You are on page 1of 60

PAS 16

Philippine Accounting Standards on Property,


Plant and Equipment
Overview, summary and updates 2016

FASTER.BOLDER.STRONG

Annual improvements
IAS being redrafted and implemented in the Philippines and effective January 1, 2005
Annual improvement (routine sales of assets held for rental) effective January 1, 2009
Amendment (classification of servicing equipment)
Effective after January 1, 2009
Improvement (proportionate restatement of Acc. Depreciation under the revaluation )
effective july 1, 2014
Annual improvement (clarification of acceptable methods of Depreciation and
amortization) effective January 1, 2016
Amendments: Agricultural Bearer Plants effective January 1, 2016

FASTER.BOLDER.STRONG

Property, Plant and Equipment

FASTER.BOLDER.STRONG

Recognition and Measurements

FASTER.BOLDER.STRONG

Recognition and Measurements

How do we recognized fixed assets??????

FASTER.BOLDER.STRONG

Recognition and Measurements

FASTER.BOLDER.STRONG

Recognition and Measurements


Probable when future
economic Benefits
associated with the
assets flow to the entity
and the costs is
associated reliably.
The costs of the asset
is measured reliably.

FASTER.BOLDER.STRONG

Major Changes in PAS 16


Recognition of subsequent costs

Old Standard : Additional costs is added to the


carrying amount of the assets when it is probable
that economic benefits in excess of the originally
assess standard of performance, any other
subsequent costs is recognize as expense in the
period in which it was incurred.

New standard: 1) probable future economic benefits


associated with the item will flow to the economic
entity 2) cost of the item is measured reliably.
FASTER.BOLDER.STRONG

PPE: MEASUREMENT METHODS

Initial measurement = At
Costs
Compose of :
Purchase price plus import duties
Any costs directly attributable to
bringing the asset to the location
conditions necessary for it to be
capable in operating in a manner
intended by management
The initial estimate of the costs of
dismantling and removing the items and
restoring the site in which it is located

FASTER.BOLDER.STRONG

Measurement after Recognition


Cost Model Assets carried less accumulated
depreciation
Revaluation Model - assets are carried at
revalued amount / fair value at the of the
revaluation less subsequent depreciation and
impairment, fair value can be measured
reliably.
Fair value model FASTER.BOLDER.STRONG

Measurement after Recognition

FASTER.BOLDER.STRONG

Revaluation Models : Rules


Revalued assets Depreciated same way as
Cost Model
If it increase the value Credited to
Comprehensive income under equity heading
Revaluation Surplus
Decrease recognized as expense

FASTER.BOLDER.STRONG

Changes implemented in PAS 16: Subsequent


costs
Capitalized
Type of
Expenditure

Characteristic

Additions

Extensions,
enlargement,
expansion made
to the existing
assets

Repairs and
Maintenance

Ordinary:
Recurring,
relatively small
Maintain
normal
condition
Do not add
materially to
the use value
Do not
extend useful
life

Expense
when
incurred

+ Assets

Acc.Dec.
(deduction)

Other

FASTER.BOLDER.STRONG

Changes implemented in PAS 16: Subsequent


costs
Capitalized
Type of
Expenditure
Repairs and
Maintenance

Characteristic

Expense
when
incurred

+ Assets

Acc.Dec.
(deduction)

Other

Extraordinary:
No recurring,
relatively large
amount

Primarily
increase the
value
Primarily
extend the
useful life

FASTER.BOLDER.STRONG

Changes implemented in PAS 16: Subsequent


costs
Capitalized
Type of
Expenditure
Replacement
and
betterments
Book value of
old component
is known,

Characteristic

Major
components of
the asset is
removed and
replaced with the
same type of
component with
comparable
performance or
different type of
component
having superior
performance
capabilities

Expense
when
incurred

+ Assets

Acc.Dec.
(deduction)

Other

Removed old
asset cost &
accumulated
Depreciation
Recognized
gain or loss on
old asset
Charge asset
to replacement
component

FASTER.BOLDER.STRONG

Changes implemented in PAS 16: Subsequent


costs
Capitalized
Type of
Expenditure

Characteristic

Replacement
and
betterments

1)

Primarily
increase use
value

Book value of
old component
is not known,

2)

Primarily
extend
useful life

Expense
when
incurred

+ Assets

Acc.Dec.
(deduction)

Other

FASTER.BOLDER.STRONG

Changes implemented in PAS 16: Subsequent


costs
Capitalized
Type of
Expenditure
Reinstallation
and
arrangement

Characteristic

Expense
when
incurred

+ Assets

Acc.Dec.
(deduction)

Other

Provide General
Efficiency in
production or
reduce
production costs
1)

Material
Costs
incurred:
benefits
extend into
future
accounting
periods

2)

No measure
of future
benefits

x
FASTER.BOLDER.STRONG

Changes implemented in PAS 16: Subsequent


costs
The standard consists of costs of the acquisitions and estimated costs of
dismantlement, removal or restoration provided the following condition must
concur:
1)

Legal and constructive commitment

2)

The commitment give raise to liability.

