LECTURE NOTES PARTNERSHIP

Topic CodeTopicRelated PAS/PFRS Raw score%

Theory of Accounts Syllabus

Course Outline

Introduction and Preface to PFRSs

Introduction and Preface to PFRSs

Conceptual Framework for Financial Reporting (Revised 2010)

Conceptual Framework for Financial Reporting

Introduction and Preface to PFRSs and Conceptual Framework

Presentation of Financial StatementsPAS 1 (Revised 2007 with amendments)

Presentation of Financial Statements

Presentation of Financial Statements

RevenuePAS 18

Revenue

InventoriesPAS 2 (Revised)

Inventories

AgriculturePAS 41and PFRS 13

Agriculture

Revenue, Inventories and Agriculture

Property, Plant and EquipmentPAS 16

Property, Plant and Equipment

Investment PropertyPAS 40 and PFRS 13

Investment Property

Intangible AssetsPAS 38

Intangible Assets

PPE, Investment Property and Intangible Assets

Accounting for Government Grants and Disclosure of Government AssistancePAS 20

Accounting for Government Grants and Disclosure of Government Assistance

Borrowing costsPAS 23 (Revised 2007)

Borrowing costs

Government Grants and Borrowing costs

Noncurrent asset held-for-sale and Discontinued OperationsPFRS 5

Noncurrent asset held-for-sale and Discontinued Operations

Impairment of AssetsPAS 36 and PFRS 13

Impairment of Assets

NCA held-for-sale, Discontinued operations and Impairment

LeasesPAS 17

Leases

Employee BenefitsPAS 19 (Revised 2011)

Employee Benefits

Income TaxesPAS 12

Income Taxes

TopicRelated PAS/PFRS Raw score%

Leases, Employee Benefits and Income Taxes

FINANCIAL INSRUMENTS

Financial Assets: Cash and Cash equivalents, Trade and Other Receivables, Investments in Debt and Equity Instruments, Investments in Associates and Joint Ventures and Impairment

Financial Liabilities: Trade and other payables, Provisions, Contingent Liabilities, Bonds Payable and Other long-term liabilities including Debt-restructuring

Equity and Share-based payment

Derivatives and Hedge Accounting

PAS 28 (Revised 2011), PAS 32, PAS 39, PFRS 7 and PFRS 9

PAS 32, PAS 37, PFRS 7 and PFRS 9

PAS 32, PFRS 2 and PFRS 7

PAS 32, PAS 39, PFRS 7 and PFRS 9

Statement of Cash FlowsPAS 7

Statement of Cash Flows

Statement of Cash Flows

Accounting Policies, Changes in Accounting Estimates and ErrorsPAS 8

Accounting Policies, Changes in Accounting Estimates and Errors

Accounting Policies, Changes in Accounting Estimates and Errors

Earnings per sharePAS 33

Earnings per share

Operating segmentsPFRS 8

Operating segments

EPS and Operating segments

Related party disclosuresPAS 24 (Revised 2009)

Related party disclosures

Events after the Reporting PeriodPAS 10

Events after the Reporting Period

Related parties and Events after the reporting period

Interim Financial ReportingPAS 34

Interim Financial Reporting

PFRSs on SMEsPFRS for SMEs

OTHER TOPICS:Construction ContractsThe Effects of Changes in Foreign Exchange RatesAccounting and Reporting by Retirement Benefit PlansBusiness Combinations

Separate Financial Statements

Consolidated Financial StatementsFinancial reporting in Hyperinflationary EconomiesJoint ArrangementsDisclosure of Interests in Other EntitiesFair Value MeasurementCost accumulation for product costing

Government AccountingNot-for-Profit OrganizationsReview of Accounting ProcessPAS 11PAS 21PAS 26PFRS 3(Revised 2008)PAS 27(Revised 2011)PFRS 10PAS 29PFRS 11PFRS 12PFRS 13Refer to P2 handoutNGAS

Exploration for and Evaluation of Mineral ResourcesInsurance contractsPFRS 6PFRS 4

First-time adoption of PFRSsDevelopment stage EnterprisesPFRS 1

Philippine Interpretations effective as of December 31, 2011and Built-Operate-Transfer (BOT) SIC/IFRIC

