CHAPTER 1 • External events other than

transfer involves changes in

economic resources /
DEFINITION OF ACCOUNTING (AMERICAN obligations without transfers.
INSTITUTE OF ACCOUNTANTS) Ø Internal events are events that do
Accounting is the process of identifying, not involve an external party.
measuring, and communicating economic • Production is a process by
information to permit informed judgments which resources are
and decisions by users of the information. transformed into finished
goods.
IDENTIFYING • Casualty is an unanticipated
Ø Identifying is the process of loss from disasters.
analyzing events and transactions to
determine whether or not they will MEASURING
be recognized. Ø Measuring involves assigning
Ø Recognition refers to the process of numbers, normally in monetary
including the effects of an terms to the economic transactions
accountable event in the statement and events.
of financial position or the • Historical cost
statement of comprehensive income • Fair value
through a journal entry. • Present value
Ø Accountable event (economic • Realizable value
activity) is one that affects the • Current cost
assets, liabilities, equity, income, • Inflationary cost
and expenses of an entity.
Ø Non-accountable events are not COMMUNICATING
recognized in the books but as Ø Communicating is the process of
disclosure only, if they have transforming economic data into
accounting relevance (recorded useful accounting information for
through a memorandum entry). dissemination to users.
• Recording is the process of
TYPES OF EVENTS OR TRANSACTIONS systematically committing
Ø External events are events that into writing the identified
involve the entity and an external and measured accountable
party. events in the journal through
• Exchange is the reciprocal journal entries.
giving and receiving of • Classifying involves grouping
economic benefits or of similar and interrelated
discharging economic items into their respective
obligations. classes through posting in
• Non-reciprocal transfer is a the ledger.
one-way transaction wherein • Summarizing is the putting
one part gives without together or expressing in
something in return. condensed forms the
 recorded and classified Ø Financial information are expressed
transactions and events. in money.

