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5.4. Statement of financial position

Syllabus
0264–2027–2028
Topic
5.4
Level
—

Learning objectives

5.4.1The main elements of a statement of financial position• non-current assets, e.g. property (land and buildings), machinery• current assets, e.g. inventory, trade receivables, cash• non-current liabilities, e.g. bank loans• current liabilities, e.g. trade payables, overdraft• concept of capital employed• make simple calculations based on statements of financial position: total assets, total liabilities, working capital• make decisions based on simple statements of financial position Note: candidates will not be assessed on constructing statements of financial position.

Read a statement of financial position

Element Meaning Examples
non-current assets resources kept for long-term use property, machinery
current assets resources expected to become cash within the operating cycle inventory, trade receivables, cash
non-current liabilities debts due after more than one year long-term bank loan
current liabilities debts due within one year trade payables, overdraft

total assets=noncurrent assets+current assets,total liabilities=noncurrent liabilities+current liabilities,working capital=current assets−current liabilitiestotal\ assets=noncurrent\ assets+current\ assets,\quad total\ liabilities=noncurrent\ liabilities+current\ liabilities,\quad working\ capital=current\ assets-current\ liabilities

Capital employed is the long-term finance invested in the business. It can be viewed as equity plus non-current liabilities, or as total assets minus current liabilities.

Use the figures to judge asset structure, liquidity and borrowing. A rise in non-current assets may show investment; weak or negative working capital may signal difficulty paying short-term debts. Compare with earlier years or similar businesses before deciding.

A statement of financial position is a snapshot at one date, not a record of profit or cash movement. Candidates use and calculate from a simple statement; they do not need to construct one from scratch.