Statements of Financial Position

• A formal statement

• Showing assets, liabilities and equity

Current and noncurrent distinction
• PAS 1, paragraph 60, provides that an entity
shall present current and noncurrent assets,
and current and noncurrent liabilities, as
separate classifications in 'the statement of
financial position.
Assets
• An asset is defined as a resource

• controlled by the entity

• as a result of past-event and

• from which future economic benefits are

expected to flow to the entity.
Resources need to be owned by the company to be
included as part of its assets.

Is this true? (Yes or No)

No
Control is sufficient. As long as it allows the
possessor to obtain the risk and reward of
ownership.
Current assets
PAS 1, paragraph 66, provides that an entity
shall classify an asset as current when:

1 The asset is cash or a cash equivalent unless

the asset is restricted to settle a liability for
more than twelve months after the reporting
period.
Current assets
PAS 1, paragraph 66, provides that an entity
shall classify an asset as current when:

2 The entity holds the asset primarily for the

purpose of trading.
Current assets
PAS 1, paragraph 66, provides that an entity
shall classify an asset as current when:

3 The entity expects to realize the asset within

twelve months after the reporting period.
Current assets
PAS 1, paragraph 66, provides that an entity
shall classify an asset as current when:

4 The entity expects to realize the asset, or

intends to sell or consume it within the
entity's normal operating cycle.
Operating cycle
• The operating cycle of an entity is the time
between the acquisition of assets for
processing and their realization in cash or
cash equivalents.
Presentation of current assets
Current assets are usually listed in the order of
liquidity.

a. Cash and cash equivalents

b. Financial assets at fair value through profit or loss
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
Noncurrent assets
• The caption "noncurrent assets" is a
residual definition.

• noncurrent assets include the following:

a. Property, plant and equipment
b. Long-term investments
c. Intangible assets
d. Other noncurrent assets
When an entity presents current and noncurrent assets
as separate classifications on the face of the statement
of financial position, it shall not classify deferred tax
asset as current asset.

Is this true? (Yes or No)

Yes
This is provided in PAS 1, paragraph 56.
Property, plant and equipment
• tangible assets

• which are held by an entity for use in

production or supply of goods and services,
for rental to others, or for administrative
purposes, and

• are expected to be used during more than

one period.
Long-term investments
• an asset held by an entity for the accretion
of wealth

• through capital distribution, such as

interest, royalties, dividends and rentals, for
capital appreciation

• or for other benefits to the investing entity

such as those obtained through trading
relationship
Intangible assets
• identifiable nonmonetary asset without
physical substance

• controlled by the entity

• as a result of past-event and

• from which future economic benefits are

expected to flow to the entity.
Other noncurrent assets
• are those assets that do not fit into the
definition of current or any defined
noncurrent assets.
Liabilities
• A liability is defined as a present obligation
of an entity

• arising from past event,

• the settlement of which is expected to

result in an outflow from the entity of
resources embodying economic benefits.
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 least twelve
months after the reporting period.
Long-term debt currently maturing
PAS 1, paragraph 72, provides that a liability which is
due to be settled within twelve months after the end
of reporting period is classified as current, even if:
a. The original term was for a period longer than
twelve months.
b. An agreement to refinance or to reschedule
payment on a long-term basis is completed after the
end of reporting period and before the financial
statements are authorized for issue.
Discretion to refinance
• PAS 1, paragraph 73, provides that if the
entity has the discretion to refinance or roll
over an obligation for at least twelve
months after the reporting period under an
existing loan facility, the obligation is
classified as noncurrent even if it would
otherwise be due within a shorter period.
Covenants
• classified as current even if the lender has agreed,
after the end of reporting period and before the
statements are authorized for issue, not to demand
payment as a consequence of the breach.

• classified as noncurrent if the lender has agreed on

or before the end of reporting period to provide a
grace period ending at least twelve months after
the end of reporting period.
Presentation of current liabilities
PAS 1, paragraph 54, provides that as a
minimum, the face of the statement of
financial position shall include the following
line items for current liabilities:

a. Trade and other payables

b. Current provisions
c. Short-term borrowing
d. Current portion of long-term debt
e. Current tax liability
Noncurrent liabilities
• The term "noncurrent liabilities" is also a
residual definition.

• PAS 1, paragraph 69, simply states that "all

liabilities not classified as current liabilities
are classified as noncurrent liabilities".
Working capital
• the excess of current assets over current
liabilities.
Estimated liabilities
• Estimated liabilities are obligations which
exist at the end of reporting period although
their amount is not definite.
 Contingent liability
1 • A contingent liability is a possible obligation

• that arises from past event and

• whose existence will be confirmed only by

the occurrence or nonoccurrence of one or
more uncertain future events not wholly
within the control of the entity.
 Contingent liability
2 A contingent liability is a present obligation
that arises from past event but is not
recognized because:
a. It is not probable that an outflow of
resources embodying economic benefits will
be required to settle the obligation.
b. The amount of the obligation cannot be
measured reliably.
Treatment of contingent liability
• A contingent liability shall be disclosed only.

• If the contingent liability is remote, no

disclosure is necessary.
Contingent asset
• contingent asset as a possible asset

• that arises from past event and

• whose existence will be confirmed only by

the occurrence or nonoccurrence of one or
more uncertain future events not wholly
within the control of the entity.
Treatment of contingent asset
• A contingent asset shall not be recognized because
this may result to recognition of income that may
never be realized.

• However, when the realization of income is

virtually certain, the related asset is no longer
contingent asset and its recognition is appropriate.

• A contingent asset is only disclosed when it is

probable.

• If the contingent asset is only possible or remote,

no disclosure is required.
Equity
• the residual interest in the assets of the
entity after deducting all of the liabilities.
Shareholders' equity
• is the residual interest of owners in the net
assets of a corporation

• measured by the excess of assets over

liabilities.
Share capital
• is the portion of the paid in capital
representing the total par or stated value of
the shares issued.
Subscribed share capital
• is the portion of the authorized share
capital that has been subscribed but not yet
fully paid and therefore still unissued.
Share premium
• is the capital contributed by the
shareholders in excess of the par or stated
value of the shares subscribed and issued.
Retained earnings
• represent the cumulative balance of

• periodic net income or loss,

• dividend distributions,

• prior period errors, changes in accounting

policy and other capital adjustments.
Revaluation surplus
• is the excess of sound value over carrying
amount of the revalued asset.
Treasury shares
• are an entity's own shares that have been
issued and then reacquired but not
canceled.
Reserves
• Distributable equity pertains to
unappropriated retained earnings.

• Generally, nondistributable equity reserves

represent those items of equity other than
the aggregate par or stated value of share
capital and unappropriated retained
earnings.
Examples of reserves
• Share premium reserve

• Appropriation reserve

• Asset revaluation reserve

• Other comprehensive income reserve

Presentation of Statement of Financial Position

• Paragraph 54 simply provides a list of items that are

sufficiently different in nature and function to
warrant separate presentation on the face of the
statement of financial position.

• Paragraph 55 provides that additional line items,

headings and subtotals shall be presented on the
face of the statement of financial position when
such presentation is relevant to the understanding
of the financial position of an entity.
Presentation of Statement of Financial Position

The judgment on whether additional line items are

presented separately is based on the assessment of
the following:

a. Nature and liquidity of assets

b. Function of assets within the entity
c. Amount, nature and timing of liabilities
Forms of statement of financial position
In practice, there are two customary forms in
presenting the statement of financial position,
namely:

a. Report form

b. Account form