June 18

06/18/2014

IS (prepared first after the operating cycle)

but when you start your business, siyempre BS ang inuuna
IS is prepared first before BS because the OIC will affect the BS (it
will be imbalanced; the capital part will be erroneous)
possible results of IS:
net income: total income > total expenses
net loss: total income < total expenses
breakeven: total income = total expenses
since 2009, Financial Performance is the new name of (?)
trivia: we are in red means the business is at a loss; if in black,
there is net income
Cash Flow Statement
- when you submit to BIR, you need to submit audited IS + Cash Flow
Statement + Balance Sheet
more sheets needed depending on type/nature of business
- importance: shows the inflow/receipts/collection &
outflows/disbursements/payment of cash
- the difference between cash inflows and outflows must be the cash
balance at the end of the reporting period
this is why Cash Flows must be prepared first before the BS (affects
the current section of the BS)
o the amount of CF should be equal to the totality of cash and
cash equivalents
o when maam was asked, she said SCF may be prepared after
BS since former is for checks and balance
CHAPTER 1: OVERVIEW OF FINANCIAL ACCOUNTING
- Accounting -> Financial Accounting
PICPA -> AICPA
o Philippines institute of CPAs

o American Institute of CPAs

- Accounting definition
ACPA definition
o art of recording, classifying, summarizing in significant
manner and in terms of transaction & events which are in part
at least of a financial character, and interpreting results
thereof
Enumerates phases, stages, aspects of accounting
Italics are the four phases of accounting
A) Recording
- initially (before journalizing), you have to gather documents [ex. OR,
invoices (Types: Sales, and Purchase)]
Names of invoices
o Cash invoice: paid in cash
basis eventually to make an official receipt
redundant na if nag-issue ka na ng sales invoice tapos
nag-issue ka pa ng cash invoice
o Charge invoice: paid in installment; aka selling in account
- Steps:
1) Analyze the transaction
o determining what is debited and credited (Classifying in your
mind)
Mali nga ang definition eh; dapat bago ka mag record,
you analyze the classification first
2) Journalizing
o to the General Journal (record without sorting the
transactions; commonly used in small companies), or to the
Special Journals (common in big companies) [Note: if
gumagamit ka ng special journal, dapat may general journal
ka pa rin]
Special Journal Types
Cash receipts journal: not just for cash payments
Cash disbursements journal
Sales journal: for credit

Purchases journal: for credit; may be extended to

purchases of merchandise, equipment, etc on
credit
Examples of what is to be posted sa General Ledger na
lang: AJEs for depreciation, provision for doubtful
accounts, accruals (Types: Accrued income, Accrued
expense)
Note: not all those that have expense in their
account names are liabilities; example accrued
salaries expense is a liability
Accrued income: unrecorded, uncollected
revenue/income [receivable]
Unrecorded is the asset
Uncollected is the income
Accrued expense: unrecorded, unpaid expense
Nominal vs Real account (note: if you adjust entry,
dapat may nominal at real)
Nominal: pasok sa IS
Real: pasok sa BS

Naming of Accruals
- Income
Not-so-smart way
o Dr Professional Fee Receivable
o Cr Professional Fee
Smart way (use this!)
o Dr. Accrued Professional Fee [BS; receivable]
o Cr. Professional Fee [IS]
- Expense
Not-so-smart way
o Dr Salary expense
o Cr Salary payable
Smart way (use this!)

o Dr Salary Expense [IS]

o Cr. Accrued Salary Expense [BS; liability]
Deferrals: Pre-collections (opposite of accrued income) vs
Prepayments (opposite accrued expense)
Pre-collections - money is with you but you havent rendered service
method 1: Liability method
method 2: Income method
Prepayments - pay first before you get the benefit
method 1: Asset method
method 2: Expense method
- All four needs AJEs
- only accruals need reversing entries; deferrals dont
B) Classifying
3) Posting to the ledger
C) Summarizing
S1: determine account balances; by summarizing in ledger (get
balance per account thru T accounts or total debit total credit)
S2: Trial Balance, unadjusted
S3: Make AJE in general journal then to general ledger, or you can
prepare a worksheet if nagmamadali ang accountant
S4: Closing entries (for the nominal accounts)
S5: Post-closing Trial Balance
Components are real accounts only (ALE accounts)
S6: Create the Financial Statements

* create the reversing entries (optional) only the day after end of
reporting period
** An accountant can bookkeep; but bookkeeper cannot do accounting
D) Interpreting
- interpretation of FS by accountant prepared by bookkeeper
- measure the Four Basic Objectives of business
Liquidity: measures short-term solvency; short-term ones are
usually one year or less
Solvency: example if creditor ka, and potential debtor is solvent ,
debtor has capacity to pay; measures if borrower can borrow longterm obligations; borrowed more than a year/operating cycle
Stability
Profitability
Introduction
- Accounting is an integrated communication process
Elements of Communication
o Source
Account for the business
Because it is the business that transacts with
other businesses
o Messages
Account for financial position
Account for financial performance
Account for cash position/activities
o Channels
Through S of FP, aka BS
Through S of CI, aka IS

