(Intermediate Accounting 3)

Chapter 1 Statement of Financial Position

Related standard: PAS 1 Presentation of Financial Statements

Learning Objectives
• Enumerate and describe the components of a complete set of
financial statements.
• Classify assets and liabilities into current and noncurrent.
• Prepare a statement of financial position.

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Objective of PAS 1

PAS 1 prescribes the basis for presentation of

general purpose financial statements to
improve comparability both with the entity's
financial statements of previous periods and with
the financial statements of other entities.

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• General purpose financial statements are those intended to
serve users who do not have the authority to demand financial
reports tailored for their own needs. General purpose financial
statements are those statements that cater to most of the common
needs of a wide range of external users. General purpose financial
statements are the subject matter of the Conceptual Framework
and the PFRSs.
• Types of comparability
1. Intra-comparability
2. Inter-comparability

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Complete set of financial statements
1. Statement of financial position
2. Statement of profit or loss and other comprehensive income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes
(5a) comparative information in respect of the preceding period; and
6. A statement of financial position as at the beginning of the preceding
period when an entity applies an accounting policy retrospectively or
makes a retrospective restatement of items in its financial statements,
or when it reclassifies items in its financial statements.

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General features

1. Fair Presentation and Compliance with PFRSs - The

application of PFRSs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a fair
presentation.

2. Going concern - An entity is not a going concern if, as of financial

reporting date or prior to the date of authorization of financial
statements for issue, management either
a. Intends to liquidate the entity or to cease trading, or
b. Has no realistic alternative but to do so.
• The assessment of going concern is at least 12 months.

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General features (Continuation)

3. Accrual Basis of Accounting - An entity shall prepare its financial

statements, except for cash flow information, using the accrual basis of
accounting.

4. Materiality & Aggregation - Each material class of similar items must be

presented separately in the financial statements.

5. Offsetting - Assets and liabilities, and income and expenses, shall not be offset
unless required or permitted by a PFRS.
• Measuring assets net of valuation allowances, for example, obsolescence
allowances on inventories, allowances for doubtful accounts on receivables, and
accumulated depreciation on property, plant, and equipment are not offsetting.

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General features (Continuation)

6. Frequency of reporting – An entity shall present a complete set

of financial statements (including comparative information) at least
annually.
• When an entity changes the end of its reporting period and presents
financial statements for a period longer or shorter than one year, an
entity shall disclose the following,
1. The period covered by the financial statements:
2. The reason for using a longer or shorter period, and
3. The fact that amounts presented in the financial statements are
not entirely comparable.

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General features (Continuation)

7. Comparative Information
An entity shall present comparative information in respect of the preceding period
for all amounts reported in the current period’s financial statements, unless other
standards permit or require otherwise.

8. Consistency of presentation - An entity shall retain the presentation and

classification of items in the financial statements from one period to the next
unless:
a. it is apparent that another presentation or classification would be
more appropriate following a significant change in the nature of the
entity’s operations or a review of its financial statements; or
b. a PFRS requires a change in presentation.

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Additional Statement of financial position

• A statement of financial position as at the beginning of the

preceding period shall be presented when an entity
1. Applies an accounting policy retrospectively or
2. Makes a retrospective restatement of items in its financial
statements, or
3. When it reclassifies items in its financial statements.

…..and the effect of the event to the statement of financial position

as at the beginning of the preceding period is material.

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Statement of financial position

• A statement of financial position may be presented as either

1. Classified (current/non-current distinction) – showing current
and noncurrent assets and liabilities, or
2. Unclassified (based on liquidity) – showing no distinction between
current and noncurrent items

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Current Assets

• An entity shall classify an asset as current when:

1. it expects to realize the asset or intends to sell or consume it, in
its normal operating cycle;
2. it holds the asset primarily for the purpose of trading;
3. it expects to realize the asset within twelve months after the
reporting period; or
4. the asset is cash or a cash equivalent unless the asset is restricted
from being exchanged or used to settle a liability for at least
twelve months after the reporting period.

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Current Liabilities

• An entity shall classify a liability as current when:

1. it expects to settle the liability in its normal operating cycle;
2. it holds the liability primarily for the purpose of trading;
3. the liability is due to be settled within twelve months after the
reporting period; or
4. the entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the
reporting period.

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Currently maturing long-term liabilities

• General rule: Currently maturing long term liabilities are

presented as current liabilities.

• Exceptions:
1. Refinancing agreement fully completed on or before the balance
sheet date – non-current liability
2. Refinancing agreement after the balance sheet date but before
the financial statements are authorized for issue – non-current
liability if the refinancing is at the discretion of the entity.

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Breach of loan agreement

• General rule: A liability that is payable on demand is a current

liability.

• Exception: It is presented as non-current liability if the lender

provides the entity, on or before the balance sheet date, a
grace period ending at least 12 months after the balance sheet date
to rectify a breach of loan covenant.

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Presentation of Deferred taxes

• Deferred tax liabilities (assets) shall be presented as noncurrent

items in a classified statement of financial position, irrespective of
their expected dates of reversal.

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Minimum line items in the statement of financial position

a. Property, plant and equipment;

b. Investment property;
c. Intangible assets;
d. Financial assets (excluding amounts shown under (e), (h) and (i));
e. Investments accounted for using the equity method;
f. Biological assets;
g. Inventories;
h. Trade and other receivables;
i. Cash and cash equivalents;
j. Assets classified as held for sale (Groups classified as held for sale)
in accordance with PFRS 5;
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Minimum line items (Continuation)

k. Trade and other payables;

l. Provisions;
m. Financial liabilities (excluding amounts shown under (k) and (l));
n. Liabilities and assets for current tax, as defined in PAS 12 Income
Taxes;
o. Deferred tax liabilities and deferred tax assets, as defined in PAS 12;
p. Liabilities included in disposal groups classified as held for sale in
accordance with PFRS 5;
q. Non-controlling interests, presented within equity; and (equity)
r. Issued capital and reserves attributable to owners of the parent
(equity)

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Order/ Format of Presentation

• PAS 1 does not prescribe the order or format in which an entity

presents items.

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 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

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 END
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