BM1802

PAS 10, PAS 12, AND PAS 16

EVENTS AFTER THE REPORTING PERIOD

Objective
The objective of IAS 10 events after the reporting period is to prescribe:
o when an entity should adjust its financial statement for events after the reporting period; and
o the disclosures that an entity should give about the date when the financial statements were authorized
for issue and about events after the reporting period.
Also, IAS 10 requires that an entity should not prepare its financial statements on a going concern basis if events
after the reporting period indicate that the going concern assumption is not appropriate.

Definition
Events after the reporting period are those events, favorable and unfavorable, that occur between the end of
the reporting period and the date when the financial statements are authorized for issue. Events can be identified
as:
o those that provide evidence of conditions that existed at the end of the reporting period (adjusting events
after the reporting period); and
o those that are indicative of conditions that arose after the reporting period (non-adjusting events after
the reporting period).

Adjusting and Non-Adjusting Events

An entity shall adjust the amounts recognized in its financial statements to reflect adjusting events after the
reporting period. The following are examples of adjusting events after the reporting period:
o The settlement after the reporting period of a court case that confirms that the entity had a present
obligation at the end of the reporting period. The entity adjusts any previously recognized provision related
to this court case in accordance with PAS 37 Provisions, Contingent Liabilities, and Contingent Assets or
recognizes a new provision. The entity does not merely disclose a contingent liability because the
settlement provides additional evidence that would be considered.
o The receipt of information after the reporting period indicating that an asset was impaired at the end of
the reporting period, or that the amount of a previously recognized impairment loss for that asset needs
to be adjusted. For example:
i. The bankruptcy of a customer that occurs after the reporting period usually confirms that the
customer was credit-impaired at the end of the reporting period.
ii. The sale of inventories after the reporting period may give evidence about their net realizable
value at the end of the reporting period.
o The determination after the reporting period of the cost of assets purchased, or the proceeds from assets
sold, before the end of the reporting period.
o The determination after the reporting period of the amount of profit-sharing or bonus payments, if the
entity had a present legal or constructive obligation at the end of the reporting period to make such
payments as a result of events before that date.
o The discovery of fraud or errors that show that the financial statements are incorrect

An entity shall not adjust the amounts recognized in its financial statements to reflect non-adjusting events after
the reporting period.

PAS 12: INCOME TAXES

Philippine Accounting Standards 12 (PAS 12)
• It is derived from its international counterpart, the IAS 12 Income Taxes.
• Its main objective is to prescribe the accounting and disclosure requirement of income taxes. The
principal issue in accounting for income taxes is how to account for the current and future tax
consequences of:

08 Handout 1 *Property of STI

 [email protected] Page 1 of 5
 BM1802

» the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognized in
an entity’s statement of financial position; and
» transactions and other events of the current period that are recognized in an entity’s financial
statements.

Definitions
The following terms are used extensively in IAS 12:
o Accounting income is the profit or loss for a period before deducting tax expense.
o Taxable income (tax loss) is the profit (loss) for a period, determined in accordance with the rules
established by taxation authorities, upon which income taxes are payable (recoverable).
o Tax expense (tax income) is the aggregate amount included in the determination of profit or loss for the
period in respect of current tax and deferred tax.
o Current tax is the amount of income taxes payable (recoverable) in respect of the taxable income (tax loss)
for a period.
o Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable
temporary differences.
o Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:
» deductible temporary differences;
» the carryforward of unused tax losses; and
» the carryforward of unused tax credits.
o Permanent difference is the difference between the tax expense and tax payable caused by an item that
does not reverse over time. This includes non-taxable income and non-deductible expenses.
o Temporary differences are the differences between the carrying amount of an asset or liability in the
statement of financial position and its tax base. Temporary differences may be either:
a. taxable temporary differences, which are temporary differences that will result in taxable amounts
in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or
liability is recovered or settled; or
b. deductible temporary differences, which are temporary differences that will result in amounts that
are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of
the asset or liability is recovered or settled.
The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.
• The tax base of an asset is the amount that will be deductible for tax purposes against any taxable
economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those
economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
• The tax base of a liability is its carrying amount, less any amount that will be deductible for tax
purposes in respect of that liability in future periods. In the case of revenue which is received in advance,
the tax base of the resulting liability is its carrying amount, less any amount of the revenue that will not
be taxable in future periods.

Deferred Tax Asset and Deferred Tax Liability

A deferred tax liability shall be recognized for all taxable temporary differences, except to the extent that the
deferred tax liability arises from:
a. the initial recognition of goodwill; or
b. the initial recognition of an asset or liability in a transaction which:
i. is not a business combination; and
ii. affects neither accounting profit nor taxable profit (tax loss) at the time of the transaction.

Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:
a. deductible temporary differences;
b. the carryforward of unused tax losses; and
c. the carryforward of unused tax credits.

08 Handout 1 *Property of STI

 [email protected] Page 2 of 5
 BM1802

A deferred tax asset shall be recognized for all deductible temporary differences to the extent that it is probable
that taxable profit will be available against which the deductible temporary difference can be utilized, unless the
deferred tax asset arises from the initial recognition of an asset or liability in a transaction that:
a. is not a business combination; and
b. affects neither accounting profit nor taxable profit (tax loss) at the time of the transaction.

