Intermediate Accounting 3 https://www.youtube.

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OVERVIEW OF FINANCIAL STATEMENTS AND
STATEMENT OF FINANCIAL POSITION E. Learning Guide Questions:
1. What is the purpose of the General- Purpose
This module gives an overview of the framework of financial statements?
the Financial Statements and focuses on the 2. What are the components of a complete set of
presentation of the statement of financial position in financial statements?
3. When is an asset classified as current? As
accordance to PAS1 Presentation of the Financial
non-current?
Statements. 4. When is a liability classified as current? As
non-current?
Intended Learning Outcomes
5. How can debt refinancing affect the
classification of a liability?
Students should be able to meet the following
intended learning outcomes: Note: The insight that you will post on online discussion forum
 Explain the purpose of financial statements using Learning Management System (LMS) will receive additional
 Identify composition of a complete set of scores in class participation.
financial statements
 Identify and explain the general features of Offline Activities (e-Learning/Self-Paced)
financial statements and how they are
applied in the preparation and presentation Lecture Guide
of financial statements
 Prepare a properly classified statement of Related Standard: PAS1 Presentation of Financial
financial position and in accordance with the Statements
provisions of PAS 1.
Financial Statements
Targets/ Objectives
Financial statements are the structured
At the end of the lesson, students should be able to: representation of an entity’s financial position and
1. Enumerate and describe the components of a results of its operation. (PAS1.9)
complete set of financial statements.
2. Classify assets and liabilities into current and General purpose financial statements are those
noncurrent intended to meet the needs of users who are no in a
3. Prepare a statement of financial position position to require to prepare reports tailored to
their particular information needs (PAS 1.7)
Online Activities (Synchronous/
Asynchronous)
Purpose of Financial Statements
A. Online Discussion via Google Meet
1. Primary objective: To provide information
You are encouraged to attend a 1-hour class about the financial position, financial
discussion. The link will be provided on the performance and cash flows of an entity that
Google Classroom a week before the is useful to a wide range of users in making
scheduled online discussion. economic decisions.
B. Interactive Q&A via Google Classroom 2. Secondary objective: To show the results of
management’s stewardship over the entity’s
There will be two sets of 45- minute Q & A on resources.
the statement of financial position.
To meet the objective, financial statements provide
(For further instructions, refer to your Google information about an entity’s
Classroom and see the schedule of activities a. Assets (economic resources)
for this module) b. Liabilities (economic obligations)
c. Equity
C. Pre-assessment on the topic d. Income
There will be an allotted 15- minute e. Expenses
knowledge check on the topic which can be f. Contributions by, and distributions to
accessed via google forms. It will be uploaded owners; and
one week before the scheduled discussion. g. Cash flows
The student can access the pre-assessment n
from upload date until 15 minutes before the Complete set of Financial Statements
discussion. A complete set of financial statements consist of:
1. Statement of financial position
D. Related videos on this topic: 2. Statement of profit or loss and other
https://www.ifrsbox.com/ias-1- comprehensive income
presentation-of-financial-statements/ 3. Statement of changes in equity
4. Statement of cash flows
5. Notes to the accounts (accounting policies a. The period covered by the financial statements
and explanations) b. The reason for using a longer or shorter period,
(5a) Comparatives and
6. Additional statement of financial position c. The fact that amounts presented in the financial
(required only when certain instances occur) statements are not entirely comparable.

General Features of Financial Statements 7. Comparative Information

1. Fair Presentation and Compliance with PFRSs
PAS 1 requires an entity to present comparative
Fair presentation of financial statements, the events information in respect of the preceding period for all
and transactions should be reported to financial amounts reported in the current period’s financial
statements in accordance with the recognition and statements, unless another PFRS requires otherwise.
measurement principle for the elements of financial As a minimum, an entity presents two of each of the
statements, given in the Conceptual framework, and statements and related notes.
financial statements should be prepared in
accordance with PFRS with related disclosure Additional Statement of Financial Position
requirements. A complete set of financial statements includes an
additional statement of financial position when
To achieve the fair presentation the entity should certain instances occur. Those instances are as
make sure the following: follows:
 The selection and application of accounting a. The entity applies an accounting policy
policies as per PAS 8 retrospectively, makes a retrospective
 The information contained in financial statement of items in its financial statements,
statements should have all the qualitative or reclassifies items in the financial
characteristics of financial statements statements; and
 Complete disclosure should be given as per b. The instance in (a) has a material effect on
the PFRS the information in the statement of financial
position at the beginning of the preceding
2. Going Concern period.
8. Consistency of presentation
Financial Statements are normally prepared on a
going concern basis unless the entity has an intention An entity should use the same accounting policies in
to liquidate or has no other alternative but to do so. the preparation and presentation of financial
statements for the similar events and transactions,
The entity will be treated as going concern, if it can from one period to the next in order to ensure the
continue its operations for the foreseeable future, comparability of financial statements unless the
which is at least, but not limited to, 12 months from change in presentation:
the reporting date such that neither the management a. is required by PFRS; or
has intention nor the circumstances are there that b. results in information that is reliable and
the entity will have to curtail its business activities. more relevant.

