CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Instructional Materials_Presentation of Financial Statements

LECTURE NOTES
Scope Consistency of Presentation
Applies to all general purpose financial statements based The presentation and classification of items in the
on Philippine Financial Reporting Standards. [ financial statements shall be retained from one period to
the next unless a change is justified either by a change
General purpose financial statements are those intended in circumstances or a requirement of a new PFRS.
to serve users who do not have the authority to demand
Materiality and Aggregation
financial reports tailored for their own needs.
Each material class of similar items must be presented
Objective of Financial Statements separately in the financial statements. Dissimilar items
The objective of general purpose financial statements is may be aggregated only if the are individually
to provide information about the financial position, immaterial.
financial performance, and cash flows of an entity that is
Offsetting> Assets and liabilities, and income and
useful to a wide range of users in making economic
expenses, may not be offset unless required or
decisions.
permitted by a Standard or an Interpretation.
Components of Financial Statements
Comparative Information
A complete set of financial statements should include
PAS 1 requires that comparative information shall be
• a statement of financial position at the end of the
disclosed in respect of the previous period for all
period,
amounts reported in the financial statements, both face
• a statement of comprehensive income for the
of financial statements and notes, unless another
period,
Standard requires otherwise.
• a statement of changes in equity for the period
If comparative amounts are changed or reclassified,
• statement of cash flows for the period, and
various disclosures are required.
• notes, comprising a summary of accounting policies
and other explanatory notes. Structure and Content of Financial Statements in
General
An entity may use titles for the statements other than
Clearly identify:
those stated above.
• the financial statements
Fair Presentation and Compliance with PFRSs • the reporting enterprise
The financial statements must "present fairly" the • whether the statements are for the enterprise or for
financial position, financial performance and cash flows a group
of an entity. Fair presentation requires the faithful • the date or period covered
representation of the effects of transactions, other • the presentation currency
events, and conditions in accordance with the definitions • the level of precision (thousands, millions, etc.)
and recognition criteria for assets, liabilities, income and
Reporting Period
expenses set out in the Framework. The application of
There is a presumption that financial statements will be
PFRSs, with additional disclosure when necessary, is
prepared at least annually. If the annual reporting
presumed to result in financial statements that achieve a
period changes and financial statements are prepared
fair presentation.
for a different period, the enterprise must disclose the
PAS 1 requires that an entity whose financial statements reason for the change and a warning about problems of
comply with PFRSs make an explicit and unreserved comparability. [PAS 1.49]
statement of such compliance in the notes. Financial
Statement of Financial Position
statements shall not be described as complying with
An entity must normally present a classified statement
PFRSs unless they comply with all the requirements of
of financial position, separating current and noncurrent
PFRSs (including Interpretations).
assets and liabilities. Only if a presentation based on
Inappropriate accounting policies are not rectified either
liquidity provides information that is reliable and more
by disclosure of the accounting policies used or by notes
relevant may the current/noncurrent split be omitted.
or explanatory material.
[PAS 1.51] In either case, if an asset (liability) category
PAS 1 acknowledges that, in extremely rare commingles amounts that will be received (settled) after
circumstances, management may conclude that 12 months with assets (liabilities) that will be received
compliance with an PFRS requirement would be so (settled) within 12 months, note disclosure is required
misleading that it would conflict with the objective of that separates the longer-term amounts from the 12-
financial statements set out in the Framework. In such a month amounts.
case, the entity is required to depart from the PFRS
Current assets are cash; cash equivalent; assets held for
requirement, with detailed disclosure of the nature,
collection, sale, or consumption within the enterprise's
reasons, and impact of the departure.
normal operating cycle; or assets held for trading within
Going Concern the next 12 months. All other assets are noncurrent.
An entity preparing PFRS financial statements is
Current liabilities are those to be settled within the
presumed to be a going concern. If management has
enterprise's normal operating cycle or due within 12
significant concerns about the entity's ability to continue
months, or those held for trading, or those for which the
as a going concern, the uncertainties must be disclosed.
entity does not have an unconditional right to defer
If management concludes that the entity is not a going
payment beyond 12 months. Other liabilities are
concern, the financial statements should not be
noncurrent
prepared on a going concern basis, in which case PAS 1
requires a series of disclosures. Long-term debt expected to be refinanced under an
existing loan facility is noncurrent, even if due within 12
Accrual Basis of Accounting
months.
PAS 1 requires that an entity prepare its financial
statements, except for cash flow information, using the Minimum items on the face of the statement of financial
accrual basis of accounting. position
(a) property, plant and equipment;
(b) investment property;
The following items must also be disclosed on the face of
(c) intangible assets;
the statement of comprehensive income as allocations of
(d) financial assets (excluding amounts shown under
the total comprehensive income:
(e), (h) and (i));
• comprehensive income attributable to minority
(e) investments accounted for using the equity method;
interest
(f) biological assets;
• comprehensive income attributable to equity holders
(g) inventories;
of the parent
(h) trade and other receivables;
(i) cash and cash equivalents; Additional line items may be needed to fairly present the
(j) trade and other payables; enterprise's results of operations.