Estimated costs should be measured at discounted present value, liability to be


recognized under PAS 37 Provision, Contingent liabilities and Contingent assets
Provision accreted should be recognized as interest expense

FASTER.BOLDER.STRONG

Measurement and Recognition: Asset


exchange transactions

Will not tackle the


exchange
transactions of similar
and Dissimilar Assets

FASTER.BOLDER.STRONG

Artworks /
Memorabilia/Paintings

FASTER.BOLDER.STRONG

Artworks /
Memorabilia/Paintings
No IFRS /IAS/PAS guidelines except for First
Class Artworks which are held for Capital
Appreciation and has available market can be
measured and recognized under PAS 40 Fair
value measurement
Pieces of artwork which make your office or
workplace pleasant and comfortable, they may
be considered as PPE under the requirements
of PAS 16 they are used in production or for
administrative purposes

FASTER.BOLDER.STRONG

Artworks /
Memorabilia/Paintings
Two models:
1) Cost Model hold assets less depreciation
and impairment loss
2) Revaluation Model hold assets at fair value
How about the USEFUL LIFE = ?????????
FASTER.BOLDER.STRONG

Artworks /
Memorabilia/Paintings
It IS SUGGESTED THAT THE USEFULL LIFE
THE TIME THE OFFICE WILL BE RENOVATED
OR ABANDONED

FASTER.BOLDER.STRONG

Fixed Asset - Depreciation


Depreciation Expected pattern of
consumption of the future benefits of the
Assets
When To start Depreciation????????
The depreciation begins when it is available for
use or when it is in the desired location and
condition
FASTER.BOLDER.STRONG

Fixed Asset - Depreciation

FASTER.BOLDER.STRONG

Fixed Asset - Depreciation


Depreciation reflects a pattern of economic
benefits that are generated from operating a
business and continued use through the use of
the asset
Amendments(2016)
Ratio of revenue to the total revenue expected
to be generated cannot be used to depreciate
a property, plant and equipment

FASTER.BOLDER.STRONG

Fixed Asset Management


Fixed assets Management
is an accounting process that seek to track fixed
assets for the purpose of financial accounting,
preventive maintenance and theft deterrence

FASTER.BOLDER.STRONG

Fixed Asset Management


Fixed asset Management best practices (Hacket Group, Consulting
Firm)
Single fixed asset system with standard capitalization
Automatically post depreciation charges asset activity to the general
ledger.
Use one policy to depreciable lives
Approval chart for capital appropriation requests
Link an automated capital project tracking system directly to purchasing,
accounts payable, engineering and labor system for tracking purchased
and constructed assets (internally generated software)

FASTER.BOLDER.STRONG

Fixed Asset Management


Fixed asset Management best practices
(Hacket Group, Consulting Firm)
Automatic set-up of fixed assets based on data
accumulated in the capital project tracking system
Routinely circulate bar coded asset tags throughout your
company.
Conduct physical inventories routinely on cycle basis using
bar-code scanners

FASTER.BOLDER.STRONG

Taxation Updates
Tax free exchange of property for Shares (RMO 17, May 2016)
Sec. 40 of the Tax code: Capital Gain tax exemption in the case of transfer
of property in exchange for shares of stocks in case of Merger or
consolidation for the purpose of gaining control in the corporation
Value of shares to be issued should be equal to the fair market value of the
property transferred.
Additional Paid up Capital is not allowed.
No VAT imposition of such transfer (2014 CTA vs BIR)

FASTER.BOLDER.STRONG

Tax free exchange of property


Rules laid by BIR: Corporation Receiving property
Company receiving the property should be at fair market value of the
property received
Gain or loss on the subsequent transfer is subject to guidelines
imposed under RR 18 2001
Tax free exchange should annotated in the certificate of title of the
property
Transferee (Recipient company) to disclosed in the notes that the
property was acquired in accordance with Sec 40 of the Tax code,
Date of transactions, substituted basis of the property, number of
shares exchanged, name of the shareholder and the breakdown of the
shares.

