PRESENTATION OF FINANCIAL

STATEMENTS

PAS 1
 Learning Objectives

1. Discuss the standardization of financial statements presentation.

2. Describe the general features of financial statements.
3. Identify the components of financial statements.
4. Identify the minimum line items to be presented in a statement of
financial position and statement of comprehensive income as
required by IFRS.
5. Discuss the current and noncurrent classification of assets and
liabilities.
6. Differentiate the natural and functional presentation of the
income statement.
7. State the relationship of the notes with the other components of a
complete set of financial statements.

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 STANDARDISATION OF FINANCIAL
STATEMENTS PRESENTATION

PAS 1 prescribes the basis for the presentation of

general purpose financial statements to ensure
comparability.

Two dimensions to comparability – compare with

what? Previous periods and with financial
statements of other entities

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PAS 1 also sets out:
 general features/overall requirements of
financial statements
 guidelines for structure of financial
statements
 minimum requirements for their content

Financial statements – are the structured

representation of an entity’s financial position and
results of its operations. (PAS 1)
Complete set of financial statements

o a statement of financial position at the end of the

period
o a statement of profit or loss and other
comprehensive income for the period (presented as
a single statement, or by presenting the profit or
loss section in a separate statement of profit or
loss, immediately followed by a statement
presenting comprehensive income beginning with
profit or loss)
o a statement of changes in equity for the period
o a statement of cash flows for the period
o notes, comprising a summary of significant
accounting policies and other explanatory notes
o comparative information prescribed by the
standard.
Financial reporting – is the provision of financial
information about an entity to external users
that is useful to them in making economic
decisions (primary purpose of financial
statements) and for assessing the effectiveness of
the entity’s management (how efficient the
management as steward of the entity’s resources
(secondary purpose)
Objective of general purpose financial
reporting:

 to provide financial information about the

reporting entity that is useful to existing and
potential investors, lenders and other creditors in
making decisions about providing resources to
the entity.

 
General purpose financial statements – are
financial statements 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.
 
Primary users of financial information:

 parties that provide resources to the entity.

Limitations of financial reporting:

1. do not and cannot provide all of the information.
2. are not designed to show the value of an entity
but only provide information to help estimate its
value
3. intended to provide common information
4. based on estimate and judgment rather than
exact depiction.
 GENERAL FEATURES OF FINANCIAL
STATEMENTS
Eight general features/overall requirements:
 Fair presentation and compliance with IFRSs
 Going concern
 Accrual basis of accounting
 Materiality and aggregation
 Offsetting
 Frequency of reporting
 Comparative information
 Consistency of presentation
1.Fair presentation and compliance with IFRSs
The financial statements must "present fairly" the
financial position, financial performance and cash
flows of an entity. Fair presentation requires the
faithful representation of the effects of transactions,
other events, and conditions in accordance with the
definitions and recognition criteria for assets,
liabilities, income and expenses set out in
the Framework.
 The application of IFRSs, with additional
disclosure when necessary, is presumed to result in
financial statements that achieve a fair presentation.

- inappropriate accounting policies applied cannot

be rectified by mere disclosure
- explicit and unreserved statement of compliance
- departure from a PFRS requirement - disclosure
of management’s conclusion as to the fairness of
the presentation of the financial statements
2. Going concern
- has history of profitable operations
- has ready access to financial resources
- financial statements are normally prepared
on a going concern basis unless the entity
has an intention to liquidate or has no other
alternative but to do so.

3. Accrual basis of accounting

4. Materiality and aggregation

 Each material class of similar items (line

item) must be presented separately
 Dissimilar items may be aggregated only if
they are individually immaterial.

5. Offsetting
Assets and liabilities, and income and
expenses, may not be offset unless required or
permitted by an IFRS.
6. Consistency of presentation
 presentation and classification of items in the
financial statements shall be retained from one
period to the next unless a change is justified
either by a change in circumstances or a
requirement of a new IFRS.

