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16 views39 pagesChapter 13 14
Chapter 13 discusses leases, differentiating between finance leases, which transfer most risks and rewards of ownership, and operating leases, which do not. It outlines the accounting treatment for both lessees and lessors, including recognition of assets and liabilities, classification criteria, and depreciation methods. Key points include the importance of lease inception and commencement dates for classification and measurement.
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0% found this document useful (0 votes)
16 views39 pagesChapter 13 14
Chapter 13 discusses leases, differentiating between finance leases, which transfer most risks and rewards of ownership, and operating leases, which do not. It outlines the accounting treatment for both lessees and lessors, including recognition of assets and liabilities, classification criteria, and depreciation methods. Key points include the importance of lease inception and commencement dates for classification and measurement.
Uploaded by
sucobosjocelyn6Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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/ 39
CHAPTER 13
LEASES. ie
320
321
me venrienenenerenen 822
323
FINANCE LEASE
Accounting for Finance lease by Lessees
Accounting for Finance lease by Lessors...
OPERATING LEASE : "326
CHAPTER 13 SUMMARY: : ” 328
CHAPTER 14
FINANCIAL STATEMENTS ... ensues 337
GENERAL PRINCIPLES sissscchsdiineeptteeree 339
STATEMENT OF FINANCIAL POSITION wsssussssantem 341
STATEMENT OF FINANCIAL PERFORMANCE soon 345,
STATEMENT OF CHANGES IN NET ASSeTS/EQuiTy gen wn 347
STATEMENT OF CASH FLOWS... i aah 348
STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS... 0 352
NOTES TO FINANCIAL STATEMENTS... 2 355
Events After the Reporting Date ‘ 358
Changes in Accounting Policies suns * 359
Changes in Accounting Estimates ... 360
EFFOFS sss 360
CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS. soo 361
INTERIM FINANCIAL STATEMENTS... .ossneesmnnmtnnnimesusieciennesenanie 363
OTHER REPORTS: o 363
DEADLINES ON SUBMISSION OF REPORTS. 364
CHAPTER 14 SUMMARY: : 365
CHAPTER 15
MISCELLANEOUS TOPICS .. 376
SERVICE CONCESSION ARRANGEMENTS BY GRANTOR, 376
Recognition and Measurement of Asset 378
Recognition and Measurement of Liability 379
Financial Liability Model... : wo 380
Grant of Right to the Operator Model... 380
Dividing the Arrangement. 381
INTERESTS IN JOINT VENTURE sso: 382
Jointly Controjled Operations i
Jointly Controlled Assets ..
Jointly Controlled Entities
385 320 Chapter yy
Chapter 13
Leases
Learning Objectives
1. Differentiate between a finance lease and an operating lease
Jessors.
2. Account for finance leases by lessees and by
3. Account for operating leases by lessees and by lessors,
Introduction
Lease is an agreement whereby the lessor conveys to the lessee, in
return for a payment or series of payments, the
asset for an agreed period of time,
Leases include hire purchase contracts (i.e, contracts for
the hire of an asset which contain a provision giving the hirer an
option to acquire title to the asset upon the fulfillment of agreed
right to use an
conditions)
Classification of Leases
1, Finance lease = is a lease that transfers substantially all the risks
and rewards incidental to ownership of an asset
wv
Operating lease - is a lease that does not that transfer
substantially all the risks and rewards incidental to ownership
of an asset
The classification of a lease depends on the substance of
the transaction rather than the form of the contract.
Finance lease
Any of the following would lead to a finance lease classification:
a. The lease transfers otonership of the asset to the lessee by the
end of the lease term. ————
a 321
The lessee has the option
expected ts ben re oth ieee the asset at a price that is
the option becomes exercisable n the fair value at the date
4 le for it to be reasonably certain,
at the inception of the lease, that the tion wil y certain,
(‘bargain purchase option’), Spas yell he ecard
¢ Oe erin is for the major part of the economic life of the
asset e ie i itle = not transferred. A lease qualifies to be
accounted for as finance lease if the contract is a non-
cancellable contract.
d, At the inception of the lease, the present value of the
minimum lease payments amounts to at least substantially all
of the fair value of the leased asset
e. The leased assets are of such a specialized nature that only the
lessee can use them without major modifications.
{, The leased assets cannot easily be replaced by another asset
g. If the lessee can cancel the lease, the lessor’s losses associated
with the cancellation are borne by the lessee.
h, Gains or losses from the fluctuation in the fair value of the
residual (leased asset) accrue to the lessee (for example in the
form of a rent rebate equalling most of the sales proceeds at
the end of the lease).
The lessee has the ability to continue the lease for a secondary
period at a rent that is substantially lower than market rent.