(k) provisions; No items may be presented on the face of the statement
(l) financial liabilities (excluding amounts shown under of income or in the notes as "extraordinary items".
(j) and (k));
(m) liabilities and assets for current tax, as defined in Certain items must be disclosed either on the face of the
PAS 12; statement of comprehensive income or in the notes, if
(n) deferred tax liabilities and deferred tax assets, as material, including:
defined in PAS 12; • write-downs of inventories to net realizable value or
(o) minority interest, presented within equity; and of property, plant and equipment to recoverable
(p) issued capital and reserves attributable to equity amount, as well as reversals of such write-downs
holders of the parent. • restructurings of the activities of an entity and
(q) assets held for sale/assets related to disposal group, reversals of any provisions for the costs of
as defined in PFRS 5 restructuring
(r) liabilities related to disposal group, as defined in • disposals of items of property, plant and equipment
PFRS 5 • disposals of investments
• discontinuing operations
Additional line items may be needed to fairly present the • litigation settlements
entity's financial position. • other reversals of provisions
PAS 1 does not prescribe the format of the balance Expenses should be analyzed either by nature (raw
sheet. Assets can be presented current then noncurrent, materials, staffing costs, depreciation, etc.) or by
or vice versa, and liabilities and equity can be presented function (cost of sales, selling, administrative, etc.)
current then noncurrent then equity, or vice versa. either on the face of the statement of income or in the
Regarding issued share capital and reserves, the notes. [PAS 1.88] If an enterprise categories by
following disclosures are required: function, additional information on the nature of
• numbers of shares authorized, issued and fully paid, expenses – at a minimum depreciation, amortization,
and issued but not fully paid and staff costs – must be disclosed.
• par value Statement of Cash Flows
• reconciliation of shares outstanding at the beginning Rather than setting out separate standards for
and the end of the period presenting the cash flow statement, PAS 1.102 refers to
• description of rights, preferences, and restrictions PAS 7, Cash Flow Statements
• treasury shares, including shares held by
subsidiaries and associates Statement of Changes in Equity
• shares reserved for issuance under options and PAS 1 requires an entity to present a statement of
contracts changes in equity as a separate component of the
• a description of the nature and purpose of each financial statements. The statement must show:
reserve within owners' equity • total comprehensive income for the period showing
separately the total amounts attributable to equity
Statement of Comprehensive Income holders of the parent and to minority interest
All items of income and expense recognized in a period • for each component of equity, the effects of changes
must be included in profit or loss unless a Standard or in accounting policies and corrections of errors
an Interpretation requires otherwise. recognized
Minimum items on the face of the statement of income • capital transactions with owners
should include: • the balance of accumulated profits at the beginning
• revenue and at the end of the period, and the movements for
• finance costs the period
• share of the profit or loss of associates and joint Notes to the Financial Statements
ventures accounted for using the equity method The notes must: ]
• a single amount comprising the total of (i) the post- • present information about the basis of preparation of
tax profit or loss of discontinued operations and (ii) the financial statements and the specific accounting
the post-tax gain or loss recognized on the disposal policies used;
of the assets or disposal group(s) constituting the • disclose any information required by PFRSs that is
discontinued operation not presented on the face of the balance sheet,
• tax expense income statement, statement of changes in equity,
• profit or loss or cash flow statement; and
• each component of the other comprehensive income • provide additional information that is not presented
• share of the other comprehensive income of on the face of the balance sheet, income statement,
associates and joint ventures accounted for using statement of changes in equity, or cash flow
the equity method statement that is deemed relevant to an
• tax related to other comprehensive income understanding of any of them.
• Total comprehensive income
Notes should be cross-referenced from the face of the
The following items must also be disclosed on the face of financial statements to the relevant note.
the statement of comprehensive income as allocations of
profit or loss for the period: PAS 1.105 suggests that the notes should normally be
• profit or loss attributable to minority interest presented in the following order:
• profit or loss attributable to equity holders of the • a statement of compliance with PFRSs
parent
• a summary of significant accounting policies applied, but not recognized as a distribution to equity holders
including: [PAS 1.108] during the period, and the related amount per
o the measurement basis (or bases) used in share; and
preparing the financial statements • the amount of any cumulative preference dividends
o the other accounting policies used that are not recognized.
relevant to an understanding of the financial
statements Capital Disclosures
• supporting information for items presented on the In August 2005, as part of its project to develop PFRS 7
face of the balance sheet, income statement, Financial Instruments: Disclosures, the PASB also
statement of changes in equity, and cash flow amended PAS 1 to add requirements for disclosures of:
statement, in the order in which each statement and • the entity's objectives, policies and processes for
each line item is presented managing capital;
• other disclosures, including: • quantitative data about what the entity regards as
o contingent liabilities (see PAS 37) and capital;
unrecognised contractual commitments • whether the entity has complied with any capital
o non-financial disclosures, such as the entity's requirements; and
financial risk management objectives and • if it has not complied, the consequences of such
policies (see PAS 32) non-compliance.
