FINANCIAL ACCOUNTING – aimiel f.

reyes
Cash and Cash Equivalents Retail Method
 Equity is never part of Cash Equivalents because it Available for Sale (AFS) xx
does not have a redemption period. Sales xx
 Redeemable Preference Shares to be liquidated Sales Return Only (x)
within 3 months is CE Employee Discount xx
Normal Shrink/Shoplift xx xx
Receivables Inventory – retail xx
1. Percent of Sales – doubtful accounts expense Cost ratio* x%
2. Percent of AR – regular allowance Inventory Cost xx
3. Aging of Receivables – regular allowance
*Cost Ratio
𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝐹𝑜𝑟 𝑆𝑎𝑙𝑒 − 𝑐𝑜𝑠𝑡
Receivable Financing
To accelerate cash collection 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝐹𝑜𝑟 𝑆𝑎𝑙𝑒 − 𝑟𝑒𝑡𝑎𝑖𝑙
1. Pledge
1. Conservative/conventional – net mark up
a. AR is considered as collateral for a loan
2. Average – net mark up, net mark down
b. Disclosed in notes as general assignment
3. FIFO – net mark up, net mark down
2. Assignment
a. Also a collateral for loan
Biological Assets
b. Disclosed in notes a specific assignment
Living animals or plants measured at FVCTS
3. Factoring of AR - Sale of accounts receivables
4. Discounting of Notes Receivable  Agricultural Produce depends
a. Without recourse (absolute sale) o As the product grows – bioasset at FVLCTS
b. With recourse o When harvested – inventory at FVLCTS at
i. Conditional (contingent) harvest point
ii. Secured (primary)  Bearer Animals remain Bioassets
 Bearer Plants are now PPE
*Weighted Average Time to Maturity: use 365 days o Used in the production of supply
o Expected to bear more than 1 year
Notes Receivable o Remote likelihood that the plant will be sold as
Valuation of Notes Receivable agri-produce
1. Short term – Face Value  Animals at the Zoo are now PPE
2. Long Term
a. Interest bearing - PV Investment
b. Non-interest bearing – amortized Equity Investments
Passive interest in another company (< 20%)
Impairment of Loan Receivable 1. FVPL
1. CA of Loan Receivable + Any accrued interest a. Trading investments
(Contractual Cash Flows) > PV of estimated FCF b. Nontrading, if measurable
using original effective interest rate c. All other quoted equity inv.
2. Impairment loss is an allowance account 2. FVOCI
3. Interest income  CA of LR net of allowance for a. Nontrading irrevocably designated at FVOCI
impairment loss  Amortized at effective rate b. NEVER reclassified

