Conceptual Framework and Accounting Standard
Chapter Summary
Chapter 1: Accounting Profession
Definition of Accounting
It is the process of identifying, measuring, and
communicating economic information to permit
informed judgement and decision by users of the
information. (AAA)
I. Identifying as the analytical component
 Recognition or non-recognition of
transactions. Only accountable events are
to be recognized or journalized.
 Accountable event is quantified and has
a unit of measurement that influences
the elements of financial statements
(ALOE, IE). This is also called as
“economic activities.”
 It involves external and internal
transactions.
*External Events – involving one entity and
another entity wherein it can be exchange, non-
reciprocal transfer, and external event other than
transfer.
*Internal Events – within the entity (i.e.,
production and casualty.)
II. Measuring as the technical component
 It is assigning of peso amount to the
accountable economic transactions and
events.
 The measurement bases are historical
cost (most common and original cost)
and current value (fair value).
*When the measurement is affected by
estimates, the items measured are said to be
valued by opinion.
*When measurement is unaffected by estimates,
the items measured are said to be valued by fact.
III. Communicating as the formal component
 Process of transforming economic data
into useful accounting information that
can be used by the potential users in
making decisions.
 It is the reason why accounting has been
called the “universal language of
business.”
*Recording – process of journalizing the
transaction systematically.
*Classifying – process of sorting, grouping, or
posting to the ledger.
*Summarizing – preparation of financial
statements.
[Interpreting – processed information involves
the computation of financial statements ratios.]
The Accounting Profession
Republic Act No. 9298 – Philippine Accountancy
Act of 2004
 Board of the Accountancy – is the body
authorized by law to promulgate rules
and regulations affecting the practice of
the accountancy profession in the
Philippines.
 3 main areas where CPA can practice
their profession:
1. Public Accounting – involves individual
practitioners or small firms that render
independent and expert financial services
to the public for a fee.
- It offers 3 kinds of services including
auditing, taxation, and management
advisory services.
- It is valid for 3 years.
2. Private Accounting – CPAs are employed
in business entities to assist management
in planning and controlling the entity’s
operations.
 Conceptual Framework and Accounting Standard
Chapter Summary
3. Government Accounting – it focuses on
custody and administration of public
funds.
- The CPAs may be employed in various
branches of government includes BIR,
COA, SEC, and BSP.
Continuing Professional Development
(CPD)
Republic Act No. 10912 is the law mandating
and strengthening the continuing
professional development program for all
regulated professions, including the
accountancy profession.
- The age of 65 years old is
permanently exempted from CPD
*15 CPD credit units – required for renewal of
license
*120 CPD credit units – required for accreditation
of a CPA to practice the accountancy profession
(Public Accounting).
[Accounting is constructive in nature while
Auditing is analytical]
[Bookkeeping is procedural (how) while
Accounting is conceptual (why or justification)]
[Accountancy refers to the profession of
accounting practice while Accounting reference in
particular field of accountancy]
[Financial Accounting intended for external and
internal users while Management Accounting
intended for internal user only.]
Generally Accepted Accounting
Principles (GAAP)
Represents the rules, procedures, practices and
standards followed in the preparation and
presentation of financial statements.
Accounting Standards
The purpose of accounting standards is to identify
proper accounting practices for the preparation
and presentation of financial statements. It
ensures comparability and uniformity.
Financial Reporting Standards Council
(FRSC)
 It is initially known as Accounting
Standards Council or ASC.
 It is accounting standard setting body
created by PRC to assist BOA in carrying
out its power and function provided
under R.A. Act No. 9298
 Constitute the highest hierarchy of GAAP
in the Philippines
 It composed of 15 members.
Approved Statements of the FRSC are the
following:
1. Philippine Financial Reporting Standards
(PFRSs) – represent GAAP in the
Philippines
2. Philippine Accounting Standard (PASs)
3. Interpretation (Philippine Interpretation
Committee or PIC)
 For financial statement to be useful, they
should be prepared using reporting
standards that are generally acceptable.
 Entities should follow a uniform set of
reporting standards when preparing and
presenting financial statements.
*The term “generally acceptable” means that
either:
 Conceptual Framework and Accounting Standard
Chapter Summary
a. The standard has been established by an
authoritative accounting rule-making body.
Example, PFRS adopted by FRSC; or
b. The principle has gained general acceptance
due to practice over time and has been proven to
be most useful. Example, double-entry recording
and other implicit concepts.
[It is democratic process where majority of the
accountant must agree with the standard.]
 Hierarchy of Reporting Standard
When selecting its accounting policies, an entity
considers the following in descending order:
1. Philippine Financial Reporting Standard
2. In the absence of PFRS, management
shall use its judgement.
