1. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
I. Overview of Financial Reporting
Information generated by accounting information systems are vital to the
assessment made by both internal and external users about the effectiveness and
efficiency of the company’s operations. Financial Reporting’s main goal is to provide
useful information to financial statement users so that proper decisions can be made. Data
presented should be comprehensive so that a good understanding of the entity's activities
is possible. Financial information should aid in the evaluation of the amounts, timing, and
uncertainties of cash flows. Also, financial reporting should furnish information about the
firm's economic resources, claims against those resources, owners' equity, and changes in
resources and claims. Hence, Financial Reporting in the Philippines is governed by
standards to ensure that these matters are made available in the Financial Statements.
Financial Reports does not mainly focus on financial matters regarding the
company. Nonfinancial information like financial ratios, financial highlights, financial
statement analysis, major product description, are also vital so that users of the financial
reports can have a proper assessment of the company’s operations.
Financial Statements are the means by which the information accumulated and
processed in the accounting system is communicated to users. The basic financial
statements of an enterprise include the 1) balance sheet (or statement of financial
position), 2) income statement, 3) cash flow statement, and 4) statement of changes in
owners' equity or stockholders' equity and 5) notes to financial statements. These
financial statements show all aspects of the operations of the business for the current
year, hence, it shows management’s stewardship in handling the company’s resources.
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2. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
II. Description of Financial Statements
Statement of Financial Position
The Statement of Financial Position is a financial statement that provides a
summary of a business's position at a given point in time, including its assets (economic
resources), its liabilities (financial debts or obligations), and its total or net worth. It is
used to evaluate the company’s liquidity, solvency, financial structure, and capacity for
adaptation.
Statement of Financial Performance
The Statement of Financial Performance presents the results of a company's
operations for a given reporting period. A company's net income for an accounting period
is measured as follows: Net income Revenues Expenses Gains Losses. It provides
information concerning return on investment, risk, financial flexibility, and operating
capabilities
Statement of Changes in Shareholders’ Equity
This statement explains the changes in a company's retained earnings over the
reporting period. They break down changes in the owners' interest in the organization,
and in the application of retained profit or surplus from one accounting period to the next.
Line items typically include profits or losses from operations, dividends paid, issue or
redemption of stock, and any other items charged or credited to retained earnings.
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3. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
Cash Flow Statement
A cash flow statement is a financial report that describes the source of a
company's cash and how it was spent over a specified time period. Because of the
varied accrual accounting methods companies may employ, it is possible for a company
to show profits while not having enough cash to sustain operations. A cash flow
statement neutralizes the impact of the accrual entries on the other financial statements. It
also categorizes the sources and uses of cash to provide the reader with an understanding
of the amount of cash a company generates and uses in its operations, as opposed to the
amount of cash provided by sources outside the company, such as borrowed funds or
funds from stockholders. The cash flow statement also tells the reader how much money
was spent for items that do not appear on the income statement, such as loan repayments,
long-term asset purchases, and payment of cash dividends.
Notes to Financial Statements
Notes to financial statements are additional notes and information added to the
end of financial statements to supplement the reader with more information. Notes to
financial statements help the computation of specific items in the financial statements as
well as provide a more comprehensive assessment of a company's financial condition.
Notes to financial statements can include information on debt, going concern,
accounts, contingent liabilities, or contextual information explaining the financial
numbers (e.g. to indicate a lawsuit).
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4. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
III. Proforma Financial Statements
PARAMOUNT CONSTUCTION SUPPLIES INC.
COMPARATIVE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR HOME OFFICE AND BRANCH
DECEMBER 31, 200A AND 200B
ASSETS NOTE 200A 200B
Current Assets
Cash and Cash Equivalents 3 XXX XXX
Trade and Other Receivables 4 XXX XXX
Inventories 5 XXX XXX
Prepaid Expenses 6 XXX XXX
Total Current Assets XXX XXX
Noncurrent Assets
Property, Plant and Equipment 7 XXX XXX
Other Noncurrent Assets 8 XXX XXX
Total Noncurrent Assets XXX XXX
TOTAL ASSETS XXX XXX
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade and Other Payables 9 XXX XXX
Accrued Expenses 10 XXX XXX
Loans Payable - Current Portion XXX XXX
Total Current Liabilities XXX XXX
Noncurrent Liabilities
Loans Payable - Noncurrent Portion XXX XXX
Deferred Tax Liability XXX XXX
Total Noncurrent Liabilities XXX XXX
TOTAL LIABILITIES XXX XXX
SHAREHOLDERS' EQUITY
Share Capital XXX XXX
Reserves 11 XXX XXX
Retained Earnings XXX XXX
TOTAL SHAREHOLDERS' EQUITY XXX XXX
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY XXX XXX
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5. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
PARAMOUNT CONSTUCTION SUPPLIES INC.
