PAS 1 Presentation of financial statements
agreement to refinance/reschedule payment
*general purpose financial statements are directed to
common users and not to specific users
Components of financial statements
1. Statement of financial position
2. Income statement
3. Statement of comprehensive income
4. Statement of changes in equity
5. Statement of cash flows
6. Notes comprising a summary of significant
accounting policies and other explanatory notes
Frequency of reporting
Financial statements should be presented at least
annually. If not (longer or shorter than a year), the entity
shall disclose:
1. Period covered by the financial statement
2. Reason
3. Fact that amount presented are not comparable
*operating cycle (if silent, assumed to be 12 months)- time
between the acquisition of assets for processing and their
realization in cash or cash equivalents
PAS 1, par. 66 classification of current assets are:
a. Asset is cash or cash equivalent unless restricted
for more than 12 months after the reporting
period
b. Entity holds the asset primarily for trading
c. Expects to realize the asset within 12 months after
reporting period
d. Intends to sell or consume within the entity’s
normal operating cycle
PAS 1, par. 54 as a minimum, the line items under current
assets are:
a. Cash and cash equivalents
b. Financial at fair value and other investments in
quoted equity instruments
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
Noncurrent assets include:
a. Property, plant and equipment
PAS 16, par. 6 defines PPE as tangible assets which are
held by an entity for use in production or supply of goods
and services, rental, administrative purposes and are
expected to be used more than one period; most PPE
except land are presented at cost less accumulated
depreciation
b. Long term investments
IASC defines investment as an asset held by an entity for
the accretion of wealth through capital distribution, such
as interest, royalties, dividends and rentals, capital
appreciation or other benefits to the investing entity such
as those obtained through trading relationships
c. Intangible assets
Identifiable nonmonetary asset without physical
substance—franchise, copyright, lease, right, trademark
d. Deferred tax assets
e. Other noncurrent assets
PAS 1, par. 69 classification of current liabilities:
a. The entity expects to settle the liability within the
entity’s normal operating cycle
b. Holds the liability primarily for trading
c. Due to be settled within 12 months after
reporting period
d. Does not have an unconditional right to defer
settlement of the liability 12 months after
reporting period
It is still classified as current even if:
a. original term was for a period longer than 12
months
b.
after the reporting period/ before the financial
statements are authorized for issue
Noncurrent liabilities:
a. Noncurrent portion of long-term debt
b. Finance lease liability
c. Deferred tax liability
d. Long-term obligations to co. officers
e. Long-term deferred revenue
Presentation (as a minimum);
a. Trade and other payables- line item
b. Current provisions
c. Short term borrowings
d. Current portion of long-term debt
e. Current tax liability
Discretion to refinance
Refinancing on a long-term basis on or before the
reporting period, refinancing is an adjusting event and
therefore obligation is classified as noncurrent
Discretion to refinance (MUST BE AT THE DISCRETION OF
THE ENTITY—otherwise, it is classified as a current
liability) for at least 12 months after the reporting period,
obligation is classified as noncurrent even if it would
otherwise be due within a shorter period
Reason; obligation is considered to form part of the
entity’s long-term refinancing because the entity has an
unconditional right under the loan agreement to defer
payment for 12 months after the end of the reporting
period
Covenants- attached to borrowing agreements which
represent undertakings by the borrower
 Restrictions on the borrower as to undertaking
further borrowings, paying dividends,
maintaining specified level of working capital, etc.
