PRESENTATION OF

FINANCIAL STATEMENTS
 are end products or main outputs of the financial
accounting process
FINANCIAL
STATEMENTS
are a structured financial representation of the
financial position, financial performance, and
cash flows of an entity

are those intended to meet the needs of users

who are not in a position to require an entity to
prepare reports tailored to their particular
information needs
COMPONENTS OF FINANCIAL
STATEMENTS

Statement of Financial Statement of

Income Statement
Position Comprehensive Income

Notes, comprising a
Statement of Changes in summary of significant
Statement of Cash Flows
Equity accounting policies and
other explanatory notes
FREQUENCY OF
REPORTING

Financial statements shall be presented at least annually.

When an entity’s end of reporting period changes and financial statements are presented for a period longer or
shorter than one year, an entity shall disclose:
a. the period covered by the financial statements.
b. the reason for using a longer or shorter period.
c. the fact that amounts presented in the financial statements are not
entirely comparable.
STATEMENT
OF
FINANCIAL a formal statement showing the
Investors, creditors, and other
statement users analyze the
POSITION three elements comprising
financial position, namely assets,
statement of financial position to
evaluate such factors as liquidity,
liabilities, and equity. solvency, and the need of the
entity for additional financing.
DEFINITION OF ASSET

An asset is an
An economic resource
economic resource
is a right that has the
controlled by an entity
potential to produce
as a result of past
economic benefits.
event.
 Assets are classified only into two, namely
current assets and non-current assets.

The operating cycle is the time between the

CLASSIFICATION acquisition of assets for processing and their
OF ASSETS realization in cash or cash equivalents.

When the entity’s normal operating cycle is not

clearly identifiable, the duration is assumed to
be twelve months.
 PAS 1, paragraph 66:
• The assets is cash or cash equivalent unless
CURRENT the asset is restricted to settle a liability for
ASSETS more than 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
twelve 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.
PRESENTATION OF
CURRENT ASSETS
Current assets are usually listed in the order of liquidity. PAS 1, par. 54,
provides that as a minimum, the line items under current assets are:
a. cash and cash equivalents
b. financial assets at fair value such as trading securities and other
investments in quoted equity instruments
c. trade and other receivables
d. inventories
e. prepaid expenses
NON-CURRENT
ASSETS
a residual definition
PAS 1, par. 66: An entity shall classify all other assets not classified as
current as non-current.
a. property, plant, and equipment
b. long-term investments
c. intangible assets
d. deferred tax assets
e. other non-current assets
DEFINITION OF LIABILITY

A liability is a present obligation of an entity to transfer an economic resource as

a result of past event.

An obligation is a duty or responsibility that an entity has no practical ability to

avoid.

An obligation can either be legal or constructive.

 PAS 1, par. 69:
• The entity expects to settle the liability within
CURRENT the entity’s normal operating cycle.
LIABILITIES • 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.
 PAS 1, par. 54, Trade and other payables
provides that as
a minimum, the
PRESENTATION Current provisions
face of the
OF CURRENT
LIABILITIES
statement of
financial
position shall Short-term borrowing
include the
following line
Current portion of long-
items for term debt
current
liabilities: Current tax liability
 also a residual definition

NON- PAS 1, par. 69, provides that all liabilities

not classified as current are classified as
CURRENT non-current:
LIABILITIES • non-current portion of long-term debt
• finance lease liability
• deferred tax liability
• long-term obligations to many officers
• long-term deferred revenue
CLASSIFICATION RULES FOR
LIABILITIES

Currently maturing long-term debt

Discretion to refinance

Covenants and breach of covenants

 01 02 03
EQUITY
Equity is the residual Simply stated, equity PAS 1, par. 7, the
interest in the assets of means “net assets” or holders of instruments
the entity after total assets minus total classified as equity are
deducting all of its liabilities. simply known as
liabilities. owners.
 Provide narrative
description or
Notes contain
disaggregation of items
information in addition
presented in the
to that presented in
financial statements
SFP, IS, SCI, SCE, and
and information about
SCF.
items that do not
NOTES TO qualify for recognition.

