PORTFOLIO IN FINANCIAL

ACCOUNTING AND REPORTING

Acctg 2

Submitted by:

PRINCESS SOPHIA F. FERNANDEZ

BSA – 1A

Submitted to:

MRS. ISABEL VALINO, CPA

Instructor

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II. COVER LETTER
I am Princess Sophia F. Fernandez, a first-year student taking Bachelor of Science
in Accountancy at Eduardo L. Joson Memorial College at Brgy. Singalat, Palayan
City, Nueva Ecija.
I learned that I have to take charge of my own learning. I realized I still had a lot to
learn and this allows me to continue attending my classes despite of the
hardships I have to go through, which gives me strength and motivation to go on.
In this portfolio, it summarizes what I have learned in this course subject. It also
provides the information of the lessons we take, with the summary of the lessons
including the reflection, quizzes, activities and exams.

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III. TABLE OF CONTENTS
I. TITLE PAGE
II. Cover Letter
III. Table of Contents
IV. TOPICS
a. Lesson 1
• THE ACCOUNTANCY PROFESSION
• Keywords/Keyconcepts/Summary
• Activities

b. Lesson 2
• CONCEPTUAL FRAMEWORK
• Keywords/Keyconcepts/Summary
• Activities
c. Lesson 3
• CONCEPTUAL FRAMEWORK – Qualitative characteristics
• Keywords/Keyconcepts/Summary
• Activities
d. Lesson 4
• CONCEPTUAL FRAMEWORK
Financial statements and reporting entity – Underlying assumptions
• Keywords/Keyconcepts/Summary
• Activities
e. Lesson 5
• CONCEPTUAL FRAMEWORK – Elements of financial statements
• Keywords/Keyconcepts/Summary
• Activities
f. Lesson 6
• CONCEPTUAL FRAMEWORK –Recognition and Measurement
• Keywords/Keyconcepts/Summary
• Activities

g. Lesson 7
• CONCEPTUAL FRAMEWORK-Presentation and disclosure concepts
of
capital
• Keywords/Keyconcepts/Summary
• Activities
h. Lesson 8
• PAS 1 PRESENTATION OF FINANCIAL STATEMENTS
Statement of financial position
• Keywords/Keyconcepts/Summary
• Activities
i. Lesson 9
• PAS 1 PRESENTATION OF FINANCIAL STATEMENTS
Statement of comprehensive income
• Keywords/Keyconcepts/Summary
• Activities
j. Lesson 10
• PAS INVENTORIES

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 • Keywords/Keyconcepts/Summary
• Activities
k. Lesson 11
• PAS 7 STATEMENT OF CASH FLOWS
• Keywords/Keyconcepts/Summary
• Activities
V. GENERAL REFLECTION

IV. TOPICS
LESSON 1: THE ACCOUNTANCY PROFESSION

DEFINITION OF ACCOUNTING

The Accounting Standards Council provides the following definition:

Accounting is a service activity.
The accounting function is to provide quantitative information, primarily financial in nature,
about economic entities, that is intended to be useful in making economic decision.

The Committee on Accounting Terminology of the American Institute of Certified Public

Accountants defines accounting as follows:
Accounting is the art of recording, classifying, and summarizing in a significant manner and in
terms of money, transactions and events which are in part at least of a financial character and
interpreting the result thereof.

The American Accounting Association in its Statement of Basic Accounting Theory defines
accounting as follows:

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Accounting is the process of identifying, measuring and communicating economic information to
permit informed judgment and decision by users of the information.

Important points
Accounting is about quantitative information, Information is likely to be financial in nature and
Information should be useful in decision making.

Identifying
This accounting process is the recognition or non-recognition of business activities as
“accountable” events.
Not all business activities are accountable.
An event is accountable or quantifiable when it has an effect on assets, liability and equity.
The subject matter of accounting is economic activity or the measurement of economic resources
and economic obligations.
Only economic activities are emphasized and recognized in accounting.

External and Internal transactions

Economic activities of an entity are referred to as transactions which may be classified as external
and internal.

External transactions are those economic events involving one entity and another entity.

Internal transactions are economic events involving the entity only.

Internal transactions are the economic activities that take place entirely within the entity.

Measuring
This accounting process is the assigning of peso amounts to the accountable economic
transactions and events.
The measurement bases are historical cost and current value.
Historical cost is the most common measure of financial transactions.
Current value includes fair value, value in use, fulfillment value and current cost.

Communicating
It is the process of preparing and distributing accounting reports to potential users of
accounting information.

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Recording or journalizing is the process of systematically maintaining a record of all
economic business transactions after they have been identified and measured.

Classifying is the sorting or grouping of similar and interrelated economic transactions

into their respective classes.
Classifying is accomplished by posting to the ledger.
The ledger is a group of accounts which are systematically categorized into asset
accounts, liability accounts, equity accounts, revenue accounts and expense accounts.

Summarizing is the preparation of financial statements which include the statement of

financial position, income statement, statement of comprehensive income, statement of
changes in equity and statement of cash flows.

Accounting as an information system

Accounting is an information system that measures business activities, processes information into
reports and communicates the reports to decision makers.

