Studocu is not sponsored or endorsed by any college or university CFAS Reviewer BS Accountancy (Batangas State University) Studocu is not sponsored or endorsed by any college or university CFAS Reviewer BS Accountancy (Batangas State University) Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 Generally Accepted Accounting Principles (GAAP) @ Represent the rules, procedures, practice and standards followed in the preparation and presentation of financial statements © Similar to laws, it must be followed in the financial reporting What is the purpose of Accounting Standards? @ To identify proper accounting practices for the preparation and presentation of financial statements @ A set of high quality accounting standards is anecessityto ensure comparabilityanduniformityin financial statements based on the same financial information Development of GAAP in the Philippines @ Accounting Standards Council (ASC) @Financial Reporting Standards Council (FRSC) -establish and improve accounting standards that will be generally accepted in the Philippines @ Philippine Accounting Standards (PAS)andPhilippine Financial Reporting Standards- the highest hierarchy of GAAP Philippine Interpretation Committee- formed by FRSC in August 2006 which has a role of preparing interpretations of PFRS for approval by FRSC and providing timely guidance on financial reporting issued not specifically addressed in the current PFRS International Accounting Standards Committee (IASC) @ It 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 @ Was formed in June 1973 through an agreement made by the professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland and the United States of America Objectives of IASC @ To formulate and publish in the public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide acceptance and observance @ 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 (IASB) © Established in 2001 @ It is an independent private sector body of which the primary objective is to achieve convergence in the accounting principles that are used by businesses and other organizations for financial reporting around the world @ The IASB (Board) issued the revised Conceptual framework for Financial Reporting (Conceptual Framework), a comprehensive set of concepts for financial reporting in march 2018 CONCEPTUAL FRAMEWORK OF ACCOUNTING @ Conceptual framework-a statement of generally accepted theoretical principles which form the frame of reference for financial reporting © These theoretical principles provide the basis for the development of new accounting standards and the evaluation of those already in existence Conceptual Framework for Financial Reporting-is a basic document that sets objectives and the concepts for general purpose financial reporting @ Its predecessor, framework for the preparation and presentation of the financial statements was issued back in 1989. @ In 2010, IASB published the new document, Conceptual Framework for Financial ReportingPurpose of the Framework 1. To assist the IASB (the board) to develop IFRS that are based on consistent concepts © Whenever new standards or revisions to existing ones are submitted to the board for consideration, they consult the conceptual frameworkto ensure that it is consistent with its provisions Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 2. To assist preparers to develop consistent accounting policies whenno standards(i.c. IFRS) applies to a particular transaction or other event, or when a standardsallows a choiceof accounting policy © Aside from assisting the IASB, the framework also assists preparers of the financial statements in its choice of accounting policy when no guidance is available. So, when the management finds itself confused as to how to account for a specific transaction, the rule of thumb is look for the standards, if there are none then consult the framework 3. Assist all parties to understand and interpret the Standards "The Conceptual Framework isnota standard". Nothing in the Conceptual Framework overrides any Standard or any requirement in a Standard 2 Can the Framework override an IFRS? @No TheConceptual Frameworkmay be revised from time to time on the basis of the Board's experience of working with it @ Revisions of theConceptual Frameworkwill not automatically lead to changes to the Standards The Conceptual Framework provides the foundation for Standards that © Contribute to transparency by enhancing the international capability and quality of financial information, enabling investors and other market participant to make informed economic decisions@ Strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money © Contrioute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation Structure of the Framework 1. The Objective of General Purpose Financial Reporting 2. Qualitative Characteristics of Useful Financial Information 3. Financial Statements and the Reporting Entity 4. The Elements of the Financial Statements 5. Recognition and Derecognition 6. Measurement 7. Presentation and Disclosure 8. Concepts of Capital and Capital Maintenance CHAPTER 1 - The 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 relating to providing resources to the entity" Primary users of financial information © Potential investors @ Lenders © Creditors Users decisions involve: 1. Buying, selling or holding equity or debt instruments 2. Providing or settling loans and other form of credits 3. Voting or otherwise influencing management's action Usefulness and Limitations 1.Many users only rely on the General Purpose Financial Statements 2.Cannot provide all the information 3.Not designed to show the value of the entity 4.Internal users need not rely on the General Purpose Financial Reports 5.Other users may find it useful@ They need information about: O The economic resources of the entity, claims against the entity and changes in those resources and claim © How efficiently and effectively the entity's management and governing board have discharged their responsibilities to use the entity's economic resources Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 Other users @ Management © Other parties, such as regulators and members of the public other than investors, lenders and other creditors, may also find general purpose financial reports useful @ The other users of financial information