3.

3 Statement of Financial Position (Balance Sheet) “The only disability in life is a bad
attitude.”
 reports the financial position of an entity at a particular date
 a summary of an entity’s
 economic resources (assets),
 economic obligations (liabilities),
 and equity,
 and their relationships to each other at a moment in time, which is the end of the
reporting period
 generally described as a detailed expression of the basic accounting equation:

 useful in assessing
 the economic resources that an enterprise controls,
 its financial structure,
 its liquidity,
 and solvency
 and its capacity to adapt to changes in the environment I which it operates

3.3.1 Information to be Presented on the Face of the Statement of ‘It is not the mountain we conquer
Financial Position of I
but ourselves.’

The line items to be included on the face of the statement of financial position are: [PAS 1.54]
(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 held for sale
(k) trade and other payables
(l) provisions
(m) financial liabilities (excluding amounts shown under (k) and (l))
(n) current tax liabilities and current tax assets, as defined in PAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in PAS 12
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
Additional line items, headings and subtotals may be needed to fairly present the entity's financial
position. [PAS 1.55]

1
When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognised and measured in accordance with PFRS; be presented and labelled in a clear and
understandable manner; be consistent from period to period; and not be displayed with more
prominence than the required subtotals and totals. [PAS 1.55A]*
* Added by Disclosure Initiative (Amendments to PAS 1), effective 1 January 2016.

Further sub-classifications of line items presented are made in the statement or in the notes, for
example: [PAS 1.77-78]:

 classes of property, plant and equipment

 disaggregation of receivables
 disaggregation of inventories in accordance with PAS 2 Inventories
 disaggregation of provisions into employee benefits and other items
 classes of equity and reserves.

3.3.2 Reporting Classifications of I

“Natural abilities are like natural plants; they need pruning by study.”

Current and non-current classifications

An entity must normally present a classified statement of financial position, separating
current and non-current assets and liabilities, unless presentation based on liquidity
provides information that is reliable. [PAS 1.60]

In either case, if an asset (liability) category combines amounts that will be received (settled)
after 12 months with assets (liabilities) that will be received (settled) within 12 months, note
disclosure is required that separates the longer-term amounts from the 12-month amounts.
[PAS 1.61]

ASSETS

CURRENT ASSETS
PAS 1 paragraph 66 provides that an entity shall classify an asset as current when:

1. The asset is *cash or cash equivalent (unless the asset is restricted).

2. The entity holds the asset primarily for the purpose of **trading.
3. The entity ***expects to realize the asset within twelve months after the reporting
period.
4. The entity expects to ****realize the asset or intends to sell or consume it within the
entity’s *****normal operating cycle.

*Cash and cash equivalents

 Includes petty cash funds, cash in bank, cash on hand and any cash equivalent
 Should be unrestricted for use

** Held for Trading

 This category refers to TRADING SECURITIES.
 Acquired principally for the purpose of generating profit from short-term
fluctuations in price or dealer’s margin

2
 ***Expected to be realized within twelve months
 This category refers to SHORT-TERM NONTRADE RECEIVABLES.
 They are classified as current asset (Nontrade receivable) if they are collectible
within one year from the end of reporting period, the length of operating cycle
notwithstanding.

****Realized, sold or consumed

 This category refers to TRADE RECEIVABLES, INVENTORIES, and
PREPAYMENTS.
 They are classified as current assets because they are expected to be realized,
sold or consumed within the normal operating cycle or one year, whichever is
longer.

*****Normal operating cycle

 The time between the acquisition of assets for procession and their realization
in cash or cash equivalents.
Manufacturing Company – the length of time to complete the following
processes: purchase of materials, production of goods, sale of goods and
collection from customers
Merchandising Company – time required to complete purchase of
goods, sale of goods and collection from customers
Service Company – from providing services and collection from
customers

For some entities with unclear normal operating cycle, its duration is presumed
to be twelve months.
Assets other than trade receivables, inventories and prepaid expenses are
classified as current assets if realizable or consumable only within twelve
months. The length of the normal operating cycle is not considered. Therefore,
non-trade receivables are classified as current assets only if collectible

Presentation of Current Assets

a. Cash and Cash Equivalents
b. Financial Assets (Trading Securities and Available for Sale Securities – current)
c. Trade and other receivables
d. Inventories
e. Prepaid Expenses

NONCURRENT ASSETS
An entity shall classify all other assets not classified as current as noncurrent including:
1. Property, plant and equipment
2. Long term investments
3. Intangible assets
4. Other noncurrent assets

3
LIABILITIES
CURRENT LIABILITIES
PAS 1 paragraph 69 provides that an entity shall classify a liability as current when:

1. The entity expects to settle the liability within the entity’s *normal operating cycle.
2. The entity holds the liability for the purpose of trading.
3. The liability is due to be settled within twelve months after the reporting period.
4. The entity does not have an unconditional right to defer settlement of the liability for
at least twelve months after the reporting period (or does not have the right at the end
of the reporting period to defer settlement beyond 12 months).