7. Frequency of reporting
 prepared at least annually
 Change of reporting period: disclose
- Period covered by the financial statements
- Reason for change
- The fact that amounts are not entirely
comparable.
8. Comparative information
 IAS 1 requires that comparative information
to be disclosed in respect of the previous period
for all amounts reported in the financial
statements, both on the face of the financial
statements and in the notes, unless another
Standard requires otherwise.
An entity is required to present at least two of each
of the following primary financial statements:

o statement of financial position*

o statement of profit or loss and other
comprehensive income
o separate statements of profit or loss (where
presented)
o statement of cash flows
o statement of changes in equity
o related notes for each of the above items.
* A third statement of financial position is required
to be presented if the entity retrospectively applies
an accounting policy, restates items, or reclassifies
items, and those adjustments had a material effect
on the information in the statement of financial
position at the beginning of the comparative
period.
Where comparative amounts are changed or
reclassified, various disclosures are required.
Identification of financial statements

1. the name of the reporting entity.

2. whether the financial statements cover the
individual entity or a group of entities
3. the end of the reporting period or the period
covered by the financial statements or notes.
4. the presentation currency
5. the level of rounding used in the amounts in the
financial statements.
 XYZ Company
Statement of Financial Position
As of December 31, 2020
(in thousands of Philippine Pesos)
 Structure and content of financial statements in
general

IAS 1 requires an entity to clearly identify:

o the financial statements, which must be
distinguished from other information in a
published document
o each financial statement and the notes to the
financial statements.
Responsibility over Financial Statements

- Management

• Statement of Management’s Responsibility for

Financial Statements signed by the:
- Chairman of the Board (or equivalent),
- Chief Executive Officer (or equivalent), and
- Chief Financial Officer (or equivalent)
Statement of Financial Position
Inclusions as line items:
a. Property, plant and equipment;
b. Investment property;
c. Intangible assets;
d. Financial assets (excluding (e ), (h) and (i);
e. Investments accounted for using equity method;
f. Biological assets
g. Inventories
h. Trade and other receivables
i. Cash and cash equivalents
j. Assets held for sale, including disposal groups;
k. Trade and other payables;
l. Provisions;
m. Financial liabilities (excluding (k) and (l);
n. Current tax liabilities and current tax assets;
o. Deferred tax liabilities and deferred tax assets;
p. Liabilities included in disposal groups;
q. Non-controlling interests; and
r. Issued capital and reserves attributable to owners
of the parent.
Presentation of SOFP
a. Classified – distinguish current from noncurrent
assets and liabilities.
- highlights the working capital (CA-CL)and
facilitates the computation of liquidity and
solvency ratios.

b. Unclassified – (based on liquidity) shows no

distinction between current and noncurrent items.
Forms of SOFP
a. Account form
b. Report form
STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
1. All items of income expenses presented either:
 In a single SOCI; or
 In 2 statements –
a. separate income statement
b. statement of comprehensive
income

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 Guttering Candle Company
Statement of Income and Comprehensive Income
For the Year Ended December 31, 202
 Revenues   P1,000,000 
 Expenses   800,000 
 Net income   200,000 
   
 Other comprehensive income, net of tax:    
 Foreign currency translation adjustments   10,000 
 Unrealized gains on securities:    
 Unrealized holding gains arising during the P12,000 
period
 Less: reclassification of gains included in net (3,000) 
income
    9,000 
 Defined benefit pension plans:    
 Guttering Candle Company
Income Statement
For the Year Ended December 31, 2021

 Revenues ₱1,000,000 
 Expenses 800,000 
 Net income ₱ 200,000
======= 
 
 Guttering Candle Company
Statement of Income and Comprehensive Income
For the Year Ended December 31, 2021
 Net income for the period   ₱ 200,000 
 Other comprehensive income, net of tax:    
 Foreign currency translation adjustments   10,000 
 Unrealized gains on securities:    
 Unrealized holding gains arising during the period ₱ 12,000 
 Less: reclassification of gains included in net (3,000)  9,000
income
 Defined benefit pension plans:    
 Net loss arising during the period (2,000) 
 Prior service cost arising during the period (4,000) 
 Less: amortization of prior service cost included 1,000 
in net periodic pension cost (5,000)
 Other comprehensive income   14,000 
2. Minimum information/line items on the face of
the SOCI
- a single amount relating to discontinued
operations
- each component of ‘other comprehensive
income’ (OCI)
- profit or loss
- total comprehensive income
3. All items of income and expenses is recognized
in P/L unless IFRS:
 requires; or
 permits otherwise.
4.Material items of income/expense to be
disclosed separately
 eg. write-down of inventories to net
realizable value (NRV); restructuring costs
5. Expenses in P/L based on either their
nature or function

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 OTHER COMPREHENSIVE INCOME

1.Items required to be recognized in OCI

 revaluation gains / reversals
 Fair value adjustments on Available for sale
(A-F-S) financial assets
 Cash flow hedges
 Exchange differences on translating foreign
operations

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2.Item permitted to be recognized in OCI
 Actuarial differences per IAS 19

3.Tax relating to each component of OCI to be

disclosed

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Income Statement – shows the financial
performance of an entity for a period of time.
Why is income statement important?