Measurement
Current tax liabilities (assets) for the current and prior periods shall be measured at the amount expected to be
paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period
when the asset is realized, or the liability is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences that
would follow from the manner in which the entity expects, at the end of the reporting period, to recover or settle
the carrying amount of its assets and liabilities.

The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting period. An entity
shall reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient
taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Any such
reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available.

PAS 16: PROPERTY, PLANT, AND EQUIPMENT

Philippine Accounting Standards 16 (PAS 16)
• PAS16 is derived from its international counterpart, IAS 16 Property, Plant, and Equipment.
• Its main objective is to prescribe the accounting and disclosure requirement of property, plant, and
equipment.
• The main issues dealt in IAS 16 are the initial recognition, subsequent recognition, impairment, and
derecognition of property, plant, and equipment.

Definitions
The following terms are used extensively in IAS 16:
• Property, plant, and equipment are tangible items that:
» are held for use in the production or supply of goods or services, for rental to others, or
administrative purposes; and
» are expected to be used during more than one (1) period.
• Carrying amount is the amount at which an asset is recognized after deducting any accumulated
depreciation and accumulated impairment losses.
• Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to
that asset when initially recognized in accordance with the specific requirements of other PFRSs.
• The residual value of an asset is the estimated amount that an entity would currently obtain from disposal
of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the
condition expected at the end of its useful life.
• The depreciable amount is the cost of an asset or other amount substituted for cost, less its residual value.
• Useful life is:
» the period over which an asset is expected to be available for use by an entity; or
» the number of production or similar units expected to be obtained from the asset by an entity.
• Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
• Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing
use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
• An impairment loss is an amount by which the carrying amount of an asset exceeds its recoverable
amount.

08 Handout 1 *Property of STI

 [email protected] Page 3 of 5
 BM1802

• Recoverable amount is the higher of an asset’s fair value, less costs, to sell and its value in use.

Recognition
The cost of an item of property, plant, and equipment shall be recognized as an asset if and only if:
a. it is probable that future economic benefits associated with the item will flow to the entity; and
b. the cost of the item can be measured reliably.

Measurement – Initial Recognition

An item of property, plant, and equipment that qualifies for recognition as an asset shall be measured at its cost.

Cost
The cost of an item of property, plant, and equipment comprises:
a. its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates;
b. any costs directly attributable to bringing the asset to the location and condition necessary for it
to be capable of operating in the manner intended by management; and
c. the initial estimate of the costs of dismantling and removing the item and restoring the site on which
it is located, and the obligation for which an entity incurs either when the item is acquired or as a
consequence of having used the item during a particular period for purposes other than to produce
inventories during that period.

Recognition of costs in the carrying amount of an item of property, plant, and equipment ceases when the item
is in the location and condition necessary for it to be capable of operating in the manner intended by
management.

The cost of an item of property, plant, and equipment is the cash price equivalent at the recognition date. If
payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total
payment is recognized as interest over the period of credit unless such interest is capitalized.

Measurement – Subsequent Recognition

An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply
that policy to an entire class of property, plant, and equipment.
a. Cost model - After recognition as an asset, an item of property, plant, and equipment shall be carried
at its cost less any accumulated depreciation and any accumulated impairment losses.
b. Revaluation model - After recognition as an asset, an item of property, plant, and equipment whose
fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date
of the revaluation, less any subsequent accumulated depreciation and subsequent accumulated
impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying
amount does not differ materially from that which would be determined using fair value at the end of the
reporting period.

If an item of property, plant, and equipment is revalued, the entire class of property, plant, and equipment to
which that asset belongs shall be revalued.

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognized in other
comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the
increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same
asset previously recognized in profit or loss.

If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit
or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit
balance existing in the revaluation surplus in respect of that asset. The decrease recognized in other
comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.

08 Handout 1 *Property of STI

 [email protected] Page 4 of 5
 BM1802

Depreciation
Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost
of the item shall be depreciated separately. The depreciation charge for each period shall be recognized in profit
or loss unless it is included in the carrying amount of another asset.

The depreciable amount of an asset shall be allocated on a systematic basis over its useful life. The residual
value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations
differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate.

The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are
expected to be consumed by the entity.

Derecognition
The carrying amount of an item of property, plant, and equipment shall be derecognized:
a. on disposal; or
b. when no future economic benefits are expected from its use or disposal.

The gain or loss arising from the derecognition of an item of property, plant, and equipment shall be included in
profit or loss when the item is derecognized. Gains shall not be classified as revenue.

The gain or loss arising from the derecognition of an item of property, plant, and equipment shall be determined
as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

References
International Financial Reporting Standards Foundation. (2007). IAS 10: Events after reporting period. Retrieved
on November 5, 2018, from https://www.ifrs.org/issued-standards/list-of-standards/ias-10-events-after-
the-reporting-period/
International Financial Reporting Standards Foundation. (2001). IAS 12: Income taxes. Retrieved on November
5, 2018, from https://www.ifrs.org/issued-standards/list-of-standards/ias-12-income-taxes/
International Financial Reporting Standards Foundation. (2001). IAS 16: Property, plant, and equipment.
Retrieved on November 5, 2018, from https://www.ifrs.org/issued-standards/list-of-standards/ias-16-
property-plant-and-equipment/

08 Handout 1 *Property of STI

 [email protected] Page 5 of 5