Balance Sheet 2021

Balance Sheet
Session 9 & 10
Week 4 Learning Goals
• Prepare Balance Sheet
• Understand and compute following items:
– Total Assets
– Property, Plant, & Equipment (net)
– Receivables net of Allowance for Doubtful Debt
– Financial Assets (Current)
– Current Assets & Liabilities, Net Working Capital
– Total Liabilities
– Financial Liabilities (Current & Non-current)
– Total Borrowings (Short-term Borrowings, Current Maturities of Long-term
Borrowings, Long-term Borrowings, Preference Share Capital)
– Total Equity (Equity Share Capital, Other Equity, Reserves, Equity Shares,
Bonus Shares, Stock Split and Equity Share Buyback)
– Capital Employed
• Understand B/S (changes in assets financed by changes in liabilities
and net worth) of chosen companies: Asian Paints & Infosys.
Chap 2 E2 – 5 – Donavan Co.
Chap 2 E2 – 8 – Barfield Corp.
Chap 2 P2-3A – Ramirez Enterprises
Chap 3 P3-3A – Cindy Braun
Cindy Braun continues
Extra Problem
An extract of closing balance of different account heads is given below. Prepare a balance sheet as per Schedule III of the
companies Act, 2013. After preparing the Balance sheet, identify the industry to which the company belongs, from the
following industries - manufacturing, trading and service.
Particulars Mar-14 Particulars Mar-14
Capital work - in - progress 179.18 Other current Liabilities 4349.6

Cash and Cash Equivalents 790.57 Other long term liabilities 371.94
Current investments 1.9 Other non - current assets 174.11
Equity share capital 212.16 Other current assets 579.82
intangible assets 66.09 Reserves and surplus 884.83
intangible assets under development 4.45 Short term borrowings 3518.88
Inventories 1695.14 Short term loans and advances 1273.29
long term Borrowings 2472.19 Short term provisions 188.81
Long term loans and advances 1077.99 Tangible assets 1946.05
Long term provisions 131.45 Trade payables 975.19
Non current investments 4078.99 Trade receivables 1237.47
1–12
Solution
Balance Sheet as on/at March 2014
Equity and Liabilities Assets
Shareholders Fund Non-current Assets
Equity Share Capital 212.16 Fixed Assets
Reserves and Surplus 884.83 Tangible Assets 1946.05
A 1096.99 Intangible Assets 66.09
Non-current Liabilities Capital Work-In-Progress 179.18
Long Term Borrowings 2472.19 Intangible Assets Under Development 4.45
Other Long Term Liabilities 371.94 2195.77
Long Term Provisions 131.45 Non-Current Investments 4078.99
B 2975.58 Long Term Loans And Advances 1077.99
Current Liabilities Other Non-Current Assets 174.11
Short Term Borrowings 3518.88 X 7526.86
Trade Payables 975.19 Current Assets
Other Current Liabilities 4349.60 Current Investments 1.90
Short Term Provisions 188.81 Inventories 1695.14
C 9032.48 Trade Receivables 1237.47
Cash And Cash Equivalents 790.57
Short Term Loans & Advances 1273.29
Other Current Assets 579.82
Y 5578.19
Total (A+B+C) 13105.05 Total (X+Y) 13105.05
1–13
Balance Sheet
• Sources of Funds
– Shareholder’s Funds
• Share Capital-
– authorized, Issued, subscribed & paid up
– bonus shares, stock split, Shares issued on mergers,
Cancellation of shares (Share buy back)
• Reserves & Surplus- capital vs. revenue
reserve, general reserve
• Deferred tax liabilities
– Loan Funds
• Secured loans
• Unsecured loans
Different equity related terms in an Indian
B/S
• Authorized Capital
• Issued Capital
• Subscribed & Paid up Capital
• Equity Share Capital

• Preference Share Capital
• Equity Share Premium A/c /Additional
paid in capital
Value
The term value is associated with shares of stock

in several ways.
• Par value or stated value
– Is set when stock is authorized
– Established legal capital of the company
• Market value
– The price investors are willing to pay for a share of stock in the
open market
• Book value
– Stockholders’ equity of a company, or total assets less liabilities
Book Value per Share
Represents the equity of the owner of one share of stock in

the net assets of the corporation
• When a company has only common shares outstanding:

Total Stockholde rs' Equity
Book Value per Share =
Total Common Shares Outstandin g
Asian Paints
DRL
1–20
1–22
Bonus Shares / Stock Dividend
– Changes the composition of stockholders’

equity.
– Total stockholders’ equity remains the same.
– No effect on the par/face value per share.
– Increases the number of shares outstanding.