 If certain conditions are breached, liability
becomes payable on demand
o Effect; PAS 1 par. 74, liability is classified
as current even if the lender has agreed,
before and after the reporting period not
to demand payment because of the
breach; borrower does not have an
unconditional right to defer payment 12
months after the reporting period
o Par. 75 liability is classified as noncurrent
if the lender has agreed on or before the
end of reporting period to provide a
grace period ending 12 months after the
end of the reporting period
Notes to the financial statements- narrative description or
disaggregation of items presented in the financial
statements and info about items that do not qualify for
recognition; used to report info that do not fit into the
body of the financial statements in order to enhance the
understandability ; its purpose is to provide necessary
disclosures required by the PFRS
Forms of the statement of financial position
a. Report form- sets forth the 3 major sections in a
downward form
b. Account form- assets on the left side; liabilities
and equity on the right side
Income statement- presents income, expenses, gains,
losses and net income or loss recognized during a period
Comprehensive income- change in equity during a period
resulting from transactions and other events, other than
changes resulting from transactions with owners in their
capacity as owners; it includes
o Components of profit or loss- total income less
expenses; bottom line in the traditional income
statement
ASTI
 o Components of other comprehensive income-
items of income and expenses including
reclassification adjustment that are not
recognized in profit or loss
Transaction approach- traditional preparation of the
income statement in conformity with accounting
standards
PAS 1, par 82A, presentation of OCI shall present line
items for amounts during the period classified by nature;
a. OCI that will be reclassified subsequently to
profit/loss when specific conditions are met
o Unrealized gain/loss on debt investment
at fair value
o Gain/loss from translation of financial
statements of a foreign operation
o Unrealized gain/loss from derivative
contracts designated as cash flow hedge
b. OCI that will not be reclassified subsequently to
profit/loss but to retained earnings
o Unrealized gain/loss on equity
investment measured at fair value
o Revaluation surplus
o Remeasurements of defined benefit plan;
actuarial gain or loss
o Change in fair value attributable to credit
risk of a financial liability at fair value
PAS 1 par. 87, mandates that an entity shall not present
any items of income and expense as extraordinary either
on the face of the income statement/comprehensive
income or notes
Items to disclose on the face of the income
statement/comprehensive income;
a. Profit or loss for the period attributable to
noncontrolling interest and owners of the parent
b. Total comprehensive income for the period
attributable to noncontrolling interest and
owners of the parent
PAS 1, par 99, entity shall present an analysis of expenses
recognized in profit or loss using a classification based on
function or nature, whichever provides a more reliable or
relevant info
Statement of retained earnings- changes affecting directly
the retained earnings and relates the income statement to
the statement of financial position
Data affecting the retained earnings that should be clearly
disclosed;
a. Profit or loss
b. Prior period errors
c. Dividends declared and paid
d. Effects of change in accounting policy
e. Appropriation of retained earnings
Statement of changes in equity- shows the movements in
the elements or components of the shareholders’ equity;
statement of retained earnings is no longer a required
basic but a part of the statement of changes in equity
Statement of cash flows- summarizes the operating
(current), investing (nonoperating assets) and financing
(nontrade liabilities and equity) activities of an entity;
primary purpose is to provide relevant information about
cash receipts and cash payments of an entity during a
period
 Operating activities- result from transactions and
other events that enter the determination of net
income/loss
 Investing activities- cash flows derived from the
acquisition and disposal of long-term assets and
other investments not included in cash
equivalents
 Financing activities- derived from the equity
capital and borrowings of the entity
PAS 7, par 43 provides that investing and financing
transactions that do not require use of cash or cash
equivalents shall be excluded from the statement of cash
flows
par 33 provides that interest paid, and interest received
shall be classified as operating cash flows; interest paid-
financing, interest received-investing; dividend received-
operating/investing
par 34- dividend paid- financing/operating
par 35 provides that cash flows arising from income taxes
shall be separately disclosed as cash flows from operating
activities unless they can be specifically identified with
investing and financing activities
PAS 10: EVENTS AFTER THE REPORTING PERIOD
(subsequent events)- favorable/unfavorable events that
occur between the end of reporting period and the date
on which the financial statements are authorized for issue
TYPES:
 Adjusting events- provide evidence of conditions
that exist at the end of reporting period
Ex.
- Settlement after the reporting period of a court
case—it confirms that the entity had a present
obligation at the end of the reporting period
- Bankruptcy of a customer which occurs at the end
of the period
- Sale of inventories after the reporting period may
give evidence about the net realizable value at the
reporting date
- Determination after the reporting period of the
profit sharing/bonus payment if there is a present
obligation at the end of the reporting period
- Discovery of fraud/errors that show the financial
statements were incorrect
 Non adjusting events- indicative of conditions
that arise after the end of the reporting period;
required to disclose
Ex.
