CFAS

Intangible Assets

**Identifiable non monetary assets** **without physical substance.** **Controlled** by the entity resulting of **past event** and from which **future econ benefits are expected** to flow tot the entity. PAS 38

Three essential criteria of an intangible assets

Identifiable, Control, Future Economic Benefits

Identifiable when

* Separable. Could be sold, transferred, licensed, rented, exchanged
* Arises from Contractual or Legal Right. Acquired thru purchase and has a transfer of legal right

Control

Power of an entity to obtain future econ benefits and restrict the access of others to those benefits. Stem from legal rights that are enforceable in a court of law

Identifiable intangible assets

Patent, franchise, trademark, customer list, computer software, broadcasting license

Unidentifiable intangible asset

Intangible asset is **Cannot be sold**, transferred, licensed, rented, or exchanged **separately**. Inherent in a continuing business and **can only be identified with the entity as a whole.** __Goodwill__

Initial measurement of an intangible asset

PAS 38, Paragraph 24, measured initially at COST.

Cost of separate acquired intangible asset:

* Purchase price
* import duties
* nonrefundable purchase tax
* directly attributable cost, professional fee, bringing asset to its working conditions
* Cost of testing the asset

Cost of Internally generated intangible assets

Comprises all directly attributable cost necessary to create, produce, prepare the asset for intended use.

Directly attributable cost for internally generated intangible asset:

* Cost of materials and services used or consumed
* Cost of employee benefit arising from the generation of the intangible asset
* Fee to register a legal right

Shall Not be recognized as intangible asset

Internally generated brand, masthead, publishing title, customer list, other similar substance

Shall not be recognized as an asset

Internally generated goodwill

Expenditures expenses when incurred (purchases more than a year)

* start up cost, legal cost, pre opening cost
* Training cost to operate
* Advertising and promotional cost
* Business relocation and reorganization
* Selling and Admin overhead

Measurement after recognition, entity shall choose model as an accounting policy

Cost model and revaluation model

Cost Model (Intangible asset)

Intangible asset shall be **carried at** **cost**, less any **accum. amortization** and accum. Impairment loss.

Revaluation Model (Intangible asset)

Intangible asset shall be **carried at revalued amount or fair value on the date of revaluation**, less any **subsequent amortization** and **subsequent accum impairment loss.** ***Can only be carried at revalued amount, if there is an active market for the asset***

Amortization

Systematic allocation of the amortizable amount of an intangible asset over useful life. Shall begin when the asset is available for use

Amortizable amount

Cost of the intangible assets less **residual value**

Useful life of an intangible assets are assessed or classified as

Indefinite or finite

Limited or Finite life

Can be/ **May be expressed in terms of years/** units to be produced. Foreseeable limit. **Amortized over their useful life, tested for impairment** whenever there’s an indication or impairment

Indefinite life

No foreseeable limit to the period which asset is expected to generate. No factors that would limit the useful life of the intangible asset. **Not amortized but are tested for impairment** at **least annually**, whenever there is an indication

Method of amortizing intangible assets

Reflect the **pattern in which future econ benefits are expected** to be consumed, not determined, **straight line method** to be used

Major problem for an intangible asset

Determining the useful life

PAS 38, Paragraph 53

**Entity cannot distinguish** the research phase from the development phase, it treats the expenditures incurred in the **research phase only**.

Research

Original and planned investigation undertaken with prospect of gaining scientific, technical knowledge and undertaking. Discover new knowledge useful in developing new product.

Development

Application of research findings or knowledge to a plan, design of production of a new or substantially improved material, PRIOR to the commencement of commercial production

Not considered research and development

Activities relate to commercial production

Accounting for research cost

Expenditures on research shall be recognized as expense when incurred

Accounting for development cost

Incurred at a later stage in the project, probability of success may be apparent

Investment property

Property (**land or building**) held by an owner or by the lessee under financial lease to earn **rentals or capital appreciation. PAS 40**

Properties they can qualify as investment property

Land and building

Investment property are held

* to earn rentals
* For capital appreciation

Investment property is not held/ Owner occupied property

* For the use in production or supply of goods and services
* For sale in the ordinary course of business

Examples of investment property

* land for long-term capital appreciation
* Land currently undetermined use
* Building leased out under operations leased
* Building vacant to be leased out under operating lease
* Property being constructed or developed for future investment property use

