PAS 1 PRESENTATION OF FINANCIAL STATEMENTS

PAS 1: Philippine Accounting Standards -Presentation of financial statements

prescribes the basis for presentation of general-purpose financial statements, to
ensure comparability both with the entity's financial statements of previous
periods and with the financial statements of other entities.
PAS 1: is suitable for profit-oriented entities. (If non-profit org. apply PAS 1, they
may need to amend the line item and FS description.
TYPES OF COMPARABILITY-requires consistency in the adoption and
application of accounting policies and in the presentation of FS.
A. Intra-comparability (horizontal or inter-period): refers to the
comparability of FS of the same entity but from one period to another the
B. Inter-comparability (dimensional)- refers to the comparability of FS
between different entities.
General purpose financial statements are those in the need of users who are
not in a position to require an entity to prepare reports tailored to their particular
information needs. Cater to most of the common needs of the wide range of primary
(external) users.
PURPOSE OF FS
1. Primary Objective: to provide information about the financial position, financial
performance, and cash flows of the entity that is useful to the wide range of users in
making economic decisions
2. Secondary Objective: to show the results of Management’s stewardship over the
entity’s resources.

A COMPLETE SET OF FINANCIAL STATEMENTS consists of the following

1. Statement of financial position statement.
2. Statement of profit or lost and other comprehensive income
3. statement of changes in equity
4. statement of cash flows,
5. notes,
5.a. comparative information,
6. additional statement of financial position (When an entity makes a retrospective,
application, retrospective, restatement or reclassifies items with material effect.)

The statement of financial position may be presented either showing

current/non-current distinction (classified) or based on liquidity (unclassified). PAS
1 encourages the classified presentation.

Deferred tax assets and deferred tax liabilities are presented as non-current
items in a classified statement of financial position.

PAS 1 does not prescribe the order or format in which an entity presents item.
INCOME AND EXPENSES MAY BE PRESENTED:
a. in a single statement of profit or loss and other comprehensive income, or
b. in two statements- an income statement and a statement presenting
comprehensive income.

Reclassification adjustments are common reclassified from OCI to profit or

loss.
OCI may be presented net or gross of related taxes.
Total comprehensive income includes all non-owner changes in equity. It
compromises profit or loss and other comprehensive income.
Presenting extraordinary items in the financial statements include the notes
is prohibited.
Expenses may be presented using either the nature of expenses or the
function of expenses method. Additional disclosure is required when the
function of expense method is used.
Dividends are disclosed either in the statement of changes in equity or in the
notes.
Owner equity are presented in the statement of changes in equity, non owner
changes in equity are presented in the statement of comprehensive income.
The notes is an integral part of the financial statement. It presents
(a)information regarding the basis of preparation of financial statements,
(b)information required by the PFRS and (c) other information not required by
PFRS, but is relevant to the other users of financial statements.

PAS 2 INVENTORIES
Inventories include goods that are held for sale in the ordinary course of
business, in the process of production for such sale, and in the form of materials
and supplies to the consumed in the production.
Inventories are measured at the lower of cost and net realizable value.
The cost of inventories comprises all costs of purchase, cost of conversion
and other costs incurred in bringing the inventories to the present location and
condition.
Trade discounts, rebates and other similar items are deducted determining the
cost of purchase.
The following are excluded from the cost of inventory, abnormal cost, storage
cost and unless necessary, administrative costs and selling costs.
The cost formulas permitted under PAS 2 are specific identification, FIFO and
weighted average.
Net Realizable value is estimated selling price in ordinary course of business,
less estimated cost of completion and a statement cost necessary to make the
sale.
Inventories are usually written down to NRV on an item-by-item basis.
Raw materials inventory is not written down below cost if the finished
products in which they will be incorporated are expected to be sold at or above
cost.
Reverse also inventory write downs shall not exceed the amount of the original
write-down.

