1. Financial statements vs. Consolidated right.

Kasi yung economic resource mismo is a

financial statements right that has the potential to produce benefits.
“Sir/Ma’am, financial statements po ng isang Halimbawa, right to receive cash.
entity cannot be used as a substitute for • Potential to produce economic
consolidated financial statements. Ibig sabihin, benefits – hindi lang siya basta right, dapat
kahit may sariling financial statements ang meron siyang capacity to generate benefits in
parent company, hindi ibig sabihin ay sapat na the future. Like cash that can be spent,
ito in place of consolidated reports. Kasi, sa inventory that can be sold, or equipment that
consolidated FS, pinapakita ang buong can help produce goods.
financial picture ng parent at ng subsidiaries • Control – importante po na the
niya as if they were a single economic entity. entity controls the right. Kahit may potential
Pero may cases po na ang parent ay required or benefits, kung wala naman siyang control,
minsan ay pinipili nilang gumawa rin ng hindi considered as asset ng entity.”
unconsolidated FS—ibig sabihin, hiwalay lang
yung sarili niyang statement, aside from the ⸻
consolidated. So parang dalawa: one for the
group, and one for the parent alone.” 4. Right (Types of Rights that Produce
Economic Benefits)
⸻ “Ngayon, pag sinabi po nating ‘right’, marami
pong klase nito. For example:
2. The Elements of Financial Statements a. Rights that correspond to an obligation of
“Yung elements po ng financial statements ay another party:
hinahati sa dalawang main categories: • Una, right to receive cash, goods, or
• Yung Assets, Liabilities, at Equity services — parang accounts receivable, kasi
— sila po yung nagre-represent ng financial may obligasyon yung ibang party na magbayad
position ng entity, o kung ano ang meron at or mag-deliver.
utang niya sa isang point in time. • Pangalawa, right to exchange
• Yung Income at Expenses naman — economic resources with another party on
sila po ang nagre-represent ng financial favorable terms — halimbawa po, options or
performance, o kung paano nagkaroon ng forward contracts, kasi may advantage yung
profit or loss ang entity during a period. entity.
So, basically, kapag tiningnan po natin ang FS, • Pangatlo, right to benefit from an
may dalawang dimension: position at obligation of another party if a specified
performance.” uncertain future event occurs — ito naman po
ay contingent rights, tulad ng insurance claims
⸻ or legal claims, kung saan may benefit kapag
nangyari ang certain event.
3. Asset (Definition and Aspects)
“Base po sa Conceptual Framework 4.3 and 4.4, So in short, hindi lang tangible things ang
an asset is defined as a present economic assets. Rights mismo, basta may potential
resource controlled by the entity as a result of economic benefit at nasa control ng entity, ay
past events. Ang keyword dito ay tatlong puwedeng i-consider as assets.”
importanteng aspects:
• Right – ibig sabihin po, asset is a ————
 ng lahat, hindi asset ng entity. Ganun din ang
1. Rights that do not correspond to an know-how na nasa public domain.”
obligation of another party
“Sir/Ma’am, hindi lahat ng rights ay naka-base ⸻
sa obligation ng ibang party. Meron ding rights
na independent, gaya ng: 4. Special cases (not assets)
• Right over physical objects — “Mayroon ding mga specific cases na malinaw
halimbawa, right to use a property or right to na hindi assets:
sell an inventory. • Treasury shares — kasi entity
• Right to use intellectual property — cannot have a right to obtain benefits from
gaya ng patent o copyright. itself.
• Debt or equity instruments between
Usually, ang mga rights na ito ay nag-a-arise parent and subsidiary — in consolidated
from law, contracts, or similar means. financial statements, hindi sila puwedeng
Halimbawa, yung right to use a property, i-record as asset or liability dahil essentially
puwedeng manggaling sa ownership mismo, or internal lang sila.”
kahit sa lease contract lang. Pwede ring
magmula sa iba pang paraan, gaya ng ⸻
pag-create ng know-how o trade secret.”
5. Each right as a separate asset
⸻ “Kung iisipin, bawat right ay theoretically
hiwalay na asset. Pero for accounting purposes,
2. Rights from consumption related rights ay pinagsasama na lang bilang
“Kapag naman ang goods or services ay isang asset. Halimbawa, pag may ownership ka
natatanggap at agad ding nako-consume, gaya ng physical object, marami kang rights: right to
ng supplies or employee services, yung right to use, to sell, to pledge. Pero sa accounting,
obtain benefits ay nag-e-exist lang considered siyang one set of rights, kaya isang
momentarily. Pagka-consume ng goods or asset lang.
services, wala nang right, kaya hindi na siya
asset.” Importanteng i-note: ang asset is not the
physical object itself, kundi yung set of rights
⸻ na attached sa object. Halimbawa, isang lessee
(umupa ng property) — wala siyang
3. Not all rights are assets ownership, pero may asset siya na tinatawag na
“Importanteng tandaan na hindi lahat ng rights right-of-use asset. Yun yung nire-recognize,
ay automatically considered as asset. Para hindi yung property mismo.”
maging asset, dapat:
• Yung right ay may potential na ⸻
mag-produce ng benefits na exclusive sa entity,
hindi yung benefit na available to all. 6. Uncertainty in rights
• At saka, dapat kontrolado ng entity “May cases din na uncertain ang existence ng
yung economic benefits. right, lalo na kapag disputed. For example,
may ongoing lawsuit kung saan questionable
Halimbawa, public road na pwedeng gamitin kung may karapatan talaga yung entity.
Hanggang hindi nare-resolve sa court or sa sa asset. On the other hand, puwede kang
agreement, hindi pa sure kung asset talaga magkaroon ng asset kahit wala kang ginastos,
yun.” gaya ng donations.

