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4: Accounting Process 06/23/2014
Steps in Accounting Cycle
1) analyzing documents/transactions
2) ournalizing: process o! recording transaction in ournal
3) posting: recorded and classi!ied transactions in ournal are
trans!erred to appropriate accounts in general ledger " su#sidiary ledger $ i!
appropriate 4) trial #alance$ unadusted
%) A&'
6) (Ss
) Closing entries
*) trial #alance$ postclosing
+) ,e-ersing entries
. 13 ,ecording Pase
.. 4+ Summarizing Pase
... *$+ and worksheet are optional
Constituents o! Accounting ,ecords o! an 'ntity
1) #usiness/source documents
original source materials e-idencing a transaction
sales in-oices$ purcase in-oices$ o!!icial receipts$ de#it and credit
memoramdum$ cec stu#s$ minutes #oo
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2) #oos o! original entry
general ournals
special ournals
• sales ournal
• purcases ournal
• cas receipts ournal
• cas dis#ursements ournal
3) #oos o! !inal entry
general ledgers
su#sidiary ledgers
&ournal
cronological order record o! transactions
most !undamental ournal is general journal general &' contains transaction date$ accounts and amounts dr/cr$
#rie! eplanation o! transaction
Simple &' de! one de#it$ one credit
Compound &' de! to/more de#its and to/more credits
Special &ournals
1 Cas receipts ournal: receipts o! cas !rom any source
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2 Cas dis#ursements ournal: payments o! cas !or any purpose
3 Sales ournal: sales o! mercandise on credit
4 Purcases ournal: purcases o! mercandise on credit
• Sometimes etended to include e5uipment and supplies purcased
on credit
use general ournal e-en i! you are using special ournal
A&'$ closing entries$ re-ersing entries are recorded in general ournal
edger
7eneral edger de! group o! accounts
Account de! accounting de-ise used in summarizing e!!ects o!
transactions
• records in!o !or A$ $ '$ 8$ '
Cart o! Accounts de! listing o! general ledger accounts in systematic
!orm
Su#sidiary edger
de! de-ice storing details o! certain general ledger accounts
general ledger accounts are controlling/main accounts supported #y
details in su#sidiary ledgers
• e A,$ AP$ Sare capital account$ Cas
Classes o! accounts
1 ,eal/Permanent 9 carried !rom one accounting period to anoter
A'
2 ;ominal/<emporary 9 closed at te end o! e-ery accounting period
8$'p
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3 =ied 9 as real and nominal elements
• e Prepaid 8nsurance de#ited to 8nsurance 'pense Account as
epired and unepired #alances
Contra >s Adunct Accounts
9 Contra: deducted !rom related account o!!set accounts
• A?A$ Acc?ep$ discount on @P$ sales returns and alloances
9 Adunct: added to te related account
• ' (reigt in$ premium on @P
>oucer System
system o! internal control !or cas dis#ursements
-oucer must #e made !or e-ery cas dis#ursement made
applies to payments o! purcases on account and all transactions
re5uiring cas payment
elements:
• >oucer: #usiness document/ritten autorization !or e-ery cas
dis#ursement
• >oucer ,egister: ournal o! all -oucers recorded in numerical
se5uence
o similar to epanded purcases ournal replaces Purcases
&ournal
o Pro!orma 'ntry: ?r Asset$ 'pense Cr >oucers Paya#le
• Cec ,egister: ournal ere all cecs issued !or payment are
recorded in numerical se5uence
o a modi!ied cas dis#ursements ournal replaces cas
dis#ursements ournal
o pro!orma entry: ?r >oucers Paya#le Cr Cas in @an
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• npaid >oucers (ile: a!ter -oucers are entered in -oucer
register$ tey are !iled in unpaid -oucers !ile #y re5uired date o!payment so as not to miss discounts
o a su#sidiary !or >oucers Paya#le Account
• Paid >oucers (ile: a!ter -oucer is paid$ remo-e !rom unpaid
-oucers !ile and placed in paid -oucers !ileo use!ul !or audit
<rial @alance
de! list o! general ledger accounts it respecti-e de#it/credit
#alance
controlling de-ice tat elps eliminate accounting errors
purposes
• e-idence tat total de#its B total credits
• in!ormation elping accountant !ormulate adustments
'rrors
1 <ransplacement: placing o! decimal point
2 <ransposition: !igures intercanged
3 'rror o! mission
=etods o! ,ecording 'penses " ,e-enues
9 'penses
• 'pense metod
o riginal payment is de#ited to epense account
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o 8nsurance epense account
• Asset metod
o riginal payment is de#ited to asset account
o Prepaid insurance account
9 ,e-enues
• 8ncome metod
o 8ncome account is credited !or receipt o! income
o ,ental income account
• ia#ility metod
o ia#ility account is credited !or receipt o! income
o nearned rental income account
A&'
made at end o! reporting period to split mied accounts or to #ring
accounts up to date
a!!ects #ot real and nominal account
necessary !or !air presentation o! per!ormance and !inancial position
Dorseet
de! multicolumn seet o! paper used !or compiling " summarizing
in!ormation necessary !or preparation o! !s
not a !ormal statement
done en it is time to mae adustments and prepare !s
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!acilitates preparation o! (SS #y:
• place ere A&' may #e made in!ormally prior
• #alancing mecanism to elp unco-er accounting errors
• orderly means ere eac account can #e classi!ied according to !ss
in ic it ill appear
#alancing !igures in orseet is net income/loss
• statement o! !inancial position column
o de#its E credits E net income
o de#its F credits E net loss
• income statement column
o de#its E credits E net loss
o de#its F credits E net income
Closing 'ntries
made at end o! period a!ter A&' and (Ss !or closing all nominal
accounts
nominal accounts may #e trans!erred
• directly to '5uity$ or
• 8ncome Summary
o de! summarizes net income/loss !or period and is closed to
capital Gproprietorsip) or ,' Gcorporation)
Postclosing <rial @alance
listing o! general ledger accounts and #alances a!ter closing entries
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consists entirely o! real/permanent accounts
e-idences tat de#its and credits e5ual in general ledger a!ter closing
ensures closing process as #een per!ormed correctly
optional
,e-ersing 'ntries
de! made at #eginning o! ne period to trans!er all accrued and
prepaid items #y esta#lised #y A&' to nominal accounts to #e used inrecording transactions during te ne period
to simpli!y recording o! certain inds o! recurring transactions
list
• accrued epenses
• accrued income
• prepaid epenses$ i! epense metod
• de!erred income$ i! income metod
Current Assets GC(<<8P)
• Cas " cas e5ui-alents
• (inancial assets at (air >alue
• <rading securities$ oter in-estments in 5uoted securities
• <rade and ter ,ecei-a#les
• 8n-entories
• Prepaid 'penses
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;oncurrent assets GP8)
• PP'
• ongterm 8n-estments
• 8ntangi#les
• ter
Current ia#ilities
• <rade and ter Paya#les
o ?i-idends Paya#le
• Sortterm #orroing
• Current portion o! longterm de#t
• Current ta lia#ility
• Current pro-isions
;oncurrent ia#ilities• ;oncurrent portion o! long term de#t
• ongterm o#ligations to entity o!!icers
• ongterm de!erred re-enue
• (inance lease lia#ility
• ?e!erred ta lia#ility
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ine 8tems on te (ace o! te Statement o! (inancial Position
