Reference no: EM132607764

Question - To help understand the insight that can be generated from a statement of financial position (also known as a Balance Sheet), you will create your own "personal balance sheet." In order to do this, use the following steps:

1. Step 1: Identify all of your assets: identify what financial (e.g., cash, stocks) assets or non-financial assets (e.g., house, car, goods) that you have. Make a list of your assets, and total them up. It is OK if you estimate what certain things are worth such as your house or your car.

2. Step 2: Identify all of your liabilities (your debts) such as student loans, mortgages, credit card debt, etc. Make a list of your liabilities, and also sum up the total.

3. Step 3: take your assets and subtract your liabilities - your end result will be your equity position. Your equity position may be positive or negative.

You may wish to use the following template PERSONAL BALANCE SHEET, or your own Excel or other word processing software, to do this exercise.

In the discussion board, you can talk about what you learnt from this activity (e.g., what is your biggest asset or biggest liability) but you do not have to disclose anything about your financial position. You can even use target amounts for yourself (e.g., a retirement asset amount and debt amount) rather than actual amounts.

Discussion Questions Pertaining to Activity

After completing the activity, discuss the following with your groups:

1. Was there anything surprising you learnt after calculating your personal balance sheet?

2. How do you forecast your personal balance sheet to change in the next year? 5 years?

3. If you look at some of your larger assets such as a place of residence, how is your recording at their estimate value different than what accountants would do under the historical cost principle? What are some of the positives and negatives of the historical cost principle approach?