Professional Documents
Culture Documents
as of a particular point in time. This statement in itself, does not reveal anything about the details of
operations of the business. However, a comparison of two balance sheets could reveal the change in the
business position. A realistic understanding of the operations of the business would require the other two
financial statements – profit and loss account and the fund flow statement. We shall take them up in the
subsequent lessons.
KEY WORDS
Please see Glossary (at the book-end) to appreciate and review the following key words used in this chapter:
Balance Sheet Account Receivable
Asset Promissory Note
Liability Prepaid Expenses
Current Assets Accrued Liabilities
Current Liabilities Provisions
Intangible Assets Reserves and Surplus
Revenue Contingent Liabilities
Expenses Fixed Asset
Marketable Securities Owners’ Equity
EXERCISES
Multiple Choice Questions
1. Gutthi Sharma provided the following information about her firms balance sheet:
Cash `1,000
Accounts receivable `5,000
Shareholders’ equity `7,000
Accounts payable `2,000
Project loans `10,000
From the information provided above, what are the firm’s external liabilities?
(a) `2,000
(b) `9,000
(c) `12,000
(d) `17,000
2. In a travel company, painting a car would be treated as a ___________ expenditure; and music
player bought to fit in a car would be a __________ expenditure.
(a) Capital; Capital
(b) Capital; Revenue
(c) Revenue; Revenue
(d) Revenue; Capital
3. Can a balance sheet have an item titled “goods-in-transit”? If yes, it would be of which part?
4. If Prayag International Ltd. is an all equity company it will definitely mean that:
(a) The current liabilities are greater than the current assets
(b) Fixed assets + Working Capital = Owners’ Equity
(c) Net Worth = Working Capital
(d) Net Worth < Working Capital
5. If it was known that capital expenditures are for fixed assets (either tangible or intangible) that are
by default expected to be productive assets in the long run such as leasehold land improvements.
Similarly, if it was also known that revenue expenditures are for costs that are related to specific
operating periods and/or revenue transactions, such as the cost of goods sold or repairs and main-
tenance expense. In such case, pre-commissioning expenses of a plant & equipment for a footwear
producer, Lawreshwar Polymers Limited would be part of its:
(a) Non-Current liabilities
(b) Current assets
(c) Current liabilities
(d) Non-current assets
Discussion Questions
1. What is the main purpose of a balance sheet? What basic information does it communicate?
2. Discuss the various ways of presenting a balance sheet. Which form of presentation is prescribed
by the latest Companies Act in India?
92 Financial Accounting for Management
3. Refer to the Chapter Opening Case on the BCCI’s Balance Sheet. Briefly comment on the stated
facts therein. How would that augur for the future of the game and for the future of Indian cricket?
Numerical Problems
1. Dilli Durbar Company
(a) Classify the following items into current assets, fixed assets, proprietary funds and current
liabilities and prepare a balance sheet for Dilli Durbar Company as at March 31, 20X7:
Item Amount ` Item Amount `
Land 2,50,000 Electricity payable 2,000
Building 1,00,000 Sundry debtors 40,000
Plant & machinery 50,000 Bills payable 60,000
Closing stock: Insurance charges 1,00,000
Raw material 15,000 Marketable securities 60,000
Work in progress 10,000 Cash in hand 25,000
Finished goods 25,000 Cash at bank 35,000
Salary payable 15,000 Profit for the year 30,000
Wages payable 13,000 Sundry creditors 1,10,000
Additional Information:
(b) Provide for depreciation on plant and machinery at the rate of 10% per annum.
(c) Sundry debtors include `500 for goods supplied to a customer, who has become insolvent.
(d) Insurance charges for stock insurance are paid on September 30, 20X6.
2. Abrak Dabra
Shiraz Daneshyar was working for the TV Today Network, one of India’s leading news television
networks along with Network 18 and NDTV. Its news channels included Aaj Tak (Hindi), Headlines
Today (English), Tez (Hindi), and Business Today (English). Please help Shiraz in completing the
balance sheet of TV Today Network by filling the following items with figures at the appropriate
blanks below: Capital work-in-progress 31; Cash and bank balances 944; Intangible assets 377;
Long-term loans and advances 63; Long-term provisions 109; Non-current investments 455; Other
current liabilities 340; Other long-term liabilities 17; Reserves and surplus 4,202; Share capital 298;
Short-term borrowings 67; Short-term loans and advances 399; Short-term provisions 114; Tangible
assets 1,976; Trade payables 676; and Trade receivables 1,406.
Balance Sheet 93
Source: BSE India: TV Today Network Ltd Annual Reports, BSE India, Web, 18 Dec, 2015.
