STATEMENT OF FINANCIAL POSITION

A statement of financial position is a formal statement showing the three elements comprising
financial position namely assets, liabilities and equity.
Investors, creditors and other statement users analyze the statement of financial position to
evaluate such factors as liquidity, solvency and the need of the entity for additional financing.

ASSET
Asset is defined as resource controlled by the entity as a result of past event and from which
future economic benefits are expected to flow to the entity.
The essential characteristics of an asset are:
a. The asset is controlled by the entity.
b. The asset is the result of a past event.
c. The asset provides future economic benefits.
d. 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 when:
a. 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.
b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realize the asset within twelve months after the reporting period.
d. The entity expects to realize the asset or intends to sell or consume it within the entity's
normal operating cycle.
Current assets are usually listed in the statement of financial position in the order of liquidity.
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 in quoted
equity instruments.
c. Trade and other receivables
d. Inventories
e. Prepaid expenses

NONCURRENT ASSETS
“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".

LIABILITY
Liability is defined as present obligation of an entity arising from past event, the settlement of
which is expected to result in an outflow from the entity of resources embodying economic
benefits.
The essential characteristics of a liability are:
a. The liability is the present obligation of a particular entity.
b. The liability arises from past event.
c. 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:
a. The entity expects to settle the liability within the entity's normal operating cycle.
b. The entity holds the liability primarily for the purpose of trading.
c. The liability is due to be settled 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.
PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial
position shall include the following line items for current liabilities:
a. Trade and other payables
b. Current provisions
c. Short-term borrowing
d. Current portion of long-term debt
e. Current tax liability
The term "trade and other payables" is a line item for amounts payable, notes payable, accrued
interest on note payable, dividends payable and accrued expenses.
However, no objection can be raised if the trade accounts and notes payable are separately
presented.

NONCURRENT LIABILITIES
Like noncurrent assets, the term "noncurrent liabilities" is a residual definition.
PAS 1, paragraph 69, provides that all liabilities not classified as current liabilities are classified
as noncurrent liabilities.
Examples of noncurrent liabilities are:
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

TREATMENT OF A CURRENTLY MATURING LONG-TERM DEBT

A liability which is due to be settled within twelve months after the reporting period is
classified as current, even if
a. The original term was for a period longer than twelve months.
b. An agreement to refinance or to reschedule payment on a long-term basis is completed after
the reporting period and before the financial statements are authorized for issue.
However, if the refinancing on a long-term basis is completed on or before the end of the
reporting period, the refinancing is an adjusting event and therefore the obligation is classified
as noncurrent.
Moreover, if the entity has the discretion to refinance or roll over an obligation for at least
twelve months after the reporting period under an existing loan facility, the obligation is
classified as noncurrent even if it would otherwise be due within a shorter period.
The reason for this treatment is that such obligation is considered to form part of the entity's
long-term refinancing because the entity has the unconditional right under the existing loan
agreement to defer payment for at least twelve months after the end of the reporting period.
Note that the refinancing or rolling over must be at the discretion of the entity. Otherwise, if
the refinancing or rolling over is not at the discretion of the entity, the obligation is classified
as a current liability.

COVENANTS
Covenants are often attached to borrowing agreements which represent undertakings by the
borrower.
These covenants are actually restrictions on the borrower as to undertaking further borrowings,
paying dividends, maintaining specified level of working capital and so forth.
Under these covenants, if certain conditions relating to the borrower's financial situation are
breached, the liability becomes payable on demand.
PAS 1, paragraph 74, provides that "the liability is classified as current even if the lender has
agreed, after the reporting period and before the statements are authorized for issue, not to
demand payment as a consequence of the breach".
This liability is classified as current because at reporting date the borrower does not have an
unconditional right to defer payment for at least twelve months after the reporting period.
However, Paragraph 75 provides that the liability is classified as noncurrent if the lender has
agreed on or before the end of reporting period to provide a grace period ending at least
twelve months after the end of reporting period.

EQUITY
Equity is the residual interest in the assets of the entity after deducting all of the liabilities.
Simply stated, entity means "net assets” or total assets minus liabilities
The terms used in reporting the equity of an entity depending on the form of the business
organization are:
a. Owner’s equity in a proprietorship
b. Partners' equity in a partnership
c. Stockholders' equity or shareholders' equity in a corporation
However, the term equity may simply be used for all business organizations.

Generally, the elements constituting shareholders' equity with their equivalent IAS term are:
Philippine term – IAS term:

 Capital stock - Share capital

 Subscribed capital stock - Subscribed share capital
 Common stock - Ordinary share capital
 Preferred stock - Preference share capital
 Additional paid capital - Share Premium
 Retained earnings (deficit) - Accumulated profits (losses)
 Retained earnings appropriated - Appropriation reserve
 Revaluation surplus - Revaluation reserve
 Treasury stock - Treasury share

MINIMUM LINE ITEMS OF THE STATEMENT OF FINANCIAL POSITION

PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial
position shall include the following:
1. Cash and cash equivalents
2. Financial assets (other than 1, 3 and 6)
3. Trade and other receivables
4. Inventories
5. Property, plant and 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 and 14)
16. Liabilities included in disposal group classified as held for sale
17. Noncontrolling interest
18. Share capital and reserves

The listing of the line items is not exclusive. PAS 1 simply provides a list of items that are so
different in nature and function to warrant separate presentation on the face of the statement
of financial position.
PAS 1, paragraph 60, provides that an entity shall present current and noncurrent assets, and
current and noncurrent liabilities on the face of the statement of financial position.
Current and noncurrent presentation of assets and liabilities provides useful information when
the entity supplies goods or services within a clearly identifiable operating cycle.
In the Philippines, the COMMON PRACTICE is to present in the statement of financial position
current assets before noncurrent assets, current liabilities before noncurrent liabilities, and
equity after liabilities.
Other formats may be equally appropriate provided the distinction is clear. This is in
accordance with paragraph 7 of the Preface to 1AS 1.
However, all assets and liabilities are presented broadly in the order of liquidity when such
presentation is reliable and more relevant.
Note that the format of the statement of financial position as illustrated in the appendix to IAS
1 presents assets, liabilities and equity as follows:
Noncurrent assets
Current assets
Equity
Noncurrent liabilities
Current liabilities
This is the common practice in other jurisdiction(s), like the United Kingdom.