CASH AND CASH EQUIVALENTS

CASH
1. CASH ON HAND a. Coins and Currencies
b. Petty Cash Fund
c. Undeposited Collections
d. Money Order Example: Remittance Centers (need natin ng reference number bago
maclaim ang money)

2. CASH IN BANK a. Savings Deposit (ATM)

b. Demand Deposit (Passbook/Cheques) also known as Checking/Current Deposit

Note : BOTH a and b are interest bearing

c. Checks received from customers

Types: 1. Personal Checks most common
2. Certified Check merong verification process. Ex. Si BDO, ichecheck nya muna kung
merong pera talaga sa bank si customer. If verified, then i-mamark
as "Certified" or "Accepted"

Customer ⇒ ABC corp

3. Cashier's/Manager's Check technically si bank na yung nagbabayad saatin

Customer ⇒ BANK ⇒ ABC corp

4. Traveller's Check this check can be used to any countries regardless of the currencies

will pay cash

Mr. X ⇌ Bank
will issue checck

5. Bank Drafts used for large purchases

request amount for bank draft

Mr. X ⇌ Bank
transfer from bank account to bank draft

CASH EQUIVALENTS
CHARACTERISTICS • short-term
• highly liquid
• readily convertible into cash
} Debt instruments acrquired 3 months or less before
maturity

a. Treasury Bills • 90 days or less

• automatic cash equivalent
magiging CE lang kapag
b. Treasury Notes
c. Treasury Bonds
1 year to 10 years
10 years or more } binili mo sya 3 months or
less before maturity
d. Time deposit • mawiwithdraw mo lang upon maturity
• > interest compared to savings & demand deposit
e. Money Market Placements mutual funds
f. Commercial Paper used by large corporations

COMPENSATING BALANCE minimum required to be maintained in connection with a borrowing agreement

PART OF CASH?
NOT legally resitricted? 
legally restricted?  imimirriror mo if yung partner nyang loan is CL or NCL
 BANK RECONCILIATION
ADJUSTED BALANCE RECONCILIATION
PER BOOKS
Unadjusted Balance xxx
ADD: Credit Memos Collection made by banks xx
Interest income xx
Proceeds from loan xx
Matured time deposit xx xx
LESS: Debit Memos Bank service charges xx
NSF (DAIF) xx
Auto debits xx
Loan payments xx xx
ADD/LESS: Errors xx/(xx)
xxx

PER BANKS
Unadjusted Balance xxx
ADD: Deposits in Transit Deposits not yet credited xx
Undeposited collections xx xx
LESS: Debit Memos Issued but not yet encashed xx
ADD/LESS: Errors xx/(xx)
xxx

NOTE: Adjusting journal entries applies only to Book reconciling items

PETTY CASH FUND

DEFINITION money set aside to pay small and recurring expenses

May be accounted for: a. Imprest Fund System 

b. Fluctuating Fund System

Journal Entries a. Establishment: Petty Cash Fund xxx

Cash in Bank xxx

b. Disbursement MEMO ENTRY ONLY

c. Replenishment Expenses xxx

Cash in Bank xxx

d. Increase Petty Cash Fund xxx

Cash in Bank xxx

e. Adjustment Expenses xxx

Petty Cash Fund xxx

Petty Cash Fund

Beg xx End xx
Establish xx Adjustment xx
Increase xx

NOTE: The ending balance is also the coins and currencies

Shortage Overgage
Cash Shortage xx Petty Cash Fund xx
Petty Cash Fund xx Cash Overage xx
 TRADE AND OTHER RECEIVABLES
TYPES
1. TRADE  arise from sale of goods or services on the ordinary course of business
 always presented as current assets hindi applicable dito ang 1 year rule. Basta related sa
ordinary course of business ang receivable mo, current
asset pa din sya

Kinds: 1. Accounts Receivables

2. Notes Receivables with promissory notes
3. Loans Receivables usually transactions with banks

2. NON TRADE residual definition

Examples: 1. Advances to:

a. Employees
b. Officers
c. Shareholders
d. Suppliers
} usually classified as current assets. Otherwise, non
current assets

2. Supplier's Debit Balance arise when we have overpayment

3. Subscription Receivables
Collectible within 1 year?  presented as current asset
 contra equity account
4. Accrued Income these are income earned but not yet collected
Ex. Interest Receivable, Rent Receivable, Dividend Receivable
5. Claim Receivable Ex. Claims from insurance, Tax Refund

NOTE: Trade and Other Nontrade Receivables is presented in the Balance Sheet as one line item with a disclosure on the notes to FS

MEASUREMENT
INITIAL recorded at Selling Price/ Invoice Price/ Transaction Price
NOTE: List Price ≠ Invoice Price

2 Methods in initial recording 1. Gross Method

2. Net Method

Ex. Receivable of 10,000 with 5/10,n/30 terms

Under: Gross Method Net Method

a. Time of Sale AR 10,000.00 AR 9,500.00

Sales 10,000.00 Sales 9,500.00

b. Within discount period Cash 9,500.00 Cash 9,500.00

Sales Discount 500.00 AR 9,500.00
AR 10,000.00

c. Beyond Cash 10,000.00 Cash 10,000.00

AR 10,000.00 SDL/Othr Inc. 500.00
AR 10,000.00

SUBSEQUENT measured at Net Realizable Value Gross Amount/Balance xx

Less: Allowances xx
NRV or AC xx

3 Sources for Allowances 1. Allowance for Doubtful Accounts possibility of non collection
2. Allowance for Sales Discount customers will take advantage on discount period
3. Allowance for Sales Returns possibility na defective ang item at ibalik saatin
Accounting for BAD DEBTS Allowance Direct
Application  Generally Accepted  Non GAAP  Tax Purposes

a. Time of Sale BD Expense xx N/A

A4DA xx

b. Write Off A4DA xx BD Expense xx

AR xx AR xx

c. Recovery AR xx AR xx
A4DA xx BD Expense xx
Cash xx Cash xx
AR xx AR xx

3 Methonds in estimating
Doubtful Accounts 1. % of Net Sales eto yung bad debt expense mo
eto na yung ending balance ng Allowance for Doubtful
2. % of Accounts Receivable
3. Aging of Accounts Receivable } Accounts mo

Allowance for Doubtful Accounts

Ending xx Beginning xx
Write Off xx Recovery xx
Bad Debt Expense xx

ACCOUNTING FOR FREIGHT CHARGES

PARTY WHO IS CHARGEABLE? WHO ACTUALLY PAID?

Buyer FOB Shipping Point Freight Collect
Seller FOB Destination Freight Prepaid
 NOTES RECEIVABLE
INTRO
DEFINITION/CLASSIFICATION  supported by formal promises
 standing alone
 more secured than Accounts Receivable
Goods worth

⇌
100K
Seller Buyer
Promissory
Note

MEASUREMENT
INITIAL
FV + TC usually the transaction cost here is ZERO

1/1/2024 12/31/2024 12/31/2025

Short term ( ≤ 1 year)
Fair Value = Face Value
Long term (> 1 year)
Fair Value = Present Value

Interest Bearing Face Value

Short Term Notes Receivable
Non Interest Bearing Face Value

Reasonable Rate (NI = EI) Face Value

Long Term Notes Receivable Interest Bearing
Notes Receivable 100,000
Sales 100,000

Unreasonable Rate (NI ≠ EI) Present Value

Non Interest Bearing Present Value

always Gross Amount* Notes Receivable 100,000

Un. Int. inc. 17,400
Sales 82,600
Ex. PV of 1: 10% for 2 years
Subject to amortization
Un. Int. inc. xx
Interest Income xx
Ililipat mo from unearned to earned portion by portion
each year

SUSBEQUENT every EOY

Interest Bearing
Short Term Notes Receivable
Non Interest Bearing
Amortized Cost
Reasonable Rate (NI = EI)
Long Term Notes Receivable Interest Bearing
Unreasonable Rate (NI ≠ EI)
Non Interest Bearing
 2 TYPES OF INTEREST RATES
NOMINAL agreed interest rate

MARKET/EFFECTIVE/IMPLIED
INTEREST RATE based on market
AMORTIZATION TABLE

INTEREST RECEIVED INTEREST INCOME

DATE COLLECTIONS CARRYING AMOUNT
(NIR 10%) (EIR 12%)
1/1/2023 1,000,000.00
12/31/2023 2,000,000.00
12/31/2024
12/31/2025

NOTE: Shortcut in computing the carrying amount is the CA x 1+EIR - less collections

HOW TO COMPUTE PRESENT VALUE FACTOR?

Step 1 Know the Contractual cash Flow
a. Long Term Non Interest Bearing as if Principal
b. Long Term Non Interest Bearing (unreasonable; 2 CF) 1. as if Principal
2. Nominal Interest

Step 2 Know the timing of Cash Flows because timing dictates what PV to be used

Step 3 Compute the PV factor

a. PV of 1 Lumpsum without interruptions
b. PV of Ordinary Annuity of 1 • Annual and equal. (If not equal,
babalik sa PV of 1)
• The first payment is one period after
c. PV of Ordinary Annuity due in advance • The first payment is today

Step 4 Enter to your ordinary calculator

a. PV of 1 1+i rate / =
b. PV of Ordinary Annuity of 1 1+i rate / = GT - 1
c. PV of Ordinary Annuity due in advance 1+i rate / = GT - 1 x 1+I rate

POINTS TO REMEMBER

ADD if DISCOUNT ( Initial Measurement < Face Value) Nom. Rate < E.I. Rate
DEDUCT if PREMIUM (Initial Measurement > Face Value) Nom. Rate > E.I. Rate
 LOANS RECEIVABLE
INTRO
DEFINITION/CLASSIFICATION  Nonderivative financial assets with fixed or determinable payments that are not quoted in an active market
 arising from loans granted by financial institutions
Examples: a. Banks
b. Insurance Companies
c. Pawnshops
d. Cooperatives
P5M Housing
Loan

BPI
⇌
Promissory
Mr. X
(borrower)

Note

LOANS RECEIVABLE
Always Interest Bearing vs. NOTES RECEIVABLE
May or may not be interest bearing