THEORY OF ACCOUNTS

ToA.1602 LECTURE NOTES

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING(2010 Framework)Purpose and Status of the FrameworkThe Conceptual Framework describes the basic concepts that underlie the preparation and presentation of financial statements for external users. The Conceptual Framework serves as a guide to the Board in developing future PFRSs and as a guide to resolving accounting issues that are not addressed directly in an International Accounting Standard or International Financial Reporting Standard or Interpretation.The purpose of the Framework is to:(a)assist the FRSC in the development of future Philippine Financial Reporting Standards (PFRSs) and in its review of existing PFRSs;(b)assist the FRSC in promoting harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by PFRSs; (c)assist preparers of financial statements in applying PFRSs and in dealing with topics that have yet to form the subject of an International Financial Reporting Standard (IFRS);(d)assist auditors in forming an opinion as to whether financial statements conform with PFRSs;(e)assist users of financial statements in interpreting the information contained in financial statements prepared in conformity with PFRSs; and(f)provide those who are interested in the work of FRSC with information about its approach to the formulation of PFRSs.This Framework is not PFRS and hence does not define standards for any particular measurement or disclosure issue. Nothing in this Framework overrides any specific PFRS.The FRSC recognizes that in a limited number of cases there may be a conflict between the Framework and PFRS. In those cases where there is a conflict, the requirements of the PFRS prevail over those of the Framework. ScopeThe Conceptual Framework addresses: the objective of financial reporting the qualitative characteristics of useful financial information the reporting entity the definition, recognition and measurement of the elements from which financial statements are constructed concepts of capital and capital maintenance

The Framework is concerned with general purpose financial statements (hereafter referred to as financial statements) including consolidated financial statements. Such financial statements are prepared and presented at least annually and are directed toward the common information needs of a wide range of users. The Framework applies to the financial statements of all commercial, industrial and business reporting entities, whether in the public or the private sectors. A reporting entity is an entity for which there are users who rely on the financial statements as their major source of financial information about the entity.USERS AND INFORMATION NEEDSThe users of financial statements include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the public. They use financial statements in order to satisfy some of their different needs for information. These needs include the following:(a)Investors. The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments. They need information to help them determine whether they should buy, hold or sell. Shareholders are also interested in information which enables them to assess the ability of the entity to pay dividends.(b)Employees. Employees and their representative groups are interested in information about the stability and profitability of their employers. They are also interested in information which enables them to assess the ability of the entity to provide remuneration, retirement benefits and employment opportunities.(c)Lenders. Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due.(d)Suppliers and other trade creditors. Suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Trade creditors are likely to be interested in an entity over a shorter period than lenders unless they are dependent upon the continuation of the entity as a major customer.(e)Customers. Customers have an interest in information about the continuance of an entity, especially when they have a long-term involvement with, or are dependent on, the entity.(f)Governments and their agencies. Governments and their agencies are interested in the allocation of resources and, therefore, the activities of entities. They also require information in order to regulate the activities of entities, determine taxation policies and as the basis for national income and similar statistics.(g)Public. Entities affect members of the public in a variety of ways. For example, entities may make a substantial contribution to the local economy in many ways including the number of people they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the entity and the range of its activities.The management of an entity has the primary responsibility for the preparation and presentation of the financial statements of the entity. Management is also interested in the information contained in the financial statements even though it has access to additional management and financial information that helps it carry out its planning, decision-making and control responsibilities. Management has the ability to determine the form and content of such additional information in order to meet its own needs. The reporting of such information, however, is beyond the scope of this Framework. Nevertheless, published financial statements are based on the information used by management about the financial position, performance and changes in financial position of the entity.THE OBJECTIVE OF GENERAL-PURPOSE FINANCIAL REPORTINGThe primary users of general purpose financial reporting are present and potential investors, lenders and other creditors, who use that information to make decisions about buying, selling or holding equity or debt instruments and providing or settling loans or other forms of credit. The primary users need information about the resources of the entity not only to assess an entity's prospects for future net cash inflows but also how effectively and efficiently management has discharged their responsibilities to use the entity's existing resources (i.e., stewardship). The Conceptual Framework notes that general purpose financial reports cannot provide all the information that users may need to make economic decisions. They will need to consider pertinent information from other sources as well. The Conceptual Framework notes that other parties, including prudential and market regulators, may find general purpose financial reports useful. However, the Board considered that the objectives of general purpose financial reporting and the objectives of financial regulation may not be consistent. Hence, regulators are not considered a primary user and general purpose financial reports are not primarily directed to regulators or other parties. QUALITATIVE CHARACTERISTICS OF USEFUL INFORMATIONThe qualitative characteristics of useful financial reporting identify the types of information are likely to be most useful to users in making decisions about the reporting entity on the basis of information in its financial report. The qualitative characteristics apply equally to financial information in general purpose financial reports as well as to financial information provided in other ways. Financial information is useful when it is relevant and represents faithfully what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. Fundamental qualitative characteristicsRelevance and faithful representation are the fundamental qualitative characteristics of useful financial information. RelevanceRelevant financial information is capable of making a difference in the decisions made by users. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both. The predictive value and confirmatory value of financial information are interrelated. Faithful representationGeneral purpose financial reports represent economic phenomena in words and numbers, To be useful, financial information must not only be relevant, it must also represent faithfully the phenomena it purports to represent. This fundamental characteristic seeks to maximize the underlying characteristics of completeness, neutrality and freedom from error. Information must be both relevant and faithfully represented if it is to be useful. Enhancing qualitative characteristicsComparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented. ComparabilityInformation about a reporting entity is more useful if it can be compared with a similar information about other entities and with similar information about the same entity for another period or another date. Comparability enables users to identify and understand similarities in, and differences among, items. VerifiabilityVerifiability helps to assure users that information represents faithfully the economic phenomena it purports to represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.TimelinessTimeliness means that information is available to decision-makers in time to be capable of influencing their decisions. UnderstandabilityClassifying, characterizing and presenting information clearly and concisely makes it understandable. While some phenomena are inherently complex and cannot be made easy to understand, to exclude such information would make financial reports incomplete and potentially misleading. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information with diligence. Applying the enhancing qualitative characteristicsEnhancing qualitative characteristics should be maximized to the extent necessary. However, enhancing qualitative characteristics (either individually or collectively) render information useful if that information is irrelevant or not represented faithfully. The cost constraint on useful financial reportingCost is a pervasive constraint on the information that can be provided by general purpose financial reporting. Reporting such information imposes costs and those costs should be justified by the benefits of reporting that information. The FRSC assesses costs and benefits in relation to financial reporting generally, and not solely in relation to individual reporting entities. The FRSC will consider whether different sizes of entities and other factors justify different reporting requirements in certain situations. Underlying AssumptionThe Conceptual Framework states that the going concern assumption is an underlying assumption. Thus, the financial statements presume that an entity will continue in operation indefinitely or, if that presumption is not valid, disclosure and a different basis of reporting are required. THE ELEMENTS OF THE FINANCIAL STATEMENTSFinancial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements.The elements directly related to financial position (balance sheet) are: Assets Liabilities Equity The elements directly related to performance (income statement) are: Income Expenses The cash flow statement reflects both income statement elements and some changes in balance sheet elements.Definitions of the elements relating to financial position Asset. An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. Liability. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Equity. Equity is the residual interest in the assets of the entity after deducting all its liabilities. Definitions of the elements relating to performance Income. Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Expense. Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities of an entity. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence, they are not regarded as constituting a separate element in the Conceptual Framework. The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the entity. Expenses that arise in the course of the ordinary activities of the entity include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment. Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity. Losses represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence, they are not regarded as a separate element in this Framework. [F 4.33 and F 4.34]Recognition of the Elements of Financial StatementsRecognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition: [F 4.37 and F 4.38] It is probable that any future economic benefit associated with the item will flow to or from the entity; and The item's cost or value can be measured with reliability. Based on these general criteria: An asset is recognized in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. A liability is recognized in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably. Income is recognized in the income statement when an increase in future economic benefit related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. Expenses are recognized when a decrease in future economic benefit related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. Measurement of the Elements of Financial StatementsMeasurement involves assigning monetary amounts at which the elements of the financial statements are to be recognized and reported. The Conceptual Framework acknowledges that a variety of measurement bases are used today to different degrees and in varying combinations in financial statements, including: Historical cost Current cost Net realizable (settlement) value Present value (discounted) (a) Historical cost. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

