FAR08.

01d
Brian Christian S. Villaluz, CPA, MBA
Faculty Member, De La Salle University
Lecturer & CPA Reviewer, various schools and universities
Lead Author, FAR and AT Reviewer
YouTube Content Creator, Accounting Lessons with BCV
Statement of Financial Position

u A formal statement showing the three elements comprising financial position,

namely assets, liabilities and equity.
u Assets and liabilities are classified current and non-current.
Assets
u An entity shall classify an asset as current when:
• The asset is cash or a cash equivalent unless the asset is restricted from being exchanged
or used to settle a liability for at least twelve months after the reporting period.
• The entity holds the asset primarily for the purpose of trading.
• The entity expects to realize the asset within 12 months after the reporting period.
• The entity expects to realize the asset or intends to sell or consume it within the entity’s
normal operating cycle.
u Current assets are usually listed in the order of liquidity.
u The line items under current assets are:
• Cash and cash equivalents
• Financial assets at fair value through profit or loss such as trading securities and other
investments in quoted equity instruments
• Trade and other receivables
• Inventories
• Prepaid expenses
u An entity shall classify all other assets not classified as current as noncurrent.
Liabilities

u 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.
• The entity does not have an unconditional right to defer settlement of the liability for at least twelve months
after the reporting period.
u As a minimum, the face of the statement of financial position shall include the following items for
current liabilities:
• Trade and other payables
• Current provisions
• Short-term borrowings
• Current portion of long-term debt
• Current tax liability
u All liabilities not classified as current are classified as noncurrent.
Currently Maturing Obligations

u A liability which is due to be settled within 12 months after the reporting

period is classified as current, even if:
u The original term was for a period longer than twelve months.
u 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.
u However, if the refinancing is completed on or before the end of the reporting period, the
obligation is classified as noncurrent.

u 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 noncurrent.
Breach of Covenants

u Covenants are attached to borrowing agreements which represent

undertakings by the borrower.
u Under these covenants, if certain conditions relating to the borrower’s financial
situation are breached, the liability becomes payable on demand.
u The liability is classified as current even if the lender has agreed, after the
reporting period and before the statements are authorized for issue, not to
demand payment as a consequence of the breach.
u However, the liability is classified as noncurrent if the lender has agreed on or
before the end of reporting period to provide a grace period ending at least twelve
months after the end of reporting period.
23-24
Current Noncurrent
Cash P3,000,000
Accounts receivable 2,400,000
Inventory, including inventory expected in the ordinary course of
operations to be sold beyond 12 months amounting to P1,400,000 2,000,000

Financial assets held for trading 600,000

Financial assets at fair value through other comprehensive income 1,600,000
Investments in associate 2,500,000
Bond investments at amortized cost 5,000,000
Property, plant, and equipment (net) 112,000,000
Intangible assets (net) 56,700,000
Investment properties 21,000,000
Biological assets (net) 31,500,000
Machine held for sale 4,000,000
Deferred tax asset (P60,000 of which is expected to reverse in the
subsequent year) 300,000

Total
25
Current

Accounts payable P3,800,000

Bonds payable, due December 31, 2024 (net of discount of P400,000) 6,400,000

Bonds payable, due December 31, 2025 (net of discount of P200,000) 7,800,000

Deferred tax liability (expected to reverse during 2024) 800,000

Dividends payable 1,000,000

Income tax payable 1,800,000

Note payable, due February 1, 2025 1,200,000

Note payable, due January 31, 2024 600,000

Total
26-27
Comprehensive Income

u Comprehensive income is 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.
u It includes the following:
u Components of profit or loss
u Components of other comprehensive income
Components of OCI

Reclassified subsequently to profit or loss Not reclassified to profit or loss

1. Gain or loss from translating financial 1. Unrealized gain or loss on equity investment
statements of a foreign operation. measured at FVOCI
2. Unrealized gain or loss on derivative 2. Change in revaluation surplus
contracts designated as cash flow hedge.
3. Remeasurements of defined benefit plan
3. Unrealized gain or loss on debt investment
measured at FVOCI. 4. Change in fair value attributable to credit
risk of financial liability at FVPL
Presentation of the Statement of Profit
or Loss
Natural presentation
u Under this form, expenses are
aggregated according to their
nature.
u This is referred to as the nature of
expense method.
Functional presentation
u This is the traditional and common
form of income statement.
u This form classified expenses
according to their function as part
of cost of goods sold, distribution
costs and administrative activities.
31
32
 33-37
Profit OCI – Reclassified to OCI – Not be
P/L reclassified to P/L
Income from continuing operations 2,000,000

Income from discontinued operations 250,000

Unrealized gain on financial asset classified as FVPL 400,000

Unrealized loss on equity investment classified as FVOCI 500,000

Unrealized gain on debt investment classified as FVOCI 600,000

Unrealized gain on forward contract designated as cash flow hedge 200,000

Translation loss on foreign operation 100,000

Net actuarial gain on defined benefit plan 300,000

Loss on credit risk of a financial liability designated as FVPL 150,000

Revaluation surplus during the current year 1,250,000

Notes to FS

u 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.
u Its purpose is to provide the necessary disclosures required by PFRSs.
u PAS 1, par. 112 provides that the notes to the financial statements of an
entity shall:
u Present information about the basis of preparation of the financial statements and
the specific accounting policies used.
u Disclose the information required by PFRSs that is not presented elsewhere in the
financial statements.
u Provide additional information that is not presented on the face of the financial
statements but that is necessary for fair presentation.
Presentation of Notes to FS
u Notes are presented in the following order:
1. Statement of compliance with PFRSs.
• An entity whose financial statements comply with PFRSs shall make an explicit and unreserved
statement of such compliance in the notes.
2. Summary of significant accounting policies used
• It shall disclose the following:
ü The measurement basis used in preparing the financial statements
ü The accounting policies used

3. Supporting information or computation for line items presented in the financial

statements
4. Other disclosures, such as contingent liabilities, unrecognized contractual commitments
and nonfinancial disclosures
• An entity shall disclose in the summary of significant accounting policies the judgment that
management has made in the process of applying accounting policies and that has a significant
effect on the amounts recognized in the financial statements.
• An entity shall disclose information about the assumptions it makes about the future, and other
major sources of uncertainty at the end of reporting period that have a significant risk of
resulting in a material adjustment to the carrying amount of assets and liabilities within the next
fiscal year.