Statement of Financial Position

A manufacturer's statement of financial position uses the same format as any other business — non-current assets, current assets, current and non-current liabilities, and capital (or equity). The main difference is in inventory.

A trader has a single inventory (goods for resale). A manufacturer holds three inventories at the year-end:

1. Raw materials — materials bought but not yet used;
2. Work-in-progress (WIP) — part-finished goods;
3. Finished goods — completed goods not yet sold.

All three are current assets. They are often shown as separate lines (or totalled into one 'inventories' figure with a note). Getting the valuation of each right — especially finished goods — is the examinable skill.

Where goods are transferred at cost + factory profit, the closing finished-goods inventory is recorded at transfer value (including factory profit). But in the statement of financial position it must be shown at cost, because the factory profit is unrealised:

$\text{Finished goods (SOFP)} = \text{Transfer value} - \text{Provision for unrealised profit}$

Example. Finished goods $24,000 at transfer value; provision $4,000 → shown at $20,000 (cost).

Raw materials and WIP are shown at cost — they carry no factory profit, so no provision applies to them. So only the finished-goods line is reduced by the provision. If goods are transferred at cost (no factory profit), all three inventories are simply at cost and there is no provision.

The rest of the statement is prepared as normal:

• Non-current assets — factory machinery, the factory building, office equipment, delivery vehicles, etc., each at carrying amount (cost − accumulated depreciation). The depreciation of factory assets was charged in the manufacturing account; the depreciation of office/selling assets in the profit or loss — but on the statement of financial position they all appear at carrying amount.
• Other current assets — trade receivables, prepayments (factory or office), cash and bank.
• Current liabilities — trade payables, accruals (factory or office), bank overdraft.
• Non-current liabilities — long-term loans/debentures.
• Capital — opening capital + profit for the year − drawings (for a sole trader), or equity for a company.

So the classification of a cost as 'factory' vs 'office' affects which statement charges its depreciation/expense, but on the statement of financial position assets simply appear at carrying amount regardless of where the depreciation was charged.

The manufacturer's three statements connect:

• the manufacturing account produces the cost of production (and holds the raw materials and WIP adjustments);
• the statement of profit or loss produces the profit for the year (and holds the finished-goods adjustment, factory profit and provision change);
• the statement of financial position reports the year-end position — the three inventories (finished goods net of provision), non-current assets, receivables/payables, and the capital updated by the profit.

The profit for the year flows from the profit statement into capital; the closing inventories flow from the manufacturing/profit statements into current assets; and the provision for unrealised profit reduces the finished-goods asset. Getting these links right shows full command of manufacturing accounts — exactly what a top Paper 3 answer demonstrates.