REVALUATION OF ASSET

- May dating value tas binago mo yung value kaya revaluation

- HISTORY:
Dati cost model lang ang meron.
Monetary unit principle – states that peso is stable or di nababago (Ex. May lupa ka,
binili mo 10 years ago at 1 million, under monetary unit principle, after 10 years, that
land is still 1 million kasi nga peso is stable) Ito na yung cost model. Pero as time goes
on, nagshift sila ng thinking na pwedeng fair value. Di naman dinedelete yung cost
model, pero sinasabi lang na pag may fair value, pwedeng dun irecord rather than at
cost.
- FREQUENCY:
Assess kung kadalas ang pagbabago ng fair value nung assets, therefore, ganun din kadalas yung
frequency ng pag revalue.
If significant (which affects decision making) and volatile ang fair value: Annual
revaluation
If insignificant changes: three to five years
- SEPARATE CLASSES:
Kung anong piniling model ng business, it must be used in the entire class of PPE.
- BASIS OF REVALUATION:
A. Fair Value
– hire a professional appraiser. FV is the value of an asset at that specific time
- value ng asset currently, nung luma na

B. Depreciated replacement cost

– Replacement cost means papalitan. Pwedeng yung asset na meron ka is meron
siyang katulad pero di sa status niya ngayon but sa status noong siya ay bago pa.
- Ex. Bumili ka ng motor, Nmax - 7 years mo nang ginagamit, di mo madetermine
yung FV, FV in a sense na 7 years after. Pero siyempre, existing pa rin sa market
yung Nmax. So malalaman ba yung value niya currently nung bago pa? The answer
is YES, pumunta ka tindahan na nagbebenta ng Nmax. So malalaman mo yung price
niya ngayon if bago. Pero yung din ba yung value ng asset mo ngayon? 7 years after?
NO. Kaya depreciated replacement cost ang ginagamit kasi yung replacement cost is
yung value nung bago nung katulad ng asset na meron ka. Pero you need to
depreciate kasi lumipas na yung panahon.
- Depreciated replacement cost means na hahanap ka ng katulad na bago and tehn
magsosolve ka ng estimated depreciation for that time (ex. 7 years). So yung bago,
dinepreciate mo

- APPROACHES IN RECORDING REVALUATION:

1. Proportional Approach
- Hindi lang yung mismong asset account ang nagkakaroon ng revaluation, but
rather, in proportion to its accumulated depreciation account
 - Note that fair value, depreciated replacement cost and sound value are the same
(sa ilalam itong tatlo)

2. Elimination Approach
- We eliminate the accum dep.
- If tumataas ang value ng asset, need mong tanggalin yung contra asset account
which is the accum dep
- Later on, dahil 0 na si accum dep, any difference of the recorded amount or book
value after eliminating the accum dep going to the sound value is your revaluation
surplus.

- DEPRECIATION = Sound Value/ Remaining life

- REVALUATION SURPLUS
RS is an equity under the statement fo other comprehensive income (parang income
pero ang effect is di mararamdaman sa current period, unlike income, sales, gains.
Rather, yung effect is subsequent periods pa. tas ang totoo, wala namang actual
realization. Diba tumaas yung value ng property, pero ang point, narealize mo na ba
yung pagtaas ng value? Diba hindi. Kasi di mo naman binenta. So, si mo pweedeng
sabihin na income of the current period kasi alam mo lang na tumaas yung value niya
pero di mo pa naman binenta. So instead of income, tinawag siyang OCI which is di part
ng revenue but rather, equity)

RS is not an income presented in income statement but it is part of an equity so it is

presented in the statement of financial position.

The life of RS depends on the asset which caused the surplus or kung anong asset ang
nirevalue mo.

So pag nagdepreciate na yung asset, wala na din dapat yung RS.

- PIECEMEAL REALIZEATION
Ito yung tawag sa taon taon na pagbawas ng RS

Land do not depreciate and is not realized, unless binenta yung lupa.

- SAN TINATANGGAL ANG RS?