 Through S of CF
o Receivers
To the FS users aka decisions makers
Internal Users
Top management
BOD
Employees: some classify this under
external users
Labor Unions: some classify this under
external users
External Users
Current & prospective creditors
Current and potential investors
Customers
Government
Public
Objectives
- identify major FS and other means of financial reporting
- explain how accounting assists in the efficient use of scarce
resources
- explain the need for high quality standards identify the objective of
financial reporting
- identify the major policy setting bodies and their role in the standard
setting process
- explain meaning of IFRS
- describe the challenge facing financial reporting
Financial Reporting & Accounting Standards

 presentation is divided into

Global Markets
o FS and Financial Reporting
o Accounting and Capital allocation
o HQ Standards
Objective Financial Reporting
o General-Purpose FS
general purpose that everyone must be benefitted
equally!
What information is given to internal must be given to
external
o Capital providers
give info to capital providers aka shareholders and
creditors
o Entity prospective
identify the current condition of the firm and what is its
future condition
o Decision-usefulness
so as to make sound economic decisions
Standard Setting Organizations
o IOSCO
Pang USA
For Phil: PAS, PFRS, PICPA, GAAP, Accounting Council in
the Phil
o IASB
o Hierarchy of IFRSS
Financial Reporting Challenges
o Political Environment
o Expectations Gap: what public thinks accountants should do
vs what accountants think they can do

o Ethics
ex. what is expected by owner may be different from
the expectations of the creditors
o International Convergence
example: it may affect two different countries
o Significant Financial Reporting Issues
Global Markets [LO 1]
- Characteristics of accounting
1 Identification, measurement and communication of financial
information about
o Identify
o Measure : to know if solvent, liquid, stable, or profitable
o Communicate
2 Economic entities to
3 Interested parties
o these are the users discussed above
- Table
Economic entity ->
o Financial information
o Accounting? Identify and measure and communicate
-> FS ->
o SFP
o SCI
o SCF
o Statements of Changes in equity

o Note disclosures
-> Additional Information
o Presidents letter
o Prospectuses
o Reports filed with governmental agencies
o Environmental impact statements
In US, there is such thing as Environmental Accounting
Deal with how companies can save the
environment
In Phil, required ang environmental accounting but not
everyone is complying
o News releases
Example: classified ads section saying dividends are
declared!
o Forecasts
o Etc

- Accounting and Capital allocation

resources are limited (resources include human). Efficient use of
resources often determines whether a business thrives.
o Financial reporting
The financial information a company provides to help
users with capital allocation decisions about the
company
o Users (present and potential)
Investors and creditors use financial reports to make
their capital allocation decisions
o Capital allocation
Process of determining how and at what cost money is
allocated among competing interests
- High-quality Standards

Globalization demands a single set of high-quality international

accounting standards. Some elements
o single set
o consistency in application and interpretation
o common disclosure
o common high-quality auditing standards and practices
o etc

Objective of Financial Accounting

- Provide financial information about reporting entity that is useful to
in making decisions in their capacity as capital providers
Present and potential equity investors
Lenders, and
Other creditors
- general-purpose FS
provide financial reporting info to a wide variety of users
try to provide info at the least cost
- entity perspective
companies viewed as separate and distinct from owners
- decision-usefulness
investors are interested in assessing the companys
o 1. ability to generate net cash inflows, and
o 2. managements ability to protect and enhance the capital
providers investments
- Review Question: Objective of financial reporting places most
emphasis on reporting to capital providers; general purpose fs are prepared
primarily for external users
Standard Setting Organizations [lo 5]

IASB
issues IFRS; Equal to PFRS
standards used on most foreign exchanges
IFRS used in over 115 countries
FASB
Issues SFAS
Due Process
Order of making a standard
Research, Discussion paper, Exposure draft, then it becomes a
Standard
- IFRS contains
IFRS , IAS, Interpretations
Challenges [LO7]
- Expectations Gap
what public thinks accountants should do vs what accountants think
they can do
- Significant financial reporting issues
non-financial measurements
forward-looking info
sort assets
timeliness
- Ethics in the environment of FinAcc
ifrs doesnt always provide an answer

LEARNING OBJECTIVES
describe usefulness of conceptual framework
efforts to construct conceptual framework
understand the objective of financial reporting
identify qualitative characteristics of accounting information
define the basic elements of FS
basic assumptions of accounting
explain the application of the basic principles of accounting
describe the impact that constraints have on reporting accounting
information

TABLE
Conceptual framework
o Need
o Development
o Overview
First level: Basic Objectives
Second level: Fundamental Concepts
o Qualitative characteristics
o Basic elements
Third level: Recognition, measurement, and disclosure concepts
o Basic assumptions
o Basic principles
o Constraints

o Summary of the structure

Conceptual framework
- Conceptual Framework establishes concepts that underlie financial
reporting
- Need for conceptual framework
Rule-making should build on and relate to an established body of
concepts
o rules are rules so they have to be standardized
Enables IASB to issue more useful and consistent pronouncements
over time
o pronouncement: rules and standards that must be followed
by entities
- inverted triangle
top: assumptions
o going concern
o economic entity
o monetary unit
o accrual
o periodicity
opposite of going concern
says that the operations of business is divided into
equal periods or at definite intervals
the cut-off period is applied here
top: constraints
o cost
o materiality
top: principles
o full disclosure

o measurement
o expense recognition
o revenue recognition
middle: qualitative characteristics
o fundamental qualities
o enhancing qualities
middle: elements
o assets
o liabilities
o equity
o income
o expenses
bottom:
o objective: provide financial information about reporting entity
that is useful to present and potential equity investors,
lenders, and other creditors in their capacity as capital
providers
among IMC, the one addressed here is Communicate
who is the reporting entity? The issuing business!
Emphasis on capital providers!
Types of Capital Providers
Creditors: liabilities are claims of creditors
Shareholders: SE are equities of
shareholders