9 #esides tose stated a#o-e H
9 Assets G@88(A?)
• @iological assets
• 8n-estment property
• 8n-estments in Associates accounted !or #y te e5uity metod
• (inancial assets
• Assets classi!ied as Ield !or Sale/in disposal group classi!ied as eld
!or sale
• ?e!erred ta asset
9 ia#ilities
• Pro-isions
• (inancial lia#ilities
• ia#ilities in disposal group classi!ied as eld !or sale
9 '5uity
• ;oncontrolling interest
• Sare capital and reser-es
9 Contingent Liability not re5uired as a minimum Gcontrary to Current
Pro-isions)J
9 add additional line items en relevant to understanding of entity’s
financial position Gin multiple coice$ i! may adugtong na Kand !inacialper!ormanceL$ do not include)
• udgment o! assessment sould #e #ased on
o nature " li5uidity o! assets
o !unction o! assets itin entity
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o nature$ amount$ timing o! lia#ilities
,e!inancing
i! re!inancing on a long term$ #asis is completed
• on/#e!ore end o! reporting period$ te o#ligation is ;;C,,';<
9 i! entity as discretion to re!inance/roll o-er an o#ligation !or at
least 12 monts a!ter te reporting period$ ;;C,,';< e-en i! due itinless tan a year
• C,,';< i! discretion is not o! te entity
@reac
9 C,,';<: i! lender agreed after reporting period not to demand
payment due to #reac
9 ;;C,,';<: lender agreed on/before end of reporting period to
pro-ide grace period tat ends at least tel-e monts a!ter end o! reporting
period
ter !orms
9 oter !ormats may #e e5ually appropriate pro-ided tat te
distinction is clear
9 all assets are presented #roadly in te order o! li5uidity en suc
presentation is more relia#le and rele-ant
P',A<8;7
M !rom te sale o! goods and te rendering o! ser-ices
9 to suppliers !or goods and ser-ices
9 to and on #eal! o! employees
M/9 !rom contracts eld!ordealing or trading purposes
M !rom royalties$ !ees$ commissions and oter re-enue
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M/9 o! an insurance entity !or premiums and claims$ annuities and
oter policy #ene!its
9 or re!unds o! income taes unless tey can #e speci!ically identi!ied
it !inancing and in-esting acti-ities and
8;>'S<8;7 9 to ac5uire property$ plant and e5uipment$ intangi#les and oter
longterm assets
• <ese payments include tose relating to capitalized de-elopment
costs and sel!constructed property$ plant and e5uipment
M !rom sales o! property$ plant and e5uipment$ intangi#les and oter
longterm assets
9 GM) to ac5uire G!rom sales o!) e5uity or de#t instruments o! other
entities and interests in oint -entures
• oter tan payments Greceipts) !or tose instruments considered to
#e cas e5ui-alents or tose eld !or dealing or trading purposes• nagin-est a sa i#a or #inenta mo ang inin-est mo sa i#a
cas ad-ances G9) and loans made to oter parties
• oter tan ad-ances and loans made #y a !inancial institution
• nagpautang a contrary to ia ang umutang: (8;A;C8;7
M !rom te repayment o! ad-ances and loans made to oter parties
Goter tan ad-ances and loans o! a !inancial institution$ ic is
perating)
• opposite o! a#o-e
N 9/M !or !utures contracts$ !orard contracts$ option contracts and
sap contracts• ecept en te contracts are eld !or dealing or trading purposes$
or te payments Greceipts) are classi!ied as !inancing acti-ities and
(8;A;C8;7
M !rom issuing sares or oter e5uity instruments
• inin-estan a
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9 to oners to ac5uire or redeem te entityLs sares
M !rom issuing de#entures$ loans$ notes$ #onds$ mortgages and oter
sortterm or longterm #orroings
• umutang a G?r Cas Cr ia#ility)
cas repayments G9) o! amounts #orroed and
• contrary to payment o! accounts paya#le$ ic is perating
Acti-ity
9 #y a lessee !or te reduction o! te outstanding lia#ility relating to a
!inance lease
?i!!erences
9 i! de#t$ ia #a nagpautang or ia umutangO
8n-esting: nagpautang a Greceipt and payment)
(inancing: umutang a Greceipt and payment)
9 i! sares$ as i! sa iyo #a or sares ng i#aO
8n-esting: nagin-est a sa i#a Gac5uisition and sale)
(inancing: inin-estan a Gissued and ac5uired/redeemed)
9 Compreensi-e income: cange in e5uity during period due to
transactions and oter e-ents oter tan canges due to transactions itoners in teir capacity as oners
9 Pro!it or oss: total income less epenses$ ecluding C8
components
9 ter compreensi-e income: items o! income and epenses
including ,eclassi!ication Adustments Gde! amounts reclassi!ied to P" in
te current period tat ere recognized in C8 in current/pre-ious periods)tat are not recognized in P"
• 7 o! !inancial assets measured at (> tru C8
• ,e-aluation Surplus$ canges in
• ,emeasurements o! ?e!ined@ene!it Plan
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o 8ncludes actual gain/loss on de!ined #ene!it o#ligation
• . 7ain/oss !rom translation o! (SS o! !oreign operations
• . 7 !rom ?eri-ati-e Contracts designated as Cas (lo Iedge
C=P;';<S ( C8 ,'CASS8(8'? S@S'';<Q < P"
G,eclassi!ication Adustments)
9 7ain/oss !rom translation o! (Ss o! !oreign operations
9 7 !rom deri-ati-e contracts designated as cas !lo edge
C=P;';<S ;< ,'CASS8(8'? < P"
9 7 o! !inancial assets measured at (> tru C8
• ,eclassi!ied to ,' upon disposal o! in-estment
9 ,e-aluation Surplus
• <roug ,'
9 ,emeasurements o! de!ined #ene!it plan
• 8ncludes actual gain/loss on de!ined #ene!it o#ligation
• Permanently ecluded !rom P"
8;C=' 8S ?',8>'? (,= <I' (( AC<8>8<8'S