(b)Current cost. Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.

(c)Realizable (settlement) value. Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at their settlement values; that is, the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.(d)Present value. Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCEConcepts of CapitalA financial concept of capital is adopted by most entities in preparing their financial statements. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the entity based on, for example, units of output per day.Concepts of Capital Maintenance and the Determination of Profit (a)Financial capital maintenance. Under this concept a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.(b)Physical capital maintenance. Under this concept a profit is earned only if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.

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THEORY OF ACCOUNTS

LECTURE NOTES

PRESENTATION OF FINANCIAL STATEMENTS(PAS 1 REVISED 2007 INCLUDING AMENDMENTS)

ScopeAn entity shall apply this Standard in preparing and presenting general purpose financial statements in accordance with Philippine Financial Reporting Standards (PFRSs).

DEFINITION AND OBJECTIVE OF FINANCIAL STATEMENTSFinancial statements are a structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the managements stewardship of the resources entrusted to it.

COMPLETE SET OF FINANCIAL STATEMENTS

A complete set of financial statements comprises: (a) a statement of financial position as at the end of the period;(b) a statement of comprehensive income for the period;(c) a statement of changes in equity for the period;(d) a statement of cash flows for the period;(e) notes, comprising a summary of significant accounting policies and other explanatory information; and(f) a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

An entity may use titles for the statements other than those used in this Standard.

An entity shall present with equal prominence all of the financial statements in a complete set of financial statements.

GENERAL FEATURES (IMPORTANT CONSIDERATIONS)

1. Fair presentation and compliance with PFRSs

Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.

An entity whose financial statements comply with PFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with PFRSs unless they comply with all the requirements of PFRSs.

