1 Chapter 1 Statement of Financial Position SFP

2.2.3.
G1
STATEMENT OF
FINANCIAL POSITION
ZANETA E. CATURAS, MBA
© Take Charge Today –August 2013– Statement of Financial Position – Slide 1

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
2.2.3.G1
Philippine Accounting
Standards 1 (PAS 1)
• PAS1 applies to all businesses regardless of their form of
organization and nature of operation
• The (FRSC) Financial Reporting Standard Council, the successor of
the Accounting Standards Council (ASC), has approved the
adoption of the international Financial Reporting Standards
(IFRS) 1, Presentation of Financial Statements, issued by the
international Accounting Standard Board (IASB), as the Philippine
Financial Reporting Standards (PFRS).
• PAS 1 is observed in the Philippines for annual periods beginning
on or after January 1, 2005. It is applied to all general-purpose
financial statements prepared and presented in accordance with
PFRS.

2.2.3.G1
Objective of PAS 1
1. Prescribe the basis for presentation of general-purpose
financial statements.
2. Ensure comparability with both the entity's financial
statements of previous periods and other entities'
financial statements.
3. Set out overall requirements for the presentation of
financial statements, guidelines for their structure, and
minimum requirements for their content. The term
structure implies that a particular format is followed in
the preparation and presentation of financial statements.

2.2.3.G1
Financial Statements
Financial Statements are structured representation
of the financial position, financial performance,
and cash flow of an entity. It also includes the
notes which contain additional information like
definition of the item, measurement or valuation
procedures, and disclosure requirements.

2.2.3.G1
Components of Financial Statements
Financial statements are considered the final product of

the whole accounting process. A complete set of
financial statements consists of the following:
1. Statement of financial position
2. Statement of comprehensive income
3. Statement of changes in equity
4. Statement of Cash flow
5. Notes comprising a summary of significant accounting
policies and other explanatory notes

2.2.3.G1
Line Items in the Financial Statements

1. Property, plant, and equipment 9. Cash and cash equivalents
2. Investment Property 10. Trade and other payables
3. Intangible asset 11. Provisions

4. Financial Assets 12. Financial Liabilities
5. Investment accounted for using the
13. Liabilities and assets for current tax
equity method
14. Deferred tax liabilities and
6. Biological assets
deferred tax assets
7. Inventories 15. Minority interest
16. Issued capital and reserves
8. Trade and other receivables attributable to equity holders of the
parent
2.2.3.G1
The Assets
In the preparation of the statement of financial position, PAS 1 broadly
classifies assets into current and non current assets.
CURRENT ASSETS
An asset shall be classified as current when it satisfies any of the
following criteria:
1. It is expected to be realized in or is intended for sale or consumed in
the entity's normal operating cycle.
2. It is held primarily for the purpose of being traded.
3. It is expected to be realized within twelve months after the date of
the statement of financial position.
4. It is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least twelve months
after the date of the statement of financial position.

2.2.3.G1
Composition of Current Asset

1.Cash and Cash Equivalents
2. Financial assets
3. Trade and other receivables
4. Inventories
5. Prepaid Expenses

2.2.3.G1
1.Cash and Cash Equivalents

Cash
• Money- cash on hand cash in the bank
• Money substitutes- Customer's check, manager's check, money
orders, cashier's check
• Current working funds- Petty cash funds, interest fund, divident
fund, payroll fund
Cash Equivalents
Short-term liquid investments that are readily convertible to known
amounts of cash. An investment qualifies as a cash equivalent only
when it has a short maturity of three months or less from the date
of aquisition.
• 3 months time deposits, 3 months BSP treasury bill
2.2.3.G1
2. Financial Assets
1. Cash
2. Equity instruments of another entity
3. Contractual right
4. Contract that will or may be settled in the entity's own equity
instrument
equity instrument - any contract that evidences a residual interest in
the asset of an entity after deducting all of its liabilities.