Stock Splits
– Reduces the market value of shares.

– No entry recorded for a stock split.
– Decrease par value and increase number
of shares.
– Reverse stock split is opposite of stock

split.
Bonus vs. Stock Split
Differences between the effects of stock dividends and

stock splits.
Illustration 11-12
Buy back of Shares / Treasury Stock
Treasury stock - corporation’s own stock that it has

reacquired from shareholders, but not retired.
Corporations purchase their outstanding stock:
1. To reissue shares to officers and employees under bonus and
stock compensation plans.
2. To increase trading of the company’s stock in the securities
market.
3. To have additional shares available for use in acquiring other
companies.
4. To increase earnings per share.
Another infrequent reason is to eliminate hostile shareholders.
Summary
Changes in New Share Share Buy Bonus Stock Reverse
Issue Back Issue Split Stock
Split
Cash Flows (CFF) ↑ usually ↓ usually None None None
# of Shares Outstanding ↑ ↓ ↑ ↑ ↓
Par Value per share None None None ↓ ↑
Equity Share Capital A/c or ↑ ↓ ↑ None None

Common Stock A/c
Reserves & Surplus ↑ (1) ↓ (2) ↓ None None
Net Worth ↑ ↓ None None None
Earnings per Share ↓ ↑ ↓ ↓ ↑
ROE (assuming everything ↓ ↑ None None None

else remains constant)
Market Price ↓ ↑ ↓ ↓ ↑
(1) Only when shares are issued at a premium; Else no change

(2) Only when shares are bought at premium. Else no change
Depreciation
• Gradual conversion of cost into

expense.
• Depreciation is a cost consumed by an
entity during an accounting period.
• Definition:
– The systematic allocation of the original
cost of an asset to the periods in which
the asset provides benefit to the entity.
1–28
Judgments required
• Service life of asset.

• Residual value at the end of its service
life.
• Net cost = original cost - residual value.
• Method of depreciation used to allocate
cost over useful life of asset.
1–29
Depreciation methods:
• Two popular methods:

• Straight line method (SLM)
• Written down value method (WDV)
• While Companies Act, 1956 (Schedule
XIV) recognises both the methods,
Income Tax Act, 1961 generally
recognises only one method (WDV)
1–30
Depreciation Methods
• Straight Line Method

• Depreciation = Original book value *
depreciation rate, or
• (original cost- residual value)/n
• Declining Balance Method
• Depreciation = Net book value *
depreciation rate.
• Depreciation Rate = 1- n√ residual
value/original cost
1–31
Depreciation Accounting
• Acquire an asset for Rs10,000 & depreciate
straight line over 5 years.
• First year’s depreciation:

Depreciation expense 2000
Accumulated depreciation 2000
• Disclosure: amount of depreciation expensed

in year, original cost & accumulated
depreciation by asset category.
1–32
Plant and Equipment: Disposal
• Sale of building:
• Remove cost and accumulated
depreciation.
• Remainder: book value = cost - accumulated
depreciation.
• Gain or (loss) = Selling price of asset -
book value.
• Gain or loss in current period income
statement.
1–33
DIFFERENT PARTS OF A B/S
FOOT NOTE DISCLOSURES
Hindalco
1–35
1–36
Infosys
1–37
1–38
Balance Sheet Contents
Current Assets
• Assets that a company expects to convert to cash or
use up within one year or the operating cycle,
whichever is longer.
• Operating cycle is the average time it takes from the

purchase of inventory to the collection of cash from
customers. – Cash to Cash
Balance Sheet
Current Assets
Illustration 2-3
In the U.S., companies list current asset accounts in the order they
expect to convert them into cash.
Current Assets - India
Current Assets
1–43
1–44
1–45
The Classified Balance Sheet
Long-Term Investments
• Investments in stocks and bonds of other companies that
are held for more than one year.
• Investments in long-term assets such as land or buildings

not currently being used in operating activities.
Illustration 2-4
Investments
• Both short term and long term investments are included.
– Short Term Investment at Lower of Cost or Fair Value
– Long Term Investment at historical cost
• Trade Investments
• Other Investments
• Less Provision
Property, Plant, and Equipment

