Activities:
STATEMENT OF CASH FLOWS
1. Cash receipts od sales of good and
- The statement of cash flows provides rendering services.
relevant information about cash 2. Cash receipts from Royalties, rental
receipts and cash payments of an fees, commission and other revenue.
entity during a period. 3. Cash payments to suppliers for goods
CASH AND CASH EQUIVALENTS and services.
4. Cash payments for selling
Are short-term highly liquid administrative and other expenses.
investments that are readily 5. Cash receipts and payment for
convertible to known amount of cash securities held for trading.
and which are subject to an
insignificant risk of change in value. Trading securities cash flows arising from
(the investment must acquired three months purchase and sales of dealing or trading
or less before the date of maturity) securities are classified as operating activities.
NONCASH TRANSACTION
Dividend paid shall be classified as
- Investing or financing transaction that
financing cash flow because it is a cost of
does not affect or do not require the
obtaining financial resources.
use of cash and cash equivalent shall
be excluded from the statement of Alternatively, dividend paid may be classified
cash flows. as operating cash flow in order to assist users
- Transactions shall be disclosed to determine the ability of the entity to pay
elsewhere in the financial statement dividends out of operating cash flows.
either in the notes to financial or in a
separate schedule.
Noncash transaction are disclosed separately: INCOME TAXES
a. Cost of opening a new facility The cost of an item of property plant and
b. Cost of introducing a new product or equipment is the cash price equivalent at the
service, including cost of advertising recognition date.
and promotion COST OF ASSET ACQUIRED ON A
c. Cost of conducting business in a new CASH BASIS = CASH PAID + DIRECTLY
location or with a new class of ATTRIBUTABLE COST (such as freight,
customer, including cost of staff installation cost and other cost necessary in
training bringing the asset to the location and
d. Administration and other general condition for the intended use).
overhead cost
e. Cost incurred while an item capable of
operating the manner intended by Acquisition on account
management has yet to be brought
into use or is operated at less than full When an asset is acquired on account subject
capacity to a cash discount,
f. Initial operating loss
COST OF ASSET = INVOICE -
g. Cost of relocating or reorganizing part
DISCOUNT
or all of an entity’s operations.
regardless of whether the discount is taken or
not.
MEASUREMENT AFTER
*Cash discount s are generally considered as
RECOGNITION
reduction of cost and not as income.
After initial recognition, an entity shall choose
either the cost model or the revaluation model
as the accounting policy for property, plant Acquisition on Installment Basis
and equipment.
If an asset is offered at a cash price at an
The entity shall apply such accounting policy installment price and is purchased at the
to an entire class of property, plant and installment price, the asset shall be recorded at
equipment. a cash price.
The cost model means that property, plant The excess of the installment price over the
and equipment are carried at cost less any cash price is treated as an interest to be
accumulated depreciation and any amortized over the credit period.
accumulated impairment loss.
Issuance of Share Capital
The Revaluation Model means that
property, plant and equipment are carried at Philippine GAAP provides that if shares are
revalued carrying amount. issued for consideration other than actual
cash, the proceeds shall be measured by the
The revalued carrying amount is the fair value fair value of the consideration received.
at the date of revaluation less any subsequent
Accordingly, where a property is acquired 3. Indirect cost and incremental
through the issuance of share capital, the overhead specifically identifiable or
property shall be measured at an amount traceable to the construction.
equal to the following in the order of priority:
PAS 16, paragraph 22
a. Fair value of the property received
b. Fair value of the share capital
c. Par value or stated value of the share Derecognition
capital
Means that the cost of the property, plant and
Issuance of bonds payable equipment together with the related
accumulated depreciation shall be removed
PFRS 9, paragraph 5.1.1, provides the asset from the statement of financial position.
acquired by issuing bonds payable is measured
in the following order. PAS 16, paragraph 67, provides that the
carrying amount of an item of property, plant
a. Fair value of bonds payable and equipment shall be derecognized on
b. Fair value of asset received disposal or when no future economic benefits
c. Face amount of bonds payable are expected from the use or disposal.
Exchange The gain or loss from the derecognition of an
PAS 16, paragraph 24, provides that the cost item of property, plant and equipment shall be
of an item of property, plant and equipment included in the profit or loss.
acquired in exchange for a nonmonetary asset Gains shall not be included in revenue but
or a combination of monetary and treated as other income.
nonmonetary asset is measured at fair value
plus any cash payment. The gain or loss arising from the
derecognition of an item of property, plant
However, the exchange is recognized at and equipment shall be included in profit or
carrying amount if the exchange transaction loss.
lacks commercial substance.
Gains shall not be included in revenue but
Definition of commercial substance treated as other income.
Commercial substance is a new notion and is GAIN OR LOSS arising from the
defined as the event or transaction causing the derecognition of an item of property, plant
cash flows of the entity to change significantly and equipment = NET DISPOSAL
by reason of the exchange. PROCEEDS - CARRYING AMOUNT OF
An exchange transaction has commercial THE ITEM.
substance when the cash flows of the asset Fully depreciated property
received differ significantly from the cash
flows of the asset transferred. Property is fully depreciated when..
Construction Carrying amount = zero (0)
The cost of self-constructed asset of property, or
plant and equipment includes:
Carrying amount = residual value
1. Direct cost of materials
2. Direct cost of labor
The asset account and the related accumulated -is the estimated net amount currently
depreciation account are closed and the obtainable if the asset is at the end of
residual value is set up in separate account. the useful life.
3. Useful life
The cost of fully depreciated asset remaining -is either the period over which an
in service and the related accumulated asset is expected to be available for
depreciation ordinarily shall not be removed use by the entity, or the number of
from the accounts. production or similar units expected
Concept of Depreciation to be obtained from the asset by the
entity.
Depreciation is defined as the systematic
allocation of depreciable account of an asset
over the useful life. Depreciation method
2. Residual value