Diba part siya ng equity and when an account becoemes part of an equity, it will never
go out, it wiill only be recycled within the equity. So since RS is an equity, kung
mawawala ang RS, di siya pwedeng lumabas sa equity, so irerecyle siya. Hahanap ka ng
isang account title sa equity na pag lilibingan niya and usually it is the RETAINED
EARNINGS account.
IMPAIRMENT OF ASSET
- INDICATION:
External Sources: Outside our control
Internal Sources: Comes from inside the business
- MEASUREMENT:
2 ways to recover money from asset:
1. Fair Value less cost of disposal - Ibenta mo
2. Value in Use - Wag mong ibenta, gamitin mo and let it produce future economic
benefits

Choose between the two, whichever is HIGHER because if you have 2 choices,
choose what is more favorable for you.
- Debit IMPAIRMENT LOSS ACCOUNT – part of satement of comprehensive income statement as
a loss (nominal account)
- Credit ACCUM DEP – why? Because the asset being impaired is a PPE and yung pagkasira ng asst
is represented ng account title na accum dep.
- NEXT YEAR, anong gagamitin mo na base, yung original cost or yung adjusted amount na? Of
course yung new amount na

REVALUATION AND IMPAIRMENT OF ASSET (ANG GULO HUHU)

- Y axis – cost
- X axis – time
- Dotted line – historical cost line (it is the value of asset with no impairment and revaluation)
- Solid line – changes in the value
- COST MODEL - LAND:

Ignore any increase above cost/Appreciation (Historical cost – 100k. Then next year
naging 150k, just ignore that 50k increase, 100k mo pa rin irerecord)
Record impairment loss during decrease in value because you can’t record asset above
recoverable amount. Adjusting entry:

Impairment Loss XX
Land (Land does not have accumulated depreciation) XX

Record gain on reversal of impariment loss. (So record if bumaba yung value below cost
tas biglang tumaas but below cost pa rin)
If tumaaas above cost, record the reversal based on the difference of historical cost
and recoverable amount last period.
You can only recognize gain on reversal of impariment loss up to the previously
recognized loss.

- COST MODEL – DEPRECIABLE ASSETS:

 A depreciable asset should be compared to the carrying amount or new value, not the
historical cost.

In cost model, we should recognize the impairment loss using the difference of carrying
amount and recoverable amount.

To solve for the additional impairment loss sa 57k and 30k, hindi 57 ka ang base but the
new value of 57k after depreciation.
To get total impariment loss:
LAND = historical cost less current recoverable amount
DEPRCIABLE ASSETS = add one by one, bawal yung solution kay land
To solve for the amount of reversal of impairment loss:
DEPRECIABLE AMOUNT = new recoverable amount/carrying amount whichever
is lower - (recoverable amount less depreciation for the year)
Gain on reversal is lower than the impairment loss recorded, hindi equal

- REVALUATION MODEL – LAND:

Revaluation
Land XX
Revaluation Surplus XX

Reversal (if fair value decreased above the historical cost):

Revaluation Surplus XX
Land XX

Reversal and impairment loss (if fair value decreased below historical cost):
Revaluation Surplus XX
Impariment Loss XX
Land XX

- REVALUATION MODEL – DEPRECIABLE ASSETS:

RV comes from historical cost to fair value.

 So FV less cost = remaining revaluation surplus

IMPAIRMENT OF CASH GENERATING UNIT

- Kasama sa determination of CA ang cash pero sa allocation of impairment, di siya kasama
- CA is purely asset, walang liabilities, unless if di mo talaga kayang mahiwalay like accum dep

- CGU VS. CORPORATE ASSETS

CGU can generate cash inflows independently
Corporate Assets do not generate cash inflows na kanya lang. Yung silbi ng corporate
asset is para sa lahat (Ex. Head office is affected niya lahat pero di niya kayang mag isa
na mag generate ng cash inflow)
- So kasama sa CA ng CGU yung corporate asset

INTANGIBLE ASSETS
- DEFINITION:
Identifiable – malalaman mo kung alin siya
Nonmonetary – hindi cash or wala kang contractual right to receive cash
Without physical substance – Di nakikita or nahahawakan pero alam mong meron
- CRITERIA (provided na meron tong mga to, even if di nakikita, it is an intangible asset):
1. Identifiable – separable. Maiidentify mo because you have a contractual or legal
right
2. Control – You can enjoy the assets
3. Future Economic benefits – revenue or cost savings
- MEASUREMENT:
INITIALLY – at cost
SUBSEQUENTLY – Cost model or revaluation model
- CLASSIFICATION:
1. Definite Life
- Nagkakaroon ng definite life if yung legal or contratcual right is tapos na Or wala na
yung competitive advantage
2. Indefinite

