PAS 1 Presentation of Financial Statements

8. Consistency of Presentation
FINANCIAL STATEMENTS - are the means by which - Presentation and classification of financial
information accumulated and processed in financial statement items shall be uniform from one
accounting is communicated to the users; structured financial reporting period to the next.
representation of the financial position and financial COMPONENTS OF FINANCIAL STATEMENTS
performance of an entity
1. Statement of financial position
“General purpose” financial statements are statements that Formal statement showing the three elements
have been prepared for use by those who are not in a comprising financial position, namely assets, liabilities
position to require an entity to prepare reports tailored to and equity.
their particular needs.
Presentation of statement of financial position:
OBJECTIVE OF FINANCIAL STATEMENTS a. Classified – shows distinctions between current and
To provide information about the financial position, noncurrent assets and current and noncurrent liabilities
financial performance, and cash flows of an entity that is b. Unclassified – also called based on liquidity, shows no
useful to a wide range of users in making economic decisions. distinction between current and noncurrent items

GENERAL FEATURES of Financial Statements ASSET

1. Fair Representation and Compliance with PFRS Resource controlled by the entity as a result of past
- Faithful representation; requires an entity to select events and from which future economic benefits are
and apply accounting policies in accordance with expected to flow the entity.
PFRS to present information in a manner that
provides relevant, reliable, comparable, and Essential characteristics of an asset
understandable information, and to provide
additional disclosures necessary for the users to 1. The asset is controlled by the entity
understand the entity’s financial position and 2. The asset is the result of a past transaction or event.
financial performance. 3. The asset provides future economic benefits
2. Going Concern 4. The cost of the asset can be measured reliably.
- Entity is viewed as continuing in operation
indefinitely. If financial statements are not Operating Cycle – time between the acquisition of assets for
prepared on a going concern basis, this fact shall be processing and their realization in cash or cash equivalents.
disclosed together with the measurement basis and
reason therefor. Classifications of asset
3. Accrual Basis of Accounting
- All financial statements shall be prepared using the CURRENT ASSETS
accrual basis of accounting except for the PAS 1 paragraph 66 provides that an entity should
statement of cash flows which is prepared using classify asset as current asset when:
cash basis.
4. Materiality and Aggregation a. The asset is cash or cash equivalent unless the asset is restricted
- An entity shall present separately each material from being exchanged or used to settle a liability for at least 12
class of similar items. “Line items” is a class of months after the reporting period.
similar items. Dissimilar items are presented b. The entity holds the asset primarily for the purpose of trading.
separately unless they are immaterial. Individually c. The entity expects to realize the asset within twelve months
immaterial items are aggregated with other items. after the reporting period.
5. Offsetting D. the entity expects to realize the asset or intends to use or
- Assets and liabilities, and income and expenses, consume it within the entity’s operating cycle.
when material, shall not be offset against each
other. Offsetting may be done when it is permitted PAS 1 paragraph 54, the line items under current assets are (listed
by another PFRS. in order of liquidity):
6. Frequency of Reporting
- Financial statements are prepared at least annually. A. cash and cash equivalents
When an entity changes the end of its reporting B. financial assets at fair value such as trading securities and
period and presents financial statements for a other investments in quoted equity instruments.
period longer or shorter than one year, an entity C. trade and other receivables
shall disclose: D. inventories
a. The period covered by the financial E. prepaid expenses
statements
b. The reason for using a longer or shorter NONCURRENT ASSETS
period PAS 1 paragraph 66 states that an entity shall classify all
c. The fact that amounts presented in the other assets not classified as current as noncurrent.
financial statements are not entirely
comparable NONCURRENT ASSETS include
7. Comparative Information
- Financial statements shall be presented with A. PROPERTY, PLANT AND EQUIPMENT
comparative figures of the financial statements of PAS 16 paragraph 6, tangible assets which are held by
the preceding year. an entity for use in production or supply of goods and services, for
 Retrospective – looking back; Prospective – looking rental to others, or for administrative purposes, and are expected
forward and in the future to be used during more than one period.
B. LONG-TERM INVESTMENTS The holders of instruments classified as equity are
IASC defines investment as an asset held by an entity OWNERS.
for the accretion of wealth through capital distribution, such as
interest, royalties, dividends and rentals, for capital appreciation SHAREHOLDER’S EQUITY
or for other benefits to the investing entity such as those obtained Is the residual interest of owners in the net assets of a
through trading relationships. corporation measured by the excess of assets over liabilities.

