STATEMENT OF

FINANCIAL POSITION
LEARNING OUTCOMES
• LO1: Describe the definitions of terms
• LO2: Understand the general concepts
• LO3: Describe the structure and content of the
statement of financial position
• LO4: Classify assets
• LO5: Classify liabilities
• LO6: Classify shareholders’ equity

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DEFINITIONS OF TERMS
DEFINITIONS OF TERMS

An asset is 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.

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DEFINITIONS OF TERMS

Three characteristics must be present for an item to qualify as an

asset:
1. The item must provide potential economic benefit, which enables it
to deliver future net cash inflows.
2. The entity is able to receive the benefit and restrict other entities’
access to that benefit.
3. The event which provides the entity with the right to the benefit has
occurred.

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DEFINITIONS OF TERMS

A liability is a present obligation of the entity to transfer an

economic resource as a result of past events.

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DEFINITIONS OF TERMS

Three characteristics must be present for an item to qualify as a

liability:
1. A liability requires that the entity settle a present obligation by
the probable future transfer of an asset on demand or when a
specified event occurs or at a particular date.
2. The obligation is to transfer an economic resource.
3. The event that obligates the entity has occurred.

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DEFINITIONS OF TERMS

Equity is the residual interest in the assets of the entity after

deducting all of its liabilities.

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DEFINITIONS OF TERMS

Equity arises from the ownership relationship and is the basis for
distributions of earnings to the owners. Distributions of entity
assets to owners are voluntary. Equity is increased by owners’
investments and comprehensive income and is reduced by
distributions to owners.

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DEFINITIONS OF TERMS

A statement of financial position (a balance sheet) presents an

entity’s assets, liabilities and equity as at a specific date.

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GENERAL CONCEPTS
GENERAL CONCEPTS

Assets and liabilities are recorded at cost or fair value at

inception in the financial statements, which for assets and
liabilities arising from arm’s-length transactions will generally be
equal to negotiated prices.

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GENERAL CONCEPTS

Subsequent measurement is under the historical cost principle or fair value,

depending on the requirements of the relevant standard and available
accounting policy choices made by the entity.
For example, IAS 36, Impairment of Assets, requires assets to be reduced in
value if their carrying value exceeds the higher of fair value or value in use
(expected future cash flows from the asset). IFRS 9, Financial Instruments,
IAS 40, Investment Property, and IAS 41, Agriculture, all include some
element of subsequent measurement at fair value. Where assets are
classified as held-for-sale, they are carried at the lower of their carrying
amount or fair value less selling costs (IFRS 5).

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STRUCTURE AND CONTENT
STRUCTURE AND CONTENT

The three elements which are always to be displayed in the

heading of a statement of financial position are:

1. The name of the entity whose financial position is being

presented;
2. The title of the statement; and
3. The date of the statement.

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STRUCTURE AND CONTENT

IAS 1 does not prescribe the sequence or format in which items should be
presented in the statement of financial position, but stipulates the following
list of minimum line items:

1. Property, plant and equipment;

2. Investment property;
3. Intangible assets;
4. Financial assets (excluding amounts shown under items 5, 8 and 9);
5. Groups of contracts within the scope of IFRS 17;

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STRUCTURE AND CONTENT

6. Investments accounted for using the equity method;

7. Biological assets (within the scope of IAS 41);
8. Inventories;
9. Trade and other receivables;
10. Cash and cash equivalents;
11. The total of assets classified as held-for-sale and assets included in disposal groups classified as
held-for-sale in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations;
12. Trade and other payables;

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STRUCTURE AND CONTENT

13. Provisions;
14. Financial liabilities (excluding amounts shown under items 11 and 12);
15. Liabilities and assets for current tax, as defined in IAS 12, Income Taxes;
16. Deferred tax liabilities and deferred tax assets, as defined in IAS 12;
17. Liabilities included in disposal groups classified as held-for-sale in accordance
with IFRS 5;
18. Non-controlling interests, presented within equity; and
19. Issued capital and reserves attributable to owners of the parent.

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CLASSIFICATION OF ASSETS
CLASSIFICATION OF ASSETS

Current Assets
An asset should be classified as a current asset when it satisfies any one of the
following:
1. It is expected to be realised in, or is held for sale or consumption in, the normal
course of the entity’s operating cycle;
2. It is held primarily for trading purposes;
3. It is expected to be realised within 12 months of the end of the reporting
period;
4. It is cash or a cash equivalent asset, which is not restricted in its use.

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CLASSIFICATION OF ASSETS

Non-Current Assets
IAS 1 uses the term “non-current” to include tangible, intangible, operating and financial
assets of a long-term nature. It does not prohibit the use of alternative descriptions, as long
as the meaning is clear. Non-current assets include:
• Financial assets;
• Investment property;
• Property, plant and equipment;
• Intangible assets;
• Assets held for sale; and
• Miscellaneous other assets.

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CLASSIFICATION OF ASSETS

Other Assets
An all-inclusive heading for amounts which do not fit neatly into
any of the other asset categories (e.g., long-term deferred
expenses, which will not be consumed within one operating
cycle, and deferred tax assets).

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CLASSIFICATION OF LIABILITIES
CLASSIFICATION OF LIABILITIES

Current Liabilities
According to IAS 1, a liability should be classified as a current liability when:

1. It is expected to be settled in the normal course of business within the entity’s operating cycle;
2. It is due to be settled within 12 months of the date of the statement of financial position;
3. It is held primarily for the purpose of being traded; or
4. The entity does not have an right to defer settlement (at the end of a reporting period) beyond 12
months. Note that the terms of a liability that could at the option of the counterparty result in its
settlement by the issue of equity instruments do not affect its classification.