(GAM for NGAs, Chapter 13, Sec. 5)
i
Lease of Land and Building ;
When a lease includes both land and buildings elements, each
element shall be classified separately as either operating or finance
lease.
nts are allocated based on the
The minimum lease payme! ,
d interests in the land and
relative fair values of the leasehol
buildings elements at the inception of th
If the lease payments cannot
entire lease is classified as a finance lease,
ie lease.
be allocated reliably, the
unless it is clear that 322
oer __
the entire lease jg
both elements are operating leases, in which case
classified as an operating lease.
If the land element is immaterial, the
Tay be treated as a single unit and classified as finance o,
Operating lease, In such case, the economic life of the buildings jg
regarded as the economic life of the entire leased asset
land and buildings
Inception of the lease ~ is the earlier of the date of the lease
agreement and the date of commitment by the parties to the
principal provisions of the lease. It is on this date that:
a. A lease is classified as either an operating or finance
lease; and
b. Inthe case of a finance lease, the amounts to be recognized
at the commencement of the lease term are determined,
Commencement of the lease term - is the date from which the
lessee is entitled to exercise its right to use the leased asset. It
is on this date that any asset or liability resulting from the
lease is initially recognized
Accounting for Finance lease by Lessees
At the commencement date, a lessee recognizes the asset acquired
under a finance lease and the related lease liability measured at the
lower of the:
a. fair value of the leased property at inception date; and
b. present value of the minimum lease payments at inception date
Minimum lease payments include the following:
a. Rentals, excluding contingent rent, costs for services and taxes
reimbursable to the lessor;
Bargain purchase option; and
Guaranteed residual value
> Contingent rent — is lease payment that is not fixed in amount
but rather based on the future amount of a factor that changes
other than with the passage of time (e.g, percentage of future
, | ee
sales, amount of future use fu
. eS » future price ind
rates of interest), Contingent rent r pi ices, future market
the period incurred, nized as expense in
The minimum lease
. - Payments are d
interest rate implicit in the le, iscounted using the
48¢, if this is determinable; if not, th
lessee’s incremental borrowing rate is used, ‘ ™
Initial direct costs, such as costs in
securing leasing
recognized
The lease liability is subsequently measured similar to an
amortized cost financial liability. Accordingly, the minimum lease
payments are apportioned between interest expense and a
reduction of the outstanding liability, Interest expense in each
period reflects a constant periodic rate of interest on the remaining
balance of the liability.
‘curred in negotiating and
arrangements, are capitelized as part of the asset
The leased asset is accounted for similar to an owned
asset, e.g., aS PPE or investment property. Accordingly, the leased
asset is depreciated using the entity's existing depreciation
policies. If there is no reasonable certainty that the lessee will
obtain ownership by the end of the lease term, the asset shall be
depreciated over the shorter of its useful life and the lease term.
Accounting for Finance lease by Lessors
A lessor recognizes the lease payments receivable under a finance
lease at an amount equal to the net investment in the lease.
Initial direct costs are included in the initial measurement of
the finance lease receivable and reduce ‘the amount of revenue
Tecognized over the lease term. The interest rate implicit in the
lease is defined in such a way that the initial direct costs are
included automatically in the finance lease receivable. Therefore,
there is no need to add the initial direct costs separately.
lease - is the discount rate that, at the
Interest rate implicit in the present value of:
inception of the lease, causes the aggregate 324 Chapter 13
ee
1, The minimum lease payments; and
2. The unguaranteed residual value,
to be equal to the sum of (a) the fair value of the leased asset ang
(b) any initial direct costs of the lessor.
The lease receivable (net investment in the lease) is
subsequently measured similar to an amortized cost financial
asset. Accordingly, the lease payments are applied against the
gTOss investment in the lease to reduce both the principal and the
uneamed finance revenue,
Illustration;
On January 1, 20x1, Lessee enters into a 4-year lease of machinery
with Lessor. Ownership of the machinery will be transferred to
Lessee at the end of the lease term, Annual rental payable at the
end of each year is ®100,000. The implicit interest rate, known to
Lessee, is 10%.
Lessee estimates that the remaining useful life of the
machinery is 5 years.
The machinery has a historical cost of 1,000,000 and
accumulated depreciation of 683,013 in the books of Lessor,
> Initial measurement:
‘The present value of the lease payments is computed as follows:
Annual rental
Multiply by: PV ordinary annuity of 1 @10%, n=4
PV of lease payments - 1/1/x1
100,000
3.169865.