Conceptual Framework
- recall: has 3 levels
level 1: basic objectives

o objectives: Identify, Measure, Communicate

o main focus of FinAcc is communication of financial information
provided by issuing general-purpose FSs
assumption is that users have reasonable knowledge of
business and financial accounting matters to understand
the information
applied in here is the Understandability!
level 2: fundamental concepts
o qualitative elements
fundamental
1) Relevance: decision must be related to the
decision you are going to make; must have an
influence
Predictive value: to forecast
Confirmatory value: to verify; to validate
o Ex. BIR verifying the tax payable
2) Faithful Representation: should be acceptable
to users in good faith; papaniwalaan dapat ng
mga FSs users
free from error: accurate
neutrality: free from bias
completeness: disclosure
enhancing: to distinguish better information (more
useful) from inferior (less useful) for decision making
purposes
verifiability
comparability
understandability
timeliness
o basic elements
quantitatively (in monetary units) represented
level 3: recognition, measurement and disclosure concepts

o Assumptions
Going concern
life of the firm is indefinite
Economic entity
separate & distinct
Monetary unit
all transactions must be recorded in terms of
money
Accrual:
Substance over form can be applied here
public entities/government agencies in Phil., since
2001, have become modified accrual basis!
Actually, mix of cash and modified accrual basis
gamit nila.
Periodicity
indefinite life is divided into accounting periods
that are in equal interval
o Principles
Measurement
Example: assets are recorded initially, at
historical/acquisition cost (Acquisition cost =
Purchase price + other incidental cost)
but subsequently, measurement depends on
the type of asset
o Example: if depreciable, net book
value; aka carrying value
o Example: If intangible, amortized
Recall: patents are amortized
over 20 years
o Example: Land; realizable value
Full disclosure
Pertains to the quality of Completeness
include Notes to the Fss
Revenue recognition

Depends on the type of operations of the

business; Different earning points
Should be recognized when earned
Rule: when service is earned, or goods are
delivered
Ex: Installment sale uses Percentage of Collection
Expense recognition
Record when incurred aka when benefits were
received already
o Constraints
Cost
Materiality
Ang contingent liability pwedeng maging material
or immaterial

Answers to Quizzes [Tests came from Wiley]

Increase understanding, enhance comparability, quickly solve

problems, ALL OF THESE
Var in types of decisions the link is?
- understandability
useful to the decision making?
- relevant and reliable?
Accounting info to be relevant
capable to make a difference in decisiosn

overriding criteria?
Decision usefulness
Free from error and faituful relevance?
Reliability
Timeliness is ingredient of?
Relevance; not reliability
Relative to relevance and reliability?
All of these: relevance, reliable, materiality
Verifiability is relative to?
Relevance no!; reliability yes!
Kasi ang gusto mong malamang is kung maveverifiable ba ito?
Pwede rin na yes (because verifiability has confirmatory value); yes

Accounting Process
Aka Accounting Information System: same silang dalawa because
the main purpose of accounting is communicating; and you need
AIS to communicate such information
AIS: a way to communicate FS information by following steps in
accounting cycle to prepare the FS
Enumerates steps in the accounting cycle
End products are the FSs

Note: as long as may adjusted trial balance ka na, pwede ka nang

gumawa ng FSs

Accounting Information System Basic Terminology

Collects and processes transaction data, and
disseminates the information to interested parties [distribution to
FS users]
questions answered to help mgmt:
how much and what kind of debt is outstanding?
Were sales higher this period than last?
What assets do we have?
What were our cash inflows and outflow?
Did we make a profit last period?
Are there any of our product lines or division operating at a loss?
Can we safely increase our dividends to shareholders?
Is our rate of return on net assets increasing?
- basic terms
event
transaction
account
real account
nominal account
ledger
journal
posting
trial balance

aje
financial statements
closing entries
- if debit entries are greater than credit entries, the account will
have a debit balance
Summarizing: process of getting balance in t account
Footing: the process of adding columns of numbers

Accounting Information System debits and credits

- account: shows effect of transaction on a given asset, liability,
equity, revenue or expense account
an arrangement that shows the effect of transaction
- double-entry accounting system (two-sided effect)
recording done by debiting at least one account and crediting
another
debits must equal credits

Accounting Information System accounting equation

Accounting Information System FSs and ownership structure

The Accounting Cycle Identifying and Recording

The Accounting Cycle Journalizing

The Accounting Cycle Posting

The Accounting Cycle trial balance

The Accounting Cycle adjusting entries

- all accruals reversed
- provision for bad debts: do not reverse [check]
- Prepayment/Deferred Expense
reverse Expense Method only; Asset method: do not
- Precollection/Deferred Revenue
reverse Income Method only; Liability method: do not

The Accounting Cycle Adjusted trial balance

The Accounting Cycle Preparing financial statements

The Accounting Cycle Closing

The Accounting Cycle Post closing balance

The Accounting Cycle Reversing Entries

The Accounting Cycle Summary


Financial Statements for Merchandisers income statement

Financial Statements for Merchandisers Statement of RE

Financial Statements for Merchandisers Statement of financial

position

Financial Statements for Merchandisers Closing entries

Forms of Balance Sheet

Financial Position Form: CA-CL to show Current Net Assets; then
add NCA NCL
Income summary is a Suspense Account: only appears at the end
of accounting period when you prepare closing entries

Single-step IS
No separate section for COGS and Gross Profit
All Operating Revenues and Gains reported first then Operating
Expenses and Losses

Multi-step IS
Separate sections, various subtotals
Has three components:
o Gross profit (Net Sales COGS)
o Operating income (aka Income from Operations)
o Other income/losses
Preferred because of detailedness


Basic elements of IS
Net sale
COGS
OpEx
Other income

Selling/Distribution Expenses - to make product more

salable/known/acceptable
General & Administrative - Not related to sales/mobility of product

Merchandising/Trading has two main expenses being deducted to

arrive at Net Operating Income
Net sales COGS = Gross Profit
Operating expenses = Income from operations

When do your receive promissory notes?