⸻ At saka, hindi rin kailangang sabay ang

acquisition ng asset at pagbabayad. Example:
7. Potential to produce economic benefits inventory purchased on account. Kahit hindi pa
“Ang asset ay yung present right, hindi yung bayad, asset na agad ang inventory kasi nasa
mismong future benefits. Hindi kailangan na entity na yung control at rights.”
certain or highly probable na mag-produce ng
benefits — basta may existing right na may at
least one possible scenario na magbibigay siya ⸻
ng economic benefit, asset na siya.
1. Control (for Assets)
Pero kung mababa ang probability, it will
affect recognition and measurement. So kahit “Sir/Ma’am, pagdating sa control, ibig sabihin
considered as asset, baka hindi siya i-recognize po nito ay yung entity ang may exclusive right
agad, or iba ang paraan ng pag-report.” sa benefits ng asset at kaya niyang pigilan ang
iba na maka-access doon. Ang rule po ay: kung
⸻ isang party ang may control, walang ibang
party na pwedeng mag-claim ng control sa
8. Ways assets can produce economic benefits parehong asset.
“May iba’t ibang paraan kung paano
nagpo-produce ng benefits ang asset: Importante rin pong i-clarify na ang control
• Puwede siyang ibenta, i-lease, hindi ibig sabihin guaranteed na palaging
i-transfer, or i-exchange. magbibigay ng benefits ang asset. Ang ibig
• Puwede siyang gamitin para sabihin lang ay, if ever magbigay ng benefits,
mag-produce ng goods or services. yung entity ang makikinabang, hindi ibang
• Puwede niyang i-enhance ang value party.
ng ibang assets.
• Puwede siyang gamitin para So, control ang nagli-link ng resource sa entity.
mag-improve ng efficiency or cost savings. Kapag walang control, hindi siya asset ng
• Or puwede rin siyang gamitin to entity. At kung partial lang ang control—for
settle a liability. example, joint ownership—accounted lang
yung parte na controlled ng entity, hindi yung
So, flexible ang ways ng economic benefit, buong resource.
basta nasa entity yung control.”
Usually, control galing sa legally enforceable
⸻ rights like ownership. Pero hindi lang
ownership ang basehan. Halimbawa:
9. Expenditure ≠ Asset • Car acquired through bank financing
“Lastly, hindi porke may ginastos, automatic – title nasa bank pa hanggang mabayaran,
asset na. Halimbawa, penalties for violating a pero asset pa rin ng Entity A kasi siya ang may
law — gastos siya, pero hindi siya nagreresult exclusive right to use at siya ang nakikinabang
sa benefits. clean up environmental damage para sa buong
• Consignment arrangement – kapag society), basta may duty, liability yun.
principal ang nagbigay ng goods sa agent,
physical possession mapupunta sa agent. Pero Normally, may symmetry sa accounting:
asset pa rin ng principal kasi siya pa rin ang obligation ng isa corresponds sa right ng isa.
may control. Yung agent, hindi puwedeng Halimbawa, accounts payable ng buyer =
i-record kasi wala siyang right sa benefits.” accounts receivable ng seller. Pero hindi palagi
itong symmetry maintained dahil minsan iba
⸻ ang measurement rules.
• Example: warranty obligation –
2. Liability (Definition) seller may recognize a liability, pero buyer
walang corresponding asset.”
“Ngayon naman po, punta tayo sa Liabilities.
Liability is defined as a present obligation of ⸻
the entity to transfer an economic resource as a
result of past events (Conceptual Framework 4. Uncertain obligations
4.26).
“May mga cases na uncertain kung may
Tatlong main aspects po ang nasa definition: obligation talaga. Halimbawa, ongoing court
1. Obligation case. Hanggang hindi resolved, hindi pa sure
2. Transfer of an economic resource kung liability exists.”
3. Present obligation as a result of past
events” ⸻