*Obligations related to the normal conduct of the entity’s central revenue producing
activities are classified as current liabilities such as:
 trade payables
 some accruals for operating costs that are part of of the working capital of
the company

Other obligations are not part of the normal operating cycle but are still classified as
current liabilities because they are due for settlement within twelve months of the end
of the reporting period or because they are held primarily for the purpose of being
traded. Examples are:
 bank overdrafts
 dividends payable
 current portion of long-term non-trade payables

NONCURRENT LIABILITIES

All liabilities not classified as current shall be classified as noncurrent including:

1. Noncurrent portion of long-term debt

2. Finance lease liability
3. Deferred tax liability
4. Long-term obligations to company officers
5. Long-term deferred revenue

When a long-term debt is expected to be refinanced under an 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. [PAS 1.73]

If a liability has become payable on demand because an entity has breached an

undertaking under a long-term loan agreement on or before the reporting date, the
liability is current, even if the lender has agreed, after the reporting date and before
the authorization of the financial statements for issue, not to demand payment as a
consequence of the breach. [PAS 1.74]

However, the liability is classified as non-current if the lender agreed by the

reporting date to provide a period of grace ending at least 12 months after
the end of the reporting period, within which the entity can rectify the breach
and during which the lender cannot demand immediate repayment. [PAS 1.75]

Settlement by the issue of equity instruments does not impact classification.

[PAS 1.76B]

4
SHAREHOLDERS’ EQUITY

This is the residual interest of owners in the net assets of a corporation measured by the excess of
assets over liabilities.

Old Term (Philippine Term) PAS Term

Capital Stock Share Capital
Subscribed Capital Stock Subscribed Share Capital
Preferred Stock Preference Share Capital
Common Stock Ordinary Share Capital
Additional Paid-in Capital Share Premium
Retained Earnings (deficit) Accumulated Profits (Losses)
Retained Earnings Appropriation Reserve
Appropriated
Revaluation Surplus Revaluation Reserve
Treasury Stock Treasury Share

Share capital and reserves

Regarding issued share capital and reserves, the following disclosures are required: [PAS
1.79]
1. numbers of shares authorized, issued and fully paid and issued but not fully paid
2. par value (or that shares do not have a par value)
3. a reconciliation of the number of shares outstanding at the beginning and the end of
the period
4. description of rights, preferences, and restrictions
5. treasury shares, including shares held by subsidiaries and associates
6. shares reserved for issuance under options and contracts
7. 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. [PAS 1.80-80A]

3.3.3 Forms of Statement of Financial Position of I

“Character is not in the mind. It is in the will.”

PAS 1 does not prescribe the format of the statement of financial position. Assets can be
presented current then non-current, or 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.

The 3 known formats (suggested but not required):

1. Report Form
This form sets forth the three major sections in a downward sequence of assets,
liabilities and equity.

2. Account Form
The presentation follows that of the T-account format. The assets are shown on
the left side and the liabilities and equity on the right side of the statement of
financial position.

5
 3. Financial Position Form
This format emphasizes the
working capital position of
an enterprise. Presented in
vertical form, the current
liabilities are deducted from
current assets to derive
working capital. Non-
current assets are then
added and non-current
liabilities are deducted,
leaving a residual amount as
equity, or net assets.

“Worry a little every day and in a lifetime you will lose a couple of years. If
3.3.4 Events after the Reporting Period something is wrong, fix it if you can. But train yourself not to worry. Worry
never fixes anything.?
of I

PAS 10, paragraph 3, defines events after the reporting period as those events, whether favourable
or unfavourable, that occur between the end of the reporting period and the date on which the
financial statements are authorized for issue.

6
Types of Events after the Reporting Period

1. ADJUSTING EVENTS after the reporting period are those that provide evidence of
conditions that exist at the end of reporting period

a. Settlement after the reporting period of a court case

b. Bankruptcy of a customer
c. Sale of inventories after the reporting period may give evidence about the NRV at
reporting date
d. The determination after the reporting period of the cost of assets purchased or the
proceeds from assets sold before the end of reporting period
e. The determination after the reporting period of the profit sharing or bonus payment
if the entity has the present obligation at the end of the reporting period to make
such payment.
f. The discovery of fraud or errors that show the financial statements were incorrect.

