PROFESSIONAL

ELECTIVE3
PFRS UPDATES
ACCO40023
Course Material No. 3
Presentation of Financial
Statements (Revised PAS#1)

Marina V. Justiniani, CPA, MBA

 2 Presentation of Financial Statements • NU LAGUNA

Presentation of Financial
Statements 3
LEARNING OUTCOMES

Here’s what I will teach you in this course material:

LESSON OUTLINE
• Enumerate and describe the general features of financial statement
• Complete Sets of Financial presentation
Statements
• Enumerate and describe the components of a complete set of financial
Unit Outline
statements
• General Features of Financial
Statements • State the acceptable method of presenting items of income and expenses
• Differentiate between the statement of profit or loss and other
• Structure and Content of comprehensive income
Financial Statements
• Determine net income under the financial capital and physical capital concept
RESOURCES NEEDED
• Statement of Financial
Position
For this lesson, you would need the following resources:
• Statement of Profit and Loss
• Conceptual Framework and Accounting Standard Book
and Other Comprehensive
Income
Presentation of Financial Statements • NU LAGUNA 3

TABLE OF CONTENTS

Pretest 3 Questions for Review and

Discussion
Before you start, try answering the following
questions.
4 Accountant’s Word Hunt

1. Define Financial Statements.

_________________________________________
_________________________________________ 5 Presentation of Financial
Statements
_________________________________________

2. What is the purpose of financial statements? 13 Test Yourself

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_________________________________________
_________________________________________ 11 References

3. Give the complete set of financial statements.

________________________________________
________________________________________
________________________________________

4. Give the general features of financial statements.

________________________________________
________________________________________
________________________________________

5. What is refinancing agreement?

________________________________________
________________________________________
________________________________________
 Presentation of
4 Presentation of Financial Statements • NU LAGUNA

Financial
Statements

This lesson comprises the

purpose, general features
and components of
financial statements. The
different sets of financial
statements will be
thoroughly explained.
Likewise, the distinction
between current assets
and current liabilities will
be defined, as well as, the
difference between
noncurrent assets and
noncurrent liabilities.

Accountant’s Word Hunt

Identify what is needed and color it according to the designated color
after the questions.

B A L A N C E L I T
Find all the words that
L I A B I L I T Y E
corresponds to elements
C A S H F L O W M E of Financial Statements
S H E H S G P R O Q inside the Box
H C T E X P E N S E
S N S D S Q T A G I
L I A B I I L I T Y
I N C O M E P E S T

L O A N S T E Q U I
E Q U I T Y E S A S
S E E X P E N S E S
 Presentation of Financial Statements • NU LAGUNA 5

Presentation of Financial Statements

Hello Class. How is your day? I hope your fine. Today, I will share to you the purpose,
components and general features of Financial Statements.

PAS 1 prescribes the basis for presentation of general purpose financial statements to improve
comparability both with the entity's financial statements of previous periods (intra-comparability) and with
the financial statements of other entities (inter-comparability).

General purpose financial statements are those intended to serve users who do not have the authority to
demand financial reports tailored for their own needs. General purpose financial statements cater to most
of the common needs of a wide range of external users. General purpose financial statements are the subject
matter of the Conceptual Framework and the PFRSs

Complete set of financial statements

1. Statement of financial position

2. Statement of profit or loss and other comprehensive income

3. Statement of changes in equity

4. Statement of cash flows

5. Notes

(5a) comparative information in respect of the preceding period; and

6. Additional statement of financial position (required only when certain instances occur)

Now, what are the general features of Financial Statements

1. Fair Presentation and Compliance with PFRSs - The application of PFRSs, with additional disclosure
when necessary, is presumed to result in financial statements that achieve a fair presentation.

2. Going concern - An entity is not a going concern if, as of the financial reporting date or prior to the
date of authorization of the financial statements for issue, management either:

a. Intends to liquidate the entity or to cease trading, or

b. Has no realistic alternative but to do so.

• The assessment of going concern is at least 12 months.

3. Accrual Basis of Accounting - An entity shall prepare its financial statements, except for cash flow
information, using the accrual basis of accounting.
6 Presentation of Financial Statements • NU LAGUNA

4. Materiality & Aggregation - Each material class of similar items must be presented separately in the
financial statements.

5. Offsetting - Assets and liabilities, and income and expenses, shall not be offset unless required or
permitted by a PFRS.

• Measuring assets net of valuation allowances, for example, obsolescence allowances on

inventories, allowances for doubtful accounts on receivables, and accumulated depreciation on
property, plant, and equipment are not offsetting.

6. Frequency of reporting – An entity shall present a complete set of financial statements (including
comparative information) at least annually.

• When an entity changes the end of its reporting period and presents financial statements for a
period longer or shorter than one year, an entity shall disclose the following:

1. The period covered by the financial statements,

2. The reason for using a longer or shorter period, and

3. The fact that amounts presented in the financial statements are not entirely comparable.

7. Comparative Information

An entity shall present comparative information in respect of the preceding period for all amounts
reported in the current period’s financial statements, unless other standards permit or require otherwise.

