) determining the acquisition date c) recognizing and measuring goodwill.
The acquisition date is the date on which the acquirer obtains control of the acquiree. This is normally
the closing date(the date which the acquirer legally transfer the consideration)

Recognizing and measuring goodwill

a. Goodwill as an asset
b. Goodwill on a bargain purchase as gain in profit or loss

-A ‘gain on a bargain purchase” is recognized in profit or loss in the year of acquisition only after
reassessment of the assets acquired and liabilities assumed in the business combination.
-Only identifiable assets acquired are recognized. Unidentifiable assets are not recognized.
- Acquisition related costs are expensed, except costs of issuing equity and debt instruments.
- Acquisition related costs do not affect the measurement of goodwill.
PFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCOUNTED OPERATIONS
-non current assets can be a current assets only if they meet the criteria to be classified as held for sale
under PFRS5
Noncurrent assets within the scope of PFRS 5:
a.) PPE b.) Investment in property measured under cost model
c) Investment in associate, subsidiary, or joint venture d.) Intangible assets
-Disposal group- is a group of assets to be disposed of, by sale or otherwise , together as a group in a
single transaction.
-Noncurrent asset(disposal group) is classified as held for sale if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use.
-An asset (or disposal group) that is not sold within 1 year from the date of its classification as held for
sale is reclassified back to its previous classification (held for sale back to PPE)
Measurement- Held for sale assets are initially and subsequently measured at the lower of carrying
amount and fair value less cost to sell.
Fair value- is the price that would be received to sell an asset
Costs to sell- are the incremental costs directly attributable to the disposal of an asset, excluding
finance cost and income tax expense
-Subsequent changes in fair value less costs to sell are recognized in profit or loss as impairment losses
or gains on reversal impairment
-The results of discontinued operations are presented in the statement of profit or loss and other
comprehensive income as a single amount. (post-tax profit or loss)

-Held for sale assets are measured at the lower of carrying amount and fair value less costs to sell
-Held for sale classification is permitted when the noncurrent asset or disposal group is (a) available for
immediate sale in its present condition (b) the sale is highly probable
-Non-adjusting event after reporting period
-The result of discontinued operations are presented separately in the statement of comprehensive
income as a post-tax single amount
-The assets and liabilities of a disposal group are presented separately on the face of the statement of
financial position. Offsetting is prohibited.

PAS 6- EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES

-PFRS 6 applies to expenditures incurred after the entity has obtained legal rights to explore
in a specific area but before the existence of mineral reserved is in fact established and the
technical feasibility and commercial viability are demonstrable are called development costs.

-PFRS 6 permits entities to develop their own accounting policy for exploration and
evaluation assets
-An entity may recognize exploration and evaluation expenditures as expenses or assets
depending on its chosen accounting policy.
-Exploration and evaluation of assets are initially measured at cost.
-Exploration and evaluation of assets are subsequently measured using either cost model or
revaluation model
-Classification of exploration and evaluation of assets are treated as a separate class of assets
as tangible (vehicles and drilling rigs) or intangible ( drilling rights)
- Exploration and evaluation of assets are assessed for impairment when indication exists that
their carrying amount exceeds their recoverable amount.
PFRS 7 Financial Instruments: Disclosures