may also find the general purpose financial reports useful, however, these financial reports are not primarily directed to them The General Purpose Financial Reports are NOT designed to show the value of the reporting entity. They simply provide information to help primary users in estimating the value of the reporting entity DecisionConsequence/Result Invest or Should | buy, hold or sell debt (bonds) and/or equity (shares) securities? Receipt of interest and principal ; Receipt of dividends ; Gains from market price changes Shareh older Should | exercise my rightsto vote? Do I need to influence the actions of management? Ensure management is accountable for the business’ performance and operations LenderShould | provide or settle loans and other forms of credit? Repayment of interest and principal on time Information from General Purpose Users) ‘nancial Accounting (Needs of the @ Economic resources and claims © Own vs Owe © Strength and weaknesses © Solvency and liquidity © Additional financing @ Changes in resources and claims © Changes from the results of financial performance Accrual basis of accounting Past cash flows © Changes not resulting from financial performance Debt securities Equity securities @ Information about the entity's economic resources O Asset protection © Compliance with laws and regulations e ancial performance reflected by accrual accounting @ Financial performance reflected by past cash flows @ Changes in economic resources and claims not resulting from financial performance& general purpose financial reports do not and cannot provide information about general economic conditions and expectations, political events and political climate and industry and company outlooks @ These are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity CHAPTER 2 - Qualitative Characteristics of Useful Financial Information @Fundamental Characteristics- these are information traits that are necessary for the information to be considered useful ORelevance -capable of making a difference in the users’ decisions. i The financial information is relevant when it has predictive value, confirmatory value or both mPre can use it as an input in making predictions or forecasts of ‘ive value -information has a predictive value if users outcomes of events WConfirmatory value -information has confirmatory value if users can use it to confirm their past predictions ll We can provide feedback to past forecasts iMateriality -an ‘entity-specific’ aspect of relevance, meaning it depends on the facts and circumstances surrounding a specific entity Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 Bi information is material if omitting, misstating or obscuring it reasonably be expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports which provide financial information about a specific reporting entity E according to the framework, information may be capable of making a difference in a decision even if some users choose not to take advantageof it or already aware of it from other sources @Faithful representation- the information is faithfully represented when it is complete, neutral and free from error O Information is faithfully represented if it is factual, meaning it represents the actual effects of events that have taken place OCompleteness -information must be presented with sufficient detail necessary for users to understand them Ml Adequate disclosure ONeutrality -information are selected or presented without bias. Bi Information must not be manipulated to increase the probability that it will be received favorably or unfavorably by the users OF ree from error -information presented in the financial statements must not be materially misstated Ml does not mean accuracy in all respects, it simply means that there are no errors or omissions both in the description of the transaction and in the processes of producing the information including the use of estimates when necessary @Enhancing Characteristics (VCUT)- improve the usefulness of information OComparability -information should be comparable between different entities or time periods if the information enables users to make comparisons to identify and understand the similarities in, and the differences among, items OUnderstandability -information shall be classified, presented clearly and concisely we have to keep in mind that the financial reports are prepared for users who are presumably equipped with reasonable knowledge of business and economic activities OTimeliness -information is available in time to influence thedecisions of users I Information must be provided to users in time to be capable of influencing their decisions OVerifiability -independent and knowledgeable observers are able to verify the information If the information enables different and independent users to reach a general agreement about what the information intends to depict nhancing qualitative characteristicsshould be maximized to the extent possible, but it cannot take the place offundamental qualitive characteristics CHAPTER 3 - Financial Statementand theReporting Entity Financial statementsprovide information about economic resources of the reporting entity, claims against the entity and changes in those resources and claims, that meet the definitions of the elements of financial statements Objective of Financial statements The objective of financial statements is toprovide financial informationabout the reporting entity's assets, liabilities, equity, income and expenses that is usefulto users of financial statements inassessingthe prospects for future net cash inflows to the reporting entity and inassessingmanagement's stewardship of the entity's economic resources inancial statements provide info about transactions and other events viewed from the perspective of the reporting entity as a whole, not from the perspective of any group of the entity's existing or potential investors, lenders or other creditors Financial Statements @ Statement of Financial Position Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 @ Statement of Financial Performance @ Other statements and notes © Cash flows © Contributions from and distributions to equity holdersO Methods, assumptions, judgments used for estimates © Recognized assets, liabilities, equity, income and expenses including their nature and risk © Unrecognized