CHAPTER 9 – PAS 1

Presentation of Financial Statements

Statement of comprehensive income

INCOME STATEMENT is a formal statement showing the financial performance of an entity for a given
period of time.

The financial performance of an entity is primarily measured in terms of the level of income earned by
the entity through the effective and efficient utilization of its resources.

COMPREHENSIVE INCOME
The change in equity during a period resulting from transactions and other events, other than
changes resulting from transactions with owners in their capacity as owners.

Includes:
A. Components of profit or loss

Profit or loss
The total income less expenses, excluding the components of other comprehensive income.

B. Components of other comprehensive income

OTHER COMMPREHENSIVE INCOME

Comprises items of income and expenses including reclassification adjustments that are not
recognized in profit or loss as required or permitted by PFRS.

Components:

1. Unrealized gain or loss on equity investment measured at fair value through other comprehensive
income.
2. Unrealized gain or loss on debt investment measured at fair value through other comprehensive
income.
3. Gain or loss from translation of the financial statements of a foreign operation.
4. Revaluation surplus during the year.
5. Unrealized gain or loss from derivative contracts designated as cash flow hedge.
6. “Remeasurements” of defined benefit plan, including actuarial gain or loss.
7. Change in fair value attributable to credit risk of a financial liability designated at fair value through
profit or loss.

Presentation of other comprehensive income

PAS 1 paragraph 82A, provides that the statement of comprehensive income shall present line items for
amounts of other comprehensive income during the period classified by nature.
PRESENTATION OF COMPREHENSIVE INCOME

1. TWO STATEMENTS

A. An income statement showing the components of profit or loss.

B. A statement of comprehensive income beginning with profit or loss as shown in the income
statement plus or minus the components of other comprehensive income

2. SINGLE STATEMENT OF COMPREHENSIVE INCOME

This is the combined statement showing the components of profit or loss and components of
other comprehensive income in a single statement.

SOURCES OF INCOME

a. Sales of merchandise to customers

b. Rendering of services
c. Use of entity resources
d. Disposal of resources other than products

COMPONENTS OF EXPENSE

a. COGS or COS
b. Distribution costs or selling expenses
c. Administrative expenses
d. Other expenses
e. Income tax expense

CLASSIFICATION OF EXPENSES

DISTRIBUTION COSTS constitute costs which are directly related to selling, advertising and delivery of
goods to customers.

ADMINISTRATIVE EXPENSES constitute cost of administering the business. These ordinarily include all
operating expenses not related to selling and cost of goods sold.

OTHER EXPENSES are those expenses which are not directly related to the selling and administrative
function.

Line items

PAS 1 paragraph 87
An entity shall not present any items of income and expense as extraordinary items, either on
the face of the income statement or the statement of comprehensive income or in the notes.
PAS 1 paragraph 82, Income statement and statement of comprehensive income line items.
a. Revenue
b. Gain and loss from the derecognition of financial asset measured at amortized cost as required
by PFRS 9
c. Finance Cost
 d. Share in income or loss of associate and
e. Gain or loss on the reclassification of financial asset from amortized cost to fair value profit or
loss
f. Gain or loss on the reclassification of financial asset from fair value other comprehensive income
to fair value profit or loss.
g. Income tax expense
h. A single amount comprising discontinued operations
i. Profit or loss for the period
j. Total other comprehensive income
k. Comprehensive income for the period being the total of profit or loss and other comprehensive
income.

FORMS OF INCOME STATEMENT

PAS 1 paragraph 99. An entity shall present an analysis of expenses recognized in profit or loss using in
classification based on either the function of expenses or their nature within the entity, whichever
provides information that is more reliable and more relevant.

2 ways to present an income statement

1. FUNCTIONAL PRESENTATION/COST
OF SALES METHOD
This form classifies expenses according to their function as part of cost of sales , distribution
costs, administrative activities and other activities.

2. NATURAL PRESENTATION/NATURE
OF EXPENSE METHOD
Expenses are aggregated according to their nature and not allocated among the various
functions within the entity.

PAS 1 paragraph 105

Because each presentation has merit for different types of entities, management is required to
select the presentation that is reliable and more relevant.

STATEMENT OF RETAINED EARNINGS

Shows the changes affecting directly the retained earnings of an entity and relates the income
statement to the statement of financial position.

Should be disclosed in the statement of retained earnings:

A. Profit or loss for the period

B. prior period errors
C. dividends declared and paid to shareholders
D. effect of change in accounting policy
E. appropriation of retained earnings
Statement of changes in equity
Shows the movements in the elements or components of the shareholders equity

Statement of cash flows

Summarizes the operating, investing and financing activities of an entity.

SOURCE/S:

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS 2019 EDITION (VALIX)

-Vince Pereda