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Agenda

IAS 23- Borrowing Costs


IAS 21- The Effects of Changes in Foreign

Exchange Rates
IAS 19- Employee Benefits (Revised)
IAS 40- Investment Property
IAS 41- Agriculture
IAS 16- Property, Plant and Equipment
IAS 38- Intangible Assets
IAS 37- Provisions and Contingencies

Agenda
IAS 17- Leases
IAS 36- Impairment of Assets
IAS 2- Inventories
IAS 39/ IFRS 9- Financial Instruments
IAS 28- Investment in Associates
IFRIC 15- Revenue- Real Estate Developer
IAS 8- Accounting Changes
IFRS 1- First-time Adoption
IAS 12- Income Tax

IAS 23- Borrowing costs


Statement of financial position accounts

affected:
PPE
Investment property
Intangible asset

Income statement accounts affected


Inventory
Finance costs
Finance income

IAS 23- Borrowing Costs


Accounting

Taxation

Borrowing costs shall be

Interest incurred to acquire

recognized as expense in
the period in which they are
incurred. Borrowing costs
incurred in connection with
the construction or
production of a qualifying
asset shall be capitalized as
part of the cost of the asset.
Interest earned on idle fund
is treated as a reduction of
borrowing costs

property used in trade or


business may be allowed as
a deduction or treated as a
capital expenditure Sec.
34 of NIRC.
Interest earned is recognized
as taxable income.
A portion of interest expense
is considered non-deductible
if an entity has interest
income subject to final tax

IAS 21- Foreign Exchange


Statement of financial position accounts

affected:
Cash and cash equivalents
Receivables
Payables

Income statement accounts affected


Foreign currency gains and losses
Statement of comprehensive income accounts

affected:
Foreign currency translation adjustment

IAS 21- Foreign Exchange


Accounting
Transaction is translated

into functional currency


at the spot rate at the
date of the transaction
Monetary assets and

liabilities are translated


using the closing rate as
of the FS date.

Taxation
For conversion of foreign

currency to PhP, the


prevailing interbank
reference rate shall apply
RMC 26-85
Foreign exchange gains
and losses are
recognized only when
they are actually
realized.

IAS 21- Foreign Exchange


Accounting
Functional Currency is

the currency of the


primary economic
environment in which the
entity operates

Taxation
The use of US dollars as

a functional currency is
allowed since the use of
foreign currency is
revenue neutral- BIR
Ruling 4-2003

IAS 40- Investment


property
Statement of financial position accounts
affected:
Investment property

Income statement accounts affected


Fair value adjustments- Gains and losses
Depreciation expense
Gain or loss on disposal of investment property

IAS 40- Investment


property
Accounting
Taxation
Real property held by an

entity for capital


appreciation or for rental.
Investment property may be

accounted for using the cost


model or the FV model
Gain or loss is recognized for

the difference between the


CV and net proceeds from
disposal

Investment property (IP) held

for capital appreciation is a


capital asset while IP held for
rental is an ordinary asset.
Depreciation is allowed for IP
that qualifies as ordinary
asset. Changes in FV are
ignored.
Capital gains tax shall apply
for capital assets while gains
and losses on ordinary assets
are taxable/deductible upon
disposal.

IAS 19- Employee


benefits
Statement of financial position accounts
affected:
Accrued pension costs
Prepaid pension costs

Income statement accounts affected


Salaries and wages
Pension expense
Statement of comprehensive income accounts

affected:
Actuarial gains and losses

IAS 19- Employee


Benefits
Accounting
Taxation
Short-term employee

benefits include:
Wages and salaries and

allowances
Compensated absences
Bonuses
Non-monetary benefits
such as medical care,
housing, cars, subsidized
goods or services

Reasonable allowance for

salaries, wages and other


forms of compensation
for personal services
rendered, including
grossed-up monetary
value of fringe benefits
are deductible pursuant
to Sec. 34 of NIRC
provided the related WT
and FBT have been paid.

IAS 19- Employee


Benefits
Accounting
Taxation
Retirement benefit

expense includes:
Service costs
Net interest cost

The amount of deductible

expense depends on
whether the plan is
registered with the BIR or
not.
Registered- Actual

contribution normal cost


while contribution for past
service cost is amortized
over 10 years
Not registered- Actual
retirement benefits paid

IAS 41- Agriculture


Statement of financial position accounts

affected:
Biological assets
Inventory

Income statement accounts affected


FV adjustments- gains and losses
Sales revenue
Cost of goods sold

IAS 41- Agriculture


Accounting
Biological assets are

living plants and animals.


Initial measurement- FV

less cost to sell


Costs incurred in
management of
biological transformationExpense immediately
Subsequent
measurement- FV less
cost to sell

Taxation
Livestock assets are

measured at cost.