assets and liabilities including their nature and risk 3 financial statements are prepared under thegoing concern assumption which means that unless evidence to the contrary exists, the reporting entity is assumed to exist or will continue for the foreseeable future and has neither the intention nor the need to enter liquidation or to cease trading Reporting entityis an entity that is required, or chooses to prepare financial statements @ Single entity © A portion of a company @ More than one entity @ Not necessarily a legal entity Types of financial statements @ Consolidated financial statements © Provide info about the ALEIE of both theparent and its subsidiariesas a single reporting entity @Unconsolidated financial statements O Are designed to provide info about theparent's ALEIE and not about those of its subsidiaries @Combined financial statements O Are financial statements on which the reporting entity comprises 2 or more entities that are not all linked by aparent-subsidiary relationship CHAPTER 4 - The Elements of Financial Statements Item discussed in Chap 1 ElementDefinition or description Economic resource AssetA present economic resourcecontrolled by the entity as a result of past events ‘An economic resource is a right that has the potential to produce economic benefits ClaimLiabilityA present obligation of the entity to transfer an economic resource as a result of past events ClaimEquityThe residual interest in the assets of the entity after deducting all its liabilities Changes in economic resources and claims, reflecting financial performance Incomeincreases in assets, or decrease: liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims Changes in economic resources and claims, reflecting financial performance ExpensesDecreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating todistributions to holders of equity claims Other changes in economic resources and claims -Contributions from holders of equity claims, and distributions to them Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 Other changes in economic resources and claims -Exchanges of assets or liabilities that do not result in increases or decreases in equity ASSETS Previous definition: a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity New det ion: a present economic sourcecontrolledby the entity as a result of past events. An economic resource is a rightthat has thepotential to produce economic benefits 01 Right Rights that have the potential to produce economic benefits take many forms including: @ Right that correspond to an obligation of another party O Rights toreceive cash © Rights toreceive goods or services © Rights toexchange economic resources with another party on favorable termsO Rights tobenefit from an obligation of another party to transfer an economic resource if a specified uncertain future event occurs @ Right that does not correspond to an obligation of another party © Rightover physical objects, such as property, plant and equipment or inventories O Right touse intellectual property JOT ALL RIGHTS ARE ASSETS An entity CANNOT have the right to obtain economic benefits from ITSELF 02 Potential to produce economic benefits @ It is only necessary that the right already exists and that, in at least one circumstances, it would produce for the entity economic benefits beyond those available to all other parties @ It does NOT need to be certain nor likely @ Aneconomic resourcecould produce economic benefits for an entity by entitling or enabling it to do, for example, one or more of the following: 1. Receive contractual cash flows or another economic resources 2. Exchange economic resources with another party with favorable terms 3. Produce cash inflows or avoid cash outflows by, for example: 1. Using the economic resource either individually or in combination with other economic resource to produce goods or provide services 2. Using the economic resource to enhance the value of other economic resource 3. Leasing the economic resource to another party 4. Receive cash or other economic resources by selling the economic resource 5. Extinguish liabilities by transferring the economic resource 03 Control © The present ability to direct the use of the economic resource and obtain the economic benefits that may flow from it@ An entity controls an economic resource if it has present ability to direct the use of the economic resource and obtain the economic benefits that may flow from it LIABILITY Previous definition: a present obligation of the entity arising from past events, the settlements of which is expected to result in an outflow from the entity of resources embodying economic benefit New definition: a present obligation of the entity to transfer an economic resources as a result of past events. An obligation is a duty of responsibility that the entity has no practical ability to avoid @ Established bycontract, law and others © The entity has already obtained economic benefits or taken an action Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 © As a consequence, the entity will or may have to transfer an economic resource that it would not otherwise have had to transfer Criteria for liability to exist: 1. The entity has an obligation 2. The obligation is to transfer an economic resource 3. The obligation is a present obligation that exists as a result of past events Obligationis a duty or responsibility that an entity has no practical ability to avoid @ An obligation is always owed to another party Obligations to transfer an economic resource include: 1. Obligationsto pay cash 2. Obligationsto deliver goods and services 3. Obligationsto exchange economic resources with another party onunfavorable terms 4. Obligationsto transfer an economic resources if a specified uncertain future events occurs 5. Obligationsto issue a financial instrument if that financial instrument will oblige the entity to transfer economic resource A present obligation exists as a result of past events only if: 1. The entity has already obtained economic benefits or taken action 2. As a consequence, the entity will or may have to transfer an economic resource that it would not otherwise have had to transfer EQUITY @ Assets minus Liabilities @ It is the residual interest in the assets of the enterprise after deducting all its liabilities @Equity claimsare