Disclosure of judgements. New in the 2003 revision to
These disclosure requirements apply to all entities,
PAS 1, an entity must disclose, in the summary of
effective for annual periods beginning on or after 1
significant accounting policies or other notes, the
January 2007, with earlier application encouraged.
judgements, apart from those involving estimations,
Illustrative examples are provided as guidance.
that management has made in the process of applying
the entity's accounting policies that have the most
Disclosures about Puttable Shares and Obligations
significant effect on the amounts recognised in the
Arising Only on Liquidation
financial statements. [PAS 1.113]
In February 2008, the PASB published an amendment to
Examples cited in PAS 1.114 include management's
PAS 1 that requires the following additional disclosures if
judgements in determining:
an entity has a puttable instrument that is presented as
• whether financial assets are held-to-maturity
equity:
investments
• summary quantitative data about the amount
• when substantially all the significant risks and
classified as equity;
rewards of ownership of financial assets and lease
• the entity's objectives, policies and processes for
assets are transferred to other entities
managing its obligation to repurchase or redeem the
• whether, in substance, particular sales of goods are
instruments when required to do so by the
financing arrangements and therefore do not give
instrument holders, including any changes from the
rise to revenue; and
previous period;
• whether the substance of the relationship between
• the expected cash outflow on redemption or
the entity and a special purpose entity indicates that
repurchase of that class of financial instruments;
the special purpose entity is controlled by the entity
and
• information about how the expected cash outflow on
Disclosure of key sources of estimation uncertainty. Also
redemption or repurchase was determined.
new in the 2003 revision to PAS 1, an entity must
disclose, in the notes, information about the key
If an instrument is reclassified into and out of each
assumptions concerning the future, and other key
category (financial liabilities or equity) the amount,
sources of estimation uncertainty at the balance sheet
timing and reason for that reclassification must be
date, that have a significant risk of causing a material
disclosed. If an entity is a limited-life entity, disclosure is
adjustment to the carrying amounts of assets and
also required regarding the length of its life.
liabilities within the next financial year. [PAS 1.116]
These disclosures do not involve disclosing budgets or
The foregoing disclosures are required for annual
forecasts.
periods beginning on or after 1 January 2009, with
earlier application permitted.
The following other note disclosures are required by PAS
1.126 if not disclosed elsewhere in information published
September 2007 Revised PAS 1 Is Issued
with the financial statements:
On 6 September 2007, the IASB issued a revised PAS 1
• domicile of the enterprise
Presentation of Financial Statements. The main changes
• country of incorporation
from the previous version are to require that an entity
• address of registered office or principal place of
must:
business
• Present all non-owner changes in equity (that is,
• description of the enterprise's operations and
'comprehensive income' – see box below) either in
principal activities
one statement of comprehensive income or in two
• name of its parent and the ultimate parent if it is
statements (a separate income statement and a
part of a group
statement of comprehensive income). Components
of comprehensive income may not be presented in
Other Disclosures
the statement of changes in equity.
Disclosures about Dividends
• Present a statement of financial position (balance
The following must be disclosed either on the face of the
sheet) as at the beginning of the earliest
statement of changes in equity or in the notes:
comparative period in a complete set of financial
• the amount of dividends recognized as distributions
statements when the entity applies an accounting
to equity holders during the period, and
policy retrospectively or makes a retrospective
• the related amount per share.
restatement.
• Disclose income tax relating to each component of
The following must be disclosed in the notes:
other comprehensive income.
• the amount of dividends proposed or declared before
the financial statements were authorized for issue
• Disclose reclassification adjustments relating to The revised PAS 1 is effective for annual periods
components of other comprehensive income. beginning on or after 1 January 2009. Early adoption is
permitted.
PAS 1 changes the titles of financial statements as they
will be used in PFRSs: Other Comprehensive Income
• 'balance sheet' will become 'statement of financial Comprehensive income for a period includes profit or
position' loss for that period plus other comprehensive income
• 'income statement' will become 'statement of recognized in that period. The components of other
comprehensive income' comprehensive income include:
• 'cash flow statement' will become 'statement of cash • changes in revaluation surplus (PAS 16 and PAS 38).
flows'). • actuarial gains and losses on defined benefit plans
recognized in accordance with paragraph 93A of PAS
Entities are not required to use the new titles in their 19.
financial statements. All existing Standards and • gains and losses arising from translating the
Interpretations are being amended to reflect the new financial statements of a foreign operation (PAS 21).
terminology. • gains and losses on remeasuring available-for-sale
The revised PAS 1 resulted in consequential financial assets (PAS 39).
amendments to 5 PFRSs, 23 PASs, and 10 • the effective portion of gains and losses on hedging
Interpretations. instruments in a cash flow hedge (PAS 39).