*In making the judgement
1. Management shall refer to, and consider the
applicability of, the following sources in
descending order:
a) The requirement in PFRSs dealing with
similar and related issues; or
b) The Conceptual Framework
2.Management may also consider the following:
a) Pronouncement of other standard-setting
bodies
b) Accounting literature and accepted
industry practices
*shall means must while may means optional
International Accounting Standards
Committee/Board
It is an independent private sector body, with the
objective of achieving uniformity in the
accounting principles which are used by business
and other organizations for financial reporting
around the world.
- The pronouncement of the IASC
continue to be designated as
International Accounting Standards
(IAS)
*The International Accounting Standards Board
now replaces the International Accounting
Standards Committee or IASC.
 Standard-setting process includes in the
correct order research, discussion proper,
exposure draft and accounting standard.
 Assessed from a position of neutrality.
 It publishes standards in a series of
pronouncement called International
Financial Reporting Standards or IFRS
[At present, the FRSC has adopted in their
entirety all International Accounting Standards
and International Financial Reporting Standards.]
 Philippine Financial Reporting Standards
a) PFRS corresponds to IFRS
b) PAS corresponds to IAS
c) PIC corresponds to IFRIC
Chapter 2: Conceptual Framework (Objective of
Financial Reporting)
Conceptual Framework
It is promulgated (promote) by the IASB.
 It describes the concepts for general
purpose of financial reporting where it
summarizes the terms for external users.
 It is an attempt to provide an overall
theoretical foundation for accounting.
 It is intended to guide the standard-
setter, preparers, and users in presenting
financial statements.
 Conceptual Framework and Accounting Standard
Chapter Summary
*The Conceptual Framework provides the b. Lenders and other creditors –
foundation for standard that: enables them to determine whether
their loans, interest thereon and
a) Contribute to transparency other amounts owing to them will be
b) Strengthen accountability paid when due.
c) Contribute to economic efficiency
 Purpose of Revised Conceptual
 Other users – parties that may find the
Framework
general-purpose financial reports useful
a. To assist the IASB to develop IFRS
but the reports are not directed to them
Standards based on consistent concepts.
primarily.
b. To assist preparers of financial statement
a. Employees – to assess the ability of
to develop consistent accounting policy
the entity to provide renumeration,
when no standard apply or not yet
retirement benefits, and employment
addressed by an IFRS to a particular
opportunities.
transaction.
b. Customers – they are interested
c. To assist preparers to develop accounting
about the continuance of an entity
policy when a Standard allows a choice of
c. Government and their agencies – it
an accounting policy.
requires information to regulate the
d. To assist all parties to understand and
activities of the entity, determine
interpret the IFRS Standard.
taxation policies and as a basis for
national income and similar statistics.
 Authoritative status of Conceptual
d. Public – to assist the public by
Framework
providing information about the
1. If there is a standard that specifically
trend and the range of its activities.
applies to a transaction, then it overrides
(reject) the Conceptual Framework.
 Scope of Revised Conceptual Framework
2. In the absence of standard, the
1. Objective of Financial Reporting
management shall consider the
2. Qualitative Characteristics
applicability of the Conceptual
3. Financial Statement and Reporting entity
Framework.
4. Elements of Financial Statement
3. The requirements of the IFRS shall prevail
5. Recognition and derecognition
over the Conceptual Framework.
6. Measurement
7. Presentation and disclosure
 Users of Financial Information
 Primary Users – parties whom general Objective of Financial Reporting
purpose financial reports are primarily
directed. The overall objective of financial reporting is to
a. Existing and Potential Investors – provide financial information about the reporting
they concerned with the risk inherent entity that is useful to primary users in making
in and return provided by their decisions about providing resources to the
investment. entities.
 Conceptual Framework and Accounting Standard
Chapter Summary
*It encompasses also other information such as
financial highlights, summary of important
financial figures, analysis of financial statement
and significant ratios.
*It includes non-financial information such as
description of major products and a listing of
corporate officers and directors.
 Target Users
Management need not rely on general purpose
financial reports because it is able to obtain or
access additional financial information internally.
 Specific Objectives of Financial
Reporting
a. To provide information useful in making
decisions about providing resources to
the entity
b. To provide information useful in assessing
the cash flow prospects of the entity.
[Investors depends on the return that they expect
from an investment. While, creditors depend on
the principal and interest payments or other
return that they expect.]
*Financial Reporting should provide information
useful in assessing the amount, timing and
uncertainty of prospects for future net cash
inflows to the entity,
c. To provide information about entity
resources, claims, and changes in