Granted a loan (nagpautang ka) for which we receive a
promissory note
Using interest bearing promissory note
Delivery of ?

Types of Promissory note

- non interest
- Interestbearing

What are not parts of Comprehensive Income

dividends of stockholders
pasok sa RE ito hence net income section:
issuance of stock
t/s transactions
o recall:
A: Dr. T/S 100 || Cr. Cash 100
B: Dr. Cash 150 || Cr. T/S (at cost) 100; APIC T/S 50

What Composes Comprehensive Income

NET INCOME (FROM INCOME STATEMENT)
+- foreign currency translation adjustments
+- revaluation surplus
o ex. increase in value of land at year-end
o what if impairment? It still is a comprehensive income
statement but deductible naman this time
= COMPREHENSIVE INCOME/LOSS

Comprehensive income is reported how?

on face of IS
separate statement after P&L

Quiz
term for income statement: Statement of Comprehensive
Income; Statement of Earnings; Statement of Financial
Performance
Sub-sections
Gross profit

o may be called gross margin

Operating income
Other income/losses
Income before income taxes
Statement of Comprehensive Income: 1998

= START OF DISCUSSION OF MAAM =

Net Income /Net Loss Determination
1) Capital Approach, if you dont have complete records
Capital, End *
minus Capital, beginning
equals Net Income
* not including contributions by owners and distribution to owners
- applicable for instances when businesses have no complete
records; example nagkaroon ng fire so mahirap mag-reconstruct

2) Transaction Approach, if you have complete records

by doing the actual Income Statement

BALANCE SHEET
To evaluate
liquidity
solvency
- additional (need of entity for additional financing; financial
flexibility)
identify relationships and trends indicative of


Frequency
balance sheet reflects conditions at a point in time, usually, the
fiscal year end
if longer or shorter, disclose!

Format
follows balance sheet equation
Main elements: ALE
assets and liabilities are classified as Current or Non-current

Forms
1) Account form
left is A; right is LE
2) Report form
sets forth 3 major sections in downward sequence
called as such because this is how you read a report! Start from top
Report and Account are traditional/conventional ways
Financial Position Format (search): recall maams example wherein
noncurrent muna so on till you get Net Assets and then equity
naman

* Note *
Entity shall present current and noncurrent, as separate
classification on face of SoFP, except when a presentation based on
liquidity provides information that is more reliable and more
relevant. When that exception applies, all assets and liabilities shall
be presented broadly in order of liquidity
in order of liquidity? Iba ang liquidity for assets sa for liabilities; if
assets, based on ease of convertibility to cash; if in terms of
liabilities, which are payable earlier first

Definition of Asset

resources controlled by entity as a result of past transaction and

events and from which future economic benefits are expected to
flow to the entity
controlled:
o when you have ownership over the asset; you need evidences
of ownership therefore
ex. for land (deed of sale); for supplies (official receipt);
for payment in kind (any document evidencing
ownership of asset)
past transactions
future economic benefits

Classification of Assets
- current assets
- non-current assets

Recognition of Current Assets

1) expected to be realized or intended to be sold or consumed in its
normal operating cycle
operating cycle: converted into cash (which may be longer than one
year)
2) it expects to realize the asset within twelve months after the
reporting period,
3) holds the asset primarily for the purpose of trading, OR
asset is used for buying or selling (trading)
4) the asset is cash or a cash equivalent unless the asset is
restricted from being exchanged, or used to settle a liability for at
least 12 months after the reporting period
Cash and Cash Equivalent:
o availability as medium of exchange;
o acceptability as settlement for liability;
o acceptability as bank deposit
if restricted from being exchanged: Non-Current Asset
o money restricted in a bank with condition is that it cannot be
pre-terminated is an Investment account (NCA)

if used to settle a liability for at least 12 months after the reporting

period

Minimum Current Assets

Arranged according to liquidity (capacity to convert/consume/use
such items into cash within one year/operating cycle):
Cash & Cash Equivalents
Financial Assets at FV (such as Trading Securities and other
investment in quoted equity securities)
Temporary Investments
Trade and Other Receivables
o as long as collectible within one year/operating
Inventories
Prepaid expenses

NCA
residual definition (arranged IPIO)
Includes (by arrangement):
Long-term Investments
PPE
Intangible Assets
o Most assets you cannot touch but provide future economic
benefits to firm; without physical existence; non monetary!
o Trademarks, copyrights, franchises, patents, brands, goodwill
Other
o Tambakan ng mga unclassified assets
o Example: Deferred Tax Assets (long-term prepaid expense);
Advances to Employees, Long-Term Receivables
include here also: Biological Assets


