BRIEF POINTERS IN THEORY OF ACCOUNTS

1. Conceptual Framework
Focuses on business entities (including private and governmentowned business entities)
Does not apply to Not-for-Profit entities.
2. Components of Cash and Cash Equivalents
Must be disclosed and reconciled to amounts reported in the
Statement of Financial Position.
3. PAS 2 (Inventories)
Items of inventory that are used by business enterprise as
components in a self-constructed property asset are required to be
capitalized and depreciated.
4. When the entitys operating cycle is not clearly identifiable, it is
assumed to be 12 months
5. Weighted average inventory costing method
particularly suitable to inventory where homogeneous products
are mixed together
6. Net Realizable value of inventory
is the net amount that an enterprise expects to realize from the
sale of the inventory in the ordinary course of operations less
estimated costs of completion and costs necessary to make
the sale.
7. If the selling price of inventory that has been written down to net
realizable value in a prior period, subsequently recovers, the previous
amount of the write-down can be reversed.
8. PAS 2 requires separate disclosure of details of inventory pledged as
security for loans.
9. Acquisition of non-current assets is classified as part of investing
activities in the Statement of Cash Flows.
10. Where an asset is measured using the cost model, any impairment
loss is added to the entire class of non-current asset.

11. When applying the revaluation measurement model to assets, the

model applies to the entire class of non-current assets.
12. The impairment test must be applied to tangible assets only if there
is an indication that the asset may be impaired.
13. The impairment test for GOODWILL must be conducted annually, at
the SAME TIME every year (not necessarily on the balance sheet
date).
14. The two key characteristics of intangible assets are that they are
identifiable and that they lack physical substance.
15. The characteristic that distinguishes the goodwill from other intangible
assets is identifiability.
16. Under PAS 38 (Intangibles), goodwill may only be recognized as an
asset if it is acquired as a part of a business combination.
17.

Business Combination
A transaction or other event in which an acquirer obtains control
of one or more businesses.

18.
In a business combination, the ACCOUNTING ACQUIRER is the
entity that becomes the controlling entity.
19. Net employee benefit liabilities acquired in a business combination are
measured by using the present value method.
20.

PFRS 10 (Consolidated Financial Statements)

Requires that intragroup transactions be eliminated in full on
consideration.

21. In a consolidated statement of financial position, the non-controlling

interest is shown separately within the equity section.
22. MUTUAL shareholdings exist when a parent and a subsidiary own
shares in each other.
23. When Goodwill is acquired by an investor in an associate, the
amortization of goodwill is not permitted.

24.
The following categories of financial instruments are subsequently
measured at amortized cost.
a. Held-to-Maturity investments
b. Loans and Receivables
c. Other Financial liabilities
but not available-for-sale financial assets
25.

Gain or Losses on available-for-sale financial assets

Are recognized directly in equity until the financial asset is
derecognized.
Upon derecognizing the asset the, the cumulative gain or loss
previously recognized is recognized in PROFIT OR LOSS.
Note: AFS financial asset is under PAS 39 (Not PFRS 9)

26. PAS 41 applies to the accounting for the following when they relate to
agricultural activity
a. Agricultural Produce
b. Biological assets
c. Government grants
Land related to agricultural activity is OUTSIDE the scope of
PAS 41
27.
a.
b.
c.

The following are considered agricultural activity

Oyster Farming
Pearl Farming
Fish Farming
Ocean fishing is not considered an agricultural activity

28. Milk Meet the definition of agricultural produce. The following do not:
Dairy cattle, Cheese and Yoghurt.
29. The particular relationship between parties that signifies the existence
of a joint arrangement is joint control by the parties over the
activities of an operation.
30.

PFRS 11 (Joint Arrangements)

Provides that joint control exists where no single party is in a
position to control the activity unilaterally.

31. Scope of PFRS 6 (accounting for mineral resources) is limited to

exploration and evaluation expenditures; PFRS 6 does NOT cover
pre-exploration and development expenditures.
32. In the context of PFRS 6 (accounting for mineral resources), E & E
stands for exploration and evaluation
33. Most commonly applied methods to account for exploration and
evaluation costs:
a. Successful efforts method best reflects the traditional concept
of an asset
b. Area of interest method most large oil and gas companies use
which of the following methods to account for exploration and
evaluation costs.
c. Full Cost method involves capitalizing exploration and
evaluation costs using a large cost center than an area of interest
such as a country of region.
34. Subsequent to initial recognition, E&E assets are required to be
measured either under the cost model or revaluation model.
35.