Overall objective of accounting

The overall objective of accounting is to provide quantitative financial information about a
business that is useful to statement users particularly owners and creditors in making economic
decision.
THE ACCOUNTANCY PROFESSION
Accountancy has developed as a profession attaining a status equivalent to that of law of
medicine.
Limitation of the practice of public accountancy
Single practitioners and partnerships for the practice of public accountancy shall be registered
certified public accountants in the Philippines.
Accreditation to practice public accountancy
CPAs, firms and partnerships of certified public accountants, including partners and staff
members thereof, are required to register with the Board of Accountancy and Professional
Regulation Commission for the practice of public accountancy.
PUBLIC ACCOUNTING
It is composed of individual practitioners, small accounting firms and large multinational
organizations that render independent and expert financial services to the public.
Auditing
Auditing is the examination of financial statements by independent certified public accountant for
the purpose of expressing an opinion as to the fairness with which the financial statements are
prepared.
Taxation
Taxation service includes the preparation of annual income tax returns and determination of tax
consequences of certain proposed business endeavors.
Management advisory services
It is used generally to refer to services to clients on matters of accounting, finance, business
policies, organization procedures, product costs, distribution and many other phases of business
conduct and operations.
PRIVATE ACCOUNTING
The major objective of the private accountant is to assist management in planning and controlling
the entity’s operations.
GOVERNMENT ACCOUNTING

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It encompasses the process of analyzing, classifying, summarizing and communicating all
transactions involving the receipt and disposition of government funds and property and
interpreting the results thereof.
The focus of government accounting is the custody and administration of public funds.

CONTINUING PROFESSIONAL DEVELOPMENT (CPD)

Republic Act No. 10912 is the law mandating and strengthening the continuing professional
development program for all regulated professions, including the accountancy profession.
CPD credit units
CPD credit units refer to the CPD credit hours required for the renewal of CPA license and
accreditation of a CPA to practice the accountancy profession every three years.
Exemption from CPD
A CPA shall be permanently exempted from CPD requirements upon reaching the age of 65
years.
This exemption applied only to the renewal of CPA license and not for the purpose of
accreditation to practice the accountancy profession.

Accounting versus auditing

Accounting embraces auditing.
Auditing is one of the areas of accounting specialization.
Accounting is essentially constructive in nature. Accounting ceases when financial statements are
already prepared.
Auditing is analytical.

Accounting versus bookkeeping

Bookkeeping is procedural and largely concerned with development and maintenance of
accounting records. It is the “how” of accounting.
Accounting is conceptual and is concerned with the why, reason or justification for any action
adopted.
Bookkeeping is a procedural element of accounting as arithmetic is a procedural element of
mathematics.

Accounting versus accountancy

They both refer to the entire field of accounting theory and practice.
Accountancy refers to the profession of accounting practice.
Accounting is used in reference only to a particular field of accountancy.

Financial accounting versus managerial accounting

Financial accounting is primarily concerned with the recording of business transactions and the
eventual preparation of financial statements.
Financial accounting is the area of accounting that emphasizes reporting to creditors and
investors.
Managerial accounting is the accumulation and preparation of financial reports for internal users
only.

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Managerial accounting is the area of accounting that emphasizes developing accounting
information for use within an entity.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

GAAP represent the rules, procedures, practice and standards followed in the preparation and
presentation of financial statements.
Purpose of accounting standards
The overall purpose of accounting standards is to identify proper accounting practices for the
preparation and presentation of financial statements.
FINANCIAL REPORTING STANDARDS COUNCIL
Development of GAAP is formalized initially through the creation of the ASC.
FRSC replaces the ASC.
FRSC is the accounting standard setting body created by the PRC upon recommendation of the
Board of Accountancy to assist the Board of Accountancy in carrying out its powers and
functions provided under R.A. Act No. 9298.

Composition of FRSC
The FRSC is composed of 15 members with a Chairman who had been or is presently a senior
accounting practitioner and 14 representatives.
The Chairman and members of the FRSC shall have a term of 3 years renewable for another term.
Any member of the ASC shall not be disqualified from being appointed to the FRSC.

Philippine Interpretations Committee (PIC)

PIC was formed by FRSC in August 2006 and has replace the IC formed by the ASC in May
2000.
The role of PIC is to prepare interpretations of PFRS for approval by the FRSC and to provide
timely guidance on financial reporting issues not specifically addressed in current PFRS.
INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE (IASC)
IASC is an independent private sector body, with the objective of achieving uniformity in the
accounting principles which are used by business and other organizations for financial reporting
around the world.
It was formed in June 1973 through an agreement made by professional accountancy bodies
from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom
and Ireland, and the United States of America. The IASC is head quartered in London, United
Kingdom.

Objectives of IASC
The objectives of IASC are to formulate and publish in the public interests accounting standards to
be observed in the presentation of financial statements and to promote their worldwide
acceptance and observance and to work generally for the improvement and harmonization of
regulations, accounting standards and procedures relating to the presentation of financial
statements.

INTERNATIONAL ACCOUNTING STANDARDS BOARD

The IASB replaces the IASC.
The IASB publishes standards in a series of pronouncements called IFRS.
The IASB has adopted the body of standards issued by the IASC.
The pronouncements of the IASC continue to be designated as IAS.
Move toward IFRS
Standards issued by other standard setting bodies such as the USA Financial Accounting
Standards Board (FASB) and the IASB are considered.
Philippine Financial Reporting Standards

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FRSC issues standards in a series of pronouncements called PFRS.

