the financial statement part i : statement of … · statement of financial position / balance...
TRANSCRIPT
BY:
MUH. ARIEF EFFENDI, SE, MSI, AK, QIA,CPMA, CA
MAGISTER ACCOUNTING PROGRAM (MAKSI)
PASCA SARJANA UNIVERSITAS BUDI LUHUR
JAKARTA
2nd REVISED- SEPTEMBER 2013
MODUL-02 FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENT PART I :
STATEMENT OF FINANCIAL POSITION /
BALANCE SHEET
THE FINANCIAL STATEMENT PART I :
STATEMENT OF FINANCIAL POSITION /
BALANCE SHEET
After studying this topic, students should be able to:
1. Understand the usefullness of a statement of financial position.
2. Explain the uses and limitations of a statement of financial position.
3. Identify the major classifications of the statement of financial position.
4. Prepare a classified statement of financial position using the report and account
formats.
5. Understand the comparison of financial statement presentation The US GGAP VS
IFRS.
Statement of Financial Position
Statement of Financial Position, also referred to as the
balance sheet:
1. Reports assets, liabilities, and equity at a specific date.
2. Provides information about resources, obligations to
creditors, and equity in net resources.
3. Helps in predicting amounts, timing, and uncertainty of
future cash flows.
Computing rates of return.
Evaluating capital structure.
Assess risk and future cash flows.
Analyze company’s:
Liquidity
Solvency
Financial flexibility
Usefulness
Statement of Financial Position
Most assets and liabilities are reported at historical
cost.
Use of judgments and estimates.
Many items of financial value are omitted.
Limitations
Statement of Financial Position
Classification
Statement of Financial Position
Statement of Financial Position
In some countries, such as Germany, companies often list current assets first.
IAS No. 1 requires companies to distinguish current assets and liabilities from
non-current ones, except in limited situations.
Generally consists of:
Long-term Investments
Property, Plant, and Equipment
Intangibles Assets
Other Assets
Classification
Non-Current Assets
Long-term Investments
1. Securities (bonds, ordinary shares, or long-term notes).
2. Tangible assets not currently used in operations (land held
for speculation).
3. Special funds (sinking fund, pension fund, or plant
expansion fund.
4. Non-consolidated subsidiaries or associated companies.
Non-Current Assets
Classification
Investments in Debt and Equity Securities
Classification
Portfolio Type Valuation Classification
Held-for-
Collection Debt
Amortized
Cost
Current or
Noncurrent
Trading Debt or Equity Fair Value Current
Non-Trading
Equity Equity Fair Value
Current or
Noncurrent
Long-Term Investments
Classification
Illustration
Statement of Financial osition Presentation of Long-Term Investments
Tangible long-lived assets used in the regular operations
of the business.
Physical property such as land, buildings, machinery,
furniture, tools, and wasting resources (minerals).
With the exception of land, a company either depreciates
(e.g., buildings) or depletes (e.g., oil reserves) these
assets.
Property, Plant, and Equipment
Classification
Classification
Illustration
Statement of Financial Position Presentation of Property, Plant, and Equipment
Lack physical substance and are not financial
instruments.
Patents, copyrights, franchises, goodwill, trademarks,
trade names, and customer lists.
Amortize limited-life intangible assets over their useful
lives.
Periodically assess indefinite-life intangibles for
impairment.
Intangible Assets
Classification
Items vary in practice. Can include:
Long-term prepaid expenses
Non-current receivables
Assets in special funds
Property held for sale
Restricted cash or securities
Other Assets
Classification
Cash and other assets a company expects to convert
into cash, sell, or consume either in one year or in the
operating cycle, whichever is longer.
Current Assets
Classification
Inventories Disclose:
Basis of valuation (e.g., lower-of-cost-or-market).
Cost flow assumption (e.g., FIFO or average cost).
Classification
Inventories
Classification
Manufacturing Company
Claims held against customers and others for
money,
goods, or
services.
Major categories of receivables should be shown in the
statement of financial position or the related notes.
Receivables
Classification
Receivables
Classification
Illustration
Statement of Financial Position Presentation of Receivables
Payment of cash, that is recorded as an asset because service or
benefit will be received in the future.
insurance
supplies
advertising
Cash Payment Expense Recorded BEFORE
rent
maintenance on equipment
Prepayments often occur in regard to:
Prepaid Expenses
Classification
Prepaid Expenses
Classification
Illustration
Statement of Financial Position Presentation of Prepaid Expenses
Portfolios
Short-Term Investments
Type Valuation Classification
Held-to-
Maturity Debt Amortized Cost
Current or
Noncurrent
Trading Debt or Equity Fair Value Current
Available- for-
Sale Debt or Equity Fair Value
Current or
Noncurrent
Classification
Short-Term Investments
Classification
Illustration
Statement of Financial Position Presentation of Short-Term Investments
Generally any monies available “on demand.”
Cash equivalents - short-term highly liquid investments
that mature within three months or less.
Restrictions or commitments must be disclosed.
Cash
Classification
Cash
Classification
Illustration
Statement of Financial Position—Restricted Cash
Equity
Classification
Equity
Classification
Ordinary shares and preference shares - must disclose
the par value and the authorized, issued, and outstanding
amounts.
Share premium - company usually presents one amount
for ordinary and preference shares.
Retained earnings - amount may be divided between the
unappropriated and restricted amounts.
