Financial Accounting 3

CHAPTER 1 - Financial Statements

 Definition
 Statements kung saan ang mga information na pinagsamasama at pina- rocess in financial accounting
ay periodically communicated to the users.
 Ang Financial statements ang end product or main output ng financial accounting process kasi
nakalagay dito yung naging takbo ng kanilang negosyo for the year. Indicated dito if they incurred profit
or loss or is there any remaining receivables and payables for the year, etc.
 Ang financial statements are the structured representation ng financial position and financial
performance ng entity. Presented dito ay ang Statement of Financial Position and Income Statements
ng Entity.
 General purpose financial statements
 General purpose financial statements ay intended to meet the needs for information of users pero
wala sila sa position na humingi ng information na higit pa sa information na kanilang pin-rovide
since some of the information are confidential.
 Ang request ng entity’s management na magprepare ng financial statements ay hindi general
purpose financial statements since prepared ito according sa information na ni- request ng
management.
 Components of financial statements
1. Statement of Financial Position
2. Income Statement
3. Statement of Comprehensive Income
4. Statement of Changes in Equity
5. Statement of Cash Flows
6. Notes, comprising summary of significant accounting policies and other explanatory information
 Objective of financial staements

Ang objective ng general purpose financial statements is magprovide ng information about sa position and
perfomance ng entity and its cash flow to help the financial users in making economic decisions (whether to invest or
not, to provide loans or not).

 Financial Position
o Comprises its assets, liabilities, and equity
o Financial position pertains to the liquidity (capability na makapag- convert kaagad ng cash),
solvency (capabilityna makapagbayad ng utang, financial structure and yung capability na
makapag-adapt ng entity.
 Financial Performance
 Cash Flows
o Cash na narereceive at nilalabas arising from operating, investing and, financing activities ng
entity.
o Ang cash flow information ay Malaki ang tulong sap ag a-assess at pagdetermine sa ability ng
entity na mag-generate ng csh and cash equivalents.
 Financial Reporting
 Ang financial reporting ay ang pagpoprovide ng financial information ng entity para sa mga external
users sa kanilang pagdedesisyon whether to invest or not, to give loans or not, etc. at sa pag-aassess
ng kung effective ba ang management ng isang entity.
 Pinapakita ang financial report na ito through the annual financial statements.
 Ang financial reportay hindi lamang financial statements dahil ini-indicate din dito yung mga financial
highlights, mga analysis regarding sa financial statements. Included din sa financial reports ang mga
information such as description ng products at yung list ng kanilang mga officers and directors.

 Target Users of Financial Reporting

General purpose financial reporting is directed primarily to the existing and potential investors, lenders and other
primary user group.

Those primary user group have the most critical and immediate need for information in financial reporting. Why? it is
because they provide resources na kailangan ng entity for its business operations. For example:

o Investors
Kapag may investors na gustong mag- invest in a company maghahanap sila ng iba’t ibang types of
information just to make sure na they will make a wise decision on where to invest their money. They will
ask how does one company compares in size and profitability with the other company or is the company
earning satisfactory income.

o Creditors

Companies are borrowing money from banks to continue for expansions and for other investments Those companies
will ask if that company will be able to pay its debts as they come due. Are they willing to loan you money or how
much interest to charge you?