LESSON 2: CONCEPTUAL FRAMEWORK

CONCEPTUAL FRAMEWORK
The Conceptual Framework for Financial Reporting is a complete, comprehensive and single
document promulgated by the International Accounting Standards Board.
The Conceptual Framework is a summary of the terms and concepts that underlie the preparation
and presentation of financial statements for external users.
Purposes of Revised Conceptual Framework
The purpose of revised conceptual framework are to assist the IASB to develop IFRS Standards
based on consistent concepts, to assist preparers of financial statements to develop consistent
accounting policy when no Standard applies to a particular transaction or other event or where an
issue is not yet addressed by an IFRS, to assist preparers of financial statements to develop
accounting policy when a Standard allows a choice of an accounting policy, and to assist all
parties to understand and interpret the IFRS Standards.
Authoritative status of Conceptual Framework
Management shall consider the applicability of the Conceptual framework in developing and
applying an accounting policy that results in information that is relevant and reliable.
Users of financial information
Under the Conceptual framework for Financial Reporting the users of financial information may
be classified into two, namely Primary users and Other users.
Primary users
The primary users include the existing and potential investors, lenders and other creditors.
The primary users of financial information are the parties to whom general purpose financial
reports are primarily directed.
Existing and potential investors
Existing and potential investors are concerned with the risk inherent in and return provided by
their investments.
Lenders and other creditors
Existing and potential lenders and other creditors are interested in information which enables
them to determine whether their loans, interest thereon and other amounts owing to them will be
paid when due.
Other users
The other users include the employees, customers, governments and their agencies, and the
public.
Employees
They are interested in information about the stability and profitability of the entity.

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Customers
Customers have an interest information about the continuance of an entity especially when they
have a long-term involvement with or are dependent on the entity.
Governments and their agencies
Governments and their agencies are interested in the allocation of resources and therefore the
activities of the entity.
Public
Entities affect members of the public in a variety of ways.
Scope of Revised Conceptual Framework
Objective of financial reporting
Qualitative characteristics of useful financial information
Financial statements and reporting entity
Elements of financial statements
Recognition and DE recognition
Measurement
Presentation and disclosure
Concepts of capital and capital maintenance

OBJECTIVE OF FINANCIAL REPORTING

The objective of financial reporting forms the foundation of the Conceptual Framework. The
overall objective of financial reporting is 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.
Targets users
Financial reporting is directed primarily to the existing and potential investors, lenders and other
creditors which compose the primary user group.
Specific objectives of financial reporting
The overall objective of financial reporting is to provide information that is useful for decision
making.
Economic decisions
Existing and potential investors need general purpose financial reports in order to enable them in
making decisions whether to buy, sell or hold equity investments.
Assessing cash flow prospects
Financial reporting should provide information useful in assessing the amount, timing and
uncertainty of prospects for future net cash inflows to the entity.
Economic resources and claims
General purpose financial reports provide information about the financial position of a reporting
entity.
Liquidity is the availability of cash in the near future to cover currently maturing obligations.
Solvency is the availability of cash over a long term to meet financial commitments when they
fall due.
Changes in economic resources and claims
General purpose financial reports also provide information about the effects of transactions and
other events that change the economic resources and claims.
Usefulness of financial performance
Information about financial performance helps users to understand the return that the entity has
produced on the economic resources. And Information about past financial performance is usually
helpful in predicting the future returns on the entity’s economic resources.
Accrual accounting
It means that income is recognized when earned regardless of when received and expense is
recognized when incurred regardless of when paid.
Limitations of financial reporting

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General purpose of financial reports don't and cannot provide all of the information that existing
and potential investors, lenders and other creditors need.
Management stewardship
Information about how efficiently and effectively management has discharged its responsibilities
to use the entity’s economic resources helps users to assess management stewardship of those
resources. Such information is useful for predicting how management will use the entity’s
prospects for future net cash flows.

LESSON 3: CONCEPTUAL FRAMEWORK – Qualitative characteristics

QUALITATIVE CHARACTERISTICS
Qualitative characteristics are the qualities or attributes that make financial accounting
information useful to the users.

Fundamental qualitative characteristics

The fundamental qualitative characteristics relate to the content or substance of financial
information.

Application of qualitative characteristics

The most efficient and effective process of applying the fundamental qualitative characteristics
would usually be First, identify an economic phenomenon that has the potential to be useful,
Second, identify the type of information about the phenomenon that would be most relevant and
can be faithfully represented, and Third, determine whether the information is available.
Relevance
It is the capacity of the information to influence a decision.
Ingredients of relevance
Financial information has predictive value if it can be used as an input to processes employed by
users to predict future outcome.
Materiality
It is a practical rule in accounting which dictates that strict adherence to GAAP is not required
when the items are not significant enough to affect the evaluation, decision and fairness of the
financial statements.
Materiality is a relatively
Materiality of an item depends on relative size rather than absolute size. What is material for one
entity may be immaterial for another.
There is no strict rule for determining whether an item is material or not.
This is dependent on good judgment, professional expertise and common sense.
General guide may be given, to an item is material if knowledge of it would affect or influence
the decision of the informed users of the financial statements” and to information is material it its
omission or misstatement could influence the economic decision that the users make on the basis
of the financial information about an entity.