IAS 16- Property, plant


and
equipment
Statement
of financial position accounts
affected:
Property, plant and equipment

Income statement accounts affected


Depreciation expense
Impairment loss
Recovery from impairment
Statement of comprehensive income accounts

affected:
Revaluation surplus

IAS 16- Property, Plant


andAccounting
Equipment Taxation
Cost of PPE includes
Purchase price
Directly attributable
costs
Estimated
dismantling/restoration
costs

Generally, cost of PPE

for tax purposes would


include purchase price
and related expenses
necessary to bring the
PPE to its usable
condition.
Dismantling costs are
deductible in the year
they are incurred

IAS 16- Property, Plant


andAccounting
Equipment Taxation
The depreciable amount of

an asset shall be allocated


on a systematic basis over
its useful life.
A change in depreciation
method is treated as a
change in accounting
estimate
Each part of an item of PPE
with a cost that is
significant in relation to the
total cost of the item shall
be depreciated separately

A reasonable allowance

for depreciation is allowed


to be deducted from
gross income.
A change in depreciation

method requires approval


from the BIR
No specific requirement
regarding component
depreciation.

IAS 16- Property, Plant


andAccounting
Equipment Taxation
PPE may be accounted

for using the cost model


or the revaluation model
An item of PPE is
derecognized upon
disposal or when no
future economic benefits
are expected from its use
or disposal. Gain or loss
from derecognition is
recognized in P&L.

PPE is accounted for at

cost.

Gain or loss on sale of

PPE is taxable or
deductible.

IAS 38- Intangible assets


Statement of financial position accounts

affected:
Intangible assets

Income statement accounts affected


Amortization expense
Research and development costs
Organizational expenses
Statement of comprehensive income accounts

affected:
Revaluation surplus

IAS 38- Intangible Assets


Accounting

Taxation

Organizational costs are

Organizational costs are

expense immediately

amortized over 60
months and are not
deductible in full in the
year incurred.
Research and
development costs can
be recognized as
expense immediately or
amortized over a period
of not less than 60
months

Research costs are

expensed immediately
while development costs
are capitalized when
certain criteria are met

IAS 38- Intangible Assets


Accounting
Intangible assets with

finite lives are amortized


over their estimated
useful lives
Intangible assets with

indefinite life shall not be


amortized.
Goodwill is not amortized
but tested at FS date for
possible impairment in
value

Taxation
Intangibles, the use of

which is limited in duration,


may be the subject of a
depreciation allowance.
Intangibles the use of
which in the business or
trade is not so limited, will
not be subject to such an
allowance.
Goodwill is not subject to
amortization. Any gain or
loss can be realized when
the same business is sold.

IAS 37- Provision and


contingencies
Statement of financial position accounts
affected:
Provisions

Income statement accounts affected


Warranty expense
Estimated losses

IAS 37-Provision and


Contingencies
Accounting
Taxation
Provision is recognized

when
the entity has a present

obligation;
it is probable that an
outflow of economic
resources will be required;
and
a reliable estimate of the
amount of obligation can
be made

Contingent assets and

liabilities are not recognized

Expenses related to the

provisions are not


deductible for income tax
purposes.

Income or expenses related

to contingent assets or
liabilities are not taxable
and not deductible.

IAS 17- Leases- operating


lease
Statement of financial position accounts
affected:
Prepaid rent
Unearned rent

Income statement accounts affected


Rent expense

IAS 17- Leases- Finance


lease
Statement of financial position accounts
affected:
Property and equipment
Lease receivable/payable

Income statement accounts affected


Depreciation expense
Interest income/expense
Sales revenue
Cost of goods sold

IAS 17- Leases


Accounting
Lease can classified as

an
Operating lease; or
Finance lease.

Taxation
Lease can either be
Lease; or
Conditional sale

IAS 17- Leases


Accounting

Taxation

Operating Lease- Lessor


Rental income is
recognized on a straightline basis over the lease
term.
Advance rent is
recognized as a liability

Lease Lessor
Lessor should report as
income only the lease
payments that it is
entitled to receive for the
year.
Advance rent is taxable in
the year it is received.
Costs related to the
leased property that are
the responsibility of the
lessor but paid by the
lessee are deemed
additional lease income.

IAS 17- Leases


Accounting

Taxation

Operating Lease- Lessee


Rental expense is
recognized on a straightline basis over the lease
term.

Lease Lessee
Lessee may deduct only
the amount of rent
actually due, under the
lease agreement, during
the year.
Costs related to the
leased property that are
the responsibility of the
lessor but paid by the
lessee are deemed
additional lease
expense.