In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable PFRSs. A fair presentation also requires an entity: (a) to select and apply accounting policies in accordance with PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. PAS 8 sets out a hierarchy of authoritative guidance that management considers in the absence of anPFRS that specifically applies to an item.(b)to present information, including accounting policies, in a manner that provides relevant , reliable , comparable and understandable information.(c) to provide additional disclosures when compliance with the specific requirements in PFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entitys financial position and financial performance.

An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.

An entity whose financial statements comply with PFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with PFRSs unless they comply with all the requirements of PFRSs.

In the extremely rare circumstances in which management concludes that compliance with a requirement in anPFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework

When an entity departs from a requirement ofPFRS, it shall disclose: (a) that management has concluded that the financial statements present fairly the entitys financial position, financial performance and cash flows;(b) that it has complied with applicable PFRSs, except that it has departed from a particular requirement to achieve a fair presentation;(c) the title of the PFRS from which the entity has departed, the nature of the departure, including the treatment that the PFRS would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and(d) for each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.

2. Going ConcernAn entity preparing PFRS financial statements is presumed to be a going concern. If management has significant concerns about the entity's ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case PAS 1 requires a series of disclosures.

In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case.

3. Accrual Basis of AccountingPAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting. When the accrual basis of accounting is used, an entity recognizes items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Framework.

4. Materiality and AggregationAn entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial.An entity need not provide a specific disclosure required by PFRS if the information is not material.

5. OffsettingAn entity shall not offset assets and liabilities or income and expenses, unless required or permitted by anPFRS.

An entity reports separately both assets and liabilities, and income and expenses. Offsetting in the statements of comprehensive income or financial position or in the separate income statement (if presented), except when offsetting reflects the substance of the transaction or other event, detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entitys future cash flows. Measuring assets net of valuation allowancesfor example, obsolescence allowances on inventories and doubtful debts allowances on receivablesis not offsetting.In addition, an entity presents on a net basis gains and losses arising from a group of similar transactions, for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading. However, an entity presents such gains and losses separately if they are material.

6. Frequency of ReportingAn entity shall present a complete set of financial statements (including comparative information) at least annually. When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements: (a) the reason for using a longer or shorter period, and(b) the fact that amounts presented in the financial statements are not entirely comparable.

7. Comparative InformationExcept when PFRSs permit or require otherwise, an entity shall disclose comparative information in respect of the previous period for all amounts reported in the current periods financial statements. An entity shall include comparative information for narrative and descriptive information when it is relevant to an understanding of the current periods financial statements.

8. Consistency of PresentationAn entity shall retain the presentation and classification of items in the financial statements from one period to the next unless: (a) it is apparent, following a significant change in the nature of the entitys operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in PAS 8; or(b) aPFRS requires a change in presentation.

STRUCTURE AND CONTENTS OF FINANCIAL STATEMENTSThe entity shall display the following information prominently and repeat it when necessary for the information presented to be understandable(a) the name of the reporting entity or other means of identification, and any change in that information from the end of the preceding reporting period; (b) whether the financial statements are of an individual entity or a group of entities;(c) the date of the end of the reporting period or the period covered by the set of financial statements or notes;(d)the presentation currency, as defined in PAS 21; and(e) the level of rounding used in presenting amounts in the financial statements.

Statement of Financial PositionInformation to be presented in the statement of financial positionAs a minimum, the statement of financial position shall include line items that present the following amounts: (a) property, plant and equipment;(b) investment property;(c) intangible assets;(d)financial assets (excluding amounts shown under (e), (h) and (i));(e) investments accounted for using the equity method;(f) biological assets;(g) inventories; (h) trade and other receivables;(i) cash and cash equivalents;(j) the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with PFRS 5 Non-current Assets Held for Sale and Discontinued Operations;(k)trade and other payables;(l) provisions;(m)financial liabilities (excluding amounts shown under (k) and (l));(n)liabilities and assets for current tax, as defined in PAS 12 Income Taxes;(o)deferred tax liabilities and deferred tax assets, as defined in PAS 12;(p)liabilities included in disposal groups classified as held for sale in accordance with PFRS 5;(q)non-controlling interests, presented within equity; and(r)issued capital and reserves attributable to owners of the parent.

An entity shall present additional line items, headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entitys financial position.

An entity makes the judgment about whether to present additional items separately on the basis of an assessment of: (a) the nature and liquidity of assets;(b) the function of assets within the entity; and(c) the amounts, nature and timing of liabilities.

Current/non-current distinction

An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, an entity shall present all assets and liabilities in order of liquidity.

Current assetsAn entity shall classify an asset as current when: (a) it expects to realize the asset, or intends to sell or consume it, in its normal operating cycle;(b)it holds the asset primarily for the purpose of trading;(c) it expects to realize the asset within twelve months after the reporting period; or(d)the asset is cash or a cash equivalent (as defined in PAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

An entity shall classify all other assets as non-current.