• recognition, measurement, and reporting of

income - the most important tasks performed by
accountants.
• these measures are used to make business and
economic decisions that result in the allocation
of resources.
Approaches to determine the financial
performance of an entity:

1.capital maintenance approach – means that the

net income occurs only after the capital
used from the beginning of the period is
maintained.
- net income is the amount an entity can
distribute to its owners and be as well-off at
the end of the year as at the beginning.
Concepts of capital maintenance:
a. financial capital
b. physical capital

2. transaction approach – the conventional

preparation of income statement in conformity
with PFRS.
- also called the matching approach
Concepts of Capital and Capital
Maintenance
Formula:
Equity, end of the year ₱ xxx
Add: Withdrawals made/dividends
declared and paid xxx
Total ₱ xxx
Less: Equity, beg. of the year ₱ xxx
Additional investments/
share issued xxx xxx
Net income for the current period ₱ xxx
======
You are provided with the following data:
December 31 January 1
Total assets ₱ 6,880,000 ₱ 6,000,000
Total liabilities 1,600,000 2,120,000
Equity 5,280,000 3,880,000
======= ======
The owner made additional investments of ₱600,000 and
withdrawals of ₱ 400,000 during the year.

Required: Compute for the net income.

 December 31 January 1
Total assets ₱6,880,000 ₱ 6,000,000
Total liabilities 1,600,000 2,120,000
Capital ₱5,280,000 ₱ 3,880,000
======== ========

Capital, Dec. 31 ₱5,280,000

Add: Withdrawals 400,000
Total ₱5,680,000
Less: Capital, Jan. 1 ₱3,880,000
Investment 600,000 4,480,000
Net income ₱1,200,000
========
 
Income –is an increase in economic benefit
during the accounting period in the form of
inflow or increase in asset or decrease in
liability that results in increase in equity,
other than contribution from equity
participants.

 It encompasses both revenue and gains.

Revenues are inflows of or other enhancements
to assets and/or settlements of its liabilities
from ongoing operations.

Gains are increases to equity (net assets) from

peripheral or incidental transactions.
- represent all other periodic increases to
equity other than those reported as revenues or
investments by owners.
FASB’s conceptual framework, revenues and gains
should be recognized when they meet both of the
following criteria:

a. They are realized or realizable.

b. There has been substantial completion of

the activities involved in the earnings process
For each item stated below, indicate if the transaction or event gives rise
to the recognition of revenue in 2020 under the accrual basis of
accounting.

1. On Dec. 15, 2020, Howe Company received ₱20,000 as rent revenue

for the 6- month period beginning January 1, 2021.

2. Monroe Tractor Co., on July 1, 2020, sold one of its tractors and
received ₱10,000 in cash and a note for ₱50,000 at 12% interest, payable
in one year. The fair market value of the tractor is ₱60,000.

 
 
 
3. Balance Company received a purchase order in 2020
from an established customer for ₱10,200 of
merchandise. The merchandise was shipped on Dec. 20,
2020. The company’s credit policy allows the customer
to return the merchandise within 30 days and a 3%
discount if paid within 20 days from shipment.
4. Gloria, Inc. , sold merchandise costing ₱2,000 for
₱2,500 in August 2020. The terms of the sale are 15%
down on a 12-month conditional sales contract, with
title to the goods being retained by the seller until the
contract price is paid in full.

5. On Nov. 1, 2020, Jones & Whitlock entered into an

agreement to audit the 2020 financial statements
of Lehi Mills for a fee of ₱35,000. The audit work
began on Dec. 15, 2020, and will be completed
around February 15, 2021.
 