2. NONADJUSTING EVENTS after the reporting period are those that are indicative of
conditions that arise after the end of reporting period.

a. Business combination after the reporting period

b. Plan to discontinue an operation
c. Major purchase and disposal of asset or expropriation of major asset by government
d. Destruction of a major production plant by a fire after the reporting period
e. Major ordinary share transactions and potential ordinary share transactions after
the reporting period
f. Announcing or commencing the implementation of a major restructuring
g. Abnormally large changes after the reporting in asset prices or foreign exchange
rates
h. Entering into significant commitments or contingent liabilities, for example, by
issuing guarantees
i. Commencing major litigation arising solely from events that occurred after the
reporting period
j. Change in tax rate enacted or announced after the end of reporting period that has
a significant effect on current and deferred tax asset and liability

3.3.5 Notes to the financial statements “The world is passing away and the lust of it; but he who does
the will of God abides forever.”
The notes must: [PAS 1.112]
of I

1. present information about the basis of preparation of the financial statements and the
specific accounting policies used;
2. disclose any information required by PFRSs that is not presented elsewhere in the financial
statements; and
3. provide additional information that is not presented elsewhere in the financial statements
but is relevant to an understanding of any of them.

Notes are presented in a systematic manner and cross-referenced from the face of the financial
statements to the relevant note. [PAS 1.113]

7
PAS 1.114 suggests that the notes should normally be presented in the following order:
1. a statement of compliance with PFRSs
2. a summary of significant accounting policies applied, including: [PAS 1.117]
 the measurement basis (or bases) used in preparing the financial statements
 the other accounting policies used that are relevant to an understanding of the
financial statements

3. supporting information for items presented on the face of the statement of financial
position (balance sheet), statement(s) of profit or loss and other comprehensive income,
statement of changes in equity and statement of cash flows, in the order in which each
statement and each line item is presented other disclosures, including:
 contingent liabilities (see PAS 37) and unrecognised contractual commitments
 non-financial disclosures, such as the entity's financial risk management objectives
and policies (see PFRS 7 Financial Instruments: Disclosures)

Other disclosures
1. Judgements and key assumptions
An entity must disclose, in the summary of significant accounting policies or other notes,
the judgements, apart from those involving estimations, that management has made in the
process of applying the entity's accounting policies that have the most significant effect on
the amounts recognised in the financial statements. [PAS 1.122] Examples are
management’s judgement in determining:
 when substantially all the significant risks and rewards of ownership of financial
assets and lease assets are transferred to other entities
 whether, in substance, particular sales of goods are financing arrangements and
therefore do not give rise to revenue.

An entity must also disclose, in the notes, information about the key assumptions
concerning the future, and other key sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year. [PAS 1.125] These
disclosures do not involve disclosing budgets or forecasts. [PAS 1.130]

2. Dividends
In addition to the distributions information in the statement of changes in equity, the
following must be disclosed in the notes: [PAS 1.137]
 the amount of dividends proposed or declared before the financial statements were
authorised for issue but which were not recognised as a distribution to owners
during the period, and the related amount per share
 the amount of any cumulative preference dividends not recognised.

8
 3. Capital disclosures
An entity discloses information about its objectives, policies and processes for managing
capital. [PAS 1.134] To comply with this, the disclosures include: [PAS 1.135]
 qualitative information about the entity's objectives, policies and processes for
managing capital, including>
 description of capital it manages
 nature of external capital requirements, if any
 how it is meeting its objectives
 quantitative data about what the entity regards as capital
 changes from one period to another
 whether the entity has complied with any external capital requirements and if it has
not complied, the consequences of such non-compliance.

4. Puttable financial instruments

PAS 1.136A requires the following additional disclosures if an entity has a puttable
instrument that is classified as an equity instrument:
 summary quantitative data about the amount classified as equity
 the entity's objectives, policies and processes for managing its obligation to
repurchase or redeem the instruments when required to do so by the instrument
holders, including any changes from the previous period
 the expected cash outflow on redemption or repurchase of that class of financial
instruments and
 information about how the expected cash outflow on redemption or repurchase was
determined.

