OVERVIEW OF ACCOUTING Accounting is the "process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information" (AAA). Important Activities in Accounting 1. Identifying - analyzing events and transactions to determine whether or not they will be recognized Recognition - including the effects of an accountable event through journal entry Accountable Events one that affects economic activities Non-accountable Events not recognized as accounting; but it it has accounting relevance it is recorded in memorandum entry Type of Events or Transactions • • External Events - involve external party i. Exchange (reciprocal transfer) - give and receive ii. Non-reciprocal transfer - give but not receive (e.g., donation, tax) iii. External event other than transfer- changes in economic resources or obligations but no transfer happened (e.g.. price levels, technological changes) Internal Events - do not involve external party i. Production - resources are transformed into finished goods ii. Casualty unanticipated loss Measuring- assigning numbers in monetary terms -FS are prepared using mixture of costs and values. FS are mixture of fact and opinion • Valued by Opinion - measurement affected by estimates • Valued by Fact measurement not affected by estimates 2. Communicating - transferring economic data into useful accounting information for dissemination and interpretation Three Aspects of Communicating Process in Accounting: 1. Recording-writing the accountable events through journal entry 2. Classifying grouping of similar items into their respective classes through posting 3. Summarizing-expressing in condensed form which include preparations of accounting reports NOTE: Interpreting the processed information is computing of financial statement ratios. BASIC PURPOSE OF ACCOUNTING ➢ To provide information useful in making economic decisions ➢ Economic entity-combination of people and property that uses economic resources to achieve certain goals. Types of economic entity: a. Not-for-profit entity b. Business entity Economic activities are activities that affect the economic resources, obligations and the equity of an economic entity. Economic activities involve: 1. Production 2. Exchange 3. Consumption 4. Income Distribution 5. Savings 6. Investments Types of Information Provided by Accounting • 1. Quantitative Information - numbers, quantities or units 2. Qualitative Information - words or description form; usually found in notes 3. Financial Information-money • • • Types of Accounting Information Classified to User's Need 1. General Purpose Accounting Information common need of most statement users • 2. Special Purpose Accounting Informationspecific needs of particular users • The practice of accounting requires the exercise of: • Creative Thinking using imagination and insight logical analysis identifies alternative solutions Critical evaluates Thinking alternative solutions ACCOUNTING CONCEPTS principles upon which the accounting process is based (accounting assumptions or accounting theory) • • • • Conceptual Framework and Accounting Standards Notes • • • • Double-entry system - debit and credit Going Concern Assumption - assumes continual operation and not expect to end Separate Entity-owners personal transactions are separated from the business Stable Monetary Unit - accountable events are expressed in terms of common unit • • • - purchasing power is considered stable regardless of instability Time Period - life of reporting period of entity, usually 12 months (Calendar Year starts at January 1 ; Fiscal Year - starts on a date other than January 1 Materiality Concept - a judgment that is based on its size and nature Cost-benefit-cost must equal benefit Accrual Basis - the effects of transactions are recognized when they occur and not as cash is received or paid Historical Cost Concept (Cost Principle) the asset value is based on the acquisition cost Concept of Articulation all the components of a complete set of financial statements are interrelated Full Disclosure Principle - including enough details to make information understandable Consistency Concept - using the same accounting principle of different periods Matching - costs are recognized as expenses when the related revenue is recognized Entity Theory - proper income determination (A-L+C)-income statement Propriety Theory - proper valuation of assets (A-L-C) - balance sheet Residual Equity Theory - applicable when there are two classes of shares issued (ordinary and preferred (A-LPreferred Shareholder's Equity-Ordinary Shareholders Equity) Fund Theory - custody and administration of funds (cash inflows cash outflows-fund's) Realization - converting non-cash assets into cash or claims for cash • Prudence (Conservatism) use of caution when making estimates; does not allow deliberate assets' understatement or liabilities' overstatement (e.g., cookie jar reserve); choosing least effect on equity E