Chapter 2:

STATEMENT OF FINANCIAL POSITION Current liabilities are those:

 expected to be settled within the entity's normal operating
cycle
Chapter Objectives:
 held for purpose of trading
 To know the nature of statement of financial position.
 due to be settled within 12 months
 To understand the current and noncurrent classifications of
 for which the entity does not have the right at the end of the
assets and liabilities.
reporting period to defer settlement beyond 12 months.
 To understand refinancing of a currently maturing debt.
 To identify the components of equity in a corporation.
Other liabilities are non-current.
 To identify the minimum line items in a statement of financial
position.
Discretion to Refinance
 To be able to prepare a statement of financial position using
When a long-term debt is expected to be refinanced under an
Philippine format and IFRS format.
existing loan facility, and the entity has the discretion to do so,
the debt is classified as non-current, even if the liability would
otherwise be due within 12 months.
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
A formal statement showing the three elements comprising
Covenants
financial position, namely assets, liabilities and equity.
- If a liability has become payable on demand because an entity
has breached an undertaking under a long-term loan
Current and non-current classification
agreement on or before the reporting date, the liability is
- An entity must normally present a classified statement of
current, even if the lender has agreed, after the reporting date
financial position, separating current and non-current assets
and before the authorization of the financial statements for
and liabilities, unless presentation based on liquidity provides
issue, not to demand payment as a consequence of the
information that is reliable.
breach.
- In either case, if an asset (liability) category combines
- However, the liability is classified as non-current if the lender
amounts that will be received (settled) after 12 months with
agreed by the reporting date to provide a period of grace
assets (liabilities) that will be received (settled) within 12
ending at least 12 months after the end of the reporting
months, note disclosure is required that separates the longer-
period, within which the entity can rectify the breach and
term amounts from the 12-month amounts.
during which the lender cannot demand immediate
repayment.
Current assets are assets that are:
 expected to be realized in the entity's normal operating
Settlement by the issue of equity instruments does not impact
cycle
classification.
 held primarily for the purpose of trading
 expected to be realized within 12 months after the
Format of statement
reporting period
 cash and cash equivalents (unless restricted).
IAS 1 does not prescribe the format of the statement of financial
position. Assets can be presented current then non-current, or
All other assets are non-current.
vice versa, and liabilities and equity can be presented current then
non-current then equity, or vice versa. A net asset presentation
(assets minus liabilities) is allowed. The long-term financing
approach used in UK and elsewhere – fixed assets + current
assets - short term payables = long-term debt plus equity – is also
acceptable.

Share capital and reserves

Regarding issued share capital and reserves, the following

disclosures are required: [IAS 1.79]

numbers of shares authorised, issued and fully paid, and issued

but not fully paid par value (or that shares do not have a par
value) a reconciliation of the number of shares outstanding at the
beginning and the end of the period description of rights,
preferences, and restrictions treasury shares, including shares
held by subsidiaries and associates shares reserved for issuance
under options and contracts a description of the nature and
purpose of each reserve within equity.
Additional disclosures are required in respect of entities without
share capital and where an entity has reclassified puttable
financial instruments. [IAS 1.80-80A]

-End of Discussion-