- done -

REVIEW QUESTIONS

1. Which statement is incorrect regarding PAS 1 I. Statement of Financial Position

Presentation of Financial Statements? II. Statement of Comprehensive Income
a. It prescribes the basis for presentation of general III. Statement of Changes in Equity
purpose financial statements to ensure IV. Statement of Cash Flows
comparability both with the entity’s financial V. Notes to the Financial Statements
statements of previous periods and with the a. I, II and II
financial statements of other entities. b. I and II
b. It sets out overall requirements for the c. I, II, III and IV
presentation of financial statements, guidelines for d. I, II, III, IV and V
their structure and minimum requirements for their
6. Statement of financial position as at the beginning of
content.
the earliest comparative period is not required when
c. It uses terminology that is suitable for profit-
an entity
oriented entities, including public sector business
a. Applies an accounting policy retrospectively.
entities.
b. Makes a retrospective restatement of items in its
d. It sets out the recognition, measurement and
financial statements.
disclosure requirements for specific transactions
c. Reclassifies items in its financial statements.
and other events.
d. Changes an accounting estimate.
2. PAS 1 does not apply to the structure and content of
7. These are intended to meet the needs of users who are
a. Condensed interim financial statements prepared
not in a position to require an entity to prepare reports
in accordance with PAS 34 Interim Financial
tailored to their particular information needs.
Reporting.
a. General purpose financial statements
b. Consolidated financial statements in accordance
b. Special-purpose financial statements
with PFRS 10 Consolidated Financial Statements.
c. Notes to the financial statements
c. PAS 27 Separate Financial Statements.
d. Annual reports
d. All of the above.
8. Which statement is correct regarding presentation of
3. Financial statements
financial statements?
a. Are a structured representation of the financial
a. A complete set of financial statements includes
position and financial performance of an entity.
statement of retained earnings.
b. Provide information about the financial position,
b. An entity cannot use titles for the statements other
financial performance and cash flows of an entity
than those used in PAS 1.
that is useful to a wide range of users in making
c. Reports and statements presented outside financial
economic decisions.
statements are within the scope of PFRSs.
c. Show the results of the management’s stewardship
d. An entity shall present with equal prominence all of
of the resources entrusted to it.
the financial statements in a complete set of
d. All of the above.
financial statements.
4. Financial statements provide information about an
9. Which statement is incorrect regarding fair
entity’s
presentation and compliance with PFRSs?
I. Assets
a. Fair presentation requires the faithful
II. Liabilities
representation of the effects of transactions, other
III. Equity
events and conditions in accordance with the
IV. Income and expenses, including gains and losses
definitions and recognition criteria for assets,
V. Contributions by and distributions to owners in
liabilities, income and expenses set out in the
their capacity as owners
Framework.
VI. Cash flows
b. In virtually all circumstances, an entity achieves a
a. I, II, III, IV, V and VI fair presentation by compliance with applicable
b. I, II, III, IV and V PFRSs.
c. I, II, III, IV and VI c. An entity shall not describe financial statements as
d. I, II, III and IV complying with PFRSs unless they comply with all
the requirements of PFRSs.
5. A complete set of financial statements comprises:
 d. An entity can rectify inappropriate accounting b. Recorded in the accounting records when cash is
policies either by disclosure of the accounting received or paid but reported in the financial
policies used or by notes or explanatory material. statements when they occur
c. Recorded in the accounting records and reported in
10. A fair presentation requires an entity to
the financial statement when they occur
a. Select and apply accounting policies in accordance
d. Recorded in the accounting records and reported in
with PAS 8 Accounting Policies, Changes in
the financial statements when cash is paid or
Accounting Estimates and Errors.
received
b. Present information, including accounting policies,
in a manner that provides relevant, reliable, 15. Which statement is incorrect concerning materiality?
comparable and understandable information. a. The relevance of information is affected by its
c. Provide additional disclosures when compliance nature and materiality.
with the specific requirements in PFRSs is b. Information is material if its omission or
insufficient to enable users to understand the misstatement could influence the economic
impact of particular transactions, other events and decision of users taken on the basis of the financial
conditions on the entity’s financial position and statements.
financial performance. c. Materiality depends on the size of the item or error
d. All of the above. judged in the particular circumstances of its
omission or misstatement.
