FINANCIAL STATEMENTS

are the means by which the information accumulated and processed in financial accountin

are the end product or main output of the financial accounting process

are structured financial representation of the financial position and financial performance

Objectives of Financial Statements

1 is to provide information about the financial position, financial performance and cash flows of an enti

2 also show the results of the managements stewardship of the resources entrusted to it

Frequency of reporting

Financial statements shall be presented at least annually.

When an entity’s end of reporting period changes and financial statements are presented for
a period longer or shorter than one year, an entity shall disclose:

a The period covered by the financial statements

b The reason for using a longer or shorter period
c The fact that amounts presented in the financial statements are not entirely comparable
essed in financial accounting is periodically communicated to the users.

and financial performance of an entity

e and cash flows of an entity that is useful to a wide range of users in making economic decisions.

ntrusted to it

ly comparable
STATEMENT OF FINANCIAL POSITION
is a formal statement showing the three elements comprising financial position, namely assets, liabilities

ASSETS
are defined as “resources controlled by the entity as a result of past transactions and events and from w

Classification of assets
1 CURRENT ASSETS
PAS 1, paragraph 66, provides that an entity shall classify an asset as current when
a The asset is cash or cash equivalent unless the asset is restricted from being exchan
b The entity holds the asset primarily for the purpose of trading
c The entity expects to realize the asset within twelve months after the reporting per
d The entity expects to realize the asset or intends to sell or consume it within the en

Presentation of Current Assets

Current assets are usually listed in the order of liquidity. PAS 1, paragraph 54, provides that a
a) Cash and cash equivalents
b) Financial assets at fair value such as trading securities and other investments in quoted equ
c) Trade and other receivable
d) inventories
e) Prepaid expenses

2 NONCURRENT ASSETS
The caption “noncurrent assets” is a residual definition. PAS 1, paragraph 66, simply states th

In other words, what is not included in the definition of current assets is deemed excluded. Al
Accordingly, noncurrent assets include the following:
a) Property, plant and equipment
PAS 16, paragraph 6, defines property, plant and equipment as “tangible assets wh
services, for rental to others, or for administrative purposes, and are expected to b
equipment includes land, building, machinery, equipment, furniture, fixtures, patte
are presented at cost less accumulated depreciation.

b) Long-term investments
The International Accounting Standards Committee defines investment as “an ass
such as interest, royalties, dividends and rentals, for capital appreciation or for oth
relationships”.

c) Intangible assets
simply defined as “identifiable nonmonetary asset without physical substance”.
 The common examples of identifiable intangible assets include patent, franchise, c
unidentifiable intangible asset is goodwill.

d) Other noncurrent assets

Other noncurrent assets are those assets that do not fit into the definition of the p
include long-term advance to officers, directors, shareholders and employees, or a

LIABILITIES
Liabilities are defined as “present obligations of an entity arising from past transactions or events, the s
resources embodying economic benefits”.

Classification of liabilities:

1 CURRENT LIABILITIES
PAS 1, paragraph 69, provides that an entity shall classify a liability as current when:
a) The entity expects to settle the liability within the entity’s normal operating cycle
b) The entity holds the liability primarily for the purpose of trading
c) The liability is due to be settled within twelve months after the reporting period
d) The entity does not have an unconditional right to defer settlement of the liability for at lea

Presentation of current liabilities

PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial positi
a) Trade and other payables
b) Current provisions
c) Short-term borrowing
d) Current portion of long-term debt
e) Current tax liability
The term “trade and other payable” is a line item for accounts payable. Notes payable, accru
objection can be raised if the trade accounts and notes payable are separately presented.

2 NONCURRENT LIABILITIES
The term “noncurrent liabilities” is also a residual definition. PAS 1, paragraph 69, provides th
Examples of noncurrent liabilities are:
a) Noncurrent portion of long-term debt
b) Finance lease liability
c) Deferred tax liability
d) Long-term obligations to company officers
e) Long-term deferred revenue
PAS 1, paragraph 56, provides that “when an entity presents current and noncurrent liabiliti
position, it shall not classified deferred tax liability as current liability”.