- AMORTIZATION
Used for properties that are incorporeal or di mo nakikita

NOTE: For PPE – depreciation

For intangible asset – amortization

Allocate based on the best pattern, if walang pattern, use straight line method.
ACQUISITION OF INTANGIBLE ASSETS
- Cost depends on how Intangible asset is acquired

1. Separate Acquisition
- cost is “CASH PAYMENT” plus other directly attributable cost

2. Acquisition as part of business combination

- Business combination: Entity A and B ket biglang nagsama. Maaaring isang entity
ang magiging parent or matitira. Sa pagbili ng entity, kasama sa bibilhin niya is yung
lahat ng asset ng other entity including the intangible asset
- Measured at FAIR VALUE of the intangible asset

3. Acquisition by way of government grant

- Measured at:
a. FAIR VALUE
b. Zero (May time na walang pinapabayad si government) or Nominal Value plus
directly attibutable cost

4. Acquisition by exchange
- Without commercial substance – yung binigay mo in exchange sa isa ket halos
same (ex. Tv exchanged for a tv)
- Measured at:
a. With commercial value – FV of asset given up + cash paid (kasi you woudn’t
give up
anything if ang matatanggap mo in exchange is not equa or greater than the
thing you’re giving up)
b. Without commercial value – CA of asset given up + cash paid

5. Internally generated
- all directly attributable cost

- SUBSEQUENT EXPENDITURE:
Generally, expensed
Capitalized if it can “enhance” the intangible asset

GOODWILL
- A list of regular customers = may suki ka na
- Goodwill = pwersa na di mo nakikita pero siya ang reason kung bakit dun ka bumibili sa certain
tindahan na yun kasi may thinking ka na may goodwill sila like mabait sila, etc.
- Goodwill is only recognized if it is purchased. Bakit? Kasi di ka sigurado kung magkano yung
goodwill/ It cannot be measured.
- MEASUREMENT:
 Residual Approach
– Bakit mas mataas minsan ang ibabayad ni A para sa net assets ni company B? Kasi
alam niya na may goodwill.

Direct Approach
- Goodwill mismo ang sinosolve mo

- Hindi problema ni accountant yung pagbigay ng goodwill, sina buyer and seller ang
magdedecide
- Goodwill is assessed annually to know if ganuna pa din ba yung tingin sa business/reputation ng
business
- NEGATIVE GOODWILL
Acquisition cost is lower than the net fair value of assets
This is now called “gain on bargain purchase”

PATENT
- Inventor = makes something out of nothing
- Exclusive right = karapatan mo lang
- Patent is an intangible asset because:
Identifiable siya kasi meron siyang license
It has control on the manufacture, sale and other use of his invention
May future economic benefits din
- Ex. Dati, nakalimutang lagyan ng windshield yung car. May nakaisip na gumawa ng windshield,
although simple lang na invention, yumaman yung inventor (So kahit simple lang, need mo
rehistro)
- Dahil may legal life, DEFINITE ang life niya
- Competing Patent – may 2 patents na magkalaban, binili mo yung isang patent para 1 patent
nalang so mawawala na kalaban mo (Di mo gagamitin yung binili mong competing patent kaya
iaamortize mo siya over the useful life of the original patent)

- Capitalization ng patent starts sa licensing

FRANCHISE
- Authorization/pagpayag to do certain things
- Contract based
- MEASUREMENT (The following should be answered before you record a franchise):
S – Substantial performance has been rendered? (Before magamit ni franchisee yung
franchise, may gagawin muna si franchisor like bubuuin yung building)
P – Period of Refund Elapsed? (May time na pwede mong irefund, magiging certain lang
na marerecord na yun pag tapos na yung refund time)
C – Collection is reasonably certain?
 - PERIODIC FRANCHISE FEE: Expensed (Kahit wala yung periodic fee, nagagamit mo na yung
franchise)

RESEARCH AND DEVELOPMENT

- RESEARCH:
Expensed rather than capitalized kasi wala yung isang criteria para maging asset and
that is the future economic benefits (Wala pang kasiguraduhan na may benefit)
Examples:
NEW
SEARCHING
CONCEPTUAL FORMULATION (nagcoconceptualize ka palang)
POSSIBLE (di mo pa sure)