MEASUREMENT
INITIAL
FV + TC unlike in Note Receivable, there is always a TC

1/1/2024 12/31/2024 12/31/2025 12/31/2026 12/31/2027

We will always use Amortization Table

RECEIVED  already paid/deducted from loan

proceeds
 this is a deduction in loans receivable

Example of Transaction Costs ORIGINATION FEE INCURRED  residual definition

these are costs or fees with regards to this may be: a. DIRECT  this is a addidtion in
the credit evaluation loans receivable
 NOTE: that this is always b. INDIRECT expense immidiately
shouldered by the borrower

Face Value xx
Add: Direcrt Origination Cost xx
Less: Origination fee (RECEIVED) (xx)
Initial Measurement xx

Pro-Forma Journal Entry a. Establishment of Loans Receivable Loans Rec. xxx always at gross
Cash xxx

b. Direct Origination Cost Un. Int. Inc. xxx

Cash xxx

c. Origination Fee already received Cash xxx

Un. Int. Inc. xxx

NOTE: Unearned Interest Income is a contra-Loans Receivable account

SUSBEQUENT Amortized Cost

 IMPAIRMENT OF LOANS
CREDIT RISK this is the risk of non payment because of this, we have to compute for the impairment loss

Carrying Value of the Loan xx

Less: PV of remaining Cash Flows (xx)
Impairment Loss xx

using the original effective interest rate

always including the accrued interest

UNDER PFRS 9, WE HAVE A NEW MODEL WHICH CALLED EXPECTED CREDIT LOSS MODEL (ECL)
EXPECTED CREDIT LOSS (ECL) meaning, kahit wala pang credit loss, magrerecognize ka na agad ng impairment

Credit Risk Scenario Expected Credit Loss (ECL)

Stage 1
No significant ⇑ in Credit
Paid on time Magcocmpute pa din ng Impairment Loss
Risk
for 12 month. (more conservative na)

Date of loan

1/1/2024 12/31/2024 12/31/2025 12/31/2026 12/31/2027

Compute Impairment Loss

Credit Risk Scenario Expected Credit Loss (ECL)

Stage 2 Significant ⇑ in Credit Risk Compute ECL over the lifetime of the
BUT no objective of 1 month past due
loan
impairment
Ex. 1 month lang nadelay pero nagbayad pa din naman

1/1/2024 12/31/2024 12/31/2025 12/31/2026 12/31/2027

Compute Impairment Loss

Credit Risk Scenario Expected Credit Loss (ECL)

Stage 3 Significant ⇑ in Credit Risk
Compute ECL over the lifetime of the
BUT with objective of Nabankcrupt yung borrower natin
loan
impairment

1/1/2024 12/31/2024 12/31/2025 12/31/2026 12/31/2027

Compute Impairment Loss

 RECEIVABLE FINANCING
INTRO
DEFINITION  generate cash from receivables

TYPES 1. Pledging
2. Assignment
3. Factoring
4. Discounting

PLEDGING
DEFINITION  use of receivables as collateral for a loan
 ownership of AR remains with the entity
 also known as hyphothecated
Effect on the FS: a. AR is not affected by the pledging
b. Disclosure to the notes on financial statements

Cash 50,000 AR 100,000

Loans Pay. 50,000 Sales 100,000

ABC, Company (pledgor) goods worth P100,00

ABC Customer
pledges AR as collateral to
P50,000 loan P100,000 has been pledged to a P50,000
the loan
loan payables with BDO

BDO (pledgee)

ASSIGNMENT
DEFINITION  more formal borrowing arrangement than pledge (Loan Documents + Promissory Note)
still part of the Trade Receivables
 ownership of AR remains with the entity
specific AR
Effect on the FS: a. Reclassification entry needed
b. Disclosure to the notes on financial statements

Cash 80,000
Loans Pay. 80,000

AR-assigned 80,000 AR 100,000

AR 80,000 Sales 100,000

ABC, Company (assignor) goods worth P100,00

ABC Customer
assigns Accounts
P80,000 loan
Receivable
NOTES:
AR Assigned xx *assets
BDO (assignee) NP xx *liabilities
Equity in
xx
Assigned AR *equity

2 TYPES OF ASSIGNMENT 1. Notification Basis Customer BDO ABC

will directly pay send collection report

Customer ABC
2. Non Notification Basis
 FACTORING
DEFINITION  selling of accounts receivable
 there is a transfer of ownership to the factor
 concept of Factor's Holdback this is portion of the amount held by the factor until the
full collection of AR
Cash 70,000
*usually this is a loss, para kumita Loss 30,000
si factor AR 100,000

ABC, Company AR 100,000

Sales 100,000

P70,000 goods worth P100,00

ABC Customer

BDO (factor)
finance company } assumes the risk of collection & generally handles the billing and
collection function if:

2 TYPES OF FACTORING 1. Factoring WITHOUT recourse  can be:

 no more liability si entity kahit di a. Casual Factoring
makasingil si factor (absolute transfer of  minsan lang tayo mag factor kapag
ownership) kailangan
b. Factoring as Continuing Agreement
2. Factoring WITH recourse ( regular means of financing)
residual definition  residual definition. Part na ng
normal operations natin

Ex. Factored 60,000 AR, 4% service fee, 10% holdback, 12% interest on weighted average 73 days on 365 days

vs
FACTORING AS CONTINUING
CASUAL FACTORING
WITHOUT Recourse AGREEMENT/REGULAR MEANS
Cash 50,160.00 Cash 50,160.00
Rec fr Factor 6,000.00 Rec fr Factor 6,000.00
Loss 3,840.00 SC Exp 2,400.00 charged to
AR 60,000.00 Int. Exp 1,440.00 opex
AR 60,000.00

Ex. Factored 60,000 AR, 4% service fee, 10% holdback, 12% interest on weighted average 73 days on 365 days,
recourse obligation of 3,000 fair value
FACTORING AS CONTINUING
CASUAL FACTORING

vs
WITH Recourse AGREEMENT/REGULAR MEANS
Cash 50,160.00 Cash 50,160.00
Rec fr Factor 6,000.00 Rec fr Factor 6,000.00
Loss 6,840.00 SC Exp 2,400.00 charged to
AR 60,000.00 Int. Exp 1,440.00 opex
Liab 4 recource 3,000.00 Loss 3,000.00
AR 60,000.00
Liab 4 recource 3,000.00

NOTE: if silent, assumed that it is without recourse and casual factoring

 DISCOUNTING
DEFINITION  encashment before maturity
 there is a transfer of ownership to the factor

Cash 80,000
*usually this is a loss, para kumita Loss 20,000
si bank AR 100,000

ABC, Company NR 100,000

Sales 100,000

P80,000 goods 1/1

ABC Customer

BDO (factor)
finance company } P100,000 Promissory Note 3/1

2 TYPES OF FACTORING 1. Factoring WITHOUT recourse (if silent)  no more liability si entity kahit di makasingil si factor
(absolute transfer of ownership)
derecho credit ng NR. Notes yung balancing figure.

NR xx Cash xx
Sales xx Loss xx
to record sale to customer NR xx
Int. inc. xx
to record proceeds from discounting

a. Conditional Sale magrerecognize ka ng

2. Factoring WITH recourse contingent liab (to be
residual definition diclosed in notes to FS)

NR xx
Land xx
b. Secured Borrowing mas conservative , kasi Gain xx
magrerecord tayo ng to record sale to customer
liability
Cash xx
NR xx Loss on disc. xx
Land xx NR discounted xx (contra
Gain xx Int. inc. xx receivable)
to record sale to customer to record proceeds from discounting

Cash xx
(squeeze) Int. Exp. xx BS Presentation:
Liab4 NRdisc xx Notes Receivable xx
Int. inc. xx NR Discounted xx
to record proceeds from discounting Net NR xx

Formula in Discounting Maturity Value xx Maturity Value

Less: Discount xx
Proceeds xx 1-Jan 1-Feb 1-Mar 1-Apr

NOTE: if silent, assumed that it is without recourse

Discount Period (kung kailan mo sya

pinadiscount. Ex. 02/01 until the end of term
MV x Discount % x Discount Period ng notes/maturity)
Proceeds xx
sayo pa this time so nag earn
Add: Interest xx
ka pa ng interest income dyan
always given MV xx
 INVENTORY (PAS 2)
INTRO
DEFINITION  asset held for sale, in the ordinary course of business

MEASUREMENT

Initial 12/8/2024

Merchandising- Purchase + other cost necessary to Est. Selling Price xx

at COST Price bring the item to its location Est. Cost to sell (xx)
& condition LCNRV xx
Example:
FI, Taxes, Import Duties
Examples:
Commission of Agent
Manufacturing-
DM, DL, OH NOTE: We apply LCNRV item by item . If
not possible, then by group

PURCHASE COMMITMENTS agreement between buyer and seller

(aka Firm Commitment) purchase goods in the future
agreed fixed price
Purpose: to minimize risk of price increases
Every end of year, we check the Market to Market
Agreed Price > Market Price Loss Loss on PC xx
Est. Liab on PC xx

Agreed Price < Market Price Gain but remember we are not allowed to recognize gain right
away for conservatism purposes

METHODS IN ACCOUNTING ENDING INVENTORY

Example: Cost is 5,000,000 while LCNRV is 4,800,00

1. DIRECT METHOD Ending Inventory 4,800,000

(buried in COGS ) Income Summary 4,800,000

2. ALLOWANCE METHOD Ending Inventory 5,000,000 Ending Inventory 5,000,000

(you will create ALLOWANCE FOR Income Summary 5,000,000 Less: A4IWD (200,000)
INVENTORY WRITEDOWN ) True Invty WD 4,800,000
Loss on Invty Write Down 200,000
A4IWD 200,000

Regardless of the method used, it will result to same

amount

CLASSIFICATION
1. MERCHANDISING Complete Examples:
(retail/trading) Shopee ABC Customers
if silent:  P100.00 P120.00

2. MANUFACTURING Assemble X - ink

kinds: RM Y - cap ABC Customers
WIP Z - body
DM, DL, OH
FG P80.00 P120.00
 INCLUSIONS
LEGAL TITLE Control
Ownership
1. GOODS OWNED AND ON HAND