EXPENSE RECOGNITION PRINCIPLES • • • Matching Concept (Direct Association of Costs and Revenues) - cost that are directly related to the revenue are recognized as expenses in the same period Systematic and Rational Allocation cost that are not directly related to the revenue are recognized are assets first and are recognized as expenses when consumed using some method of allocation (e.g., depreciation, amortization) Immediate Recognition cost that do not meet or ceases to meet the definition of assets are expensed immediately (e.g.. casualty and impairment losses) • • • • • • • • • COMMON BRANCHES OF ACCOUNTING • • Financial Accounting - focuses on general purpose financial statements >Financial Statement (FS) entity's financial position and results of its operations and are communicated to users. > Financial Report - FS plus other information to help in making efficient economic decisions and is useful to external users. Objectives of financial reporting is to provide information: 1. Entity's economic resources, claims and changes 2. Useful in assessing the entity's management stewardship Management Accounting communication of information for use by internal users • • • Cost Accounting systematic recording and analysis of cost of materials, labor incident to production and overhead Auditing-evaluating with established criteria and express opinion to ensure fairness and reliability Tax Accounting - preparations of tax returns and rendering of tax advice Government Accounting custody of public funds, its purpose, and the responsibility and accountability of entrusted individual Fiduciary Accounting - handling accounts managed by a person for the benefit of other Estate Accounting-handling accounts for fiduciaries who wind up the affairs of deceased person Social Accounting communicating the social and environmental effects of an entity's economic actions to the society Institutional Accounting - for nonprofit entities other than government Accounting Systems - installation of accounting procedures for the accumulation of financial data and designing of accounting forms for data gathering Accounting Research - careful analysis of economic events and other variables to understand their impact of decisions Bookkeeping-recording the account or transaction of an entity - ends with the preparation of trial balance - does not require interpretation Accountancy - profession or practice of accounting either public or private practice PHILIPPINE ACCOUNTANCY ACT OF 2004 (R.A. 9298) Sectors in the Practice of Accountancy 1. Practice in Public Accountancy-rendering service to more than one client on fee basis 2. Practice in Commerce and Industryemployment in private sector 3. Practice in Education/Academe employment in educational institutions 4. Practice in Government - employment in government or controlled corporations NOTE: 2 and 4 are considered private practice. ACCOUNTING STANDARDS USED IN THE PHILIPPINES Philippine Financial Reporting Standards (PFRS) - Philippines GAAP is based on IFRS PFRS is comprised of: a. Philippine Financial Reporting Standards (PFRS) b. Philippine Accounting Standard (PAS) c. Interpretations Reporting standards is necessary to become comparable, avoid fraudulent reporting, and right economic decisions. Selection of appropriate accounting policies is the entity's management responsibility. However, the proper application of accounting principles is the accountant's responsibility. ACCOUNTING STANDARD SETTING BODIES AND OTHER RELEVANT ORGANIZATION 1. Financial Reporting Standard Council (FRSC) official accounting standard setting body of the Philippine created under RA 9298 2. Philippine Interpretations Committee (PIC) predecessor of FRSC which reviews the interpretations of International Financial Reporting Interpretations Committee (IFRIS) for approval and adoption by the FRSC 3. Board of Accountancy (BOA) supervise the registration, licensure and practice of accountancy in the Philippines 4. Securities and Exchange Commission (SEC) regulates corporations and partnership, capital and investment marks, and the investing public Code 5. Bureau of Internal Revenue (BIR) administers the provisions of the National Internal Revenue 6. Cooperative Development Authority (CDA) influences the selection and application accounting policies by cooperatives NOTE: Accounting policies prescribes by a regulatory body are sometimes referred to as regulatory of accounting principles. International Accounting Standards Board (IASB) standard setting body of the IFRS Foundation with the main objectives of developing and promoting global accounting standards. Standards issued: • International Financial Reporting Standards (IFRS) •International Accounting Standards (ASS) •Interpretations The move to IFRS was primarily brought by the increasing acceptance of IFRSS world-wide and increasing internalization of business thereby increasing the need for a