Statement of Financial Position

Learning Objectives
1. Enumerate and describe the
components of a complete set of
financial statements.
2. Classify assets and liabilities into
current and noncurrent.
3. Prepare a statement of financial
position.
Objective of PAS 1

PAS 1 prescribes the basis for presentation of

general purpose financial statements to
improve comparability both with the entity's
financial statements of previous periods and
with the financial statements of other entities.
• General purpose financial statements are
those intended to serve users who do not have the
authority to demand financial reports tailored for
their own needs. General purpose financial
statements are those statements that cater to most of
the common needs of a wide range of external users.
General purpose financial statements are the subject
matter of the Conceptual Framework and the PFRSs.
• Types of comparability
1. Intra-comparability
2. Inter-comparability
Complete set of financial statements

1. Statement of financial position

2. Statement of profit or loss and other
comprehensive income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes
(5a) comparative information in respect of the
preceding period; and
6. A statement of financial position as at the
beginning of the preceding period when an entity
applies an accounting policy retrospectively or
makes a retrospective restatement of items in its
financial statements, or when it reclassifies items
in its financial statements.
General features

1. Fair Presentation and Compliance

with PFRSs - The application of PFRSs,
with additional disclosure when necessary,
is presumed to result in financial statements
that achieve a fair presentation.
2. Going concern - An entity is not a going
concern if, as of financial reporting date or prior
to the date of authorization of financial
statements for issue, management either
a. Intends to liquidate the entity or to cease
trading, or
b. Has no realistic alternative but to do so.
• The assessment of going concern is at least 12
months.
3. Accrual Basis of Accounting - An entity
shall prepare its financial statements, except for
cash flow information, using the accrual basis of
accounting.

4. Materiality & Aggregation - Each material

class of similar items must be presented separately
in the financial statements.
5. Offsetting - Assets and liabilities, and income
and expenses, shall not be offset unless required
or permitted by a PFRS.
• Measuring assets net of valuation allowances,
for example, obsolescence allowances on
inventories, allowances for doubtful accounts on
receivables, and accumulated depreciation on
property, plant, and equipment are not
offsetting.
6. Frequency of reporting – An entity shall present
a complete set of financial statements (including
comparative information) at least annually.
• When an entity changes the end of its reporting
period and presents financial statements for a period
longer or shorter than one year, an entity shall
disclose the following,
1. The period covered by the financial statements:
2. The reason for using a longer or shorter period, and
3. The fact that amounts presented in the financial
statements are not entirely comparable.
7. Comparative Information
An entity shall present comparative information in
respect of the preceding period for all amounts reported
in the current period’s financial statements, unless other
standards permit or require otherwise.

8. Consistency of presentation - An entity shall

retain the presentation and classification of items in the
financial statements from one period to the next unless:
a. it is apparent that another presentation or
classification would be more appropriate following a
significant change in the nature of the entity’s
operations or a review of its financial statements; or
b. a PFRS requires a change in presentation.
Additional Statement of financial position

• A statement of financial position as at the beginning of

the preceding period shall be presented when an entity
1. Applies an accounting policy retrospectively or
2. Makes a retrospective restatement of items in its
financial statements, or
3. When it reclassifies items in its financial
statements.

…..and the effect of the event to the statement of

financial position as at the beginning of the preceding
period is material.
Statement of Financial Position
 is a formal statement showing the three elements
comprising financial position, namely: assets,
liabilities and equity.

is a structured financial statement that shows the

resources employed by the business, and the
sources from which these resources were acquired.

assets liabilities and owner’s

equity
Liquidity – refers to the ability of the business to
pay its currently maturing obligations (short
term liabilities)

Solvency - is the ability of a company to meet its

long-term financial obligations and still remain
stable.

* they are useful in predicting the ability of the

entity to comply with future financial commitments
and to pay dividends to shareholders
The elements of statement of financial
position

Assets
Liabilities
Equity
• A statement of financial position may be
presented as either

1. Classified (current/non-current
distinction) – showing current and
noncurrent assets and liabilities, or
2.Unclassified (based on liquidity) –
showing no distinction between current and
noncurrent items
 Assets

Previous definition:
- Are resources controlled by the enterprise as a result
of past transactions or events and from which future
economic benefits are expected to flow to the
enterprise.

