Lecture Video 12

Lecture 12: Statement of Financial Position

Let’s look at one of the most important things you’ll learn throughout this course, namely the format for the Statement of Financial Position. In Study Unit 1, we look at this in terms of a company just to get you started. 

The majority of this course will actually deal with partnerships and closed corporations. We’ll look at companies a little later in a later study unit. 

For now, let’s get a starting point, and this is going to be 90% the same as compared to rest of the partnerships or CC’s. Just the equity component is going to be slightly different.    

Let’s look at the Statement of Financial Position. I want you to remember the accounting equation: Assets = Owners’ Equity + Liabilities

Also, take note that later on we often use shorthand when we’re doing journals, e.g. Statement of Financial Position; we will often talk about SFP when referencing journals. 

Now, let’s move on to the actual statement itself. I have done a bit of the writing out for you; please note I’m not giving you a format at this stage. Later on, when you do partnerships, there will be a download. What I need from you now is to write this out with me. Stop the video and copy it out. Make sure you practice writing out this format. 

  1. It’s very important, at this level in your exams, to get the titles right. So first of all, write out the name of the company.

  1. Tell me what statement you are dealing with. In this example, we are dealing with the Statement of Financial Position. Remember that the SFP is a wealth concept, so it is AT the reporting date. It will be different to the Statements of Profit or Loss that we’ll deal with later, where that is going to be for the period ending. 

  1. Then, remember to do the current year, as well as the prior year comparatives, and you’ll see I tell you what that year is. And tell me where or how much we are rounding.  So if I write a little comma like that with three zeros, it means my SFP is rounded to a thousand. Sometimes, for larger companies, you will see it rounded to a million, and you’ll designate six zeros there. 

  1. Then, we’re going to start with the accounting equation; Assets = Equity + Liabilities. We’re going to start with assets. This would be on one page for you. Please, I’m limited for space on the computer screen, so I’m going to do this over two pages.

Let’s start off with assets. Now assets are going to be split up between non-current assets and current assets. Please take note, with non-current assets we’re going to realise the future benefits over more than 12 months. Current assets mean that the realisation of those future benefits will be less than 12 months.

Non-Current Assets: 

The most common one under non-current assets will be Property Plant and Equipment (PPE). That is all your non-current assets that are being used in the operations. The land, the buildings, the machinery, the office furniture etc., and you’ll have a figure for those.

Then, the other ones that are very common are Investment Properties. Those are land and buildings that are held for capital gains or rentals.

Then you also have to look at things like Intangible Assets. These are assets that you can’t touch or feel. That might be intellectual property such as copyrights, patents etc.

And the last one that you’ll need to think about for this course is Financial Assets. We’ll go into those a little bit later, but for now, understand that there are financial assets. That might be investments in another company’s shares, loans you made to other companies etc. And here we’re talking about the non-current financial assets, the ones that you’ll receive back benefits after 12 months.

Current Assets: 

Here, very common ones will be things like Inventories/Stock.

Then you’ll have Trade & Other Receivables, which in reality is a financial asset, but we often disclose them separately. You’ll often hear the term, debtors. That’s an outdated term, but it means the same thing.

You might have other financial assets or Current Financial Assets. So these will be your financial assets that are receivable in less than 12 months. 

Also, there may be Current Tax Receivable. So this is where the tax authority, SARS, owes you money back.

And, your cash on hand. The amounts in the bank, as well as petty cash and short-term deposits - that will be Cash & Cash Equivalents

You add the Non-Current to the Current, and you then get Total Assets at the bottom.

Please remember you will have Notes for all of these as well, so you’ll see I have a little heading, Notes, there and PPE will be referenced to a Note in the financial statements. Same with Investment Properties, Intangible Assets, Financial Assets, Inventories probably as well, etc. etc. So those Notes give more detail about the totals that you have on the face of the Statement of Financial Position.

Back to our accounting equation, we have ticked off Assets. Now we need to have a look at the other side of the equation, Equity and Liabilities, so we’re continuing on our Statement of Financial Position.

Equity and Liabilities:


Remember here I’m dealing with a company in this example. Later on, in other Study Units, you will deal with partnerships (the biggest part of this course), as well as closed corporations. Some of the concepts will stay the same, but the names of what Equity is called will change.

Let’s continue with companies now. So with companies we have Share Capital, often called Stated Share Capital, and these will be the issued shares, not necessarily the authorised shares. Again, we’ll deal with that in a later Study Unit.

Then there will be any other Reserves. You will deal with a variety of reserve accounts throughout this module and in future studies.

Then we’ll have Retained Earnings, our accumulated profits. Which are equity, they belong to the owners of the business. 

Total Liabilities: 

Liabilities are split between non-current and current, to give you total liabilities. This is not an exhaustive list; this is the most common ones you’ll see.

Non-Current Liabilities: 

Under non-current, you will often see Long-Term Borrowings. These are your loans from the banks, etc. that you’re paying off over 5-6 years.

There also may be Other Financial Liabilities. Again, the long-term borrowings are financial liabilities; this is just a disclosure element. Just giving you an illustrative set for you to learn as a starting point.

Current Liabilities: 

Here the most common is going to be your creditors. We don’t call them creditors anymore; we call it Trade & Other Payables. If you’re used to working Pastel, Pastel refers to this as suppliers.

Then you might have your Short-term Borrowings or the short-term components of the long-term borrowings, which can be put as a separate line item - Current Portion of Long-Term Borrowings.

Then we may also have something called Provisions, which are liabilities, but liabilities with an uncertainty to the timing or amount of settlement.

What’s going to be important, is your Current Tax Payable. Remember we need to separate that from the current tax receivable we did under the assets section. Often you will see us refer to that Current Tax Payable as the SARS account – the South African Receiver of Revenue Services.

Take the Non-Current and the Current Liabilities, add them up for Total Liabilities.

The last step is to complete the accounting equation. Here you will take Total Equity + Total Liabilities, and that will give you Total Equity & Liabilities.

What is important, and I need you to do this for the exam no matter what, is that you take the Total Equity & Liabilities and you compare it to the Total Assets

And remember, the accounting equation: Total Assets = Total Equity + Total Liabilities

In an exam, if you’re running tight on time, don’t go back and be pedantic about adding those up. You’ve made a mistake; you aren’t getting a 100% for this exam. You might get 90, 80, 70 but make sure that number, the total equity and liabilities, equals the total assets. Force balance it, it’s the principal account, no one is going to check your adding up in this exam, I promise you that.

That is our Assets and Liabilities, our Equity – all included in the Statement of Financial Position (SFP). Make sure you learn this basic format before you proceed to the next section.

Set Descending Direction

24 per page

1 Item(s)

Set Descending Direction

24 per page

1 Item(s)