Limited Time Offer: Save 10% on all 2021 and 2022 Premium Study Packages with promo code: BLOG10    Select your Premium Package »

Alternative Formats of Balance Sheet Presentation

Alternative Formats of Balance Sheet Presentation

Some entities prepare their financial statements in accordance with International Financial Reporting Standards (IFRS), while others prepare their financial statements in accordance with the United States Generally Accepted Accounting Principles (US GAAP).

The choice of standards or principles is usually a function of the jurisdiction in which a business entity and the users of its financial statements are domiciled. Entities domiciled in the United States of America tend to prepare their financial statements in accordance with US GAAP, while companies in Europe tend to prepare their financial statements in accordance with IFRS.

Alternative Balance Sheet Presentation Formats

US GAAP uses the title ‘Balance Sheet’, while IFRS uses the title ‘Statement of Financial Position’. This difference in name notwithstanding, both statements report on the three basic elements i.e. assets, liabilities, and equity.

IFRS and US GAAP both require that the balance sheet distinguishes between current and non-current assets and between current and non-current liabilities and classifies them separately. This format of the balance sheet is referred to as a classified balance sheet. (See table 1)

$$\textbf{Table 1: Example of a Classified Balance Sheet} $$

$$ \begin{array}{l|r|r} \textbf{Assets} & \bf {\text{Dec } 31,2016($)} & \bf {\text{Dec } 31,2015($)} \\ \hline \text{Total current assets} & {3,450,000} & {3,130,235} \\ \hline \text{Total non-current assets} & {6,754,231} & {5,998,567} \\ \hline \textbf{Total assets} & \bf{10,204,231} & \bf{9,128,802} \\ \hline \textbf{Equity and liabilities} & {} & {} \\ \hline \text{Total current liabilities} & {2,457,756} & {2,176,256} \\ \hline \text{Total non-current liabilities} & {4,376,434} & {3,956,275} \\ \hline \textbf{Total liabilities } & {6,834,190} & {6,132,531} \\ \hline \textbf{Shareholders’ equity} & {3,370,041} & {2,996,271} \\ \hline \textbf{Total liabilities and shareholders’ equity} & \bf{10,204,231} & \bf{9,128,802} \\ \end{array} $$

Under IFRS, an entity is not required to have separate classifications as long as a liquidity-based presentation provides reliable and more relevant information than a classified balance sheet does.  In a liquidity-based presentation, all assets and liabilities are presented in order of liquidity i.e. according to how easily they can be converted into cash (See table 2).

$$\textbf{Table 2: Example of a Liquidity-based Balance Sheet Presentation (Showing Assets Segment Only)} $$

$$ \begin{array}{l|r|r} \textbf{Assets} & \bf{\text{Dec } 31,2016($)} & \bf{\text{Dec } 31,2015($)} \\ \hline \text{Cash} & {1,250,000} & {1,603,235} \\ \hline \text{Bank deposits} & {6,754,231} & {5,998,567} \\ \hline \text{Financial assets at fair} & {12,204,231} & {7,527,802} \\ \text{value through profit or loss} & {} & {} \\ \hline \text{Securities purchased under} & {3,145,846} & {1,567,251} \\ \hline \text{resale agreement} & {} & {} \\ \hline \text{Interest receivable} & {2,457,756} & {2,176,256} \\ \hline \text{Loans and receivables} & {4,376,434} & {3,956,275} \\ \hline \text{Available for sale} & {6,834,190,} & {6,132,531} \\ \hline \text{financial assets} & {} & {} \\ \hline \text{Held-to-maturity} & {3,370,041} & {2,996,271} \\ \text{investments} & {} & {} \\ \hline \text{Fixed assets} & {2,204,231} & {2,128,802} \\ \hline \text{Other assets} & {1,795,000} & {1,500,354} \\ \hline \textbf{Total assets} & \bf{44,391,960} & \bf{35,587,344} \\ \end{array} $$

Question 1

Which of the following statements accurately describes a classified balance sheet format?

  1. Assets and liabilities are broadly presented in order of liquidity.
  2. Cash flow from operations is distinguished from cash flow from investing and financing activities.
  3. A distinction is made between current and non-current assets and between current and non-current liabilities and they are classified separately.

Solution

The correct answer is C.

Statement A describes a liquidity-based presentation, while statement B describes a cash flow statement.

Question 2

In a liquidity-based presentation of the balance sheet, which of the following items would appear first on the side of assets?

  1. Land & property.
  2. Accounts receivable.
  3. Cash & cash equivalents.

Solution

The correct answer is C.

In a liquidity-based presentation of the balance sheet, the most liquid items show first on the side of assets on the balance sheet. As cash is the most liquid asset, it would be listed on the top.

Featured Study with Us
CFA® Exam and FRM® Exam Prep Platform offered by AnalystPrep

Study Platform

Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Online Tutoring
    Our videos feature professional educators presenting in-depth explanations of all topics introduced in the curriculum.

    Video Lessons



    Sergio Torrico
    Sergio Torrico
    2021-07-23
    Excelente para el FRM 2 Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
    diana
    diana
    2021-07-17
    So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content. I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
    Kriti Dhawan
    Kriti Dhawan
    2021-07-16
    A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
    nikhil kumar
    nikhil kumar
    2021-06-28
    Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
    Marwan
    Marwan
    2021-06-22
    Great support throughout the course by the team, did not feel neglected
    Benjamin anonymous
    Benjamin anonymous
    2021-05-10
    I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
    Daniel Glyn
    Daniel Glyn
    2021-03-24
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    2021-03-18
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.