Comprehensive

Review in Financial
Accounting in
Reporting
AUGUST 26, 2022, 1-4PM
DANIEL TERENCIO
JOHN PAUL FADRILAN
 Topics:
CFAS
INTERIM REPORTING
OPERATING SEGMENTS

CASH AND CASH EQUIVALENTS

DEBT INVESTMENTS
INVENTORIES
PROPERTY, PLANT, AND EQUIPMENT

INCOME TAXES
 THE CONCEPTUAL FRAMEWORK FOR
FINANCIAL REPORTING

Chapter 1: The Objective of General-Purpose Financial Reporting

Provide financial information that is useful to users in making
decisions relating to providing resources to the entity.
 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
Chapter 2: Qualitative Characteristics
1. Fundamental
1.1 Relevance – capable of making difference in the decisions made
by the users
a. Predictive value – predicting future trends of the business
b. Confirmatory/Feedback value – confirming or correcting any
past predictions made
1.2 Faithful Representation – descriptions and figures must match
what really existed
a. Completeness – principle of full disclosure
b. Neutrality – fairness and freedom from bias
Prudence/Conservatism Principle – exercise of care and
caution (assets or income are not overstated and liabilities
or expenses are not understated)
c. Freedom from error – no inaccuracies or omissions
 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
Chapter 2: Qualitative Characteristics
2. Enhancing
2.1 Verifiability – consensus
2.2 Comparability – noting points of likeness and difference (inter-
comparability/intra-comparability)
2.3 Understandability – comprehensible, clear and concise
2.4 Timeliness – available and communicated early enough when a
decision is to be made
 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
Chapter 3: Financial Statements and the Reporting Entity
Financial Statements
Provide information about the reporting entity’s assets, liabilities,
equity, income and expenses
Types of FS
Consolidated – Parent and subsidiary
Unconsolidated – Parent only
Combined – 2 or more unrelated entities
Reporting Entity
Prepare FS
Not necessarily a legal entity – could be a portion or more than
one entity
 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
Chapter 4: Elements of Financial Statements
Chapter 5: Recognition and Derecognition
Recognition
meets the definition of assets, liability, income and expense
Accrual principle
Matching principle
Cause and effect association (cogs, doubtful accounts, warranty exp,
sales commission)
Systematic and rational allocation (depreciation, amortization,
prepayments)
Immediate recognition (salaries, loss from disposal, casualty loss)
Derecognition
Loses control of all or part of the recognized asset
No longer has a present obligation for all or part of the recognized
liability
 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
Chapter 6: Measurement
 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING

Chapter 7: Presentation and Disclosure

Classification – sorting (CA & NCA; P/L & OCI; OSC, PSC, SP, RE)
Aggregation – adding
Offsetting – subtracting (generally not allowed)
 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
Chapter 8: Concepts of Capital and Capital Maintenance
 LETTER C.

INFORMATION IS RELEVANT IF IT HAS

PREDICTIVE AND
CONFIRMATORY/FEEDBACK VALUE
 REFINANCING AGREEMENT AND BREACH OF
COVENANTS
Refinancing agreement is an adjusting event if:
it happened ON OR BEFORE the reporting period
the entity has the dicretion to refinance or roll over
Breach of Covenant
If the covenant is breached, the liability becomes payable on
demand (current)
If the lender agreed ON OR BEFORE the reporting period to provide
a grace period for at least 12 months, the liability is classified as
noncurrent.
 ANSWER:
P4,000,000
 CASH TO ACRRUAL
Sales on account
Add: AR, beg
Total Receivables
Less: AR, end
Cash Received
WORKBACK:
Cost of Sales
Inventory, beg Add: Inventory, end
Add: Net purchases TGAS
TGAS Less: Inventory, beg
Less: Inventory, end Net Purchases
Cost of Sales Add: AP, beg
Total Payables
Less: AP, end
Cash Paid
CASH TO ACRRUAL
 NOTES:
preparation and presentation of FS for a period of
less than one year
may be issued monthly, quarterly or semi-annually
PAS 34 DOES NOT specify which entities are
required to publish interim financial reports
PAS 34: public traded companies are ENCOURAGED to
INTERIM provide interim reports at least semi-annually,
available not later than 60 days after the end of
REPORTING the interim period.
SEC and PSE require companies covered by the
Revised Securities Act to file quarterly interim
financial reports within 45 days after the end of
each of the first three quarters
Selected explanatory notes – explain significant
events occurred since the last annual reporting date
Entity shall use the same accounting policies in the
interim report as it does in annual FS
 PAS 34: INTERIM REPORTING
Which of the following statements is incorrect?
I. IAS 34 mandates which entities should be required to publish interim financial
reports, how frequently, or how soon after the end of an interim period.
II. Unlike for publicly listed entities which are required by IAS 34 to present interim
financial statements, non-listed entities are just encouraged by the standard to
present interim financial statements.
III. The SEC and PSE require companies covered by the reportorial requirements of
the Revised Securities Act to file quarterly interim financial reports within 45 days
after the end of each of the first three quarters.
IV. Publicly traded entities are encouraged under IAS 34 to provide interim financial
reports at least as of the end of the first half of their financial year; and to make
their interim financial reports available not later than 60 days after the end of the
interim period.
V. For interim reporting relevance is sometimes sacrificed for reliability.