resources and claims.
 Economic Resources and claims
[Provide information about financial position
of reporting entity. It comprises the assets,
liabilities and equity of an entity at a
particular moment in time.]
[Information about financial position can help
users to assess the entity’s liquidity, solvency,
and the need for additional financing.]
*Liquidity is the availability of cash in the
near future to cover currently maturing
obligations. (short-term)
*Solvency is the availability of cash over a
long term to meet financial commitments
when they fall due. (Long-term)
 Changes in economic resources and
claims
[It result from financial performance of an entity
that comprises revenue, expenses and net
income or loss for a period of time. It pertains to
the result of operation]
*It helps the users understand the return that the
entity has produced on the economic resources.
*It is useful in assessing the entity’s ability to
generate future cash inflows from operations.
 Accrual Accounting
Under accrual basis, the effects of transactions
and other events are recognized when they occur
(earned or incurred) and not as cash is received
or paid. It provides a better basis for assessing
past and future performance.
 Limitations of Financial Reporting
a. General Purpose financial reports do not
and cannot provide all the information
that primary user’s need.
b. It is not designed to show the value of an
entity but to help the primary user
estimate the value of the entity.
c. Intended to provide common information
to user and cannot accommodate every
request for information.
 Conceptual Framework and Accounting Standard
Chapter Summary
d. It is based on estimate and judgement
rather than exact depiction.
 Management Stewardship
Information about how efficiently and effectively
management has discharged its responsibility to
use the entity’s economic resources.
The information can be useful for assessing the
entity’s prospect for future net cash flows.
Chapter 3: Conceptual Framework (Qualitative
Characteristics)
Qualitative Characteristics
These are the qualities or attributes that make
financial accounting information useful to the
users.
 Fundamental Qualitative Characteristics
Information must be both relevant and faithfully
represented if it is to be useful.
*Application of Qualitative characteristics
1. Identify the transaction that has the potential
to be useful.
2. Identify the information about the transaction
that is most relevant and can be faithfully
represented.
3. Determine whether the information is available
Relevance
It is the capacity of the information to influence a
decision. Must be capable of making a difference
in the decision made by users.
It requires that the financial information should
be related or pertinent to the economic decision.
*Information that does not bear on an economic
decision is useless.
 Ingredients of Relevance
1. Financial information has predictive
value when it can help users increase the
likelihood of correctly or accurately
predicting or forecasting outcome of
events. (future value)
2. Financial information has confirmatory
value when it enables users confirm or
correct earlier expectations. (present
value)
 Materiality
When the items are not significant enough to
affect the evaluation, decision, and fairness of the
financial statements. It is a doctrine of
convenience.
*Materiality is a relativity when an item depends
on relative size rather than absolute size. What is
material for one entity may be immaterial for
another.
[As a general guide, an item is material if
knowledge of it could reasonably be affect or
influence the economic decision of the primary
users of the financial statements.]
Three important aspects:
a. Could reasonably be expected to
influence
(It insures that information capable of influencing
economic decision of the primary users shall be
included in the financial statements.)
b. Obscuring information
(The presentation of financial information not
readily understood or not clearly expressed.)
 Conceptual Framework and Accounting Standard
Chapter Summary
c. Primary users
(Investors and creditors.)
[Factors of Materiality]
*The size of the item in relation to the total of the
group to which the item belongs is taken into
account
*The nature of the item may be inherently
material because by its very nature it affects
economic decisions.
Faithful Representation
The actual effects of the transactions shall be
properly accounted for and reported in the
financial statements. Must match what really
existed or happened.
*Ingredients of Faithful Representation
 Completeness
It requires that relevant information should be
presented in a way that facilitates understanding
and avoids erroneous implications. It shall be
accompanied by notes to financial statements.
(The standard adequate disclosure means that all
significant and relevant information leading to
the preparation of financial statements shall be
clearly reported. They shall disclose a material
fact that significant enough to influence the
judgement of informed users.)
 Neutrality
To be neutral, the information contained the
financial statements must be free from bias and
fair. It should not favor one party to detriment of
another party. It encompasses principle of
fairness.
A. Prudence – the exercise of care and
caution when dealing with the
uncertainties in the measurement
process such that assets or income are
not overstated, and liabilities or expenses
are not understated.
B. Conservatism – when alternative exist,
the alternative which has the least effect
on equity should be chosen.