⸻ 5. Transfer of an economic resource

3. Obligation “Next, liabilities involve the potential to

transfer economic resources, not the actual
“Unahin po natin ang obligation. Ang ibig future benefit mismo.
sabihin ng obligation ay duty or responsibility
na wala nang practical ability to avoid ng Importante: hindi kailangang certain or likely
entity. ang transfer. Basta may scenario na maaaring
mangyari, liability na.
May dalawang klase ng obligation:
• Legal obligation – galing sa Examples ng transfer of resources:
contracts, legislation, or law. • Paying cash, delivering goods, or
• Constructive obligation – galing rendering services.
naman sa actions ng entity, gaya ng consistent • Exchanging assets on unfavorable
past practice or public policies na nag-create terms.
ng expectation sa ibang parties. • Transfer ng assets kapag may
specified uncertain future event.
Importanteng i-note na obligation ay laging • Issuing a financial instrument that
utang sa ibang party. Hindi man alam ang obliges transfer.
specific na party (halimbawa, obligation to
So kahit mababa ang probability, liability pa create a present obligation. Nagkakaroon lang
rin siya — pero maaapektuhan kung ng present obligation kapag naging onerous or
ire-recognize siya, paano siya ime-measure, at burdensome yung contract.
anong disclosures ang kailangan.” Example: Entity C committed to buy goods in
the future. Kung hindi pa burdensome, walang
⸻ liability. Pero kung naging obsolete yung
goods at hindi na pwedeng i-cancel ng walang
6. Present obligation from past events penalty, nagkakaroon ng obligation dahil
magiging disadvantageous sa entity.”
“Finally, para maging liability, kailangan ng
present obligation as a result of past events. ⸻
Dalawang criteria:
a. Nakakuha na ng economic benefits o 2. Constructive Obligation
nakagawa na ng action ang entity.
b. Dahil dito, mapipilitan na siyang “Mayroon ding mga constructive obligations.
mag-transfer ng resource na hindi naman niya For example, Entity D has a known policy of
kailangang i-transfer kung hindi dahil sa past giving free repairs. Kahit wala sa contract,
event. dahil consistent silang nagbibigay ng free
service, customers now expect it. That creates
Examples: a present obligation—kasi past practice ng
• Entity A plans to acquire goods in entity mismo ang nag-establish ng duty.”
the future → No present obligation pa, kasi
hindi pa natatanggap yung goods. Pag ⸻
na-deliver at natanggap na, doon lang
magkakaroon ng payable. 3. Obligations with Delayed Payment
• Entity B runs a nuclear power plant.
Nagkaroon ng bagong law this year about “Entity E borrowed money with repayment
waste disposal. Kung hindi pa siya nagviolate, due in 10 years. Kahit hindi pa due, meron
wala pa siyang present obligation. Pero kung nang present obligation kasi natanggap na niya
may past improper disposal na nangyari, yung benefits (loan proceeds). Meaning,
liability na agad kasi may damages na dapat liability na siya, kahit sa future pa ang actual
bayaran. transfer.”
• Entity C enters an irrevocable
commitment to acquire goods in the future on ⸻
credit. → Present obligation arises only pag
na-deliver na yung goods, kasi doon siya 4. Executory Contracts
magkakaroon ng duty to pay.”
“Entity F hired Mr. Juan. Habang hindi pa siya
⸻ nagse-serve, wala pang present obligation kasi
both sides have future duties. Ito ang tinatawag
1. Future Commitments at Onerous Contracts na executory contract—hindi pa equal ang
performance.
“Sir/Ma’am, normal business contracts for • Kapag si Juan nag-render ng service
future commitments do not automatically → magiging liability na ng entity yung salary
payable.
• Kapag si Entity F nagbayad ng Examples:
advance → magiging asset siya (advance to • Sale → increases both
employees), kasi may right na siyang makuha cash/receivable (asset) and income.
ang services. • Unearned income earned →
So ang executory contracts ay combined right liability decreases, income increases.
and obligation na nagiging asset kung • Accrued salaries → salaries
favorable, liability kung unfavorable.” expense increases, salaries payable (liability)
increases.
⸻ • Supplies used → expense increases,
cash (asset) decreases.
5. Equity
Minsan, may matching ng income and expense.
“Equity is defined as the residual interest in the Example: Sale of goods → sales income +
assets after deducting liabilities. Ibig sabihin, cost of sales expense sabay nire-recognize.”
equity = assets – liabilities. Applicable ito sa
lahat ng entity forms: sole proprietorship, ⸻
partnership, corporation, cooperative, etc.
7. Recognition and Derecognition
Pwede siyang i-subclassify, gaya ng:
• Share capital “Recognition is recording an item in the FS if
• Retained earnings it meets the definition of element and provides
• Reserves useful information (relevant and faithfully
represented). Ang amount na naka-record ay
Yung reserves minsan required by law (e.g., sa tinatawag na carrying amount.
cooperatives). Importante, yung transfer to
reserves ay hindi expense, kundi appropriation Statements are connected like this:
of retained earnings.” • Beginning: Assets – Liabilities =
Equity.
⸻ • During the year: Income –
Expenses = Change in equity.
6. Income and Expenses • Plus owner contributions and minus
distributions.
“Income and expenses are opposites: • Ending: Assets – Liabilities =
• Income = increase in assets or Equity.”
decrease in liabilities → leads to increase in
equity (except contributions from owners). Derecognition happens when an element no
• Expenses = decrease in assets or longer meets the definition or recognition
increase in liabilities → leads to decrease in criteria (halimbawa, asset disposed or liability
equity (except distributions to owners). settled).

