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Module 003 - The Statement of Financial Performance - PPT

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71 views17 pages

Module 003 - The Statement of Financial Performance - PPT

Uploaded by

rhythmm quira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Week 003

Statement of
Financial Performance
Week 003: Statement of Financial Performance

Learning Targets
1. Understand the concept of comprehensive income
2. Distinguish profit or loss and other comprehensive income
and Identify the components of comprehensive income
3. Prepare the income statement using functional and natural
presentation

https://www.fmsbank.com/wp-content/uploads/2018/03/031518-
Ever-Fi-Business-Financial-Statements-icon.png; May 11, 2022.
Week 003: Statement of Financial Performance

Statement of Financial Performance


(Also known as Income Statement)

• An income statement is a formal statement showing the


financial performance or profit or loss of an entity for a
period of time.

• The financial performance of an entity is primarily


measured in terms of the level of income earned by the
entity through the effective and efficient utilization of
resources.
The financial performance is also known as the result of https://www.fmsbank.com/wp-content/uploads/2018/03/031518-
operation. Ever-Fi-Business-Financial-Statements-icon.png; May 11, 2022.
Week 003: Statement of Financial Performance

What is Income?

The Conceptual Framework defines income as increase in


economic benefit during the period in the form of inflow
or increase in asset or decrease in liability that results in
increase in equity other than contribution from equity
participants.

https://www.fmsbank.com/wp-content/uploads/2018/03/031518-
Ever-Fi-Business-Financial-Statements-icon.png; May 11, 2022.
Week 003: Statement of Financial Performance

Sources Of Income
a. sales of merchandise to the income from sales shall include all sales to customer during the
costumers period minus sales returns, allowances and discounts.

b. rendering of services income from rendering of services, among others, includes


professional fees, media advertising commissions, insurance agency
commissions, admission fees for artistic performance and tuition
fees.

c. use of entity resources this income includes interest, rent, royalty and dividend income.

d. disposal of resources other example include gain on sale of investments, gain on sale property,
than products plant and equipment and gain on sale of intangible assets.
Week 003: Statement of Financial Performance

Income vs Revenue

The definition of income encompasses both revenue and gains.


Technically, revenue arises in the course of the ordinary
activities of an entity and it is commonly referred to by variety
of names such as sales, fees, interests, rent etc.

Gain represents other items that meet the definition of income


and do not arise in the course of ordinary activity of the https://www.vcbay.news/wp-content/uploads/2020/10/raise.jpg;
business. May 11, 2022.
Week 003: Statement of Financial Performance

Comprehensive Income

Comprehensive income is the change in equity during a period


resulting from transaction and other events, other than changes
resulting from transaction with owners in their capacity as owners.
Accordingly, comprehensive income includes:

1. Components of Profit and Loss


2. Components of Other Comprehensive Income

https://img.freepik.com/free-vector/passive-earning-personal-bank-account-
forex-exchange-crowdfunding-fund-raising-investment-transfer-receiving-
income-online-payback-with-internet-vector-isolated-concept-metaphor-
illustration_335657-4320.jpg?w=2000; May 11, 2022.
Week 003: Statement of Financial Performance

PRESENTATION OF OTHER COMPREHENSIVE INCOME

PAS1, paragraph 82A, provides that the other comprehensive income


section shall present line items for amounts of other comprehensive
income in the period, classified by nature.

The line items for amount of OCI shall be grouped as:


a. OCI that will be reclassified subsequently to profit or loss
when specific conditions are met.
b. OCI that will not be reclassified subsequently to profit or loss
but to retained earnings.

https://img.freepik.com/free-vector/passive-earning-personal-bank-account-
forex-exchange-crowdfunding-fund-raising-investment-transfer-receiving-
income-online-payback-with-internet-vector-isolated-concept-metaphor-
illustration_335657-4320.jpg?w=2000; May 11, 2022.
Week 003: Statement of Financial Performance

