PHILIPPINE FINANCIAL

REPORTING
FRAMEWORK FOR
COOPERATIVES
Concepts and Pervasive Principles

• The objective is to provide information about

a cooperative’s financial condition,
performance and cash flows
• Qualitative characteristics
• Recognition criteria for assets, liabilities,
income, and expenses include the
probability of a flow of economic benefits
and the reliability of measurement.
• Measurement at initial recognition is
generally at historic cost, except where the
standard requires fair value.
Financial Statement Presentation

Fair presentation: presumed to result if the

FRW for COOPS is followed
COOPSs shall present a complete set of
financial statements at least annually
At least one year comparative financial
statements and note data
Presentation and classification of items
should be consistent from one period to the
next.
Statement of Financial Condition

• A current/non-current distinction is normally

required for presentation unless the liquidity
basis is more reliable and relevant.

• Minimum presentation requirements required

in the statement of financial condition.
Statement of Financial Condition-
MINIMUM INFORMATION
• (a) cash and cash equivalents.
• (b) loans and receivables.
• (c) financial assets (excluding amounts
shown under (a), (b), ( i) (j) and (k)).
• (d) inventories.
• (e) property, plant and equipment.
• (f) investment property.
• (g) intangible assets.
Statement of Financial Condition-
MINIMUM INFORMATION

• (h) biological assets.

• (i) investments in associates.
• (j) investments in joint ventures
• (k) investments in subsidiaries
Statement of Financial Condition-
MINIMUM INFORMATION

• (l) trade and other payables.

• (m) interest on share capital payable
• (n) patronage refund payable
• (o) due to unions and federations ( CETF)
• (p) financial liabilities (excluding amounts shown
under (l), ( m), (n), (o) and (s)).
• (q) liabilities and assets for current tax (if
applicable).
• (r) deferred tax liabilities and deferred tax assets
(if applicable).
• (s) provisions.
Statement of Financial Condition-
MINIMUM INFORMATION

• (t) members’ equity

• (u) donation and grants
• (v) statutory funds ( Reserve Fund,
Education and Training Fund, Optional Fund,
Community Development Fund)
• (w) revaluation surplus
Statement of Operations-MINIMUM
INFORMATION
• Revenue
• Cost of sales or services
• Finance cost
• Selling or Marketing cost
• Administrative cost
• Other Items
• Tax expense (if applicable)
• Allocation of Net Surplus
-should always disclose distribution of net surplus
among statutory funds as well as interest on
share capital and patronage refund
Statement of Changes in Equity

• An Cooperative is required to prepare a

statement of changes in equity.
Statement of Changes in Equity
Should show a reconciliation between the carrying
amount at the beginning and the end of the period,
separately disclosing changes resulting from:
• (i) the amounts of investments by, and distributions
to, members, showing separately issues of shares ,
and treasury share transactions
• (ii) donations and grants
• (iii) movements in Statutory Funds ( includes
allocation of Net Surplus as reconciled with
amounts per Statement of Operations )
• (iv) movements in revaluation surplus
Statement of Cash Flows

• Cash flows must be split into operating,

investing and financing activities.
• Operating activities may be presented using
either the direct or indirect approach.
• Disclose interest on share capital and
patronage refund paid
• Disclose other interest on share capital,
patronage refund received, dividends
received
• other interest paid and received- part of
operating activities
Notes to Financial Statements

• This information is provided to support the

primary financial statements.
• Include a summary of accounting policies,
information about judgments, and
information about estimation uncertainty.
• Required to comply with the disclosure
requirements in the rest of the standard.
• Comparative information is needed for all
amounts presented in the financial
statements.
Accounting Policies, Errors and Estimates

• Change in accounting policy is accounted for

CURRENTLY
• Accounting estimates are accounted for currently
and prospectively
• Accounting errors are accounted for IN THE
CURRENT PERIOD (effect in CURRENT YEAR FS
ONLY- use PRIOR PERIOD ADJUSTMENT account
in the Statement of Operations)
Basic financial instruments
• A cooperative shall account for the following
financial instruments as basic financial
instruments in accordance with this section.
- cash.
- a debt instrument (such as account, note, or
loan receivable or payable)
- investment in publicly traded securities
- investment in non-publicly traded securities
Basic financial instruments – initial
recognition

A cooperative shall recognize a financial asset

or a financial liability only when the cooperative
becomes a party to the contractual provisions of
the instrument.
Basic financial instruments – initial
measurement

