The Statement of Financial Position

This summarises the asset, liability and equity balances (i.e. the financial position of the company) at the end of the accounting period.

Current assets and current liabilities

The suggested statement of financial position format makes a distinction between current and non-current assets and liabilities. IAS 1 sets down the rules to be applied in making this distinction.

Assets

An asset should be classified as a current asset if it is:

• held primarily for trading purposes
• expected to be realised within 12 months of the statement of financial position date; or
• cash or a cash equivalent (i.e. a short term investment, such as a 30 day bond).

All other assets should be classified as non-current assets.

Note that this definition allows inventory or receivables to qualify as current assets under (a) above, even if they may not be realised into cash within twelve months.

Liabilities

The rules for current liabilities are similar to those for current assets.

A liability should be classified as a current liability if:

• it is expected to be settled in the normal course of the enterprise's operating cycle
• it is held primarily for the purpose of being traded
• it is due to be settled within 12 months of the statement of financial position date or
• the company does not have an unconditional right to defer settlement for at least 12 months after the statement of financial position date.

All other liabilities should be classified as non-current liabilities.

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