Financial accounting 3 concepts:

1. When an entity departs from a standard, entity should disclose the ff:
a. Management has concluded that FS is fairly presented
b. It has complied with applicable standards and interpretation, except that it
has departed from a particular requirement to achieve fair presentation.
c. The title of the standard or interpretation from which entity has departed.
The treatment adopted
d. Financial impact of the departure on each item that would have been
reported in complying with the requirement
2. Going concern is relevant when mgt shall make an estimate of the expected
outcome of future events, such as recoverability of AR and useful life of
noncurrent assets
3. Uncertainties regarding the ability of the entity to continue as a going concern
shall be fully disclosed
4. Investment income is presented separately in the income statement
5. Materiality is relativity and nature of an item(bribe)
6. Expenditure related to a provision and any reimbursement from a third party can
be offset and only the net expenditure is presented as expense in the income
statement
7. Offsetting can be displayed when gains and losses from trading securities are
netted against each other
8. Entity shall disclose comparative information in respect of the previous period for
all the amounts reported in the current period’s financial statements
9. The outcome of uncertain events at the end of the preceding period and is yet to
be resolved, are disclosed in the current period ( legal dispute). Users shall benefit
from information that an uncertainty existed at the end of the immediately
preceding period, and steps have been taken during the current period to resolve
the uncertainty.
10. When entity makes retrospective restatement, 3 statement of FS shall be
presented: end of the current period, previous period, beginning of the earliest
comparative period.
11. Financial structure-source of financing for assets. Indicates how profits and cash
flows will be distributed between creditors and owners
12. Financial flexibility- use its available cash for unexpected requirements and
investment opportunities or raise cash through borrowing and sale of securities or
sale of assets without disrupting normal operations.
13. Cash equivalents are held for the purpose of meeting short-term cash rather than
for investment purposes
14. In cash equivalents, what is important is the date of purchase which should be 3
months or less before maturity
15. Financial asset held for trading or trading securities
16. Nontrade receivable should be classified as current asset if collectible within 1
year, operating cycle notwithstanding
17. Current assets:
a. Cash and cash equivalents
b. Held for trading
c. Expected to be realized within 12months(nontrade receivables)
d. Realized, sold, or consumed(trade receivable, inventory, prepayments)
18. Operating cycle- between processing of assets and their realization in cash
19. Noncurrent assets:
a. PPE
b. Long-term investments
c. Intangible assets
d. Other noncurrent assets
20. Exploration, evaluation asset, mineral rights and resources held for sale and
biological assets are separate line items. PAS16 on PPE doesn’t apply to them
21. Examples of long-term investments:
a. Investment in equity and bond securities
b. Joint venture
c. Subsidiaries
22. Financial liabilities held for trading are financial liabilities that are incurred with
an intention to repurchase them in the near term(quoted debt instrument).
23. Sound value or depreciated replacement cost

24. General features of financial statements:

a. fair presentation
b. going concern
c. accrual basis
d. materiality and aggregation
e. offsetting
f. frequency of reporting
g. Comparative information
h. Consistency of preparation

25. An entity whose financial statements comply with PFRS shall make an explicit
and unreserved statement of such compliance in the notes.
26. An entity cannot rectify inappropriate accounting policies either by disclosure of
the accounting policies used or by notes or explanatory information

27. Reasons for investment:

a. Accretion of wealth(royalties, dividends, rentals, interest)
b. Capital appreciation( fair value changes)
c. Ownership control
d. Store of surplus funds
28. Long-term investments include:
a. Investment property
b. Investment in securities and bonds
c. Cash surrender value
d. preference share redemption fund
29. Intangible asset is identifiable if:
a. separable, capable of being transferred, licensed, rented or exchanged
b. Arising from legal or contractual right

30. Noncurrent receivables fall into other noncurrent assets

31. Abandoned property and long-term refundable deposits are other noncurrent
assets
32. Covenants are attached to borrowing arrangements which represents undertakings
by the borrower. These are restrictions on the borrower as to undertaking further
borrowings, paying dividends, maintaining specified working capital. If breached,
the liability becomes payable on demand.
33. Grace period is a period within which the borrower can rectify breach and during
which the lender cannot demand immediate payment
34. Current liabilities:
a. Trade and other payables
b. Current provisions
c. Short-term borrowing(loans)
d. Current portion of a long-term debt
e. Current tax liability

