01

General Features
of Financial
Statements

MARK LESTER T.
BALASA, CPA, MBA
02 FAIR PRESENTATION AND
COMPLIANCE WITH PFRS

General GOING CONCERN

Features for ACCRUAL BASIS

the MATERIALITY AND
AGGREGATION
Presentation of OFFSETTING
Financial FREQUENCY OF REPORTING

Statements COMPARATIVE INFORMATION

CONSISTENCY OF
PRESENTATION
 03

o Is achieved if the financial statements are

prepared in accordance with the Philippine
Financial Reporting Standards.
FAIR PRESENTATION
AND COMPLIANCE o Shall make an explicit and unreserved
WITH PFRS statement of such compliance in notes.

o An entity can not rectify inappropriate

accounting policies either by disclosures of the
accounting policies used or by notes or
explanatory information.
 04

o That the accounting entity is viewed as continuing in operation

indefinitely in the absence of evidence to the contrary.

o In assessing whether the enterprise is a going concern entity, the

management should assess the ability of the enterprise to continue
GOING operations for a period of at least 12 months.

CONCERN o When the financial statements are not prepared on a going concern
basis, the following:

o The fact that the financial statements are not prepared on a going
concern basis;
o The basis on which the financial statements are prepared;
o The reason why the enterprise is not considered to be a going concern.
 ACCRUAL BASIS  
TRANSACTIONS
AND EVENTS ARE RECOGNIZED WHEN THEY OCCUR (NOT
NECESSARILY WHEN CASH IS
RECEIVED OR PAID).

ARCHITECTURE PRESENTATION
 06

o Each material item should be presented

separately in the financial statements.

MATERIALITY
o Immaterial amounts of similar nature or functions
should be aggregated and presented as one line
item on the face of the financial statements.
AND o Information is material if the omission or

AGGREGATION misstatement could influence the economic

decision that users make on the basis of the
financial statements.

o Materiality of an item depends on the relative size

rather than absolute size.
 OFFSETTING

o Deducting one item from another

item of different nature and
presenting only the net on the
financial statements.

o Generally, offsetting is not

allowed, unless required or
permitted by a Standard or
Interpretation.
FREQUENCY OF REPORTING

o Financial statements
should be presented at least
annually.

o Reporting entity does not

prevent the enterprise from
presenting interim financial
statements, which cover a
period shorter than one year.
 COMPARATIVE INFORMATION

o Should be disclosed in respect of the preceding period for all financial

information in the financial statements, except when IFRS permit or require
otherwise.

o When an enterprise makes retrospective adjustment for any one or

combination of the following:

o Change in accounting policy

o Correction of prior period errors;
o Reclassification or amendment of items in the financial statements,

Three statements of financial position shall be presented, namely as at:

o The end of the current period;
o The end of the immediate prior period; and
o The beginning of the preceding period.
 o The principle of consistency
requires that the accounting
methods and practices shall be CONSISTENCY
applied on a uniform basis from
period to period.

Indicate the proper classification or
presentation of the items listed below.
Use the following classifications:
a. Current assets
b. Non-current assets
c. Current liabilities
d. Noncurrent liabilities
e. Equity
f. Notes to financial statements
1. Accrued interest on bonds payable 
2. Accrued rental income
3. Accrued interest on note receivable 
4. Advances to suppliers 
5. The entity is a defendant in a lawsuit for a
certain amount. The loss is a reasonably
possible. 
6. Destruction of entire plant by earthquake
after the end of reporting period but before
issuance of financial statements 
7. Fully depreciated machinery still in use 
8. Share capital 
9. Retained earnings unappropriated
10. Financial assets held for trading 
11. Investment in associate 26. Equipment classified as “held for sale”
12. Estimated warranty liability  27. Unearned rent revenue
13. Sinking fund 28. Accumulated depreciation 
14. Instalment accounts receivable, average normal collection 29. Cash dividends payable
period, 18 months  30. Revaluation surplus 
15. Leasehold improvement 31. Correction of an error made last year
16. Reserves  when computing depreciation resulting to
17. Share premium  overstatement of income last year
18. Discounts on bonds payable  32. Allowance for doubtful accounts 
19. Trademark  33. Deferred tax asset 
20. Goodwill  34. Deferred tax liability 
21. Premium on bonds payable due in 5 years  35. Financial asset at fair value through
22. Building that is being constructed for use as investment property other comprehensive income 
23. Franchise  36. Accrued benefit cost
24. Treasury shares  37. Patent 
25. Deficit  38. Income tax payable 
39. Subscription revenue received in
advance 
40. Cash surrender value of life insurance 
STATEMENT OF FINANCIAL
POSITION
Current Assets
(a) It expects to realize the asset, or intends to sell or consume it, its normal
operating cycle.
(b) It holds the asset primarily for the purpose of trading;
(c) It expects to realize the asset within 12 months after the reporting period;
(d) The asset is cash or cash equivalent, unless the asset is restricted from
being exchanged or used to settle a liability for atleast twelve months after the
reporting period.
 All other assets not classified as
current should be classified as
non-current assets.

Non-Current Examples:
Property, Plant and Equipment
Assets Investment Property
Investment in Assoicates
Deferred Tax Assets
Receivable not Due Currently
Intangible Assets
Biological Assets
Current Liabilities
(a)   It is expected to be settled in the entity’s normal operating cycle;
(b)  It is held primarily for the purpose of being traded;
(c)   It is due to be settled within twelve months after the reporting period;
(d)  The entity does not have an unconditional right to defer settlement of the
liability for at least twelve months after the reporting period.
 
Ex: accounts
payable, dividends payable, current portion of long term non-trade payable.
The December 31, 2019 statement of financial position accounts of Balasa Malakas Company are
shown below in the alphabetical order:

Accounts payable 236,000

Accounts receivable 115,000
Accumulated amortization – patents 22,000
Accumulated amortization – trademarks 17,000
Accumulated depreciation – buildings 530,000
Accumulated depreciation – equipment 351,000
Accumulated profits 262,000
Allowance for bad debts 8,000
Appropriated accumulated profits 45,000
Bonds payable (due in 2020) 800,000
Buildings 1,440,000
Cash and cash equivalents 86,250
Deferred tax liability 50,000
Discount on bonds payable 69,000
Equipment 624,000
Income tax payable 150,000
Inventory 322,000
Investment in Associates 250,000
Land (including land with undetermined future use acquired in December 2018 for P1,000,000)
1,250,000
Ordinary share capital, P10 par 1,300,000
Share premium – preference 81,000
Share premium – ordinary 240,000
Patents 120,000
Preference share capital, P100 par 210,000
Salaries payable 20,000
Share dividends distributable 24,000
SSS premium payable 21,250
Trademarks 60,000
Financial asset at fair value through
profit or loss 61,000
Withholding taxes payable 30,000

Required:
Prepare a statement of financial position for Balasa Malakas Company as of
December 31, 2019 with appropriate notes to support line items presented on
the face of the statement.