11. The entity shall depart from a requirement of PFRS
d. Materiality provides a threshold or cutoff point for
a. Under no circumstances.
useful information and therefore a primary
b. When compliance will unfavorably affect the
qualitative characteristic.
performance of the entity.
c. When compliance will expose the entity to hostile 16. Which statement is incorrect concerning the rule on
take over. “offsetting”?
d. In the extremely rare circumstances in which a. Assets and liabilities, and income and expenses,
management concludes that compliance with a shall not offset unless required or permitted by a
requirement in a PFRS would be so misleading that standard.
it would conflict with the objective of financial b. Gains and losses on disposal of noncurrent assets
statements set out in the Framework. are reported by deducting from the proceeds on
disposal the carrying amount of the asset and
12. When preparing financial statements, management
related selling expenses.
shall make an assessment of an entity’s ability to
c. Gains and losses arising from a group of similar
continue as a going concern. Which statement is
transactions are reported on a net basis, for
incorrect regarding going concern assessment?
example, foreign exchange gains and losses arising
a. An entity shall prepare financial statements on a
from trading financial instruments.
going concern basis unless management either
d. Measuring assets net of valuation allowances is
intends to liquidate the entity or to cease trading,
offsetting.
or has no realistic alternative but to do so.
b. When management is aware, in making its 17. Examples of offsetting in the financial statements
assessment, of material uncertainties related to include the following except
events or conditions that may cast significant a. Deducting the carrying amount of an asset sold
doubt upon the entity’s ability to continue as a from the proceeds on disposal.
going concern, the entity shall disclose those b. Presenting cumulative effect of change in
uncertainties. accounting policy net of tax.
c. When an entity does not prepare financial c. Deducting foreign exchange gains from foreign
statements on a going concern basis, it shall exchange losses
disclose that fact, together with the basis on which d. Presenting accounts receivable net of allowance for
it prepared the financial statements and the reason doubtful accounts
why the entity is not regarded as a going concern.
18. XYZ Inc. decided to extend its reporting period from a
d. In assessing whether the going concern
year (12-month period) to a 15-month period. Which
assumption is appropriate, management takes into
of the following is not required under PAS in case of
account all available information about the future,
change in reporting period?
which is at least, but is not limited to, two years
a. XYZ Inc. should disclose the reason for using a
from the end of the reporting period.
longer period than a period of 12 months.
13. Which statement is incorrect regarding presentation of b. XYZ Inc. should disclose that comparative amounts
financial statements? used in the financial statements are not entirely
a. An entity shall prepare its financial statements, comparable.
without exception, using the accrual basis of c. XYZ Inc. should change the reporting period only if
accounting. other similar entities in the geographical area in
b. An entity shall present separately each material which it generally operates have done so in the
class of similar items and items of a dissimilar current year; otherwise its financial statements
nature or function unless they are immaterial. would not be comparable to others.
c. An entity shall not offset assets and liabilities or d. None of the above.
income and expenses, unless required or permitted 19. An entity shall disclose comparative information in
by a PFRS. respect of the previous period for all amounts reported
d. An entity shall present a complete set of financial in the current period’s financial statements. When an
statements (including comparative information) at entity applies an accounting policy retrospectively, it
least annually. shall present, as a minimum
a. Three complete sets of financial statements.
14. Under the accrual basis of accounting, the effects of
b. Three statements of financial position and cash
transactions and other events are
flows, two of each of the other statements, and
a. Recorded in the accounting records when they
related notes.
occur but reported in the financial statements
when cash is received or paid

Page 5 of 9 1
 c. Three statements of financial position and 27. A liability shall be classified as a current liability when
statement of comprehensive income, two of each it satisfies any of the following criteria, except
of the other statements, and related notes. a. It is expected to be settled in the entity’s normal
d. Three statements of financial position, two of each operating cycle
of the other statements, and related notes. b. It is primarily held for the purpose of being traded
c. It is due to be settled within twelve months after
20. An entity shall retain the presentation and
the end of the reporting period
classification of items in the financial statements from
d. The entity has an unconditional right to defer
one period to the next unless
settlement of the liability for at least twelve
I. It is apparent, following a significant change in the
months after the end of the reporting period.
nature of the entity’s operations or a review of its
financial statements, that another presentation or 28. Which of the following liabilities should be classified as
classification would be more appropriate non-current?
II. A PFRS requires a change in presentation. a. Bonds payable due to be settled within twelve
a. I only c. Either I or II months after the reporting period but the original
b. II only d. Neither I nor II term was for a period longer than twelve months.
b. Note payable due to be settled within twelve
21. Which of the following information is not specifically a
months after the reporting period but an
required disclosure of PAS 1?
agreement to refinance on a long-term basis is
a. Name of the reporting entity or other means of
completed after the reporting period and before
identification, and any change in that information
the financial statements are authorized for issue.
from the previous year.
c. Long term loans payable wherein an entity
b. Level of rounding used in presenting the financial
breaches a provision of the arrangement on or
statements.
before the end of the reporting period with the
c. Whether the financial statements cover the
effect that the liability becomes payable on
individual entity or a group of entities.