Liability
present obligations of an entity arising from past transactions or
events, the settlement of which is expected to result in an outflow
from the entity of resources embodying economic benefits

Current Liabilities
1) due to be settled within entitys normal operating cycle
2) due to be settled within twelve months after reporting period
3) entity holds primarily for the purpose of trading, OR
4) entity does not have an unconditional right to defer settlement of
the liability for at least 12 months after the reporting period
note: reporting period before was balance sheet during the
panahon of maam

Minimum Current Liabilities

Trade and other payables
Current Provisions
Short Term borrowing
Current portion of long-term debt
Current tax liability

NCL
residual definition:
Non-current potion of long-term debt
Finance Lease liability
Deferred Tax liability
o long-term, unpaid tax liability

o common for business with mamahalin inventories (like reaestate)

Long-term obligations to company officers
Long-term deferred revenue
o ex. installment sales (percentage of completion)
o unrealized portion from an installment/construction contract is
a current liability? False
- note: where will provisions like Estimated Warranty payable,
Estimated so on and so forth? Current Liabilities!
How about contingent liabilities? If certain to amount and highly
probable to incurrence, Contingent Liability (Other Liabilities
Section) in Balance Sheet || not probable to happen and not
measureable accurately, disregard || probable but not certain to
amount, disclose!

Equity
residual interest in the assets of the entity after deducting all of
its liabilities
= net assets or TA TL
terms used in reporting equity depends on form of business
organization are:
owners equity
partners equity
stockholders equity
Elements constituting SHE
Capital stock
Subscribed capital stock
Preferred stock
Common stock
APIC
RE
RE Appropriated
Revaluation Surplus

 Treasury Stock

MISTAKES IN THE QUIZ

Equity is the Residual interest
TRUE: Note payable in 3 annual installments are non current liab.

Statement of Cash Flows

presents info about cash flows associated with companys main
operations and those with investing and financing activities of
period
functions in conjunction with both IS and BS
reflects both profit-related (operating) and nonprofit-related
activities (investing and financing) with impact on available cash
over the period covered in the IS

Liquidity
Relates to nearness to cash of the structure of assets
Capacity to convert current assets into cash

Solvency
Relates to future availability of cash in order to settle financial
liabilities on due date
Determined by timing and uncertainty

Cash Conversion Cycles

Cash flows through the company continuously in a series of shortterm and long-term conversion cycles
The ST cash conversion cycle (operating) cycle relates to the
main business operations
LT cash conversion cycles relate to the acquisition, renewal and
disposal of intangible
Infrastructure = investing

Cash Flow From Operating Activities

operating activities are primarily the revenue-generating activities
of a company
operating cash flow is conceptually most near to net profit
main differences
non-cash expenses and non-cash revenues (ex. depreciation
expense)
non-operating items (ex gain on disposal of tangible fixed assets)

Methods of Operating Cash Flows

Indirect
Start with Net Profit Before Tax (from Income statement)
o Add depreciation
o Less Investment Income (because this is investing activity;
huh?? Diba ang reason na mas tama is because it increased
the net income but not considered cash)
o Then add/subtract working capital changes
Deduct increase in trade and other receivables
Add Decrease in Inventories
Decrease in trade Payables
Less Income Taxes Paid

Event after the reporting period

event after the reporting period
those events both favorable and unfavorable, that occur between
the reporting date and the date when the FSs are authorized for
issue

authorizing fss for issue

bod reviews fss and atujorizes them for issue
at times, entity is required to submit to shareholders for approval
after the fss have been issued
date of issue is that of mgmt
if subject mgmt is required to issue its fss to a supervisory board
in such cases, the fss are authorized for issue when mgmt
authorizes them to the supervisory board

Related parties
Associates: parteners within company
Venturer: companies who enter into temporary partnerships
Key mgmt personnel
Close family members of an individual
ex. Chinese business owners; Chinese owner can transact with
1
Related party transaction
Transfer of resources or obligations bet related parties, regarless
of whether a price is charged

related party transactions disclosures shall include the ff:

amount of transaction
amount of outstanding balances, their terms and conditions
provision for doubtful accounts related to the outstanding
balances
that is if the two parties are related in terms of sales transactions
the expense recognized during the period in respect of doubtful
accounts due from related parties


show as tabular form this one in notes to fs
iyong
o y axis contains: license agreements; guarantees and
collaterals, mgmt contracts including for deputation of
employees
o x axis contains holding company, subisidaries, associates, etc

Accounting Estimate
IAS 8: an adjustment of the CA of the asset or a liability or the
amount of the periodic
estimates need revision does
not a correction of an error

accounting

change in acciunting policy

applicable lang if from non-gaap policy (ex LIFO) to gaap policy
(Fifo)

Prior Period Errors

omissions form and misstatements in the FS for one or more
periods arising form a failire to use or misuse of reliable info that
was available when FS for those periods were authorized for issue
could reasonable be expected to have been obtained and taken into
account in the preparation and preesentations of those FSs

retrospective restatement
correcting the recogniztion, measurement and disclosure amounts
of elements of fs as if a prior period errors had never occurred
if the error occurred before the earliest prior period presented
opening balances of ALE for the earliest prior period presented shall
be restated


disclosure
nature of the prior period errors
amount of correction for each prior period presented, to the
extent practicable:
for each FS line item affected
for basic and diluted EPS
amount of correction of the
if retrospective restatement is impracticable,
circumstances that led to the comdiition
how and from when the errors has been corrected
o types of errors
commission: recorded but made a mistake
omission: did not record
counterbalancing error: will self-correct
overstated now but understated sa next
kaya RE will correct on that year
ex. EInventory is overstated (making COGS
for that year understated; Gross Profit and
Net Income and RE overstated;) so
BegInventory for year after is overstated
(overstated ang COGAFS | if EI is correct,
COGS then becomes overstated ->
GrossProfit/NI and RE is understated) so
nagbalance lang
non-counterbalancing: will not self-correct
ex. Forgot Depreciation; if DepExp
understated -> OpEx is understated, Gross
Profit over, NI over, RE over

