Prepared by

Coby Harmon
University of California, Santa Barbara
Westmont College
5-1
Statement of Financial CHAPTER 5
Position and Statement
of Cash Flows
LEARNING
LEARNINGOBJECTIVES
OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the uses, limitations, 3. Explain the purpose, content,
and content of the statement of and preparation of the
financial position. statement of cash flows.
2. Prepare a classified statement 4. Describe additional types of
of financial position. information provided.

5-2
 PREVIEW OF CHAPTER 5

Intermediate Accounting
IFRS 3rd Edition
Kieso ● Weygandt ● Warfield
5-3
 Statement
Statement of
of LEARNING OBJECTIVE 1
Explain the uses, limitations, and
Financial
Financial Position
Position content of the 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.

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 Statement
Statement of
of Financial
Financial Position
Position

Usefulness
 Computing rates of return.
 Evaluating the capital structure.
 Assess risk and future cash flows.
 Assess the company’s:
► Liquidity,
► Solvency, and
► Financial flexibility.

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 Statement of Financial Position

Limitations
 Most assets and liabilities are reported at historical
cost.
 Use of judgments and estimates.
 Many items of financial value
are omitted.

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 Classification

Elements of the Statement of Financial Position

ASSET LIABILITY EQUITY

 Resource controlled by the entity.

 Result of past events.
 Future economic benefits are expected to flow to the
entity.

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 Classification

Elements of the Statement of Financial Position

ASSET LIABILITY EQUITY

 Present obligation of the entity.

 Arising from past events.
 Settlement is expected to result in an outflow of
resources embodying economic benefits.

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 Classification

Elements of the Statement of Financial Position

ASSET LIABILITY EQUITY

 Residual interest in the assets of the entity after

deducting all its liabilities.

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 Classification
ILLUSTRATION 5.1
Subclassifications Statement of Financial
Position Classification

A survey of 175 companies showed that companies appear to

favor reporting current assets first on the statement of financial
position.

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 Classification

Non-Current Assets
Generally consists of:
 Long-Term Investments
 Property, Plant, and Equipment
 Intangibles Assets
 Other Assets

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 Classification

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.

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 Classification

Investments in Debt and Equity Securities

Portfolio Type Valuation Classification

Held-for- Current or
Debt Amortized Cost
Collection Non-current

Trading Debt or Equity Fair Value Current

Non-Trading Current or
Equity Fair Value
Equity Non-current

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 Classification

Long-Term Investments ILLUSTRATION 5.17

Classified Report-Form
Statement of Financial
Position

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 Classification

Property, Plant, and Equipment

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.

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 Classification

Property, Plant, and Equipment ILLUSTRATION 5.17

Classified Report-Form
Statement of Financial
Position

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 Classification

Intangible Assets
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.

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 Intangible Assets ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Other Assets
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

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 Classification

Current Assets
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.

ILLUSTRATION 5.5
Current Assets and Basis of Valuation

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 Classification

Inventories
Disclose:
 Basis of valuation (e.g., lower-of-cost-or-net realizable
value).
 Cost flow assumption (e.g., FIFO or average cost).

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 Inventories ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Receivables
Major categories of receivables should be shown in the
statement of financial position or the related notes.

A company should clearly identify

 Anticipated loss due to uncollectibles.
 Amount and nature of any non-trade receivables.
 Receivables used as collateral.

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 Receivables ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Prepaid Expenses
Payment of cash, that is recorded as an asset because
service or benefit will be received in the future.

Cash Payment BEFORE Expense Recorded

Prepayments often occur in regard to:

 Insurance  Rent
 Supplies  Taxes
 Advertising

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 Prepaid Expenses ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Short-Term Investments

Portfolio Type Valuation Classification

Held-for- Current or
Debt Amortized Cost
Collection Non-current

Trading Debt or Equity Fair Value Current

Non-Trading Current or
Equity Fair Value
Equity Non-current

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 Short-Term Investments ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Cash
 Generally consist of currency and demand deposits.
 Cash equivalents - short-term, highly liquid
investments that mature within three months or less.
 Restrictions or commitments must be disclosed.