Factors of materiality
In the exercise of judgment in determining materiality, the relative size and nature of an item are
considered. The size of the item in relation to the total of the group to which the item belongs is
taken into account. The nature of the item may be inherently material because by its vary nature it
affects economic decision.

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Faithful representation
It means that financial reports represent economic phenomena or transactions in words and
numbers. Descriptions and figures must match what really existed or happened.
Faithful representation means that the actual effects of the transactions shall be properly
accounted for and reported in the financial statements.

Ingredients of faithful representation

To be a perfectly faithful representation, a depiction should have three characteristics, namely
completeness, neutrality, and free from error.
Completeness requires that relevant information should be presented in a way that facilitates
understanding and avoids erroneous implication.

Standard of adequate disclosure

It means that all significant and relevant information leading to the preparation of financial
statements shall be clearly reported.
Notes to financial statements
Notes to financial statements provide narrative description or disaggregation of the items
presented in the financial statements and information about items that do not qualify for
recognition.
Neutrality
Neutral depiction is without bias in the preparation or presentation of financial information.
Prudence
Revised Conceptual Framework has reintroduced the concept of prudence.
It is the exercise of care and caution when dealing with the uncertainties in the measurement
process such that assets or income are not overstated and liabilities or expenses are not
understated. Neutrality is supported by the exercise of prudence.
Conservatism
Conservatism means that when alternatives exist, the alternative which has the least effect on
equity should be chosen. Conservatism means in case of doubt, record any loss and do not record
any gain.
Expressions of conservatism
Anticipate no profit and provide for probable and measurable loss.
Accountant takes the position that no matter how sure the businessman might be in capturing the
bird in the bush, the accountant, must see it in the hand.
Free from error
It means there are no errors or omissions the description of the phenomenon.
Measurement uncertainty
It arises when monetary amounts in financial reports cannot be observed directly and must instead
be estimated.
Substance over form
The economic substance of transactions and events are usually emphasized when economic
substance differs from legal form. Substance over form is not considered a separate component of
faithful representation because it would be redundant.
Example of substance over form
An example is when the lessee property from the lessor. The terms of the lease provide that the
lease transfers ownership of the asset to the lessee by the end of the lease term.
Enhancing qualitative characteristics
The enhancing qualitative characteristics relate to the presentation or form of the financial
information.
Comparability

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It means the ability to bring together for the purpose of noting points of likeness and difference.
it is the enhancing qualitative characteristic that enables users to identify and understand
similarities and dissimilarities among items.
Consistency
It refers to the use of the same method for the same item, either from period to period within an
entity or in a single period across entities. Consistency is the uniform application of accounting
method from period to period within an entity. Consistency is desirable and essential to achieve
comparability of financial statements.

Understandability
It requires that financial information must be comprehensible or intelligible if it is to be most
useful.
Verifiability
It means that different knowledgeable and independent observers could reach consensus, although
not necessarily complete agreement, that a particular depiction is a faithful representation.

Type of verification
Verification can be direct or indirect.
Direct verification means verifying an amount or other representation through direct
observation.
Indirect verification means checking the inputs to a model, formula or other technique and
recalculating the inputs using the same methodology.

Timeliness
It means that financial information must be available or communicated early enough when a
decision is to be made.
Relevant and faithfully represented financial information furnished after a decision is made is
useless or of no value.
Cost constraint on useful information
Cost is a pervasive constraint on the information that can be provided by financial reporting.

LESSON 4: CONCEPTUAL FRAMEWORK

Financial statements and reporting entity – Underlying assumptions

GENERAL OBJECTIVE OF FINANCIAL STATEMENTS

Financial statements provide information about economic resources of the reporting entity, claims
against the entity and changes in the economic resources and claims.
Types of financial statements
The Revised Conceptual Framework recognizes three types of financial statements.
Consolidated financial statements – These are the financial statements prepared when the
reporting entity comprises both the parent and its subsidiaries.
Unconsolidated financial statements – these are the financial statements prepared when the
reporting entity is the parent alone.
Combined financial statements – these are the financial statements when the reporting entity
comprises two or more entities that are not linked by a parent and subsidiary relationship.

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Consolidated financial statements
provide information about the assets, liabilities, equity, income and expenses of both the parent
and its subsidiaries as a single reporting entity.
Unconsolidated financial statements
Unconsolidated financial statements are designed to provide information about the parent’s
assets, liabilities, income and expenses and not about those of the subsidiaries.
Combined financial statements
Combined financial statements provide financial information about the assets, liabilities, equity,
income and expenses of two or more entities not linked with parent and subsidiary relationship.
Reporting entity
A reporting entity is an entity that is required or chooses to prepare financial statements.
Reporting period
The reporting period is the period when financial statements are prepared for general purpose
financial reporting.
UNDERLYING ASSUMPTIONS
Accounting assumptions are the basic notions or fundamental premises on which the accounting
process is based. Accounting assumptions are also known as postulates.
Going concern
The going concern or continuing assumption means that in the absence of evidence to the
contrary, the accounting entity is viewed as continuing in operation indefinitely.
Accounting entity
Under this assumption, the entity is separate from the owners, managers, and employees who
constitute the entity.
Time period
A completely accurate report on the financial position and performance of an entity cannot be
obtained until the entity is finally dissolved and liquidated.
Monetary unit
The monetary unit assumption has two aspects, namely quantifiability and stability of the peso.
The quantifiability aspect means that the assets, liabilities, equity, income and expenses should be
stated in terms of a unit of measure which is the peso in the Philippines.
The stability of the peso assumption means that the purchasing power of the peso is stable or
constant and that its instability is insignificant and therefore may be ignored.

