You are on page 1of 22

Chapter 2

Statement of Financial Positon


Definition
Ang statement of financial position ay ang formal statement showing the three
elements comprising financial positions namely asset, liabilities, and equity.
Ang financial position ay nagpapakita ng list ng resources, obligations and
ownership details ng isang entity on aspecific date.
Ini-evaluate ng investors, creditors, and other users ang liquidity, solvency and the
need of the entity ng additional financing.
Liquidity ay ang ability na entity na ma-meet ang kanilang current obligations.
Solvency ay ang ability ng entity na ma-meet ang kanyang long-term financial
obligations.
Current and noncurrent distinction
PAS 1, paragraph 60, provide na ang entity ay dapat i- present ang current and
noncurrent assets, and current and noncurrent liabilities, as separate
classification in the statement of financial position.
Dapat i-present ng entity lahat ng assets and liabilitites in order of liquidity
when such presentation provides information na faithfully represented and
more relevant. An entity shall first identify and present highly liquid assets and
liabilities.
Using presentation in order of liquidity, madaling madi-distinguish ng entity
ang net asset na continuously circulating as working capital sa net asset used
in long-term operations.
For some entities such as financial institutions, ang presentation ng assets and
liabilities in increasing or decreasing liquidity ay mas makakapagprovide ng
information na faithfully represented at more relevant kaysa and noncurrent
presentation.
Ang financial institutions ay hindi nagsusupply ng goods and services within a
clearly identifiable operating cycle. At isa pa kadalasan nagpapautang sila na
ang maturity ay inaabot ng 3 or 5 years.
Assets
An asset is defined as a resource controlled by the entity as a result of past
event and from which future economic benefits are expected to flow to the
entity.
In laymans language and in short, assets are property owned.
Essential characteristics of an asset
a) Kontrolado at pagmamay-ari by ng entity
b) Result of a past event
c) Nagpo-provide ng positibong economic benefit sa entity in the future
d) Cost of the asset can be measured reliably

Held for trading


Appendix A of PFRS 9 provides that the financial asset is classified as held
for trading when:
1. Binili for thepurpose na ibenta ito kaagad (near term)
2. On initial recognition, it is part of a portfolio of identified financial
instruments.
3. It is aderivative, maliban sa financial guarantee contract or a
designated and an effective hedging instrument.
Ang financial assets held for trading aymas kilala sa tawag na trading securities.
Simply stated, ang trading securities ay debt and equity securities na binili for the
purpose na ibenta ito kaagad para makapag-generate ng short-term gains and
profits.
Expected to be realized within twelve months
Refers to short-term non-trade receivables.
Realized, sold and consumed
o This current asset category refers to trade receivables, inventories, and
prepayments.
o Classified sya as marealized, mabenta, at ma-consumed within the normal
operating cycle or isang taon, whichever is longer.
Operating cycle
o Ang operating cycle ng isang entity ay time period sa pagbili ng assets para
maprocess at ang realization nito into cash and cash equivalents.
o Kapag hindi malinaw ang duration ng normal operating cycle, it is assumed
na twelve months.
o Ang operating cycle ng isang trading entiy is the average period of time na
mag-acquire ng merchandise inventory, pagbenta ng inventory sa
customers hanggang sa pagkolekta ng cash coming from the sales.
Example of operating cycle
Entitys normal operating cycle is:
The period of time sa pagbili ng materials, pagconvert into finished goods, selling
of finished goods then conversion into receivables hanggang sa collection ng
receivables.
o Grocery Stores- one to four weeks
o Deparment stores- three to five months
o Manufacturing- three to nine months
o Liquor manufacturers- two or more years
o Mining companies- more than one year
Ang normal operating cycle is significant kasi it serves as a basis sa pagdetermine
ng proper classification ng assets into either current or noncurrent.
Presentation of Current Assets
Ang current assets ay usually listed in Statement of Financial Position in
order of liquidity.
PAS 1, paragraph 54 provides that the minimum line items under current
assets are:
a. Cash and cash equivalents
b. Financial assets at fair value through profit or loss such as trading
securities and other instruments in quoted equity securities
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
Noncurrent assets
The caption noncurrent assets is a residual definition
PAS 1, paragraph 66 simply states that an entity shall classify all other
assets not classified as current as noncurrent assets.
In other words, kung anuman ang hindi kasama sa definition ng currents
assets ay deemed excluded at lahat ng natitira ay classified as noncurrent
assets.
Sabi sa PAS 1, paragraph 56 kapag ang entity ay nagpresent ng current and
noncurrent asset as separate classification on the face of statement of financial
position, hindi ika-classify ang deferred tax asset as current assets.

Property, plant and equipment


Ang property, plant and equipment ay ang long-term or noncurrent asset section
ng Statement of Financial Position.
Ang property, plant and equipment ay klase ng asset na may physical existence,
which are held for an entitys internal use at expected na magge-generate ng
economic benefits sa entity over more than one year. Ginagamit sya for the
production and supply ng goods and services, pagpaparenta sa iba and for
administrative use.
Major characteristics of the definition of property, plant and equipment
a. Ang property, plant and equipment ay isang tangible assets, means may
physical substance.
b. The property, plant and equipment are used in business, meaning held for
internal use of the entity.

Note* Ang asset na held for sale, including land, or for investment ay hindi
included sa property, plant and equipment.

Ang property, plant and equipment ay expected na magamit ng higit sa


isang taon.

Example of property, plant and equipment


o Land
o Building
o Machinery
o Ship
o Aircraft
o Motor vehicle
o Furniture & Fixtures
o Office equipment
o Patterns
o Molds
o Dies
o Tools
o Leasehold improvement
o Book plates
Ang dating tawag sa property, plant and equipment ay fixed assets.
Most property, plant and equipment ay presented at cost less accumulated
depreciation except sa land since hindi ito dine-depreciate.
Ang property, plant and equipment ay una sa lista ng noncurrent assets because
kadalasan it represent the major portion ng total assets at napakahalaga sa
presentation ng financial position.
PAS 16 on property, plant and equipment does not apply to:
a. Biological assets na related sa agricultural activity
b. Property, plant and equipment classified as held for sale in accordance with
PFRS 5
c. Recognition and measurement of exploration and evaluation asset under
PFRS 6
d. Mineral rights and mineral reserves such as oil, natural gas, and similar
nonregenerative resources.
Such assets are shown as separate line item on the statement of financial
position.
Note* Ang entity are required na gamitin ang PAS 16 to property, plant and
equipment na ginagamit sa pagdevelop at pagmaintain ng biological assets, at
mineral rights and mineral reserves.
Long-term investments
The International Accounting Standards Committee defines investment
as an asset held by an entity for the accretion of wealth through capital
distribution, such as interest, royalties, divedendsandrentals, capital
appreciation or for other benefits to the investing entity such as those
obtained through trading relationship.
Ang long-term investment ay account sa asset side ng entitys statement
of financial position na nagrerepresent ng entitys investments including
ang stocks, bonds, real estates, and cash na kadalasan ay may
intensyong i-keep for more than one year. None of these investments
are traditionally used in entitys operating activities.

An entitys investment may be current or noncurrent


Ang current investment ay readily realizable and intended lang na i-keep
ng entity for not more than one year.
Ang noncurrent or long-term investment ay investment other than
current investment and intended to be held for more than one year.
Examples of long-term investments
a. Investments in securities of other entities, such as shares, bonds,
and other debt instruments.
b. Investments in subsidiaries
c. Investments in associates accounted for by the equity method
d. Investments in funds accumulated for a particular purpose, such
as sinking fund, plant expansion fund and preference share
redemption fund.
e. Investment property
f. Cash surrender value of life insurance policy
g. Investments in joint vntures
Intangible assets
PAS 38, paragraph 8, simply defines an intangible asset as an identifiable
nonmonetary asset without physical substance.
An intangible asset ay long-term resources ng entity pero walang physical
existence. It is expected na magprovide ng future economic benefits sa entity.
PAS 38, paragraph 12, ang intangible asset ay identifiable kapag:
a. Ito ay capable of being sold, transferred, liscenced, rented or
exchanged separate from the entity.
b. Arises from contractual or other legal right.
Example of an identifiable intangible assets:
a. Patent
b. Franchise
c. Copyright
d. Lease rights
e. Trademark
f. Computer software

Unidentifiable asset
An asset that cannot exist independent of a business as a whole. Example is
goodwill.
Other noncurrent assets
Other noncurrent assets ay ang asset na do not cfit intothe definition ng
noncurrent assetss.
Examples:
a. Long-term refundable deposit
b. Long-term advances to employees
Liabilities
The essential characteristics of a liability are:
a. Present obligation of a particular entity. Ang entity na liable must be
identified. Ang present obligation exists only kung saan ang entity ay
walang alternative but to make sacrifice to settle the obligation.
b. The liability arises from past event. Ang liability ay marerecognize lamang
once na incurred na ito.
c. The settlement of the liability requires an outflow of resources embodying
economic benefits. Ang pagbabayad ng obligation or liability is by
transferring or paglalabas ng resources ng entity.
Current liabilities
PAS 1, paragraph 69 shall classify a liability as current when:
a. Ang entity ay expected na magbabayad ng liability within the entitys
normal operating cycle.
b. The entity holds the liability for the purpose of trading
c. Ang liability ay magdue-due within twelve months after the reporting
period.
d. The entity does not have an unconditional right to defer settlement
of the liability for at least twelve months after the reporting period.
Examples:
o Trade payables and accruals for employee and other operating costs
even if they are settled more than twelve months after the reporting
period.
o Financial liabilities held for trading incurred with an intention na i-
repurchase kaagad or in near term.
Long-term debt currently maturing
PAS 1, paragraph 72, ang liability na magdue-due within twelve months
after the end of reporting period ay classified as current, even if:
a. Ang original term ng liability ay for the period na longer than twelve
months.
b. Ang agreement ng i-refinance or i-reschedule ang payment ng long-
term basis of liability ay completed after the end of reporting period
at bago ma-authorized for issue ang financial statements.
However, if ang refinancing ng long-term basis ay nacomplete lang on or
before the end of the reporting period, ang refinancing ay adjusting
event and will be classified as noncurrent.
Discretion to refinance
PAS 1, paragraph 73, provides that if the entity ay gustong magrefinance ng
obligation for atleast twelve months after the reporting period under an
existing loan facility, ang obligation ay ika-classify as noncurrent kahit pa na
mag-due ito within a shorter period.

Consider sya as long-term refinancing dahil ang entity ay may unconditional


right sa loan agrrement na i-revise ang schedule ng pagbabayad for atleast
twelve months after the end of reporting period.

Covenants
Covenants are often attached to borrowing agreemets which reperesent
undertakings by the borrower.
These covenants are actually restrictions sa borrower ang mag-undertake pa ng
utang, magbayad ng dividends, maintain specific level of working capital and so
forth.
Under these covenants, if certain conditions related sa borrowers financial
situation are breached or di natupad, ang liability ng borrower becomes payable
in demand.
Classified sya as current because sareporting date ang borrower ay walang
unconditional right na i-revise ang payment schedule for atleast twelve months
after the end of the reporting period.
However, paragraph 75 states that the liability ay calssified as noncurrent if the
lender ay nag-agree on or before the end of the repoting period na magprovide
ng grace period ending atleast twelve months after the end of the reporting
period.
Grace peiod is a period within which a borrower can rectify the breach and during
which the lender cannot demand immediate payment.
Presentation of current liabilities
PAS 1, paragraph 54, provides that as a minimum, the face of the statement of
financial position shall include the following line items:
a. Trade and other payables (accounts payable, notes payable, accrued
interest on note payable, dividends payable and accrued expenses)
b. Current provisions
c. Short-term borrowing
d. Current portion of long term debt
e. Current tax liability

Noncurrent liabilities
The term noncurrent liabilities is also a residual definition.
PAS 1, paragraph 69, simply states that lahat ng liablities na hindi classified as
current liabilities ay classified as noncurrent liabilities.
Examples:
a. Noncurrent portion of long-term debt
b. Finance lease liability
c. Deferred tax liability
d. Long-term obligations to entity officers
e. Long-term deferred revenue
Sabi sa PAS 1, paragraph 56 kapag ang entity ay nagpresent ng current and
noncurrent liabilities as separate classification on the face of statement of
financial position, hindi ika-classify ang deferred tax liability as current
liability.

Working Capital
Ang working capital ay measure ng entitys liquidity, efficiency and its short-term
financial status.
Working capital ay capital ng entity na ginagamit sa day-to-day trading
operations, excess of current assets over current liabilities and the working capital
ratio is current assets divided by current liabilities.
Estimated liabilities (can be classified as current or noncurrent)
Ang estimated liabilities ay obligations na nag-exist at the end of the period which
is yung amount nila ay hindi definite.
Also, ang due date ng liability is not definite and in soe instances, the exact payee
ay hindi rin ma-determine or ma-identify.
But inspite ng pagka- indefinite nito, still ang existence ng estimated liabilities ay
valid and unquestioned.
Examples:
a. Estimated liability for premiums
b. Estimated liability for warranties
c. Estimated liability under customer loyalty program
Technically, an estimated liability ay macoconsider na provision which is both
probable and measurable.
Contingent liability
Ang contingent liability ay ang possible liability that may occur depende sa
outcome ng uncertain future event not wholly within the control of the entity.
Ang contingent liability ay ang present obligation or liability arises from past
event pero hindi ma-recognized dahil hindi sya probable that an outflow
embodying economic benefits will be required para ibayad sa obligation or the
amount of the liability cannot be measured reliably.
The uncertainty relating to future events can be expressed by a ranged of
outcome.
a. Probable. Ang future event is likely to occur. More than 50% likely, meaning
51% and above.
b. Reasonably possible. Ang future event is less likely to occur.
c. Remote. Ang future event is least likely to occur or the chance of the future
events na mangyari ay napakaliit lamang.
Treatment of contingent liability
A contingent liability ay hindi nire-recognized sa financial statements.
However, if ang present obligation ay probable at ang amount ay name-measure
reliably, ang obligation ay hindi contingent liability kundi ire-recognized as
provision.
Ang expense at estimated liability ay dapat i-recordsa pagrecognize ng provision.
Ang contingent liabilities ay maaaring probable or measurable pero hindi
probable at measureable.
Ang contingent liability ay hindi nire-record dahil ito ay maarari lamang i-
disclosed.
Required disclosures are:
a. Brief description of the nature of the contingent liability.
b. Estimates ng financial effects nito
c. Indication na nag-eexist ang uncertainties
d. Possibility of reimbursement
Kapag ang contingent liablity ay remote, di na kailangan ng disclosure.

Contingent asset
Ang contingent asset ay ang possible asset that may arise from past events at ang
maco-confirmed lamang ang existence sa occurrence or nonoccurrence ng one or
more uncertain future events not wholly within the control of the entity.
Ang contingent asset ay usually na galling sa unplanned events na nagbibigay ng
possible inflow ng economic benefits sa entiy.
Treatment of contingent asset
A contingent asset shall not be recognized because this may result to recognition
of income that may never be realized.
A contingent asset ay maaaring i-disclose lamang kung ito ay probable. Pero kung
only possible or remote di ni-rerequire ang disclosure.
Equity
Equity is the residual interest in the asset of the entity after deducting all of the
liabilities.
Ang equity ay nadadagdagan dahil sa kinikita sa operations at contributions ng
may-ari.
Ang equity ay nababawasan dahil sa unprofiatable operations at ditribution sa
may-ari.
Ang term na ginagamit sa reporting ng equity ng entity ay nakabase sa form ng
entity:
a. Owners equity (proprietorship)
b. Partners equity (partnership)
c. Shareholders equity(corporatioons)
Pero pwede naman gamitin mismo ang term na Equity sa lahat ng business entity.
Ang may hawak ng instruments classified as equity at tinatawag na owners.
Shareholders Equity
Shareholders Equity is the residual interest of owners in the net assets of a
corporation measured by the excess of assets over liabilities.

Share capital ay portion ng corporations equity representing the total par


or stated value ng shares na in-issued.

Subscribed share capital ay part ng issued share na subscribed pero di pa


bayad and still unissued.

Subscription receivables ay deduction from related subscribed share capital.


Kapag ito ay collectible within one-year ito ay ika-classify as current asset.