*Contingent loss – recognized as a provision if
the loss is probable and the amount can be
reliable measured.
*Contingent gain – not recognized but
disclosed only
(Anticipate no profit and provide for probable
and measurable loss.)
 Free from error
There are no errors or omissions in the
description of the phenomenon or transaction.
No errors have been made in selecting and
applying an appropriate process for developing
the estimate.
 Measurement Uncertainty
It can affect faithful representation if the level of
uncertainty in providing an estimate is high. As
long as the estimate is clearly and accurately
described and explained.
 Substance over form
The transactions and events are accounted in
accordance with their substance and not merely
their legal form.
*Example – when the lessee leased property from
the lessor.
 Conceptual Framework and Accounting Standard
Chapter Summary
(In form – it stated that the property is being
lease but in substance if the transfer of
ownership is provision to be considered but
installment purchase of an asset. Then, the lessee
shall classify the asset as right to use of an asset
and a liability.)
 Enhancing Qualitative Characteristics
It is intended to increase the usefulness of the
financial information that is relevant and
faithfully represented.
Comparability
The ability to bring together for the purpose of
noting points of likeness and differences.
a. Comparability within the entity or
Intracomparability - allows comparison
from one accounting period to the next.
b. Comparability across the entity or
Intercomparability - allows comparison
between two or more entities engaged in
the same industry.
 Consistency
It is the uniform application of accounting
method from period to period within an entity
and between and across entities in the same
industry.
*Comparability is the goal and consistency helps
to achieve that goal.
Understandability
It requires that the financial information must be
comprehensible or intelligible if it is to be most
useful. Meaning, it is readily understandable by
users where they have an understanding about
complex economic activities.
Verifiability
It implies consensus where it is supported by
evidence so that it helps the user to assure that
the information represents the economic
phenomenon or transaction it purports to
represent.
*Direct Verification – verifying the amount or
other representations through direct observation.
*Indirect Verification – checking the inputs to a
model, formula or other technique and
recalculating the inputs using the same
methodology.
Timeliness
The financial information must be available or
communicated early enough when a decision is
to be made.
*What happened in the past would become the
basis of what would happen in the future.
 Cost constraints on useful
information
It is a consideration of the cost incurred in
generating financial information against the
benefit to be obtained from having the
information. It is a judgmental process.
*The benefit derived from the information should
exceed the cost incurred in obtaining the
information.
Chapter 4: Conceptual Framework (Financial
Statements and Reporting Entity Underlying
Assumptions)
Financial Statements and Reporting Entity
Financial Statements
General Objectives
 Conceptual Framework and Accounting Standard
Chapter Summary
It provides financial information about an entity’s
asset, liabilities, equity, income, and expenses
useful to user of financial information in:
a. Assessing future cash flows to the
reporting entity
b. Assessing management stewardship of
the entity’s economic resources
*Financial Information
1. Financial Position or Balance Sheet
2. Income Statement
3. Statement of Cash Flows
4. Statement of Changes in Equity
5. Notes to Financial Statements
 Types of Financial Statements
 Consolidated Financial Statements
It is prepared when the reporting entity
comprises both the parent and its subsidiaries.
*The parent is the entity that exercise control
over the subsidiaries (primary user).
- It is useful to the primary user because the net
cash inflow to the parent includes distribution to
the parent from its subsidiaries.
 Unconsolidated Financial Statements
It is prepared when the reporting entity is parent
alone.
*It is not sufficient to meet the requirement
needs of primary users
- It is useful to the primary users because the
claims against the parent typically does not give
the holder of that claim against subsidiaries.
 Combined Financial Statement
The reporting entity comprises two or more
entities that are not linked by a parent and
subsidiary relationship.
Reporting Entity
An entity that is required or chooses to prepare
financial statements.
a. Types of business organizations
b. Parent alone
c. The parent and subsidiaries as single
reporting entity
d. Two or more entities w/o parent and
subsidiaries
e. A reportable business segment of an
entity.
 Reporting Period
It may be prepared on an interim basis, 3 or 6 or
9 months.
*Financial statements must be prepared on an
annual basis or a period of 12 months.
 Underlying Assumptions
It serves as the foundation or bedrock of
accounting in order to avoid misunderstanding
but rather enhance the understanding and
usefulness of the financial statements.
 Going Concern
The entity will continue in operations for the
foreseeable future. It is the foundation of cost
principle where the measurement of certain asset
at fair value.
 Accounting Entity
 Conceptual Framework and Accounting Standard
Chapter Summary
The entity is separate from the owners,
managers, and employees who constitute the
entity.