BASIC PURPOSE OF ACCOUNTING TYPES OF INFORMATION AS TO NEEDS

Ø The basic purpose of accounting is Ø General purpose is designed to
to provide quantitative information meet the common needs of most
primarily financial in nature that is statement users which is governed
useful for making economic by generally accepted accounting
decisions. principles as represented by the
Ø Economic entities use accounting Philippine Financial Reporting
data to record economic activities, Standards.
process data and disseminate Ø Special purpose is designed to meet
information intended to be useful in the specific needs of a particular
making economic decisions. statement user provided by other
Ø Economic entities are separately types of accounting other than
identifiable combination of persons financial accounting.
and property that uses or control
economic resources to achieve ACCOUNTING AS AN…
certain goals or objectives. Ø Social science because accounting is
Ø Non-for-profit entity is one a body of knowledge which has been
that carries out some socially systematically gathered, classified,
desirable needs of the and organized.
community or its members Ø Art because accounting required the
and whose activities are not use of creative skills and judgment.
directed towards making Ø Information system because it
profit. identifies and measures economic
Ø Business entity is one that activities, processes information into
operated primarily for profit. financial reports, and communicated
Ø Economic activities affect economic these to decision makers.
resources (assets) and obligations Ø Language of business because it is
(liabilities) and consequently the fundamental to the communication
equity of the economic entity. of financial information.
Ø Production and consumption
Ø Exchange CREATIVE AND CRITICAL THINKING
Ø Income distribution Ø Creative thinking involves the use of
Ø Savings and investments imagination and insight to solve
problems by finding new
TYPES OF ACCOUNTING INFORMATION relationships among items of
Ø Quantitative information are information.
expressed in numbers, quantities, or Ø Critical thinking involves the logical
units. analysis of issues using inductive or
Ø Qualitative information are deductive reasoning to test new
expressed in words or descriptive relationships to determine their
form. effectiveness.
ACCOUNTING CONCEPTS entity is divided into a series of
Ø Accounting concepts refer to the reporting periods.
principles upon which the process of Ø Materiality states that if an
accounting is based. information is omitted or misstated
• Accounting assumptions are it may influence the economic
the principal concepts or decisions made.
principles and basic notions Ø Cost-benefit (cost constraint,
that provide the foundation reasonable assurance) means that
of accounting process. the cost of implementing a decision
• Accounting theory is logical should not exceed the benefits that
reasoning in the form of a set can be derived from it.
of broad principles. Ø Accrual states that revenue is
recognized when earned while
ACCOUNTING THEORY expenses are recorded when
Ø Provide a general frame of reference incurred.
by which accounting practice can be Ø Historical cost concept (cost
evaluated. principle) states that the value of an
Ø Guide the development of new asset is determined on the basis of
practices and procedures. acquisition cost.
Ø Concept of articulation means that
ACCOUNTING CONCEPTS all of the components of a complete
Ø Double-entry system means that set of financial statements are
each accountable event is recorded interrelated.
as debits and credits. Ø Full disclosure principle recognized
Ø Going concern assumption where that the nature and amount of
the entity is assumed to carry on its information included in the financial
operations for an indefinite period statements reflect a series of
of time. judgmental trade-offs.
Ø Separate entity (accounting entity, Ø Consistency concept states that
business entity concept, entity financial statements are prepared
concept) assumes that the economic on the basis of accounting principles
entity is separate and distinct from that are applied consistently from
its owners. one period to another period.
Ø Stable monetary unit (monetary Ø Matching concept (association of
unit assumption) means that assets, cost and effect) means that costs
liabilities, equity, revenues, and are recognized when related
expense are stated in a common revenues are recognized.
unit of measure (peso) and any Ø Fund theory where the objective is
changes in its purchasing power is the custody and administration of
disregarded or considered funds.
insignificant. Ø Entity theory where the accounting
Ø Time period (periodicity, accounting objective is geared towards proper
period) means that the life of the income determination.
 Ø Proprietary theory where the resources, and changes in those
accounting objective is proper asset resources.
valuation. Ø The secondary objective is to
Ø Residual equity theory is applicable provide information in assessing the
when there are two classes of shares management stewardship.
issued.
Ø Realization is the process of BRANCHES OF ACCOUNTING
converting non-cash assets into cash Ø Management accounting is the
or claims for cash. accumulation and communication of
Ø Prudence (conservatism) refers to information for use by internal
the use of caution when making users.
estimates under conditions of • Management advisory
uncertainty. services provides services to
clients on areas of
BRANCHES OF ACCOUNTING accounting, finance, business
Ø Financial accounting focuses on the policies, organizational
preparation of general-purpose procedures, and other
financial statements. phases of business.
• General-purpose financial Ø Cost accounting is the systematic
statements cater to the recording and analysis of the cost of
common needs of external materials, labor, and overhead
users and are governed by incident to production.
PFRS. Ø Auditing is the process of evaluating
• Financial reporting focuses the correspondence of certain
on information provided assertions with established criteria
outside the financial and expressing an opinion thereon.
statements that assists in the Ø Tax accounting is the preparation of
interpretation of a complete tax returns and rendering tax
financial statements. advices.
• Financial statements consist Ø Government accounting emphasizes
of the basic financial on the custody of government
statements including the funds, purpose for which the funds
notes thereto. are committed, responsibility and
• Financial report includes accountability of its use.
other information provided Ø Fiduciary accounting is the handling
under financial reporting plus of accounts managed by a person
the entity’s financial entrusted with the custody and
statements. management of property for the
benefit of another.
OBJECTIVES OF FINANCIAL REPORTING Ø Estate accounting is the handling of
Ø The primary objective is to provide accounts for fiduciaries who wind up
information about an entity’s the affairs of a deceased person.
economic resources, claims to those
 Ø Institutional accounting is the Ø Assist preparers in developing
accounting for not-for-profit consistent accounting policies when
entities. no standard applies to a particular
Ø Social accounting (social and transaction or when a standard
environment accounting, social allow a choice of accounting policy.
responsibility accounting) is the Ø Assist all parties in understanding
process of communicating the social and interpreting the standards.
and environmental effects of an
entity’s economic actions to the AUTHORITATIVE STATUS
society. Ø The applicability of the conceptual
Ø Accounting systems is the framework on a particular
installation of procedures for the transaction should be considered
accumulation of financial data and only when there is no accounting
designing accounting forms. standard or interpretation that
Ø Accounting research pertains to the specifically deals with that particular
careful analysis of economic events transaction.
and other variables to understand Ø The conceptual framework is not an
their impact on decisions. accounting standard.

