FINANCI AL ACCOUNTING NOTES

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
2. Assignment 3. FIFO – net mark up, net mark down
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)
 FINANCI AL ACCOUNTING NOTES
Investment in Associate - Controlling interest (20-50%)
Inv. In Assoc. Plant Property and Equipment
Purchase + Land and Building
Share in P/L +/- 1. Lumpsum Cost Acquisition
Other Equity Revaluation / OCI a. Old Building has FV – allocated at relative
Cash Dividends - fair values
Share Dividends Memo Entry Only b. Old Building has no FV – lumpsum cost
allocated to Land
Bond Investments (Liability) 2. Old Building is demolished
Maybe acquired as current or noncurrent assets. Classified a. Loss if PPE
and accounted for as ff: b. Capitalized as cost if New Building is
1. Held for Trading or Trading Securities Inventory
a. Transaction Cost is Expensed 3. Existing Building is Demolished
b. Subsequently at FVPL a. Loss whether Inventory, IP or PPE
2. Financial Assets at Amortized Cost 4. Demolition Cost, net of Scrap Proceeds
a. Initial Measurement at FV a. Capitalize as New Building Cost
i. Bond premium is a loss b. If no new building, Capitalize to Land
ii. Bond discount is a gain Taxes
b. Transaction Cost is Capitalized 1. Property Tax
3. FA irrevocably designated at FVPL a. Assumed to Acquisition – Capitalize
b. After Acquisition – Expense
Derivatives 2. VAT – refundable so don’t capitalize
Based on underlying or notional value with little to no 3. Special Assesment – capitalize
investment. Net settlement is at a future date.
1. Measurement Dismantling Cost
a. Changes in FV  OCI 1. Present Obligation (Required) – capitalize
2. Settlement 2. If not, then expense when occurred
a. Recycling to P/L (OCI  P/L)
3. Examples Depreciation
a. Interest rate swap (bank loan) 1. Straight-Line
b. Forecasted purchase transaction 2. Sum of the Years Digits
i. Forward, futures, options, foreign 3. Declining
currency forwards 4. Composite Method
a. Group is treated as a single asset
Investment Property b. Composite Life
Applicable to Land and Building only. Must be for rentals or 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
capital appreciation. 𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
1. Initial Measurement at Cost c. Composite Rate
2. Subsequent Measurement 𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
a. Cost = Cost – Acc. Depreciation – Acc. 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
Impairment d. Depreciation
b. Fair Value = FV Change in P/L 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 ∗ 𝐶𝑜𝑚𝑝𝑜𝑠𝑖𝑡𝑒 𝑅𝑎𝑡𝑒
3. Transfers e. No Acquisition G/L on Disposal
a. Cost  IP
i. Use CA as initial cost Depletion – Wasting Assets
b. PPE at FV  IP Capitalize the following items:
i. Adj. through Rev. Surplus 1. Acquisition Cost of Property
c. Inventory  IP 2. Cost to Locate (Exploration Cost)
i. Adj. through P/L 3. Development Cost (Extraction Cost)
d. Self Constructed PPE  IP 4. Restoration Cost (Dismantling Cost)
i. Adj, through P/L
Equipment for Extraction are not part of wasting assets. It
Cash Surrender Value is depreciated separately as:
Insurance policies where the entity is the beneficiary. 1. With alternative use – useful life of PPE
Generally considered as a long term investment under 2. No alternative use – shorter UL of Wasting Asset
NCA. or PPE
 Premium must be paid for 3 full years
 Surrender/Cancel after 3 years
 FINANCI AL ACCOUNTING NOTES
𝑇𝑜𝑡𝑎𝑙 𝑝𝑜𝑖𝑛𝑡𝑠 𝑟𝑒𝑑𝑒𝑒𝑚𝑒𝑑
Revaluation Model 𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑃𝑜𝑖𝑛𝑡𝑠 𝑡𝑜 𝑏𝑒 𝑟𝑒𝑑𝑒𝑒𝑚𝑒𝑑
₱ Cost ₱ RC ₱ Appreciation
(ADE – Cost) (ADE – RC) (ADE – App) Provision Contingent Liability Contingent Asset
₱ CA ₱SoundValue/FV ₱Rev.Surplus Liability Disclosure Disclosure
Probable Possible Probable
CA > Taxable Base > DTL
𝑅𝑒𝑣𝑎𝑙𝑢𝑒𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 − 𝐻𝑖𝑠𝑡𝑜𝑟𝑖𝑐𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝑅𝑆 Bonds Payable
A financial liability recognized at
Realized Portion  Retained Earnings 1. Amortized cost
1. Derecognized at Disposal a. Bond issue cost is capitalized
2. Depreciation b. Interest expense – effective interest
method (amortized using discount or
Change in Residual Value premium)
1. The original RV will be used to compute for the 2. Fair Value (Trading/FV – Option Irrevocable)
Accumulated Depreciation a. Interest expense – no discount or
2. The new RV will be used to compute for the new premium
depreciable cost 𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒 ∗ 𝑓𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒
b. FV Change
Equipment xx i. Trading – P/L
Accumulated Depreciation xx ii. FVPL – OCI or P/L
Revaluation Surplus xx
Compound Financial Instruments
Depreciation Expense xx 1. Liability Component – FV of Liability
Accumulated Depreciation xx 2. Equity Component – Residual Value

