CHAPTER 9: STATEMENT OF -​ Disposal of resources other than

COMPREHENSIVE INCOME products

Components of Comprehensive Income Component of Expenses

1.​ Profit and Loss - Income minus -​ Cost of goods sold

Expenses including Tax expense and -​ Selling expense
any Income or Loss from Discontinued -​ Administrative expense
Operations. -​ Other expenses
-​ Income Tax expense
2.​ Other Comprehensive income – Items
of income and expenses including
reclassification adjustments (RA) that
are not included in Profit and Loss as An entity shall present all items of income
required by a standard or interpretation. and expense recognized in a period:

There are two types of OCI items: (a) ​ In a single statement of comprehensive
reclassified to profit or loss (RA) and income, or
reclassified to Retained Earnings (RE). OCI
includes the following
(b) ​ In two statements: a statement
displaying components of profit or loss (separate
Income Statement - It is a formal statement income statement) and a second statement
showing the financial performance of an entity beginning with profit or loss and displaying
for a given period of time. components of other comprehensive income
(statement of comprehensive income).
-​ Financial performance of an entity is
primarily measured in terms of the level
of income earned by the entity.
Components of other Comprehensive
-​ Information about financial performance
Income
is useful in predicting future
performance and the ability to generate 1.​ Unrealized gain or loss on equity

future cash flows. investments measured at FVOCI (RE)

2.​ Unrealized gain or loss on debt
Source of Income:
investments measured at FVOCI (RA)
-​ Sales of merchandise to customers 3.​ Unrealized gain or loss from derivative
-​ Rendering of services contracts designated as cash flow
-​ Use entity resources hedge (RA)
4.​ Revaluation Surplus (RE)
 5.​ Remeasurement Gains and losses for
defined benefit plans (RE)
CHAPTER 10: STATEMENT OF CASH FLOW
6.​ Change in fair value arising from
credit risk for financial liabilities
measured at FVPL (RE)
Statement of Cash Flows
7.​ Translation gains and losses of
foreign operation ●​ A statement of cash flows is a
component of financial statements
summarizing the operating, investing
An entity shall present either an analysis of and financing activities of an entity.
expenses using a classification based on either
the nature of expenses or their function with in
the entity, whichever provides information that is ●​ The primary purpose of statement of
reliable and more relevant cash flows is to proved relevant
information about cash receipts and
cash payments of an entity during a
Nature of expense method – Expenses are period.
aggregated in the income statement according
to their nature and are not reallocated among
various functions within the entity. Cash flows are inflows and outflows of cash
and cash equivalents. The statement of cash
flows shall report cash flows during the
Function of expense or cost of sales method period classified as operating, investing and
financing activities.
-​ Classifies expenses according to their
function as part of the cost of sales or,
for example, the cost of distribution or
Classification of cash flows
administrative activities.
●​ Operating activities — are the cash
flows derived primarily from the principal
-​ An entity shall not present any items of revenue-producing activities of the
income and expense as extraordinary entity.
items, either on the face of the income
Examples of cash flows from operating
statement or in the note
activities are:

1.​ Cash receipts from the sale of goods

and rendering of services
2.​ Cash receipts from royalties, rentals,
fees, commissions, and other revenue
 3.​ Cash payments to suppliers for goods Financing activities
and services
●​ Financing activities are the cash flows
4.​ Cash payments for selling,
derived from the equity capital and
administrative and other expenses
borrowings of the entity. It results from
5.​ Cash receipts and cash payments of an
the following transactions:
insurance enterprise for premiums,
1.​ Between the entity and the
claims, annuities and other policy
owners – equity financing
benefits.
2.​ Between the entity and the
6.​ Cash payments or refunds of income
creditors – debt financing
taxes unless they can be specifically
identified with financing and investing
activities
Non-cash transactions
7.​ Cash receipts and payments for
securities held for dealing or trading ●​ PAS 7 provide that investing and
purposes. financing transactions that do not
require use of cash or cash equivalents
shall be excluded from the statement of
Trading Securities cash flows.