 
Sources of Income:

1. sales of merchandise to customers

2. rendering of services
3. use of entity resources
4. disposal of resources other than products
Expense – a decrease in economic benefit during the
accounting period in the form of outflow or
decrease in asset and increase in liability that results
in decrease in equity, other than distribution to
equity participants.
- are outflows or other “using up” of assets
and/or incurrence of liabilities from ongoing
operations.
Losses are decreases to equity (net assets) from
peripheral or incidental transactions.
- represent all other periodic decreases to equity
other than those reported as expenses or as
distributions to owners.
3 methods of expense recognition
1.Direct matching—expenses (actual and
estimated) should be recognized in the same
period as the revenue to which they directly
relate.
2. Systematic and rational allocation- costs
benefiting more than one accounting period
should be allocated.
3. Immediate recognition—appropriate for
expenses which do not relate directly to the
production of revenue or when any future
probable benefit from an expense is highly
uncertain.
Inclusions:

1. Cost of sales
2. Distribution costs or selling expenses
3. Administrative expenses
4. Other expenses
5. Income tax expense

No more extraordinary items

Line items
Minimum items on the face of the statement of
comprehensive income should include:
• revenue, presenting separately interest revenue
• finance costs
• gains and losses arising from the derecognition
of financial assets measured at amortized cost
• impairment losses and impairment gains on
financial assets
• gains and losses on reclassification of financial
assets from amortized cost or fair value through
OCI to fair value through P/L
• share of the profit or loss of associates and joint
ventures accounted for using the equity method
• tax expense
• result of discontinued operations
Certain items must be disclosed separately either in the
statement of comprehensive income or in the notes, if
material, including:
• write-downs of inventories to net realisable value or
of property, plant and equipment to recoverable
amount, as well as reversals of such write-downs
• restructurings of the activities of an entity and
reversals of any provisions for the costs of
restructuring
• disposals of items of property, plant and equipment
• disposals of investments
• discontinuing operations
• litigation settlements
• other reversals of provisions
Expenses recognized in profit or loss should be
analyzed either by nature (raw materials, staffing
costs, depreciation, etc.); or by function (cost
of sales, selling, administrative, etc).

If an entity categorizes by function, then additional

information on the nature of expenses – at a
minimum depreciation, amortization and employee
benefits expense – must be disclosed.
Income from operations   is  inc ome   that is
generated by th e no rmal operations of a
business.  

Income from operations is also referred to as operating

income or operating earnings.

Income from operations

 does not include any items such as changes in

accounting principle, results of discontinued
operations, or gains or losses from disposals of
segments of operations.
OTHER COMPREHENSIVE INCOME
Other comprehensive income

 contains all changes that are not permitted to be

included in profit or loss.

 is particularly valuable for understanding ongoing

changes in the fair value of a company's assets
 Unrealized gain or loss on investment in equity
instrument measured at fair value through OCI

 Gain or loss from translation of the financial

statements of a foreign operation

 Revaluation surplus during the year

 Unrealized gain or loss from derivative contracts

designated as cash flow hedge
 Remeasurements of defined benefit
plan, including actuarial gain or loss

 Change in fair value attributable to

credit risk of a financial liability
designated at fair value through profit
or loss
Presentation of OCI
Groupings:

1. OCI that will be reclassified subsequently to P/L

when specific conditions are met.
• Gain or loss from translating financial
statements of a foreign operation
• Unrealized gain or loss on derivatives
contracts designated as cash flow hedge
2. OCI that will not be reclassified subsequently to
P/L
• Unrealized gain or loss on investment in equity
instrument measured at fair value through OCI (R/E
upon disposal)
• Revaluation surplus during the year (R/E)
• Remeasurements of defined benefit plan, including
actuarial gain or loss (R/E or E)
• Change in fair value attributable to credit risk of a
financial liability designated at fair value through
profit or loss (R/E or E)
 Foreign currency gains and losses on intra-entity
currency transactions where settlement is not
planned or anticipated in the foreseeable future

 Foreign currency transaction gains and losses that

are hedges of an investment in a foreign entity

 Foreign currency translation adjustments

 Pension or post-retirement benefit plan gains or
losses
 Pension or post-retirement benefit plan
prior service costs or credits

 Pension or post-retirement benefit plan

transition assets or obligations that are
not recognized as a component of the net
periodic benefit or cost
 Statement of Changes in Equity
- shows the following information:
1. Effects of change in accounting policy (retrospective
application) or correction of prior period error
(retrospective restatement);
2. Total comprehensive income for the period; and
3. For each component of equity, a reconciliation
between the carrying amount at the beginning and
the end of the period, showing separately changes
resulting from:
a. profit or loss;
b. other comprehensive income; and
c. transactions with owners.
 Statement of Cash Flows
- shows the sources and uses of cash.
- under PAS 7.