APPLICATION OF PAS 1 –

STATEMENT OF
COMPREHENSIVE INCOME
FAR 2 • AY 20-21, 1 ST SEM • JFA
 NATURE OF EXPENSE FUNCTION OF EXPENSE
INCREASE/ DECREASE IN
INVENTORY COST OF GOODS SOLD
NET COST OF PURCHASES
EMPLOYEE BENEFIT COSTS,
SALES COMMISSIONS,
ADVERTISING, SUPPLIES
ADMINISTRATIVE EXPENSES
EXPENSE, DELIVERY EXPENSE,
SELLING EXPENSES
DEPRECIATION, TAXES AND
LICENSES, DOUBTFUL
ACCOUNTS
OTHER EXPENSE OTHER EXPENSE
NOTES ON NATURE OF EXPENSE PRESENTATION:
INCREASE/ DECREASE IN INVENTORY
- THIS IS THE DIFFERENCE BETWEEN BEGINNING AND ENDING
INVENTORY; IT WILL BE AN INCREASE IN INVENTORY (DISPLAYED AS A
NEGATIVE EXPENSE) IF ENDING INVENTORY IS GREATER THAN
BEGINNING INVENTORY; OTHERWISE, IT WILL BE A DECREASE IN
INVENTORY.
EMPLOYEE BENEFIT COSTS
- FIXED SALARIES OF SALES EMPLOYEES
- SALARIES OF OFFICE EMPLOYEES
- GOVT. REQUIRED BENEFITS OF BOTH SALES AND OFFICE EMPLOYEES
- BONUSES
SALES COMMISSION
- AMOUNT PAID TO SALES EMPLOYEES DEPENDENT ON SALES
GENERATED FOR THE COMPANY
SUPPLIES EXPENSE
- OFFICE SUPPLIES USED
- STORE/SALES SUPPLIES USED
DELIVERY EXPENSE IS ALSO CALLED TRANSPORTATION OUT.
DEPRECIATION
- OFFICE PPEs DEPRECIATION
- STORE/ SALES PPEs DEPRECIATION
TAXES AND LICENSES ACCOUNT DOESN’T INCLUDE INCOME TAX EXP.
DOUBTFUL ACCOUNTS
- EXPENSE RECOGNIZED IN RELATION TO PROBABILITY ON
UNCOLLECTABILITY OF RECEIVABLE.
NOTES ON FUNCTION OF EXPENSE PRESENTATION:
ADMINISTRATIVE EXPENSE
- OFFICE EMPLOYEE SALARIES
- GOVT. REQUIRED BENEFITS OF OFFICE EMPLOYEES
- BONUSES
- OFFICE SUPPLIES USED
- TAXES AND LICENSES
- DOUBTFUL ACCOUNTS
- DEPRECIATION OF OFFICE PPEs
NOTES ON FUNCTION OF EXPENSE PRESENTATION:
SELLING EXPENSE (ALSO CALLED DISTRIBUTION COSTS)
- SALARIES OF SALES EMPLOYEES
- GOVT REQUIRED BENEFITS OF SALES EMPLOYEES
- SALES COMMISSION
- ADVERTISING
- TRANSPORTATION OUT
- STORE/SALES SUPPLIES USED
- DEPRECIATION OF STORE/ SALES PPEs
OTHER EXPENSES INCLUDE:
- LOSS ON SALE
- CASUALTY LOSS (EARTH QUAKE, TYPHOON, TSUNAMI, FLOOD, FIRE,
STORM SURGE ETC.)
- MISCELLANEOUS EXPENSE
NATURE OF EXPENSE FUNCTION OF EXPENSE
NET SALES
-
NET SALES COST OF GOODS SOLD
+ =
OTHER INCOME GROSS PROFIT
= +
TOTAL INCOME OTHER INCOME
- =
TOTAL EXPENSES TOTAL INCOME
= -
TOTAL OPERATING INCOME OPERATING EXPENSES
- =
FINANCE COST TOTAL OPERATING INCOME
= -
INCOME BEFORE TAX FINANCE COST
- =
INCOME TAX EXPENSE INCOME BEFORE TAX
= -
NET INCOME INCOME TAX EXPENSE
=
 The following are the nominal accounts and
respective balances of Andrea T. <3 Company for
the year 2018:
advertising 100,000 OCI- Equity investment unrealized 60,000
gain- OCI
bonuses 100,000 OCI- hedging gain 20,000
casualty loss from 170,000
earthquake OCI- revaluation surplus 150,000
delivery expense 250,000 OCI- translation loss 40,000
depreciation- office 90,000
equipment office salaries 650,000
depreciation- store 150,000
equipment office supplies expense 70,000
dividend revenue 120,000 purchase discount 250,000