 Objective ng financial reporting

 Ang overall objective ng financial reporting is magprovide ng information na makakatulong sa mga
users in making economic decision.
 Specific objectives of financial reporting
 o Makapag-provide ng information na makakatulong sa decision ng users kung willing ba silang mag-iinvest or
magpautang sa isang entity.
o Makapag- provide ng information for assessing the prospects of future net, cash flows to the entity because
nakadepende sa returns na makukuha niya from his investment ang descision ng pagbili at pag- stay nya as
shareholder sa entity. Same as sa descision ng creditors whether to provide them loans or not depend on
return they expected.
o Makapag- provide ng information about entity’s resources, claims and changes in resources and claims.
Providing theinformation with these changes ay makakatulong sa mga users para maintindihan nila kung
anong nagiging dahilan ng pagbabago ng economic resources and claims ng isang entity at mga
consequences of changes in the future financial performance of an entity.
 Limitations of financial reporting
o General purpose financial reports do not and cannot provide all the information that existing and
potential investors, lenders, and other creditors need because there are some information about the
entity that is confidential and cannot be disclosed among financial users.
o General purpose financial reports are not designed na ipakita kung anong value ng isang reporting
entity but to provide them information para sila na ang mag estimate ng value ng isang reporting entity.
Bonus na ang pagpapakita na maganda ang financial report ng isang entity pero nasa financial users
parin ang estimation ng value ng entity kasi sila ang magdedecide whether to invest or not or to lend the
entity or not.
o General purpose financial reports are intended to provide common information to users and cannot
accommodate every specific request for information.
o To the large extent, financial reports are based on estimate and judgement rather than exact depiction.

Responsibility for financial statements

 Ang management ang may responsibility sa paggawa at pagpe- present ng financial statements.
 Ang responsibility for reviews and authorization bago i-issue ang financial statements ay hawak ng Board of
Directors then after ng authorization for issue ay to be submitted sa shareholders ng entitiy.

General Features of financial statements

1. Fair Presentation and Compliance with PFRS

o Financial statement shall present fairly the financial position, financial performance, and cash flows
of an entity in accordance with an identified financial reporting framework or PFRS.
o Ang financial statements achieved a fair presentation kung in- apply nito ang PFRS with another
disclosure when necessary because oncenanag comply ang entity with PFRS it can make a clear
and not limited statement of such compliance in the notes.

Note* An Entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies
used or by notes or explanatory information.

 Depature from standard

o In the extremely rare circumstances kung saan concluded ng entity na ang pag-comply sa
requirements ng standard would cause to misleading, the entity shall dapart from the requirement
provided na ni-rerequire sya sa refgulatory Conceptual framework, or otherwise na ang pag-depart
sa standard ay hindi pinagbabawal.

In such circumstances, it is incumbent upon the entity to disclose the following:

a. The management has concluded na ang financial statements ay presented fairly.

b. Ang entity ay nag-comply sa applicable standards except that nag-depart sila sa isang
reqirement para ma-achieve nila ang fair presentation ng financial statements.
c. Dapat nilang i-disclose ang standard na ni-depart ng entity, nature ng departure
kasamaang treatment sa standard na nire-require, dahilan kung bakit misleaded yung
isang requirement sa standard and treatment na gagamitin.
d. Financial impact ng deapature ng standard for each item na ni-report sa pagcomply sa
requirement.
2. Going Concern
o Ang isang entity ay masasabing going concern if the business can stay in operation for the
foreseeable future.

o Going concern is particularly relevant when the management shall make an estimate of the
expected outcome ng future events such as recoverability ng accounts receivables and estimations
ng useful life ng isang asset.
3. Materiality and Aggregation
o Bawat material class of similar items ay pini-present ng magkahiwalay.
o Bawat items of dissimilar in nature or function ay pini-present ng magkahiwalay maliban na
lang kung ito ay immaterial.
o If a line item ay hindi individually material ay isinasama ito sa other items in the statements or
notes.
When is an item material?
o Walang strict rule in determining whether an item is material or not.
o Madalas ito ay from good judgement, professional expertise and common sense.
o General guide: Ang item ay material if nakaka-apekto ito sa desisyon ng other informed users ng
financial statements.
Materiality is a relativility
 o Amg materiality ng isang item ay nakadepende sa relative size kaysasa absolute size. Kung
anuman ang material sa isang entity ay maaaring immaterial sa iba. Isang dahilan ay ang size ng
kanilang entity that’s why it differs.
Example:
Ang error na P100,000 sa financial statements ng isang multinational entity ay maaaring di
gaanong kahalaga pero napakalaking halaga na para sa isang maliit na entity.