316,987,
—_—
Books of Lessee
Books of Lessor
Lx)
Leased Assets, Machinery
and Equipment 316,987
Wt
Finance Lease Receivable 400K"
| Finance Lease Payable 316,987
Accumulated Depreciation 683,013
Déferred Finance Lease
Revenue ® a3.013
4_Machinery ___M_—* a)
19 100,000 annual rent x 4 yrs, =
400,
ystment in the lease) 1000 Finance Lease Receivable (Gross
i
1» 400,000 Gross investment in the lease « 316,987 Net investment in the lease
, in
83013 Deferred Finance Lease Revenue (Uneamed interest income)
)
y Subsequent measurement:
Amortization table:
“Date ___Payments Interest Amortization _ Present value
1x 316,987
1ysvxt 100,000 31,699 68,301 248,685
12/31/x2 100,000 24,869 75,131 173,554
1313 100,000 17,355 82,685 90,908
12/31/x4 100,000 9,091 90,909 0
[__ Books of Lessee Books of Lessor
pad TALL —
Interest Expense 31,699 Cash-Collecting Officers 100K
Finance Lease Payable 68,301 Deferred Finance Lease
Cash-Modified Disbursement Revenue 31699
System (MDS), Regular 100K Interest Income 31,699
Finance Lease Receivable 100K
TBI rs
Depreciation-Leased Assets,
| Machinery é& Equipment 63,397
| Accumulated Depreciation- |
Leased Assets, Machinery or}
(_& Equipment 63,397|
reciation. The leased asset is
7 annual depr
rp inty that the
(316,987 + 5 yrs.) = 63. “
depreciated over its useful life because there is reasonable certai
lessee will obtain ownership by the end of the lease term
‘ i he same
Journal entries in ‘subsequent periods follow #
Pattern, 326 Chapter 13,
Operating lease
A lessee (lessor) under an operating lease recognizes the lease
Payments as expense (income) on a straight line basis over the
lease term, unless another systematic basis is more representative
of the time pattern of the user’s benefit
Initial direct costs incurred by lessors are added to the
carrying amount of the leased asset and recognized as expense
over the lease term on the same basis as the lease income Initial
direct costs incurred by lessees (such as lease bonus paid to the
lessor) are treated as prepaid rent and recognized as expense on
the same basis as the lease expense.
Illustration:
On January 1, 20x1, Lessor acquires a machine for ®1M and
immediately leases it out to Lessee under a 3-year non-cancellable
lease. Lessor incurs initial direct costs of 90, 000 in negotiating
the lease. The estimated useful life of the machine is 10 years with
no residual value. The lease is an operating lease to both Lessor
and Lessee. The lease payments, payable at each year-end, are as
follows:
Year Rentals
20x1 145,000
20x2 115,000
20x3 100,000
» The annual lease income (expense) on a straight line basis is
computed as follows
a
20x1
20x2 115,000
2053 ___100,000
Total rentals 360,000
Divide by: Lease term 3
Annual lease incomelexpense 120,000 ——— ST ?
_Books of Lessor | —
—— | SS
ih Books of Lessee
nchinery and Equipment 1,o9.4u
Mat jsh-Modified Disbursement
system (MDS) Regular 1.09
w (IM cost of machine + 90,000 initial direct aa : aa _ |
“Books of Lessor
—_— | _ Book ks of Lessee
ya!
Cash-Collecting Officer 145K we _—s
Rent/Lease Income 120K | Prepaid Rent ~ oe
Other Uneamed Revenue 25K| —Cash-Modified Di Sicwines
isbursement
[ System (MD?
TT ae lar___145K
Depreciation-Machinery and Noentry
| Equipmen 130K
‘Accumulated Depreciation- |
Machinery and Equipment _ 130K
® Cost of machine 1,000,000
Divide by: Useful life of machine
Depreciation of machine
Initial direct costs
Divide by: Lease term
Amortization of initial direct costs
Total depreciation \
| _ Books of Lessor __Books of Lessee
ane Taine .
Cash-Collecting Officer 115K Rent/Lease Expense 120 :
Other Unearned Revenue 5K Cash-Modified a bw
Rent/Lease Income 120K| System (MDS), Regular
| Prepaid Rent_— SK
_ | aerrr—
zl?
Depreciation-Machinery and Noentry
Equipment 130K
Accumulated Depreciation
Machinery and Equipment _ 190k |
periods follow the same pattern.
Journal entries in subsequent 328 Chapter 13
a
i
Chapter 13 Summary: a
* A lease that transfers substantially all the risks and rewards]
incidental to ownership of an asset is a finance lease; a lease
that does not is an operating lease. .
* Any of the following would lead to a finance lease
classification: |
1. Transfet of ownership
2. Bargain purchase option
3. The lease term is for the major part of the economic life of
the asset ('75% criterion’).
4. The PV of the lease payments is at least substantially all of
the fair value of the leased asset ('90% criterion’).
5. The leased asset is specialized nature |
© Inception of the lease is the earlier of the date of the lease |
agreement and the date of commitment by the parties to the
principal provisions of the lease. Classification and
measurement are done on this date.
‘© Commencement of the lease term is the date from which the
lessee is entitled to exercise its right to use the leased asset. |
Initial recognition of any asset or liability is made on this date.
¢ A lessee recognizes an asset and a liability from a finance lease.
* Lease payments are discounted using the interest rate implicit
in the lease, if this is determinable; if not, the lessee’s
icremental borrowing rate is used,
Initial direct costs are generally capitalized.
