CHAPTER 7 – INTERIM FINANCIAL REPORTING

INTERIM FINANCIAL REPORTING Recognition of Interim Reports

- Preparation and presentation of financial - The same accounting policies are used in interim
information for a period of less than 1 year reports as those used in annual reports
PAS 34 – Interim Financial Reporting Measurement of Interim Reports
- PAS 34 does not require or mandate preparation a. Integral View
of interim reports ✓ Each interim period is an integral part of
- HOWEVER, it encourages publicly listed entities the annual financial statements
to provide at least a semi-annual financial report ✓ Annual operating expenses are
to be issued not later than 60 days after the end estimated then allocated to the
of the interim period benefitted interim period
- PAS 34 is only applied when:
✓ An entity chooses to prepare an interim b. Discrete View
financial report ✓ Each interim period is a separate
✓ It is required to be prepared by reporting period
regulatory bodies ✓ Annual operating expenses are
recognized in the interim period in which
Interim Financial Report they are incurred regardless of whether
An interim financial report is a financial report subsequent interim periods are
prepared for an interim period and contains either: benefitted

a. A complete set of financial statements *PAS 34 adopts a MIX OF BOTH integral and
b. A set of condensed financial statements discrete view

Presentation of Interim Comparative Reports Application of the Recognition and Measurement

Principles
a. Statement of Financial Position
✓ Current interim report vs. Preceding Transaction or Event Accounting Treatment
statement of financial position Sales and Cost of goods sold Recognized in full in the
interim period (Discrete
03/30/2025 View)
vs 12/31/2024
(1st Quarter) Write-down of inventories to Recognized in full in the
06/30/2024 NRV or reversal thereof interim period (Discrete
vs 12/31/2024 View)
(1st & 2nd Quarter)
Impairment loss and reversal Recognized in full in the
b. Statement of Comprehensive Income thereof interim period (Discrete
✓ Current interim report and cumulative as View)
of the current interim period vs. Interim Gains and losses on changes
Recognized in full in the
in fair values, exchange rates,
statement comprehensive income of interim period (Discrete
and other market-related
preceding year View)
factors
06/30/2025 06/30/2024 Contingent rent Recognized in full in the
vs interim period (Discrete
(2nd Quarter) (2nd Quarter)
View)
06/30/2025 06/30/2024 Dividend income Recognized in full in the
vs interim period (Discrete
(1st & 2nd Quarter) (1st & 2nd Quarter)
View)
c. Statement of Financial Position Dividend declared Recognized in full in the
✓ Cumulatively as of the interim period vs. interim period (Discrete
Cumulatively of preceding year View)
Depreciation or amortization Allocated to the periods
09/30/2025 09/30/2025 benefitted, except when
vs units of production method
(1st – 3rd Quarter) (1st – 3rd Quarter)
is used
 CHAPTER 7 – INTERIM FINANCIAL REPORTING
(Integral View) m. Due to the unexpected breakdown of the factory
Income tax expense Allocated to the periods equipment on March 16, 2025, Gucci has
using the best estimate of planned a major periodic overhaul of its other
the weighted average annual equipment to be held annually on December 31,
income tax rate expected for 2025. The cost of the major planned periodic
the full financial year
overhaul is estimated at Php 48,000.
(Integral View)
Year-end bonuses or Allocated to the periods
n. Gucci leases one of its retail stores. Monthly
compensated absences when the entity has rentals are Php 5,000, however the lease
obligation to pay for them contracts provide for a contingent rent equal to
(Integral View) 2% of the excess of sale over Php 900,000.
o. Gucci’s budget for 2025 included charitable
DRILL QUESTIONS contributions of Php 24,000 and employees
training costs of Php 13,000. None of those costs
Problem 1:
were incurred as of March 31, 2025.
Gucci Co. is preparing its interim financial p. Other operating expenses incurred during the
statements for the period ended March 31, 2025. The first quarter totaled Php 120,000.
following relate to the transactions during the first
Requirement: What is the profit or loss for the first
quarter:
quarter ended March 31, 2025?
a. Total sale for the interim period was Php
Problem 2:
1,000,000.
b. Cost od sales was Php 450,000. Among the transactions of Channel Company for
c. Gucci is liable for 5% commission on its sales to the first two quarters of 2025 were the following:
its sales representatives and agents. No
commission has yet been paid as of March 31, a. Channel recognized a Php 100,000 write-down in
2025. its inventory during the first quarter. Channel had
d. The allowance for doubtful accounts has a expected that the write-down will reverse in the
balance of Php 5,000 as of January 1, 2025. The second quarter, and in fact, in the second
required as of March 31, 2025 is Php 15,000. quarter, the recover exceeded the previous
There were no write-offs or recoveries during the write-down by Php 20,000.
period. b. Channel provides warranty for its sales. In the
e. A building with historical cost of Php 1,200,000 is first quarter, Channel estimated a 5% warranty
being depreciated over 5 years using straight line obligation on its first quarter sales of Php
method. 1,000,000. In the second quarter, a change in
f. Gucci prepaid a one-year insurance on its assets accounting estimate was made. It was estimated
for Php 40,000 on January 1, 2025. that the cost of warranty should be 10% of total
g. Property taxes for 2025 amounting to Php 26,000 sales. The second quarter sales amounted to Php
was paid in January. 1,200,000.
h. Advertising costs of Php 50,000 were incurred in c. Channel has been estimating its bad debt
February on promotional activities held on expense as 2% of credit sales. However, in the
Valentine’s Day. second quarter, a change was made to the
i. Year-end staff bonuses are expected to be percentage of ending receivable. Under this
around Php 92,000. Employees become entitled method, the required balance of the allowance
to the bonuses as they provide services Gucci for doubtful accounts as of June 30, 2025 is
during the year. computed at Php 30,000. The allowance has a
j. Gucci’s president is entitled to a 10% bonus balance of Php 5,000 at the beginning of the year.
before bonus and taxes. Total write-offs during the first 6 months of 2025
k. Loss on sale of a used equipment on March 2, amounted to Php 12,000 while recoveries
2025 was Php 30,000. totaled Php 3,000. Credit sales for the first and
l. Gucci incurred Php 12,000 on unanticipated second quarters amounted to Php 1,000,000 and
repairs on its equipment on March 16, 2025. Php 2,000,000, respectively.
 CHAPTER 7 – INTERIM FINANCIAL REPORTING
Requirement: What are the effects of the transactions
listed above on profit or loss before tax in the first and
second quarter interim financial statements of Channel?
Problem 3:
Prada Co. expects to earn Php 10,000 pre-tax
profit in each of the 1st and 2nd quarters of the year and
Php 15,000 pre-tax profit in each of the last two quarters.
The tax rate ad of the beginning of the year is 30%.
However, following a newly enacted tax legislation, the
tax rate will be increased to 40% which shall take effect
beginning on the last quarter of the year. Actual earnings
match expectations.
Requirement: Compute for (a) the weighted average
annual income tax rate and (b) income tax expense
recognized in the quarterly interim financial statements.
Problem 4:
Celine Co. reports quarterly and has an operating
loss carryforward of Php 10,000 for income tax purposes
at the start of the current financial year for which a
deferred tax asset has not been recognized. Celine earns
Php 10,000 in the first quarter of the current year and
expects to earn Php 10,000 in each of the three
remaining quarters. Excluding the carryforward, the
estimated average annual income tax rate is expected to
be 40%.
Requirement: Compute for the income tax expense
recognized in the quarterly interim financial statements.