ISU MODULE TEMPLATE

Subject: INTERMEDIATE ACCOUNTING III

Title of the Module

Chapter 2: Statement of Financial Position
Learning Outcome
At the end of the chapter, the students should be able to:
 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

STATEMENT OF FINANCIAL POSITION

 A statement of financial position is a formal statement showing the three elements comprising financial position,
namely assets, liabilities and equity.
 Shows the entity’s financial condition as at a certain date
 It includes line items

Presentation
a. Classified presentation shows distinction between the current and noncurrent assets and current and noncurrent liabilities.

b. Unclassified presentation (also called based on liquidity) shows no distinction between current and noncurrent items.

Report Form – this form sets forth the three major sections in a downward sequence of assets, liabilities and equity

Account Form – the presentation follows that of an account, meaning, the assets are shown on the left side and the liabilities and
equity on the other side of the financial position.

PAS 1 does not prescribe the order of presenting items in the statement of financial position. An entity may modify the
description used and the sequence of their presentation to suit the nature of the entity and its transactions. Moreover, additional
line item may be presented whenever relevant to the understanding of the entity’s financial position.

PAS 1 also permits a mixed presentation, i.e., presenting some assets and liabilities using a current/noncurrent classification and
other in order of liquidity.

CLASSIFIED UNCLASSIFIED
ASSET
S ASSETS
X
Current Assets Cash and cash equivalents X
X
Cash and cash equivalents XX Trade and other receivables X
X
Trade and other receivables XX Inventories X
X
Inventories XX Investments in equity instruments X
X
Other current assets XX Property, plant and equipment X
X
Total Current Assets XX Other intangible assets X
X
Non-current Assets Goodwill X
Investments in equity X
instruments XX Other assets X
X
Property, plant and equipment XX Total Assets X
Other intangible assets XX
 Goodwill XX
Total Non-current assets XX
Total Assets XX

Investors, creditors and other statement users analyze the statement of financial position to evaluate such factors as liquidity,
solvency and the need to of the entity for additional financing.

Information about liquidity and solvency is useful in predicting the ability of the entity to comply with future financial
commitments and to pay dividends to shareholders.

Assets

 The revised conceptual framework defines an asset as a present economic resource controlled by the entity as a result of
past events.

Current Assets

PAS 1, provides that an entity shall classify an asset as current when:

 The asset is a cash or cash equivalent unless the asset is restricted to settle a liability for more than twelve months after
the reporting period.
 The entity holds the asset primarily for the purpose of trading
 The entity expects to realize the asset within twelve months after the reporting period
 The entity expects to realize the assets or intends to sell or consume it within the entity’s normal operating cycle.

Cash and cash equivalents

 This includes cash on hand, petty cash fund, cash in bank and any cash equivalent
 Shall be unrestricted in use, meaning available anytime for the payment of current obligations.

PAS 7, defines cash equivalents as short-term, highly liquid investments that are readily convertible in known amount of cash
and which are subject to insignificant risk of changes in value.

Presentation of Current Assets

Current assets are usually listed in the statement of financial position on the order of liquidity.

PAS 1, provides that as a minimum the line items under the current assets are:

a. cash and cash equivalents

b. financial assets at fair value through profit or loss, such as trading securities and other investments in quoted equity
instrument
c. trade and other receivables
d. inventories
e. prepaid expenses

Noncurrent Assets

PAS 1, simply states that “an entity shall classify all other assets not classified as current as noncurrent assets”.

Accordingly, noncurrent assets include the following:

a. property, plant and equipment

b. long-term investments
c. intangible assets
d. other noncurrent assets

Property, Plant and Equipment

PAS 16, defines property, plant and equipment as 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

The International accounting Standards Committee defines investments as 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 relationships.

Intangible Assets

PAS 38, simply defines an intangible asset as an identifiable nonmonetary asset without physical substance.

The most common examples of identifiable intangible assets include patent, franchise, copyright, trademark and computer
software.

Liabilities

Under the revised conceptual framework, a liability is defined as a present obligation of an entity to transfer an economic
resource as a result of past events.

Current liabilities

PAS 1, provides that an entity shall classify a liability as current when:

 The entity expects to settle the liability within the entity’s normal operating cycle
 The entity’s hold the liability primarily for the purpose of trading
 The liability is due and to be settled within twelve months after reporting period
 The entity’s does not have an unconditional right to defer settlement of the liability for at least twelve months after the
reporting period

Presentation of current liabilities

PAS 1, 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 payable

b. current provisions
c. short-term borrowings
d. current portion of long-term debt
e. current tax liability

Noncurrent Liabilities

PAS 1, simply states that all liabilities not classified as current liabilities are classified as noncurrent liabilities.