The lessee depreciates the leased asset under a finance lease
over the shorter of the asset’s useful life and the lease term if
there is no reasonable certainty that the lessee will obtain |
ownership over the asset by the end of the lease term. |
«A lessor recognizes the lease payments receivable under al
finance lease at an amount equal to the net investment in the
lease. |
* A lessee (lessor) under an operating lease recognizes the lease
payments as expense (income) on a Straight line basis over the
lease term, unless another systematic basis is more
representative of the time pattern of the user's benefit J
wa inancial Statements
337
Chapter 14
Financial Statements
[Learning Objectives SSS
1, State the general principles in
statements.
iit a complete set of general purpose financial statements |
of a government entity, includin, ial not
, " 8 a partial notes
financial statements, etme
3. Describe the accounting and disclosure requirements for
events after the reporting date, changes in accounting policies,
changes in accounting estimates, and correction of errors.
4, State the “other reports” prepared by governmententities. _|
the presentation of financial
Introduction
General Purpose Financial Statements are those intended to meet the
needs of users who are not in a position to demand reports
tailored to meet their particular information needs. (PPSAS 13)
Objectives of General Purpose Financial Statements
The objectives of general purpose financial statements of a public
sector entity are:
a, To provide
financial performance,
ty’s financial position,
information about the enti
hat is useful to a wide
and cash flows ¢
g economic decisions,
ntability of th
range of users in makin ee ais
b. To demonstrate the accou! e entity
resources entrusted to it.
Responsibility for Financial Statements se rats with the entity's
1h ibili 1 financial statemen th
fone tee Head of the Entity jointly with the
management, particularly the
Head of Finance/Accounting 338 Chapter 14
A. Statement of Management Responsibility for Financia
Statements shall be attached to the financial statements a5 2 covey
letter.
‘Agency/Emtty Letvertend
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL
“sppropriate comudersboa to materiality
Jo this regard, management mminini & system of sccomatiog nd reporting which provides fr
he necemary internal controls to ensure that teansactioas are property muthoriaed and recorded,
‘scsee re safepparded sppinat uomuthorined uve or disposition sod babes are recopnzed
“Giiet Finacial and Management Office) SCS*CSe do Agency a
Comptroller Auborumed Representat ve
teed ate Sige
Components of General Purpose Financial Statements
A complete set of financial statements consists of;
a. Statement of Financial Position;
b. Statement of Financial Performance;
c. Statement of Changes in Net Assets/Equity;
d. Statement of Cash Flows;
e. Statement of Comparison of Budget and Actual Amounts; and
f Notes to the Financial Statements, comprising a summary o
significant accounting policies and other explanatory notes. cial Statements
— 339
ceneral Principles
fait Presentation
Fait ee means the faithful representation of the effects of
transactions an other events in accordance with the definitions
recognition criteria for assets, liabilities, revenue, and
expenses inthe PPSAS. The application of PPSAS, with
appropriate disclosures, if necessary, would result in the fair
and
ation of the financial statements.
Fair presentation also requires the proper selection and
application of accounting policies in accordance with the PPSAS.
1 disclosures shall be made whenever relev
Additional
understanding of the information contained in the financial
statements.
present
Compliance with PPSASS
An entity whose financial statements comply with the PPSASs
shall make an explicit and unreserved statement of such
compliance in the notes Financial statements shall not be
‘ith the PPSASs unless they comply with
described as complying w
all the requirements of PPSASs. Inappropriate accounting policies
‘re not rectified either by disclosure of the accounting policies
used, or by notes or explanatory material
Departure from PPSAS
In the event that Manage
with the requirement of
ation that it would contr:
dep:
k allows,
jeves that compliance
It in misleading
financial
»ment strongly beli
PPSAS would resul
adict the objective of the
art from that requirement if the
present
or otherwise does not
statements, the entity May
relevant regulatory framewor
Prohibit, such a departure.
Going Concern
The financial statements shall be prepared on a going concern
basis unless there is an intention to discontinue the entity
alternative but to do so.
°peration or there is NO realistic Consistency of Presentation 7
The presentation and classification of items the financia,
statements shall be retained from one period to the next unless
PPSAS require a change jn
laws, rules and regulations, and
presentation.
Materiality and Aggregation
Each material class of similar items shall be presented separately
in the financial statements. Items of a dissimilar nature or function
shall be presented separately unless they are immaterial. If line
item is not material, it is aggregated with other items either on the
face of the financial statements or in the Notes. A specific
disclosure requirement in a PPSAS need not be satisfied if the
information is not material.
Offsetting
Assets and liabilities, and revenue and expenses shall not be offset
unless (a) required or permitted by a PPSAS, or (b) when
offsetting reflects the substance of the transaction or other event.
Comparative Information
Comparative information shall be disclosed with respect to the
amounts reported in the financial
previous period for all
information shall be included for
statements. Comparative
narrative and descriptive information when it is relevant to an
understanding of the current period's financial statements.
