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
ASSE
TS ASSETS
X
Current Assets Cash and cash equivalents X
Cash and cash X
equivalents XX Trade and other receivables X
Trade and other X
receivables XX Inventories X
Investments in equity X
Inventories XX instruments X
Property, plant and X
Other current assets XX 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
Property, plant and XX Total Assets X
equipment 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, 2024 shows the
following account balances:
Accounts Dr Cr
Petty cash fund 15,000.00
1,900,000.0
Cash in Bank 0
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
6,000,000.0
Land 0
10,000,000.
Building 00
7,200,000.0
Accumulated Depreciation – Building 0
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 1,450,000.0
due 1 year 0
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
3,500,000.0
Share capital 0
5,440,000.0
Retained earnings 0
Revaluation surplus 260,000.00
Cumulative translation gain - foreign
operation 357,000.00
20,315,000 20,315,000
Totals .00 .00
Requirement: Prepare the statement of financial position.
ABC Company
Statement of Financial Position
As of December 31, 2024
(amounts in Philippine Pesos)
Note
s 2024 2023
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
12,520,000.0
Total Assets 0 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 12,520,000.0 10,458,500.00
0
This statement should be read in conjunction with the
accompanying notes
Note Cash and cash
1: equivalents
This line item consists of the
following:
Cash on hand 15,000.00
1,900,000.
Cash in bank 00
Cash equivalents 800,000.00
Cash and cash 2,715,000
equivalents .00
Note Trade and other
receivables
2:
This line item consists of the
following:
122,000.
Accounts receivable 00
(30,000.
Allowance for bad debts 00)
Notes receivable 8,000.00
Trade and other 100,000
receivables .00
Note Property, plant and
3: equipment
This line item consists of the
following:
Land 6,000,000.00
10,000,000.0
Building 0
(7,200,000.0
Accumulated Depreciation -Building 0)
Equipment 800,000.00
Accumulated Depreciation -Equipment (250,000.00)
9,350,000.0
Property, plant and equipment 0
Note
4: Intangible assets
This line item consists of the
following:
Pate
nt 350,000.00
Accumulated depreciation – Patent (315,000.00)
Trademark 120,000.00
Intangible assets 155,000.00
Trade and other
Note 5: 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
1,400,000.0
Noncurrent portion 0
1,450,000.
Total long-term borrowings 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
100,000.0
Balance at beginning of the year 100,000.00 0 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 350,000.0 100,000. 3,500,000.0 1,000,000.0
year 0 00 0 0
Other components of
Note 8: equity
This line item consists of the
following:
Revaluation surplus 260,000.00
Cumulative translation gains on foreign
operations 357,000.00
617,000.0
Total other components of equity 0