demand, but the lender agreed, after the reporting
d. Names of major/significant shareholders of the
period and before the authorization of the financial
entity.
statements for issue, not to demand payment as a
22. At a minimum, the face of the Statement of Financial consequence of the breach.
Position shall include all of the following line items, d. Long term loans payable wherein an entity
except breaches a provision of the arrangement on or
a. Biological assets before the end of the reporting period with the
b. Investment property effect that the liability becomes payable on
c. Patents demand, but the lender agreed by the end of the
d. Deferred tax assets and liabilities reporting period to provide a period of grace
23. Which one of the following is not required to be ending at least twelve months after the reporting
presented as minimum information on the face of the period, within which the entity can rectify the
Statement of Financial Position, according to PAS 1? breach and during which the lender cannot
a. Cash and cash equivalents demand immediate repayment.
b. Investments accounted under the equity method 29. Deferred tax assets and liabilities shall be classified on
c. Property, plant and equipment the Statement of Financial Position as
d. Contingent liability a. Current
24. Which of the following must be included on the face of b. Noncurrent
the Statement of Financial Position? c. Partly current and partly noncurrent
a. Contingent asset d. Part of equity
b. Property, plant and equipment analyzed by class 30. In a consolidated statement of financial position, the
c. Share capital and reserves analyzed by class non-controlling interest is shown:
d. Deferred tax a. Separately within the non-current liabilities;
25. Which statement is correct concerning presentation of b. Separately within the non-current investments;
information on the face of the Statement of Financial c. Separately within the equity section;
Position? d. As part of the total current liabilities of the group.
I. Additional line items, headings and subtotals shall 31. When an entity chooses not to present properly
be presented on the face of the Statement of classified Statement of Financial Position, how should
Financial Position when such presentation is assets and liabilities be presented?
relevant to an understanding of the entity’s a. Assets and liabilities should be presented according
financial position. to magnitude
II. PAS 1 does not prescribe the order or format in b. Assets and liabilities should be presented according
which items are to be presented to liquidity
a. I only c. Both I and II c. Assets and liabilities should be presented
b. II only d. Neither I nor II alphabetically
26. An asset shall be classified as current asset when it d. An enterprise is always required to present
satisfies any of the following criteria, except properly classified Statement of Financial Position
a. It is expected to be realized or held for sale or 32. The components of equity generally recognized by
consumption in the normal course of the entity’s companies in the Statement of Financial Position are:
normal operating cycle. I. Provisions
b. It is held primarily for the purpose of being traded II. Debentures
c. It is expected to be realized within twelve months III. Share capital
after the end of the reporting period IV. Other reserves
d. It is cash or cash equivalent that is restricted from V. Retained earnings
being exchanged or used to settle a liability for at
a. I, II and III only c. II, III and V only
least twelve months after the end of the reporting
b. I, III, IV and V only d. III, IV and V only
period

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33. Which statement is incorrect regarding presentation of should be shown under other comprehensive
statement of profit or loss and other comprehensive income of the SOC
income? a. I and II only c. I, II and III only
a. An entity may use the title ‘statement of b. III and IV only d. I,II,III and IV
comprehensive income’ instead of ‘statement of
39. Which statement is incorrect regarding reclassification
profit or loss and other comprehensive income’.
adjustments?
b. An entity may present the profit or loss section in a
a. Reclassification adjustments are amounts
separate statement of profit or loss.
reclassified to profit or loss in the current period
c. If presented separately, the statement of profit or
that were recognized in other comprehensive
loss shall immediately precede the statement
income in the current or previous periods.
presenting comprehensive income, which shall
b. A reclassification adjustment is included with the
begin with profit or loss.
related component of other comprehensive income
d. An entity may present a single statement of profit
in the period that the adjustment is reclassified to
or loss and other comprehensive income, with
profit or loss.
profit or loss and other comprehensive income
c. Reclassification adjustment is intended to avoid
presented in one section.
including the gains and losses in total
34. Comprehensive income is the change in equity from: comprehensive income twice.
a. Owner transactions. d. An entity shall present reclassification adjustments
b. Nonowner transactions. in the statement(s) of profit or loss and other
c. Owner or nonowner transactions. comprehensive income.
d. Capital transactions.
