OVERVIEW

This module composed of two parts. The first part enumerates the general
features of financial statements, components of a complete set of financial
statements, preparation of a statement of financial position (SFP) and minimum
line items to be presented in a SFP as required by IFRS.
The second part of the module talk about the statement of profit or loss
and other comprehensive income, statement of changes in equity, and the
relationship of the notes with the other components of a complete set of financial
statements.
Enjoy learning this module and go over with the discussion and assessment
in order for you to familiarize with the basic concepts of presenting the financial
statements.
LEARNING OUTCOMES
At the end of this first part of the module, you should be able to:
• Enumerate and describe the general features of financial
statement presentation.
• Enumerate and describe the components of a complete set of
financial statements.
• Understand the current and noncurrent classification of assets
and liabilities.
• Know the forms of presenting the statement of financial position.

Hi! Good day..

Let’s start our discussion with
the objective of Philippine
Accounting Standard (PAS 1)

PAS 1 prescribes the basis for presentation of general

purpose financial statements to improve comparability
both with the entity's financial statements of previous
periods (intra-comparability) and with the financial
statements of other entities (inter-comparability).

General purpose financial statements or simply referred to as financial

statements are those intended to meet the needs of users who are not in a
position to require an entity to prepare reports tailored to their particular
information needs. In other words, general purpose financial statements are
directed to all common users and not to specific users.
1.1
Financial Statements are the means
3.1 What are the by which the information accumulated
general features of
and processed in financial accounting is
Financial Statements?
periodically communicated to the users.

1. Fair Presentation and Compliance with PFRSs - The application

of PFRSs, with additional disclosure when necessary, is presumed to
result in financial statements that achieve a fair presentation.

2. Going concern - An entity is not a going concern if, as of the financial

reporting date or prior to the date of authorization of the financial
statements for issue, management either:
a. Intends to liquidate the entity or to cease trading, or
b. Has no realistic alternative but to do so.
➢ The assessment of going concern is at least 12 months.

3. Accrual Basis of Accounting - An entity shall prepare its financial

statements, except for cash flow information, using the accrual basis of
accounting.

4. Materiality & Aggregation - Each material class of similar items must

be presented separately in the financial statements.

5. Offsetting - Assets and liabilities, and income and expenses, shall not
be offset unless required or permitted by a PFRS.
➢ Measuring assets net of valuation allowances, for example,
obsolescence allowances on inventories, allowances for doubtful
accounts on receivables, and accumulated depreciation on
property, plant, and equipment are not offsetting.

6. Frequency of reporting – An entity shall present a complete set of

financial statements (including comparative information) at least annually.

7. Comparative information - an entity shall present comparative

information in respect of the preceding period for all amounts reported in
the current period’s financial statements, unless other standards permit
or require otherwise.

8. Consistency of presentation - An entity shall retain the presentation

and classification of items in the financial statements from one period to
the next.
 Were you able to differentiate
the general features of financial
statements?
To further understand them,

LET’S TRY this

ASSESSMENT TASK 1
Going concern Accrual basis Fair presentation Frequency
Consistency Comparative Materiality Offsetting

Direction: Fill in the blanks. Refer your answers on the table above.

______________________ 1.) Which basic assumption may not be followed when an entity in
bankruptcy prepares financial statements?

______________________ 2.) What is the accounting concept that justifies the usage of accruals
and deferrals?
ASSESSMENT TASK 1
______________________ 3.) The valuation of a promise to receive cash in the future at present
value is valid because of the accounting concept of

______________________ 4.) The financial effects of transactions or other events in the financial
years in which they occur, to the extent that those financial effects can be recognized, irrespective
of whether cash has been received or paid

______________________ 5.) Omissions or misstatements of items are ____ if they could,

influence the economic decisions that users make on the basis of the financial statements’.

______________________ 6.) This is appropriate when netting any income with related expenses
arising from the same transaction. For example, Gains and losses on the disposal of non-current
assets, which should be reported net, instead of separately reporting the gross proceeds as income
and the cost of the asset disposal of as an expense.
Comparative information is provid ed for narrative and descriptive where it is relevant to understanding the financial stateme nts of the current period.
Comparative information is provid ed for narrative and descriptive where it is relevant to understanding the financial stateme nts of the current period.

______________________ 7.) This is provided for narrative and descriptive where it is relevant to
understanding the financial statements of the current period. Information is disclosed in respect of
the previous period for all amounts reported in the financial statements, both on the face of the
financial statements and in the notes, unless another Standard requires otherwise.