common financial reporting standards that minimize, if not eliminate, inconsistencies of financial reporting among nations Norwalk Agreement - a memorandum of FASB (USA) and IASB to produce a single set of global accounting standards, in which they agree to make financial reporting standards that are: a. Fully compatible; and b. Coordinate future work programs CONCEPTUAL FRAMEWORK AND REPORTING STANDARD Prescribes the concept for general purpose financial reporting to assist IASB in developing standards, assist prepares in developing consistent accounting policies when no standard applies to a transaction and assist all parties in understanding and interpreting standards CONCEPTUAL FRAMEWORK • Provide foundation for the development of standards that promote transparency, strengthen accountability, and contribute to economics efficiency • Do not provide requirements for specific transactions or events • Conceptual framework is not a standard. Any conflict between the two, standard will prevail. • Use the hierarchy of standard for guidance in authoritative status. (See PAS 2 for reference) • This can be revised but not automatically result to change of Standards not until the IASB due process • Scope of Conceptual Framework: OBJECTIVE OF FINANCIAL REPORTING • Foundation of the Conceptual Framework Primary Users Existing and potential investors • Provide financial information that is useful to primary users in making decisions about providing resources to the entity. Cannot demand specific information • Decisions of primary users are based on assessment of an Entity only provides the common entity's prospect for future net inflows and management needed data of most primary users stewardship. Hence, users need information of entity's financial position, financial performance, and other changes in financial position, and assets' utilization. Lenders and creditors Objective of Financial Reporting = Conceptual Framework = Standard General Purpose Financial Reporting Caters most of the common need of most primary users Do not directly show the value of entity but only information that help users estimates entity value. Providing information requires estimates and judgment 1. Financial Position - information on resources (assets) and claims (liabilities and equity) This can help users in assessing entity's: • Liquidity and solvency - able to pay short and long-term obligations, respectively • Needs for additional financing Management's stewardship 2. Changes in economic resources and claims information on financial performance and other events or transaction that led to the said change QUALITATIVE CHARACTERISTICS Identifies the most useful information to primary users in making decisions using entity's financial report Applicable to information in FS and to financial information provided in other ways 1. Fundamental Qualitative Characteristics information useful to users a. Relevance - can affect decision of users • Predictive Value - making predictions using past info • Confirmatory Value - confirming previous decisions ➢ Materiality • Information is material if omitting or misstating it could influence primary users' decision • Entity-specific • IFRS Practice Statement 2 Making Materiality Judgments provide nonmandatory guidance called materiality process. Below are the four steps: 1. Cost-Benefit Principle. However, cost is not a factor when making materiality judgment. 2. Assess whether step 1 information could influence the user's decisions by: a. Items nature or size or both b. Quantitative and qualitative factors ► Quantitative factors size of impact and can be assessed in relation to another amount percentage or a threshold amount - CF and the standard do not specify a quantitative threshold since it is a judgment ► Qualitative factors - characteristic of item or context; (i) entity specific and (ii) external qualitative factors - No hierarchy among factors, but an entity normally assesses an item first in quantitative factors: ► If it is quantitatively material, no need to reassess qualitative factors. ► If not quantitatively material, needs to reassess qualitative factors 3. Maximizes understandability to users by organizing FS draft 4. Reviewing the draft allows overview. An item might be immaterial on its own, but might be material in conjunction with other FS information b. Faithful Representation true, correct and complete depiction (when an economic phenomenon's substance differs from its legal form (ie., substance over form), it requires depiction) •Completeness - must provide all information needed in understanding •Neutrality- not manipulated or without bias •Free from Error - accurate but not precise; supported by prudence (use of caution when making judgment) 2. Enhancing Qualitative Characteristics enhance usefulness of information a. Comparability to identify similarities and differences of different information through