LESSON 2

( PAS 1, AND 7)
P R E S E N TAT I O N O F
FINANCIAL
S TAT E M E N T
( PAS 1)
Philippine Accounting Standard 1

• Prescribed the basis for presentation of general

purpose financial statements, in order to ensure
comparability.
Financial Statements
• Are the means by which the information accumulated
and processed in financial accounting is periodically
communicated to the users.

• The end product or main output of the financial

accounting process.
General Purpose Financial Statements
• 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.
Complete Set of Financial Statement
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 to the Financial Statement
Objective of Financial Statement
• The objective of general purpose financial statement is to
provide information about the financial position, performance
and cash flows of an enterprise that is useful to a wide range
of users in making economic decisions.

• Financial Statement also show the results of management’s

stewardship of the resources entrusted to it.
Objective of Financial Statement
• To meet the objective of financial statement, financial statement
should provide information about the following:
1. Assets
2. Liabilities
3. Equity
4. Income and Expenses, including gains and losses
5. Contributions by and distributions to owners in their capacity as
owners
6. Cash flows
 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:
1. The period covered by the financial statements.
2. The reason for using a longer or shorter period.
3. The fact that amounts presented in the financial statements
are not entirely comparable.
S TAT E M E N T O F
FINANCIAL
POSITION
( PAS 1)
Statement of Financial Position
• Comprise of Assets, Liabilities, and Equity.

• Investors, creditors and other statement users analyze

the statement of financial position to evaluate factors
such as liquidity, solvency, and the need of the entity for
additional financial.

• Assess the financial condition of the entity.

ASSET
• An economic resource controlled by an entity as a result
of past event.

• An economic resource is a right that has the potential to

produce economic benefits.
ASSET
• Current Asset (PAS 1, par. 66) it is current asset when:

1. 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.

2. The entity holds the asset primarily for the purpose of trading

3. The entity expects to realize the asset within twelve months after the
reporting period.

4. The entity expects to realize the asset or intends to sell or consume it

within the entity’s normal operating cycle.
ASSET
Current Asset (listed in the order of liquidity)
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
ASSET
Non-current Asset
• All asset not classified as current.
a. Property, plant and equipment
b. Long-term investments
c. Intangible assets
d. Deferred tax assets
e. Other noncurrent assets
LIABILITIES
• Present obligation of an entity to transfer an economic
resource as a result of past events.

• An economic resource is a right that has the potential to

produce economic benefits.
LIABILITIES
Current Liabilities
• Expected to be settled in the normal course of the
operating cycle
• Held primarily for the purpose of being traded
• Due to be settled within 12 months
• The entity does not have any unconditional right to defer
the settlement to more than 12 months
LIABILITIES
Current Liabilities
a. Trade and other payables
b. Current provisions
c. Short-term borrowing
d. Current portion of long-term debt
e. Current tax liability
LIABILITIES
Non-current Liabilities
• All liabilities not classified as current.
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
LIABILITIES
Non-current Liabilities
• All liabilities not classified as current.
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
EQUITY
• Residual interest in the assets of the entity after
deducting all of its liabilities.

• Net Assets.

• Terms depending on the form of business organization:

a. Owner’s equity in a proprietorship
b. Partners’ equity in a partnership
c. Stockholders’ equity or shareholders’ equity in a corporation
Forms of Statement of Financial Position
• Report Form
Assets
Liabilities
Equity

• Account Form
Assets Liabilities and Equity
 Statement of Financial Position
PAS 1, par. 54: At minimum, line items that should be presented are

a. property, plant and equipment k. trade and other payables

b. investment property l. provisions
c. intangible assets m. financial liabilities
d. financial assets (excluding amounts n. current tax liabilities and current tax
shown under (e), (h), and (i)) assets,
e. investments accounted for using the o. deferred tax liabilities and deferred tax
equity method assets
f. biological assets p. liabilities included in disposal groups
g. inventories q. non-controlling interests, presented
h. trade and other receivables within equity
i. cash and cash equivalents r. issued capital and reserves attributable
to owners of the parent.
j. assets held for sale
 S TAT E M E N T O F
COMPREHENSIVE
INCOME
( PAS 1)
Income Statement
• A formal statement showing the financial performance of
an entity for a given period of time.

• Presents the income, expenses, gains, losses and net

income or loss recognized during the period.
Comprehensive Income
Broader than income statement.

For the reason that it includes:

a. Components of profit or loss
b. Components of other comprehensive income
Profit or Loss

• Revenue, gain from sale of asset, other income not

classified as OCI

• Total income less expenses excluding the components

of OCI.
Other Comprehensive Income
• Comprises of items of income and expenses including
reclassification adjustments that are not recognized in
profit or loss.
Includes:
• Revaluation surplus
• Debt investment
• Derivative Contracts designation as cash flow hedge
• Defined Benefit Plan (actuarial gain or loss)
• Translation of Foreign FS (gain or loss)
• Gains/Losses from equity instrument classified as OCI
Other Comprehensive Income
Presentation:
The line items for amounts of OCI shall be grouped as
follows:
a. OCI that will be reclassified subsequently to profit
or loss when specific conditions are met.

b. OCI that will not be reclassified subsequently to

profit or loss but to retained earnings.
Other Comprehensive Income
a. OCI that will be reclassified subsequently to profit
or loss when specific conditions are met.
• Unrealized gain or loss on debt investment measured at
FVTOCI

• Gain or loss from translating financial statements of a foreign

operation.

