STATEMENT OF FINANCIAL POSITION

Statement of Financial Position (SFP)

- formal statement showing the assets, liabilities and equity of an entity.

Current and Non-current- two classifications of Assets and Liabilities presented in the SFP. (PAS)

Assets – present economic resources controlled by the entity as a result of past events.

An item is recognized/ recorded in the books as an ASSET if:

(a) it its probable that future economic benefits will flow to the entity, and
(b) it can be measured reliably.

Assets are classified as current when:

- The asset is cash or cash equivalent unless the asset is restricted to settle a liability for more than 12
months after the reporting period. (Cash on hand, petty cash fund, change fund, cash in bank not
restricted for use, and investments which have maturity of three months or less from date of acquisition
like 3-month time deposit, treasury bill and money market instrument.

- The entity holds the asset primarily for purpose of trading. (Ex. Trading securities, financial assets at Fair
value through Profit or Loss)

- The entity expects to realize the asset within twelve months after the reporting period. (Ex. Non-trade
receivables such as Claims receivable, interest receivable, Advances to Officers & employees, subscriptions
receivable, if collectible within a year, dividends receivable, rent receivable, notes receivable, investment
in bonds with maturity of 12 months or less, sinking fund with maturity of 12 mos. or less than, etc.)

- The entity expects to realize the asset or intends to sell or consume it within the entity’s normal operating
cycle. (Ex. Trade receivables – A/R and N/R, inventories, prepayments such as prepaid
insurance/rent/premium)

- Operating cycle of an entity – the time between the acquisition of assets from processing and their
realization in the cash or cash equivalents.

Note: Current assets are presented/listed in the SFP in the order of liquidity, hence, Cash being the most
liquid always comes first.

Cash

is invested in raw materials through Which are converted into cash

cash purchase/on account
through collection
 Which are manufactured into Which are sold in
finish products. (Through exchange for receivables
production) (through sale)
(rm, wip, fg)

A manufacturing entity’s normal operating cycle

Non-current Assets
- All other assets not classified as current assets.

Property, plant and equipment – Ex. Land, Building, improvements, machinery, equipment, furniture &
fixtures, motor vehicle, etc.

Long-term investments - Ex. investment in equity securities, investment property, investment in associate,
investment in subsidiary, investment in bonds, sinking fund, investment in joint venture, cash surrender
value, Advances to affiliates, Plant Expansion Fund, etc.

Intangible Assets - Ex. Patent, franchise, copyright, royalties, trademark, computer software, goodwill

Other Non-current assets – Ex. Notes Receivables, Refundable deposits, Deferred tax asset, long term
advances to Officers and Employees

Liabilities
- Present obligations of an entity to transfer an economic resource as a result of past events

A liability is classified as current if:

- The entity expects to settle the liability within the entity’s normal operating cycle. (Ex. Trade Payable
such as Accounts, Notes Payable)
- The entity holds the liability primarily for the purpose of trading. (Ex. Quoted debt instrument that are
incurred with a intention to repurchase them in the near future)
- The liability is due to be settled within twelve months after the reporting period. (Ex. Non-trade payables
such as dividends payable, notes payables, accruals, income taxes and other statutory payables,
provisions, current portion of long-term nontrade payables)
- The entity does not have unconditional right to defer settlement of the liability for at least 12 months
after the reporting period. (Ex.

Ex. Financial liabilities that are due within 12 mos. from the SFP date are classified as current liabilities if
the enterprise does not have discretion to refinance or roll over the obligation for a period of at least 12
most after the SFP date.
 o If these have been refinanced on a long term basis but the agreement to refinance or schedule
the payments is completed after the SFP date but before issuance of F/S.

o When the entity violates the debt covenant/contract that results to the debt/liability being due
and demandable even if the lender has agreed not to demand for payment after SFP date .

However if the agreement to refinance or not to demand payment has been completed on or before the
SFP date, then the liability is classified as non-current.

Ex. ABC Corporation has a 5% note payable in the amount of P10 Million as of December 31, 2019 but due
for payment on June 30, 2020. The note payable was refinanced on a long-term basis on January 15, 2020
through a loan agreement for 8% note payable where the note has been replaced with a 2-year note.

Non-current Liabilities

- Non-current portion of long-term debt – Ex. Bonds Payable, Mortgage

- Payable, loans payable, notes payable
- Lease liability
- Long-term obligation to entity officers
- Deferred revenue/tax liability

Provision – present obligation resulting from past event which is probable and the amount can be
measured reliably. (Ex. Estimated liabilities like warranties)

Contingent Liability – present obligation arising from past event but not recognized since the amount
cannot be measured reliably and it is not probable that an outflow of resources embodying economic will
be required to settle the obligations.
- Either probable or measurable but not both
- Shall only be disclosed in the Notes to Financial Statements unless considered remote.

SHAREHOLDERS’ EQUITY
- The residual interest of owners in the net assets of a corporation measured by the excess of assets
over liabilities.

Total Share capital – includes the portion of the paid in capital representing the total par value (issued)
and the portion authorized capital that has been subscribed but not yet fully paid hence still unissued
(subscribed)
Retained earnings – cumulative balance of periodic profit or loss, dividend distributions, prior period
errors, changes in accounting policies, and other adjustments.
Reserves – Share premium, asset revaluation surplus, other comprehensive income reserve, appropriation
reserve or retained earnings appropriated.