Treasury shares - shown as a reduction of equity.
Equity
Classification
Illustration 5-13
Statement of Financial
Position—Equity
Non-Current Liabilities
Classification
Obligations that a company does not reasonably expect to
liquidate within the longer of one year or the normal
operating cycle. Three types:
1. Obligations arising from specific financing situations.
2. Obligations arising from the ordinary operations of the
company.
3. Obligations that depend on the occurrence or non-
occurrence of one or more future events to confirm the
amount payable, or the payee, or the date payable.
Non-Current Liabilities
Classification
Illustration :
Statement of Financial Position Presentation of Non-Current Liabilities
Current Liabilities
Classification
Obligations that a company generally expects to settle in its
normal operating cycle or one year, whichever is longer.
This concept includes:
1. Payables resulting from the acquisition of goods and
services: accounts payable, wages payable, and so on.
2. Collections received in advance for the delivery of goods or
performance of services, such as unearned rent revenue.
3. Other liabilities whose liquidation will take place within the
operating cycle or one year.
Current Liabilities
Classification
Illustration
Statement of Financial Position Presentation of Current Liabilities
Statement of Financial Position Format
IFRS does not specify the order or format in which
a company presents items in the statement of
financial position.
Account form or report form.
Classification
Classification
Account Form
Classification
Report Form
Financial statement presentation General
IFRS
► A complete set of financial
statements includes the statement
of financial position (balance
sheet), statement of
comprehensive income, statement
of cash flows, statement of
changes in equity and
accompanying notes to the
financial statements.
US GAAP
► A complete set of financial
statements includes the balance
sheet, statement of comprehensive
income, statement of cash flows
and accompanying notes to the
financial statements. A statement
in changes in equity is not
required but is almost always
presented in practice.
Convergence
► The Boards have affirmed that the ED will require a statement of changes in equity, thereby conforming
both frameworks.
Financial statement presentation General
IFRS
► Does require a third balance sheet
(and related notes) as of the
beginning of the earliest
comparative period presented
when an entity restates its
financial statements.
US GAAP
► Does not require a third balance
sheet (and related notes) as of the
beginning of the earliest
comparative period presented
when an entity restates its
financial statements.
Convergence
► The FASB decided in the ED to make a requirement for a third balance sheet
similar to IFRS, thereby conforming both frameworks.
IFRS
US GAAP
Financial statement presentation General
Prepared on an accrual basis except for the statement of cash flows. Similar
Includes concepts of materiality and consistency for the preparer to follow. Similar
Financial statement presentation Comparative financial information
► IFRS requires
comparative
information for all
amounts reported in
the financial
statements.
► US GAAP allows a
single-year
presentation in certain
circumstances.
► SEC rules require a
two-year balance sheet
presentation and
three-year
presentation for all
other financial
statements.
Statement of financial position presentation Classification and liquidity
► IFRS requires a
classified balance
sheet, except when
liquidity
presentation
provides more
reliable and
relevant
information.
► US GAAP allows
the use of either a
classified or
unclassified
balance sheet.
Statement of financial position presentation Minimum accounts
IFRS
► Requires a minimum presentation
of certain asset, liability and
equity accounts.
US GAAP
► No minimum account presentation
requirements.
► SEC rules have more
rigorous presentation
criteria.
Statement of financial position presentation
Minimum accounts
The minimum accounts
to be presented on the
statement of financial
position as defined by
IAS 1.54 are: 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) Total of assets classified as held for
sale and assets included in disposal
groups classified as held for sale per
IFRS 5
Statement of financial position Typical IFRS order
Although no particular
format is required,
IFRS generally
presents accounts in
the following order
(representative of UK
legacy requirements): ► Non-current assets
► Current assets
► Equity
► Non-current liabilities
► Current liabilities
US GAAP presents
current assets and
liabilities before non-
current.
Statement of financial position presentation Cash and cash equivalents
IFRS
► IAS 7 makes an explicit distinction
between bank borrowings and bank
overdrafts. Overdrafts may be
classified as a component of cash and
cash equivalents if considered to be
an integral part of an enterprises’ cash
management.
US GAAP
► ASC 210-20 does not address
bank overdrafts and they are
generally reported as a
liability in the balance sheet.
Convergence
► The Boards have affirmed that the ED will specify that overdrafts should be
presented in the debt category of the financing section of the statement of financial
position, thereby conforming both frameworks.
► IFRS prohibits
deferred tax assets or liabilities
to be classified as
current.
► US GAAP requires
classification as
current or non-
current based on
the nature of the
underlying asset or
liability.
Statement of financial position presentation Deferred tax assets and liabilities
Statement of financial position presentation Debt classification under default for covenant violation
IFRS
► Requires that a lender must waive
or modify a debt covenant
violation prior to or at the balance
sheet date in order for the related
debt to be classified as non-
current at the balance sheet date.
US GAAP
► Allows debt to retain non-current
classification as of the balance
sheet date if a lender waives or
modifies the related debt covenant
violation on or after the balance
sheet date but prior to the issuance
of the financial statements.
REFERENCE
Ernst & Young Foundation, Presentation of Financial Statement, Academic Resource Center.,
2010.
Kieso , Weygandt & Warfield, Intermediate Accounting - IFRS Edition, Volume 1, Ch.5-
Statement of Financial Position & Statement of Cash Flow,, John Wiley & Sons, Inc, 2011 .