When a financial asset or financial liability is

recognized initially, a cooperative shall measure it
at the transaction price (including transaction costs
except in the initial measurement of financial
assets and liabilities that are measured at fair value
through profit or loss) unless the arrangement
constitutes, in effect, a financing transaction
Basic financial instruments – initial
measurement
If the arrangement constitutes a financing
transaction, the cooperative shall measure the
financial asset or financial liability at the present
value of the future payments discounted at a
market rate of interest for a similar debt
instrument.
Basic financial instruments –
subsequent measurement
A.Debt instruments – at amortized cost
B.Short-term debt instruments- undiscounted
amount
C.Investments in publicly- traded securities – at fair
value with changes in fair value recognized in profit
and loss
D.Investments in non publicly-traded securities
mutual funds, as well as other externally-managed
funds – at cost less impairment
Basic Financial Instruments -
Dividends
The cooperative shall recognize dividends and
other distributions received from the equity
investment as income without regard to
whether the distributions are from accumulated
profits of the investee arising before or after the
date of acquisition. Stock dividends do not
involve transfer of resources from investee.
Accordingly, stock dividends received shall not
be recognized as income.
Inventories

Measured at the lower of cost and estimated

selling price less costs to complete and sell
Cost is determined using:
• Specific identification for large items
• FIFO or weighted average for others
Inventory cost includes costs to purchase,
costs of conversion and costs to bring the
asset to present location and condition
Investment in Associates, Joint Ventures,
Subsidiaries

shall be accounted for using the cost model

Note: this requires auditors to always test

for impairment, as the model encourages
cooperatives not to take into
consideration losses of their investee.
Investment Property
• Shall be accounted for using the COST-
DEPRECIATION-IMPAIRMENT MODEL.
Property, plant and equipment
• Cost model ( cost less accumulated
depreciation and impairment)
• FOR LAND ONLY, AND SUBJECT TO
GUIDELINES ISSUED BY THE
AUTHORITY
• APPRAISAL INCREASE SHALL BE
CLASSIFIED AS REVALUATION
SURPLUS UNDER THE EQUITY
SECTION
Intangible Assets

• All costs incurred to internally develop

intangible assets such as research and
development costs are charged to
expense
• Intangible assets must be measured using
cost-amortization-impairment model
• Revaluation of intangible asset is not
permitted
• All intangible assets are considered to
have a finite life. If unable to estimate the
useful life of an intangible asset, the life is
presumed to be 10 years
Leases

• Leases are either finance or operating

leases.
• Finance leases result in substantially all the
risks and rewards incidental to ownership
being transferred to the lessee, while
operating leases do not.
Provisions and Contingencies
Provisions are recognized only when
1. there is a present obligation as a result of a past
event,
2. it is probable that the entity will be required to
transfer economic benefits, and
3. the amount can be estimated reliably.
Contingent liabilities
• Not recognised as liabilities.
• Disclose if reasonably possible or probable but not
estimable
Contingent assets
• Not recognised as assets.
• Disclose if probable
Revenue

Recognition:
• Sale of goods and services- accrual
• Interest Income for Savings and Credit
Cooperatives – interest is recognized
when earned and received
• Rebates- treated as reduction of
revenues, not expensed; income is not
recognized for the portion not yet
received.
Donations and grants

• Treated as part of equity

• Reported as a separate Line Item in the

Statement of Financial Condition
Borrowing costs
• A cooperative shall recognize all borrowing costs as an
expense in the period they are incurred.

• Borrowing costs that are directly attributable to the

acquisition, construction or production of a qualifying
asset may be capitalized as part of the cost of that asset.
The amount of borrowing costs eligible for capitalization
should be determined in accordance with this
framework.

• Such borrowing costs are capitalized as part of the cost

of the asset when it is probable that they will result in
future economic benefits to the cooperative and the
costs can be measured reliably.
Borrowing costs
• Only those borrowing costs applicable to the borrowings
of the entity may be capitalized. When the carrying
amount or the expected ultimate cost of the qualifying
asset exceeds its recoverable amount or net realizable
value, the carrying amount is written down or written off
in accordance with the requirements of other
international and/or national accounting standards. In
certain circumstances, the amount of the write-down or
write-off is written back in accordance with those other
standards.
Borrowing costs
• Capitalization of borrowing costs should be
suspended during extended periods in which
active development is interrupted, and
expensed. Borrowing costs may be incurred
during an extended period in which the activities
necessary to prepare an asset for its intended
use or sale are interrupted. Such costs are costs
of holding partially completed assets and do not
qualify for capitalization.
Impairment of Assets
Inventories
• write down, in profit or loss, to lower of cost
and selling price less costs to complete
and sell.
All other assets
• write down, in profit or loss, to recoverable
amount, if below carrying amount.
When the circumstances that led to the
impairment no longer exist, the impairment is
reversed through profit or loss ( in the
Statement of Operations)
Employee Benefits
• VESTED past service costs are recognized
immediately in the Statement of
Operations
• UNVESTED PAST SERVICE COSTS SHALL BE
AMORTIZED OVER THE REMAINING
VESTING PERIOD
• Actuarial gains or losses are recognized
immediately in the Statement of
Operations
• Disclose short-term employee benefits
Foreign Currency Transaction