9 Sales o! mercandise/,endering o! ser-ices
9 se o! entity resources
9 ?isposal o! resources oter tan products
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C=P;';<S ( 'RP';S'S
9 Cost o! sales
9 Selling/distri#ution costs: selling$ ad-ertising$ deli-ery to customers
• SalesmenLs salaries
• Sales commission
• <ra-eling and mareting epenses
• Ad-ertising/pu#licity epenses
• ?epreciation o! deli-ery and store e5uipment
• (reigt out
9 Administrati-e
• @ad ?e#ts 'pense
• !!ice salaries
• 'penses o! general eecuti-es$ general accounting and credit dept
•
sed o!!ice supplies• Certain taes
9 8ncome <a epense
9 ter epenses
=inimum ine 8tems o! SoC8
9 7ain/loss !rom derecognition o! (inancial Asset at Amortized Cost
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9 (inance Cost
9 Sare o! 8ncome/oss o! Associate " &oint >enture accounted !or
using '5uity =etod
9 ?iscontinued peration
(,=S ( P,'S';<8;7 8;C=' S<A<'=';<
9 (unctional
• costo!sales metod
• as Kcost o! salesL Kdistri#utionL administrati-eL
9 ;atural
9 net income goes to ,' oter compreensi-e income goes to
,eser-esT Ue5uity section o! @SV Gson separately in canges in e5uity)
;otes to (S
a) present in!ormation a#out te basis of preparation of the financial
statements and te specific accounting policies used in accordance it
paragraps 119124
• disclose eac signi!icant accounting policy tat is not speci!ically
re5uired #y 8(,Ss #ut te entity selects and applies in accordanceit 8AS *
#) disclose te in!ormation re5uired #y 8(,Ss tat is not presented
elseere in te !inancial statements and
• Sources o! estimation uncertainty
• 8AS 40 8n-estment Property re5uires disclosure o! te criteria
de-eloped #y te entity to distinguis in-estment property !romoneroccupied property and !rom property eld!orsale in te
ordinary course o! #usiness$ en classi!ication o! te property isdi!!icult
• disclose in!ormation tat ena#les users o! its !inancial statements to
e-aluate te entityLs o#ecti-es$ policies and processes !or
managing capital
• te domicile and legal !orm o! te entity$ its country o! incorporation
and te address o! its registered o!!ice Gor principal place o!
#usiness$ i! di!!erent !rom te registered o!!ice)
• a description o! te nature o! te entityLs operations and itsprincipal acti-ities
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• te name o! te parent and te ultimate parent o! te group and
• i! it is a limited li!e entity$ in!ormation regarding te lengt o! its
li!e
c) pro-ide in!ormation tat is not presented elseere in te !inancial
statements$ #ut is rele-ant to an understanding o! any o! tem
rder o! ;otes
a) statement o! compliance it 8(,Ss Gsee paragrap 16)
#) summary o! signi!icant accounting policies applied Gsee paragrap
11)
• i measurement basis Gor #ases) used in preparing te !inancial
statements$ and
o Den an entity uses more tan one measurement #asis in te
!inancial statements$ !or eample en particular classes o!assets are re-alued$ it is su!!icient to pro-ide an indication o!
te categories o! assets and lia#ilities to ic eacmeasurement #asis is applied
• ii oter accounting policies used tat are rele-ant to an
understanding o! te !inancial statements
o ?isclosure o! particular accounting policies is especially use!ul
to users en tose policies are selected !rom alternati-es
alloed in 8(,Ss
• &udgments management made in te process o! applying
accounting policies U8AS 1 122V
c) supporting in!ormation !or items presented in te statements o!
!inancial position and o! compreensi-e income$ in te separate incomestatement Gi! presented)$ and in te statements o! canges in e5uity and o!
cas !los$ in te order in ic eac statement and eac line item ispresented and
d) oter disclosures$ including:
• Gi) contingent lia#ilities Gsee 8AS 3) and unrecognised contractual
commitments$ and
• Gii) non!inancial disclosures
o eg te entityLs !inancial ris management o#ecti-es and
policies Gsee 8(,S )
•Ga) te amount o! di-idends proposed or declared #e!ore te!inancial statements ere autorized !or issue #ut not recognized as
a distri#ution to oners during te period$ and te related amountper sare and
• G#) te amount o! any cumulati-e pre!erence di-idends not
recognized
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• te domicile and legal !orm o! te entity$ its country o! incorporation
and te address o! its registered o!!ice Gor principal place o!#usiness$ i! di!!erent !rom te registered o!!ice)
• a description o! te nature o! te entityLs operations and its
principal acti-ities
• te name o! te parent and te ultimate parent o! te group and• i! it is a limited li!e entity$ in!ormation regarding te lengt o! its
li!e
. Accounting Policies: speci!ic principles$ #ases$ con-entions$
re5uirements and practices used #y an entity in preparing and presenting
(Ss
Sources o! 'stimation ncertainty
9 entity sall disclose in!ormation a#out te assumptions it maes
a#out te !uture$ and oter maor sources o! estimation uncertainty at teend o! te reporting period$ tat a-e a signi!icant ris o! resulting in a
material adustment to te carrying amounts o! assets and lia#ilities itin
te net !inancial year
9 notes sall include details o!:
• Ga) teir nature$ and
• G#) teir carrying amount as at te end o! te reporting period
•
,elated Party
9 8! one party as
• a#ility to control te oter partyo control: direct/indirect onersip troug su#sidiaries o!
