FINANCIAL STATEMENTS OF COMPANIES
LESSON - 3
BALANCE SHEET OF COMPANIES - ASSETS
The company in order to run its operations owns certain resources or things which help the company to perform its operations for a long period of time, these resources are called the assets of the company. Assets are a form of investments of the company, as these investments are very important in nature and it has to be done with proper care and future forecast. Assets investments involves huge amount of money and these investment cannot be reversed or changed. A wrong investment rewards a huge amount of loss for the company.
TYPES OF ASSETS
a) Non current Assets - The assets that are to be used for a long period of time or more than the company's operating cycle. The assets invested provide benefits for a long period of time and the company use them for the purpose of its operations, but not for resale.
b) Current Assets - These assets are expected to be consumed or sold with the normal operating cycle of the company. They are held for the purpose of trading and not for the purpose of company's consumption. Current assets can be converted into cash or its equivalent in a very short period of time.
FORMAT OF BALANCE SHEET AS PER SCHEDULE III OF THE COMPANIES ACT
BALANCE SHEET as at 31st march, 2001
|
Particulars
|
Note No
|
Current Year
|
Previous Year
|
|
2) ASSETS i) Non-Current Asset
a) Fixed
Asset
-
Tangible Assets
-
Intangible Assets
-
Capital Work-in-progress
-
Intangible Assets under progress
b) Non-Current
Investments
c) Deferred
Tax Assets
d) Long-Term
Loans and Advances (provided)
e) Other
Non-Current Assets
ii) Current Assets
a) Current
Investments
b) Inventories
(stock)
c) Trade
Receivable
d) Cash and
Cash Equivalents
e) Short-Term
Loans and Advances (provided)
f) Other
Current Assets
TOTAL
|
|
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
|
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
|
a) NON CURRENT ASSETS
The assets that are to be used for a long period of time or more than the company's operating cycle. The assets provide benefits for a long period of time and the company use them for the purpose of its operations, but not for resale. Non current assets help the company to run and grow in long term.
TYPES OF NON CURRENT ASSETS
- FIXED ASSETS
The assets which are invested for a long period of time they are held for the purpose of increasing the earnings of the company and not for the purpose of resale.
These assets can provide its benefits for long period of time or more than one accounting year. Fixed assets are further classified into:
- Tangible Assets - Tangible assets are physical assets which can be seen and touched, they are basically used for the operations of the company.
Example: Machinery, van, computer, etc.
- Intangible Assets - Intangible assets don't have any physical form, they cannot be seen or touched but the presence can be felt. The presence of these assets bring benefits to the company in long run if it is properly maintained.
Example: Goodwill, Patents, Intellectual property, etc.
- Capital work in progress - The physical assets which are still under construction or in simple words it can be said they are undergoing the manufacturing process.
- Intangible asset under development - The intangible assets which are still in the process of development. The company is working on the development of certain intangible asset.
- NON CURRENT INVESTMENTS
The investments held for the benefit of the company and not with the primary aim of reselling. When the company has invested its money in the shares or debentures of other companies it is called 'trade investments'. The company also has other types of investments other then the trade investments.
Example: Investment made in government treasury bills, bonds etc.
- DEFERRED TAX ASSET
At the end of the year in order to pay income tax to the government the company compares its income with the taxable income fixed by the government. In case the company's income is less than the taxable income then it becomes deferred tax asset. It has to be shown in the asset side of the company's balance sheet. Deferred tax asset has to be adjusted with any previous year's tax balance (if any) then settled accordingly.
If the company's income has crossed the taxable income then the company has to pay the tax, it becomes a liability for the company. This liability is shown under deferred tax liabilities.
- LONG TERM LOANS AND ADVANCES
The company may provide loans or money advances for others receivable at certain percentage of interest. If the company has provided these loans for more than twelve months or the company's operating cycle then these loans are to be classified under long term loans and advances.
Examples: Advance money given for buying assets, Any form of security deposits, etc.
- OTHER NON CURRENT ASSETS
All the other non current assets which are not listed in any of the above will come under other non current assets. The only important condition is that the time period should be more than twelve months or time or more than the company's operating cycle.
Example: Long term trade receivable, asset sold money pending, insurance claim money pending, etc.
b) CURRENT ASSETS
Current assets are expected to be consumed or sold with the normal operating cycle of the company. They are held for the purpose of trading and not for the purpose of company's consumption. Current assets can be converted into cash or its equivalent in a very short period of time. Current assets helps the company with its day to day activities and operations. If the company fails to maintain the level of current assets properly, it may feel difficulty in running the normal day to day activities of the company.
TYPES OF CURRENT ASSETS
- CURRENT INVESTMENTS
The investments that are made for a short period of time or in other words, these investments can be converted into cash within a short period of time (under twelve months).
Example: Short term bank investments, market investments, etc.
- INVENTORIES (STOCK)
Inventories are held for the purpose of sale in the normal business operations. These inventories are converted into cash through the process of sale, they can be purchased and sold or manufactured and converted into finished products and sold.
Example: Raw materials, goods which are under work in progress, finished goods ready for sale, tools etc.
- TRADE RECEIVABLE
Business earn due to its normal mode of sale, it doesn't mean that all its sale happens through cash mode but there are credit sales too. The amount that are to be received for the goods sold on credit or for providing the services on credit are said to be trade receivable.
Example: Debtors and bills receivables.
- CASH AND CASH EQUIVALENTS
The liquid cash of the company either in the form of raw cash or bank deposits are classified under cash. The highly liquid investments which can be converted into cash within a short period of time are called cash equivalents. The time period of converting these investments into cash is less than three months.
Examples: Commercial papers, Money market instruments, etc.
- SHORT TERM LOANS AND ADVANCES
The company may provide loans or money advances for others receivable at certain percentage of interest. If the company has provided these loans for less than twelve months of time or the company's operating cycle than these loans are to be classified under short term loans and advances. These loans will be realized within the company's operating cycle or twelve months of time.
Examples: Short term money advances, personal loans, etc.
- OTHER CURRENT ASSETS
All the other current assets which are not listed in any of the above will come under other current assets. The time period should be given notice, the short term assets which are less then twelve months of time are classified under current assets and the assets which has a time period of more than twelve months or time or more than the company's operating cycle are classified under non current assets.
Example: Prepaid expenses, dividend receivables, etc.
CONTINGENT LIABILITIES AND COMMITMENTS
The bottom part of the financial statements contain the contingent liabilities and commitments. Contingent liabilities means these liabilities may occur in the upcoming years or may not occur also. It is only having a possibility but not surety, the same is with the commitments of the company. Commitments are the financial agreements or contracts that the company has agreed for its future. These types of transactions cannot be recorded in the books of accounts until it occurs, so we have to just show these transactions only as a source of information under the heading contingent liabilities and commitments. Examples: Proposed dividend, contracts estimated, etc.
