PHILIPPINE INTERPRETATIONS COMMITTEE (PIC)
QUESTIONS AND ANSWERS (Q&As)
Q&A No. 2017-06
PAS 2, 16 and 40 – Accounting for Collector’s Items
Issue
How does an entity account for collector’s items (e.g., paintings, rare items, vintage
items, classic cars) under the following scenarios?
Scenario 1: The entity holds collector’s items for administrative or aesthetic purposes
(e.g., paintings placed on the walls in the entrance hall or conference rooms).
Scenario 2: An entity invests in collector’s items for long-term investment purposes. The
entity does not trade these collector’s items in the ordinary course of business.
Scenario 3: An entity invests in collector’s items for short-term investment purposes.
The entity also trades these collector’s items in the ordinary course of business.
Consensus
Collector’s items do not meet the definition of intangible assets under PAS 38,
Intangible Assets, because they have physical substance. As defined under Paragraph
8 of PAS 38, intangible assets are identifiable non-monetary assets that do not have
physical substance. Therefore, in determining the appropriate accounting for collector’s
items, entities must consider the purpose for which the collector’s items is held.
Scenario 1
Items that are collected for administrative / aesthetic purposes and are not traded in the
ordinary course of business meet the definition of an item of property, plant and
equipment under paragraph 6 of PAS 16, Property, Plant and Equipment. Accordingly,
the entity measures a collectible at cost at initial recognition. Subsequently, the entity
measures the collector’s items under the guidance provided for by PAS 16; that is at
either cost less accumulated depreciation or at revaluation model, provided that the
entity can measure the fair value of the collector’s items reliably.
In accounting for the collector’s items in accordance with PAS 16, the entity should also
assess the residual value of a collectible. Generally, at initial recognition, such residual
value is close to its purchase price, thus, the depreciable amount for a collectible is
generally negligible. In addition, since these collector’s items are held for administrative
/ aesthetic purposes, they do not independently generate cash inflows. Therefore, when
testing for impairment, the entity should test these collector’s items for impairment on
the level of the cash-generating unit to which they relate, or as corporate assets.
1 of 4
Scenario 2
PFRS does not have specific guidance on the accounting for collector’s items held for
long-term investment purposes. Entities will therefore need to refer to the hierarchy of
guidance in the selection of accounting policies laid out in PAS 8, Accounting Policies,
Changes in Estimates and Errors, and consider the guidance under other PFRS / PAS
that deal with similar and related issues.
Therefore, an entity refers to PAS 40, Investment Property, because PAS 40 deals with
assets (land and other tangible assets) that an entity holds for long-term investment
purposes when the entity is a passive investor, which are similar to collector’s items
held for long-term investment purposes:
They both have a physical, tangible nature (i.e., a non-financial asset);
They both are often, rare, unique and individually valuable;
They both do not have a fixed life that limits the ability of the entity to hold the
item long-term;
They both are not used in the production or supply of goods or services;
They both are held primarily for the benefit of investors.
With the above, an entity can apply PAS 40 by analogy and recognize the collector’s
items at cost upon initial recognition. Subsequently, the entity accounts for the
collector’s items either at cost less accumulated depreciation or at fair value, provided
that such fair value can be measured reliably, with the gains and losses from the
change in fair value recognized in profit or loss.
Unlike Scenario 1, under this scenario, these collector’s items can generate cash flows
upon sale independently from other assets. Therefore, the entity tests collector’s items
held for long-term investment purposes for impairment at the asset level.
Scenario 3
Similar to Scenario 2, PFRS has no specific guidance on the accounting of collector’s
items held for short-term investment purposes or trading in the ordinary course of
business. Applying the hierarchy guidance stated in PAS 8, an entity refers to PAS 2,
Inventories, as this standard deals with assets that an entity holds for trading in the
ordinary course of business. Therefore, an entity will initially recognize such collector’s
items at cost and subsequently measure them at the lower of cost and net realizable
value in accordance with the requirements of PAS 2.
If the characteristics of the collector’s items are similar to those of a commodity, and the
entity qualifies as a broker or trader in accordance with paragraph 3(b) of PAS 2, the
entity will initially recognize such collector’s items at cost and subsequently measure
them at fair value less costs to sell.
2 of 4
Since determining the appropriate accounting for collector’s items also require
judgment, an entity should consider the requirements of paragraph 122 of PAS 1,
Presentation of Financial Statements, on disclosing judgment management has made in
the process of applying the entity’s accounting policies on collector’s items.
Effective Date
The consensus in this Q&A is effective from the date of approval by the FRSC.
Date approved by PIC: June 28, 2017
3 of 4
(Original signed)
PIC Members
Wilson P. Tan, Chairman
Emmanuel Y. Artiza Sharon G. Dayoan
Clark Joseph L. Babor Zaldy D. Aguirre
Wilfredo A. Baltazar Ferdinand George A. Florendo
Gloria T. Baysa Jose Emmanuel U. Hilado
Rosario S. Bernaldo Lyn I. Javier
Maria Isabel E. Comedia Ma. Concepcion Y. Lupisan
Jerome Antonio B. Constantino Normita L. Villaruz
Date approved by FRSC: December 13, 2017
4 of 4