35. Noncurrent liabilities:

a. Noncurrent portion of a long-term debt
b. Finance lease liability
c. Deferred tax liability
d. Long-term obligations to entity officers
e. Long-term deferred revenue\

36. Range of outcome may be described as:

a. Probable
b. Reasonably possible
c. Remote

37. Contingent asset is only disclosed when it is probable. If it is only possible or

remote, no disclosure is required.
38. International term for Surplus is reserve
39. Relationships between parties and subsidiaries shall be disclosed regardless of
whether there have been transactions between those related parties
40. If there have been transactions between those related parties, an entity shall
disclose the nature of the related party relationship as well as information about
the amount of transactions, outstanding balances, provision for doubtful accounts,
and expense recognized in the current year necessary for an understanding of the
potential effect of the relationship on the FS.
41. Notes to FS shall be highly detailed, precise, complete and easily understood
42. An entity shall not describe FS as complying with PFRS unless they comply with
all the requirements of each applicable PFRS
43. Accounting standards set out the required recognition and measurement principles
that an entity shall follow in preparing its FS
44. Disclosure of judgements that management has made in the process of applying
accounting policies and that have a significant effect on the amounts
recognized( whether asset should be measured at FV or amortized cost, finance
lease or operating lease)
45. Disclosures(Nonfinancial):
a. Legal form/country of incorporation/address of principal place of business
b. Nature of entitys operations
c. Parent name or ultimate controlling entity