●​ PAS 7 provides that cash flows arising Accordingly, the following non-cash
from the purchase and sale of dealing or transactions are disclosed separately:
trading securities are classified as
1.​ Acquisition of asset by
operating activities.
assuming directly related
●​ Similarly, cash advances and loans
liability.
made by a financial institution are
2.​ Acquisition of asset by means of
usually classified as operating activities
issuing share capital
since they relate to the main revenue
3.​ Conversion of bonds payable
producing activity of that entity.
to share capital
4.​ Conversion of preference
share to ordinary share
Investing activities

●​ Investing activities are the cash flows

derived from the acquisition and Interest
disposal of long-term assets and other
●​ PAS 7 provides that interest paid and
investments not included in cash
interest received shall be classified as
equivalent.
operating cash flows because they
enter into the determination of net
income or loss.
 ●​ Alternatively, interest paid may be
classified as financing cash flow
CHAPTER 11: ACCOUNTING POLICIES,
because it is a cost of obtaining financial
ESTIMATES AND ERRORS
resources.
●​ Alternatively, interest received may be
classified as investing cash flow
Accounting Policies
because it is a return on investment.
-​ Specific principles, bases, conventions,
rules and practices applied by an entity
Dividends in preparing and presenting financial
statements
●​ PAS 7 provides that dividend received
shall be classified as operating cash
flow because it enters into the
Changes in Accounting Policy
determination of net income.
●​ Alternatively, dividend received may be Permitted when:
classified as investing cash flow
●​ required by a standard or interpretation
because it is a return on investment
●​ results in the financial statements
●​ Alternatively, dividend paid may be
providing reliable and more relevant
classified as operating cash flow in
information about the effects of
order to assist users to determine the
transactions, other events or conditions
ability of the entity to pay dividends out
on the entity's financial position,
of operating cash flows.
financial performance, or cash flows

Income taxes
Example of Accounting Policies
●​ PAS 7 provides that cash flows arising
●​ Change in the method of inventory
from income taxes shall be separately
pricing from the FIFO to the weighted
disclosed as cash flows operating
average method.
activities.
●​ Change from cost model to revaluation
model in measuring PPE.
●​ Change from cost model to fair value
model in measuring Investment
property.
How to report a change in policy? CHAPTER 12: EVENTS AFTER THE
REPORTING PERIOD
●​ Changes must be applied
retrospectively.
●​ Retrospective application – means
What are the events after the reporting
that any resulting adjustment from the
period?
change in accounting policy shall be
reported as an adjustment to the 1.​ Also known as subsequent events
opening balance of retained earnings. 2.​ Events (favourable or unfavourable that
occur between the end of the reporting
period and the date when the financial
Accounting Estimates: statements are authorized to issue)

●​ Doubtful accounts
●​ Inventory obsolescence
TWO TYPES OF EVENTS:
●​ Useful life of the asset
●​ Residual value of the asset 1.​ Adjusting events (at the end)
●​ Warranty cost 2.​ Non-adjusting events (after)

How to report a change in estimate? – financial statements are authorized for issue
when the board of directors reviews the financial
1.​ The effect of the change shall be
statements and authorizes them for issue
recognized prospectively.
2.​ Prospective application means the
effect of a change in accounting EXAMPLES OF ADJUSTING EVENTS
estimates means that the change is
1.​ Resolution after the reporting period of
applied to transactions and other events
a court case because it confirms that the
from the date of change in estimates.
entity already had a present obligation
2.​ Bankruptcy of a customer which occurs
after the reporting period
Prior period errors
3.​ Sale of inventories after the reporting
1.​ Omissions or misstatements in the period may give evidence about the
entity’s financial statements for one or NRV at reporting period
more periods arising from a failure to 4.​ The determination after reporting period
use or misuse of reliable information of the cost of assets purchased or the
2.​ Correction is an adjustment of the proceeds from assets sold before the
beginning balance of retained earnings reporting date.
of the earliest period presented 5.​ The determination after the reporting
period of the profit sharing bonus
payment if the entity has the preset
 obligation at the reporting date to make statements in accordance with IAS
such payment 37 Provisions, Contingent Liabilities and
6.​ The discovery of fraud or errors that Contingent Assets.
show the financial statements were
incorrect.