CHAPTER 2 SCOPE OF THE CONCEPTUAL FRAMEWORK

Ø Objective of financial reporting
Ø Qualitative characteristics of useful
NATURE OF THE CONCEPTUAL financial information
FRAMEWORK Ø Financial statements and the
Ø The conceptual framework forms reporting entity
the theoretical foundation of Ø The elements of the financial
accounting. statements
Ø It is the underlying theory for the Ø Recognition and derecognition
development and revision of Ø Measurement
accounting standards. Ø Presentation and disclosure
Ø It is also a document that contains Ø Concepts of capital and capital
• The concept for general- maintenance
purpose financial reporting.
• Summary of the terms and OVERVIEW OF CONCEPTUAL FRAMEWORK
concepts that underline the
preparation and presentation
of financial statements.

PURPOSE OF CONCEPTUAL FRAMEWORK

Ø Assist the international accounting
Standards Board in developing
standards that are based on
consistent concepts
The objective of general-purpose financial QUALITATIVE CHARACTERISTICS
reporting is to provide information about Ø Qualitative characteristics are
the reporting entity that is useful to existing qualities or attributes that make
and potential investors lenders and other financial information useful to the
creditors in making decisions about users in making economic decisions.
providing resources to the entity. • Fundamental qualitative
characteristics relate to the
LIMITATIONS OF FINANCIAL REPORTING content (substance) making
Ø It does not and cannot provide all of information useful to users.
the information that existing and • Enhancing qualitative
potential investors, lenders and characteristics improve or
other creditors need. increase the usefulness of
Ø It is not designed to show the value information.
of an entity but this reports provide
information to help the primary
users estimate the value of the
entity.
Ø They are not intended to provide
common information to users and
cannot accommodate every request
for information.
Ø They are based on estimates and
judgments rather than exact
depiction RELEVANCE
Ø Relevance is where information can
USERS OF INFORMATION make a difference in the decisions of
Ø Primary users are parties to whom users.
general-purpose financial reports • Predictive value where the
are primarily directed. information can help users in
• Existing and potential making predictions about
investors future outcomes.
• Lenders and other creditors • Confirmatory value the
Ø Other users are other parties other information can help users in
than the primary users who find the confirming their previous
general-purpose financial reports predictions.
useful but are not primarily directed Ø Materiality dictates that strict
to them. adherence to accounting standards
• Employees is not required when the items are
• Customers not significant enough to affect the
• Government and its agencies decision of a primary user and the
• Suppliers fairness of the financial statements.
• General public • The materiality of an item
depends on relative size and
 nature rather than absolute sets of information that are
value. provided by:
• there is no uniform • A single entity but in
quantitative threshold of different periods
materiality as it depends on • Different entities in a single
the professional judgment of period
the accountant. • Consistency refers to the use
of the same accounting
FAITHFUL REPRESENTATION methods from period to
Ø Faithful representation means the period:
information provides a true correct • Within one company
and complete depiction of the • Single period across
economic phenomena that it companies
purports to represent.
• Prudence (conservatism) VERIFIABILITY
• Substance over form Ø Verifiability occurs when transaction
Ø Prudence (conservatism) Means the is supported by evidence that an
exercise of care and caution when accountant would look into and
dealing with uncertainties in their arrive as the same conclusion.
measurement process. • Direct verification involves
Ø Substance over form states that if direct observation.
information is the represent • Indirect verification involves
faithfully the transactions and other checking the inputs to a
events it purports to represent, it is model or formula and we
necessary that the transactions and calculating the outputs using
other events are accounted for in the same methodology.
accordance with their economic
substance and not merely their legal TIMELINESS AND UNDERSTANDABILITY
form. Ø Timeliness means that information is
Ø Completeness states that all available to users in time to be able
information necessary for users to to influence their decisions.
understand the phenomenon being Ø Understand ability his information is
depicted is provided presented in a clear and concise
Ø Neutrality means information is manner.
selected or presented without bias • Users should have
Ø Free from error states that there are reasonable knowledge of
no errors in the description and in business activity.
the process by which the • Users are willing to analyze
information is selected and applied the information diligently.

