FAC1502: Study Unit 2 – Financial Position

This is not only about learning what the Statement of Financial Position should look like, but also about understanding the elements that are included in it.

Download the PDF study notes HERE

Download the format of the Statement of Financial Position HERE

What do the users need to know about your Financial Position?

When preparing the Statement of Financial Position, there are certain types of information you need to include. You need to understand what they are, and why they’re there. 

Remember the business example in the Background videos?
(We discussed a business that manufactures and sells jeans) 

Let’s use that example to consider the types of information your users may want to know about your business.

Once you’ve thought about what type of information other people may want to know about your business, then watch Lecture 2, which will discuss this further.

As you manufacture your jeans and sell them, what financial information needs to be created? What information should be recorded for your Statement of Financial Position.

Lecture 2: The Types of Financial Information that must be Included (VIDEO)

After looking at the business example, let’s discuss what information you will include in your Statement of Financial Position.

Financial Position:

  • Where the money comes from
  • Where the money goes
  • What portion belongs to the owners  

The Basic Accounting Equation

This is vital to understand how we present the information to the users. This equation is used to indicate the financial position of the business.

Lecture 3: Working out how much belongs to the Owners of the Business (VIDEO)

The owners share (Equity) is everything the business owns less everything the business owes. Thus, the owners get what’s left! Make sure you are VERY comfortable with the relationship between the elements of this equation… you will be using it A LOT! Here are some examples of how we work out how much belongs to the owners:

The Elements of the Statement of Financial Position

We need to make sure we know what classifies as an Asset, Liability and Equity, and how to measure them.

Lecture 4: Assets (INFOGRAPHIC)

Lecture 5: Liabilities (INFOGRAPHIC)

Lecture 6: Current and Non-Current (VIDEO)

We split Assets and Liabilities between current and non-current, learn why.

The Entity and it’s Reporting Period

Lecture 7: The Double-entry System (INFOGRAPHIC)

The Double-entry system is vital to your accounting knowledge. We’ve created an infographic to help you get comfortable with the concept.

Lecture 8: Separate Legal Entities (READ)

A company is a separate legal entity.

This means that the rights and obligations of the company are seen as SEPARATE from that of the owners.

All the reporting and financial information is done from the viewpoint of the Company – NOT the owners.

Eg:  An asset will be valued at what it is worth to the company, not the owners of the company.

This also means that liabilities incurred by the company are not seen as liabilities of the owners.

Lecture 9: Accounting Periods (READ)

The Annual Financial Statements are prepared according to the reporting period of the company.

When the company is started, a yearend is selected, and this yearend is used EVERY year as the financial yearend for the Annual Financial Statements. (Most companies use the Tax yearend, 28 February)

The reporting period is the period from one yearend to the next. (Thus, most companies have a reporting period of, for example: 1 March 2024 to 28 February 2025)

The Statement of Financial Position will be reported as follows:

Statement of Financial Position of xxx (Pty) Ltd as at 28 February 2025

The Statement of Profit or Loss and other Comprehensive Income is reported as follows:

Statement of Profit or Loss and other Comprehensive Income of xxx (Pty) Ltd for the year ended 28 February 2025

Class Example  – Storms for Africa

Attempt the question using the format of the Statement of Financial Position,
You will need to use the following knowledge:
  • Format of the Statement of Financial Position (Study Unit 1)
  • Basic Accounting Equation (Study Unit 2)
  • Current and non-current Assets and Liabilities (Study Unit 2)

Download the PDF question HERE

Lecture 10: Feedback on Storms for Africa (VIDEO)

A practical example of how to create a Statement of Financial Position in exams

  • Make sure you get this right, (even if you come back in two or three days and redo it), as the rest of your studies will use this as a basis for presenting financial information

Download the PDF solution HERE

Class Example  – Thunder (Pty)Ltd

Here’s another question for you to practice on.

I’ve given you the question and solution in one PDF… PLEASE DON’T LOOK AT THE SOLUTION BEFORE TRYING THE QUESTION! It may make you feel better now, but you’re not helping your exam preparation! Your brain needs to think about it and work on it, not just be given the answer!

Download the PDF Question and Solution HERE