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FABM2 Lesson 2

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Shien Shen
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10 views

FABM2 Lesson 2

Uploaded by

Shien Shen
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 36

STATEMENT

OF
FINANCIAL
POSITION
ASSET
“a resource controlled by the
entity as result of past events
and from which future economic
benefits are expected to flow to
the entity”
(Conceptual Framework for Financial
Reporting)
CLASSIFICATION OF
ASSETS

• Current Assets
• Non-current assets
CURRENT ASSETS

• IAS 1, provides the following criteria for an


asset to be classified as current
Expected to be realized, sold or
consumed in the entity’s normal
operating cycle
The period it takes for an
entity to buy its inventories,
sell them and collect the
related receivables
CURRENT ASSETS

• IAS 1, provides the following criteria for


an asset to be classified as current
Held primarily for trading
 short profit taking
motives
ABC Company purchases shares of
DEF Company, a listed entity in the
Philippine Stock Exchange, for
P100,000.00. The intention or business
model of ABC Company for these
instruments is for short-term profit taking.
This means that ABC Company may sell
the shares once they hit a market price
higher than the original costs.
CURRENT ASSETS
• IAS 1, provides the following criteria for an asset to be
classified as current
Expected to be realized 12 months after
the reporting period
For assets not classified in either of the
items above, entities are to consider
their realization period.
If the realization period is within 12
months after the reporting period, then
the asset is current.
CURRENT ASSETS
• IAS 1, provides the following criteria for an
asset to be classified as current
Asset is cash or cash equivalent
unless restricted for at least 12
months after the reporting
period
 cash and cash equivalents are
treated as current assets unless
they are restricted for at least 12
months
A normal checking account in ABC
Bank is classified as a current asset.
However, such asset ceases to be
current if the same is earmarked for a
plant expansion expected to commence
in five years.
CLASSIFICATION OF
CURRENT ASSETS
CURRENT ASSETS EXAMPLES

1. Cash and Cash Equivalents


- a short term, highly
liquid investments that are
readily convertible to known
amounts of cash and which
are subject to an insignificant
risk of changes in value
COMPOSITION OF CASH
CURRENT ASSETS EXAMPLES

2. Trade Account
Receivables
- amounts owed by
customers for goods
bought or for services
received from the entity.
CURRENT ASSETS EXAMPLES

3. Notes Receivables
- evidenced by a promissory note
 3 key elements:
- principal amount of the amount
collectible by the entity from customer
- would have maturity dates upon the
date of issue
- must have a corresponding interest
rate
CURRENT ASSETS EXAMPLES

4. Interest Receivables
- collectible amount
due to the cost of
borrowing money
CURRENT ASSETS EXAMPLES

5. Financial Assets at Fair Value through profit or loss


- debt or equity instruments of another entity
6. Inventories
 Finished Goods - for resell in the normal course of business
 Work in Progress - Goods in the process of production
 Raw Materials – includes materials and supplies to be
consumed in the production process
CURRENT ASSETS EXAMPLES

7. Supplies and Other Prepaid


Assets
Supplies - includes office
supplies to be consumed by
the business and prepaid
assets
Other Prepaid Assets - rent
paid in advance

ex. Prepaid Rent


PREPAID RENT
NON-CURRENT ASSETS EXAMPLES

1. Property, Plant and


Equipment-
• - includes fixed assets used in the
normal operating cycle or
production of the business.
- the most common examples are
land and building being used by the
company, manufacturing plants,
manufacturing equipment, vehicles,
furniture and fixtures, and leasehold
NON-CURRENT ASSETS EXAMPLES

2. Intangible Assets
- assets meeting the definition of
an asset but without physical
substance.
- the most common examples are
trademarks for brand names,
patents for inventions and copyrights
for artistic/literary works.
NON-CURRENT ASSETS EXAMPLES

3. Investment Properties
- long-lived assets not used in
production, intended to be leased out or
for long-term asset appreciation.
- example is a piece of land with a
building
intended to be leased out to
renters and will generate rental
income for the entity.
NON-CURRENT ASSETS EXAMPLES

4. Biological Assets
- living plants or animals held by
the business for resale or breeding
- Examples are sheep, trees in
plantation, dairy cattle, pigs, bushes,
figs and fruit trees.
LIABILITIES
“present obligation…arising from
past events the settlement of which
is expected to result in an outflow
from the entity of resources
embodying economic benefits”
(Conceptual Framework for Financial
Reporting)
CLASSIFICATION OF
LIABILITIES

• Current liabilities
• Non-current liabilities
CURRENT LIABILITIES

- debts that are due


to be paid within
one year or within
the entity’s operating
cycle if the cycle is
longer than a year.
CURRENT LIABILITIES EXAMPLES

Trade accounts payable

an unwritten promise to
pay a supplier for an asset
purchased or for a service
rendered
CURRENT LIABILITIES EXAMPLES

Notes Payable

- a formal written promise to


pay a supplier or lender a
specific sum of money at a
definite future time
- promissory note
CURRENT LIABILITIES EXAMPLES

Interest Payable

- related to a note payable since it


is considered as cost for
borrowing money.
- Interest are computed as principal
amount multiplied by time factor
and interest rate.
CURRENT LIABILITIES EXAMPLES

Other Accrued Expenses

- an expense that has been


incurred but not yet paid in cash.
- the most common examples of
accrued expenses are salaries,
rent and utilities.
NON-CURRENT LIABILITIES

- also known as long-term


liabilities
- debts or financial
obligations that are
expected to be paid after
a year.
NON-CURRENT LIABILITIES EXAMPLES

Long Term Debt

- represent bank loans as a


source of financing for the
entity
- they can be in a span of five
years to twenty-five years.
NON-CURRENT LIABILITIES EXAMPLES

Bonds Payable

- form of long-term debt usually issued


by corporations and the governments
- the issuer to the bond makes a formal
promise/agreement to pay interest
usually every six months (semiannually)
and to pay the principal or maturity
amount at a specified date some years in
the future.
EQUITY
- what the business is
worth.
- It is the residual
interest of the owner in
the business
- assets minus liabilities
OWNER’S EQUITY
STATEMENT OF FINANCIAL
POSITION
STATEMENT OF FINANCIAL
POSITION

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