COMPARABILITY FINANCIAL STATEMENTS

Ø Comparability identify similarities Ø The objective of general-purpose
and differences between different financial statements is to provide
financial information about
 reporting entity’s assets, liabilities, potential to produce economic
equity, income and expense. benefits.
• Statement of financial • Right
position (assets liabilities and • Potential to produce
equity). economic benefits
• Statement of financial • Control
performance (income and
expenses). RIGHT
• Other statements and notes Ø Right that corresponds to an
(cash flows contributions obligation of another party:
from and distribution to • Right to receive cash, goods,
owners). or services.
• Right to exchange economic
REPORTING ENTITY resources with another party
Ø This refers to an entity that is on favorable terms.
required or chooses to prepare • Right to benefit from an
financial statements. obligation of another party
Ø It can be a single entity, a portion of to transfer an economic
an entity, or more than one entity. resource if a specified
• Sole proprietorship, uncertain future event
partnership, or corporation occurs.
• A parent company Ø Rights that do not correspond to an
• Parent and its subsidiaries as obligation of another party
a single reporting entity • Right over physical objects
• Two or more entity not as • Right to use intellectual
parent and subsidiary property

POTENTIAL TO PRODUCE ECONOMIC

BENEFITS
Ø The asset is the present right that
has the potential to produce
economic benefits and not the
future economic benefits that the
right may produce.
Ø An asset can exist even if the
probability that it will produce
benefits is low although that low
probability affects the decisions and
ELEMENTS OF FINANCIAL STATEMENTS whether the asset is to be
Ø Asset is a present economic recognized, how it is measured,
resource controlled by the entity as what information is the provided
a result of past events. It is an about the asset and how that
economic resource that has the information is provided.
 Ø Sold leased transferred or • Legal obligation is an
exchanged for other assets. obligation that result from a
Ø Used singly or in combination contract legislation or other
with other assets to produce operation of law.
goods or provide services. • Constructive obligation is an
Ø Used to enhance the value of obligation that results from
other assets. an entity's actions that
Ø Used to promote efficiency create a valid expectation
and cost savings. and others that the entity
Ø Used to settle a liability. will accept and discharge
certain responsibilities.
CONTROL
Ø Control means the entity has the TRANSFER OF AN ECONOMIC RESOURCE
exclusive rights over the benefits of Ø The liability is the obligation that has
an asset and the ability to prevent the potential to require the transfer
others from accessing those of economic resources to another
benefits. party and not the future economic
Ø Control does not mean that the benefits that the obligation may
entity could ensure that the cause to be transferred.
resource will produce economic Ø A liability can exist even if the
benefits in all circumstances. probability of a transfer of an
Ø Control links and economic economic resource is low, although
resources to an entity and indicates that low probability affects decisions
the extent to which an entity should and whether the liability is to be
account for that economic resource. recognized, how it is measured,
Ø Control normally stems from legal, what information needs to be
enforceable rights. provided about the liability, and how
Ø Physical possession is also not that information is provided.
always necessary for control to exist. Ø Pay cash deliver goods or render
services.
LIABILITY Ø Exchange assets with another party
Ø Liability is a present obligation of the on unfavorable terms.
entity to transfer an economic Ø Transfer assets if a specified
resource as a result of past events. uncertain future event occurs.
• Obligation Ø Issue I financial instrument that
• Transfer of an economic obliges the entity to transfer an
resource economic resource.
• Present obligation as a result
of past events PRESENT OBLIGATION AS A RESULT OF
PAST EVENTS
OBLIGATION Ø The obligation must be a present
Ø Obligation is a duty or responsibility obligation that exists as a result of
that an entity has no practical ability past events.
to avoid
 • The entity has already • Losses are expenses that do
obtained economic benefits not arise in the ordinary
or taken an action. course or business.
• As a consequence, the entity
will or may have to transfer RECOGNITION
an economic resource that it Ø Recognition is the process of
would not otherwise have including in the statement of
had to transfer. financial position or the statement
of financial performance and item
EQUITY that meets the definition of one of
Ø Equity is the residual interest in the the financial statement elements.
assets of the entity after deducting Ø This involves recording the item in