intra- comparability or inter-comparability b. Verifiability-different users should reach a general agreement i. Direct verification - can be observe directly (e.g., counting of cash) ii. Indirect verification - redo the methodology used by the entity c. Timeliness - available to users on time excluding d. Understandability - presented in clear and concise manner but does not mean complex matter Applying Qualitative Characteristics ►Information must be both relevant and faithfully represented ►Enhancing qualitative information cannot make irrelevant information useful ►One enhancing qualitative characteristic may be sacrificed to maximize another ►Cost constraint - pervasive constraint; providing information has cost; cost must equal benefits FINANCIAL STATEMENTS AND THE REPORTING ENTITY • The objective of general purpose financial statements is to provide financial information about the reporting entity's financial position, financial performance, and other statements and notes • Reporting Period • Information must be comparative, forwardlooking, and entity's perspective • Going concern assumption - an underlying assumption that is based on management's decision • Reporting Entity - can be single or group or combination of two or more entities An entity controls another entity: 1. Parent-controlling entity 2. Subsidiary-controlled entity ▸ Consolidated Financial Statement-combined report of parent and subsidiary ▸ Unconsolidated Financial Statement - report from parent only ▸ Individual Financial Statement report from subsidiary only ▸ Combined Financial Statement - report of two or more entities not linked by parent subsidiary ELEMENTS OF FINACIAL STATEMENTS • Assets - present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits. - ability to prevent others from accessing the benefits of controlled resources - control normally stems from legally enforceable rights (e.g., ownership or legal title). However, ownership is not always • Liability - present obligation of the entity to transter an economic resource as a result of past events -transfer of economic benefits need not be certain a. Legal obligation-result from contact, legislation, or other law of operation b . Constructive obligation result from entity's action (e.g.. warranty, environmental damages) Executory Contract - a contract that is equally unperformed by both parties or have partially fulfilled with equal extent; combined right or obligation Executed Contract-fulfilled by other party •Equity - residual interest after deducting assets from liabilities Reserves - amount set aside to protect the entity's creditors or shareholders from losses • Income - revenue; increase in assets or decrease in liabilities that result in increase in equity • Expenses - costs; decrease in assets or increase in liabilities that result in decrease in equity NOTE: The new conceptual framework removes the notion of 'expected' and 'probability of economic flow, and 'reliable measurement Financial Position - balance sheet; assets, liabilities and equity Financial Performance income statement; income and expenses RECOGNITION • Items are recognized if it meets the two criteria: ➢ Meets the definition of financial element; ➢ and Provides useful information (relevance and faithfully represented information) • An asset (liability) can exist even if producing (transferring) benefits has low probability, but can affect the recognition, how it is measured, what and how information is provided •Unresolve dispute of asset or liability will mostly affect the recognition • Existence uncertainty and low probability of an inflow or outflow of economic benefits may result in but does not automatically lead to the non-recognition of asset or liability. Other factors should be considered. • Measurement uncertainty ➢ Exist if the asset or liability needs to be estimated ➢ High level of measurement uncertainty does not necessarily lead to nonrecognition if it provides relevant information and is clearly and accurately described and explained ➢ However, it can lead to non-recognition if making estimate is exceptionally difficult or subjective (can affect faithful representation) or especially if one or more of the circumstances exist: •Exceptionally wide range of possible outcome and is difficult to estimate •Highly sensitive to small changes • Exceptionally subjective allocations of cash flows that do not relate solely to the asset or liability being measured • Derecognition • Removal of previously recognized asset or liability when the item no longer meets its definition •Derecognizes asset or liability that have expired, consumed, collected. fulfilled or transferred and continues to recognize any assets or liabilities that have retained after derecognizing Unit of Account is "the right or the group of rights, the obligation or the group of obligations, or the group of rights and obligations, to which recognition criteria and