CHAPTER 8 Frequency of reporting

PRESENTATION OF FINANCIAL STATEMENTS Financial statements shall be presented at least annually.

An introduction
Statement of financial position When an entity's end of reporting period changes and financial
PAS 1 statements are presented for a period longer or shorter than one year,
an entity shall disclose:
TECHNICAL KNOWLEDGE
To identify the components of financial statements. a. The period covered by the financial statements.
To understand the objective of financial statements. b. The reason for using a longer or shorter period.
To know the preparation of a statement of financial position. c. The fact that amounts presented in the financial statements are
To understand the current and noncurrent classification of assets not entirely comparable.
and liabilities.
To know the forms of presenting the statement of financial position. Statement of financial position

FINANCIAL STATEMENTS A statement of financial position is a formal statement showing the

three elements comprising financial position, namely assets,
Financial statements are the means by which the information liabilities and equity.
accumulated and processed in financial accounting is periodically
communicated to the users. Investors, creditors and other statement users analyze the the
statement of financial position to evaluate such factors as liquidity,
The financial statements are the end product or main output of the solvency and the need of the entity for additional financing.
financial accounting process.
Classification of assets
Financial statements are a structured financial representation of the
financial position and financial performance of an entity. Assets are classified only into two, namely current assets and
noncurrent assets.
General purpose financial statements
When an entity supplies goods within a clearly identifiable
General purpose financial statements or simply referred to as operating cycle, the separate classification of current and noncurrent
financial statements are those intended to meet the needs of users assets is a useful information by distinguishing between assets that
who are not in a position to require an entity to prepare reports are continuously circulating as working capital from the assets used
tailored to their particular information needs. in long-term operations.

In other words, general purpose financial statements are directed to The operating cycle is the time between the acquisition of assets
all common users and not to specific users. and their realization in cash.

Components of financial statements When the entity's normal operating cycle is not clearly identifiable,
the duration is assumed to be twelve months.
A complete set of financial statements comprises the following
components: Current assets

1. Statement of financial position PAS 1, paragraph 66, provides that an entity shall classify an asset
2. Income statement as current when:
3. Statement of comprehensive income
4. Statement of changes in equity a. The asset is cash or cash equivalent unless the asset is restricted
5. Statement of cash flows to settle a liability for more than twelve months after the reporting
6. Notes, comprising a summary of significant accounting period.
accounting policies and other explanatory notes b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realize the asset within twelve months after
The preparation of financial statements shall be taken up more the reporting period.
in detail in Intermediate Accounting Volume Three. d. The entity expects to realize the asset or intends to sell or
consume it within the entity's normal operating cycle.
Objective of financial statements
Noncurrent assets
The objective of financial statements is to provide information
about the financial position, financial performance and cash flows of The caption "noncurrent assets" is a residual definition.
an entity that is useful to a wide range of users in making economic
decisions. PAS 1, paragraph 66, simply states that an entity shall classify all
other assets not classified as current as noncurrent.
Financial statements also show the results of the management's
stewardship of the resources entrusted to it. In other words, what is not included in the definition of current
assets is deemed excluded. All others are classified as noncurrent
To meet this objective, financial statements provide information assets. Accordingly, noncurrent assets include the following:
about the following:
a. Property, plant and equipment
a. Assets b. Long-term investments
b. Liabilities c. Intangible assets
c. Equity d. Deferred tax assets
d. Income and expenses, including gains and losses e. Other noncurrent assets
e. Contributions by and distributions to owners in their capacity as
owners.
f. Cash flows
 Property, plant and equipment Definition of equity

PAS 16, paragraph 6, defines property, plant and equipment as The term equity is the residual interest in the assets of the entity
"tangible assets which are held by an entity for use in production or after deducting all of its liabilities. Simply stated, equity means "net
supply of goods and services, for rental to others, or for assets" or total assets minus liabilities.
administrative purposes, and are expected to be used during more
than one period". The terms used in reporting the equity of an entity depending on the
form of the business organization are:
Examples of property, plant and equipment include land, building,
machinery, equipment, furniture, fixtures, patterns, molds, dies and a. Owner's equity in a proprietorship
tools. b. Partners' equity in a partnership
c. Stockholders' equity or shareholders' equity in a corporation
Most property, plant and equipment, except land, are presented at
cost less accumulated depreciation. However, the term equity may simply be used for all business
entities. Under PAS 1, paragraph 7, the holders of instruments
Long-term investments classified as equity are simply known as owners.