2.2.3.G1
3. Trade and other receivables
Trade receivable - Arise from the ordinary course of business

operations and are shown as current assets if collectible within one
year or within the normal operating cycle of the business, whichever
is longer.
Nontrade receivables- are claims that arise not from the ordinary
course of the business operations. It is shown as a part of the
current asset if collectible within one year notwithstanding the
normal operating cycle of the business.
• Advances to officers, employees, directors, shareholders
• Advances to affiliates
• claims againts common carriers for damages; and
• advances to suppliers for merchandise

2.2.3.G1
4. Inventories
Inventories - as assets of the business that are held for sale in the ordinary
course of business, in the process of production for such sale, or in the form
of materials or supplies to be consumed in the production process or in the
rendering of services.
Cost of Inventories shall comprise all cost of purchase, cost of conversion, and
other cost incurred in bringing the inventories to their present location and
condition.
Purchase Price xxxxx
Add:Import duties xxxxx
Freight in xxxxx
Other business taxes xxxxx
Other incidental cost xxxxx xxxxx
Total xxxxx
Less: Trade discounts xxxxx
Trade allowances xxxxx
Purchase rebates xxxxx xxxxx
Cost of acquisition xxxxx

2.2.3.G1
Cont.
Classes of Inventory
Merchandising Inventory- merchandising or trading business entities
genrally labelled their inventories as merchandising inventory
Manufacturing inventory- label their inventories as finished goods,
goods in process, and raw materials inventory

2.2.3.G1
5. Prepaid Expenses
Prepaid Expenses is a one line item classification that includes all
prepayments made that are expected to be consumed within one
year from the date of the statement of financial position.
Examples:
1. prepaid rent
2. prepaid advertising
3. prepaid insurance
4. unused office and store supplies

2.2.3.G1
The Assets
NONCURRENT ASSETS
Assets that do not meet any of the criteria required for
current assets. PAS 1 uses the term "noncurrent"to
include tangible, intangible and financial assets of a long-
term nature. It does not prohibit the use of alternative
description as long as the meaning is clear.

2.2.3.G1
Composition of Noncurrent Asset

1. Property , plant, and equipment
2. Long-term investments
3. Intangibles
4. Other noncurrent assets

2.2.3.G1
1. Property , plant, and equipment
Are tangible items that are :

1. held for use in the production or supply of goods or services for
rental to others, or for administrative purposes
2. Are expected to be used during more than one period.

2.2.3.G1
2. Long-term investments
Are assets held by an entity intended to accumulate wealth
or resources by means of capital distribution in the form
of royalties, interest, dividends, rentals, capital
appreciation, or other benefits obtained through trading
relationships with the intention of holding the
investments for more than one year.
1. Sinking funds
2. plant expansion funds
3. investment in bonds
4. investment in stocks
5. cash surrender value of life insurance
6. investment in subsidiary
7. investment property
8. investment in joint control entity
2.2.3.G1
3. Intangibles
Intangible Asset - as an identifiable nonmonetary asset without
physical substance.
Examples:
Copyrights, patents, licenses and franchise
brand names, masthead and publishing titles
computer software, recipes, formulae, modes, designs and prototypes
industrial property rights, service, and operating rights.

2.2.3.G1
Liabilities
Liabilities a present obligations of the entity arising from past events,
the settlement of which is expected to result in an out flow from
the entity of resources embodying economic benefits.
CHARACTERISTICS OF LIABILITIES
1. It is a present obligation of an entity, and not a future commitment.
2. It is legally enforceable as a consequence of a binding contract or
statutory requirements, or when the asset is delivered.
3. It arises from business practice, customs, and a desire to maintain
good business relations or act in equitable manner.
4. The settlement of the obligation usually involves giving up of entity's
resources.

2.2.3.G1
Modes of Settling a Liability

The different modes of settlement of a present obligation are payment of cash,
transfer of other assets, provision of services, replacement of another
obligation, conversion of the obligation to equity, and creditor waiving or
forfeiting its rights.
Classification of Liabilities
Current Liabilities
1. It is expected to be settled in the entity's normal operating cycle.
2. It is held primarily for the purpose of being traded.
3. It is due to be settled within twelve months after the balance sheet date.
4. the entity does not have an unconditional right to defer settlement of the
liability for at least twelve months after the balance sheet date.
Noncurrent Liabilities
All other liabilities not included in current shall be classified as noncurrent.

2.2.3.G1
Current/noncurrent Liabilities Line Items

Current
• Trade and other payables- (Notes payable, income tax payable,
accrued expenses)
• short term bank loan
• warranty payable
Noncurrent
• Bonds payable
• Deffered tax liability

2.2.3.G1
Equity
Equity is the residual interest in the assets of the entity after deducting
all its liabilities.
equity = asset - liabilities

For sole proprietorship, the equity section of the owner is commonly
labeled as Owner's Capital or Owner's Equity. In case the business is
considered a partnership, the equity of the partners is generally
labelled as Partner's Equity. The equity section of a corporate entity
is usually labeled as Stockholders’ or shareholders' Equity.

