2.

Unconsolidated financial statements –

CFAS - Chapter 4 – notes financial statements prepared when the
(Valix-Peralta, 2022 Edition) reporting entity is the parent alone.
3. Combined financial statements – financial
CONCEPTUAL FRAMEWORK statements when the reporting entity
comprises two or more entities that are not
Financial statements and reporting entity
linked by a parent and subsidiary
Underlying assumptions relationship.

GENERAL OBJECTIVE OF FINANCIAL 1. Consolidated financial statements

STATEMENTS
⮚ Provide information about economic
resources of the reporting entity, claims
against the entity and changes in the
economic resources and claims.
⮚ Provide financial information about an
entity’s assets, liabilities, equity, income
and expenses useful to users of financial
statements in:
a. Assessing future cash flows to the
reporting entity.
b. Assessing management
stewardship of the entity’s
economic resources.
⮚ The financial information is provided in
the ff:
1. Statement of financial position
2. Income statement
3. Statement of cash flows
2. Unconsolidated financial statements
4. Statement of changes in equity
5. Notes to financial statements
Types of financial statements
(Recognized by Revised Conceptual Framework)
1. stiConsolidated financial statements –
financial statements prepared when the
reporting entity comprises both the parent
and its subsidiaries.
⮚ Provide information about the assets,
liabilities, equity, income and expenses of
both the parent and its subsidiaries as a
single reporting entity.
⮚ Parent – the entity that exercises control
over the subsidiaries.
⮚ Useful for existing and potential investors,
lenders and other creditors of the parent
in their assessment of future net cash
inflows to the parent.
⮚ Net cash inflows to the parent include
distributions to the parent from its
subsidiaries.
⮚ Not designed to provide separate
information abut the assets, liabilities,
equity, income and expenses of a
particular subsidiary.
⮚ Are designed to provide information
about the parent’s assets, liabilities,
income and expenses and not about those
of the subsidiaries.
⮚ Useful to the existing and potential
investors, lenders and other creditors of
the parent because a claim against the
parent typically does not give a holder of
that claim against subsidiaries.
⮚ Information provided in unconsolidated
financial statements is typically not
 sufficient to meet the requirement needs
of primary users.
⮚ When consolidated financial statements
are required, unconsolidated financial
statements cannot serve as substitute for
consolidated financial statements.
Combined financial statements
⮚ Provide financial information about the
assets, liabilities, equity, income and
expenses of two or more entities not
linked with parent and subsidiary
relationship.
Reporting entity
⮚ An entity that is required or chooses to
prepare financial statements.
⮚ Can be a single entity or a portion of an
entity, or can comprise more than one
entity.
⮚ Not necessarily a legal entity.
⮚ The ff. can be considered a reporting
entity:
a. Individual corporation, partnership or
proprietorship
b. The parent alone
c. The parent and its subsidiaries as
single reporting entity
d. Two or more entities without parent
and subsidiary relationship as a single
reporting entity
e. A reportable business segment of an
entity
Reporting period
⮚ Period when financial statements are
prepared for general purpose financial
reporting.
⮚ Financial statements may be prepared on
an interim basis. Ex., three months, six
months or nine months.
⮚ Interim financial statements are not
required but optional.
⮚ Financial statements must be prepared on
an annual basis or a period of twelve
months.
⮚ Financial statements are prepared for a
specified period of time and provide
information about:
a. Assets, liabilities, equity at the end
of the reporting period.
b. Income and expenses during the
reporting period.
⮚ Financial statements provide comparative
information for at least one preceeding
reporting period to help users of financial
statements to identify and assess change
in trends.
⮚ Financial statements may include
information about transactions and other
events that occurred after the end of
reporting period if the information is
necessary to meet the general objective of
financial statements.
UNDERLYING ASSUMPTIONS
⮚ Accounting assumptions or accounting
postulates are the basic notions or
fundamental premises on which the
accounting process is based.
⮚ Serve as the foundation or bedrock of
accounting in order to avoid
misunderstanding but rather enhance the
understanding and usefulness of the
financial statements.
⮚ One assumption: Going Concern
⮚ Basic assumptions implicit in
accounting: accounting entity, time
period and monetary unit
Going concern ⮚ The personal transactions of the owners
shall not be allowed to distort the
⮚ Going concern or continuity
financial statements of the entity.
assumption – in the absence of evidence
⮚ Each business is an independent
to the contrary, the accounting entity is
accounting entity.
viewed as continuing in operation
⮚ The shareholder is not the corporation
indefinitely.
and the corporation is not the
⮚ Financial statements are normally
shareholder.
prepared on the assumption that the
⮚ Where parent and subsidiary
entity will continue in operations for the
relationships exists, consolidated
foreseeable future.
statements for the affiliates are usually
⮚ the very foundation of the cost principle
made because for practical and economic
⮚ assets are normally recorded at cost
purposes, the parent and the subsidiary
⮚ as a rule, market values are ignored
are a single economic entity.
⮚ however, some new standards require
measurement of certain assets at fair
value.
Time period
⮚ If there is evidence that the entity would
experience large and persistent losses or ⮚ Requires that the indefinite life of an
that the entity’s operations are to be entity is subdivided into accounting
terminated, the going concern periods which are usually of equal length
assumption is abandoned. for the purpose of preparing financial
⮚ The users of the statements will have a reports on financial position, performance
great interest in the amount of cash that and cash flows.
will be generated from the entity’s assets ⮚ By convention, the accounting period or
in the short term. fiscal period is one year or a period of
twelve months.
⮚ One-year period – is traditionally the
Accounting entity accounting period because usually it is
after one year that government reports
⮚ Specific business organization which may
are required.
be a proprietorship, partnership or
⮚ The accounting period may be a calendar
corporation.
year or a natural business year.
⮚ The entity is separate from the owners,
⮚ Calendar year – a twelve-month period
managers, and employees who constitute
that ends on December 31.
the entity.
⮚ Natural business year – a twelve-month
⮚ Transactions of the entity shall not be
period that ends on any month when the
merged with the transactions of the
business is at the lowest or experiencing
owners.
slack season.
⮚ Reason for this assumption: to have a fair
presentation of financial statements.
Monetary Unit
⮚ Has two aspects: quantifiability and
stability of the peso
⮚ Quantifiability – assets, liabilities, equity,
income and expenses should be stated in
terms of a unit of measure which is the
peso in the Philippines.
⮚ Stability of the peso – purchasing power
of the peso is stable or constant and that
its instability is insignificant and
therefore may be ignored.
⮚ Stable peso postulate – an amplification
of the going concern assumption so much
so that adjustments are unnecessary to
reflect any changes in purchasing power.
⮚ Accounting function: to account for
nominal pesos only and not for constant
pesos or changes in purchasing power.
⮚ In today’s world, the assumption that the
peso is a stable measure over time is not
necessarily valid.
⮚ There is a significant gap between
historical cost and current replacement
cost.
⮚ An entity may choose the revaluation
model as an accounting policy.