Were you able to answer all

questions? I assumed it’s a
yes?!
Great work you’ve done
here!
 LET’S CONTINUE . . . .

The objective of financial statements

is to provide information about the
3.2 COMPLETE SET OF FINANCIAL financial position, financial
STATEMENTS performance and cash flows of an
entity that is useful to a wide range of
1. Statement of financial position
users in making economic decisions.
2. Income statement
3. Statement of comprehensive income
4. Statement of changes in equity
5. Statement of cash flows
Financial
6. Notes, comprising a summary of significant
accounting policies and other explanatory notes statements shall
be presented at
least annually

Now, let’s discuss

the statement of Statement of financial position
financial position
is a formal statement showing the
three elements comprising financial
position, namely assets, liabilities
and equity.

A. ASSETS – is an economic resource controlled by an entity as a result of past

event. An economic resource is a right that has the potential to produce
economic benefits. Assets are classified only into two, namely current assets
and noncurrent assets.
Current assets
a. The asset is cash or cash equivalent unless the asset is restricted to settle
a liability for more than 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.
 ASSETS
Current assets Noncurrent assets

a. Cash and cash equivalents a. Property, plant and equipment

b. Financial asset at fair value (Trading b. Long-term investments
securities and other investments) c. Intangible assets
c. Trade and other receivables d. Deferred tax assets
d. Inventories e. Other noncurrent assets
e. Prepaid expenses

B. LIABILITY – is a present obligation of an entity to transfer an economic

resource as a result of past event. An obligation is a duly or
responsibility that an entity has no practical ability to avoid. A liability
is classified as current and noncurrent.
Current liabilities
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 unconditional right to defer settlement of
the liability for at least twelve months after the reporting period.

LIABILITIES
Current liabilities Noncurrent liabilities

a. Trade and other payables a. Noncurrent portion of long-term debt

b. Current provisions b. Finance lease liability
c. Short-term borrowing c. Deferred tax liability
d. Current portion of long-term debt d. Long-term obligations to company
e. Current tax liability officers
e. Long-term deferred revenue

Note: Make sure you were able to

distinguish line item for current and
noncurrent (assets and liabilities).
In fact PAS 1, provides that as minimum,
the face of the statement of financial
position shall include the line items as
shown on the table above classified as
current and noncurrent (Assets and
Liabilities).
 C. EQUITY – the residual interest in the assets of the entity after deducting
all of its liabilities.

What do you
mean by
residual
interest?

Simply stated,
equity means
“net assets” or
total assets minus
liabilities.

The term used in reporting the equity of an entity depending on the form of the business
organization are:
a. Owner’s equity in a proprietorship
b. Partners’ equity in a partnership
c. Stockholders’ equity or shareholders’ equity in a corporation
However, the term equity may simply be used for all business entities. Under PAS 1,
paragraph 7, the holders of instruments classified as equity are simply known as
owners.
FORMS OF STATEMENT OF FINANCIAL
POSITION

a. Report form – this form sets forth the

three major sections in a downward
sequence of assets, liabilities and equity.
b. Account form – the presentation follows
that of an account, meaning, the assets
are shown on the left side and the
liabilities and equity on the right side of
the statement of financial position.

➢ In the Philippines, the common practice is to present current assets before

noncurrent assets, current liabilities before noncurrent liabilities, and equity after
liabilities.
➢ 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.

Note: For illustration of the two formats please refer back

to page 156 to 159 of Conceptual Framework and
Accounting Standards by Conrado T. Valix.
 ASSESSMENT TASK 2
TRUE OR FALSE
_____________________ 1. The financial statements are the end
product or main output of the financial accounting process.

ASSESSMENT TASK 2
_____________________ 2. The general purpose financial
statements are directed to both the common and specific users.
____________________ 3. Financial statements also show the
results of the management’s stewardship of the resources entrusted
to it.
____________________ 4. Investors, creditors and other statement users analyze
the statement of financial position to evaluate such factors as liquidity, solvency
and the need of the entity for additional financing.
____________________ 5. When the entity’s normal operating cycle is not clearly
identifiable, the duration is assumed to be twelve months.
-------------------------------------------- Good luck ----------------------------------------

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STATEMENT OF COMPREHENSIVE INCOME