2. GOODS IN TRANSIT

Order Shipment Delivery

WHO OWNS THE GOODS?
FOB SP FOB DES
Buyer  
Seller  

Consignor 
3. CONSIGNED GOODS Consignment
Consignee

SYSTEMS
1. PERIODIC High volume, small peso amount
Examples: Department Store, SM, Hardware
Both requires physical count to know:
2. PERPETUAL Low volume, large peso amount Periodic Ending Inventory
Stock cards- running balance Perpetual Accuracy
Examples: Cars like toyota

FORMULAS
COST OF INVENTORY Ending Balance Balance Sheet
COGS Income Statement

Under PAS 2, there are 3 acceptable formulas:

1. SPECIFIC IDENTIFICATION low volume

Examples: toyota car. Onti lang mabebenta natin per day so mamomonitor natin ang cars

2. FIRST IN, FIRST OUT (FIFO) assumes that goods first purchased are first sold
inflation? results to ⇑ income
deflation? results to ⇓ income high volume
Examples: Dept. Store, Supermarket
3. WEIGHTED AVERAGE (WAVE)

Examples: FIFO WAVE

Dec 1
5
10
15 COGS
20 (old prices) Ave. Cost per
25 Unit
27
28 EI
30 (new prices)
31
Ave. cost per unit

Periodic
FIFO
Beg. Invty xx
Add: Purch xx
TGAS xx same lang ang makukuha mo
Less: EI (xx) Tip: if FIFO Perpetual ang tanong, isolve
COGS xx mo nalang using FIFO Periodic

Perpetual
COMBINATIONS:
 Periodic
WAVE
CGAS at Pesos
X EI
CGAS at Units

Perpetual (moving average)

Mar Units Unit Cost Total

1 Beg 1,000.00 270.00 270,000.00
6 Purch 3,000.00 250.00 750,000.00
4,000.00 1,020,000.00
9 Sale (2,000.00) 255.00 (510,000.00)
14 Purch 6,000.00 280.00 1,680,000.00
25 Purch 4,000.00 210.00 840,000.00
12,000.00 3,030,000.00
31 Sales (8,000.00) 252.50 (2,020,000.00)
4,000.00 1,010,000.00

NOTE: everytime na magbebenta ka under moving average, magcocompute ka ng bagong unit cost before sale.
Then ang COS mo is lahat ng nabenta mo, in this case: 510K + 2,020K = 2,530K

INVENTORY ESTIMATION
INTRO
DEFINITION we are mandated to conduct physical count every year end but there are also instances that we conduct it even if
not year end:
1. Interim Reporting
2. If the inventories were destroyed
3. To test reasonableness of physical count

METHOD
1. GROSS PROFIT METHOD we need our GP rate to determine our Cost Ratio
eto yung gagamitin natin para i-estimate yung Ending
Inventory

Example: Compute for the Ending Inventory:

Net Sales 100,000 100% BI 20,000
Less: COGS (60,000) 60% Add: Purch 180,000
Gross Profit 40,000 40% TGAS 200,000
ignoring sales discount and allowances EI (140,000) squeeze
COGS 60,000 (100K x 60%)

Based on SALES COGS

(silent )
NOTE: GPR can be expressed in two ways 100,000 x ( 1-.40) 60,000.00
eto yung ex sa taas Kung saan sya based,
ayun ang 100%

Based on COST
100,000 / 1.4 71,428.57
2. RETAIL INVENTORY METHOD often used in retail industry or large rapidly changing items with similar margin
same goal with GPR method, we need to compute for the Cost Ratio

Net Sales xx Normal Spoil gumalaw ang COGS and INVTY natin pero
Add: Employee Discount xx why we not the Sales. So para bumangga, need
Add: Normal Spoilage xx add? natin i-add sa sales
TRUE NET SALES xx
ignoring sales discount and allowances Employee ang gumalaw sa COGS and INVTY is the whole
Discount amount pero ang sales mo lang is discounted. So
need natin ibalik yung discount para bumalanse

WHEN COMPUTING FOR COST RATIO:

AVERAGE TGAS @ COST

APPROACHES TGAS @ RETAIL

FIFO TGAS @ COST - BEG. INVTY @ COST

TGAS @ RETAIL - BEG. INVTY @ RETAIL

CONSERAVTIVE TGAS @ COST

(aka LCNRV ) TGAS @ RETAIL + MARK DOWN & MARK DOWN CANCELLATION

NOTE: 1. sa pagcompute lang ng cost ratio sila nag kakaiba pero sa pagtotal ng amounts for TGAS and Ending Inventory,
same items.
2. when computing for the Net Sales, just ignore the Sales Discount and Allowances. Only deduct the Sales
Return since eto lang yung may effect sa physical flow ng inventory (applicable to both method)
3. For all methods above:
TGAS @ Retail xx
Less: TRUE Net Sales (xx)
End. Invty @ Retail xx
x cost ratio %
End. Invty @ Cost xx
 INVESTMENT CONCEPT
INTRO
any contract
DEFINITION This is a FINANCIAL INTRUMENT financial asset of one entity (for now, we will focus on this)
financial liability or equity of another entity

Examples:
P100,000.00
1. BANK DEPOSIT ABC BDO
CIB 100,000 Cash 100,000
COH 100,000 Depo Liab 100,000

P100,000.00
2. ACQUISITION OF SHARES ABC PLDT
 Investor is enttiled to (invertor/SH) (issuer)
Dividends Inv. In PLDT
100,000 Cash 100,000
shares
Cash 100,000 O/S 100,000

P100,000.00
3. ACQUISITION OF BONDS ABC MERALCO
 Investor is enttiled to Interest (investor) (Issuer)
Inv. in Mer.
100,000 Cash 100,000
Bonds
Cash 100,000 Bonds Pay 100,000

RELEVANT STANDARDS
PFRS 9 PAS 32 PAS 7
Financial instruments Financial instruments: Presentation Financial instruments: Disclosures

FINANCIAL ASSET
Cash
DEFINITION FINANCIAL ASSET Equity intrument of another entity
Contractual right to receive cash
Contractual right to exchange financial asset or financial liability with another entity
under conditions that potentially favorable to the entity

CLASSIFICATION OF FINANCIAL ASSET

Example:
1. Meralco (Corporate Bonds) AMORTIZED COST
or
DEBT SECURITY Gov't (Treasury Bonds)
ABC Company  5 years
has excess cash P100,000  Interest + Principal

2. To be sold to another entity FVOCI

These two can be Debt
and Equity Security
EQUITY SECRUITY PLDT, SMC, PETRON FVPL
 Buy Low Sell High

Test Measurement
 Business Model Cash Flow Characteristic
(how the company manages (nature of the CF of the Debt Equity Initial Subsequent
the investment) investement)
GENERAL RULE:
1. AMORTIZED COST Solely payment of Principal AC using E.I.
Hold to Collect   FV + TC
 if silent: NCA (usually matagalan yan) + Interest method
2. FVOCI Solely payment of Principal Debt
Hold to Collect and sell   FV + TC
 mandatory + Interest Equity
 with recycling
FV
 if silent: NCA (usually pang matagalan yan)
SALE: Balance mo ng UGL can be charged to P&L

SCI the ∆ only

NOTE: ∆ in FV will go in OCI
(MTM) BS/(SHE) cummulative

This is the Unrealized Gain

Pag tinanong ka kung ano ang carrying amount, ang sagot mo lagi ay yung MTM

3. FVPL active stock trading

Held for trading   FV FV
 Current Asset short term profit
(TC is expensed outright)

NOTE: ∆ in FV will go in OCI I/S

(MTM)

This is the Unrealized Gain

1. Mark to Market
NOTE: other term for ∆ in FV is 2. Unrealized Gain/Loss

EXEMPTION TO THE RULE:

1. Equity Instruments (not for Trading) can be classified by as FVOCI (by election)
 without recycling once you elected these
SALE: Balance mo ng UGL derecho RE options. Note that this is
irrevocable. Wala nang
2. If FA qualifies for AC and FVOCI option to measure at FVPL (Fair Value option) bawian
WHY? To avoid accounting mismatch
Example:
Nagloan ka so may Interest Expense (P/L) then yung perang niloan mo is pinambili
mo ng shares and clinassify mo as FVOCI pero alam natin na lahat ng UG/UL ay
pupunta ng OCI so pwede mo sya iclassify as FVPL para lahat ng UG/UL mo ay
pupunta ng P/L

INVESTMENT (DEBT SECURITIES)

INTRO
DEFINITION  is basically investment in bonds
contract of debt whereby one party called the issuer borrows fund
from another party called investor

Example:
P100,000.00
ABC MERALCO
(investor) (Issuer)
Inv. in Mer.
100,000 Cash 100,000
Bonds
Cash 100,000 Bonds Pay 100,000
 since may utang si Meralco, obligated sya to pay interest kay investor (usually payable annually or semi annual)
Cash 10,000 Int. Exp. 10,000
Int. Inc 10,000 Cash 10,000
(ex. 10%)

NOTE: if semi-annual- ang terms ay times 2 then ang mga rate is divide by 2

NOTE: terms of the bonds, lahat yan naka outline sa Bonds Indenture

POINTS TO REMEMBER: FAAC FVOCI FVPL

DEBT   
MTM   
AMORTIZATION   

Present Value
Effective = Nominal @ Face
Effective > Nominal @ Discount meaning: ⇓ sa face value
Effective < Nominal @ Premium
(aka discount/market rate) (aka stated rate)

INVESTMENT (EQUITY SECURITIES)

INTRO
DEFINITION  represented by contracts that evidence residual interest in a corporation.