94 Financial Accounting for Management
3. Chinku’s Mismash
Chinku was looking into the microfinance companies based in India. He came across, India’s big-
gest firm, SKS Microfinance Limited. The firm was registered as a non-banking finance company
(NBFC) and listed in the stock exchanges. He started jotting down a few figures of the company’s
balance sheet. However, in his rush – he missed many. Please help Chinku in filling them up and
also answering the queries below:
Questions
(a) Fill the blank figures (marked ‘?’ in the table above).
(b) What is the biggest asset for this organization? What is the biggest liability for this organiza-
tion? Does it indicate anything specific about the business model?
(c) Give an example of the item titled “Intangible Assets under Development” mentioned above?
(d) It was known that in FY2014, the share capital of SKS Microfinance was 1,082 million. How
can Chinku know if the firm increased its share capital during FY 2015?
4. New Ideas on IBM
I own a business entity, named I am a Business Man i.e., IBM. At the end of accounting year,
IBM has a cash balance equal to `XXXXXXXX.7 Half of the cash has been kept aside for buying
brands. The firm does not own any trade receivables nor owns any marketable securities. The firm
had a promissory note equivalent to the total cash balance (the amount being receivable after 6
months). Soham Pradhan drew the promissory note. Two days back, Tanmoy Chatterjee, an employee
of IBM had taken a travel advance equivalent to one-tenth of the total cash balance. At the end
of the accounting period, IBM does not have any other current assets. The entities fixed assets are
twice its current assets. IBM’s long-term investments are equal to the rest of the assets on its balance
sheet. Recently, the firm had incurred restructuring expenses equal to its fixed assets. The benefit
of this restructuring expense is expected to flow over the next five years. Long-term liabilities are
equal to its non-current assets. IBM’s current liabilities & provisions are equal to half of its current
assets. The firm has no other liabilities. The firm had issued equity shares worth `XXXXXXXX.
(a) Refer to the problem above. Fill in the blanks below.
I. Other Assets is equal to ` ________________________________
II. Total Assets is equal to ` _________________________________
III. Net worth of the firm is equal to ` ___________________________
IV. Reserves & Surplus of the firm is equal to ` _________________________
V. Long-term Liabilities is equal to ` ________________________
(b) Tick all the ones that you agree to (i.e., there may be multiple correct answers). Leave all
the ones that you disagree to (i.e., keep them unmarked). Use your own judgment to decide
on the answers:
I. The firm had sales higher than its long-term investments
II. The firm had a good current ratio
III. Secured liabilities were more than unsecured liabilities
IV. The firm has zero contingent liabilities
V. During the financial year, the firm had earned a profit
5. Big Toys
Big Toys Ltd. provides you with the following information relating to the financial year ending on
March 31, 20X7. Prepare its balance sheet in the vertical form as at March 31, 20X7.
Balances on 01-04-20X6 (all figures in `)
Capital 3,80,000
Profit 30,000
Plant & Machinery 3,75,000
Furniture & Fixture 35,000
Preliminary Expenses 60,000
7
Please take XXXXXXXX as your date of birth. For example, if your date of birth is 02 January 2000, then the amount would
be `02,012,000 only.
96 Financial Accounting for Management
Depreciation for the year on plant & machinery and furniture & fixtures was `20,000 and `5,000
respectively. Preliminary expenses amounting to `10,000 were written off during the year.
For all other accounts, the balances in the books of accounts, as on 31-03-20X7, were as follows
(all figures in `):
Unexpired insurance 15,000
Sundry Debtors 4,25,000 (provide for doubtful debtors `25,000)
Loan given to Director 40,000 (accrued interest not accounted for `10,000)
Raw material stock 75,000
Finished goods stock 25,000
Prepaid expenses 50,000
Cash in hand 1,50,000
Cash at bank 50,000
Declared Dividend for the year 30,000
Profit for the year 20,000
Advance received 2,00,000
Bank Loan 4,00,000
Sundry Creditors 50,000
Bills Payable 1,00,000
Provision for Taxes 10,000
Other Current Liabilities 90,000
MINI CASES
? Case Questions
(a) Give a summarized picture of ITC’s fixed assets and the visible changes therein (within 250 words).
(b) What are acquired intangible assets? And, why are they part of ITC’s balance sheet? On the other
hand, why are ITC’s non-acquired intangible assets not included in its fixed assets? Give a few
examples of the same.
(c) Give a non-technical summary of the notes to the ITC’s fixed assets (within 100 words).
(d) Based on the figures available, can we confidently state that the biggest asset of ITC is its “plant
and equipment”? Comment (within 100 words).