a)Statements 1, 2, 3, 4, and 5
b)Statements 1,2, 4
c)Statements 1, 2, 5
d)Statements 1, 2, 3, 5
 PAS 34: INTERIM REPORTING
Which of the following statements is incorrect?
I. IAS 34 mandates which entities should be required to publish interim financial
reports, how frequently, or how soon after the end of an interim period.
II. Unlike for publicly listed entities which are required by IAS 34 to present interim
financial statements, non-listed entities are just encouraged by the standard to
present interim financial statements.
III. The SEC and PSE require companies covered by the reportorial requirements of
the Revised Securities Act to file quarterly interim financial reports within 45 days
after the end of each of the first three quarters.
IV. Publicly traded entities are encouraged under IAS 34 to provide interim financial
reports at least as of the end of the first half of their financial year; and to make
their interim financial reports available not later than 60 days after the end of the
interim period.
V. For interim reporting relevance is sometimes sacrificed for reliability.

a)Statements 1, 2, 3, 4, and 5
b)Statements 1,2, 4
c)Statements 1, 2, 5
d)Statements 1, 2, 3, 5
 PFRS 8: OPERATING SEGMENTS

Operating Segment is a component of an entity:

That is engaged in revenue-generating and expense incurring
business activities
Whose operating results are reviewed on a regular basis by the
chief operating decision maker
For which discrete financial information is available
 PFRS 8: OPERATING SEGMENTS

Reportable Segments
1. Management Approach – based on professional judgment of the
management
2. Quantitative Thresholds

3. Aggregation of Segments (75% threshold) – practical limit is 10

Allowed only if the segments share the MAJORITY of the ff aggregation
criteria:
Nature of the product/service
Nature of production process
Types of class of customers
Marketing or distribution method
Nature of the regulatory requirement
 PFRS 8: OPERATING SEGMENTS

Which of the following segment/s is/are reportable?

 PFRS 8: OPERATING SEGMENTS
Which of the following segment/s is/are reportable?

Revenue = 45,000,000 x 10% = 4,500,000 (Segments A,B,C)

Profit = 1,600,000+600,000+300,000 = 2,500,000 (greater)
Loss = 900,000+100,000 = 1,000,000
2,500,000 x 10% = 250,000 (Segments A,B,C,D)
Assets = 50,000,000 x 10% = 5,000,000 (Segments A,B,E)
ANSWER:
B
 COMPONENTS OF CASH:
CASH ON HAND
CASH AND
CASH
EQUIVALENTS CASH IN BANK

WORKING FUNDS
 CASH AND CASH EQUIVALENTS

1. CASH ON HAND
Bills, coins and currencies
Postal money orders
Traveler's check
Money order
Bank drafts
Check collections (customer's check)
Dated checks – Cash
Postdated check - Receivable
NSF/DAUD/DAIF check - Receivable
Stale check – Receivable
Point of reference is the date of check
 CASH AND CASH EQUIVALENTS
2. CASH IN BANK
Savings Account
Checking Account
Other considerations:
Bank overdraft
If silent: reported as current liability
except: there is right of offset (same bank AND same branch) / integral part
of cash management system
Compensating balance
Legally restricted – not cash
Not legally restricted – cash
If silent – cash
Maintaining balance – always cash
Checks drawn against Cash in Bank (company's check)
Outstanding check – ignore
Postdated check – add back to cash (increase AP)
Stale check – add back to cash (increase AP)
Unreleased/undelivered check – add back to cash (increase AP)
 CASH AND CASH EQUIVALENTS