FINANCIAL
STATEMENTS Purpose: to provide
Enhance necessary disclosures
understandability of required by Philippine
the financial statements Financial Reporting
Standards
FORMS OF STATEMENT OF FINANCIAL
POSITION

a. Report form
- this form sets forth the three major sections in a downward sequences of
assets, liabilities, and equity
b. Account form
- the presentation follows that of an account (i.e. the assets are shown on
the left side and the liabilities and equity on the right side of the SFP.)
PRESENTATION

In the Philippines, the common practice is to present current assets

before non-current assets, current liabilities before non-current
liabilities, and equity after liabilities.

Another practice is presenting non-current assets before current

assets, equity before liabilities, and non-current liabilities before
current liabilities (United Kingdom).
 An income statement is a formal statement showing
the financial performance of an entity for a given
INCOME period of time.
STATEMENT
The financial performance of an entity is primarily
measured in terms of the level of income earned by
the entity through the effective and efficient utilization
of its resources.

The financial performance is also known as the results

of operations of the entity.
INCOME STATEMENT

The transaction approach is the traditional preparation of the income statement in

conformity with accounting standards.

Income
Information about financial
Expenses
performance is useful in predicting
Gains future performance and ability to
Losses generate future cash flows.
Net income/Net loss
COMPREHENSIVE INCOME

Comprehensive income is the 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.
COMPREHENSIVE
INCOME

Other Comprehensive
Profit or Loss +
Income
P/L and OCI
The term profit or loss is the total of income less expenses,
excluding the components of other comprehensive income.

Other comprehensive income comprises items of income and

expenses, including reclassification adjustments that are not
recognized in profit or loss as required or permitted by Philippine
Financial Reporting Standards.
COMPONENTS OF OCI
1. Unrealized gain or loss on equity investment measured at fair value through other comprehensive
income
2. Unrealized gain or loss on debt investment measured at fair value through other comprehensive income
3. Gain or loss from translation of the financial statements of a foreign corporation
4. Revaluation surplus during the year
5. Unrealized gain or loss from derivative contracts designated as cash flow hedge
6. “Remeasurements” of defined benefit plan, including actuarial gain or loss
7. Change in fair value attributable to credit risk of a financial liability designated at fair value
through profit or loss
PRESENTATION OF
COMPREHENSIVE INCOME

2. SINGLE STATEMENT OF
1. TWO STATEMENTS
COMPREHENSIVE INCOME
• a. An income statement showing the • This is the combined statement
components of profit/loss showing the components of profit or
• b. A statement of comprehensive loss and components of other
income beginning with profit or loss comprehensive income in a single
as shown in the income statement statement.
plus or minus the components of • This is also known as statement of
other comprehensive income financial performance.
PRESENTATION OF
COMPREHENSIVE INCOME
 a. Sales of merchandise to customers (during the
period). Sales returns, allowances, and discounts
shall be deducted from gross sales to arrive at
net sales.
b. Rendering of services. This includes professional
SOURCES OF fees, commissions, admission fees for artistic
performance, and tuition fees.
INCOME c. Use of entity resources. This income category
includes interest, rent, royalty, and dividend
income.
d. Disposal of resources other than products. This
includes gain on sale of investments, gain on
sale of PPE, and gain on sale of intangible assets.
COMPONENTS OF
EXPENSE