8. Consistency of presentation - An entity shall retain the presentation and classification of items in the
financial statements from one period to the next unless:

a. it is apparent that another presentation or classification would be more appropriate

following a significant change in the nature of the entity’s operations or a review of its
financial statements; or

b. a PFRS requires a change in presentation.

Additional Statement of financial position

An additional statement of financial position is presented as at the beginning of the preceding period
when an entity:

1. Applies an accounting policy retrospectively, or

2. Makes a retrospective restatement of items in its financial statements, or

3. reclassifies items in its financial statements.

…..
Presentation of Financial Statements • NU LAGUNA 7

Statement of financial position

A statement of financial position may be presented as either

1. Classified – showing distinctions between current and noncurrent assets and liabilities, or

2. Unclassified (based on liquidity) – showing no distinction between current and

noncurrent items

Current Assets

An entity shall classify an asset as current when:

1. it expects to realize the asset or intends to sell or consume it, in its normal operating cycle;

2. it holds the asset primarily for the purpose of trading;

3. it expects to realize the asset within twelve months after the reporting period; or

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

Current Liabilities

An entity shall classify a liability as current when:

1. it expects to settle the liability in its normal operating cycle;

2. it holds the liability primarily for the purpose of trading;

3. the liability is due to be settled within twelve months after the reporting period; or

4. the entity does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period

Below are examples of current assets and liabilities and noncurrent assets and liabilities:

Current Assets Current Liabilities

• Cash and cash equivalents • Accounts

payable
• Accounts receivable
• Salaries payable
• Non-trade receivable collectible within 12
months • Dividends payable

• Held for trading securities • Income (Current) tax payable

• Inventory • Unearned revenue

8 Presentation of Financial Statements • NU LAGUNA

• Prepaid assets • Portion of notes/loans/bonds

payable due within 12 months

Noncurrent Assets Noncurrent Liabilities

• Property, plant & equipment • Portion of notes/loans/bonds

payable due beyond 12 months
• Non-trade receivable collectible beyond
12 months • Deferred tax liability

• Investment in associate

• Investment property

• Intangible assets

• Deferred tax assets

Currently maturing long-term liabilities

• General rule: Currently maturing long term liabilities are presented as current liabilities.

• Exceptions:

1. Refinancing agreement is fully completed on or before the balance sheet date – non-
current liability

2. Refinancing agreement after the balance sheet date but before the financial statements
are authorized for issue – noncurrent liability if the entity expects, and has the discretion,
to refinance it on a long-term basis under an existing loan facility.

Breach of loan agreement

• General rule: A liability that is payable on demand is a current liability.

• Exception: It is presented as non-current liability if the lender provides the entity, on or before
the balance sheet date, a grace period ending at least 12 months after the balance sheet date to
rectify a breach of loan covenant.

Presentation of Deferred taxes

• Deferred tax liabilities (assets) are presented as noncurrent items in a classified statement of
financial position, irrespective of their expected dates of reversal.

Minimum line items in the statement of financial position

a. Property, plant and equipment;

Presentation of Financial Statements • NU LAGUNA 9

b. Investment property;

c. Intangible assets;

d. Financial assets (excluding amounts shown under (e), (h) and (i));

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 (or disposal groups) classified as held for sale in accordance with PFRS 5;

k. Trade and other payables;

l. Provisions;

m. Financial liabilities (excluding amounts shown under (k) and (l));

n. Liabilities and assets for current tax, as defined in PAS 12 Income Taxes;

o. Deferred tax liabilities and deferred tax assets, as defined in PAS 12;

p. Liabilities included in disposal groups classified as held for sale in accordance with PFRS 5;

q. Non-controlling interests, presented within equity; and

r. Issued capital and reserves attributable to owners of the parent

Order/ Format of Presentation

PAS 1 does not prescribe the order or format in which an entity presents items

Statement of profit or loss and other comprehensive income

• An entity shall present all items of income and expense recognized in a period:

1. in a single statement of profit or loss and other comprehensive income; or

2. in two statements: (1) a statement displaying the profit or loss section only (separate
‘statement of profit or loss’ or ‘income statement’) and (2) a second statement beginning
with profit or loss and displaying components of other comprehensive income.

Extraordinary items

• 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.