*Each business is an independent accounting

entity.

 Time Period

It requires that the indefinite life of an entity is

subdivided into accounting periods which are
usually of equal length for the purpose of
preparing financial reports.

*It may be calendar year or fiscal year

 Monetary unit

Quantifiable – means the elements of the

financial statements should be stated in terms of
a unit of measure which is peso in the Philippines.

Stability of the peso – the purchasing power of

the peso is stable or constant and that its
instability is insignificant and therefore may be
ignored.

*The accounting function is to account for

nominal pesos only and not for constant peso or
changes in purchasing power.
 Conceptual Framework and Accounting Standard
Chapter Summary

Chapter 8: Presentation of Financial Statements

(PAS 1) Statement of Financial Position

Financial Statements c. The fact that amounts presented in the

 The means by which the information financial statements are not entirely
accumulated and processed in financial comparable.
accounting is periodically communicated
to the users. Statement of Financial Position
 A statement of financial position is a
General Purpose Financial Statements formal statement showing the three
 It is directed to all common users and not elements comprising financial position,
to specific users. namely assets, liabilities and equity.

 Components of Financial Statements  Classification of Asset

1. Statement of Financial Position 1) Current Asset (Pas 1, paragraph 66)
2. Income Statement a. The asset is cash or cash equivalent
3. Statement of Comprehensive Income unless the asset is restricted to settle
4. Statement of Changes in Equity liabilities for more than twelve months
5. Statement of Cash Flows after the reporting period.
6. Notes , comprising a summary of b. The entity holds the asset primarily for
significant accounting policies the purpose of trading.
c. The entity expects to realize the asset
Objective of financial statements within twelve months after the reporting
period.
To meet this objective, financial statements
d. The entity expects to realize the asset or
provide information about following:
intends to sell or consume it within the
a. Assets entity’s normal operating cycle.
b. Liabilities 2) Non-Current Assets
c. Equity  An entity shall classify all other assets not
d. Income and Expense, including gains and classified as current as noncurrent.
losses. a) Property, plant, and equipment
e. Contribution by and distributions to  Tangible assets which are held by an
owners in their capacity as owners. entity for use in production or supply of
f. Cash Flows good or service, for rental to others, or
for administrative purposes, and are
Frequency of Reporting expected to be used during more than
one period.
a. The period covered by the financial
b) Long-Term Investment
statements.
 an asset held by an entity for the
b. The reason for using a longer or shorter
accretion of wealth through capital
period.
 Conceptual Framework and Accounting Standard
Chapter Summary
distribution such as interest, royalties,
dividends, and rentals.
c) Intangible Asset
 Identifiable nonmonetary asset without
physical substance. Example, patent,
franchise, copyright, lease right,
trademark, and computer software.
 Example of an unidentifiable intangible
asset is goodwill.
d) Other noncurrent assets
 Example of other noncurrent assets
include long-term advances to officers,
directors, shareholders, and employees,
or abandoned property and long-term
refundable deposit.
 Classification of Liabilities
1.) Current Liabilities (PAS 1, paragraph 69)
a. The entity expects to settle the liability
within the entity normal operating cycle.
b. The entity holds the liability primarily for
the purpose of trading.
c. The liability is due to be settled within the
twelve after the reporting period.
d. The entity does not have a right to defer
settlement the liability for at least twelve
months after the reporting period.
2.) Non-Current Liabilities
a. Noncurrent portion of long-term debt