claims on the residual interest in the assets of the entity after deducting all its liabilities O Shares of various types, issued by the entity © Some obligations of the entity to issue another equity claim © Different classes of equity claims, such as ordinary shares and preference shares, may confer on their holder's different rights, for example, rights to receive some or all of the following from the entity: © Dividends, if the entity decides to pay dividends to eligible holders © The proceeds from satisfying the equity claims, either in full on liquidation, or in part at other times © Other equity claims INCOME er is the increases in assets or decreases in liabilities that results in increases in equity, other than those relating to contributions from holders of equity claims EXPENSES @ It is the decreases in assets or increases in liabilities that result in decrease in equity other than those relating to distributions to holders of equity claimsAdditional Concepts ‘Unit of Account @ It is how individual items of assets and liabilities are grouped © The right or the group of rights, the obligation or the group of obligation, or the group of rights and obligations, to which recognition criteria and measurement concepts are applied 2Executory Contract © A contract, or a portion of a contract, that is equally unperformed - neither party has fulfill any of its obligations, or both parties have partially fulfilled their obligations to an equal extent @ It represents acombinedright and obligation, and is thus a single unit of account CHAPTER 5 - RecognitionandDerecognition Recognition -including an element in the statement of financial position or statement of financial performancewhen it so qu Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 ifies @ Process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item that meets the definition of one of the elements of financial statements @ In other words, if you decide on recognition, you decide on whether to show this item in the financial statements @ Inclusion of an element of financial statements in the statement of financial position or statement of financial performance @ It involves depicting the item in one of those statements, either alone or in aggregation with other items, in words and by a monetary amount and including that amount in one or more totals in that statement When does it qualify? © When it meets the definition of a particular element @ When it meet the fundamental characteristics Carrying amountis the amount at which an asset, liability, or equity is recognized in the statement of financial positionancial information isinterconnected @ The fs are linked because the recognition of one item requires a deep recognition of one or more other items © Very well illustrated indouble entry system Derecognition- the removal of all or a part of a recognized assets or liability from an entity's financial position @ Normally occurs when that item no longer meets the definition of an asset or of a liability © For an asset, derecognition normally occurs when the entity loses control of all or part of the recognized asset © Fora liability, derecognition normally occurs when the entity no longer has a present obligation for all or part of the recognized liability When do we derecognize? @ When it no longer meets the definition of the specific element © The portion that has been derecognized is called the transparent component © The portion that is left in the financial statements is called retained component CHAPTER 6 - Measurement Measurementmeans in what amount to recognize asset, liability, equity, income or expense in your financial statements © Thus, you need to select the measurement basis or the method of quantifying monetary amounts for elements in the financial statements The Framework discusses two basic measurement basis: @Historical Cost- this measurement is based on the transaction price at the time of recognition of the element O Refers to the transaction price © Changes in value are normally not recognize unless it refers to Impairment i Depreciation Mi Interest accrual @Current Value- it measures the element updated to reflect theconditions at the measurement date. Here, several methods are included: © Provide updated monetary information that reflect conditions at the measurement date O Include Fair value- Is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participant at the measurement date Hi Is not derived from the transaction price; thus, it is not affected by transaction costs Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 Value in Use- is the present value of the cash flows, or other economic benefits, that an entity expects to derive from the use of an asset and from its ultimate disposal Fulfilment valueis the present value of the cash, or other economic resources, that an entity expects to be obliged to transfer as it fulfils a liability ll Because value in use and fulfilment value are based on future cash flows, they do not include transaction costs incurred onacquiringan asset or taking on a liability However, value in use and fulfilment value include the present value of any transaction costs an entity expects to incur on theultimate disposalof the asset or on fulfilling the liability 1 Value in use and fulfilment value reflect entity-specific assumptions rather than assumptions by market participants Both areentity specific, meaning it will depend onthe specific entity Mi Do not include past transactions costs ineurred during acquisition @Current cost OCurrent cost of an assetis the cost of an equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement date plus the transaction costs that would be incurred at that date OCurrent cost of a liabilityis the consideration that would be received for an equivalent liability at the measurement date minus the transaction costs that would be incurred at that date © This is anentry value,meaning these are the values of an acquisition as contrasted with fair value and value in use which areexit valuesor values that consider the eventual disposal of the asset or liability O It reflect conditions at the measurement date unlike historical cost How do we choose a measurement basis? 