CONCEPTUAL FRAMEWORK

&
ACCOUNTING STANDARDS

Lecture Aid
By: Zeus Vernon B. Millan

1
PAS 1 Presentation of Financial
Statements
Learning Objectives
• Enumerate and describe the general features of financial
statement presentation.
• Enumerate and describe the components of a complete set of
financial statements.
• State the acceptable methods of presenting items of income and
expenses.
• Differentiate between the statement of profit or loss and other
comprehensive income and the statement of changes in equity.
• State the relationship of the notes with the other components of
a complete set of financial statements.
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 2
Objective of PAS 1

PAS 1 prescribes the basis for presentation of

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

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 3

 General purpose financial statements

• General purpose financial statements are those intended to

serve users who do not have the authority to demand financial
reports tailored for their own needs. General purpose financial
statements cater to most of the common needs of a wide range of
external users. General purpose financial statements are the subject
matter of the Conceptual Framework and the PFRSs.

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Standards (by: Zeus Vernon B. Millan)
Complete set of financial statements
1. Statement of financial position
2. Statement of profit or loss and other comprehensive
income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes
(5a) comparative information in respect of the preceding period; and

6. Additional statement of financial position (required only

when certain instances occur)
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(by: Zeus Vernon B. Millan) 5
General features
1. Fair Presentation and Compliance with PFRSs - The
application of PFRSs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a fair
presentation.

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

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

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Vernon B. Millan)
General features (Continuation)
3. Accrual Basis of Accounting - An entity shall prepare its financial
statements, except for cash flow information, using the accrual basis of
accounting.

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

must be presented separately in the financial statements.

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

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Vernon B. Millan)
General features (Continuation)
6. Frequency of reporting – An entity shall present a complete set
of financial statements (including comparative information) at least
annually.
• When an entity changes the end of its reporting period and presents
financial statements for a period longer or shorter than one year, an
entity shall disclose the following:
1. The period covered by the financial statements,
2. The reason for using a longer or shorter period, and
3. The fact that amounts presented in the financial statements are
not entirely comparable.

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Vernon B. Millan)
General features (Continuation)
7. Comparative Information
An entity shall present comparative information in respect of the preceding
period for all amounts reported in the current period’s financial statements,
unless other standards permit or require otherwise.

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

and classification of items in the financial statements from one period to
the next unless:
a. it is apparent that another presentation or classification would be
more appropriate following a significant change in the nature of
the entity’s operations or a review of its financial statements; or
b. a PFRS requires a change in presentation.
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Vernon B. Millan)
Additional Statement of financial position

• An additional statement of financial position is presented as at the

beginning of the preceding period when an entity:
1. Applies an accounting policy retrospectively, or
2. Makes a retrospective restatement of items in its financial
statements, or
3. reclassifies items in its financial statements.

…..and the effect of the event to the statement of financial position

as at the beginning of the preceding period is material.

Conceptual Framework & Acctg. Standards (by:

Zeus Vernon B. Millan) 10
Statement of financial position

• A statement of financial position may be presented as either

1. Classified – showing distinctions between current and noncurrent
assets and liabilities, or
2. Unclassified (based on liquidity) – showing no distinction between
current and noncurrent items

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Standards (by: Zeus Vernon B. Millan)
Current Assets

• An entity shall classify an asset as current when:

1. it expects to realize the asset or intends to sell or consume it, in
its normal operating cycle;
2. it holds the asset primarily for the purpose of trading;
3. it expects to realize the asset within twelve months after the
reporting period; or
4. the asset is cash or a cash equivalent unless the asset is restricted
from being exchanged or used to settle a liability for at least
twelve months after the reporting period.

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Standards (by: Zeus Vernon B. Millan)
Current Liabilities

• An entity shall classify a liability as current when:

1. it expects to settle the liability in its normal operating cycle;
2. it holds the liability primarily for the purpose of trading;
3. the liability is due to be settled within twelve months after the
reporting period; or
4. the entity does not have the right at the end of the reporting
period to defer settlement of the liability for at least twelve
months after the reporting period.