Inventory FVPL FVOCI

Initial Measurement FV only FV + TC
Lower of Cost or Net Realizable Value Transaction cost Expense Capitalize
1. Responsibility – Destination: Seller, Shipping: Change in FV P/L OCI
Buyer Dividends P/L P/L
2. Payment of Freight – Prepaid: Seller, Collect: Buyer Impairment N/A N/A
Disposal P/L R/E
Gain/Loss Proceeds – CV Proceeds – (Lower of
Purchase Commitment Disposal vs Historical)
1. Recognition – fixed units * fixed price
2. Subsequent Measurement
a. Market < Fixed – recognize loss
b. Market > Fixed – recognize gain up to loss
3. Purchase – Lower of Market or Fixed
4. Cash Payment – Fixed price
Gross Profit Method
(BI+NP-COGS=END)
 FINANCIAL ACCOUNTING – aimiel f. reyes
Investment in Associate - Controlling interest (20-50%) Land and Building
Inv. In Assoc. 1. Lumpsum Cost Acquisition
Purchase + a. Old Building has FV – allocated at relative
Share in P/L +/- fair values
Other Equity Revaluation / OCI b. Old Building has no FV – lumpsum cost
Cash Dividends - allocated to Land
Share Dividends Memo Entry Only 2. Old Building is demolished
a. Loss if PPE
Bond Investments (Liability) b. Capitalized as cost if New Building is
Maybe acquired as current or noncurrent assets. Classified Inventory
and accounted for as ff: 3. Existing Building is Demolished
1. Held for Trading or Trading Securities a. Loss whether Inventory, IP or PPE
a. Transaction Cost is Expensed 4. Demolition Cost, net of Scrap Proceeds
b. Subsequently at FVPL a. Capitalize as New Building Cost
2. Financial Assets at Amortized Cost b. If no new building, Capitalize to Land
a. Initial Measurement at FV Taxes
i. Bond premium is a loss 1. Property Tax
ii. Bond discount is a gain a. Assumed to Acquisition – Capitalize
b. Transaction Cost is Capitalized b. After Acquisition – Expense
3. FA irrevocably designated at FVPL 2. VAT – refundable so don’t capitalize
3. Special Assesment – capitalize
Derivatives
Based on underlying or notional value with little to no Dismantling Cost
investment. Net settlement is at a future date. 1. Present Obligation (Required) – capitalize
1. Measurement 2. If not, then expense when occurred
a. Changes in FV  OCI
2. Settlement Depreciation
a. Recycling to P/L (OCI  P/L) 1. Straight-Line
3. Examples 2. Sum of the Years Digits
a. Interest rate swap (bank loan) 3. Declining
b. Forecasted purchase transaction 4. Composite Method
i. Forward, futures, options, foreign a. Group is treated as a single asset
currency forwards b. Composite Life
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
Investment Property 𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
Applicable to Land and Building only. Must be for rentals or c. Composite Rate
capital appreciation. 𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
1. Initial Measurement at Cost 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
2. Subsequent Measurement d. Depreciation
a. Cost = Cost – Acc. Depreciation – Acc. 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 ∗ 𝐶𝑜𝑚𝑝𝑜𝑠𝑖𝑡𝑒 𝑅𝑎𝑡𝑒
Impairment e. No Acquisition G/L on Disposal
b. Fair Value = FV Change in P/L
3. Transfers Depletion – Wasting Assets
a. Cost  IP Capitalize the following items:
i. Use CA as initial cost 1. Acquisition Cost of Property
b. PPE at FV  IP 2. Cost to Locate (Exploration Cost)
i. Adj. through Rev. Surplus 3. Development Cost (Extraction Cost)
c. Inventory  IP 4. Restoration Cost (Dismantling Cost)
i. Adj. through P/L
d. Self Constructed PPE  IP Equipment for Extraction are not part of wasting assets. It
i. Adj, through P/L is depreciated separately as:
1. With alternative use – useful life of PPE
Cash Surrender Value 2. No alternative use – shorter UL of Wasting Asset
Insurance policies where the entity is the beneficiary. or PPE
Generally considered as a long term investment under
NCA.
 Premium must be paid for 3 full years
 Surrender/Cancel after 3 years Revaluation Model
Plant Property and Equipment ₱ Cost ₱ RC ₱ Appreciation
 FINANCIAL ACCOUNTING – aimiel f. reyes
(ADE – Cost) (ADE – RC) (ADE – App) Liability Disclosure Disclosure
₱ CA ₱SoundValue/FV ₱Rev.Surplus Probable Possible Probable