• Foreign currency transaction gains and

losses are recognized in the Statement of
Operations
Events after the End of the Reporting Period

Events after the end of the reporting period

are classified as
1. Adjusting events
 Those that provide evidence of
conditions that existed at period end
2. Non-adjusting events
 Those that are indicative of conditions
that arose after period end
Related Party Disclosures
Disclose parent-subsidiary relationships,
including the name of the parent and (if any)
the ultimate controlling party.
Disclose key management personnel
compensation in total for all key management.
Disclose the following for related party
transactions:
• Nature of the relationship and transactions
• Amount of the transaction
• Provisions for uncollectible receivables
• Any expense recognised during the period in
respect of an amount owed by a related party
Specialized Activities- Agriculture

Biological assets are measured at cost less

and accumulated depreciation and
impairment.
At harvest, agricultural produce is to be
measured at cost
Specialized Activities- Agriculture
• A cooperative shall disclose the following with respect to its
biological assets:
•
• a description of each class of its biological assets.
• the depreciation method used.
• the useful lives or the depreciation rates used.
• the gross carrying amount and the accumulated depreciation
(aggregated with accumulated impairment losses) at the
beginning and end of the period.
Specialized activities – extractive
activities
• A cooperative using this framework that is
engaged in the exploration for, evaluation or
extraction of mineral resources (extractive
activities) shall account for expenditure on
the acquisition or development of tangible or
intangible assets for use in extractive
activities. When a cooperative has an
obligation to dismantle or remove an item, or
to restore the site, such obligations and costs
are accounted for in accordance with Section
on Provisions and Contingencies.
Statutory Funds
• The manner of Distribution of Net Surplus into
its Statutory Funds, Interest on Share Capital and
Patronage Refund, shall be presented on the
Statement of Operations.
• Movements in the Statutory Funds; i.e.
Allocation from Net Surplus and Deductions,
shall be accounted for in the Statement of
Changes in Equity.
• Statutory Funds shall be set up in accordance
with Article 86 of RA 9520 and the
Cooperative’s By-Laws.
Statutory Funds

 RESERVE FUND – at least 10% of net surplus-

- note: for new coops, reserve fund should be
at 50 % of net surplus for the first 5 years
 COOPERATIVE EDUCATION & TRAINING
FUND- not more than 10%
 COMMUNITY DEVELOPMENT FUND- not less
than 3%
 OPTIONAL FUND- not more than 7%

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Distribution of net surplus –
recovery of prior years’ losses

• Since the reserve fund account is intended, among others, to

meet operational losses, all accumulated losses incurred by
the cooperatives in their business operations shall therefore
be charged against this Fund which shall be decided upon by
the Board of Directors.

• All charges against the Reserve Fund shall be subsequently

be offset by the following modified allocation and
distribution of net surpluses until such time the debit
balance of the Reserve Fund account shall have been fully
offset
Distribution of net surplus –
recovery of prior years’ losses
• Twenty five per centum (25%) shall be declared as
interest on share capital and patronage refund;
• Cooperative Education and Training Fund – one
half of the per centum as provided in the by-laws.
• Community Development Fund – one half of the
per centum as provided in the by-laws.
• Optional Fund – one half of the per centum as
provided in the by-laws.
• Reserve Fund – remaining amount of net surplus.
Effectivity

• Effective for 2016 AUDITED FINANCIAL

STATEMENTS

• ANY PROVISION OF MC 2009-04, OTHERWISE

KNOWN AS THE CHART OF ACCOUNTS FOR
COOPERATIVES, INCLUDING ANY TREATMENT,
INTERPRETATION OR PRESENTATION OF AN
ACCOUNT THEREOF, NOT CONSISTENT WITH THE
PROPER APPLICATION OF PERTINENT
PROVISIONS OF THE CIRCULAR IS HEREBY
REPEALED OR MODIFIED ACCORDINGLY.
End of Presentation

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