Kaya ang contributions and distributions ng ⸻

owners ay adjustments to equity, hindi sila
income or expense.” 8. Recognition Criteria and Constraints
“Para ma-recognize, kailangan:
1. Meets the definition of asset, liability, ⸻
equity, income, or expense.
2. Provides useful information 1. Derecognition
(relevant + faithfully represented). • Meaning: Opposite ng recognition.
Kapag hindi na asset or liability (wala nang
Pero dapat i-consider din ang cost-benefit control, wala nang obligation), kailangan nang
principle—kung ang gastos sa pag-gather ng tanggalin sa FS.
information is greater than the benefit to users, • Assets: derecognized kapag:
pwedeng hindi siya i-recognize at i-disclose na • na-consume (e.g., supplies used),
lang sa notes (unrecognized assets or • na-collect (e.g., A/R settled),
liabilities). • na-expire (e.g., prepaid insurance
after coverage),
Uncertainty factors: • na-transfer (e.g., sale of equipment).
• Existence uncertainty (hindi • Liabilities: derecognized kapag
sigurado kung may asset/liability talaga). settled or fulfilled (e.g., bayad na ang utang).
• Low probability of inflows/outflows
(pero hindi ibig sabihin automatic na hindi Important:
recognized). • Derecognition results in either a
gain/loss kung may difference sa carrying
Pwede pa ring i-recognize kung magbibigay ng amount vs consideration received.
relevant at faithful representation, basta • Kung may retained component (e.g.,
properly measured.” may right pa na control kahit na-transfer),
hindi full derecognition, kaya hiwalay na “unit
⸻ of account.”