- Business combination after the reporting period
- Plan to discontinue
- Major purchase/disposal of asset/ major
expropriation of major asset by gov’t
- Destruction of a major production plant by a fire
after the reporting period
- Major ordinary share transaction and potential
ordinary share transactions after the reporting
period
- Announcing/commencing the implementation of
a major restructuring
- Abnormally large changes after the reporting
period in asset prices/foreign exchange rates
- Entering significant commitments/ contingent
liabilities
- Commencing major litigation arising solely from
events that occurred after the reporting period
- Change in tax rate enacted/announced after the
end of reporting period that has a significant
effect on current and deferred tax asset and
liability
*financial statements are authorized for issue on the date
of issue by the board of directors and not on the date
when shareholders approve the financial statements
PAS 33: EARNINGS PER SHARE- amount attributable to
every ordinary share outstanding during the period
USES:
ASTI
  Determinant of the market price of ordinary
share, thus indicating attractiveness of the
ordinary share as an investment
 Measure of performance of management in
conducting operations
 Basis of dividend policy
Ordinary share- equity instrument that is subordinate to
all other classes of equity instruments
2 PRESENTATIONS OF EARNINGS PER SHARE:
*shall present on the face of the income statement basic
and diluted earnings per share for income/loss from
continuing operations
*disclosure of the basic and diluted earnings per share on
the face of the income statement or on the notes for the
discontinued operation
*if both consolidated fs and separate fs are presented,
disclosures required by the standard should be presented
only on the basis of the consolidated financial statements
*required for entities whose ordinary shares are publicly
traded or in the process of issuing (potential) ordinary
shares
 BASIC EARNINGS PER SHARE
𝐵𝐴𝑆𝐼𝐶 𝐸𝑃𝑆 =
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
 Net income is equal to the amount after
DEDUCTING DIVIDENDS ON PREFERENCE
SHARES
 If preference share is cumulative, preference
share for the current year only is deducted from
the income
 If noncumulative, the preference dividend for the
current year is deducted from the net income if
there is declaration
 If there is a significant change in the ordinary
share capital during the year, the weighted
average number of ordinary shares outstanding
during the period should be used as denominator
 DILUTED EARNINGS PER SHARE- computation
assumes that additional ordinary shares are
issued as a result of conversion of convertible
securities and exercise of share options
Dilution- arises when the inclusion of the potential
ordinary shares decreases the basic earnings per share/
increases the basic loss per share (opposite is antidilution)
 Convertible preference shares, assumes on
computing of diluted earnings per share that the
preference share is converted into ordinary share;
net income is not reduced by the amount of
preference dividend—the number of ordinary
shares outstanding is increased by the number of
ordinary shares that would have to been issued
upon conversion of the preference share
Share options- granted to employees enabling them to
acquire ordinary shares
Share warrants- granted to shareholders enabling them to
acquire ordinary shares
Options and warrants- have no cash yield; value is derived
from the right to obtain ordinary shares usually lower than
the prevailing market price; dilutive if the exercise/option
price is less than the average market price of the ordinary
share; included in the EPS computation through the
treasury share method (does not imply that the entity has
entered into transaction to purchase treasury shares
Treasury share method- used to simplify the computation
of incremental ordinary shares that are assumed to be
issued for no consideration as a result of options and
warrants
 Options and warrants are assumed to be
exercised at the beginning of the current
year/date they are issued during the current year
 Proceeds are assumed to be used to acquire
treasury shares at average market price
 Number of incremental ordinary shares is equal
to the option shares minus the assumed treasury
shares acquired
 Change from the share dividends/ share splits in
the number of shares shall be recognized
retroactively—treated as a change from the date
the original shares were issued
*if diluted loss per share is LOWER than he basic loss per
share, only the basic loss per share is computed and
reported—potential ordinary shares would always
decrease the loss per share and therefore the effect of the
conversion is always antidilutive
PFRS 5: DISCONTINUED OPERATION