more tan al! o! -oting poer o! entity$ , a su#stantialinterest in -oting poer and te poer to direct$ #y statute or
agreement$ te !inancial and operating policies o! te mgmt
o! an entity power to govern
• W to eercise significant influence W
o participation in !inancial and operating policy decisions o! an
entity$ #ut not control o! policies
o 20X or more
• joint control o-er anoter entityo contractually agreed saring o! control o-er an arrangement
ic eists only en decisions a#out te rele-ant acti-itiesre5uire te unanimous consent o! parties saring control
eamples
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• a!!iliates
• associates: entities !or ic te in-estments are accounted !or #y
te e5uity metod G20 to %0X)
• -enture
• ey mgmt personnel: a-e autority and responsi#ility !or planning$
directing and controlling te acti-ities o! te entity$ directly orindirectly including any eecuti-e director or noneecuti-e director
• close !amily mem#ers o! an indi-idual
o indi-idualLs spouse and cildren
o cildren o! indi-idualLs spouse
o dependents o! te indi-idual
o dependents o! te indi-idualLs spouse
• indi-iduals a-ing direct/indirect interest in -oting poer o!
reporting entity to te point o! maing tem a-e signi!icantin!luence
• postemployment #ene!it plans !or te #ene!it o! employees o! aentity$ or o! any entity tat is a related party to tat entity
,elated Party <ransaction
de! trans!er o! resources/o#ligations #eteen related parties$
regardless eter a price is carged
-alueadding eamples
• leases
• trans!er o! ,"?
• license agreement
• guarantee and collateral
• !inance arrangements Gloans and e5uity contri#utions in cas/ind)
• settlement o! lia#ilities on #eal! o! te entity or #y te entity on
#eal! o! anoter party
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;ecessary ?isclosures rt ,elated Party <ransactions
9 nature o! related party relationsip
9 in!ormation a#out transactions
9 outstanding #alances necessary
9 oters:
• amount o! transaction
• amount o! outstanding #alance
o terms and conditions$ secured or unsecured$ nature o!
consideration to #e pro-ided in settlement
• alloance !or dou#t!ul accounts related to outstanding #alance
• epense recognized in respect o! dou#t!ul accounts due !rom
related parties
9 rule on disclosures
• disclose te !olloing a#o-e in separate !inancial statements o!
parent$ -enture$ or in-estor
• intragrouprelated party transactions and outstanding #alances are
eliminated in consolidated fss
?isclosures o! Yey =gmt Personnel Compensation
9 Sortterm employee #ene!its
9 Sare#ased payment transactions Ge Sare options)
9 ter longterm #ene!its
9 <ermination #ene!its
9 Postemployment #ene!its
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'amples o! nrelated Parties
9 common director or ey mgmt personnel
9 single customer$ supplier$ !rancisor or general agent it om
entity transacts a signi!icant -olume o! #usiness
9 to -enturers simply #ecause tey sare oint control o-er a oint
-enture
9 pro-iders o! !inance$ trade unions$ pu#lic utilities and go-ernment
agencies in te course o! normal dealings
?isclosure ,e5uirements Dit 7o-ernment,elated 'ntities
9 old -ersion o! 8AS: same le-el o! in!ormation
9 #ut in amended:
• eempted !rom disclosures o! transactions it
o a go-ernment tat as control$ signi!icant in!luence$ or oint
control o-er an entity
o oter entities controlled$ signi!icantly in!luenced$ or ointly
controlled #y same government
• disclose only
o name o! go-ernment
o nature o! relationsip it entity
o in!ormation on nature and amount o! eac indi-iduallyT
signi!icant transaction it go-ernment !or tose tat are collecti-elyT signi!icant$
5ualitati-e/5uantitati-e disclosures are re5uired
=etods o! Pricing @eteen ,elated Parties
9 Cost plus: add an appropriate marup to supplierLs cost
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9 ncontrolled: re!erence to compara#le goods sold in an economically
compara#le maret
9 ,esale price: o!ten used ere goods are trans!erred #eteen
related parties #e!ore a sale to an independent party is made reducesresale rice #y a margin representing an amount ic reseller ould see to
reco-er costs and mae a pro!it 9 ;o price
Adusting e-ents: eist at te end o! te reporting period
• ?etermination a!ter reporting period o! pro!it saring/#onus
payment i! entity as present o#ligation to mae suc payment at
reporting date
• ,esolution o! a court case
o @e!ore issuance dateJ Contrary to mistae in multiple coice
tat is a!ter issuance date
• @anruptcy o! a customer a!ter reporting period• Sale o! in-entories a!ter reporting period tat may gi-e e-idence
a#out ;,> at reporting date
• ?isco-ery o! !raud/errors
• ?etermination a!ter reporting period o! cost o! assets
purcased/proceeds !rom assets sold #e!ore te reporting date
;on adusting e-ents: indicati-e o! conditions tat arise a!ter end o!
