(Write down this in your practical record)

Exercise No-01: To study the Balance Sheet and its test ratio.

The balance sheet is also known as Net worth Statement is a summary of the assets and liabilities,
together with a statement of the owner’s equity at a particular point of time. The owner’s equity is
also commonly referred to as the net worth of the business.

The balance sheet has two characteristics (1) It always refers to a specific date or point of time and
(2) It consist of three aspects namely

(a)The assets or the value of things owned.

(b) The liabilities or amount owed.

(c) The difference between these two which is the owner’s equity or deficit.

Importance of Balance sheet

The balance sheet shows the fundamental soundness of a business. Thus, risk bearing ability is
reflected directly by the balance sheet. Balance sheet is required by a lender or lender’s agent as a
part of every loan application to assess the financial condition of a borrower. Balance sheet may also
be used by the farmers in record keeping and in making income tax reports, if any, and it may also
be used by lenders in interviewing the prospective tenants. Projected balance sheet can be of use in
analyzing rate of growth of a firm and its soundness over time.

Balance Sheet

Assets Amount (Rs) Liabilities Amount (Rs)

Current Assest Current Liabilities
Cash on hand 10,000 Crop loans to be repaid 8,000
to institutional
agencies
Saving in bank 8,000
Value of grains ready 38,500 Cost of cultivation 6,000
for disposal (excluding loans)
Livestock products 60,000 Other loans 5,000
(eggs,birds, etc.) (unsecured loans due
for immediate
repayment)
Fruits, Vegetable, 8,000 Cost of maintenance of 3,600
fodder and feed ready cattle
for sale
Cost of poultry 25,000
enterprise
Value of bonds and 2,000 Annual instalments 19,000
shares to be realized in
the same year
Sub-total 1,26,500 Sub-total 66,600
 Intermediate assets Intermediate liabilities
Dairy cattle 10,000 Livestock loans 8,000
Bullocks 9,000 Machinery loan 15,000
Poultry birds 15,000 Unsecured loans 10,000
Machinery and 15,000
equipment
Tractor 1,75,000
Sub-total 2,24,000 Sub-total 33,000
Long term assets Long term liabilities
Land (book value ) 6,00,000 Tractor loan 1,20,000
Farm buildings 25,000 Orchard loan 25,000
Unsecured loan 10,000
Sub total 6,25,000 Sub-total 1,55,000
Total assets 9,75,500 Total liabilities 2,54,600
Net worth or equity 7,20,900
Gross assets 9,75,500 Gross liabilities 9,75,500

(Calculate the test ratio in practical copy except no 04)

Test Ratio

1.

2.

3.

4.
( )

5.

6. ( )

7.