COMPARATIVE CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
FOR HOME OFFICE AND BRANCH
FOR THE YEARS ENDED DECEMBER 31, 200A AND 200B
NOTE 200A 200B
Sales XXX XXX
Cost of Goods Sold XXX XXX
Gross Profit XXX XXX
Other Income 12 XXX XXX
Total Income XXX XXX
Selling Expense 13 XXX XXX
Administrative Expenses 14 XXX XXX
Other Expenses 15 XXX XXX
Finance Cost 16 XXX XXX
Profit Before Tax XXX XXX
Income Tax XXX XXX
NET INCOME XXX XXX
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6. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
PARAMOUNT CONSTUCTION SUPPLIES INC.
COMPARATIVE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR HOME OFFICE AND BRANCH
FOR THE YEARS ENDED DECEMBER 31, 200A AND 200B
Share Retained
Capital Reserves Earnings Total Equity
200A 200B 200A 200B 200A 200B 200A 200B
Beginning Balance XXX XXX XXX XXX XXX XXX XXX XXX
Correction of Fundamental Errors XXX XXX XXX XXX
Changes in Accounting Policy XXX XXX XXX XXX
Adjusted Balance XXX XXX XXX XXX XXX XXX XXX XXX
Issuance of Shares above par XXX XXX XXX XXX XXX XXX
Profit for the Period XXX XXX XXX XXX
Dividends (XXX) (XXX) (XXX) (XXX)
Appropriation for Contingencies XXX XXX (XXX) (XXX)
Ending Balance XXX XXX XXX XXX XXX XXX XXX XXX
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7. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
PARAMOUNT CONSTUCTION SUPPLIES INC.
COMPARATIVE CONSOLIDATED CASH FLOWS STATEMENT
FOR HOME OFFICE AND BRANCH
FOR THE YEARS ENDED DECEMBER 31, 200A AND 200B
200A 200B
Cash Flow from Operating Activities
Cash Collected from customers XXX XXX
Cash payment for:
Purchase of inventories XXX XXX
Operating expenses XXX XXX
Selling and administrative expenses XXX XXX
Income tax XXX (XXX) XXX (XXX)
Net cash provided by operating activities XXX XXX
Cash Flow from Investing Activities
Purchase of equipment (XXX) (XXX)
Disposal of equipment XXX XXX
Net cash used in investing activities XXX XXX
Cash Flow from Financing Activities
Net borrowings XXX XXX
Issuance of shares XXX XXX XXX XXX
Payment of cash dividends XXX XXX
Interest Expense XXX XXX
Payment of principal XXX (XXX) XXX (XXX)
Net cash provided by financing activities XXX XXX
Net change in cash during the period XXX XXX
Cash, Beginning XXX XXX
Cash, End XXX XXX
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8. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
PARAMOUNT CONSTUCTION SUPPLIES INC.
Notes to Financial Statements
Note 1 General Information
PACO Supplies Inc. is the name behind the many prominent hardware stores that
caters a wholesale, retail and consignment of hardware and construction supplies. The
company is engaged in the sales and distribution of construction materials in Bacolod, as
well as in its outlying cities, towns and municipalities of Negros Occidental and Oriental.
It offers a complete line of structural building materials, such as cement, steel bars, G.I.
sheets, plywood and other hardware items. The company employs internal controls which
are strictly implemented to safeguard assets and to ensure that processes in its operation
are properly executed so as to maintain an environment that upholds integrity. Moreover,
it aims to eventually generate profit without sacrificing any morals and business ethics
that should be preserved in every transaction that takes place.
Note 2- Summary of Significant Accounting Policies
The accounting policies employed by the company as shown in the Financial
Statement are as follows:
Measurement Basis -The historical cost is the measurement basis used by the
company on which the entire financial statements are prepared.