reporting period
• Cange in ta rate announced/enacted a!ter end o! reporting period
tat signi!icantly a!!ects current and de!erred ta asset and lia#ility• 'propriation o! maor asset #y go-ernment
• @usiness com#ination a!ter reporting period
• Announcing/commencing o! maor restructuring
• A#normally large canges a!ter reporting period in asset
prices/foreign exchange rates
• Plan to discontinue operation
• (ire/eart5uae
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• =aor purcase and disposal o! asset
• =aor " potential C/S transactions a!ter reporting period
• 'ntering into signi!icant commitments/contingent lia#ilities Gissuing
guarantees)
• Commencing maor litigation tat occurred a!ter reporting period
?ate o! Autorization o! (S
en #od autorizes$ tat is te dateJ
9 some cases: su#mission to sareolders !or appro-al is needed
• #odLs autorization date pa rin
9 oter cases: mgmt re5uired to issue statements to a super-isory
#oard o! noneecuti-es
• date en management autorizes pa rin
?e-elopment Stage 'ntity
9 de!inition
• organization de-oting su#stantially all e!!orts to esta#lis a ne
#usiness and tat as not #egun planned principal operation$ ,
• #egun planned principal operations #ut not yet generated signi!icant
re-enue !rom operations
9 -alueadding eamples o! acti-ities
• esta#lising sources o! supply
• recruiting and training personnel
• starting up production
• !inancial planning
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9 !inancial reporting re5uirements
• same #asis as esta#lised operating entities same 7AAP apply 8n
re-enue and epense recognition and capitalization o! costs
• di!!erence is in !ootnote disclosures only
• tae note
o @S: cumulati-e net losses in SI' G?e!icit accumulated during
de-elopment stageT)
o 8S: cumulati-e amounts o! re-enue and epenses !rom
entityLs inception
o SC(: cumulati-e cas receipts and dis#ursements since
inception
9 Semiannual: encouraged
• must #e made a-aila#le itin 60 days !rom end o! interim period
9 S'C and PSC re5uires quarterly !ss tat must #e !iled itin 4% days
a!ter te end o! eac o! te !irst tree 5uarters
• uarterly interim !ss: most common
8ntegral >ie
9 Allocate
9 Den !olloed$ results o! su#se5uent interim periods must #e
adusted to re!lect prior estimation errors
• to a-oid creating misleading !luctuations in interim period income
9 more indicati-e o! annual income and more use!ul in predicting
!uture operations and maing in!ormed decisions
9 eample: accounting !or income taes$ commission recognition and
arranty cost #ased on sales
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8ndependent >ie
9 eac period is -ieed to a-e a status e5ual to a !iscal year
9 no estimations/allocations unless alloed !or annual reporting
9 same epense recognition rules apply as under annual reporting
• no special interim accruals/de!errals are permitted
9 annual ope are recognized in interim period incurred$ irrespecti-e o!
num#er o! interim periods #ene!ited$ unless de!erral/accrual ould #ealloed in annual !s
9 proponents say tat smooting o! interim results G8ntegral >ie) is
undesira#le
9 no mention in 8AS 34 o! integral and independent -ie
• standard adopts a mi o! te to
Side ;ote
9 direct costs and re-enue : #est accounted !or as incurred
G8ndependent)
9 indirect costs: #est i! allocated G8ntegral)
Components o! 8nterim (S GCondensedW)
9 @S
9 8S
• plus Compreensi-e 8ncome
9 SC(
9Statement o! Canges in '5uity
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!elected explanatory notes
• to eplain stu!! since te last annual !ss
• ias 34 assumes !s users a-e access to entityLs most recent annual
reports Ience pro-iding same notes in annual report is super!luous
9 condensed: eac o! eadings and su#totals presented in entityLs
most recent annual !ss is re5uired no greater detail is re5uired
Presentation o! Comparati-e 8nterim ,eport
9
>alueAdding @asic Principles o! 8nterim (inancial ,eporting
9 costs and epenses are recognized as incurred in an interim period
• epenses associated directly it re-enue
• epenses not associated directly it re-enue: allocated o-er
interim periods #ene!itted
o e ?epreciation$ property taes$ insurance$ yearend #onuses
9 i! #usiness is seasonal$ standard encourages te entity to disclose
!inancial in!ormation !or te latest 12 monts ending on a gi-en interim
date$ and comparati-e in!ormation !or te prior 12 mont period in additionto te interim period !ss
9 preparation o! interim !ss generally re5uire more estimation tan
annual !ss
<reatment o! Seasonal$ Cyclical$ or ccasional ,e-enue !or 8nterim
(inancial ,eporting
9 not #e anticipated/de!erred as o! an interim date i!
anticipation/de!erral ould not #e appropriate at end o! entityLs !inancial
year
note: di-idend re-enue$ royalties and go-ernment grants sall not #e
recognized in interim period en tey occur e-en i! igly epected to
occur already
<reatment o! ne-en Costs !or 8nterim (inancial ,eporting
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9 Anticipated or de!erred !or interim purposes only i! appropriate to
anticipate/de!er suc type o! cost at end o! !inancial year
• ependiture !or ad-ertising is not de!erred #ut recognized as
epense in interim period it is incurred #ecause it is not appropriateto de!er is at yearend
<reatment o! Qear'nd @onuses
9 #onus is anticipated i! and only i!:
• #onus is a legal o#ligation or past practice suc tat it is a
constructi-e o#ligation
• relia#le estimate o! te o#ligation can #e made
<reatment o! 8rregular Costs
9 e-en toug planned$ sould not #e anticipated #ecause tey
a-enLt #een incurred
e carita#le contri#ution$ employee training cost
ters
9 interim period income ta epense sould re!lect te same general
principles o! income ta accounting applica#le to annual reporting
Cost o! 8n-entory
M Cost o! purcase
• M Purcase price
• M 8mport duties
• M 8rreco-era#le taes
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• M (reigt
• M Iandling costs directly attri#uta#le to ac5uisition o! !inised
goods$ materials and ser-ices
• Z trade discounts$ re#ates$ oter similar items
• do not include foreign exchange differences
• do not include di!!erence #eteen purcase price !or normal credit
terms and amount paid !or in-entories purcased it de!erredsettlement terms Grecognize it as interest expense)
M Cost o! con-ersion
• M direct la#or
• M systematic allocation o! !ied and -aria#le production o-eread
o allocation o! !ied: #ased on normal capacity Gde! production
epected to #e acie-ed on a-erage o-er a num#er o! periods
or seasons under normal circumstances$ taing into accountte loss o! capacity resulting !rom planned maintenance) o!
