statement tpo financial position

UNIT 3: Finance

and accounts

3.4. Final
accounts

✔ Provide the exact conceptual meaning of each

business term.

✔ Show the information in a logical way considering

the title, the name of the accounts, the mechanism
of the numerical answers.

BY THE END OF THIS CHAPTER,

YOU SHOULD BE ABLE TO:

TOK QUESTION

Does the

accounting process

allow for

imagination?

Source: Lominé, L., Muchena, M. & Pierce, R. (2014). Business Management: Course companion. Oxford: Oxford University Press.

1. Statement of

profit or loss

account

a) The trading

account

b) The profit

and loss
account

c) The

appropiation

account

2. Statement of
financial position:

Profit-making entity.

Assets

Liabilities

Equity

The main Final accounts

2. Statement of financial position :
profit-making entity

Like a still photograph, the balance sheet is a financial
snapshot of a business at a point in time.

Statement of financial
position.

Where the firm obtained
its funds – its sources

The value of the

capital a firm is using

Where these funds

were spent – its uses

The statement of financial position represents a valuation
of the firm’s assets and liabilities at a particular time – a
snapshot of the business’s wealth.

A statement of financial position is a
financial statement recording the assets
(possessions) and liabilities (debts) of a
business on a particular day at the end of
an accounting period.

.

It is also called a statement
offinancial position and many
companies, especially publicly
held companies, use this term.

The statement of financial position

only represents a picture of a

business’s assets and liabilities at a

moment in time: it is commonly
described as a ‘snapshot’ ofthe

financial position of an organization.

. The statement of financial

position provides a great deal of

information for those with an

interest in a business and is the

primary financial document
published by businesses.

2. Statement of financial position

The IB required format for the balance sheet

a) Non current
assets

1. Assets

b) Current assets

The main components of the balance sheet

An asset is simply something that a business owns. There are
two main categories of assets that appear on the statement
offinancial position. The distinction between the two categories
is based upon the time the assets are held within the business

These are assets owned by a business that it expects to retain
for one year or more. Such assets are used regularly by a
business and are not bought for the purpose of resale.
Examples

ofnon-current

assets

include

land,

property,

production equipment and vehicles.

This category of asset is likely to be converted into cash
before the next statement of financial position is drawn up.
There are three major types of current asset: cash, stock,
debtors,

a) Current
liabilities:

1. Liabilities

The main components of the balance sheet

A liability is a debt owed by the business to organizations or
individuals. Another way of thinking of a liability is that it shows
the sources of capital the business has raised in order to
purchase its assets. As with assets, there are a number of
categories of liabilities

In many senses these are the equivalent of current assets.
They represent debts owed by the business due for payment
within one year or less. We can identify three examples of
current liabilities:

Overdrafts are short-term flexible loans that businesses negotiate with banks to help
them to manage their payments on time

Creditors are organizations such as suppliers to which the business owes money

Other short-term loans which the business expects to repay within twelve months.

2. Non-current
liabilities

These are debts that a business does not expect to repay within
the period of one year. Long-term borrowing in the forms of
mortgages and bank loans repayable over several years are
common examples ofthis type ofliability.

3. Equity

It may seem strange that the money invested into the business
by its owners (shareholders in the case of a company) is a
liability. However, if the company ceased trading, shareholders
would hope for the repayment of their investment. Thus, these
funds (also called total equity) are liabilities. This element of the
statement of financial position also includes the company’s
accumulated retained profit, which is termed retained profit or
retained earnings.

Working capital is calculated by use of the following formula:

Working capital and net assets

Goodwill:

It is the value of positive or favourable

attributes that relate to a business.

Patent:

It is the ecxclusive right granted to an
organizationby the goverment to make

use of an invention or process for

particular period of time

Copyrights laws:

They are the laws that provide creators
with the exclusive right to protect the
production and sale of their artistic or

literary work.

Trademarks:

They are the legal protection for an

organization’s registered symbol (logo),

Word (Brand) or phrase (slogan).

An intangible asset is a non-

physical asset that adds value to
an organization, e.g. customer

goodwill and intelectual
property rights (patents,

copyrights and trademarks)

INTANGIBLE ASSETS

MODELING STUDY CASE

TIME TO PRACTICE

CLASS EVIDENCE

Rio Mobiliário (RM)

Rio Mobiliário (RM) is a Brazilian furniture
manufacturer. It generates sales in South
America, North America and Europe. It
has successfully outsourced production
and

distribution

facilities

to

North

America.
Selected financial data for the year ended
and as of 31 December 2015. All figures in
millions of Brazilian reals.

QUESTIONS :
a. Define the term variable costs. [2]
c. Using relevant information from the
table, construct a Statement of profit or
loss for RM. [3]
d. Using relevant information from the
table, construct a fully labelled
Statement of financial position:profit
making entity for RM. [5]

Retained earnings

4116

Cash

486

Cost of sales

3074

Trade Creditors

498

Debtors

958

Expenses

1390

Gross profit

X

Interest

12

Non-current assets

3110

Profit for period

606

Profit before interest and
tax

Y

Bank overdraft

52

Sales revenue

5256

Share capital

800

Other short-term loans

650

Stock

1562

Tax

174

REFERENCES

▪Hoang, P. (2022). Business Management (5th ed.). Melton: IBID Press.

▪Lominé, L., Muchena, M. & Pierce, R. (2022). Business Management: Course
companion. Oxford: Oxford University Press.

▪Surridge, M., Gillespie, A. (2022). Business Management for the IB
Diploma Programme. Hodder Education: Hodder Education.

Thank you!

“Los COAR son una propuesta viva, sujeta a
mejoras y construida con todos sus actores”.