all its liabilities. words and in monetary amount and
• Sole proprietorship – including that amount in the totals
Owner’s equity or Capital of either of those statements.
• Partnership – Partner’s
equity RECOGNITION CRITERIA
• Stockholders – Stockholders’ Ø It meets the definition of an asset,
or Shareholders’ equity liability, equity, income or expense.
Ø Recognizing it would provide useful
INCOME information (relevant and faithfully
Ø Income is increases in assets, or represented information.
decreases in liabilities, that result in
increases in equity, other than those DERECOGNITION
relating to contributions from Ø Derecognition is the removal of a
holders of equity claims. previously recognized asset or
• Revenue arise from the liability from the entities statement
ordinary course of business. of financial position.
• Gains other items that meet Ø It occurs when the item no longer
the definition of income and meets the definition of an asset or
do not arise in the ordinary liability, such as when the entity
course of business. loses control of all or part of the
asset, or no longer has a present
EXPENSES obligation for all or part of the
Ø Expenses are decreases in assets, or entity.
increases in liabilities, that result in Ø Derecognition if the assets or
decreases in equity, other than liabilities that have expired or have
those relating to distributions to been consumed, collected, fulfilled
holders of equity claims. or transferred, and recognizes any
• Regular expenses are resulting income and expenses.
incurred in the ordinary Ø Continues to recognize any assets or
course of business. liabilities retained after the
recognition and no income or
expenses normally recognized on
 the retained component unless Ø Fulfillment value is the present value
there is a change and its of the cash, or other economic
measurement basis. resources that an entity expects to
be obligated to transfer as it fulfills a
MEASUREMENT liability.
Ø Measurement involves quantifying Ø Current cost of an asset is the cost of
an item in monetary terms thus an equivalent asset at the
necessitating the selection of an measurement date, comprising the
appropriate measurement basis. consideration that would be paid at
• Historical cost the measurement date plus the
• Current value transaction costs that would be
o Fair value incurred on that date.
o Value in use and Ø Current cost of a liability is the
fulfillment value consideration that would be
o Current cost received for an equivalent liability at
the measurement date minus the
HISTORICAL COST transaction costs that would be
Ø The historical cost of an asset is the incurred at that date.
consideration paid to acquire the
asset plus transaction costs. PRESENTATION AND DISCLOSURE
Ø The historical cost of a liability is the Ø A reporting entity communicated
consideration received to incur the information on the elements by
liability minus transaction costs. presenting and disclosing
Ø In cases where it is not possible to information in the financial
identify the cost the resulting asset statements.
or liability is initially recognized at • Classification is a sorting of
current value. the elements on the basis of
shared or similar
CURRENT VALUE characteristics.
Ø Current value measures reflect • Aggregation is the adding of
changes in values at the the elements that have
measurement date. similar or shared
• Fair value is the price that characteristics and are
would be received to sell an included in the same
asset or paid to transfer a classification.
liability, in an orderly
transaction between market CLASSIFICATION
participants at the Ø Assets or liabilities are classified as
measurement date. current and noncurrent and then
Ø Value in use is the present value of each component of those
the cash flows or other economic classifications are subclassified
benefits that an entity expects to separately.
derive from the use of an asset from
its ultimate disposal.
 Ø Corporation’s equity may be • Intra-comparability is the
classified into share capital, retain comparability of the FS on
earnings and other components. one entity from one period
Ø Income and expenses are classified to another.
as recognized either in: • Inter-comparability is the
• In the income statement. comparability of FS between
• In other comprehensive different entities.
income
FINANCIAL STATEMENTS
AGGREGATION Ø These are the structured
Ø It summarizes a large volume of representation of an entity’s
detail, thus making information financial position and the results of
more useful. operations.
Ø They are the end-product of the
CONCEPTS OF CAPITAL financial accounting process by
Ø Financial concept of capital where which financial information are
capital is regarded as the invested gathered and processed and
money or invested purchasing periodically communicated to users.
power. Ø General purpose financial
Ø Physical concept of capital where statements cater to the most
capital is regarded as the entity's common needs of a wide range of
productive capacity. external users.

