FUNDAMENTAL

1. What information do primary users need about the resources of the entity?

The primary users need information about the resources of the entity not only to assess an entity's
prospects for future net cash inflows but also how effectively and efficiently management has
discharged their responsibilities to use the entity's existing resources.

2. The Qualitative Characteristics of Useful Financial Information

Financial information is useful when it is relevant and represents faithfully what it purports to
represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely
and understandable.

Its fundamental qualitative characteristics include

a. Relevance Relevant financial information is capable of making a difference in the decisions made by
users.

b. Materiality is an entity specific aspect of relevance based on the nature or magnitude (or both) of
the items to which the information relates in the context of an individual entity's financial report.

c. Faithful representation General purpose financial reports represent economic phenomena in words
and numbers. To be useful, financial information must not only be relevant, it must also represent
faithfully the phenomena it purports to represent. This fundamental characteristics seeks to maximize
the underlying characteristics of completeness, neutrality and freedom from error.

Information must be relevant and faithfully represented if it is to be useful.

What are the elements relating to the Statement of Financial Position?

a. Asset-is a resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity

b. Liability is a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits

c. Equity is the residual interest in the assets of the entity after deducting all its liabilities

Recognition of the elements of Financial Statements

Recognition is the process of incorperating in the Statement of Financial Position item that meets the
definition of an element and satisfins the following criteria for recognition

a. It is probable that any future economic benefit associated with the item will flow to or from the
entity and

b. The item has a cost or value that can be measun with reliability.

Based on the general criteria,

An asset is recognized in the Statement of Financial Position that the future economic benefits will
flow to the entity and the asset has a cost or value that can be measured reliably

A liability is recognized in the Statement of Financial Position when it is probable that an outflow of
resources embodying economic benefits will result from the settlement of a present obligation and
the amount at which the settlement will take place can be measured reliably.

Classification of Assets and Liabilities

For recognition and measurement purposes

Financial/Non-financial assets

A financial asset is any asset that is

a. Cash

b. An equity instrument of another entity

c. A contractual right:
1. to receive cash or another financial asset from another entity, or

2. to exchange financial assets or financial liabilities with another entity under conditions that are
potentially favorable to the entity

All other assets are non financial

For presentation purposes:

Current Noncurrent assets

An asset shall be classified as current when it satisfies any of the following criteria:

it is expected to be realized in, or is intended for sale or consumption, in the entity's normal

operating cycle,

it is held primarily for the purpose of being traded,

it is expected to be realized within 12 months after the reporting period, or

it is cash or a cash equivalent unless restricted from being exchanged or used to settle a liability for at
least 12 months after the reporting period.

All other assets shall be classified as noncurrent.

Current/Noncurrent liabilities

A liability shall be classified as current when it satisfies any of the following criteria:

it is expected to be settled in the entity's normal operating cycle,

it is held primarily for the purpose of being traded;

it is due to be settled within 12 months after the reporting period, or

the entity does not have an unconditional right to defer settlement of the liability for at least 12

months after the reporting period.

All other liabilities shall be classified as noncurrent

Measurement of the elements of Financial Statements

Measurement involves assigning monetary amounts at which the elements of the financial statements
are to be recognized and reported.

The International Financial Reporting Standards (IFRS) framework acknowledges that a variety of
measurement bases are used today to different degrees and in varying combinations in financial
statements, including

Historical cost

Current cost

Net realizable value (settlement value)

Present value (discounted)

Historical cost is the measurement basis most commonly used today, but it is usually combined with
other measurement bases. This module does not include concepts or principles for selecting which
measurement basis should be used for particular elements of financial statements or in particular
circumstances Individual standards and interpretations do provide this guidance.

Current Assets

Current Assets inchade cash or those assets expected to be converted into cash, used or consumed
within one year or one operating cycle whichever is longer. The operating cycle is the time required to
purchase or manufacture inventory, sell the product, and collect the cash. The designation "current"
refers essentially to those assets that are continually used up and replenished in the ongoing
operations of the business.