NS – Net sales COGS – Cost of Goods Sold AE – Administrative Expense

SE – Selling Expense OE – Other Expense OT - Others

OCI accounts are gross of 30% income tax.

doubtful accounts 40,000 purchase return and allowance 150,000
freight in 300,000 purchases 6,000,000
Gain from discontinued 50,000
rent revenue 100,000 operations, gross of tax
gain from expropriation 500,000 Sales commission 180,000
Gross Sales 9,300,000 sales discount 200,000
income tax expense 580,000 sales return and allowance 100,000

NS – Net sales COGS – Cost of Goods Sold AE – Administrative Expense

SE – Selling Expense OE – Other Expense OT - Others

OCI accounts are gross of 30% income tax.

interest expense on 50,000
bank loan sales salaries 600,000
interest expense on 150,000
bonds payable share in net income of associate 500,000
interest revenue 180,000 SSS and PhilHealth- office 30,000
inventory, 1/1 1,500,000 SSS and PhilHealth- Sales 20,000
inventory, 12/31 2,000,000 store supplies expense 50,000
loss on sale of 30,000
investment taxes and licenses 20,000

NS – Net sales COGS – Cost of Goods Sold AE – Administrative Expense

SE – Selling Expense OE – Other Expense OT - Others

OCI accounts are gross of 30% income tax.

 FUNCTION OF
EXPENSE
PRESENTATION
Note 1: Net Sales

Gross Sales P 9,300,000

Sales Return and Allowances (100,000)
Sales Discount (200,000)
Net Sales P 9,000,000
Note 2: Cost of Goods Sold

Inventory, 1/1 P 1,500,000

Net Cost of Purchases:
Purchases P 6,000,000
Purchase Return and Allowance (150,000)
Purchase Discount (250,000)
Net Purchases P 5,600,000
Freight in 300,000 5,900,000
Cost of Goods Available for Sale P 7,400,000
Inventory, 12/31 (2,000,000)
Cost of Goods Sold P 5,400,000
Note 3: Other Income

Interest Revenue P 180,000

Dividend Revenue 120,000
Rent Revenue 100,000
Gain from Expropriation 500,000
Other Income P 900,000
Note 4: Selling Expenses

Sales Salaries P 600,000

SSS and Philhealth – Sales 20,000
Sales Commission 180,000
Advertising 100,000
Store Supplies Expense 50,000
Delivery Expense 250,000
Depreciation – Store Equipment 150,000
Selling Expenses P 1,350,000
Note 5: Administrative Expenses

Office Salaries P 650,000

SSS and Philhealth – Office 30,000
Bonuses 100,000
Office Supplies Expense 70,000
Taxes and Licenses 20,000
Doubtful Accounts 40,000
Depreciation – Office Equipment 90,000
Total Administrative Expenses P 1,000,000
Note 6: Other Expenses

Loss on Sale of Investment P 30,000

Casualty Loss from Earthquake 170,000
Other Expenses P 200,000
Note 7: Finance Cost

Interest Expense on Bank Loan P 50,000

Interest Expense on Bonds Payable 150,000
Finance Cost P 200,000
Note 8: Gain from Discontinued Operations

Gross Amount P 50,000

Less: Applicable Tax (P 50,000 gross X 30%) 15,000
Gain From Discontinued Operations P 35,000
Note 9: OCI that will not be reclassified

Equity Investment Unrealized Gain P 60,000

Revaluation Surplus 150,000
Total P 210,000
Less: Applicable Tax (P 210,000 gross X 30%) 63,000
OCI that will not be reclassified P 147,000
Note 10: OCI that will be reclassified

Hedging Gain P 20,000

Translation Loss (40,000)
Total P (20,000)
Less: Applicable Tax (P 20,000 gross X 30%) 6,000
OCI that will be reclassified P (14,000)
 Andrea T. <3 Company
Statement of Comprehensive Income
For the year ended December 31, 2018