measurement concept are applied MEASUREMENT basis is needed since recognition requires quantifying item in monetary terms. Standards prescribe specific measurement bases for different types of assets, liabilities, income and expenses. Measurement bases describe by Conceptual Framework 1. Historical Cost - acquired (incurred) cost of assets (liability) plus (minus) transaction costs do not reflect changes in value but may need to be updated (e.g.. depreciation, amortization cost) so, the value can be changed 2. Current Value-reflect changes in value at the measurement date •Fair Value - price that would be received to sell (paid) an asset (liability) that reflects the perspective of market participants at the measurement date • Value in use of assets and fulfillment value of liability - reflect entity's assumption - Value in Use present value of economic benefits from the use or ultimate disposal of asset - Fulfillment Value - present value of economic resources to transfer or fulfilling liability Both do not include transaction cost from acquiring or incurring, but include transaction cost of disposal or fulfillment • Current Cost - cost at the measurement date plus (minus) transaction cost at that date Entry Values Historical cost and current cost Reflect prices in acquiring assets or incurring liability Exit Values Fair value, value in use and fulfillment value Reflect prices in selling or using an asset or transferring or fulfilling a liability Considerations when selecting a measurement basis: a. The nature of information provided by a particular measurement basis b. Considerations of other factors rather than only a single isolated factor. Example: • Faithful representation. If measurement of uncertainty is high to a particular measurement basis, consider other measurement basis . •Comparability. Using the same measurement basis consistently is important for comparability, but a change is appropriate if it result to a more relevant information •Understandability. The more different measurement bases are used, the more complex. PRESENTATION AND DISCLOSURE Objectives are specified in standards that strive for a balance between: a. Giving entities the flexibility to provide relevant and faithfully represented information; and b. Requiring information that has both intracomparability and inter-comparability Principles for effective communication considers: a. Entity-specific information is more useful than standardized description, also known as 'boilerplate; and b. Duplication of information is usually unnecessary at it can make financial statement less understandable Classification Offsetting Definition Sorting elements of FS with similar nature, function and measurement basis - When asset and liability with separate units of accounts are combined and only Accounts receivable and accounts the net amount is presented - Combines dissimilar items, hence appropriate practice Example Accounts receivable Accounts receivable and payable are netted and presented in not in the net amount same classification - Summarizes large volume of detail CAPITAL AND CAPITAL MAINTENANCE Capital Concept Concept used for users concerned Capital Maintenance Measuremen t Current Cost Basis Aggregation - Adding together of FS elements that share characteristics and are included the All receivables (e.g., accounts in receivable, interest receivables) are aggregated and presented under "Trade and other receivables" FINANCIAL Invested money or investment purchasing price with the maintenanc e of nominal invested capital of purchasing power of the invested capital Profit is earned it net assets at the end period exceeds the beginning period Current Cost PHYSICAL Entity's productive capacity To the entity's operating capability Profit is earned only if entity's productive capacity at the end period exceeds the beginning period Does not require particular measuremen t basis ➢ Both capital maintenances exclude the distributions to, contributions from owners during the period. ➢ Capital Maintenance is essential in distinguishing between return on capital and return of capital. Capital Maintenance Adjustments - the revaluation or restatement of assets and liabilities results in increase or decrease in equity. Although these increases or decreases meet the definition of income or expense, they are not recognized in profit or loss under certain concepts of capital maintenance. Accordingly, these items are included in equity as capital maintenance adjustments or revaluation reserves. PAS 1 PRESENTATION OF FINANCIAL STATEMENT It prescribes the basis for the presentation of general purpose financial statements, its structure guidelines and content's minimum requirements to ensure comparability (intercomparability and intra- comparability). The terminology of PAS 1 is suitable for profitoriented entities. Financial Statements • Structured presentation of an entity's financial position