Cash and Cash Equivalent

The cash account is exactly that, cash in any form-cash awaiting deposit or in a bank account Cash
equivalents are short-term and highly liquid investment that are readily convertible to cash and so
near their maturity that they present insignificant risk of changes in value because of change in
interest rates. Only highly liquid investments that are acquired three months before maturity can
qualify as cash equivalents

Marketable Securities

Marketable securities are cash substitutes, cash that is not needed immediately in the business and is
temporarily invested to eam a return. These investments are in instraments with short term maturities
(less than one year) to minimize the risk of interest rate fluctuation. They must be relatively nakless
securities and highly liquidso that funds can be readily withdrawn as needed. They may also be
presented as Investment in Trading Securities

Accounts Receivable

Accounts receivable are customer balances outstanding on credit sales and are reported on the
statement of financial position at their net realizable value, that is, the actual amount of the account
less an allowance for doubtful account.

Inventories

Inventories are items held for sale or used in the manufacture of products that will be sold. A retail
company, list only one type of inventory on the statement of financial position: merchandise
inventories purchased for resale to the public. A manufacturing firm, in contrast, would carry three
different types of inventories: raw materials or supplies, work-in-process, and finished goods.

Prepaid Expenses

Certain expenses, such as insurance, rent, property taxes, and utilities are sometimes paid in advance
They are included in current assets if they will expire within one year or one operating cycle,
whichever is longer Generally, prepayments are not material to the statement of financial

position

Property, Plant and Equipment

This category encompasses a company's fixed assets (also called tangible, long-lived and capital
assets)-those assets not consumed in annual business operations. These assets produce economic
benefits for more than one year, and they are considered "tangible" because they have physical
substance. Fixed assets other than land (which theoretically has an unlimited life span) are
"depreciated" over the period of time they benefit the firm.

Depreciation is the method of allocating the cost of long-lived assets. On any statement of financial
position date property, plant and equipment are shown at book value, which is the difference
between original cost and any accumulated depreciation and any accumulated impairment losses to
date

Current Liabilities

Liabilities represent claims against assets, and current liabilities are those that must be satisfied in one
year or one operating cycle, whichever is longer. Current liabilities include accounts and notes payable,
the current portion of long-term debt, accrued liabilities, and deferred taxes.

Accounts Payable

Accounts payable are short-term obligations that arise from credit extended by suppliers for the
purchase of goods and services

Notes Payable

Notes payable are short-term obligations in the form of promissory notes to suppliers or financial
institutions

Current Maturities of Long-term Debt

When a firm has bonds, mortgages, or other forms of long-term debt outstanding, the portion of the
principal that will be repaid during the upcoming year is classified as a current liability. The note lists
the amount of long-term debt outstanding, less the portion due currently

Accrued Liabilities

Accrued liabilities result from the recognition of an expense in the accounting records prior to the
actual payment of cash. Thus, they are liabilities because there will be an eventual cash outflow to
satisfy the obligations

EQUITY

The ownership interests in the company organized as a corporation are represented in the final section
of the statement of financial position, stockholder's equity or shareholders' equity

Share Capital

The amount listed under the share capital is based on the par or stated value of the shares issued The
par or stated value usually bears no relationship to actual market price but rather is a floor

price below which the stock cannot be sold mutially

Additional Paid In Capital

This account reflects the amount by which the original sales price of the stock shares exceeded par
value as well as from other sources such as donated capital, treasury stocks transactions etc.

Retained Earnings

The retained earnings account is the sum of every peso a company has earned since its inception, less
any payments made to shareholders in the form of cash or stocks dividends Retained earnings do not
represent a pile of unused cash stashed away in corporate vaults, retained earnings are funds a
company has elected to remvest in the operations of the business rather than pay out to stockholders
in dividends. Retained earnings should not be confused with cash or other financial resources
currently or prospectively available to satisfy financial obligations. Rather, the retained earnungs
account is the measurement of all undistributed earnings.