Module 25.

3 - Presentation of Financial Statements

Financial Statements Offsetting

These are the means by which the Offsetting of assets and liabilities or income
information accumulated and processed in financial and expenses is not permitted unless required by
accounting is periodically communicated to the other IFRSs.
users.
Comparative Information
General Purpose Financial Statements At least 1 year of comparative information
These are those intended to meet the needs must be presented (unless impractical).
of users who are not in a position to require an entity ***
to prepare reports tailored to their particular
information needs. Identification of the Financial Statements
Financial statements must be clearly
Complete Set of Financial Statements identified and distinguished from other information in
a. Statement of financial position the same published document, and must identify:
b. Statement of profit or loss and a. Name of the reporting entity;
comprehensive income b. Whether the financial statements cover the
c. Statement of changes in equity individual entity or a group of entities;
d. Statement of cash flows c. The statement of financial position date (or
e. Notes the period covered);
d. The presentation currency; and
Overall Consideration e. The level of rounding used.

Fair Presentation and Compliance with IFRSs Statement of Financial Position

Financial statements are required to be It is a formal statement showing the three
presented fairly as set out in the framework and in elements comprising financial position, namely
accordance with IFRS and are required to comply assets, liabilities and equity.
with all requirements of IFRSs.
Presentation Requirements for the Statement of
Going Concern Financial Position
Financial statements are required to be a. Present current and non-current items
prepared on a going concern basis (unless entity is separately; or
in liquidation or has ceased trading or there is an b. Present items in order of liquidity.
indication that the entity is not a going concern).
Current Assets
Accrual Basis of Accounting a. Expected to be realised in, or is intended for
Entities are required to use accrual basis of sale or consumption in the entity’s normal
accounting except for cash flow information. operating cycle
b. Held primarily for trading
Presentation Consistency c. Expected to be realised within 12 months
An entity is required to retain presentation d. Cash or cash equivalents.
and classification from one period to the next.
All other assets are required to be classified
Materiality and Aggregation as non-current.
Each material class of similar assets and
items of dissimilar nature or function is to be Current Liabilities
presented separately. a. Expected to be settled in the entity’s normal
operating cycle
b. Held primarily for trading
c. Due to be settled within 12 months

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 Module 25.3 - Presentation of Financial Statements

d. The entity does not have an unconditional Forms of Statement of Financial Position
right to defer settlement of the liability for at
least 12 months. Report Form
It sets forth the three major sections in a
All other liabilities are required to be downward sequence of assets, liabilities and equity.
classified as non-current.
Account Form
Operating Cycle It follows that of an account, meaning, the
It is the time between the acquisition of assets are shown on the left side and the liabilities
assets for processing and their realization in cash or and equity on the right side of the statement of
cash equivalents. financial position.
***
Minimum Line Items
Income Statement or Statement of Profit or Loss
Current Assets It is a formal statement showing the financial
a. Cash and cash equivalents performance of an entity for a given period of time.
b. Financial assets at fair value (e.g., trading
securities and other investments in quoted Financial Performance
equity securities) It is primarily measured in terms of the level
c. Trade and other receivables of income earned by the entity through the effective
d. Inventories and efficient utilization of its resources.
e. Prepaid expenses
Comprehensive Income
Noncurrent assets It is the change in equity during a period
a. Property, plant and equipment resulting from transactions and other events, other
b. Long-term investments than changes resulting from transactions with
c. Intangible assets owners in their capacity as owners.
d. Deferred tax assets
e. Other noncurrent assets Profit or Loss (Net Income or Loss)
it is the total of income less expenses,
Current Liabilities excluding the components of other comprehensive
a. Trade and other payables income.
b. Current provisions
c. Short-term borrowing Other Comprehensive Income
d. Current portion of long-term debt It comprises items of income and expenses
e. Current tax liability including reclassification adjustments that are not
recognized in profit or loss as required or permitted
Noncurrent Liabilities by PFRSs.
a. Noncurrent portion of long-term debt
b. Finance lease liability Presentation Requirements for the Statement of
c. Deferred tax liability Comprehensive Income
d. Long-term obligations to company officers a. An entity presents all items of income and
e. Long-term deferred revenue expense recognized in a period, either:
*** ● In a single statement of comprehensive
income
Terms for Equity ● In two statements: a statement displaying
a. Owner’s equity in a proprietorship components of profit or loss (separate
b. Partners’ equity in a partnership income statement) and a second
c. Stockholders’ equity or shareholders’ equity statement of other comprehensive
in a corporation income.
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 Module 25.3 - Presentation of Financial Statements

b. Entities must choose between ‘function of d. Effect of change in accounting policy

expense method’ and ‘nature of expense e. Appropriation of retained earnings
method’ to present expense items
c. Line items within other comprehensive Statement of Changes in Equity
income are required to be categorised into It is a basic statement that shows the
two categories: movements in the elements or components of the
● Those that could subsequently be shareholders’ equity.
reclassified to profit or loss; and The statement of retained earnings is no
● Those that cannot be reclassified to profit longer a required basic statement but it is a part of
or loss. the statement of changes in equity.