EXAMPLES OF NON-ADJUSTING EVENTS

CHAPTER 13: RELATED PARTY
1.​ Management's plan to discontinue or
DISCLOSURES
significantly curtail its activities in major
geographic segments.
2.​ Initiation of a major litigation against the
Related party – Parties are considered to be
company arising out of events that
related if one party has:
occurred after the reporting period.
3.​ Major losses suffered as a result of a
natural disaster occurring after the end
a.​ The ability to control the other party.
of reporting period
b.​ The ability to exercise significant
4.​ Declaration of dividends after the
influence over the other party
reporting date does not indicate
c.​ Joint control over the reporting entity
existence of liability to pay dividends at
the reporting date and
shall not therefore trigger the ●​ Control is ownership directly or
recognition of liability in financial indirectly through subsidiaries of more
statements in accordance with IAS than half of the voting power of an entity.
37 Provisions, Contingent Liabilities and ●​ Significant influence may be gained by
Contingent Assets. ownership of 20% ore more.
5.​ Destruction of assets of the entity by ●​ Joint Control is the contractually
floods occurring after the reporting agreed sharing of control over an
period does not indicate that the assets economic activity.
of the entity were impaired at the end of
reporting period. Hence, the financial
statements should not be adjusted to Examples of related parties
account for the impairment loss that
arose after the end of reporting period.
6.​ Initiation of litigation against the 1.​ Affiliates – meaning the parent, the
company arising out of events that subsidiary and fellow subsidiaries.
occurred after the reporting period does -​ If an investor owns more than
not indicate the existence of liability at 50% of an investee, the investor
the reporting date and is known as parent and the
shall not therefore trigger the
recognition of liability in the financial
 investee is known as the b.​ Children of the individual’s
subsidiary. spouse
-​ the subsidiary is related to the c.​ Dependents of the individual or
parent and the fellow the individual’s spouse.
subsidiaries of one parent are
also related to each other.
3. Individuals or shareholders owning at
least 20% of the reporting entity. The close
2.​ Associates - meaning the entities over family members of such individuals or
which one party exercises significant shareholders are also related to the reporting
influence entity.
-​ If an investor owns at least 20%
of the investee, the investee is
known as associate. 4. Postemployment benefit plan for the benefit
of employees.

-​ Normally, the retirement plan of an entity

3.​ Venturers - are related to the joint
is funded by contributions from the
venture because they have joint control
entity. Such contributions constitute the
of the activities of the join venture.
trust fund handled by a trustee. Such
-​ However, the fellow venturers
trust fund is related to the reporting
are not related to each other,
entity.
unlike fellow subsidiaries.

Related Party Transaction

Other Related Parties
-​ is a transfer of resources or obligations
between related parties, regardless of
1.​ Key Management Personnel whether a price is charged.
-​ The key management personnel are the -​ PAS 23, paragraph 20, provides the
persons with managerial positions like following examples of related party
the president, vice president, chief transactions:
executive officer, and other officers with
the responsibility of controlling the
activities of the entity. 1.​ Purchase of sale of goods
2.​ Purchase and sale of property and other
asset
2.​ Close family members of key 3.​ Rendering or receiveing services
personnel 4.​ Leases
a.​ The individual’s spouse and 5.​ Transfer of research and development
children 6.​ License agreement
 7.​ Finance arrangements, including loans Disclosures of related party transactions
and equity contributions in cash or in
kind.
8.​ Guarantee and collateral -​ PAS 24, paragraph, 17, provides that if
9.​ Settlement of liabilities on behalf of the there have been transactions between
entity or by the entity on behalf of related parites, an entity shall be
another party. disclose the nature of the related party
relationship as well as information about
the transactions and outstanding
Related Party Disclosures balances necessary for an
understanding of the financial
statements.
-​ PAS 24, paragraph 12, requires
disclosure of related party relationships
where control exists irrespective of As minimum, the disclosure of related party
whether there have been transactions transactions shall include:
between the related parties.

a.​ the amount of the transactions

-​ In other words, relationship between b.​ The amount of outstanding balance,
parent and subsidiaries or investor and terms and conditions whether secured
associates shall be disclosed or unsecured, and nature of
regardless of whether there have been consideration to be provided in
transactions between those related settlement
parties. c.​ The allowance for doubtful accounts
related to the outstanding balance.
d.​ The doubtful accounts expense
-​ An entity shall disclose the name of the recognized during the period in respect
entity’s parent and if different, the of amount due from related parties.
ultimate controlling party.

Key Management Personnel Compensation

-​ If neither the entity’s parent nor the
-​ PAS 24, paragraph 16, provides that an
ultimate controlling party produces
entity shall disclose key management
financial statements available for public
personnel compensation in total and for
use, the name of the next most senior
each of the following categories:
parent that does so shall also be
disclosed.
 a.​ Short term employee benefits
b.​ postemployment benefits
CHAPTER 14: INVENTORIES
c.​ other long term benefits
d.​ termination benefits
e.​ shared based payment transactions
Inventories

-​ are assets held for sale in the ordinary

Related Party Disclosures Not Required course of business, in the process of
production for such sale or in the form of
-​ PAS 24, paragraph 3, requires
materials or supplies to be consumed in
disclosure of related party transactions
the production process or in the
and outstanding balances in the
rendering of services.
separate financial statements of a
parent, subsidiaries, associates or
venturers.
Trading Concern
-​ However, Paragraph 4 provides that
intragroup-related party transactions -​ is one that buys and sells goods in the
and outstanding balances are same form purchased. This term
eliminated in the preparation of “merchandise inventory” is generally
consolidated financial statements of the applied to goods held by a trading
group. concern.