NOTE: EQUITY SECURITIES do not include: Preference Share

Tresury Shares
Convertible Shares

Example:
P100,000.00
ABC PLDT
(invertor/SH) (issuer)
Inv. In PLDT
100,000 Cash 100,000
shares
Cash 100,000 O/S 100,000

si PLDT naman neto, iinvest nya sa iba't ibang project yung inivest sa kanya ng mga investors, then mag
gegenerate ito ng Net Income na syang magiging basis ng Dividends

VS
DEBTS SECURITY (BONDS) EQUITY SECURITY (SHARES)
Dito may ownership ka. Let's say namili
ka ng 1,000 shares out of 10,000 shares
Debtor - Creditor relationship kay PLDT. Then meron kang 10%
ownership
You are one of the owners of PLDT
Bond indenture Stock Certificate

OWNERSHIP
TYPE OF INVESTMENT OWNERSHIP TYPES STANDARD CLASSIFICATION MESUREMENT
< 20% Regular PRFS 9 FVPL, FVOCI FV
Equity
20% to 50% Significant Influence PAS 28 Investment in Associate
ORDINARY SHARES Method
Acquisition
> 50% You have Control PFRS 3 Investment in Subsidiary
Method
PREFERENCE SHARES Regardless of ownership PRFS 9 FVPL, FVOCI FV
 TYPES OF DIVIDENDS
DIVIDEND INCOME?
1. CASH DIVIDENDS # of shares x Dividends per share 
(return ON capital)

Date of Declaration Date of Record Date of Payment

Dividend- ON Dividend- EX
(Purchase Price includes (Purchase Price not
Dividens) includes Dividens)

Pag binili mo between

NOTE: ang magrerecord ng Dividend Income ay kung sino ang may ari at the Date of Record

2. PROPERTY DIVIDENDS Example: PPE, Inventory 

(return ON capital) measured @ FMV

3. LIQUIDATING DIVIDENDS Bankcrupt na yung company so basically binabalik na yung investments sa mga 
(return OF capital) investors

4. STOCK DIVIDENDS effect is to ⇑ # of shares 

SHARES SPLIT CONCEPT

# of Shares Cost per Shares Cost
Split UP (if silent ) ⇑ ⇓
SHARE SPLITS CONCEPT SAME
Example: 2 for 1 Split DOWN ⇓ ⇑

NOTE: Stock Split has no Journal Entry. Only memo enrty

STOCK RIGHTS
DEFINITION  this is an evidence of pre-emptive rights of the shareholders
 right of the shareholders to subscribe to new shares (meaning, meron priority ang existing SH sa new shares)
 evidence by stock warrants
 1:1 meaning if may 1,000 shares, meron kang 1,000 stock rights

Example:
P100,000.00
ABC PLDT
shares
(invertor/SH) (issuer)
1,000 shares (10% ownership) 10,000 shares P10/share sa outsider
1,000 shares 10,000 shares
P8/share sa exisiting SH. Meaning,
2,000 shares 20,000 shares priority na sila sa new shares, ma
mababa pang ibebenta sa kanila
since ang total shares na ni PLDT ay 20K, meaning bababa ang ownership ni ABC to 5%. To retain yung ownership nya na 10%,
priority sya na sya ang bumili ng bagong shares ni PLDT. Gets?

Accounted for Separately Stock Rights xx

With Fair Value Invst in Shares xx

Not Accounted for Separately Memo Entry (meaning hindi mo sya need
ACCOUNTING FOR STOCK RIGHTS ihiwalay . Hayaan mo lang na yung Stock Rights
ay nasa loob ng Investment in Shares)

Without Fair Value We estimate the FV using the Theoretical/Parity Value method
 Date of Declaration Date of Record Date of Expiration

RIGHT- ON RIGHT- EX
(Purchase Price includes (Purchase Price excludes
FV of Stock Right) FV of Stock Right)

Pag naissue yung stock rights

FORMULA:

Market Value of Shares right-on - subscription price Value of

=
# of shares to purchase one share + 1 one right

Market Value of Shares right-on - subscription price Value of

=
# of shares to purchase one share one right

INVESTMENT (OTHER ISSUES)

RECLASSIFICATION
WHEN? whenever there is a change in Business Model
only applies to debt securities
meaning not allowed to Equity
Irrevovable FVOCI by election
FV Option

TO
FROM
AMORTIZED COST FVOCI FVPL
AMORTIZED COST FVOCI FVPL
@ FV 120
Example: AC AC
CA 100 -  FV vs. CA OCI @ FV 120
FV 120  amortize using the old EIR  FV vs. CA P/L
 not subject to amortization

FVOCI AC FVPL
@ FV
FVOCI FVOCI
 Balance of UG/L be removed - @ FV
 as if amortized cost from day one  Balance of UG/L be
 amortize using the old EIR charged to P/L

FVPL AC FVOCI
@ FV @ FV -
FVPL FVPL
 amortize using the new EIR  amortize using the new EIR

COMPOUND FINANCIAL INSTRUMENT

other term is Hybrid Instrument

Example:
P100,000.00
ABC PLDT
Bonds + Stock Right
(liability) (equity)

has 2 components
 Bonds @ Fair Value
(liability)
So yung Compound Financial
Instrument na P100,000-
iaallocate mo yan
Stock Right Residual
(equity)

Journal Entry: Investment in Bonds 90,000

Stock Right 10,000
Cash 100,000

FAIR VALUE MESASUREMENT

GUIDANCE: PFRS 13- How to measure Fair Value
is the price that would be received to sell an asset (aka
exit price )
How do we know the Exit Price?
 Principal Market

FAIR VALUE HIERARCHY Level: 1. Quoted Price (most reliable) example: PSE
2. Observable Inputs example: Di mo alam magkano yung FV ng lot mo, pero
nalaman mo na yung katabi mo which is same na same
sa size ng iyo and same location, nabenta nya ng 5M,
then 5M din yung FV ng sayo
3. Unobservable Inputs (least reliable)
 INVESTMENT IN ASSOCIATE (PAS 28)
OWNERSHIP
TYPE OF INVESTMENT OWNERSHIP TYPES STANDARD CLASSIFICATION MESUREMENT
< 20% Regular PRFS 9 FVPL, FVOCI FV
Equity
20% to 50% Significant Influence PAS 28 Investment in Associate
ORDINARY SHARES Method
Acquisition
> 50% You have Control PFRS 3 Investment in Subsidiary
Method
PREFERENCE SHARES Regardless of ownership PRFS 9 FVPL, FVOCI FV

P2,000,000
ABC PLDT
(investor/shareholder) 20,000 shares (investee/associate)
out of 100,000 shares, issued 100,000 shares @
bumili si ABC ng 20,000 P100/share (P10M)
shares

NOTE: If you have a 20% to 50% ownership , it is presumed that you have: (by default)
1. SIGNIFICANT INFLUENCE when acquired? QUANTITATIVE THRESHHOLD
a. at least 20% - Includes potential voting rights (OS)
 warrants and options
 convertible security
QUALITATIVE THRESHHOLD (PaRe ProMi)
a. Participation in policy making process
b. Representation in the BOD
c. Provision of Technical Issues
d. Material Transactions
e. Interchange of Managerial Personnel

2. EQUITY METHOD you mirror the change/investment in the equity of the associate

Examples: ABC Books PLDT

1. Bought 20,000 shares Invest. In Associate 2,000,000 Asset
Cash 2,000,000 Liab
(20,000 share x P100) Equity
O/S 10,000,000
2. Share in Net Income Invest. In Associate 400,000 Net Income 2,000,000
RE
Share in NI 400,000 Dividends 500,000
(2,000,000 x 20%) UG 200,000
OCI 300,000
if net loss, baligtad lang and magiging share in NL Rev. Surplus 100,000

3. Dividends Cash 100,000

Actually ang dividends ay Invest. In Assoc 100,000
nakakadecrease ng RE (500,000 x 20%)

Nakakababa din ito ng IIA because Unlike sa PFRS 9, kapag nakareceive ka ng Divideng
this is a return OF capital Income, ang entry is:
Cash xx
Dividend Income xx

4. Share in OCI Invest. In Associate 60,000

Share in OCI 60,000
(300,000 x 20%)

3. NET ASSET sa investment in associate, ang binibili mo talaga ay yung equity ni investee
Asset - Liabilities

EQUITY
 Purchase Price reflects the FVNA of the Associate
what if: FVNA ≠ BV
then: BV FV
converts

Scenarios: PP > FVNA Goodwill ( not presented separately)

PP = FVNA -
PP < FVNA Gain on Purchase

OTHER ACCOUNTING ISSUES

1. INTERCOMPANY TRANSACTIONS unrealized profits and losses resulting from Downstream (investor to associate) and Upstream (associate to
investor) should be eliminated to the extent of the investor's interest

NOTE: either Upstream or Downstream, same treatment lang na idededuct ang unsold GP

Example:
sold inventory
PLDT ABC
AR xx Sales xx ⇑
Sales xx COGS (xx) ⇑
COGS xx GP xx ⇑
Inventory xx OPEX (xx)
NI xx ⇑ must be eliminated

NOTE: pero kapag si ABC naibenta na nya sa outsider, pwede na sya magrecognize ng gross profit, kasi hindi
na yun intercompany transactions

2. INVESTMENT IN ASSOCIATE
ACHIEVED IN STAGES previously held interest that was accounted for under the cost of FV method shall be remeasured to FV on the
date the investor gains significant influence
difference between FV and CA of previously held investment shall be recognized in P/L
Example:
BEFORE: AFTER:
<20% 20% to 50%
PFRS 9 PAS 28
(FVPL, FVOCI) (Equity Method)

3. LOSS OF SIGNIFICANT
INFLUENCE use of Equity Method should cease from the date that significant method ceases
meron din tinatawag na deemed sale, meaning nag-issue si company ng bagong shares pero di ka
nagparticipate (pre-emptive) in that way, maaari nabenta sa outsiders that resulted na bumaba ang ownership
share mo
difference between SP and CA of the investment sold shall be recognized in P/L
Example:
BEFORE: AFTER:
20% to 50% <20%
PAS 28 PFRS 9
(Equity Method) (FVPL, FVOCI)

OTHER CONCEPT: DILUTION- bumaba ang ownership % mo but not resulting to loss of significant influence
Example: 30% 25% but still has significant influence

CESSATION- residual definition (discontinuance of equity method)

4. POTENTIAL VOTING RIGHTS nag- ooccur kapag may stock rights

assumed to have been exercised
effect: % ownership
 INVESTEMENT PROPERTY (PAS 40)
INTRO
DEFINITION this is a land or building held for: Earning Rentals (Apartment -> Tenants)

Capital Appreciation
(Vacant Lot - hold for
couple of year to ⇑ value)

Example: Land & Bldg. PPE

- printing (related)
- HO
Line of Business:
Scenario 1 : Produce and Sell Acctg Books
Condo Investment Property
- to be leased by tenants
ABC Company

Appartment PPE
- to be leased by tenants (related)
Scenario 2 : Property Developer
Condo Inventory
- for sale

MEASUREMENT

Initial Subsequent
Cost
(AD)
@ Cost it can be: Cost Model (Accum Imp)
(all necessary cost incurred) CV / CA / BV

FV Model
- Market to Market
- ∆ in FV ⇒ P/L

OTHER ISSUES
1. PARTLY INVESTMENT PROPERTY
AND PARTLY PPE can the property sold separately? YES Investment Property
Accounted for separately
PPE

NO check mo kung ano yung significant.