Revaluation Surplus xx Bonds with Warrants

Retained Earnings xx  Detachable (traded separately
*Tax effect is also computed  Nondetachable (cannot be traded)
PAS 32 does not differentiate from either. Warrants shall
Intangible Assets be accounted for separately.
1. Initial measurement at cost
2. Subsequent  Revaluation or cost model Convertible Bonds
3. Useful Life  No G/L on conversion
a. Limited life – amortized. Loss on impairment is  Transfer from one type of capital to another
recognized when there is an indication  Conversion Cost – deduction from SP
b. Indefinite Life – not amortized. Annual test for
impairment only. Cash xx
SP – Share Warrants xx
Research and Development Share Capital xx
1. Research Phase Share Premium xx
a. Before commercial production. Expense Leases
2. Development Phase Finance Lease – Lessor
a. Capitalized only AFTER technical DF Sales Type
feasibility Gross Gross MLP + Unsecured GRV (If
3. PPE Investment asset goes back)
a. No alternative use – expense Net Investment* Cost of PV of MLP + PV of
b. With alternative use – capitalize as asset, Asset + IDC UGRV
depreciation is part of RND
Basis of Sales n/a Lower of PV of
Liabilities
MLP or FV of Asset
Current Liabilities Basis of Cost n/a Cost of Asset – PV
Customer Loyalty Program of UGRV + IDC
1. Awards and points are accounted separately Gross Profit n/a Sales – Cost
2. Deferred Revenue  obligation is to provide Financial n/a Gross Investment –
service/deliver merchandise Revenue Sales
3. Total consideration  allocated between points
*Net investment in DF or ST are the same in substance
and sales price at their stand alone selling price
*Lessor’s Asset  Lease Receivable – Unearned Interest
4. Revenue from points
Income
Finance Lease – Lessee
 FINANCI AL ACCOUNTING NOTES
Can be classified as such if any of the ff. criteria are met:
1. Transfer of title Deferred Income Tax
2. Bargain Purchase Option  Taxable income – computed based on the income
3. Lease Term is 75% of the EUL tax law (ITR).
4. PV of MLP is 90% FV of asset  Accounting/Financial Income – based on
Accounting Standards
Minimum Lease Payments (MLP) includes
1. Rentals Permanent Differences
2. Bargain Purchase Option or Guaranteed Residual 1. Nontaxable income
Value but never both 2. Nondeductible expense
Depreciation Temporary Differences
1. Transfer of Title – EUL 1. Future Taxable (DTL) – increase taxable income in
2. “75%” or “90%” – Shorter of EUL or Lease Term the future period
a. Accounting income > Taxable Income
Notes Payable b. CA of Asset > Tax Base
Debt Restructuring c. CA of Liability < Tax Base
When the debtor is under financial difficulty and the 2. Future Deductible (DTA) – decrease taxable
creditor will maximize recovery income in the future
a. Accounting Income < Taxable Income
Types of Recovery DTL and DTA are both noncurrent accounts
1. Asset Swap – creditor will accept any asset
a. IFRS – Current Tax Expense = Taxable Income * Tax Rate for the
G/L on Ext. =Total Obligation Settled – CV of Asset Year
Transferred
b. GAAP Shortcut Formula (No change in Tax Rate)
G/L on Extinguishment = G/L on Exchange (1) – G/L on Total Tax Expense = (Accounting Income – Permanent
Restructuring (2) Differences) * Tax Rate for the Year
Where:
(1) = FV of Asset – CV of Asset Formula if there is change in tax rate:
(2) = Total Liab. Settled – FV of Asset Total Tax Expense = Current Tax Expense + Deferred Tax
*net effect of IFRS and GAAP are the same Expense – Deferred Tax Asset
2. Equity Swap
a. In order, capital should be measured at: Employee Benefits
i. FV of Shares Components of Employee Benefits Expense
ii. FV of Liability
 Service Cost
iii. CV of Liability
o Current Service Cost – increase in
G/L on Extinguishment = Total Liab. Settled –
benefits for services rendered in current
measurement of capital
year
*convertible bonds are not in this scope
o Past Service Cost – increase in benefits
3. Modification of Terms
for services rendered previously (whether
a. Reduction of Principal Balance
vested or not)
b. Reduction of Interest Rate
o Any gain or loss on settlement of plan in
c. Extension of Term
advance
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 𝑂𝑏𝑙𝑖𝑔𝑎𝑡𝑖𝑜𝑛 𝑆𝑒𝑡𝑡𝑙𝑒𝑑
New Liability is measured at PV
− 𝑆𝑒𝑡𝑡𝑙𝑒𝑚𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒 = 𝐺𝑎𝑖𝑛 𝑜𝑟 (𝐿𝑜𝑠𝑠)
Total Liab – New PV. = G/L on Extinguishment
 Net Interest Expense (All at Discount)
Amendment Applicable to October 2018 o Interest Expense on PBO, beg
o Interest Income on FVPA, beg
 Previously – atleast 10% of total for it to be
o Interest Expense on effect of asset ceiling
substantial and classified as extinguishment (new
effective rate will be used)
Asset ceiling is the limit of prepaid benefit cost. The
 Now – recognize G/L even if <10%. Always
reduction is the effect on asset ceiling.
modification never extinguishment.
Remeasurements are OCI Components
Bonds Payable
1. Remeasurement of PBO
Serial bonds – installment term bonds – single date
a. Actuarial Loss if increase in PBO
Debenture bonds – unsecured subordinated - less
b. Actuarial Gain if decrease in PBO
2. Remeasurements of Plant Assets
 FINANCI AL ACCOUNTING NOTES
a. Actual Return – Any interest income = 1. Initial recoginition - Liability is measured at FV if
Remeasurement G/L property at date of declaration.
3. Remeasurements of effect of Asset Ceiling 2. Remeasurement of Liability – Change in FV at:
a. Increase in effect in AC is Loss minus a. Year end, and
interest expense on effect b. Settlement date
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
 FINANCI AL ACCOUNTING NOTES
1. Total Par/Stated Value Outstanding 1. Bonus element will be computed retrospectively
2. Any Liquidation Premium (Liquidation Price – using adjustment factor
Par/Stated Value
3. Preference Dividend (Undeclared and unpaid) 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑅𝑖𝑔ℎ𝑡𝑠 𝑂𝑛 (𝑀𝑃𝑅𝑂)
𝐴𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 𝐹𝑎𝑐𝑡𝑜𝑟 =
a. Cumulative (All dividend in arrears)* 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝐸𝑥𝑟𝑖𝑔ℎ𝑡 (𝑀𝑃𝐸)
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