The International Accounting Standards Committee defines Currently maturing long-term debt
investment as "an asset held by an entity for the accretion of wealth
through capital distribution, such as interest, royalties, dividends A liability which is due to be settled within twelve months after the
and rentals, for capital appreciation or for other benefits to the reporting period is classified as current, even if:
investing entity such as those obtained through trading
relationships". a. The original term was for a period longer than twelve months.
b. An agreement to refinance or to reschedule payment on a long-
Intangible assets term basis is completed after the reporting period and before the
financial statements are authorized for issue.
An intangible asset is simply defined as an identifiable nonmonetary
asset without physical substance. However, if the refinancing on a long-term basis is completed on or
before the end of the reporting period, the refinancing is an adjusting
The common examples of identifiable intangible assets include event and the obligation is classified as noncurrent liability.
patent, franchise, copyright, lease right, trademark and computer
software. Covenants

An example of an unidentifiable intangible asset is goodwill. Covenants are often attached to borrowing agreements which
represent undertakings by the borrower.
Other noncurrent assets
Covenants are actually restrictions on the borrower as to
Other noncurrent assets are those assets that do not fit into the undertaking further borrowings, paying dividends, maintaining
definition of the previously mentioned noncurrent assets. specified level of working capital and so forth.

Examples of other noncurrent assets include long-term advances to Under these covenants, if certain conditions relating to the
officers, directors, shareholders and employees, or abandoned borrower's financial situation are breached, the liability becomes
property and long-term refundable deposit. payable on demand.

Classification of liabilities PAS 1, paragraph 74, provides that the liability is classified as
current even if the lender has agreed, after the reporting period and
Liabilities are classified into two, namely current liabilities and before the statements are authorized for issue, not to demand
noncurrent liabilities. payment as a consequence of the breach.

Current liabilities However, Paragraph 75 provides that the liability is classified as

noncurrent if the lender has agreed on or before the end of
PAS 1, paragraph 69, provides that an entity shall classify a liability reporting period to provide a grace period ending at least twelve
as current when: months after the end of reporting period.

a. The entity expects to settle the liability within the entity's normal Shareholders' equity
operating cycle.
b. The entity holds the liability primarily for the purpose of trading. Shareholders' equity is the residual interest of owners in the net
c. The liability is due to be settled within twelve months after the assets of a corporation measured by the excess of assets over
reporting period. liabilities.
d. The entity does not have a right to defer settlement of the
liability for at least twelve months after the reporting period. Generally, the elements constituting shareholders' equity with their
equivalent IAS term are:
Noncurrent liabilities
PHILIPPINE TERM IAS TERM
The term "noncurrent liabilities" is also a residual definition. Capital Stock Share Capital
Subscribed Capital Stock Subscribed Share Capital
PAS 1, paragraph 69, provides that all liabilities not classified as Preferred Stock Preference Share Capital
current are classified as noncurrent. Common Stock Ordinary Share Capital
Additional Paid Capital Share premium
a. Noncurrent portion of long-term debt Retained Earnings (deficit) Accumulated profits(losses)
b. Finance lease liability Retained Earnings Appropriated Appropriate reserve
c. Deferred tax liability Revaluation Surplus Revaluation reserve
d. Long-term obligations to company officers Treasury Stock Treasury share
e. Long-term deferred revenue
 Notes to financial statements

Notes to financial statements provide narrative description or

disaggregation of items presented in the financial statements and
information about items that do not qualify for recognition.

Notes to financial statements are used to report information that

does not fit into the body of the financial statements in order to
enhance the understandability of the financial statements.

The purpose of the notes is to provide the necessary disclosures

required by Philippine Financial Reporting Standards.

Forms of statement of financial position

a. Report form

The report form sets forth the three major sections in a downward
sequence of assets, liabilities and equity.

b. Account form

As the title suggests, the presentation follows that of an account,

meaning, the assets are shown on the left side and the liabilities and
equity on the right side of the statement of financial position.
 Line items in statement of financial position

PAS 1, paragraph 54, states that as a minimum, the face of the

statement of financial position shall include the following line items:

1. Cash and cash equivalents

2. Financial assets (other than 1, 3 and 6
3. Trade and other receivables
4. Inventories
5. Property, plant and equipment
6. Investment in associates accounted for by the equity method
7. Intangible assets
8. Investment property
9. Biological assets
10. Total of assets classified as held for sale and assets included in
disposal group classified as held for sale
11. Trade and other payables
12. Current tax liability
13. Deferred tax asset and deferred tax liability
14. Provisions
15. Financial liabilities (other than 11 and 14)
16. Liabilities included in disposal group classified as held for sale
17. Noncontrolling interest
18. Share capital and reserves

In the Philippines, the common practice is to present current assets

before noncurrent assets, current liabilities before noncurrent
liabilities, and equity after liabilities.

Other formats may be equally appropriate provided the distinction

is clear. This is in accordance with paragraph 7 of the Preface to PAS
1.

PAS 1, paragraph 57, provides that the standard does not prescribe
the order or format in which items are to be presented in the
statement of financial position.

Note that the format of the statement of financial position as

illustrated in the appendix to IAS 1 presents noncurrent assets before
current assets, equity before liabilities, and noncurrent liabilities
before current liabilities. This may be the practice in other
jurisdiction, like the United Kingdom.