• Long useful lives.
• Currently used in operations.
• Depreciation - allocating the cost of assets to a number

of years.
• Accumulated depreciation - total amount of

depreciation expensed thus far in the asset’s life.
The Classified Balance Sheet: US

Illustration 2-5
The Classified Balance Sheet: India
1–51
1–53
Investment Property Ind AS
• Property held to earn rentals or for capital

appreciation or both.
• Not used in the operations of the business.
• Held for sale.
1–54
Intangible Assets
• Assets that do not have physical substance.
Illustration 2-6
1–56
Current Liabilities
• Obligations the company is to pay within the coming year.
• Usually list notes payable first, followed by accounts

payable.
• Other items follow in order of magnitude.

Current Liabilities
Illustration 2-7
Current Liabilities
Long-Term Liabilities
• Obligations a company expects to pay after one year.
Illustration 2-8
Stockholders’ Equity
Illustration 2-2
• Common stock - investments of assets into the business by

the stockholders.
• Retained earnings - income retained for use in the business.

Stockholders’ Equity (in US) =
Shareholders’ Fund (in India)
RECAP Slides
1–68
Classified Balance Sheet
• Assets, liabilities, and stockholders’

equity sections are subdivided into
useful categories.
ASSETS LIABILITIES STOCKHOLDERS’ EQUITY
Current assets Current liabilities Contributed capital
Investments Long-term liabilities Retained earnings
Property, plant, and equipment
Intangible assets
• Most companies use similar subdivisions, but

subdivisions usually depend upon the type of
business
Copyright © Cengage Learning. All rights reserved. 4-69

Assets
• Often divided into four categories

– Current assets
– Investments
– Property, plant, and equipment
– Intangible assets
• The categories are listed according to how
easily they are assumed to be converted into
cash.
• Some companies may group investments,
intangible assets, and other miscellaneous
assets as “other assets.”
Normal Operating Cycle
• The average time needed to go from cash to

cash
– Spend cash to buy merchandise inventory
– Sell inventory on account
– Collect cash
• The normal operating cycle is usually less
than one year
– Exceptions
• Products requiring more than one year to produce
– Tobacco
• Companies selling on the installment basis
– Appliances
Examples of Current Assets
• Cash
• Temporary investments
• Accounts receivable
• Inventory
• Prepaid expenses

Types of Investments
• Securities held for investment

• Long-term notes receivable
• Land held for future use
• Plant or equipment not used in the business
• Special funds established to
– Pay off debt
– Purchase a building
• Large permanent investments in another
company
– For the purpose of controlling that company
Classifying Natural Resources
• Natural resources used in the regular

course of business are listed in the
property, plant, and equipment category
– Forest lands
– Oil and gas properties
– Coal mines
• If the natural resources are not used in
the course of running the business, they
are listed in the investments category –
Investment Property
• Also called
– Operating assets
– Fixed assets
– Tangible assets
– Long-lived assets
– Plant assets
• The costs of these assets are depreciated
– Spread over the periods they benefit
• Past depreciation is recorded in the
Accumulated Depreciation accounts
Examples of Intangible Assets
• Patents
• Copyrights
• Goodwill
• Franchises
• Trademarks

Current Liabilities
• Obligations that must be satisfied within

one year or within the normal operating
cycle, whichever is longer
• Typically paid from current assets or by
incurring new short-term liabilities
• Examples: Notes payable, accounts
payable, current portion of long-term
debt, salaries and wages payable, taxes
payable, customer advances (unearned
revenues)
• Debts of the business that fall due more

than one year in the future or beyond
the normal operating cycle, which will
be paid out of noncurrent assets
• Examples: Mortgages payable, long-
term notes, bonds payable, employee
pension obligations, and long-term
lease liabilities