3. Accrual Basis of Accounting Structure and Content of Financial Statements

The entity is required to report all the events and The financial statements of the entity should be
transactions in the financial statements in the period identified and distinguished from the other
to which these relate except for the cash flows. information using the following:

4. Materiality and Aggregation a. The name of the entity presenting financial

statements
The entity is required to present each material class b. Whether these are the financial statements of
of items separately in the financial statements, unless an individual entity or consolidated financial
these are immaterial. statements for the group of entities:
c. The reporting date for which financial
5. Offsetting statements are presented
d. The presentation currency for the amounts
The entity should not offset any assets and liabilities reported in financial statements
or any income and expense, except when it is e. The level of rounding up for the amounts
required by a PFRS. reported in financial statements

6. Frequency of reporting

An entity shall present a complete set of financial

statements (including comparative information) at
least annually. When an entity changes the end of its
reporting period and presents financial statements
for a period longer or shorter than one year an entity
shall disclose the following: A heading for the Statement of Financial Position
Source:https://pilipinas.shell.com.ph/investors/financialreports/_jcr_content/par/
textimage.stream/1519811454505/7c06c957c147ee742a9cf09168ac0d4485ed6f2
(c) intangible assets
5/audited-financial-statements-1h-2016.pdf (d) financial assets (excluding amounts shown
under (e), (h), and (i))
(e) investments accounted for using the equity
Management’s responsibility over Financial method
Statements (f) biological assets
The management is responsible for an entity’s (g) inventories
financial statements. The responsibility (h) trade and other receivables
encompasses: (i) cash and cash equivalents
a. The preparation and fair presentation of (j) assets held for sale
financial statements in accordance with (k) trade and other payables
PFRSs; (l) provisions
b. Internal control over financial reporting; (m) financial liabilities (excluding amounts shown
c. Going concern assessment under (k) and (l))
d. Oversight over the financial reporting (n) current tax liabilities and current tax assets,
process; and as defined in IAS 12
e. Review and approval of financial statements. (o) deferred tax liabilities and deferred tax
The responsibilities are expressly stated in a assets, as defined in IAS 12
document called “Statement of Management’s (p) liabilities included in disposal groups
responsibility for Financial Statements,” which is (q) non-controlling interests, presented within
attached to the financial statements as a cover letter. equity
The document is signed by the entity’s (r) issued capital and reserves attributable to
a. Chairman of the Board (or equivalent) owners of the parent.
b. Chief Executive Officer (or equivalent)
c. Chief Financial Officer (or equivalent) Additional line items, headings and subtotals may be
needed to fairly present the entity's financial
position. [IAS 1.55]

Presentation
A Statement of financial position may be presented in
a “classified” or an “unclassified” manner.
a. A classified presentation shows distinctions
between current and non-current assets and
current and noncurrent liabilities.
b. An unclassified presentation (also called
“based on liquidity”) shows no distinction
between current and noncurrent assets.

A classified presentation shall be used except when

an unclassified presentation provides information
that is reliable and more relevant. When an exception
applies, assets and liabilities are presented in order
of liquidity.

PAS 1 permits a mixed presentation. This may be

appropriate when an entity has diverse operations.

Whichever method is used, PAS 1 requires the

disclosure of items that are expected to be recovered
or settled (a) within 12 months and (b) beyond 12
months, after the reporting period.