Warranties are provisions within the scope of PAS 17

36. Contingent Liability

An event that gives rise to a present obligation, but which cannot be
measured with sufficient reliability.
37. Under PAS 37, the appropriate accounting treatment for future
operating losses is to not recognize such items in the financial
statements.
38. In respect to a contingent liability, PAS 37 requires disclosure of
estimate of its financial effect.

an

39. Lessee
User of a leased asset
40. PAS 17 requires manufacturer and dealer-lessors to recognized selling
profit or loss at the commencement of the lease.
41. An entity is required to recognize a liability for short-term compensated
absences that are accumulating and vesting.

42. An increase in the present value of a defined benefit obligation

resulting from employee service in the current period is referred to as the
current service cost.
43. If the amount paid to the defined benefit contribution fund by an entity
during the year is less than the amount payable in relation to service
provided by employees, the entity must recognize a liability for the
unpaid contributions.
44. Temporary Differences
Differences between the carrying amounts of an entitys net assets
determined under accrual accounting standards and the tax bases of
those net assets.
45. Tax losses can be viewed as providing deductible temporary
differences , therefore a deferred tax asset.
46. Current tax consequences of business operations give rise to a
current liability for income tax payable.
47. To the extent that tax payable exists and has NOT yet been paid, a
company will recognize current tax liability.
48. In respect to the issue of shares by a company, IPO stands for Initial
Public Offering of shares.
49. PAS 1 requires that reconciliation between the carrying amount of each
class of contributed equity capital and each reserve at the beginning and
end of each period be disclosed in either the Statement of Changes in
Equity or the Notes.
50. PAS 33 applies to the computation and presentation of Earnings Per
Share by reporting entities whose shares are PUBLICLY TRADED, or
of entities that are in the process of ISSUING ORDINARY SHARES
that will be traded in public markets.
51. The profit or loss that is used in the calculation of basic earnings per
share is calculated as profit before tax expense LESS tax expense
LESS preference dividends.
52. A company issues bonus shares for no consideration on 1 August 2014.
For the reporting period ended 30 June 2015, the calculation of both
basic earnings per share and diluted earnings per share must be

ADJUSTED RETROSPECTIVELY for all periods that are presented in

the financial statements.
53. The following are excluded from the scope of PAS 18 (Revenues):
a. Initial recognition of Agricultural Produce
b. Insurance contracts within the scope of PFRS 4
c. Extraction of mineral ores
d. Lease agreements
54. Under PAS 18 (Revenues), interest revenue is recognized based on
effective interest method.
55. In terms of revenue-related disclosures, PAS 1 (not PAS 18) requires
TOTAL revenue to be disclosed on the face of the statement of
profit or loss and other comprehensive income.
56. The two common measures used in Accounting Standards are cost
and fair value.
57. Under PFRS 13, FAIR VALUE is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.
58. Fair value is determined at the measurement date (not transaction
date).
59. The market with the greatest volume and level of capacity for the asset
or liability is defined as the PRINCIPAL MARKET
60. Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date are an
example of a LEVEL 1 input.
61. Under PFRS 13, valuation techniques that convert future amounts to a
single current amount and determines the fair value on the basis of the
value indicated by current market expectations about those future
amounts is an example of the INCOME APPROACH.
62. Under PFRS 13, where a liability is held as a corresponding asset by
another entity the fair value of the liability is determined by measuring
the fair value of the corresponding asset.

63. Translating foreign currency denominated FS into the FUNCTIONAL

currency refers to FOREIGN CURRENCY TRANSACTIONS
64. Translating foreign currency denominated FS into the PRESENTATION
currency refers to FOREIGN CURRENCY TRANSLATION
65. The general rule for translating liabilities denominated in a foreign
currency into the functional currency is to FIRST classify the liabilities
as monetary or non-monetary.
66. When translating the revenue and expenses in the statement of profit
or loss and other comprehensive income, theoretically each item of
revenue and expense should be translated using the spot exchange rate
between the functional currency and the foreign currency on the
date the transaction occurred.
67. In order for the financial statements of a foreign operation to be
included in the consolidated financial statements of the parent, it is
necessary to translate the foreign operations financial statements in the
presentation currency of the reporting entity.
68. When an entity has an investment in a foreign domiciled entity, it is
necessary to translate the financial statements of the foreign operation to
the currency used by the investor where the investor has control over
the foreign entity.
69. Where a change in the functional currency occurs, the translation
procedures as outlined in PAS 21 (Effects of Changes in Foreign Exchange
Rules) apply prospectively, from the date of the change.
70. PFRS 8 (Operating Segments) is primarily a disclosure standard,
rather than a measurement or a definition standard.
71.