LESSON 5: CONCEPTUAL FRAMEWORK – Elements of financial statements

ELEMENTS OF FINANCIAL STATEMENTS

Financial statements portray the financial effects of transactions and other events by grouping
them into broad classes according to their economic characteristics.
ASSET
Under the revised Conceptual framework an asset is defined as a present economic resource
controlled by the entity as a result of past events.
Essential characteristics of asset
Characteristics of asset are The asset is present economic resource, The economic resource is a
right that has the potential to produce economic benefits, and The economic resource is
controlled by the entity as a result of past events.
Potential to produce economic benefits
An economic resource is a right that has the potential to produce economic benefits.
Control of an economic resource

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An entity controls an asset if it has the present ability to direct the use of the asset and obtain the
economic benefits that flow from it. Control also includes the ability to prevent others from using
such asset and therefore preventing others from obtaining the economic benefits from the asset.
LIABILITY
Under the revised Conceptual Framework, a liability is defined as present obligation of an entity
to transfer an economic resources as a result of past events.
Obligation
It is a duty or responsibility that an entity has no practical ability to avoid. Obligations can either
be legal or constructive.
Transfer of an economic resource
Obligations to transfer an economic resource include obligation to pay cash, obligation to deliver
goods or non-cash resources, obligation to provide services at some future time, obligation to
exchange economic resources with another party on unfavorable terms, and obligation to transfer
an economic resource if specified uncertain future event occurs.
Past event
An obligation exists as a result of past event if both of the following conditions are satisfied An
entity has already obtained economic benefits and An entity must transfer an economic resource.
Definition of income
Income is defined as increases in assets or decreases in liabilities that result in increases in equity,
other than those relating to contributions from equity holders.
Statement of financial performance
This statement refers to the statement of profit or loss and a statement presenting other
comprehensive income.
Expense
It is defined as decreases in assets or increases in liabilities that result in decreases in equity, other
than those relating to distributions to equity holders.

LESSON 6: CONCEPTUAL FRAMEWORK –Recognition and Measurement

RECOGNITION
The revised Conceptual Framework defines recognition as the process of capturing for
inclusion in the financial statements an item that meets the definition of an asset, liability,
equity, income or expense.

Recognition criteria
Only items that meet the definition of an asset, a liability or equity are recognized in the
statement of financial position.
Similarly, only items that meet the definition of income or expense are recognized in the
statement of financial performance.

Point of sale income recognition

The basic principle of income recognition is that income shall be recognized when
earned.
Under certain conditions, income may be recognized at the point of production, during
production and at the point of collection.

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Expense recognition
Expense recognition principle is the application of the matching principle.

The matching principle has three applications, namely Cause and effect association,
Systematic and rational allocation, and Immediate recognition.

Cause and effect association

Under this principle, the expense is recognized when the revenue is already recognized.

Systematic and rational allocation

Under this principle, some costs are expensed by simply allocating them over the
periods benefited.

Immediate recognition
Under this principle, the cost incurred is expensed outright because of uncertainty of
future economic benefits or difficulty of reliably associating certain costs with future
revenue.

De-recognition
Derecognition is defined as the removal of all or part of a recognized asset or liability from the
statement of financial position.
MEASUREMENT
It is defined as quantifying in monetary terms the elements in the financial statements.
HISTORICAL COST
The historical cost of an asset is the cost incurred in acquiring or creating the asset comprising the
consideration paid plus transaction cost.
The historical cost of a liability is the consideration received to incur the liability minus
transaction cost.
Historical cost updated
Historical cost of an asset is updated because of depreciation and amortization, payment received
as a result of disposing part or all of the asset, impairment, accrual of interest to reflect any
financing component of the asset and amortized cost measurement of financial asset.
Historical cost of a liability is updated because of payment made or satisfying an obligation to
deliver goods, increase in value of the obligation to transfer economic resources such that the
liability becomes onerous, accrual of interest to reflect any financing component of the liability,
and amortized cost measurement of financial liability.

CURRENT VALUE
It includes Fair value, Value in use for asset, Fulfillment value for liability, and Current cost.

Fair value
Fair value of an asset is the price that would be received to sell an asset in an orderly transaction
between market participants at measurement date.

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Fair value of liability is the price that would paid to transfer a liability in an orderly transaction
between market participants at the measurement date.

Value in use
It is the present value of the cash flows that an entity expects to derive from the use of an asset
and from the ultimate disposal.

Fulfillment value
It is the present value of cash that an entity expects to transfer in paying or settling a liability.

Current cost
Current cost of an asset is the cost of an equivalent asset at the measurement date comprising the
consideration paid and transaction cost. Current cost of a liability is the consideration that would
be received less any transaction cost at measurement date.