40. Reclassification adjustments arise
35. The face of the statement of comprehensive income a. On disposal of a foreign operation
shall disclose which of the following items as allocation b. On changes in revaluation surplus
of profit and loss for the period? c. On remeasurements of defined benefit plans
I. Profit or loss attributable to minority interest d. On any of the above
II. Profit or loss attributable to equity holders of the
41. Which of the following would not be reported on the
parent
Statement of Comprehensive Income?
a. I only
a. Finance costs
b. II only
b. Discontinued operations
c. Both I and II
c. Income tax expense
d. Neither I nor II
d. Correction of prior period error
36. This term comprises items of income and expenses
42. Which of the following is shown in the Statement of
that are not recognized in profit or loss as required or
Comprehensive Income net of applicable income
permitted by PFRS.
taxes?
a. Comprehensive income.
a. Gain or loss on sale of plant assets
b. Other comprehensive income.
b. Cumulative effect of a change in accounting
c. Profit or loss.
policies
d. Retained earnings.
c. Discontinued operations
37. The components of other comprehensive income d. Gain or loss arising from derecognition of financial
include: assets measured at amortized cost
I. Changes in revaluation surplus 43. An entity presents an analysis of expenses using a
II. Remeasurements of defined benefit plans classification based on:
III. Gains and losses arising from translating the a. The nature of expenses.
financial statements of a foreign operation b. The function of expenses.
IV. Gains and losses from investments in equity c. Either the nature of expenses or the function of
instruments classified as held for trading expenses within the entity, whichever provides
V. Ineffective portion of gains and losses on hedging information that is reliable and more relevant.
instruments in a cash flow hedge d. Either the nature of expenses or the function of
VI. For particular liabilities designated as at fair value expenses within the entity, whichever the entity
through profit or loss, the amount of the change would prefer to present.
in fair value that is attributable to changes in the
44. Separate line items in an analysis of expenses by
liability’s credit risk
nature include:
a. I, II, III, IV, V and VI
a. Purchases of materials, transport costs, employee
b. I, II, III, V and VI
benefits, depreciation, extraordinary items.
c. I, II, III and VI
b. Purchases of materials, distribution costs,
d. I, II and III
administrative costs, employee benefits,
38. Which of the following statements about “other depreciation, taxes.
comprehensive income” section of the Statement of c. Depreciation, purchases of materials, employee
Comprehensive income (SOC) is/are false? benefits and advertising costs.
I. The amount of revaluation surplus reported in the d. Cost of sales, administrative costs, transport costs,
other comprehensive income section of the SOC distribution costs etc.
must be the same as the amount of revaluation 45. Separate line items in an analysis of expenses by
surplus ending balance in the general ledger function include:
II. Foreign exchange gains and losses arising from a. Purchases of materials, transport costs, employee
purchase of property and equipment should be benefits, depreciation, extraordinary items.
reported under the other comprehensive income b. Purchases of materials, distribution costs,
section of the SOC administrative costs, employee benefits,
III. Unrealized gain or loss on the change in value of depreciation, taxes.
Investment Property should be presented in other c. Depreciation, purchases of materials, employee
comprehensive income section of the SOC benefits and advertising costs.
IV. Only the current year’s unrealized gain or loss on d. Cost of sales, administrative expenses, distribution
change in value of available for sale securities expenses
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 d. Correction of prior period errors
46. When an entity opts to present the Statement of
Comprehensive Income classifying expenses by 52. Which of the following items will not appear in the
function, which of the following is not required to be statement of changes in Equity?
disclosed as "additional information"? a. Total comprehensive income
a. Depreciation expense b. Dividends
b. Employee benefits expense c. Change in depreciation method
c. Director's remuneration d. Correction of prior error
d. Amortization expense
53. The notes shall present information
47. Limitations of the Statement of Comprehensive Income I. About the basis of preparation of the financial
include all of the following, except statements
a. Items that cannot be measured reliably are not II. Required by PFRS that is not presented elsewhere
reported in the financial statements
b. Income measurement involves judgment III. Not presented elsewhere in the financial
c. Income numbers are affected by the accounting statements but is relevant to an understanding of
methods employed any of them
d. Only actual amounts are reported in determining a. I only
net income b. II only
c. III only
48. Which statement is true?
d. I, II, and III
First statement: The components of other
comprehensive income can be presented in the 54. What is the “first item” presented in the notes to the
statement of shareholders' equity. financial statements?
Second statement: An item may be reported as a. Statement of compliance with PFRS
extraordinary if the subjective criteria of being both b. Summary of significant accounting policies
unusual and infrequent are met. c. Supporting information for items presented on the
a. The first statement only face of the financial statement
b. The second statement only d. Other disclosures, including contingent liabilities,
c. Both statements unrecognized contractual commitments and
d. None of the statements nonfinancial disclosure.
49. Statement of Changes in Equity means 55. An entity shall disclose in the summary of significant
a. It is a statement that gives more information about accounting policies:
the total amount of shares issued to the public a. The measurement basis (or bases) used in
b. It is a statement that shows all changes in an preparing the financial statements.
entity’s equity between two balance sheet dates b. All the measurement bases irrespective of whether
c. It is a statement that gives information how the they were used by the entity in preparing its
total funds are raised during the year in the form financial statements.
of shares, bank loans, debentures etc. c. The measurement basis (or bases) used in
d. It is a statement that gives information about preparing the financial statements and the
profitability and dividends accounting policies used that are relevant to an
50. The statement of changes in equity includes a understanding of the financial statements.
reconciliation between: d. All of the measurement bases and the accounting
a. The carrying amount of retained earnings at the policy choices available to the entity irrespective of
beginning and the end of the period. whether they were used by the entity in preparing
b. The carrying amount of total equity at the its financial statements.
beginning and the end of the period.