a. Cost of goods sold

b. Distribution costs or selling
expenses
c. Administrative expenses
d. Other expenses
e. Income tax expense
COST OF
GOODS
SOLD
CLASSIFICATION OF
EXPENSES
A. DISTRIBUTION COSTS / SELLING EXPENSES
- costs which are directly related to selling, advertising, and delivery of goods to customers.
1. salesmen’s salaries
2. salesmen’s commissions
3. traveling and marketing expenses
4. advertising and publicity
5. freight-out
6. depreciation of delivery equipment and store equipment
CLASSIFICATION OF
EXPENSES
B. ADMINISTRATIVE EXPENSES
- constitute costs of administering the business.
- ordinarily include all operating expenses not related to selling and cost of goods sold
1. doubtful accounts 6. certain taxes
2. office salaries 7. contribution
3. expenses of general executives 8. professional fees
4. expenses of general accounting and credit department9. depreciation of office building & equipment
5. office supplies used 10. amortization of intangible assets
CLASSIFICATION OF
EXPENSES
C. OTHER EXPENSES
- those expenses which are not directly related to the selling and administrative functions
1. loss on sale of trading investments
2. loss on disposal of property, plant, and equipment
3. loss on sale of noncurrent investment
4. casualty loss – flood, earthquake, fire
NO MORE
EXTRAORDINARY
ITEMS

PAS 1, paragraph 87, specifically

mandates that an entity shall not
present any items of income and
expense as extraordinary either on
the face of the income statement or
statement of comprehensive income
or in the notes.
FORMS OF INCOME
STATEMENT

PAS 1, paragraph 105, simply

states that because each
method (functional and natural
presentation) has merit for
different types of entities,
management is required to
select the presentation that is
reliable and more relevant.
FUNCTIONAL/COST OF
GOODS SOLD METHOD
NATURE OF
EXPENSE
METHOD
STATEMENT OF RETAINED EARNINGS

The 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 important data affecting profit or loss for the period (+ or -, respectively);
the retained earnings that
should be clearly disclosed prior period errors (+);
in the SRE are:
dividends declared and paid to shareholders (-);
effect of change in accounting policy (+); and
appropriation of retained earnings (-).
STATEMENT OF CHANGES IN EQUITY

The statement of changes in equity is a basic statement that shows the movements in the elements or
components of the shareholders’ equity.
1. Comprehensive income for the period
2. Effects of changes in accounting policies and corrections of errors
3. A reconciliation between the carrying amount at the beginning and end of the period, separately
disclosing changes from:
a. profit or loss
b. each item of OCI
c. transactions with owners in their capacity as owners showing separately
contributions by and distributions to owners
STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CASH FLOWS

The statement of cash flows is a basic

In simple language, the statement of
component of the financial statements
cash flows provides information about
which summarizes the operating,
the cash receipts and cash payments of
investing, and financing activities of an
an entity during the period.
entity.
TRUE

TRUE OR FALSE: The application of PFRSs, with additional disclosure when

necessary, is presumed to result in financial statements that achieve a fair
presentation.
TRUE

TRUE OR FALSE: According to PAS 1, an entity shall make an explicit and

unreserved statement of compliance with the PFRSs in the notes only if the
entity complies with all the requirements of PFRSs.
FALSE

TRUE OR FALSE: PAS 1 encourages, but does not require, the presentation of the
preceding year’s financial statements as comparative information to the current
year's financial statements.
FALSE

TRUE OR FALSE: According to PAS 1, assets and liabilities or income and

expenses are offset, unless separate presentation is required or permitted by a
PFRS.
FALSE

TRUE OR FALSE: According to PAS 1, PFRSs apply to financial statements as well

as to other information presented in an annual report, a regulatory filing, or
another document.
FALSE

TRUE OR FALSE: According to PAS 1, the line item “Cash and cash equivalents”
should always be presented first in the statement of financial position.
FALSE

TRUE OR FALSE: PAS 1 prescribes an order or format of presenting items in the

financial statements.
FALSE

TRUE OR FALSE: An entity may omit the notes when presenting general purpose
financial statements.
TRUE

If profit or loss is P100 while other comprehensive income is P20, the total
comprehensive income must be P120.
FALSE

PAS 1 encourages, but does not require, the disclosure of an entity’s domicile
and legal form, its country of incorporation and address of its registered office
and a description of the nature of its operations and its principal activities.
A

The objective of PAS 1 is

a. to ensure comparability by prescribing the basis for presentation of general
purpose financial statements
b. to ensure the faithful representation of financial statements
c. to ensure the relevance of information presented in the financial statements
d. to prescribe the recognition and measurement principles applicable to
assets, liabilities, income and expenses.
B