Examples of noncurrent liabilities

a. Noncurrent portion of long-term debt

b. lease liability
c. deferred tax liability
d. long-term obligations to entity officers
e. long-term deferred revenue

Working Capital
 Is the excess of current assets over current liabilities
 The entity’s liquidity is of primary concern to most statement users.
Equity
 Is the residual interest in the assets of the entity after deducting all of the liabilities
 Increased by profitable operations and contribution by owners
 Decreased by unprofitable operation and distribution to owners

Illustration: Preparation of Financial Position

ABC Co. post-closing trial balance on December 31, 2021 shows the following account
balances:

Accounts Dr Cr
Petty cash fund 15,000.00
Cash in Bank 1,900,000.00
90-day money market instruments 800,000.00
Accounts receivable 122,000.00
Allowance for bad debts 30,000.00
Notes receivable (trade) 8,000.00
Inventory 200,000.00
Land 6,000,000.00
Building 10,000,000.00
Accumulated Depreciation – Building 7,200,000.00
Equipment 800,000.00
Accumulated Depreciation – Equipment 250,000.00
Patent 350,000.00
Accumulated Amortization – Patent 315,000.00
Trademark 120,000.00
Accounts payable 100,000.00
Notes payable - short term loan 200,000.00
Notes payable - long term loan (P50,000 due 1 year 1,450,000.00
Income tax payable 670,000.00
Interest payable 65,000.00
Salaries payable 105,000.00
Utilities payable 8,000.00
Unearned income 35,000.00
Provision for warranty obligation 260,000.00
Deferred tax liability 70,000.00
Share capital 3,500,000.00
Retained earnings 5,440,000.00
Revaluation surplus 260,000.00
Cumulative translation gain - foreign operation 357,000.00
Totals 20,315,000.00 20,315,000.00

Requirement: Prepare the statement of financial position.

 ABC Company
Statement of Financial Position
As of December 31, 2021
(amounts in Philippine Pesos)

Notes 2021 2020

ASSETS
Current Assets
Cash and cash equivalents 1 2,715,000.00 2,800,000.00
Trade and other receivables 2 100,000.00 280,000.00
Inventories 200,000.00 180,000.00
Total current assets 3,015,000.00 3,260,000.00
Noncurrent Assets
Property, Plant and Equipment 3 9,350,000.00 7,012,500.00
Intangible assets 4 155,000.00 186,000.00
Total noncurrent assets 9,505,000.00 7,198,500.00
Total Assets 12,520,000.00 10,458,500.00

LIABILITIES AND EQUITY

Current liabilities
Trade and other payables 5 313,000.00 200,000.00
Short-term borrowings 200,000.00 -
Current tax payable 670,000.00 490,000.00
Current portion of long-term borrowings 6 50,000.00 50,000.00
Provisions 260,000.00 -
Total current liabilities 1,493,000.00 740,000.00
Noncurrent liabilities
Long-term borrowings 6 1,400,000.00 1,450,000.00
Deferred tax liability 70,000.00 90,000.00
Total noncurrent liabilities 1,470,000.00 1,540,000.00
Total Liabilities 2,963,000.00 2,280,000.00
Equity
Share capital 7 3,500,000.00 1,000,000.00
Retained earnings 5,440,000.00 6,684,900.00
Other components of equity 8 617,000.00 493,600.00
Total equity 9,557,000.00 8,178,500.00
Total Liabilities and Equity 12,520,000.00 10,458,500.00
This statement should be read in conjunction with the accompanying notes

Note 1: Cash and cash equivalents

This line item consists of the following:

Cash on hand 15,000.00

Cash in bank 1,900,000.00
Cash equivalents 800,000.00
Cash and cash equivalents 2,715,000.00

Note 2: Trade and other receivables

This line item consists of the following:
Accounts receivable 122,000.00
Allowance for bad debts (30,000.00)
Notes receivable 8,000.00
Trade and other receivables 100,000.00

Property, plant and

Note 3: equipment
This line item consists of the following:

Land 6,000,000.00
Building 10,000,000.00
Accumulated Depreciation -Building (7,200,000.00)
Equipment 800,000.00
Accumulated Depreciation -Equipment (250,000.00)
Property, plant and equipment 9,350,000.00

Note 4: Intangible assets

This line item consists of the following:

Patent 350,000.00
Accumulated depreciation - Patent (315,000.00)
Trademark 120,000.00
Intangible assets 155,000.00

Note 5: Trade and other payable

This line item consists of the following:

Accounts payable 100,000.00

Interest payable 65,000.00

Salaries payable 105,000.00

Utilities payable 8,000.00

Unearned income 35,000.00

Trade and other payables 313,000.00

Note 6: Current and Noncurrent portion of Long-term borrowings

This line item consists of the following:

Current portion 50,000.00

Noncurrent portion 1,400,000.00
Total long-term borrowings 1,450,000.00

Note 7: Share Capital

This line item consists of the following:

Shares Amounts

2021 2020 2021 2020

Common shares - P10 par value

Authorized - 1,000,000 shares

Issued and outstanding

Balance at beginning of the year 100,000.00 100,000.00 1,000,000.00 1,000,000.00

Issued during the year 250,000.00 - 2,500,000.00 -

Balance at the end of the year 350,000.00 100,000.00 3,500,000.00 1,000,000.00

Note 8: Other components of equity

This line item consists of the following:

Revaluation surplus 260,000.00

Cumulative translation gains on foreign operations 357,000.00

Total other components of equity 617,000.00