Basic Earnings Per Share  Written put options – contracts to repurchase the
entity’s own shares (treasury shares). Considered
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝐴𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 only when dilutive
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:
 Issued capital
 Purchase of treasury
 Retrospective effect of stock splits/rights
Effect of Stock Rights
Exercise Price > Market Price of Share
 FINANCI AL ACCOUNTING NOTES
 realized – through selling or using

Cash and Accrual Basis Depreciation: based on the average cost of Purchase Price
Cash Accrual Net Current Cost: current cost – depreciation that should
Revenue Collections + Adjustment for Trade be if based on current cost
from AR/NR and advances COGS is computed by the units then the average rate
Customers
Purchase Payments to + Adjustment for Trade Statement of Cash Flows
Supplier AP/NP and advances
to Operating Investing Financing
Income Collection of + Adjustment for P/L NCA Liability
Income Deferred and Accrued Trading Inv. + CE Investments Equity
Income Direct/Indirect Direct Only Direct Only
Expense Payment of + Adjustment for
Expenses Prepaid and Accrued  direct – Identify the cash receipts and cash payments
Expenses for each transaction
Depreciation Recognize Recognize  indirect – Start with the P/L then adjust nonmonetary
Bad Debts N/A DAE items to get net cash flow

𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 = 𝑁𝑒𝑡 𝐶𝑎𝑠ℎ 𝑓𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔

Single Entry − 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒𝑠 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
Determine the profit or loss using the net asset approach:
Total Equity at the end of period XX Default Alternative
Total Equity at the start of period (X) Dividend Rec* Operating Investing
Change in Equity XX Dividend Paid Financing Operating
Interest Rec. Operating Investing
↑ in Assets – ↑ in Liabilities = Net Income Interest Paid Operating Financing
*Also applied for investment in associate dividends
Consider items that decrease equity but not considered as
profit or loss (example)
 dividend declared (add back)
 capital issuance (deduct)
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