b. Finance lease liability
c. Deferred Tax Liability
d. Long-Term obligations to company
officers.
e. Long-term deferred revenue.
 Definition of Equity
 The residual interest in the assets of the
entity after deducting all of its liabilities.
a. Owner’s Equity in a proprietorship
b. Partner’s equity in a partnership
c. Stockholders’ equity or shareholders’
equity in a corporation.
a) Currently maturing long-term debt
- The original term was for a period
longer than twelve months.
- An agreement to refinance or to
reschedule payment on a long-term
basis is completed after the reporting
period and before the financial
statements are authorized for issue.
b) Covenants
 Actually restrictions on the borrower as
to undertaking further borrowings,
paying dividends, maintaining specified
level of working capital and so forth.
*PAS 1, paragraph 74, provides that the liability is
classified as current even if the lender has
agreed, after the reporting period and before the
statements are authorized for issue, not to
demand payment as a consequence of the breach
*Paragraph 75 provides that the liability is
classified as noncurrent if the lender has agreed
on or before the end of the reporting period to
provide a grace period ending at least twelve
months after the end of reporting period.
 Philippine Terms
- Capital Stock
- Subscribed Capital Stock
- Preferred Stock
- Common Stock
- Additional paid capital
- Retained Earnings (deficit)
- Retained Earnings appropriated.
- Revaluation Surplus
- Treasury Stock
 IAS Term
- Share Capital
- Subscribed Share Capital
- Preference Share Capital
- Ordinary Share Capital
- Share Premium
- Accumulated profits (losses)
 Conceptual Framework and Accounting Standard
Chapter Summary
- Appropriation Reserve
- Revaluation Reverse
- Treasury Share
 Notes to Financial Statements
 Notes to Financial Statements provide
narrative description or disaggregation of
items presented in the financial
statements and information about items
that do not qualify for recognition.
 The purpose of the notes is to provide
the necessary disclosure required by
PFRS.
 Forms of Statement Financial Position
a. Report Form – The major sections
downward sequence of assets, liabilities,
and equity.
b. Account Form – the asset shown on the
left side and the liabilities and equity is
on the right side.
*PAS 1, paragraph 57, provides that the standard
does not prescribe the order or format in which
items are to be presented in the statement of
Financial Position.
Chapter 9: Presentation of Financial Statement
Income Statement (PAS 1)
Income Statement
 A formal statement showing the financial
performance of an entity for a given
period of time.
 Results of operation
 Sources of Income
a. Sales of merchandise to customers
b. Renders of services
c. Use of entity resources
d. Disposal of resources other than products
 Components of Expense
- Cost of good sold or cost of sales
- Distribution cost or selling expense
- Administrative Expense
- Other Expenses
- Income Tax Expense
 Classification of Expense
a) Distribution
a. Salesman’s salaries
b. Salesman’s commissions
c. Traveling and marketing expenses
d. Advertising and publicity
e. Freight out
f. Depreciation of delivery equipment and
store equipment.
 No more Extraordinary Items
 PAS 1, paragraph 87, specifically
mandates that an entity shall not
present any items of income and
expense as extraordinary either on
the face of the income statement or
statement comprehensive.
 Forms of Income Statement
 PAS 1, paragraph 99, provides that an
entity shall present an analysis of
expenses using a classification based
on either the function of expense or
their nature within the entity,
whichever provides information that
is reliable and more relevant.
A) Functional Presentation
 The functional presentation classifies
expenses according to their function
as part of cost of goods sold,
distribution costs, administrative
expenses and other expenses.
B) Natural Presentation
 Conceptual Framework and Accounting Standard
Chapter Summary
 Expenses are aggregated according to