3. WORKING FUNDS
Petty Cash Fund
Coins, bills, currencies
Accommodation check/Representation/Cashier's check
Change Fund
Payroll Fund
Dividend Fund
Tax Fund
Bond Sinking Fund – cash only if the related liability is current, if silent -
noncurrent (not included in cash)
Plant Acquisition Fund – always noncurrent since PPE is always noncurrent (not
included in cash)
 CASH AND CASH EQUIVALENTS

CASH EQUIVALENTS
short-term highly liquid investments (3 months or less/ 90 days or less)
Point of reference is the acquisition date
ANSWER:
B
BANK RECONCILIATION
BANK RECONCILIATION
 BANK RECONCILIATION

What is the amount of deposit in transit at November 30?

 BANK RECONCILIATION

What is the amount of deposit in transit at November 30?

INVESTMENTS
DEBT INVESTMENTS
DEBT INVESTMENTS
DEBT INVESTMENTS
DEBT INVESTMENTS
 INVENTORY
TERMS OF SHIPMENT
 INVENTORY
CONSIGNMENT
Always owned by the CONSIGNOR
Consignor should include the inventory out on consignment at cost
Only the freight from consignor to consignee should be capitalized
INVENTORY
INVENTORY
 INVENTORY

Purchase Commitments
Purchase is only recorded at the date of actual purchase
Loss is reported in the period in which the decline takes place
JE:
Loss on Purchase Commitments
Estimated liability on Purchase Commitments
Gain on purchase commitment is recognized only to the extent of
loss previously recognized
INVENTORY
 INVENTORY

October 1, 2020 No Entry

December 31, 2020 Loss on Purchase Commitments 6,000
Estimated liability on PC 6,000
February 5, 2021 Purchases 110,000
Estimated liability on PC 6,000
Accounts Payable 110,000
Gain on recovery of loss on PC 6,000
 PROPERTY, PLANT AND EQUIPMENT

Capitalizable costs of PPE

a)Purchase price (including import duties, and non-refundable taxes)
b)Directly attributable costs
Initial delivery and handling costs
Installation and assembly costs
Cost of testing the asset
Professional fees
c)Present value of cost of dismantling / decommissioning cost
The following items are NOT part of the costs of PPE:
Cost of opening a new facility
Cost of introducing a new product
Cost of conducting business in a new location
Administration and other general overhead costs
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT
ANSWER:
D
ANSWER:
D
INCOME TAXES
 INCOME TAXES

Permanent Differences
Non-deductible expenses:
Fines, penalties and surcharges in violation of law
Charitable contributions in excess of tax limitation
Premiums paid on life insurance where the company is the
beneficiary
Impairment loss on goodwill
Non-taxable income
Gain from settlement of life insurance where the company is the
beneficiary
Dividend received from a domestic corporation received by domestic
and non-resident corporation
Interest revenue on government/municipal bonds
Income subject to final tax (interest on bank deposits, royalties)
INCOME TAXES
ANSWER:
C
 Topics:
RECEIVABLES
INTANGIBLE ASSETS
EQUITY INVESTMENTS
INVESTMENT IN ASSOCIATE
BIOLOGICAL ASSETS
WASTING ASSETS

FINANCIAL LIABILITY
LEASES
EMPLOYEE BENEFITS

SHARHOLDERS' EQUITY
 FORMS OF RECEIVABLE FINANCING
Pledging of Accounts Receivables –also known as
hypothecation or general assignment, accounts
receivables are pledged as collateral security for the
payment of the loan.
Assignment of Accounts Receivables – assignor or
borrower transfers rights to some of the rights in
Accounts Receivable to a lender called the assignee
Receivables in consideration for a loan

Factoring of Accounts Receivable - is an outright

sale of accounts receivable on a without recourse,
notification basis.