PFRS 8 (Operating Segments) applies to:

a. Listed Entities
b. Entities in the process of listing
c. Any entity who voluntarily chooses to apply it

PFRS 8 does not necessarily apply to PUBLIC COMPANIES.

72. A key objective of providing financial reporting information by segment
is to allow users to better assess the entitys risks and returns.

73. Segment disclosures are designed

consolidated financial data.

to

disaggregate

selected

74. PFRS 8 prescribes that an operating segment must be identified on the

basis of the way information is reported internally to the CODM.
75. Under PFRS 8, the term CODM refers to Chief of Divisional
Management.
76. If an entity presents both consolidated FS and parent entity FS in the
same financial report, it must present segment data only on the basis
of the consolidated FS.
77. Segments that do not satisfy the requirements of a reportable segment
must be combined and disclosed as all other segments
78. If and operating segment does not meet all the thresholds of
significance, it may still be designated as a reportable segment
79. Additional segments must be identified as reportable segments until at
least 75% of the total entity revenue is included in reportable
segments.
80. The reasonable maximum number of an entitys reportable segments
according to the additional guidance provided in PFRS 8: 10 (ten)
81. Under PFRS 8, entities are required to provide reconciliations on the
following:
a. The total of the reportable segments measures of profit or loss
to the entitys profit or loss;
b. The total of the reportable segments revenue to the entitys
revenue
c. The total of the reportable segments liabilities to the entitys
liabilities
NOT required: the total of the reportable segments equity to the
entitys equity
82. The following information are required to be disclosed by entities
complying with PFRS 8
a. The total of the reportable segments liabilities to the entitys
liabilities

b. The nature and effect of the changes in measurement of

segment profit or loss
c. Revenues from external customers located in foreign countries
83. According to PAS 24, related party disclosures are required irrespective
of whether there have been related party transactions when control
exists.
84. The following remuneration categories must be disclosed for key
management personnel post-employment benefits, termination benefits,
share-based payments, except for bonus payments.

85.

The following are NOT considered related parties:

a. The domestic partner of a director of the reporting entity
b. A supplier of the reporting entity
c. The amount of the outstanding balances and commitments

86. In the case where financial statements of parent entity or the ultimate
controlling entity are not made publicly available, the reporting entity
must disclose the name of the next most senior parent entity
whose FS are publicly available.
87. The minimum disclosures for related party transactions include the
following:
a. Provision of doubtful debts related to outstanding balances
b. The amount of transactions
c. The amount of the outstanding balances and commitments
Related party disclosures DO NOT include the key management personnel
of the related party
88. Under NGAS, allotments by DBM are recorded in the registries
quarterly, financial reports are also prepared quarterly; trial balance is
prepared monthly.
89. Under NGAS, sub-allotment is the allotment by the Central office to
its Regional office.

90. The NOTICE OF CASH ALLOCATION (NCA) is an authorization issued

by the DBM to government agencies to withdraw cash from the National
Treasury through the issuance of Modified Disbursement System checks
(MDS checks)
91. Under NGAS, supplies and materials purchased for inventory purposes
are recorded using moving average method; petty cash fund
accounted for under Imprest System; standard residual value of
depreciable asset being 10% of cost.
92. The Statement of Management Responsibility is a covering letter
in transmitting an agencys accounting reports to COA, DBM and other
agencies.
93. The Internal Revenue Allotment (IRA) is the allotment release by
LOCAL GOVERNMENT UNITS (LGU) or DBM to barangays.
94.

Accounting for nonprofit organizations is essentially fund accounting

95. A voluntary health and welfare organization is required to prepare a

Statement of Functional Expenses.
96. The contractual adjustment account of a nonprofit hospital is a
contra-revenue account
97. Under standard costing, overhead volume variance is based on the
fixed overhead application use.
98. The most appropriate cost accumulation procedure for Just-in-Time (JIT)
production is backflush costing.
99. Impairment of Assets for SMEs is divided into impairment of
inventories and impairment of assets other than inventories.
100. The required or default model in accounting for BASIC financial
instruments of SMEs is amortized cost; the required or default model in
accounting for OTHER financial instruments of SMEs is fair value.