Forms of Income Statement Information Required to Be Presented on the

Statement of Changes in Equity
Functional Presentation a. Total comprehensive income for the period,
It classifies expenses according to their showing separately attributable to owners or
function as part of cost of goods sold, distribution the parent and non-controlling interest
costs, administrative expenses and other expenses. b. For each component of equity, the effects of
retrospective application/restatement
Natural Presentation recognised in accordance with IAS 8
Under this, expenses are aggregated Accounting Policies, Changes in Accounting
according to their nature and not allocated among c. Estimates and Errors
the various functions within the entity. In other d. The amounts of transactions with owners in
words, the expenses are no longer classified as cost their capacity as owners, showing separately
of goods sold, distribution costs, administrative contributions by and distributions to owners
expenses and other expenses. e. For each component in equity a
reconciliation between the carrying amount
Sources of Income at the beginning and end of the period,
a. Sale of merchandise to customers - e.g., separately disclosing each change
sales less sales returns, allowances and f. Amount of dividends recognised as
discounts distributions to owners during the period (can
b. Rendering of services - e.g., professional alternatively be disclosed in the notes)
fees, media advertising commissions, tuition g. Analysis of each item of OCI (alternatively to
fees, etc. be disclosed in the notes)
c. Use of entity resources - interest, rent,
royalty, dividend income, etc. Statement of Cash Flows
d. Disposal of resources other than products - It summarizes the operating, investing and
e.g., gain on sale of investments, gain on financing activities of an entity by providing
sale of PPE, gain on sale of intangible information about the cash receipts and cash
assets, etc. payments of an entity during a period.

Statement of Retained Earnings Classification of Cash Flows

It shows the changes affecting directly the
retained earnings of an entity and it relates the Operating Activities
income statement to the statement of financial These are cash flows derived primarily from
position. the principal revenue producing activities of the
entity.
Items Affecting the Retained Earnings Examples:
a. Profit or loss for the period a. Cash receipts from sale of goods and
b. Prior period errors rendering of services;
c. Dividends declared and paid to shareholders
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 Module 25.3 - Presentation of Financial Statements

b. Cash payments to suppliers for goods and nature, any deferrals or accruals of past or future
services; operating cash receipts and payments, and items of
c. Cash payments for selling, administrative income or expense associated with investing and
and other expenses. financing activities.

Investing Activities Direct Method Formulas

These are cash flows derived from the
acquisition and disposal of long-term assets and Computation of Collections
other investments not included in cash equivalent. Trade accounts and notes receivable -
Examples: beginning
a. Cash payments to acquire PPE, intangibles + Sales (accrual basis)
and other long-term assets; - Trade accounts and notes receivable - end
b. Cash receipts from sales of PPE, intangibles = Collection of trade accounts and notes
and other long-term assets; receivable
c. Cash advances and loans to other parties
(other than advances and loans made by Computation of Payments to Merchandise
financial institutions). Creditors
Trade accounts and notes payable -
Financing Activities beginning
These are cash flows derived from the equity + Purchases (accrual basis)
capital and borrowings of the entity. - Trade accounts and notes payable - end
Components: = Payments to merchandise creditors
a. Cash flows between the entity and the
owners - equity financing Computation of Payments for Expenses
b. Cash flows between the entity and the Expenses (accrual)
creditors - debt financing + Prepaid expense - end
+ Accrued expense - beginning
Examples: - Prepaid expense - beginning
a. Cash receipts from issuing shares or other + Accrued expense - end
equity instruments (e.g., issuance of ordinary = Expenses paid
and preference shares);
b. Cash receipts from issuing debentures, Computation of Collections of Other Income
loans, notes, bonds, mortgages and other Income other than sales (accrual)
short or long term borrowings; + Deferred income - end
c. Cash payments for amounts borrowed. + Accrued income - beginning
- Deferred income - beginning
Methods of Determining Cash Flows from - Accrued income - end
Operating Activities = Collection of other income
***
Direct Method
It shows in detail or itemizes the major General Guidelines for the Adjustments of Net
classes of gross cash receipts and gross cash Income under Indirect Method
payments. The cash receipts are listed one by one, a. All increases in trade noncash current assets
the cash payments are listed one by one, and the are deducted from net income.
difference represents the net cash flow from b. All decreases in trade noncash current
operating activities. assets are added to net income.
c. All increases in trade current liabilities are
Indirect Method added to net income.
It means that the net income or loss is d. All decreases in trade current liabilities are
adjusted for the effects of transactions of a noncash deducted from net income.
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 Module 25.3 - Presentation of Financial Statements

e. Depreciation, amortization and other

noncash expenses are added back to net
income to eliminate the effects they had on
net income.
f. Any gain on disposal of property or gain on
early retirement of non-trade liabilities is
included in net income but it is a non-
operating item. Thus, this is deducted from
net income.
g. Any loss on disposal of property or loss on
early retirement of non-trade liabilities is
deducted from net income but this is a non-
operating item. Thus, this is added back to
net income.
Notes to Financial Statements
These provide narrative description or
disaggregation of items presented in the financial
statements and information about items that do not
qualify for recognition.

Information Required to Be Presented on the

Notes to Financial Statements
a. Statement of compliance with IFRSs
b. Significant accounting policies, estimates,
assumptions, and judgements must be
disclosed
c. Additional information useful to users
understanding/ decision making to be
presented
d. Information that enables users to evaluate
the entity’s objectives, policies and
processes for managing capital.

Reporting Period
a. Accounts must presented at least annually
b. If longer or shorter, the entity must disclose
that fact.

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