Selecting a measurement basis

In selecting a measurement basis for an asset or a liability and for the related income and
expense, it is necessary to consider the nature of the information that the measurement basis will
produce.

LESSON 7: CONCEPTUAL FRAMEWORK - Presentation and disclosure concepts of

capital

PRESENTATION AND DISCLOSURE

The presentation and disclosure can be an effective communication tool about the
information in financial statement.

Classification
Classification is the sorting of assets, liabilities, equity, income and expenses on the
basis of shared or similar characteristics.

Classification of income and expenses

Income and expenses are classified as components of profit loss and components of
other comprehensive income.
The statement of profit or loss is the primary source of information about an entity’s
financial performance for the reporting period.

Aggregation
It is the adding together of assets, liabilities, equity, income and expenses that have
similar or shared characteristics and are included in the same classification.

CAPITAL MAINTENANCE

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The financial performance of an entity is determined using two approach, namely
transaction approach and capital maintenance approach.
The transaction approach is the traditional preparation of an income statement.
The capital maintenance approach means that net income occurs only after the capital
used from the beginning of the period is maintained.

Financial capital
Financial capital is the monetary amount of the net assets contributed by shareholders
and the amount of the increase in net assets resulting from earnings retained by the
entity.

Net income under financial capital

Under the financial capital concept, net income occurs when the nominal amount of the
net assets at the end of the year exceeds the nominal amount of the net assets at the
beginning of the period, after excluding distributions to and contributions by owners
during the period.

Physical capital
Physical capital is the quantitative measure of the physical productive capacity to
produce goods and services.

LESSON 8: PAS 1 PRESENTATION OF FINANCIAL STATEMENTS

Statement of financial position

FINANCIAL STATEMENTS
Financial statements are the means by which the information accumulated and processed in
financial accounting is periodically communicated to the users.
General purpose financial statements
An entity shall prepare and present general purpose financial statements in accordance with the
International Financial Reporting Standards.
Objective of financial statements
The 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
Financial statements shall be presented at least annually.
Statement of financial position
It is a formal statement showing the three elements comprising financial position, namely assets,
liabilities and equity.
Definition of asset
An asset is an economic resource controlled by an entity as a result of past event.
An economic resource is a right that has the potential to produce economic benefits.
Classification of assets
Assets are classified only into two, namely current asset and non-current assets.

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The operating cycle of an entity is the time between the acquisition of assets for processing and
their realization in cash or cash equivalents.
When the entity’s normal operating cycle is not clearly identifiable, the duration is assumed to be
twelve months.
Presentation of current assets
Current assets are usually listed in the order of liquidity. PAS 1, paragraph 54, provides that as a
minimum, the line items under current assets are Cash and cash equivalents, Financial assets at
fair value such as trading securities and other investments in quoted equity instruments, Trade
and other receivables, inventories, and Prepaid expenses.
Non –current assets
The caption “ non-current assets” is a residual definition.
PAS 1, paragraph 66, states that “an entity shall classify all other assets not classified as current
as non-current”
Non-current assets include property, plant and equipment, long-term investments, intangible
assets, deferred tax assets, and other non-current assets.
Property, plant and equipment
PAS 16, paragraph 6, defines property, plant and equipment as tangible assets which are held by
an entity for use in production or supply of goods and services, for rental to others, or for
administrative purposes, and are expected to be used during more than one period.
Long-term investments
The IASC defines investment as an asset held by an entity for the accretion of wealth through
capital distribution.
Intangible assets
An intangible asset is simply defined as an identifiable nonmonetary asset without physical
substance.
Other non-current assets
Other non-current assets are those assets that do not fit into the definition of the previously
mentioned non-current assets.

Liability
It is a present obligation of an entity to transfer an economic resource as a result of past event.

Current liabilities
PAS 1, paragraph 69, provides that an entity shall classify a liability as current when the entity
expects to settle the liability within the entity’s normal operating cycle, the entity holds the
liability primarily for the purpose of trading, the liability is due to be settled within twelve
months after the reporting period, and the entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the reporting period.

Presentation of current liabilities

PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial position
shall include trade and other payables, current provisions, short-term borrowing, current portion
of long-term debt, and current tax liability for current liabilities.
Non –current liabilities
The term “non-current liabilities” is also a residual definition.

Currently maturing long-term debt

A liability which is due to be settled within twelve months after the reporting period is classified
as current, even if the original term was for a period longer than twelve months and an agreement
to refinance or to reschedule payment on a long-term basis is completed after the reporting period
and before the financial statements are authorized for issue.

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Discretion to refinance
If the entity has the discretion to refinance or roll over an obligation for at least twelve months
after the reporting period under an existing loan facility, the obligation is classified as non-current
even if it would otherwise be due within a shorter period.
Covenants
Covenants are actually restrictions on the borrower as to undertaking further borrowings, paying
dividends, maintaining specified level of working capital and so forth.
Effect of breach of covenants
This liability is classified as current because at reporting date the borrower does not have an
unconditional right to defer payment for at least twelve months after the reporting period.
Definition of equity
The term equity is the residual interest in the assets of the entity after deducting all of its
liabilities.
Shareholders’ equity
It is the residual interest of owners in the net assets of a corporation measured by the excess of
assets over liabilities.
Notes to financial statements
It provide narrative description or disaggregation of items presented in the financial statements
and information about items that do not qualify for recognition.
Forms of statement of financial position
There are two customary forms in presenting the statement of financial position, namely report
form and account form.
Report form
This form sets forth the three major sections in a downward sequence of assets, liabilities and
equity.

