PAS 7 Statement of Cash Flows

Learning Objectives
• Describe the statement of cash flows.
• Differentiate between the following: (1) Operating activities,
(2) Investing activities, and (3) Financing activities.
• State the classifications of the following in a statement of
cash flows: (a) dividends received, (b) dividends paid, (c)
interest paid and (d) interest received.

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Statement of Cash Flows

• The statement of cash flows provides information about

the sources and utilization (i.e., historical changes) of cash
and cash equivalents during the period. The statement of
cash flows presents cash flows according to the following
classifications:
1. Operating activities
2. Investing activities
3. Financing activities
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Activities

1. Operating activities include transactions that enter into the

determination of profit or loss. These transactions normally affect
income statement accounts.

2. Investing activities include transactions that affect long-term

assets and other non-operating assets.

3. Financing activities include transactions that affect equity and

non-operating liabilities.
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Examples of cash flows from Operating
Activities
a. cash receipts from the sale of goods, rendering of
services, or other forms of income
b. cash payments for purchases of goods and services
c. cash payments for operating expenses, such as
employee benefits, insurance, and the like, and
payments or refunds of income taxes
d. cash receipts and payments from contracts held for
dealing or trading purposes

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Examples of cash flows from Investing
Activities
a. cash receipts and cash payments in the acquisition and disposal of
property, plant and equipment, investment property, intangible
assets and other noncurrent assets
b. cash receipts and cash payments in the acquisition and sale of equity
or debt instruments of other entities (other than those that are
classified as cash equivalents or held for trading)
c. cash receipts and cash payments on derivative assets and liabilities
(other than those that are held for trading or classified as financing
activities)
d. loans to other parties and collections thereof (other than loans
made by a financial institution)

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Examples of cash flows from Financing
Activities
a. cash receipts from issuing shares or other equity
instruments and cash payments to redeem them
b. cash receipts from issuing notes, loans, bonds and
mortgage payable and other short-term or long-term
borrowings, and their repayments
c. cash payments by a lessee for the reduction of the
outstanding liability relating to a lease.

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Core principle

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Interests and Dividends

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Reporting cash flows from operating
activities
1. Direct method - shows each major class of gross cash receipts
and gross cash payments.

2. Indirect method - adjusts accrual basis profit or loss for the

effects of changes in operating assets and liabilities and effects of
non-cash items.

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Standards (by: Zeus Vernon B. Millan)
PAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors

Learning Objectives
• Define the following and give examples: (1) Change in
accounting policy, (2) Change in accounting estimate, and (3)
Error.
• Differentiate between the accounting treatments of the
following: change in accounting policy, change in accounting
estimate, and correction of prior period error.

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Objective and Scope

• PAS 8 prescribes the criteria for selecting, applying, and

changing accounting policies and the accounting and
disclosure of changes in accounting policies, changes in
accounting estimates and correction of prior period
errors.

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Standards (by: Zeus Vernon B. Millan)
Accounting policies

• Accounting policies are “the specific principles,

bases, conventions, rules and practices applied by
an entity in preparing and presenting financial
statements.” (PAS 8.5)
• Accounting policies are the relevant PFRSs adopted
by an entity in preparing and presenting its financial
statements
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PFRSs

• Philippine Financial Reporting Standards (PFRSs) are

Standards and Interpretations adopted by the Financial
Reporting Standards Council (FRSC). They comprise the
following:
1. Philippine Financial Reporting Standards (PFRSs);
2. Philippine Accounting Standards (PASs); and
3. Interpretations

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• When it is difficult to distinguish a change in accounting
policy from a change in accounting estimate, the change is
treated as a change in an accounting estimate.

• An entity shall change an accounting policy only if the change:

1. is required by a PFRS; or
2. results to a more relevant and reliable information
about an entity’s financial position, performance, and
cash flows.

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Examples of changes in accounting policy
1. Change from FIFO cost formula for inventories to the Average cost formula.
2. Change in the method of recognizing revenue from long-term construction
contracts.
3. Change to a new policy resulting from the requirement of a new PFRS.
4. Change in financial reporting framework, such as from PFRS for SMEs to
full PFRSs.
5. Initial adoption of the revaluation model for property, plant, and
equipment and intangible assets.
6. Change from the cost model to the fair value model of measuring
investment property.
7. Change in business model for classifying financial assets resulting to
reclassification between financial asset categories.

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Examples of changes in accounting estimate

1. Change in depreciation or amortization methods

2. Change in estimated useful lives of depreciable assets
3. Change in estimated residual values of depreciable assets
4. Change in required allowances for impairment losses and
uncollectible accounts
5. Changes in fair values less cost to sell of non-current assets held for
sale and biological assets

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Errors

• Errors include the effects of:

1. Mathematical mistakes
2. Mistakes in applying accounting policies
3. Oversights or misinterpretations of facts; and
4. Fraud

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PAS 10 Events after the Reporting Period

Learning Objectives
• Define events after the reporting period.
• State the accounting requirements for events after the
reporting period.

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Events after the Reporting Period

• Events after the reporting period are “those events, favorable

or unfavorable, that occur between the end of the reporting
period and the date that the financial statements are
authorized for issue.” (PAS 10)

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Two types of events after the reporting period

1. Adjusting events after the reporting period – are those that

provide evidence of conditions that existed at the end of the
reporting period.
2. Non-adjusting events after the reporting period – those that are
indicative of conditions that arose after the reporting period

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Date of authorization of the financial statements

• This date is the date when management authorizes the financial

statements for issue regardless of whether such authorization for
issue is for further approval or for final issuance to users.

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Examples of adjusting events:

1. The settlement after the reporting period of a court case that

confirms that the entity has a present obligation at the end of
reporting period.
2. The receipt of information after the reporting period indicating that
an asset was impaired at the end of reporting period. For example:
i. The bankruptcy of a customer that occurs after the reporting
period may indicate that the carrying amount of a trade
receivable at the end of reporting period is impaired.
ii. The sale of inventories after the reporting period may give
evidence to their net realizable value at the end of reporting
period

3. The determination after the reporting period of the cost of asset

purchased, or the proceeds from asset sold, before the end of
reporting period.
4. The discovery of fraud or errors that indicate that the financial
statements are incorrect .
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Examples of non-adjusting events normally requiring disclosures:

1. Changes in fair values, foreign exchange rates, interest rates or market

prices after the reporting period.
2. Casualty losses (e.g., fire, storm, or earthquake) occurring after the
reporting period but before the financial statements were authorized for
issue.
3. Litigation arising solely from events occurring after the reporting period.
4. Major ordinary share transactions and potential ordinary share
transactions after the reporting period.
5. Major business combination after the reporting period.
6. Announcing a plan to discontinue an operation after the reporting
period.
7. Declaration of dividends after the reporting period
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Disclosures

• Date of authorization for issue

• Adjusting events
• Material Non-adjusting events

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