Statement of financial position: practice questions

How to approach these questions

A statement of financial position question asks you to show, at a single date, what a business owns and owes and how the owner's stake stands. First confirm the reporting date and the type of business. A sole trader, a partnership and a limited company each show the capital or equity section differently.

Note whether you are given a trial balance or a set of adjusted figures. A trial balance usually needs adjustments for depreciation, accruals, prepayments and a provision for doubtful debts before the figures reach the statement. Write the date into your heading straight away, because the statement is a snapshot, not a period summary.

Work in a fixed order. Start with non-current assets. Show cost, accumulated depreciation and carrying amount (net book value) in three columns.

A machine costing RM40,000 with accumulated depreciation of RM15,000 is shown at a carrying amount of RM25,000. Then list current assets from least to most liquid: inventory, trade receivables less any provision for doubtful debts, other receivables and prepayments, and finally cash and bank. Total the current assets.

Then list current liabilities, typically trade payables, accruals and any bank overdraft. Subtract them from current assets to get working capital. Add working capital to non-current assets to reach the figure financed by the owner and by long-term borrowing.

The financing half must reconcile to that total, and method marks concentrate here. For a sole trader, start with opening capital, add profit for the year, subtract drawings, and show closing capital. If capital was RM50,000, profit RM18,000 and drawings RM10,000, closing capital is RM58,000.

Show non-current liabilities, such as a long-term loan, below the capital section. The two halves must balance. That is the clearest signal that your work is sound.

Show each line separately and do not net figures together. The examiner rewards the individual entries.

Process the adjustments before you write the final figures. A prepayment of insurance increases current assets and reduces the expense. An accrual for wages increases current liabilities.

A provision for doubtful debts is deducted from trade receivables, so only the recoverable amount appears. Depreciation for the year is added to accumulated depreciation, which lowers the carrying amount.

Work each adjustment in a small note beside the trial balance line. This prevents the common error of adjusting the income statement but forgetting the matching change in the statement of financial position.

Check the balance and the classification. Total assets must equal capital plus liabilities to the exact ringgit. A difference usually means an adjustment was applied once instead of twice, or an item is under the wrong heading.

A loan repayable within twelve months is a current liability. A loan repayable later is non-current. Make sure the inventory shown is the closing figure, and that the cash balance agrees with any cash account you prepared.

Remember that drawings never appear as an expense or an asset. They reduce capital only.

Do not count profit twice. The provision for doubtful debts reduces receivables and is not a liability. Keep long-term and short-term liabilities apart.

Show non-current assets at carrying amount while still showing cost and depreciation. Give the statement a three-line heading: the business name, the title and the date.

If your statements do not balance and you cannot see why, one of our teachers can go through your working with you and find the missing adjustment. Book a trial class