PAS 1 Presentation of Financial matter of the Conceptual Framework

Statements and the PFRSs.

Learning Objectives
Complete set of financial statements
 Enumerate and describe the general
features of financial statement
presentation. 1. Statement of financial position
 Enumerate and describe the 2. Statement of profit or loss and other
components of a complete set of comprehensive income
financial statements. 3. Statement of changes in equity
 State the acceptable methods of 4. Statement of cash flows
presenting items of income and 5. Notes
expenses. 6. (5a) comparative information in
 Differentiate between the statement respect of the preceding period; and
of profit or loss and other 7. Additional statement of financial
comprehensive income and the position (required only when certain
statement of changes in equity. instances occur)
 State the relationship of the notes
with the other components of a
complete set of financial statements. General features

1. Fair Presentation and Compliance with

Objective of PAS 1 PFRSs - The application of PFRSs, with
PAS 1 prescribes the basis for presentation additional disclosure when necessary, is
of general purpose financial statements to presumed to result in financial statements
improve comparability both with the entity's that achieve a fair presentation.
financial statements of previous periods
(intra-comparability) and with the financial
statements of other entities (inter- 2. Going concern - An entity is not a going
comparability). concern if, as of the financial reporting date
or prior to the date of authorization of the
financial statements for issue, management
either:
 General purpose financial statements
are those intended to serve users who a. Intends to liquidate the entity or to
do not have the authority to demand cease trading, or
financial reports tailored for their
own needs. General purpose b. Has no realistic alternative but to do
financial statements cater to most of so.
the common needs of a wide range of  The assessment of going concern is
external users. General purpose at least 12 months.
financial statements are the subject
3. Accrual Basis of Accounting - An entity
shall prepare its financial statements, except
7. Comparative Information
for cash flow information, using the accrual
basis of accounting. An entity shall present comparative
information in respect of the preceding
period for all amounts reported in the current
4. Materiality & Aggregation - Each period’s financial statements, unless other
material class of similar items must be standards permit or require otherwise.
presented separately in the financial
statements.
8. Consistency of presentation - An entity
shall retain the presentation and
5. Offsetting - Assets and liabilities, and classification of items in the financial
income and expenses, shall not be offset statements from one period to the next
unless required or permitted by a PFRS. unless:
 Measuring assets net of valuation a) it is apparent that another
allowances, for example, presentation or classification would
obsolescence allowances on be more appropriate following a
inventories, allowances for doubtful significant change in the nature of
accounts on receivables, and the entity’s operations or a review of
accumulated depreciation on its financial statements; or
property, plant, and equipment are b) a PFRS requires a change in
not offsetting. presentation.

6. Frequency of reporting – An entity shall Additional Statement of financial position

present a complete set of financial
statements (including comparative
 An additional statement of financial
information) at least annually.
position is presented as at the
 When an entity changes the end of its beginning of the preceding period
reporting period and presents when an entity:
financial statements for a period 1. Applies an accounting policy
longer or shorter than one year, an retrospectively, or
entity shall disclose the following: 2. Makes a retrospective restatement of
a) The period covered by the financial items in its financial statements, or
statements, 3. reclassifies items in its financial
b) The reason for using a longer or statements.
shorter period, and
c) The fact that amounts presented in
the financial statements are not …..and the effect of the event to the
entirely comparable. statement of financial position as at the
beginning of the preceding period is 1. it expects to settle the liability in its
material. normal operating cycle;
2. it holds the liability primarily for the
purpose of trading;
Statement of financial position 3. the liability is due to be settled
within twelve months after the
reporting period; or
 A statement of financial position 4. the entity does not have an
may be presented as either unconditional right to defer
1. Classified – showing distinctions settlement of the liability for at least
between current and noncurrent twelve months after the reporting
assets and liabilities, or period.
2. Unclassified (based on liquidity) –
showing no distinction between
current and noncurrent items
Currently maturing long-term liabilities

Current Assets  General rule: Currently maturing

long term liabilities are presented as
current liabilities.
 An entity shall classify an asset as
 Exceptions:
current when:
1. Refinancing agreement is fully
1. it expects to realize the asset or
completed on or before the balance
intends to sell or consume it, in its
sheet date – non-current liability
normal operating cycle;
2. Refinancing agreement after the
2. it holds the asset primarily for the
balance sheet date but before the
purpose of trading;
financial statements are authorized
3. it expects to realize the asset within
for issue – noncurrent liability if the
twelve months after the reporting
entity expects, and has the discretion,
period; or
to refinance it on a long-term basis
4. the asset is cash or a cash equivalent
under an existing loan facility.
unless the asset is restricted from
being exchanged or used to settle a
liability for at least twelve months
Breach of loan agreement
after the reporting period.