4. Offsetting

Ang asset and liabilities, and income and expenses ay di pwedeng i- offset against each other unless it is
required or permitted by other PFRS.

Example:

Gains or losses on disposal of noncurrent assets ay nire-report by deducting mula sa proceeds ang carrying
amount ng assets at related selling price.

5. Frequency of Reporting

An entity shall present a complete set of financial statements at least annually.

Kapag ang isang entity ay magpapalit ng reporting period at magpresent ng financial statements sa period
na mas matagal or shorter than one year, ay kailangan nyang i-disclose na:

o Anong period ang covered ng financial statements nila.

o Reason sa paggamit ng longer or shorter na period
o Ang amount na nakapresent sa financial statements are not entirely comparable
6. Comparable Information
o Maliban kung permitted orrequired ng PFRS, ang entity ay magdi-disclose ng comparative
information sa previous period for all amounts na reported sa current periodsnf financial
statements.
o Ang comparative information ay kasama sa narrative at descriptive information kapag mahalaga
sya sa understanding ng financial statement sa current period.
o Magbe-benefit ang mga users mga uncertain information na nag-exist at the end of the preceding
reporting period at sa mga steps na ginawa during the current period para maresolve ang
uncertainty.

7. Consistency of Presentation
o Implicit sa presentation ng comparable information ang principle ng consistency.
o Nire-require sa principle ng consistency na dapat ang ‘accounting method and practices ay ia-apply on a
uniform basis from period to period’ meaning dapat consistent.
o Example is when an entity used a FIFO method in one year, such method is followed from year to year to
meet the consistency of the presentation.
o Hindi ibig sabihin na kapag consistency ay di na maaaring magpalit ng accounting method. Kung ang
pagpapalit ng accounting method and policies ay magre-result ng faithfully representation and more relevant
sa users ng financial statements then that change should be made. Pero ang chages na mangyayari ay
dapat na ms-idisclose.

o Ang pagpapalit ng presentation at classification ng items sa financial statements ay allowed:

o Kapag required sya ng other PFRS.

o Kapag ang significant change sa operations ng entity will give a more appropriate revised presentation at
classification sa financial statements.

Note*
It is inappropriate for an entity to leave accounting policies unchanged when better and acceptable
alternative exist.

 Identification of financial statements

o Ang financial statements at dapat na ma-identify ng malinaw at maihiwalay sa ibang information.
o Each component ay dapat na ma-identify ng maayos at malinaw.
o In addition the following information shall be prominently displayed:
a. Name of the reporting entity.
b. Whether the financial statement cover the financial individual entity or group of entities.
c. The end of the periods ay covered by financial statements and notes
d. Presentation currency.
e. The level of roundings used in the amounts in the financial statements.

Chapter 2

Statement of Financial Positon

~ Definition

 Ang statement of financial position ay ang formal statement showing the three elements comprising financial
positions namely asset, liabilities, and equity.
  Ang financial position ay nagpapakita ng list ng resources, obligations and ownership details ng isang entity
on aspecific date.

 Ini-evaluate ng investors, creditors, and other users ang liquidity, solvency and theneed of the entity ng
additional financing.

 Liquidity ay ang ability na entity na ma-meet ang kanilang current obligations.

 Solvency ay ang ability ng entity na ma-meet ang kanyang long-term financial

obligations.

Current and noncurrent distinction

 PAS 1, paragraph 60, provide na ang entity ay dapat i- present ang current and

noncurrent assets, and current and noncurrent liabilities, as separate

classification in the statement of financial position.

 Dapat i-present ng entity lahat ng assets and liabilitites in order of liquidity

when such presentation provides information na faithfully represented and

more relevant. An entity shall first identify and present highly liquid assets and

liabilities.

 Using presentation in order of liquidity, madaling madi-distinguish ng entity

ang net asset na continuously circulating as working capital sa net asset used

in long-term operations.

