CURRENT LIABILITIES

IAS □
1 : Presentation of Financial Statements
✓ Trade and other payables
✓ Current provisions
Statement of Financial Position ✓ Short-term borrowing
o Report form ✓ Current portion of long-term debt
o Account form ✓ Current tax liability
NON CURRENT LIABILITIES
ASSETS
✓ Non-current portion of long-term debt
is a present economic resource controlled by the entity as a result of
✓ Finance lease liability
past events. An economic resource is a right that has the potential
✓ Deferred tax liability
to produce economic benefits.
✓ Long-term obligations to company officers
CURRENT ASSETS
✓ Long-term deferred revenue
✓ Cash and cash equivalents
✓ Financial assets at fair value such as trading securities and DISCRETION TO FINANCE or roll over an obligation for at least twelve
other investment in quoted equity instruments months after the reporting period under an existing loan facility, the
✓ Trade and other receivables obligation is classified as noncurrent.
✓ Inventories COVENANTS are often attached to borrowing agreements which
✓ Prepaid expense represent undertakings by the borrower.
NON CURRENT ASSETS EFFECTS OF BREACH OF A COVENANT
✓ Property, plant and equipment IAS 1, paragraph 74: The liability is classified as current even if the lender
✓ Long-term investments has agreed, after the reporting period and before the statements are
✓ Intangible assets authorized for issue, not to demand payment as a consequence of the
✓ Deferred tax assets breach.
✓ Other non-current assets
EQUITY
LIABILITIES is the residual interest in the assets of the enterprise after deducting all its
are present obligations of the entity to transfer an economic liabilities.
resource as a result of past events. An obligation is a duty of IAS 1, paragraph 7: The holders of instruments classified as equity are
responsibility that the entity has no practical ability to avoid. simply known as owner.

Classification: Restricted
SHAREHOLDERS’ EQUITY ▪ Other expenses
is the residual interest of owners in the assets of a corporation measured ▪ Income tax expense
by the excess of assets over liabilities.

Statement of Comprehensive Income OTHER COMPREHENSIVE INCOME

✓ Unrealized gain/loss on equity investment measured at fair
FORMS OF INCOME STATEMENT value through OCI
PAS 1 does not prescribe any format. ✓ Unrealized gain/loss on debt investment measure at fair
o Functional presentation
value through OCI
o Natural presentation
✓ Gain/Loss from translation of the financial statements of a
foreign operation
PRESENTATION OF COMPREHENSIVE INCOME
o Two statements ✓ Revaluation surplus during the year
o Single statement ✓ Unrealized gain/loss from derivative contracts designated as
cash flow hedge
PROFIT OR LOSS ✓ Remeasurements of defined benefit plan, including actuarial
✓ Revenue gain/loss
✓ Finance cost ✓ Change in fair value attributable to credit risk of a financial
✓ Share of profits and losses of associates and joint ventures liability designated at fair value through profit/loss
accounted for using the equity method
Statement of Retained Earnings
✓ A single amount for the total of discontinued operation
✓ Tax expense ✓ Profit or loss for the period
✓ Prior period errors
SOURCES OF INCOME
✓ Dividends declared and paid to shareholders
▪ Sales of merchandise to customers
▪ Rendering of services ✓ Effect of change in accounting policy
▪ Use of entity resources ✓ Appropriation of retained earnings
▪ Disposal of resources other than products

COMPONENTS OF EXPENSE Statement of Changes in Equity

▪ Cost of goods sold or cost of sales
▪ Distribution costs or selling expenses ✓ Effect of change in accounting policy
▪ Administrative expenses ✓ Appropriation of retained earnings