Current liabilities

An entity shall classify a liability as current when: (a)it expects to settle the liability in its normal operating cycle;(b)it holds the liability primarily for the purpose of trading;(c)the liability is due to be settled within twelve months after the reporting period; or(d)the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

An entity shall classify all other liabilities as non-current.

When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, it shall not classify deferred tax assets (liabilities) as current assets (liabilities).

This Standard does not prescribe the order or format in which an entity presents items.

An entity shall disclose, either in the statement of financial position or in the notes, further subclassifications of the line items presented, classified in a manner appropriate to the entitys operations.

The detail provided in subclassifications depends on the requirements of PFRSs and on the size, nature and function of the amounts involved. The disclosures vary for each item, for example: (a)items of property, plant and equipment are disaggregated into classes in accordance with PAS 16;(b)receivables are disaggregated into amounts receivable from trade customers, receivables from related parties, prepayments and other amounts;(c)inventories are disaggregated, in accordance with PAS 2 Inventories, into classifications such as merchandise, production supplies, materials, work in progress and finished goods;(d)provisions are disaggregated into provisions for employee benefits and other items; and (e)equity capital and reserves are disaggregated into various classes, such as paid-in capital, share premium and reserves.

An entity shall disclose the following, either in the statement of financial position or the statement of changes in equity, or in the notes: (a)for each class of share capital: (i)the number of shares authorized;(ii)the number of shares issued and fully paid, and issued but not fully paid;(iii)par value per share, or that the shares have no par value;(iv)a reconciliation of the number of shares outstanding at the beginning and at the end of the period;(v) the rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital;(vi)shares in the entity held by the entity or by its subsidiaries or associates; and(vii) shares reserved for issue under options and contracts for the sale of shares, including terms and amounts; and

(b) a description of the nature and purpose of each reserve within equity.

Statement of Comprehensive IncomeAn 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).

Information to be presented in the statement of comprehensive income As a minimum, the statement of comprehensive income shall include line items that present the following amounts for the period: (a) revenue;(b) finance costs;(c) share of the profit or loss of associates and joint ventures accounted for using the equity method;(d) tax expense;(e) a single amount comprising the total of:(i)the post-tax profit or loss of discontinued operations and(ii)the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation; (f)profit or loss;(g) each component of other comprehensive income classified by nature (excluding amounts in (h));(h)share of the other comprehensive income of associates and joint ventures accounted for using the equity method; and(i) total comprehensive income.

An entity shall disclose the following items in the statement of comprehensive income as allocations of profit or loss for the period: (j) profit or loss for the period attributable to:(i) non-controlling interests, and(ii) owners of the parent.(k)total comprehensive income for the period attributable to: (i) non-controlling interests, and(ii) owners of the parent.

Other comprehensive income comprises items of incomeand expense (including reclassification adjustments) that are not recognized in profit or loss as required or permitted by other PFRSs.

Components of the Other Comprehensive Income (OCI) revaluation surplus (PAS 16 and PAS 38). actuarial gains and losses on defined benefit plans recognized in accordance with of PAS 19 revised. gains and losses arising from translating the financial statements of a foreign operation (PAS 21). gains and losses on remeasuring available-for-sale financial assets (PAS 39). the effective portion of gains and losses on hedging instruments in a cash flow hedge (PAS 39).NOTE:Amendment to PAS 1 Presentation of Items of Other Comprehensive Income (Effective on or after July 1, 2012) Preserve the amendments made to PAS 1 in 2007 to require profit or loss and OCI to be presented together, i.e. either as a single statement of comprehensive income or a separate income statement and a statement of comprehensive income

Require entities to group items presented in OCI based on whether they are potentially reclassifiable to profit or loss subsequently .

Example:1. Items that might be reclassified to profit or loss in subsequent periods2. Items that will not be reclassified to profit or loss in subsequent periods

Require tax associated with items presented before tax to be shown separately for each of the two groups of OCI items (without changing the option to present items of OCI either before tax or net of tax).

An entity shall present additional line items, headings and subtotals in the statement of comprehensive income and the separate income statement (if presented), when such presentation is relevant to an understanding of the entitys financial performance.

Certain items must be disclosed either on the face of the statement of comprehensive income or in the notes, if material, including: write-downs of inventories to net realizable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring disposals of items of property, plant and equipment disposals of investments discontinuing operations litigation settlements other reversals of provisions

An entity shall present an analysis of expenses recognized in profit or loss using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant .

The first form of analysis is the nature of expense method. An entity aggregates expenses within profit or loss according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs).

The second form of analysis is the function of expense or cost of sales method and classifies expenses according to their function as part of cost of sales or, for example, the costs of distribution or administrative activities. At a minimum, an entity discloses its cost of sales under this method separately from other expenses.