Entity A’s financial statements in the current period is comparable with Entity A’s
financial statements in the previous period. This type of comparability is called
a. inter-comparability
b. intra-comparability
c. extra-comparability
d. intro-comparability
D

The scope of PAS1 is

a. the preparation and presentation of general purpose financial statements
b. the recognition, measurement and disclosure requirements for specific
transactions and other events
c. the presentation of general purpose financial statements as well as all other
information contained in an entity's annual report
d. all of these
A

The statement of financial position is also called

a. balance sheet
b. income statement
c. positions statement
d. all of these
A

When preparing financial statements, PAS 1 requires management to assess the

entity's ability to continue as a going concern. The assessment covers a
minimum period of
a. at least one year from the end of the reporting period
b. at least two years from the end of the reporting period
c. at least five years from the end of the reporting period
d. there is no such requirement
D

Which of the following is not considered an appropriate application of offsetting under PAS 1?
a. Presenting again from the sale of a non-current asset, net of the related selling expenses
b. Deducting foreign exchange losses from foreign exchange gains and presenting only the net
amount
c. Deducting unrealized losses from unrealized gains from trading securities and presenting
only the net amount
d. Deducting accumulated depreciation from the equipment account and presenting only the
carrying amount
D

The PFRS apply to which of the following?

a. A management’s review of the entity’s financial performance during the period vis-à-vis its targets
for that period contained in the entity's annual report, which also includes the entity’s financial
statements
b. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR) to be filed
together with the financial statements
c. Environmental reports required by the Department of Environment and Natural Resources (DENR)
that are included in the entity’s annual reports
d. Explanatory material and other information that are disclosed in the notes to the financial
statements
A

This is the most commonly used method of presenting a statement of financial

position. It facilitates the computation of liquidity and solvency ratios.
a. Classified presentation
b. Unclassified presentation
c. Classified as to liquidity
d. Based on liquidity
B

Which of the following best reflects the definition of normal operating cycle under PAS 1?
a. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials,
process those raw materials into finished goods, and sell the finished goods.
b. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials,
process those raw materials into finished goods, sell the finished goods on account, and collect
the receivables.
c. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials on
account and settle the account.
d. For a manufacturing entity, this is the usual time it takes for the entity to sell finished goods on
account and collect the receivables.
D

PAS 1 requires an entity to provide an additional balance sheet dated as of the

beginning of the preceding period if certain instances occur. Which of the following
is not one of those instances? (Assume all of the following have a material effect.)
a. Retrospective application of an accounting policy
b. Retrospective restatement
c. Reclassification of items in the financial statements
d. Change in the frequency of reporting
P4,800,000

Brock Company reported operating expenses in two categories, namely distribution and administrative. The
adjusted trial balance at year end included the following expenses and lost accounts for current year. One-
half of the rented premises is occupied by the sales department.
Accounting and legal fees P1,200,000
What amount
Advertising 1,500,000
should be Freight-out 800,000

reported as Interest 700,000

distribution Loss on sale of long-term investment 300,000

costs? Officers’ salaries 2,250,000

Rent for space 2,200,000

Sales salaries and commissions 1,400,000

P5,340,000

Determine the cost of goods manufactured.

Ending goods in process P1,000,000

Depreciation on factory building 320,000

Beginning raw materials 400,000

Direct labor 1,980,000

Factory supervisor’s salary 560,000

Depreciation on headquarters building 210,000

Beginning goods in process 760,000

Ending raw materials 340,000

Indirect labor 360,000

Purchases of raw materials 2,300,000

P8,700,000

Thorpe Company reported net income of P7,410,000 for the current year, which included the following
amounts:

Unrealized loss on foreign currency (540,000)

translation
Gain on early retirement of bonds 2,200,000
payable
Adjustment of profit of prior year for (750,000)
error in depreciation, net of tax
effect
Loss from fire (1,400,000)

What amount should be reported as adjusted net income?