 For some entities such as financial institutions, ang presentation ng assets and

liabilities in increasing or decreasing liquidity ay mas makakapagprovide ng

information na faithfully represented at more relevant kaysa and noncurrent

presentation.

 Ang financial institutions ay hindi nagsusupply ng goods and services within a

clearly identifiable operating cycle. At isa pa kadalasan nagpapautang sila na

ang maturity ay inaabot ng 3 or 5 years.

~ Assets

An asset is defined as a ‘resource controlled by the entity as a result of past

event and from which future economic benefits are expected to flow to the

entity’.

In layman’s language and in short, assets are property owned.

Essential characteristics of an asset

a) Kontrolado at pagmamay-ari by ng entity

b) Result of a past event

c) Nagpo-provide ng positibong economic benefit sa entity in the future

d) Cost of the asset can be measured reliably

v Held for trading

Appendix A of PFRS 9 provides that the financial asset is classified as held

for trading when:

1. Binili for the purpose na ibenta ito kaagad (near term)

2. Oninitial recognition, it is part of a portfolio of identified financial

instruments.

3. It is a derivative, maliban sa financial guarantee contract ora

designated and an effective hedging instrument.

Ang financial assets held for trading ay mas kilala sa tawag na ‘trading securities’.

Simply stated, ang trading securities ay debt and equity securities na binili for the

purpose na ibenta ito kaagad para makapag-generate ng short-term gains and

profits.

~ Expected to be realized within twelve months

 Refers to short-term non-trade receivables.

 Realized, sold and consumed
 This current asset category refers to trade receivables, inventories, and prepayments.
 Classified sya as marealized, mabenta, at ma-consumed within the normaloperating cycle or isang
taon, whichever is longer,

~ Operating cycle

 Ang operating cycle ng isang entity ay time period sa pagbili ng assets para

maprocess at ang realization nito into cash and cash equivalents. Kapag hindi malinaw ang duration ng normal
operating cycle, it is assumed

na twelve months.

 Ang operating cycle ng isang trading entiy is the average period of time na

mag-acquire ng merchandise inventory, pagbenta ng inventory sa

customers hanggang sa pagkolekta ng cash coming from the sales.

Example of operating cycle

Entity’s normal operating cycle is:nThe period of time sa pagbili ng materials, pagconvert into finished goods, selling

of finished goods then conversion into receivables hanggang sa collection ng

receivables.

Grocery Stores- one to four weeks

Deparment stores- three to five months

Manufacturing- three to nine months

Liquer manufacturers- two or more years

Mining companies- more than one year

Ang normal operating cycle is significant kasi it serves as a basis sa pagdetermine

ng proper classification ng assets into either current or noncurrent.

Presentation of Current Assets

Ang current assets ay usually listed in Statement of Financial Position in

order of liquidity.

PAS 1, paragraph 54 provides that the minimum line items under current

assets are:

a. Cash and cash equivalents

b. Financial assets at fair value through profit or loss such as trading

securities and other instruments in quoted equity securities

c. Trade and other receivables

d. Inventories

e, Prepaid expenses

“ Noncurrent assets

The caption ‘noncurrent assets’ is a residual definition

PAS 1, paragraph 66 simply states that ‘an entity shall classify all other

assets not classified as current as noncurrent assets’.

In other words, kung anuman ang hindi kasama Sa definition ng currents

assets ay deemed excluded at lahat ng natitira ay classified as noncurrent

assets.

Sabi sa PAS 1, paragraph 56 kapag ang entity ay nagpresent ng current and

noncurrent asset as separate classification on the face of statement of financial

position, hindi ika-classify ang deferred tax asset as current assets.

vProperty, plant and equipment

Ang property, plant and equipment ay ang long-term or noncurrent asset section

ng Statement of Financial Position.

