dr. varadraj bapat module 2. financial statements
TRANSCRIPT
Dr. Varadraj BapatDr. Varadraj Bapat
Module 2.
Financial Statements
Dr. Varadraj BapatDr. Varadraj Bapat
Financial Statements
IntroductionBalance SheetElements of Balance Sheet
Dr. Varadraj BapatDr. Varadraj Bapat
Financial Statement
Financial statements are records that provide an information of an individual’s, organization’s, or business’ financial status.
They are normally prepared general or specific purposes.
Dr. Varadraj BapatDr. Varadraj Bapat
General purpose Financial Statementexamples Balance Sheet Profit and Loss A/c Cash Flow Statement Fund Flow Statement Segment Revenue Report
Dr. Varadraj BapatDr. Varadraj Bapat
Specific purpose Financial Statementexamples Departmental Budget Computation prepared for Income Tax Purpose
Dr. Varadraj BapatDr. Varadraj Bapat
Balance SheetBalance Sheet portrays value of economic resources controlled by an enterprises and the way they are financed.A balance sheet or statement of financial position is a summary of the financial balances of an entity on a particular point of time. i.e. summary of organization's assets, liabilities and equity as of a specific date.
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet (Format)
LiabilitiesLiabilities Rs.Rs. AssetsAssets Rs.Rs.
Owners FundOwners Fund XXXX Fixed AssetsFixed Assets XXXX
Non Current Non Current LiabilitiesLiabilities
XXXX Non current Non current InvestmentsInvestments
XXXX
Current LiabilitiesCurrent Liabilities XXXX Current AssetsCurrent Assets XXXX
Every balance sheet shall give a true and fair view of state of affairs of the company as at the end of financial year.
Dr. Varadraj BapatDr. Varadraj Bapat
Particulars(format as per revised
Schedule VI)
As at As at
31st Mar 2011
31st Mar 2010
I. EQUITY AND LIABILITIES
1 Shareholder's Funds
(a) Share Capital -
-
Dr. Varadraj BapatDr. Varadraj Bapat
(b) Reserves and Surplus -
-
(c) Money received against Share Warrants
-
-
2 Share Application Money pending allotment
-
-
3 Non-Current Liabilities
(a) Long-Term Borrowings -
-
Dr. Varadraj BapatDr. Varadraj Bapat
(b) Deferred Tax Liabilities (Net)
-
-
(c) Other Long Term Liabilities -
-
(d) Long-Term Provisions -
-
4 Current Liabilities
(a) Short-Term Borrowings -
-
(b) Trade Payables -
-
Dr. Varadraj BapatDr. Varadraj Bapat
(c) Other Current Liabilities
-
-
(d) Short-Term Provisions
-
-
TOTAL
-
-
II. ASSETS 1 Non-Current Assets (a) Fixed Assets
(i) Tangible Assets
-
-
(ii) Intangible Assets
-
-
Dr. Varadraj BapatDr. Varadraj Bapat
(iii) Capital work-in-progress -
-
(iv) Intangible assets under development
-
-
(b) Non-Current Investments
-
-
(c) Deferred Tax Assets (Net) -
-
(d) Long-Term Loans and Advances
-
-
(e) Other Non-Current Assets -
-
Dr. Varadraj BapatDr. Varadraj Bapat
2 Current Assets
(a) Current Investments
-
-
(b) Inventories
-
-
(c) Trade Receivables
-
-
(d) Cash and Cash Equivalents
-
-
(e) Short-Term Loans and Advances
-
-
(f) Other Current Assets
-
-
TOTAL
-
-
Dr. Varadraj BapatDr. Varadraj Bapat
Elements of Balance Sheet
Assets
Liabilities
Owners Fund
Dr. Varadraj BapatDr. Varadraj Bapat
Assets
Probable future economic benefitProbable future economic benefitWhat is owned or controlledWhat is owned or controlled
ExamplesExamples CashCash Land and BuildingLand and Building InvestmentsInvestments MachineryMachinery
Dr. Varadraj BapatDr. Varadraj Bapat
An asset is a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise.
Resource must have a cost or value that can be measured reliably
Dr. Varadraj BapatDr. Varadraj Bapat
Types of assets•Fixed Assets•Current Assets•Investments
Fixed Assets
Tangible Intangible
Dr. Varadraj BapatDr. Varadraj Bapat
Tangible
Land & Building
Machinery
Furniture
In-tangible
Goodwill
Trade-Marks
Patents
Dr. Varadraj BapatDr. Varadraj Bapat
Current Assets
Monetary Non-Monetary
Debtors
Bank
RM Stock
FG Stock
Dr. Varadraj BapatDr. Varadraj Bapat
Liabilities• A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to the result in an outflow of a resource embodying economic benefits.• A liability is an existing obligation based on the evidence available on balance sheet date.
