Chapter 9-12
PROF: LEONARD CANAMO CPA, MBA
Chapter 9: Statement
of Comprehensive
Income
PROF: LEONARD CANAMO CPA, MBA
Components of Comprehensive Income
1. Profit and Loss - Income minus Expenses including Tax
expense and any Income or Loss from Discontinued
Operations.
2. Other Comprehensive income – Items of income and
expenses including reclassification adjustments (RA) that are
not included in Profit and Loss as required by a standard or
interpretation. There are two types of OCI items, those that are
reclassified to profit or loss (RA) and those that are reclassified
to Retained Earnings (RE). OCI includes the following
Income Statement
• It is a formal statement showing the financial
performance of an entity for a given period of time.
• Financial performance of an entity is primarily
measured in terms of the level of income earned by the
entity.
• Information about financial performance is useful in
predicting future performance and ability to generate
future cash flows.
Source of Income
• Sales of merchandise to customers
• Rendering of services
• Use entity resources
• Disposal of resources other than products
Component of Expenses
• Cost of goods sold
• Selling expense
• Administrative expense
• Other expenses
• Income Tax expense
An entity shall present all items of income and expense
recognized in a period:
(a) In a single statement of comprehensive income, or
(b) In two statements: a statement displaying
components of profit or loss (separate income statement)
and a second statement beginning with profit or loss and
displaying components of other comprehensive income
(statement of comprehensive income).
Format-Income Statement
Format-Statement of
Comprehensive Income
Components of Other Comprehensive Income
• Unrealized gain or loss on equity investments measured at FVOCI
(RE)
• Unrealized gain or loss on debt investments measured at FVOCI
(RA)
• Unrealized gain or loss from derivative contracts designated as
cash flow hedge (RA)
• Revaluation Surplus (RE)
• Remeasurement Gains and losses for defined benefit plans (RE)
• Change in fair value arising from credit risk for financial liabilities
measured at FVPL (RE)
• Translation gains and losses of foreign operation
An entity shall present either an analysis of expenses using a classification
based on either the nature of expenses or their function with in the entity,
whichever provides information that is reliable and more relevant
a. Nature of expense method – Expenses are aggregated in the income
statement according to their nature and are not reallocated among various
functions within the entity.
b. Function of expense or cost of sales method – Classifies expenses
according to their function as part of cost of sales or, for example, the cost of
distribution or administrative activities.
An entity shall not present any items of income and expense as extraordinary
items, either on the face of the income statement or in the notes
Chapter 10: Statement
of Cash Flow
PROF: LEONARD CANAMO CPA, MBA
Statement of Cash Flows
A statement of cash flows is a component of financial
statements summarizing the operating, investing and
financing activities of an entity.
The primary purpose of statement of cash flows is to proved
relevant information about cash receipts and cash payments
of an entity during a period.
Format-Statement of Cash Flows
Classification of cash flows
Cash flows are inflows and outflows of cash and cash
equivalents. The statement of cash flows shall report cash
flows during the period classified as operating, investing
and financing activities.
Operating activities
Operating activities are the cash flows derived primarily from the principal
revenue producing activities of the entity.
Examples of cash flows from operating activities are:
a. Cash receipts from sale of goods and rendering of services
b. Cash receipts from royalties, rental, fees, commissions and other
revenue
c. Cash payments to suppliers for goods and services
d. Cash payments for selling, administrative and other expenses
e. Cash receipts and cash payments of an insurance enterprise for
premiums, claims, annuities and other policy benefits.
f. Cash payments or refunds of income taxes unless they cam ne
specifically identified with financing and investing activities
g. Cash receipts and payments for securities held for dealing or trading
purposes.
Trading Securities
PAS 7 provides that cash flows arising from the purchase an sale
of dealing or trading securities are classified as operating
activities.
Similarly, cash advances and loans made by a financial institution
are usually classified as operating activities since they relate to
the main revenue producing activity of that entity.
Investing activities
Investing activities are the cash flows derived from the acquisition
and disposal of long-term assets and other investments not
included in cash equivalent.
Financing activities
Financing activities are the cash flows derived from the equity
capital and borrowings of the entity. It results from the following
transactions:
a. Between the entity and the owners – equity financing
b. Between the entity and the creditors – debt financing
Noncash transactions
PAS 7 provide that investing and financing transactions that do
not require use of cash or cash equivalents shall be excluded
from the statement of cash flows.