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 Cash ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Equity Section
1. Share Capital. The par or stated value of shares issued. It includes
ordinary shares (sometimes referred to as common shares) and
preference shares (sometimes referred to as preferred shares).
2. Share Premium. The excess of amounts paid-in over the par or
stated value.
3. Retained Earnings. The company’s undistributed earnings.
4. Accumulated Other Comprehensive Income. The aggregate
amount of the other comprehensive income items.
5. Treasury Shares. Generally, the amount of ordinary shares
repurchased.
6. Non-Controlling Interest (Minority Interest). A portion of the equity
of subsidiaries not owned by the reporting company.

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 Equity ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Non-Current Liabilities
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.

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 Non-Current Liabilities ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Classification

Current Liabilities
Obligations that a company generally expects to settle in
its normal operating cycle or one year, whichever is longer.

Includes:
1. Payables resulting from the acquisition of goods and
services.

2. Collections received in advance for the delivery of goods or

performance of services.

3. Other liabilities whose liquidation will take place within the

operating cycle or one year.
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 Current Liabilities ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial Position

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 Statement of LEARNING OBJECTIVE 2
Prepare a classified statement of
Financial Position financial position.

 IFRS does not specify the order or format of the

items in the statement.
 Two general forms:
► Account form
● Assets on left side
● Equity and liabilities on right side
► Report form

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 Statement of
Financial
Position
Report Form
lists the sections
one above the other.

ILLUSTRATION 5.17
Classified Report-Form
Statement of Financial
Position
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 Laporan
Laporan Posisi
Posisi Keuangan
Keuangan (Neraca)
(Neraca)

 Perubahan istilah seperti kewajiban menjadi liabilitas dan

hak minoritas menjadi kepentingan nonpengendali (non-
controlling interest)
 Penyajan kepentingan non pengendali sebagai bagian
ekuitas dan bagian laba bukan sebagai pengurang laba
 LK konsolidasian

 Urutan penyajian laporan keuangan dalam ilustrasi menurut

PSAK 1 berbeda dengan IAS 1 (Aset tidak lancar di atas)
 Minimum line item Penyajian Neraca  untuk nilai material
disajikan secara terpisah, namun jika tidak material
dijelaskan dalam kelompok namun tetap ada penjelasan
terpisah.

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 Laporan
Laporan Posisi
Posisi Keuangan
Keuangan
ASET LIABILITAS
Aset Lancar Liabilitas Jangka Pendek PSAK 1
Aset tidak Lancar Liabilitas Jangka Panjang
Ekuitas
Hak Non Pengendali
Ekuitas yang dapat diatribusikan
ke pemilik entitas induk

ASET Ekuitas
IAS 1 Aset tidak Hak Non Pengendali
Lancar
Aset Lancar Ekuitas yang dapat diatribusikan
ke pemilik entitas induk
Liabilitas
Liabilitas Jangka Pendek
5-40 Liabilitas Jangka Panjang
 Minimum
Minimum line
line item
item -- 11

(a) aset tetap; (i) kas dan setara kas;

(b) properti investasi;
(c) aset takberwujud;
(d) aset keuangan (tidak
termasuk jumlah yang
disajikan pada (e), (h) dan
(i));
(e) investasi dengan
menggunakan metode
ekuitas;
(f) aset biologi
(g) persediaan;
(h) piutang usaha dan piutang
lainnya;
5-41
(j) total aset yang
diklasifikasikan sebagai
aset yang dimiliki untuk
dijual sesuai dengan
PSAK 58;
(k) utang usaha dan utang
lainnya;
(l) provisi;
(m) liabilitas keuangan (tidak
termasuk jumlah yang
disajikan dalam (k) dan
(l));
 Minimum
Minimum line
line item
item -- 22
(n) liabilitas dan aset untuk pajak kini sebagaimana didefinisikan
dalam PSAK 46;
(o) liabilitas dan aset pajak tangguhan sebagaimana didefinisikan
dalam PSAK 46;
(p) liabilitas yang termasuk dalam kelompok lepasan yang
diklasifikasikan sebagai yang dimiliki untuk dijual sesuai dengan
PSAK 58;
(q) kepentingan non-pengendali, disajikan sebagai bagian dari
ekuitas;
(r) modal saham dan cadangan yang dapat diatribusikan kepada
pemilik entitas induk.

