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PAS 1: PRESENTATION OF FINANCIAL STATEMENTS (Financial Position)

Financial Statements
- Are the means by which the information accumulated and processed in financial
accounting is periodically communicated to the users.
- End product or main output of the financial accounting process
- Structured financial representation of the financial position and financial performance of
an entity

General Purpose Financial Statements

- Intended to meet the needs of users who are not n a position to require an entity to
prepare reports tailored to their particular information needs.
- Directed to all common users

Components of Financial Statements

1. Statement of financial position
2. Income Statement
3. Statement of comprehensive income
4. Statement of changes in equity
5. Statement of cash flows
6. Notes, comprising a summary of significant accounting policies and other explanatory
notes.

Objective of Financial Statements

- Provide information about the financial position, financial performance and cash flows of
an entity that is useful to a wide range of users in making economic decisions.

Financial Statements provide information about the following to meet the objective;
1. Assets
2. Liabilities
3. Equity
4. Income and Expenses, including gains and losses
5. Contribution by and distributions to owners in their capacity as owners
6. Cash flows

Frequency of Reporting
- Presented at least annually
- When an entity’s end of the reporting period changes and financial statements are
presented for a period longer or shorter than one yearn, 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 statement are not entirely
comparable

Statement of Financial Position

- The three elements comprising financial position
a. Assets
b. Liabilities
c. Equity
- Investors, creditors and other statement users analyze the statement of financial position
to evaluate such factors as;
a. Liquidity
b. Solvency
c. The need of the entity for additional financing

Classification of Assets
- Operating cycle is the time between the acquisition of assets and their realization in
cash,
- When the entity’s normal operating cycle is not clearly identifiable, the duration is
assumed to be twelve months.
1. Current Assets
a. The asset is cash or cash equivalent unless the asset is restricted to settle a
liability for more than twelve months after the reporting period.
b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realize the asset within twelve months after the reporting
period
d. The entity expects to realize the asset or intends to sell or consume it within the
entity’s normal operating cycle.
2. Noncurrent assets
a. Property, plant and equipment
b. Long-term investments
c. Intangible assets
d. Deferred tax assets
e. Other noncurrent assets

Classification of Liabilities
1. Current Liabilities
a. The entity expects to settle the liability within the entity’s normal operating cycle
b. The entity holds the liability primarily for the purpose of trading.
c. The liability is due to be settled within twelve months after the reporting period
d. The entity does not have a right to defer settlement of the liability for at least
twelve months after the reporting period.
2. Noncurrent Liabilities
a. Noncurrent portion of long-term debt
b. Finance lease liability
 c. Deferred tax liability
d. Long-term obligations to company officers
e. Long-term deferred revenue
Definition of Equity
- Residual interest in the assets of the entity after deducting all of its liabilities.
- Means “net assets” or total assets minus liabilities.
- The terms used in reporting the equity of an entity depending on the form of the
business organization are;
a. Owner’s equity in a proprietorship
b. Partners’ equity in a partnership
c. Stockholders’ equity or shareholders’ equity in a corporation

Covenants
- Often attached to borrowing agreements which represent undertakings by the borrower
- Restrictions on the borrower as to undertaking further borrowings, paying dividends,
maintaining specified level of working capital and so forth.
- If certain conditions relating to the borrower’s financial situation are breached, the liability
becomes payable on demand.

Shareholders’ equity
- Residual interest of owners in the net assets of a corporation measured by the excess of
assets over liabilities

Philippine Term IAS Term

Capital Stock Share Capital
Subscribed capital stock Subscribed share capital
Preferred stock Preference share capital
Common stock Ordinary Share capital
Additional paid capital Share premium
Retained earnings (deficit) Accumulated profits (losses)
Retained earnings appropriated Appropriation reserved
Revaluation surplus Revaluation reserve
Treasury stock Treasury share

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
- Used to report information that does not fit into the body of the financial statements in
order to enhance the understandability of the financial statements
- Purpose of the notes is to provide the necessary disclosures required by Philippine
Financial Reporting Standards
Forms of Statement of Financial Position
1. Report Form - sets forth the three major sections in a downward sequence of assets,
liabilities, and equity.
2. Account Form - follows that of an account, meaning, the assets are shown on the left
side and the liabilities and equity on the right side of the statement of financial position.
PAS 1: PRESENTATION OF FINANCIAL STATEMENTS (Income Statement)

Income Statement
- Format statement showing the financial performance of an entity for a given period of
time
- 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.
- Financial performance is also known as the results of operations of an entity.
- The income statement for a period presents the
a. Income
b. Expenses
c. Gains
d. Losses
e. Net income or loss
- Information about the financial performance is useful in predicting future performance
and ability to generate future cash flows.