CA > Taxable Base > DTL Bonds Payable

𝑅𝑒𝑣𝑎𝑙𝑢𝑒𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 − 𝐻𝑖𝑠𝑡𝑜𝑟𝑖𝑐𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝑅𝑆 A financial liability recognized at
1. Amortized cost
Realized Portion  Retained Earnings a. Bond issue cost is capitalized
1. Derecognized at Disposal b. Interest expense – effective interest
2. Depreciation method (amortized using discount or
premium)
Change in Residual Value 2. Fair Value (Trading/FV – Option Irrevocable)
1. The original RV will be used to compute for the a. Interest expense – no discount or
Accumulated Depreciation premium
2. The new RV will be used to compute for the new 𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒 ∗ 𝑓𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒
depreciable cost b. FV Change
i. Trading – P/L
Equipment xx ii. FVPL – OCI or P/L
Accumulated Depreciation xx
Revaluation Surplus xx Compound Financial Instruments
1. Liability Component – FV of Liability
Depreciation Expense xx 2. Equity Component – Residual Value
Accumulated Depreciation xx
Bonds with Warrants
Revaluation Surplus xx  Detachable (traded separately
Retained Earnings xx  Nondetachable (cannot be traded)
*Tax effect is also computed PAS 32 does not differentiate from either. Warrants shall
be accounted for separately.
Intangible Assets
1. Initial measurement at cost Convertible Bonds
2. Subsequent  Revaluation or cost model  No G/L on conversion
3. Useful Life  Transfer from one type of capital to another
a. Limited life – amortized. Loss on impairment is  Conversion Cost – deduction from SP
recognized when there is an indication
b. Indefinite Life – not amortized. Annual test for Cash xx
impairment only. SP – Share Warrants xx
Share Capital xx
Research and Development Share Premium xx
1. Research Phase Leases
a. Before commercial production. Expense Finance Lease – Lessor
2. Development Phase DF Sales Type
a. Capitalized only AFTER technical Gross Gross MLP + Unsecured GRV (If
feasibility Investment asset goes back)
3. PPE Net Investment* Cost of PV of MLP + PV of
a. No alternative use – expense Asset + IDC UGRV
b. With alternative use – capitalize as asset, Basis of Sales n/a Lower of PV of
depreciation is part of RND MLP or FV of Asset
Liabilities Basis of Cost n/a Cost of Asset – PV
Current Liabilities of UGRV + IDC
Customer Loyalty Program Gross Profit n/a Sales – Cost
1. Awards and points are accounted separately Financial n/a Gross Investment –
2. Deferred Revenue  obligation is to provide Revenue Sales
service/deliver merchandise *Net investment in DF or ST are the same in substance
3. Total consideration  allocated between points *Lessor’s Asset  Lease Receivable – Unearned Interest
and sales price at their stand alone selling price Income
4. Revenue from points Finance Lease – Lessee
𝑇𝑜𝑡𝑎𝑙 𝑝𝑜𝑖𝑛𝑡𝑠 𝑟𝑒𝑑𝑒𝑒𝑚𝑒𝑑 Can be classified as such if any of the ff. criteria are met:
𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑃𝑜𝑖𝑛𝑡𝑠 𝑡𝑜 𝑏𝑒 𝑟𝑒𝑑𝑒𝑒𝑚𝑒𝑑 1. Transfer of title
2. Bargain Purchase Option
Provision Contingent Liability Contingent Asset 3. Lease Term is 75% of the EUL
 FINANCIAL ACCOUNTING – aimiel f. reyes
4. PV of MLP is 90% FV of asset
Minimum Lease Payments (MLP) includes
1. Rentals
2. Bargain Purchase Option or Guaranteed Residual
Value but never both
Depreciation
1. Transfer of Title – EUL
2. “75%” or “90%” – Shorter of EUL or Lease Term
Notes Payable
Debt Restructuring
When the debtor is under financial difficulty and the
creditor will maximize recovery
Types of Recovery
1. Asset Swap – creditor will accept any asset
