STATEMENT OF FINANCIAL POSITION

In accordance to paragraph 60 and 61 of Philippine Accounting Standard (PAS) 1, an entity shall present
current and non-current assets, and current and non-current liabilities, as separate classification on the
face of its statement of financial position in accordance with paragraphs 66-76 except when a
presentation based on liquidity provides information that is reliable and is more relevant. When that
exception applies, all assets and liabilities shall be presented broadly in order of liquidity.

Whichever method of presentation is adopted, an entity shall disclose the amount expected to be
recovered or settled after more than twelve months for each asset and liability line item that combines
amounts expected to be recovered or settled: (a) no more than twelve months after the reporting period,
and (b) more than twelve months after the reporting period.

Current Assets
Paragraph 66 of PAS 1 provides that an asset shall be classified by an entity as current when it satisfies
any of the following criteria:
a. it is expected to be realized in, or is intended for sale or consumption in, the entity's normal
operating cycle;
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the reporting period; or
d. it is cash or cash equivalent (as defined in PAS 7 -Cash Flow Statement ) unless it is
restricted from being exchanged or used to settle a liability for at least twelve months after the
reporting period.

All other assets shall be classifed by an entity as non-current.

Current Liabilities
Paragraph 60of PAS 1 provides that a liabililty shall be classified by an entity as current when it satisfies
any of the following criteria:
a. it is expted to be settled in the entity's normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within twelve months after the date of 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.

All other liabilities shall be classified by an entity as non-current.

Information to be Presented in the Statement of Financial Position

Paragraphs 54-59 of PAS 1 provides guidelines on the information to be presented on the statement of
financial position. At a minimum, the face of 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 disposed groups classified
as held for sale in accordance with PFRS 5Non-current Assets Held for Sale and

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 Discontinued Operations;
k. trade and other payables;
l. provisions;
m. financial liabilities (excluding amounts shows under (k) and (l);
n. liabilities and assets for current tax, as defined in PAS 12Income Taxes ;
o. deferred tax liabilities and deferred tax assets as defined in PAS 12;
p. liabilites included in disposal groups classified as held for sale in accordance with PFRS 5;
q. minority interest, 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 entity's financial position. Paragraph 58 of
PAS 1 provides that an entity makes the judgement 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.

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).

Information to be Presented either in the Statement of Financial Position or in the Notes.

Paragraphs 77-80 of PAS 1 provides information to be presented either in the statement of financial
position or in the notes. The Standard provides that 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 entity's operations.

The detail provided in subclassification depends on the requirements of PERS and on the size, nature and
function of the amounts involved. The factors set out in paragraph 58 are also used to decide the basis of
subclassification. The disclosures vary for each item, for example:
a. items of property, plant and equipment are disaggregated into classes in accordance with
PAS 16 -Property, Plant and Equipment;
b. receivables are disaggregated into amounts receivable from trade customers, receivables
from related parties, prepayments and other amounts;
c. inventories are subclassified, 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 share premium
and reserves.

Paragraph 79 of PAS 1 provides that an entity shall disclose the following, either in the statement of
financial position or in 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

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 vii. shares reserved for issue under options and contracts for the sale of shares,
including the terms and amounts; and
b. a description of the nature and purpose of each reserve within equity.

An entity without share capital, such as partnership or trust, shall disclose information equivalent to that
required by paragraph 79(a), showing changes during the period in each category of equity interest, and
the rights, preferences and restrictions attaching to each category of equity interest.

PAS 1 provides the following illustrative structure for a statement of financial position. The illustrative
structure, however, is not intended to illustrate all aspects of PFRS, nor does it constitutes a complete set
of financial statements, which would also include a summary of significant accounting policies and other
explanatory notes.