 General rule: A liability that is

Current Liabilities payable on demand is a current
liability.

 An entity shall classify a liability as

 Exception: It is presented as non-
current when:
current liability if the lender provides
the entity, on or before the balance
 sheet date, a grace period ending at o) Deferred tax liabilities and
least 12 months after the balance deferred tax assets, as defined in
sheet date to rectify a breach of loan PAS 12;
covenant. p) Liabilities included in disposal
groups classified as held for sale
Presentation of Deferred taxes
in accordance with PFRS 5;
q) Non-controlling interests,
 Deferred tax liabilities (assets) are presented within equity; and
presented as noncurrent items in a r) Issued capital and reserves
classified statement of financial attributable to owners of the
position, irrespective of their parent
expected dates of reversal.

Order/ Format of Presentation

Minimum line items in the statement of
financial position
 PAS 1 does not prescribe the order or
format in which an entity presents
items.
a) Property, plant and equipment;
b) Investment property;
c) Intangible assets;
Statement of profit or loss and other
d) Financial assets (excluding
comprehensive income
amounts shown under (e), (h) and
(i));
e) Investments accounted for using  An entity shall present all items of
the equity method; income and expense recognized in a
f) Biological assets; period:
g) Inventories; 1. in a single statement of profit or loss
h) Trade and other receivables; and other comprehensive income; or
i) Cash and cash equivalents; 2. in two statements: (1) a statement
j) Assets (or disposal groups) displaying the profit or loss section
classified as held for sale in only (separate ‘statement of profit or
accordance with PFRS 5; loss’ or ‘income statement’) and (2)
k) Trade and other payables; a second statement beginning with
l) Provisions; profit or loss and displaying
m) Financial liabilities (excluding components of other comprehensive
amounts shown under (k) and income.
(l));
n) Liabilities and assets for current
tax, as defined in PAS 12 Income Extraordinary items
Taxes;
  PAS 1 prohibits the presentation of
any items of income or expense as
extraordinary items in the
statement(s) presenting profit or loss
and other comprehensive income or
in the notes.
Total comprehensive income

Other comprehensive income for the

 Total comprehensive income
period
comprises all components of
1. Profit or loss; and
a) Changes in revaluation surplus 2. Other comprehensive income.
b) Unrealized gains and losses on
investments in FVOCI securities
c) Remeasurements of the net defined Presentation of Expenses
benefit liability (asset)
d) Gains and losses arising from
translating the financial statements of 1. Nature of expense method
a foreign operation 2. Function of expense method
e) Effective portion of gains and losses
on hedging instruments in a cash
flow hedge  If an entity classifies expenses by
function, it shall disclose additional
information on the nature of
 OCI may be presented either (a) net expenses
of tax or (b) gross of tax.

Disclosure of dividends
Reclassification adjustments  Dividends declared by an entity are
 Reclassification adjustments are disclosed either in the (a) notes or (b)
amounts reclassified to profit or loss statement of changes in equity.
in the current period that were
recognized in other comprehensive
income in the current or previous Order of presentation of disclosures in the
periods. Notes

1. Statement of compliance with

PFRSs;
2. Summary of significant accounting
policies applied;
3. Supporting information for items
presented in the other financial
statements; and
4. Other disclosures.
Conceptual Framework for Financial information that is relevant and
Reporting reliable.
 The Conceptual Framework is
Learning Objectives
concerned with general-purpose
 State the basic purpose, authoritative financial statements.
status, and scope of the Conceptual
Framework.
 State the objective of financial Objective of general purpose financial
reporting. reporting
 Identify the primary users of
 The objective of general purpose
financial statements.
financial reporting is to provide
 Explain briefly the qualitative
financial information about the
characteristics of useful information
reporting entity that is useful to
and how they are applied in financial
existing and potential investors,
reporting.
lenders and other creditors in making
 Define the elements of financial decisions about providing resources
statements and state their recognition to the entity. A secondary objective
criteria. of financial statements is to show the
results of the stewardship of
management.
Conceptual Framework for Financial
Reporting
 The objective of general purpose
financial reporting forms the
 The Conceptual Framework sets out foundation of the Conceptual
the concepts that underlie the Framework. Other aspects of the
preparation and presentation of Conceptual Framework flow
financial statements for external logically from the objective.
users.
 
