VALIX

Chapter 5
Statement of Financial
Position
Financial Statements are the means by which
the information accumulated and processed in
financial accounting is periodically
communicated to the users.

FS are the end product or main output of the

financial accounting process.

FS are a structured financial representation of the

financial position and financial performance of an
entity.
General purpose financial statements:

1. Statement of Financial Position

2. Income Statement
3. Statement of Comprehensive Income
4. Statement of Changes in Equity
5. Statement of Cash Flows
6. Notes, comprising a summary of significant
accounting policies and other explanatory
notes
Objective of financial statements:

- To provide information about the financial

position, performance and cash flows of an
entity that is useful to a wide range of users in
making economic decisions

- a. Assets
b. Liabilities
c. Equity
d. Income & expenses, incl gains & losses
e. Contributions by and distributions to owners
in their capacity as owners
f. Cash flows
Frequency of Reporting:

- FS shall be presented at least annually. If FS

are presented for a period longer or shorter than
one year, an entity shall disclose

a. The period covered by the FS

b. The reason for using a longer or shorter period
c. The fact that amounts presented in the FS are
not entirely comparable
 Statement of financial position
is a formal statement showing the three elements
comprising financial position, namely assets,
liabilities and equity

SFP is analyzed to evaluate:

1. Liquidity
2. Solvency
3. Need for additional financing
 ASSETS – resources controlled by the entity as
a result of past events and from which
future economic benefits are expected to
flow to the entity.

Characteristics:

1. The asset is controlled by the entity

2. The asset is the result of a past event
3. The asset provides future economic benefits
4. The cost of the asset can be measured reliably
CURRENT ASSETS

PAS 1, paragraph 66 provides that an entity

shall classify an asset as current asset when:

1. The asset is cash or a cash equivalent unless

the asset is restricted to settle a liability for
more than 12 months after the reporting
period.

2. The entity holds the asset primarily for the

purpose of trading
3. The entity expects to realize the asset
within 12 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.
PRESENTATION OF CURRENT ASSETS
Current assets are listed in the statement of financial position in the order of
liquidity

PAS 1, paragraph 54, provides that as a minimum, the line

items under current assets are

a. Cash and cash equivalents

b. Financial Assets at fair value such as trading
securities and other investments quoted in equity
instruments
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
NONCURRENT ASSETS
- A residual definition

PAS 1, paragraph 66 states that an entity shall

classify all other assets not classified as current
as noncurrent assets.

1. Property, plant and equipment

2. Long-term investments
3. Intangible assets
4. Deferred tax assets
5. Other noncurrent assets
PROPERTY, PLANT & EQUIPMENT

PAS 16, paragraph 6 defines PPE 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.

Major characteristics:

1. Tangible assets
2. Used in business – production/supply/rental/administrative
3. Expected to be used for more than one year
PROPERTY, PLANT & EQUIPMENT

Examples of PPE
- Land
- Building
- Machinery
- Ship
- Aircraft
- Motor vehicle
- Furniture and fixtures
- Office equipment
- Patterns
- Molds and dies
- Tools
- Leasehold improvements
- Book plates
PROPERTY, PLANT & EQUIPMENT

- Presented at cost less accumulated

depreciation

- Except Land
LONG-TERM INVESTMENTS

Investment is 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 relationship

Current Investment – an investment that is by nature readily realizable and

is intended to be held for not more than one year.

Long-term investment – an investment other than current investment or

investment intended to be held for more than one year
LONG-TERM INVESTMENTS
Examples of Long-term Investments

1. Investments in securities of other entities , such as shares, bonds,

and other debt instruments

2. Investment in subsidiaries

3. Investments in associates accounted for by the equity method

4. Investment in funds accumulated for a particular purpose, such as

sinking fund, plant expansion fund and preference share
redemption fund.

5. Investment property

6. Cash surrender value of life insurance policy

7. Investment in Joint Venture

INTANGIBLE ASSETS
PAS 38 defines an intangible asset as an identifiable nonmonetary
asset without physical substance.

Par 8 – it must be controlled by the entity as a result of past event and

from which future economic benefits are expected to flow to the entity

Intangible asset is identifiable:

1. When it is separable or capable of being sold, transferred,

licensed, rented or exchange separate from the entity

2. When it arises from contractual or other legal right

Examples: Identifiable – patent, franchise, copyright, lease rights,

trademark, computer software
Unidentifiable: goodwill
OTHER NONCURRENT ASSETS
Assets that do not fit into the definition of noncurrent assets

Includes long-term advances to officers, directors, shareholders and

employees; abandoned property; long-term refundable deposit
LIABILITIES – present obligations of an entity
arising from past transactions or events, the
settlement of which is expected to result in an
outflow from the entity of resources embodying
economic benefits.

Characteristics:

1. It is the present obligation of a particular entity.

(the entity must be identified)
2. The liability arises from past transaction or event.
3. The settlement of the liability requires an outflow
of resources embodying economic benefits
 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 primarily for the
purpose of trading.
3. The liability is due to be settled within 12 months
after the reporting period.
4. The entity does not have an unconditional right
to defer settlement of the liability for at least
12 months after the reporting period.
 CURRENT LIABILITIES

PAS 1, par. 54 provides that as a minimum,

the face of the statement of financial position
shall include the following line items:

1. Trade and other payables

2. Current provisions
3. Short-term borrowings
4. Current portion of long-term debt
5. Current tax liability
NONCURRENT LIABILITIES

PAS 1, par. 69 – liabilities not classified as

current are classified as noncurrent.

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
EQUITY – the residual interest in the assets of
an entity after deducting all of its
liabilities.

1. Owner’s equity
2. Partners’ equity
3. Shareholders’ equity
SHAREHOLDERS’ EQUITY

ELEMENTS:
Philippine Term IAS Term

Capital stock Share capital

Subscribed capital stock Subscribed share capital
Common stock Ordinary share capital
Preferred stock Preference share capital
APIC Share premium
Retained earnings(deficit) Accumulated profits(loss)
RE appropriated Appropriation reserve
Revaluation surplus Revaluation reserve
Treasury stock Treasury share
NOTES TO FINANCIAL STATEMENTS

- Provide narrative description or

disaggregation of items presented in the
financial statements and information about
items that do not qualify for recognition.

- Used to report information that do not fit into

the body of the financial statements in order
to enhance the understandability of the FS
Forms of SFP:

a. Report form
b. Account Form
Line items in SFP:

1. Cash and Cash Equivalents

2. Financial Assets (other than 1, 3 & 6)
3. Trade and other receivables
4. Inventories
5. Property, plant & equipment
6. Investment in associates accounted for by the equity method
7. Intangible assets
8. Investment property
9. Biological assets
10. Total of assets classified as held for sale and assets included in
disposal group classified as held for sale
11. Trade and other payables
12. Current tax liability
13. Deferred tax asset and deferred tax liability
14. Provisions
15. Financial liabilities (other than 11 & 14)
16. Liabilities included in disposal group classified as held for sale
17. Noncontrolling interest
18. Share capital and reserves
END OF CHAPTER 2