and result of its operation • Pertain only to the entity not the industry • General purpose financial statements - cater most of the common needs of a wide range of external users (cannot demand specific reports for their own needs) Purpose of Financial Statements • To provide useful information useful to a wide range of users in making economic decision • To show result of management stewardship over the entity's resources Complete Set of General Purpose Financial Reporting Statement 1. Statement of Financial Position (or Balance Sheet) 2. Statement of Profit or loss and other comprehensive income (not the same as income statement) 3. Statement of Changes in Equity 4. Statement of Cash Flows 5. Notes-qualitative info to explain the quantitative info 1-4 - comparative information in respect of the preceding period 6. Additional statement of financial position - required under certain instances GENERAL FEATURES OF FINANCIAL STATEMENTS Management is responsible for preparation and the fair presentation of entity's FS in accordance to PFRS 1. Fair presentation and compliance with the PFRS • Make an explicit and unreserved statement • Application of PFRS with additional disclosure when necessary • If management concludes that PFRS requirement compliance is misleading, PAS 1 permits requires or allows such departure from it relevant regulatory framework (prescribed by a government regulatory body) requires or allows such departure • If it departs, the entity shall disclose which PFRS it departs, why, and the effect of departure Compliance or departure is written in the note section 2. Going Concern • If there are uncertainties of going concern, it shall be disclosed • If entity is not a going concern, it shall be disclosed and the reason why, and FS shall be prepared using another basis • Not a going concern if as of the reporting period date or the authorization of FS issuance, management either: a. Intends to liquidate the entity to cease trading b. Has no realistic alterative but to do so (e.g., bankruptcy) 3. Accrual Basis of Account All FS shall use this except cash flow statement, which uses cash basis to know the amount of cash the company has because it is easier to liquidate (ability to pay short-term obligation) 1. Application of accounting policy retrospectively 2. Makes a retrospective restatement on items in its financial position, or 3. Reclassifies items in its FS These instances have a material effect on the information of statement of financial position beginning of the preceding period. 4. Materiality and Aggregation • Each material class of similar item (line item) is presented separately. • Immaterial items can be aggregated 8. Consistency of Presentation •Retainment of one method from one to next period unless change is needed for a more relevant information 5.Offsetting • Not offsetting if it measure asset net valuation allowance, for example, allowances for obsolete inventories and of doubtful accounts on receivables, and accumulated PPE depreciation • Shall not use it unless permitted by PFRS • Only permitted when it reflects substance of the transaction • Example of offsetting: Using two bank accounts in the same bank (not the same is prohibited). If the other has negative balance and the other is positive, therefore offsetting is okay. 6. Frequency of reporting • Prepared at least annually Changes in reporting period shall disclose the period covered, the reason for changing, and the fact that amount presented are not entirely comparable 7. Comparative Information • Minimum requirement for comparison is two different statements and related notes • PAS 1 permits addition to the minimum requirement • Additional Statement of Financial Position instances to add are: STRUCTURE AND CONTENT OF FINANCIAL STATEMENT 1. Name of the reporting entity 2. For whom the statements (individual or group entity) 3. Date (end or covered period) 4. Presentation currency 5. Rounding level used (e.g., thousands, millions Example: ABC Group Statement of Financial Position As of December 31, 20x2 (in thousand of Philippine Peso) STATEMENT OF FINANCIAL POSITION Presentation of Statement of Financial Position CLASSIFIED PRESENTATION UNCLASSIFIED PRESENTATION - shows no distinction between current and noncurrent assets or liabilities = most commonly used - highlights working capital and facilitates - shows distinction between current and non-current - based on liquidity ➢ Refinancing agreement is fully completed on or before balance-sheet date; or ➢ Refinancing agreement after balance sheet date but before FS are authorized for issue the computation of liquidity and solvency ratios - Working capital = Current Assets Current Liabilities PAS 1 does not prescribe the order or format in which an entity presents items, PAS 1 permits mixed presentation especially if the entity's operation is diverse. CURRENT NON-CURRENT ASSETS AND LIABILITIES CURRENT - Used