1. 5-1

2. 5-2 C H A P T E R 5 STATEMENT OF FINANCIAL POSITION AND STATEMENT OF CASH FLOWS Intermediate Accounting IFRS Edition Kieso, Weygandt, and Warfield

3. 5-3 1. 1.Explain the uses and limitations of a statement of financial position. 2. 2.Identify the major classifications of the statement of financial position. 3. 3.Prepare a classified statement of financial position using the report and account formats. 4. 4.Indicate the purpose of the statement of cash flows. 5. 5.Identify the content of the statement of cash flows. 6. 6.Prepare a basic statement of cash flows. 7. 7.Understand the usefulness of the statement of cash flows. 8. 8.Determine additional information requiring note disclosure. 9. 9.Describe the major disclosure techniques for financial statements. Learning Objectives

4. 5-4 Statement of Financial Position Additional Information UsefulnessLimitationsClassificationNotes Techniques of disclosure Other guidelines Statement of Financial Position and Statement of Cash Flows Statement of Cash Flows Purpose Content and format PreparationUsefulness

5. 5-5 Statement of Financial Position LO 1 Explain the uses and limitations of a 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.

6. 5-6 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 LO 1 Explain the uses and limitations of a statement of financial position.

7. 5-7 Most assets and liabilities are reported at historical cost. Use of judgments and estimates. Many items of financial value are omitted. Limitations LO 1 Explain the uses and limitations of a statement of financial position. Statement of Financial Position

8. 5-8 Classification LO 2 Identify the major classifications of the statement of financial position. Statement of Financial Position

9. 5-9 Subclassifications LO 2 Identify the major classifications of the statement of financial position. Statement of Financial Position Illustration 5-1 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.

10. 5-10 Generally consists of: Long-term Investments Property, Plant, and Equipment Intangibles Assets Other Assets ClassificationClassification LO 2 Identify the major classifications of the statement of financial position. Non-Current Assets

11. 5-11 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 ClassificationClassification LO 2 Identify the major classifications of the statement of financial position.

12. 5-12 Investments in Debt and Equity Securities ClassificationClassification LO 2 Identify the major classifications of the statement of financial position. PortfolioTypeValuationClassification Held-for- Collection Debt Amortized Cost Current or Noncurrent TradingDebt or EquityFair ValueCurrent Non-Trading Equity EquityFair Value Current or Noncurrent

13. 5-13 Long-Term Investments LO 2 Identify the major classifications of the statement of financial position. ClassificationClassification Illustration 5-2 Statement of Financial Position Presentation of Long-Term Investments

14. 5-14 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 LO 2 Identify the major classifications of the statement of financial position. ClassificationClassification

15. 5-15 LO 2 Identify the major classifications of the statement of financial position. ClassificationClassification Illustration 5-3 Statement of Financial Position Presentation of Property, Plant, and Equipment

16. 5-16 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 LO 2 Identify the major classifications of the statement of financial position. ClassificationClassification

17. 5-17 Intangible Assets LO 2 Identify the major classifications of the statement of financial position. ClassificationClassification Illustration 5-4 Statement of Financial Position Presentation of Intangible Assets

18. 5-18 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 LO 2 Identify the major classifications of the statement of financial position. ClassificationClassification

19. 5-19 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 ClassificationClassification Illustration 5-5 LO 2 Identify the major classifications of the statement of financial position.

20. 5-20 Inventories Disclose: Basis of valuation (e.g., lower-of-cost-or-market). Cost flow assumption (e.g., FIFO or average cost). LO 2 ClassificationClassification Illustration 5-6