their nature and not allocated among
the various functions within the
entity.
 Which form of income statement?
 Paragraph 105 simply states that
because each method presentation
has merit for different types of
entities management is required to
select the presentation that is reliable
and more relevant.
A) Comprehensive Income
 Comprehensive income is the change
in equity during a period resulting
from transactions and other events,
other than changes resulting from
transactions with owners in their
capacity as owners.
Profit and Loss
The term profit or loss is the total of income less
expenses excluding the components of other
comprehensive income.
Other Comprehensive Income (OCI)
1. Unrealized gain or loss on equity
investment measured at fair value
through other comprehensive income.
2. Unrealized gain or loss on debt
investment measured at a fair value
through other comprehensive income
3. Gain or Loss from translation of the
financial statements of a foreign
operation.
4. Revaluation surplus during the year.
5. Unrealized gain or loss from derivative
contracts designated as cash flow hedge.
6. Remeasurements of defined benefit plan,
including actuarial gain or loss.
7. Change in fair value attributable to credit
risk of a financial liability designated at
fair value through profit or loss.
 Statement of Comprehensive Income
 The purpose of this statement is to
provide a more comprehensive
information on financial performance
measured more broadly than the
income as traditionally computed.
Chapter 10: Statement of Cash Flows
PAS 7
Statement of Cash Flows
 It is a component of financial
statements summarizing the
operating, investing and financing
activities of an entity.
 The primary purpose of a statement
of cash flows is to provide relevant
information about cash receipts and
cash payments of an entity during a
period.
 Cash and Cash Equivalent
a) Cash – comprises cash on hand and
demand deposits.
b) Cash Equivalent – short-term highly
liquid investment that are readily
convertible to known amount of cash and
which are subject to an insignificant risk
of change in value.
*PAS 7, paragraph 7, provides that an investment
normally qualifies as a cash equivalent only when
it has a short maturity of three months or less
from date of acquisition.
 Classification of cash flows
a) Operating Activities
 Conceptual Framework and Accounting Standard
Chapter Summary
 Operating Activities are the cash flows
derived primarily from the principal
revenue producing activities of the entity.
 Cash receipts and Cash payments
b) Investing Activities
 The cash flows derived from the
acquisition and disposal of long-term
assets and other investment not included
in cash equivalent.
 Cash payment to acquire ppe and cash
receipts from the sale of ppe
c) Financing Activities
 The cash flows derived from the
equity capital and borrowing of the
entity.
a. Between the entity and the owners –
equity financing
b. Between the entity and creditors – debt
financing
flows because such items enter into
the determination of net income or
loss.
b) Dividends Received
 PAS 7, paragraph 33, provide that
dividend received shall be classified
as operating cash flow because it
enters into the determination of net
income.
c) Dividend Paid
 PAS 7, paragraph 33, provides that
dividend paid shall be classified as
financing cash flow because it is a
cost of obtaining financial resources.

 Noncash Transaction
 Noncash investing and financing
transactions shall be disclosed only
either in the notes to financial
statements or in a separate schedule
or in a way that provides all relevant
information about these transactions.

a. Acquisition of asset by issuing share capital

b. Acquisition of asset by issuing bonds payable

c. Conversion of bonds payable into share capital

d. Conversion of preference shares into ordinary

shares

a) Interest paid and interest received

 PAS 7, paragraph 33, provides that
interest paid and interest received
shall be classified as operating cash
Conceptual Framework and Accounting Standard
Chapter Summary