ACCOUNTING FOR BUSINESS II

Chapter 4 CONTENTS OF BALANCE SHEET The prescribed form of the Balance Sheet is given in Part I of Schedule VI of The Companies Act, 19 !" The Companies Act has laid do#n t#o forms of the Balance Sheet $no#n as% &i' (ori)ontal form &ii' Vertical form *+,-AT +* S.--A,IS/0 BA1A2C/ S(//T &(+,I3+2TA1 *+,-' SC(/0.1/ VI PA,T I Balance Sheet of 4"C+"1T0" As at 4 *igures for the Previous 5ear ,s" 1iabilities *igures *igures for the for the current previous 5ear 5ear ,s" ,s" Assets *igures for the current 5ear ,s"

1" Share Capital 6" ,eserves and surplus 7" Secured 1oans 8" .nsecured 1oans " Current 1iabilities and Provisions &a' Current 1iabilities &b' Provisions

1" *i9ed Assets 6" Investments 7" Current Assets, 1oans and Advances &a' Current Assets &b' 1oans and Advances 8" -iscellaneous /9penditure " Profit and 1oss A:c

2ote% A footnote to the Balance Sheet ma5 be added to sho# the contingent liabilities" The format of the detailed Balance Sheet of a compan5 in a hori)ontal form is given belo#%

FORMAT OF THE DETAILED BALANCE SHEET IN A HORIZONTAL FORM Horizontal For o! Balan"e Sheet Balan"e Sheet o!##### $Na e o! the "o pan%& a' on#####
*igures for the Previous 5ear ,s" 1iabilities *igures for the current 5ear ,s" *igures for the previous 5ear ,s" Assets *igures for the current 5ear ,s"

Share Capital( Authorised 4shares of ,s4each Preference /;uit5 Issued % 4shares of ,s4each Preference /;uit5 1ess% Calls .npaid% Add% *orfeited Shares Re'er)e' an* S+rpl+'( Capital ,eserve Capital ,edemption ,eserve Securities Premium +ther ,eserves Profit and 1oss Account Se"+re* Loan'( 0ebentures 1oans and Advance from Ban$s 1oans and Advances from subsidiar5 Companies +ther 1oans and Advances Un'e"+re* Loan'( *i9ed 0eposits 1oans and Advances from subsidiar5 companies Short Term 1oans and Advances +ther 1oans and Advances C+rrent Lia,ilitie' an* -ro)i'ion'( A# C+rrent Lia,ilitie' Acceptances Sundr5 Creditors +utstanding /9penses B# -ro)i'ion'( *or Ta9ation *or 0ividends *or Contingencies *or Provident *und Schemes *or Insurance, Pension and +ther similar benefits

Fi.e* A''et'( <ood#ill 1and Building 1easehold Premises ,ail#a5 Sidings Plant and -achiner5 *urniture Patents and Trademar$s 1ive stoc$ Vehicles In)e't ent'( <overnment or Trust Securities, Shares, 0ebentures, Bonds C+rrent A''et'/ Loan' an* A*)an"e'( $A& C+rrent A''et'( Interest Accrued on investments Stores and Spare parts 1oose Tools Stoc$ in Trade =or$ in Progress Sundr5 0ebtors Cash and Ban$ balances $B& Loan' an* A*)an"e'( Advances and 1oans to Subsidiaries Bills ,eceivable Advance Pa5ments and une9pired discounts Mi'"ellaneo+' 0 E.pen*it+re( Preliminar5 /9penses 0iscount on Issue of Shares and +ther 0eferred /9penses -ro!it an* Lo'' A""o+nt $*e,it Balan"e( i! an%&

For at o! the Balan"e Sheet in )erti"al !or Balan"e Sheet o! ##### a' on ##### Particulars Schedule *igures as at 2umber the end of current financial 5ear *igures as at the end of previous financial 5ear

I# So+r"e o! F+n*'( 1# Sharehol*er2' F+n*'( &a' Share capital &b' ,eserves and Surplus 3# Loan F+n*'( &a' Secured loans &b' .nsecured loans Total $Capital E plo%e*& II# Appli"ation o! F+n*' 1# Fi.e* A''et'( &a' <ross bloc$ &b' 1ess% depreciation &c' 2et bloc$ &d' Capital #or$>in>Progress 3# In)e't ent'( 4# C+rrent A''et'/ Loan' an* A*)an"e'( &a' Inventories &b' Sundr5 0ebtors &c' Cash and Ban$ Balances &d' +ther Current Assets &e' 1oans and Advances Le''( C+rrent Lia,ilitie' an* -ro)i'ion'( &a' Current liabilities &b' Provisions Net C+rrent A''et' 8" &a' -iscellaneous e9penditure to the e9tent not #ritten>off or ad?usted" &b' Profit and 1oss account &debit balance, if an5' TOTAL 2ote% A footnote to the Balance Sheet ma5 be added to sho# the contingent liabilities"