EQUITY
is the residual interest in the assets of the entity after deducting all of its liabilities
means “net assets” or total assets minus liabilities
The terms used in reporting the equity of an entity depending on the form of the business organization a
a) Owner’s equity in a proprietorship
b) Partner’s equity in partnership
c) Stockholders’ equity or shareholders; equity in a corporation
However, the term equity may simply be used for all business entities. Under PAS 1, paragraph 7, th
 ition, namely assets, liabilities and equity

ctions and events and from which future economic benefits are expected to flow to the entity”

et as current when
s restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

months after the reporting period

ell or consume it within the entity’s normal operating cycle

paragraph 54, provides that as a minimum, the line items under current assets are:
within 3 months Cash equivalents
her investments in quoted equity instruments.
Investments beyond 3 months but will not exceed 1 year
Short-Term Investment

exceeds 1 year Long-Term Investment

paragraph 66, simply states that “an entity shall classify all other assets not classified as current as noncurrent”.

assets is deemed excluded. All others are classified as noncurrent assets.

uipment as “tangible assets which are held by an entity for use in production or supply of goods and
rposes, and are expected to be used during more than one period”. Examples of property, plant and
ment, furniture, fixtures, patterns, molds, dies and tools. Most property, plant and equipment, except land,

defines investment as “an asset held by an entity for the accretion of wealth through capital distribution,
capital appreciation or for other benefits to the investing entity such as those obtained through trading

without physical substance”.

ts include patent, franchise, copyright, lease rights, trademark and computer software. An example of an

fit into the definition of the previously mentioned noncurrent assets. Examples of other noncurrent assets
eholders and employees, or abandoned property and long-term refundable deposit.

t transactions or events, the settlement of which is expected to result in an outflow from the entity of

lity as current when:

mal operating cycle

e reporting period
ement of the liability for at least twelve months after the reporting period.

e statement of financial position shall include the following line items for current liabilities:

payable. Notes payable, accrued interest on note payable, dividends payable and accrued expense. No
e are separately presented.

S 1, paragraph 69, provides that all liabilities not classified as current are classified as noncurrent.

urrent and noncurrent liabilities as separate classifications on the face of the statement of financial
ability”.

A=L+E A-L=E
of the business organization are:

Under PAS 1, paragraph 7, the holders of instruments classified as equity are simply known as owners.
Cash equivalents
Current Asset
t will not exceed 1 year
Short-Term Investment

Long-Term Investment Noncurrent Asset

FORMS OF STATEMENT OF FINANCIAL POSITION
In practice, there are two customary forms in presenting the statement of financial position, namely:

a) Report form - this form sets forth the three major sections in a downward sequence of assets, liabilitie

b) Account form - as the title suggests, the presentation follows that of an account, meaning, the assets
the statement of financial position
financial position, namely:

rd sequence of assets, liabilities and equity.

account, meaning, the assets are shown on the left side and the liabilities and equity on the right side of
 Nationwide Enterprise
Statement of Financial Position
As of December 31, 20xx

ASSETS
Current Assets
Cash and cash equivalents xxxx
Financial assets (Trading securities) xxxx Note 1
Trade and other receivables xxxx Note 2
Inventories xxxx Note 3
Total Current Assets xxxx

Noncurrent Assets
Property, plant and equipment xxxx Note 4
Investments in equity xxxx Note 5
Intangible assets xxxx Note 6
Investment property xxxx Note 7
Biological assets xxxx Note 8
Total Noncurrent Assets xxxx
TOTAL ASSETS XXXX

LIABILITIES
Current Liabilities
Trade and other payable xxxx Note 9
Current tax liability xxxx Note 10
Short term borrowings xxxx Note 11
Provisions xxxx Note 12
Current deferred revenue xxxx Note 13
Current portion of long term debt xxxx Note 14
Total Current Liabilities xxxx

Non Current Liabilities

Noncurrent portion of long-term debt xxxx Note 15
Deferred tax liability xxxx Note 16
Long-term deferred revenue xxxx Note 17
Total Noncurrent Liabilities xxxx
TOTAL LIABILITIES XXXX

EQUITY
Capital, December 31, 20xx xxxx
TOTAL EQUITY XXXX

TOTAL LIABILITIES AND EQUITY XXXX

 Nationwide Enterprise
Income Statement
For the year ended December 31, 20xx

Sales xxxx
Less: Cost of goods sold (xxxx)
Gross profit xxxx

Operating expenses
Depreciation expense xxxx
Selling expenses xxxx
Administrative expenses xxxx
Salaries expenses xxxx
Rent expenses xxxx
Total operating expenses xxxx
Net Operating Income xxxx

Non-operating activities
Interest expense (xxxx)
Interest income xxxx
Gain from sale of asset xxxx
Loss from sale of asset (xxxx)
Total non-operating activities xxxx/(xxxx)

Net Income/Net Loss xxxx/(xxxx)

 Nationwide Enterprise
Statement of Cash Flows
For the year ended December 31, 20xx

Cash flows from operating activities

Net Income xxxx
Add: Non-cash expenses xxxx
Increase in Current Assets (xxxx)
Decrease in Current Assets xxxx
Increase in Current Liabilities xxxx
Decrease in Current Liabilities (xxxx)
Net cash flows from operating activities xxxx