(GAM for NGAs Chapter 2, Sec. 15-22)
Identification of the Financial Statements
The financial statements shall be identified clearly, and
distinguished from other information in the same published
document
The following information shall be displayed prominently
and repeatedly:
Name of the reporting entity;
b. Whether the financial statements cover the individual entity
a group of entity; al Statements
a
The reporting date or the
statements, whichever js apy
financial statements;
dg. Name of fund cluster;
e. The reporting currency; and
{, The level of rounding-off of amounts.
(pPSAS 1.61) .
Period covered by the financial
Propriate to that component of the
Reporting Period
Financial statements shall be presented at least annually.
When an entity changes its reporting date such that its
annual financial statements are Presented for a period longer or
shorter than one year, the following shall be disclosed:
a, The period covered by the financial statements;
b. The reason for using a longer or shorter period; and
c. The fact that comparative amounts are not entirely
comparable.
Statement of Financial Position
The statement of financial position shows the entity's financial
condition as at a certain date. It is presented in comparative,
condensed and detailed formats.
1. Condensed Statement of Financial Position - presents only the
line items shown below. The breakdowns and other relevant
information are disclosed in the Notes.
a. Cash and cash equivalents;
b. Receivables from exchange transactions;
©. Recoverable from non-exchange transactions (taxes and
transfers);
4. Financial asse
and (c));
®. Inventories;
f, Investment Property
8 Property, Plant and Equipment:
4s (excluding amounts shown under (a) (b) 4
342 Chay
a
Intangible assets;
Taxes and Transfers Payable;
Payables under exchange transactions;
Provisions;
Financial liabilities (excluding amounts shown under (hy
(i) and (j)); and
m. Net assets/equity.
cere
Additional line items, headings, and sub-totals shall be
presented whenever relevant to the understanding of the entity's
financial position
2. Detailed Statement of Financial Position — presents all the asset,
liability and equity accounts in the Revised Chart of Accounts
Condensed Detailed
Tae OF THE ENT
DETAILED STATEMENT OF FINANCIAL POSTION
‘ALL FUNDS.
‘ASOF DECEMBER 31,2016
Both the condensed and detailed statement of financial
position form part of the entity’s annual financial statements.
The statement of financial position shal! show distinctions
between current and noncurrent assets and liabilities.
Any of the following would lead to the current
classification of an asset or liability. ments
exchanged or used to settle a
liability for at least twelve
months after the reporting |
|
date. _ eee
rinancial Statern ——__ 343
Current Assets
tas = : Current Liabilities
4 pid real — In, or | a. Expected to be settled in the
is re for sale or enti
; 's normal
consumption in, the entity's pe mPa
normal operating cycle. -
Held primarily for trading. | b.__Held primarily for trading
~ Expected to be realized] c. Due to be settled within 12
within 12 months after the | months after the reporting
reporting date .
Tot is cash or a cash
| equivalent, unless it is unconditional right to defer
restricted from being settlement of the liability for
at least twelve months after
the reporting date.
All other assets and liabilities are classified as noncurrent.
An illustrative statement of financial position, presented
using the condensed format, is shown below: (NAME OF THE ENTITY)
STATEMENT OF FINANCIAL POSITION
(ALL FUNDS OR NAME OF FUND)
AS AT DECEMBER 31, 2015
ASSETS Note 2016 2014
Current Assets
Cash and Cash Equivalents 6 rox Hx
lovestments 7 wx 00
Receivables 8 2
inventories 9 120K
Other Current Assets 14 2000
Total Current Assets OO
Non-Current Assets
lovestments 7 ox x
Investment Property 10
Property, Plant and Equipment " KK
Biological Assets: 12 200 v0
Intangible Assets 13 OK KK
Ot or Non-Current Assets 14 KK
Total Non-Current Assets m0 ox
Total Assets =a
UABILITIES
Current Liabilities
Financial Liabilities
Inter-Agency Payables 16
Trust Liabilities 17
Deferred Credits/Uneamed income 18
Provisions 19
Other Payables 20
15
EERE
&
ie
Total Current Liabilities
Non-Current Liabilities
Financial Liabilities 15
Trust Liabilities 7
Deferred Credits/Unearned income 18
Provisions 19
Other Payables
Total Non-Current Liabilities
El gees bp beeege
Total Liabilities
Total Assets less Total Liabilities
kk
NET ASSETS/EQUITY
Accumulated Surplus/(Deficit)
‘Total Net Assets/Equity
rox
70
eR OTE R Bl gees fe
[ele
TS Tata OT BS TORT CORA OT BOOT cial Statements
snes
:
raterment of Financial Performance
th statement of financial performance shows the revenue, expenses
nd surplus or deficit for the period, It is presented in
minporative, condensed and detailed formats.
“Generally, revenue and expenses are recognized in surplus
vy deficit, except for the following which are recognized directly in
a
Correction of prior period errors;
b,. Effect of changes in accounting policies; and
Gains or losses on remeasuring available-for-sale financial
assets.