Ang property, plant and equipment ay klase ng asset na may physical existence,

which are held for an entity's internal use at expected na magge-generate ng

economic benefits sa entity over more than one year. Ginagamit sya for the

production and supply ng goods and services, pagpaparenta sa iba and for

administrative use.

Major characteristics of the definition of property, plant and equipment

a. Ang property, plant and equipment ay isang tangible assets, means may

physical substance.

b. The property, plant and equipment are used in business, meaning held for

internal use of the entity.

Ang property, plant and equipment ay expected na magamit ng higit saisang taon.
¥ Example of property, plant and equipment

o Land

Building

Machinery

Ship

Aircraft

Motor vehicle

Furniture & Fixtures

Office equipment

Patterns

Molds

Dies

Tools

Leasehold improvement

Book plates

 Ang dating tawag sa property, plant and equipment ay ‘fixed assets’.

Most property, plant and equipment ay presented at cost less accumulated

depreciation except sa land since hindi ito dine-depreciate.

 Ang property, plant and equipment ay una sa lista ng noncurrent assets because

kadalasan it represent the major portion ng total assets at napakahalaga sa

presentation ng financial position.

PAS 16 on property, plant and equipment does not apply to:

a. Biological assets na related sa agricultural activity

b. Property, plant and equipment classified as held for sale in accordance with

PFRS S

c. Recognition and measurement of exploration and evaluation asset under

PFRS 6

d. Mineral rights and mineral reserves such as oil, natural gas, and similar

nonregenerative resources.

Such assets are shown as separate line item on the statement of financial

position.

Note* Ang entity are required na gamitin ang PAS 16 to property, plant and

equipment na ginagamit sa pagdevelop at pagmaintain ng biological assets, at

mineral rights and mineral reserves.

¥ Long-term investments

 The International Accounting Standards Committee defines investment

as “an asset held by an entity for the accretion of wealth through capital

distribution, such as interest, royalties, divedends and rentals, capital

appreciation or for other benefits to the investing entity such as those

obtained through trading relationship”. Ang long-term investment ay account sa asset side ng entity’s statement
of financial position na nagrerepresent ng entity’s investments including

intensyong i-keep for more than one year, None of these investments

are traditionally used in entity’s operating activities.

An entity’s investment may be current or noncurrent

Ang current investment ay readily realizable and intended lang na i-keep

ng entity for not more than one year.

Ang noncurrent or long-term investment ay investment other than

current investment and intended to be held for more than one year.

Examples of lang-term investments

a. Investments in securities of other entities, such as shares, bonds,

and other debt instruments.

b. Investments in subsidiaries

Investments in associates accounted for by the equity method

. Investments in funds accumulated for a particular purpose, such

as sinking fund, plant expansion fund and preference share

redemption fund.

e, Investment property

f. Cash surrender value of life insurance policy

g. Investments in joint vntures

Intangible assets

PAS 38, paragraph 8, simply defines an intangible asset “as an identifiable

nonmonetary asset without physical substance”.

An intangible asset ay long-term resources ng entity pero walang physical

existence. It is expected na magprovide ng future economic berefits sa entity.

PAS 38, paragraph 12, ang intangible asset ay identifiable kapag:

a. Ito ay capable of being sold, transferred, liscenced, rented or

exchanged separate from the entity.

b. Arises from contractual or other legal right.

Example of an identifiable intangible assets:

. Patent

. Franchise

. Copyright

. Lease rights

. Trademark

Computer software

Unidentifiable asset

An asset that cannot exist independent of a business as a whole. Example is goodwill.

Other noncurrent assets ay ang asset na do not cfit in tothe definition ng

noncurrent assetss.

Examples:

a. Long-term refundable deposit

b. Long-term advances to employees

¥ Liabilities

The essential characteristics of a liability are:

a. Present obligation of a particular entity. Ang entity na liable must be

identified. Ang present obligation exists only kung saan ang entity ay

walang alternative but to make sacrifice to settle the obligation.

b. The liability arises from past event. Ang liability ay marerecognize lamang

once na incurred naito.

c. The settlement of the liability requires an outflow of resources embodying

economic benefits. Ang pagbabayad ng obligation or liability is by

transferring or paglalabas ng resources ng entity.