• Unrealized gain or loss on derivative contracts designated as

cash flow hedge.
Other Comprehensive Income
b. OCI that will not be reclassified subsequently to
profit or loss but to retained earnings.
• Unrealized gain or loss on equity investment measured at
FVTOCI
• Revaluation surplus during the year
• Remeasurements of defined benefit plan, including actuarial
gain or loss.
• Change in fair value attributable to credit risk of a financial
liability designated at fair value through profit or loss.
 Presentation of Comprehensive Income
Two options of presenting comprehensive income:

1. Two statements
• Income statements
• Statement of Comprehensive Income
2. Single statement of comprehensive income
• Also known as Statement of Financial Performance
Components of Comprehensive Income
INCOME
a. Sales of merchandise to customer
b. Rendering of services
c. Use of entity resources
d. Disposal of resources other than products
Components of Comprehensive Income
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 expensee
Forms of Income Statement
PAS 1, par. 99: Income statement may be presented in two ways:
1. Functional Presentation
Sales
Sales Discount/Returns/Allowances
Net Sales
COGS
Gross Income
Other/Investment Income
Total Income
Expenses
Income before tax
Income tax expense
Net Income
Forms of Income Statement
PAS 1, par. 99: Income statement may be presented in
two ways:
2. Natural Presentation
Net Sales
Other / Investment Income
Total Income
Expenses (Including COGS)
Income before tax
Income tax expense
Net Income
Which form of income statement to used?
PAS 1 does not prescribe any format.
S TAT E M E N T O F
CASH FLOWS
( PAS 1)
Statement of Cash Flows
•Summarizes the operating, investing and
financing activities of an entity.

•Provides information about the cash

receipts and cash payments of an entity
during a period.
Statement of Cash Flows
•Provide information about the change in an
entity’s cash and cash equivalents.

Cash Equivalents:
- Investments that has short maturity of three
months or less from date of acquisition.
Classification of Cash Flows
•Cash Inflow

•Cash Outflows
Statement of Cash Flows
Classification of Activities
• Operating
• Financing
• Investing

Basis to asses the ability of the entity to generate cash.

 Operating Activities
• Are the cash flows derived primarily from the principal
revenue producing activities.
Examples:
a. Cash receipts from sale of goods and rendering of services
b. Cash receipts from royalties, fees, commissions and other
revenue;
c. Cash payments to suppliers for goods and services;
d. Cash payments to and on behalf of employees;
e. Cash receipts and cash payments of an insurance enterprise for
premiums and claims, annuities and other policy benefits;
f. Cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities; and
 Investing Activities
• Are the cash flows derived from acquisition and disposal of
long-term assets and other investments not included in
cash equivalent.
Examples:
a. Cash payments to acquire fixed assets, including intangibles. These
payments include those relating to capitalized research and
development costs and self-constructed fixed assets;
b. Cash receipts from disposal of fixed assets (including intangibles);
c. Cash payments to acquire shares, warrants or debt instruments of other
enterprises and interest in joint ventures (other than payments for those
instruments considered to be cash equivalents and those held for
dealing or trading purposes.);
d. Cash receipts from disposal of shares, warrants or debt instruments of
other enterprises and interests in joint ventures (other than receipts from
those instruments considered to be cash equivalents and those held for
dealing or trading purposes.);
 Investing Activities
• Are the cash flows derived from acquisition and disposal of
long-term assets and other investments not included in
cash equivalent.
Examples:
a. Cash advances and loans made to third parties (other than advances
and loans made by a financial enterprise);
b. Cash receipts from the repayment of advances and loans made to third
parties (other than advances and loans of a financial enterprise);
c. Cash payments for future contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the payments are classified as financing activities;
and
d. Cash receipts from future contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the receipts are classified as financing activities.
 Investing Activities
• Are the cash flows derived from acquisition and disposal of
long-term assets and other investments not included in
cash equivalent.
Examples:
a. Cash advances and loans made to third parties (other than advances
and loans made by a financial enterprise);
b. Cash receipts from the repayment of advances and loans made to third
parties (other than advances and loans of a financial enterprise);
c. Cash payments for future contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the payments are classified as financing activities;
and
d. Cash receipts from future contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the receipts are classified as financing activities.
 Financing Activities
• Are the cash flows derived from the equity capital
and borrowings of the entity.
Examples:
a. Cash proceeds from issuing shares or other similar
instruments;

b. Cash proceeds from issuing debentures, loans, notes, bonds,

and other short or long-term borrowings; and

c. Cash repayments of amounts borrowed.

 Two methods of presenting Cash flow:

• Direct Method

• Indirect Method
THANK YOU.