a. IFRS –
G/L on Ext. =Total Obligation Settled – CV of Asset
Transferred
b. GAAP
G/L on Extinguishment = G/L on Exchange (1) – G/L on
Restructuring (2)
Where:
(1) = FV of Asset – CV of Asset
(2) = Total Liab. Settled – FV of Asset
*net effect of IFRS and GAAP are the same
2. Equity Swap
a. In order, capital should be measured at:
i. FV of Shares
ii. FV of Liability
iii. CV of Liability
G/L on Extinguishment = Total Liab. Settled –
measurement of capital
*convertible bonds are not in this scope
3. Modification of Terms
a. Reduction of Principal Balance
b. Reduction of Interest Rate
c. Extension of Term
New Liability is measured at PV
Total Liab – New PV. = G/L on Extinguishment
Amendment Applicable to October 2018
 Previously – atleast 10% of total for it to be
substantial and classified as extinguishment (new
effective rate will be used)
 Now – recognize G/L even if <10%. Always
modification never extinguishment.
Bonds Payable
Serial bonds – installment term bonds – single date
Debenture bonds – unsecured subordinated - less
Deferred Income Tax
 Taxable income – computed based on the income
tax law (ITR).
 Accounting/Financial Income – based on
Accounting Standards
Permanent Differences
1. Nontaxable income
2. Nondeductible expense
Temporary Differences
1. Future Taxable (DTL) – increase taxable income in
the future period
a. Accounting income > Taxable Income
b. CA of Asset > Tax Base
c. CA of Liability < Tax Base
2. Future Deductible (DTA) – decrease taxable
income in the future
a. Accounting Income < Taxable Income
DTL and DTA are both noncurrent accounts
Current Tax Expense = Taxable Income * Tax Rate for the
Year
Shortcut Formula (No change in Tax Rate)
Total Tax Expense = (Accounting Income – Permanent
Differences) * Tax Rate for the Year
Formula if there is change in tax rate:
Total Tax Expense = Current Tax Expense + Deferred Tax
Expense – Deferred Tax Asset
Employee Benefits
Components of Employee Benefits Expense
 Service Cost
o Current Service Cost – increase in
benefits for services rendered in current
year
o Past Service Cost – increase in benefits
for services rendered previously (whether
vested or not)
o Any gain or loss on settlement of plan in
advance
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 𝑂𝑏𝑙𝑖𝑔𝑎𝑡𝑖𝑜𝑛 𝑆𝑒𝑡𝑡𝑙𝑒𝑑
− 𝑆𝑒𝑡𝑡𝑙𝑒𝑚𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒 = 𝐺𝑎𝑖𝑛 𝑜𝑟 (𝐿𝑜𝑠𝑠)
 Net Interest Expense (All at Discount)
o Interest Expense on PBO, beg
o Interest Income on FVPA, beg
o Interest Expense on effect of asset ceiling
Asset ceiling is the limit of prepaid benefit cost. The
reduction is the effect on asset ceiling.
Remeasurements are OCI Components
1. Remeasurement of PBO
a. Actuarial Loss if increase in PBO
b. Actuarial Gain if decrease in PBO
2. Remeasurements of Plant Assets
a. Actual Return – Any interest income =
Remeasurement G/L
3. Remeasurements of effect of Asset Ceiling
a. Increase in effect in AC is Loss minus
interest expense on effect
 FINANCIAL ACCOUNTING – aimiel f. reyes
b. Decrease in effect in AC is Gain plus 3. Measurement of Property – Lower of CA or
interest expense on effect FVLCTS (NCAHS)
4. Settlement Date – recognize gain or loss in P/L
Termination Benefit – no need to render additional service. 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 − 𝑀𝑒𝑎𝑠𝑢𝑟𝑒𝑚𝑒𝑛𝑡 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦
Obligating event is termination of service = 𝐺𝑎𝑖𝑛 𝑜𝑟 𝐿𝑜𝑠𝑠
Wasting Assets Doctrine
Short Term Benefit- Conditional upon performing service. Exception to the Trust Fund Doctrine  capital can be
