Financial Accounting and Reporting
What FAR tests
Financial Accounting and Reporting tests whether you can apply PFRS from initial recognition through measurement, presentation, and disclosure. Expect statement preparation, revenue, leases, inventory, impairment, financial instruments, provisions, income tax, and equity transactions. The exam favors adjustments: you are given incomplete data and must decide which standard controls.
Core rules
- PFRS 15 uses a five-step model: identify the contract, identify performance obligations, determine transaction price, allocate to obligations, and recognize revenue when control transfers.
- IAS 2 measures inventory at the lower of cost and net realizable value, item by item or by similar groups.
- PFRS 16 brings most lessee leases on-balance sheet as a right-of-use asset and lease liability, with limited exemptions.
- PAS 36 requires impairment when recoverable amount is below carrying amount; recoverable amount is the higher of fair value less costs of disposal and value in use.
- PFRS 9 classifies financial assets by business model and contractual cash-flow characteristics.
Worked example
Inventory cost is ₱500,000. Estimated selling price is ₱560,000 and costs to sell are ₱40,000. NRV is ₱520,000, so no write-down: cost is lower. If selling price fell to ₱520,000 and costs to sell were ₱30,000, NRV would be ₱490,000 and the write-down would be ₱10,000. The write-down is recognized in profit or loss; a later reversal is allowed for inventory but not for all assets.
Traps
Do not use fair value when the standard requires NRV. Do not ignore discounting for long-term receivables and payables. Do not recycle all OCI items through profit or loss. Watch current/noncurrent classification and tax-related deferred tax effects.