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Standards (by: Zeus Vernon B. Millan)
Currently maturing long-term liabilities

• General rule: Currently maturing long term liabilities are

presented as current liabilities.
• Exception: The entity has the right, at the end of the reporting
period, to roll over the obligation for at least twelve months after the
reporting period under an existing loan facility – non-current
liability

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Standards (by: Zeus Vernon B. Millan)
Breach of loan agreement

• General rule: A liability that is payable on demand is a current

liability.

• Exception: It is presented as non-current liability if the lender

provides the entity, on or before the balance sheet date, a
grace period ending at least 12 months after the balance sheet date
to rectify a breach of loan covenant.

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Standards (by: Zeus Vernon B. Millan)
Presentation of Deferred taxes

• Deferred tax liabilities (assets) are presented as noncurrent items

in a classified statement of financial position, irrespective of their
expected dates of reversal.

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Standards (by: Zeus Vernon B. Millan)
Minimum line items in the statement of financial position

a. Property, plant and equipment;

b. Investment property;
c. Intangible assets;
d. Financial assets (excluding amounts shown under (e), (h) and (i));
e. Investments accounted for using the equity method;
f. Biological assets;
g. Inventories;
h. Trade and other receivables;
i. Cash and cash equivalents;
j. Assets (or disposal groups) classified as held for sale in accordance
with PFRS 5;

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Standards (by: Zeus Vernon B. Millan)
Minimum line items (Continuation)

k. Trade and other payables;

l. Provisions;
m. Financial liabilities (excluding amounts shown under (k) and (l));
n. Liabilities and assets for current tax, as defined in PAS 12 Income
Taxes;
o. Deferred tax liabilities and deferred tax assets, as defined in PAS
12;
p. Liabilities included in disposal groups classified as held for sale in
accordance with PFRS 5;
q. Non-controlling interests, presented within equity; and
r. Issued capital and reserves attributable to owners of the parent

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Standards (by: Zeus Vernon B. Millan)
Order/ Format of Presentation

• PAS 1 does not prescribe the order or format in which an entity

presents items.

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Standards (by: Zeus Vernon B. Millan)
Statement of profit or loss and other
comprehensive income
• An entity shall present all items of income and expense recognized
in a period:
1. in a single statement of profit or loss and other comprehensive
income; or
2. in two statements: (1) a statement displaying the profit or loss
section only (separate ‘statement of profit or loss’ or ‘income
statement’) and (2) a second statement beginning with profit or
loss and displaying components of other comprehensive income.

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Standards (by: Zeus Vernon B. Millan)
Extraordinary items

• PAS 1 prohibits the presentation of any items of income or expense

as extraordinary items in the statement(s) presenting profit or loss
and other comprehensive income or in the notes.

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Standards (by: Zeus Vernon B. Millan)
Other comprehensive income for the period

a. Changes in revaluation surplus

b. Unrealized gains and losses on investments in FVOCI securities
c. Remeasurements of the net defined benefit liability (asset)
d. Gains and losses arising from translating the financial statements
of a foreign operation
e. Effective portion of gains and losses on hedging instruments in a
cash flow hedge

• OCI may be presented either (a) net of tax or (b) gross of tax.

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Standards (by: Zeus Vernon B. Millan)
Reclassification adjustments
• 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.

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Standards (by: Zeus Vernon B. Millan)
Total comprehensive income

• Total comprehensive income comprises all components of

1. Profit or loss; and
2. Other comprehensive income.

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Standards (by: Zeus Vernon B. Millan)
Presentation of Expenses

1. Nature of expense method

2. Function of expense method

• If an entity classifies expenses by function, it shall disclose

additional information on the nature of expenses

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Standards (by: Zeus Vernon B. Millan)
Disclosure of dividends

• Dividends declared by an entity are disclosed either in the (a) notes

or (b) statement of changes in equity.

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Standards (by: Zeus Vernon B. Millan)
Order of presentation of disclosures in the Notes

1. Statement of compliance with PFRSs;

2. Summary of significant accounting policies applied;
3. Supporting information for items presented in the other financial
statements; and
4. Other disclosures.

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Standards (by: Zeus Vernon B. Millan)
 APPLICATION OF
CONCEPTS
PROBLEM 4: FOR CLASSROOM DISCUSSION

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 QUESTIONS????
 REACTIONS!!!!!

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Standards (by: Zeus Vernon B. Millan)
 END
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