 Actual disposal of the operation
 Operations meets the criteria to be classified as
held for sale
Par 12, prohibits the retroactive classification as a
discontinued operation when the discontinued criteria are
met after the end of reporting period
*discontinued operation- “disposal group classified as
held for sale”
*component must be available for immediate sale in the
condition and the sale must be highly probable
Par 33, entity shall disclose a single amount comprising
the total of post-tax gain/loss of the discontinued
operation and measurement to fair value less to cost of
disposal—income/loss from discontinued operation, net
of tax shall be presented as a single amount in the income
statement below the income of continuing operations
- Provides that under the net cash flows
attributable to the operating, investing and
financing activities of a discontinued operation
shall be separately presented in the statement of
cash flows/ disclosed in the notes
INCLUDED IN THE DISCONTINUED OPERATION
 Revenue/expense, income/loss attributable to the
discontinued operations during the current
period and the related income tax
 Impairment loss is recognized when the fair value
less cost of disposal of the discontinued
operation is lower than the carrying amount of
the net assets (if higher, difference is not
recognized)
 Gain/loss from the actual disposal and settlement
of liabilities of a discontinued operation
 Termination cost of employees and other cost
which are directly incurred as a result of
discontinuance
Par 38, entity shall present separately on the face of the
statement of financial position:
 Assets of the components held for sale
measured at the lower of fair value less cost
of disposal and carrying amount
 Noncurrent assets of the component held for
sale SHALL NOT BE DEPRECIATED
 Par 3, assets of the component shall be
presented as a single amount under current
assets and the liabilities presented as a single
amount under the current liabilities
*assets and liabilities of the component CANNOT BE
OFFSET AGAINST THE OTHER
IAS 8: ACCOUNTING POLICIES, ESTIMATE AND
ERRORS
ASTI
Accounting policies- specific principles, bases, *if comparative information is presented, financial
conventions, rules and practices applied by an entity statements of the prior period is restated to reflect
in preparing and presenting financial statements the retroactive application of the prior period errors
- Essential for proper understanding of as a retrospective statement
information contained in the statements
*entity is required to outline all significant
accounting policies applied (alternative treatments
are possible)
CHANGE IN ACCOUNTING POLICY- arises when an
entity adopts a generally accepted accounting
principle which is different from the one previously
used by the entity; made when:
a. Required by an accounting standard (applied
in accordance with the transitional
provisions)
b. Change will result in more relevant and
faithfully represented information
(voluntarily; change is applied
retrospectively)
Retrospective application- any resulting adjustment
from the change in accounting policy is reported as
an adjustment to the opening balance of retained
earnings (amount of adjustment—beginning of the
year of change)
*if comparative information is presented, financial
statements of the prior period is restated to conform
with the new accounting policy
Par 10 in the absence of an accounting standard that
specifically applies to a transaction/event,
judgement is used in selecting and applying an
accounting policy
Par 11 and 12 hierarchy of guidance:
a. Requirements of current standards dealing
with similar matters
b. Definition, recognition, criteria and
measurement concepts for assets, liabilities,
income and expenses in the conceptual
framework
c. Most recent pronouncements of other
standard-setting bodies that use a similar
conceptual framework, other accounting
literature and accepted industry practices
Accounting estimate- normal recurring
correction/adjustment of an asset/liability which is a
natural result of the use of an estimate; revision does
not relate to prior periods, not a correction of an
error; involves judgment based on the latest
available and reliable information; recognized
currently and prospectively (change is applied to
transactions, other events and conditions from the
date of change of estimate) by including it in
income/loss of:
a. Period of change if the change affects the
period only
b. Period of change and future periods if the
change affects both
Prior period errors- omissions and misstatements in
the financial statements for one or more period
arising from a failure to use/misuse of reliable
information
*corrected retrospectively by adjusting the opening
balances of retained earnings and affected assets
and liabilities
ASTI