The just because, because I need something from here, Summaries of Accounting

Download The just because, because I need something from here and more Summaries Accounting in PDF only on Docsity! PAS 1- Presentation of Financial Statements What is financial statement? - These are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users. - These are the end product or main output of the financial accounting process. - Structured financial information of the financial position and financial performance of an entity. General purpose financial statements (AN ENTITY SHALL PREPARE AND PRESENT GPFS IN ACCORDANCE WITH THE IFRS) - Simply referred to as financial statements that is intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs - Directed to all common users and not to specific users Components of Financial Statements 1. Statement of Financial Position 2. Income statement 3. Statement of comprehensive income 4. Statement of changes in equity 5. Statement of cash flows 6. Notes. Comprising a summary of significant accounting policies and other explanatory notes Objective of FS - To provide information about the financial position, financial performance and cash flows of an entity that is useful to wide range of users in making economic decisions. Financial statements also show the results of the management’s stewardship of the resources entrusted to it. Financial statements provide information about the following: - Assets - Liabilities - Equity - Income and expenses, including gains and losses - Contribution by and distributions to owners in their capacity as owners - Cash flows FREQUENCY OF REPORTING Financial statements shall be presented at least annually. When an entity’s end of reporting period changes and financial statements are presented for a period longer or shorter than one year, an entity shall disclose: - Period covered by the FS - Reason for using a longer or shorter period - The fact that amounts presented in the FS are not entirely comparable. STATEMENT OF FINANCIAL POSITION A formal statement showing the three elements comprising the financial position: (namely)  Assets  Liabilities  Equity It is used by investors, creditors, and other users to evaluate the liquidity, solvency and the need of the entity for additional financing. ASSET -An economic resource controlled by the entity as a result of past events. Economic resource -a right that has the potential to produce economic benefits. Classification: Current and Noncurrent  When an entity supplies goods or services within a clearly identifiable operating cycle, the separate classification of current and noncurrent assets is useful information distinguishing between net assets that are continuously circulating as working capital from the net assets used in long-term operations.  Operating cycle - the time between the acquisition of assets for processing and their realization in cash or cash equivalents  When the entity’s normal operating cycle is not clearly identifiable, the duration is assumed to be twelve months. CURRENT ASSETS (PAS 1; PAR. 66, provides that an entity shall classify an asset as current when)  The asset is cash or cash equivalents unless the asset is restricted to settle for more than twelve months after the reporting period.  The entity holds the asset primarily for the purpose of trading.  The entity expects to realize the asset within twelve months after the reporting period.  The entity expects to realize the asset or intends to sell or consume it within the entity’s normal operating cycle.  PRESENTATION OF CURRENT ASSET Current assets are listed in order of liquidity. Line items: (according to par. 54)  Cash and cash equivalents  Financial assets at fair value such as trading securities and other investments in quoted equity instruments   Trade and other receivables  Inventories  Prepaid expenses NONCURRENT ASSETS  Noncurrent assets according to PAS 1; PAR 66, are all other assets that are not classified as current asset Line items:  Property, plant and equipment  Long-term investments  Intangible assets  Deferred tax assets  Other noncurrent assets STATEMENT OF COMPREHENSIVE INCOME Income statement  Is a formal statement showing the financial performance of an entity for a given period of time.  Primarily measured in terms of the level of income earned by the entity through the effective and efficient utilization of its resources.  Also known as the results of operations of the entity  Income statement for a period presents the income, expenses, gains, losses and net income or loss recognized during the period. Transaction approach is the traditional preparation of the income statement in conformity with accounting standards. Information about financial performance is useful in predicting future performance and ability to generate future cash flows Comprehensive income  The change in equity during a period resulting from transactions and other events, other than changes resulting from transactions with owners in their capacity as owners. Comprehensive income includes:  Components of profit or loss  Component of other comprehensive income PROFIT OR LOSS  It is the total of income less expenses, excluding the components of other comprehensive income  The bottom line in the traditional income statement OTHER COMPREHENSIVE INCOME (OCI) Comprises items of income and expenses including reclassification adjustments that are not recognized in profit or loss as required or permitted by the PFRS Components of OCI: 1. Unrealized gain or loss on equity investment measured at fair value through other comprehensive income. 2. Unrealized gain or loss on debt investment measured at fair value through other comprehensive income. 