Expenses
Expenses are decreases in economic benefits during the accounting
period in the form of outflows or depletions of assets or incurrences of
liabilities that result in decreases in equity, other than those relating to
distributions to equity participants

Components of expenses
o cost of goods sold or cost of sales
o distribution costs or selling expenses
https://cdn1.vectorstock.com/i/1000x1000/04/00/a
o administrative expenses pplication-for-recording-expenses-vector-
o other expenses 34890400.jpg; May 11, 2022.

o income tax expense


Week 003: Statement of Financial Performance

Lines under statement of Financial Performance


PAS 1, paragraph 82, provides that the line items in the statement of
comprehensive income are:

a. revenue
b. gain or loss from derecognition of financial asset
measured at amortized cost as required by PFRS 9.
c. Finance cost
d. share of income or loss of associate and joint venture
accounted for using the equity method
e. income tax expense
f. a single amount comprising discontinued operat4ions
g. profit or loss for the period
https://www.enkel.ca/wp-content/uploads/2021/06/Income-
h. other comprehensive income statement.png; May 11, 2022.
i. comprehensive income for the period
Week 003: Statement of Financial Performance

FORMS OF INCOME STATEMENT

PAS 1, paragraph 99, provides that the entity shall


present on the face of the income statement an
analysis of expenses using a classification based on
either the function of expenses on their own nature
within the entity, whichever provides information
that is reliable and more relevant.
Accordingly, the income statement may be
presented in the two ways, namely
functional and natural.
https://www.enkel.ca/wp-content/uploads/2021/06/Income-
statement.png; May 11, 2022.
Week 003: Statement of Financial Performance

FORMS OF INCOME STATEMENT

PAS 1, paragraph 99, provides that the entity shall


present on the face of the income statement an
analysis of expenses using a classification based on
either the function of expenses on their own nature
within the entity, whichever provides information
that is reliable and more relevant.
Accordingly, the income statement may be
presented in the two ways, namely
functional and natural.
https://www.enkel.ca/wp-content/uploads/2021/06/Income-
statement.png; May 11, 2022.
Week 003: Statement of Financial Performance

FORMS OF INCOME STATEMENT: FUNCTIONAL

The functional presentation is the traditional and


common form of income statement.
The functional presentation is also known as the
cost of goods sold method.
This for classifies expenses according to their
function as part of cost of goods sold, distribution
cost, administrative activities and other activities.

https://enstoncorp.com.sg/1/income_statement;

May 11, 2022.


Week 003: Statement of Financial Performance

FORMS OF INCOME STATEMENT: NATURAL

This presentation is referred to as the nature of


expenses method.
Under this form, expenses are aggregated according
to their nature and not allocated among the various
functions within the entity.

In other words, the natural expenses are no longer


classified as cost of goods sold, distribution costs,
administrative and other activities.
The expenses which are of the same nature are
grouped or aggregated and presented as on item. https://enstoncorp.com.sg/1/income_statement;

May 11, 2022.


Week 003: Statement of Financial Performance

FORMS OF INCOME STATEMENT: NATURAL VS FUNCTIONAL

https://slideplayer.com/slide/12636750/76/images/6/Income+Statement+% 28Fu
nctions+of+expenses+method%29.jpg; May 11, 2022.
Week 003: Statement of Financial Performance

Which form of income statement to follow?

There is no prescribed format,


According to PAS 1, paragraph 1015 , simply states
that because each method of presentation has
merit for different types of entities, management is
required to select the presentation that is reliable
and more relevant.
The cost of goods sold method usually would
provide more relevant information to the use
Besides, the income statement is simple and easy to
understand. https://www.enkel.ca/wp-content/uploads/2021/06/Income-
statement.png; May 11, 2022.
References

• Millan, Z. V. (2022). Intemediate Accounting 3. Bandolin Publishing House.


• Nenita Robles, & Empleo, P. (2019). The Intermediate Accounting Volume 1.
Millennium Books, Inc.
• Valix, C., Peralta, J., & Valix, C. (2020). Intermediate Accounting Volume 3. GIC
Enterprises & Co., Inc.

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