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