2.2.3.G1
Stockholders' Equity Section

Line Items of Shareholders' Equity
Share Capital
• Ordinary share, P100 par, 100,000 authorized issued and
outstanding
• 8% Preference shares, P100 par, 50,000 authorized, issued and
outstanding 30,000
Reserves
• share premium
• Retained Earnings appropriated for plan expansion
• Retained Earnings appropriated for contingencies

2.2.3.G1
STATEMENT OF FINANCIAL POSITION – Also

known as the balance sheet. This statement
includes the amounts of the company’s total
assets, liabilities, and owner’s equity which in
totality provides the condition of the company
on a specific date. (Haddock, Price, & Farina,
2012)

2.2.3.G1
PERMANENT ACCOUNTS – As the name suggests, these

accounts are permanent in a sense that their balances
remain intact from one accounting period to another.
(Haddock, Price, & Farina, 2012) Examples of permanent
account include Cash, Accounts Receivable, Accounts
Payable, Loans Payable and Capital among others. Basically,
assets, liabilities and equity accounts are permanent
accounts. They are called permanent accounts because the
accounts are retained permanently in the SFP until their
balances become zero. This is in contrast with temporary
accounts which are found in the Statement of
Comprehensive Income (SCI). Temporary accounts unlike
permanent accounts will have zero balances at the end of
the accounting period.
2.2.3.G1
CONTRA ASSETS – Contra assets are those accounts

that are presented under the assets portion of the
SFP but are reductions to the company’s assets.
These include Allowance for Doubtful Accounts and
Accumulated Depreciation. Allowance for Doubtful
Accounts is a contra asset to Accounts Receivable.
This represents the estimated amount that the
company may not be able to collect from delinquent
customers. Accumulated Depreciation is a contra
asset to the company’s Property, Plant and
Equipment. This account represents the total amount
of depreciation booked against the fixed assets of the
company.
2.2.3.G1

2.2.3.G1

2.2.3.G1
Report Form and Account Form

Report Form – A form of the SFP that shows asset accounts
first and then liabilities and owner’s equity accounts after.
(Haddock, Price, & Farina, 2012)The balance sheet shown
earlier is in report form.
Account Form – A form of the SFP that shows assets on the left
side and liabilities and owner’s equity on the right side just
like the debit and credit balances of an account. (Haddock,
Price, & Farina, 2012)
• a. Emphasize that the two are only formats and will yield
the same amount of total assets, liabilities and equity
• b. Emphasize that assets should always be equal to
liabilities and equity
2.2.3.G1

2.2.3.G1

2.2.3.G1
Prepare a Statement of Financial Position using the following

accounts (one in report form and one in account form):
Cash – 5,000
Loans Payable – 77,500
Accounts Receivable – 2,600
Supplies – 2,300
Equipment – 17,000
Owner’s equity – 40,000
Accounts Payable – 22,400
Building – 113,000

2.2.3.G1
You were hired by Mr. Juan Dela Cruz to prepare his sari-sari store’s Statement of Financial
Position. In order to prepare the statement, you identified the following assets and
liabilities of Mr. Dela Cruz:
a. His sari-sari store has cash deposited in a bank account amounting to P50,000
b. His sari-sari store had a lot of uncollected sales from customers amounting to P75,000
c. The total amount of merchandise left inside the store is P30,000
d. He already paid one year’s rent in advance amounting to P12,000
e. The value of all the company’s furniture amounted to P100,000
f. He bought merchandise from his supplier amounting to P25,000 and the supplier agreed
that payment can be made 2 months after year-end
g. SSS, Philhealth and Pag-ibig Payables for his one employee totaled P5,000
h. The sari-sari store had outstanding liabilities to utility companies amounting to P3,000
i. He had a loan from the bank amounting to P50,000 to be paid in 3 years
Prepare a Statement of Financial Position for the company (one in report form
and one in account form)

2.2.3.G1
1. PIPEC Marketing had current

assets amounting to Php
100,000. Noncurrent assets for
the year totaled Php 76,000. How
much is the company total asset?

2.2.3.G1
2. PIPEC Marketing’s total liabilities

amounted Php 10,000. Total equity
had an ending balance of P20,000.
How much is total assets?

