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Balance Sheet Structure for Analysis

This document provides a template for structuring a balance sheet for ratio analysis. It lists the key components of liabilities and assets and how they should be classified. For liabilities, it separates them into net worth/equity, long term liabilities, and short term or current liabilities. For assets, it separates them into fixed assets, non-current assets, intangible assets, and current assets. The purpose is to structure the balance sheet in a way that clearly shows the components needed to perform financial ratio analysis of the company.

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5 views3 pages

Balance Sheet Structure for Analysis

This document provides a template for structuring a balance sheet for ratio analysis. It lists the key components of liabilities and assets and how they should be classified. For liabilities, it separates them into net worth/equity, long term liabilities, and short term or current liabilities. For assets, it separates them into fixed assets, non-current assets, intangible assets, and current assets. The purpose is to structure the balance sheet in a way that clearly shows the components needed to perform financial ratio analysis of the company.

Uploaded by

rogers
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

STRUCTURE OF BALANCE SHEET FOR RATIO ANALYSIS

LIABILITIES
Net Worth / Equity
Share Capital / partners
Capital / Paid up Capital /
Owners Fund.

Reserves (General Reserves,


Capital Reserves, Revaluation
Reserve and Other Reserves)
Surplus
Debit balance of Profit & Loss
A/c,
(These funds are brought in by the
promoters as their investment in
business or generated by and
retained in business).
LONG TERM LIABILITIES
Term
Loan
(Banks
or
institutions).
Debentures / Bonds.
Unsecured Loans.
Fixed Deposits
Other Long Term Liabilities
(Only those liabilities to be
taken which are not due for
payment within 12 months
from the date of the Balance
Sheet)
SHORT TERM
LIABILITIES

(OR CURRENT)

Banks Working Capital Limits.


Sundry / Trade Creditors /
Creditors / Bills Payable.
Short Duration Loans or
Deposits.
Expenses payable.
Provision
against
various
items.
Other Current Liabilities.
(Only those liabilities to be
taken which are due for
payment within 12 months

Rs.

ASSETS
FIXED ASSETS
(such as Land & Building, Plant
& Machinery etc.)
Original Value
Less Depreciation
Net value or book value or
written down value.
(These are purchased for long
term use and are depreciated
every year).
NON CURRENT ASSETS.
Investment of long term nature
in shares, Govt. Securities,
Associate or sister firms or
companies.
Old Stocks or old / disputed
book debts.
Long Term Security Deposits.
Other misc. assets which are
not current or fixed asset.
INTANGIBLE ASSETS

Patents, Good Will, Preliminary


or Pre- operative expense.

Current Assets
Cash / bank balance including
Fixed Deposits with banks.
Marketable / quoted Govt. or
other securities meant for sale.
Book Debts / Sundry Debtors /
Debtors / Receivables / Bills
Receivables
(which
are
outstanding for long time.).
Stocks / inventory (such as raw
material ,stock in process,
Finished goods, stores and
spares meant for consumption).
Advance payment of taxes,
prepaid expenses.
Other assets of current nature.

Rs.

from date
Sheet).

of

the

TOTAL

Balance
TOTAL

Case Study Number -1


Classification of Assets & Liabilities in terms of RBI Guidelines
Please classify the following items into Assets & Liabilities appropriately and draw a Balance
Sheet.
Sl.
No
1.
2.
3
4.
5.
6.
7.
8.
9.
10.
11.
12
13.
14.
15
16
17
18.
19.
20.
21
22
23
24
25
26
27
28
29
30

Description
Consumable Stores and Spares
Provision for Taxation
Prepaid Expenses
Preliminary and Pre-Operative Expenses
Reserves and Surplus
Furniture & Fixtures
Investment in Subsidiaries
Sundry Debtors outstanding less than 180days
Bill Receivables
Debtors outstanding for more than 180 Days
Stock in Process
Debentures
Unsecured Loans payable after 12 months
Bank Overdrafts
Goodwill
Installment of Term Loan payable in 12 months.
Term Loan excluding installment payable in 12 months
Paid Up Capital
Authorized Capital
Profit & Loss A/c (Debit Balance)
Raw Material
Bills Payable
Provision for Dividend
Land and Buildings
Cash and Bank Balance
Banks Cash Credit Limit outstanding balance
Sundry Creditors
Plant and Machinery
Investment in Shares (Non Govt. Security)
Finished Goods

Amount
10
4
10
4
8
6
4
20
10
10
10
20
10
20
6
10
20
32
100
10
20
20
10
40
10
30
16
14
6
10

Common questions

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Current liabilities are obligations expected to be settled within 12 months, such as bank overdrafts and bills payable . Non-current liabilities are obligations due beyond 12 months, such as term loans excluding installments payable within a year or unsecured loans payable after 12 months .

Intangible assets, such as goodwill and preliminary or pre-operative expenses, are non-physical assets that do not devalue linearly like tangible assets do through depreciation . Their valuation is subject to interpretation since it involves elements not tied to physical depreciation.

Land and buildings, categorized as fixed assets, are acquired for long-term use and are subject to depreciation. Their value is calculated as original cost minus accumulated depreciation, impacting investment stability and asset worth in the balance sheet .

Reserves and surplus serve as retained earnings which enhance a company's financial stability by providing a buffer for unforeseen expenses or investment opportunities. They are part of net worth/equity and are accumulated through retained profits .

Bank overdrafts, considered current liabilities, are a form of short-term borrowing used to manage immediate cash flow deficits. Cash credit limits are also short-term credits but typically secured against inventory or receivables, impacting the extent of a company's working capital management .

Provisions for dividends and taxation represent anticipated future outflows pending distribution or settlement. They ensure the company accounts for future obligations, preventing overstatement of net profits and aiding in accurate future financial planning .

Book debts, such as sundry debtors outstanding for less than 180 days, are categorized as current assets, while those over 180 days could be considered non-current due to the collection risk involved . This distinction aids in liquidity assessment and financial planning.

Investments in subsidiaries are considered non-current assets as they represent long-term ownership stakes. These investments affect consolidation in financial statements and indicate strategic stakes in other entities .

Managing raw material inventory involves balancing sufficient stock against liquidity constraints. Excess raw materials are held as current assets, affecting working capital and illustrating the company's operational efficiency in utilizing resources .

Paid-up capital, part of net worth/equity, represents the actual value of shares for which payment has been received. It affects the company's capital structure and shareholder equity, providing a base for raising further funds .

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