CONCEPT OF CAPITAL MAINTENANCE PURPOSE OF FINANCIAL STATEMENTS

Ø Financial capital maintenance is Ø Primary objective is to provide
when profit is earned if the net information about the financial
assets at the end of the period position, financial performance, and
exceeds the net assets at the cash flows of an entity that is useful
beginning of the period. to a wide range of users in making
Ø Physical capital maintenance where economic decisions.
profit is earned only if the entity’s Ø Secondary objective is to show the
productive capacity at the end of the results of management’s
period exceeds the productive stewardship over the entity’s
capacity at the beginning of the resources.
period. Ø Financial statements provide
information about an entity’s:
CHAPTER 3 Ø Assets
Ø Liabilities
COMPARABILITY Ø Equity
Ø Comparability requires consistency Ø Income
in the adoption and of accounting Ø Expenses
policies and in the presentation of Ø Contributions and
financial statements. distributions to owners
Ø Cash flows
COMPLETE SET OF FINANCIAL STATEMENTS the entity’s financial position,
Ø Statement of financial position financial performance and cash
Ø Statement of profit or loss and other flows;
comprehensive income Ø It has complied with applicable
Ø Statement of changes in equity standards and Interpretations,
Ø Statement of cash flows except that it has departed from a
Ø Notes to the financial statements particular requirement to achieve a
Ø Additional statement of financial fair presentation;
position Ø The title of the standard or
Interpretation from which the entity
GENERAL FEATURES OF FS has departed, the nature of the
Ø Fair presentation and compliance departure, including the treatment
with PFRS that the PFRS would require, the
Ø Going concern reason why that treatment would be
Ø Accrual basis of accounting misleading, and the treatment
Ø Materiality and aggregation adopted; and
Ø Offsetting Ø For each period presented, the
Ø Frequency of reporting financial effect of the departure on
Ø Comparative information each item in the financial
Ø Consistency of presentation statements that would have been
reported in complying with the
FAIR PRESENTATION AND COMPLIANCE requirement.
WITH PFRS
Ø Fair presentation is faithfully GOING CONCERN
representing in the FS the effects of Ø Financial statements are prepared
transactions and other events in the on a going concern basis unless the
accordance with the definitions of entity has an intention to liquidate
the elements of the FS. or has no other alternative but to do
Ø It also requires the proper selection so.
and application of accounting Ø The period of assessment is at least
policies, proper presentation of 12 months from the reporting date.
information, and provision of Ø Profitable operations:
additional disclosure. Ø The entity is a going concern
without detailed analysis.
Ø Existence of material uncertainties:
Ø Disclosure of the
uncertainties.
Ø The FS should be prepared
using another basis.
Ø Disclosure of the basis of
preparation.
DEPARTURE FROM PFRS COMPLIANCE Ø Reason for not regarding as a
Ø Management has concluded that the going concern.
financial statements present fairly
ACCRUAL BASIS OF ACCOUNTING amounts reported in the current
Ø All FS shall be prepared using the period’s financial statements.
accrual basis of accounting except Ø PAS 1 also permits entities to
for the statement of cash flows provide comparative information in
which is prepared using a cash basis. addition to the minimum
requirements.
MATERIALITY AND AGGREGATION
Ø Each material class of similar items is COMPARATIVE INFORMATION
presented separately (line item). Ø Additional statement of financial
Ø Dissimilar items are presented position is allowed:
separately unless they are • The entity applies an
immaterial. accounting policy
Ø Individual immaterial items are retrospectively, makes a
aggregated with other items. retrospective restatement of
items in its FS or reclassifies
OFFSETTING them in its FS.
Ø Asset and liabilities or income and • The instance has a material
expenses are presented separately effect on the information in
and are not offset unless required or the statement of financial
permitted by PFRS. position at the beginning of
Ø Offsetting is permitted when it the preceding period.
reflects the substance of the
transactions. ADDITIONAL STATEMENT OF FP
Ø Measuring assets net of valuation
allowances is no offsetting.