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CLASSIFICATION OF LIABILITIES

Current Liabilities

Obligations which are due on demand or are callable at any time

by the lender are classified as current regardless of the present
intent of the entity or of the lender concerning early demand for
repayment.

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CLASSIFICATION OF LIABILITIES

Current liabilities also include:

1. Obligations arising from the acquisition of goods and services entering into the
entity’s normal operating cycle (e.g., accounts payable, short-term notes payable,
wages payable, taxes payable and other miscellaneous payables);
2. Collections of money in advance for the future delivery of goods or
performance of services, such as rent received in advance and unearned
subscription revenues;
3. Other obligations maturing within the current operating cycle, such as the
current maturity of bonds and long-term notes.

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CLASSIFICATION OF LIABILITIES

Non-Current Liabilities are obligations which are not expected to be settled within
the current operating cycle, including:

1. Obligations arising as part of the long-term capital structure of the entity, such
as the issuance of bonds, long-term notes and lease obligations;
2. Obligations arising out of the normal course of operations, such as pension
obligations, decommissioning provisions and deferred taxes; and
3. Contingent obligations involving uncertainty as to possible expenses or losses.
These are resolved by the occurrence or non-occurrence of one or more future
events which confirm the amount payable, the payee and/or the date payable.
Contingent obligations include such items as product warranties.

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CLASSIFICATION OF LIABILITIES

Offsetting Assets and Liabilities

Assets and liabilities may not be offset against each other, except where
there is an actual right of setoff. This right of setoff exists only when all of
the following conditions are met:
1. Each of the two parties owes the other determinable amounts (although
they may be in different currencies and bear different rates of interest);
2. The entity has the right to set off against the amount owed by the other
party;
3. The entity intends to offset; and
4. The right of setoff is legally enforceable. 28
CLASSIFICATION OF
SHAREHOLDERS’ EQUITY
CLASSIFICATION OF SHAREHOLDERS’ EQUITY

Share capital
• Consists of the par or nominal value of preference and ordinary
shares. The number of shares authorised, the number issued and
the number outstanding should be clearly shown. For preference
share capital, the preference features must also be stated.
• Preference share capital that is redeemable at the option of the
holder should not be treated as a part of equity—rather, it should be
reported as a liability (IAS 32).

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CLASSIFICATION OF SHAREHOLDERS’ EQUITY

Retained earnings
• Represents the accumulated earnings since the inception of
the entity, less any earnings distributed to owners in the form of
dividends.
• In some jurisdictions, the law requires that a portion of retained
earnings, equivalent to a small proportion of share capital, be
set aside as a legal reserve.

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CLASSIFICATION OF SHAREHOLDERS’ EQUITY

Treasury stock
• Represents issued shares that have been reacquired by the
issuer in jurisdictions where the purchase of the entity’s own
shares and holding in treasury is permitted by law.
• These shares are generally stated at their cost of acquisition as
a reduction of shareholders’ equity.

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CLASSIFICATION OF SHAREHOLDERS’ EQUITY

Components of other comprehensive income

• Include net changes in the fair values of financial assets classified at fair
value through other comprehensive income, unrealised gains or losses on
translations of the financial statements of subsidiaries denominated in a
foreign currency, net changes in revaluation surplus, actuarial gains and
losses on defined benefit plans, and the effective portion of gains and
losses on hedging instruments in a cash flow hedge.
• In accordance with the revised IAS 1, net changes in all items of other
comprehensive income should be reported in a new statement called the
“statement of profit or loss and other comprehensive income,” and
accumulated balances in these items are reported in equity.

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CLASSIFICATION OF SHAREHOLDERS’ EQUITY

Disclosure of share capital

• An entity is required to disclose information which enables the
users of its financial statements to evaluate the entity’s
objectives, policies and processes for managing capital.
• An entity should also present either in the statement of
financial position or in the statement of changes in equity, or in
the notes, disclosures about each class of share capital as well
as about the nature and purpose of each reserve within equity.

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US GAAP COMPARISON
• Comparative statements are generally accepted but not required by US GAAP.

• The SEC requires balance sheets for two years.

• The balance sheet is usually presented in order of liquidity from most or current to least or non-current. This is usually the
opposite of the order found under IFRS.

• US GAAP contains captions for long-term assets and long-term liabilities. The SEC calls for display of a total for current assets
and a total for current liabilities, where appropriate, and public companies must comply with the detailed layout requirements
of Regulation S-X.

• Non-current debt that matures within one year can be classified as non-current if the entity has the intent and ability to
refinance the obligation on a long-term basis. Evidence of intent includes:
a. Entering into a refinancing agreement for a term of greater than one year, completed before the financial statements are issued or
available to be issued, or

b. Issuing long-term debt or equity with the purpose of refinancing the short-term debt before the financial statements are issued or
available to be issued.

• Debt for which there has been a covenant violation may be classified as non-current, if there is a lender agreement to waive the
right to demand repayment for more than one year and that agreement exists before the financial statements are issued or
available to be issued.

• Current portions of deferred tax assets and liabilities must be shown as current. The term “reserve” is discouraged in US GAAP.
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THANK YOU