returned to the shareholders
PSC XX Actual Return XX EBE X
CSC XX Interest (FPA) (X) NRG/L (X) Maximum Dividend to be Declared
Interest (PBO) XX Rem. G/L XX DBO X Accumulated Depletion xx
Interest (FPA) (X) Actuarial G/L XX Cont. X Retained Earnings xx xx
EB Expense Net Rem. Gain ABC Adjustments:
XX XX X
Capital Liquidated (x)
Unrealized Depletion (x)
FVPA PBO Maximum Dividend Declared xx
Beginning Benefits Paid Benefits Paid Beginning
Contribution Act.. Gain PSC Capital Liquidated – Share capital returned previously
Actual Return CSC Unrealized depletion – part of inventory not yet sold
Discount
Act. Loss Share-based Compensation
Shareholder’s Equity Equity Settled  Share options
1. Measurement – Share Issuance Cash Settled  Share appreciation rights
a. FV of Consideration Received Both are compensation for services rendered
b. FV of Shares
c. Par or Stated Value SOO SAR
*Discount on Share Capital should be shown as a Settlement Equity Cash
deduction from equity Debit Salaries Exp Salaries Exp
Credit SOO (SP) Liability (Cash)
2. Treatment of Share Issue Cost – order of priority:
a. Deduction from Share Premium – Current Measurement – SOO in order:
Issuance 1. FV of Share Options at Declaration Date
b. Deduction from Share Premium – Previous 2. If no FV, then Intrinsic Value
Issuance a. Not fixed in amount (depends on Market)
c. Retained Earnings b. Remeasured at Year End and Settlement
Date
3. Accounting for Treasury Shares – not considered (𝐸𝑥𝑐𝑒𝑠𝑠 𝑜𝑓 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 − 𝑂𝑝𝑡𝑖𝑜𝑛 𝑃𝑟𝑖𝑐𝑒)
as financial assets. Cost Method Measurement – SAR in order:
a. Reissuance 1. FV of Liability
i. Gain – Cr @ SP-TS
a. Not fixed in amount (depends on Market
ii. Loss – Dr SP-TS, or RE
b. Remeasured at Year End and Settlement
b. Retirement – cancel share capital and Date
share premium original
(𝐸𝑥𝑐𝑒𝑠𝑠 𝑜𝑓 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 − 𝑃𝑟𝑒𝑑𝑒𝑡𝑟𝑚𝑖𝑛𝑒𝑑 𝑃𝑟𝑖𝑐𝑒)
i. Gain – Cr @ SP-TS
Vest Immediately: Expense Immediately
ii. Loss – Dr @ SP-Or, SP-TS, RE
Do not Vest Immediately: Expensed over the vesting period
Retained Earnings
Book Value Per Share
Share Dividends BVPS is computed to know how much a shareholder will
No effect in total assets and total equity receive if the company liquidates
Capitalized Retained Earnings  BV per Preference
 < 20% - fair value of shares at date of declaration.
Exception: if FV < Par Value 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐸𝑞𝑢𝑖𝑡𝑦
 > 20% - par value of shares is used # 𝑜𝑓 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑆ℎ𝑎𝑟𝑒 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
Property Dividends Preference Equity Components
1. Initial recoginition - Liability is measured at FV if 1. Total Par/Stated Value Outstanding
property at date of declaration. 2. Any Liquidation Premium (Liquidation Price –
2. Remeasurement of Liability – Change in FV at: Par/Stated Value
a. Year end, and 3. Preference Dividend (Undeclared and unpaid)
b. Settlement date a. Cumulative (All dividend in arrears)*
 FINANCIAL ACCOUNTING – aimiel f. reyes
b. Noncumulative (Current year only)
*In arrears – current year has been taken into consideration If no fair value for Ex-right, we use theoretical value:
already
 BV per Ordinary 𝑀𝑃𝐸 = 𝑀𝑃𝑅𝑂 − 𝑇ℎ𝑒𝑜𝑟𝑒𝑡𝑖𝑐𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 (𝑇𝑉)
Where:
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑃𝑅𝑂 − 𝐸𝑥𝑐𝑒𝑟𝑐𝑖𝑠𝑒 𝑃𝑟𝑖𝑐𝑒
𝑇𝑉 =
# 𝑜𝑓 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 # 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑡𝑜 𝑎𝑐𝑞𝑢𝑖𝑟𝑒 1 𝑠ℎ𝑎𝑟𝑒 + 1