PAS 7 STATEMENT OF CASH FLOWS

The statement of cash flow shows the historical changes (sources and
utilization) in cash and cash equivalents during the period. It is an integral
part of the complete set of financial statements and is used in conjunction with
other financial statements in assessing the ability of entity to generate cash and
cash equivalents, the timing and certainty of their generation, and the needs of
the entity to utilize those cash flows.
Cash flows are classified into operating activities, investing activities and
financial activities.
Operating activities include transactions that enter into the determination of
profit or loss. Example, income and expenses.
Investing activities include transactions that affect non-current assets and
other non-operating assets.
Financial activities include transactions that affect equity and non-operating
liabilities.
Only transactions that have affected cash and cash equivalents are
included in the statements of cash flows. Non cash transactions are excluded and
disclosed only.
Entities other than financial institutions have option in presenting cash flows
relating to interest and dividends.
Cash flows from operating activities may be reported using either direct
method or indirect method.
The direct method shows each major class of gross cash and gross cash
payments. Under the indirect method, profit or loss is adjusted for the effects
of non-cash items and changes in operating asset and the abilities.
Cash flows relating to investing and financing activities are presented
separately at gross amounts, unless they qualify for net presentation.

PAS 8 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING

ESTIMATES AND ERRORS
The two types of accounting changes are change in the accounting policy
and change in the accounting estimate.
Accounting policies are those adopted by an entity in preparing the and
presenting its financial statements.
PAS 8 requires the consistent selection and application of accounting policies. An
accounting policy shall be changed only when it is required by PFRS or
results in relevant and more reliable information.
Scope of PAS 8 Description Accounting Effect of
Treatment adjustment
1. Change in Change in a. transitional On the
accounting measurement provision. beginning of
policy. basis. b. retrospective balance, of
application retained earnings.
c. If (b) is If accounting for
 impracticable, retrospectively.
Prospective
application.
2. Change in Changes in the Prospective In profit or loss
accounting realization (or Application of current period
estimate. incurrence) of or current and
expected inflow future periods. If
(or outflow) of the change affects
economic both
benefits from
assets (or
liabilities).
3. Correction Misapplication of a. Retrospective On the
of prior period principles, restatement beginning
error oversight or b. If (b) is balance of
misinterpretation impracticable, retained earnings,
of facts, and prospective if accounted for
mathematical application retrospectively
mistakes

When it is difficult to distinguish a change in accounting policy from a change in

accounting estimate, the change is treated as the change in an accounting
estimate.
A voluntary change in accounting policy has accounted for by retrospective
application. Early application of a PFRS is not a voluntary change in
accounting policy.

PAS 10 EVENTS AFTER THE REPORTING PERIOD

Pas 10 prescribes the accounting for, and disclosures of, events after the
reporting period, including disclosures regarding the date when the FS were
authorized for issue.
The Date of authorization of the financial statements is the date when
management authorized the financial statements for issue, regardless of whether
such authorization is final or subject to further approval.
Two types of events after reporting.
1. Adjusting events after the reporting- are events that provide evidence of
conditions that existed at the end of the reporting.
2. None adjusting events after reporting periods-are events that are indicative of
conditions that arose after reporting.
Dividends declared after the reporting are not recognized as liability at
the end of reporting. Because no present obligation exists at the end of the
reporting.
Going concern -PAS 10 prohibits the presentation of financial statements on the
going concern basis if management determines after the reporting either that it
intends to liquidate the entity or to cease trading, or that it has no realistic
alternative but to do so.
PAS 12 INCOME TAXES
The varying treatments of economic activities between the PFRS and tax laws
result to permanent and temporary differences.
Permanent differences are those that do not have future tax consequences.
Temporary differences are either taxable temporary differences or
deductible temporary differences.
Taxable temporary differences arise for example, when financial income is
greater than taxable income, or the carrying amount of an asset is greater
than its tax based. Deductible temporary differences arise in case of the opposite
of the forgoing.
Taxable temporary differences result to deferred tax liabilities while
deductible temporary differences result to deferred tax asset.
If the increase in deferred tax liability exceeds the increased in deferred tax
asset, the difference in deferred tax expense. If it is the opposite, the
difference is deferred tax income or benefit.
Income tax expense (benefit) is computed using PFRS. It comprises current
tax expense and deferred tax expense (income or benefit)
Current ta expense is computed using tax laws.
A deferred tax asset is recognized only to the extent that is realizable.
Deferred taxes are measured using enacted or substantially enacted tax rates that
are applicable to the periods of their expected reversals.
Deferred tax assets and liabilities are not discounted