GENERAL PURPOSE

FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
INCOME STATEMENT
is a formal statement showing the financial performance or results of
the operation of an entity for given period of time.
its presents the income, expenses, gains and 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 - 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 profit of loss
b. Components of Other Comprehensive Income (OCI)
PROFIT OR LOSS
The term “profit or loss” is the total income less expenses,
excluding the components of other comprehensive income. This is the
“bottom line” in the traditional income statement. An entity may use
“net income” or “net loss” to describe profit or loss.
OTHER COMPREHENSIVE INCOME (OCI)
- Items of income and expenses including reclassification adjustments that are not
recognized in profit or loss as required or permitted by Philippine Financial Reporting
Framework.
COMPONENTS OF OTHER COMPREHENSIVE INCOME:
1. Unrealized gain or loss on equity investment measured at fair value through OCI
2. Unrealized gain or loss on debt investment measured at fair value through OCI
3. Gain or loss from translating 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. Remeasurement of defined benefit plan, such as actuarial gain/loss, the
difference between actual return on plan assets and interest income on fair value of
plan asets, and change in the effect of the asset ceiling
7. Gain or loss attributable to credit risk of a financial liability designated at FVPL
Components of OCI that will be reclassified subsequently to profit or
loss when specific conditions are met:
1. Unrealized gain or loss on debt investment measured at fair
value through OCI

2. Gain or loss from translating the financial statements of a

foreign operation

3. Unrealized gain or loss from derivative contracts designated as

cash flow hedge
Components of OCI that will not be reclassified subsequently to
profit or loss, but subsequently reclassified to equity account or
retained earnings account when certain conditions are met:
1. Unrealized gain or loss on equity investment measured at fair
value through OCI
2. Revaluation surplus during the year
3. Remeasurement of defined benefit plan, such as actuarial
gain/loss, the difference between actual return on plan assets and
interest income on fair value of plan asets, and change in the effect
of the asset ceiling
4. Gain or loss attributable to credit risk of a financial liability
designated at FVPL
Comprehensive Income is not carried to Retained Earnings. Only the
Net Income is included in the determination of retained earnings
unappropriated.

The net OCI is carried to “reserves” or shown separately in the

statement of changes in equity.
An entity provided the following figures for the current year:
Sales 1,000,000 Sales return 20,000
Beginning inventory 200,000 Sales discount 15,000
Purchases 500,000 Purchase returns 20,000
Purchase discounts 10,000 Ending Inventory 200,000
Operating expenses 100,000 Admin expenses 20,000
Finance cost 20,000  

How much is the net income?

Unrealized gain equity investment – FVOCI 500,000
Unrealized or loss on debt investment FVOCI 150,000
Gain from translating the financial statements of a foreign operation 200,000
Revaluation surplus during the year 100,000
Unrealized loss from derivative contracts designated as cash flow hedge 200,000
Loss attributable to credit risk of a financial liability designated at FVPL 50,000
Actuarial gain on defined benefit plan 10,000

1. How much is the OCI?

2. What amount of OCI that can be reclassified to profit/loss?
3. What amount of OCI that cannot be reclassified to profit/loss?
 An entity provided the following net of tax figures for the current year:
Net income 7,700,000
Net remeasurement loss on defined benefit plan 300,000
Unrealized gain on available for sale securities 1,500,000
Reclassification adjustment for gain on sale of available
for sale securities included in net income 250,000
Share warrants outstanding 400,000
Cumulative effect of change in accounting policy-credit 500,000
Interest revenue 100,000
Equity in associate’s earnings 300,000
Prior period error – underdepreciation 200,000
 What is the net amount of other comprehensive income?
Answer: 950,000
What is the comprehensive income for the current year?
Answer: 8,650,000
Maria Company provided the following information for the current year:

Income from continuing operations 4,000,000

Income from discontinued operation 500,000
Unrealized gain on financial asset – FVPL 800,000
Unrealized loss on equity investment – FVOCI 1,000,000
Unrealized gain on debt instrument – FVOCI 1,200,000
Unrealized gain on futures contract designated as cash flow hedge 400,000
Translation loss on foreign operation 200,000
Net remeasurement gain on defined benefit plan during the year 600,000
Loss on credit risk of a financial liability designated at FVPL 300,000
Revaluation surplus during the year 2,500,000
STATEMENT OF CHANGES IN EQUITY
Statement of Changes in Equity
Is a basic statement that shows the movements in
the elements or components of the equity.
Sole Proprietorship:
Owner’s Equity, Beg. xx
Additional Investments xx
Net Income (Profit) xx
Net Loss (Loss) (xx)
Withdrawals (xx)
Owner’s Equity, End xx
Partnership
Partner’s Capital, beg. (Original Investment) xx
Share in Partnership Profits from Operations xx
Additional Investment by a partner xx
Permanent withdrawal of Capital (xx)
Share in Partnership Loss from Operations (xx)
Debit balance of drawing account closed
to capital (Temporary Drawings) (xx)
Partner’s Capital, end xx
Corporation:
Statement of Retained Earnings
It shows the changes affecting directly the retained earnings of an
entity and relates the income statement to the statement of financial
position.
Important data affecting the retained earnings that should be
clearly disclosed in the statement of retained earnings are:
a. Profit or loss of 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
Share Capital ReservesRetained Earnings
Beginning Bal. xx xx xx
Correction of errors xx(xx)
Change in acctg policy xx(xx)
Issuance of Shares xx xx
Comprehensive Income:
Net Income (loss) xx(xx)
OCI xx(xx)
Dividends declared/paid (xx)
Appropriations xx(xx) (xx)xx
Ending Balance xx xx xx(xx)
STATEMENT OF FINANCIAL POSITION
Statement of Financial Position
- a formal statement showing the three elements
comprising financial position namely asset, liabilities
and equity.
PAS 1, paragraph 60, provides that an entity shall
present current and noncurrent assets, and current
and noncurrent liabilities, as separate classifications
in the statement of financial position.
ASSETS
- “ a resources controlled by the entity as a result of past event
and from which future economic benefits are expected to flow to the
entity.” In short assets are properties owned.

ESSENTIAL CHARACTERISTICS OF AN ASSET ARE:

a. The asset is controlled by the entity
b. The asset is the result of a past event
c. The asset provides future economic benefits
d. The cost of the asset can be measured reliably.
PAS 1, paragraph 66, provides that an entity shall classify an asset as
current when:
a. The asset is cash or cash equivalent unless the asset is restricted from
being exchanged or used to settle a liability for at least twelve months
after the reporting period.
b. The entity holds the asset primarily for the purpose of trading
c. The entity expects to realize the asset within twelve months after the
reporting period
d. The entity expects to realize the asset or intends to sell or consume it
within the entity’s normal operating cycle.
PAS 1, paragraph 66, simply states that an entity shall classify all other
assets not classified as current as noncurrent assets.
LIABILITIES
- “ a present obligation of an entity arising from past event, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits.”
ESSENTIAL CHARACTERISTICS OF A LIABILITY
a. The liability is the present obligation of a particular entity. The entity
liable must be identified. It is not necessary that the payee or the entity to
whom the obligation is owed be identified.
b. The liability arises from past event. This means that the liability is not
recognized until it is incurred.
c. The settlement of the liability requires an outflow of resources
embodying economic benefits.
PAS 1, paragraph 69, provides that an entity shall classify a liability
as current when:
a. The entity expects to settle the liability within the entity’s normal
operating cycle.
b. The entity holds the liability primarily for the purpose of trading.
c. The liability 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.
PAS 1, paragraph 72, provides that a liability which is due to be settled within
twelve months after the end of reporting period is classified as current even if:
a. The original term was for a period longer than twelve months.
b. An agreement to refinance or to reschedule payment on a long-term basis is
completed after the end of the reporting and before the financial statements
are authorized for issue.
However, if the refinancing on a long-term basis is completed on or before the
end of the reporting period, the refinancing is an adjusting event an therefore
the obligation is classified as noncurrent.
PAS 1, paragraph 73, that if the entity has the discretion to refinance or roll
over an obligation for at least twelve months after the reporting period under
an existing loan facility, the obligation is classified as noncurrent when it would
be otherwise be due within a shorter period.
EQUITY
Is the residual interest of owners in the net
assets measured by the excess of assets over
liabilities.
STATEMENT OF CASH FLOWS
Statement of Cash Flows
Provides information about the cash receipts and cash
payments of an entity during a period. It is a formal
statement that classifies cash receipts(inflow) and cash
payments (outflows) into operating, investing and
financing activities.
Cash Flows from Operating Activities
Operating activities generally involve providing services, and
producing and delivering goods. Cash flows from operating
activities are generally the cash effects of transactions and
other events that enter into the determination of profit or loss.
This cash flow can be presented using either the direct method
or indirect method.
Cash flows from Operating Activities: DIRECT METHOD
Cash Inflows:
Receipts from sale of goods and performance of services xx
Receipts from royalties,fees,commissions and other revenues xx xx
Cash Outflows
Payments to suppliers of goods and services xx
Payment to employees xx
Payments for taxes xx
Payments for interest expense xx
Payments for other operating expenses xx (xx)
Net cash provided by (used in) operating activities xx
Cash flows from Operating Activities: INDIRECT METHOD
Net Income xx
Adjustments for:
Non-cash expenses (Depreciation) xx
Increase in current assets accounts (xx)
Decrease in current liability accounts (xx)
Decrease in current assets accounts xx
Increase in current liability accounts xx
Net cash provided by (used in) Operating activities xx
Cash flows from Investing Activities (Direct Method Only)
Cash inflows:
Receipts from sale of PPE xx
Receipts from sale of Investments (securities) xx
Receipts from collections on Notes Receivable xx xx
Cash outflows:
Payments to acquire PPE
Payments to acquire Investments (securities) xx
Payments to make loans to others generally
in the form of notes receivable xx (xx)
Net cash provided by (used in) investing activities xx(xx)
Cash flows from Financing Activities ( Direct Method Only)
Include obtaining resources from owners and creditors
Cash Inflows
Receipts from investments by owners xx
Receipts from issuance of notes payable xx xx
Cash Outflows
Payments to owners in the form of withdrawals xx
Payments to settle notes payable xx
Dividends Paid xx (xx)
Net cash provided by (used in) financing activities xx(xx)
• Identify the following activities if it is under OPERATING, INVESTING or
FINANCING activities.
• 1. Cash Payments to suppliers for goods and services. ___________
• 2. Cash receipt from sales of property, plant and equipment. ________________
• 3. Cash payments to acquire current and long term investments.
_______________
• 4. Cash paid for interest. ___________________
• 5. Cash received from dividends. _______________
• 6. Cash receipts from sales of goods and rendering of services. _______________
• 7. Cash Payments for amounts borrowed. ______________
• 8. Cash receipts from issuing shares of other equity instruments. _____________
• 9. Cash paid for dividends. ________________
• 10. Cash receipts from borrowings. _________________
NOTES TO FINANCIAL STATEMENTS
Notes to Financial Statements (PAS 1, p112)
a. Present information about the basis of preparation of the
financial statements and the specific accounting procedures
b. Disclose the information required by PFRS that is not
presented elsewhere in the financial statement
c. Provide additional information that is not presented on the
face of the financial statements but that is necessary for a fair
presentation.
The notes to financial statements are presented in the
following order:
a. Statement of compliance with PFRS
b. Summary of significant accounting policies used
c. Supporting information or computation for line items
presented in the financial statements
d. Other disclosures, such as contingent liabilities