Interim Financial Reporting

IAS 34: when an entity prepares interim financial report
permitting less information to be reported than in annual fss
recognition measurement, etc

Definitions
Interim period: shorter than a full financial year
o Inter: occurring in between
Interim financial report: contains either a complete or condensed
set of fss for an interim period
o Reports provide more relvant and timely info
o Often mandated by securities regulators, govt and stock
echanges

IAS 34: Specifies the content of an interim financial report that is

described as conforming to IFRS. Ias34 does not mandate
Which entities should publish interim frs

choice by the entity

may choose not to prepare interim statements at all
may choose to prepare them in accordance with IFRSs
if they do and they describe the fss to be in compliance with FIRSs
may be a complete set or condensed
publicly traded entities (sells equity shares and bonds) are needed
to issue interim fss
1) since they show profitability, etc of fss, interim fss are used to
encourage potential investors to buy shares of the stocks;
2) if the business is assessed by BIR, it may require interim fss for
o if bir is given an assessment notice, fss issued today are
subject to assessment within five years; cleared ka na after
the fifth period
nowadays tho, 10 years na daw iyong period
3) for financial institutions as creditors: to make a decision
papautangin ka ba nila or hindi?

Minimum components of an interim financl report

(a) a condensed statement of financial position;

(b) a condensed statement of comprehensive income, presented as
either;
(i) a condensed single statement; or
(ii) a condensed separate income statement and a condensed
statement of comprehensive income;
(c) a condensed statement of changes in equity;
(d) a condensed statement of cash flows; and
+ other explanatory notes in notes
for and content of interim fss
if the entity presents full set of statements
o follow ias 1
if it presents condensed (less detailed)
o entity must present at a minimum the headings and subtotals
that were presented in the annual statements

selected explanatory notes

to provide an explanation of events and transactions that are
significant to an understanding of the changes in financial position
and performance of the entity since the last annual reporting date

example of disclosures required in a condensed interim financial

report
(a) the write-down of inventories to net realisable value and the
reversal of such a write-down;
(b) recognition of a loss from the impairment of financial assets,
property, plant and equipment, intangible assets, or other assets,
and the reversal of such an impairment loss;
(c) the reversal of any provisions for the costs of restructuring;
(d) acquisitions and disposals of items of property, plant and
equipment;
(e) commitments for the purchase of property, plant and
equipment;
(f) litigation settlements;

(g) corrections of prior period errors;

hanggang dito lang ang na-enumerate
(h) changes in the business or economic circumstances that affect
the fair value of the entitys financial assets and financial liabilities,
whether those assets or liabilities are recognised at fair value or
amortised cost;
(i) any loan default or breach of a loan agreement that has not
been remedied on or before the end of the reporting period;
(j) related party transactions;
(k) transfers between levels of the fair value hierarchy used in
measuring the fair value of financial instruments;
(l) changes in the classification of financial assets as a result of a
change in the purpose or use of those assets; and
(m) changes in contingent liabilities or contingent assets.
-> report only if any happened! No need to disclose if wala

disclosure of compliance with ifrs

state and the interim statements must also be in compliance with
all IFRSs

Periods for which interim financial statements are required to be

presented
statement of financial position: if April 2010 ang report, ang
comparative ay April 2009

materiality
in deciding how to recoqnize measure classify or disclose an item
for interim financial reporting purposes, materiality is required to be
assessed in relation to the interim financial period

recognition and measurement

entities apply the same accounting policies as in their last annual
fss
except may change s aaccounting policy, required to implement
retrospectively | meaning, if you need to restate prior records

views on interim financial reporting

discrete/independent
does not allow subsequent restatements of interim periods
each period must stand on its own
no smoothing of costs is allowed
integral
interim statements as part of a larger time frame
you allocate, for example, an advertising expense will benefit two
quarters
o vs sa discrete na sa current quarter agad i-expense
usually applicable lang sa mga fixed expenses per annum kasi sila
iyong madaling i-divide/allocate

game: transaction
employer taxes: if they are assessed on an annual basis, estimate
the average annual rate and allocate it (itntegral)
if do not accue unless a legal or constructive obligation exists
[discrete]

use of estimates
inventory (best evidence is inventory count and valuation and
(acceptable evidence for interim reporting) estimates based on
sales margins
prvovisions outside experts/specialists update/roll forward
from annual estimate
pension obligations measured by actuary extrapolation of the
most recent actuarial valuation
taxes payable/receivable calculate by looking at rates and
amounts for each separate jurisdiction use the weighted average
rate across jurisdictions or categories of income as long as the rate
of income is a reasonable approxiamation of the actual rates
- legal liabilities legal counsels/formal reports formal
reports/counsel may not be needed