Ivan Group fo Companies

Statement of Financial Position
As at December 31, 20x2
(in thousans of currency units)

20x2 20x1
ASSETS

Current Assets
Cash and cash equivalents 312,400.00 322,900.00
Trade and other receivables 91,600.00 110,800.00
Inventories 135,230.00 132,500.00
Other current assets 25,650.00 12,540.00
Total current assets 564,880.00 578,740.00

Non-current Assets
Property, plant and equipment 350,700.00 360,020.00
Goodwill 80,800.00 91,200.00
Other intangible assets 227,470.00 227,470.00
Investment in associates 100,150.00 110,770.00
Available-for-sale financial assets 142,500.00 156,000.00
Total non-current assets 901,620.00 945,460.00
Total assets 1,466,500.00 1,524,200.00

LIABILITIES

Current Liabilities
Trade and other payables 115,100.00 187,620.00
Short-term borrowings 150,000.00 200,000.00
Current portion of long-term borrowings 10,000.00 20,000.00
Current tax payable 35,000.00 42,000.00
Short-term provisions 5,000.00 4,800.00
Total current liabilities 315,100.00 454,420.00

Non-current Liabilities
Long-term borrowings 120,000.00 160,000.00
Deferred tax 28,800.00 26,040.00
Long-term provisions 28,850.00 52,240.00

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 Total non-current liabilities 177,650.00 238,280.00
Total Liabilities 492,750.00 692,700.00

EQUITY
Equity attributable to owners of the parent
Share capital 650,000.00 600,000.00
Accumulated profits 243,500.00 161,700.00
Other components of equity 10,200.00 21,200.00
Total equity attributable to owners fo the parent 903,700.00 782,900.00
Non-controlling interest 70,050.00 48,600.00
Total equity 973,750.00 831,500.00
Total liabilities and equity 1,466,500.00 1,524,200.00

THEORY OF ACCOUNTS
Instruction: Indicate in the space provided the capital letter that best answers or completes the following
items:
1. The essential characteristics of an asset include all of the following, except:
A. The asset is the result of past transaction or event.
B. The asset provides future economic benefit.
C. The cost of the asset can be measured reliably.
D. The asset is tangible.

2. Which is not essential characteristcs of a liability?

A. The liability is the present obligation of a particular entity.
B. The payee or the entity to whom the obligation is owed must be identified.
C. The liability arises from a past transaction or event.
D. The settlement of the liability requires an outflow of resources embodying
economic benefits.

3. The balance sheet is useful for analyzing all of the following except:
A. Solvency
B. Financial structure
C. Financial flexibility
D. Performance

4. PAS 1 provides that an asset shall be classified as current when it satisfies any of the following
criteria, except:
A. It is expected to be settled in the entity's normal operating cycle
B. It is primarily for the purpose of being traded
C. It is cash or cash equivalent unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the balance sheet date
D. It is expected to be realized within twelve months after the balance sheet date

5. Tangible assets which are held by an entity for use in production or supply of goods and
services, for rental to others, or for adminstrative purposes, and are expected to be used during
more than one period.
A. Intangible assets
B. Investments
C. Property, plant and equipment
D. Inventory

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 6. An asset by an entity for the accretion of wealth through capital distribution, such as interest,
royalties, dividends and rentals, for capital appreciation or for other benefits to the investing entity
such as those obtained through trading relationships.
A. Prepayments
B. Intangible assets
C. Property, plant and equipment
D. Investments

7. An identifiable nonmonetary asset without physical substances which is controlled by the entity
as a result of past event and form which future economic benefits are expected to flow to the
entity.
A. Investments
B. Intangible assets
C. Cash and cash equivalents
D. Trading securities

8. PAS 1 provides that a liability shall be classified as current when it satisfies any of the
following criteria, except:
A. It is exposed to be realized or intended for sale or consumption within the entity's
normal operating cycle
B. It is help primarily for the purpose of being traded
C. It is due to be settled within twelve months after the balance sheet date
D. The entity does not have an unconditional right to defer settlement of the liability
for at least twelve months after the balance sheet date

9. They are obligations which exist on balance sheet date although their amount is not definite.
A. Contingent liabilities
B. Covenants
C. Estimated liabilities
D. Long-term liabilities

10. It is possible obligation that arises from past event and whose existence will be confirmed
only by the occurrence on nonoccurence of one or more uncertain future events no wholly within
the control of the entity.
A. Estimated liability
B. Provision
C. Covenant
D. Contingent liability

Instruction: Indicate in the space provided the capital letter that best answers or completes the following
items:

1. It is the portion of the authorized share capital that has been subscribed but not yet fully paid
and therefore still unissued.
A. Share premium
B. Ordinary share capital
C. Subscribed share capital
D. Subscription receivable