5. Other information
The following other note disclosures are required by PAS 1 if not disclosed elsewhere in
information published with the financial statements: [PAS 1.138]
 domicile and legal form of the entity
 country of incorporation
 address of registered office or principal place of business
 description of the entity's operations and principal activities
 if it is part of a group, the name of its parent and the ultimate parent of the group
 if it is a limited life entity, information regarding the length of the life

Note:
Kindly check out your study planner. To indicate that you have finished grasping the key points at
this part of the module, tick on the checklist for Statement of Financial Position.

9
Self-Check

1. Explain the analysis of information an investor obtains from a statement of financial

position.
2. When is an asset classified as current? As non-current? Give examples of each
classification.
3. When is a liability classified as current? As non-current? Give examples of each
classification.
4. Classify each of the following accounts if it is Current Asset, Noncurrent Asset, Current
Liability, Noncurrent Liability or Equity.

a. Cash dividends payable

b. Investment in associates
c. Deferred tax asset
d. Unappropriated retained earnings
e. Accumulated Depreciation

5. Prepare a properly classified Statement of Financial Position for RESULA, Inc. as of

December 31, 2019 with appropriate notes to support line items presented on the
face of the statement.

Accounts payable P 236,000

Accounts receivable 115,000
Accumulated amortization – patents 22,000
Accumulated amortization – trademarks 17,0000
Accumulated depreciation – buildings 530,000
Accumulated depreciation – equipment 351,000
Accumulated profits 262,000
Allowance for bad debts 8,000
Appropriated accumulated profits 45,000
Bonds payable (due in 2020) 800,000
Buildings 1,440,000
Cash and cash equivalents 86,250
Deferred tax liability 50,000
Discount on bonds payable 69,000
Equipment 624,000
Income tax payable 150,000
Inventory 322,000
Investments in associates 250,000
Land (including land with an undetermined future use
acquired in December 2018 for P1,000,000) 1,250,000
Ordinary share capital, P10 par 1,300,000
Share Premium – preference 81,000
Share premium – ordinary 240,000
Patents 120,000
Preference share capital, P100 par 210,000
Salaries payable 20,000
Share dividends distributable 24,000
SSS premium payable 21,250
Trademarks 60,000
Financial assets at fair value through profit or loss 61,000
Withholding taxes payable 30,000

Refer to the Answer key for numbers 4 and 5’s answers.

10
 ANSWERS KEY

RESULA, INC.

a. Cash dividends payable

b. Investment in associates
c. Deferred tax asset
d. Unappropriated retained earnings
e. Accumulated Depreciation

(REPORT FORM)
RESULA, INC.
Statement of Financial Position
December 31, 2019

Assets

Current assets Note

Cash and cash equivalents P 86,250
Financial assets at FVPL 61,000
Trade and other receivables (5) 107,000
Inventory 322,000 P 576,250
Non-current assets
Property, plant and equipment (6) P1,433,000
Investment property 1,000,000
Investments in associates 250,000
Intangibles (7) 141,000 2,824,000
TOTAL ASSETS P3,400,250

Liabilities and Shareholders’ Equity

Current liabilities
Trade and other payables (8) P 307,250
Bonds payable (due 2018),
net of P69,000 discount 731,000
Income tax payable 150,000 P1,188,250
Noncurrent liabilities
Deferred tax liability 50,000
Shareholders’ equity
Share capital (9) P 1,534,000
Additional paid in capital (10) 321,000
Accumulated profits (11) 307,000 2,162,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P3,400,250

Note 5 – Trade and other receivables

Accounts receivable P115,000
Less allowance for bad debts _____8,000
Net trade and other receivables P107,000

11
Note 6 – Property, plant and equipment
Land P 250,000
Buildings P1,440,000
Less accumulated depreciation ____530,000 910,000
Equipment P 624,000
Less accumulated depreciation ____351,000 ____273,000
Total property, plant and equipment P1,433,000

Note 7 – Intangibles
Patents P120,000
Less accumulated amortization ___22,000 P 98,000
Trademarks P 60,000
Less accumulated amortization ___17,000 ____43,000
Total P141,000

Note 8 – Trade and other payables

Accounts payable P236,000
Salaries payable 20,000
Withholding taxes payable 30,000
SSS premiums payable ___21,250
Total P307,250

Note 9 – Share capital

Preference share capital, P100 par P 210,000
Ordinary share capital, P10 par 1,300,000
Share dividends distributable _____24,000
Total P1,534,000

Note 10 – Additional paid-in capital

Share premium –preference P 81,000
Share premium –ordinary __240,000
Total P321,000

Note 11 – Accumulated profits

Appropriated P 45,000
Unappropriated __262,000
Total retained earnings P307,000

12