RATIOS 0 SOL5ED 6UESTIONS 1# *rom the follo#ing information, calculate current ratio and ;uic$ ratio % Stoc$ ,s"1,6@,@@@A <ood#ill ,s" @,@@@A Preliminar5 /9penses ,s"1!,@@@A Prepaid /9penses ,s"8,@@@A Short term Investments ,s"6@,@@@A Cash ,s"7@,@@@A Bills ,eceivable ,s"1@,@@@A 0ebtors ,s" @,@@@ and carr5 follo#ing liabilities% <eneral ,eserve ,s"1,@@, @@A Sundr5 Creditors ,s"7 ,@@@A Proposed 0ividends ,s"6@,@@@A Profit and 1oss A:c ,s"B, @,@@@A +utstanding /9penses ,s"1@,@@@A Bills Pa5able ,s" ,@@@A Provision for Ta9ation ,s"6,@@@" Solution% Current ,atio C Current Assets &C"A"': Current 1iabilities &C"1"' C"A" C Stoc$ D Prepaid /9penses D Short term Investment D Cash D Bills ,eceivables D 0ebtors C ,s"1,6@,@@@ D ,s"8,@@@ D ,s"6@,@@@ D ,s"7@,@@@ D ,s"1@,@@@ D ,s" @,@@@ C ,s"6,78,@@@ C"1" C Sundr5 Creditors D +:s /9penses D Bills Pa5able D Proposed 0ividend D Provision for Ta9ation C ,s"7 ,@@@ D ,s"1@,@@@ D ,s" ,@@@ D ,s"6@,@@@ D ,s"6,@@@ C ,s"B6,@@@ Current ,atio C ,s"6,78,@@@:,s"B6,@@@ C 7"6 % 1 Euic$ ratio C Euic$ assets: current liabilities C Current liabilities Fstoc$ F prepaid e9penses: current liabilities C 6,78,@@@ F 1,6@,@@@ F 8,@@@: B6,@@@ 3

C 1" 7 % 1

3" Calculate the follo#ing ratios from the Balance Sheet given belo#% &a' 1i;uid ,atio &b' Assets to 0ebt ,atio &c' Proprietar5 ,atio BA1A2C/ S(//T as at444 1iabilities ,s" Assets ,s" Creditors Ban$ 66, @@ Bills Pa5able 8B,@@@ Investments &Short Term' !B, @@ Ta9 Provision Boo$ 0ebts 9@,@@@ +utstanding /9penses 8 ,@@@ Stoc$ 1,7 ,@@@ !G 0ebentures *i9ed Assets HG Preference Shares 7H, @@ H,1@,@@@ ,H , @@ /;uit5 Shares 1ess% 0epreciation ,eserve *und 8, @@ 6,6 ,@@@ 7,1 ,@@@ 8 ,@@@ 6,6 ,@@@ 1,H@,@@@ 9,@@,@@@ Solution% &a' 1i;uid ,atio C 1i;uid Assets:Current 1iabilities 1i;uid Assets C Ban$ D Investment &Short Term' D Boo$ 0ebts C ,s"66, @@ D ,s"!B, @@ D ,s"9@,@@@ C ,s"1,H@,@@@ Current 1iabilities C Creditors D Bills Pa5able D Ta9 Provision D +utstanding /9penses C ,s"8B,@@@ D ,s"8 ,@@@ D ,s"7H, @@ D ,s"8, @@ C ,s"1,7 ,@@@ 1i;uid ,atio C ,s"1,H@,@@@:,s"1,7 ,@@@ C 1"77 % 1 &b' Total Assets to 0ebt ,atio C Total Assets:1ong term 1oan C ,s"9,@@,@@@:,s"7,1 ,@@@ C 6"H! % 1 &c' Proprietar5 ,atio C ShareholdersI *und:Total Assets ShareholdersI *und C HG Preference Shares D /;uit5 Shares D ,eserve *und C ,s"8 ,@@@ D ,s"6,6 ,@@@ D ,s"1,H@,@@@ C ,s"8, @,@@@ Proprietar5 ,atio C ,s"8, @,@@@:,s"9,@@,@@@ C @" % 1 4" Calculate ,eturn on Investment &,+I', /arning Per Share &/PS' and Price /arning ,atio &P:/ ratio' from the follo#ing% ,s" 1@G Preference Share Capital J ,s"1@ each 1@,@@,@@@ /;uit5 Share capital J ,s"1@ each @,@@,@@@ ,eserves and Surplus !,@@,@@@ 1@G 0ebentures 6@,@@,@@@ 16G .nsecured 1oans 1@,@@,@@@ *i9ed Assets 6@,@@,@@@ Trade Investments ,@@,@@@ 2on>Trade Investments 6 ,@@,@@@ Income Ta9 ,ate @G -ar$et Price per Share @ Profit Before Interest 8 ,@@,@@@ Solution% &a' ,eturn on Investment C Profit before interest K ta9: Capital /mplo5ed L 1@@ Capital /mplo5ed C Preference Share Capital D /;uit5 Share Capital D ,eserves K Surplus D 0ebentures D .nsecured 1oan F 2on Trade Investments C ,s"1@,@@,@@@ D ,s" @,@@,@@@ D ,s"!,@@,@@@ D ,s"6@,@@,@@@ D ,s"1@,@@,@@@ F ,s"6 ,@@,@@@ C ,s"B1,@@,@@@ ,eturn on Investment C 8 ,@@,@@@:B1,@@,@@@ L 1@@ C !7"7HG &b' /arning per share C Profit after interest, ta9 and preference dividend:2umber of /;uit5 Shares Profit after interest, ta9 and preference dividend Profit before interest and ta9 1ess% Interest 6,@@,@@@ ,s" 8 ,@@,@@@ 4