production !acilities amount allocated per unit not increase due to lo
production/idle plant !ied production o-eread includes
depreciation o! !actory #uilding
maintenance o! !actory #uilding
cost o! !actory management and administration
o allocation o! -aria#le production o-eread: #ased on actual
use o! production !acilities indirect materials
indirect la#or
o unallocated o-eread: epense in period incurred
M ter costs to #ring in-entory to present location
• M cost o! designing products !or speci!ic customers
• M non production o-ereads
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• ?istri#ution Cost is not included ere #ecause it sould #e epensed
rigt aay
9 'pense te !olloing ecluded !rom C7S
• A#normal amounts o! asted materials$ la#or and oter production
costs
• Storage costso MM @ut storage costs related to goods in process/part
!inised goods are included in C7S
• distri#ution costs
• administrati-e o-ereads tat do not contri#ute to #ringing
in-entories to present location " condition
cost o! in-entory o! ser-ice pro-ider
M la#or
M costs o! personnel engaged in pro-iding ser-ice
• M super-isory personnel
M attri#uta#le o-eread
9 in-entory is called Dor in Progress
9 la#or and oter costs relating to sales and general administrati-e
personnel not included epense rigt aay
=istaes in 'ercises
9 Cost o! !actory management G!ied allocateds) is included in cost o!
in-entory
9 maintenance epense !or PP' !or manu!acturing is included to cost o!
in-entory
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8;>';<,Q >AA<8;
(8(
9 8n-entory is epressed in terms o! recent prices
9 Cogs is representati-e o! earlier prices
9 (a-ors te @alance Seet Z in-entory is sated at currentreplacement cost
9 o#ection: improper matcing o! cost against re-enue
Gunderstatement o! cogs
9 in!lation period: reports igest income G-ice -ersa)
9 (8( perpetual and (8( results to same C7S
• Add all Gsold units . unit price)
DA>' " =A>'
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9 Perpetual G=A>')
• a!ter e-ery purcase$ you recompute a ne unit cost
• notice tat !or e-ery sale$ te a-erage cost does not cange
• total C7S is computed #y adding all cost o! sale
• a-eraged per unit cost canges e-ery purcase and purcase return
lang indi apag may sale or sales return
9 Periodic GDA>')
• compute total C7A(S and units o! C7A(S up to te end o! te
period
• di-ide to get a-e cost per unit
• to get cogs$ multiply tis cost per unit to units in ending in-entory
M relati-ely easy to apply
M produces in-entory -aluation tat approimates current -alue i!
tere is rapid turno-er o! in-entory
Z tere may #e considera#le lag #eteen current cost and in-entory
-aluation #ecause a-e in-ol-es early purcases
9 during in!lation$ in-entory -aluation F current cost G-ice -ersa)
8(
9 8n-entory is epressed o! earlier prices
9 Cogs is in terms o! ne prices
9 ?uring in!lation$ results to loest net income G-ice -ersa)
9 periodic
• simple lang: to get C7S$ add all total cost o! #eginning in-entory
and purcases ten less total cost o! ending in-entory
9 perpetual
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• parang (8( lang din 8yong may tree columns it tree more
columns per column eac pa aa
9 periodic and perpetual do not produce same -alue
M (a-ors 8S due to matcing o! current cost it current re-enue
Z in-entory is stated at older prices$ ence a signi!icant lag #eteen
in-entory -aluation and current replacement cost is apparent Z permits income manipulation
Speci!ic 8denti!ication
9 Appropriate !or in-entories tat are segregated !or a speci!ic
proect$ and in-entories not ordinarily intercangea#le
9 periodic or perpetual
M !lo o! in-entory cost corresponds to actual pysical !lo o!
in-entory
• actual determination o! cost o! units sold and on and
Z costly to implement
;et ,ealiza#le >alue
?e! estimated selling price in te ordinary course o! #usiness less
estimated cost o! completion and estimated cost necessary to mae cost o!
sale
9 Den in-entories not reco-era#le
• ?amaged
• olly/partially o#solete
• selling prices a-e declined
• estimated cost o! completion/cost to sell increased
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9 determination
• item #y item/indi-idually
• not #y classi!ication o! in-entory G!inised goods$ or all in-entories
in industry/geograpical segment)
• do not rite don materials #elo cost i! !inised products are to
#e sold a#o-e costo #ut i! price o! materials indicates cost o! !inised products E
;,>$ rite don te materials G#est e-idence cost o!