Other comprehensive income for the period

a. Changes in revaluation surplus

10 Presentation of Financial Statements • NU LAGUNA

b. Unrealized gains and losses on investments in FVOCI securities

c. Remeasurements of the net defined benefit liability (asset)

d. Gains and losses arising from translating the financial statements of a foreign operation

e. Effective portion of gains and losses on hedging instruments in a cash flow hedge

Reclassification adjustments

Reclassification adjustments are amounts reclassified to profit or loss in the current period that were
recognized in other comprehensive income in the current or previous periods

Total comprehensive income

• Total comprehensive income comprises all components of

1. Profit or loss; and

2. Other comprehensive income.

Presentation of Expenses
1. Nature of expense method
Under this method, expenses are aggregated according to their nature (e.g. depreciation,
purchase of materials, transport costs, employee benefits and advertising costs)
2. Function of expense method
Under this method, an entity classified expenses according to their function (e.g. cost of sales,
distribution costs, administrative expenses and other functional classifications)
Presentation of Financial Statements • NU LAGUNA 11

Nature of Expense Method

Revenue xxx

Other Income xxx

Changes in inventories of finished goods

and work in progress xxx

Raw materials and consumables used xxx

Employee benefits expense xxx

Depreciation and amortization expense xxx

Other expenses xxx

Total expenses (xxx)

Profit before tax xxx

Income tax expense (xxx)

Profit after tax xxx

Function of Expense Method

Revenue xxx

Cost of sales (xxx)

Gross Profit xxx

Other income xxx

Distribution costs (xxx)

Administrative expenses (xxx)

Finance costs (xxx)

Other expenses (xxx)

12 Presentation of Financial Statements • NU LAGUNA

Profit before tax xxx

Income tax expense xxx

Profit after tax xxx

Disclosure of dividends

• Dividends declared by an entity are disclosed either in the (a) notes or (b) statement of changes in
equity.

Order of presentation of disclosures in the 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.
 Presentation of Financial Statements • NU LAGUNA 13

Test Yourself
Choose the best answer:

1. PAS 1 requires an assessment of the entity’s ability to continue as a going concern each time financial
statements are prepared. Who is responsible in making this assessment?
a. Accountant
b. Auditor
c. Management
d. Government regulatory body

2. These are the end product of the financial reporting process and the means by which information
gathered and processed is periodically communicated to users.
a. Financial reporting
b. Financial statements
c. Financial products
d. Accounting statements

3. Which of the following is not one of the general features of financial statements under PAS 1?
a. Fair presentation and compliance with PFRSs
b. Going Concern
c. Cash Basis
d. Materiality and aggregation

4. Who is responsible for the preparation and the fair presentation of an entity’s financial statements in
accordance with the PFRSs?
a. Any accountant
b. Certified Public Accountant
c. Auditor
d. Management

5. This type of presentation of statement of financial position does not show distinctions between current
and noncurrent items.
a. Classified presentation
b. Unclassified presentation
c. Non-discriminating presentation
d. Awesome presentation

6. In making an economic decision, an investor needs information on the amounts of an entity’s economic
resources and claims to those resources. That investor would most likely refer to which of the following
financial statements?
14 Presentation of Financial Statements • NU LAGUNA

a. Statement of financial position

b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

7. Which of the following financial statements would be dated as at a certain date?

a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. All of these

8. Imagine you are a business manager. You would be most awesome as a manager in which of the
following independent scenarios?
a. Your company has an average total assets of ₱10M during the year. At the end of the year, your
company reported profit of ₱1M. The average return of other similar companies with the same
level of assets is 30%.
b. Your adoption of accounting policy has led to the immediate recognition of expenses. Those costs
could have otherwise been allocated over several periods. Accordingly, your company did not
declare dividends during the period. This resulted to a decline in the market value of your
company’s stocks while the prices of all other stocks in the stock market have increased.
c. You changed your company’s method of allocating costs from an accelerated method to a straight-
line method. The change met the requirements of the PFRSs. This led to the smoothing of expenses,
which increased your company’s profit during the period by 12%, above the industry average.
d. You are great at closing deals, that’s why you’re a boss. Eager to increase your company’s
resources, you were able to obtain a ₱20M loan from a bank. Interest expense on the loan during
the year was ₱3.4M while the return on investments of loan proceeds was 2%.

9. This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as
subscription, issuance, and reacquisition of share capital and declaration of dividends.
a. Other comprehensive income
b. Changes in equity
c. Total comprehensive income
d. Profit or loss

10. Materiality judgment is least likely to be applied in which of the following?

a. in determining whether an item warrants separate presentation in the financial statements or is to
be aggregated with other items
b. in determining whether information could influence the decisions of users, and therefore, must be
presented in the financial statements
c. in determining whether the cost of processing and communicating information exceeds the
benefits expected to be derived from it
d. whether additional information needs to be provided, including the level of detail and conciseness
of the information’s presentation
Presentation of Financial Statements • NU LAGUNA 15

Reference

Millan,Zeus Vernon B., 19th Edition Conceptual Framework & Accounting Standards, Bandolin
Enterprise

Valix, Conrado T., 20th Edition Conceptual Framework and Accounting Standards, GIC Enterprises
& Co., Inc

Cabrera, E. and Ocampo Reynaldo Financial Accounting and Reporting Standards and Applications
Volume 3 2014-2015 Edition GIC Enterprises & Co., Inc.