C. INTANGIBLE ASSETS
An identifiable nonmonetary asset without physical PHILIPPINE TERM IAS TERM
substance (PAS 38). Capital Stock Share Capital
Subscribed Capital Stock Subscribed Share Capital
D. DEFERRED TAX ASSETS Preferred Stock Preference Share Capital
Common Stock Ordinary Share Capital
E. OTHER NONCURRENT ASSETS Additional Paid In Capital Share Premium
Assets that do not fit in the definition of noncurrent Retained Earnings (deficit) Accumulated Profits (Losses)
assets. Retained Earnings Appropriated Reserve
Appropriated
 Asset valuation accounts are neither assets nor Revaluation Surplus Revaluation Reserve
liabilities.
Treasury Stock Treasury Share
LIABILITY
Present obligation of an entity arising from past events, NOTES TO FINANCIAL STATEMENTS
the settlement of which is expected to result in an outflow from
the entity of resources embodying economic benefits. Provide narrative description or disaggregation of items
presented in the financial statements and information about items
Essential characteristics of a liability that do not qualify for recognition.

a. The liability is the present obligation of a particular entity. Purpose: to provide the necessary disclosures required by PFRS.
b. The liability arises from past transaction or event.
C. the settlement of the liability requires an outflow of resources FORMS OF FINANCIAL POSITION
embodying economic benefits.
A. REPORT FORM
CURRENT LIABILITIES This form sets form the three major sections in a downward
PAS 1 paragraph 69 provides that an entity should sequence of assets, liabilities and equity.
classify a liability as current when:
B. ACCOUNT FORM
A. The entity expects the liability to settle within the entity’s The assets are shown on the left side and the liabilities and equity
normal operating cycle. on the right side of the balance sheet.
B. the entity holds the liability primarily for the purpose of trading.
C. the liability is due to be settled within 12 months after the PAS 1, paragraph 54, balance sheet line items
reporting period.
D. the entity does not have an unconditional right to defer 1. Cash and cash equivalents
settlement of the liability for at least 12 months after the 2. Financial assets
reporting period. 3. Trade and other receivables
4. Inventories
PAS 1 paragraph 54, the line items under current liability are: 5. Property, plant and equipment
6. Investment in associates accounted for by the equity method
a. Trade and other receivables 7. Intangible assets
B. current provisions 8. Investment property
c. Short term borrowing 9. Biological asset
D. current portion of long term debt 10. Total assets classified as held for sale and assets included in
E. current tax liability disposal group classified as held for sale
11. Trade and other payables
NONCURRENT LIABILITIES 12. Current tax liabilities
PAS 1 paragraph 69 states that an entity shall classify all 13. Deferred tax asset and deferred tax liability
liabilities not classified as current are classified as noncurrent. 14. Provisions
15. Financial liabilities
A. noncurrent portion of a long term debt 16. Liabilities included in disposal group classified as held for sale
B. finance lease liability 17. Noncontrolling assets
C. deferred tax liability 18. Share capital and reserves
D. long term obligations to company officers
E. long term deferred revenue. PAS 1, paragraph 60, provides that an entity shall present current
and noncurrent assets, liabilities on the face of the statement of
EQUITY financial position.
Residual interest in the assets of the entity after
deducting all of its liabilities.
Working Capital – current assets less current liabilities

PAS 1 paragraph 7
2. Statement of comprehensive income This is the combined statement showing the
components of profit or loss and components of other
COMPREHENSIVE INCOME comprehensive income in a single statement.
The change in equity during a period resulting from
transactions and other events, other than changes resulting from 3. Income statement
transactions with owners in their capacity as owners.
A formal statement showing the financial performance of an
Includes: entity for a given period of time.
A. components of profit or loss
SOURCES OF INCOME
Profit or loss
The total income less expenses, excluding the A. Sales of merchandise to customers
components of other comprehensive income. B. Rendering of services
C. Use of entity resources
B. components of other comprehensive income D. Disposal of resources other than products