01 Nature of the Informationthat the measurement basis will produce in the financial statements @Fundamental characteristics Relevance ll Affected by the characteristics of the asset or liability ll How the assets contribute to future cash flows OFaithful representation lM Measurement uncertainty. For an asset oF liability to be recognized, it must be measured. In many eases, such measures must be estimated Outcome uncertainty or the uncertainty about the amount or ing of any inflow or outfiow of economic benefits that will result from an asset or liability Ml Existence certainty or uncertainty whether an asset or liability exists02 Other Factors TOTAL equity is not measured directly. Some components of it are measured directly Cash flow based measurement techniquesis one way to estimate a certain measurement, but it is NOT a measurement basis CHAPTER 7 - PresentationandDisclosure “accounting is the language of business" The aim ofpresentationanddisclosureis to provide an effective communication tool in the financial statements According to the conceptual framework, effective communication of financial information requires the following: @ Focus on the presentation and disclosure OBJECTIVES and PRINCIPLES, not merely the rules © Balance flexibility and comparability © Entity specific rather than boilerplate or standardized descriptions Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 © Classifying information in a manner that groups similar items and separates dissimilar items OClassificationis the sorting of on the basis of shared characteristics for presentation and disclosure purposes MOffsettingoccurs when an entity recognizes and measures both an asset and a liability as separate units of account but groups them into a single net amount in the statement of financial position O Offsetting classifiesdissimilar itemstogether and therefore is generally not appropriate © Aggregating information in such a way that it is not obscured wither by unnecessary detail or by excessive aggregation OAggregationis the adding together of assets, lia ies, equity, income or expenses that have shared characteristics and areincluded in the same classification CHAPTER 8 - Concepts of Capital and Capital Maintenance Concepts of Capital @Financial Concept Net Assets = Equity @Physical Concept Regards capital as theproductive capacityof the entity Concepts of Capital Maintenance Financial capital- this is synonymous with the net assets or equity of the entity. @ Under thefinancial maintenance concept the profit is earned only when the amount of net assets at the end of the period is greater than the amount of net assets in the beginning, after excluding contributions from and distributions to equity holders @ The financial capital maintenance can be measured either in © Nominal monetary units © Units of constant purchasing power © There is profit if the ending net assets aregreaterthan the beginning net assets, aftertaking outthe effects of investments by owners and distributions made to owners Physical capital- this is the productive capacity of the entity based on, for example, units of output per day @ Here, the profit is earned only if physical productive capacity increases during the period, after excluding the movements with equity holders © A profit is earned only if the physicalproductive capacity or operating capabilityat the end of the period exceeds that of the beginning, after excludingcontributions from and distributions to owners The main difference between these concepts is how the entity treats the effects of changes in prices in assets and liabilities PAS 1 - PREPARATION OF FINANCIAL STATEMENTS Objective of Financial Statements © To provide information about the financial position, financial performanceand cash flows of an entity that is useful to a wide range of users i making economic decisions PAS ‘prescribes thebasisfor the presentation ofgeneral purpose financial statementsto improvecomparabilityboth with the entity's financial statements of previous periods (intra-comparability) and with the financial statements of other entities (inter-comparability) @Financial statementsare the means by which information accumulated and processed in financial accounting is communicated to the users; structured financial representation of the financial position and financial performance of an entity @General purpose financial statementsare those intended to serve users who do not have the authority to demand financial reports tailored for their own needs © Cater most of thecommon needsof awide rangeofexternal users © The subject matter of theConceptual Frameworkand thePFRSs Complete set of Financial Statements © Statement of Financial Position © Statement of Profit or Loss and Other Comprehensive Income Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 © Statement of Changes in Equity © Statement of Cash Flow @ Notes to the Financial Statement Additional Statement of Financial Position An additional statement of financial position is presented as at the beginning of the preceding period when an entity: 1. Applies an accounting policyretrospectively 2. Makes aretrospectiverestatement of items in its financial statements 3.Reclassifiesitems in its financial statements ...and the effect of the event to the statement of financial position as at the beginning of the preceding period ismaterialGeneral features of Financial Statements 01 Fair Representation and Compliance with PFRSs.The application of PERSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation 02 Going Concern- entity is viewed as continuing in operation indefinitely. @ If financial statements are not prepared on a going concern basis, this fact shall be disclosed together with the measurement basis and reason therefor @ Anentit is not a going concern if, as of the financial reporting date or prior to the date of authorization of the financial statements for issue, management either: 1, Intends to liquidate the entity or to cease trading, or 2. Has no realistic alternative but to do so @ The assessment of going concern isat least 12 months 03 Accrual Basis of Accounting.All financial statements shall be prepared using the accrual basis of accounting except for the statement of cash flows which is prepared using cash basis 04 Materiality and Aggregation.An entity shall present separately each material class of similar items. e @ Dissimilar items are presented separately unless they are immaterial ine items" is