Statement of Financial Position (Cambridge International A-Level Accounting)

Statements of financial position for manufacturing businesses

Spec point — how to prepare, for a manufacturing business, a statement of financial position

What is the layout of the statement of financial position of a manufacturing business?

• The statement of financial position of a manufacturing business is prepared in a similar way to the other types of retail businesses
• The only difference is how the inventory is displayed in the current assets section
• All three inventories are shown separately and the total is calculated
• The balance of the provision for unrealised profit is subtracted from the closing inventory of finished goods

Layout of the inventory entry on the statement of financial position for a manufacturing business

Exam Hint Make sure you subtract the balance of the provision for unrealised profit and not just the annual change. Remember, the change is transferred to the statement of profit or loss. This works similarly to an allowance for irrecoverable debts and a provision for depreciation.

Worked Example Pablo owns a small carpet and rug factory, making bespoke carpets for local furniture businesses. He applies a rate of factory profit of 20%.

Inventory at 31 December 2023:

• Raw materials $6 860
• Work in progress $10 885
• Finished goods at transfer value $14 640

Prepare an extract of the statement of financial position at 31 December 2023 showing the inventories.

Answer:

• Calculate the balance of the provision for unrealised profit account

20 / 120×$ 14 640=$ 2 440

Prepare an extract of the statement of financial position to show the inventories

Final answer: Pablo Final answer: Statement of Financial Position (Extract) at 31 December 2023
	Final answer: $**	Final answer: $	Final answer: $
Final answer: Current Assets
Final answer: Closing Inventory:
Final answer:** Raw materials **		Final answer: 6 860
Final answer:** Work in progress **		Final answer: 10 885
Final answer:** Finished goods at transfer value **	Final answer: 14 650
Final answer:** Less: Provision for unrealised profit	Final answer: (2 440)	Final answer: 12 210	Final answer: 29 955