• Pos tambahan, judul sub judul, sub total boleh disajikan sepanjang
relevan
• Jika menyajikan aset lancar dan tidak lancar serta liabilitas jangka
pendek dan jangka Panjang maka aset (liabilitas) pajak tangguhan
tidak diklasifikasikan sebagai aset lancar (liabilitas jangka pendek)
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 Pos
Pos dalam
dalam Laporan
Laporan

 Penyajian aset lancar dan tidak lancar dan liabilitas

jangka pendek dan jangka panjang sebagai klasifikasi
yang terpisah.
 Kecuali penyajian berdasarkan likuiditas memberikan
informasi yang lebih relevan dan dapat diandalkan
maka digunakan urutan likuiditas.
 Perusahaan keuangan berdasarkan likuiditas
 Pemisahan jumlah yang diharapkan dapat dipulihkan
atau diselesaikan setelah lebih dari dua belas bulan
untuk setiap pos aset dan liabilitas, jika nilainya
digabung.

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 Aset
Aset lancar
lancar
Klasifikasi aset lancar, jika:
 memperkirakan akan merealisasikan aset, atau
memiliki intensi untuk menjual atau
menggunakannya, dalam siklus operasi normal;
 memiliki aset untuk tujuan diperdagangkan;
 Memperkirakan akan merealisasi aset dalam
jangka waktu 12 bulan setelah pelaporan; atau
 kas atau setara kas kecuali aset tersebut
dibatasi pertukarannya atau penggunaannya
untuk menyelesaikan liabilitas sekurang-
kurangnya 12 bulan setelah periode pelaporan.
Entitas mengklasifikasikan aset yang tidak termasuk
kategori tersebut sebagai aset tidak lancar.

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 Liabilitas
Liabilitas jangka
jangka pendek
pendek

Klasifikasi liabilitas pendek, jika:

 memperkirakan akan menyelesaikan liabilitas tersebut
dalam siklus operasi normalnya;
 memiliki liabilitas tersebut untuk tujuan diperdagangkan;
 jatuh tempo untuk diselesaikan dalam jangka waktu 12
bulan setelah periode pelaporan; atau
 tidak memiliki hak tanpa syarat untuk menangguhkan
penyelesaian liabilitas selama sekurang-kurangnya 12
bulan setelah periode pelaporan.

Entitas mengklasifikasi liabilitas yang tidak termasuk kategori

tersebut sebagai liabilitas jangka panjang.

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 Penyajian
Penyajian dalam
dalam Laporan
Laporan Posisi
Posisi Keuangan
Keuangan
atau
atau CaLK
CaLK

 Sub klasifikasi yang disajikan dan diklasifikasikan dengan

cara yang tepat sesuai dengan operasi entitas.
 Penyajian / pengungkapan entitas
 Jumlah saham modal dasar, modal diterbitkan dan
disetor penuh, nilai nominal, rekonsilaisi jumlah
saham beredar, saham entitas yang dikuasai oleh
anak, asosiasi entitas sendiri, saham dicadangkan
untuk penerbitan opsi.
 Sifat dan tujuan setiap pos cadangan dalam ekuitas.
 Jika modalnya tidak terbagi dalam saham: perubahan
selama periode setiap jenis kepentingan, hak
keistimewaan dan pembatasan dari setiap komponen.

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 LEARNING OBJECTIVE 4
Additional Information Describe additional types of
information provided.

IFRS requires that a complete set of financial statements be

presented annually. Comprised of the following:
1. Statement of financial position at the end of the period;
2. Statement of comprehensive income for the period to be
presented either as:
a) One single statement of comprehensive income.
b) A separate income statement and statement of comprehensive
income.

3. Statement of changes in equity;

4. Statement of cash flows; and
5. Notes, comprising a summary of significant accounting policies
and other explanatory information.
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 Additional Information

Notes to the Financial Statements

Accounting Policies
 Specific principles, bases, conventions, rules, and
practices applied in preparing and presenting
financial information.
 First note generally titled, “Summary of Significant
Accounting Policies.”

