The asset side of the balance sheet of a company may have intangible assets, fictitious assets, accumulated losses, deferredrevenue expenditure etc. The real assets are shown at a high value.Due to losses adequate depreciation may not be provided, stock may be valued at a higher rate. No provision may be made for bad anddoubtful debts.
The Company may have secured and unsecured loans which may be repaid. It may become overdue Interest on loan may be in arrears. Creditors may be long overdue. Preference dividend onpreference shares may be in arrears over a long period.
Capital of a company is lost due to drastic fall in the value of assets. It is not represented by the by the real value of assets.
Due to continuous losses, basic structure of the company gets damaged. The pillars on which the super structure is basedbecome weak and the company may collapse at any time. Hence thecompany has to be placed on strong foundation in order to ensurestability in future.