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Financial Statement Analysis-FIN621
VU
Lesson-11
FINANCIAL STATEMENTS
(Continued)
Balance Sheet
The balance sheet lists the amounts of the company's assets, liabilities, and owner's equity at the end of
accounting period. The balances of the assets and liability accounts are taken directly from the adjusted
trial balance. Cash is listed first among the assets. It is often followed by such asset as marketable
securities, short-term notes receivable, accounts receivable, inventories, and supplies. These are the
most common examples of current assets. The term "current assets" includes cash and those assets that
will be quickly converted to cash or used up in operations
BALANCE SHEET
MOOSA & CO LTD.,
AS ON JUNE 30, 2006
I) Account form
Rs. in _________
ASSETS
LIABILITIES+SHARE
HOLDERS'
FUNDS/OWNERS' EQUITY
Current Assets
- cash & cash equivalents
15
Current liabilities
- Marketable securities
3
- pre-paid expense
2
- Bank borrowings
15
- Accounts Receivables
10
- Accounts payable
5
(trade debtors/customers)
(trade creditors)
- Inventory
20
-Provision for tax
5
______
Total current liabilities
25
Long-term interest bearing loan
Total current Assets
50
(fixed liabilities)
50
Fixed Assets
150  Owner's equity/shareholders funds  125
Total Assets
200
Total Liabilities and owners' equity 200
=========
====
Note: The above list is not exhaustive. It may include many other items. Cash equivalent are cash
substitutes not immediately required i.e. short-term high liquid investment, usually for three months.
Examples are Treasury bills, certificates, prize bonds etc. Marketable securities are investments in govt.
bonds and stocks and bonds of other companies. Fixed Assets are acquired for long-term use e.g. Land,
Building, Plant & Machinery, Vehicles, Furniture`s & Fixtures etc. Long-term loans are usually secured
against inventory and fixed assets. Tax is shown both on Balance Sheet as current liability i.e. tax
payable and on Income Statement, as Interest expense for the accounting period.
ii)
Report form
Balance sheet (As on end of accounting period)
Rs. in______
Assets
i)
Current Assets
50
ii)
Fixed Assets
150
Total:
200
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Financial Statement Analysis-FIN621
VU
LIABILITIES & OWNERS' EQUITY/SHARE HOLDERS' FUNDS.
STOCK
↑↓
Current liabilities
25
Fixed/long f term liabilities
50
Owners' equity/shareholders funds.
125
____
Total:
200
Recording in Balance Sheet: The guiding rule for an accountant is to be conservative and choose
lower values. For example marketable securities are recorded at cost, but current market rate is also
mentioned. Inventory is recorded at cost or market value, whichever is lower. Land is recorded at
historical cost. Other fixed assets (i.e. Building, Plant & Machinery, etc) are recorded at original cost
less accumulated depreciation called "Book value. The accountant must also make provisions for
doubtful debts and inventory losses.
Current Assets: These are assets capable of being converted into cash within one year or operating
cycle, whichever is longer. Operating cycle is the time required to purchase or manufacture inventory,
sell the product and collect cash i.e.
Cash/assets -----------Inventory--------Receivables ---------cash
Processing
sales
collection
Length of operating cycle = inventory sale days + Receivable Collection days. Current
assets are recorded in order of liquidity i.e. ease of conversion into cash. Within current Assets, some
assets are more liquid than others. These are Quick Assets= Total current Assets ­ Inventory ­ Pre paid
expenses. The accountant must make allowances for "doubtful accounts" i.e. "unrealizable". It may
also be noted that proportion of current and fixed assets to total assets is determined by the nature of
business.
Some additional items on Balance Sheet: Other Assets: These are Incorporation cost i.e.
start-up costs in connection with setting up new business, property held for sale etc. Other additional
items may be, Intangible Assets like Goodwill, patents, trademarks etc. Goodwill arises when one
business acquires another for a price in excess of its fair market value. This is shown on "fixed Assets
side of B/Sheet. It has no physical substance or existence as such. Common meaning of "Good Will" in
non-accounting terms is the benefits derived from a favorable reputation of the business.
ILLUSTRATION #2
Following trial balance has been extracted from the books of Hassan Manufacturing Concern on June
30, 2002.
Hassan Manufacturing Concern
Trial balance
As on June 30, 2002
Particulars
Amount
Amount
Dr. (Rs.)
Cr. (Rs.)
Raw Material stock Jul. 01, 2001
35,500
Work in process Jul. 01, 2001
42,000
Finished goods stock Jul. 01, 2001
85,000
Raw material purchased
250,000
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Financial Statement Analysis-FIN621
VU
Wages
180,000
Freight inward
12,000
Plant and machinery
400,000
Office equipment
45,000
Vehicles
200,000
Acc. depreciation Plant
195,200
Acc. depreciation Office equipment
12,195
Acc. depreciation Vehicles
97,600
Factory overheads
125,000
Electricity
80,000
Salaries
140,000
Salesman commission
120,000
Rent
200,000
Insurance
150,000
General Expense
60,000
Bank Charges
8,500
Discounts Allowed
20,000
Carriage outward
35,000
Sales
1,500,000
Trade Debtors
250,000
Trade Creditors
220,000
Bank
165,000
Cash
110,000
Drawings
175,000
Capital July 01, 2001
863,005
Total
2,888,000
2,888,000
Notes:
·  Stock on June 30, 2002.
o  Raw Material
42,000
o  Work in Process
56,500
o  Finished Goods
60,000
·  50% of electricity, insurance and salaries are charged to factory and balance to office.
·  Depreciation to be charged on Plant & Machinery at 20%, Office Equipment at 10% and
Vehicles at 20%on WDV.
·  Write off bad debts Rs. 30,000.
All the wages are direct
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Financial Statement Analysis-FIN621
VU
Balance Sheet
Hassan Manufacturer Concern
Profit and Loss Account
For the Year Ending June 30, 2002
Particulars
Note
Amount Rs.
Fixed Assets at WDV
4
275,284
Current Assets
5
653,500
Current Liabilities
6
(220,000)
Working Capital
433,500
Total Assets Employed
708,784
Financed by:
Capital
863,005
Add: Profit for the year
20,779
Less: Drawings
(175,000)
Total Liabilities
708,784
Note # 4 Fixed Assets at WDV
Acc. Depreciation
WDV
Cost
Rate
Opening  For the year  closing
Plant & Mach.
400,000
20%
195,200  40,960
236,160
163,840
Vehicles
200,000
20%
97,600  20,480
118,080
81,920
Office Equip.
45,000
10%
12,195
3,281
15,476
29,524
275,284
64,721
Note # 5 Current Assets
Stock
Raw Material
42,000
Work in Process
56,500
Finished Goods
60,000
158,500
Debtors
250,000
Less: Bad Debts
(30,000)
Bank
165,000
Cash
110,000
Current Assets
653,500
Note # 6 Current Liabilities
Trade Creditors
220,000
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