The following are the minimum line items to be presented
on the face of the statement of financial performance:
a. Revenue;
b. Finance co!
«. Share in the surplus or deficit of associates and joint ventures;
d. Gain or loss attributable to discontinuing operations; and
e, Surplus or defi
Additional line items, headings, and sub-totals shall be.
presented whenever relevant to the understanding of the entity's
financial performance.
The nature and amount of material items of revenue and
expense are disclosed separately. Examples of items to be
disclosed separately include the following:
\ Write-downs of assets (e.g. inventory, PPE) and reversals
thereof;
Restructuring provisions and reversals thereof;
Disposals of items of property, plant, and equipment;
Privatizations or other disposals of investments;
Discontinuing operations;
Litigation settlements; and
Other reversals of provisions.
bh Expenses may be presented according to their function oy
nature, whichever is more relevant. If expenses are classified
function, additional disclosures shall be made on the nature of
expenses, including depreciation, amortization and employee
benefits expenses,
An illustrative statement of financial performance,
Presented using the condensed format, is shown below:
a ene
(NAME OF THE ENTITY)
STATEMENT OF FINANCIAL PERFORMANCE
(ALL FUNDS OR NAME OF FUND)
FOR THE YEAR ENDED DECEMBER 31, 2015
Note 2018
EB
Revenue
Tax Revenue 2
Service and Business income
Shares, Grants and Donations
Gains
E BEE
BEES
Total Revenue
Less: Current Operating Expenses
Personnel Services 4 0K 00
Maintenance and Other Operating Expenses 25 0K 008
Financial Expenses 26 00 xo
Direct Costs eee oo
Non-Cash Expenses a a eo
Total Current Operating Expenses mo ~
‘Surplus/(Deficit) trom Current Operations = a
Net Financial Assistance/Subsidy 28 oo 08
Sale of Assets 20 bai mt
Gains 2 cred ot
Losses a tox) ws
Surplus/(Deficit) for the period Py a
ata BRO 8d BORIACRON WA Hn RTPA Fa j statements 347
cial St
tere! ent of Changes in Net Assets/Equity
» | statement of changes in net assets/equity shows the increase or
merease in the entity's net assets during the period resulting from
ppe following:
surplus or deficit for the period;
* Jjems of revenue and expense that are recognized directly in
equity
Etfecis of changes in accounting policies and corrections of
errors; and
The balance of accumulated surpluses or deficits at the
beginning of the period and at the reporting date, and the
changes during the period
d
An illustrative statement of changes in net assets/equity is
shown below:
Changes in scoounting policy
Prior period errors
Ober adjustments
Restated balance
eS Aneta tr te Catender Yoo ns Ch
~
Statement of Cash Flows
The statement of cash flows shows the sources and utilizationg
cash and cash equivalents during the period according to the
following activities:
a. Operating Activities - cash flows from operating, activities ary
primarily derived from the principal cash-generating activities
of the entity. They normally include cash flows on items of
revenue and expenses. Examples include:
i. Receipt of NCA and reversion of unused NCA
Receipt or provision of assistance and subsidy to other
entities
iii. Collection of income and receivables
iv. Payments of expenses, cash advances and payables
v. Inter or intra-entity transfers of funds
b. Investing Activities - involve the acquisition and disposal of
noncurrent assets and other investments. Examples include:
i, Acquisition and disposal of PPE, investment property,
intangible assets and other noncurrent assets
ii, Acquisition and disposal of investment securities and
derivatives
iii, Collection and provision of long-term loans
c. Financing Activities ~ are activities that affect the entity’s equity
capital and borrowings. Examples include:
i. Issuing of notes, loans, and bonds payable, and their
repayments
ii, Finance lease payments pertaining to the reduction of the
outstanding finance lease liability
Cash flow information provides a basis for assessing "
entity's ability to generate cash and cash equivalents and its
utilization of funds.
Cash flows exclude movements between ‘cash’ and ‘cas
equivalents’ (e.g., investment of excess cash in cash equivalen) se
acause these are part of the entity's cash management rather than
operating investing or financing activities.
resentation of Cash flows
operating activities
Cash flows from (used in) operating activities are presented using
the Direct Method. Under this method, major classes of gross cash
receipts and gross cash payments are presented. The indirect
method, which is available to business entities, is not allowed for
government entities. .
Information about major classes of gross cash receipts and
gross cash payments may be obtained either:
a. From the accounting records of the entity; or
b. By adjusting relevant accounts for changes during the period,
non-cash items, and other items whose effects are investing or
financing cash flows. This can be done through T-account
analyses.
A reconciliation of the accrual basis surplus or deficit with
the net cash flow from operating activities shall be provided in the
notes to financial statements.
Investing & Financing activities
Cash flows from (used in) investing and financing activities are
| also presented according to major classes of gross cash receipts
and gross cash payments.
