THE FINANCIAL STATEMENT PART I : STATEMENT OF … · STATEMENT OF FINANCIAL POSITION / BALANCE...

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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

Transcript of THE FINANCIAL STATEMENT PART I : STATEMENT OF … · STATEMENT OF FINANCIAL POSITION / BALANCE...

Page 1: THE FINANCIAL STATEMENT PART I : STATEMENT OF … · STATEMENT OF FINANCIAL POSITION / BALANCE SHEET . ... STATEMENT OF FINANCIAL POSITION / BALANCE SHEET ... Explain the uses and

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

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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.

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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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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

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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

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Classification

Statement of Financial Position

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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.

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Generally consists of:

Long-term Investments

Property, Plant, and Equipment

Intangibles Assets

Other Assets

Classification

Non-Current Assets

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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

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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

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Long-Term Investments

Classification

Illustration

Statement of Financial osition Presentation of Long-Term Investments

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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

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Classification

Illustration

Statement of Financial Position Presentation of Property, Plant, and Equipment

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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

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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

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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

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Inventories Disclose:

Basis of valuation (e.g., lower-of-cost-or-market).

Cost flow assumption (e.g., FIFO or average cost).

Classification

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Inventories

Classification

Manufacturing Company

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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

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Receivables

Classification

Illustration

Statement of Financial Position Presentation of Receivables

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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

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Prepaid Expenses

Classification

Illustration

Statement of Financial Position Presentation of Prepaid Expenses

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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

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Short-Term Investments

Classification

Illustration

Statement of Financial Position Presentation of Short-Term Investments

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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

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Cash

Classification

Illustration

Statement of Financial Position—Restricted Cash

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Equity

Classification

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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.

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Equity

Classification

Illustration 5-13

Statement of Financial

Position—Equity

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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.

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Non-Current Liabilities

Classification

Illustration :

Statement of Financial Position Presentation of Non-Current Liabilities

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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.

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Current Liabilities

Classification

Illustration

Statement of Financial Position Presentation of Current Liabilities

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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

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Classification

Account Form

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Classification

Report Form

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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.

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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.

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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

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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.

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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.

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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.

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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

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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.

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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.

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► 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

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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.

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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 .