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 Notes to the Financial Statements
ILLUSTRATION 5.30
Accounting Policies—
Inventory

ILLUSTRATION 5.31
Accounting Policies—
Intangible Asset

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 Notes to the Financial Statements

Additional Notes to the Financial Statements

IFRS requires specific disclosures. Examples include:
1. Items of property, plant, and equipment are disaggregated
into classes such as
 land,
 buildings, etc.,
 in the notes, with related accumulated depreciation
reported where applicable.

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 Additional Notes
ILLUSTRATION 5.36
Reconciliation Schedule for
Property, Plant, and Equipment

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 Notes to the Financial Statements

Additional Notes to the Financial Statements

IFRS requires specific disclosures. Examples include:
2. Receivables are disaggregated into amounts
 receivable from trade customers,
 receivables from related parties,
 prepayments, and
 other amounts.

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 Additional Notes
ILLUSTRATION 5.34
Maturity Analysis
for Receivables

5-53
 Additional Notes

Additional Notes to the Financial Statements

IFRS requires specific disclosures. Examples include:
3. Inventories are disaggregated into classifications such as
merchandise, production supplies, work in process, and
finished goods.

4. Provisions are disaggregated into provisions for employee

benefits and other items.

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 Techniques of Disclosure

Parenthetical Explanations ILLUSTRATION 5.37

Parenthetical Disclosure
of Shares Issued

Parenthetical explanation is an advantage over a note

because it brings the additional information into the body of
the statement where readers will less likely overlook it.

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 Techniques of Disclosure

Cross-Reference and Contra Items

Companies “cross-reference” a direct relationship between an
asset and a liability on the statement of financial position.

ILLUSTRATION 5.38
Cross-Referencing and Contra Items

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 Additional Information

Other Guidelines

Fair
Offsetting Consistency
Presentation

 IAS No. 1 indicates that it is important that assets and

liabilities, and income and expense, be reported
separately.
 It is proper to measure assets net of valuation allowances,
such as allowance for doubtful accounts or inventory net
of impairment.
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 Additional Information

Other Guidelines

Fair
Offsetting Consistency
Presentation

 The Conceptual Framework indicates that companies

should follow consistent principles and methods from one
period to the next.
 Accounting policies must be consistently applied for
similar transactions and events unless an IFRS requires a
different policy.
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 Additional Information

Other Guidelines

Fair
Offsetting Consistency
Presentation

 Faithful representation of transactions and events using

the definitions and recognition criteria in the Conceptual
Framework.
 Presumed that the use of IFRS with appropriate disclosure
results in financial statements that are fairly presented.

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 Catatan
Catatan atas
atas Laporan
Laporan Keuangan
Keuangan

 Menyajikan informasi tentang dasar penyusunan laporan

keuangan dan kebijakan akuntansi spesifik yang
digunakan
 Mengungkapkan iformasi yang disyaratkan SAK yang
tidak disajikan di bagian manapun dalam laporan
keuangan
 Menyediakan informasi yang tidak disajikan dalam
bagian manapun dalam laporan keuangan tetapi relevan
untuk memahami laporan keuangan

CALK disajikan secara sistematis, dengan

mempertimbangakn dampak keterpahaman dan
keterbandingan laporan keuangan

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 Catatan
Catatan atas
atas Laporan
Laporan Keuangan
Keuangan
Pengungkapan kebijakan akuntansi
 Dasar pengukuran yang digunakan dalam menyusun laporan
keuangan
 Kebijakan akuntansi lain yang diterapkan, yang relevan untuk
memahami laporan keuangan
 Pertimbangan managemen dalam proses penerapan
kebijakan akuntansi yang berdampak paling signifikan
terhadap jumlah yang diakui dalam laporan keuangan

Sumber ketidakpastian estimasi

 Asumsi masa depan, sumber utama lain dari ketidakpastian
estimasi lain pada akhir periode pelaporan, yang memiliki
risiko signifikan, mengakibatkan penyesuaian material
terhadap jumlah tercatat aset dan liabilitas periode pelaporan
berikutnya.
 Rincian sifat dan jumlah tercatat pada akhir periode
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 APPENDIX 5A RATIO ANALYSIS—A REFERENCE

LEARNING OBJECTIVE 5
Identify the major types of financial ratios and what they measure.

