chapter 9

Presentation Of Financial Statements

STATEMENT OF
COMPREHENSIVE INCOME

Trina Mae N. Garcia

2 BSA-1
 INCOME STATEMENT
• A formal statement showing financial performance of an entity for a given period of time.

• The financial performance of an entity is primarily measured in terms of the level of income
earned by an entity through the effective and efficient utilization of it's resources.

• Transaction Approach is the traditional preparation of the income statement in

conformity with accounting standards.

• The income statement for a period presents the income, expenses, gains, losses, and net income or
loss recognized during the period.

• Information about financial performance is useful in predicting future performance and ability to
generate future cash flows
 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.

• Accordingly, comprehensive income includes:

• a. Components of profits or loss
• b. Components of other comprehensive income
 PROFIT OR LOSS
• The term profit or loss is the total of income less expenses, excluding the
components of the other comprehensive income.

• In other words, this is the "button line" in the traditional income statement.

• An entity may use " net income" or "net loss" to describe profit or loss.
•
OTHER COMPREHENSIVE INCOME
A comprises items of income and expenses including reclassification adjustments that are not
(OCI)
recognized in profit or loss as required or permitted by Philippine Financial Reporting Standards.

• COMPONENTS OF "OTHER COMPREHENSIVE INCOME

• 1. Unrealized gain or loss on equity investment measured at fair value thought OCI.
• 2. Unrealized gain or loss on debt investment measured at fair value thought OCI.
• 3. Gain or loss 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 hedges
• 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.
 PRESENTATION OF THE OTHER
COMPREHENSIVE INCOME
• Statement of comprehensive income shall present line items for amounts of the other
comprehensive income during the period classified by nature.
The line items for amounts of OCI shall be grouped as follows:
a. OCI that will be reclassified subsequently be to profit or loss when specific condition are met.
b. OCI that will be reclassified subsequently to profit or loss but to retained earnings.

OCI that will be reclassified to profit or loss

a.Unrealized gain or loss on debt investment measured at fair value thought OCI.
b. Gain or loss translation of the financial statements of a foreign operation
c. Unrealized gain or loss from derivative contracts designated as cash flow hedges
 OCI that will be reclassified to retained
earnings

a. Unrealized gain or loss on equity investment measured at fair value thought

OCI.
b. Revaluation surplus during the year.
c. "Remeasurements" of defined benefit plan, including actuarial gain or loss.
d. Change in fair value attributable to credit risk of a financial liability
designated at fair value through profit or loss.
Presentation of comprehensive income

• An entity has two options of presenting comprehensive income:

1. Two statements:
a. An income statement showing the components of profit or loss.
b. A statement of comprehensive income beginning with profit or loss as shown in the
income statement plus or minus the components of OCI.

2. Single statement of comprehensive income

Sources of income
a. Sales of merchandise to customers
b. Rendering of services
c. Use of entity resources
d. Disposal of resources other than
products.
Components of expense
a. Cost of goods sold or cost of sales
b. Distribution costs or selling expenses
c. Administrative expenses
d. Other expenses
e. Income tax expenses
• COST OF GOODS SILD OF • COST OF GOODS SOLD OF MANUFACTURING
MERCAHNSING CONCERN CONCERN
Beginning raw materials
Net purchases
Beginning inventory
ADD: Net Purchases Raw materials available for use
Ending raw materials

Goods available for sales Raw materials used

Ending inventory Direct labor
Factory overhead

Cost of goods sold Total manufacturing cost

Beginning goods in process
Gross purchases
Total cost of goods in process
ADD: Freight in Ending goods in process
Total
Cost of goods manufactured
LESS: Purchase return, allowances, and discounts
Beginning finished goods

Net Purchases Goods available for sale

Ending finished goods

Cost of goods sold

 CLASSIFICATION OF EXPENSES

• Distribution costs constitute cost which are directly related to selling, advertising and
delivery of goods to customers.

• Administrative cost constitute cost of administering the business. Administrative expenses

ordinarily include all operating expenses not related to selling and cost of goods sold

• Other expenses are those expenses which are not directly related to selling and
administrative function.
a. Revenue
LINE ITEMS
b. Gain or loss from the derecognition of financial assets measured at amortized cost as required by PFRS 9.
c. Finance cost
d. Share in income or loss of associate and joint venture accounted for using the equity method.
e. Gain or loss on the reclassification of financial assets from amortized cost to fair value profit or loss.
f. Gain or loss on the reclassification of financial assets from fair value other comprehensive income to fair
value profit or loss
g. Income tax expense
h. A single amount comprising discounted operations
i. Profit or loss for the period
j. Total other comprehensive income
k. Comprehensive income for the period being the total of profit or loss and other comprehensive income.
 FORMS OF INCOME STATEMENT
1. Functional presentation
- is also known as the cost of goods sold method.
- This form classifies expenses according to their functions as part of cost of goods sold, distribution
costs, administrative expenses and other expenses.

2. Natural presentation
- is referred to as the nature of expense method.
- The expenses are no longer classified as cost of goods sold, distribution costs, administrative expenses
and other expenses.
- The expenses which are of the same nature are grouped or aggregated and presented as one item.
 FORMS OF INCOME STATEMENT
1. Statement of comprehensive income
- starts with the profit or loss as shown in the income statement plus or minus the
components of other comprehensive.

2. Single statement of comprehensive income

- is the combined income statement and statement of comprehensive income.
STATEMENT OF RETAINED EARNINGS

• Statement of retained earnings

• - shown the changes affecting directly the retained earnings of an entity and relates the income statement to
the statement if financial position.

• Important data affecting retained earnings

• a. Profit or loss for the period
• b. Prior period errors
• c. Dividends declared and paid to shareholders.
• d. Effect of change in accounting policy
• e. Appropriation of retained earnings
 STATEMENT OF CHANGES IN EQUITY
- is a basic statement that shows the movements in the elements or component of the shareholders'
equity.
- is no longer a required basic statement but it is a part of the statement of change in equity

An entity shall present a statement of change in equity showing the following:

1. Comprehensive income for the period
2. For each components of equity, the effects of changes in accounting policies and corrections of errors.
3. For each components of equity, a reconciliation between the carrying amount of at the beginning and
end of the period, separately disclosing changes from:
a. Profit or loss
b. Each item of other comprehensive income
c. Transaction with owner in their capacity as owners showing separately contribution by and distribution
to owners.
 STATEMENT OF CASH FLOWS

-is a basic components of the financial statements which

summarizes the operating, investing and financing
activities of an entity.