Note
Net Sales (1) P 9,000,000
Cost of Goods Sold (2) (5,400,000)
Gross Income P 3,600,000
Other Income (3) 900,000
Share in Net Income
of Associate 500,000
Total Income P 5,000,000
 Note
Total Income P 5,000,000
Operating Expenses:
Selling Expenses (4) P 1,350,000
Administrative Expenses (5) 1,000,000
Other Expenses (6) 200,000 (2,550,000)
Operating Income/ EBIT P 2,450,000
Finance Cost (7) (200,000)
Income Before Taxes P 2,250,000
Income Tax Expense (580,000)
Income from
Continuing Operations (ICO) P 1,670,000

EBIT = Earnings Bef. Interest and Taxes

 Note
Income from
Continuing Operations (ICO) P 1,670,000
Gain from
Discontinued Operations (8) 35,000
Profit/ Loss or Net Income P 1,705,000
OCI
OCI that will not be
Reclassified (9) P 147,000
OCI that will be
Reclassified (10) (14,000) 133,000
Comprehensive Income P 1,838,000
 NATURE OF
EXPENSE
PRESENTATION
Note 1: Net Sales

Gross Sales P 9,300,000

Sales Return and Allowances (100,000)
Sales Discount (200,000)
Net Sales P 9,000,000
Note 2: Other Income

Interest Revenue P 180,000

Dividend Revenue 120,000
Rent Revenue 100,000
Gain from Expropriation 500,000
Other Income P 900,000
Note 3: Increase in Inventory

Inventory, 12/31 P (2,000,000)

Inventory, 1/1 1,500,000
Increase in Inventory P (500,000)
Note 4: Net Cost of Purchases

Purchases P 6,000,000
Purchase Return and Allowance (150,000)
Purchase Discount (250,000)
Net Purchases P 5,600,000
Freight in 300,000
Net Cost of Purchases P 5,900,000
Note 5: Employee Benefit Costs

Sales Salaries P 600,000

SSS and Philhealth- Sales 20,000
Office Salaries 650,000
SSS and Philhealth – Office 30,000
Bonuses 100,000
Total Employee Benefit Costs P 1,400,000
Note 6: Supplies Expense

Store Supplies P 50,000

Office Supplies 70,000
Total Supplies Expense P 120,000
Note 7: Depreciation Expense

Store Equipment P 150,000

Office Equipment 90,000
Total Depreciation Expense P 210,000
Note 8: Other Expenses

Loss on Sale of Investment P 30,000

Casualty Loss from Earthquake 170,000
Other Expenses P 200,000
Note 9: Finance Cost

Interest Expense on Bank Loan P 50,000

Interest Expense on Bonds Payable 150,000
Finance Cost P 200,000
Note 10: Gain from Discontinued Operations

Gross Amount P 50,000

Less: Applicable Tax (P 50,000 gross X 30%) 15,000
Gain From Discontinued Operations P 35,000
Note 11: OCI that will not be reclassified

Equity Investment Unrealized Gain P 60,000

Revaluation Surplus 150,000
Total P 210,000
Less: Applicable Tax (P 210,000 gross X 30%) 63,000
OCI that will not be reclassified P 147,000
Note 12: OCI that will be reclassified

Hedging Gain P 20,000

Translation Loss (40,000)
Total P (20,000)
Less: Applicable Tax (P 20,000 gross X 30%) 6,000
OCI that will be reclassified P (14,000)
 Andrea T. <3 Company
Statement of Comprehensive Income
For the year ended December 31, 2018

Note
Net Sales (1) P 9,000,000
Other Income (2) 900,000
Share in Net Income
of Associate 500,000
Total Income P10,400,000
 Note
Expenses:
Increase in Inventory (3) P (500,000)
Net Cost of Purchases (4) 5,900,000
Employee Benefit Costs (5) 1,400,000
Sales Commission 180,000
Advertising 100,000
Supplies Expense (6) 120,000
Delivery Expense 250,000
Depreciation (7) 240,000
 Taxes and Licenses 20,000
Doubtful Accounts 40,000
Other Expenses (8) 200,000 (7,950,000)
Operating Income/ EBIT P 2,450,000
Finance Cost (9) (200,000)
Income Before Taxes P 2,250,000
Income Tax Expense (580,000)
Income from
Continuing Operations (ICO) P 1,670,000

EBIT = Earnings Bef. Interest and Taxes

 Note
Income from
Continuing Operations (ICO) P 1,670,000
Gain from
Discontinued Operations (10) 35,000
Profit/ Loss or Net Income P 1,705,000
OCI
OCI that will not be
Reclassified (11) P 147,000
OCI that will be
Reclassified (12) (14,000) 133,000
Comprehensive Income P 1,838,000