Dr. Varadraj BapatDr. Varadraj Bapat
•A liability is recognised when outflow of economic resources in settlement of present obligation can be anticipated and the value of outflow can be reliably measured.
Dr. Varadraj BapatDr. Varadraj Bapat
Long-Term Liabilities Long-term liabilities are a
company's debts or obligations that are to be repaid or performed beyond one year.
Source of fund Examples:
• Bank Loan• Loan from Financial Institution• Debentures
Dr. Varadraj BapatDr. Varadraj Bapat
Current Liabilities
Current liabilities are a company's debts or obligations that are to be repaid or performed within one year.
• Emerge from normal business• Examples:
• Creditors (Accounts Payable) • Outstanding Expenses
Dr. Varadraj BapatDr. Varadraj Bapat
Current Liabilities
• Interest accrued but not due on Loan
• Provision for Tax• Bank Overdraft
Dr. Varadraj BapatDr. Varadraj Bapat
Provision: Provision means any amount retained Provision means any amount retained
by way of providing for any known by way of providing for any known liability of which amount can not be liability of which amount can not be determined with substantial determined with substantial accuracy.accuracy.
Provision refers to an amount set Provision refers to an amount set aside for meeting claims which are aside for meeting claims which are admissible but the amount whereof admissible but the amount whereof has not been confirmed.has not been confirmed.
Dr. Varadraj BapatDr. Varadraj Bapat
ExamplesExamples
Provision for payment of electricity Provision for payment of electricity charges (but bill is not yet received).charges (but bill is not yet received).
Provision for taxes (till final amount is Provision for taxes (till final amount is assessed by authorities.)assessed by authorities.)
Provision for bonusProvision for bonus Amount set aside for writing off bad Amount set aside for writing off bad
debts. debts.
Dr. Varadraj BapatDr. Varadraj Bapat
Contingent LiabilityContingent Liability
Contingent liability can be defined asContingent liability can be defined asa) a possible obligation that arises
from past events and the existence of which will be confirmed only by occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise
Dr. Varadraj BapatDr. Varadraj Bapat
b) a present obligation that arises from past events but is not recognised because:
i) it is not probable that an outflow of resources consisting economic benefits will be required to settle the obligation or
ii)a reliable estimate of the amount of the obligation cannot be made.
Dr. Varadraj BapatDr. Varadraj Bapat
Owners FundOwners fund is defined as residual interest of an enterprises after deducting all its liabilities.
Owners fund is the excess of aggregate assets of an enterprises over its aggregate liabilities.
Dr. Varadraj BapatDr. Varadraj Bapat
Assets= Liabilities + Owners Fund
Therefore,Owners Fund= Assets – Liabilities
Owners Fund= Capital + Retained
Earnings
Balance Sheet Equation
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet Equation A = L + O 1. Company borrows from bank
++ ++ (+ Bank, + Bank Loan Payable)
2. Issue of shares by company
++ ++ (+ Bank, + Equity Shares)
Dr. Varadraj BapatDr. Varadraj Bapat
3.(a) Cash purchase of equipment3.(b) Collection of Debtors
(a)(a) +,+,--
(+ Equipment, - Bank)
(b)(b) +,+,--
(+ Bank, - Debtors)
(a)(a) -- -- (- Loan Payable, - Bank)(- Loan Payable, - Bank)(b)(b) -- -- (- Creditors, - Bank)(- Creditors, - Bank)
4.(a) Company repays bank loan4.(a) Company repays bank loan
4.(b) Payment of Creditors / supplier4.(b) Payment of Creditors / supplier
Dr. Varadraj BapatDr. Varadraj Bapat
A=L+O
-- -- (- Bank, - Reserves)
-- -- (- Bank, - Equity Capital)
5. Company pays dividend to shareholders
6. Company purchases shares from shareholder, pays immediately (buy-back of shares)
Dr. Varadraj BapatDr. Varadraj Bapat
A=L+O
-- ++ (- Loan Payable, + Equity shares)
+,-+,- (- Creditors, + Loan Payable)
7. Liability is converted into equity shares e.g., loan is converted into equity shares
8. Company incurs new liability to pay existing liability, e.g., Creditors are converted into long-term loan
Dr. Varadraj BapatDr. Varadraj Bapat
A=L+O
+,-
(+ Equity Capital, - Reserves)
9. Company distributes stock dividend to stockholders (Bonus Shares)
Dr. Varadraj BapatDr. Varadraj Bapat
Vertical Format of Balance Sheet
Sources of FundsSources of Funds Rs.Rs. Rs.Rs.