> Cash flows may be reported on a net basis for:
a. Receipts and payments made on behalf of customers,
taxpayers or beneficiaries that reflect the activities of the
other party rather than those of the entity; and
b. Receipts and payments for items with quick tumover,
large amount, and short maturities. “hapten i,
> Cash flows denominated in a foreign Currency are translates
using the spot exchange rate at the date of the cash flow
Exchange differences are not cash flows but a reconciliation of
the cash and cash equivalents at the beginning and end of the
period. Exchange differences are reported in the statement of
cash flows separately from the operating, investing ang
financing activities. (See illustrative statement of by
ash fl
> Any significant amount of cash and cash equivalents held that
is not available for the entity's use shall be disclosed in the
notes.
An illustrative statement of cash flows is shown below 351
(NAME OF THE ENTITY)
STATEMENT OF CASH FLOWS
(ALL FUNDS OR NAME OF FUND}
FOR THE YEAR ENDED DECEMBER 31,2018
aun Flows From Operating Activities pore 2014
‘aecuit of Notice of Cash Allocation —
Cotecton of Income Revenues =
ecobet of Assistance and Subsidy hom Omer NGAS, LGUs and GOCCs wet
ot Recoivabies =
Roceit of Inter-Agency Fund Tranetora = =
me sine yx ee
“Total Cash i —_
emittance to National Treasury ==
Payment of Expenses = =
purchave of iventorion =
Purchaee of Consumable Biclogia! Assets =
‘Grant of Cash Advances = =
Payment of Accounts Payable = =
Remttance of Personnel Benet Contributions and Mandatory Deductions mx ret
“Total Cush Outowe a
et Caah Provided by (Used in) Operating Activiien -_
cash Flows from investing Activities
Proceeds from Sale/Diaposal of Property, Plant and Equpment oy Sek
Sala of invostments = =
Recaigt of Cash Dividends <=
Total Cash Inflows =
Purchase/Construction of Invest Property _——S
Purchase of Boarer Biological Assets ro _eo.
‘Total Cash Outtiows =. =
het Cash Provided by (Used in) Investing Activites oer ee
[Couh Flows From Financing Activities
Proceeds from Domestic and Foreign Loans wo me
Total Cash inflows oe
Payment of Interest Expense (BTRING Deb!) oe
Total Cash Outflows a oo
Net Coah Provided by (Used in) Financing Activities mo
crease (Decrease) in Cash and Cash Equivalents mm
eects of Exchange Rate Changes on Gash and Gash Equivalents mK
Caah and Cash Equivalents, January 1 wx
==
Ln 352
Statement of Comparison of Budget and Actual Amounts
The statement of comparison of budget and actual amounts shows the
differences (variances) between budgeted amounts and actua
results for a given reporting period. This enhances the
transparency of financial reporting of the government.
The statement of comparison of budget and actuaj
amounts shows the following:
a. Budget information - consists of, among others, data on
appropriations, allotments, obligations, revenues and other
receipts, and disbursements. This is based on the budget
registries and includes the following:
i. Original Budget ~ is the initially approved budget for the
period, usually the General Appropriations Act, The
original budget may include residual appropriated
amounts automatically carried over from prior years by
law such as prior year commitments or possible future
liabilities based on a current contractual agreement (eg,
prior year’s not yet due and demandable obligations)
ii, Final Budget - is the original budget adjusted for all
reserves, carry-over amounts, realignments, transfers,
allocations and other authorized legislative or similar
authority changes applicable to the period
(GAM for NGAs, Chapter 3, See. 2)
Explanations regarding changes from original to
final budget (i.e, whether they are a consequence of
reallocations within the budget) are disclosed in the notes.
Moreover, the budgetary basis (cash, accrual of
some modification thereof) used in preparing the budget
information vis-a-vis the accounting basis used in preparirs
the financial statements shall be disclosed in the notes.
b. Actual amounts on a comparable basis - These represent the
actual disbursements made during the period.
Since the ‘actual amounts on a comparable basis’ to the
budgeted amounts are on a ‘cash basis’, they may not alway*
a acitl Statements
wancial St
ri
be equal to the amounts presented in the other financial
statements, which are on ‘accrual basis’, These, therefore, are
reconciled in the notes, The differences are classified as
follows:
Basis Differences - occur when the approved budget is
prepared on a basis other than the accounting basis;
Timing Differences ~ occur when the budget period differs
from the reporting period reflected in the financial
statements; and
Entity Differences ~ occur when the budget omits program
or entities that are part of the entity for which the financial
statements are prepared, (GAM for NGAs, Chapter 3, Sec. 28)
c. Differences between (a) and (b) above - Explanations of material
differences shall be made in the notes.
Example
Entity A's appropriation for Capital Outlays for the current year
amounts to 1M. The original budget is #IM.
During the year, 50,000 is realigned to personnel services.
The final budget is #950,000 (1M - 50K),
Actual disbursements during the period totaled 870,000.