for trading during the entity's normal operating cycle (12 months) - Cash or cash equivalents restricted from being - Includes accruals Ex. Trade Receivables - Ex. trade Receivables NON-CURRENT - Used more than 1 year - Cash and cash equivalents restricted for exchange (e.g., maintaining balance of bank account) - Includes deferrals -Ex. Non-trade Receivables Currently Maturing Long-Term Liabilities • Must be presented as current liabilities Breach of Loan Contract • A liability that is payable on demand is a current liability • Exception is if a lender provides on or before balance sheet date a grace period ending at least 12 months after the balance sheet date to rectify the breach Presentation of Deferred Taxes • Presented as non-current in a classified presentation, irrespective of their expected date of reversal STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Income and expenses may be presented either: a. Single statement of profit or loss and other comprehensive income, called statement of comprehensive income PAS 1 requires entity to present information on the following: a. Profit or loss b. Other comprehensive income; and c. Comprehensive income Presenting only an income statement is prohibited. • Example: A 10-year loan payable acquired 10 years ago must be fulfilled within this year. Hence, it must be presented current liabilities • Exception is refinancing agreement (defer settlement of currently maturing long-term liability) when: b. Two statements: 1. statement of profit or loss (income statement) 2. statement presenting comprehensive income Profit or Loss • Income minus expenses, excluding the components of comprehensive income • Not included in determining profit or loss 1. Correction of prior period error 2. Change in accounting policy 3. Other comprehensive income 4. Transactions with owner's Presentation of Expense NATURE OF EXPENSE METHOD FUNCTION OF EXPENSE METHOD -According to their nature - Ex. Transportation cost, advertising cost, purchase of materials -According to their function -Ex. Cost of sales, distribution costs, administrative expense -More difficult to apply but has potential of providing more relevant information NOTE: If an entity classifies expenses by function, it shall disclose additional information OTHER COMPREHENSIVE INCOME (OCI) •May presented in net tax or gross of tax • Comprises items of income and expense (including reclassification adjustments) that are not recognized in profit or loss as required or permitted by other PFRS • Comprises items of income and expense (including reclassification adjustments) that are not • Amounts in OCI are usually accumulated as separate components of equity Reclassification of adjustments - amounts from OCI reclassified to profit or loss a. Gain is deduction to OCI and addition to profit or loss b. Loss is addition to OCI and deduction to profit or loss Presentation of OCI-shall group items into reclassification adjustment is allowed and not allowed Types of OCI Reclassification adjustment a. Changes in revaluation surplus liability (asset) (e.g., employee benefit) Not allowed b. Remeasurement of the net defined benefit Not allowed c. Fair Value changes in FVOCI - Equity instrument (election) - Debt instrument (mandatory) ▸ on the nature of expenses Not allowed Allowed d. Translation difference in foreign operations Allowed e. Effective portion of cash flows Allowed Total Comprehensive Income • The sum of profit or loss and OCI •Presented here is also the change in nonowner's equity during a periods; owner's is excluded STATEMENT OF CHANGES IN EQUITY • Owner/s only •Shows the following: a. Effect of change in accounting policy and correction b . Total comprehensive income for the period of error retrospectively c. For each component of equity, a reconciliation between the carrying amount at the beginning and end of period, showing separately changes resulting from profit or loss, other comprehensive income, and transaction with owners STATEMENT OF CASH FLOWS Refer to PAS 7 • Provides qualitative information to the other FS, therefore other FS should be cross-refenced to the notes • Integral part of a complete FS PAS 1 requires entity to present the notes in system manner. It is structured as follows: 1. General information on the reporting entity 2. Statement of compliance with the PFRS and Basis of preparation of FS 3. Summary of significant accounting policies 4. Disaggregation (breakdowns) of line items in the other FS and other supporting information 5. Other disclosure required by PFRS 6. Other disclosure not required y PFRS but is relevant in understanding PAS 2 INVENTORIES Determination of costs to recognize as asset to expense is the primary issue in accounting inventories Hence, PAS 2 provides guidance in the determination of costs of inventories, including use of cost formulas, and their subsequent measurement and recognition as asset then expense.
