Accounting Updates:

Amendments to PFRS 10, PFRS 12 and PAS 27, Investment Entities

An investment entity is an entity that:

Obtains funds from one or more investors for the purpose of providing those investor(s) with professional investment management services;

Commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and,

Measures and evaluates the performance of substantially all of its investments on a fair value basis

Associates and Joint Ventures Held By An Investment Entity

Subsidiary Provides Investment-Related Services

IFRS 15, Revenue Recognition

Overview

The IASB and the US Financial Accounting Standards Board (FASB) jointly issued a new revenue recognition standard on 28 May 2014.

This standard replaces the majority of existing IFRS and US GAAP requirements on revenue recognition

IFRS 15 supersedes:o IAS 18, Revenueo IAS 11, Construction Contractso IFRIC 13, Customer Loyalty Programmeso IFRIC 15, Agreements for the Construction of Real Estateo IFRIC 18, Transfers of Assets from Customerso SIC-31, Revenue—Barter Transactions Involving Advertisingo Services

The standard covers the recognition, measurement and disclosure of revenue. The impact on financial statements, business processes and internal controls will likely be

significant for some entities The IASB and FASB have set up a joint transition resource group.

Scope and scope exceptions

What is in scope or affected by the standard:

Contracts with customers Sale of some non-financial assets that are not an output of the entity’s ordinary activities

(e.g., property, plant and equipment, intangible assets)

What is not in scope:

Leasing contracts Insurance contracts Financial instruments and certain other contracts Certain non-monetary exchanges

Summary of the model

Core principle: Recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Step 1: Identify the contract(s) with the customer

A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations.

o Could be written, oral or impliedo Does not exist if both parties can cancel without penalty

Multiple contracts entered into at the same time with the same customer should be combined if certain conditions are met.

Modifications are treated as a separate contract or part of the original contract, depending on what is modified.

Step 2: Identify the performance obligations

A performance obligation is defined as a promise in a contract with a customer to transfer a good or service.

Performance obligations are identified at contract inception and determined based on:o Contractual termso Customary business practice

Identify distinct performance obligations

Step 3: Determine the transaction price

Transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring a promised good or service

Transaction price reflects the effects of the following:1. Significant financing component (time-value of money)2. Non-cash consideration3. Consideration paid or payable to a customer4. Variable consideration

o Estimate using the technique that better predicts the amount to which an entity will be entitled: expected value or most likely amount

o Apply constraint: include variable amounts only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur

Step 4: Allocate the transaction price to the performance obligations

Transaction price allocated to all distinct performance obligationso Two potential exceptions:

Variable consideration Discounts

Allocation is based on stand-alone selling prices When the stand-alone selling price is not directly observable, an entity is required to

estimate the selling price Using a residual approach is allowed only when prices vary widely or are uncertain

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

Revenue is recognized upon satisfaction of a performance obligation by transferring a good or service to a customer.

o A good or service is considered to be transferred when the customer obtains control.

Control of an asset refers to the ability to direct the use of and obtain substantially all the remaining benefits from the asset. Control includes the ability to prevent other entities from directing the use of and obtaining the benefits from an asset.

Control can transfer “over time” or at a “point in time.”

Offsetting Requirements In PAS 32 With New Application Guidance

A financial asset and a financial liability shall be offset when, and only when, an entity:

1. Currently has a legally enforceable right to set off the recognized amounts

Must not be contingent on a future event Must be legally enforceable in all of the following circumstances:

Normal course of business Event of default Event of insolvency or bankruptcy of the entity and all of the counterparties

2. Intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously

This will occur if, and only if, the gross settlement mechanism has features that eliminate or result in insignificant credit and liquidity risk, and that will process receivables and payables in a single settlement process or cycle.

Amendments to PAS 36, Recoverable Amount Disclosures for Non-Financial Assets

The amendments:

Remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit is significant when compared to the entity’s total carrying amount of goodwill or intangible assets with indefinite useful lives Instead, an entity is only required to disclose the recoverable amount of an individual

asset (including goodwill) or a CGU for which it has recognized or reversed an impairment loss

Expand and clarify the disclosure requirements applicable when an asset or CGU’s recoverable amount has been determined on the basis of fair value less costs of disposal. Disclose the discount rate(s) used when the recoverable amount is based on fair value

less costs of disposal that was measured using a present value technique

Philippine Interpretation IFRIC–21, Levies

Overview

Definition

A levy is an outflow of resources embodying economic benefits that is imposed by

Scope

1. Applicable to all levies except:o Those other than outflows that are within the scope of other standards (e.g., PAS

12, Income Taxes); and Fines or other penalties for breaches of legislation.2. Entities should consider all payments imposed by the government pursuant to

legislations.

Recognition of Liability for A Levy

1. The interpretation clarifies that an entity recognizes a liability for a levy when the activity that triggers payment occurs.

2. A levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time.

3. For a levy that is triggered upon reaching a minimum threshold – no liability should be recognized before the specified minimum threshold is reached.

TAX Updates:

1. Additional P10,000 nontaxable De Minimis Benefits effective January 1, 2015

“Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive scheme provided that the total annual monetary value received from both CBA and productivity incentive scheme combined do not exceed ten thousand pesos (P10,000) per employee, per taxable year.”

2. The Commissioner of Internal Revenue (“CIR”) has issued Revenue Regulations (“RR”) No. 3-2015 dated 9 March 2015 to implement Republic Act (“RA”) No. 10653 which increased from P30,000 to P82,000 the total amount of exclusions from gross income of salaried employees relating to their 13th month pay and other benefits and to amend the pertinent provisions of Revenue Regulations No. 2-98.

The salient points of the Regulation are as follows:

1. The total amount of exclusion from gross income of 13th month pay and other benefits received by salaried employees under Section 32 (B), Tax Code is increased from P30,000 to P82,000 pursuant to RA No. 10653.2. The exclusion of P82,000 applies only to the 13th month pay and other benefits of salaried employees. It does not cover other types of compensation under an employer-employee relationship such as basic salary and other allowances. The exclusion does not also apply to gross income of self-employed individuals and income generated from business.3. The exclusion shall apply to 13th month pay and other benefits paid or accrued beginning January 1, 2015.

Francisco, Margaret Joyce R. Prof. Araceli Angeles

BSA2I BAC 518 - Synthesis