F1 3.02 The Statement of Financial Position

The Statement of Financial Position

The statement of financial position presents the entity’s assets, liabilities and equity at the end of the financial period. IAS 1 Presentation of Financial Statements identifies a wide range of lines that may be included in the statement that are shown below. Note that an entity such as a company may use alternative lines in its statement if it believes that it is relevant to an understanding of the company.

IAS 1 lines (Nb. lines that are seen in this course are shown in bold)

Assets
  • Property, plant and equipment
  • Investment property
  • Intangible assets
  • Financial assets
  • Investments accounted for using the equity method
  • Biological assets
  • Inventories
  • Trade and other receivables
  • Cash and cash equivalents
  • The total of assets classified as held for sale and assets included in disposal groups classified as held for sale
  • Current tax assets
  • Deferred tax assets
Liabilities and Equity
  • Trade and other payables
  • Provisions
  • Financial liabilities
  • Current tax liabilities
  • Deferred tax liabilities
  • Liabilities included in disposal groups
  • Non-controlling interests, presented within equity
  • Issued share capital and reserves attributable to owners of the parent

Current and non-current items

The Statement of Financial Position must distinguish its assets and liabilities between those that are current and those that are non-current.

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

Note that a Non-Current Asset is any asset that is not classed as a Current Asset

Quick question
Which of the following should be classed as a current asset of a company?
1. An amount owed to the company by a customer and which is expected to be received in 90 days
2. A crane used in the manufacture of products and which is expected to be used for 12 years
3. Work-in-progress to date on the manufacture of industrial boilers for sale to customers
4. A company’s overdrawn bank account balance
5. Loans made to employees which are being paid via deductions from their pay over the next nine months
Click here to reveal the answer
  1. Current asset
  2. Non-current asset
  3. Current asset
  4. Current liability
  5. Current asset
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. It does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period

Note that a Non-Current Asset is any liability that is not classed as a Current Liability

Quick question
Which of the following should be classed as a current liability?
1. A company’s bank overdraft, note that the account has been overdrawn for three years
2. A refund due from HMRC in respect of VAT
3. An accrual for electricity used in final two months of the financial year
4. Debentures repayable in five years’ time
5. Amounts payable to a supplier in 120 days time
Click here to reveal the answer
  1. Current liability (it is a current liability as the bank can insist on immediate repayment at any time)
  2. Current asset
  3. Current liability
  4. Non-current liability
  5. Current liability

Information included in the Notes to the Financial Statements

The Notes to the Financial Statements provide analyses, or breakdowns, of most of the lines in the Statement of Financial Position. For example:

  • Property, plant and equipment are analyzed in the notes between different categories such as Land & Buildings, Plant & Machinery, Motor Vehicles, IT Equipment and so on. The analysis will include details of each category’s cost, accumulated depreciation and carrying values
  • Trade and other receivables are typically analyzed between those debts owed by its customers (i.e. trade receivables), amounts due from related parties (e.g. other group companies) and prepaid expenses and accrued income
  • Inventories are classified between types of inventories (e.g. raw materials, work-in-progress and finished goods)
  • Trade and other payables are typically analyzed between those amounts due to trade suppliers (i.e. trade payables), amounts due to related parties and accrued expenses and prepaid income
  • The share capital note provides for each class of shares details of the number of shares in issue, the number issued but not fully paid as well as the nominal value per share

Common layouts of the Statement of Financial Position

There are two layouts that are commonly in use when preparing the Statement of Financial Position (note that examiners have been known to use both layouts in questions).

Layout 1 presents assets, liabilities and equity in the following order
  1. Non-current assets
  2. Current assets
  3. Current liabilities
  4. Non-current liabilities
  5. Equity

An example of this type of Statement of Financial Position is shown below

Notes

  1. Net Current Assets are calculated as Current Assets less Current Liabilities
  2. Net Assets are calculated as total assets less total liabilities
  3. The column headed Notes tells users where additional information can be located in the Notes to the Financial Statements
Layout 2 presents assets, liabilities and equity in the following order
  1. Non-current assets
  2. Current assets
  3. Equity
  4. Non-current liabilities
  5. Current liabilities

An example of this type of Statement of Financial Position is shown below