Account form
The presentation follows that of an account, meaning, the assets are shown on the left side and the
liabilities and equity on the right side of the statement of financial position.
PAS 1, paragraph 57, provides that the standard does not prescribe the order or format in which
items are to be presented in the statement of financial position.

LESSON 9: PAS 1 PRESENTATION OF FINANCIAL STATEMENTS

Statement of comprehensive income

INCOME STATEMENT
An income statement is a formal statement showing the financial performance of an
entity for a given period of time

Comprehensive income
It is the 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.

Profit or Loss

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The term profit or loss is the total of income less expenses, excluding the components of
other comprehensive income.

Other comprehensive income (OCI)

Other comprehensive income comprises items of income and expenses including
reclassification adjustments that are not recognized in profit or loss as required or
permitted by Philippine Financial Reporting Standards.

Presentation of other comprehensive income

PAS 1, paragraph 82A, provides that the statement of comprehensive income shall
present line items for amounts of other comprehensive income during the period
classified by nature.
The line items for amounts of OCI shall be grouped as OCI that will be reclassified
subsequently to profit or loss when specific conditions are met, OCI that will not be
reclassified subsequently to profit or loss but to retained earnings, OCI that will be
reclassified to profit or loss, unrealized gain or loss on debt investment measured at fair
value through other comprehensive income, gain or loss from translating financial
statements of a foreign operation, and unrealized gain or loss on derivative contracts
designated as cash flow hedge.

Presentation of comprehensive income

An entity has two options of presenting comprehensive income, namely:

Two statements:
An income statement showing the components of profit or loss.
A statement of comprehensive income beginning with profit or loss as shown in the
income statement plus or minus the components of other comprehensive income.

Single statement of comprehensive income

This is the combined statement showing the components of profit or loss and
components of other comprehensive income in a single statement.

Sources of income
Sales of merchandise to customers
The income from sales shall include all sales to customers during the period.
Sales returns, allowances and discounts shall be deducted from gross sales to arrive at
net sales.

Rendering of services
Income from rendering of services, among others, includes professional fees, media
advertising commissions, insurance agency commissions, admission fees for artistic
performance and tuition fees.

Use of entity resources

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This income category includes interest, rent, royalty and dividend income.

Components of expense
The components of expense are Cost of goods sold or cost of sales, Distribution costs or
selling expenses, Administrative expenses, Other expenses, and Income tax expense.

Classifications of expenses
Distribution costs constitute costs which are directly related to selling, advertising and delivery of
goods to customers.
Administrative expenses ordinarily include all operating expenses not related to selling and cost
of goods sold.
Other expenses are those expenses which are not directly related to the selling and administrative
function.
No more extraordinary items
PAS 1, paragraph 87, specifically mandates that an entity shall not present any items of income
and expense as extraordinary either on the face of the income statement or statement of
comprehensive income or in the notes.
Forms of Income statement
PAS 1, paragraph 99, provides that an entity shall present an analysis of expenses recognized in
profit or loss using a classification based on either the function of expenses or their nature within
the entity, whichever provides information that is reliable and more relevant.
Functional presentation
This form classifies expenses according to their function as part of cost of goods sold, distribution
costs, administrative expenses and other expenses.
Natural presentation
It is referred to as the nature of expense method.
PAS 1 does not prescribe any format.
Paragraph 105 states that because each method of presentation has merit for different types of
entities, management is required to select the presentation that is reliable and more relevant.
Statement of comprehensive income
Statement of comprehensive income is prepared in order to show the total comprehensive income.
Single statement of comprehensive income
In presenting the components of profit or loss and components of other comprehensive income is
to prepare a single statement of comprehensive income.
Single statement is combined income statement and statement of comprehensive income.
Statement of retained earnings
The statement of retained earnings shows the changes affecting directly the retained earnings of
an entity and relates the income statement to the statement of financial position.
Statement of changes in equity
The statement of changes in equity is a basic statement that shows the movements in the elements
or components of the shareholders’ equity.
Statement of cash flows
The statement of cash flows is a basic component of the financial statements which summarizes
operating, investing and financing activities of an entity.

LESSON 10: PAS INVENTORIES

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INVENTORIES
Inventories are assets held for sale in the ordinary course of business, in the process of
production for such sale or in the form of materials or supplies to be consumed in the
production process or in the rendering of services.

Classes of inventories
Inventories are broadly classified into two, namely inventories of a trading concern and
inventories of manufacturing concern.
Trading concern is one that buys and sells goods in the same form purchased.
The term merchandise inventory is generally applied to goods held by a trading concern.
A manufacturing concern is one that buys goods which are altered or converted into
another form before they are made available for sale.
The inventories of a manufacturing concern are Finished goods, Goods in process, Raw
materials, and Factory or manufacturing supplies.

Cost of inventories
The cost of inventories shall comprise Cost of purchase, Cost of conversion, and Other
cost incurred in bringing the inventories to their present location and condition.