Method of Accounting -The company uses the Accrual method of accounting in
recognizing revenue and expenses. Under this method, income is recognized when earned
regardless of when received and expense is recognized when incurred regardless of which
paid.
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9. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
Method of Depreciation -The company uses the straight line method of
accounting for depreciation. This is based on the theory that periods benefited by the use
of the asset should bear an equal or equitable share of the cost of the asset because this
method considers depreciation as a function of time than usage. Cost model for
accounting of properties are observed by the company.
Accounting for Inventories- The company uses the Perpetual system of
accounting for inventory. Under this method, the Inventory Master File shows the
summary of inventory movement.
Use of Estimates - The estimates employed by the company in the preparation of
the Financial Statements are made in conformity with the Philippine Financial Reporting
Standards.
Note 3 – Cash and Cash Equivalents
Cash on Hand Php XXX
Cash in Bank (Checking) XXX
Cash in Bank (Payroll) XXX
Petty Cash Fund XXX
Cash Equivalents XXX
TOTAL Php XXX
Note 4 – Trade and Other Receivables
Accounts Receivables Php XXX
Allowance for Doubtful Accounts (XXX)
Net Realizable Value Php XXX
Notes Receivables XXX
Interest Receivables XXX
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10. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
Advances to Officers and Employees XXX
Advances to Suppliers XXX
TOTAL Php XXX
Note 5 – Inventories
Merchandise Inventory Php XXX
Consigned Goods XXX
TOTAL Php XXX
Note 6– Prepaid Expenses
Prepaid Taxes and Licenses Php XXX
Prepaid Insurance XXX
Office Supplies XXX
TOTAL Php XXX
Note 7 – Property, Plant and Equipment
Land Php XXX
Land Improvements XXX
Accumulated Depreciation (Land Improvements) XXX XXX
Building XXX
Accumulated Depreciation (Building) XXX XXX
Office Furniture and Fixtures XXX
Accumulated Depreciation (Office Furniture and Fixtures) XXX XXX
Store Furniture and Fixtures XXX
Accumulated Depreciation (Store Furniture and Fixtures) XXX XXX
Delivery Trucks XXX
Accumulated Depreciation (Delivery Trucks) XXX XXX
TOTAL Php XXX
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11. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
Note 8 – Other Noncurrent Assets
Long Term Advances to Suppliers Php XXX
Long Term Advance to Officers XXX
Deferred Tax Assets XXX
TOTAL Php XXX
Note 9 – Trade and Other Payables
Accounts Payable Php XXX
Notes Payable (Current) XXX
Income Tax Payable XXX
Withholding Tax Payable XXX
Dividends Payable XXX
SSS, Philhealth and Employee Compensation Contribution XXX
Undelivered Goods XXX
TOTAL Php XXX
Note 10 – Accrued Expenses
Accrued Salaries and Wages Php XXX
Accrued Interest XXX
Accrued Utilities XXX
TOTAL Php XXX
Note 11 – Reserves
Asset Revaluation Surplus Php XXX
Appropriated Retained Earnings XXX
TOTAL Php XXX
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12. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
Note 12 – Other Income
Other Income Php XXX
Cash Overage XXX
TOTAL Php XXX
Note 13 – Selling Expenses
Sales Salaries Expenses Php XXX
Depreciation Expense (Store Furniture and Fixtures) XXX
Insurance Expenses (Delivery Trucks) XXX
Depreciation Expense (Delivery Trucks) XXX
Miscellaneous Selling Expenses XXX
TOTAL Php XXX
Note 14 – Administrative Expenses
Office Salaries Expense Php XXX
Doubtful Accounts Expense XXX
Legal Fees XXX
Office Supplies Expense XXX
Utilities Expense XXX
Repairs and Maintenance XXX
Depreciation Expense (Land Improvements) XXX
Depreciation Expense (Building) XXX
Depreciation Expense (Office Furniture and Fixtures) XXX
Provision for Income Tax XXX
Charitable Contribution Expense XXX
TOTAL Php XXX
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13. CHAPTER 11: FINANCIAL REPORTING
PARAMOUNT CONSTUCTION SUPPLIES INC.
Note 15 – Other Expenses
Other Expenses Php XXX
Cash Shortage XXX
TOTAL Php XXX
Note 16 – Finance Cost
Interest Expense Php XXX
Bank Charges XXX
TOTAL Php XXX
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