A statement of financial position  (SOFP)is a statement that shows the actual position of a business on a given particular date.  It is the statement of assets, liabilities, and equity of the business. Formerly the statement of financial position was called the balance sheet but the IAS 1 changed the name and introduce new terminology for the balance sheet which is now the “statement of financial position”. As the name indicates is shows the position of the business, unlike the profit or loss statement which shows the performance of the business. Therefore any investor or other user can easily judge the position of the business by looking into the figures recorded in the SOFP that how many assets and liabilities a particular business has while how much the owners of the business contributed to the business.

A SOFP has key importance for the users of financial statements because most the investors and its users see the SOFP see the actual position of the business while they also calculate the decisive ratios based on the figures in the SOFP because different key ratios are calculated from the SOFP so it has the key importance in the financial statements.        

In SOFP the assets and liabilities shall be properly classified between non-current and current as per the requirements of IAS 1. The following factors are worth noting while preparing the SOFP:

NAME OF THE ENTITY

On the top of the SOFP, the name of the entity to which such statement belongs shall be written in full, not with an abbreviated form.

DATE OF THE STATEMENT OF FINANCIAL POSITION

Since already mentioned that the SOFP is prepared at the particular date to show the financial position at a given specified date. The format of the date should be like “Statement of Financial Position as of 30 June 2021. If we noted that with the date we have written, “as at” NOT “for the” which mean the position of the business on that particular date not for the whole period because on very next day the financial position could be changed due to changing in assets and liabilities figure so this statement always shows the position of the business at a particular date not for the whole year unlike a statement of profit or loss.

NON-CURRENT ASSETS

Non-current assets are those assets that are not primarily held by a business for the normal trading activities or to be realized in the normal operating cycle but such assets are held to support the business operations. Remember that non-current assets shall be utilized for more than 12 months. The example of non-current assets are building, furniture and fixture, and land, intangible, such assets does not directly involve in the sale and purchase by a business but support the operational activities of the business for example building used by a business to run its operation under a roof while furniture is used for the employees to carry out their routine duties.

CURRENT ASSETS

Current assets are those from which the business expects to realize the benefit within a period of 12 months or within the normal operating cycle. Such assets could be inventory, trade receivables, cash, and bank balances, and the current maturity of the non-current loan provided by the business to someone else. Such current assets shall be properly classified under the non-current assets and should not be mixed with the non-current assets.

EQUITY

In equity, all those items that related to the owners of the business shall be included like share capital, share premium, retained earnings or accumulated earnings, revaluation reserve, etc.,

NON-CURRENT LIABILITIES

Non-current liabilities are those liabilities which the business expects to settle over a period of more than 12 months or more than the normal operating cycle. Example of such non-current liabilities includes the debenture loan, other non-current loan obtained by the business for its needs.

CURRENT LIABILITIES

Current liabilities are those liabilities which the business expects to settle in a period of 12 months or within the normal operating cycle. Example of current liabilities includes Trade payables, accrued payables, current maturity of the non-current liabilities, etc. Again proper classification shall be made between the non-current liabilities and current liabilities in SOFP and should not be mixed with each other.

For clear understanding that how a Statement of Financial position as per the requirements of IAS 1 looks like are given as under:

XYZ plc