FREQUENCY OF REPORTING
Ø Financial statements are prepared at CONSISTENCY AND PRESENTATION
least annually. Ø The presentation and classification
Ø If an entity changes its reporting of items in the FS is retained from
period: one period to the next period unless
• The period covered by the there is a change in presentation:
financial statements. • Is required by a PFRS.
• The reason for the change in • Results in information that is
reporting period. reliable and more relevant.
• The fact that amounts
presented in the financial STRUCTURE AND CONTENT OF FS
statements are not entirely Ø The following information shall be
comparable. displayed prominently and
repeatedly whenever relevant:
COMPARATIVE INFORMATION • The name of the reporting
Ø PAS 1 requires an entity to present entity.
comparative information in respect
of the preceding information for all
 • Whether the statements are • Classified shows current and
for the individual entity or non-current.
for a group of entities. • Unclassified presents based
• The date of the end of the on liquidity without
reporting period or the distinction as to current and
period covered by the FS. non-current.
• The presentation currency Ø A classified presentation is used
and level of rounding used. except when an unclassified
presentation provides information
that is reliable and more relevant.
Ø Mixed presentation is also required
for entities with diverse operations.
Ø Regardless of presentation, it should
be disclosed that assets and
liabilities are recovered or settled:
MANAGEMENT’S RESPONSIBILITY OVER FS • Within 12 months.
Ø The preparation and fair • Beyond 12 months, after the
presentation of FS in accordance reporting period.
with PFRS. Ø Operating cycle is the time between
Ø Internal control over financial the acquisition of assets for
reporting. processing and their realization into
Ø Going concern assessment. cash or cash equivalents.
Ø Oversight over the financial Ø Operating cycle is not identifiable, it
reporting process. is assumed to be 12 months.
Ø Review and approval of financial Ø Assets and liabilities that are
statements realized or settled as part of the
operating cycle is current even if
they are realized or settled beyond
12 months after the reporting date.
Ø Assets and liabilities that do not
form part of the operating cycle are
considered as current only if they
are realized or settled within 12
months after the reporting date.
Ø Deferred tax assets and liabilities are
always presented as non-current
STATEMENT OF FINANCIAL POSITION regardless of their expected date of
Ø It shows the entity’s financial reversal.
condition (status of assets, liabilities,
and equity) as at a certain date.
Ø PAS 1 does not prescribe the order
or format of presenting items int the
statement of financial position.
REFINANCING AGREEMENT PROFIT OR LOSS PRESENTATION
Ø Refinancing refers to the Ø As a single statement of profit or
replacement of an existing debt / loss and other comprehensive
obligation with a new one but under income (statement of
different terms. comprehensive income).
Ø Loan facility refers to a credit line. Ø As two statements:
Ø Long-term obligation that is • Statement of profit or loss
maturing within 12 months after the (Income statement).
reporting period is classified as • Statement presenting
current even if a refinancing comprehensive income.
agreement to reschedule payments Ø Profit or loss is income less
on a long-term basis is completed expenses, excluding components of
after the reporting period and other comprehensive income.
before the financial statements are Ø Income and expenses are usually
authorized for issue. recognized under the statement of
profit or loss:
• They are classified as items
of other comprehensive
Ø The obligation is classified as non- income.
current if the entity has the right, at • They are required by other
the end of the reporting period, to PFRS to be recognized
roll over the obligation for at least outside the statement of
12 months after the reporting period profit or loss.
under an existing loan facility.
ITEMS INCLUDED IN THE PROFIT OR LOSS
Ø Revenue, presenting separately
interest revenue.
LIABILITIES PAYABLE ON DEMAND Ø Finance costs.
Ø Liabilities that are payable upon the Ø Gains and losses arising from
demand of the lender are classified derecognition of financial assets
as current. measured at amortized cost.
Ø Long-term obligation may become Ø Impairment losses and impairment
payable on demand as a result of a gains on financial assets.
breach in the loan provision is Ø Gains or losses on reclassifications of
classified as current. financial assets from amortized cost
Ø The lender provides the entity a to fair value through other
grace period: comprehensive income to fair value
• If given before or at through profit or loss.
reporting date – non-current. Ø Share in profit or loss of associates
• If given after the reporting and joint ventures.
date – current. Ø Income tax provisions.
Ø Result of discontinued operations.
ITEMS EXCLUDED IN THE PROFIT OR LOSS changes from transactions with
Ø Correction of prior period error – owners in their capacity as owners.
adjustment to beginning balance of Ø It is the sum of the profit or loss and
retained earnings. other comprehensive income.
Ø Change in accounting policy –
adjustment to beginning balance of
retained earnings.
Ø Other comprehensive income
Ø Transaction with owners

PRESENTATION OF EXPENSES
Ø Nature of expense (Depreciation,
purchases of materials, transport
cost, employee cost, and advertising
cost). STATEMENT OF CHANGES IN EQUITY
Ø Function of expense (Cost of sales, Ø Effects of change in accounting
distribution cost, administrative policy (retrospective application) or
expenses, and other functional correction of prior period error
expenses). (retrospective treatment).
• If the function of expense is Ø Total comprehensive income for the
used, additional disclosures period.
on the nature of the Ø For each component of equity, a
expenses shall be provided. reconciliation:
• Profit of loss.
OTHER COMPREHENSIVE INCOME • Other comprehensive
Ø It comprises items of income and income.
expenses (including reclassification • Transaction with owners.
and adjustments) that are not
recognized in profit or loss as
required or permitted by other
PFRSs. They are usually accumulated
as separate components of equity.
Ø Reclassification adjustments are
amounts reclassified to profit or loss
in the current period that were
recognized in other comprehensive
income in the current or previous
periods.

TOTAL COMPREHENSIVE INCOME

Ø Total comprehensive income refers
to the change in equity during the
period resulting from transactions
and other events, other than those