Classification: Restricted
 Notes to Financial Statements
✓ Present information about the basis on which the financial
statements were prepared and which specific accounting policies
were chosen and applied to significant transaction
✓ Disclose any information which is required by IFRSs
✓ Show any additional information that is relevant to understanding
which is not shown elsewhere in the financial statement
IMPORTANT TERMS TO REMEMBER
Financial Statements are written records that convey the
business activities and the financial performance of a
company.
General Purpose Financial Statements are those intended to
meet the needs of users who are not in a position to require
an entity to prepare reports tailored to their particular
information needs.
Objective of Financial Statements is to provide information
about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in
making economic decisions.
Frequency of Reporting states that financial statements shall
be presented AT LEAST ANNUALLY.
Judgement is used to determine the best method of
presenting information.
Statement of Financial Position is a formal statement
showing the three elements comprising financial position,
namely assets, liabilities and equity. It is used to evaluate
such factors as liquidity, solvency and the need of the entity
for additional financing.
Classification: Restricted
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IAS □
8 : Accounting Policies, Estimates and Errors
What is its objective?
o How to select and apply our accounting policies;
o How to account for the changes in accounting policies;
o How to account for changes in accounting estimates; and
o How to correct errors made in the previous reporting
periods.
IMPORTANT TERMS TO REMEMBER
Accounting Policies. The specific principles, bases,
conventions, rules, and practices adopted by an entity in
preparing and presenting financial statements.
Change in Accounting Estimate. An adjustment of the
carrying amount of an asset or a liability or the amount of the
periodic consumption of an asset.
Material. Omissions or misstatements of items are material
if they could influence the economic decision that users
make on the basis of the financial statements.
Prior Period Errors. Are omissions from, and misstatements
in, the entity‘s financial statement for one or more prior
periods arising from a failure to use, or misuse of, reliable
information.
 Retrospective Application. Applying a new accounting policy
to transactions, other events and conditions as if that policy
had always been applied.
Retrospective Restatement. Correcting the recognition,
measurement, and disclosure of amounts of elements of
financial statements as if a prior period error had never
occurred.
Prospective Application. Application of a change in
accounting policy and recognizing the effect of a change in an
accounting estimate.
Impracticable. It is impracticable when an entity cannot
apply a requirement after making every reasonable effort to
do so.
Accounting policies are determined by applying the
relevant IFRS and considering any relevant implementation
Guidance issued by the IASB for that IFRS.
When there is no applicable IFRS or interpretation, management
should use its judgment in developing and applying an accounting
policy that results in information that is relevant and reliable.
An entity must select and apply its accounting policies for a
period consistently for similar transactions, other events
and conditions.
Classification: Restricted
The same accounting policies are usually adopted from period to
period, to allow users to analyze trends over time in profit, cash
flows, and financial position.
WHEN CAN CHANGES BE APPLIED?
✓ The change is required by an IFRS;
✓ The change will result in a more appropriate presentation of
events or transactions in the financial statements of the
entity.
THE STANDARD HIGHLIGHTS TWO TYPES OF EVENT W/C
DO NOT CONSTITUTE CHANGES:
1) Adopting an accounting policy for a new type of
transaction or event not dealt with previously by the
entity;
2) Adopting a new accounting policy for a transaction or
event which has not occurred in the past or which was
not material.
In the case of tangible non-current assets, a policy of a
revaluation adopted for the first time is not treated as a
change in policy under IAS 8, but as a revaluation under
IAS 16 Property, Plant, and Equipment. Where a new
IFRS is adopted, resulting in a change of accounting
policy, IAS 8 requires any transitional provisions in the
new IFRS itself to be followed. If none are given,
provisions of IAS 8 shall be followed.
 • Reasons for the change/nature of change
• Reasons why new policy provides more relevant/reliable
information
• Amount of the adjustment for the current period and for
each period presented
• Amount of the adjustment relating to periods prior to those
included in the comparative information
• The fact that comparative information has been restated or
that it is impracticable to do so
Estimates arise in relation to business activities because of the
uncertainties inherent within them. VARIOUS DISCLOSURES NEEDED

✓ Nature of the prior period error

Examples are: bad debt allowance, useful lives of depreciable asset,
and obsolescence of inventory.
The rule here is that the effect of a change in an accounting estimate
should be included in the determination of net proper or loss in one
of:
• The period of the change, if the change affects that period
only
• The period of the change and the future periods, if the
change affects both
✓ For each prior period, to the extent practicable, the amount
of the correction
✓ The amount of the correction at the beginning of the earliest
prior period presented
✓ If retrospective restatement is impracticable for a particular
prior period, the circumstances that led to the existence of
that condition and a description of how and from when the
error has been corrected. Subsequent periods need not
repeat these disclosures.
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Classification: Restricted