Using Ratios to Analyze Performance

Major Types of Ratios
Liquidity Ratios. Measures of the company’s short-term ability to pay its
maturing obligations.
Activity Ratios. Measures of how effectively the company uses its
assets.
Profitability Ratios. Measures of the degree of success or failure of a
given company or division for a given period of time.
Coverage Ratios. Measures of the degree of protection for long-term
creditors and investors.
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 APPENDIX 5A RATIO ANALYSIS—A REFERENCE

ILLUSTRATION 5A.1
Using Ratios to Analyze Performance A Summary of
Financial Ratios

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 APPENDIX 5A RATIO ANALYSIS—A REFERENCE

ILLUSTRATION 5A.1
Using Ratios to Analyze Performance A Summary of
Financial Ratios

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 APPENDIX 5A RATIO ANALYSIS—A REFERENCE

ILLUSTRATION 5A.1
Using Ratios to Analyze Performance A Summary of
Financial Ratios

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 GLOBAL ACCOUNTING INSIGHTS

LEARNING OBJECTIVE 6
Compare the accounting procedures for cash and receivables under IFRS and
U.S. GAAP.

As in IFRS, the statement of financial position and the statement of cash flows
are required statements for U.S. GAAP. In addition, the content and
presentation of a U.S. GAAP statement of financial position and cash flow
statement are similar to those used for IFRS.

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 GLOBAL ACCOUNTING INSIGHTS

Relevant Facts
Following are the key similarities and differences between U.S. GAAP and
IFRS related to the statement of financial position.
Similarities
• Both U.S. GAAP and IFRS allow the use of the title “balance sheet” or
“statement of financial position.” IFRS recommends but does not require the
use of the title “statement of financial position” rather than balance sheet.
• Both U.S. GAAP and IFRS require disclosures about (1) accounting policies
followed, (2) judgments that management has made in the process of
applying the entity’s accounting policies, and (3) the key assumptions and
estimation uncertainty that could result in a material adjustment.
Comparative prior period information must be presented and financial
statements must be prepared annually.
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 GLOBAL ACCOUNTING INSIGHTS

Relevant Facts
Similarities
• U.S. GAAP and IFRS require presentation of non-controlling interests in the
equity section of the statement of financial position.

Differences
• U.S. GAAP follows the same guidelines as presented in the chapter for
distinguishing between current and noncurrent assets and liabilities.
However, under U.S. GAAP, public companies must follow U.S. SEC
regulations, which require specific line items. In addition, specific U.S.
GAAP mandates certain forms of reporting for this information. IFRS
requires a classified statement of financial position except in very limited
situations.

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 GLOBAL ACCOUNTING INSIGHTS

Relevant Facts
Differences
• Under U.S. GAAP cash is listed first, but under IFRS it is many times listed
last. That is, under IFRS, current assets are usually listed in the reverse
order of liquidity than under U.S. GAAP.
• U.S. GAAP has many differences in terminology that you will notice in this
textbook. One example is the use of common stock under U.S. GAAP,
which is referred to as share capital—ordinary under IFRS.
• Use of the term “reserve” is discouraged in U.S. GAAP, but there is no such
prohibition in IFRS.

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 GLOBAL ACCOUNTING INSIGHTS

About The Numbers

The order of presentation in the statement of financial position differs between
U.S. GAAP and IFRS. As indicated in the following table, U.S. companies
generally present current assets, non-current assets, current and non-current
liabilities, and shareholders’ equity. In addition, within the current asset and
liability classifications, items are presented in order of liquidity.

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 GLOBAL ACCOUNTING INSIGHTS

On the Horizon
The IASB and the FASB are working on a project to converge their standards
related to financial statement presentation. A key feature of the proposed
framework is that each of the statements will be organized, in the same format,
to separate an entity’s financing activities from its operating and investing
activities and, further, to separate financing activities into transactions with
owners and creditors. Thus, the same classifications used in the statement of
financial position would also be used in the statement of comprehensive
income and the statement of cash flows.

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 COPYRIGHT

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5-73