​
Unrelated Parties
Manufacturing Concern
1.​ two entities simply because they have a
-​ is one that buys goods which are altered
director or key management personnel
or converted into another form before
in common
they are made available for sale.
2.​ Providers of finance, banks, trade
unions, public utilities and government
agencies in the course of their normal The inventories of a manufacturing concern are
dealings with the reporting entity. finished goods, goods in process, raw materials
3.​ Customers and suppliers by virtue of and factory supplies.
their normal dealings with the reporting
entity.
4.​ Fellow venturers are unrelated to each Cost of Inventories
other but the venturers are related to the
-​ Shall comprise cost of purchase, cost of
joint venture.
conversion and other cost incurred in
bringing the inventories to their present
location and condition.
 -​ The cost of purchase of inventories Cost Formulas
comprises the purchase price, import
-​ PAS2, paragraph 25, expressly provides
duties and irrecoverable taxes, freight,
that the cost of inventories shall be
handling, and other costs directly
determined by using either:
attributable to the acquisition of finished
a.​ First in, First Out
goods and materials.
b.​ Weighted Avergae
-​ The standard does not permit anymore
the use of the last in, first out (LIFO) as
-​ Trade discount, rebates and other
alternative formula in measuring cost of
similar items are deducted in
inventories.
determining the cost of purchase.

First In, First Out (FIFO)

Cost of Conversion
-​ This method assumes that the goods
-​ of inventories includes cost directly
first purchased are first sold and
related to the units of production such
consequently the goods remaining in the
as direct labor.
inventory at the end of the period are
-​ It also includes a systematic allocation
those most recently purchased or
of fixed and variables overhead that is
produced.
incurred in converting materials into
-​ In other words, the FIFO is in
finished goods.
accordance with the ordinary
merchandising procedure that the goods
are sold in the order they are
Other Cost
purchased.
-​ is included in the cost of inventories only -​ The rule is first come, first sold.
to the extent that it is incurred in -​ The inventory is thus expressed in
bringing the inventories to their present terms of recent or new prices while the
location and condition. cost of goods is representative of
earlier or old prices.

Excluded from Cost of Inventories

Weighted Average
a.​ Abnormal amount of wasted material
b.​ Storage cost -​ The cost of the beginning inventory
c.​ Administrative overhead plus the total cost of purchases
d.​ Distribution or Selling Cost during the period is divided by the total
units purchased plus those in the
beginning inventory to get a weighted
average unit cost.
 -​ Such weighted average unit cost is then Cost of Inventory
multiplied by the units on hand to derive
-​ is determined using either FIFO or
the inventory value.
Average Cost.
-​ In other words, the average unit is
-​ The Measurement of Inventory at the
computed by dividing the total cost of
lower of cost and net realizable value is
goods available for sale by the total
known as LCNRV.
number of units available for sale.

Net Realizable Value

Weighted Average Unit Cost
-​ is the estimated selling price in the
-​ is computed by dividing the total cost
ordinary course of business less the
of goods available for sale by the
estimated cost of completion and the
total units available for sale.
estimated cost of disposal.

Specific Identification
Accounting for LCNRV
-​ means that specific costs are attributed
1.​ If the cost is lower than NRV, there is no
to identified items of inventory.
accounting problem
-​ Cost of the Inventory is determined by
2.​ If the NRV is lower than cost, the
simply multiplying the units on hand by
inventory is measured at NRV.
the actual unit cost.
-​ In this case, the problem is the proper
-​ PAS 2, paragraph 23, provides that this
treatment of the writedown of the
method is appropriate for inventories
inventory to NRV.
that are segregated for a specific project
-​ The writedown of inventory to NRV is
and inventories that are not ordinarily
accounted for using the allowance
interchangeable.
method.

Measurement of Inventory
Allowance Method
-​ PAS 2, paragraph 9, provides that
-​ The inventory is recorded at cost and
inventories shall be measure at the
any loss on inventory writedown is
lower of cost and net realizable value.
accounted for separately.

-​ Is also known as loss method because

a loss account is debited and a
valuation account is credited.