Accordingly, the following non-cash transactions are disclosed
separately:
a. Acquisition of asset either by assuming directly related liability.
b. Acquisition of asset by means of issuing share capital
c. Conversion of bonds payable to share capital
d. Conversion of preference share to ordinary share
Interest
PAS 7 provides that interest paid and interest received shall be
classified as operating cash flows because they enter into the
determination of net income or loss.
Alternatively, interest paid may be classified as financing cash
flow because it is a cost of obtaining financial resources.
Alternatively, interest received may be classified as investing
cash flow because it is a return on investment.
Dividends
PAS 7 provides that dividend received shall be classified as
operating cash flow because it enters into the determination of
net income.
Alternatively, dividend received may be classified as investing
cash flow because it is a return on investment
Alternatively, dividend paid may be classified as operating cash
flow in order to assist users to determine the ability of the entity to
pay dividends out of operating cash flows.
Income taxes
PAS 7 provides that cash flows arising from income taxes shall
be separately disclosed as cash flows operating activities.
Chapter 11: Accounting
policies, estimates and
errors
PROF: LEONARD CANAMO CPA, MBA
Accounting Policies
Specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting
financial statements
Changes in Accounting Policy
Permitted when:
1.required by a standard or interpretation
2.results in the financial statements providing
reliable and more relevant information about the
effects of transactions, other events or conditions
on the entity's financial position, financial
performance, or cash flows
Example of Accounting Policies
• Change in the method of inventory pricing from the
FIFO to weighted average method.
• Change from cost model to revaluation model in
measuring PPE.
• Change from cost model to fair value model in
measuring Investment property.
How to report a change in policy?
• Changes must be applied retrospectively.
• Retrospective application means that any resulting
adjustment from the change in accounting policy shall be
reported as an adjustment to the opening balance of
retained earnings.
Accounting Estimates
• Doubtful accounts
• Inventory obsolescence
• Useful life of the asset
• Residual value of the asset
• Warranty cost
How to report a change in estimate?
• The effect of the change shall be recognized
prospectively.
• Prospective application means the effect if a change in
accounting estimates means that the change is applied
to transactions and other events from the date of
change in estimates.
Prior period errors
⮚ Omissions or misstatements in the entity’s financial
statements for one or more periods arising from a
failure to use or misuse of reliable information
⮚ Correction is an adjustment of the beginning balance
of retained earnings of the earliest period presented
Chapter 12: Events
after the reporting
period(PAS 10)
PROF: LEONARD CANAMO CPA, MBA
What are the events after the
reporting period?
• Also known as subsequent events
• Events (favourable or unfavourable that occur between the end of the
reporting period and the date when the financial statements are authorized to
issue)
TWO TYPES OF EVENTS:
✔Adjusting events (at the end)
✔Non-adjusting events (after)
☺ FINANCIAL STATEMENTS ARE AUTHORIZED FOR ISSUE WHEN THE
BOARD OF DIRECTORS REVIEW THE FINANCIAL STATEMENTS AND
AUTHORIZES THEM FOR ISSUE ☺
EXAMPLES OF ADJUSTING
EVENTS
1. Resolution after the reporting period of a court case because it confirms
that the entity already had a present obligation
2. Bankruptcy of a customer which occurs after the reporting period
3. Sale of inventories after the reporting period may give evidence about
the NRV at reporting period
4. The determination after reporting period of the cost of assets purchased
or the proceeds from assets sold before the reporting date.
5. The determination after the reporting period of the profit sharing bonus
payment if the entity has the preset obligation at the reporting date to
make such payment
6. The discovery of fraud or errors that show the financial statements were
incorrect.
EXAMPLES OF NON-ADJUSTING
EVENTS
⮚ Management's plan to discontinue or significantly curtail
its activities in major geographic segments.
⮚ Initiation of a major litigation against the company arising
out of events that occurred after the reporting period.
⮚ Major losses suffered as a result of a natural disaster
occurring after the end of reporting period
EXAMPLES OF NON-ADJUSTING
EVENTS
Declaration of dividends after the reporting date does not
indicate existence of liability to pay dividends at the reporting
date and shall not therefore trigger the recognition of liability in
financial statements in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
Destruction of assets of the entity by floods occurring after the
reporting period does not indicate that the assets of the entity
were impaired at the end of reporting period. Hence, the financial
statements should not be adjusted to account for the impairment
loss that arose after the end of reporting period.
EXAMPLES OF NON-ADJUSTING
EVENTS
Initiation of litigation against the company arising out of
events that occurred after the reporting period does not
indicate the existence of liability at the reporting date and
shall not therefore trigger the recognition of liability in the
financial statements in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