9. Faithful Representation and Measurement Quick Example:

Uncertainty • Utang = ₱100K. Binayaran mo ₱
90K at pinatawad na yung ₱10K.
“Faithful representation requires that the Derecognition ng ₱100K liability → record
information is complete, neutral, and free from ₱10K gain (income).
error. Pero in practice, may measurement
uncertainty. ⸻

Estimates are common and acceptable, pero 2. Unit of Account

kung sobrang taas ng uncertainty (e.g., very • Definition: Level kung saan
wide range of outcomes, highly sensitive ina-apply ang recognition at measurement.
estimates, subjective allocations), baka hindi • Hindi laging isa-isa, minsan
na siya useful or faithfully represented. grouped.

Kaya, judgment is always required—kung Levels:

makakatulong ba sa users ang pag-recognize • Individual item: e.g., isang Cash
ng item despite measurement difficulty.” account.
 • Group of assets: e.g., PPE as a right), controlled from past events.
whole.
• Mixed assets + liabilities: e.g., CGU Changes:
(Cash-Generating Unit) sa impairment tests. • No need for “expected” → kahit
low probability basta may potential.
Key Point: The chosen unit of account • Focus sa right mismo, not sa future
affects presentation, measurement, and inflow.
derecognition.
Impact: PFRS 16 (leases) → recognizes
Example: right-of-use asset, hindi lang “future
• A/R individually → mas accurate benefits.”
sa impairment.
• Pero minsan aggregated by portfolio ⸻
(e.g., consumer loans measured collectively
under PFRS 9). Liability
• Old: obligation from past event,
⸻ expected outflow.
• New: present obligation to transfer
3. Transfers an economic resource, from past events.
• Derecognition ≠ automatic kapag
nag-transfer. Changes:
• Kung substantial control retained, • Deleted “expected.” Kahit low
asset/liability remains recognized. probability, liability pa rin basta present
obligation.
Example: • Introduced “no practical ability to
• Nagbenta ng receivables pero may avoid obligation.”
recourse (pwede ibalik sa seller kung di
mabayaran). Hindi pa full derecognition kasi Example: Pending lawsuit → kahit 20%
retained risk/control. chance lang, liability pa rin kung may present
• Partial transfer: derecognize lang obligation.
yung portion na transferred.
⸻
Key Principle: Control > legal form. Kahit
may sale contract, kung may retained Recognition
rights/obligations, hindi pa full derecognition. • Old: definition + probable
inflow/outflow + reliable measurement.
⸻ • New: definition + provides relevant
& faithfully represented info.
4. Old vs New Conceptual Framework
Changes:
Asset • Deleted “probable” → kaya
• Old: resource from past events, with minsan kahit low probability asset/liability
expected future economic benefits. (disclosed).
• New: present economic resource (a • Deleted “reliable” → instead,
focus on faithful representation with disclosure Historical Cost (Entry Price at acquisition
of uncertainties. date)
• Assets: purchase price + transaction
Impact: Standards now recognize more costs, adjusted for depreciation/impairment.
items kahit uncertain (e.g., contingent • Liabilities: proceeds received –
assets/liabilities with disclosure). transaction costs, adjusted for
payments/interest accrual.
⸻
Pros: simple, stable, verifiable.
Derecognition Cons: outdated if prices change a lot.
• Old: halos walang guidance.
• New: clarified rules (asset Example: PPE purchased ₱1M → after
derecognized if expired, consumed, collected, depreciation, ₱600K carrying value kahit
or transferred). market price ₱2M.

⸻ ⸻

Equity, Income, Expenses Current Value (Reflects measurement date

• Retained definitions, pero: conditions)
• Income/expenses simplified (no 1. Fair Value (Exit Price,
“revenues & gains” distinction). market-based):
• Expenses simplified (no “expenses • What others would pay to buy the
& losses” distinction). asset or take over liability.
• OCI introduced as separate category. • Excludes transaction costs.
• Example: Quoted share price ₱
Impact: FS ngayon mas simple at globally 120/share.
comparable. 2. Value in Use / Fulfilment Value
(Entity-specific, PV-based):
⸻ • Value in use = PV of future inflows
from asset use.
5. Measurement in General • Fulfilment = PV of future outflows
• After recognition, kailangan ng to settle liability.
monetary quantification. • Includes transaction costs.
• Measurement basis depends on • Example: Factory expected inflows
nature of item + relevance/faithful ₱10M, PV = ₱7M → that’s the value in use.
representation. 3. Current Cost (Entry Price, market
condition today):
Core idea: No single basis is perfect → • How much to reacquire asset or
kaya Standards specify which to use. incur liability today.
• Example: PPE replacement today =
⸻ ₱2M (kahit ₱1M lang dati).