Cash flows from investing activities

Cash proceeds from sale of PPE xxxx
Cash proceeds from sale of equity securities xxxx
Payments on purchase of PPE (xxxx)
Payments to acquire investments in equity securities (xxxx)
Net cash flows from operating activities xxxx

Cash flows from financing activities

Cash investments by the owner xxxx
Cash proceeds from issuance of share capital xxxx
Cash proceeds from long-term borrowings xxxx
Cash withdrawal by the owner (xxxx)
Payments of cash dividends to shareholders (xxxx)
Payments of long-term borrowing (xxxx)
Net cash flows from financing activities xxxx

Net change in cash xxxx

Cash, January 1, 20xx xxxx
Cash, December 31, 20xx xxxx

Nationwide Enterprise
Statement of Changes in Equity
For the year ended December 31, 20xx

Capital, January 1, 20xx xxxx

Add:
Investments made by the owner xxxx
Net Income xxxx
Less:
Withdrawals by the owner (xxxx)
 Net Loss (xxxx)
Capital, December 31, 20xx xxxx
Income statement

Additional info:
ØRetained Earnings
ØDec 31 – cash dividends $28,000
ØDividends
ØCommon Stock
ØNov 1 – issued 4,000 common shares at $12 per share.
ØBonds Payable
ØJune 1 - retired by paying cash $ 50,000
ØBuilding
ØDecember 27 – purchased a building for cash of $ 60,000
ØLand
ØJune 8 - a piece of land with a cost of $ 60,000 was sold for $ 72,000
ØOctober 12 - Rundell purchased a land for cash for $ 15,000.

INDIRECT METHOD
Rundell Inc.
Statement of Cash Flows
For the year ended December 31, 2014

Net Income 108,000

Add: Non-cash expenses Depreciation 7,000
Less: Non-cash income - 12,000
Add: Decrease in current assets Inventories 8,000
Increase in current liabilities Accrued Expense Paya 2,200
Less: Increase in current assets Accounts Receivable - 9,000
Decrease in current liabilities Accounts Payable - 3,200
Decrease in current liabilities Income Tax Payable - 500
Net cash flows from operating activities 100,500

Cash flows from investing activities

Cash received from sale of land 72,000
Cash received from sale of investments
Less: Cash paid for purchase of building - 60,000
Cash paid for purchase of land - 15,000
Net cash flows from investing activities - 3,000

Cash flows from financing activities

Cash investments by the owner
Cash proceeds from long-term borrowings
Cash received from sale of common stock 48,000
Less: Cash paid for long-term borrowings - 50,000
Cash paid for dividends - 24,000
Cash withdrawal by the owner
Net cash flows from financing activities - 26,000

Net change in cash 71,500

Cash, January 1, 2014 26,000

Cash, December 31, 2014 97,500

 Comparative Balance sheet

Dec-27 Building 60000 Jun-01 Bonds payable

Cash 60000 Cash

Jun-08 Cash 72000 Nov-01 Cash ($12 * 4,000)

Land 60000 Common stock ($2 * 4,000)
Gain on sale of land 12000 Paid-in capital in excess of par
($10 * 4,000)
Oct-12 Land 15000
ld for $ 72,000 Cash 15000 Retained earnings, 2013
Net Income, 2013
Cash dividends 28000
Increase in dividends payable -4000 Cash dividends
Cash paid for dividends 24000 Retained earnings, 2014
DIRECT METHOD
Rundell Inc.
Statement of Cash Flows
For the year ended December 31, 2014

Cash flows from operating activities

Cash received from customers 1,171,000
Less: Cash payment for merchandise - 785,200
Cash payment for OpEx - 193,800
Cash payments for interest - 8,000
 Cash payments for income tax - 83,500

Net cash flows from operating activities 100,500

Cash flows from investing activities

Cash received from sale of PPE 72,000
Cash received from sale of investments
Less: Cash paid for purchase of PPE - 60,000
Cash paid for purchase of investments - 15,000
Net cash flows from investing activities - 3,000

Cash flows from financing activities

Cash investments by the owner
Cash proceeds from long-term borrowings
Cash received from sale of common stock 48,000
Less: Cash paid for long-term borrowings - 50,000
Cash paid for dividends - 24,000
Cash withdrawal by the owner
Net cash flows from financing activities - 26,000

Net change in cash 71,500

Cash, January 1, 2014 26,000

Cash, December 31, 2014 97,500

 = operating+investing+financing

50000
50000

48000
mon stock ($2 * 4,000) 8,000
in capital in excess of par
40000

202300
108000
310300
-28000
282300