2. Capital contributed by the shareholders in excess of the par or stated value of the stock
subscribed and issued.

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 A. Share premium
B. Share capital
C. Subscribed share capital
D. Subscription receivable

3. Deferred tax assets and liabilities shall be classified on the balance sheet as:
A. current
B. noncurrent
C. partly current and partly noncurrent
D. part of equity

4. Assuming all the following securities are readily marketable, which one would not be classified
as current investment?
A. Equity securites which will be converted into cash within three months to finance
the construction of a building.
B. Commercial papers which will be converted into cash when it matures in six months.
C. Debts securities maturing in five years, representing an investment of temporary idle
cash funds.
D. Equity securities which the company intends to convert into cash when needed for
working capital purposes, but which have been held for several years without
conversion.

5. A public utility reports noncurrent assets as the first item on its balance sheet. This is an
example of:
A. Substance over form
B. Industry practice
C. Conservatism
D. Improper statement presentation

6. Shares of stocks in other entities held for investment, valued at cost but could not be quicly
sold othe than at a sacrifice price should be classified on the balance sheet as:
A. Current asset
B. Noncurrent investment
C. Deferred charge
D. Contra item under capital

7. Significant changes in the market value of trading securities occuring after the balance sheet
date should:
A. result in an adjustment of the market value used in the lower of cost or market
valuation at balance sheet date.
B. be considered in the valuation of the securities at balance sheet date and disclosed
in the notes fo financial statements.
C. be treated as prior period error in next year's financial statements
D. not be considered in the valuation of the securities at balance sheet date but
disclosed in the notes to financial statements.

8. An appropriate disclosure of estimated liabilities involves:

A. their proper classification as regular liabilities, whether current or noncurrent
B. an appropriation of retained earnings
C. their inclusion among the liabilities without extending the corresponding amount to
the liability total
D. footnote disclosure only

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 9. Which obligations are classified as current liabilities even if they are due to be settled after
more than twelve months from balance sheet date?
A. Current portion of interest-bearing liabilities
B. Trade payables and accruals for employee and other operating cost
C. Bank overdrafts
D. Dividends payable

10. In analyzing a company's financial statements, which financial statement would a potential
investor primarily use to assess the company's liquidity and financial flexibility?
A. Statement of Financial Position
B. Statement of Income
C. Statement of Changes in Equity
D. Statement of Cash Flow

STATEMENT OF COMPREHENSIVE INCOME

A Statement of Comprehensive Income is a formal statement showing the financial performance of an

entity for a given period of time. Paragraph 7 of PAS 1 defines 'Comprehensive Income' as the change in
equity during a period resulting from transactions and other events, othe than those changes resulting
from transactions with owners in their capacity as owner. Accordingly, total comprehensive income
includes all (a) components of profit or loss and (b) components of other comprehensive income.

P' rofit or Loss' is the total income less expenses, excluding the components of other comprehensive
income. Paragpraph 88 of PAS 1 provides that an entity shall recognize all items of income and expense
in a period in profit or loss unless a PFRS requires or permits otherwise.

'Other Comprehensive Income' comprises items of income and expenses (includingreclassification

adjustments ) that are not recognized in profit or loss as required or permitted by other PFRS. The
components of other comprehensive income include:
(a) changes in revaluation surplus (see PAS 16Property, Plant and Equipment and PAS 38
Intangible Assets );
(b) actrual gains and losses on defined benefit plans recognized in accordance with paragraph
93A of PAS 19 Employee Benefits;
(c) gains and losses arising from translating the financial statements of a foreign operation (see
PAS 21The Effects of Changes in Foreign Exchange Rates );
(d) gains and losses on remeasuring availabel-for-sale financial assets (see PAS 39 Financial
Instruments: Recognition and Measurement );
(e) the effective portion of gain and losses on hedging instruments in a cash flow hedge (see
PAS 39)

'Reclassification Adjustments' are amounts reclassified to profit or loss in the current period that were
recognized in other comprehensive income in the current or previous periods. Paragraph 92 of PAS 1
provides that an entity shall disclose reclassification adjustments relating to components of other
comprehensive income.