46. Control is the power to govern the financial and operating policies of an entity
47. Affiliates- parent, subsidiaries, fellow subsidiaries
48. Key management personnel-POSDICON
49. Close family members of individual are related parties
50. Related party transactions and outstanding balances are eliminated in the
preparation of Consolidated FS
51. Accounting recognition of a transfer of resources is normally based on the price
agreed upon between the parties. Between unrelated parties, there may be a
degree of flexibility in the price setting process
52. Close family members of an individual includes the spouse, children and
dependents.
53. Adjusting events:
a. Bankruptcy of customers
b. Sale of inventories gives evidence about NRV
54. Nonadjusting:
a. Business combination after the reporting period
b. Plan to discontinue an operation
c. Abnormally large changes in asset price and foreign exchange rates
d. Change in tax rate enacted
55. An entity shall disclose the date when the FS are authorized for issue and who
gave the authorization
56. If the entity’s owners or others have the power to amend the FS after issue, entity
shall disclose such fact
57. Development stage entity shall disclose cumulative net losses with a descriptive
title, “deficit accumulated during the development stage” in SHE
58. Comprehensive income includes:
a. profit/loss
b. other comprehensive income
59. Profit or loss is the bottom line in the traditional income statement
60. Other comprehensive income comprises items of income and expenses including
reclassification adjustments that are not recognized in profit/loss
a. Unrealized gains/loss on investment in equity instruments measured at fair
value through other comprehensive income
b. Gain/loss from translating the FS of a foreign operation
c. Change in revaluation surplus
 d. Unrealized gain/loss from derivative contracts designated as cash flow
hedge
e. Actuarial gains or loss on defined benefit plan in accordance with the full
recognition approach
61. Reclassification adjustments are amounts reclassified to profit/loss in the current
period that were recognized in other comprehensive income in the current or
previous periods.
62. Two options for presenting comprehensive income:
1. Two statements
a. Income statement-components of profit or loss
b. Statement of comprehensive income-begins with profit or loss(separate
statement)
2. Singe statement of comprehensive income—combined statement showing
components of profit/loss and components of other comprehensive income in
a single statement
63. Correction of errors and the effect of changes in accounting policies are accounted
for as adjustment of the beginning balance of retained earnings.
64. Information about entity’s profitability is useful in predicting the capacity of the
entity to generate cash flows from its existing resources.
65. Two approaches for capital maintenance:
a. financial capital-monetary value of net assets. Historical cost
b. Physical capital-quantitative measure. Current cost\
66. Productive assets include inventories and PPE
67. Transaction approach is the conventional or traditional preparation of FS in
conformity with PFRS. It is the matching approach. Offers detailed presentation
of all income and expenses.
68. Sources of income:
a. Sale of merchandise
b. Rendering of services
c. Use of entity’s resources
d. Disposal of resources other than products
69. Other income represents the revenue and gains from peripheral or incidental
transactions of the entity. Still part of the operating activities of the entity
70. Unusual and infrequent items of income and expenses are considered component
of income from continuing operations.
71. separate disclosure of items of income and expense include:
a. Writedowns
b. Reversals
c. Disposals
d. Discontinued operations
e. Litigation settlement
72. Statement of RE is now a part of statement of changes in equity
73. Income statement and statement of comprehensive income include:
a. Gains or loss from derecognition of FS measured at amortized cost
b. Profit or loss
74. Forms of income statement:
 a. Functional presentation—traditional and common form of income
statement. Cost of sales method (distribution and admin). It provides more
relevant information to users.
b. Nature of expense presentation—group all the expenses and income
75. Purpose of comprehensive statement is to provide a more comprehensive income
information on financial performance measured more broadly than the income as
traditionally computed
76. Net income is included in the determination of RE unappropriated. The Net Other
comprehensive income is carried to reserves or shown separately in the statement
of changes in equity
77. Associate and joint venture income accounted for using the equity method and
Gain or loss from derecognition of financial asset at amortized cost are line items-
separately shown.
78. A noncurrent asset or disposal group is classified as held for sale if its carrying
amount will be recovered principally through a sale transaction rather than
continuing use.
79. The group includes goodwill acquired in a business combination if the group is a
CGU to which the goodwill belongs.
80. An extension of the 1 year period does not preclude the asset or disposal group
from being classified as held for sale if the delay is caused by events or
circumstances beyond the entity’s control and there is sufficient evidence that the
entity remains committed to its plan to sell the asset.
81. Any cost to sell at classification date should be recognized as impairment loss for
the period and deducted from the asset held for sale
82. A plant is temporarily abandoned if a plant is maintained in workable condition
and it is expected that it will be brought back into use if demand picks up.
83. An entity shall measure a noncurrent asset that ceases to be classified as held for
sale at the lower of carrying amount that would have been recognized if the asset
had not been classified as held for sale and recoverable amount at the date of
subsequent decision not to sell.
84. The assets and liabilities of the group shall be presented separately and cannot be
offset as a single amount (e.g. noncurrent asset classified as held for sale and
liabilities directly associated with noncurrent assets held for sale)
85. A discontinued operation is defined as a component of an entity that either has
been disposed of or is classified as held for sale and: (1) represents a separate
major line of business (2) Is part of single coordinated plan to dispose assets (3) Is
a subsidiary acquired exclusively with a view to resale.
86. A component of an entity may be subsidiary, a major line of business or
geographical segment whose operations and cash flows can be clearly
distinguished operationally from the rest of the entity. It can be clearly