Cost of purchase
The cost of purchase of inventories comprises the purchase price, import duties and
irrecoverable taxes, freight, handling and other costs directly attributable to the
acquisition of finished goods, materials and services. Trade discounts, rebates and other
similar items are deducted in determining the cost of purchase.

Cost of conversion
It includes a systematic allocation of fixed and variable production overhead that is
incurred in converting materials into finished goods.

Other cost
It is included in the cost of inventories only to the extent that it is incurred in bringing the
inventories to their present location and condition.

Cost of inventories of a service provider

The cost of inventories of a service provider consists primarily of the labor and other
costs of personnel directly engaged in providing the service, including supervisory
personnel and attributable overhead.

Cost formulas
PAS 2, paragraph 25, expressly provides that the cost of inventories shall be determined
by using either First in, First out or Weighted average

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First in, First out (FIFO)
The FIFO method assumes that the goods first purchased are first sold and
consequently the goods remaining in the inventory at the end of the period are those
most recently purchased or produced. The rule is first come, first sold.
Weighted average
Weighted average method produces inventory valuation that approximates current value if there
is a rapid turnover of inventory.
Last in, First out (LIFO)
The LIFO method assumes that the goods last purchased are first sold and consequently the goods
remaining in the inventory at the end of the period are those first purchased or produced.
Specific Identification
It means that specific costs are attributed to identified items of inventory.
Measurement of inventory
PAS 2, paragraph 9, provides that inventories shall be measured at the lower of cost and net
realizable value.
Net realizable value
Net realizable value or NRV is the estimated selling price in the ordinary course of business less
the estimated cost of completion and the estimated cost of disposal.
Accounting for inventory write-down
If the cost is lower than NRV, there is no accounting problem because the inventory is stated at
cost and the increase in value is not recognized. If the NRV is lower than cost, the inventory is
measured at net realizable value.
Allowance method
This method is also known as loss method because a loss account loss on inventory write-down is
debited and a valuation account “allowance for inventory write-down” is credited.

LESSON 11: PAS 7 STATEMENT OF CASH FLOWS

STATEMENT OF CASH FLOWS

Statement of cash flows is a component of financial statements summarizing the operating,
investing and financing activities of an entity.
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 comprises cash on hand and demand deposits.
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 of cash flows
The statement of cash flows shall report cash flows during the period classified as operating,
investing and financing activities.
Operating activities
Operating activities are the cash flows derived primarily from the principal revenue producing
activities of the entity.
Trading securities
PAS 7, paragraph 15, provides that cash flows arising from the purchase and sale of dealing or
trading securities are classified as operating activities.
Investing activities
Investing activities are the cash flows derived from the acquisition and disposal of long-term
assets and other investments not included in cash equivalent.

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Financing activities
Financing activities are the cash flows that result from transactions between the entity and the
owners-equity financing and between the entity and the creditors – debt financing.
Noncash transactions
Noncash transactions like acquisition of asset by assuming directly related liability, acquisition of
asset by issuing share capital acquisition of asset by issuing bonds payable, conversion of bonds
payable into share capital, and conversion of preference shares into ordinary shares are disclosed
separately.
Interest
PAS 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.
Dividends
PAS 7, paragraph 33, provides that dividend received shall be classified as operating cash flow
because it enters into the determination of net income.
PAS 7, paragraph 34, provides that dividend paid shall be classified as financing cash flow
because it is a cost of obtaining financial resources.
Income taxes
PAS 7, paragraph 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.

ACTIVITIES

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V. GENERAL REFLECTION
This course subject really made me aware about things with money and how it
works in accounting system. As we go on with everyday discussions, I just keep on
thinking that what if I can’t master the lesson? Can I have work? Can it really help me in
my future job or nah? One thing I have learned, maybe these lessons are complex for
me to understand in just one sitting but I have days ahead to read and read and
understand the topics. It may be hard but if I keep on learning, one day, I will understand
all about it. It’s all about perseverance and not just being wise at all times. I got low
scores but it doesn’t remind me that I am fool and weak at understanding accounting but
it motivates me. It motivates me to look beyond and to focus more in my studying.

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 EXPERT SKILLED BEGINNER SC
CRITERIA 3 2 1

Completeness 1 All the needed 1 of the evidences 2 or more evidences

evidences are needed is not needed are not
provided. presented. presented.
Relevance 3 All the learning 1 of the learning 2 or more of the
experiences cited on experiences cited on learning experiences
the reflection are the reflection is vague cited on the reflection
concrete and are and quite related to are vague and are not
relevant to their future their future profession; related to their future
profession; the 1 recommendation profession; 2 or more
recommendations given is not suited to recommendations
given can be used as the difficulties. given are not suited to
the solutions to the the difficulties.
difficulties.
Understanding 2 Summary of the topic Summary of the topic is Summary of the topic is
the topic is explained not explained vague and not
thoroughly, and is thoroughly, and is quite substantial.
extremely substantial. substantial.

Presentation 1 The ideas are
and presented in an
Organization exemplary English
structure/grammar and
are well-organized.
The ideas are The ideas are
presented with some presented with lots of
inconsistencies/errors inconsistencies/errors
in the in the
structure/grammar and structure/grammar and
are quite organized. are not organized.

Promptness 1 Submitted on the Submitted after the

deadline. deadline.
Total

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VI. GRADING RUBRICS

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