The actual amounts on a comparable basis is 870,000. The
additions to capital assets reflected in the financial statements is
930,000. This is calculated on the accrual basis, The ‘basis
difference’ of 60,000 is disclosed in the notes.
The difference between the ‘final budget’ and ‘actual amount
6" comparable basis’ is ®80,000 (950,000 ~ 870,000). This difference is
"conciled with, among, others, the unreleased ‘appropriations,
“nobligated allotments, and unpaid obligations, as shown in the
udget registries,
The statement of comparison of budget and actual
“Mounts will show the following information: = Chapter 4
i i
| * sages Ames Ame ~—
| Compurtite Som
owe me oe oI
‘enon oon RO me
The statement of comps of budget and actual
Business entities are
amounts is peculiar to governm
nent for thei extemal reporting
ot required to prepare this s
although they may prepare a similar statement for their internal
reporting
An illustrative statement of companson of budget and
ounts is shown below
naa oF vo OTT
FERMENT OF COM AIRC OF RUT AAD ETAL AMERY
cas PON Cm aah OF Pu
Fon fe VLA Enno ORCEMMER IT 20 jal Statements 1 355
int
notes tO Financial Statements
rhe notes t0 financial statements provides information in addition to
ope presented in the other financial statements. It is an integral
art of @ complete set of financial statements. All the other
gnancial statements are intended to be read in conjunction with
the notes. Accordingly, information in the other financial
ements shall be cross-referenced to the notes.
The notes shall be structured in a systematic and logical
manner to show the following;
General information on the reporting entity.
Statement of compliance with the PPSAS and Basis of
preparation of financial statements.
Summary of significant accounting policies.
This includes narrative descriptions of the line items in the
other financial statements, measurement bases, transitional
provisions, and other relevant information.
4. Disaggregation (breakdowns) and other supporting
information for the line items in the other financial statements.
5, Other disclosures required by PPSAS, such as:
a. Explanations for the differences between budgeted and
state
actual amounts;
b. Events after the reporting date, if material;
¢. Changes in accounting policies and accounting estimates
and prior period errors;
d. Contingent liabilities, contingent assets, and unrecognized
« contractual commitments;
e. Related party disclosure; and
f. Non-financial disclosures, e.g., the entity’s financial risk
management objectives and policies.
6 Other disclosures not required by PPSAS but the managemer
deems relevant to the understanding of the financ
Statements. Serie y
Mlustrations: Excerpts from Notes to financial statements
Excerpts 1 & 2:
December 31, 2015
General Information/Agency Profile
Entity A was established by virtue of Republic Act No. __ otherwise
known as the __, which was signed into law on ___. Entity 4 |
operates under the Office of the President for administration purposes, |
Pursuant to Republic Act No.__ Entity A is mandated to undertake the
following tasks:
Entity A’s registered office is located in __. The financial
statements of Entity A were authorized for issue om _
Statement of Compliance and Basis of Preparation of Financial
Statements
The financial statements have been prepared in accordance with the
Philippine Public Sector Accounting Standards (PPSAS) issued by the
Commission on Audit per COA Resolution No. 2014-003 dated January
24, 2014
The financial statements have been prepared on the basis of historical
cost, unless stated otherwise.
( Same date as the signing of the Statement of Management Responsibility for Financ
Statements.
Excerpt 3:
Summary of Significant Accounting Policies
3.1 Basis of accounting
The financial statements are prepared on an accrual basis except for the
Statement of Cash flows. yr
statements 7.
mani State 357
3.4 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash in bank, and
highly liquid investments with an original maturity of three months or
Jess, which are readily convertible to known amounts of cash and are
subject to insignificant risk of changes in value
Excerpt 4 Disaggregation of line items in the other financial statements
)
Monthly | TBs & SSs | 10 daysafter end of month |
Quarterly | FSs, TBs & S5s_| 10 days after end of quarter
Yearend — | PSs, TBs & SSs | On or before Jan. 20 of the
—__ following year
Auditor,
Regional
Accountang
b. Regional/Branch Offices:
|__| Report J e__|
[Monthly _| TBs & S5s 10 end of month
Quarterly | F5s, TBs & S95 | 10 days after end of quart
Yearend | FSs, TBs & S$s | On or before Jan. 31 of the
following yea
c. Central/Head/Main Office:
[~ ——T
Dei
_ ine
10 days after end of month
|___Report
Monthly _| TBs & SSs
| Quarterly | FSs, TBs & 5Ss
10 days after end of quarte
He TKes
Yearend FSs, TBs & SSs
(combined CO,
ROs & OUs)
b. 14 of the following
year
_t__
r | Auditor, Central
ai
[COA Auditor,
DBM, COA-GAS
(Gov't Acontaey
Seton)
" TBs (Trial Balances); 8Ss (Supporting Schedules); FSs (Financial Statements)
Submit to
Regional]
Oifice Chief |
Accountant . |
Submit to
Regional
Auditor, Central
Office Chief
Accountant _| copter 14 Summary: