PAS 1 (IAS 1)
OBJECTIVE OF PAS 1/IAS 1
TO ENSURE COMPARABILITY:
1. WITH ENTITY'S FINANCIAL STATEMENTS OF PREVIOUS
PERIOD ( Intra - Comparability )
2. WITH FINANCIAL STATEMENTS OF OTHER ENTITIES
within same industry ( Inter- Comparability )
PAS 1(IAS1) PRESCRIBED HOW THE FINANCIAL
STATEMENTS SHOULD BE PREPARED TO ENSURE
COMPARABILITY:
PAS 1 (IAS 1) SETS OUT:
 Definitions affecting the financial statements

General Features (characteristics) the financial
statements should have

Basic Structure of FS, which part should be
included in the FS

Contents of FS, minimum line items to be
included in the FS
PAS 1, Does not prescribed specific FORMAT for FS
SCOPE
PAS 1 applies to all general purpose financial statements
that are prepared and presented in accordance with
International Financial Reporting Standards (IFRSs). [IAS
1.2]
OBJECTIVE OF FINANCIAL STATEMENTS
The objective of general purpose financial statements is
to provide information about the financial position,
financial performance, and cash flows of an entity that
is useful to a wide range of users in making economic
decisions.
COMPONENTS OF FINANCIAL STATEMENTS
A complete set of financial statements includes: [IAS
1.10]
a statement of financial position (balance sheet) at the
end of the period
a statement of profit or loss and other comprehensive
income for the period (presented as a single statement,
or by presenting the profit or loss section in a separate
statement of profit or loss, immediately followed by a
statement presenting comprehensive income beginning
with profit or loss)
a statement of changes in equity for the period
a statement of cash flows for the period
Notes, comprising a summary of significant accounting
policies and other explanatory notes comparative
information prescribed by the standard.
DEFINITION
General purpose financial statements are
those intended to serve users who are not in a position
to require financial reports tailored to their particular
information needs.
Material Information It is material if omitting,
misstating or obscuring it could reasonably be expected
to influence decisions that the primary users of general
purpose financial statements make on the basis of those
financial statements, which provide financial information
about a specific reporting entity
Reporting period
There is a presumption that financial statements will be
prepared at least annually. If the annual reporting
period changes and financial statements are prepared
for a different period, the entity must disclose the reason
for the change and state that amounts are not entirely
comparable.
Current assets are assets that are:
 expected to be realized in the entity's normal
operating cycle
 held primarily for the purpose of trading
 expected to be realized within 12 months after the
reporting period.
 cash and cash equivalents (unless restricted).
 An operating cycle refers to the time it takes a
company to buy goods, sell them and receive cash
from the sale of said goods. In other words, it's how
long it takes a company to turn its inventories into
cash.
Current liabilities are those:
 expected to be settled within the entity's normal
operating cycle
 held for purpose of trading
 due to be settled within 12 months
 for which the entity does not have the right at the
end of the reporting period to defer settlement
beyond 12 months.
Other liabilities are non-current.
-When a long-term debt is expected to be refinanced
under an existing loan facility, and the entity has the
discretion to do so, the debt is classified as non-current,
even if the liability would otherwise be due within 12
months.
Other liabilities are current
-If a liability has become payable on demand because
an entity has breached an undertaking under a long-term
loan agreement on or before the reporting date, the
liability is current, even if the lender has agreed, after
the reporting date and before the authorization of the
financial statements for issue, not to demand payment
as a consequence of the breach. However, the liability is
classified as non-current if the lender agreed by the
reporting date to provide a period of grace ending at
least 12 months after the end of the reporting period,
within which the entity can rectify the breach and during
which the lender cannot demand immediate
repayment.
Profit or loss is defined as "the total of income less
expenses, excluding the components of other
comprehensive income
Other comprehensive income is defined as
comprising "items of income and expense (including
reclassification adjustments) that are not recognized in
profit or loss as required or permitted by other IFRSs"
Total comprehensive income is defined as "the
change in equity during a period resulting from
transactions and other events, other than those changes
resulting from transactions with owners in their capacity
as owners"
GENERAL FEATURES OF FS:
Fair
presentation
requires
the
faithful
representation of the effects of transactions, other
events, and conditions in accordance with the definitions
and recognition criteria for assets, liabilities, income and
expenses set out in the Framework
GOING CONCERN, The Conceptual Framework
notes that financial statements are normally prepared
assuming the entity is a going concern and will continue
in operation for the foreseeable future.
ACCRUAL ACCOUNTING, PAS 1 requires that
an entity prepare its financial statements, except
for cash flow information, using the accrual basis
of accounting.
CONSISTENCY,
The
presentation
and
classification of items in the financial statements
shall be retained from one period to the next
unless a change is justified either by a change in
circumstances or a requirement of a new IFRS.
AGGREGATION. Each material class of similar items
must be presented separately in the financial
statements.
Dissimilar items may be aggregated only if they are
individually immaterial.
OFFSETTING, Assets and liabilities, and income and
expenses, may not be offset unless required or
permitted by an IFRS.
STRUCTURE OF FS
Comparative information
PAS 1 requires that comparative information to be
disclosed in respect of the previous period for all
amounts reported in the financial statements, both on
the face of the financial statements and in the notes,
unless another Standard requires otherwise.
Comparative information is provided for narrative and
descriptive where it is relevant to understanding the
financial statements of the current period.
A third statement of financial position is
required to be presented if the entity retrospectively
applies an accounting policy, restates items, or
reclassifies items, and those adjustments had a material
effect on the information in the statement of financial
position at the beginning of the comparative period.
PAS 1 requires an entity to clearly identify:
 the
financial
statements,
which
must
bedistinguished from other information in a
published document each financial statement and
the notes to the financial statements.
 In addition, the following information must be
displayed prominently, and repeated as necessary:
- the name of the reporting entity and any
change in the name
- whether the financial statements are a group of
entities or an individual entity
- information about the reporting period
- the presentation currency (as defined by IAS 21
The Effects of Changes in Foreign Exchange Rates)
- the level of rounding used (e.g. thousands,
millions).
MINIMUM LINE ITEMS
The line items to be included on the face of the
statement of financial position are:
(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 held for sale
(k)
trade and other payables
(l)
provisions
(m)
financial liabilities (excluding amounts
shown under (k) and (l))
(n)
current tax liabilities and current tax
assets, as defined in IAS 12
(o)
deferred tax liabilities and deferred tax
assets, as defined in IAS 12
(p)
liabilities included in disposal groups
(q)
non-controlling interests, presented
within equity
(r)
issued capital and reserves attributable
to owners of the parent.
The following minimum line items must be presented in
the profit or loss section (or separate statement
of profit or loss, if presented):
 revenue
 gains and losses from the derecognition of
financial assets measured at amortized
cost
 finance costs
 share of the profit or loss of associates and
joint ventures accounted for using the
equity method
 certain gains or losses associated with the
reclassification of financial assets
 tax expense
 a single amount for the total of
discontinued items
Other comprehensive income section
 The other comprehensive income section is required
to present line items which are classified by their
nature, and grouped between those items that will
or will not be reclassified to profit and loss in
subsequent periods.
 An entity's share of OCI of equity-accounted
associates and joint ventures is presented in
aggregate as single line items based on whether or
not it will subsequently be reclassified to profit or
loss.
Statement of Cash Flows, prescribed under PAS
7.
Statement of changes in equity
PAS 1 requires an entity to present a separate statement
of changes in equity.
The statement must show:
 total comprehensive income for the period, showing
separately amounts attributable to owners of the
parent and to non-controlling interests
 the effects of any retrospective application of
accounting policies or restatements made in
accordance with IAS 8, separately for each
component of other comprehensive income
 reconciliations between the carrying amounts at the
beginning and the end of the period for each
component of equity, separately disclosing:
- profit or loss
- other comprehensive income*
- transactions with owners, showing separately
contributions by and distributions to owners and
changes
in ownership interests in subsidiaries
that do not result in a loss of control
The following amounts may also be presented on the
face of the statement of changes in equity, or they may
be presented in the notes:
* amount of dividends recognized as distributions
* the related amount per share.
NOTES to FS:
Aside from the general information regarding the
reporting entity, the following
Notes should normally be presented in the following
order:
a.
a statement of compliance with IFRSs
b. a summary of significant accounting policies applied,
including:
- the measurement basis (or bases) used in preparing the
financial statements
- the other accounting policies used that are relevant to
an understanding of the financial statements
c. supporting information for items presented on the
face of the statement of financial position (balance
sheet), statement(s) of profit or loss and other
comprehensive income, statement of changes in equity
and statement of cash flows, in the order in which each
statement and each line item is presented
d. other disclosures, including:
- contingent liabilities (see IAS 37) and unrecognized
contractual commitments
- non-financial disclosures, such as the entity's financial
risk management objectives and policies
MODULE 2
STATEMENT OF FINANCIAL POSITION
What the BUSINESS own ASSETS
What the BUSINESS owe
To owner/s,
EQUITY
To outside creditors. LIABILITIES
a. BALANCE SHEET, describes the structure of
the statement, that is DEBITS = CREDITS
b. STATEMENT OF FINANCIAL POSITION
or
STATEMENT
OF
FINANCIAL
CONDITION, describes the function of the
statement.
CURRENT
RATIO
= CURRENT
ASSETS/CURRENT LIABILITES
DEBT EQUITY RATIO = TOTAL LIABILITES/
TOTAL EQUITY
IAS 1 / PAS 1 Statement of Financial
Position
An entity must normally present a classified
statement of financial position, separating current
and non-current assets and current and non
current liabilities, unless presentation based on
liquidity provides information that is reliable. [IAS
1.60]
IAS 1 does not prescribe the format of the
statement of financial position.
Assets can be presented current then non-current,
or vice versa, and liabilities and equity can be
presented current then non-current then equity, or
vice versa. A net asset presentation (assets minus
liabilities) is allowed.
In UK and elsewhere in Europe, using LIQUIDITY
approach:
Least liquid
Most Liquid
Equity
Due last
Due first
CURRENT
AND
CLASSIFICATION
NON-CURRENT
ASSETS
1. expected to be realized in the entity’s
normal operating cycle
2. held primarily for the purpose of trading
3. expected to be realized within 12 months after the
reporting period
4. cash and cash equivalents (unless restricted)
Non-current
EQUITY and LIABILITIES
Current:
1. expected to be settled within the entity's normal
operating cycle
2. held for purpose of trading
3. due to be settled within 12 months
4. Non-current liability becoming due within 12
months, on which the entity does not have the right
at the end of the reporting period to defer settlement
beyond 12 months.
Non-current
OPERATING CYCLE
(Trade = Regular items in the course of business)
OPERATING
CYCLE
=
INVENTORY
PERIOD + RECEIVABLE PERIOD
18 MONTHS =
10 MONTHS +
8MONTHS
CURRENT:
 If
within operating cycle for those
ASSETS/LIABILITIES which are Normally
Incurred, acquired in the regular course of
business
 If
within
12
months
for
those
ASSETS/LIABILITIES which are not part of the
main course of business
Originally Long term debt, which at balance date
is becoming due within 12 months.
When a long-term debt is expected to be
refinanced under an existing loan facility, and the
entity has the discretion to do so, the debt is
classified as non-current, even if the liability would
otherwise be due within 12 months. [IAS 1.73
If a liability has become payable on demand
because an entity has breached an undertaking
under a long-term loan agreement on or before
the reporting date, the liability is classified as noncurrent if the lender agreed by the reporting date to
provide a period of grace ending at least 12
months after the end of the reporting period, within
which the entity can rectify the breach and during
which the lender cannot demand immediate
repayment. [IAS 1.75]
Settlement by the issue of equity instruments does
not impact classification. [IAS 1.76B]
THE LINE ITEMS TO BE INCLUDED ON THE
FACE OF THE STATEMENT OF FINANCIAL
POSITION ARE: [IAS 1.54]
ASSETS
(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 held for sale

LIABILITIES
(k)
trade and other payables
(l)
provisions
(m)
financial liabilities (excluding amounts shown
under (k) and (l))
(n)
current tax liabilities and current tax assets,
as defined in IAS 12
(o)
deferred tax liabilities and deferred tax
assets, as defined in IAS 12
(p)
liabilities included in disposal groups
EQUITY
(q)
non-controlling interests, presented within
equity
(r)
issued capital and reserves attributable to
owners of the parent.
LINE ITEMS IN THE STATEMENT OF FINANCIAL
POSITION
Additional line items, headings and subtotals may
be needed to fairly present the entity's financial
position. [IAS 1.55]
When an entity presents subtotals, those subtotals
shall be comprised of line items made up of
amounts recognised and measured in
accordance with IFRS; be presented and labelled
in a clear and understandable manner; be
consistent from period to period; and not be
displayed with more prominence than the
required subtotals and totals. [IAS 1.55A]*
Further sub-classifications of line items presented
are made in the statement or in the notes, for
example: [IAS 1.77-78]:
 classes of property, plant and
equipment
 disaggregation of receivables
 disaggregation
of inventories in
accordance with IAS 2 Inventories
 disaggregation of provisions into
employee benefits and other items

classes of equity and reserves.
SHARE CAPITAL AND RESERVES
Regarding issued share capital and reserves, the
following disclosures are required: [IAS 1.79]
 numbers of shares authorised, issued and fully



paid, and issued but not fully paid
par value (or that shares do not have a par value)
a reconciliation of the number of shares
outstanding at the beginning and the end of the
period
description of rights, preferences, and
restrictions
treasury shares, including shares held by
subsidiaries and associates
 shares reserved for issuance under options and
contracts
 shares reserved for issuance under options and
contracts
Additional disclosures are required in respect of
entities without share capital and where an entity
has
reclassified
puttable
financial
instruments. [IAS 1.80-80A]
SHARE CAPITAL
 Total Authorized, 100,000 @ P10 par =
1,000,000

Subscribed , 25,000 shares
250,000
=

Unsubscribed
=
750,000
shares

Subscription Receivable 100,000

Paid up capital
75,000
150,000
MODULE 3
PAS 37
Provisions,
Contingent liabilities
and contingent assets
Liability: Present obligation as a result of past
events
 Settlement is expected to result in an outflow of
resources (payment)
Estimated Liability: is an existing debt or
obligation of an unknown amount that can be
reasonably estimated.
RECOGNIZED Because it is PROBABLE
And MEASURABLE
Contingent liability:
a possible obligation depending on whether some
uncertain future event occurs, or
a present obligation but payment is not probable or the
amount cannot be measured reliably.
NOT RECOGNIZED Because it is either; Probable but not
Measurable Or Measurable but not Probable
Provisions, (an estimated Liability)
The Standard defines provisions as liabilities of uncertain
timing or amount.
A provision should be recognized when, and only when:
(a) an entity has a present obligation (legal or
constructive) as a result of a past event;
(b) it is probable ( more likely than not) that an outflow
of resources embodying economic
benefits will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the
obligation.
The Standard notes that it is only in extremely rare cases
that a reliable estimate will not be possible.
Constructive Obligation as an obligation that
derives from an entity’s actions where:
(a) by an established pattern of past practice, published
policies or a sufficiently specific current
statement, the entity has indicated to other parties
that it will accept certain responsibilities;
and
(b) as a result, the entity has created a valid expectation
on the part of those other parties that it
will discharge those responsibilities.
Contingent liabilities
The Standard defines a contingent liability as:
a.
a possible obligation that arises from past events
and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity;
or
(b) a present obligation that arises from past events but
is not recognized because:
(i) it is not probable that an outflow of resources
embodying economic benefits will be required to
settle the obligation; or
(ii) the amount of the obligation cannot be
measured with sufficient reliability.
ACCOUNTING
 An entity should not recognize a contingent
liability ( not reported on the face of the financial
statement)
 An entity should disclose a contingent liability,
unless the possibility of an outflow of resources
embodying economic benefits is remote.
RANGE OF OUTCOME of future event/s
POBABLE,
The future event is more likely to occur, more than 50%
If present obligation is probable and measurable,
recognized it as Provision.
POSSIBLE,
The future event is less likely to occur, 50% or less
If present obligation is possible and measurable,
not recognized but disclose in the financial statement.
REMOTE,
The future event is least likely to occur, very slight
If present obligation is remote, not recognized
and not disclosed
ILLUSTRATION
An entity entered into a 10 year lease of a building with
agreed annual rent P360,000.
The lease contract allows the tenant to have the area be
subleased.
At the end of year 5 of lease contract the tenant intends
to leave the area and relocate to another area.
Most probably, the tenant should be able to sublet the
area for the full 5 years at an annual rental of P240,000.
Is there any liability to be recognized for the remaining 5
years of the contract?
ANSWER
Yes, the estimated liability ( provision )should be
recognized for the excess costs under the lease contract
above the expected benefits to be received.
The obligating event was the signing of the lease
agreement.
The estimated liability is , P360,000 x 5 years remaining
term of lease contract = P1,800,000
Less: probable economic inflow from sublease, P240,000
x 5 years
= 1,200,000 estimated only
Estimated Liability at the end of year 5 = P 600,000
ILLUSTRATION
A business sells goods which carry a one-year repair
warranty.
If minor repairs were to be required on all goods sold for
the year, the repair cost would be P100,000.
If major repairs were needed on all goods sold, the cost
would be P500,000.
It is estimated that 80% of goods sold i will have no
defects, 15% will have minor defects, and 5% will have
major defects.
How much is the estimated liability?
ANSWER
The provision for repairs required at end of year of sale
is:
 80% of the goods will require no repairs
 15% will require minor repairs 15% x P100,000
15,000
 5% will require major repairs 5% x P500,000
25,000
Best estimate of provision required 40,000
PRESENT VALUE
The expenditure required to settle an obligation may
occur within a short period after the end of the reporting
period, in which case the time value of money can be
ignored. However, if the outflow of resources is expected
to occur a significant time after the obligation itself
arose, the effect of the time value of money should be
taken into account in estimating the provision.
ILLUSTRATION
The property acquired requires under the government
regulation to restore the property at its original condition
after the mine operation.
The mine operation is expected to last for 5 years.
The estimated restoration cost after 5 years is
P5,000,000
The present value of P1 to be paid after 5 years at
present interest rate of 3% is 0.8626
Present value of estimated liability, 5,000,000 x 0.8626 =
P4,313,000
Contingent assets
The Standard defines a contingent asset as a possible
asset that arises from past events and whose existence
will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not
wholly within the control of the entity.
ACCOUNTING
 An entity should not recognize a contingent asset.
 A contingent asset should be disclosed where an
inflow of economic benefits is probable.
 When the realization of income is virtually certain,
then the related asset is not a contingent asset and
its recognition is appropriate.
IFRS 5 Non-current assets held for sale
An asset is held for sale when the entity does
not intend to use it as part of its ongoing
business but instead intends to sell it.
-The separate identification of assets that are held for
sale rather than to generate continuing economic
benefits for the entity on an ongoing basis substantially
improves the information made available to users.
-IFRS 5 requires that a non-current asset, or disposal
group, should be classified as ‘held for sale’ when the
entity does not intend to use the asset as part of its ongoing business but instead intends to sell it and recover
its carrying amount principally through sale.
-Non current Assets Held for Sale should be shown as
separate item in the Current Assets
-PFRS 5 applies to the following non-current assets:
NON CURRENT ASSETS
 Property, plant and equipment
 Investment property measured under the Cost
model
 Investments in associate or subsidiary or joint
venture
 Intangible assets
o Intended for immediate sale
CURRENT ASSETS
Presented as one line item as
 Non current assets Held for salle
An asset is held for sale
 IFRS 5 requires that a non-current asset, or disposal
group, should be classified as ‘held for sale’ when
the entity does not intend to use the asset as part
of its on-going business but instead intends to sell
it and recover its carrying amount principally
through sale;
 a sale to be considered as highly probable there
should be a committed plan and management
should be actively trying to find a buyer.
 The conditions for sale should be met before the
end of the reporting period
 Non-current assets classified as held for sale
should not be depreciated.
 On ultimate disposal of an asset classified as held
for sale, any difference between its carrying
amount and the disposal proceeds is treated as a
loss or gain under IAS 16 and not as an adjustment
to any impairment previously recognized.
MEASUREMENT
-A non-current asset, or disposal group, that meets the
recognition criteria to be classified as held for sale
should be measured at the lower of its carrying amount
(the value at which it is currently recognized in the
statement of financial position) and the fair value less
costs to sell.
-By applying this measurement basis the entity will
recognize any anticipated loss on the sale as an
impairment loss as soon as the decision to sell the asset
has taken place.
-Costs to sell are the incremental costs that the
entity will incur as a result of the disposal of
-the assets, for example transport costs and costs to
advertise that the asset is available for sale.
The carrying cost of the equipment under revaluation
model is P 730,000 (the most recent revaluation)
At the date of decommissioning, at its present condition,
the equipment could be sold at its fair value of P370,000
but P20,000 cost to sell at that price will be incurred.
Noncurrent Asset Held for Sale
370,000
Impairment loss (730,000 – 370,000)
360,000
Equipment
730,000
Continuation of previous case problem
Carrying value of Noncurrent Asset Held for sale at
date of reclassification
Lower of P730,0000 and (370,000-20,000) = 350,000
Assuming that 6 months after reclassification, the
equipment was sold for P360,000,
1. How much is the carrying value at date of sale?
1. Carrying value at of date of sale, P350,000 (
no depreciation for CA Held for Sale)
2. How much is the gain or loss from sale?
Selling price
P360,000
Carrying cost
350,000
Gain from sale
10,000 not to be off
set against impairment loss
Debit
Credit
Disposal thru SALE:
Cash
Noncurrent Asset Held
for Sale
Gain from sale
360,000
350,000
10,000
The Asset to be Reclassified is being carried at
Revaluation Model
Where an entity adopts the revaluation model for the
measurement of assets, any asset classified as held for
sale should be revalued to fair value immediately prior
to the reclassification. Upon reclassification the costs to
sell are deducted and recognized as an impairment loss
as part of profit or loss for the period.
ILLUSTRATION
An equipment used in production was decided to be
decommissioned and to be sold immediately for much
needed cash flow that will be required for its
replacement.
CHANGE IN PLAN
 If a non-current asset classified as held for
sale no longer meets the specific
recognition requirements for such
classification then it should be reclassified
as a non-current asset.
 Should reclassification be necessary, the
asset should then be measured at the lower
of the carrying amount that it would have
been recognized, had it not been
reclassified and its recoverable amount.
 The carrying amount that the asset would
have been recognized at is its carrying
amount at the date of the original
classification as held for sale was made,
adjusted for depreciation or valuations that
would otherwise have taken place.
 Recoverable amount is determined at the
date the decision not to sell is made.
 Recoverable amount is the higher of an
asset’s fair value less costs to sell and its value
in use
ILLUSTRATION
 On December 31, 20x1, an entity re-classified its
building with carrying cost of P400,000 and fair
value less cost to sell of P330,000 as held for sale.
At date of reclassification the building has remaining
useful life of 4 years.
 As of December 31, 20x2, the building was not yet
sold and management decided not to sell it
anymore. At this date, the fair value less cost to sell
of the building is P310,000, while its value in use is
P305,000.
 December 31, 20x1, RE CLASIIFICATION From
PPE to Non-current asset held for sale:
Debit
Non-current held for sale
Impairment loss
Building
Credit
330,000
70,000
Lower of; Carrying cost P400,000
Fair value less cost to sell 330,000
400,000
December 31, 20x2, (not yet sold and change
intention)Revert classification to Non-current:
Debit
Building (PPE)
Loss on re-classification
Non-current held for sale
Credit
Generating Unit while being held for use or a
separate subsidiary (IFRS 5.36A).
DISCONTINUED
OPERATION
300,000
30,000
330,000
COMPUTATION:
Carrying value at its original classification:
Building, P400,000 x ¼
x3
= P300,000
Recoverable value, the
higher of P310,000 and P305,000
 a component of an entity will have been a Cash
= 310,000
Abandon
If the entity decides to abandon, rather than sell, such
an asset, it will not meet these criteria and should not be
classified as held for sale, since any benefit flowing to
the entity will be through its continuing use.
Will stay at its present classification
Aquisition
Where an entity acquires a non-current asset, or
disposal group, solely on the basis that it
intends to sell it on rather than use it as part of its
ongoing activities, it should be classified as a held for sale
asset at the date of acquisition only where the condition
that it be sold within one year of the acquisition date is
met.
To be reported as Noncurrent Asset Held for Sale
DISCLOSURES
An entity should also provide a description of any noncurrent assets, or a disposal group, classified as held for
sale or sold including details of any sale and expected
time scales for disposal. If a sale has taken place within
the reporting period, then the gain or loss on disposal
should be separately identified either in the statement of
comprehensive income or in the notes.
MODULE 5
DISCONTINUED OPERATION
a) Been part of continuing operations that
 has been disposed of, or
 is classified as held for sale
b) is a subsidiary acquired exclusively with a view to
resale
Disposal group which is a component of an entity
Component of an entity
Component of an entity is defined as
 operations and cash flows that can be clearly
distinguished, operationally and for financial
reporting purposes, from the rest of the entity .
Balance sheet. When a discontinued operation
has not yet been disposed of at the reporting date,
its assets and liabilities are measured the same as
other held-for-sale assets and liabilities – i.e. at the
lower of carrying amount or fair value less cost to
sell. (not to be depreciated)
Income statement. Shall be presented net of
tax as a single amount below the income of
continuing operations.
The primary income statement issue is allocating
costs between discontinued and continuing
operations.
Only direct costs may be associated with a
discontinued operation.
A disposal group that has been part of an entity’s
continuing operations can be reported in
Discontinued operations only if it is a component of
the entity if it has “operations and cash flows that
can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the
entity.”
(NEWLY ACQURED)
Is the business activity a held for sale when acquired
(never been part of continuing operation)
(Been Part of Operation)
Is the Disposal group been disposed of
Or
Held for sale
Is it a Component?
The disposal represents a strategic shift that has
(or will have) a major effect on the entity’s operations
and financial results
DISCONTINUED OPERATION
Abandoned operations
Operations that are abandoned are classified as
discontinued operations once they actually have been
abandoned, not at the time when the management
decision is made.
Presentation and disclosure of discontinued operations
The post-tax profit or loss of discontinued operations is
presented as a single amount in the P/L, right below the
last item of continued operation
This line includes also the impact of the measurement to
fair value less costs to sell or of the disposal of the
assets/disposal group constituting the discontinued
operation (IFRS 5.33(a)). A breakdown of this one line
needs to be provided, and usually it is provided in the
notes (IFRS 5.33(b) and (d) and EPS in IAS 33.68).
Additionally, net cash flows attributable to the operating,
investing and financing activities of discontinued
operations should also be disclosed (IFRS 5.33(c)).
Adjustments in the current period to amounts previously
presented in discontinued operations that are directly
related to the disposal of a discontinued operation in a
prior period should also be classified separately as
discontinued operations. Examples of such adjustments
are given in paragraph IFRS 5.35.
MODULE 6
ACCOUNTING CHANGES (PAS 8)
BACKGROUND
 COMPARATIVE
FINANCIAL
STATEMENT
assessment is a fundamental process in making an
informed
decision.

Useful comparisons could not be undertaken if
financial statements were prepared on different
bases.

CHANGES on the bases of FS preparation should be
treated according to the accounting standard
 where an entity changes its accounting policies or
estimates, and for the correction of errors arising
in prior periods, PAS 8 (Accounting Policies,
Changes in Accounting Estimates and Errors) shall
apply
 Accounting policies are the specific
principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting
financial statements. These are the relevant PFRSs
adopted by an entity in preparing and presenting its
financial statements.
An existing accounting policy should only be changed
where

a new accounting standard requires such a change
(International accounting standards) or
 where the new policy will result in reliable and
more relevant information being presented.
(Some standards provide choices which provide
management with more flexibility)
A change of an existing accounting policy to another
policy of equal relevance is not permitted
(comparability should take precedence)
CHANGES IN ACCOUNTING POLICY:
1. Change from FIFO cost formula for
inventories to the Average cost formula
2. Change in method of recognizing revenue
from long-term construction contracts.
3. Change to a new policy resulting from the
requirement of a new PFRS.
4. Change of financial reporting framework such
as from PFRS for SMEs to compliance with full
PFRSs.
5. Initial adoption of the revaluation model for
property, plant, and equipment and intangible
assets (PAS 16)
6. Change from the cost model to the fair value
model of measuring investment property (PAS
40).
7. Change in business model for classifying
financial assets resulting to reclassification
between financial asset categories (PAS 39,
PFRS 7)
Changes in accounting policies to be accounted for
retrospectively, except where it is not practicable to
determine the effect in prior periods
Retrospective application is where the financial
statements of the current period and each prior period
presented are adjusted so that it appears as if the new
policy had always been followed.
This is achieved by restating the profits in each period
presented and adjusting the opening position by
restating retained earnings
MODULE 7
Changes in Accounting Estimates
Many aspects of financial statements preparation
requires many estimates to be made on the basis of
the latest available, reliable information.
Examples:

the recoverability of amounts owed by
customers,
 the obsolescence of inventories
 the useful lives of non-current assets.
As more up-to-date information becomes available
estimates should be revised to reflect this new
information.
Changes in Accounting Estimates
1. Change in depreciation or amortization methods
2. Change in estimated useful lives of depreciable
assets
3. Change in estimated residual values of depreciable
assets
4. Change in required allowances for impairment
losses and uncollectible accounts
5. Changes in fair values less cost to sell on noncurrent assets held for sale and biological assets
6. Changes in currency exchange rates for foreign
currency denominated cash and receivables
GENERAL RULE
When it is difficult to distinguish a change in accounting
policy from a change in accounting estimate, the change
is treated as a change in an accounting estimate.
The effect of a change in an accounting estimate should
be recognized prospectively, i.e. by recognizing the
change in the current and future periods affected by the
change.
The very nature the revision of an estimate to take
account of more up to date information does not relate
to prior periods.
Instead such a revision is based on the latest
information available and therefore should be
recognized in the period in which that change arises.
MODULE 9
Statement of Comprehensive Income
Profit or loss is defined as "the total of income less
expenses, excluding the components of other
comprehensive income“. Net income from normal
business operation.
Other
comprehensive
income
(paper
gains/losses) is defined as comprising "items of income
and expense (including reclassification adjustments) that
are not recognized in profit or loss as required or
permitted by other IFRSs“. Income that bypass net
income but increases or decreases equity.
Total comprehensive income is defined as "the
change in equity during a period resulting from
transactions and other events, other than those changes
resulting from transactions with owners in their capacity
as owners". [IAS 1.7]
Profit or loss section Of The Statement of
Comprehensive Income
The following minimum line items must be presented in
the profit or loss section (or separate statement of profit
or loss, if presented): [IAS 1.82-82A]
SALES GROSS RECIPTS
 revenue
 share of the profit or loss of associates and joint
ventures accounted for using the equity method
 certain gains or losses associated with the
reclassification of financial assets
Other Comprehensive Income to P/L
 gains and losses from the derecognition of
financial assets measured at amortized cost
 finance costs
 tax expense
 a single amount for the total gain/loss of
discontinued items
Other Comprehensive section
The other comprehensive income section is required to
present line items which are classified by their nature,
and grouped between those items that will or will not
be reclassified to profit and loss in subsequent periods
Could be recycled to P/L upon derecognition:
 Exchange differences from translating functional
currencies into presentation currency
 The effective portion of gains and losses on
hedging instruments in a cash flow hedge
 Gains and losses on remeasuring Debt Instrument
available-for-sale held at FVOCI
Could not be recycled to P/L upon
derecognition:
 changes in a revaluation surplus
 Remeasurements of a net defined benefit liability or
asset
 Gains and losses on remeasuring an investment in
equity instruments held at FVOCI
 Gain or loss attributable to credit risk of a financial
liability designated at FVPL
 An entity's share of OCI of equity-accounted
associates and joint ventures is presented in
aggregate as single line items based on whether or
not it will subsequently be reclassified to profit or
loss. [IAS 1.82A]*
MODULE 10
ACCOUNTING ERRORS
Accounting errors occur when accounting treatment
and/or disclosure of a transactions is not in accordance
with the general accepted accounting principles
applicable to the financial statements.
ACCOUNTING Errors include the effects of:
1. Mathematical mistakes
2. Mistakes in applying accounting policies
3. Oversights or misinterpretations of facts;
and
4. Fraud (made intentionally to achieve a
particular presentation in the financial
statements)
DISTINCTION FROM ACCOUNTING ESTIMATES
 Accounting estimate , it is an approximation made
due to non-availability of complete information
 Accounting error, it arises from misapplication of
accounting policies, estimates or
omission of transactions.
REQUIRED ACCOUNTING of Accounting errors
Accounting standards require companies to restate their
historical financial statements when a material
accounting error is discovered.
IFRS requires companies to change its financial
statements retrospectively i.e. as if no error ever
occurred.
 All material errors (will influence the decision)
must be corrected.
 Record corrections of errors from prior periods as
an adjustment to the beginning balance of
retained earnings in the current period, (Such
corrections are called prior period adjustments).
 For comparative statements, a company should
restate the prior statements affected, to correct
for the error. (Retrospective restatement corrects
the financial statements as if the prior period error
had never occurred).
TYPES of ACCOUNTING ERRORS
BALANCE SHEET ERRORS
Balance sheet errors affect only the presentation of an
asset, liability, or stockholders’ equity account.
When the error is discovered in the error year, the
company reclassifies the item to its proper position.
If the error is discovered in a prior year, the company
should restate the balance sheet of the prior year for
comparative purposes.
INCOME STATEMENT ERRORS
Improper classification of revenues or expenses.
A company must make a reclassification entry when it
discovers the error in the error year.
If the error is discovered in a prior year, the company
should restate the income statement of the prior year for
comparative purposes.
Errors affecting both balance sheet and income
statement.
This type of error classified as:
1. Counterbalancing errors
2. Non-counterbalancing error
1.Counterbalancing errors are errors which, if remained
uncorrected, are automatically corrected or offset in the
next accounting period. Their effect on the financial
statements automatically reverses (counterbalance) in
the next accounting period.
2.Non-counterbalancing errors are errors which, if
remained uncorrected, are not automatically corrected
or offset in the next accounting period.
COUNTER BALANCING ERRORS
Will be offset or corrected over two periods. If company has
closed the books:
1. If the error is already counterbalanced, no entry is
necessary.
2. If the error is not yet counterbalanced, make entry
to adjust the present balance of retained earnings.
3. For comparative purposes, restatement is
necessary even if a correcting journal entry is not
required.
DISCLOSURES:
The nature of the prior period error
For each prior presented, to the extent practicable, the
amount of correction:
 For each financial statement line item
 The amount of the correction at the beginning of
the earliest prior period
If retrospective restatement is impracticable for a
particular prior period, mention the circumstances that
led to the existence of that condition and a description
of how and from when the error has been corrected
.
MODULE 11
ACCRUAL Accounting to CASH basis
Accounting
Financial statements are prepared based on Accrual
accounting, Except (Statement of Cash Flows)
 Cash activities reported in the Statement of Cash
Flows are taken from the Income statement and
Financial position which are on accrual basis,
 Amounts reported in the Income Statement and in
the Statement of Financial Position will have to be
converted to its equivalent cash basis accounting
to arrive at the amount to be reported in the
Statement of Cash Flows.
respect of the amount of dividends recognized in the
period and the related amount per share. [IAS 1.107]
MODULE 12
STATEMENT OF CHANGES IN EQUITY
Equity represents the shareholders' stake in the
company, identified on a company’s financial position.
 Equity can indicate an ownership interest in a
business, such as stockholders' equity or owner's
equity.
 The calculation of equity is a company's total assets
minus its total liabilities.
 This also the business net worth or net book value of
the business.
The stockholders’ equity is composed of the following:
a. Contribution of the owners
 Share capital at par value
 Share premium, the excess of issue price
of shares over the par value
 Less treasury shares
b. Earnings of the business
 Accumulated profit/loss
 Accumulated comprehensive income
The statement of changes in equity should include :
 total comprehensive income for the period,
showing separately the amounts due to
 owners of the parent and
 to non-controlling interests;
-for each component of equity the effect of any change
in accounting policy or of any
correction of errors;
-for each component of equity a reconciliation of the
carrying amount at the beginning and the end of the
period, separately disclosing changes resulting from:
o profit or loss;
o each item of other comprehensive income; and
o transactions with owners in their capacity as owners,
showing separately contributions by them (e.g. an issue
of shares for cash) and distributions to them (e.g.
dividends paid).
-In addition, information should be disclosed either in
the statement of changes in equity or in the notes, in
MODULE 13
IAS/PAS 10
EVENTS AFTER REPORTING PERIOD
Event after the reporting period: An event,
which could be favourable or unfavourable, that occurs
between the end of the reporting period and the date that
the financial statements are authorised for issue. [IAS
10.3]
Adjusting event: An event after the reporting
period that provides further evidence of conditions that
existed at the end of the reporting period, including an
event that indicates that the going concern assumption
in relation to the whole or part of the enterprise is not
appropriate. [IAS 10.3]
Non-adjusting event: An event after the reporting
period that is indicative of a condition that arose after
the end of the reporting period. [IAS 10.3]
ACCOUNTING
Cut off date (Balance sheet date)
Adjusting Event – Adjust the FS for the change in
estimate before issue
Non-Adjusting Event –Disclose if material, Ignore if
immaterial
Authorized Issue date of FS
Not under the scope of the standard
Adjusting event EXAMPLES
EXAMPLES:
 Information after balance sheet that a customer
has gone into liquidation, this provides additional
evidence regarding the recoverability of an asset
recognized at 31 December

the settlement of an outstanding court case that
was provided for, or disclosed as a
contingent liability, at the period end.

information received after the end of the reporting
period about the value or
recoverability of an asset recognized at the period
end. (e.g., inventory)

the finalization of bonuses that were payable at
the period end in accordance with
IAS 19 Employee benefits

the discovery of fraud or errors which show that
amounts recognised or information
disclosed at the end of the reporting period were
incorrect.
Non-adjusting event: An event after the reporting period
that is indicative of a condition that arose after the end
of the reporting period. [IAS 10.3]
EXAMPLES:
 an entity declares dividends after the reporting
period
 the major purchase or disposal of assets such as
property, plant and equipment or a subsidiary;
 the destruction of assets caused by a fire occurring
after the end of the reporting period;
 the announcement of a major restructuring plan;
 a significant fluctuation in foreign exchange rates
that would affect amounts reflected in the
financial statements;
 significant changes in the number of ordinary
shares of the entity, perhaps from a bonus issue or
share split;
 changes in tax rates that will have a significant
effect on amounts reported for current and
deferred tax in accordance with IAS 12 Income
taxes;
 entering into major commitments or providing a
significant guarantee; and
 the commencement of litigation following an
event that happened after the end of the reporting
period. This is not recognized as a provision since
the entity did not have an obligation at the period
end
Going Concern-Financial statements are usually
prepared on what is described as the “going concern”
basis;this assumes that the entity will continue to operate
for the foreseeable future.
If, however, management determines after the end of
the reporting period that it intends to, or has no realistic
alternative but to, liquidate the entity or to cease trading,
then the financial statements should not be prepared on
the going concern basis. [IAS 10.14]
The entity should instead adopt a basis of preparation
that is considered more appropriate in the circumstances
Disclosure
Non-adjusting events should be disclosed if they are of
such importance that non-disclosure would affect the
ability of users to make proper evaluations and decisions.
The required disclosure is
a.
the nature of the event and
b.
an estimate of its financial effect or a statement
that a reasonable estimate of the effect cannot be made.
[IAS 10.21]
A company should update disclosures that relate to
conditions that existed at the end of the reporting period
to reflect any new information that it receives after the
reporting period about those conditions. [IAS 10.19]
Companies must disclose the date when the financial
statements were authorized for issue and who gave that
authorization.
If the enterprise's owners or others have the power to
amend the financial statements after issuance, the
enterprise must disclose that fact. [IAS 10.17]
MODULE 14
SECURITIES AND EXCHANGE COMMISSION (to enforce
regulations for self-regulatory bodies, created to
oversee the work of various entities)
Revised (Securities Regulation Code) SRC 68
Effectivity:

Audited Financial Statements ending December
31 , 2019

Interim Financial statements for the 1st
quarter of 2020
GENERAL FINANCIAL REPORTING REQUIREMENTS
Companies that meet the following threshold are
required to file an audited financial statements in the
SEC:
 Stock corporations with total assets or total
liabilities of P600,000 or more.(Previously, those
with paid up capital stock of P50,000 or more.)
 Non-stock corporations with total assets or total
liabilities of P600,000 or more. (Previously, those
with total assets of P500,000 or more, or with gross
annual receipts of P100,000 or more.)
 Branch offices/representative offices of foreign
Stock Corporation with assigned capital of P1
million
 Branch offices/representative offices of foreign
Non Stock Corporation with total assets of P1
million
 Regional Operating Head Quarters of foreign
corporation with total revenue of P1 million
APPLICABLE FINANCIAL REPORTING FRAMEWORK:
Full
PFRs
Large and/or PubliclyAccountable Entities
 Total Assets, More than
P350 Million, or
 Total liabilities, more than
P250 M
PFRs
for
SMEs
PFRs
for
SEs
Medium Size Entities
 Total Assets, >P100 million
to P350 Million, or
 Total liabilities, >P100
million to P250 M
Small Entities
 Total Assets, P3 million to
P100 Million, or
 Total liabilities, P3 million
to P100 M
Micro Entities
 Assets or Liabilities < P3
million