Chapter 2 - A further look at financial statements. This chapter include objectives: Identify the sections of a classified statement of financial position; identify and calculate ratios for analyzing a company’s liquidity, solvency, and profitability; describe the framework for the preparation and presentation of financial statements. | CHAPTER 2: A FURTHER LOOK AT FINANCIAL STATEMENTS LO 1: Identify the sections of a classified statement of financial position. LO 2: Identify and calculate ratios for analyzing a company’s liquidity, solvency, and profitability. LO 3: Describe the framework for the preparation and presentation of financial statements. LEARNING OBJECTIVES A classified statement of financial position generally contains the following standard classifications: Classified Statement of Financial Position Assets expected to be converted to cash, sold or used in the business within one year or one operating cycle, whichever is longer Operating cycle is the average time it takes to go from cash to cash in producing revenue Usually listed in order of liquidity: Reverse order of liquidity also possible Examples include cash, held-for-trading investments, accounts receivable, inventory, and prepaid expenses Current Assets Assets not expected to be converted to cash, sold or used in the business within one year or | CHAPTER 2: A FURTHER LOOK AT FINANCIAL STATEMENTS LO 1: Identify the sections of a classified statement of financial position. LO 2: Identify and calculate ratios for analyzing a company’s liquidity, solvency, and profitability. LO 3: Describe the framework for the preparation and presentation of financial statements. LEARNING OBJECTIVES A classified statement of financial position generally contains the following standard classifications: Classified Statement of Financial Position Assets expected to be converted to cash, sold or used in the business within one year or one operating cycle, whichever is longer Operating cycle is the average time it takes to go from cash to cash in producing revenue Usually listed in order of liquidity: Reverse order of liquidity also possible Examples include cash, held-for-trading investments, accounts receivable, inventory, and prepaid expenses Current Assets Assets not expected to be converted to cash, sold or used in the business within one year or one operating cycle All assets not considered current Examples: Long-term investments Property, plant, and equipment Intangible assets and goodwill Other assets Non-Current Assets Multi-year investments in: Debt securities: loans, notes, bonds, mortgages Equity securities: shares of other companies These assets are normally not intended to be sold (and converted to cash) within one year Long-Term Investments Tangible assets with relatively long useful lives Used in operating the business Examples: Land Buildings, Equipment Furniture Computers Vehicles Usually listed in order of permanency Property, Plant, and Equipment Allocation (expense) of the cost of property, plant, and equipment over their estimated useful lives: Companies systematically assign a portion of the cost of an asset to expense each year Under IFRS, this allocation is referred to as depreciation for property, plant, and equipment, and amortization for intangible assets Under ASPE, amortization is often used instead of