materials is replacement cost"
8n-entory Dritedon
9 recognize only i! cost E ;,>
9 metods Gsame C7S !or #ot)
• direct: in-entory recorded at loer o! cost/nr- loss not accounted
separately #uried in cogs
• alloance: in-entory is recorded at cost loss is accountedseparately
o dr oss on Dritedon [[ cr Alloance !or Dritedon
o su#se5uently$ i! re5uired alloance goes don$ record 7ain
on ,e-ersal o! 8n-ty Dritedon #ut not greater tan
alloance #alance Gaa accumulated losses !or in-tyritedon)
o oss on Dritedon is included in computation o! C7S G8S) [[
Alloance !or Dritedon is deduction in in-entory G@S)
o 7ain on ,e-ersal is deduction in C7S Gcontra epense
account)o 8AS 2 re5uires disclose o! amount i! in-entory ritedon and
re-ersal o! ritedon
Standard Costs Gp 4+)
,elati-e Sales Price =etod Gp 4+)
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Purcase Commitments Gp 4*0)
?e! o#ligations to ac5uire certain goods in te !uture at a !ied price
and !ied 5uantity
9 8! signi!icant$ disclosure is re5uired
9 ,ecognize losses !or noncancela#le commitments
• Iappens en purcase price at end o! year !alls #elo agreed
price
• dr oss on Purcase Commitments cr 'stimated ia#ility !or
purcase commitment
o loss is ter 'pense
o 'stimated lia#ility is Current ia#ility
• A gain may #e recognized su#se5uently #ut not greater tan losses
pre-iously recorded
;on!inancial ia#ilities 'amples
• ?e!erred re-enue
• Darranty o#ligations
• 8ncome taes paya#le Gstatutory re5uirements)
• Constructi-e o#ligactions
'5uity securities do not include
• ,edeema#le pre!erence sares
• <reasury sares
• Con-erti#le de#t
?e# security
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• Corporate #onds
• @sp t #ills
• Commercial papers
• 7o-ernment securities
• Ps it mandatory redemption date or redeema#le at option o! te
older
•
Patent
20 years
8ntellectual Property Code
;ot reneed etended #eyond legal li!e #y ne patent !or
impro-ements and canges
9 tecnology #ased intangi#le asset
9 i!W
• purcasedW
• internally de-eloped$
o licensing and oter related legal !ees are capitalized
o all related ,"d are epensed
9 legal !ees o! successfully prosecurting or de!einding te patent are
expensed
9 amortized o-er
legal li!e or use!ul li!e$ ice-er sorter
9 competiti-e patent: to protect original patent amortized o-er
remaining li!e o! original patent
related patent: to etend li!e o! an old patent amortized o-er
etended li!e togeter it carrying amount
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Copyrigt
9 cost is amortized o-er use!ul li!e
in practice$ di!!icult to estimate use!ul li!e
ad-isa#le to rite o!! cost o! copyrigt against re-enue o! first printing
9 term o! copyrigt: li!etime o! autor M %0 years a!ter deat
9 artisticrelated intangi#le
(rancise
9 !rancisor: grants certain rigts to !rancisee
9 contract#ased intangi#le
9 may #e
• #eteen go-Lt and a pri-ate entity/indi-idual
o rigt to use pu#lic property in per!orming ser-ics
•
#eteen pri-ate entities/indi-iduals 9 at are capitalizedO
• 8nitial !rancise !ee: yes
• Periodic !rancise !ee: no$ epensed
9 amortization:
• i! !or de!inite period$ use!ul li!e or de!inite period$ice-er is
sorter
• i! inde!initely$ not amortized #ut tested !or impairment
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easeold
9 i! not su#stantial$ may #e an outrigt epense
9 amortized o-er li!e o! lease
easeold 8mpro-ements
?epreciated o-er li!e o! lease/impro-ement$ ice-er sorter
,esidual -alue is ignored
8! leae contains reneal option and
• <oo uncertain to #e eercised
o ,eneal option is ignored
• Iigly pro#a#le/certain to #e eercised
o Consider te reneal option in determining etended lease
term
<rademar
9 maretrelated intangi#le
i! success!ully prosecuted/de!ended$ outrigt epenseJ
egal li!e is 10 years #ut may #e reneed !or periods o! 10 years eac
• Since almost automatic reneal$ it may #e considered one it
inde!inite li!e
• @ut test !or impairment annually
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7oodill
Yinds
• ?e-eloped
o 7enerated internally not capitalized
o Cost o! de-eloping is epensed as incurred
• Purcased
o Paid !or
o Asset
9 residual approac
• compare purcase price it net tangi#le and identi!ia#le assets
Gaa total assets ecluding goodill minus lia#ilities assumed)
• net tangi#le and identi!ia#le assets must #e measured at !air -alue
9 not amortized #ecause inde!inite li!e
• tested !or impairment annually and ene-er tere is indicated on
impairment
reco-era#le amount cannot #e identi!ied indi-idually$ so determing
reco-era#le amount o! C7 ic goodill #elongs to i! tere is indication
tat goodill is impaired
9 ;egati-e 7oodill
• i! purcase price or consideration trans!erred F net amount o!
identi!ia#le assets ac5uired and lia#ilities assumed$ di!!erence is
negati-e goodill
• recognized in P" as 7ain on @argain Purcase
• dropped #y 8AS@
@roadcasting icense it inde!inite li!e
9 not amortized tested !or impairment annually and ene-er tere is
indicated on impairment
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9 i! it !inite li!e
• amortized o-er use!ul li!e and tested !or impairment
Airline ,igt
8nde!inite use!ul li!e
;ot amortized tested !or impairment annually and ene-er tere is
indicated on impairment
Customer ist
8! internally generated$ not intangi#le asset
8! ac5uired$ amortized o-er use!ul li!e
rganization costs
9 sare isuuance costs are de#ited to sare premium
• i! sare premium is insu!!icient$
o de#it to Sare 8ssuance cost GContra e5uity)$ or
o deduct to Sare Premium !irst ten to ,' account
Ser-ice Concession
9 #eteen pri-ate and pu#lic ere pri-ate pro-ides ser-ices !or pu#lic
9 parties
• Concession perator: pri-ate
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• 7rantor: pu#lic
at end o! arrangement$ residual interest is controlled #y grantor
8n!rastructure asset
,ecognized as !air -alue
'iter !inancial asset or intangi#le asset
• (inancial asset en operator as a guaranteed contractual rigt
tor ecei-e a speci!ied amount o! cas o-er li!e o! arrangement
• 8ntangi#le asset en operator as recei-ed a rigt$ not a license$
to carge users !or pu#lic ser-ice$ and re-enue recei-a#le is notagreed upon in ad-ance #ut dependent on use o! asset #y pu#lic
•
@ond
9 de!inition
• !ormal unconditional prmuse
• pay a speci!ied sum o! money at a determinable !uture date$ and to
mae periodic interest payments
• at a stated rate until principal sum is paid
9 contract o! de#t
9 parties in-ol-ed: borrower/issuer #orros !rom investor/bondholder
<ypes o! @onds
9 <erm
• single date o! maturity
9 Serial
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• series o! maturity dates #onds tat mature #y installments
9 =ortgage
• secured #y mortgage of real properties
9 Collateral <rust
• secured #y in-estments in stocks and bonds
9 ?e#enture
• Gnot secured as compared #y te prior to) #onds itout collateral
security
9 ,egistered
• re5uire registration o! name o! #ondolder
o i! #ondolder sells #ond$ old # certi!icate is surrendered and
ne one is issued to te #uyer
o interest is paid periodically to #ondolder
9Coupon/@earer
• name o! #ondolder is not registered
o interest is paid periodically to #earer #y su#mitting a
detaca#le interest coupon
9 Con-erti#le
• can #e ecanged !or e5uity securities
9 Calla#le
• can #e called in payment #e!ore te
9 7uaranteed
• anoter party promises to mae payment i! te #orroer Gissuer)
!ails to do so
9 &un
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• ig ris ig return #onds issued #y ea-ily inde#ted companies$
or oterise in ea !inancial position
9 Commodity#aced
• redeema#le in terms o! commodities in terms suc as oil or
precious metals
Premium and ?iscount
9 sales price o! #onds E !ace -alue
• premium
• gain !or issuing entity/#orroer since o#ligation o! issuer is only up
to !ace -alue
• amortized o-er li!e o! #ond
o dr premium
o cr 8nterest epense
9 sales price o! #onds E !ace -alue
• discount
• loss
• amortized o-er li!e o! #ond
o dr interest epense
o cr ?iscount
@ond 8ssue Costs
9 aa <ransaction Costs
9 de! incremental costs directly attri#uta#le to te issue o! #onds
paya#le
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9 eamples
• printing and engra-ing cost
• promotion cost
• legal and accounting !ee
• registration !ee it regulatory autorities
• commission paid to agents and underriters
9 not outrigt epense
9 amortized lie discount on #onds paya#le
9 increases interest epense troug amortization
• concei-ed as interest epense
• dr interest epense
• cr @ond 8ssue Costs
=easurement
9 8nitial• \ !air -alue Z transactions costs directly attri#uta#le to te
issuance
o #ond issue costs are deducted !rom !air -alue or issue price o!