Treatment of Revenues Received Seasonally, Cyclically or

Occasionally

revenues that are received seasonally, syclically or occasionally

within a financial year should not be anticipated or deferred as of an
nterim date, if anticipation or deferral would not be appropriate at
the end of the financial year
treatment of uneven costs for the interim period
ito ang ina-anticipate contrary sa tass
- the rule on revenues also applies to costs. Costs athat are
incurred unevenly during an entitys financia year should be
anticipated/deferred for interim reporting purposes if, and only if, it
also appropriate [integral approach; if other expenses that is
incurred]

treatment of year end bonsues

- a bonus is anticipated for interim reporting purposes if and only if
a. bonis is a legal obligation or past practice would make the bonus
a constructive obligation for which the entity has no realistic
alternative but to make the payments, and
o distribute integrally of it is a egal obligation
o you may estimate naman if not a legal obligation
b. a relatable estimate of the obligation can be made

Operating Segments (IFRS 8)

- core principle of CODM:
ifrs 8 is mandatory if
o debt/equity instruments traded in a public market
o fild/in process of filing instruments in a public market
applies to:
o consolidated fss
o company only fss
o if both are presented, applies to consolidated financial
statements
if both are preesnte, segment information is required
for consolidated lang
Management approacj

Def. means that the operating segments are identified on the basis
of the internal reports about compoonents of an entity that are
regularly reviewed by the CODM in oorder to allocate resources to
the segment and to assess its performance
Has 6 steps
o 1) Identify the codm
Function; not a title
One codm per reporting eneity
Body/person
Highest level of mgmt. responsible for
Resource allocation and
performance assessment
o 2) identify the operating segments
1 is the component able to earn revenues,
2 components results reviewed regularly by the CODM,
AND
3 descrete financial info for the component is available
* NOTE: pwedeng operating segment pa rin siya kahi
kakastart lang ng operations to the point na hindi pa
nageearn ng revenue

start up operations
verigally integrated
certain corporate activity (r&d) and
one more
o 3 aggregate if
consistent with core principles
similar economic characteristics
simial in each of the ff
nature of products and services

nature of
o 4 reportable segments (reportable means they should be
included sa fss)
segment revenue (internal and external) is 10% of
combined revenue for all segments (internal and
external)
10% of absolute combined profit or combined loss
Cash and Cash Equivalents
3As of unrestricted of cash
acceptability as medium of exchange
acceptability as bank deposit
availability for payment as current obligations
- compensating balance
if compensating balance is not legally restricted, JE is: Dr. Cash on
hand 450T ; cash in bank representing compensating balance 50t
Cr. Loans Payable 500
if compensating balance is legally restricted, JE is: Dr. Cash on hand
450T ; cash held as compensating balance 50t (Long-term
Investment account) Cr. Loans Payable 500
compensating balance: if hindi nakabayad ng amortization or
principal, dito ibabawas ng bangko sa debtor
bank overdraft: credit balance in cash in bak account
due to the issuance of checks in excess of the amount
of deposit
other bank accounts should be offset
if same bank accounts- it may be offset against the other bank
account with a debit balance
bank overdraft account is a current liability account, not a contraasset account
undelivered and postdated checks are added back to
cash balance
undelivered: made but not yet issued
postdated: drawn, may be issued, but dated subsequent the date of
BS
stale check or checks long outstanding
when checks are not ecashed by the payees within a relatively long
period of time [6 months from the date of the check (maturity date,
not issue date), Not BS date]
o if immaterial- Dr Cash; Cr, Misc Income
o if material Dr Cash; Cr. AP

o note: POV is ikaw ang nag-issue ng check

cash Equivalent
- short-term and highly-liquid investments
readily convertible into cash
are acquired three months before maturity
ex. 3 mo BSP treasury bill/purchased 3 mos before maturity
preference shares with specified redemption date and acquired 3
mos before redemption
Exceptions: equity securities

Classification of investment in Time Deposit, Money

Market Instrument and Treasury Bills
Acquired 3 mos or less = CE
Acquired More than 3 mos but within 1 year = short term or
temporary investment (CA)
Acquired More than 1 year = long term investment, NCA

Illegal practices
Window dressing: entity opens its books even beyond
the end of the accounting period
violates the Time Period assumption (cut-off period)
Lapping: misappropriation of a collection from one
customer and concealing the cash shortage
due to poor internal control where there is an overlap of
responsibilities
Kitting: check is drawn against the first bank and
depositing the same check in the second bank to cover
shortage
iba dapat cash collector and cash disbursing responsibility
discover an error thru two month proof-of-cash

methods of handing petty cash

imprest system: requires that all
Given: 5pm ang closing time ng banks
A. Deposits that are coins and currencies
If deposited by 5pm, bank credits your account right away
B. Deposits that are checks
If deposited by 5 pm, not yet credited to your account right away
because of Clearing Period
o Clearing period is 3 days; during this period, bank checks if
the check issuer really has money pa
Receivables
Financial assets: represent a contractual right to receive
cash or another financial asset

Nontrade receivables
Income tax receivable: arising when you have tax return; from
whom is this collectible? ; due to excess taxes paid in the past
(excess of input tax(madami kang binili na inventories) over output
tax (pero mas konti ang nabenta mo na inventories))
o AJE: Dr. Output tax Dr. Income Tax Receivable Cr. Input Tax
o Pero in reality, seldom ka binibigyan ng BIR ng pera for the
excess. They just less your tax in the future using Tax Credit.