Owners FundOwners Fund XXXX
Borrowing FundsBorrowing Funds
Secured LoanSecured Loan XXXX
Unsecured LoanUnsecured Loan XXXX XXXX
Total Capital EmployedTotal Capital Employed XXXX
Dr. Varadraj BapatDr. Varadraj Bapat
Application of FundApplication of Fund Rs.Rs. Rs.Rs.
Fixed AssetsFixed Assets XXXX
InvestmentsInvestments XXXX
Working CapitalWorking Capital
Current AssetsCurrent Assets XXXX
Current LiabilitiesCurrent Liabilities (XX)(XX)
Net Working CapitalNet Working Capital XXXX
Total Assets EmployedTotal Assets Employed XXXX
Dr. Varadraj BapatDr. Varadraj Bapat
Every company has to prepare balance sheet in the form set out in Part I of Schedule VI of Companies Act.
Dr. Varadraj BapatDr. Varadraj Bapat
Exercise 1
1. On January 2, owners invest Rs.15,000 in ShriRam Company to begin the business.
2. On January 3, ShriRam Company borrows Rs. 10,000 from DhanLakshmi Bank.
3. On January 5, ShriRam Company purchases Rs. 18,000 of inventory from suppliers. Payment due on Jan 8.
Dr. Varadraj BapatDr. Varadraj Bapat
4. On January 9, ShriRam Company sells inventory that cost Rs. 6,000 for Rs. 8,000 in cash.
5. On January 10, ShriRam Company pays for inventory purchased on January 5.
6. On January 12, ShriRam Company sells inventory that cost Rs. 5,000 for Rs. 6,000, on account. Payment will be received on January 31.
Dr. Varadraj BapatDr. Varadraj Bapat
7. On January 31, ShriRam Company collects the account receivable and puts in bank.
Prepare Balance sheet of the
concern after each transaction.