#onds to measure initially te #onds paya#le
o oe-er i! te #onds are designated and accounted !or at (>
troug P"T te #ond issue costs are epensed immediately
o !air -alue: P> o! !uture cas payments to settle #ond
also e5ual to te issue price/net proceeds !rom te
issue o! te #onds$ ecluding accrued interest
o
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9 Su#se5uent
• eiter$
o at amortized cost G'8,)
o at (> troug pro!it or loss
Amortized Cost
9 de! #ond lia#ility measured initially Z principal repayment M/Z
cumulati-e amortization
• using '8,
• actually$ di!!erence #eteen !ace amount and P> is at you
amortize
• actually$ di!!erence o! !ace amount and P> is eiter
discount/premium on issue o! te #onds paya#le
(air >alue ption
9 P(,S + paragrap 422$ or 8(,S + paragrap 41%
• W an entity may$ at initial recognition$ irre-oca#ly designate a
!inancial asset as measured at !air -alue troug pro!it or loss i!
doing so eliminates or signi!icantly reduces a measurement orrecognition inconsistency Gsometimes re!erred to as an Kaccounting
mismatcL) tat ould oterise arise !rom measuring assets orlia#ilities or recognising te gains and losses on tem on di!!erent
#ases W
o i! you are sure tat your -aluation using (> is insigni!icantly
di!!erent measuring te #ond$ !or eample$ at '8,
9 initial measurement: \ (air >alue 9 su#se5uent measurement: \ !air -alue re-alued e-ery year end
• any canges to P"
• no more amortization o! #ond issuance cost Grecall: tis is epensed
immediately i! at (><P)$ #ond discount and premo
• interest epense is #ased on nominal/stated interest rate
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9 'ample:
• n &anuary 1$2012$ an entity issued #onds it !ace amount o!
%$000$000 and 12X stated interst rate !or %3+$100 <e #onds are
sold to yield 10X 8nterest is paya#le annually on ?ecem#er 31<e entity paid #ond issue cost o! P100$000 n ?ecem#er
31$2012$ te (> o! te #onds is determined to #e P%$300$000• Prepare te &'s !or 2012 assuming te entity elects te (> option
!or its #onds paya#le
o &an 1
?r Cas
%3+100
Cr @onds Paya#le
%3+100
?r <ransaction Cost
100$000
Cr Cas
100$000
o ?ec 31
?r 8nterest 'pense G12X . %$000$000)
600<
Cr Cas
600<
?r @onds Paya#le
+$100
Cr 7ain !rom cange in !air -alue +$100
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@onds Paya#le #eg B %3+100
ess: (> on ?ec 31 2012 B %300$000
?ecrease in (> o! #onds B +$100
<reasury @onds
9 de! on #onds originally issued and reac5uired #ut not canceled
9 dr <reasury @onds Gcontra account to #onds paya#le account)
• at !ace -alue
9 cancel any unamortized premium or discount or issue cost canceled
9 gain/lossB carrying amount o! #onds 9 ac5uisition cost
9 any accrued interest paid is carged to interest epense
@ond ,e!unding
9 de! !loating o! ne #onds paya#le te proceeds !rom ic are used
to pay te original #onds paya#le 9 aa premature retirement o! te old #onds paya#le troug te
issuance o! ne #onds paya#le
9 etinguisment o! !inancial lia#ility
9 re!unding carges includeW and tese are oss on 'arly
'tinguisment o! ?e#t
• unamortized #ond discount/premium
• unamortized #ond issue cost
• redemption premium o! old #onds re!unded
Z into P" B di!!erence #eteen CA o! !inancial lia#ility etinguised 9
consideration paid
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'8,
9 aa 8nterest =etod/Scienti!ic =etod
9 recognizes to interest rates
• ;ominal/Stated/Coupon
o Appears on !ace
• '!!ecti-e/Qield/=aret
o ?e! rate tat eactly discount estimated cas !uture
payments troug te epected li!e o! te #onds paya#le or
en appropriate$ a sorter period to te net carrying o! te#onds paya#le
o Actual interest incurred
9 i! #onds paya#le at sold at
• !ace -alue
o nominal B e!!ecti-e
• discount
o nominal F e!!ecti-e
• premium
o nominal E e!!ecti-e
Amortization o! @ond Premium or ?iscount
9 annual amortization o! premium/discount B e!!ecti-e interest
epense 9 nominal interest epense
• e!!ecti-e interest epense B CA o! @P$ #eg . e!!ecti-e rate
• nominal interest epense B !ace -alue o! @P . nominal rate
9 #ond issue costs increase discount and decrease premium