Share premium is the capital na contributed ng shareholders in excess ng


par orstated value ng shares na subscribed and issued.
Retained earnings
Ang retaine earnings ng isang corporation ay ang accumulated balance sa net
income orloss, dividends distributions, prior period errors and other capital
adjusments.
Ang retained earnings ay maaaring i-classify as unappropriated retained earnings
and appropriated retained earnings.
Unappropriated retained earnings refer sa net income ng corporation na hindi
allocated to a specific purpose. Meaning, portion sya na free and can be declared
and distributed to shareholders as dividends.
Appropriated retained earnings refer sa net income ng corporation that are
specifically not available to be used for dividend payment and restricted to be
used for specific purposes.
Ang deficit ay debit balance ng retaine earnings. Hindi ito pini-present as an asset
but as a deduction from shareholders equity.
Revaluation surplus
Revaluation surplus is the excess of sound value over carrying amount of the
revalued asset
Ang sound value ay equal sa fair value or sa revalued amount computed sa
pamamagitan ng pad-deduct ng accumulated depreciation mula replacement
cost. Tinatawag din itong depreciated replacement cost.
Ang carrying amount ay kino-compute sa pagdeduct ng accumulated depreciation
sa historical cost.
Treasury shares
Ang treasury shares ay share na pagmamay-ari ng corporation ba in-issue then
binili ulit pero not canceled.
Usually nire-record ang treasury shares at cost at hindi nire-recognize as asset.
Ni-rereport ang treasury shares as a deduction sa shareholders equity.
Kapag ang retained earning ay in-acquired, retained earnings must be
appropriated to the extent ng cost ng treasury shares.
The corporation shall disclosed separately either sa face ng statement of financial
position orsa notes ang amount ng reduction ng treasury shares sa equity.
Reserves
Ang term na reserve ay hindi officially defined sa anumang accounting standard.
Under ng international accounting standard ang paggamit ng equity reserves ay
based kung yung reserves ay part ng distributable or nondistributable equity.
Distributable equity. It pertains sa unappropriated retained earnings kung saan
ang portion nito ay maaaring i-distribute as dividends to shareholders.
Nondistributable equity. Ito naman ay ang portion na di maaaring magdistribute
ng kahit anong form during the lifetime of a corporation.
Examples of reserves:
a. Share premium reserves- excess over the par or stated value or mas kilala
sa tawag na additional paid in capital.
b. Appropriation reserve-earmarking of retained earnings for a certain
purpose which may be required by the law, contract or result ng voluntary
action ng management. Technically known as retained earnings
appropriated.
Examples:
o For treasury bonds
o For bond redemption
o For preference share redemption
o For plant expansion
o For contingencies
c. Asset revaluation reserve. Arises mula sa revaluation ng property, plant and
equipment. Specifically called revaluation surplus.
d. Other comprehensive income reserve
Line items- Statement of Financial Position
PAS 1, paragraph 54, states asa minimun, the statement of financial position shall
include the following line items:
1. Cash and cash equivalents
2. Financial assets (other than 1,3 & 6)
3. Trade and other receivables
4. Inventories
5. Property, plant and equipment
6. Investment in associates using the equity method
7. Intangible assets
8. Investment property
9. Biological assets
10.Total of assets classified as helf for sale and assets included in
disposal group classified as held for sale
11.Trade and other payables
12.Current tax asset and liability
13.Deferred tax asset and deferred tax liability
14.Provisions
15.Financial liabilities (other than 11 & 14)
16.Liabilities included in disposal group helde for sale
17.Noncontrolling interest
18.Share capital and reserves
The listing of the line items is not exclusive
An additional line items, headings and subtotalsshall be presented sa statement
of financial position kapag ang presentation nito ay makakatulong sa
understanding ng financial position ng entity.
Ang judgment kung maaaring magpresent ng additional line items ay based sa
assessment ng:
1. Nature and liquidity of asset
2. Function of asset within the entity
3. Amount, nature and timing of liabilities
Form of statement of financial position
a. Report form
It provides information in a vertical format. Downward sequence of assets,
liabilities, and equity.
UACS COMPANY
Statement of Financial Position
December 31, 2017

ASSETS
Current Assets
Cash and cash equivalents XX
Financial assets at fair value XX
Trade and other receivables XX
Inventories XX
Prepaid expenses XX
Total current Assets XXX
Noncurrent Assets

Property, plant and equipment XX


Investment in associates at equity method XX
Long-term investments XX
Intangible assets XX
Other noncurrent assets XX
Total noncurrent assets XXX
Total Assets XXX
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Trade and other payables XX
Note payable-short-term debt XX
Current portion of bonds payable XX
Warranty liability XX
Total current liabilities XXX
Noncurrent liabilities
Bonds payable-remaining portion XX
Note payable-due july 1, 2017 XX
Deferred tax liability XX
Total noncurrent liablities XXX
Shareholders equity
Share capital, P100 par XX
Reserves XX
Retained earnings XX
Total shareholders equity XXX
Total liabilities and shareholders equity XXX

b. Account form
It provides information in a horizontal format. Mayroon itong dalawang columns,
na ang asset ay shown sa left side and ang liabilities and equities ay sa right side
ng statement of financial position.
UACS COMPANY
Statement of Financial Position
December 31, 2017

ASSETS LIABILITIES AND SHAREHOLDERS


EQUITY
Current Assets
Cash and cash equivalent XX Current liabilities
Financial assets at fair value XX Trade and other payables XX
Trade and other receivables XX Note payable-short-term debt XX
Inventories XX Current portion of bonds payable XX
Prepaid expenses XX Warranty liability XX
Total current Assets XXX Total current liabilities XXX
Noncurrent liabilities
Noncurrent Assets Bonds payable-remaining portion
Property, plant and equipment XX XX
Investment in associates XX Note payable-due july 1, 2017
Long-term investments XX XX
Intangible assets XX Deferred tax liability XX
Other noncurrent assets XX Total noncurrent liablities XXX
Total noncurrent assets XXX Shareholders equity
Share capital, P100 par XX
Reserves XX
Retained earnings XX
Total shareholders equity XXX
Total Assets XXX Total liabilities and XXX
shareholders equity

You might also like