a class of similar items @ Individually immaterial items are aggregated with other items 05 Offsetting. Assets and liabilities, and income and expenses, shall not be offset unless required or permitted by a PFRS @ Measuring assets net of valuation allowances, for example, obsolescence allowances on inventories, allowance for doubtful accounts on receivables, and accumulated depreciation on property, plant and equipment are not offsetting 06 Frequency of reporting.An entity shall present a complete set of financial statements (including comparative information)at least annually @ When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, anentity shall disclose the following 1. Theperiod coveredby the financial statements 2. Thereasonfor using a longer or shorter period 3. Thefactthat amounts presented in the financial statements are not entirely comparable 07 Comparative Information.An entity shall present comparative information in respect of the preceding period for all amounts reported in the current period's financial statements, unless other standards permit or require otherwise @Retrospective= looking back;Prospective= looking forward and in the future 08 Consistency of presentation.An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless: 1. It is apparent that another presentation or classification would be more appropriate following a significant change in the nature of the entity's operations or a review of its financial statements 2. A PFRS requires a change in presentation STATEMENT OF FINANCIAL POSITION. formal statement showing the three elements comprising financial position, namelyassets, liabilities and equity. @ Used to evaluate such factors as liquidity, solvency and the need of the entity for additional financing Presentation of Statement of Financial Position 1. Classified- shows distinctions between current and noncurrent assets and current and noneurrent liabilities Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 2. Unclassified- also calledbased on liquidity, shows no distinction between current and noncurrent item Zoperating cycleis the time between the acquisition of assets for processing and their realization in cash or cash equivalentsASSETS @Current Assets 1. The asset is cash/cash equivalent unless the asset is restricted from being exchanged or used to settle a liability forat least 12 months after the reporting period 2. The entity holds the asset primarily for thepurpose of trading 3. The entityexpects to realize the asset within 12 months after the reporting period 4. The entityexpects to realize the asset or intends to use or consume it within the enti 's operating cycle PAS 1 paragraph 54, the line items under current assets are (listed in order of liquidity) 1. Cash and equivalents 2. Financial assets at fair value such as trading securities and other investments in quoted equity instruments 3. Trade and other receivables 4. Inventories 5. Prepaid expenses @Noncurrent Assets. 1.PAS 1 paragraph 66states that an entity shall classify all other assets not classified as current as noncurrent 2. Property, Plant and Equipment. PAS 16 paragraph 6, 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 3. Long-term investments. Defines investment as an asset held by an entity for the accretion of wealth through capital contribution, such as interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the investing entity such as those obtained through trading 4. Intangible assets.An identifiable nonmonetary asset without physical substance (PAS 38)5. Deferred tax assets 6. Other noncurrent assets.Assets that do not fit in the definition of noncurrent assets. Asset valuation accounts are neither assets nor liabilities LIABILITIES @Current Liabilities © An entity shall classify a liability as current when 1. It expects tosettle the liability in its normal operating cycle 2. It holds the liability primarily for thepurpose of trading 3. The liability isdue to be settled within 12 months after the reporting period 4. The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period PAS 1 paragraph 54,the line items under current liability are: 1. Trade and other receivable 2. Current provisions 3. Short term borrowing 4. Current portion of long term debt 5. Current tax liability @ Currently maturing long-term liabilities General rule: currently maturing long term liabilities are presented ascurrent liabilities Exceptions: 01Refinancing agreement is fully completed on or before the balance sheet date- non current liability 02Refinancing agreement after the balance sheet date but before the financial statements are authorized for issue -non current liabilityif the entity expects, and has thediscretion, to refinance it on a long-term basis under anexisting loan facility Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682@Noncurrent liabilities OPAS 1 paragraph 69states that an entity shall classify all liabilities not classified as current are classified as noncurrent 1. Noncurrent portion of a long term debt 2. Finance lease liability 3. Deferred tax liability 4. Long term obligations to company officers 5. Long term deferred revenue @ Currently maturing long-term debt. A liability which is due to be settled within 12 months after the reporting period is classified as current even if: © The original term was for a period longer than 12 months © An agreement to refinance or reschedule payment on a long term basis is completed after the reporting period and before the financial statements are authorized for issue @Discretion to refinance.If the entity has the discretion to refinance or roll over an obligation for at least 12 monthsafterthe reporting period, under an existing loan facility, the obligation is classified asnoneurrent @Covenants.Are often attached to a borrowing agreement which represents undertakings by the borrower © Borrower's restrictions @Breach of loan agreement General rule:a liability that ispayable on demandis acurrent liability Exception:it is presented asnoncurrent liabilityif the lender provides the entity,on or before the balance sheet date, a grace period ending at least 12 months after the balance sheet date to rectify a breach of loan covenant @Presentation of Deferred taxes. Deferred tax liabilities (assets)are presented asnoncurrent itemsin a classified statement of financial