Sofp

The Statement of Financial Position

Purpose

* Sets out the financial position of a business at a particular moment in time

* It is a status report rather than a flow report

* It is always dated

* It contains 2 sections : assets (the resources of the entity) and liabilities and equities(claims against the resources)

Assets

* An asset is essentially a resource held by the business

* It should have all of the following properties:

1. A probable future benefit must exist : the item must be expected to have some future monetary value eg use within the business or through hire or sale, equipment sold for scrap is still an asset

2. The business must have the right to control the resource: eg a business offering holidays on barges, the business cannot control canal thus it is not an asset

3. The benefit must arise from some past transaction or event : this means that the transaction giving rise to the business’s right to the benefit must have already occurred, not be one which will arise at some future date eg an agreement by a business to buy a piece of equipment at some future date would not be an asset

4. The asset must be capable of measurement in monetary terms: it must be measured in monetary terms with a reasonable degree of reliability eg the title of a magazine might be famous but it is not an asset

* Examples of assets: property, plant and equipment, fixtures and fittings, patents and trademarks, trade receivables(debtors), investments outside the business

Classification of asset class

* Tangible assets – physical substance that can be touched

* Intangible assets – no physical substance but provide expected future benefits

Current assets

* Assets that are held for the short term

* Conditions for current assets:

* They are held for sale or consumption during the business’s normal operating cycle

* They are expected to be sold within the year

* They are held principally for trading

*...