Partly investment partly owner occupied

Portions could be sold or leased out separately, entity shall account the portions separately

Property is Investment property

if not sold separately, only if the insignificant portion is held for manu or admin purposes

Property is treated Investment property

when ancillary services are provided by the entity to the occupants of the property and these services are insignificant component, providing security and maintenance, building is still blank

Property is treated owner occupied property

services provided are more significant component of the arrangement

Still treated as owner-occupied property

perspective of the group, as a whole, and purposes of **consolidated financial statements**

Still treated as investment property

perspective of the individual entity, property leased out to another subsidiary or its parent

Capitalized expenditures

Cost incurred for materials, equipment, intangible asset related to research and development which have an **alternative future use**. Cost of materials, Depreciation of equipment, Amortization of intangible asset

Fair value of an asset

the **price that would be received to sell an asset** in an orderly transaction **between market participants** at **measurement date.**

Shall not be adjusted for transaction cost (investment property)

the price in the principal market used to measure the fair value

exclusion of the fair value of the investment property

prepaid or accrued operating lease income

PAS 40 Paragraph 53

under exceptional cases, The entity shall measure the investment property **using the COST METHOD until the disposal** of the investment property. **Residual value** of the investment property shall **assumed to be ZERO**

PAS 40 Paragraph 54

entity uses fair value method shall continue to measure other investment property, despite the fact of using cost model to one investment property

What is the initial measurement of the investment property?

It shall be measured **initially at cost**. Transaction cost are included.

Cost of purchased investment property

comprises purchase price and any directly attributable expenditures. legal services, transfer taxes, other transaction cost.

Cost excluded from the cost of investment property

Start up cost, Operating loss incurred before occupancy, abnormal wasted material, labor, resources

**Subsequent** measurement of investment property

choose either the models and apply to all of investment property

fair value model or cost model

Fair Value Model (investment property)

Carried at fair value. If the entity decides to measure the investment property under the fair value model, **changes in fair** **value** are recognized in **PROFIT AND LOSS**. NO DEPRECIATION recorded.

Cost Model (investment property)

If the entity decides to measure the investment property under the cost model, the asset shall be carried at cost, LESS **ACCUM. DEPRE and ACCUM IMPAIRMENT LOSS are recognized in PROFIT AND LOSS.** Fluctuations in **fair value are NOT RECOGNIZED.**

Derecognition of Investment Property

On disposal, Permanently withdrawn from use, no future economic benefits are expected

Disposal on Investment Property

Gain or Loss from disposal shall be determined as the difference between the net disposal proceeds and the carrying amount of the asset

Transfers of the investment property when there is a change of use evidenced by

* commencement of owner occupation - investment to owner occupied
* commencement of development with a view to sale - investment to inventory
* End of owner occupation - owner occupied to investment
* commencement of operating lease to another entity- owner occupied to investment

Biological assets

living animals and living plants and disclosed a separate line item in the SFP PAS 41

Agricultural Produce

the harvested product from the entity’s biological asset PAS 41

Harvest

detachment of produce from a biological asset, cessation of a biological asset’s life processes

Agricultural Activity

the **management** by an entity of the **biological transformation** and **harvest of biological assets for sale** or for conversion into agricultural produce/ additional biological asset

Examples of agricultural activity

* Raising livestock
* Annual/ Perennial cropping
* cultivating plantations
* floriculture
* aquaculture

Recognition of biological assets/ agricultural produce

* entity controls the asset as a result of past events
* probable future economic benefits
* fair value or cost of the asset measured reliably
* control evidenced by legal ownership

Measurement of biological asset

Shall be measured on **initial recognition** and at the end of the reporting period, **fair value less cost of disposal**

Measurement of Agricultural Produce **Harvested**

shall be measured at **fair value less cost of disposal at the point of harvest**

Measurement of Agricultural Produce **Growing on the Bearer Plant**

shall be measured at **fair value less cost of disposal**

Agricultural land

an asset that is not recognized as a biological asset, its PPE or Investment Property

Bearer Plant

Accounted as Property, Plant, and equipment. A living plant used in production of agricultural produce, expected to bear produce for more than one period. Used solely to grow agricultural produce over several period.