6. Measurement Bases ⸻
7. Entry vs Exit Values ⸻
• Entry values: Historical cost, Current
cost. 10. Initial Measurement
• Exit values: Fair value, Value in use, • Market terms: usually cost ≈ FV
Fulfilment value. (e.g., cash purchase).
• Non-market terms: use “deemed
Use: Entry shows acquisition perspective, cost” (e.g., related party transactions, gov’t
Exit shows realization/settlement perspective. grants).

⸻ ⸻

8. Selecting Measurement Basis 11. Multiple Measurement Bases

• Pwede dual approach:
Criteria: • FS: use one measurement (e.g.,
1. Relevance: Does it capture cost).
contribution to future CFs? • Notes: disclose another (e.g., fair
• PPE = historical cost (operational, value).
not traded).
• Investments = fair value Example: Investment property (cost model
(market-sensitive). in FS, FV in notes).
2. Faithful Representation: Reliable
kahit uncertain? ⸻
• FV in active market = high
reliability. 12. Measurement of Equity
• Value in use = subjective, depends • Equity = Assets – Liabilities
on assumptions. (residual).
3. Qualitative characteristics: • Some components directly measured
Comparability, verifiability, understandability. (e.g., share capital), pero retained earnings is
4. Cost Constraint: Info benefit must just balancing figure.
outweigh measurement cost. • Pwede maging negative equity if
liabilities > assets.
⸻
⸻
9. Measurement Uncertainty
• Happens if price is unobservable → Summary (Quick Answer to Prof):
need estimation. • Derecognition: Remove
• But uncertainty ≠ rejection. Pwede asset/liability when no longer qualifies →
pa rin basta may clear disclosure of gain/loss if transferred.
assumptions. • Unit of Account: Level of
application (item, group, CGU).
Example: Valuation of unlisted startup • Transfers: No derecognition if
shares → subjective, pero still valid if control retained.
explained. • Old vs New Framework: From rules
(probable, reliable) → to principles (useful,
faithful). yung “no more than likely” amount.
• Measurement: Historical cost (stable) • Example: Sa sorted list [13, 13, 13, 14,
vs Current values (fair, entity-specific, or 14, 16, 18, 21] → median = 14.
replacement). 3. Statistical Mode (Most Frequent
• Equity: Always residual. Outcome)
• Key Principle: Best measurement = • Yung outcome na pinaka-madalas
most relevant + faithfully represented, lumabas.
considering cost/benefit. • Useful kung may isang value na
madalas mangyari kahit may ibang extreme
values.
⸻ • Example: Kung karamihan ng
forecast ay ₱13, kahit may lumabas na ₱18 at
1. Cash-flow-based Measurement Techniques ₱21, ang pinaka-likely ay ₱13.

