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CFA Level I Exam · Analyzing Balance Sheets

Balance Sheet Components and Formats for CFA Level I

Updated 7 October 2026 · Fact-checked

A balance sheet shows a company's assets, liabilities and equity at one date, linked by Assets = Liabilities + Equity. Under IFRS, firms present either a classified format (current vs non-current) or a liquidity-based format. To solve questions, identify each item, classify it, and apply the equation or common-size percentages.

Understand Balance Sheet Components and Formats

The balance sheet (statement of financial position) is a snapshot at a single date. It shows what the company controls, what it owes, and what is left for owners.

Assets are resources controlled by the company from which future economic benefits are expected. Liabilities are present obligations from past events that are expected to lead to an outflow of resources. Equity is the residual interest in assets after deducting liabilities. That is why the equation always holds: Assets = Liabilities + Equity.

There are two main presentation formats. A classified balance sheet splits assets and liabilities into current and non-current. Current items are expected to be realized or settled within the operating cycle or within 12 months of the reporting date (cash is current unless restricted). A liquidity-based presentation lists items in order of liquidity without a current/non-current split. IFRS (IAS 1) allows a liquidity-based format when it gives reliable and more relevant information, which is common for banks and other financial institutions.

Asset examples: cash, receivables, inventories (usually current); property, plant and equipment, intangibles, goodwill, investment property, long-term investments (non-current). Liability examples: trade payables, short-term borrowings, current portion of long-term debt (current); long-term debt, deferred tax liabilities, pension obligations (generally non-current). Equity includes share capital, share premium, retained earnings, other reserves (including OCI items) and non-controlling interest.

A common-size balance sheet divides every line by total assets. It lets you compare companies of different size and see trends in structure over time. A classified format also makes liquidity analysis easier, since you can compute working capital and the current ratio directly.

Key formulas to remember

Accounting equation
Assets = Liabilities + Equity
Equity is the residual: Equity = Assets − Liabilities.
Working capital
Working capital = Current assets − Current liabilities
Only available directly from a classified balance sheet.
Current ratio
Current ratio = Current assets ÷ Current liabilities
A basic liquidity measure; above 1 means current assets exceed current liabilities.
Common-size balance sheet item
Item % = Line item ÷ Total assets × 100
Use total assets as the base for every line, including liabilities and equity.
Current classification rule
Current if realized or settled within the operating cycle or 12 months of the reporting date
An item is current if it is expected to be realized or settled within the operating cycle or within 12 months, whichever applies. Do not treat it as a 'longer of' test.

How to solve Balance Sheet Components and Formats questions

Use this method for any question on balance sheet items, formats or common-size analysis.

  1. 1Read the question to see what is asked: classification, a missing amount, a ratio, or the choice of format.
  2. 2Identify each item as an asset, liability or equity item, using the definition rather than the name alone.
  3. 3For classification, ask when the item will be realized or settled: within the operating cycle or 12 months means current.
  4. 4If a total is missing, apply Assets = Liabilities + Equity and solve for the unknown.
  5. 5For common-size work, divide each line by total assets and check that assets sum to 100% and liabilities plus equity sum to 100%.
  6. 6Choose the format: classified if current/non-current split is useful; liquidity-based if the business is a financial institution or the order of liquidity is more relevant.
  7. 7Eliminate options that break the equation, misclassify an item, or use the wrong base for percentages.

Quickest way: Equation-first elimination

When to use it: Use this for numerical or classification MCQs when you have about 90 seconds.

  1. Write A = L + E and fill in the known numbers.
  2. Solve the missing figure in one step.
  3. For classification, apply the 12-month test to the item and discard options that disagree.
  4. For common-size, divide by total assets once and compare against the options, which are listed from smallest to largest.

Common mistakes in Balance Sheet Components and Formats

  • Treating the whole long-term debt as non-current

    The label says long-term, so students stop thinking.

    Fix: Split out the portion due within 12 months and show it as a current liability.

  • Using total liabilities or equity as the base for common-size percentages

    Students confuse it with income statement common-size, which uses revenue.

    Fix: On the balance sheet, always divide by total assets.

  • Assuming every balance sheet must be classified

    Most textbook examples show current and non-current groups.

    Fix: Remember that IFRS allows a liquidity-based presentation, often used by banks.

  • Counting goodwill or deferred tax assets as current

    Students focus on the word asset and ignore timing.

    Fix: Goodwill is a non-current intangible. Under IFRS, deferred tax assets and liabilities are presented as non-current.

  • Forgetting that equity is a residual

    Students treat equity as a separate fund of cash.

    Fix: Compute equity as assets minus liabilities, and remember it includes retained earnings, reserves and non-controlling interest.

Worked examples

Example 1

A company reports total assets of €840 million and total liabilities of €530 million. Inventories are €126 million. What is equity, and what is inventories as a percentage of total assets? Options for the percentage: A) 15% B) 24% C) 41%.

Show the solution
  1. Equity = Assets − Liabilities = 840 − 530 = €310 million.
  2. Common-size inventories = 126 ÷ 840 = 0.15.
  3. That is 15% of total assets.
  4. Option B (24%) comes from the wrong base of liabilities: 126 ÷ 530 ≈ 23.8%, which rounds to 24%.
  5. Option C (41%) comes from the wrong base of equity: 126 ÷ 310 ≈ 40.6%, which rounds to 41%.
  6. The correct base is total assets, so 15% is correct.

Answer: Equity is €310 million and inventories are 15% of total assets (option A).

Example 2

A manufacturer has a €200 million bank loan repayable in equal annual instalments of €40 million over five years, with the first instalment due in 9 months. Its operating cycle is under 12 months. How should the loan be presented at the reporting date?

Show the solution
  1. Find the amount due within 12 months: the first instalment of €40 million falls due in 9 months.
  2. The second instalment is due in about 21 months, so it is outside 12 months.
  3. Current portion = €40 million.
  4. Non-current portion = 200 − 40 = €160 million.

Answer: Show €40 million as a current liability and €160 million as a non-current liability.

Exam tips

  • Questions often test classification of one item. Apply the 12-month or operating cycle test before looking at options.
  • For common-size questions, check the base is total assets. Wrong-base distractors are common.
  • Know why banks use liquidity-based formats: a current/non-current split is less meaningful for them.
  • Remember the equity components, especially OCI reserves and non-controlling interest, since they can appear as answer options.

Practice questions from Analyzing Balance Sheets

Balance Sheet Components and Formats in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Balance Sheet Components and Formats: frequently asked questions

What is the difference between a classified and a liquidity-based balance sheet?

A classified balance sheet groups assets and liabilities into current and non-current. A liquidity-based balance sheet lists items in order of liquidity without that split. IFRS permits the second when it is more relevant, as for banks.

What makes an asset or liability current under IFRS?

An asset is current if it is expected to be realized within the normal operating cycle or within 12 months after the reporting date, or if it is held primarily for trading. Cash and cash equivalents are current unless restricted. A liability is current if it is expected to be settled within the operating cycle or 12 months, is held for trading, or if the entity has no right to defer settlement for at least 12 months after the reporting date. Anything else is non-current.

What base is used for a common-size balance sheet?

Total assets. Every asset, liability and equity line is divided by total assets, so assets sum to 100% and liabilities plus equity also sum to 100%.

Where does non-controlling interest appear?

Within equity on the consolidated balance sheet, shown separately from equity attributable to the parent's owners.