CFAS: Key Principles of Financial Statement Preparation
Statement of Financial Position - correct answer ✔✔It presents the financial position of the entity as of a
given reporting date, comprising of assets, liabilities and equity.
Statement of Comprehensive Income - correct answer ✔✔It presents the performance of an entity for a
given reporting period. Two components of it are presented: Profit or Loss and Other Comprehensive
Income.
Statement of Cash Flows - correct answer ✔✔It presents the historical changes in cash and cash
equivalents during a reporting period.
Statement of Changes in Equity - correct answer ✔✔It presents the events that cause changes in equity
and include profit or loss, other comprehensive income and transactions with owners of the enterprise.
Notes to the Financial Statements - correct answer ✔✔It presents the accounting policies adopted by
the management, schedules to support the balances presented on the face of the financial statements
and other information that may be relevant to the users but is not appropriately presented on the face
of the financial statements.
Financial Statements - correct answer ✔✔They portray the economic activities and the result of the
economic activities undertaken by the enterprise during a reporting period. They are generated
internally by an enterprise and are communicated to those who would use them as basis for economic
decisions. They are basically the representation of the company's management.
Accounting Policies - correct answer ✔✔These affect the presentation of financial statements to a large
extent as adopted by the management. They are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing financial statements. It should be in compliance with the
financial reporting frameworks.
Statements of Cash Flows - correct answer ✔✔Financial statements except this are prepared applying
the accrual basis.
Current Assets - correct answer ✔✔Paragraph 66, IAS 1 Presentation of Financial Statements
, a) It is expected to be realized in, or is intended for sale or consumption in the entity's normal operating
cycles;
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 a cash equivalent, unless it is restricted from being exchanged or used to settle a liability
for at least twelve months from the end of the reporting period.
Operating Cycle - correct answer ✔✔It is the time between the acquisition of assets for processing and
their realization in cash or cash equivalents.
*When the entity's normal operating cycle is not clearly identifiable, it is assumed to be twelve months
(paragraph 68, IAS 1). A manufacturing entity's normal operating cycle is presented overleaf.
Current Liabilities - correct answer ✔✔Paragraph 69, IAS 1
a) It is expected 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 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.
Equity - correct answer ✔✔Its presentation on the statement of financial position depends on the form
of business organization according to ownership.
A statement of financial position of a sole proprietorship presents only the capital account of the
proprietor.
The same is true with the statement of financial position of a partnership, except that the equity
balances consist of the sum of the capital and drawing accounts of each partner (if the balances of the
drawing accounts are not permanently transferred to capital), and each partner's equity is presented
separately.
Statement of Financial Position - correct answer ✔✔It presents the financial position of the entity as of a
given reporting date, comprising of assets, liabilities and equity.
Statement of Comprehensive Income - correct answer ✔✔It presents the performance of an entity for a
given reporting period. Two components of it are presented: Profit or Loss and Other Comprehensive
Income.
Statement of Cash Flows - correct answer ✔✔It presents the historical changes in cash and cash
equivalents during a reporting period.
Statement of Changes in Equity - correct answer ✔✔It presents the events that cause changes in equity
and include profit or loss, other comprehensive income and transactions with owners of the enterprise.
Notes to the Financial Statements - correct answer ✔✔It presents the accounting policies adopted by
the management, schedules to support the balances presented on the face of the financial statements
and other information that may be relevant to the users but is not appropriately presented on the face
of the financial statements.
Financial Statements - correct answer ✔✔They portray the economic activities and the result of the
economic activities undertaken by the enterprise during a reporting period. They are generated
internally by an enterprise and are communicated to those who would use them as basis for economic
decisions. They are basically the representation of the company's management.
Accounting Policies - correct answer ✔✔These affect the presentation of financial statements to a large
extent as adopted by the management. They are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing financial statements. It should be in compliance with the
financial reporting frameworks.
Statements of Cash Flows - correct answer ✔✔Financial statements except this are prepared applying
the accrual basis.
Current Assets - correct answer ✔✔Paragraph 66, IAS 1 Presentation of Financial Statements
, a) It is expected to be realized in, or is intended for sale or consumption in the entity's normal operating
cycles;
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 a cash equivalent, unless it is restricted from being exchanged or used to settle a liability
for at least twelve months from the end of the reporting period.
Operating Cycle - correct answer ✔✔It is the time between the acquisition of assets for processing and
their realization in cash or cash equivalents.
*When the entity's normal operating cycle is not clearly identifiable, it is assumed to be twelve months
(paragraph 68, IAS 1). A manufacturing entity's normal operating cycle is presented overleaf.
Current Liabilities - correct answer ✔✔Paragraph 69, IAS 1
a) It is expected 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 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.
Equity - correct answer ✔✔Its presentation on the statement of financial position depends on the form
of business organization according to ownership.
A statement of financial position of a sole proprietorship presents only the capital account of the
proprietor.
The same is true with the statement of financial position of a partnership, except that the equity
balances consist of the sum of the capital and drawing accounts of each partner (if the balances of the
drawing accounts are not permanently transferred to capital), and each partner's equity is presented
separately.