Is it possible to have non-trade receivables that are

non-current?
Yes. where in face of BS ang long-term asset? OTHER ASSETS
o Siyempre hindi mo naman malalagay sa IPIO
Example ng business na may long-term receivable?
o Any business that is engaged in installment sales are longterm receivables (but this is trade receivable na. pero in line
pa

IFRS 9, 5.1.1

Recognition of financial asset

Initially at Fair Value + Transaction Costs directly attributable to the
acquisition
Subsequently, Net Realizable Value
How to present NRV?
Naka net, or
AR ADA
of all the allowances, ADA lang ang presented sa BS

Freight out is
opex under selling/marketing expense
seen in sellers entry when FOB destination

freight in
part of COGS
invertoriable cost
adjunct account to purchases

Periodic system
Best for high volume but low price products

Perpetual system
best for low volume high price

It is safer to account for purchases in gross rather

than net kasi there may be fortuitious events that may
cause payer not to pay within the discount period

Inventory Valuation

Gross Profit Method

Useful when
estimating inventory and cogs for interim reports
auditors are testing the overall reasonableness of client inventories
preparing budgets and forecasts
determining the cost of inventory lost, destroyed or stolen
Biological Assets
Ddefinitions and Scope
Agriculture produce after point of harvest not part of Agriculture
Intangible assets
Farm land and buiilidng1

if agricultural produce is no longer processed and sold

as is, they are inventories na
but if they are processed to become products that are
the results of processing, inventories pa rin
agricultural produce (see book) that are partially
processed and incomplete are work-in-process
inventory. Completed agricultural produce will be
placed in the
example of degeneration: wool removed from sheep
(nagdegenerate iyong sheep). Another example of
degeneration is iyong inahing baboy na hindi na pwede
magprocreate kasi menopaused na. (kasi inahing baboy
is initially categorized as Biological Asset)

degeneret

there is no such thing as leasing your biological assets

point of sale costs examples

selling
marketing expenses
QUIZ
Cotton pulp
A agricultural produce
Milking cows
B
Honey beehives
B
kaings of lansones awaiting for market delivery
d
dogs for stags
B. bil
Rice field
C. PPE
Animals at Malabon zoo
B
Banana blossoms and fritters

A
Poultry chickens at robina farm
B
45-day old chicken
D. finished goods inventory
This is the life of a Chicken
Strawberry plants in benguet
B
Mango plantation in guimaras
C PPE
Banana trees in davao
B
Bulog/bulugan (pig for stag)
B
Milking machines
C

Processed honey
D
Tilapia fingerlings
B
Lanzones trees at flowering stage
B
Newly slaughtered pigs awaiting delivery at marketplace
D
If newly slaughtered pigs lang walang marketplace, A
K9 of swat
B
Manila ocean park animals
B
Strawberry james
D
Puppies for disposal
D (disposal = sale)

Carnival performing animals

B
Fertilizers, other supplies
E
Threshing machines
PPE
Growing grapevines for wines
Biological asset
UP los banos farm
C PPE
Universirty hospital R&D frogs used as guinea pig
E (prepaid expenses, outright expense, or supplies)

REPORT
Equity or Liability (POV of issuer: it is a liab rather than an equity)

examples:
for equities, as long as may variability factor na, nagiging liability
Answers
A equity securities
B debt securities
C ppe
D investment properties
E inventories
1 SM food stalls
D. investment properties
2 san beda comp lab
C. ppe
3 portfolio of ordinary and preference shares
A. equity securities
4 dmci condo units
E. inventories
5 bond certificates
B. Debt Securities
6 refrigerated warehouses for rent
D. investment property
7 lrt trains

C. PPE
8 swimming pools of Condos
C. PPE
9 Villars house and lot packages
E inventories
10 tamayos catering delivery vans
C PPE
11 madrigal grp of companies buildings for lease
D investment property
12 nursing depts school busses
C PPE
13 function rooms for rent
D investment property
14 Jollibee food and beverage packages
E. Inventory
15 Star city rides and facilities
C. PPE
16 Loyola memorial columbary spaces for rent
D. investment properties
Columbary spaces: Pinaglalagyan ng mga cremated bodies
Pinapa-rent
17 Market Stalls
D. investment property

18 Sound systems/cars/machine for hire

C. PPE
19 SMs Movie theaters
C. PPE
20 tools, jigs, dice
C. PPE
19 ?
debt securities
20 tuxedos, graduation, gowns etc for rent
C PPE
Just like sound system for rent ^
21 Marikina footwear
E. Inventory
22 Uv express vans and taxies
C PPE
23 Newly extracted cows
E Inventories


Hedging
hedging means designating one or more heding instruments so
that their change in fair value or cash flow is an offset, in while or in
part, to the change in fair value or cash flow of a hedged item

heding relationship componets

hedging instrument: derivative whose fv or cash flows would be
expected to offset chages in the fair value or cash flows of the
hedged item
hedhedged item
hedger

measurement of derivatives
at fair value, whether asset or liability
fully disclose

dr subscrition receivable (at issue price whcih is above par (contra

equity)
cr subsrscibed capital (at
cr share premium at 50
- so you record Apic on the date of subscription

stock dividend
at the time of delcaration iyon lang ang hindi liability debit cash
de RE
cr Stock Dividends Payable (temporary capital account)

then

dr Stock Dividends Payable

cr. Share Capital

below 20%
19 and below small stock
use fair market value
dr
cr

above 20%
use par value kasi madami nang stocks ang involved