Revised definition:
A present economic resource controlled by the entity

as a result of past events. An economic resource is a

right that has the potential to produce economic
benefits.
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.
Previous definition of a liability:

A present obligation of the entity arising from past

events, the settlement of which is expected to result in
an outflow from the entity of resources embodying
economic benefits.

Revised definition of a liability

A present obligation of the entity to transfer an

economic resource as a result of past events An
obligation is a duty or responsibility that the entity has
no practical ability to avoid.
Legal-contract, legislation, operation of law
Constructive – result of entity’s actions
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. the entity does not have an unconditional right
to defer settlement of the liability for at least
twelve months after the reporting period.
Currently maturing long-term liabilities

• General rule: Currently maturing long term

liabilities are presented as current liabilities.

• Exceptions:
1. Refinancing agreement fully completed on or before
the balance sheet date – non-current liability
2. Refinancing agreement after the balance sheet date
but before the financial statements are authorized
for issue – non-current liability if the refinancing
is at the discretion of the entity.
Breach of loan agreement

• General rule: A liability that is payable on

demand is a current liability.

• Exception: It is presented as non-current

liability if the lender provides the entity, on
or before the reporting date, a grace
period ending at least 12 months after the
reporting date to rectify a breach of loan
covenant.
Current liabilities:
1. Accounts payable – denotes obligations or
debts of the business on open account.
2. Notes payable - denotes obligations or
debts of the business supported by
promissory note.
3. Bank payable or Loan payable – short-
term financial obligations arising from
borrowings from bank and other financial
institutions
4. Utilities payable – denotes obligations to
utility companies for the use of utilities
in the business operation (light, water,
gas).
5. Salaries payable - denotes unpaid
salaries of employees and workers for the
services rendered as of the reporting date.
6. Interest payable – unpaid interests to
the bank or other financing institutions
because of amounts borrowed.
7. SSS premium payable – represents the
amount withheld from the salaries of
employees and the employer’s unremitted
share contribution to the Social Security
System.
8. Philhealth premium payable – represents
the amount withheld from the salaries
of employees and the employer’s unremitted
share contribution to the Philippine Health
Insurance Corp.
9. Pag--IBIG premium payable – represents the
amount withheld from the salaries of employees
and the employer’s unremitted share
contribution to the Home Development Mutual
Fund.
10. Withholding tax payable – represents the
amount withheld from the salaries of employees.
11. Unearned income – income collected in
advance.
12. Current portion of a long-term debt
Noncurrent liabilities:
Mortgage payable – represents the amount of
long-term liability that is supported by a
collateral.
Bonds payable – represents obligations
supported by a contract of debt.
Long-term bank loan – represents a bank loan
with maturity period beyond one year.

Noncurrent portion of long–term debt

Finance lease liability
Shareholders’ equity:

Share capital
Reserves
Retained earnings
(Treasury shares, at cost)
Share capital:
Preference share capital, P xxx par
value, xxx shares authorized,
xxx shares issued xxx
Subscribed share capital-preference xxx
Less: Subscription receivable xxx xxx
Ordinary share capital, P xxx par
value, xxx shares authorized,
xxx shares issued xxx
Subscribed share capital-ordinary xxx
Less: Subscription receivable xxx xxx
Reserves:
Share premium-preference xxx
Share premium-ordinary xxx
Retained earnings appropriated for… xxx
Revaluation surplus xxx

Retained earnings:
Retained earnings unappropriated xxx
Components of Shareholders’ Equity

 Share capital
Preference share capital
Ordinary share capital
Subscribed share capital
Subscription receivable (deduction from subscribed share
capital)
Share dividends distributable
Discount on share capital (deduction)
Capital liquidated (deduction)
Share premium
 Retained earnings (appropriated and unappropriated)