Paragraph 81 of PAS 1 provides that an entity shall present all items of income and expenses 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).

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Information to be presented in the Statement of Comprehensive Income
Paragraphs 82-96 of PAS 1 provides guidelines on the information to be presented in the statement of
comprehensive income. At 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 asset or disposal group(s) constituting the discontinued operation;
f. profit or loss;
g. each component of other comprehensive income clasiffied 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.

The following items shall also be disclosed by an entity in the statement of comprehensive income as
allocation of profit or loss for the period:
a. profit or loss for the period attributable to:
(i) minority interest; and
(ii) owners of the parent
b. total comprehensive income for the period attributable to:
(i) minority interest; and
(ii) owner of the parent.

Additional line items, headings and subtotals shall be presented by an entity in the statement of
comprehensive income and the separate income statement (if presented) when such presentation is
relevant to an understanding of the entity's financial performance.

Paragraph 87 provides that an entity shall not present any items of income and expense as extraordinary
items, in the statement of comprehensive income or the separate income statement (if presented) or in the
notes.

Paragraph 90 provides that an entity shall disclose the amount of income tax relating to each component
of other comprehensive income, including reclassification adjustments, either in the statement of
comprehensive income or in the notes.

Information to be presented in the Statement of Comprehensive Income or in the Notes

Paragraphs 97-105 of PAS 1 provides the guidelines on the information to be presented in the statement
of comprehensive income or in the notes. The Standard provides that when items of income and expense
are material, their nature and amount shall be disclosed separately.

Circumstances that would give rise to the separate disclosure of items of income and expense include:
a. 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;
b. restructuring of the activities of an entity and reversals of any provisions for the costs of
restructuring;
c. disposals of items of property, plant and equipment;
d. disposal of investments;

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 e. discontinued operations;
f. litigation settlements; and
g. other reversals or 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. Entities are encouraged to present these analyses in the statement of comprehensive
income or in the separate income statement (if presented).

Expenses are subclassified to highlight components of financial performance that may diffter in terms of
frequency, potential for gain or loss and predictability. This analysis is provided in one of two forms.

The first form of analysis is the nature of expense method. An entity shall aggregate expenses within
profit or loss according to their nature (for example, depreciation, purchases of materials, transport costs,
employee benefits and advertising costs), and does not reallocate them among functions within the entity.
This method may be simple to apply because no allocations of expense to functional classifications are
necessary. An example of a classification using the nature of expense method is as follows:

Revenue
Other income Pxxx
Changes in inventories of finished goods xxx
and work in progress Pxxx
Raw materials and consumables used xxx
Employee benefits expense xxx
Depreciation and amortization expense xxx
Other expenses xxx
Total expenses (xxx)
Profit before tax Pxxx

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 of
administrative activities. At a minimum, an entity discloses its cost of sales under this method separately
from other expenses. This method can provide more relevant information to users than the classification
of expense by nature, but allocating costs to functions may require arbitrary allocations and involve
considerable judgement. An example of a classification using the function of expense method is as
follows:

Revenue Pxxx
Cost of sales xxx
Gross profit xxx
Other income xxx
Distribution costs (xxx)
Administrative expenses (xxx)
Other expenses (xxx)
Profit before tax Pxxx

Entities classifying expenses by function shall disclose additional information on the nature of expenses,
including depreciation and amortization expense and employee benefit expense.

The choice between the function of expense method and the nature of expense method depends on
historical and industry factors and the nature of the entity. Both methods provide an indication of those
costs that might vary, directly or indirectly, with the level of sales or production of the entity. Because

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each method of presentation has merit for different types of entities, this Standard requires management
to select the presentation that is reliable and more relevant. However, because information on the nature
of expenses is useful in predicting future cash flows, additional disclosure is required when the functions
of expense classification is used.

PAS 1 provides the following illustrative structure for statement of comprehensive income and income
statement (if presented separately). Illustration 1 presents the comprehensive income in one statement
and classification of expense within profit by function. Illustration 2 presents the comprehensive income
in two statements and the classification of expense within profit by nature. Illustration 3 presents the
comprehensive income in two statements and the classfication of expense within profit by function.
Illustration 4 presents an alternative method of presenting the components of other comprehensive
income, i.e. net of tax. The illustrative structures, however, are no intended to illustrate all aspects of
PFRS, nor do they constitute a complete set of financial statements, which woul also include a summary
of significant accounting policies and other explanatory notes.

THEORY OF ACCOUNTS
Instruction: Indicate in the space provided the capital letter that best answers or completes the following
items:
1. The performance of an entity is shown in the:
A. Statement of Financial Position
B. Statement of Income
C. Statement of Retained Earnings
D. Statement of Changes in Equity

2. Income does not arise from

A. issuance of ordinary share capital at an amount in excess of par value
B. use of entity resources by others
C. rendering of services
D. sale of merchandise to customers

3. Which statement is incorrect concerning the presentation of the income statement?

A. If the function of expense method is used, no additional disclosure is required about
the nature of expense.
B. The function of expense method classifies expenses according to their function as
part of cost of sales, cost distribution and cost of administrative activities.
C. The nature of expense method means that expenses are aggregated according to
their nature, for example, depreciation, purchases, employee benefits and advertising.
D. The standard requires management to select more relevant and reliable presentation
because the nature of expense method or the function of expense method has merit for
the different types of entities.
4. An entity classifies expenses by logistics, quality control, manufacturing, plant engineering,
sales and marketing, research and development, finance and administration. The classification
basis is by:
A. object of expenditure
B. area of responsibility
C. function performed
D. services received

5. Which of the following events would most likely have no effect on net income of the current
year assuming that all the amounts involved are material?
A. Sale in the current year of a parcel of land which was contributed by a shareholder.
B. Writing-off in the current year the value of the shares previously purchased due to

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 the bankruptcy and closure of the issuing company.
C. Settlement in the current year by way of litigation of previously unrecognized
damages from serious accident that occurred in prior year.
D. Collection in the current year of a receivable which was written off in prior year.

6. Conceptually, net income is a measure of:

A. wealth
B. change of wealth
C. capital maintenance
D. cash flow

7. Which method is acceptable presentation of the statement of income?

I. Nature of expense method
II. Function of expense or 'cost of sales' method
A. I only
B. II only
C. Either I or II
D. Neither I or II

8. Which of the following is incorrect concerning the statement of income?

A. As an entity shall disclose either on the face of the income statement or the
statement of changes in equity, or in the notes, the amount of dividends as distributions
to equity holders during the period and the related amount per share.
B. When items of income and expense are material, their nature and amount shall be
disclosed separately.
C. An entity shall present extraordinary items separately on the face of the income
statement of in the notes.
D. All items of income and expense recognized in a period shall be included in profit or
loss unless a Standard or an Interpretation requires otherwise.

9. Which of the following would be presented on the face of the statement of income as a
separate line item?
A. Loss resulting from hailstorm within the environment in which the entity operates.
B. Foreign exchange loss relating to appreciation of the US dollar in relation to the
Philippine peso.
C. Share in profit or loss of an associate and joint venture accounted for using the
equity method.
D. Casualty loss from tsunami.

10. At the beginning of the current year, an entity installed cabinets to display its merchandise in
customer's stores. The entity expects to use these cabinets for five years. The income statement
for the current year should include:
A. all of the cabinet costs in operating expenses
B. all of the cabinets costs in cost of goods sold
C. one-fifth of the cabinet costs in the cost of goods sold
D. one-fifth fo the cabinet costs in operating expenses

THEORY OF ACCOUNTS
Instruction: Indicate in the space provided the capital letter that best answers or completes the following
items:
1. When an entity opts to present the statement of income classifying expenses by function, which
of the following is not required to be disclosed as "additional information"?

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 A. Amortization expense
B. Director's remuneration
C. Employee benefit expense
D. Depreciation expense

2. It is also known as the "cost of sale method" of presenting the income statement.
A. Functional presentation
B. Natural presentation
C. Nature of expense method
D. Income method

3. In reporting results of operations, which of the following would be shows separately as a line
item?
A. Finance cost
B. A gain resulting from the derivation of the functional currency
C. A loss resulting from the state exercising its right of eminent domain on a piece of
land used as parking area
D. A loss resulting from employees' strike

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