56. According to PAS 1, which of the following should be
c. The carrying amount of each component of equity
disclosed in the notes to the financial statements?
at the beginning and the end of the period
I. Unrecognized contractual commitments and
separately disclosing changes resulting from: (i)
entity’s financial risk management objectives and
profit or loss, (ii) each item of comprehensive
policies
income, and (iii) the amounts of investments by,
II. Sources of estimation uncertainty
and dividends and other distributions to, owners.
III. Summary quantitative data about amount of
d. The carrying amount of property, plant and
puttable financial instruments classified as equity
equipment
IV. Important movements in key management
51. The statement of changes in equity should disclose the personnel
following, except a. I, II and III only c. I, III and IV only
a. Total comprehensive income b. II, III and IV only d. I, II, III and IV
b. Gains and losses for the period
c. Capital transactions with owners and distributions - now do the DIY drill -
to owners

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 DO-IT-YOURSELF (DIY) DRILL
1. An entity shall present: 7. Which are the following are the acceptable methods for
a. The statement of cash flows more prominently reporting comprehensive income for the period
than the other statements. I. One statement of comprehensive income
b. The statement of financial position more II. Two statements; an income statement and a
prominently than the other statements. statement of comprehensive income
c. The statement of comprehensive income more III. In the statement of owner’s equity
prominently than the other statements. a. I only
d. Each financial statement with equal prominence. b. I and II only
c. I, II and III
2. Which of the following statements regarding fair d. I and III only
presentation and compliance with generally accepted
accounting principles is false? 8. Which statement is false?
I. The application of PFRSs, with additional
First statement: Comprehensive income reports an
disclosures when necessary, is presumed to result
expanded version of income to include certain types of
in financial statements that achieve fair
gains and losses not included in traditional income
presentation
statements.
II. An entity whose financial statements comply with
PFRSs shall make an explicit and unreserved Second statement: Comprehensive income is the total
statement of such compliance in the notes change in shareholders' equity that occurred during
III. Inappropriate accounting treatment may be the period.
rectified either by disclosure of accounting policies
or by notes or explanatory material a. The first statement only
a. Statement I only c. Statement I and II only b. The second statement only
b. Statement III only d. Statements I, II & III c. Both statements
d. None of the statements
3. Financial statements achieved fair presentation when
a. The PFRS issued by FRSC are appropriately 9. Other comprehensive income includes all of the
applied, with additional disclosures when necessary following except
b. Inappropriate accounting treatments are corrected a. Unrealized gain on available for sale financial asset
or rectified through disclosures b. Loss from translating the financial statements of a
c. They comply with majority of the requirements of foreign operation
each applicable PFRS and each applicable c. Actuarial gain on defined benefit plan that is fully
interpretations recognized
d. All of the above d. Share premium

4. Which of the following statement is (are) true? 10. Which statement is true?
I. When preparing financial statements, management
is required to make an assessment of an First statement: Philippine Financial Reporting
enterprise’s ability to continue as a going concern Standards require a company to classify expenses in
which should be at least five years from the an income statement by function.
balance sheet date Second statement: Income from continuing operations
II. When the financial statements are not prepared on sometimes includes gains from non-operating
a going – concern basis, this fact should be activities.
disclosed
a. I and II only c. I only a. The first statement only
b. II only d. neither I nor II b. The second statement only
c. Both statements
5. The following relates to materiality and aggregation, d. None of the statements
except
11. A characteristic of the notes to the financial statements
a. Each financial statement item should be presented
is that:
separately in the financial statements.
a. They present information that can be expressed in
b. Items of dissimilar nature or function shall be
money terms.
presented separately.
b. They are separate from the financial statements.
c. Immaterial amounts should be aggregated with
c. They are not important.
amounts of similar nature or function and need not
d. They describe accounting policies.
be presented separately.
d. Specific disclosure requirement in a Standard need
12. PAS 1 Presentation of Financial Statements, requires
not be satisfied if the information is not material.
that an entity must disclose the following information
in its financial statements:
6. Are the following statements true or false, according to
a. b. c. d.
PAS1 Presentation of financial statements?
A description of the entity’s
(1) Biological assets should be shown in the statement
operations No Yes No Yes
of financial position.
The name of the entity’s
(2) The number of shares authorized for issue should
ultimate parent No Yes No No
be shown in the statement of financial position or
The address of the registered
the statement of changes in equity or in the notes.
office No Yes Yes Yes
Statement 1 Statement 2
a. False True
b. True True
c. False False
☺ - end - ☺
d. True False

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