Financial statements · Topic 4 of 7
Company statement of financial position
A limited company’s statement of financial position in the IAS 1 layout, explained line by line.
ACCA exams this helps with: FA Financial Accounting FR Financial Reporting See the ACCA map
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A limited company’s balance sheet. It lists what the company owns (assets), then how those assets are paid for: by the shareholders (equity) and by lenders and suppliers (liabilities). The two totals are always the same.
Example. A company owns £4.99 million of assets. Shareholders’ equity is £3.13 million and liabilities are £1.86 million. Together they make £4.99 million.
Key words
- Share capital
- The money shareholders paid the company for its shares, measured at the shares’ nominal (face) value.Example: 1,000,000 shares of £1 each gives share capital of £1,000,000.
- Retained earnings
- The total profits a company has made over its life and kept in the business, instead of paying them out as dividends.Example: Retained earnings of £12,000 in the statement of financial position.
- Revaluation surplus
- The part of equity that holds the gains from revaluing assets upwards. The gains are not counted as profit.Example: A building revalued from £400,000 to £600,000 creates a £200,000 revaluation surplus.
- Current
- Expected to be turned into cash, used up or paid within 12 months of the year end.Example: Stock and money owed by customers are current assets. A supplier bill due next month is a current liability.
- Non-current
- Expected to be kept, used or owed for more than 12 months after the year end.Example: A delivery van is a non-current asset. A bank loan repayable in 5 years is a non-current liability.
The statement, explained
Marsh Lane Cycles Ltd 1
Statement of Financial Position
as at 31 December 2025
| 2025 £000 | 2024 £000 | |
| Assets | ||
| Non-current assets 2 | ||
| Property, plant and equipment 3 | 3,150 | 2,900 |
| Intangible assets | 220 | 240 |
| 3,370 | 3,140 | |
| Current assets 4 | ||
| Inventories | 610 | 540 |
| Trade receivables | 720 | 650 |
| Cash and cash equivalents | 290 | 180 |
| 1,620 | 1,370 | |
| Total assets 5 | 4,990 | 4,510 |
| Equity and liabilities | ||
| Equity 6 | ||
| Share capital 7 | 1,000 | 1,000 |
| Revaluation surplus 8 | 150 | – |
| Retained earnings 9 | 1,980 | 1,650 |
| Total equity | 3,130 | 2,650 |
| Non-current liabilities 10 | ||
| Bank loan | 900 | 1,000 |
| Deferred tax | 120 | 100 |
| 1,020 | 1,100 | |
| Current liabilities 11 | ||
| Trade and other payables | 600 | 520 |
| Current tax payable | 140 | 140 |
| Bank loan (due within one year) | 100 | 100 |
| 840 | 760 | |
| Total liabilities | 1,860 | 1,860 |
| Total equity and liabilities 12 | 4,990 | 4,510 |
What each numbered line means
- Heading. “As at” means the position on one day. The IAS 1 layout lists assets first, then equity and liabilities. Figures are in £000.
- Non-current assets. Assets the company will use for more than a year.
- Property, plant and equipment. Carrying amount after depreciation. It rose because of £300 of additions and a £150 revaluation, partly offset by £200 of depreciation: 2,900 + 300 − 200 + 150 = 3,150.
- Current assets. Assets expected to be turned into cash within 12 months, listed with the least liquid first.
- Total assets. Everything the company owns: £4,990.
- Equity. The shareholders’ stake: what they paid for their shares plus profits and gains kept in the company.
- Share capital. 1,000,000 shares of £1 each. It only changes when new shares are issued.
- Revaluation surplus. The £150 gain from other comprehensive income. It is kept separate from retained earnings because it is not realised profit.
- Retained earnings. Profits kept in the business: opening £1,650 + profit for the year £480 − dividends £150 = £1,980.
- Non-current liabilities. Amounts due after more than 12 months: most of the bank loan, and deferred tax.
- Current liabilities. Amounts due within 12 months, including accruals (inside “trade and other payables”), this year’s tax bill, and the £100 of the loan due next year.
- Total equity and liabilities. Equity £3,130 + liabilities £1,860 = £4,990, the same as total assets. It must always balance.
How to read it
- Check it balances: total assets £4,990 = total equity and liabilities £4,990.
- Liquidity: current ratio = 1,620 ÷ 840 = 1.93 : 1, up from 1.80 : 1.
- Gearing: non-current liabilities ÷ (equity + non-current liabilities) = 1,020 ÷ 4,150 = 24.6%, down from 29.3%. The company relies less on borrowing.
- Equity grew by £480: total comprehensive income £630 − dividends £150.
- Look at working capital: receivables rose by 10.8%, in line with revenue growth. Inventory rose by 13.0%, a little faster than sales.
Watch it explained
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Videos from YouTube tutors
These videos are made by independent tutors on YouTube, not by Trial Balance. Some use US terms or older exam names (for example F7 for FR), but the principles are the same.
How to make it yourself
This uses the same trial balance and adjustments as the statement of profit or loss page. Profit for the year is 480 and the revaluation gain is 150 (all £000).
Trial balance at 31 December 2025
| Account (£000) | Dr | Cr |
|---|---|---|
| Property, plant and equipment: carrying amount at 1 January 2025 | 2,900 | |
| Property, plant and equipment: additions in the year | 300 | |
| Intangible assets: carrying amount at 1 January 2025 | 240 | |
| Inventory at 1 January 2025 | 540 | |
| Purchases | 2,860 | |
| Revenue | 4,820 | |
| Distribution costs | 520 | |
| Administrative expenses | 560 | |
| Finance costs (interest paid) | 30 | |
| Trade receivables | 720 | |
| Cash and cash equivalents | 290 | |
| Trade and other payables | 540 | |
| Bank loan | 1,000 | |
| Deferred tax at 1 January 2025 | 100 | |
| Share capital (£1 shares) | 1,000 | |
| Retained earnings at 1 January 2025 | 1,650 | |
| Dividends paid | 150 | |
| Totals | 9,110 | 9,110 |
Year-end adjustments
- Closing inventory at 31 December 2025: £610,000.
- Depreciation for the year: £200,000, charged to cost of sales.
- Amortisation of intangible assets: £20,000, charged to administrative expenses.
- The property was revalued upwards by £150,000 at the year end.
- The audit fee of £30,000 has not been paid (an accrual in administrative expenses).
- Loan interest of £30,000 for the second half of the year is owed (an accrual).
- Current tax for the year is estimated at £140,000. Deferred tax should be increased to £120,000.
- £100,000 of the bank loan is repayable within 12 months.
- For simplicity, ignore deferred tax on the revaluation.
Steps
- Property, plant and equipment: 2,900 + additions 300 − depreciation 200 + revaluation 150 = 3,150.
- Intangible assets: 240 − amortisation 20 = 220.
- Current assets: closing inventory 610, trade receivables 720, cash 290. Total 1,620. Total assets = 3,370 + 1,620 = 4,990.
- Share capital: 1,000, from the trial balance.
- Revaluation surplus: 150, from other comprehensive income.
- Retained earnings: 1,650 + profit 480 − dividends 150 = 1,980.
- Non-current liabilities: bank loan 1,000 − 100 due within a year = 900. Deferred tax 120. Total 1,020.
- Current liabilities: trade and other payables 540 + audit accrual 30 + interest accrual 30 = 600. Current tax 140. Current part of the loan 100. Total 840.
- Check: 3,130 + 1,020 + 840 = 4,990, the same as total assets. Every adjustment affects both statements, and that is why they balance.
Fill it in yourself
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