“Statement of Management’s responsibility for Financial Statements”

Source:https://pilipinas.shell.com.ph/investors/financialreports/_jcr_content/par/texti
mage.stream/1519811454505/7c06c957c147ee742a9cf09168ac0d4485ed6f25/audited-
financial-statements-1h-2016.pdf

Statement of Financial Position

The Statement of Financial Position shows the

entity’s financial condition as at a certain date. The
line items to be included on the face of the statement
of financial position are: [IAS 1.54]

(a) property, plant and equipment

(b) investment property
the liability is current, even if the lender has agreed,
after the reporting date and before the authorization
of the financial statements for issue, not to demand
payment as a consequence of the breach. [IAS 1.74]
However, the liability is classified as non-current if
the lender agreed by the reporting date to provide a
period of grace ending at least 12 months after the
end of the reporting period, within which the entity
can rectify the breach and during which the lender
cannot demand immediate repayment. [IAS 1.75]

Settlement by the issue of equity instruments does

not impact classification. [IAS 1.76B]

Classified and Unclassified presentation of Financial PositioN Source:

https://slideplayer.com/slide/13368282/
Engaging Activities
Current Assets and Current Liabilities I. (LO2) Classify the following into
Current Asset (CA), Non-Current Asset
Current Assets (NCA), Current Liability, Non- Current
The entity will present an asset as current asset, if it Liabilities (NCL)
meets any of the following criteria: a. Cash Dividends Payable
a. It is held for trading in the normal course of b. Patents
business c. Retired Equipment classified as “Held
b. It will be realized within a period of 12 for Sale”
months from the reporting date d. Liability for returnable containers
c. It is expected to be sold or consumed in the e. Deferred Tax Asset
normal course of business f. Work in Process Inventory
d. It is cash or cash equivalent unless restricted g. Bank Overdraft
from being exchanged or used to settle a h. Investment in Associates
liability for at least twelve months after the i. Building under Construction for own
reporting period. use
j. Bonds payable issued in the current
Current Liabilities year, will mature in five equal
The entity will present a liability as current liability, if installments beginning June of next
it is: year.
a. Expected to be settled in the entity’s normal
operating cycle; II. (LO2) Computations
b. Held primarily for trading; 1. Mare Co’s December 31 20x1 balance sheet
c. Due to be settled within 12 months after the reported the following current assets:
reporting period; or Cash
d. An entity does not have an unconditional 70,000
right to defer settlement of the liability for at Accounts Receivable
least 12 months after the reporting period. 120,000
Inventories
The entity will present all other assets and liabilities 60,000
as non-current. Total
250,000
Refinancing agreement An analysis of the accounts disclosed that accounts
receivable consisted of the following:
If an entity expects, and has the discretion, to
refinance or roll over an obligation for at least twelve Trade Accounts
months after the reporting period under an existing 96,000
loan facility with the same lender, on the same or Allowance for uncollectible accounts
similar terms, it classifies the obligation as non- ( 2,000)
current, even if it would otherwise be due within a Selling price of Mare’s unsold goods out on
shorter period. However, when refinancing or rolling Consignmentat 130% of cost, not included in Mare’s
over the obligation is not at the discretion of the Ending inventory
entity (for example, there is no arrangement for 26,000
refinancing), the entity does not consider the Total
potential to refinance the obligation and classifies the 120,000
obligation as current (IAS1.73)
At December 31, 20x1, the total of Mare’s current
Liabilities Payable on demand
assets is: ______________
(AICPA, adopted from Intermediate Accounting 3 Millan 2019 edition page 49)
If a liability has become payable on demand because
an entity has breached an undertaking under a long-
term loan agreement on or before the reporting date,
2. Full Sun Corporation trial balance include the
following account balances at December 31,
2019:

Accounts Payable- P450,00; Bonds Payable, due

2020- P750,000; Discount on Bonds Payable, due
2020- P90,000; Dividends payable on January 31,
2020- P240,000; Notes Payable due January 31,
2022- P 600,000
What amount should be included in the current
liabilities section of Full Sun Corporation’s December
31, 2019 statement of financial position?

Short Quiz- 10 MCQs via Google Forms

PT 1
3. (LO1) Review of Financial Position.
1. Search the internet for published
financial statements of a corporation
(can be local or international
company.
2. Write a narrative based on the
following information:
a. Give a short introduction or
background on the selected
company.
b. Write your observations on the
financial position. Be guided by
the following:
a. The signatories on the
Statement of Management’s
responsibility for Financial
Statements
b. The auditors’ opinion on the
company’s financial
statements.
c. The presentation format used
d. Reporting period
e. Company’s operating cycle
f. Working Capital
g. Events after reporting period
h. Changes in Accounting
Policies and estimates
PT 2
Preparation of Financial Position
1. Find a study partner
2. Imagine that you and your study partner
are accountants
3. Answer the requirements individually
first. Next, compare your answers with
your study partner. Discuss any
differences between your answers. You
will be graded as a couple based on your
final answer. Goodluck.

Directions: Prepare a Statement of Financial

Position with related notes showing the breakdown
of the line items. Make proper cross-referencing of
those notes.

Please refer to Intermediate Accounting 3 by Millan

2019 edition pages 42-44.