LEARNING OUTCOMES
At the end of this second part of module, you should be able to:
• To understand the concept of comprehensive income, profit or
loss and other comprehensive income.
• To identify the components of other comprehensive income.
• To know the minimum line items in the statement of
comprehensive income.
• To know the natural and functional presentation of the income
statement.
• To know the statement of retained earnings.
• To know the purpose of notes to financial statement.
 Statement of profit or loss and other comprehensive Income

Profit or Loss Other Comprehensive Income

√ Income
• OCI will be reclassified
√ Expenses √ Each component of OCI by nature
to P/L (pg. 183)
Please refer back to page 182 of Conceptual Framework
and Accounting Standards by Conrado T. Valix • OCI will NOT be
for the components of “other comprehensive income” reclassified to P/L but
to retained earnings
(pg. 183)

Profit or Loss Total other Comprehensive

Comprehensive income Income

This is the “bottom line” Comprises items of income and The change in equity
in the traditional income expenses including reclassification during a period resulting
statement. An entity may adjustments that are not from transactions and
use “net income” or net recognized in profit or loss as other events, other than
loss” to describe profit or required or permitted by Philippine changes resulting from
loss. Financial Reporting Standards transactions with owners in
results of operations (PFRS). their capacity as owners.

Sources of income Components of expense

a. Sales of merchandise to customers a. Cost of goods sold or cost of sales

b. Rendering of services b. Distribution costs or selling expenses
c. Use of entity resources c. Administrative expenses
d. Disposal of resources other than d. Other expenses
prouducts e. Income tax expense

LET’S
CONTINUE
Presentation of comprehensive
FORMS OF INCOME STATEMENT
income
a. Functional presentation – this form
1. Two statements
classifies expenses according to
a. An income statement showing their function as part of cost of
the components of profit or goods sold, distribution costs,
loss. administrative expenses and other
b. A statement of comprehensive expenses. Also known as the cost of
income beginning with profit goods sold method.
or loss as shown in the b. Natural presentation – this form
income statement plus or expenses are aggregated according
minus the components of to their nature and not allocated
other comprehensive income. among the various functions within
2. Single statement the entity. Also known as nature of
This is the combined statement expense method.
showing the components of
profit or loss and components of
other comprehensive income in a
single statement. The Revised
For illustration on the presentation and forms of income
Conceptual Framework calls this statement, refer to Conceptual Framework and Accounting
single statement as statement of Standards by Conrado T. Valix page 189 to 195.
financial performance.

The purpose of this statement is to provide a

more comprehensive information on financial
performance measured more broadly than the
income as traditionally computed.

Next is another integral part of financial

statements….

A Statement of cash flows is an integral

part of financial statements. PAS 1 refers
the discussion and presentation of
statement of cash flows to PAS 7
Statement of Cash Flows.
 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.
✓ The important data affecting this statement that should be clearly disclosed are:
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

✓ A basic statement that shows the movements in the elements or components of the
shareholders’ equity.
✓ An entity shall present a statement of changes in equity showing the following:
1. Comprehensive income for the period.
2. For each component of equity, the effects of changes in accounting policies and
corrections of errors.
3. For each component of equity, a reconciliation between the carrying amount at the
beginning and end of the period, separately disclosing changes from:
a. Profit or loss
b. Each item of other comprehensive income
c. Transactions with owners in their capacity as owners showing separately
contributions by and distributions to owners.

The preparation and a more detailed

discussion of the statement of financial
position, income statement, statement of
comprehensive income and statement of
changes in equity are taken up exhaustively
in Intermediate Accounting Volume
Three.

For illustration of statement of retained earnings and statement

of changes in equity, refer to Conceptual Framework and
Accounting Standards by Conrado T. Valix page 196 to 197.

For further questions, you can ask or message me directly☺

 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.
✓ Notes contain information in addition to that presented in the statement of
financial position, income statement, statement of comprehensive income,
statement of changes in equity and statement of cash flows.

In other words, notes to financial statements are used to report

information that does not fit into the body of the financial
statements in order to enhance the understandability of the
financial statements.

The purpose of the notes to financial statements is “to provide the necessary
disclosures required by Philippine Financial Reporting Standards.”