FASTER.BOLDER.STRONG

Tax free exchange of property


Rules on Corporation transferring property
The share received should be the substituted value
Tax free exchange shall be annotated in the
certificate of title of ownership
Required notes in the financial statements
Tax free exchange ruling to be presented for the
purpose of the subsequent sales
FASTER.BOLDER.STRONG

RMO 36 2016
Implementation of the BOA regulation effective for
Financial Statements Fiscal Year ending June 30,
2016
The annual FS be accompanied by a Certificate on
the Preparation of Financial Statements and Notes to
Financial Statements issued by a BOA accredited
CPA who can either be an employee of the company
or CPA in a public practice contracted by the
Company.
FASTER.BOLDER.STRONG

Tax Updates / BIR Ruling


Change in Accounting Method (January 2016)
As general rule The company should adopt
accounting methods best reflects its income and
should be consistently applied from year to year
If there is a need for accounting method change.
The company must seek approval of the
commissioner as provided in the tax code.
Shall used that method in the subsequent years
FASTER.BOLDER.STRONG

Tax Rulings:
Treatment on Ordinary and Business
Expense (Aug 2015)
Under the tax code:
Allowed Business expenses and a deduction
from gross income are all necessary an
ordinary expenses paid or incurred during
the taxable year in carrying on or which are
directly attributable to, the development,
management, operation and conduct of the
trade, business or exercise of a profession.
FASTER.BOLDER.STRONG

Tax Rulings:
Treatment on Ordinary and Business
Expense (Aug 2015)
When do we recognized the expense ????

FASTER.BOLDER.STRONG

Tax Rulings:
Treatment on Ordinary and Business
Expense (Aug 2015)
Under Revenue Audit Memorandum order No.
1- 2000
Provides that under accrual method of
accounting, expenses not being claimed as a
deduction by a taxpayer in the current fiscal year
cannot be claimed in the deduction from income
in the succeeding year.
FASTER.BOLDER.STRONG

Tax Rulings:
Treatment on Ordinary and Business Expense (Aug
2015)
The accrual method relies upon the taxpayers right to
receive amounts or its obligation to pay.
Accordingly, amount of income accrue where the right to
receive them become fixed, where there is a created an
enforced liability
Liabilities are accrued when fixed and determinable in
amount without regards to indeterminacy merely of time of
payment.

FASTER.BOLDER.STRONG

Tax Rulings:
Treatment on Ordinary and Business
Expense (Aug 2015)
in a nutshell, a test must apply:
1. Fixing of a right to income or liability
2. The availability of the reasonable accurate
determination of such income or liability

FASTER.BOLDER.STRONG

Tax Rulings:
Treatment on Ordinary and Business
Expense (Aug 2015)
How about payment/expenses on
contingent basis ????

FASTER.BOLDER.STRONG

Tax Rulings:
Treatment on Ordinary and Business
Expense (Aug 2015)
Contingent basis as per agreement, the liability
and expense cannot be deemed to have been
fixed and the amount of liability cannot be
determined with reasonable certainty.
It varies depending on the outcome.
FASTER.BOLDER.STRONG

Tax Updates
Treatment of Bad Debt Expense
Under section 3 of RR no. 5-99 in relation to sec 34(e) of the tax code, bad debts
may be deducted from taxable income provided the following requisites are
established:
1) Existence of indebtedness due to taxpayer which is valid and legally
demandable
2) Connected with taxpayer business
3) Not be a transactions from related parties
4) Must actually charge off the books of accounts as of the taxable year
5) Ascertained to be worthless and uncollectible as of the end of the taxable year.

FASTER.BOLDER.STRONG

Tax Updates
Treatment of Bad Debt Expense
According to CTA case dated April, 2015 (Ansi
Agricultural products, Inc. vs. CIR)
ORAL TESTIMONY IS NOT ENOUGH TO
SUPPORT BAD DEBTS

FASTER.BOLDER.STRONG

Tax Updates
Treatment of Bad Debt Expense
Supporting documentary evidence must
established
A mere testimony of the accountant explaining
the worthlessness and the efforts taken to
collect, without documentary proof is simply selfserving and lacks probative value

FASTER.BOLDER.STRONG

Tax Updates
Treatment of Bad Debt Expense
Per Jurisprudence, the following steps to prove
that taxpayer exerted diligent effort to collect
debts:
1) Sending statement of accounts
2) Sending collection letters
3) Giving the accounts to lawyers for collection
4) Filing a collection case in court

FASTER.BOLDER.STRONG

Tax Updates
Revenue Memorandum Circular 86-2014
Clarifies the valuation of contribution of gifts actually paid or
made in computing taxable income as a part of substantiation
requirements under Section 8 of RR no. 13-98
Taxpayer claiming donation must present certificate of
donation indicating actual receipt and date of donation,
the amount of cash, acquisition costs if in property.
Provides mandatory information to be provided in the
certificate of Donation (BIR Form 2322)
1) Donee certification
2) Donors statement of values