(For example, 5 floors yung building, yung 4 doon is
pinaparent mo then yung 1 floor is your office, then it is
Investment Property)

2. ANCILLARY SERVICES support services

Services are relatively significant PPE

(Example, HOTEL)
pinagsisilbilhan nila yung guests
if:
Services are insignificant Investment Property
(Example, CONDO)
merong security guard and maintenance but those are
incidental services only. Ang main service nila is to
provide accomodation
3. TRANSFERS BETWEEN
INVESTMENT PROPERTY, PPE,
INVENTORY whenerver there is change in use
(reclassification)
Cost Model PPE @ CA xx
IP @ CA xx
First, check mo muna kung anong
model ang ginagamit
Investment Prop to PPE/Inventory PPE @ FV xx
(whether Gain or Loss ⇒ P/L) IP @ CA xx
∆⇒ P/L xx

Fair Value Model Inventory to Investment Prop IP @ FV xx

(whether Gain or Loss ⇒ P/L) Invty @ CA xx
∆⇒ P/L xx

PPE to Investment Prop IP @ FV xx

(Imp. Loss) ∆⇒ P/L
PPE @ CA xx
(Rev. Surp) ∆⇒ OCI xx
 OTHER LONG TERM INVESTMENT
TYPES
1. CASH SURRENDER VALUE (CSV)

Example: pays premium

ABC Philam Life
life insurance policy
- for its CEO
- life insurance proceeds
Journal Enrty:
CEO (family) Insurance Expense xx
Cash xx
Beneficiary

ABC

0 1 2 3 4 5

Insurance Expense xx
Cash xx

in year 3, nag preterminate then makakareceive si ABC ng CSV

this is the amount the insurance company pays upon pre-termination
usually refund < 100% premium paid
CSV is a Financial Asset
nag aaccrue ang CSV usually after 3 full payments for 3 years (in this example, it's 3 years)

2. SINKING FUND matatandaan mo na hindi sya kasama sa Cash and Cash Equivalents, kasi dito sya
this is a cash set aside for repayment of long term liabilities (example is Bonds Payable)

NOTE: Bond Sinking Fund is an asset in the BS account, at imimirror natin ito sa Bonds Payable. So, if Bonds
Payable is NCL then Bond Sinking Fund is a NCA

Example: 10M cash

X

ABC Co. Y Bondholders (investors)

(kailangan nya ng 10M, so Z

mag iissue sya ng bonds
sa mga investors nya)
pays interest + principal

walang problema, si ABC ang bahalang magbayad ng

Administered by the entity interest + principal to the bond holders
Accounting

Administered by the ABC Trustee (ex. BDO)

trustee will deposit amount

Int + Principal
si Trustee na ang bahala sa
Debt Interest
Invest
(excess cash) Equity Dividends
 PROPERTY, PLANT, AND EQUIPMENT (PAS 16) COSTING
INTRO
tangible assets
DEFINITION for production or supply of goods
used in business rental (like sa hotel, yung mga rooms doon)
admin
long-term in nature

EXAMPLES: 1. Land
2. Building
3. Machinery
4. Equipment
5. Land Improvements
6. Leasehold Improvements
7. Furniture & Fixtures
BUT TAKE NOTE: assets that are used to
EXCLUDED: 1. PPE held for sale (PAS 2/PFRS 5) develop & maintain them is classified as PPE.
2. Biologocal Assets except Bearer Plants (PAS 41) Example: You're a dealer of CARS, the CAR is
3. Exploration & Revaluation Assets (PFRS 6) Inventory (PAS 2) but the warehouse where
4. Minerals Reserves and Mineral Rights (PFRS 6/PAS 38) you keep them is PPE (PAS 16)

MEASUREMENT

Initial Subsequent
Cost
(AD)
@ Cost it can be: Cost Model (Accum Imp)
(Purchase Price + directly CV / CA / BV
attributable cost)
these are cost necessary for its Revaluation Model
intended use - Market to Market
- ∆ in FV ⇒ OCI

when to recognize? probable that future economic benefits will flow to the entity
cost of the asset can be measured reliably

LIST OF DIRECTLY ATTRIBUTABLE COSTS (TIPSIE)

1. Testing Cost OLD:
net of proceeds samples. Example, yung machine for
canned tuna, of course you need to check first, so yung
mga mga canned goods na sinample mo will not be part
of sales but rather a deduction from testing cost
NEW: the proceeds will be presented as other income
2. Initial Handling & Delivery Cost
3. Professional Fees
4. Site Preparation Costs Example: magtatayo ka ng building, need mo muna magtabas ng mga
damo para masimulan ang construction
5. Installation & Assembly done by external
6. Employee Benefits done by internal

COST OF DISMANTLING CONCEPT Example: Gasoline Shop owner ka, icoclose mo na yung business mo. You need to restore the place/area to
its original condition kung paano mo sya inacquire before
You will recognize only if required by LAW
CONTRACT

TAXES CONCEPT Refundable? YES Don't

VAT for example

NO Capitalize!
 MODES OF ACQUISITION
WHAT TO CAPITALIZE?
1. SELF-CONSTRUCTED Example: bumili tayo ng land then papatayuan
DM, DL, OH + Directly Attributable Costs
natin ng building

NOTE: EXCAVATION (hukay) Building

GRADING & LEVELING (tambak) Lupa

RULES IN LAND IMPROVEMENTS Is it part of the Blue Print? YES Charged to Building
NO Charged to Land Improvement

LUMP-SUM ACQUISITION (LAND WITH OLD BUILDING)

Usable allocate the PP to Land and Building based on FV
NOTE: if the FV of old bldg is given, assume it is usable.
1. If the Building is
Not Usable 100% charged to loss

CA of old builing charged to loss

2. Demolition Cost
Not Usable capitalized to new building

why? Kasi necessary sya for the intended use of the new
building. But remember, it must be net of proceeds
from salvage value (OLD) ; Other Income (NEW)

WHAT TO CAPITALIZE?
Cash Basis Cash paid
2. ACQUISITION THROUGH
On Account Net of Discount whether taken or not
(credit)
Manner or Priority:
Installment 1. Cash Price Equivalent
2. PV of installments

WHAT TO CAPITALIZE?
Manner or Priority:
equal if no 1. FV of asset given up +/- Cash
3. ACQUISITION THROUGH With Commercial Substance cash 2. FV of asset received
EXCHANGE (NON DEALER) Silent:  3. CA of asset given up +/- Cash
Example:
Computer vs Electric Generator

Without Commercial Substance CA of asset given up +/- Cash

Example:
Dell Laptop vs Lenovo Laptop

NOTE: 1. Commercial Substance meaning difference in Cash Flow

2. No Gain/Loss on exchange if no commercial substance
3. Cash is not included in computing Gain/Loss

WHAT TO CAPITALIZE?
Manner or Priority:
4. TRADE-IN (DEALER) this invloves significant cash equal if no 1. FV of asset given up +/- Cash
cash 2. FV of asset received
(Cash price without Trade-in. Wala kang
tinrade na item)

WHAT TO CAPITALIZE?
Manner or Priority:
5. ISSUANCE OF SHARES 1. FV of asset received
exemption to the rule. Sila lang yung mauuna yung FV
2. FV of shares/bonds issued
of asset received
6. ISSUANCE OF BONDS
 WHAT TO CAPITALIZE?
7. DONATION FV of asset received

RULES: Unrelated Party Income

Related Party Donated Capital (Share Premium/APIC)

Example: FV of Eqpt 1,000,000

DACS 10,000
Unrelated Party Related Party
Equipment 1,000,000 Equipment 1,000,000
Income fr. Donation 1,000,000 Donated Capital 1,000,000
Income fr. Donation 10,000 Donated Capital 10,000
Cash 10,000 Cash 10,000

NOTE: kapag may DACs dito, hindi mo icacapitalize , but ileless mo sa income since hindi naman talaga ikaw yung nagbayad nyan. Di-nonate
lang sayo.

PROPERTY, PLANT, AND EQUIPMENT (PAS 16) DEPRECIATION

INTRO
systematic allocation
DEFINITION
depreciable amount
expected usage
useful life physical wear and tear
obsolescence
NOTE: Depreciation is compliant with Matching Principle

METHOD
FORMULA BASE
depreciable amount

1. STRAIGHT LINE constant/uniform per year Cost - Residual Value Depreciable Amount
Useful Life

end of useful life (aka. Salvage Value)

NOTE: at the end of useful life, the carrying value is equal to residual value

2. SUM OF THE YEAR DIGITS (SYD) accelerated decreasing depreciation

charge over the UL UL + 1 Depreciable Amount
UL x
2

NOTE: at the end of useful life, the carrying value is equal to residual value

3. DECLINING BALANCE METHOD also known as fixed rate/ % on

diminishing CA method

a. DOUBLE DECLINING 2 Carrying Amount

UL

b. 150% DECLINING 1.5 Carrying Amount

UL
NOTE: ignore the residual value when using double declining
4. UNITS OF PRODUCTION
METHOD this is based on usage unlike the first 3
above that based on time

a. BASED ON OUTPUT Depreciable Amount Depreciable Amount

Total Outputs

a. BASED ON INPUT Depreciable Amount Depreciable Amount

Total Inputs

5. OTHERS a. COMPOSITE METHOD i-gogroup natin yung assets saka natin idedepreciate

b. RETIREMENT METHOD no depreciation until the assets is retired

used for practicality purposes
(large number of similar items) EX.
c. REPLACEMENT METHOD no depreciation until the assets is retired and replaced
Mga contruction tools like screw
drivers, shovels, etc.
d. INVENTORY METHOD has physical count at the end of the year

NOTE: kahit anong method pa yan, hindi pwedeng bumaba ang Carrying Amount sa Residual Value, Kapag ganon ang nangyari, balancing figure
nalang yon.