For more information please visit and watch this video

https://www.youtube.com/watch?v=Q1m76iMIepU

SUMMARY

➢ PAS 1 prescribes the basis for presentation of general purpose financial statements.
➢ The general features of financial statement: fair Presentation and Compliance with PFRSs,
going concern, accrual basis of accounting, materiality & aggregation, offsetting, frequency of
reporting, comparative information and consistency of presentation.
➢ Complete set of financial statements: statement of financial position, income statement,
statement of comprehensive income, statement of changes in equity, statement of cash flows
and notes, comprising a summary of significant accounting policies and other explanatory
notes.
➢ Statement of financial position is a formal statement showing the three elements comprising
financial position, namely assets, liabilities and equity.
➢ Statement of comprehensive income starts with the profit or loss as shown in the income
statement plus or minus the components of other comprehensive.
➢ PAS 1 refers the discussion and presentation of statement of cash flows to PAS 7 Statement of
Cash Flows.
➢ 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.
➢ Statement of changes in equity is a basic statement that shows the movements in the elements
or components of the shareholders’ equity.
➢ Notes to financial statements contain information in addition to that presented in the
statement of financial position, income statement, statement of comprehensive income,
statement of changes in equity and statement of cash flows.
 ASSESSMENT TASK 3: Write the letter of the correct answer. Erasures are strictly
not allowed.

1. PAS 1 requires an assessment of the entity’s ability to continue as a going concern each time financial statements are
prepared. Who is responsible in making this assessment?
a. Accountant
b. Auditor
c. Management
d. Government regulatory body

2. These are the end product of the financial reporting process and the means by which information gathered and processed
is periodically communicated to users.
a. Financial reporting
b. Financial statements
c. Financial products
d. Accounting statements
ASSESSMENT TASK 3
3. Which of the following is not one of the general features of financial statements under PAS 1?
a. Fair presentation and compliance with PFRSs
b. Going Concern
c. Cash Basis
d. Materiality and aggregation

4. Who is responsible for the preparation and the fair presentation of an entity’s financial statements in accordance with
the PFRSs?
a. Any accountant
b. Certified Public Accountant
c. Auditor
d. Management

5. This type of presentation of statement of financial position does not show distinctions between current and noncurrent
items.
a. Classified presentation
b. Unclassified presentation
c. Non-discriminating presentation
d. Awesome presentation

6. In making an economic decision, an investor needs information on the amounts of an entity’s economic resources and
claims to those resources. That investor would most likely refer to which of the following financial statements?
a. Statement of financial position
b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of changes in equity

7. Which of the following financial statements would be dated as at a certain date?

a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. All of these
8. Imagine you are a business manager. You would be most awesome as a manager in which of the following independent
scenarios?
a. Your company has an average total assets of ₱10M during the year. At the end of the year, your company reported
profit of ₱1M. The average return of other similar companies with the same level of assets is 30%.
b. Your adoption of accounting policy has led to the immediate recognition of expenses. Those costs could have
otherwise been allocated over several periods. Accordingly, your company did not declare dividends during the
period. This resulted to a decline in the market value of your company’s stocks while the prices of all other stocks in
the stock market have increased.
c. You changed your company’s method of allocating costs from an accelerated method to a straight-line method. The
change met the requirements of the PFRSs. This led to the smoothing of expenses, which increased your company’s
profit during the period by 12%, above the industry average.
d. You are great at closing deals, that’s why you’re a boss. Eager to increase your company’s resources, you were able
to obtain a ₱20M loan from a bank. Interest expense on the loan during the year was ₱3.4M while the return on
investments of loan proceeds was 2%.

9. This comprises all “non-owner changes in equity.” It excludes owner changes in equity, such as subscription, issuance,
and reacquisition of share capital and declaration of dividends.
a. Other comprehensive income
b. Changes in equity ASSESSMENT TASK 3
c. Total comprehensive income
d. Profit or loss

10. Materiality judgment is least likely to be applied in which of the following?

a. in determining whether an item warrants separate presentation in the financial statements or is to be aggregated
with other items
b. in determining whether information could influence the decisions of users, and therefore, must be presented in the
financial statements
c. in determining whether the cost of processing and communicating information exceeds the benefits expected to be
derived from it
d. whether additional information needs to be provided, including the level of detail and conciseness of the information’s
presentation

REFERENCES

Millan, Z. B. (2020). Conceptual Framework and Accounting Standards.

Sampaloc, Manila: Bandolin Enterprise

Valix, Conrado. T (2020). Conceptual Framework and Accounting

Standards. Manila: GIC Enterprises & Co., Inc.

Ballada, Win. (2020). Conceptual Framework and Accounting Standards.

Manila: DomDane Publishers