~ Current liabilities

PAS 1, paragraph 69 shall classify a liability as current when:

a.Ang entity ay expected na magbabayad ng liability within the entity's

normal operating cycle.

b. The entity holds the liability for the purpose of trading

c.Ang liability ay magdue-due 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.

Examples:

 Trade payables and accruals for employee and other operating costs

even if they are settled more than twelve months after the reporting

period.

 Financial liabilities held for trading incurred with an intention na i-

repurchase kaagad or in near term.

¥ Long-term debt currently maturing

PAS 1, paragraph 72, ang liability na magdue-due within twelve months

after the end of reporting period ay classified as current, even if:

b.Ang original term ng liability ay for the period na longer than twelve

months. Ang agreement ngi-refinance or i-reschedule ang payment ng long-

term basis of liability ay completed after the end of reporting period

at bago ma-authorized for issue ang financial statements.

However, if ang refinancing ng long-term basis ay nacomplete lang on or

before the end of the reporting period, ang refinancing ay adjusting event and will be classified as noncurrent.
Discretion to refinance

PAS 1, paragraph 73, provides that if the entity ay gustong magrefinance ng

obligation for atleast twelve months after the reporting period under an

existing loan facility, ang obligation ay ika-classify as noncurrent kahit pana

COnsider syd long-term refinancing dahil ang entity ay may unconditional

right sa loan agrrement na |-revise ang schedule ng pagbabayad for atleast

twelve months after the end of reporting period.

¥ Covenants

 Covenants are often attached to borrowing agreemets which reperesent

undertakings by the borrower.

 These covenants are actually restrictions sa borrower ang mag-undertake pa ng

utang, magbayad ng dividends, maintain specific level of working capital and so

forth.

 Under these covenants, if certain conditions related sa borrowers financial

situation are breached or di natupad, ang liability ng borrower becomes payable

in demand.

 Classified sya as current because sareporting date ang borrower ay walang

unconditional right na i-revise ang payment schedule for atleast twelve months

after the end of the reporting period.

 However, paragraph 75 states that the liability ay calssified as noncurrent if the

lender ay nag-agree on or before the end of the repoting period na magprovide

ng grace period ending atleast twelve months after the end of the reporting

period.

 Grace period is a period within which a borrower can rectify the breach and during

which the lender cannot demand immediate payment.

~ Presentation of current liabilities

PAS 1, paragraph 54, provides that as a minimum, the face of the statement of

financial position shall include the following line items:

a. Trade and other payables (accounts payable, notes payable, accrued

interest on note payable, dividends payable and accrued expenses)

Current provisions

Short-term borrowing

Current portion of long term debt

Current tax liability

Noncurrent liabilities

The term ‘noncurrent liabilities’ is also a residual definition.

PAS 1, paragraph 69, simply states that lahat ng liablities na hindi classified as

current liabilities ay classified as noncurrent liabilities.

Examples:
Noncurrent portion of long-term debt

Finance lease liability

Deferred tax liability

Long-term obligations to entity officers

Long-term deferred revenue

Sabi sa PAS 1, paragraph 56 kapag ang entity ay nagpresent ng current and

noncurrent liabilities as separate classification on the face of statement of

financial position, hindi ika-classify ang deferred tax liability as current

liability.

~ Working Capital

Ang working capital ay measure ng entity's liquidity, efficiency and its short-term

financial status.

Working capital ay capital ng entity na ginagamit sa day-to-day trading

operations, excess of current assets over current liabilities and the working capital

ratio is current assets divided by current liabilities.

~ Estimated liabilities (can be classified as current or noncurrent)

Ang estimated liabilities ay obligations na nag-exist at the end of the period which

is yung amount nila ay hindi definite.