Dr. Varadraj BapatDr. Varadraj Bapat
1. On January 2, owners invest Rs.15,000 in ShriRam Company to begin the
business.ShriRam Company
Balance SheetJanuary 2, Year 1
LiabilitiesLiabilities AssetsAssets
CapitalCapital 15,00015,000 BankBank 15,00015,000
TotalTotal 15,00015,000 TotalTotal 15,00015,000
Dr. Varadraj BapatDr. Varadraj Bapat
2. On January 3, ShriRam Company borrows Rs. 10,000
from DhanLakshmi Bank.ShriRam Company Balance Sheet
January 3, Year 1Liabilities AssetsPaid-up capital
15,000 Bank 25,000
DhanLakshmi Bank Loan
10,000
Total 25,000 Total 25,000
Dr. Varadraj BapatDr. Varadraj Bapat
3. On January 5, ShriRam Company purchases Rs. 18,000 of inventory from suppliers, on account Payment due on January 8
ShriRam Company Balance SheetJanuary 5, Year 1
LiabilitiesLiabilities AssetsAssets
Paid-up capitalPaid-up capital 15,00015,000 BankBank 25,00025,000
DhanLakshmi DhanLakshmi Bank Loan Bank Loan
10,00010,000 InventoryInventory 18,00018,000
Accounts Accounts Payable/CreditorsPayable/Creditors
18,00018,000
TotalTotal 43,00043,000 TotalTotal 43,00043,000
Dr. Varadraj BapatDr. Varadraj Bapat
4. On January 9, ShriRam Company sells inventory that cost Rs. 6,000 for Rs. 8,000 in cash.ShriRam Company Balance Sheet
January 9, Year 1
Liabilities Assets
Paid-up capital 15,000 Bank 33,000
Reserves 2,000 Inventory 12,000
DhanLakshmi Bank Loan
10,000
Creditors 18,000
Total 45,000 Total 45,000
Dr. Varadraj BapatDr. Varadraj Bapat
5. On January 10, ShriRam Company pays for inventory purchased on January 5.
ShriRam Company Balance SheetJanuary 10, Year 1
Liabilities Assets
Paid-up capital 15,000 Bank 15,000
Reserves 2,000 Inventory 12,000
DhanLakshmi Bank Loan
10,000
Creditors Nil
Total 27,000 Total 27,000
Dr. Varadraj BapatDr. Varadraj Bapat
6. On January 12, ShriRam Company sells inventory that cost Rs. 5,000 for Rs. 6,000, on account. Payment will be received on January 31
ShriRam Company Balance SheetJanuary 12, Year 1
Liabilities Assets
Paid-up capital 15,000 Bank 15,000
Reserves 3,000 Inventory 7,000
DhanLakshmi Bank Loan
10,000 Debtors 6,000
Total 28,000 Total 28,000
Dr. Varadraj BapatDr. Varadraj Bapat
7. On January 31, ShriRam Company collects the debtors and puts in bank.
ShriRam Company Balance SheetJanuary 31, Year 1
Liabilities Assets
Paid-up capital 15,000 Bank 21,000
Reserves 3,000 Inventory 7,000
DhanLakshmi Bank Loan
10,000 Debtors Nil
Total 28,000 Total 28,000
Dr. Varadraj BapatDr. Varadraj Bapat
Exercise 2:Exercise 2:
Show the effect of each transaction Show the effect of each transaction on the balance sheet of M/s. Krishna on the balance sheet of M/s. Krishna Book StoresBook Stores
Shyam and Murlidhar set up a book Shyam and Murlidhar set up a book stall M/s. Krishna Book Stores in their stall M/s. Krishna Book Stores in their town. On 1 Jan 2010, Shyam opened town. On 1 Jan 2010, Shyam opened new bank account in the name of new bank account in the name of their partnership by depositing Rs. their partnership by depositing Rs. 100000 cash and Murlidhar brought 100000 cash and Murlidhar brought his own shop worth Rs. 200000 as his own shop worth Rs. 200000 as capital.capital.
Dr. Varadraj BapatDr. Varadraj Bapat
On 2 January 2010, store purchased On 2 January 2010, store purchased book of Rs. 75000 and Stationary of book of Rs. 75000 and Stationary of Rs. 10000 on immediate payment Rs. 10000 on immediate payment from SK International.from SK International.
On 5 January 2010, Stores supplies On 5 January 2010, Stores supplies books of Rs. 90000 (costing 60000) books of Rs. 90000 (costing 60000) to Saraswati Highschool. School to Saraswati Highschool. School paid cheque Rs. 45000 immediately paid cheque Rs. 45000 immediately and reaming amount will be paid on and reaming amount will be paid on 10 January 2010.10 January 2010.
Dr. Varadraj BapatDr. Varadraj Bapat
On 9 January 2010, books costing On 9 January 2010, books costing 47000 purchased on credit from 47000 purchased on credit from SSK and Associates.SSK and Associates.
On 10 January 2010, Rs. 15000 On 10 January 2010, Rs. 15000 received from Saraswati received from Saraswati Highschool.Highschool.
On 15 January 2010, cheque of Rs. On 15 January 2010, cheque of Rs. 47000 paid to creditors.47000 paid to creditors.
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet as on 1 Jan 2010
Liabilities Amount Assets Amount
Capital
Shyam 100000 Shop Premises
200000
Murlidhar 200000 Bank 100000
300000 300000
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet as on 2 Jan 2010
Liabilities Amount Assets Amount
Capital
Shyam 100000 Shop Premises
200000
Murlidhar 200000 Bank 15000
Inventory 85000
300000 300000
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet as on 5 Jan 2010
Liabilities Amount Assets Amount
Capital
Shyam 100000 Shop Premises 200000
Murlidhar 200000 Bank 60000
Profit and Loss A/c
30000 Sundry Debtors 45000
Inventory 25000
330000 330000
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet as on 9 Jan 2010
Liabilities Amount Assets Amount
Capital
Shyam 100000 Shop Premises
200000
Murlidhar 200000 Bank 60000
Profit and Loss A/c
30000 Inventory 72000
Sundry Creditors
47000 Sundry Debtors
45000
377000 377000
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet as on 10 Jan 2010
Liabilities Amount Assets Amount
Capital
Shyam 100000 Shop Premises
200000
Murlidhar 200000 Bank 75000
Profit and Loss A/c
30000 Inventory 72000
Sundry Creditors
47000 Sundry Debtors
30000
377000 377000
Dr. Varadraj BapatDr. Varadraj Bapat
Balance Sheet as on 15 Jan 2010
Liabilities Amount Assets Amount
Capital
Shyam 100000 Shop Premises
200000
Murlidhar 200000 Bank 28000
Profit and Loss A/c
30000 Inventory 72000
Sundry Debtors
30000
330000 330000