INTERMEDIATE ACCOUNTING 3

Course Outline
Financial Statements – General Features
Lecture 01
 A.F. ISIP
INTERMEDIATE ACCOUNTING PART 3
Course Outline

√ 1. Financial Statements – General Features

√ 2. Statement of Financial Position (Balance Sheet)
√ 3. Statement of Financial Performance (Income Statement)
√ 4. Statement of Changes in Equity
√ 5. Statement of Cash Flows
√ 6. Accounting Policies, Changes in Accounting Estimates & Errors
√ 7. Earnings Per Share
√ 8. Operating Segments
√ 9. Related Party Disclosures
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 A.F. ISIP
INTERMEDIATE ACCOUNTING PART 3
Course Outline
(Continuation)

√ 10. Financial Reporting in Hyperinflationary Economies

√ 11. Interim Financial Reporting
√ 12. Cash to Accrual and Single Entry
√ 13. Medium Sized Entities
√ 14. Small and Micro-Entities

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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION

As 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
(more….) 4
 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)

√ h) Trade and other receivables

√ i) Cash and cash equivalents
√ j) The total assets classified as held for sale and assets included in
disposal groups, classified as held for sale in accordance with PFRS
No. 5 (non-current assets held for sale and discountinued operations).
k) Trade and other payables
√ l) Provisions
√ (more….)

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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)

√ 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

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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)

Notes:
• Financial assets in this context generally refers to short and long term
investments (investment in stocks or bonds).
• Investments using equity method:
a) When A Corporation Invested in the shares of stocks of B
Corporation, and the ownership of A is 25%, that means, A has
significant influence in B.
b) If A has significant influence over B, the equity method of valuing
investment should be followed.
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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)
Notes:
c. Under the equity method, of investment, the share in net
income was added to the cost of investment, while share in
dividends was deducted.
d. The logic behind in this computation is the procedure in
retained earnings wherein net income is added, while
dividend declaration is deducted.
Supposing an investor has less than 20% ownership in the shares in the
company, would that mean that automatically, he has no significant
influence? 8
 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)
Notes:

As a general rule, if an investor holds less than 20% in the shares of a

company, he cannot exercise influence. However, there are some
instances than an investor has less than 20% investment and can still
exercise significant influence because of business connections and
political inclinations.

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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)
Example of Equity Method:
Amanda Company purchased 25% of the shares of stocks of Xyra
Company for P2,000,000 on January 2, 2021. At the end of 2021, Xyra
Company reports a net income of P500,000 and pays P100,000 in
dividends to its shareholders.
√ 1. What is the journal entry on the books of Amanda Company for her
investment in Xyra Corporation?
√ 2. What is the journal entry on December 31, 2021 to adjust the value of
Amanda’s investment? 10
 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)
Example of Equity Method - Solution:

1. What is the journal entry on the books of Amanda Company for her
investment in Xyra Corporation?
Investment in Xyra Corp (or Financial Asset) P2,000,000
Cash P2,000,000
To record the 25% investment in the
ownership of Xyra Corporation.
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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)
Example of Equity Method - Solution:

2. What is the journal entry on December 31, 2021 to adjust the value of
Amanda’s investment?
Investment in Xyra Corp (25%xP500,000) P125,000
Income from investment P125,000
To record the 25% share in the net
income of Xyra Corporation.
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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)
Example of Equity Method - Solution:

2. What is the journal entry on December 31, 2021 to adjust the value of
Amanda’s investment?
Cash P25,000
Investment in Xyra Corporation P25,000
To record the dividend received from
Xyra Corporation (25%xP100K)
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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)
Example of Equity Method - Solution:
New Balance of Investment in Xyra Corporation:
Investment in Xyra Corporation
P2,000,000 P25,000
125,000
P2,125,000 P25,000
P2,100,000
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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)

The total assets classified as held for sale and assets included in disposal
groups, classified as held for sale in accordance with PFRS No. 5 (non-
current assets held for sale and discountinued operations)

PFRS 5 paragraph 6, provides that a non-current asset or disposal group is

classified as held for sale if the carrying amount will be recovered
principally through a sale transaction rather than continuing usage.

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 A.F. ISIP
INFORMATION TO BE PRESENTED IN THE STATEMENT OF FINANCIAL
POSITION (…continuation)

• This is mostly applicable to fully depreciated and non-performing

assets.
• The basic function of management is to look for the best
opportunities.
• That’s why, obsolete machines, equipment and computers were
considered opportunities when classified as non-current assets held
for sale.
• Instead of simply disposing to trash, these can be sold and converted
to cash.
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To be continued….

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