 Other components of equity

Revaluation surplus
Cumulative unrealized fair value gains/losses on
FVOCI securities
Translation differences of foreign operations
Effective portion of cash flow hedges

 Treasury shares (deduction)

Presentation of Deferred taxes

• Deferred tax liabilities (assets) shall be

presented as noncurrent items in a
classified statement of financial position,
irrespective of their expected dates of
reversal.
Minimum line items in the statement of
financial position
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 classified as held for sale (Groups classified
as held for sale) in accordance with PFRS 5;
k. Trade and other payables;
l. Provisions;
m.Financial liabilities (excluding amounts shown
under (k) and (l));
n. Liabilities and assets for current tax, as defined in
PAS 12 Income Taxes;
o. Deferred tax liabilities and deferred tax assets, as
defined in PAS 12;
p. Liabilities included in disposal groups classified as
held for sale in accordance with PFRS 5;
q. Non-controlling interests, presented within
equity; and
r. Issued capital and reserves attributable to owners
of the parent
Current Assets

Cash – the account title to describe money, either

in paper or in coins and money substitute like
check, postal money orders, bank drafts and
treasury warrants.
Cash Equivalents – are short-term, highly liquid
investments that are readily convertible to known
amount of cash and which are subject to an
insignificant risk of changes in values because of
changes in interest rates.
Petty Cash Fund – the account title for money
placed and set aside for petty or small expenses.
Short-Term Investments - they are investments
placed for the period of more than three months
but not more than 1 year.
Notes Receivable – this is a promissory note
that is received by the business from the
customer arising from rendering of services,
sale of merchandise, etc. This is can either be
an interest bearing or non- interest bearing.
Accounts Receivable - the account title for
amounts collectibles arising from services
rendered to a customer or client on credit sale of
goods to customers on account.

Estimated Uncollectible Accounts – a contra-

asset account to provide for a possible losses
from uncollected accounts. This is a deduction
from the Accounts Receivable.
Advances to Employees – the account title
for amounts collectibles from employees for
allowing them to make cash advances
which are deductible against their salaries
or wages.

Merchandise Inventory – refers to unsold

merchandise at the end of the accounting
period as determined by physical counting
or inventory taking usually done at
December 31.
Unused Supplies – refers to cost of stationery
and other supplies purchased for use but
are left on hand and still unused.

Prepaid Expenses – expenses that are paid in

advance but are not yet incurred or have
not yet expired.
Ex. Prepaid Rent, Prepaid Interest,
Prepaid Insurance, Prepaid Advertising
Noncurrent Assets

Any item not classified as current.

Four sub-classification:
1. Property, plant and equipment
2. Investments
3. Intangibles
4. Other noncurrent assets
Property, Plant and Equipment

- tangible assets which are held by an

enterprise for use in production or supply of
goods and services, for rental to others, or
for administrative purposes, and which are
expected to be used during more than one
period.
Land – account title for the site where the
building used as office or store is
constructed.
Equipment – includes:
calculators, typewriters, adding machines,
computers, steel filing cabinets and the like.
Office Equipment – if used in the office
Store Equipment – if used in the store.
Delivery Equipment – trucks, vans and other
motor vehicles used exclusively for delivering
goods.
Furniture and Fixtures – includes:
chairs, tables, counters, display cases and
the like.
Office Furniture and Fixtures
Store Furniture and Fixtures

Accumulated Depreciation – contra-asset

account and a deduction from the related
asset account.
Long-term investments:

Investments in securities of other entities:

debt or equity securities
Investments in subsidiaries
Investments in associates accounted for by the
equity method
Investments in funds accumulated for a
particular purpose
Investment property
Cash surrender value of life insurance policy
Investment in joint venture
Intangible assets:
Patent
Goodwill
Copyright
Lease rights
Trademark
Computer software

Other noncurrent assets

Equity – is the residual interest in the assets of the entity after deducting all its liabilities.
Order/ Format of Presentation

• PAS 1 does not prescribe the order or

format in which an entity presents items.