IAS □
7 : Statement of Cash Flows
- is a component of financial statements summarizing the
operating, investing and financing activities of an entity.
➢ The primary purpose of a statement of cash flows is to
provide relevant information about cash receipts and cash
payment of an entity during a period.
➢ An entity shall prepare a statement of cash flows and present
it as an integral part of the financial statements for each
period for which financial statements are presented.
User can gain further appreciation of the change in net
assets, of the entity‘s financial position (liquidity and
solvency) and the entity‘s ability to adopt to changing
circumstances by affecting the amount and timing of cash
flows. Statements of cash flows enhance comparability as
they are not affected by differing accounting policies used
for same type of transaction.
CASH AND CASH EQUIVALENTS
▪The statement of cash flows is designed to provide information
about the change in an entity's cash and cash equivalents.
Cash compromises cash on hand and demand deposit
Cash Equivalents are short-term highly liquid investments that are
readily convertible to known amount of cash and which are subject
to an insignificant risk of change in value.
Classification: Restricted
According to IAS 7, paragraph 7: An investment normally qualifies
as a cash equivalent only when it has a short maturity of three
months or less from date of acquisition. Meaning, the investment
must be acquired three months or less before the date of maturity.
EXAMPLES OF CASH EQUIVALENTS
1) Three-month BSP treasury bill
2) Three-year BSP treasury bill purchased three months before
date of maturity
3) 3-month money market instrument or commercial paper
4) 3-month time deposit
DIRECT VERSUS INDIRECT
DIRECT
This is the most obvious way because it is obtained by simply
extracting information from the accounting records, may be a
laborious task.
INDIRECT
This method is undoubtedly easier from the point of view of
the preparer of the statement of cash flows.
The net profit or loss for the period is adjusted for:
o Changes during the period in inventories, operating
receivables and payables
o Non-cash items, e.g. depreciation, provisions,
profits/losses on the sales of assets
o Other items, the cash flows from which should be
classifies under investing or financing activities
 CASH FLOWS FROM INVESTING ACTIVITIES EXAMPLES OF CASH FLOWS FROM INVESTING ACTIVITIES
✓ Purchase of fixed assets–cash flow negative
- reports how much cash has been generated or spent from various ✓ Purchase of investments such as stocks or securities–cash
investment-related activities in a specific period. flow negative
✓ Lending money–cash flow negative
✓ Sale of fixed assets–cash flow positive
Cash flows from investing activities provides an account of ✓ Sale of investment securities–cash flow positive
cash used in the purchase of non-current assets–or long- ✓ Collection of loans and insurance proceeds–cash flow
term assets–that will deliver value in the future. Investing positive
activity is an important aspect of growth and capital.
CASH FLOWS FROM FINANCING ACTIVITIES
- activities that result in change in size and composition of the equity
Investing activities include purchases of physical assets, investments
capital and borrowings of the entity. Include from the transaction
in securities, or the sale of securities or assets. Negative cash flow is
involving nontrade liabilities and equity of the entity.
often indicative of a company's poor performance. However,
negative cash flow from investing activities might be due to • Between the entity and the owners—equity financing
significant amounts of cash being invested in the long-term health of • Between the entity and the creditors—debt financing
the company, such as research and development.
EXAMPLES OF FINANCING ACTIVITIES
A change to property, plant, and equipment (PPE), a large line item
on the balance sheet, is considered an investing activity. When Inflow:
investors and analysts want to know how much a company spends
✓ Cash receipt from issuance of ordinary and preference shares
on PPE, they can look for the sources and uses of funds in the
✓ Cash receipt from issuing debentures, loans notes, bonds,
investing section of the cash flow statement.
mortgages, and other short or long-term borrowings
CAPITAL EXPENDITURE
Outflow:
(CapEx) is a popular measure of capital investment used in the
✓ Cash payments for amounts borrowed
valuation of stocks. An increase in capital expenditures means the
✓ Cash payment by a lease for the reduction of the outstanding
company is investing in future operations. However, capital
principal lease liability
expenditures are a reduction in cash flow. Typically, companies with
✓ Cash payment for dividends to shareholders
a significant amount of capital expenditures are in a state of growth.
✓ Cash payments to acquire treasury shares

Classification: Restricted

In IAS 7, paragraph 43, provides that investing and
financing transaction that do not require use of cash or
cash equivalents shall be excluded from the statement of
cash flows. Such transaction shall be disclosed elsewhere
in the financial statement either in the notes to financial
statement or in a separate schedule or in a way that
provide about the transactions.
DIVIDENDS
IAS 7, paragraph 33, provides that dividends received shall be
classified as operating cash flow because it enters into the
determination of net income. Alternatively, dividend received may
be classified as investing cash flow because it is a return on
investment.
IAS 7, paragraph 34, provides that dividends paid shall be classified
as financing cash flow because it is cost of obtaining financial
resources. Alternatively, dividend paid may be classified as operating
cash flow in order to assist users to determine the ability of the entity
to pay dividends out of operating cash flows
INTEREST
In IAS 7, paragraph 33, provides that interest paid and interest
received shall be classified as operating cash flows because they
enter into the determination of net income or loss. Alternatively,
interest paid may be classified as financing cash flow because it is a
cost of obtaining financial resources. Alternatively, interest received
may be classified as investing cash flow because it is return on
Classification: Restricted
investment. For a financial institution, interest paid and interest
received are usually classified as operating cash flows.
INCOME TAXES
IAS 7, paragraph 35, provides that cash flow arising from income
taxes shall be separately disclosed as a cash flows from operating
activities unless they can be specifically identified with investing and
financing activities.
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IFRS □
5 : NONCURRENT ASSET HELD FOR SALE
IFRS 5 requires assets "held for sale" to be recognized separately in
the statement of financial position. It sets out the criteria for
recognizing a discontinued operation.
Noncurrent Asset is an asset that does not meet the definition of a
current asset.
Noncurrent Asset Held for Sale IFRS 5, paragraph 6, provides that a
noncurrent asset or disposal group is classified as held for sale if the
carrying amount will be recovered principally through a sale
transaction rather than through continuing use.
CONDITIONS FOR CLASSIFICATION AS HELD FOR SALE
✓ The asset or disposal group is available for immediate sale in
the present condition.
✓ The sale must be highly probable.