Example of bearer plants

* trees that produce fruits are bearer plants, fruits growing on trees are agri produce until harvested

Not considered as bearer plants

* trees grown to be harvested and sold as log or lumber
* annual crops which do not bear produce for more than one period , only sole purpose being harvested

Bearer animals

held solely for the produce that they bear, but they are considered as biological assets

How are animal-related recreational activities classified?

No management of the biological asset but only control, accounted as PPE

Harvested product is accounted for Inventory

There is a long aging or maturing process after harvest

Provision

**An existing liability of uncertain timing or uncertain amount**. PAS 37. (ikaw gi kasohan) Liability exists at the end of reporting period, amount is indefinite, date of the obligation is due is also indefinite, payee cannot be identified

The essence of a provision

When there is uncertainty about the timing or amount of the future expenditure.

Probable and Measurable

provision may be equivalent of an **estimated liability** that is **accrued**

Recognition of provision

Provision shall be recognized as a liability in FS

* Entity has a **present obligation, legal or constructive** result of past event
* **Probable that an outflow** of resource embodying economic benefits, require to **settle the obligation**
* Obligation can be measure reliably

Legal Obligation

An obligation **arising from a contract**, legislation, or other **operation of law**

Constructive Obligation

Exists when the **entity has a stated policy** that created a **valid expectation** that will accept certain responsibilities

Obligating Events

Past event that leads to a present obligation. An event that creates a legal or constructive obligation because the entity has no realistic alternative but to settle the obligation.

Probable outflow of the economic benefit

the event is more likely than not to occur, probability that the event will occur is greater than not to occur. more than 50% to occur

The use of an estimate

an essential part of the preparation of FS and does not undermine their reliability. range of possible outcomes. No reliable estimate, no liability is recognized

Measurement of provision

the amount recognized as a provision should be the best estimate of the expenditure required to settle

the best estimate

the amount that an entity would rationally pay to settle the obligation at the end of the reporting period

the midpoint of the range

when there is a continuous range of possible outcomes, this is the best estimate

Weighting of all possible outcomes

When the provision involves a large population of items

the Individual most likely outcome adjusted for the effect of other possible outcomes

When the provision arises from a single obligation

Consideration in recognizing and measuring a provision

Risks and uncertainties, present value, future events, expected disposal of assets, reimbursements, changes in provision, use of provision, future operating losses, onerous contract

Risks and uncertainties

Variability of outcome**. inevitably surround events and circumstances** shall be taken into account in reaching the best estimate of a provision

Present value of obligation/provision

Where the effect of the **time value of money** is material, expected to settle the obligation

Expected disposal of assets

**Gains** from expected disposal of assets **shall not be taken into account** in measuring provision. Cashflows from disposal are treated separately.

Reimbursements

Reimbursements shall be recognized when its virtually certain that it would be received. amount of reimbursement shall NOT exceed the amount of provision.

Future operating losses

Provision shall NOT be recognized for future operating losses. Because a past event creating a present obligation occured

Onerous contract

A contract in which the unavoidable cost meeting the obligation under the contract exceed the economic benefit. present obligation under the contract is recognized. Lower cost amount

Contingent liability

A **possible obligation** that arises from past event and whose existence will be confirmed only by the occurrence or nonoccurrence of uncertain future events. A probable obligation but amount of the obligation cant be measured reliably . Either probable or measurable BUT NOT BOTH.

Treatment of contingent liability

Possible-disclosure only, Probable but not measurable - disclosure only, Remote- no need disclosure,

Required disclosure for contingent liability

Brief description of the nature, an estimate of financial, indications of uncertainties, possibility of reimbursements

Contingent Asset

A **possible asset** that arises from past event and whose existence will be confirmed only by the occurrence or nonoccurrence of uncertainty future events.

Financial Instruments

Any contract that gives a rise to to both a financial asset of one entity and a financial liability or equity instrument of another entity. Encompasses a financial asset, a financial liability, and an equity. PAS 32

Characteristics of a financial instrument

* Must be a contract
* At least two parties to the contract
* contract give rise to financial asset of one entity and a financial liability or equity instrument of another entity.

Financial Asset

* A cash
* **contractual right** to **receive cash** or another financial asset from another entity
* contractual right to exchange financial instruments with another entity under **FAVORABLE conditions**
* equity instrument

Non Financial Asset

Physical Assets, Inventory, PPE, Intangible Asset, Prepaid expenses