- DEVELOPMENT:
Kung anong nakuha mo sa research mo, yun ang iaapply mo
So may nauna pero want mong pagandahin

May hangganan: PRIOR TO THE COMMERCIAL PRODUCTION (If ready na yung product
for production, end na yung development cost recognition) (So nagsisimula after
research phase and ends sa commercial production)

Development Cost is generally EXPENSED. Pero if papasok sa strict criteria, pwede

siyang CAPITALIZED. Kahit isa lang sa mga criteria ang di mo mareach, di na capitalized

Examples:
PREPRODUCTION (Diba development cost is before production)
PROTOTYPE/MODEL
PILOT PANT (Nagreready ka for production pero yung ginagawa mong planta is
hindi yun yung mismong gagamitin mo)
DESIGN (Di ka pa nagpoproduce, design palang)

Development ends, pag nag start na yung production, pwedeng PPE na, depende kung
ano yung item na ginagawa

- NOT CONSIDERED R&D:

COMMERCIAL PRODUCTION
ROUTINE (pag nagreresearch ka, nagsasaliksik ka, di yan routinary, isang beses lang
ginagawa kasi pag nadiscover mo na or nadevelop mo na, di mo na uulition) (Poag
routinary, production na yan kasi magpoproduce ka ng paulit ulit)
PERIODIC

- Why is R&D important?

Pag di ka magdedevelop, mapag iiwanan ka
COMPUTER SOFTWARE
- CS are instructions that tell a computer what to do
- So nalalaman ng computer yung gagawin kasi merong computer software
- CS can be applications, etc.
- MEASUREMENT:
During Research stage – EXPENSED
After technological feasibility has been established (Detailed program design or Working
model) - CAPITALIZED

OTHER INTANGIBLE ASSET

- BROADCASTING LICENSE:
 Is a type of spectrum license granting the license permission to use a portiin of the radio
frequency spectrum in a given geograpgical area for broa
 It is a license given to radios, tvs and other platforms
 Frequency spectrum = Ex. 107.5 for Wish 107.5
 LIFE
INDEFINITE LIFE – notrt impaired but tested for impariment
FINITE LIFE – amortized

- AIRLINE RIGHT:
 Meron ding linya ang mga eroplano
 Meron din silang route
 May traffic pa nga eh.
 Has an INDEFINITE LIFE as it can be renewed regukarly so not amortized, but tested for
impairment

- WEB SITE DEVELOPMENT COST

 Developed for the purpose of promoting and advertising an entity’s product or services
 It is not considered an asset. Ang missing is yung control and future economic benefiyt.
(Di mo masisiguro na pag may nakakita ng advertisiement mo ket bibilhin na nila yung
product mo, so di sure na may future economic benefit kasi di mo control yung utak ng
tao)
 EXPENSED as incrred

- CUSTOMER LIST:
 Listahan ng mga suki or bumibilis sa tindahan mo
 Intangible kasi if may listahan ka ng customers mo, pwede mo silang ifollow up or
offeran ng bagong produkto or service
 Accounting treatment:

a. Internally generated – Expensed

 b. Purchased – “may” be capitalized (“MAY” lang kasi subject for debate pa kasi even if
may list ka, pag cinontact mo sila, sure ba na bibili sila?)

- ORAGNIZATION COST:
 Cost in forming an organization
 It is NOT AN INTANGIBLE ASSET but treated as AN EXPENSE
 HOWEVER:
Shares issuance cost shall be debited to share premium arising therefrom.
(Diba may par value, yung difference ng par value and issue price is share
premium which is an equity account. So pwedeng ioffset yung cost ng share
issuance sa share premium)

If kulang na yng share premium, create an account called “Share issuance

cost” which is a CONTRA EQUITY ACCOUNT

- LEASE RIGHT:
 Now governed by IFRS VI

FRANCHISE
- Perpetual franchise – not amortized
- Remember SPC (Mas mahalaga sa part ni Franchisor):

a. Substantial performance – so may pinapagawa kay franchisor

b. Period of refund has elapsed - If di pa tapos yung refund period, the franchisor cannot
recognize an income (If walang nasabi if nag elapsed or not, assume na nag elapsed na)
c. Collection is assured