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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



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



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



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



• 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



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



!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



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



;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



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



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



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



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



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



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



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



• 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



• 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



• 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



;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



'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



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



• =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



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



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



!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



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



• 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



• ?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



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>'



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



• 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



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+)



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



• 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



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



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



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



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



• 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



• 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



• 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



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



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



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



@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



'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

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