Deferred Income Taxes
• Are often disclosed as a separate category in

the long-term liability section of the balance
sheet of publicly held corporations
• Are the result of different rules that apply for
measuring income taxes for tax purposes and
for financial reporting purposes
– Amount is the cumulative annual difference
between income taxes payable to governments
and income tax expense reported on the income
statement

• Made up of two components on the

balance sheet:
– Contributed or paid-in capital
– Retained Earnings
• Generally, contributed capital is shown
as two amounts:
– Par value of the issued stock
– Amounts paid in, or contributed, in excess
of the par value per share

Stock Split Illustrated
July 15: MIU Corporation’s 15,000 shares of $5 par value stock issued
and outstanding were split 2 for 1.
Common Stock Before Stock Split After Stock Split

Shares issued and outstanding 15,000 30,000
Par value per share $5.00 $2.50
Amount of common stock equity $90,000 $90,000
Each stockholder’s proportionate A stock split does not increase the

interest in the company remains the number of shares authorized, nor
same because each share of $5 par does it change the balances in the
value stock was converted to 2 stockholders’ equity section of the
shares of $2.50 par value stock. balance sheet.
Stop & Review
Q. What is the difference between a stock
dividend and a stock split?
A. Stock dividend/Bonus Shares

– A distribution of shares to stockholders that
involves a transfer from retained earnings to
contributed capital
Stock split
– An increase in the number of shares outstanding
and a proportional decrease in par or stated
value
• Has no effect on the balances in the stockholders’
equity accounts

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Balance Sheet

Particulars Mar-14 Particulars Mar-14

Capital work - in - progress 179.18 Other current Liabilities 4349.6

• Equity Share Capital

The term value is associated with shares of stock

Represents the equity of the owner of one share of stock in

• When a company has only common shares outstanding:

– Changes the composition of stockholders’

– Total stockholders’ equity remains the same.

– No effect on the par/face value per share.

– Increases the number of shares outstanding.

– Reduces the market value of shares.

– Reverse stock split is opposite of stock

Differences between the effects of stock dividends and

Treasury stock - corporation’s own stock that it has

Cash Flows (CFF) ↑ usually ↓ usually None None None

Par Value per share None None None ↓ ↑

Equity Share Capital A/c or ↑ ↓ ↑ None None

Net Worth ↑ ↓ None None None

Earnings per Share ↓ ↑ ↓ ↓ ↑

ROE (assuming everything ↓ ↑ None None None

(1) Only when shares are issued at a premium; Else no change

• Gradual conversion of cost into

• Service life of asset.

• Two popular methods:

• Straight Line Method

• First year’s depreciation:

• Disclosure: amount of depreciation expensed

• Operating cycle is the average time it takes from the

• Investments in long-term assets such as land or buildings

Property, Plant, and Equipment

• Currently used in operations.

• Depreciation - allocating the cost of assets to a number

• Accumulated depreciation - total amount of

Property, Plant, and Equipment

• Property held to earn rentals or for capital

• Usually list notes payable first, followed by accounts

• Other items follow in order of magnitude.

• Common stock - investments of assets into the business by

• Retained earnings - income retained for use in the business.

• Assets, liabilities, and stockholders’

• Most companies use similar subdivisions, but

Copyright © Cengage Learning. All rights reserved. 4-69

• Often divided into four categories

• The average time needed to go from cash to

Copyright © Cengage Learning. All rights reserved. 4-72

• Securities held for investment

• Natural resources used in the regular

Copyright © Cengage Learning. All rights reserved. 4-76

• Obligations that must be satisfied within

• Debts of the business that fall due more

Copyright © Cengage Learning. All rights reserved. 4-78

• Are often disclosed as a separate category in

Copyright © Cengage Learning. All rights reserved. 4-79

• Made up of two components on the

Copyright © Cengage Learning. All rights reserved. 4-80

Common Stock Before Stock Split After Stock Split

Each stockholder’s proportionate A stock split does not increase the

A. Stock dividend/Bonus Shares

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