Also, ang due date ng liability is not definite and in soe instances, the exact payee ay hindi rin ma-determine or ma-
identify.

But inspite ng pagka- indefinite nito, still ang existence ng estimated liabilities ay

valid and unquestioned.

Examples:

a. Estimated liability for premiums

b, Estimated liability for warranties

c. Estimated liability under customer loyalty program

Technically, an estimated liability ay macoconsider na ‘provision’ which is both

probable and measurable.

~ Contingent liability

 Ang contingent liability ay ang possible liability that may occur depende sa

outcome ng uncertain future event not wholly within the control of the entity.

 Ang contingent liability ay ang present obligation or liability arises from past

event pero hindi ma-recognized dahil hindi sya probable that an outflow

embodying economic benefits will be required para ibayad sa obligation or the

amount of the liability cannot be measured reliably.

The uncertainty relating to future events can be expressed by a ranged of

outcome.

a. Probable. Ang future event is likely to occur. More than 50% likely, meaning
51% and above.

b. Reasonably possible. Ang future event is less likely to occur.

c. Remote. Ang future event is least likely to occur or the chance of the future

events na mangyari ay napakaliit lamang.

A contingent liability ay hindi nire-recognized sa financial statements.

However, if ang present obligation ay probable at ang amount ay name-measure

reliably, ang obligation ay hindi contingent liability kundi ire-recognized as

provision.

Ang expense at estimated liability ay dapat i-recordsa pagrecognize ng provision.

Ang contingent liabilities ay maaaring probable or measurable pero hindi

probable at measureable.

Ang contingent liability ay hindi nire-record dahil ito ay maarari lamang i-

disclosed.

Required disclosures are:

a. Brief description of the nature of the contingent liability.

b. Estimates ng financial effects nito

c. Indication na nag-eexist ang uncertainties

d. Possibility of reimbursement

Kapag ang contingent liablity ay remote, di na kailangan ng disclosure.

~ Contingent asset

 Ang contingent asset ay ang possible asset that may arise from past events at ang

maco-confirmed lamang ang existence sa occurrence or nonoccurrence ng one or

more uncertain future events nat wholly within the control of the entity.

 Ang contingent asset ay usually na galling sa unplanned events na nagbibigay ng

possible inflow ng economic benefits sa entiy.

¥ Treatment of contingent asset

 A contingent asset shall not be recognized because this may result to recognition

of income that may never be realized.

 A contingent asset ay maaaring I-disclose lamang kung ito ay probable. Pero kung

only possible or remote di ni-rerequire ang disclosure.

~ Equity

 Equity is the residual interest in the asset of the entity after deducting all of the

liabilities.

 Ang equity ay nadadagdagan dahil sa kinikita sa operations at contributions ng

may-ari.

 Ang equity ay nababawasan dahil sa unprofiatable operations at ditribution sa

may-ari.
Ang term na ginagamit sa reporting ng equity ng entity ay nakabase sa form ng

entity:

a. Owner's equity (proprietorship)

b. Partner's equity (partnership)

c. Shareholder’s equity(corporaticons)

Pero pwede naman gamitin mismo ang term na Equity sa lahat ng business entity.

Ang may hawak ng instruments classified as equity at tinatawag na owners.

¥ Shareholder’s Equity

 Shareholder’s Equity is the residual interest of owners in the net assets of a

corporation measured by the excess of assets over liabilities.

Share capital ay portion ng corporation’s equity representing the total par

or stated value ng shares na in-issued.

 Subscribed share capital ay part ng issued share na subscribed pero di pa

bayad and still unissued.

 Subscription receivables ay deduction from related subscribed share capital.

Kapag ito ay collectible within one-year ito ay ika-classify as current asset.

 Share premium is the capital na contributed ng shareholders in excess ng

par orstated value ng shares na subscribed and issued.

