CHAPTER 3 – 4 CFAS 8. What is a reporting entity?

o Anyone (registered or
1. What is the difference between unregistered) who prepares
financial reporting and financial Financial Statement. It can be
statement? within a department or division
- When we say financial statement it is a of a company, unregistered
particular form specifically it can be the institution, etc.
Financial Position, Financial 9. What is a consolidated financial
Performance, Statement in Changes of statement?
Owner’s Equity, Cash Flow, and Note in o Financial statement of two
Financial Statement (5 basic financial entities presented in as one
statement) that comprise the General single entity.
Purpose Financial Report. o Consists of Parent-Subsidiary
2. Objective and Scope of Financial Relationship
Statement 10. What is an unconsolidated financial
3. Can we have a reporting period less statement?
than one year? o Consists of parent entity only
o Yes, semi-annual, quarterly, and 11. Can subsidiary company can prepare its
monthly. own unconsolidated financial
4. What do you mean recognized of asset statement?
or liability? o Yes
o The inclusion of asset, liability, 12. What is the difference between
income or expense in the books consolidated FS and combined FS?
or in the financial statement o Consolidated consists of Parent
that is the time you record it. and subsidiary entity as one.
5. What is going concern? While combined consists of 2 or
6. Why it is the new conceptual more entities w/o any parent-
framework separated asset – liabilities subsidiary relationship.
& income – expense? 13. Does consolidated FS consists of more
7. For the period vs. As of than one entity?
o For the o Yes
 Changes in Owner’s 14. What do you mean by Parent-
Equity Subsidiary Relationship?
 Cash Flows o The parent entity governed the
 Financial Performance subsidiary entity.
 When you o E.g. Chowking, Mang Inasal,
record sales or Greenwich Pizza, and Red
present sales. Ribbon under Jollibee Foods
We do not Corporation.
accumulate o When the parent controls more
sales right from than 50% of the shares in the
the start. We subsidiary entity.
only computes o Control here is defined by PFRS
sales from Jan. 1 3.
up until Dec. 31. o According to PFRS 10
o As of consolidated FS. You are bound
 Financial Position to prepare one FS treating them
 Shows the total as a single entity.
assets and
liabilities >> PAS 27 Unconsolidated FS or Separate FS
starting from >> Any reporting entity can prepare FS. Unless
the start when for the External Purposes Subsidiary and Parent
the company entity should have ONE FS.
has conceived
up until the FP 15. What is Chapter 4 all about?
has been 16. What is the Previous DEFINITION of
prepared. ASSET and LIABILITY?
>> Always use the NEW definition of ASSET and
LIABILITY given by the NEW CONCEPTUAL
FRAMEWORK.
17. What is economic resources?
o Is a right that has a potential to
produce economic benefit.
18. What is the three aspect of asset?
o Right
o Potential to produce economic
benefits
o Control
19. What is Right?
o Right to produce economic
benefit
20. What are the two types of right
discussed in the new conceptual
framework?
o Right to CORRESPOND to an
obligation of another party
o Right that DO NOT
CORRESPOND to an obligation
of another party.
21. Differentiate one from another
o Right to CORRESPOND
 can demand from
someone – third party
(e.g. prepayments,
receivables)
 Arises when another
party has an obligation
to give something or
render services to you.
You have the right to
demand that thing from
that someone.
o Right that DO NOT
CORRESPOND
 Do not have the right to
demand from someone
(e.g. cash).
 No obligation between
the parties
22. When you say potential to produce
economic benefit before you can
recognized an asset, do you need to
have an assurance that it will produce
an economic benefit?
o No, it does not need to have an
assurance to produce an
economic benefit. When that
asset already exist it already has
the right to produce economic
benefit no matter the
probability to produce is low.
23. What do you call the act of cancelling a
receivable? Example you sold
something to a certain person worth
Php 10,000 and that person die. What
do you do?
Dr. A/R 10k & Cr. Allowance for Bad debts
10k.
>> Allowance for Bad Debts or writing-off an
account that means you crush it out, do not
collect it.
24. Do we need to recognize it as an Asset
previously before it was written-off?
o Yes, we should recognize as an
A/R even if we are not sure that
we will receive an economic
benefit from it.
25. What is Control?
o An entity has a control when
they have the right to preclude
others from enjoying the
benefits arising the economic
resource.
o E.g. You have the right over your
phone because you are the only
one who can control it. You can
prevent any other person from
controlling over your phone.
>> You cannot record something as an asset if
you cannot control it.
>> Control does not mean only physical
possession of an entity over the economic
resource.
>> E.g. CONSIGNMENT – signing others to sale
their goods in a specific place of a grocery store.
Is like a real estate (leasing out spaces)
>> E.g. PRINCIPAL-AGENT RELATIONSHIP
26. What is Liability?
o Is a present obligation of the
entity to transfer economic
resources as a result of past
events.
27. What is the three criteria of liability?
o Obligation
o Transfer of economic resources
o Present obligation as a result of
past events
28. What are the two types of Obligation?
o Obligation established by
contract, legislation or similar
means (Legal Obligation)
o Obligation from an entity’s
customary practices, published
policies or specific statements
(Constructive Obligation)
 Arises through public
statement.
 E.g. Warranty
 29. What is transfer of economic resource?
o You recognized an obligation
when there is a transfer of
economic resource.

>> Even if the economic benefit is low as long as

there is a potential to make an entity to obliged
a transfer of economic resource then it is
recognized as a LIABILITY.

>> Levels of Likelihood: PAS 37

(1) Virtually certain (100%)

(2) Probable (75%)
(3) Possible (50%)
(4) Uncertain (Less than 50%)

You will recognized an Asset or Liability if it is

virtually certain, probable or possible.

30. What is the third criterion?

o Present obligation as a result of
past events.
31. What do you mean as a result of past
events?
o the entity has already obtained
economic benefits
32. Is it a liability when an entity has not
enjoyed the economic benefits yet?

>> Executory Contract – when two parties did

not perform their respective obligations YET.

>> it is a MUST that the entity should obtain

economic benefit

33. Why do we need to record accruals at

the end of the period?
o it represents the expenses that
you have already incurred but
not yet paid.
o Every year end we prepare
accruals. It is a result of past
events.
o Why? Because the company has
already benefited from the
employees’ services.
34. What is Income?
o Is increase in assets, or
decreases in liabilities that result
in increases in equity, other than
those relating to contributions
from holders of equity claims.
35. What is Expense?
o Are decrease in asset, or
increase in liability, that result in
decrease in equity, other than
those relating to distribution to
holders of equity claims.