Statement of Financial Position Flashcards
(45 cards)
statement of financial position can also be called
balance sheet
sofp is a summary of what
assets an organisation controls
liabilities an organisation owes to outside parties
equiites
at a certain point in time, snapshot, would be different had it been taken another time
define an asset
a present economic resource controlled by the entity as a result of past events
4 requirements to be an asset
control
a result of past events
present
economic benefits
what does the ‘control’ condition mean for an asset
the resource must be owned or leased by and entity
what does the ‘result of past events’ condition mean for an asset
the company signed a contract or paid money to acquire the right to an asset
what does the ‘present’ condition mean for an asset
the resource must be under the entity’s control at the statement of financial position date
ie no future agreements can be included
what does the ‘economic benefits’ condition mean for an asset
resources will be used to generate profits and cash
future monetary value
example of intangible assets
patents and trade marks
is a new marketing director who is expected to increase profits by 30% an asset? why or why not?
no
do not have control over him/her
define a non current asset
not purchase to be resold in the normal course of business
retained within the business for more than one year
held for the lonf term for the business to use in produce of goods or services
example of non current assets
property, pant and equipment, buildings, vehicles, computer, fixtures and fittings
define current assets
short term assets which are constantly changing
examples of current assets
inventory
trade receivables
cash and cash equivalents
how to distinguish between non current and current assets
time (< or > 1 year)
depends on busines in which an entity is engaged
example of how current and non current assets can differ between businesses
DPD vehicles are a non current asset as they are used to carry out work
BMW vehicles are a current asset as they will be reols within the year
define liability
a present obligation of the entity to transfer an economic resource as a result of past events
what does ‘present obligation’ mean in the definition of liability
must exist at date of SOFP
what does ‘economic resource’ mean in the definition of liability
transfer of cash to an outside party
what does ‘as a result of a past event’ mean in the definition of liability
eg as a result of borrowing money which now has to be repaid
what is a non current liabilty
due for settlement in more than 12 months
examples of non current liabilties
loans >1 year
retirement benefits
long term provisions
what is a current liabilty
due for settlement within the next 12 months
examples of current liabilities
bank overdrafts
installments in long term loans
trade payables
tax payables