If the entity used the function of expense method, additional disclosure is required about the nature of expenses, including depreciation, amortization and employee benefits expenses.

An entity shall not present any items of income or expenses as extraordinary items, in the statement of comprehensive income, or the separate income statement (if presented), or in the notes.

Statement of Changes in EquityAn entity shall present a statement of changes in equity showing in the statement: (a)total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests; (b)for each component of equity, the effects of retrospective application or retrospective restatement recognized in accordance with PAS 8; and(c) for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:(i) profit or loss;(ii) each item of other comprehensive income: and(iii)transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

The following must be disclosed either on the face of the statement of changes in equity or in the notes: the amount of dividends recognized as distributions to equity holders during the period, and the related amount per share.

Notes to the Financialstatements/ Notes

StructureThe notes shall: (a)present information about the basis of preparation of the financial statements and the specific accounting policies used;(b)disclose the information required by PFRSs that is not presented elsewhere in the financial statements; and (c) provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.

An entity shall, as far as practicable, present notes in a systematic manner. An entity shall cross-reference each item in the statements of financial position and of comprehensive income, in the separate income statement (if presented), and in the statements of changes in equity and of cash flows to any related information in the notes.

An entity normally presents notes in the following order, to assist users to understand the financial statements and to compare them with financial statements of other entities: (a) statement of compliance with PFRSs(b) summary of significant accounting policies applied ;(c) supporting information for items presented in the statements of financial position and of comprehensive income, in the separate income statement (if presented), and in the statements of changes in equity and of cash flows, in the order in which each statement and each line item is presented; and(d) other disclosures, including:(i)contingent liabilities (see PAS 37) and unrecognized contractual commitments, and(ii) non-financial disclosures, eg the entitys financial risk management objectives and policies (see PFRS 7).

Financial statements and specific accounting policies as a separate section of the financial statements.

Disclosure of accounting policies

An entity shall disclose in the summary of significant accounting policies: (a) the measurement basis (or bases) used in preparing the financial statements, and(b) the other accounting policies used that are relevant to an understanding of the financial statements.

Disclosure of judgments. New in the 2003 revision to PAS 1, an entity must disclose, in the summary of significant accounting policies or other notes, the judgments, apart from those involving estimations, that management has made in the process of applying the entity's accounting policies that have the most significant effect on the amounts recognized in the financial statements.

Examples include management's judgments in determining: whether financial assets are held-to-maturity investments when substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and whether the substance of the relationship between the entity and a special purpose entity indicates that the special purpose entity is controlled by the entity

Disclosure of key sources of estimation uncertainty. Also new in the 2003 revision to PAS 1, an entity must disclose, in the notes, information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. These disclosures do not involve disclosing budgets or forecasts.

The following other note disclosures are required if not disclosed elsewhere in information published with the financial statements: domicile of the enterprise country of incorporation address of registered office or principal place of business description of the enterprise's operations and principal activities name of its parent and the ultimate parent if it is part of a group

Other DisclosuresDisclosures about Dividends The following must be disclosed either on the face of the statement of changes in equity or in the notes: the amount of dividends recognized as distributions to equity holders during the period, and the related amount per share. The following must be disclosed in the notes: the amount of dividends proposed or declared before the financial statements were authorized for issue but not recognized as a distribution to equity holders during the period, and the related amount per share; and the amount of any cumulative preference dividends not recognized.

Capital Disclosures In August 2005, as part of its project to develop PFRS 7Financial Instruments: Disclosures, the IASB also amended PAS 1 to add requirements for disclosures of: the entity's objectives, policies and processes for managing capital; quantitative data about what the entity regards as capital; whether the entity has complied with any capital requirements; and if it has not complied, the consequences of such non-compliance.

Disclosures about Puttable Shares and Obligations Arising Only on Liquidation summary quantitative data about the amount classified as equity; the entity's objectives, policies and processes for managing its obligation to repurchase or redeem the instruments; the expected cash outflow on redemption or repurchase of that class of financial instruments; and information about how the expected cash outflow on redemption or repurchase was determined.

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THEORY OF ACCOUNTSIntro and Preface to PFRS

LECTURE NOTES

INTRODUCTION AND PREFACE TO PFRSs

IntroductionThe Financial Reporting Standards Council (FRSC) was established by the Board of Accountancy (BOA or the Board) in 2006 under the Implementing Rules and Regulations of the Philippine Accountancy of Act of 2004 to assist the Board in carrying out its power and function to promulgate accounting standards in the Philippines. The FRSC's main function is to establish generally accepted accounting principles in the Philippines.

The FRSC is the successor of the Accounting Standards Council (ASC). The ASC was created in November 1981 by the Philippine Institute of Certified Public Accountants (PICPA) to establish generally accepted accounting principles in the Philippines. The FRSC carries on the decision made by the ASC to converge Philippine accounting standards with international accounting standards issued by the International Accounting Standards Board (IASB).

The FRSCThe FRSC consists of a Chairman and members who are appointed by the BOA and include representatives from the Board of Accountancy (BOA), Securities and Exchange Commission (SEC), Bangko Sentral ng Pilipinas (BSP), Financial Executives Institute of the Philippines (FINEX) and Philippine Institute of Certified Public Accountants (PICPA). The FRSC has full discretion in developing and pursuing the technical agenda for setting accounting standards in the Philippines. Financial support is received principally from the PICPA Foundation.

The FRSC monitors the technical activities of the IASB and issues Invitations to Comment on exposure drafts of proposed IFRSs as these are issued by the IASB. When finalized, these are issued as Philippine Financial Reporting Standards (PFRSs). The FRSC similarly monitors issuances of the international Financial Reporting Interpretations Committee (IFRIC) of the IASB, which it adopts as Philippine Interpretations.

The FRSC issues news releases to announce the issuance of final Standards and Interpretations, exposure drafts and other matters which are posted in the Philippine Accounting Standards section of the PICPA website (www.picpa.com.ph).

Philippine Interpretations CommitteeThe FRSC formed the Philippine Interpretations Committee (PIC) in August 2006 to assist the FRSC in establishing and improving financial reporting standards in the Philippines. The role of the PIC is principally to issue implementation guidance on PFRSs. The PIC members were appointed by the FRSC and include accountants in public practice, the academe and regulatory bodies and users of financial statements. The PIC replaced the Interpretations Committee created by the ASC in 2000.

Preface to Philippine Financial Reporting StandardsThe Preface to Philippine Financial Reporting Standards sets out the objectives and due process of the FRSC and explains the scope, authority and timing of application of Philippine FRSs.This Preface is issued to set out the objectives and due process of the Financial Reporting Standards Council and to explain the scope, authority and timing of application of Philippine Financial Reporting Standards.1. The Financial Reporting Standards Council (FRSC) was established by the Board of Accountancy (BOA or the Board) in 2006 under the Implementing Rules and Regulations of the Philippine Accountancy of Act of 2004, to assist the Board in carrying out its power and function to promulgate accounting standards in the Philippines. BOA appointed the Chairman and members of the FRSC which include representatives from the Securities and Exchange Commission (SEC), the Bangko Sentral ng Piiipinas (BSP), the Board of Accountancy (BOA), the Financial Executives Institute of the Philippines (FINEX) and the Philippine Institute of Certified Public Accountants (PICPA). The approval of Philippine Financial Reporting Standards (PFRSs), Philippine Interpretations, and related documents, such as the Framework for the Preparation and Presentation of Financial Statements, exposure drafts and other discussion documents is the responsibility of the FRSC.

2. The FRSC is the successor of the Accounting Standards Council (ASC). The ASC was created in November 1981 by the Philippine Institute of Certified Public Accountants (PICPA) to establish generally accepted accounting principles in the Philippines. The creation of the ASC was endorsed by the SEC BSP, the Professional Regulation Commission through the Board of Accountancy, and the FINEX. The ASC made a decision in 1997 to converge Philippine accounting standards with International Accounting Standards issued by the International Accounting Standards Committee (IASC), which was later succeeded by the International Accounting Standards Board (IASB).

3. Once it was established, the FRSC resolved that all Standards and Interpretations issued by the ASC continue to be applicable unless and until they are amended or withdrawn by the FRSC.

Objectives of the FRSC5.The main function of the FRSC is to establish generally accepted accounting principles in the Philippines. In achieving this objective, the FRSC considers Standards issued by the IASB.

6.The FRSC carries on the decision of the ASC to converge Philippine accounting standards with international accounting standards issued by the IASB. The objectives of the FRSC in this respect are:(a)to develop, in the public interest, a single set of high quality, understandable and enforceable accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the various capital markets and other users of the information to make economic decisions;(b)to promote the use and rigorous application of those standards; and(c)to work for the convergence of Philippine accounting standards with International Financial Reporting Standards (IFRSs) issued by the IASB.

Scope and Authority of PFRSs7. The FRSC issues its Standards in a series of pronouncements called Philippine Financial Reporting Standards (PFRSs). These consist of(a)Philippine Financial Reporting Standards (PFRSs) [these correspond to International Financial Reporting Standards (IFRSs)];(b)Philippine Accounting Standards (PASs) [these correspond to International Accounting Standards (lASs)]; and(c)Philippine Interpretations [these correspond to Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) of the IASB and the Standing Interpretations Committee (SIC) of the IASC; these also include Interpretations developed by the PIC.

8.The FRSC achieves its objectives primarily by developing and issuing Philippine Financial Reporting Standards (PFRSs) and promoting the use of these standards in general purpose financial statements and other financial reporting. Other financial reporting comprises information provided outside financial statements that assists in the interpretation of a complete set of financial statements or improves users' ability to make efficient economic decisions. In developing PFRSs, the FRSC considers its objective of convergence with IFRSs issued by the IASB.

9. PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements. They may also set out such requirements for transactions and events that arise mainly in specific industries. PFRSs are based on the Framework, which addresses the concepts underlying the information presented in general purpose financial statements. The objective of the Framework is to facilitate the consistent and logical formulation of PFRSs. The Framework also provides a basis for the use of judgment in resolving accounting issues.

10. PFRSs are designed to apply to the general purpose financial statements and other financial reporting of all profit-oriented entities. Profit-oriented entities include those engaged in commercial, industrial, financial and similar activities, whether organized in corporate or in other forms. They include organizations such as mutual insurance companies and other mutual cooperative entities that provide dividends or other economic benefits directly and proportionately to their owners, members or participants. Although PFRSs are not designed to apply to not-for-profit activities in the private sector, public sector or government, entities with such activities may find them appropriate.

11.PFRSs apply to all general purpose financial statements. Such financial statements are directed towards the common information needs of a wide range of users, for example, shareholders, creditors, employees and the public, at large. The objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to those users in making economic decisions.

12.A complete set of financial statements includes a balance sheet, an income statement a statement showing either all changes in equity or changes in equity other than those arising from capital transactions with owners and distributions to owners, a cash flow statement, and accounting policies and explanatory notes. In the interest of timeliness and cost considerations and to avoid repeating information previously reported, an entity may provide less information in its interim financial statements than in its annual financial statements. PFRS 34, Interim Financial Reporting, prescribes the minimum content of complete or condensed financial statements for an interim period. The term financial statements' includes a complete set of financial statements prepared for an interim or annual period, and condensed financial statements for an interim period.

13. In some cases, PFRSs permit different treatments for given transactions and events. Usually, one treatment is identified as the 'benchmark treatment' and the other as the 'allowed alternative treatment1. The financial statements of an entity may appropriately be described as being prepared in accordance with PFRSs whether they use the benchmark treatment or the allowed alternative treatment.

14.The FRSC's objective is to require tike transactions and events to be accounted for and reported in a like way and unlike transactions and events to be accounted for and reported differently, both within an entity over time and among entities. Consequently, the FRSC intends not to permit choices in accounting treatment. Also, the FRSC has reconsidered, and will continue to reconsider, those transactions and events for which PFRSs permit a choice of accounting treatment with the objective of reducing the number of those choices.

15.Standards approved by the FRSC include paragraphs in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles. An individual standard should be read in the context of the objective stated in that standard and this Preface.

16.Interpretations of PFRSs are intended to give authoritative guidanfce on issues that are likely to receive divergent or unacceptable treatment, in the absence of such guidance.

17.PAS 1, Presentation of Financial Statements, includes the following requirement: "An entity whose financial statements comply with PFRSs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with PFRSs unless they comply with all the requirements of PFRSs."

18.Any limitation of the scope of a PFRSs is made dear in the standard.

Due Process19.PFRSs are developed through a due process that involves members of PICPA, financial executives, regulatory authorities, academics and other interested individuals and organizations. Due process for projects normally, but not necessarily involves the following steps:(a)consideration of pronouncements of the IASB;(b)formation of a task force, when deemed necessary, to give advice to the FRSC;(c) issuing for comment an exposure draft approved by a majority of the FRSC members; comment period will be at least 60 days, unless a shorter period (not less than 30 days) is considered appropriate by the FRSC;(d)consideration of all comments received within the comment period and, when appropriate, preparing a comment letter to the IASB; and(e) approval of a standard or an interpretation by a majority of the FRSC members.

Timing of Application of PFRS20.PFRSs apply from a date specified in the document. New or revised PFRSs set out transitional provisions to be applied on their initial application.

21.The FRSC has no general policy of exempting transactions occurring before a specific date from the requirements of new PFRSs. When financial statements are used to monitor compliance with contracts and agreements, a new PFRSs may have consequences that were not foreseen when the contract or agreement was finalized. For example, covenants contained in banking and loan agreements may impose limits on measures shown in a borrower's financial statements. The FRSC believes the fact that financial reporting requirements evolve and change over time is well understood and would be known to the parties when they entered into the agreement. It is up to the parties to determine whether the agreement should be insulated from the effects of a future PFRS, or, if not, the manner in which it might be renegotiated to reflect changes in reporting rather than changes in the underlying financial condition.

22.Exposure drafts are issued for comment and the proposals are subject to revision. Until the effective date of a PFRS, the requirements of any PFRS that would be affected by proposals in an exposure draft remain in force.

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