Retained earnings

 Ang retaine earnings ng isang corporation ay ang accumulated balance sa net

income orloss, dividends distributions, prior period errors and other capital

adjusments. Ang retained earnings ay maaaring i-classify as unappropriated retained earnings

and appropriated retained earnings.

 Unappropriated retained earnings refer sa net income ng corporation na hindi

allocated to a specific purpose. Meaning, portion sya na free and can be declared

and distributed to shareholders as dividends.

 Appropriated retained earnings refer sa net income ng corporation that are

specifically not available to be used for dividend payment and restricted to be

used for specific purposes.Ang deficit ay debit balance ng retaine earnings. Hindiito pini-present as an asset

but as a deduction from shareholder's equity.

¥ Revaluation surplus

but as a deduction from shareholder s equity.

Revaluation surplus

Revaluation surplus is the excess of sound value over carrying amount of the

revalued asset Ang sound value ay equal sa fair value or sa revalued amount computed sa

pamamagitan ng pad-deduct ng accumulated depreciation mula replacement

cost. Tinatawag din itong ‘depreciated replacement cost’.

Ang carrying amount ay kino-compute sa pagdeduct ng accumulated depreciation

sa historical cost.

Treasury shares

Ang treasury shares ay share na pagmamay-ari ng corporation ba in-issue then

binili ulit pero not canceled. Usually nire-record ang treasury shares at cost at hindi nire-recognize as asset.

Ni-rereport ang treasury shares as a deduction sa shareholder's equity.

Kapag ang retained earning ay in-acquired, retained earnings must be

appropriated to the extent ng cost ng treasury shares.

The corporation shall disclosed separately either sa face ng statement of financial

position orsa notes ang amount ng reduction ng treasury shares sa equity.

Reserves

Ang term na reserve ay hindi officially defined sa anumang accounting standard.

Under ng international accounting standard ang paggamit ng equity reserves ay

based kung yung reserves ay part ng distributable or nondistributable equity.

Distributable equity. It pertains sa unappropriated retained earnings kung saan

ang portion nito ay maaaring i-distribute as dividends to shareholders.

Nondistributable equity. Ito naman ay ang portion na di maaaring magdistribute

ng kahit anong form during the lifetime of a corporation.

Examples of reserves:

a. Share premium reserves- excess over the par or stated value or mas kilala

sa tawag na additional paid in capital.

b. Appropriation reserve-earmarking of retained earnings for a certain

purpose which may be required by the law, contract or result ng voluntary

action ng management. Technically known as retained earnings

appropriated.Examples:

For treasury bonds

For bond redemption

For preference share redemption

For plant expansion

For contingencies

Asset revaluation reserve. Arises mula sa revaluation ng property, plant and

equipment. Specifically called revaluation surplus.

d. Other comprehensive income reserve

Line items- Statement of Financial Position

PAS 1, paragraph 54, states asa minimun, the statement of financial position shall

include the following line items:

. Cash and cash equivalents

. Financial assets (other than 1,3 & 6}

. Trade and other receivables

. Inventories

. Property, plant and equipment

. Investment in associates using the equity method

. Intangible assets

. Investment property
. Biological assets

10.Total of assets classified as helf for sale and assets included in

disposal group classified as held for sale

11.Trade and other payables

12.Current tax asset and liability

13.Deferred tax asset and deferred tax liability

14.Provisions

15.Financial liabilities (other than 11 & 14)

16.Liabilities Included in disposal group helde for sale

17.Noncontrollinginterest

18.Share capital and reserves

The listing of the line items is not exclusive

An additional line items, headings and subtotalsshall be presented sa statement

of financial position kapag ang presentation nito ay makakatulong sa

understanding ng financial position ng entity.

Ang judgment kung maaaring magpresent ng additional line items ay based sa

assessment ng:

1. Nature and liquidity of asset

2. Function of asset within the entity

3, Amount, nature and timing of liabilities

¥ Form of statement of financial position

a. Report form

It provides information in a vertical format. Downward sequence of assets,

liabilities, and equity.