3. Gain or loss from translation of the financial statements of a foreign operation 4. Revaluation surplus during the year 5. Unrealized gain or loss from derivative contracts designated as cash flow hedge 6. “Re-measurements” of defined benefit plan, including actuarial gain or loss 7. Change in fair value attributable to credit risk of a financial liability designated at fair value through profit or loss Presentation of other comprehensive income Par. 82A, statement of comprehensive income shall present line items for amounts of other comprehensive income during the period classified by nature. Line items for amounts of OCI shall be grouped as follows: A. OCI that will be reclassified subsequently to profit or loss when specific conditions are met. a. unrealized gain or loss on debt investment measured at fair value through other comprehensive income. b. Gain or loss from translation of the financial statements of a foreign operation c. Unrealized gain or loss from derivative contracts designated as cash flow hedge B. OCI that will not be reclassified subsequently to profit or loss but to retained earnings. a. Unrealized gain or loss on equity investment measured at fair value through other comprehensive income. (The Application Guidance of PFRS 9, paragraph B5.7.1, provides that such unrealized gain or loss is reclassified to retained earnings upon disposal of the investment) b. Revaluation surplus during the year (realization of the revaluation surplus is through retained earnings) c. “Re-measurements” of defined benefit plan, including actuarial gain or loss (remeasurements are not classified subsequently but are permanently excluded from profit or loss. However, the measurement may be transferred within equity or retained earnings) d. Change in fair value attributable to credit risk of a financial liability designated at fair value through profit or loss. (such gain or loss from change in fair value attributable to credit risk of a financial liability may be transferred within equity or retained earnings) PRESENTATION OF COMPREHENSIVE INCOME Two options: 1. TWO STATEMENTS a. an income statement showing the components of profit or loss b. statement of comprehensive income beginning with profit or loss as shown in the income statement plus or minus the components of other comprehensive income. 2. SINGLE STATEMENT OF COMPREHENSIVE INCOME - Combined statement showing the components of profit or loss and components of other comprehensive income in a single statement. (The Revised Conceptual Framework calls this single statement as statement of financial performance.) SOURCE OF INCOME  Sales of merchandise to customers -income from sales shall include all sales to customers during the period. Hence, sales returns, allowances, and discounts shall be deducted from gross sales to arrive at net sales.  Rendering of services -includes: professional fees, media advertising commissions, insurance agency commissions, admission fees for artistic performance and tuition fees.  Use of entity resources -includes: interest, rent, royalty and dividend income  Disposal of resources other than products -includes: gain on sale of investments, gain on sale of property, plant and equipment and gain on sale of intangible assets COMPONENTS OF EXPENSE  Cost of goods sold or cost of sales  Distribution costs or selling expenses  Administrative expense  Other expenses  Income tax expense Natural presentation -referred to as the nature of expense method -under this form, expenses are aggregated according to their nature and not allocated among various functions within the entity. -in other words, the expenses are not classified as cost of goods sold, distribution costs, administrative expenses and other expenses. -the expenses which are of the same nature are grouped or aggregated and presented as one item. Example: depreciation, purchases of raw materials, transport costs, employee benefit costs and advertising costs are presented separately. WHICH FORM OF INCOME STATEMENT? -PAS 1 does not prescribe any format Paragraph 105 simply states that because each method of presentation has merit difference types of entities, management is required to select presentation that is reliable and more relevant. STATEMENT OF COMPREHENSIVE INCOME The statement of comprehensive income starts with the profit or loss as shown in the income statement plus or minus the components of other comprehensive. The purpose of this statement is to provide a more comprehensive information on financial performance measured more broadly than the income as traditionally computed. Comprehensive income for a period includes the net income or loss for the period plus or minus the components of OCI. However, the comprehensive income of P1,600,000 is not carried to retained earnings. Only the net income of P1,550,000 is included in the determination of retained earnings unappropriated. The net other comprehensive income of P50,000 is carried to “reserves” or shown separately in the statement of changes in equity. SINGLE STATEMENT OF COMPREHENSIVE INCOME Another option in presenting the components of profit or loss and components of other comprehensive income is to prepare a single statement of comprehensive income. This is a combined income statement and statement of comprehensive income. STATEMENT OF RETAINED EARNINGS -shows the changes affecting directly the retained earnings of an entity and relates the income statement to the statement of financial position. Important data affecting the retained earnings that should be clearly disclosed in the statement of retained earnings are:  profit or loss for the period  prior period errors  dividends declared and paid to shareholders  effect of change in accounting policy  appropriation of retained earnings STATEMENT OF CHANGES IN EQUITY