9,@@,@@@

1,6@,@@@ 1ess% Ta9 1ess 0ividend

7,6@,@@@ 81,H@,@@@ 6@,9@,@@@ 1,@@,@@@ 19,9@,@@@

/arning per share C 19,9@,@@@: ,@@,@@@ C ,s"7"9H &c' Price earning ,atio C -ar$et Price Per Share:/PS C ,s" @:,s"7"9H C ,s"16" ! RATIOS 0 UNSOL5ED 6UESTIONS 1# The follo#ing are the summari)ed Profit K 1oss account of Tee Industries 1td for the 5ear ended 71 st 0ecember and a Balance Sheet of the Compan5 as on that date" 0r" Particulars To +pening Stoc$ To Purchases To Carriage In#ards To <ross Profit To +ffice /9penses To Selling /9penses To *inancial /9penses To 1oss on Sale of Asset To 2et Profit Profit and 1oss Account ,s" 1,99@ 1@,9@ 6H !,H@@ 19,9H@ 7,@@@ !@@ 7@@ H@ 7,@@@ !,9H@ Particulars B5 Sales B5 Closing Stoc$ Cr" ,s" 1B,@@@ 6,9H@

B5 <ross Profit B5 Profit on sale of Share B5 Interest on Investments

19,9H@ !,H@@ 16@ !@ !,9H@

1iabilities Share Capital 1@@ /;uit5 Shares of ,s"1@ each 0ebentures &HG' ,eserves Profit and 1oss A:c Ban$ +verdraft Creditors +utstanding /9penses Calculate the follo#ing ratio &a' 0ebt /;uit5 ,atio &b' 1i;uid ,atio &c' Current ,atio

BA1A2C/ S(//T as at44444" ,s" Assets ,s" 1and and Building 7,@@@ 1,@@@ Plant 1,!@@ 7,@@@ Stoc$ 6,H@@ 1,H@@ 0ebtors 1,8@@ 1,6@@ Bills ,eceivable 6@@ !@@ Cash at Ban$ !@@ 1,!@@ 8@@ 9,!@@ 9,!@@

MAns" 0ebt /;uit5 ,atio C @"B % 1A 1i;uid ,atio C @"H % 1 A Current ,atio C 1"96 % 1N 3" *ollo#ing is the Trading and Profit and 1oss Account of O"P"3 K Co" for the 5ear ended 71 st -arch 6@@B" 0r" Trading and Profit and 1oss Account of O"P"3 K Co" for 1iabilities ,s" To +pening Stoc$ To Purchases 6,1@,@@@ 1ess ,eturn H9,@@@ To Carriage In#ards To #ages To <ross Profit Transferred To profit K 1oss A:c To carriage out#ard To Salaries To Commission B5 Interest To Stationer5 To *reight +ut#ard To 0epreciation To 2et Profit transferred to capital A:c Compute <ross Profit and 2et Profit ,atio" MAns" <ross Profit ,atio C @"!7G A 2et Profit ,atio C 17"67GN 4# *ollo#ing is the Balance Sheet of S 1td" as on 71st -arch 6@@B 1iabilities ,s" Assets ,s" the 5ear ended 71 st -arch 6@@B Assets 1, @,@@@ B5 Sales 1ess ,eturn 1,61,@@@ B5 Closing Stoc$ 7 ,@@@ 6 ,@@@ 7,68,@@@ !, ,@@@ 8@,@@@ B5 <ross Profit 1,88,@@@ B5 Interest 61,@@@ B5 Commission 6@,@@@ H@@ 6@,@@@ ,@@@ H8,B@@ 7,7 ,@@@ Cr" ,s" "B,1@,@@@ B@,@@@ !,8@,@@@ 1 ,@@@

!, ,@@@ 7,68,@@@ 11,@@@ @@

7,7 ,@@@

/;uit5 Share Capital 6,@@,@@@ e;uit5 share of ,s"1@ each <eneral ,eserves Profit for the 5ear Current 1iabilities

6@,@@,@@@ *i9ed Assets &2et' Current Assets Preliminar5 /9penses ,@@,@@@ 6, @,@@@

68,@@,@@@ 1@,@@,@@@ 1,@@,@@@

B, @,@@@ 7 ,@@,@@@ Compute ,eturn on Capital /mplo5ed" MAns" ,eturn on Capital /mplo5ed C 9"87GM

7 ,@@,@@@