Users and their Needs
Authoritative Status and Applicability
 Primary users – those to whom
general purpose financial reports are
 The Conceptual Framework is not a directed:
PFRS. When there is a conflict
between the Conceptual Framework (a) Existing and potential investors
and a PFRS, the PFRS will prevail. (b) Lenders and other creditors.
 In the absence of a standard,
management shall consider the
Conceptual Framework in making its
judgment in developing and applying
an accounting policy that results in
  Only the common needs of primary of resources embodying economic
users are met by the financial benefits.
statements. 3. Equity – assets less liabilities

Qualitative Characteristics Performance

I. Fundamental qualitative characteristics 1. Income – encompasses both (a)
revenues and (b) gains
(1) Relevance 2. Expense – encompasses both (b)
(a) Predictive value expenses and (losses)

(b) Feedback value

 Materiality – entity-specific aspect of Recognition
relevance  Recognition –the process of
(2) Faithful representation incorporating in the balance sheet or
income statement an item that meets
(a) Completeness the definition of an element and
(b) Neutrality satisfies the recognition criteria.

(c) Free from error

 An item is recognized if all of the
following are satisfied:
II. Enhancing qualitative characteristics a) The item meets the definition of an
(3) Comparability element;
b) It is probable that any future
(4) Verifiability economic benefit associated with the
(5) Timeliness item will flow to or from the entity;
and
(6) Understandability c) The item has a cost or value that can
be measured with reliability.

Elements of Financial Statements

Financial Position Expense Recognition Principles

1. Asset - resource controlled by the

entity as a result of past events and 1. Direct association or matching
from which future economic benefits 2. Systematic and rational allocation
are expected to flow to the entity 3. Immediate recognition
2. Liability - present obligation of the
entity arising from past events, the
settlement of which is expected to
result in an outflow from the entity
Measurement bases b) In the process of production for such
sale (Work In Process); or
a) Historical cost
c) In the form of materials or supplies
b) Current cost
to be consumed in the production
c) Realizable value (Settlement value)
process or in the rendering of
d) Present value
services (Raw materials and
manufacturing supplies).

Concepts of Capital and Capital

Maintenance
Financial statement presentation
 All items that meet the definition of
 Financial concept of capital – capital inventory are presented on the
is regarded as the invested money or statement of financial position as one
invested purchasing power. Capital is line item under the caption
synonymous with equity or net “Inventories.” The breakdown of this
assets. line item (as finished goods, WIP
and Raw materials) is disclosed in
the notes.
 Physical concept of capital – capital  Inventories are normally presented in
is regarded as the entity’s productive a classified statement of financial
capacity, e.g., units of output per position as current assets.
day.

Measurement

PAS 2 Inventories
 Inventories are measured at the lower
Learning Objectives of cost and net realizable value
(NRV).
 Define inventories.  The cost of inventories comprise all
 Measure inventories and apply the costs of purchase, costs of
cost formulas. conversion and other costs incurred
 State the accounting for inventory in bringing the inventories to their
write-down and the reversal thereof. present location and condition.
 Net realizable value (NRV) is the
estimated selling price in the
Inventories ordinary course of business less the
Inventories are assets: estimated costs of completion and
the estimated costs necessary to
a) Held for sale in the ordinary course make the sale.
of business (Finished Goods);
Costs that are EXPENSED when Write down of inventories
incurred
 Inventories are usually written
1. Abnormal amounts of wasted down to net realizable value on
materials, labor or other production an item by item basis.
costs.  If the cost of an inventory
2. Selling costs, for example, exceeds its NRV, the inventory is
advertising and promotion costs and written down to NRV, the lower
delivery expense or freight out. amount. The excess of cost over
3. Administrative overheads that do not NRV represents the amount of
contribute to bringing inventories to write-down.
their present location and condition.
4. Storage costs, unless those costs are
necessary in the production process Reversal of write-downs
before a further production stage,
(e.g., the storage costs of partly  The amount of reversal to be
finished goods may be capitalized as recognized should not exceed the
cost of inventory, but the storage amount of the original write-down
costs of completed finished goods previously recognized.
are expensed).

Recognition as an expense
Cost Formulas  The carrying amount of an inventory
1. Specific identification - shall be used that is sold is charged as expense
for inventories that are not ordinarily (i.e., cost of sales) in the period in
interchangeable (i.e., used for which the related revenue is
inventories that are unique). Cost of recognized. Likewise, the write-
sales is the cost of the specific down of inventories to NRV and all
inventory that was sold. losses of inventories are recognized
2. FIFO – cost of sales is based on the as expense in the period the write-
cost of inventories that were down or loss occurs.
purchased first. Consequently,
ending inventory represents the cost
of the latest purchases.
3. Weighted Average Cost – cost of
sales is based on the average cost of
all inventories purchased during the
period.
 Wtd. Ave. Cost = (TGAS in
pesos ÷ TGAS in units)