Ginagamit kapag hindi directly observable Important Note: In real accounting, hindi
ang fair value o measurement ng isang lang basta mean/median/mode ang basehan.
asset/liability. Kailangan din:
• Example: kung may investment ka sa • Probabilities (likelihood ng
startup na wala pang active market price, occurrence).
kailangan mong mag-estimate ng possible • Risk adjustments (uncertainty).
future cash inflows/outflows. • Time value of money (present value
vs future value).
Central Estimates (tatlong approach):
1. Statistical Mean (Expected Value / ⸻
Probability-Weighted Average)
• Formula: Σ (possible outcome × 2. Presentation & Disclosure
probability).
• Pinaka-accurate kapag maraming Presentation = paano naka-layout ang
possible outcomes. financial statements.
• Ginagamit kung lahat ng possible Disclosure = additional notes/footnotes for
outcomes may chance na mangyari. clarification.
• Example: Kung may 40% chance na Purpose = effective communication sa
kumita ka ng ₱100, at 60% chance kumita ng users (investors, creditors, regulators).
₱200 → Expected Value = (100×0.4 + 200×0.6)
= ₱160. Principles of Effective Communication:
• Use: Good for risk assessment kasi 1. Focus on objectives & principles,
weighted by probability. not rules.
2. Statistical Median (Middle Value) • Mas mahalaga na relevant and
• Middle point of the data kapag faithful ang info kaysa sundin lang ng literal
naka-order. yung rules.
• Reflects the point where there’s 50% 2. Group similar items, separate
chance na mas mababa, 50% chance na mas dissimilar items.
mataas. • Example: Cash vs Accounts
• Useful kung gusto mong ipakita receivable → ihiwalay kasi magkaiba
function and liquidity. Offsetting = netting assets & liabilities
3. Avoid too much detail (overload) • Generally prohibited kasi
OR too much summarization (loss of info). magkaibang nature.
• Example: Hindi lahat ng expenses • Example:
iisa lang na “Operating Expenses.” Pwede • A/R ₱100,000 and A/P ₱90,000 →
pang hatiin into Selling, Admin, etc. dapat i-report separately, hindi as ₱10,000.
4. Entity-specific info > boilerplate. • Allowed lang kung specifically
• Hindi pwede copy-paste lang ng required by Standards (e.g., certain derivatives
generic wording. Dapat tailored sa actual under PFRS 9).
company.
5. Avoid duplication. Equity Classification
• Huwag i-ulit-ulit ang same info sa • Hiwalay dapat ang components:
main FS at notes. • Share Capital (investment ng
owners).
Objectives: • Retained Earnings (accumulated
• Flexibility: Pwede mag-adjust sa profit not distributed).
nature ng entity. • Other Reserves (statutory or
• Comparability: revaluation reserves).
• Intra-comparability = within the
same entity across different periods. Income & Expenses Classification
• Inter-comparability = between • Either:
different companies in same period. 1. Profit or Loss (P&L): Main indicator
of earnings (revenues – expenses).
⸻ 2. Other Comprehensive Income (OCI):
Items that bypass P&L pero still affect equity
3. Classification, Aggregation & Offsetting (e.g., unrealized FV gains/losses, FX
translation).
Classification = sorting of items • Reclassification (recycling): minsan
• Basis: nature, function, pwedeng lumipat from OCI → P&L kapag
measurement. realized.
• Example:
• Assets → Current (Cash, A/R, ⸻
Inventory) vs Noncurrent (PPE, Intangibles).
• Liabilities → Current (A/P, 4. Concepts of Capital & Capital Maintenance
short-term debt) vs Noncurrent (long-term
loan). Concepts of Capital
1. Financial Capital Concept = capital
Aggregation = combining similar items = money or net assets.
• Para mas simple at hindi sobrang • Focus: invested money or
detalye ang FS. purchasing power.
• Example: “Trade and Other • Most entities use this kasi mas
Receivables” = Accounts receivable + Notes madaling i-apply.
receivable + Advances. 2. Physical Capital Concept = capital =
productive capacity.
 • Focus: ability to produce • End: ₱240
goods/services (e.g., output per day).
1. Financial Capital Maintenance
⸻ (Nominal):
Profit = 240 – 100 = ₱140.
Concepts of Capital Maintenance 2. If Manong ate balut worth ₱10:
Profit = 240 + 10 – 100 = ₱150 (kasi eating is
Important kasi dito nakabase kung paano distribution to owner).
i-calculate ang “profit.” 3. Constant Purchasing Power:
1. Financial Capital Maintenance Profit depends on inflation adjustment (not
• Profit = increase in net assets over a computed in example).
period (excluding owner
contributions/distributions). ⸻
• Two ways:
• Nominal monetary units: Walang In short:
inflation adjustment. • Cash-flow techniques = estimation
• Constant purchasing power: tools (mean, median, mode).
Adjusted for inflation. • Presentation & disclosure = about
• Example: ₱240 end – ₱100 beg = communication, relevance, comparability.
₱140 profit. •
2. Physical Capital Maintenance Classification/Aggregation/Offsetting =
• Profit = increase in entity’s grouping, simplification, and rules on netting.
productive capacity. • Capital maintenance = defines what
• Requires current cost accounting. counts as “profit” vs just “return of capital.”
• All price changes = capital
maintenance adjustment (part of equity, not
profit).

Effect of Capital Maintenance Concept

• Financial Capital (Nominal):
Holding gains (price increases) = profit kapag
sold.
• Financial Capital (Constant PP):
Only gains beyond inflation = profit, rest =
equity adjustment.
• Physical Capital: All holding gains =
equity adjustment, not profit.

Story: Manong Magbabalut

• Beg: ₱100