Ordinary Equity Component 2. POV of issuing company: prepare a memorandum

1. Residual Interest – (Total SHE – Preference entry when issuing stock rights
Shareholder’s Equity)
2. Subscribed Shares* is included because they are Diluted Earnings Per Share
entitled to dividends The lowest possible earnings per share that the company
will have to report.
The subscriptions receivable from the Subscribed Shares
will be treated as an asset in the case of BVPS. Therefore, 𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
it is NOT a deduction from SHE. 𝑊𝐴𝑁𝑂𝑆 + 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒𝑠
 current asset if collectible within 1 year Numerator
 deduction from subscribed share capital (use this  Convertible Preference Shares – no more
for other SHE problems but not bvps) preference share capital: no deduction for
preference dividend
Quasi-Reorganization  Convertible Bonds – no more interest expense: add
Company is experiencing heavy losses. back interest expense net of tax
Retained Earnings dr Balance (Deficit): After  Share Options – check if there are indicators that
reorganization, 0 balance will dilute eps: option price is lower than average
1. Assets, Liabilities and Equity are adjusted to fair market value of share.
value o If dilutive, use treasury share method.
2. Eliminate the deficit using
a. Recapitalization – offset the deficit against 𝑂𝑝𝑡𝑖𝑜𝑛 𝑆ℎ𝑎𝑟𝑒𝑠 ∗ 𝑂𝑝𝑡𝑖𝑜𝑛 𝑃𝑟𝑖𝑐𝑒
share premium 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒
i. Par to no par  Incremental Shares – potential ordinary shares:
ii. Reduction in par value included in the denominator
iii. Stock splits
b. Revaluation – offset against revaluation (𝑂𝑝𝑡𝑖𝑜𝑛 𝑆ℎ𝑎𝑟𝑒𝑠 − 𝑇𝑟𝑒𝑎𝑠𝑢𝑟𝑦 𝑆ℎ𝑎𝑟𝑒𝑠)
surplus
 Written put options – contracts to repurchase the
Basic Earnings Per Share
entity’s own shares (treasury shares). Considered
only when dilutive
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝐴𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠
o Exercise Price > Average Market Price
# 𝑜𝑓 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒. 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 o Company will issue capital to buy back the
shares
Numerator
Decrease by Preference Share Dividends (current amt only) # 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 𝐼𝑠𝑠𝑢𝑒𝑑
 Cumulative, whether declared or not (𝑊𝑟𝑖𝑡𝑡𝑒𝑛 𝑃𝑢𝑡 𝑂𝑝𝑡𝑖𝑜𝑛𝑠 ∗ 𝐸𝑥𝑒𝑟𝑐𝑖𝑠𝑒 𝑃𝑟𝑖𝑐𝑒)
 If Noncumulative, only when declared =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒
 Where:
Denominator 𝐼𝑛𝑐𝑟𝑒𝑚𝑒𝑛𝑡𝑎𝑙 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 = 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 𝐼𝑠𝑠𝑢𝑒𝑑 −
If there is a significant change in the number, we will be 𝑊𝑟𝑖𝑡𝑡𝑒𝑛 𝑃𝑢𝑡 𝑂𝑝𝑡𝑖𝑜𝑛𝑠
using WANOS which is affected by the following: Cash and Accrual Basis
 Issued capital Cash Accrual
 Purchase of treasury Revenue Collections + Adjustment for Trade
 Retrospective effect of stock splits/rights from AR/NR and advances
Effect of Stock Rights Customers
Exercise Price > Market Price of Share Purchase Payments to + Adjustment for Trade
1. Bonus element will be computed retrospectively Supplier AP/NP and advances
using adjustment factor to
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑅𝑖𝑔ℎ𝑡𝑠 𝑂𝑛 (𝑀𝑃𝑅𝑂)
𝐴𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 𝐹𝑎𝑐𝑡𝑜𝑟 =
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝐸𝑥𝑟𝑖𝑔ℎ𝑡 (𝑀𝑃𝐸)
 FINANCIAL ACCOUNTING – aimiel f. reyes
Income Collection of + Adjustment for
Income Deferred and Accrued Statement of Cash Flows
Income
Expense Payment of + Adjustment for Operating Investing Financing
Expenses Prepaid and Accrued P/L NCA Liability
Expenses Trading Inv. + CE Investments Equity
Depreciation Recognize Recognize Direct/Indirect Direct Only Direct Only
Bad Debts N/A DAE
 direct – Identify the cash receipts and cash payments
for each transaction
Single Entry  indirect – Start with the P/L then adjust nonmonetary
Determine the profit or loss using the net asset approach: items to get net cash flow
Total Equity at the end of period XX
Total Equity at the start of period (X) 𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 = 𝑁𝑒𝑡 𝐶𝑎𝑠ℎ 𝑓𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔
Change in Equity XX − 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒𝑠 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠

↑ in Assets – ↑ in Liabilities = Net Income Default Alternative

Dividend Rec* Operating Investing
Consider items that decrease equity but not considered as Dividend Paid Financing Operating
profit or loss (example) Interest Rec. Operating Investing
 dividend declared (add back) Interest Paid Operating Financing
 capital issuance (deduct)
*Also applied for investment in associate dividends
Hyper Inflation
1. Index is 100% over 3 years
2. General public would put their money in
 Nonmonetary investments
 More stable foreign currency

Monetary items – the will not be restated

1. Monetary assets/liabilities – cash items received or
settled in fixed amount of money
 if liability is not specified, assume monetary
2. Nonmonetary – restated items in the FS. Residual
definition.
Exceptions  FAFV, FAAC
 Inventory @ average index

Revaluation Surplus  after the restatement, surplus

should be eliminated

𝑌𝑒𝑎𝑟 𝐸𝑛𝑑 𝐼𝑛𝑑𝑒𝑥

𝐻𝑖𝑠𝑡𝑜𝑟𝑖𝑐𝑎𝑙 𝑅𝑎𝑡𝑒 ∗
𝐼𝑛𝑑𝑒𝑥 𝑎𝑡 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛

Purchasing power – amount of money that can purchase

goods and services (include monetary items only)

Current Cost – no formal entry because restatement only.

Recognize holding gains/losses
 unrealized – not sold or not used
 realized – through selling or using

Depreciation: based on the average cost of Purchase Price

Net Current Cost: current cost – depreciation that should
be if based on current cost
COGS is computed by the units then the average rate