IAS 17- Leases


Accounting

Taxation

Finance lease Rental payments are


treated as installment
payments for the
acquisition of asset
Depreciation and
interest expense is
recognized by the lessee

Conditional sale
The amounts paid to the
vendor will be
considered as payments
which are part of the
purchase price
Depreciation and
interest expenses are
deductible for tax
purposes

IAS 36- Impairment of


assets
Statement of financial position accounts
affected:
Property and equipment
Investment property
Intangible assets

Income statement accounts affected


Impairment loss
Reversal of impairment

IAS 36- Impairment of


assets
Accounting
Taxation
An impairment loss is

recognized in P&L
whenever the carrying
amount of an asset is
greater than its
recoverable amount.

Loss actually sustained in

a completed transaction,
shall be allowed as
deduction.
Thus, impairment loss
under IAS 36 is not
deductible unless the
taxpayer can clearly show
that due to the effect of
economic conditions, an
item of PPE will have to be
abandoned prior to the
end of its useful life.

IAS 2- Inventory
Statement of financial position accounts

affected:
Inventory

Income statement accounts affected


Impairment loss
Reversal of impairment

IAS 2- Inventory
Accounting

Taxation

Cost of inventory shall

Basically, the cost

cover all costs incurred in


bringing the inventory to
its present location and
condition.
An impairment loss is
recognized in P&L when
the NRV of inventory is
lower than its cost.

determined for
accounting purposes is
the same as the cost for
tax purposes.
Only losses realized from
actual disposition or
destruction of inventory
can be claimed as a
deduction

IAS 39/IFRS 9- Financial


Instruments
Accounting
Taxation
Financial assets are

initially measured at FV
Financial assets are

subsequently measured
at FV or amortized costs

Financial assets are

measured at contracted
amount.
Financial assets are
measured at cost or
amortized cost. Thus,
changes in FV are not
taxable and not deductible.

Impairment loss on

certain financial assets is


recognized when there is
an objective evidence
that the asset is impaired

Loss is allowed only on

closed and completed


transactions.

IAS 39- Financial


instruments
Statement of financial position accounts affected:
Financial assets
Financial liabilities

Income statement accounts affected


Unrealized gains and losses
Interest income
Interest expense
Statement of comprehensive income accounts

affected:
Unrealized gains and losses

IAS 39/IFRS 9- Financial


Instruments
Accounting
Taxation
Dividend income on cash

and property dividend is


recognized in P&L
Interest income and

interest expense are


recognized based on
effective interest method.
Impairment loss on certain
financial assets is
recognized when there is
an objective evidence that
the asset is impaired

Dividend received from

domestic corporation is
not subject to income tax
while dividend received
from foreign corporation is
taxable
Interest income and
expense are taxable and
deductible except imputed
interest.
Loss is allowed only on
closed and completed
transactions.

IAS 28- Investment in


associates
Statement of financial position accounts
affected:
Investment in associates

Income statement accounts affected


Share in investees income/losses
Dividend income
Statement of comprehensive income accounts

affected:
Share in investees OCI

IAS 28- Investment in


Associates
Accounting
Taxation
Investment in associates

shall be accounted for


using the equity method.
The difference between
the CV and net selling
price is recognized in P&L
Investment account
increases when the
investor shares in the net
income of investee
Dividends received are
treated as return of
investment

Investment in associates

is accounted for at cost.


Gain on disposal is
subject to capital gains of
5% to 10% or of 1%.
Share in net income is

not recognized.
Dividends from domestic

corporation are not


taxable

IFRIC 15- Revenue of Real


Estate
DeveloperTaxation
Accounting
Revenue is recognized

either

Revenue is classified

either

At the point of sale; or

Installment sale; or

As the services are

Cash sale

performed (Stage of
Completion)

IAS 8- Accounting
Change
Accounting
Taxation
Change in estimates

results from new


information or new
developments. Impact is
recognized prospectively.
Correction of prior
period errors requires
retrospective
restatement.

Change in estimates affects

tax calculation
prospectively.
ITR for the years affected

should be amended.
Amendment is allowed
within 3 years from the
date of prescribed filing,
provided no LoA for a tax
investigation has been
served to the tax payer

IAS 8- Accounting
Change
Accounting
Taxation
Change in accounting

policy generally requires


retrospective application.

Under RR 2-40, BIR

approval is required for


changes in accounting
method. Application for
permission to change the
method of accounting
shall be filed within 90
days after the beginning
of the taxable year to be
covered by the return.

IFRS 1- First time


Adoption
Accounting
Taxation
Cumulative effect of the

transition from old GAAP


to IFRS shall be treated
as an adjustment of the
opening Retained
Earnings.

Effect of transition to

IFRS is not included in


the determination of
improperly accumulated
earnings tax.

IAS 12- Income tax


Income tax expense must include
current tax expense; and
Deferred tax expense
Deferred tax arises from temporary

differences, NOLCO, and Excess MCIT