CFAS Discussion (page 161)

1. What are financial statements?

 Financial statements are like the mouth of the accounting process. It
conveys important quantitative and relative information such as the
financial performance of the company that helps in business decisions
and aids the users of the accounting information. Financial statements
very purpose is to communicate to the proprietor of what happened to
the capital that he put into the business.

2. What are the components of financial statements?

 The components of the financial statements contain:
a. Statement of Financial Position
b. Income Statement
c. Statement of Comprehensive Income
d. Statement of Changes in Equity
e. Statement of Cash Flows
f. Notes, comprising a summary of significant accounting
policies and other explanatory notes

3. Explain the objective of financial statements.

 The objective of financial statements is to offer information about the
financial position, financial performance and cash flows of an entity
that is valuable to an extensive scope of users in formulating
economic decisions. Moreover, financial statements provide
information about the assets, liabilities, equity, income and expenses,
gains, losses, capital and cash flows of the entity. Thus, financial
statements show the capability, activities, and performances of the
business which can significantly ang critically benefits the decision
makers such as the owners and current or future investors.

4. What is the frequency of reporting of financial statements?

 Financial statements shall be prepared and presented at least annually.
Moreover, reporting may be a calendar year or a natural business year.
To define, calendar year is when the accounting period will begin on
January 1 and will end on December 31 of the same year. There are
four (4) quarters in a calendar year and each quarter consists of three
 (3) months. On the other hand, fiscal year happens when the
accounting period will begin on the first day of any month of the year
except January and will end on the last day of the twelfth month
completing the one-year period.

5. Define a statement of financial position.

 A Statement of Financial Position is a formal statement displaying the
three elements including financial position, specifically assets,
liabilities and equity. Assessment of the factors such as liquidity,
solvency and the need of the entity for additional financing aids the
investors, creditors and other statement users when they scrutinize the
statement of financial position.

6. What are the essential characteristics of an assets?

 An asset has a future economic benefit. It is also controlled by a
particular entity. Additionally, assets can be determined by occurrence
of the past transaction or events.

7. What are the classification of assets?

 Assets are categorized only into two, explicitly current assets and
noncurrent assets.

8. Define current assets.

 Current assets are typically enumerated in the order of liquidity. Also,
current assets are expected that to be realized in a short span of time
or within twelve months after the reporting period. It is also expected
to be consumed within the entity’s normal operating cycle. Its primary
purpose is to trade. Moreover, an asset is said to be current when it is
cash or cash equivalent.

9. What are the line items for current assets?

 The line items under current assets are:
a. Cash and cash equivalents
b. Financial assets at fair value such as trading securities and
other investments in quoted equity instruments
c. Trade and other receivables
 d. Inventories
e. Prepaid expenses

10.Define noncurrent assets.

 Noncurrent assets are those assets not included in the current assets
such as property, plant and equipment, long-term investments,
intangible assets, deferred tax assets and other noncurrent assets.

11.Identify the noncurrent assets.

 Noncurrent assets are company's long-term assets that are not easily
converted to cash within a year. Examples include investments,
intellectual property, real estate and equipment.

12.What ere the essential characteristics of a liability?

 The essential characteristics of a liability are:
a. it embodies a present duty or responsibility to one or more
other entities that requires settlement by possible future
transfer or usage of assets at a stated or determinable date, on
occurrence of a specified event, or on demand
b. the duty or responsibility necessitates a particular entity,
leaving it little or no discretion to avoid the future sacrifice
c. the transaction or other event obligating the entity has already
happened.

13.What are the classifications of liabilities?

 The classifications of liabilities are classified as current liability and
noncurrent liability.

14.Define current liabilities.

 Current liabilities are a company's short-term financial obligations
that are due within one year or within a normal operating cycle

15. What are the line items for current liabilities?

 The following line items for current liabilities, namely:
a. Trade and other payables
b. Current provision
 c. Short term borrowing
d. Current portion of long-term debt
e. Current tax liability

16.Explain the treatment of currently maturing long-term debt.

 The treatment of currently maturing long-term debt is the amount of
principal that will be due within one year of the date of the balance
sheet. It is completed on or before the end of the reporting period.

17.Explain the effect of breach of covenants on the classification of liability.

 PAS 1, paragraph 74, provides that the liability is classified as current
if the lender has agreed, after the reporting period and before the
statements are authorized for issue.
 Paragraph 75, provides that the. liability is classified as noncurrent if
the lender has agreed on or before the end of reporting period.

18.What are the elements comprising the equity of a corporation?

 The elements comprising the equity of a corporation are: Capital
stock, subscribed capital stock, preferred stock, Common stock,
Additional paid capital, retained earnings (deficit), Retained earnings
appropriated, Revaluation surplus and Treasury stock.

19.What is the meaning of “notes to financial statements”?

 Notes to financial statements are narratives or disaggregation of items
presented in the financial statements and information about items that
do not qualify for recognition.

20.Explain the two forms of statement of financial position.

 There are two customary forms in presenting the statement of
financial position:
a. Report form - The report form balance sheet is presented in a
vertical orientation, and is essentially one column that spans
the entire width of a page
 b. Account form - The account form refers to a two-column
format for the presentation of the balance sheet. Assets are
listed in the first column, while liabilities and equity accounts
are listed in the second column.

Sources:
 Valix, C., Peralta, J., & Valix, C. A. (2020). Conceptual Framework and Accounting
Standards (2020th ed.). GIC Enterprises & Co., INC.

 Lopez, Jr., R. (2019). Bookkepping (2018th-2019 ed. ed.). MS Lopez Printing & Publishing.

 Nandwani, M. (2016, June 18). Assets: Definition, Characteristics and Objectives. Learn
Accounting: Notes, Procedures, Problems and Solutions.
https://www.accountingnotes.net/assets/assets-definition-characteristics-and-objectives/5341

 Jackson, B. (n.d.). The Financial Accounting Standards Board.

https://www.fasb.org/jsp/FASB/CommentLetter_C/ViewCommentLetter&cid=11758033012
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