ACCOUNTING CHANGES
Method
∆ in estimate
CHANGE IN Useful Life ( prospective in application)

Residual Value

STEPS: 1. Update the carrying amount

2. Apply the new method (UL, RV)
 REVALUATION
MEASUREMENT

Initial Subsequent
Cost
(AD)
@ Cost it can be: Cost Model (Accum Imp)
(Purchase Price + directly CV / CA / BV
attributable cost)
these are cost necessary for its Revaluation Model
intended use - Market to Market
- ∆ in FV ⇒ OCI

when to recognize? probable that future economic benefits will flow to the entity
cost of the asset can be measured reliably

INTRO
FV of the PPE (Market-to-Market)
DEFINITION every Dec. 31, the PPE is measured at revalued amount
Depreciated Replacement Cost
(if FV is not readily determinable)
Example:
ibebenta mo yung used calcu mo pero hindi mo alam magkano (FV), ang gagawin mo is pupunta
ka sa National Bookstore to look for the same model, let's say nakita mo 600.00 brand new, then
idedepreciate mo yun kung ilang years mong nagamit. Yung NET amount, ayun yung DRC

Formula:

Original Cost xx Replacement Cost xx

Less: Accum. Depn (xx) Less: Accum. Depn (xx) *using orig . UL
Carrying Amount xx Revalued Amount xx new UL ⇒

charged to Revaluation Proportional Approach

Surplus (OCI) Silent: 
(Net of Tax)
Elimination Approach

NOTE: if Fair Value na yung binigay instead of Replacement Cost, yung FV ayun na mismo yung Revalued
Amount

1. Transfer the RS to RE over its UL (aka Piecemeal Realization, Revaluation Surplus by

OPTIONS TO REALIZE Silent:  dividing to its UL)
REVALUATION SURPLUS
2. Upon Disposal or Sale

RULE IN FREQUENCY actually there is no rule regarding the frequency of the revaluation.
It is just , IF: Significant ang difference ng CA vs FV Annually
Insignificant ang difference ng CA vs FV Every 3 to 5 years
 IMPAIRMENT (PAS 36)
MEASUREMENT

Initial Subsequent
Cost
(AD)
@ Cost it can be: Cost Model (Accum Imp)
(Purchase Price + directly CV / CA / BV
attributable cost)
these are cost necessary for its intended Revaluation Model
use - Market to Market
- ∆ in FV ⇒ OCI

when to recognize? probable that future economic benefits will flow to the entity
cost of the asset can be measured reliably

INTRO
DEFINITION ⇓ value of an asset
cash-generating unit > recoverable amount

PAS 36 covers: PPE

Investment Property
Intangible Assets

excludes: Inventory (PAS 2)

Financial Assets (PFRS 9)

INDICATORS OF IMPAIRMENT
1. Physically damaged
2. Obsolescense we need to compute for the impairment loss
3. Not well-maintained

Formula:

Original Cost xx FV-CTS

Less: Accum. Depn (xx)
⇑ between Value in USE
xx
Carrying Amount xx Recoverable Amount xx

Impairment Loss

we will continue to use the asset, if not given, computed as follow:

Inflow + + + + + +
Outflow - - - - - -
NET

PV

NOTE: 1. An asset must not be carried above its recoverable amount. Kaya tayo may Impairment Loss
2. After computing for the Impairment Loss, the Recoverable Amount is now the Carrying Amount
(Fresh Start Accounting)
 IMPAIRMENT OF REVALUED ASSETS
CONCEPT irereverse mo muna yung pinasok mo sa revaluation surplus. Ayun yung limit. Then kung ano yung balancing
figure, ayun lang yung papasok as impairment loss

Example: Historical Cost 8,000,000 4,000,000 ⇑

FV 12/31/25 12,000,000
FV 12/31/26 7,000,000 5,000,000 ⇓

Journal Entries:
12/31/25 Land 4,000,000
Rev. Sur. 4,000,000

12/31/26 Rev. Sur. 4,000,000 OCI

Imp. Loss 1,000,000 P/L
Land 5,000,000

REVERSAL OF IMPAIRMENT - NON DEPRECIABLE ASSET

CONCEPT irereverse mo muna yung Impairment Loss as Gain on Reversal. Ayun yung limit. Then kung ano yung balancing
figure, ayun lang yung papasok sa Revaluation Surplus

Example: Historical Cost 10,000,000 3,000,000 ⇓

FV 12/31/25 7,000,000
FV 12/31/26 12,000,000 5,000,000 ⇑

Journal Entries:
12/31/25 Imp. Loss 3,000,000
Land 3,000,000

12/31/26 Land 5,000,000

Gain on Reversal 3,000,000 P/L
Rev. Sur. 2,000,000 OCI

REVERSAL OF IMPAIRMENT - DEPRECIABLE ASSET

CONCEPT ang irereverse mo lang ay ang difference ng CA as if walang impairment loss at the date of revaluation vs yung recoverable
amount. Kung ano yung difference, ayun yung limit na pwede mong ireverse.

Example: Cost 10,000,000 FV 12/31/25 6,000,000

Accum Depn (2,000,000) FV 12/31/26 7,500,000
CA 8,000,000

Journal Entries:
COST MODEL REVALUATION MODEL
12/31/25 Imp. Loss 2,000,000 12/31/25 Imp. Loss 2,000,000
Acc. Imp. 2,000,000 Acc. Imp. 2,000,000

12/31/26 Dep. Exp. 750,000 12/31/26 Dep. Exp. 750,000

Acc. Depn 750,000 Acc. Depn 750,000
(6,000,000 / 8 years RUL) (6,000,000 / 8 years RUL)

Acc. Imp. 1,750,000 Acc. Imp. 1,750,000

Gain on Rev. 1,750,000 Gain on Rev. 1,750,000

CA assuming no Impairment
Cost 10,000,000
Accum Depn (3,000,000)
CA 7,000,000 limit 1,750,000 lang ang pwede
RA 5,250,000 (6M - 750K) i-reverse

Additional Entry:
N/A PPE 500,000
Rev. Surp. 500,000
(7,500,000 - 7,000,000)
 CASH GENERATING UNIT
smallest identifiable group of assets
DEFINITION
generate CF

independent from other assets (product line)

Fortuner
TOYOTA Toyota
Altis
Vios
pwede mo iimpair by group dahil iba iba sila na nag
Example:
gegenerate ng cash
Dept Store
SM Supermarket
Cinema
Food Court

RULES IN IMPAIRMENT LOSS BY

CGU 1. Write off/Allocate the Goodwill if any 100%
2. If may excess pa, i-aallocate natin sa other NCA (pro-rated based on CA)

NOTE: there is a rule that the CA of the NCA after the allocation should not be below the Recoverable Amount, so
magkakaroon ng additional re-allocation
 WASTING ASSETS
INTRO
DEFINITION applies to mining companies (they extract minerals or natural resources)
Examples: Golds, Silver, Copper, Coals, etc.
(they are also known as Wasting Assets )

why called WASTING ASSET? because: physically consumable

irreplaceable

MEASUREMENT

Initial Subsequent

Cost
@ Cost it can be: Cost Model (AD)
(Purchase Price + directly CV / CA / BV
attributable cost)
these are cost necessary for its Revaluation Model
intended use

when to recognize? probable that future economic benefits will flow to the entity
cost of the asset can be measured reliably

COST OF WASTING ASSETS

1. ACQUISITION COST price paid cost of land + directly attributable cost

2. EXPLORATION COST at this point, this is an assessment for technical feasibilty

(PFRS 6) needed to find/locate natural resources (para malaman if may laman ba talaga na gold yang
land na yan)

Examples: right to explore (DENR, LGU)

(permits)

services form experts

sampling and trenching (testing if may laman ba talaga)

before legal rights are with technical feasibility and commercial

after legal rights are obtained
obtained viability

is PFRS applicable?   

depends on company's Capitalized

policy Expensed
if silent: Capitalized

3. DEVELOPMENT COST natural resources are proven to exist at this point, we need to prepare the site

Tangible Equipment Cost (PPE) Example: Building, heavy equipments like Trucks, etc.
What do we need?
NOTE: 1. Check first if the UL of the PPE is longer or shorter than the useful life of the asset
2. If UL of PPE > UL of WA
Depreciate
a. use units of production method like sa Depletion in computing the
depreciation (this is applicable only if the UL of PPE > UL of WA)
b. but, if there is no production, magsiswitch tayo into SL method
(example, 2025-2027 nakapag extract, then 2028, no operation,
Applicable for Immovable Equipments iupdate mo muna yung CA after 2027 using UOP method then sa 2028,
mag SL ka na using remaining UL of WA)
 WHY? Kasi example, yung Building is 15years UL then ang WA 10yrs only,
after 10 years maextract mo lahat, iiwan mo na yung place so hindi
na magagamit yung building. Make sense?
2. If UL of PPE < UL of WA Depreciate the PPE using SL method

Applicable for Movable Equipments Depreciate the PPE using SL method

Intangible Equipment Cost Example: Tunnels, Wells, etc.