OTHER COMMPREHENSIVE INCOME COMPONENTS OF EXPENSE

Comprises items of income and expenses including
reclassification adjustments that are not recognized in profit or A. Cogs or cos
loss as required or permitted by PFRS. B. Distribution costs or selling expenses
C. Administrative expenses
Components: D. Other expenses
E. Income tax expense
A. OCI that will be reclassified subsequently to profit or loss when
specific conditions are met. DISTRIBUTION COSTS constitute costs which are directly related
to selling, advertising and delivery of goods to customers.
1. Unrealized gain or loss on equity investment
measured at fair value through other comprehensive ADMINISTRATIVE EXPENSES constitute cost of administering the
income. business. These ordinarily include all operating expenses not
2. unrealized gain or loss on debt investment measured related to selling and cost of goods sold.
at fair value through other comprehensive income.
3. Gain or loss from translation of the financial OTHER EXPENSES are those expenses which are not directly
statements of a foreign operation. related to the selling and administrative function.

B. OCI that will not be reclassified subsequently to profit or loss PAS 1 paragraph 87
An entity shall not present any items of income and
4. revaluation surplus during the year. expense as extraordinary items, either on the face of the income
5. Unrealized gain or loss from derivative contracts statement or the statement of comprehensive income or in the
designated as cash flow hedge. notes.
6. “remeasurements” of defined benefit plan, including PAS 1 paragraph 82, Income statement and statement of
actuarial gain or loss. comprehensive income line items.
7. Change in fair value attributable to credit risk of a
financial liability designated at fair value through profit A. Revenue
or loss. B. Gain and loss from the derecognition of financial asset
measured at amortized cost as required by PFRS 9
Presentation of other comprehensive income C. Finance Cost
D. Share in income or loss of associate and joint ventures
PAS 1 paragraph 82A, provides that the statement of accounted for using equity method
comprehensive income shall present line items for amounts of E. Income tax expense
other comprehensive income during the period classified by F. A single amount comprising discontinued operations
nature. G. Profit or loss for the Period
H. Total Other Comprehensive income
The line items for amounts of OCI shall be grouped as follows. I. Comprehensive incoe for the period being the total of profit or
loss and other comprehensive income.
PRESENTATION OF COMPREHENSIVE INCOME
The following items shall be disclosed on the face of the income
1. TWO STATEMENTS statement and statement of comprehensive income:

A. An income statement showing the components of A. profit or loss for the period attributable to
profit or loss. noncontrolling interest and owners of the parent
B. A statement of comprehensive income beginning
with profit or loss as shown in the income B. total comprehensive income for the period
statement plus or minus the components of other attributable to noncontrolling interest and owners of the parent.
comprehensive income

2. SINGLE STATEMENT OF COMPREHENSIVE INCOME

FORMS OF INCOME STATEMENT

PAS 1 paragraph 99. An entity shall present an analysis of

expenses recognized in profit or loss using in classification based
on either the function of expenses or their nature within the
entity, whichever provides information that is more reliable and
more relevant.

2 ways to present an income statement

1. FUNCTIONAL PRESENTATION/COST OF SALES METHOD

This form classifies expenses according to their function
as part of cost of sales , distribution costs, administrative
activities and other activities.

2. NATURAL PRESENTATION/NATURE OF EXPENSE

METHOD
Expenses are aggregated according to their nature and
not allocated among the various functions within the
entity.

PAS 1 paragraph 105

Because each presentation has merit for different types
of entities, management is required to select the presentation
that is reliable and more relevant.

STATEMENT OF RETAINED EARNINGS

Shows the changes affecting directly the retained

earnings of an entity and relates the income statement to the
statement of financial position.

Should be disclosed in the statement of 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

4. Statement of changes in equity

Shows the movements in the elements or components
of the shareholders equity

5. Statement of cash flows

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

6. Notes, comprising a summary of significant accounting

policies and other explanatory notes