position, irrespective of their expected dates of reversal EQUITY@ Residual interest in the assets of the entity after deducting all of its liabilities @Working capital= current assetslesscurrent liabilities @ The holders of instruments classifies as equity areowners SHAREHOLDER'S EQUITY @ 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. Provide narrative description or disaggregation of items presented in the financial statements and information about items that do not qualify for recognition @Purpose:to provide the necessary disclosure required by PFRS Structure. The notes to financial statements should perform the following functions: 1, Present information about the basis on which the financial statements were prepared and which specific accounting policies where chosen and applied for significant transactions or events 2. Disclose any information, not shown elsewhere in the financial statements, which is required by the IFRS 3. Show any additional information that is relevant to understanding which is not shown elsewhere in the financial statements @ Additional line items, headings and subtotals may be needed to fairly present the entity's financial position[IAS 1.55] @ When an entity presents subtotals, those subtotals shall be comprised of line items made up of amounts recognized and measured in accordance with IFRS; be presented and labelled in a clear and understandable manner; be consistent from period to period; and not be displayed with more prominence than the required subtotals and totals [IAS 1.552] @ Further sub-classifications of line items presented are made in the statement or in the notes, for example:(IAS 1.77-78] 1.Classes of property, plant and equipment 2.Disaggregation of receivables 3.Disaggregation of inventories in accordance withlAS 2 Inventories4.Disaggregation of provisions into employee benefits and other item 5.Classes of equity and reserves Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 Share capital and reserves. Regarding issued share capital and reserves, the following disclosures are required:[\AS 1.79] @ Numbers of shares authorized, issued and fully paid, and issued but not fully paid © Par value (or that shares do not have a par value) @ A reconciliation of the number of shares outstanding at the beginning and at the end of the period © Description of hts, preferences, and restrictions @ Treasury shares, i @ Shares reserved for issuance under options and contracts cluding shares held by subsidiaries and associates @ A description of the nature and purpose of each reserve within equity PHILIPPINE TERMSIAS TERMS Capital stockShare capital Subscribed capital stockSubscribed share capital Preferred stockPreference share capital Common stockOrdinary share capital Additional paid in capitalShare premium Retained earnings (deficit) Accumulated profits (losses) Retained earnings appropriatedAppropriated reserve Revaluation surplusRevaluation reserve Treasury stockTreasury share Minimal line items in the statement of financial position 1. Property, plant and equipment 2. Investment property 3. Intangible assets 4. Financial assets (excluding amounts shown undere, h, and i) 5. Investments accounted for using the equity method6. Biological assets 7. Inventories 8. Trade and other receivable 9. Cash and cash equivalents 10. Assets (or disposal groups) 11. Trade and other payables 12. Provisions 13. Financial liabilities (excluding amounts shown underk and I) 14, Liabilities and assets for current tax, as defined inPAS 12 Income Taxes 15. Deferred tax liabilities and deferred tax assets, as defined inPAS 12 16. Liabilities included in disposal groups classified as held for sale in accordance withPFRS 5 17. Non-controlling interests, presented within equity 18. Issued capital and reserves attributable to owners of the parent Format of statement @IAS Idoes not prescribed the format of the statement of financial position OAssetscan be presented current then non-current, or vice versa, andliabilities and equitycan be presented current then non-current then equity, or vice versa. © Anet asset presentation (A-L) is allowed © The long-term financing approach used in UK and elsewhere fixed assets + current assets - short term payables= long term debt plus equity - is also acceptable Order or Format of Presentation @PAS Idoesnotprescribe the order or format in which an entity presents items Forms of Financial Position 1. Report Form. This form sets form the three major sections in a downward sequence of assets, liabilities and equity 2. Account Form.The assets are shown on the left side and the liabilities and equity on the right side of the balance sheetSTATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD| 23102682 TOTAL COMPREHENSIVE INCOME @ The changes in equity during a period resulting from transactions and other events, other than changes resulting from transactions with ‘owners in their capacity as owners. @ It comprises all components of 1.Profit or loss.The total income less expenses, excluding the components of other comprehensive income 2.0ther comprehensive income.Comprises items of income and expenses including reclassification adjustments that are not recognized in profit or loss as required or permitted by PERS Bl Income na kinita ng entity pero hindi pa siya nagtuturn/equivalent into cash (sa paper lang) i Other comprehensive income for the period: 1. Changes in revaluation surplus 2. Unrealized gains and losses on investments in FVOCI securities 3. Remeasurements of the net defined benefit liability (asset) 4. Gains and losses arising from translating the financial statements of a foreign operation 5. Effective portion of gains and losses on hedging instruments in a cash flow hedge OC! may be presented either (a)net of taxor (b)gross of tax Reclassification adjustmentsare amounts reclassified to profit or loss, in the current period that were recognized in other comprehensive income in the current or previous periods Type of other comprehensive incomeReclassification adjustment?Changes in revaluation surplusNo Remeasurements of the net defined benefit liability (asset) No Fair value changes in FVOCI @ Equity instrument (election) @ Debt instrument (mandatory) No Yes Translation differences on foreign operationsYes Effective portion of cash flow hedgesYes © An entity shall present all items of