FASTER.BOLDER.STRONG

Tax Updates
Revenue Memorandum Circular 86-2014
Donors statement of values:
1. Description
2. Acquisition costs and net book value of the
property donated as reflected in the financial
statement of the donor.
3. Signed of authorized representative.
4. Copy of sales document will also be required to
support the acquisition claimed by the donor
FASTER.BOLDER.STRONG

Tax Updates
Withholding tax on Accrual
Taxpayer obligation to withhold tax when the income
is paid/becomes payable or when the expense/asset
accrued/recorded in the books whichever comes first.
In case the income is not yet paid or payable but has
already been accrued or recorded as an expense or
asset in the books of the taxpayer, the obligation to
withhold tax arise in the last month of the quarter
when the deduction was claimed for income tax
purposes (RR 12-2001)
FASTER.BOLDER.STRONG

Tax Updates
Withholding tax on Accrual
Under RR 14 2013, deficiency in the payment of
withholding tax during tax audit or investigation,
the related expenses shall be disallowed as a
deduction for the purpose of final taxable net
income despite the payment of deficiency.
Withholding agents penalized twice for failure to
comply the withholding tax requirements.
FASTER.BOLDER.STRONG

Tax Updates
Withholding tax on Accrual
What do we do??????
We need to properly distinguish a expense accruals from provision
or estimates and apply to our accounting policies and methods.
According to Supreme court rules on accruals
- Taxpayer must recognized as expense when the obligation to pay
is fixed; the amount can be determined with reasonable certainty.
If the right to pay is uncertain in terms of timing and amount , the
related expenses should be considered as a mere provision or
estimate , thus not deductible in tax purposes and no withholding of
tax obligation.

FASTER.BOLDER.STRONG

Tax update
RMC 61 2016, june 2016
Policies and Guidelines for Accounting and
recording transactions involving netting or
Offsetting
Procedures with respect to offsetting
arrangements of accrued receivables /trade
receivable against accrued payable in relation to
tax code
FASTER.BOLDER.STRONG

Tax update
RMC 61 2016, june 2016
Salient features :
1. In General, under GAAP offsetting is improper
2. Receivable should be presented as gross for both
Receivable and payable
3. Payable should be reported at gross for CWT or FWT
4. Any amount offset against income payments not
subjected to CWT or FWT are not allowed as
deductible expenses
FASTER.BOLDER.STRONG

Tax update
RMC 61 2016, june 2016
Example:
Bank A earned an interest from B (depositor at the same time)
amounting to 500,000
Depositor B earned an income from Bank amounting to 100,000 from
his deposits
In the percentage tax return of Bank A
Bank A cannot report net amount of 400K as interest income net of
100K in the return

FASTER.BOLDER.STRONG

Excel Training for Accountants


Purpose
1) Designed for a company who has an
accounting system but its reporting does not
provide flexibility in creating reports and
solutions
2) Bringing together data from other sources
and incorporate values with financial data

FASTER.BOLDER.STRONG

Excel Training for Accountants


Topics
1) Pivot Table
Pros and Cons pivot tables
Creating Pivot table
Powerpivot (hold)

2) Summing functions

Range name
Using Cell and range in the formula
Advanced sum
Subtotal
Aggregate function
Sumif (uses ) function
Sumifs functions
Sumproducts

FASTER.BOLDER.STRONG

Excel Training for Accountants


Topics
3) Range Names

Advantages/disadvantages
Creating range names
Using Range name
Name manager
Dynamic Range name
Indirect and Range Name

4) Other Reporting functions and features


IF function, AND and OR functions
VLOOKUP / HLOOKUP
INDEX AND MATCH FUNCTIONS

FASTER.BOLDER.STRONG

Excel Training: Pivot


Converts raw data into summary reports
Two concepts to effectively understand use of
pivot table:
1. Column headings in your data are fields in
the pivot table
2. Rows are data records and are summarised
by the pivot table
FASTER.BOLDER.STRONG

Excel Training: Pivot


Pros:
1. Perfect for prototyping reports, because it is easy,
flexible, fast to create.
2. Can test different layouts in quick succession to help
determine final design
3. No Formula requires
4. Report and layouts can be created in seconds
5. Automatic subtotals are automatically added.

FASTER.BOLDER.STRONG

Excel Training: Pivot


Cons/Limitations
1. Pivot table reports can extract data from only one
data table at a time
2. Do not refreshed dynamically.
3. Layouts and structures are limited
4. Terminology in the headings may not acceptable for
presentation

FASTER.BOLDER.STRONG

Excel Training: Pivot


Creating a pivot table:

1. Pivot table reports can extract data from only one data
table at a time
2. Do not refreshed dynamically.
3. Layouts and structures are limited
4. Terminology in the headings may not acceptable for
presentation

FASTER.BOLDER.STRONG