(drilling costs, costs of construction)

4. RESTORATION COST also known as asset retirement obligation because we are required by law to bring back the land
to its original condition
(measured by present value)

SPECIAL ACCOUNTING ISSUE - DIVIDEND DECLARATION

GR: maximum dividends that we can declare is = only to unrestricted RE (TRUST FUND DOCTRINE)
EXCPN: applies only to mining companies (WASTING ASSET DOCTRINE)

Formula:

Unrestricted RE xx
Add: Accumulated Depletion (SOLD) xx
Total xx
Less: Capital liquidated in prior years (xx)
Less: Depletion in EI (Depn per units x Units in EI) (xx)
Maximum Dividends xx

DEPLETION
INTRO
DEFINITION removal or extraction of natural resources
systematic allocation of the depletable amount of a wasting assets
compliant with matching principle
inventoriable

METHOD
depletable amount

1. UNITS OF PRODUCTION
METHOD
Cost - Residual Value
Total expected outputs x Actual Output
 GOVERNMENT GRANT (PAS 20)
INTRO
DEFINITION assistance from the government in the form of transfer of resources to the entity

Government Grant related acquired

to assets construct
10M condition: build or purchase or acquire orphanage
Example: PH Government ABC Co.
subsidy (Construction)
Government Grant related calamity losses
to income naincur na yung loss, as if
residual definition nakapag comply ka na sa
conditions, so hindi na
dadaan sa liabilities

Government Grant Government Assistance

VS
form of transfer of resources provide benefit specific to the entity
Example: Technical or Marketing advise
Provision of Guarantee
Tax Benefits

NOTE: All Government Grants are Government Assistance but not the other way around

MEASUREMENT
MONETARY GRANTS NON-MONETARY GRANTS
Cash - Face Value Fair Value or Nominal amount + DACS
Receivable - Fair Value
Forgivable Loan - CA of the loan
Loan with zero or below interest rate - Discount on LP

ACCOUNTING

Initially, Government Grants are recorded as liability

recognize in P/L as systematic basis , meaning if there is no recognition of related
expenses then there is no recognition of income
Recorded as income as we perform the condition
(by applying the matching principle) Grant related to: 1. Specific Expenses
- income is recognize over the period of related expenses
2. Depreciable Assets
- income is recognize over the periods and in proportion
to the depreciation
3. Non-depreciable Assets
- income is recognize over the periods which bear the
cost of meeting the conditions
4. Expenses or Losses already incurred
- income is recognize in the period it becomes receivable
(so hindi na dadaan sa liabilities)

RECOGNITION

actual condition will be complied with

Shall be recognized when
grant will be received
 PRESENTATION
GRANT RELATED TO ASSETS Statement of Financial Position
GROSS PRESENTATION NET PRESENTATION
Grant is presented as Deferred Income (liability-DIGG) Grant is deducted from Carrying Amount (Offset)

Statement of Comprehensive Income (P/L)

GROSS PRESENTATION NET PRESENTATION
Income from the Grant is reported separately as Other Income from the Grant is deducted from Depreciation
Income Expense

GRANT RELATED TO INCOME Statement of Comprehensive Income (P/L)

GROSS PRESENTATION NET PRESENTATION
Income from the Grant is reported separately as Other Income from the Grant is deducted from Depreciation
Income Expense

Example: Government Grant 1,000,000

Machinery 7,000,000
Residual Value 500,000
Useful Life 5 years

Deferred Income Deduction from Assets

Cash 1,000,000 Machinery 7,000,000
DIGG 1,000,000 Cash 7,000,000
Machinery 7,000,000 Cash 1,000,000
Cash 7,000,000 Machinery 1,000,000
Dep'n Exp 1,300,000 Dep'n Exp 1,100,000
AD 1,300,000 AD 1,100,000
DIGG 200,000 (7,000,000-1,000,000-500,000 / 5 years)
IGG 200,000
(1,000,000 / 5 years) you can see na hindi na tayo nagrecord ng DIGG/IGG
since derecho offset na tayo sa asset

Effect in P/L: Effect in P/L:

Depreciation Expense -1,300,000 Depreciation Expense -1,100,000
IGG 200,000
NET decrease -1,100,000

NOTE: regardless if Gross or Net, the net amount presented in P/L is the same

REQUIRED DISCLOSURES
1. Accounting policy adopted
2. Nature and Extent
3. Unfulfilled conditions attached

NOTE: Name of the government agency is not required for disclosure

 BORROWING COSTS (PAS 23)
INTRO
DEFINITION interest and other costs incurred in connection with borrowing of funds
also known as Avoidable Cost
applies only to Qualifying Assets
takes substantial period of time to get ready for intended use or sale
Example: Self-constructed PPE

Example: loan
BPI ABC Co.
Office Building
10,000,000
+ Borrowing Cost (Interest Expense)
we will capitalize this because this is DACS

RECOGNITION
if assets are: QUALIFYING ASSETS Borrowing costs are capitalized

NOT QUALIFYING ASSETS Expensed as incurred

CAPITALIZATION PERIOD
when? COMMENCEMENT
when all conditions are met: 1. Entity incurs expenditures (DM, DL, OH)
2. Entity incurs borrowing costs
3. Entity undertakes activity (Technical & Admin prior to
physical construction, Ex. Blue Print )

SUSPENSION major delay or unexpected interruption. Thus, BC during this periods are expensed.

CESSATION substantially complete (Ex. Pintura/tiles nalang ang kulang, magagamit mo pa din
yung building on its intended purpose)

1-Jan loan 1-Mar construction 31-Dec

capitalized to assets
Starts when: interest Ends when: substantially complete
overlaps
expenditure ready for use

TYPES
1. SPECIFIC BORROWING specifically for the purpose of obtaining a qualifying asset (intended for the construction of qualifying asset)
Example: Loan 20,000,000
Interest 10%

y0 y1 y2

Interest Expense 2,000,000 10M lang ginastos mo then sa next year mo gagamitin yung another
Less: Investment Income (500,000) 10M. Let's say yung remaining 10M is ininvest mo then kumita ng
Capitalizable BC 1,500,000 dividends (Excess of 10M x 5%)

2. GENERAL BORROWING borrowings for working capital purposes/used in everyday operations (incidental only)
Example: for purchases of inventories, payment of rent, salaries

let's say may excess amount ka na 3M, imbis na mangutang ka, ayun nalang yung gagamitin mo to construct the
qualifying assets
 Formula:

Average Expenditure X Capitalization Rate = Maximum BC

(WA using # of months) (total Int. Exp / total Principal)

NOTE: 1. Capitalizable BC must not exceed Actual Interest incurred

2. Investment income is not deducted for general borrowing cost computations

3. MIXED BORROWING a. Average Accumulated Expenditure Method (Traditional Method) silent 

simply the combination of above computations

Solution Guide:
Average Expenditure (Total Expense) xx
Less: Specific Borrowing (xx)
Average Expenditure Finance by Gen. Borrowing xx
Multiplied by Capitalization Rate %
Maximum Borrowing Cost xx

If asked for the total, just add the Specific Borrowing and Maximum Borrowing Cost or Actual BC whichever
is ⇓

b. Avoidable Interest Method (Contemporary Method)

expenditures are allocated first to Specific Borrowings and the excess to the General Borrowings.
Only the expenditures allocated to General Borrowings are averaged.

Solution Guide:
Icoconsume mo muna yung para sa Specific Borrowings before ka mag average. Para syang FIFO

If asked for the total, just add the Specific Borrowing and Maximum Borrowing Cost or Actual BC whichever
is ⇓

DISCLOSURES
1. Amount of Borrowing Cost capitalized during the period
2. Capitalization rate used
 BIOLOGICAL ASSETS (PAS 41)
INTRO
Bio Assets living animals Examples: Chicken,

living plants
Consumable Examples: Vegetables, Onion, Cabbage, etc.
PAS 41
Non Consumable these are bearer plants PAS 16

Agricultural Produce harvested product Examples: Eggs, Coconut Fruits

Government Grant related to Biological Assets same concept sa GG discussion

Example:
not yet processed processed
1. Cows Milk Cheese
Classification: Bio Asstes Agri Produce Inventory
Measurement: FV-CTS FV-CTS @ point of harvest LCNRV (PAS 2 )

not yet processed processed

2. Avocado Tree Avocado Fruits Avocado Shake
Classification: PPE (PAS 16) Agri Produce Inventory (PAS 2)
Measurement: Cost FV-CTS @ point of harvest LCNRV

MEASUREMENT

Initial Subsequent

FV-CTS FV-CTS

CTS includes: 1. Commisions to brokers and dealers

2. Levies by regulatory agencies and commodity exchanges
3. Transfer taxes and duties

∆ in FV is reported in P/L

NOTE: If you see Transport Costs , this is not a CTS but rather adjustment ito sa FV. So, i-leless mo ito to get the
FV. Example: Price in the Market - Transport Cost = Fair Value

PRESENTATION AND DISCLOSURE

PRESENTATION 1. Biological Assets Non Current Assets
2. Agricultural Produce after the point of harvest, normally presented as INVENTORIES under
Current Assets unless other standards apply.
ENCOURAGED DISCLOSURES 1. Disclosure of consumable and bearer biological assets
not required but only encouraged 2. Disclosure of mature and immature biological assets
3. Disclosure of breakdown of total gain or loss from ∆ in FV-CTS during the period attributable to price ∆ and
physical ∆

KEYPOINTS TO REMEMBER
∆ IN FAIR VALUE Due to Price ∆ same age, different date

Due to Physical Change ∆ same date, different age + do not forget to add the FV of
the new born

HARVEST COST expensed outright.

Examples: Pregnant Pig, the cost of artificial insemination, cost of labor and cesarean birth
 INTANGIBLE ASSETS (PAS 38)
INTRO
identifiable owner has leagl rights (IPO)
DEFINITION
non-monetary not easily convertible into cash

without physical substance

MEASUREMENT

Initial Subsequent usually the RV = 0

Cost
(Amortization)
@ Cost it can be: Cost Model (Accum Imp)
(Purchase Price + directly CV / CA / BV
attributable cost)
these are cost necessary for its Revaluation Model
intended use But in practice. Cost Model madalas kasi mahirap
madetermine ang FV ng Intangible Asset

when to recognize? probable that future economic benefits will flow to the entity
cost of the asset can be measured reliably

FIVE MAJOR INTANGIBLE ASSETS

1. PATENT  gives an inventor the right to prevent other people from using or selling an invention
 here, we will incur Reseacrh and Development cost
 Amortization is based on Useful Life (set by Company)
whichever is ⇓
Legal Life (20 years)

Example: Pfizer Covid Vaccine

Phases:
Research Development Production

- discovery of new knowledge - application of research - commercial product

- studies - technical or technological feasibility - distribution
- lab research - prototypes or models INVENTORY (PAS 2)
- clinical testing - mass testing
100% EXPENSED!!! - FDA Approval
why? Because no probable - legal cost and registration
future eco benefits yet CAN BE CAPITALIZED
(basta nameet yung criterias above)

Hierarchy in amortization of R&D is as follows: 1. Pattern of revenues

2. SL method

If the revenue can be measured like for the next 4 years (UL) the pattern of revenue must be used. Example:
Revenue this year is 2,400 and total revenue for the next 4 years is 12,000, then Dev cost is 2,500 and COGS is
1,000. The computaion will be:

COGS 1,000,000
Amortization 500,000 (2,500 x 2,400/12,000)
Total Expense 1,500,000

NOTE: if silent or R&D lang ang nakalagay sa problem, EXPENSE yan.