income and expenses recognized in a period Olin asinglestatement of profit or loss and other comprehensive income; or O2intwostatements: (1) a statement displaying the profit or loss section only (separated ‘statement of profit or loss’ or ‘income statement’) and (2) a second statement beginning with profit or loss and displaying components of other comprehensive income @ Extraordinary items OPAS ‘prohibitsthe presentation of any items of income or expense as extraordinary items in the statement(s) presenting profit or loss and other comprehensive income or in the notes @Disclosure of Dividends ODi idends declared by an entity are disclosed either in the(a) notesor(b) statement of changes in equity ion,IAS 8Accounting Policies, Changes in Accounting Bin aa Estimates and Errorsrequires the correction of errors and the effect of changes in accounting policies to be recognized outside profit or loss for the current period [IAS 1.8] & Presentation of other comprehensive income @PAS 1 par 82Aprovides that the statement of comprehensive income shall present li items for amounts of other comprehensive incomeduring the period classified by nature & Choice in Presentation and Basic Requirements Qa single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections, or two statements: *a separate statement of profit or loss * a statement of comprehensive income, immediately following the statement of profit or loss and beginning with profit or loss[IAS 110A] @The statement(s) must present:(IAS 1.814] © Profit or loss Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 © Total other comprehensive income © Comprehensive income for the period © An allocation of profit or loss and comprehensive income for the period between non-controlling interests and owners of the parent @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 @Component of Expenses 1. Cost of Goods Sold/Cost of Sales 2. Distribution costs or selling expense 3. Constitute costs which are directly related to selling, advertising and delivery of goods to customer 4. Administrative expenses 5. Constitute cost of administering the business. These ordinarily include all operating expenses not related to selling and cost ofgoods sold 6. Other expenses 7. Those expenses which are not directly related to the selling and administrative function 8. Income tax expense Profit or Loss @ The following minimum line items must be presented in the profit or loss section (or separate statement of profit or loss, if presented):[IAS 1.82-82A] 1. Revenue 2. Finance cost 3. Share of profits and losses of associates and joint ventures accounted for using equity method 4. A single amount for the total of discontinued operation 5. Tax expense 6. A single amount for the total of discontinued items @ The following items shall be disclosed on the face of the income statement and statement of comprehensive income: 1. Profit or loss for the period attributable to noncontrolling interest and owners of the parent 2. Total comprehensive income for the period attributable to noncontrolling interest and owners of the parent Forms of Income Statement @PAS 1 par 99.An entity shall present an analysis of expenses recognized in profit or loss usit in classification based on either the function of expenses or their nature within the entity, whichever provides information that is more reliable, and more relevant. 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 Presentation of Expenses (2 ways to present an income statement) 01 Functional Presentation / Cost of Sales Method © This form classifies expenses according to their function as part of costof sales, distribution costs, administrative activities and other activities 02 Natural Presentation / Nature of Expense Method @ Expenses are aggregated according to their nature and not allocated among the various functions within the entity an entity classifies expenses byfunction, it shalldisclose additional informationon the nature of expenses 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 @ The following should be disclose 1. Profit or loss for the period 2. Prior period errors the statement of retained earnings: 3. Dividends declared and paid to shareholders 4. Effect of change in accounting policy 5. Appropriation of retained earnings STATEMENT OF CHANGES IN EQUITY @1AS Irequires an entity to present a separate statement of changes in equity. The statement must show:[IAS 1.106] Downloaded by exd ss (vghhshw233@blesssyouu.tk) IOMoARePSD|23102682 1.Total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests 2.The effects of any retrospective application of accounting policies or restatements made in accordance withlAS, separately for each component of other comprehensive income 3.Reconeiliations between the carrying amounts at the beginning and at the end of the period for each component of equity, separately disclosing; 1.Profit or loss 2.0ther comprehensive income 3.transactions with owners, showing separatelycontributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control STATEMENT OF CASH FLOWS © Summarizes the operating, investing and financing activities of an entity NOTES TO THE FINANCIAL STATEMENTS @ the notes must:[IAS 1.112] 1.Present information about the basis of preparation of the financial statements and the specific accounting policies used 2.Disclose any information required by IRFSs that is not presented elsewhere in the financial statements and 3.Provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them @IAS 1.114suggests that the notes should normally be presented in the following order: 1. A statement of compliance with IFRSs 2. A summary of significant accounting policies applied, including: as 1.117] 1. The measurement basis (or bases) used in preparing the financial statements 2. The other accounting policies used that are relevant to an understanding of the financial statements 3. Supporting information for items presented on the face of the statement of ancial position, statement(s) of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows, in the order in which each statement and each line item is presented 4. Other disclosures, including: 1. Contingent liabilities (seelAS 37) and unrecognized contractual commitments 2. Non-fir ancial disclosures, such as the entity's financial risk management objectives and policies (seelF RS 7