Sources of Income
a. Sales of merchandise to customers
b. Rendering services
c. Use of entity resources
d. Disposal of resources other than the products

Components of expense
a. Cost of goods sold or cost of sales
b. Distribution costs or selling expenses
c. Administrative expenses
d. Other expenses
e. Income tax expense

Classification of expenses
1. Distribution costs constitute
- Directly related to selling, advertising, and delivery of goods to customers.
a. Salesmen’s salaries
b. Salesmen’s commissions
c. Traveling and marketing expenses
d. Advertising and publicity
e. Freight out
 f. Depreciation of delivery equipment and store equipment
2. Administrative Expenses constitute
- Cost of administering business
a. Doubtful accounts
b. Office salaries
c. Expenses of general executives
d. Expenses of general accounting and credit department
e. Office supplies used
f. Certain taxes
g. Contribution
h. Professional Fees
i. Depreciation of office building, and office equipment
j. Amortization of intangible assets
3. Other expenses
- Not directly related to the selling and administrative function
a. Loss on sale of trading investments
b. Loss on disposal of property, plant and equipment
c. Loss on sale of noncurrent investment
d. Casualty loss - flood, earthquake, fire

No more extraordinary items

- PAS 1, paragraph 87, mandates that an entity shall not present any items of income and
expense as extraordinary on the face of the income statement or extraordinary either on
the face of income statement or statement of comprehensive income or in the notes.

Line Items
- As a minimum, the income statement and statement of comprehensive income shall
include the following line items;
a. Revenue
b. Gain and loss from the derecognition of financial asset measured at amortized
cost as required by PFRS 9
c. Finance cost
d. Share in income or loss of associate and joint venture accounted for using the
equity method
e. Gain or loss on the reclassification of financial asset from fair value other
comprehensive income to fair value profit or loss
f. Gain or loss from extinguishment of a financial liability by issuing equity
instrument as required by IFRIC 19
g. Income tax expense
h. A single amount comprising discounted operation
i. Profit or loss for the period
j. Total other comprehensive income
k. Comprehensive income for the period being the total of profit or loss and other
comprehensive income
The following items shall be disclosed on the face of the income statement and statement of
comprehensive income;
a. Profit or loss for the period attributable to noncontrolling interest and owners of the
parent
b. Total comprehensive income for the period attributable to noncontrolling interest and
owners of the parent

Forms of income statement

1. Functional Presentation
- C;assifies expenses as part of the cost of goods sold, distribution costs,
administrative expenses and other expenses.
- Also known as cost of goods sold method
- Shall disclose additional information on the nature of expenses, including
depreciation, amortization and employee benefit costs
2. Natural Presentation
- Referred to as the nature of expense method
- Expenses are aggregated according to their nature and not allocated among the
various functions within the entity.
- Expenses are no longer classified as cost of goods sold, distribution costs,
administrative expenses and other expenses.
Millan
- PAS 1 Presentation of Financial Statements prescribes the basis for the presentation of
general purpose financial statements, the guidelines for their structure, and the minimum
requirements for their content to ensure comparability.

Types of Comparability
a. Intra-comparability (horizontal or inter-period) - refers to the comparability of financial
statements of the same entity but from one period to another
b. Inter-comparability (dimensional) - refers to the comparability of financial statements
between different entities

Comparability requires consistency in the adoption and application of accounting policies and
in the presentation of financial statements, e.g., the use of line-item description and account
titles, either within a single entity from one period to another or across different entities.

- PAS 1 applies to the preparation and presentation of general purpose financial

statements.
- The terminology used in PAS 1 is suitable for profit-oriented entities.

Financial Statements
- Structured representation of an entity’s financial position and results of its operations
- End product of the financial reporting process
- General Purpose Financial Statements cater to most of the common needs of a wide
range of external users.

Purpose of Financial Statements

1. Primary objective - provide information about the financial position, financial
performance, and cash flows of an entity that is useful to a wide range of users in
making economic decisions.
2. Secondary objective - show the results of management’s stewardship over the entity’s
resources.