Discounting of Notes Receivable - note receivable can be used to obtain immediate

cash from a financial institution either by pledging the note as collateral for a loan
(discounting with recourse) or by selling the note (discounting without recourse).
Summary of Account Movements
 LETTER A.

PLEDGING OF RECEIVABLES REQUIRE NO

ENTRY. IT IS SUFFICIENT THAT
DISCLOSURE THEREOF IS MADE IN A
NOTE TO FINANCIAL STATEMENTS.
Investment in Associate
Goodwill Formula
 LETTER D.
UNDERSTATMENT OF INVESTMENT
ACCOUNT, NET INCOME, AND RETAINED
EARNINGS
 Intangible Assets
TO QUALIFY AS AN INTANGIBLE ASSET, AN ITEM MUST MEET ALL OF THE FOLLOWING DEFINITION
CRITERIA:
A. IDENTIFIABILITY

B. CONTROL

C. EXISTENCE OF FUTURE
ECONOMIC BENEFIT

AN INTANGIBLE ASSET MUST BE IDENTIFIABLE TO DISTINGUISH IT FROM GOODWILL (IAS 38,

PARAGRAPH 11). AN ASSET MEETS THE IDENTIFIABILITY CRITERION WHEN:

1. IT IS SEPARABLE, WHICH MEANS THAT THE ITEM IS CAPABLE OF BEING SEPARATED OR

DIVIDED FROM THE ENTITY AND SOLD, TRANSFERRED, LICENSED, RENTED OR EXCHANGED, EITHER
INDIVIDUALLY, OR TOGETHER WITH A RELATED CONTRACT, ASSET OR LIABILITY; OR
2. IT ARISES FROM CONTRACTUAL OR OTHER LEGAL RIGHTS, REGARDLESS OF WHETHER THOSE
RIGHTS ARE TRANSFERRABLE OR SEPARABLE FROM THE ENTITY OR FROM OTHER RIGHTS AND
OBLIGATIONS
 LETTER B.
UNLIKE OTHER INTANGIBLES,
GOODWILL IS NOT SEPARABLE
NOT EXCHANGABLE.
Biological Asset Measurement
Biological Asset Changes in Fair Value
 Wasting Assets
THESE ARE ASSETS THAT ARE FROM NATURAL RESOURCES. THEY ARE ONLY REPLACED BY AN ACT OF NATURE. IT IS
SUBJECT TO DEPLETION.

Depletion
-It is a systematic allocation of depletion base of the natural
resource over the period the natural resource is extracted. It is
normally computed using output method.
 Wasting Assets (Initial Measurement)
Purchase price including directly attributable cost.
Exploration cost- are expenditures incurred before technical
feasibility and commercial viability of the mineral resources are
demonstrated
Development cost- are costs incurred to exploit or extract the
natural resources that has been located through successful
exploration.
Note: For all the transportation and heavy equipment needed to extract
the resource and get it ready to market, they are capitalized and
depreciate separately.
The drilling costs, tunnels, shafts and wells are capitalized as part of
the natural resource.
Restoration cost (at its present value) - cost of restoring the site
arising from legal or contractual agreement
Wasting
Assets

Note: Depletion charge is considered as an

inventoriable cost or product cost.
 Financial Liability
Important note:
CLASSIFICATION AS CURRENT LIABILITIES If an entity expects
1. Expected to be settled in its normal operating cycle and has the discretion
to refinance or roll
2. It holds the liability primarily for the purpose of trading over the obligation for
at least twelve
3. The liability is due to be settled within twelve months after months after the
the end of reporting period reporting period under
an existing loan
4. The entity does not have an unconditional right to defer facility, it classifies
settlement of the liability for at least twelve months after the the obligation as non-
reporting period current, even if it
would otherwise be
due within a shorter
period.
 Shareholders' Equity
Issuance of Share Capital
ISSUED FOR CASH
proceeds are credited to share capital equal to par or stated value, and the excess is
reflected as share premium. If no par no stated value, entire proceeds should be
credited to SHARE CAPITAL account without allocation to share premium