distinguished if its assets, liabilities, etc are directly attributable to the component
and it is directly attributable if they would be eliminated when the component is
disposed of.
87. A discontinued operation occurs when the operations and cash flows of that
component have been or will be eliminated from the ongoing operations of the
 entity and the entity will have no significant continuing involvement in that
component after its disposal
88. PFRS 5 prohibits the retroactive classification as a discontinued operation when
the discontinued criteria are met after the end of the reporting period.
89. Discontinued operation is accounted for as a “disposal group classified as held for
sale”
90. The results of discontinued operation, net of tax including impairment loss, gain
or loss from actual disposal and termination cost shall be presented as a single
amount in the income statement below the income from continuing operations.
91. If a disposal group is classified as held for sale in the current year, the results of
the disposal group fro prior period shall be represented as relating to discontinued
operation in the comparative income statement
92. If a disposal group is classified as held for sale in the current year, an entity shall
not reclassify or represent the assets and liabilities of the disposal group for the
prior period. Presentation of the assets and liabilities of the disposal group in the
prior period is not changed.
93. The net cash flows attributable to the activities of the discontinued operation shall
be separately presented in the statement of cash flows or disclosed in the notes.
94. If the assets to be abandoned constitute a major line of business or geographical
area of operations, they are reported in discontinued operations at the date on
which they are actually abandoned.
95. Examples of not changes in accounting policy:
A. Changes in accounting policy for transactions or events that
differ in substance
B. Application of new accounting policy for transactions that did
not occur previously or that were immaterial
96. A change in reporting entity is a change whereby entities change their nature and
report their operations in such a way that the financial statements are in effect
those of a different reporting entity. It is actually a change in accounting policy
and shall be treated retrospectively to disclose what the statements would have
looked like if the current entity had been in existence in the prior year
97. Hierarchy of guidance:
a. Requirements of current standards dealing with similar matters
b. Framework for the preparation and presentation of financial statements
c. Most recent pronouncements of other standard-setting bodies that use
similar framework, other accounting literature and accepted industry
practices.
98. Interim financial reporting means the preparation and presentation of financial
information for a period of less than one year. It may be presented monthly,
quarterly or semi-annually.
99. Quarterly interim reports are the most common although public traded entities are
encouraged to provide interim financial reports at least semiannually and such
reports are to be made available not later than 60 days after the end of interim
period
100. PAS34 does not mandate which entities are required to publish interim financial
reports, how frequently, or how soon after the end of an interim period
111. SEC and PSC require entities covered by the reportorial requirements of Revised
Securities Act and Rules on Commercial Papers and Financing Act to file quarterly
interim financial reports within 45 days after the end of each of the first three quarters
112. Two views in financial reporting:
a. Integral view—each interim period is an integral part of the annual accounting
period. Annual expenses are estimated and then allocated to the interim periods based on
forecasted revenue or sales volume. Cost incurred which clearly benefit the entire year
are allocated to the interim periods benefited. The results of subsequent interim periods
must be adjusted to reflect prior estimation errors. Estimation and allocation are
necessary to avoid creating misleading fluctuations in interim period income. It would
result to interim income which would be more indicative of the annual income and thus
useful in predicting future operations and making informed decisions.
b. Independent view—Each interim period is considered a separate accounting
period with status equal to a fiscal year. The same expense recognition rules shall apply
as under annual reporting and no special interim accruals or deferrals are permitted. No
estimations or allocations are made for interim purposes unless such estimations or
allocations are allowed for annual reporting.
113. Independent view argued that estimation and allocation may have undesirable effects
like a significant drop in an earnings trend during the year may be obscured.
114. Essentially, the standard adopts a mix of the integral and independent views.
115. The method of accounting for income tax and the recognition of commission and
warranty cost based on sales is an application of the integral view.
116. Direct cost and revenue are best accounted for as incurred and earned which equates
an independent view. On the other hand, Indirect costs are more likely to require an
allocation process which is suggestive of integral view.
117. PAS34 allows an entity to publish a set of condensed financial statements or
complete set of financial statements
118. Condensed means that each of the headings and subtotals presented in the entity's
most recent annual financial statement is required but there is no requirement to include
greater detail unless this is specifically required by PAS34
119. PAS 34 assumes that financial statement users have an access to the entity's most
recent annual report so it is a superfluity to provide the same notes in the interim financial
report.
120. At interim date, it would be meaningful to provide only an explanation of the events
and transactions that are significant to the understanding of the changes in financial
position and financial performance since the last annual reporting.
121. Presentation of comparative interim statements for income and comprehensive
statement is current and cumulatively(6 months ending and 3 months ending).
Presentation for changes in equity and cash flows is cumulatively only.
122. Major repairs, year-end bonuses, insurance, property taxes and depreciation are
allocated.
123. Depreciation and amortization for an interim period shall be based only on assets
owned during the interim period
124. Paid vacation and holiday leave shall be accrued for interim purposes because these
are enforceable as legal commitments.
125. Gains or losses shall not be allocated
126.