2. TRADEMARK  symbol, sign, slogan, name that is legally registered representing the company or product
 aka: Brandname, Tradename
 not subject to amortization but instead tested for impairment
WHY? because legal life is 10 years but subject to automatic renewal that will result to indefinite life
3. COPYRIGHT  exclusive right granted by government to authors, composers, or artists
 term of protection: during the lifetime of the author + 50 years after death
 Amortization is based on 1. Pattern of Benefits
2. Straight Line Method

4. FRANCHISE  right to operate a business or sell product

 Amortization is based on Granted for a definite period UL or def period wc is ⇓
Granted indefinitely or perpetually not amortized but tested for
impairment at least annually

Franchise/Right
Franchisor Franchisee
IFF and CFF

Note: CFF is expensed outright because it is a subsequent cost

5. GOODWILL (PFRS 3)  only arises from Business Combination

 excess payment
 unidentifiable

Formula:
Purchase Price xx
FV of Net Assets (xx)
Goodwill xx PP > FVNA

THREE MINOR INTANGIBLE ASSETS

1. COMPUTER SOFTWARE  magcacapitalize lang kapag meron technological feasibility
 subject to Amortization

Classification Own Use Intangible Assets

Sell to others Inventory
Integral part of a machine PPE
Example: Microsoft 360

2. WEBSITE  subject to Amortization

Classification Own Use Intangible Assets

Sell to others Inventory
Advertising/Promotion OPEX

3. CUSTOMER LIST  database of customers

 subject to Amortization

Classification Purchase Separately Intangible Assets

Internally Generated Expensed

IMPAIRMENT RULES
are there indicators of impairment?
WITH WITHOUT
Useful Life Definite test no
(Patent, Copyright, Franchise)

Indefinite test test

(Goodwill, Trademark)
 CURRENT LIABILITIES
INTRO
legal required/arising from law and contracts
present obligation constructive not required but is expected
DEFINITION
must be probable and measureable transfer economic resources pay cash
deliver goods
past events (incurred) render services

CURRENT
due to be settled within the operating cycle it is a length of time to convert cash into
cash
RM

PRESENTATION Collection FG

Sales
within 12 months

NON-CURRENT residual definition

EXAMPLES
CURRENT 1. Trade and Other Payable
Example of Trade : Supplies from suppliers ( always Current Liabilities)
Example of Other Payable : ST Notes Payables Rent Payable
Accrued Expenses Interest Payable
Unearned Revenues Salaries Payable
2. Estimated Liabilities Example: Premiums and Warranties
3. Provisions and Contingencies

NON-CURRENT 1. Notes Payable 4. Income tax

2. Bonds Payable 5. Pension
3. Leases

REFINANCING
DEFINITION replacement of an old loan with a new loan

Example: Loan Payable 10,000,000

Issued 7/1/2026
Original Maturity 7/1/2031 + 5 years for refinancing 7/1/2036

GR: Current Liabilities (kahit may refinancing pa yan)

EXCPN: Refinancing happened in:
7/1/2030 12/31/2030 3/31/2030

Today BS date/FS date/Reporting Date of Issuance Maturity Date

date
on or before BS date between BS and Issuance

Non-Current Liabilities Current Liabilities

(adjusting event)

Entity's discretion whether the first two above (meaning anytime pwedeng
mangutang si entity sa bank) "credit line"

Non-Current Liabilities
 BREACH OF COVENANT
DEFINITION usapang hindi natupad, so the LT obligation becomes immidiately demandable

GR: Current Liabilities

EXCPN: Grace Period is given in:
7/1/2030 12/31/2030 3/31/2030

Today BS date/FS date/Reporting Date of Issuance Maturity Date

date

on or before BS date between BS and Issuance

(adjusting event) Current Liabilities

≥ 12 mos. < 12 mos.
Non-Current Current
Liabilities Liabilities

ESTIMATED LIABILITIES
DEFINITION obligations
amounts are not definite
payees cannot be identified

EXAMPLES: 1. Premiums used for promotions

example: eto yung before ihuhulog mo
yung balat ng shampoo sa mga dropbox
customer loyalty program example: points, credits, awards
Example:
Si SB, bumili ka ng coffee and nagcollect ka ng stickers,
so dalawa yung binebenta nya, coffee and points

Product derecho sales

must be separated according to their
stand-alone selling prices
Points unearned revenue

2. Warranties free repairs or free replacements of parts

PROVISIONS
DEFINITION existing liabilities with uncertain timing and amounts

court case
EXAMPLES: ABC XYZ
Accounting Treatment How much?
Rules: 1. Probable > 50% likely to happen recognize provision Hierarcgy:
(matalo sa case) Expense/Loss xx 1. Best Estimate by mgmt
Liability xx 2. Expected value
3. Midpoint
(you will use 2 and 3 if only
there is different possible
outcomes)
2. Possible ≤ 50% contingent liability
Disclosure only
Possible Obl
Contingent Liab
(ABC) Not probable
Present Obl or
POV Not measurable

Contingent Asset Probable Disclosure Only

(XYZ) Possible No journal entries and no
Remote disclosure
(meaning kapag contingent asset, never tayong magrerecognize)
3. Remote ≤ 10% No journal entries and no disclosure
 NOTES PAYABLE
INTRO
DEFINITION written agreements (promissory notes) in which one party agrees to pay the other party a certain amount of cash

Illustration:
Inventory P100,000
ABC XYZ
Promissory Notes
Inventory 100,000 NR 100,000
NP 100,000 Sales 100,000

MEASUREMENT
INITIAL
FV - TC usually the transaction cost here is ZERO

1/1/2024 12/31/2024 12/31/2025

Short term ( ≤ 1 year)
Fair Value = Face Value
Long term (> 1 year)
Fair Value = Present Value

Interest Bearing Face Value

Short Term Notes Payable
Non Interest Bearing Face Value

Reasonable Rate (NI = EI) Face Value

Long Term Notes Payable Interest Bearing

Unreasonable Rate (NI ≠ EI) Present Value

Non Interest Bearing Present Value

SUSBEQUENT every EOY

Interest Bearing
Short Term Notes Receivable
Non Interest Bearing
Amortized Cost
Reasonable Rate (NI = EI)
Long Term Notes Receivable Interest Bearing
Unreasonable Rate (NI ≠ EI)
Non Interest Bearing

FAIR VALUE OPTION OF MEASURING NOTES PAYABLE

DEFINITION at initial recognition, a note payable may be irrevocably designated as FVPL

EFFECT: Transaction cost charged to expense

No amortization
MTM ∆ will go to P&L

DEBT RESTRUCTURING
HOW this happens when the debtor's having difficulty to pay

Illustration:
P100,000
ABC XYZ
(borrower) Principal + Interest (lender/creditor)
3 TYPES OF DEBT RESTRUCTURING 1. ASSET SWAP will pay our obligation thru use of Non Cash Assets
Accounting: (aka Dacion en Pago)
Compare CV of Liab vs. CV of Asset

2. EQUITY SWAP issuance of shares

Accounting Hierarchy : (basically, si Creditor magiging shareholder sya)
i. FV of the Shares
ii. FV of the Liab
iii. CV of the Liab

3. MODIFICATION OF TERMS restructuring the terms of the loan

Example: Forgiveness of Accrued Interest
⇓ in Interest Rate
⇓ of Principal
Extension of maturity

Accounting: Will recognize G/L?

Compare old CV vs. new PV WITH substantial modification 
(using old EIR) G/L ≥10% of CA old

WITHOUT substantial modification 

G/L <10% of CA old

LOANS PAYABLE
INTRO
DEFINITION/CLASSIFICATION  Nonderivative financial liability with fixed or determinable payments that are not quoted in an active market
 arising from loans granted by financial institutions
Examples: a. Banks
b. Insurance Companies
c. Pawnshops
d. Cooperatives

Illustration:
P100,000
ABC XYZ Bank
Promissory Notes
Cash 100,000 LP 100,000
LP 100,000 Cash 100,000

LOANS PAYABLE
Always Interest Bearing vs. NOTES PAYABLE
May or may not be interest bearing

MEASUREMENT
INITIAL
FV - TC unlike in Note Payable, there is always a TC (Origination Fee)

1/1/2024 12/31/2024 12/31/2025 12/31/2026 12/31/2027

We will always use Amortization Table

SUSBEQUENT Amortized Cost

Effect of Transaction Cost:

(will increase the EIR)
 BONDS PAYABLE (PFRS 9)
INTRO
DEFINITION unconditional promise under seal to pay a specified sum of money at a determinable future time + periodic
interest payments
form of financing
terms and all the conditions are contain in bond indenture

Illustration: Issuer
(debtor)
X
Globe
Bondholders Y
Telecom
(creditors) Z
P100M P100M

P+i Net Income

Bondholder's Book: Issuer's Book:

Inv. In DS xx Cash xx
Cash xx BP xx
Cash xx Int. Exp. xx
Int. Income xx Cash xx

MEASUREMENT
INITIAL
FV - TC unlike in Note Payable, there is always a TC (Bond Issuance Cost)

1/1/2024 12/31/2024 12/31/2025 12/31/2026 12/31/2027

We will always use Amortization Table

SUBSEQUENT Amortized Cost

Effect of Bond Issuance Cost: + discount

(will increase the EIR) - premium

Present Value
Effective Rate = Nominal Rate is equal to Face Amount
Issuance of Bonds Payable Effective Rate > Nominal Rate at a Discount
Effective Rate < Nominal Rate at a Premium
(market, discount, yield rate) (coupon, stated)

Interest Expense
NOTE: 1. If the Bonds is issued at a Discount Amortization
Carrying Amount

Interest Expense
2. If the Bonds is issued at a Premium Amortization
Carrying Amount