ISSUED FOR CONSIDERATION OTHER THAN CASH

if issued to an entity OTHER THAN an EMPLOYEE of the ISSUING COMPANY, the
transaction is measured at priority
a. Fair value of property or services rendered
b. Fair value of the share capital issued
 Shareholders' Equity
Share Reacquisition
TREASURY SHARES
represent shares that have been issued to shareholders and have been
subsequently REACQUIRED either through purchase or by donation, but
ultimately not yet RETIRED. This type of share CARRIES NO VOTING RIGHT
OR PREEMPTIVE RIGHT. It also does not participate in any type of
dividends, and no right to assets in case of liquidation.
 Shareholders' Equity
KEEP IN MIND:
Notes
1. Share split is recorded only by a memorandum entry. It affects all the
issued shares, including treasury shares.
2. Legal capital is the amount of issued par value shares, including
subscribed ordinary shares.
3. Share split increases the total number of share and decreases the cost
per share. Reverse share split is the opposite.
 CRITERIA FOR FINANCE LEASE (TOMSS)
1. Transfer of title

2. Bargain purchase option

3. The lease term is major part of the economic

Leases life of the leased asset (75%)

4. The present value of all lease payments is

substantially equals to the fair value of leased
asset (90%)

5. The asset is of specialized nature

 INITIAL MEASUREMENT OF RIGHT OF USE ASSET
1. Lease liability
2. Lease payments made at or before the
commencement date, less any lease incentives
received
Leases: 3. Initial direct costs incurred by the lessee
Lessee (incremental costs of obtaining the lease ex.
Accounting Legal fees)
4. Present value of Estimate of costs of dismantling
and restoration costs
 INITIAL MEASUREMENT OF LEASE LIABILITY

Leases: 1. Present value of fixed and variable lease

Lessee payments
Accounting 2. Present value of bargain purchase option
3. Present value of guaranteed residual
value
4. Present value of penalties for
Notes: terminating the lease
1. Contingent rents are taken into profit or loss in the period in which they arise
2. Security deposit is separately accounted. Most of the time it is payable in
cash at the end of lease term. Hence, it is presented as non-current
asset/liability.
Finance Lease Comparison
 FOUR MAIN CATEGORIES OF EMPLOYEE
BENEFITS
1. Short-term employee benefits

2. Post-employement benefits

Employee 3. Other employee benefits

Benefits
4. Termination benefits

Post-employment benefits – are benefits provided by the entity to its

employees after the completion of employment, excluding termination
and short-term benefits. It includes retirement benefits in the form of
pensions, life insurances, and medical care.
Two Types of Retirement Plan
 Defined Contribution Plan
A DEFINED CONTRIBUTION PLAN CAN BE:
1. AS TO CONTRIBUTIONS
A. CONTRIBUTORY PLAN – BOTH THE EMPLOYER AND
EMPLOYEE CONTRIBUTES TO THE FUND
B. NON-CONTRIBUTORY PLAN – ONLY THE EMPLOYER
CONTRIBUTES TO THE PLAN

2. AS TO THE MANAGER OF FUND

A. FUNDED – FORMAL, THERE IS A COLLECTING

AGENCY THAT IS RESPONSIBLE FOR PAYING EMPLOYEE
BENEFITS WHEN THEY COME DUE

B. UNFUNDED – THE ENTITY MANAGES THE FUND AND

IS RESPONSIBLE FOR PAYING EMPLOYEE BENEFITS
 Defined
Benefit
Cost

Note:
PV of DBO > FVPA = Deficit (Net Defined Benefit Liability) – noncurrent liability
PV of DBO < FVPA = surplus(Net Defined Benefit Asset) – non-current asset
Total Contributions > Total benefits expense = Overfunding
Total Contributions < Total benefits expense = Underfunding
Answer: C. Statements 2, 3
and 5
Statement 1 is invalid as it
pertains to a defined
contribution plan.
Statement 4 is invalid as it
refers to a non-contributory
plan.
 ANY
QUESTIONS?
 Friendly tip
1. Master the concept. It’s the mastery that matters.
2. Read the question first before digging into every detail.
3. Be keen to every attention.
4. Leave the hard questions first and save it for last. Every question, easy or
difficult, is pointed the same.
5. Try to answer all the questions, do not leave any blank.
 Thank you. May God
Bless you on your
Comprehensive Exams.
Fighting!