General Features of Financial Statements

1. Fair presentation and Compliance with PFRSs
2. Going Concern
3. Accrual Basis of Accounting
4. Materiality and Aggregation
5. Offsetting
6. Frequency of reporting
7. Comparative information
8. Consistency of presentation
Structure and Content of Financial Statements

The following information shall be displayed prominently and repeatedly whenever relevant to
the understanding of the information presented;
a. The name of the reporting entity
b. Whether the statements are for the individual entity or for a group of entities
c. The date of the end of the reporting period or the period covered by the financial
statements
d. The presentation of currencies
e. The level of rounding used (e.g., thousands, millions, etc.)

Management’s Responsibility over Financial Statements

The responsibility encompasses;

a. The preparation and fair presentation of financial statements in accordance with PFRSs
b. Internal control over financial reporting
c. Going concern assessment
d. Oversight over the financial reporting process
e. Review and approval of financial statements

This document is signed by;

a. Chairman of the Board
b. Chief Executive Officer
c. Chief Financial Officer

Statement of Financial Position

Line items that present the following amounts;
a. Property, plant and equipment
b. Investment Property
c. Intangible Assets
d. Financial assets
e. Investments accounted for using the equity method
f. Biological assets
g. Inventories
h. Trade and other receivables
i. Cash and cash equivalents
j. Assets held for sale, including disposal groups
k. Trade and other payables
l. Provisions
m. Financial liabilities (excluding k and l)
n. Current tax liabilities and current tax assets
o. Deferred tax liabilities and deferred tax assets
p. Liabilities included in disposal groups
 q. Non-controlling interests
r. Issued capital and reserves attributable to owners of the parent

Presentation of Statement of Financial Position

a. Classified Presentation
- Shows distinction between current and noncurrent assets and current and
noncurrent liabilities.
b. Unclassified presentation
- also called based on liquidity shows no distinction between current and
noncurrent items.

- A classified presentation shall be used except when an unclassified presentation

provides information that is reliable and more relevant.
- PAS 1 also permits a mixed presentation, for example presenting some assets and
liabilities using a current or noncurrent classification and others in order of liquidity. this
may be appropriate when the entity has diverse operations.
- Whichever method is used past one requires the disclosure of items that are expected
to be recovered or settled within (a) 12 months and (b) beyond 12 months after the
reporting period.
- a classified presentation highlights and entities working capital and facilitates the
computation of liquidity and solvency ratios.

Other Comprehensive Income

- Other comprehensive income comprises items of income and expense including
reclassification adjustments that are not recognized in profit or loss as required or
permitted by other PFRSs.
The components of other comprehensive income include the following;
1. Changes in revaluation surplus
2. Remeasurements of the net defined benefit liability or assets
3. gains and losses on investment Designated or measured at fair value through other
comprehensive income
4. gains and losses arising from translating the financial statements of a foreign operation
5. effective portion of gains and losses on hedging instruments in a cash flow hedge
6. changes in fair value of a financial liability designated at fair value through profit or loss
that are attributable to changes in credit risk
7. changes in the time value of option when the options intrinsic value and time value are
separated and only the changes in the intrinsic value is designated as the hedging
instrument
8. Changes in the value of the forward elements of forward contracts when separating the
forward element and spot element of a forward contract and designating as the hedging
instrument only the changes in the spot element and changes in the value of the foreign
currency basis spread of a financial instrument when excluding it from the designation of
that financial instrument as a hedging instrument
Reclassification Adjustments
- Reclassification adjustments are amounts classified to profit or loss in the current
period that poor recognized in other comprehensive income in the current or previous
periods
- Arise , for example , on disposal of a foreign operation , the recognition of debt
instruments measured at FVOCI, Or when a cash flow hedge becomes ineffective or
affects profit or loss
- Reclassification adjustments do not arise on changes in revaluation surplus , the
recognition of equity instruments designated at fvoci , and remeasurements of the net
defined benefit liability or asset.

Presentation of OCI
The other comprehensive income section geography terms of other comprehensive income into
the following;
1. Reclassification adjustment is allowed
2. Reclassification adjustment is not allowed

Total Comprehensive Income

- The comprehensive income the same of profit or loss and other comprehensive income