2
Financial statements — Statement of
Financial Position (the Balance Sheet)
5-1
STATEMENT
STATEMENT OF
OF FINANCIAL
FINANCIAL POSITION
POSITION
Statement of financial position, also referred to as the
balance sheet:
1. Reports assets, liabilities, and equity at a specific date.
2. Provides information about resources, obligations to
creditors, and equity in net resources.
3. Helps in predicting amounts, timing, and uncertainty of
future cash flows.
5-2
STATEMENT
STATEMENT OF
OF FINANCIAL
FINANCIAL POSITION
POSITION
Usefulness
Computing rates of return.
Evaluating the capital structure.
Assess risk and future cash flows.
Assess the company’s:
► Liquidity,
► Solvency, and
► Financial flexibility.
5-3
STATEMENT
STATEMENT OF
OF FINANCIAL
FINANCIAL POSITION
POSITION
Limitations
Most assets and liabilities are reported at historical
cost when fair value model is not in use.
Use of judgments and estimates.
Many items of financial value
are omitted.
5-4
CLASSIFICATION IN THE STATEMENT
Elements of the Statement of Financial Position
ASSET LIABILITY EQUITY
Resource controlled by the entity.
Result of past events.
Future economic benefits are expected to flow to the
entity.
5-5
CLASSIFICATION IN THE STATEMENT
Elements of the Statement of Financial Position
ASSET LIABILITY EQUITY
Present obligation of the entity.
Arising from past events.
Settlement is expected to result in an outflow of
resources embodying economic benefits.
5-6
CLASSIFICATION IN THE STATEMENT
Elements of the Statement of Financial Position
ASSET LIABILITY EQUITY
Residual interest in the assets of the entity after
deducting all its liabilities.
5-7
CLASSIFICATION IN THE STATEMENT
Subclassifications
A recent survey shows that companies are moving toward reporting current
assets first on the statement of financial position, which is a change from a few
years ago.
5-8
CLASSIFICATION IN THE STATEMENT
Non-Current Assets
Generally consists of:
Long-term Investments
Property, Plant, and Equipment
Intangibles Assets
Other Assets
5-9
CLASSIFICATION IN THE STATEMENT
Long-term Investments
1. Securities (bonds, ordinary shares, or long-term notes).
2. Tangible assets not currently used in operations (land held
for speculation).
3. Special funds (sinking fund, pension fund, or plant
expansion fund).
4. Non-consolidated subsidiaries or associated companies.
5-10
CLASSIFICATION IN THE STATEMENT
Investments in Debt and Equity Securities
Portfolio Type Valuation Classification
Held-for- Current or
Debt Amortized Cost
Collection Non-current
Trading Debt or Equity Fair Value Current
Non-Trading Current or
Equity Equity Fair Value
Non-current
5-11
CLASSIFICATION IN THE STATEMENT
Long-Term Investments
5-12
CLASSIFICATION IN THE STATEMENT
Property, Plant, and Equipment
Tangible long-lived assets used in the regular operations of
the business.
Physical property such as land, buildings, machinery,
furniture, tools, and wasting resources (minerals).
With the exception of land, a company either depreciates
(e.g., buildings) or depletes (e.g., oil reserves) these
assets.
5-13
CLASSIFICATION IN THE STATEMENT
Property, Plant, and Equipment
5-14
CLASSIFICATION IN THE STATEMENT
Intangible Assets
Lack physical substance and are not financial instruments.
Patents, copyrights, franchises, goodwill, trademarks,
trade names, and customer lists.
Amortize limited-life intangible assets over their useful
lives.
Periodically assess indefinite-life intangibles for
impairment.
5-15
Intangible Assets
5-16
CLASSIFICATION IN THE STATEMENT
Other Assets
Items vary in practice. Can include:
Long-term prepaid expenses
Non-current receivables
Assets in special funds
Property held for sale
Restricted cash or securities
5-17
CLASSIFICATION IN THE STATEMENT
Current Assets
Cash and other assets a company expects to convert
into cash, sell, or consume either in one year or in the
operating cycle, whichever is longer.
5-18
CLASSIFICATION IN THE STATEMENT
Inventories
Disclose:
Basis of valuation (e.g., lower-of-cost-or-net realizable
value).
Cost flow assumption (e.g., FIFO or average cost).
5-19
Inventories
5-20
CLASSIFICATION IN THE STATEMENT
Receivables
Major categories of receivables should be shown in the
balance sheet or the related notes.
A company should clearly identify
Anticipated loss due to uncollectibles.
Amount and nature of any non-trade receivables.
Receivables used as collateral.
5-21
Receivables
5-22
CLASSIFICATION IN THE STATEMENT
Prepaid Expenses
Payment of cash, that is recorded as an asset because
service or benefit will be received in the future.
Cash Payment BEFORE Expense Recorded
Prepayments often occur in regard to:
Insurance Rent
Supplies Taxes
Advertising
5-23
Prepaid Expenses
5-24
CLASSIFICATION IN THE STATEMENT
Short-Term Investments
Portfolio Type Valuation Classification
Held-for- Current or
Debt Amortized Cost
Collection Non-current
Trading Debt or Equity Fair Value Current
Non-Trading Current or
Equity Equity Fair Value
Non-current
5-25
Short-Term Investments
5-26
CLASSIFICATION IN THE STATEMENT
Cash
Generally any monies available “on demand.”
Cash equivalents - short-term highly liquid investments
that mature within three months or less.
Restrictions or commitments must be disclosed.
5-27
Cash
5-28
CLASSIFICATION IN THE STATEMENT
Equity
5-29
Equity
5-30
CLASSIFICATION IN THE STATEMENT
Non-Current Liabilities
Obligations that a company does not reasonably expect to
liquidate within the longer of one year or the normal operating
cycle. Three types:
1. Obligations arising from specific financing situations.
2. Obligations arising from the ordinary operations of the
company.
3. Obligations that depend on the occurrence or non-
occurrence of one or more future events to confirm the
amount payable, or the payee, or the date payable.
5-31
Non-Current Liabilities
5-32
CLASSIFICATION IN THE STATEMENT
Current Liabilities
Obligations that a company generally expects to settle in its
normal operating cycle or one year, whichever is longer.
Includes:
1. Payables resulting from the acquisition of goods and services.
2. Collections received in advance for the delivery of goods or
performance of services.
3. Other liabilities whose liquidation will take place within the
operating cycle or one year.
5-33
Current Liabilities
5-34
CLASSIFICATION IN THE STATEMENT
Statement of Financial Position Format
IFRS does not specify the order or format of the
items in the statement.
Two general forms:
► Account form
● Assets on left side
● Equity and liabilities on right side
► Report form
5-35
Statement of
Financial
Position Format
Report Form
lists the sections
one above the other.
5-36