2.2.3.G1
3. PIPEC Marketing had the following

accounts at the year end: Cash-
250,000, Accounts Payable-70,000,
Prepaid Expense-15,000. Compute for
company’s current assets.

2.2.3.G1
4. PIPEC Marketing’s accounts receivable

amounted to Php 50,000. Prepaid
expense and unearned Income totaled
Php 30,000 and Php 10,000 respectively.
Cash balance amounted to Php 100,000
while accounts payable and inventory
totaled to Php 20,000 and php 10,000
respectively. How much is the company’s
current assets? Current liabilities?
2.2.3.G1
5. The PIPEC Marketing’s total liabilities and

Equity amounted to Php 285,000. Total
noncurrent assets ended at Php 85,000.
Cash totaled Php50,000. Inventory
amounted to Php 100,000. Assuming the
company had no other assets, how much
is Accounts Receivable?


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2.2.3.

© Take Charge Today –August 2013– Statement of Financial Position – Slide 1

© Take Charge Today –August 2013– Statement of Financial Position – Slide 2

© Take Charge Today –August 2013– Statement of Financial Position – Slide 3

© Take Charge Today –August 2013– Statement of Financial Position – Slide 4

Components of Financial Statements

Financial statements are considered the final product of

© Take Charge Today –August 2013– Statement of Financial Position – Slide 5

Line Items in the Financial Statements

2. Investment Property 10. Trade and other payables

3. Intangible asset 11. Provisions

© Take Charge Today –August 2013– Statement of Financial Position – Slide 7

Composition of Current Asset

© Take Charge Today –August 2013– Statement of Financial Position – Slide 8

1.Cash and Cash Equivalents

© Take Charge Today –August 2013– Statement of Financial Position – Slide 10

3. Trade and other receivables

Trade receivable - Arise from the ordinary course of business

© Take Charge Today –August 2013– Statement of Financial Position – Slide 11

© Take Charge Today –August 2013– Statement of Financial Position – Slide 12

© Take Charge Today –August 2013– Statement of Financial Position – Slide 13

© Take Charge Today –August 2013– Statement of Financial Position – Slide 14

© Take Charge Today –August 2013– Statement of Financial Position – Slide 15

Composition of Noncurrent Asset

© Take Charge Today –August 2013– Statement of Financial Position – Slide 16

1. Property , plant, and equipment

Are tangible items that are :

© Take Charge Today –August 2013– Statement of Financial Position – Slide 17

© Take Charge Today –August 2013– Statement of Financial Position – Slide 19

© Take Charge Today –August 2013– Statement of Financial Position – Slide 20

Modes of Settling a Liability

© Take Charge Today –August 2013– Statement of Financial Position – Slide 21

Current/noncurrent Liabilities Line Items

© Take Charge Today –August 2013– Statement of Financial Position – Slide 22

equity = asset - liabilities

© Take Charge Today –August 2013– Statement of Financial Position – Slide 23

Stockholders' Equity Section

© Take Charge Today –August 2013– Statement of Financial Position – Slide 24

STATEMENT OF FINANCIAL POSITION – Also

© Take Charge Today –August 2013– Statement of Financial Position – Slide 25

PERMANENT ACCOUNTS – As the name suggests, these

CONTRA ASSETS – Contra assets are those accounts

© Take Charge Today –August 2013– Statement of Financial Position – Slide 28

© Take Charge Today –August 2013– Statement of Financial Position – Slide 29

Report Form and Account Form

© Take Charge Today –August 2013– Statement of Financial Position – Slide 31

© Take Charge Today –August 2013– Statement of Financial Position – Slide 32

Prepare a Statement of Financial Position using the following

© Take Charge Today –August 2013– Statement of Financial Position – Slide 33

© Take Charge Today –August 2013– Statement of Financial Position – Slide 34

1. PIPEC Marketing had current

© Take Charge Today –August 2013– Statement of Financial Position – Slide 35

2. PIPEC Marketing’s total liabilities

© Take Charge Today –August 2013– Statement of Financial Position – Slide 36

3. PIPEC Marketing had the following

© Take Charge Today –August 2013– Statement of Financial Position – Slide 37

4. PIPEC Marketing’s accounts receivable

5. The PIPEC Marketing’s total liabilities and

© Take Charge Today –August 2013– Statement of Financial Position – Slide 39

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